Jacob Goldstein: The Future Of BitCoin [ML B-Side]

Will Bitcoin and the other cryptocurrencies be able to replace money as we know it today? Will governments embrace a future where they have no control over their currencies? Jacob Goldstein (Planet Money, What's Your Problem) talks to Nate Nelson about what the future holds for Bitcoin.

Hosted By

Ran Levi

Exec. Editor @ PI Media

Born in Israel in 1975, Ran studied Electrical Engineering at the Technion Institute of Technology, and worked as an electronics engineer and programmer for several High Tech companies in Israel.
In 2007, created the popular Israeli podcast, Making History, with over 14 million downloads as of Oct. 2019.
Author of 3 books (all in Hebrew): Perpetuum Mobile: About the history of Perpetual Motion Machines; The Little University of Science: A book about all of Science (well, the important bits, anyway) in bite-sized chunks; Battle of Minds: About the history of computer malware.

Special Guest

Jacob Goldstein

Executive Producer and Host at Pushkin Industries

Co-host of NPR's Planet Money. Did stories for All Things Considered, Morning Edition and This American Life. Author of "Money: The True Story of a Made-Up Thing."

Episode Transcript:

Transcription edited by @hakinadey

[Ran] Hi, and welcome to Cybereason’s Malicious Life B-Sides. I’m Ran Levi.
In last week’s episode, we told the story of the so-called cypherpunks, a group of libertarians and technologists who, in the 1980s, already foresaw how digital currencies might become a threat to our privacy when financial corporations will have unprecedented visibility into all of our financial decisions, everything we buy online and every web service we use. The ideas they came up with later became the basic building blocks of Bitcoin.
Our guest in that episode was Jacob Goldstein, co-creator of NPR’s Planet Money, host of a podcast called ‘What’s Your Problem?’, and author of ‘Money. The True Story of a Made-Up Thing’. We ended last week’s episode with Satoshi Nakamoto’s landmark paper about Bitcoin, and in this B-side episode, Nate Nelson, our senior producer, and Jacob Goldstein continue the conversation about Bitcoin.
Does Bitcoin implement the ideas and ideals the cypherpunks believed in? Will Bitcoin and the other cryptocurrencies be able to replace money as we know it today? And will governments embrace a future where they have no control over their currencies?
As I sometimes do, I’ll pop up here and there during the conversation with some relevant additions when needed.
And by the way, have you noticed our new theme music? It’s nice to shake things up once in a while.
Enjoy the episode.

[Nate] You, Jacob, think a lot about money. Our episode is about privacy and money.
How much do you care about that issue? How much effort are you personally willing to dedicate to ensuring your own transactional privacy?

[Jacob] Well, the fact of the matter is I don’t put much effort into it, right? And it’s one of those things.
I mean, there is this idea in economics where they look at stated preferences versus revealed preferences, right? Stated preferences are like if you survey people and you say, is privacy important to you? People often will say, yeah, I care a lot about privacy, but we shouldn’t care what people say, right? What we should care is what they do, their revealed preference.
So I might say, oh, it’s important to me that I not be surveilled with everything I buy. But in fact, and in particular, since the pandemic hit, I don’t use cash for almost anything, right? For the things I used to use cash for, I use Venmo now. So pretty much everything I buy from the smallest thing to the biggest thing can be surveilled.

[Nate] So the story that we’re telling ends on a kind of cliffhanger, that mysterious email that marks a culmination of the timeline that began with David Choum. What is that moment like from the perspective of the crypto anarchists?

