KOL337 | Join the Wasabikas Ep. 15.0: You Don’t Own Bitcoin—Property Rights, Praxeology and the Foundations of Private Law, with Max Hillebrand

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Kinsella on Liberty Podcast, Episode 337 (May 23, 2021).This is my appearance on Join the Wasabikas: A Bitcoin Privacy Podcast, Ep. 15.0, with Max Hillebrand.

Transcript below.

From the shownotes:

Stephan Kinsella is an incredible scholar of the Austrian school of praxeology, his major contribution is the advancement of the arguments in favor of property of scarce goods, and against intellectual property of non-scarce goods. He applies his in depth wisdom to how Bitcoin can be explained in this view.

We discussed a variety of topics related to bitcoin, property rights, Austrian economics, and so on. Shownotes for the full episode:

Stephan Kinsella is an incredible scholar of the Austrian school of praxeology, his major contribution is the advancement of the arguments in favor of property of scarce goods, and against intellectual property of non-scarce goods. He applies his in depth wisdom to how Bitcoin can be explained in this view.

• Watch all Highlights
• Watch all full episodes
• Website: https://WasabiWallet.io Blog: https://blog.WasabiWallet.io
• Documentation: https://docs.WasabiWallet.io
• GitHub: https://github.com/zkSNACKs/WalletWasabi
• Podcast: https://anchor.fm/Wasabikas
• YouTube: https://youtube.com/c/WasabiWallet

Full episode on Youtube:

My version (with professionally prepared captions):

Wassabikas version:

Timestamps:

• 00:00 Introduction. / Scarce vs non-scarce goods.
• 02:38 Stephan’s background. / What property rights should be. / Intellectual property.
• 06:50 Why do we need property rights for scarce resources? / Praxeology: the logic of human action (Mises). / Assignment of an owner to anything that could be contested. / You own your body. / Homesteading. / Patents and copyright.
• 13:43 The purpose of law.
• 14:46 The definition of scarcity. / How much is the abundance of a good tied to its actual scarcity? / Superabundance. / Rivalrous or conflictable resources. / Production. / Dispute.
• 19:48 How to behave towards the aggressor. / Rules that promote peace. / Appeal to norms.
• 22:57 Retribution of the victim. / Empathy and evolution. / Being part of a community. / Crime is impossible to eradicate.
• 26:24 Entropy. / Creation is more difficult than destruction. / Defence is easier than offence.
• 27:48 What is the qualitative difference between retribution and pre-emptive defence? / Non-aggression principle. / Punishing people is expensive. / Restitution.
• 31:36 Juristic/legal ownership vs economic ownership. / Right to use vs ability to use. / Self-enforcing systems. / Ownership vs control.
• 33:48 Why don’t you own the private key? / You can’t own information. / Information is always the impatterning of a substrate. / Information is a feature of the owned thing. / Ownership can only be applied on physical things.
• 39:26 Craig Wright wants a property right over other people’s computers.
• 40:41 Non-scarcity in cyberspace.
• 42:21 Using cryptography to enforce access rights. / Money is rivalrous. / Money has a network effect. / Bitcoin mimics real-world scarcity. / The purpose of money. / Non-coincidence of wants. / Economic calculation. / Any amount of money will do.
• 47:38 Absolute scarcity in the monetary medium. / Sacrifice. / Low supply. Low stock-to-flow ratio. / Gold vs Bitcoin.
• 50:11 Permissionless write-access to a central ledger.
• 53:43 What defines the absolute scarcity of gold? / Why did gold become money?
• 56:31 You verify that a transaction is valid based on the rules to which you opt in. / Verify the sacrifice of someone else. / Everyone is verifying according to the same rules.
• 58:54 Divisibility of bitcoin and sidechains. / Consensus.
• 01:02:22 The way users will act in the context of hard-fork.
• 01:03:03 Is the “digital gold” metaphor misleading.
• 01:04:47 A system bordering on chaos but thriving.
• 01:05:31 Being one of the founding fathers’ of America.
• 01:06:24 Theft is a correlative of ownership. / Bitcoin has no terms of service.
• 01:08:02 Fear of losing keys. / Personal responsibility.
• 01:09:51 An extra-terrestrial/solar civilisation.
• 01:11:07 Intergalactic mining. / Energy. / Latency.
• 01:13:36 Correlation between civilisation and efficient energy usage.
• 01:14:46 Alignment between the morals of society and the rules of Bitcoin.
• 01:15:54 What if a better Bitcoin comes along? / Productive assets.
• 01:17:24 Is Bitcoin the best money that humans will ever experience?
• 01:19:43 How will Liberty/Libertarianism work?
• 01:21:01 Will the society of Bitcoin change in a way that becomes evil/leeching?
• 01:22:36 Conclusion.

