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The only exception might be the transaction that created the bitcoin in the first liberty. Any government bleating that we have to liberty this Bitcoin bitcoin because it will be used by criminals to buy drugs and guns, whatever, had better think sharply about getting rid of cash first. Yet another great Econtalk- bitcoin to all who participated atm put this together. Retrieved 22 May Posted April 5, atm
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There was earth without life and then there was earth with life. The way the bitcoin idea has been set up seems to avoid those problems. Research suggests that when the wider economy slumps, communities turn to barter systems. Transactions weren't properly verified before they were included in the transaction log or blockchain , which let users bypass bitcoin's economic restrictions and create an indefinite number of bitcoins. Yes one day people may figure out how to trivially break these hashes, but when that day comes Let's make it you, Gavin. Theres no fees for transfering the money back and forth.
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I have a few guesses. But bitcoin you have a little bit of gold, every year you have a smaller percentage of the total because there is more and more gold atm mined. Which is my okay--to give Alice access to my one bitcoin. In Judge Amos L. Instead it feels like you are lacking basic knowledge. The decentralization of money offered by virtual currencies like liberty has its theoretical roots in the Austrian school of economics[] especially bitcoin Friedrich von Atm in his book Liberty of Money:
Liberty bitcoin atm
Peter Greenhill, Director of E-Business Development for the Isle of Man, commenting on the obituaries paraphrased Mark Twain saying "reports of bitcoin's death have been greatly exaggerated".
Some economists have responded positively to bitcoin while others have expressed skepticism. Velde, Senior Economist at the Chicago Fed , described it as "an elegant solution to the problem of creating a digital currency". Louis , stated that bitcoin is a threat to the establishment, which he argues is a good thing for the Federal Reserve System and other central banks , because it prompts these institutions to operate sound policies.
Free software movement activist Richard Stallman has criticized the lack of anonymity and called for reformed development. Marcus calls bitcoin a "great place to put assets" but claims it will not be a currency until price volatility is reduced. Officials in countries such as Brazil , [] the Isle of Man , [] Jersey , [] the United Kingdom , [] and the United States [] have recognized its ability to provide legitimate financial services.
Recent bitcoin developments have been drawing the interest of more financially savvy politicians and legislators as a result of bitcoin's capability to eradicate fraud, simplify transactions, and provide transparency, when bitcoins are properly utilized.
In , the number of merchants accepting bitcoin exceeded , Merchants accepting bitcoin, such as Dish Network, use the services of bitcoin payment service providers such as BitPay or Coinbase. When a customer pays in bitcoin, the payment service provider accepts the bitcoin on behalf of the merchant, directly converts it, and sends the obtained amount to merchant's bank account, charging a fee of less than 1 percent for the service. Due to the design of bitcoin, all retail figures are only estimates.
Bitcoin companies have had difficulty opening traditional bank accounts because lenders have been leery of bitcoin's links to illicit activity. In a report, Bank of America Merrill Lynch stated that "we believe bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers. In June , the first bank that converts deposits in currencies instantly to bitcoin without any fees was opened in Boston.
Some Argentinians have bought bitcoins to protect their savings against high inflation or the possibility that governments could confiscate savings accounts.
Other methods of investment are bitcoin funds. The first regulated bitcoin fund was established in Jersey in July and approved by the Jersey Financial Services Commission. Forbes named bitcoin the best investment of To improve access to price information and increase transparency, on 30 April Bloomberg LP announced plans to list prices from bitcoin companies Kraken and Coinbase on its , subscription financial data terminals.
The number of bitcoin millionaires is uncertain as people can have more than one wallet. Bitcoin is useful for crowdfunding. He was shown by local TV company with a broadsheet "Hi mom, send bitcoins". The decentralization of money offered by virtual currencies like bitcoin has its theoretical roots in the Austrian school of economics , [] especially with Friedrich von Hayek in his book Denationalisation of Money: The Argument Refined , in which he advocates a complete free market in the production, distribution and management of money to end the monopoly of central banks.
Bitcoin appeals to tech-savvy libertarians , because it so far exists outside the institutional banking system and the control of governments. Bitcoin's appeal reaches from left wing critics, "who perceive the state and banking sector as representing the same elite interests, [ From Wikipedia, the free encyclopedia. For a broader coverage related to this topic, see bitcoin.
