[AUDIENCE] My name is Karen. I run the Blockchain
Centre in Australia. [ANDREAS] Hello, Karen. I wanted to ask [about] your view of cryptocurrency in
the future. It seems to me that we have moved away… from this idea of using digital currency in day-to-day
[commerce]; now it is about making money on bitcoin. Where do you see this going in the future? [ANDREAS] I think the two
are not mutually incompatible. There are different stages in the maturity of this
technology. Money fundamentally has three functions: store of value (SoV), medium of exchange
(MoE), and unit of account (UoA). [So far, Bitcoin is] able to achieve store of value
over long periods of time, with a few asterisks. [Bitcoin is] not very good at doing medium of exchange.
The velocity of transactions is not good enough yet. The blockchains [with faster confirmation times]
sacrifice decentralization in order to do that.
As a result, that is not a sacrifice worth doing. So, we're not ready. Medium of exchange requires much
lower fees, more capacity, and faster transactions, We do have some [technology being built] towards
[those optimisations] and will eventually have them. Right now, we don't. When [these open blockchains]
get mainstream [attention] in these little spurts… of excitement, fees go through the
roof and kill every retail application. The system starts groaning under the pressure. We [can't] do little spurts [of scaling] that are required
when everybody gets excited about cryptocurrency. Retail, after dying a dozen times over
the last four years, eventually gives up. You see places that adopt cryptocurrency
to get the quick marketing boost, put the little stickers on their window [to
appear] progressive, cutting-edge, and hip. Then a year into [their cryptocurrency retail project], it
has failed because they can't find [enough customers]. Or they do for a short period of time and then it dries up.
[You must] train staff [to accept cryptocurrency]. We are just not ready for retail.
mean we won't [ever] be ready for retail. It is the same as saying, in 1992, that
we are not ready for Facebook or Netflix. If you had launched Netflix in 1992, one person
downloading one movie would melt down the internet. [Laughter] Done. I did a video conference
between London and Los Angeles [back then]. When I say "I did," I mean a research department of UCL,
in collaboration with [another university in the U.S.]. about twenty members of staff in
each location, in a $5 million studio. It [was] a very low quality, low resolution, and low frame
rate video conference between the two universities, which had dedicated fiber-optic,
transatlantic connections. It took them two years to set it up, just so
that they could demo it to us, the students. Fifteen years later we have Skype on a mobile,
and all of us [are videoconferencing] simultaneously. This is just a matter of maturity.
We will get there.
Unit of account is the absolute last [milestone]. Unit of account [will be reached] when people ask you,
"How much is a dollar in bitcoin right now?" Where we use cryptocurrency as the measurement
of value and don't always refer to something else. That doesn't happen [out of nowhere]. There is
nothing inherently magical about the U.S. dollar… or the euro that [makes it] a [good] unit of account. It is simply a matter of volatility.
If volatility is low
enough and you become comfortable with the units, where they don't change radically [in value] from day
to day, then you can price cups of coffee in satoshis. Then you will have [a sense that it is] a unit of account. It takes a while, on average about six months for
a community to adopt a new unit of account. How do I know? I have seen it in practice. I remember when they dropped the drachma
and introduced the euro in Greece. At the time, one euro was [worth about] three [hundred]
drachmas. I remember when someone went to… buy a cup of coffee; [the barista would] say,
"One euro," and they [would need to do the math]. That happened for six months after [the euro]
was introduced, until people stop doing the math. My dad still does the math. When I ask him
about prices, he quotes me in drachmas.
The drachma has been dead for twenty years.
[Laughter] Hell, the euro is almost dead [now]. "Which use cases will accelerate Bitcoin adoption
in western countries, more than pure speculation?" "Hi Andreas, I'm Alan." "I'm trying to sell cold wallets charged with
bitcoin at local corner shops here in Germany." "I think the current path to acquiring bitcoin,
as a novice, is [currently] super complicated." "Therefore, [giving] easy access for €10 – 20 [worth of]
bitcoin should be great for people to dip their toes." "How could I sell the features of Bitcoin on a poster?" "Do you see any other opportunity
to make the technology interesting, besides remittance and speculation,
to the broader public?" Alan, there are times when your business plan,
and what the market wants, don't match. There are times you are trying to build
[something] that the market is not ready for. The simple truth is, when you live in a place like Germany, you have a functioning system of cash, which is very popular in Germany and
counts for the majority of transactions. You have banks that are not yet predatory, mafiosi
organisations [as they are in many other countries].
