The Currency Wars and Bitcoin’s Neutrality: We Didn’t Start the Fire [Talk from 2016]

This is my third Coinscrum, and my first time at
Imperial College. It is very impressive and formal, this august institution of higher learning. It is a bit different. When I [have been to] Coinscrum,
by this point in the evening I have usually had to beers. [Laughter] There is no beer here. You will get a slightly subdued version of
the Coinscrum experience, but that is okay. I'm very happy to be here, back in London.
As some of you may know, I graduated from UCL. Imperial College was our major
rival university, but props to them. Thank you to all of the sponsors and
organisers for making this happen. What I wanted to talk about today is currency
wars and Bitcoin's neutrality in the currency wars. You have probably heard me say for a while
that I believe some of the first applications… we would see in Bitcoin would relate to foreign
remittances and cross-border [transactions], such as import/ export and trade.

These are areas were there is friction
in the traditional financial system. Systems like Bitcoin, which are much more
flexible, could provide opportunities — especially for underprivileged people around the world. Specifically immigrants doing foreign remittances,
paying extravagant amounts to Western Union. Well, it turns out I was wrong.
It is not the first time or the last time. It will happen again. Let's [look at] why I was wrong.
This is where things [become] interesting.

Bitcoin doesn't exist in a vacuum. Bitcoin is a currency and a system of payment
that exists in a highly competitive world… of international finance, which accounts for trillions of
dollars in payments every year, in [dozens of] countries. While we are off in our little corner, designing great
applications for Bitcoin, something else happened. I think it will change the trajectory of adoption
of Bitcoin, with some very exciting times ahead. Over the last two years, we are now seeing
a fully-fledged global currency war that… started just after the financial crisis in 2008,
[and has been] gathering speed [since]. That currency war will change the trajectory of Bitcoin. [An externality] will change how Bitcoin is deployed. This currency war has billions of people as hostages,
being tossed around like pawns in a geopolitical game. Let me throw out some names of countries and
[let me know] if you can see something in common: Greece, Cyprus, Spain, Venezuela, Argentina,
Brazil, India, Turkey, Pakistan, the Ukraine.

What do these countries have in common?
[AUDIENCE] Wonderful people, great food. They are also currently embroiled in either
domestic or international currency wars. The people in these countries
are hostages in currency wars. If you were paying attention to the news recently,
you possibly know that — just in the last five weeks, with less than four hours' notice —
Indian's prime minister Modi announced… that the two largest denomination bills,
the five-hundred rupee and the thousand rupee notes, would cease to be legal tender in four hours. This removed 88% of cash in circulation, in a country
where more than 95% of transactions happen in cash, more than 60% of the population has no bank account,
and 25% have no ID with which to open a bank account. In my opinion, this will be seen in
the future as a [humanitarian disaster]. It will unfold over the next year,
and have a very big impact in India.

The immediate effect will probably be
a loss of 2-4% of the country's GDP. The ripple effect: entire industries crawl to a halt
because employers aren't able to pay employees, and people are unable to buy food, unable to pay
for medical care, unable to transact in any way, This has been an absolute disaster in the short term
and will be a continuing disaster in the long term. Make no mistake: this is an experiment with 15%
of humanity as [involuntary] experimental subjects.

If this experiment is successful,
not in terms of how people fare, but whether the government's aims are
achieved, this experiment will be repeated. It will be repeated just like the experiment of
bail-ins in Cyprus was exported to other countries. These experiments are accelerating.
There is a global war on cash. We have reached that point where it is within
the grasp, within the vision of world governments, to once and for all eradicate cash. Cash has been [the primary] peer-to-peer,
transparent, [privacy-respecting] form of money… that allows individuals to transact
locally within [their] community. It is now being eradicated in favour of digital [forms
of money], on platforms that allow for surveillance, control, confiscation, and negative interest rates. All of these things will follow very closely
once cash is no longer part of the picture. That is their hope. Hopefully, you will be
joining me in ruining that dream. [Applause] There is another currency war going on,
and this is an international currency war. This is where nation is pitted against nation
using its flag money, its national currency, as a trade war instrument in order to trip the
trade balance and erode the national debt…

In countries suffering from enormous debt
loads they have no hope of ever paying back. If you are a government with debt measured in the
billions or trillions of dollars, how do you pay it back? By increasing standards of living and productivity
until you can grow [your economy] out of it? Or by confiscating the savings of retirees and
the middle class, destroying a generation of workers, and [forcing] them to pay the debt
through a shadow tax: inflation.

We know which [option] countries are choosing.
We are seeing play out again and again. Of course, that is not how they sell it. They don't say "Our plan to [relieve] debt is
to destroy pensioners and the middle class, create a system of shadow taxation and confiscation,
to bail out the banks and bail out the government." They say, "This will eradicate black money,
permanently end corruption, and win the war on crime!" [Most people hear that and] say,
"That sounds like a great idea! Let's go for it." This promise is almost always
wrapped in popular nationalism. The great scourge of the emerging 21st century
is the resurgence of populist nationalism. Fascism is rising.