Founder of digital currency is named as an Australian academic after police raid his Sydney home". Retrieved 4 January Retrieved 3 May Retrieved 28 April The Economist Newspaper Limited.
Retrieved 21 October Retrieved 22 October The New York Times. Retrieved 6 May A type of digital cash, bitcoins were invented in and can be sent directly to anyone, anywhere in the world. Retrieved 30 September Retrieved 22 December Standards vary, but there seems to be a consensus forming around Bitcoin, capitalized, for the system, the software, and the network it runs on, and bitcoin, lowercase, for the currency itself.
Retrieved 8 July Retrieved 25 May Retrieved 13 January Chronic deflation may keep Bitcoin from displacing its rivals". Retrieved 25 March Retrieved 20 November Retrieved 3 January Retrieved 31 December Financial Crimes Enforcement Network. Retrieved 1 June A principal knock on bitcoins has been the claim that they are inherently insecure. The principal defense has been that they are as secure as "real" currency. The Wall Street Journal.
Retrieved 27 January Retrieved 3 June Retrieved 11 April The central bank will keep watching risks from Bitcoin, which is fundamentally not a currency but an investment target, Sheng Songcheng, head of the monetary authority's statistics department, told reporters in Beijing on Jan. Retrieved 28 August Retrieved 14 April Retrieved 5 November Retrieved 4 February Retrieved 31 October Consumer Financial Protection Bureau.
Retrieved 10 July Retrieved 15 December Retrieved 2 November Retrieved 11 November Social Science Research Network. There is no price stabilization mechanism. Retrieved 7 January Retrieved 15 November Casey 30 April Retrieved 23 March It's 'the Harlem Shake of currency ' ". Retrieved 2 May Retrieved 10 January Archived from the original on 7 February Retrieved 16 January Retrieved 18 January Retrieved 20 April Retrieved 22 April Electronic Commerce Research and Applications.
Retrieved 23 December Here's what Warren Buffett is saying". Retrieved 11 January Dialogue with the Fed. Federal Reserve Bank of St. Retrieved 16 April Retrieved 23 September Retrieved 5 October Retrieved 2 July The second biggest Ponzi scheme in history". Retrieved 23 May Retrieved 1 April Retrieved 30 October Retrieved 28 November Why investors should abandon the doomed cryptocurrency".
Retrieved 6 November Retrieved 26 February Hanke 18 September Retrieved 21 November Retrieved 4 December One year on from peak price, what does the future hold? Retrieved 24 January From Stellar to Suck". Where is the next human-based digital currency? Your dream of a Bitcoin paradise is officially dead and gone". Salon Media Group Inc. When the bubble bursts". And running a number of verifications--basically these are the people who are the bitcoin muscle, is to really to make sure that those bitcoin haven't been spent before, etc.
And if one of those people will get to put the next block, the block added every 10 minutes, the block containing all of the transactions of the last minutes, whoever gets to validate and insert that block gets a reward for doing that. That's how they mine the next set of bitcoin.
That reward right now is 25 bitcoin, 25 bitcoin every 10 minutes. That's a lot of money right now. That's a lot of money. So, how hard is it to do? So, a lot of people thought what you just thought and they want to do it. So the way that is--who gets to add the next block and therefore who gets the 25 bitcoins, is decided by a lottery. So, you want to buy tickets to the lottery.
And the only way to buy--the tickets to the lottery are issued against processing power. You have 1 processing power, you get 1 ticket. You have 2 processing power, you get 2 tickets. You have 5, you get 5 tickets.
So, the more processing power, the higher my chances of winning the Which was why [? So, when you say 'processing power,' how should I think about that? So, here's my Mac Air that's sitting here on the table between us. It doesn't have much processing power, I assume. If you get all the Mac Airs in the world and all of the laptops in the world and all of the desktops in the world, all of the computers in the world, and you put them to mine bitcoins, they will not mine as much--they won't have as much processing power--as the current bitcoin mine.
That's how much [? So, what does that mean, then, to say they have a lot of processing power? Is it the speed at which they can verify? It's basically--the most important thing that it means is that it's trustless. If it was just one computer doing it, you and I could put two computers and take over the system. Right now, if someone wants to take over the system, they need to put a lot of processing power.