You have a government that is
not yet a totalitarian nightmare. The public has a very high degree of
access to banking and financial services, at low cost and with few compromises. Is that really the right demographic
for distributing this technology? When you say the only application is pure
speculation, I don't think that is entirely true. And pure speculation isn't necessarily a bad thing.
People are [speculating] because they understand… that a limited issuance currency represents
the most sound money that has ever existed. From the perspective of Austrian economics,
Bitcoin maximalists, and sound money economics, the average German is [evaluating] the array of
risks [they] face economically and politically. Censorship resistance, free speech, and access
to banking infrastructure may be low priorities. Your market isn't suffering from those problems.
However, you are using the euro currency; the great risks of the euro are unrestricted
issuance of currency, enormous amounts of debt, liquidity injection ten years after the previous crisis,
still pumping like crazy trying to revive the economy.
That represents a risk… which can be somewhat hedged [against] by
taking a position in [bitcoin, as a] store of value. For some reason, we are calling this pure speculation
and seemingly with a negative connotation. Germany isn't ready for retail use of bitcoin because
Germany doesn't need retail use of bitcoin [yet]. Germany is ready for hedging [against inflation]… by buying [or earning], and holding, an
alternative currency with a fixed issuance. Alan, you are trying to fight the market and present it
[with a] solution to a problem [they] doesn't have [yet]. Unfortunately, you [will] not succeed
in that [now]. You [must] be patient. Maybe in the [near] future, Germany will
need retail solutions and applications… that cannot be done with cash
or the existing financial system. Application such as micropayments, which we [will] see coming with the Lightning Network's
[development] in [the next] three to ten years. Capabilities for decentralized content sharing
and things like that [within] the Web 3.0 model. Germans will have a need to use [cryptocurrency for]
applications that cannot be done with Visa or cash.
We don't have those yet, we are not yet at
that stage in the maturity of the technology, where we can build second- and third-tier
applications above the basic [layer] of money. Be patient. It might happen sooner than we think. In the
meantime, don't try to force [a need] that isn't there. Najeeb asks, "Do you think there is a possibility that
bitcoin will become the world's reserve currency, essentially digital gold, and that there will be other
coins which we will use as [day-to-day] currency?" I don't know. I think it would surprise me, actually,
if bitcoin could only fit into the niche of 'digital gold.' Bitcoin has characteristics of divisibility
and transportability that make it… much more flexible than digital gold. Gold isn't a good medium of exchange because
it is difficult to verify [as real] and heavy to carry.
The more you make it fungible and divide into smaller
pieces, the harder it is to verify [they] are real gold. The effect is, it is easier to assay and verify gold in larger
amounts that are stamped by "reputable" third parties. which [relies on] this entire trusted [layer]. Then the cost of storing and securing gold is so high
that it is better done in a custodial manner, where you put it in a vault and
have professionals guarding it. You [are left] with a little paper certificate [of ownership],
which have other problems like hypothecation. [All of this] makes it difficult to use
[gold] directly as a medium of exchange. Bitcoin doesn't have any of these problems. Yes, there is a greater complexity to securing
bitcoin than forms of custodial digital money. Yes, that [will] cause some pressure towards
third-party custodians. But if that pressure [will be]… less than what we have in our current system,
where almost everything is third-party custodians, that would still be a more decentralized future.
The ability to transport bitcoin very quickly, in
very small amounts [or very large amounts], [including] with second-layer networks that are even
faster [and smaller] at the level of microtransactions… I think bitcoin can be a very effective medium of exchange and a store of value; through use and volume, volatility [will reduce] to the point where you don't see big
fluctuations in price, and it is less speculative in nature. Then, it can also [become] a unit of account. I think all three of those [functions]
are within the reach of Bitcoin.