❧

Before release of the full episode on May 23, several Highlights videos were released, to-wit:

Highlights video 15.1, The Basics of Property Rights. From the shownotes:

• Property Rights are a method to answer the question of who can decide how to use a scarce resource, and who bears the responsibility for the good. Ownership can be obtained peacefully, by either being the first one to use it [homesteading] or by contractual agreement with the previous owner. However, these rules do not apply to non-scarce goods of cyberspace

Highlights video 15.2, Why Do Individuals Follow Property Rights? From the shownotes:

Every human must use scarce resources, in order to reach the end goals that the individual wants to achieve. Property rights are used to ensure social peace in regards to having a clearly defined record of who can use which scarce goods. This is a social concept among multiple individuals, to ensure long lasting mutual beneficial prosperity.

Highlights video 15.3: Non Aggression and Self Defense

Highlights video 15.4: Do You Really OWN a Bitcoin Private Key? From the shownotes:

A physical key is a scarce good that can unlock a given area in meatspace. A cryptographic key is also used to unlock things, however, the key is non-physical and non-scarce, just a long random looking number. Information is only the feature of an owned scarce good, but data can never be owned in it of itself

Highlights video 15.5: What Problem Does Bitcoin Solve? From the shownotes:

Money is a technology to enable trade without barter, and thus without the double coincidence of wants problem. Any supply of money will work to enable this function of medium of exchange. Further, when entrepreneurs price their goods and services in money, it becomes possible to calculate the cost of deep production stages, and thus find out the profitability of a project.

Highlights video 15.6: Change the Rules of Bitcoin at Your own Peril! From the shownotes:

Bitcoin is a set of rules that every participant of the network follows. Thus changing these rules is extremely complicated, and can be very dangerous. A gold atom has 79 protons, and this definition is not man made, and thus cannot be changed by men. This is where gold is seemingly superior to Bitcoin.

Highlights Video 15.7: What if a better Bitcoin 2.0 emerges? Shownotes:

Bitcoin had an immaculate conception, a steady software development progress, and a solid monetary stability. It seems to be very difficult for a new project to have similar, or even better, fundamentals as Bitcoin has. Yes, Bitcoin is beautiful, but it for sure is not perfect. It is yet to be discovered if humans will find an even more beautiful solution to the question of money.

Links:

• Website: https://WasabiWallet.io
• Blog: https://blog.WasabiWallet.io
• Documentation: https://docs.WasabiWallet.io
• GitHub: https://github.com/zkSNACKs/WalletWasabi
• Podcast: https://anchor.fm/Wasabikas
• YouTube: https://youtube.com/c/WasabiWallet

❧

TRANSCRIPT

You Don’t Own Bitcoin—Property Rights, Praxeology and the Foundations of Private Law, with Max Hillebrand

Stephan Kinsella and Max Hillebrand

May 23, 2021

00:00:17

MAX HILLEBRAND: What’s up, peers?  And welcome to Join the Wasabikas, a Bitcoin privacy podcast.  And today, we deviate from the bit more technical side and into the philosophical and praxeological domain.  I am joined by the one and only Stephan Kinsella who has been one of the most influential people on my understanding of the beauty of Bitcoin especially.  Really he is great in articulating the difference between scarce and non-scarce goods meaning scarcity being a potential conflict over who can control these resources.