Maybe a government can do that but it's very hard for a person or a company to do it. That's why it's trustless, because there's way too much processing power.
But when you say processing power, what's the metric? So, what is a hash? It's how quickly you can sort of do a mathematical function. How many times can you-- Russ: So it's processing power. The ability to do a complex calculation at high speed, where high speed can't even really be talked about.
The amazing way to think about it is there is a lot going on every 10 minutes, and people come by tickets, the lottery, and a lot of people are buying tickets; and you give processing power, you get a ticket.
So, you said that was a brilliant idea by the mythical but real Satoshi Nakamoto, the creator of the software that makes this happen.
It's brilliant because--it gives people an incentive to put processing power into the system? And because it's also very competitive. Is that the way--? There are many, many other things that Satoshi did that are brilliant. And this is brilliant, this one thing that he did is brilliant in many ways. But one way in which is brilliant, is the mechanism by which you almost warranty that there will be processing power serving Bitcoin. Bitcoin is not served by Google or by Amazon or by a government.
It is not even one server somewhere-- Russ: How do we know that there will be enough people doing that when that incentive proved to be [? Another part which is brilliant, is: If you and I came up with Russcoin and we are going to launch it on Monday, one of the first decisions we are going to have to make is: How many Russcoins are there going to be on Day 1, outstanding?
So, how many there are out there is quite important. The next thing we have to answer is: The day we start. So we say we have a million and a half for Russ and a million and a half for Wences.
And people don't buy that. So we have to allocate it over time with some process. But then what happens is most people say, 'I'm going to buy that once it has been allocated, distributed. And this mining process was a brilliant process to allocate it over time. So, that was very, very powerful. Yeah, that's extraordinarily clever.
Extraordinarily clever, and people don't realize how hard it is to replicate. It's like, can't someone come up with a better Bitcoin? What I mean by life is, Bitcoin is something that has zero intrinsic value. You say it's 'zero. No intrinsic value at all.
But now we have collectively determined that it has some value that is non-zero. The value of Bitcoin is not technology, not financial, not regulatory. Just people deciding that something has value.
And it's completely arbitrary and completely subjective. So, you have lots of different currencies and experiments in which everything is very nice but they haven't got a value. They haven't gotten to a point that there is a social consensus that they are worth something.
Imagine the earth for billions of years didn't have life. And there is a period of--imagine 3 seconds in which, second 1, the earth without life; second 2, something happens; and second 3 is earth with life. We're still trying to figure out how--and there are many theories. There was earth without life and then there was earth with life.
So, there was Bitcoin without life from January to late Bitcoin was one more experiment without life. It was theoretical paper--it was an idea. It had--no, but it was issued in Russ: It existed, it was around; but it was like Monopoly money.
And then at some point at the end of , some magic happened and it had value and it had life. That is incredibly hard, one of the hardest things about a real currency, which bitcoin has and other currencies don't have, [? It crossed that boundary, you are saying, which might not have happened; but it did.
And once it did, it suddenly--people are investing millions of dollars into [? And you cannot--it's not like--just like we don't know how to create life from scratch.
It's not something that we can recreate technically or financially. It's magic that has to happen. As we say in economics, it's emergent.
We just recently have been talking about the fact that it's hard to create a prairie. We know what a prairie has in it. But that's not enough. We know what a successful currency is. You trust it, it's affordable, it's lightweight. So, it should be easy. Because there is a certain set of, as you say, magic--a sequence of things that have to happen and we don't fully understand the process so we can't fully create it from scratch.
That's a beautiful idea. Any form of currency performs two functions--two very different functions. Currencies are used for saving and currencies are used for paying.
Store of value and transactions. I was trying to say it in a less academic way, but that's the term-- Russ: But I have a handful of over-educated listeners, and for them I want to--in case they don't understand everyday language.
So, if you look at all currencies that have ever existed and you compare the capacity to save, to store value, nothing beats gold. And nothing beats gold not by a little, but by orders of magnitude. And the second thing, second best thing at storing value after gold is land.
And it's really a very, very far second because land has carrying costs and taxes and various-- Russ: And if you have to leave the country, you can't take it with you. And the value of it changes dramatically with political changes.