That doesn't mean there won't be other coins which [are
used] for everyday currency. I think there will be [others]. I don't think Bitcoin will be just digital gold. It may become a world reserve currency, but I think the concept of a unitary world
reserve currency [would] no longer be relevant. I think it will be one of the many reserve currencies
that can be used to underpin value of other things. There doesn't have to be only one anymore. The switching cost between currencies forced [us] to
only use one; I don't think we live in that world anymore. We will see. [AUDIENCE] My question is… Since there is a limited supply of bitcoin,
with more and more people hearing about it, economic theory would suggest that
the value of bitcoin is trending up. [ANDREAS] Yes. [AUDIENCE] So how do
we incentivise the spending of bitcoin, if it is more worthwhile to hold
on to it, as the value increases? [ANDREAS] That's a great question.
As someone who
has spent a whole lot of bitcoin and then been racked… by guilt and regret for every single one I have
ever spent [Laughter], I can tell you that… the instinct to hoard — even if you know
that is true — doesn't apply [all the time]. People say, "Just hold, just hold." "You were able to buy bitcoin at $3, why didn't
you just buy and hold them for twenty years?" "Just hold." The reason [it is not that easy is], when
you buy three hundred bitcoin at $3 [each] and think, 'This [will] go to the moon!" At that point
[in time], "the moon" is $25. [Laughter] "Maybe it will hit $100." "Oh come on, don't be silly. That
[will] not happen." What happens when it [reaches] $25? You think, 'I should probably sell some,' and then you do. If you look at it from an investment perspective, holding
is hard because the perspective keeps shifting.
Obviously, now you say, "I'm not selling for anything
less than $20,000," because you've just seen that. [Laughter] Right? When it is at $21,000, that itch
[will] start. They [think], 'Maybe this is the peak!' Your descendants will be laughing at you. "Grandpa,
you could buy bitcoin at $21,000 and you didn't?" "What was wrong with you?!"
[Laughter] Hindsight is easy. The other aspect to this, what we call "hoarding" in the
English language is — in the vast majority of the world — called "saving." [Laughter] I know, Americans are not familiar with this.
Language barriers and all. The idea [is to]… save your money so you can buy things
like houses, cars, consumer goods, or perhaps even an education for your children
that doesn't cost half a million dollars. Maybe you should do that with cash instead of debt?
That is how the rest of the world works.
What Keynesian economists call "hoarding" is the
sensible act of building wealth for the next generation. I don't think that's necessarily a bad thing. The economics of Bitcoin are really strange in a world
where we're used to massively inflationary currencies, printed with reckless abandon, where you know the
value of the currency will be less tomorrow than today. If you think that is [our] experience,
I am not talking about the United States. I remember Greece when it was having a devaluation. I had relatives who had two washing machines,
but not because they were doing a lot of laundry. One of them was shrink-wrapped in pristine condition.
That was their "nest egg" washing machine. This makes no sense to an American, but
when the currency had just devalued by 30%, buying a washing machine that people [will] obviously
need, being able to resell it on a secondary market…
A year later, that was [considered] saving. In Argentina, there are people with four cars and
three of them are shrink-wrapped under tarps, because it is the only thing they can that retains value. They drive it off the lot and it loses half its value;
[in that same time frame], the Argentinian peso… lost three-quarters of its value, so… winning! [Laughter] It is all a matter of relative perspective. In the case of bitcoin, you [must] start
thinking about the broader ecosystem. If Bitcoin remains the system [with] a monetary policy
as hard as gold, that will serve a specific purpose. If that purpose is saving, that is the app!
People ask me, "Does bitcoin have a killer app?" [Or they say], "It doesn't have a killer app.
I can't use it to
buy coffee." But investing for my future is the killer app. Saving [people] from the Venezuelan economy is a
killer app, it is just not the killer app for you [right now]. Beware what you wish for. Let us hope that,
as Americans, we never have to [consider]… "hoarding" away our wealth, burying it in an asset
while our national currency is completely destroyed… in the period of one year through hyperinflation. Let us hope we never have to
experience that, because we might. It has happened to every single other
fiat currency in history. That is the norm..