‘If you look back in history that happened on a regular basis not a frequent basis, it happens regularly because money is this type of technology, essentially. And I think we’re 13 years into this. We’re still premature in terms of imagining the world 50–100 years from now speaking of these visions of what things will happen, but I do think that cryptography has changed the game in a global network. The combination of a global network with cryptography with proof-of-work, with difficult adjustments, has changed the game here in terms of what is possible with money. Bitcoin is obviously the best version of how to do that, so you can never really fast forward 20 or 30 years and say this is what the world looks like. But I think that we’ve opened this Pandora’s Box by kind of recreating the possibility of hard money commodity money. But one that, unlike gold, moves at the speed of light.’ – Lyn Alden.
In a recent interview with macroeconomist and investment strategist Lyn Alden, she discusses the on-going evolution of the global monetary standard championed by the world’s largest cryptocurrency, Bitcoin. Alden states that Bitcoin has opened Pandora’s Box and changed our perception of what money should look like and how it should behave. Bitcoin was created not just because the technology was accessible and available, but also because there was a need for a better monetary standard. Over the past decades, the world has witnessed the gradual decline of fiat currencies in traditional financial institutions. It is evident from the many sectors that bitcoin has touched and improved in only 13 years that the blockchain network and the overall cryptocurrency ecosystem are here to affect some much needed changes in global economics. Though Alden does not know precisely when it wills occur, she is certain that bitcoin is going to replace the present monetary era and the world will be left with better, faster, and more secure money.
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Let’s dive right in. In our interview with Lyn Alden, she talks about the multiple layers that would be involved in Bitcoin’s becoming a global currency that can support the needs of eight billion people.
‘I think, yes. I think the only way it works realistically is in layers, which is how any financial system, any complex financial system, develops. So, you have basically bitcoin as the base layer, you have lightning, and then you have different levels of custody on top of that. You can have things like the Cash App, for example. Cash App can scale to tons of people, but of course you’re trusting Cash App. You’re giving up some degree of the permission less. Then you have those things like federated charming mints that can be on the spectre between self-custody and third-party-custody. You can have these kinds of distributed custodies. So, I think when you combine multiple layers and technologies together, people can kind of choose their own adventure on how far down the bitcoin stack they want to go or what their economic reality allows them to go. So someone with a lot of bitcoin might want to go deeper into the bitcoin stack, whereas a lot of other people might want to rely on those federated custody services or fully costed custody services or just have their own kind of lightning setup. So in the free banking era, there was a discount based on two things: one is how much you trusted the originator of that issuance? And two: how far you were from it? How liquid it was? So for example, the bank of Arkansas, let’s call it, if you lived right near the bank of Arkansas, it’d probably trade one to one because you know its super liquid. It was. If you’re in New York, you’re like, “I don’t want the Bank of Arkansas note. I’ll buy that for 80 cents.” Yeah, because I’ve got to do all this friction to get it ever redeemed. I have to get it to Arkansas, and I don’t really trust it.
So you’d have these different levels of pegs. We actually kind of see that today with USDC and tether. So during the whole Luna fiasco with USDC, you know, their attestation. So is 100 T-bills in cash, whereas Tether has a portfolio model where they hold some of those, but they also hold some assets that do have risk, and they also have this longer track record of people questioning their asset quality. So you had more people willing to redeem tethers trading at a discount whereas USDC was trading at either full or sometimes a prime and so you have different levels of how the market assesses their risk. Arbitrage is that some people say okay, you want to sell me tethers for 95 cents, I’ll go ahead and redeem them for dollars, and so you have someone willing to step in and arbitrage that. So yeah, basically in an era that is like that, including the one right now. If there are questions about liquidity or solvency, you get a discount compared to the underlying bitcoin that it represents.’
-It’s fascinating that we’re living in an era where we could genuinely see a transition to a completely new monetary system.
‘-Potentially, I mean, if you look back in history that happens on a regular basis. It happens regularly because money is this type of technology. Essentially, it comes down to technology. So right now we’re in the process of testing this 13-year old technology. So in the beginning, the funny thing is, when you look at the forms, when wikileaks turned to using bitcoin, Satoshi got nervous. Of course, he wasn’t sure. It was ready for that, yeah. Of course, we’ve come a long way since then, but it always requires a degree of halite to see if this network is ready for this. Can it withstand a certain state attack? Can it withstand what you know is happening right now?