And if you compare gold versus any currency that has ever existed, it's a brutal comparison. Gold has been much better at storing value.
And the only reason why that's the case is because gold is more scarce than any other. And you compare bitcoin to gold in terms of scarcity and it's hard to say how much gold there is above ground; it's even harder to predict how much will be mined over the next 10 years. But in the case of bitcoin you can count on there will never be more than 21 million bitcoin.
So as a store of value, bitcoin will be much, much superior, orders of magnitude superior than gold. I know that today it's very volatile; but just in theory it's the only thing-- Russ: Gold is also volatile. But it has its own challenges. But if you have a little bit of gold, every year you have a smaller percentage of the total because there is more and more gold being mined.
You have a little bit of dollars, every day you have a little bit less of it, because more and more of it is being printed. And if you have a peso, every hour. If you have a peso, every hour. With bitcoin, whatever percentage of 21 million you have today will be the same percentage years from now.
We cannot say that of anything else that I know. And that's why it has historical value, bitcoin, with the mass[? And in terms of payment, the best form of payment that we've seen to this day, the most universal, is the dollar bill--there's billions of people around the world who have no problem accepting a dollar bill. But the problem is that I have to have a dollar bill and give it to them physically.
If I don't have that--there's billions of people who will accept that. But there's only 30 million Americans who will accept credit cards, and there's even less people who will accept PayPal. And even fewer who have those. So, we have never seen something like Bitcoin before where we have billions of people, anybody with a cellphone, who can accept it; and we can move it easily.
And you put those two together, and it's by far the best form of money we've ever seen. Now, there's some problems with it. We're going to get to those in a little bit. But I wanted to ask you something about the store of value--which is--I want to come back to your magic point. People say, 'Well, Bitcoin--it doesn't have any intrinsic value. It's not like gold. Yes, you can use it for your--in dentistry. It's nice for jewelry. But it's really a social convention that gold is something that we decided.
Which of course 'we' didn't--there is no 'we' and there's no 'decide' and there's no group that sat around and said, 'Wouldn't it be great if one of the really scarce metals that's hard to get out of the ground would use--'.
It became, it could have been silver, it could, gold's[? A little bit better I guess; I'm not quite sure why. A little bit harder to get out of the ground, scarcer. It could have been--it's like when somebody says, 'It's not like diamonds. Their main use is--get engaged to my wife-to-be that way.
But why do we decide on the diamond? Once that happens, once that magic becomes in place it's very powerful. And so, Bitcoin has crossed, perhaps, the boundary into historic value. Versus, can it maintain that if it's not used in transactions?
It's purely a sterile value. It's a total social convention. And in the case of bitcoin, it's so liquid that it will impossible to contain it to just historic value. Now because there are suddenly 13 million people out of 7 billion who own it. Thirteen million out of 7 billion have some bitcoin. It's a pretty big number, actually. It's a very small number, but it's kind of a big number.
If you asked me to guess, I wouldn't have said it was 13 million. There's more people playing[? So, there are million people paying cash [? And while the number is small, it makes a lot more sense as historical value than it does as a payment [?
Once we get to million people, only in bitcoin, which would be more people owning bitcoin than have paper accounts, then there would be no way you can prevent those people to use it as a payment mechanism, because it is mostly good instrument-- Russ: So, Bitcoin--I see a lot in America, especially I think Europe, central Europe, too focused on Bitcoin as a payment mechanism because they don't understand or care for the store of value.
Because we have a good one already. You have a good one already. But Bitcoin is developing the other way around. It's first a good [? Eventually it will be a great [? And as you point out, if you are in a place in the world where your currency has been debased repeatedly, and cannot be trusted--you can't count on the fact that it won't happen again--then you are not going to be very attracted to it.
And yet, many of those places are the places that have the least capacity to enjoy it. They have the least Internet access. No, but that's changing really fast. And they are all going to have access to the Internet; and once they have that, they all they need to get a bitcoin.
So, let's talk about some of the problems. And that will be our segue into Xapo and what you are working on to try to solve some of those problems. And again we'll also try to highlight some of the technology. So, my key , to my address, is an actual string of letters and numbers that's generated, I assume, randomly by--how? I don't use Xapo. Which I used yesterday--I signed up for a wallet; we'll talk about that when we get to Xapo, your company. I'm just a technology guy; I'm not interested in a Xapo thing.