[Jacob] So they’re not quite there. They know they’re not quite there yet. And then in 2008, somebody in this community, going by the name of Satoshi Nakamoto, which apparently is a pseudonym, comes out with a new paper that is explicitly building on these ideas.
The paper references both Adam Back’s hash cash and Wei Dai’s B-money, but it adds to them, right? And this, of course, is what comes to be known as the Bitcoin white paper, right? Like the big moment in the history of cryptocurrency that traditionally, you know, the traditional narrative is like it’s sort of coming out of nowhere.
But the really interesting thing to me is it is not, and it’s not pretending to be, right? It’s coming out of this very particular intellectual community that had been working on these very hard technical problems for like 20 years by this point, more.
And so that is, in a nerdy way, it’s the nerdy side of this, really interesting and exciting. And this idea of an intellectual community working on hard technical problems and solving them step by step over a long period of time is just something that I love intellectually, frankly, you know, whether it’s whatever, the development of quantum physics in the early part of the 20th century or this, not to say that this is necessarily of the same magnitude, but it’s akin, right?
This idea of people who believe in a thing that is technically hard, doing it together over time, I think is great, right? It’s a real standing on the shoulders of giants kind of thing.

[Nate] And then everybody sort of comes to realize that this is just what they’ve been building to or is it that like Satoshi was better at marketing the idea because he just.

[Jacob] I think the Bitcoin white paper really does put the last technical pieces in place, not the last you ever need, but the last technical pieces in place to make something functional, right? He solves those problems that Wei Dai newer problems largely by this idea of mining, right? Which is of course a metaphor that has become familiar. And maybe if you follow crypto, you don’t even think of it as a metaphor.
But this idea that, okay, there’s this problem of like, how do we get everybody to be online all the time? How do we decide who gets money? This new kind of money that we’re creating, he wraps those up in this idea that we will incentivize people to be online all the time, essentially by giving them this newly created money in exchange for maintaining the ledger, the shared ledger and essentially running the system.

[Nate] Is Bitcoin the vision that these cypher punks had in mind, like independent of how it’s practically being traded and used?
Are these cypher punks and their spawn that are around happy with how this ended up?

[Jacob] You know, I don’t know.
I mean, there is still, you can still really feel the libertarian vibes around Bitcoin, right? Certainly, it gives off libertarian feelings, although the sort of larger crypto world is bigger and more diverse now, right? There’s a very large chunk of the crypto world that wants to play nice with regulators and you know, donates money to people’s campaigns and tries to figure out a way to bring it into the tent of polite society.
At the same time, hackers still use Bitcoin to make people pay ransoms. And Bitcoin seems like a useful way to evade capital controls. And so when you see things like that happening, that is actually consistent with some of the predictions of really early dreamers like Timothy May way back in the, you know, late 80s, early 90s.

[Nate] In this story, we keep coming across people of a kind of particular ideology. And it does make sense that people of this ideology would have been connected to these kinds of ideas. But is there any timeline for us where this kind of system otherwise works without those political affiliations?

[Jacob] You mean, is there, is there a historical example of stateless money?

[Nate] Yeah. Or is, is there any version of this story where cryptocurrency doesn’t become this like techno libertarian utopia and it’s just a system of money that kind of is nice for people to use?
Or is it just this pie in the sky thing for people of a political leaning?

[Jacob] Well, I think the, the present day is an interesting place to talk about that question, right?
When we think about what crypto has become and what it’s becoming, I think its relationship to the government is more subtle and interesting than the early sort of radical libertarian dreams suggested, right?
Crypto exists in the world now. It has been basically blessed by many governments, right? The US could have banned Bitcoin if it wanted. It did not.
And in fact, many states have established regulations that allow Bitcoin and other cryptocurrencies to exist legally. So in fact, we are in this world where crypto exists in this interaction with the government. Now I would argue that it’s not money yet and that that’s important and that I don’t think governments, including the US government, want to give up their monopoly on creating money. And so I think the failure of cryptocurrency as money has allowed it to coexist with governments in a way that’s quite different than the sort of original kind of maximalist libertarian dreams.

[Nate] Now we’re here. We have Bitcoin. It’s today.
But Bitcoin isn’t entirely anonymous in the way that maybe some of these cipher punks would have envisioned. It’s an environmental disaster. Nobody uses it for payments. That’s something that you were getting to before. So maybe not quite a utopia yet.
With this story in mind, Jacob, and your economist hat on, will a well-functioning system of truly autonomous cryptographically backed money ever be attainable?

