Early bitcoin investor makes the case for reserve currency status
After the spectacular run-up in bitcoin in 2017, there are many people who claim to be “early” bitcoin investors — early meaning 2013, or even as late as 2016.
But bitcoin has been around since 2009, and there are few people who have been following the space since then, let alone investing in the volatile cryptocurrency. Trace Mayer, host of the Bitcoin Knowledge Podcast is one of them. He has invested in bitcoin since 2010, and started publicly promoting it in 2011.
Even more impressive than the number of bitcoin he holds from the early years is the knowledge he accumulated in the eight years since he has been following bitcoin.
The Epoch Times spoke to Trace Mayer about bitcoin’s value proposition, its geopolitical significance, and the idea of monetary sovereignty.
The Epoch Times: How did you get into bitcoin so early?
Trace Mayer: I came across sound money in gold and silver. I was taking an American legal history class, and I had to write a paper, so I chose the topic “History of Money and Currency in American Law.”
Gold and silver aren’t barbarous commodities, but essential checks and balances in the political machinery. They are the guarantees of our monetary sovereignty. They enable us to be free humans, especially when it comes to the value we create.
When I finally came across bitcoin in its very early days. I connected all of the dots between the technology, sound money, and the game theory behind it.
I was already a fairly popular blogger in the gold niche, so I shifted the focus on bitcoin to my target audience, which was the libertarians. It was off and running from there. I started the Bitcoin Knowledge Podcast where I interview top people in the bitcoin world.
Epoch Times: What is bitcoin’s value proposition?
Mr. Mayer: It’s about the network effects.
The first network effect is speculation. People have been collecting and speculating in gold and silver and sodium bicarbonate for centuries.
The second network effect is going to be merchants accepting bitcoin because people are holding it speculatively. Then merchants are going to start using it as payment themselves because they accept it.
Because all these people are demanding bitcoin and are giving value to it, it becomes lucrative for miners to provide security to the blockchain.
All the network effects are exponentially reinforcing each other. The more secure the blockchain is, the more developers are going to want to work on that blockchain.
There are also reasons at the protocol level and in companies around it. You want to build your company on the most secure blockchain. Why? Because it will still be around in the future.
Veteran bitcoin expert Trace Mayer has been involved in bitcoin since 2010 and is also a major investor in many related startups. (Courtesy of Trace Mayer)
The sixth network effect is financialization, like the CME futures or ETFs. This enables bitcoin to interact with our current monetary and financial system.
The seventh network effect is going to be world reserve currency status. That’s when bitcoin becomes a reserve asset much like gold or the dollar.
Gold is sound money and limited in supply but it doesn’t move well. The dollar moves well but is not limited in supply. Bitcoin moves well and is limited in supply which is why it has been outcompeting both since its creation in 2009.
The Epoch Times: Do you have a valuation target?
Mr. Mayer: There is $90.4 trillion in broad money supply and $200 trillion plus in the bond markets. If you tried to move some of that volume into bitcoin the market cap of bitcoin would go much much higher because there is not that much of it saleable.
You hear Wall Street talk about this all the time: “Bitcoin is strictly limited in supply.”
Yes, that’s a feature, not a bug. The number of whole bitcoins is limited but there is enough for everyone; it’s just a function of price. We can divide it and make it every extensible with second layer solutions like the lightning network.
Bitcoin can become like a black hole on the world’s balance sheet and suck in all this fiat and fractionally reserved banking money and really give us an equity-based monetary system on the other side.
Currently, we are in the midst of the largest human migration the world has ever seen. There are 360,000 people born every day and we are adding at least one million accounts each day in the bitcoin ecosystem.
Whether they know it or not, people are declaring their monetary sovereignty and their independence from the bonds that tie them to the social structures through the world because they are choosing a new money, a sound money.
A banker asked me whether I had any concerns about bitcoin. And I said: “No. I don’t have any concerns about bitcoin.”
There are concerns about the old system as its being displaced. Just as newspapers were displaced by blogs, just as movies were displaced by BitTorrent, just like radio was displaced by podcasts and mp3s. The world is changing and we have a new technology.
The Epoch Times: Another important feature giving value to bitcoin is decentralization; how does it stand out in this regard?
Mr. Mayer: We have come to a distributed consensus. We are running software that is fully validating the blockchain to make sure all the transactions and everything in it conform to the rules of the protocol, one of them being the hard limit of bitcoin at 21 million.
Everyone who is running a full node is performing a full validation of the blockchain. They are exerting monetary sovereignty. They are not relying on any third party to tell them whether the blockchain is valid or not.
That’s what adds a lot of the decentralization of the bitcoin network. Everybody can run the software and validate it themselves.
But getting the historic immutability is absolutely critical. There are no shredders that can destroy evidence like Worldcom and Enron to cover fraud.