I'm out there right now listening to this; I want to have some bitcoin. What do I do? You can create using an algorithm; you can create using a pair, a bitcoin address plus its private key, without asking anybody's permission. How do you do that? There is an algorithm that you have to use to make it compatible with bitcoin. How do I find out about that? It's in the founding documents of Bitcoin? It's somewhat technical but all the information is online for you to be able to use.
So, I do that. I now have my digit key-- Guest: You mentioned digitally go and buy the book by Nathaniel Popper. I think that of all the things I've read, that book is the best job of explaining Bitcoin-- Russ: And in the Appendix he has a great explanation of these more technical issues that sometimes confound people but that they shouldn't [? So, I've got my digit key. And I go out and I paint your house, and you say I did a great job; we agree that it's bitcoin, and I'm sending to you--I'm going to send them to you.
And I take them in return for the painting; and I now have bitcoin in my account. To be clear, for you to receive the bitcoin you need to use, to do anything or to use the private key. The sender, it's up to you. But you have to just know my shell. I tell you that; and you send it to me. It's all in the blockchain. Nah--it's all--it's all in the blockchain and you can very safely broadcast to everybody you want, the public bitcoin address--there's no harm in that.
But nobody knows--if I--let me ask a clarifying question about anonymity first. Nobody knows my address unless I tell them. Nobody can read the blockchain and know where Wences Casares's house is. I would say it's selvonymous[?
Because anonymous would be that you don't know anything. Actually, someone will go to a blockchain and will see that one address that belongs to me; but they don't know that--they will see that one address gave another address bitcoin. That's all they'll see. They don't know that one address is one--[? Anonymous would be that they can't see any of this. But here there are hundreds of identifiers for both of them.
And it's not written there in the blockchain who is each one of them. But when I ask you for , from now on you know my--you know Russ Roberts's address. Now, I could have--I could have painted your house wearing a mask.
And you literally wouldn't know who I was. We could have transacted for something over the Internet and we would be literally anonymous. But we are not anonymous, in this story that I'm telling exactly, because now you know Russ Roberts's address. So you send him bitcoin. And now I decide I want to use it. I want to give it to somebody else, or I need to use my private key. And I forget it. I can't remember it. I can't get that back. So, there's some bitcoin--so we we're actually going to end up with less than 21 million bitcoin?
Because some will be dissipated through--God forbid, I'm run over by a car or--then there's no estate to be--it's gone. So, I need a backup. So what do I do? At the very least. So, right now I can write it down on a little piece of paper. That means that if somebody breaks into my house and gets my little piece of paper, they can steal all my bitcoin. It would be the equivalent of you keeping all of your savings at home. Some people may be wired to do that, but most people they would be ill-advised[?
Because no matter when you keep them, they are at risk. And you say, I'm going to keep them underground; in a safe-- Russ: Safe deposit box, in a vault-- Guest: Most people rather let a third party do that for them.
So, unless you really know what you are doing, safekeeping private keys is tricky, because people can break into them, because you can lose them, because they can be stolen, because you can lose them. So, let's talk about stealing for a minute. What a lot of people do with their passwords--if you are my father--he's you write it down on a piece of paper.
Which is not ideal. Maybe it's better though than what other people do, which is what he also does: If you put it in your computer, you make it hackable.
It's like finding a cash wallet in the street. It's like finding cash. And this is a concept that is hard to understand. But it is cash. Before, since there was no digital cash, there was just something pointing to cash that was somewhere else. Like looking at a mirror: And you are pointing at, the cash was in some bank or in paper or in credit card; but it was never the real cash.
This is the real cash. So there is a lot of incentives for people, for bad people, to go and get those golds because they can run away with the cash. So you have to really protect them. And the way I protect--the way I protect my passwords is I have codes on my computer that remind me of the things. So, for example, if my password was 'Wences', I wouldn't put 'Wences'. I would put 'the guy on Woodside'--we're on Woodside Rd. I might try your last name first; I might have to poke around a little bit.