Just as politicians wrap themselves in the flag, they also
create associations with their national flag money. They wrap money, the policies of wealth destruction
and confiscation, in the veil of nationalism. If you disagree with the idea that pensioners should
pay for the national debt and bail out the banks, if you disagree that a whole generation of young people
should find themselves permanently unemployed, or underemployed working in 'McJobs', then you are a traitor to the nationalist ideal of
"solving crime" and "black money" and corruption. "You probably have some corrupt money hidden,
don't you? That is what motivates you." That is exactly the tone of discussion right now
in places like Turkey, where Erdoğan announced… that it was everybody's duty as a Turkish
citizen to sell their dollars for lira and gold…

In order to prop up the nationalist pride. Modi in India used the same exact rationale:
everyone will 'suffer just a little bit.' But the people suffering the most have no
voice, they are invisible – especially in India. The middle class that suffers a bit can wrap itself
in the flag and [support] these nationalist ideals. In these currency wars, there is one force that
stands neutral as a safe haven, as an exit strategy, as an opportunity for people to say,
"You know what? Go ahead. I will opt-out." That [force] is Bitcoin, [on the edge] of becoming
the safe haven asset for billions of people… around the world. For the first time, they will have the opportunity to say, "I see where you are going. I don't believe in
your nationalist bullshit. I see the exit sign." "I will go this way and opt-out from these experiments!" That will dramatically change the trajectory
of the technology and economics of Bitcoin.

[In comparison], foreign remittances is
something a government can [support]. "Yes, let's make it easier for our poor immigrants
abroad to send money [back] to this country, while kind of competing with the banks to
the degree we allow them through regulation." But this new proposition, that some people will
opt-out from these crazy nationalist experiments… and currency wars, will not be taken lightly. Bitcoin will represent, in many of these countries,
a direct affront to sovereign [power]. When sovereigns see a direct challenge to their rule… As arbitrary, capricious, and
unilateral their decisions may be, as unconcerned with the consent
of the governed they may be, they will apply full force in order to fight that threat.

They will fail, but it will not be easy [to resist]. When this starts happening, the equilibrium between
currencies changes; we are already seeing this. If you want to buy bitcoin in India today,
be prepared to pay more than $1,000. The premium on bitcoin has gone as high
as 22% on the price, higher than any other market. It can't easily be arbitraged away because there
isn't a big enough flow of bitcoin into the country…

To counter-balance the mad scramble to the exits. The Chinese yuan has devalued six times so far in 2016. Every time the Chinese yuan devalued,
bitcoin's [market cap] went up by about a billion dollars, as millions of Chinese went for the exit. Every time this happens, a premium is paid, but here
is the good news: guess who earns that premium? Those willing to build an exit sign, a door, and a little
muddy road that leads out of this crazy experiment.

They will earn a 20% premium. The exchanges, the LocalBitcoins traders,
the off-chain offline underground traders, those willing to take the risk and face the
wrath of the sovereign, earn a premium. That premium funds infrastructure development,
liquidity, evasion, decentralization, and all the other things necessary to [enable] normal
people to get the hell out of the currency war. These experiments will position governments directly
in opposition to Bitcoin, not because of something… Bitcoin did, but because of something
the governments have done themselves. When I was growing up,
I really enjoyed computer games. One of my favorite computer games was called SimCity.
Has anybody played SimCity? [Audience raises hands] Yeah, lots of people have played SimCity.

One of the [really cool features] of SimCity,
is your full and unilateral control over the economy. One of the dials you could tweak was the income tax. It was always tempting to just go in there
if your budget wasn't quite balancing, if things weren't going quite as well as you wanted,
if you couldn't build as fast as you wanted. You could [increase] the income tax from 5% to 6%,
from 6% to 7%. But there were consequences, of course. You learned those consequences when you go too far. When you [raise the income tax from] 5% to 15%
and fill your coffers as the tax [money] starts flying in, but then you watch your population [plummet]
as everybody leaves your city, right? Those kinds of games have a name: "god games." They are so satisfying because they allow you
to play God over a helpless population.

Here is another feature you could have in the game:
you could build your entire city and launch a tornado, an earthquake, a massive fire, a tsunami,
or even a Godzilla attack. And guess what? None of those attacks were [more] successful at
draining your city than raising the damn income tax. [Laughter] [Applause] These currency wars are a form of civil war
from the government against its own people. They destroy generations. It is already estimated in the first few days that hundreds
of people died in India [due to demonetisation]. They couldn't access money for health treatments.

Feeble, disabled, elderly people [were forced] to wait
in line for six hours in order to withdraw $30 in rupees, if they even owned that much [anymore]. Hundreds of people died in the first few days. Thousands of people will die in the next few
weeks, as this experiment unfolds and repeats. Tens of thousands of people have died in
Venezuela because of currency controls, because of the destruction of the monetary system. This is what happens when governments decide to
fight a trade war using the very fuel of the economy — the thing people depend on to build a future
— as a weapon against other governments.