You don’t get to do that with bitcoin. You can’t freeze, you can’t confiscate, you can’t chargeback, you can’t do a lot of the things that our current financial system has introduced.
It’s nice to chargeback money to the credit card when there is fraud involved, but that makes the money very soft. It makes it unreliable.
With bitcoin we have the principle of immutability; but not all blockchains are immutable, and not all are secure.
The Epoch Times: Let’s talk about security for a moment. What makes bitcoin secure?
Mr. Mayer: When we talk about the Bitcoin Core software, core is much more of a process than anything else. It’s a form of science, if you think about it. Everybody is getting together and they are discussing different ideas. When there is a consensus among the technical team, then that makes it into the software.
But even if it makes it into the software, everybody who is using bitcoin has the option of using that software or not. You can’t force anything in that software because someone may download the software and take out the part you forced in there.
It has to be open source because the review of all this development is so critical. The testing and the review that is going on behind the bitcoin core software is unparalleled in the industry.
An example on the negative side would be the Parity wallets on the ethereum blockchain. There wasn’t adequate code review, people were using the wallet with $170 million worth of ether in them.
And somebody who could not even access the wallets at all issued a kill command to the network and that $170 million got completely frozen, never to be recovered.
This is one of the reasons why the bitcoin scripting language is very restrictive. We try to build modules like the base layer blockchain and the lightning network at layer two. Like this we can contain the risk.
Is there any other internet protocol out there that poses any threat to bitcoin? I don’t see it. Email is vastly inferior to other protocols but hasn’t been challenged in 30 years because it has the network effects.
The Epoch Times: Why, according to you, do the best programmers work on the bitcoin protocol?
Mr. Mayer: Why are the best people working on the bitcoin protocol? They fit the creative genius profile that Austrian economist Ludwig von Mises talks about in “Human Action,” and they do the work not to make money but because it’s internally fulfilling.
They are doing it because it’s the highest mountain to climb. It’s the hardest and most fulfilling challenge to accomplish. That’s why I think bitcoin attracts the very best of the best developers.
Even the founder of ethereum, Vitalik Buterin, has called the Ethereum community a playground, which is great because they are working on the edges and the best of the smart contracts.
But if you want to work on a censorship resistant, decentralized, immutable, world reserve currency asset internet protocol, there is no margin for error.
It’s got to be really serious, it can’t be a playground. That’s why bitcoin draws the best of the developers, and if you can’t compete over there, then you would go over to some of the other projects and work on the edges.
Whereas if you get something good, working really well, it can get merged back into bitcoin.
Bitcoin as a Geopolitial Weapon
The Epoch Times: What do you think about bitcoin’s geopolitical impact?
Mr. Mayer: This is a huge potential, which I think is not given as much airtime. But if bitcoin is being used in the geostrategic sense, this could be big.
For example, we had the software update, Segregated Witness (SegWit) last year, which took a long time to get activated. The community forced the Chinese miners’ hand with the User Activated Softfork, and the miners relented.
Segwit enables a lot of innovation to happen on top of bitcoin, like the second layer scaling solution, the lightning network.
So this was really holding up the development of the protocol. But once it got activated, within a month the Russians, Chinese, Indians, Brazilians, came out with a new gold trading platform.
Within a month, the CME futures get greenlighted, although the regulators here were dragging their feet for years. It’s like the pieces aren’t moving on the chess board. Then Segwit gets activated and China and Russia make their moves.
Perhaps China and Russia, as part of their strategy to reach monetary sovereignty, honed in on the western central banks Achilles’ heel of not having the physical gold, and decided to push in that direction for de-dollarization, to be less influenced by the dollar.
And the United States as a countermove, instead of going to the past, which is to gold, they decide to go to the future, with innovation and bitcoin and other crypto-related assets.
Why else would the Commodity Futures Trading Commission move so quickly, even with protest from Wall Street? So we have seen some very significant events happens that could have geopolitical motives behind them.
Japan has been very supportive of bitcoin, and they are much more aligned with the United States than with China. China and Russia have taken a harsher stance on bitcoin and cryptocurrencies, with China even shutting down all exchanges.
But Russia and China are going to get caught flat-footed. Your start-ups, your human capital, people who understand blockchain technology, they are not in Russia and China for the most part and if they are, they are under the radar or on their way out.
On the other hand, China and Russia have been very positive on gold, even for their own citizens to own it. They are selling it through the state banks. It’s called “storing gold with the people.”
But they are going with the past. Who wants to buy a newspaper these days compared with something that has a really good internet property?
A new technology has been developed and what you can accomplish is determined by effort multiplied by tools. If the Chinese and the Russians are going to use inferior tools, how are they going to compete economically with the people who can harness much more powerful tools?