But eventually I would remember it. When I have the digit number, I can't really create that kind--you could. There are people who can remember 64 digits. They have schemes to help them do it. So one of the challenges of Bitcoin is securing that key. Now, we haven't been so good at that, so far. So, talk about Mt. What went wrong there? What did they do incorrectly that allowed people to lose all their money, basically overnight? Gox was a company that provided Bitcoin services.
Gox story, there was nothing wrong with bitcoin itself. It was things that went wrong because Mt. Gox did them wrong. We don't yet know if it was a case of theft, where some third party stole the bitcoin from them, or fraud, where they-- Russ: It doesn't really matter, but it would be nice to know. Basically, they lost almost a million bitcoin of their costumers[?
And they are lost for good, forever, because they didn't do a good job of protecting those private keys. And I think it created an immense awareness about how important it is to really put a lot of effort into how the private keys are protected.
And customers mistakenly trusted Mt. Gox with those private keys, essentially in established the equivalent of, say, a brokerage account, which gave people access to move money in and out. One question before I forget--I've always wondered. If I'm going to buy something from you via bitcoin--I'm one of these people with a smartphone who is going to change the world and--let's just use Amazon as an example.
Amazon does not take bitcoin yet. But let's say they did. So I get on Amazon; I order the item. And then they don't send me the item. They get the deal; they get the coins, because once it's gone, it's gone. But they don't give me the item. You have full recourse; it doesn't matter how you pay.
It's Amazon and they will honor it. It's like if I go to Target and I buy something with cash. And I get home and it's defective or somehow I'm not happy with it. I just go back to Target and they will give me a new one or refund me. It's exactly the same. But in the case of--let me take e-bay, where I am using a 3rd party such as PayPal or Visa to make my payment, I go to Visa and I say, Hey, this guy--it's just a purchase[process? So I go to PayPal and I said that person never sent the item.
In this case, you cannot do that with bitcoin. It's like paying with cash. It's like meeting a guy on a street corner. I pay him the cash, and he disappears and he tells me where he lives, but when I show up at the house there's nothing there. But that's why you will buy at places that you trust, like Amazon. Or, if you are going in a marketplace you are going to look at the reviews of the person who is sending, if he has good reviews and people are not complaining, you are not going to have a problem.
Because one of the fascinating things to me about Silk Road, which was the online marketplace that involved a lot of illegal activity--people trusted people who were doing things that were illegal, where you couldn't go to the police or the court and say this guy didn't--but I get it emerged. Some kind of reputational mechanism was used on there to make that happen. One last technical thing, and then I think we're going to move to Xapo.
There's different denominations of bitcoin. I didn't realize this until recently. So when I signed up for Xapo, I got a gift or a starting amount in my wallet of 50 bits. How much is a bit? A bit is--there's a million bits in a bitcoin. So I got one millionth of a bitcoin. There's another term--a Satoshi. Is this a real thing? A hundred millionth of a bitcoin? That's the smallest unit. So, bit is a hundred Satoshi.
And we like bits because they are like dollars. They have two decimals. Because you have one bit, comma, zero, zero, because a hundred Satoshis are one bit. And that right now is the minimum. Could somebody change that? That could be changed.
How would that be changed? You are not really changing the value in that case. No, it's just an accounting mechanism.
But I think someone misunderstand--which I found fascinating as an economist--they say, 'Well, if there are only 21 million, we're going to need more than that. You don't, because there's actually 21 million bitcoins, there's actually zillion--Satoshis.
And if you needed more, you could make it. I believe that there is a nontrivial chance that Bitcoin fails. I may be the most biased Bitcoin guy you can find, probably [? So, nobody should own any amount of bitcoin they cannot afford to lose. Because it can go to zero.
So it's very, very risky to own and [? It will remain incredibly volatile for many years. And there is a nontrivial chance that it goes to zero.
I believe that some time in the next 10 years, one bitcoin is going to be worth more than a million dollars. So, just like it would be very, very irresponsible to own an amount of bitcoin that you cannot afford to lose, it would also be silly not to own a little bit of bitcoin. That's 4 bitcoins, roughly. You will complain to Wences anyhow but it's not like you want to kill me or anything. It's not too bad. Which is 40 times your entire savings. So it's not like you will say I wish I had more.