So everything that bitcoin goes through, we’re testing to see how hard and how durable the network is, so the Mount Gox attack, certain countries’ banning it, unbanning it Bitcoin China Bitcoin miners. What happens in this environment? What happens if a million altcoins try to scan people into going into other systems and then blow up, and they have to sell their bitcoin into the weak market? So we’re testing every step along the way. You know, is this the right system? What are the attack vectors? Is there some sort of way to exploit it? Can we hack it? We’re kind of testing all this through, and so looking super far ahead can be premature because we’re still testing the system, but we have a clear direction here. Pandora’s Box has been opened in terms of cryptographic money. Peer-to-peer money is self-custodial using encryption. We see a clear direction and then the question just becomes, does any risk that we haven’t accounted for throw us off of that, and if no, then we basically become a stronger form of money than anything we’ve had before. And then it becomes a question of what does that mean? What does that mean for central banking? Does it arbitrage between the economies moving faster than the money going away? And does it mean that we have created some sort of asymmetrical technology? That empowers people over larger entities, because in the prior conversation we talked about the odds of freedom and human rights foundation. With big data, you have a lot of top-down power, and whereas cryptographic money is kind of bottom-up power, the question becomes which one of those two forces is stronger.’
On the one hand, we have a centralized financial system that leaves a lot of room for authoritarian policies and unchallenged control of the masses by the ruling class. On the other hand, we have bitcoin, the only asset in our history to be completely permission less and unconfiscatebule. There is no doubt that both cannot coexist. The traditional financial system has all but wrecked itself while bitcoin and the rest of the cryptocurrency sector grow stronger by the minute. Sooner or later, weak money is going to give way to stronger, better, and more secure money.
Let’s get back to Lynn Alden’s interview as she describes how she first got into bitcoin and why she got interested in the crypto asset.
‘I first heard about it in 2010, and I thought it was neat, but you had to buy a shitload. My question was, “Nope, nope,” and I kept hearing about it. My biggest question was whether a lot of people adhere to it and dismiss it. For me, I never dismissed it. But I was like, “Why can’t you just copy it?” or “Maybe they’ll make a better one” or I kind of got the basics of it. I was like, seems neat. In 2017 I took it seriously okay, but it was very euphoric at the time, and again I was like, “I’m not sure which one of these is going to win.” When I saw the resolution of the block size war and I kind of saw the immutability of bitcoin tested okay and I saw the differentiating network effect of bitcoin versus the others, I delved deeper into technology to you know why bitcoin doesn’t have smart contracts. Why do they keep the block size small? Why didn’t cash win over bitcoin? This is basically going into the rabbit hole of why these variables are the way they are. If they are, why can’t you just change them? How immutable is it actually? That’s when I got kind of interested. So I bought my first bitcoin in April 2020.
So it blends technology with economics, which is profoundly interesting, and it’s also a set of building blocks. When I made the analogy before, when the iPhone came out, no one thought this is going to disrupt the taxi industry for the next 10 years. Then we had Uber and it did. And so, when we have programmable peer-to-peer money, what does that mean? It’s like a building block that it’s hard to envision 10 years from now what that means. And so I’m just kind of super excited about what that means for a lot of things. And then two, a lot of my macro work is around studying money, currency, and energy, which just naturally, you can’t have a view on bitcoin, you can’t not study bitcoin and figure out to what extent I want to hold bitcoin but also to what extent bitcoin changes my other things. To what extent does it change energy companies? To what extent does trading affect reservist practices? To what extent does it affect peripheral markets that are already struggling under the current system? They may want to go to another system. Because a large part of my focus is on studying, the failures of the current monetary system, I can’t help but be interested in the future possibilities of what can happen if these other technologies continue to be adopted.
There are a couple of things. One is that I think it’s a very large time commitment to understand. Yeah, so my multiple first interactions with it were open-minded, but it was hard to just put the time in and see why this work the way it does does? What makes it unstoppable or hard to stop? You should say and then I think a lot of people are either turned off or mad. They didn’t buy it earlier or they were turned off by some segment of the community. And they don’t realize that the actual ecosystems have far more layers and depth than they thought. They believe that the only people who have fun while remaining poor exist. They think that’s bitcoin, whereas there’s all this. There are so many different segments. There’s VCS, there’s CryptoPunks, there’s investors, there are environmentalists, there are so many different communities within that there’s no bitcoin community there. There are some shared values in some blazes. But it’s gotten so big that there’s no one thing anymore.’
Lyn Alden has given us some great insights into how bitcoin will lead us to a whole new revolution that will finally give money the meaning it should have. Money shouldn’t be a tool that a few can easily manipulate for personal gains while the rest of us are left with corbels. It should have rare qualities that make it permission less, insensible, and so convenient it can be moved thousands of miles within seconds. These are the core qualities of bitcoin and the blockchain. This is why anyone who has taken the time to properly study the crypto asset believes it is going to touch every aspect of our lives. There is no doubt that within the next decade, we are just going to wake up someday and realize bitcoin is everywhere, completely interwoven with everything we do. Would you rather binance copy trading? What do you think about Lyn Alden’s interview?
[This article is a transcription of a video made by Savvy Finance]
Original video: https://youtu.be/EZ3OqMG7oVU]