That weapon backfires and kills their own people. They will tell you that by encouraging people
to use bitcoin, we are traitors to our nations. We are criminals, thugs, drug dealers,
and terrorists. Don't believe me? Look up what the Indian government has said just
in the last two weeks about people who trade gold: "terrorists," "criminals," "thugs." I am just a coder, I am just a talker;
I am not a terrorist, I am not a thug. If I have the opportunity to build an exit from
this system, then I will take that opportunity, because I know who the real terrorists are. There is no greater terrorism than [going to] war
against your own people by deliberately disrupting… the very lifeblood of an economy, when there is no crisis;
creating a [humanitarian] disaster simply to fight…

A currency war against another country. Who benefits in the end? The banks. They are bailed in. Their balance sheets in India are soaring;
their stock prices are soaring. The government [has seen] enormous increases
in revenue. Does that stop corruption? No. It has fueled an absolute orgy of corruption
which even in India is unprecedented, just like it fueled an orgy of corruption in Cyprus,
Greece, Venezuela, Argentina, and the Ukraine. When Modi announced that [those rupee notes]
would not be legal tender in four hours, he also announced that the banks would be closed
for two days to prevent people from initiating… a run on the banks. When the banks re-opened, a significant portion
of their cash reserves were only in the bad notes.

Somehow, some people had access to these vaults and
swapped their money while the banks were closed, [totaling] billions of dollars [in rupees]. Somehow… If you studied economics, one of the
fascinating aspects is Gresham's Law, which states that bad money will
chase out good money in an economy. When I was studying economics and read this as
a student, just as a hobby, I didn't really understand it. Fortunately, I had never seen Gresham's Law in action. But we are watching Gresham's Law play
out exactly as predicted, in action, today. When an Indian person goes to an ATM,
when a Venezuelan manages to get [bitcoin], when a Zimbabwean gets hold of U.S.

what will they do with that money? Do they spend it? Hell no, they don't. They bury it, put it under the mattress,
hide it, save it. This is the "good" money. And so it immediately exits the economy. They [spend] every shitty note they have:
every Zimbabwean $100 trillion bond note; [every 500 rupee note that is now worthless]; every Venezuelan bolivar worth shit, carried
in wheelbarrows and weighed by the pound. Nobody has time to count it. To their employees, dependents, homeworkers
and cleaners, people who aren't privileged, they say, "This is the only money I will pay you with."
"Here is six months of wages in advance." "Take it, leave it, or you're fired.

Your choice." They offload the bad money on to people
who then [must] spend six hours in line… to exchange it, to be asked questions by
the tax man about where they got this money. Tax officials — caricatures of government employees. Guess what they pay these government employees in,
as their bribes? The same bad money. Only the bad money is circulating; the good money
has completely disappeared from the economy. We are watching Gresham's Law in action. When these [people] get bitcoin, they will HODL and
bury it deep, to make sure they have the good money… saved for their children, for their future. They will trade the bad money for bitcoin,
and nowadays all money is bad money. That is where we are going: cash is being
eradicated around the world as a scourge.

They can't win that game. Cash is something
we can create — electronic cash, self-sovereign cash, verifiable cash, peer-to-peer cash… bitcoin. Remember how this will change the trajectory
of Bitcoin deployment over the next two years. [Bitcoin] will be in direct opposition to this currency war,
while [in effect being] funded by the currency war. The currency wars will fund investment in
infrastructure and improvements in Bitcoin, in order to [grow] that small exit sign and
[build up] the little rutted road behind it. As these currency wars escalate over the next few years
— as they will, as they must, as they fail and try again — we will widen that rutted road until we are
offering an eight-lane Autobahn highway exit… out of their currency war, for everyone to take. It won't be available for everyone at first. It will [mostly be] the richest, most educated, and
privileged ones who access these applications. But [at some point], they will [help
to] take other people with them. Gradually, they will fund the infrastructure to allow more
and more people to exit from these [currency wars].

Remember: as this happens, we will be
called "criminals" for offering an exit. We will be called "criminals"
for pointing at the exit [sign]. We will be called "criminals" for simply pointing out the
fact that the economy is on fire and there is an exit. In each stage of escalation in the currency wars,
every act in opposition to the observable fact… that the economy is on fire, every chance
you give people to head for the exit [sign], you will be [branded] the criminal. Before long, they will re-write history to say that
the banks are failing and the economy is on fire… because you provided an exit,
because Bitcoin exists. They will say that Bitcoin started the fire. At that point, you must all repeat and remember
the slogans that will be important: "We are not criminals."
"We are offering an exit for everybody." "We didn't start the fire; it was always
burning since the world was turning." Thank you.

[Laughter] [Applause].

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