[Jacob] I started covering Bitcoin in 2011. So early. I was shocked doing the first story when I was reporting it. The price of Bitcoin doubled impossibly from 10 to 20 dollars per Bitcoin. I was like, what? So you know, I’ve been covering it a long time. I started covering it early.
What I thought at that time was, wow, this is really interesting intellectually. By that point, it seemed less, a bit less radical than, you know, the early, this is going to destroy the world as we know it. And that’s a good thing. It didn’t seem quite that radical anymore, but it still was pretty out there. What I thought was either it will work as money or it will go away, which I think is what most people thought at the time, right?
I think if you had said, no, it will go up in value by a factor of whatever, a thousand more.
And it won’t really work for anything for 10 years. That would not have made sense to me, right? Like not only is Bitcoin not money, but crypto more generally is not yet useful for anything, which is surprising and a little disappointing to me, right?
But there’s a way less maximalist version of this, which is it doesn’t have to be the libertarian dream of stateless, truly anonymous, untrackable digital money. It could just be, oh, look, blockchain is a way to do remittances more cheaply so people don’t have to get hosed by huge fees when they send money home, right? Like that would be a big deal. And it doesn’t even work for that yet, right?
And so I don’t know. I mean, I would like to think that it will at least be useful for something. And by it, I just mean blockchain, crypto in general.
But I hope it does because it’s good when things get more efficient. It’s good when oligopolies collecting high fees for providing services get outcompeted and we pay lower fees to an innovative service. So I’d like that. And I’m disappointed that hasn’t happened yet.

[Ran] Why isn’t cryptocurrency money? Why isn’t it useful for much at all? Maybe you think because it’s shady, because criminals like using it and not ordinary people. Or maybe it’s not useful because it’s not “real”. Just computer code we all decided is worth something.
Actually, the reason something like Bitcoin isn’t money is slightly more complicated.
So to explain, I’m going to tell you about two pizzas. Thick crust cheese pizzas with black olives, ham and green and red peppers from Papa Jones. What made these pizzas worth discussing a whole 12 years after they were procured and eaten isn’t their delicious goodness. In fact, in pictures, they look pretty gross. What makes them two of the most interesting pizzas ever eaten is that, adjusted for prices today, they cost hundreds of millions of dollars.
On May 22nd, 2010, at 7.17 PM, a user named Laszlo from the Bitcoin Talk forum reported a milestone in the history of both technology and finance. “I just want to report that I successfully traded 10,000 Bitcoins for pizza.”
Bitcoin, this made-up computer project, was actually worth enough to trade for real things, like a pizza. Laszlo and the rest of the then-tiny Bitcoin community saw it as a sign of the future. In fact, it was an omen.
Not long after Laszlo enjoyed his gross pizza, Bitcoin rose from being worth hardly a fraction of a penny to a full cent, then five, ten cents and, remarkably, one whole dollar. Ten dollars, a hundred, thousand, sixty thousand dollars later, it didn’t take that long for investors to learn the important lesson – don’t use Bitcoin to pay for things. Laszlo’s two pizzas, which he paid for it, today’s rates, around 200 million dollars, were a case in point.
In a sense, it’s never been logical to spend Bitcoin. You either think its value is going to go up in the future, so you won’t want to spend it today, or you think its value won’t go up and you have little reason to own it in the first place.
And so, despite the occasional news story about a company like Starbucks or Microsoft accepting crypto as payment, in reality, almost nobody uses cryptocurrencies as currency. And if a currency isn’t used as a currency, what exactly is it good for?

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[Nate] So I wonder, if the crypto community one day really does get it right, Bitcoin and whatever other coins become genuinely fast and secure, cheap, useful, would that be a good thing? Like, is crypto something that we want for the world?