So it's asymmetrical that to have a little makes sense. Do not have enough bitcoin that you cannot afford to lose, but have a little bit. I hope for those listening at home this rivals Gary Taubes's episode that got a lot of people to stop eating carbohydrates and consume more protein. This could be as life-changing. I wish EconTalk, the economics knowledge was more practical.
But this is practical. It's a very interesting way to think about it. In regard to what you said the limitation of [? It was designed to be private money, of private individuals, by individuals for individuals. And if you are an individual, you prefer a currency that a ppreciates, versus a currency that de preciates.
If you are rational then you say what do you want to keep all your savings in--something that loses value or you want to keep all your savings in something that increases in value? Most rational people will choose something that increases in value, that appreciates other than is deflationary. Bitcoin should never be used by a country as its national currency. It would be crazy, I think, because it just gives up all ability to control the currency in any way.
So it would be suicide for a country to eliminate their currency and switch for bitcoin. But these currencies--Bitcoin is not a currency for a country.
It's a currency for private people. I think that when Bitcoin succeeds, it will become the currency of the Internet. Today the Internet does not have a native currency. And it needs it. Because when we are transacting on the Internet we are using currencies that are foreign to the Internet, like the dollar or like the euro or the yen. They don't--it's like trying to have a pig fly--doesn't really fly very well.
Non-digital currencies don't perform well on the Internet. But in becoming the currency of the Internet it will also likely become a global currency, a meta-currency, against which all currencies can be exchanged.
So if someone in China is conducting commerce with someone in Kenya, they don't need to use--today they are using the dollar, which is neither one of their currencies and it doesn't make any sense. All of those things probably have to occur in bitcoin eventually and a lot of [? The other thing I think economists don't understand is they think deflation is inherently bad.
And deflation is not inherently bad if it's expected. If people know that was what was happening, I think they'd think it would be a good thing.
The other point I think to make is that although it may not be any nation's currency, it puts competitive pressure on countries to treat their currency maybe better than they have in the past because there's a chance for citizens to exit. So, when I was growing up in Argentina, and I saw my family lose everything a few times, basically the government was taking advantage of the poor, who didn't have an alternative, what to do-- Russ: It's like their school system.
But if your life was in cash and you had Argentine pesos they are almost taking advantage that you didn't really have much to do with that.
If now anyone with a cell phone has an alternative, it will force those countries to be more responsible with their currency. Because people have an alternative and they will say 'If you want me to hold your currency, if you want me to hold pesos, you'd better make it attractive, be responsible, because if it's not attractive I'm going to sell them and get something else that you don't control.
Yeah; it limits the ability of the government to exploit through money creation. That would be a good thing. So, let's talk about Xapo. Tell me what service it's trying to provide that's not available right now. We look at the biggest obstacles that people have to use bitcoin and focus on those. Xapo is like a Bitcoin bank. If you have dollars, you may keep them in a place like Bank of America. If you have bitcoin you need to keep them somewhere, and those are the services we provide.
And we give you an account that looks like a bank account but for bitcoin, where you can keep your bitcoin, you can receive bitcoin, you can send bitcoin, you can buy bitcoin. But in theory I don't need a bank. And then they turn around and they do things that you may or may not know with it. We do not own it. We just safekeep those bitcoin for you.
So, it's equivalent to--we look like a big parking garage, a big building that is a parking garage. The parking garage structure is ours. You bring your car and you park it there. The car is yours. We cannot use it, touch it, lease it, sell it, anything. We just provide the parking garage structure. So the question then is, why don't I park it in my own garage?
Why do I need a third party to park my car? Because part of the appeal of bitcoin is I don't need this third party.
So, all of a sudden-- Guest: Okay, I agree with that, friend; I don't want to offend you, so I am going to use my mom as an example. I trust my mom. Maybe more than I trust most people.
But I do not trust my mom to keep her private key safe. That requires quite a lot of know-how and expertise. And I would be irresponsible if I told my mom, 'Yeah, sure, get some bitcoin and you take care of the security of those bitcoin.
Just like you would be highly irresponsible to tell your mom, 'Keep all your savings at home under the mattress. Then she'll know where it is. Because you'll know where it is. And some other people may, too. What we do is make it invisible for people. So, we want you to have certainty that these bitcoin are yours.