[Jacob] Well, that’s a complicated question.
I mean, another version of that question is, do the costs outweigh the benefits? Even that question is a hard question. You know, look, new technologies come with trade-offs. We don’t entirely get to choose what new technologies come along. Bitcoin, cryptocurrency is definitely a new technology, right? We don’t think of money as technology, but money is a technology. Paper money a thousand years ago was a new technology that came with its own trade-offs. Crypto is a new technology.
And you know, I think thinking about how to maximize the benefits and minimize the costs is a useful framework. Different people will disagree on the benefits and the costs, right? I think clearly the environmental costs are very large and, you know, we don’t need to get into like proof of work versus proof of stake, but it seems pretty clear that figuring out ways to reduce the environmental footprint, you know, just the power usage, the energy usage, that seems worthwhile in terms of just reducing the costs.
It seems unlikely to me, frankly, that governments will allow a real stateless form of money. Like I just think it’s too much power for the government to let go of. That is a thing that I think is very unlikely. I think truly stateless money being widely used, I think that’s unlikely. I think the United States government would exert a lot of power to prevent that from happening. And I suppose you could imagine a technology that’s so good that it would happen anyways, but I don’t think people, most people are that eager to abandon the dollar.
I mean, sure, if there were some horrific collapse in the dollar, and I don’t mean 8% inflation, I mean a thousand percent inflation, sure, then it might happen, but that would be like a much bigger social or economic collapse where lots of things are going on, not just some new monetary technology.

[Nate] Right. Last question, and I’ll let you go.
After you finish this section of the book, or maybe these years later, now that it’s sort of in the back of your mind, what is the main thing maybe that you’ve taken away from this story?

[Jacob] I mean, I can answer on a few different levels, right? In terms of this particular story about, it’s really the intellectual sort of prehistory of Bitcoin and cryptocurrency. It’s really impressive to me what a technological feat Bitcoin is, right? And it builds on lots and lots of clever breakthroughs, which is how technology works, right? How intellectual progress works.
Lots of people working together over a long period of time solved a series of complex problems in a really clever way. And just as a nerd, I like learning about that. I like learning about smart people solving hard problems, right?

[Ran] So I think that is still an under-told part of the Bitcoin or crypto story.
Around the world, governments are the only entities with the power to create legal tender, the kind of money you can exchange freely, buy things anywhere with and pay taxes with. This is an exclusive right they’ve held and not given up for thousands of years.
That is, until September 7th, 2021, the day that Bitcoin became a legal form of payment on par with the US dollar in El Salvador. El Salvador’s young, popular dictator Naib Bukele is perhaps the only crypto bull who also happens to run an entire country. His idea to make Bitcoin an official national currency was a bet on its long-term viability, essentially an investment in the way you might make, except on the scale of millions of people at once. It was also an obvious PR stunt, meant to generate tourism and foreign investment. In many ways, the idea worked exactly to plan, until of course the price of Bitcoin crashed and his government’s total investments lost about half their value.
El Salvador is an extreme case, but they’re far from the only country that has legalized and utilized cryptocurrencies through official law and policy. In April, the Central African Republic voted unanimously to like El Salvador, enshrine Bitcoin as legal tender. The alternative to cash is cryptocurrency, the president said in a statement. For us, the formal economy is no longer an option. The country also invented its own blockchain-based Sango coin. Half a decade ago, during a period of over 1000% inflation on its boulevard currency, the government of Venezuela was the first to do that, creating its own crypto, called Petro, supposedly backed by the value of the country’s oil and mineral reserves.
Last year, China took a page out of the crypto book by inventing digital yuan, a digital equivalent of its paper currency, which, despite taking some inspiration from the crypto boom, is controlled by the central bank and not based on the blockchain. By year’s end, over 260 million citizens had taken part in the trial, generating the equivalent of nearly $14 billion in transactions.
Even the United States has recognized the legitimacy of cryptocurrencies by including them in the tax code. Nowadays, every American is required to report cryptocurrency earnings in their annual tax filings, just like any other investment income, and the government then takes a cut. So some governments acknowledge or mimic crypto and some outright embrace and use it.
It recalls that Timothy May predicted that crypto-anarchy quote will alter completely the nature of government regulation, the ability to tax and control economic interactions, and that, “the state will of course try to slow or halt the spread of this technology”.
In the end, he guessed wrong. The cryptographic money of our present day, it turns out, isn’t very anarchist at all.