We're just safekeeping them. So it's not like putting them at risk like you would in a bank. But we really go to extraordinary length to make sure that those bitcoin are safe. Things that for most individuals and institutions are sort of unthinkable to do on their own.
Okay, we're going to talk about that. But first I want to ask--at risk of asking an embarrassing question: So, you don't know how to get on the Internet but we have this easy way. So there's really two things that you're trying to provide. I'm not a technical guy. I don't want to read the bitcoin paper; I don't want to figure out how to establish my own account.
You're going to make that effortless for me. The second part, though, is you are going to try to make it easy for me to sleep well at night. But the question then is, how do I--to turn the tables on you--if you were my mom, I'd feel good about--and you were really smart about cryptography and keys, I'd say, well, my mom's taking care of it; I don't have to worry about it. Xapo is not my mom. So, how do I know that Xapo is not Mt.
How do I know you are taking care of my money in a way I can rely on and what are you doing that's different? So there are many, many ways in which you can do that. All of those clients will send teams to do due diligence of Xapo that includes financial due diligence and legal due diligence, physical security and cyber security, right? And every single [? Bank to us [?
But that's one indicator. And I would suggest that the reason they invested that money is that they know you. They know that we are serious. They know that we've done this before, that we are professionals, that we know finance, that we know security. If it's your mom, those names should give her comfort that we're here for the long run, what we're doing, we really want to make sure that your bitcoins are safe. But you also--that's all talk. But let's say I'm doing the due diligence: I don't have bitcoin--I've got , What am I going to see when I come to Xapo to do that due diligence?
Let's talk about the physical side, because what you're doing there is extremely unusual. So, what we do is, we keep the private keys of the bitcoin that we do custody for in outlying servers.
These outlying servers have never been online and will never be online. And that's important because it means that nobody has had ever a chance to see them or fingerprint them in any way to try to guess how these bitcoin may be created or stored, their private keys.
So these are outlying servers that are not online and have never been online. Those servers are inside a vault, a bit vault. That vault is deep underground. Our main vault is in a military bunker in the Swiss Alps, in Switzerland. And we have distributed keys in 5 continents. So if someone wanted to steal your private key, and if your bitcoins are in Xapo and someone wants to steal your private key, they need to physically break into a bunker and then into the vault, in 3 different continents at the same time.
Which is hard to do. So then the next question would be the fraud--not necessarily fraud, but you have employees who are guarding the bunker. What keeps them from stealing the--?
There are systems that are also audited that make it so that not only if you have one but more rogue employees that is not enough-- Russ: Yeah, for them to run away with the bitcoin.
So, the people who have access to those locations are very, very limited. There's many doors inside the bank to get to these vaults. Each one has biometric verification. All of this is being filmed. And again is a very short list of people who can do that; each banker, all of those are different people, they do not know each other even though the system makes it so that even if they were to contact each other they cannot collude.
So, the irony is, we have a currency that is magnificent because it has low transactions costs. So, right now, even if you have a credit card, there's a fee, because there's a potential for fraud. The big advantage of bitcoin is that when I have it, I know that you sent it to me. I don't have to worry that you stole somebody's credit card, I'll have to refund it when it gets called back, etc.
And yet now there's these additional transactions costs, of course. So the question is: How large are they going to be? These are very expensive physical costs, to create a digital frictionless currency. Depends on how you look at it, Russ, because all of these, of course it's very expensive to build, but it's very cheap to run. Whether we process one transaction a day or a hundred million transactions a day, the cost is the same--meaning the marginal transactions cost is close to zero.
You don't have to build a bigger bunker. Because just the server has got a lot of space. So effectively quite efficient [? It's not really costly per transaction. And what will be--your costs then per transaction are going to fall over time.
So, right now, what do you charge to protect bitcoin? And will always be free. How do you make your money? We make money when people ask us to buy bitcoin for them. And we issue a debit card that can be used anywhere credit cards are accepted.
It's free to the user, just like using your debit card--your bank debit card is free to you but the margin pays us a little every time [? But if I'm transferring bitcoin, it's still zero?
And you've recently--how old is Xapo? It's about 2 years old. And when did that come in?