00:00:55

And there are many scarce goods like wood or food or oil, and there also infinite non-scarce goods like ideas or numbers where anyone can use a number without anyone else needing to sacrifice the use of those.  And this already leads us down an interesting discussion of can we even own information, and do things like patents or copyrights even make sense.  Well, spoiler: no, they don’t.  That’s why we love free software.

00:01:28

But we can strive this way of thinking even further, and I think this conversation here today shows exactly that because we get into the nitty gritty of what it actually means for Bitcoin to exist.  What is the actual problem that it solves, and how unspeakably beautiful is the solution that it comes up with.  It is crazy, complex, and very scary to think about, and it could go wrong and break in 1,001 pieces, but nevertheless, Bitcoin continues to function, and it continues to amaze me.  And I hope that these conversations here will continue to amaze you too.

00:02:14

So catch this latest episode on anewpodcastapp dot com with the Podcasting 2.0 features enabled, and send some sats to all the amazing contributors in the Bitcoin podcasting space.  And now without any further ado, let’s get into this conversation about the crazy, beautiful magic of non-scarce cyberspace.  So Stephan, very welcome to Join the Wasabikas.  How are you today?

00:02:43

STEPHAN KINSELLA: I am very well.  Thanks Max.  How are you doing?

00:02:45

MAX HILLEBRAND: Always good to talk to you, and I’m eager to expand on our past conversations that we had and talk a bit about the nuances of intellectual property and how cyberspace actually comes to work in the realm of human action and how privacy is an essential part to this.  So at first I’m very curious about your background and when you especially got interested in delving down this realm of intellectual ideas and non-scarce items.

00:03:18

STEPHAN KINSELLA: Probably right around the time I started practicing patent law, around ’93.  I was a brand new lawyer, and I was doing oil and gas law at first, and then I started doing patent law because that’s the way my career developed.  And I was also a libertarian at the time and writing on various things about libertarian theory: property rights and individual rights and contract law, legislation, things like that.

00:03:45

And the IP thing puzzled me because the arguments I had heard for it seemed to be all over the map and really were unprincipled or made no sense, so I tried to figure it out on my own.  I tried to justify IP because I was doing it as a living.  I was doing copyright and patent and still am.  So I was always interested in libertarian theory and economics and Austrian economics as a lawyer and law student and college student.  And when I started practicing law, I was also at the time heavily involved in the Mises Institute and in writing sort of scholarly arguments or articles about different aspects of libertarian, let’s say, legal theory.  And because I started practicing in IP law, I turned my attention to that.

00:04:26

I thought I would be the one that would solve the issue, and I would show why patent and copyright law are valid types of property rights.  And after a few years of struggling, I finally reversed my efforts because I realized that I kept failing because it’s totally incompatible with property rights.  So that’s how I came to it, but I kept studying it over the years, and because I wrote something on it – I wrote something in 2000 about IP.  And I really did it to get it out of the way and to turn my attention back to the things that I’m really interested in, which I have done.

00:05:00

But that was the beginning of the internet era, and so more and more attention got paid to that article, and I – so over the years I keep getting invited to speak on that topic.  And so over the years I kept refining my arguments because I keep running into different objections.  You come up with a good argument for why – what property rights should be and why they cannot include rights in immaterial, intangible things like ideas or knowledge.

00:05:27

And so people keep objecting, and they’ll – if you shoot down one objection, they’ll come up with another, and you shoot that one down, they’ll come up with another.  So over the years I’ve come up with a host of reasons to address the different arguments, but the reasons are all the same basically.  And usually the arguments for IP are a retread of the other ones, and there’s about ten of them, but when you get to the tenth one and you finally rebut that one, then they start over again with number one.  So I keep having to rebut the same old fallacious ideas over and over and over again.  So that’s how I got interested in it, and I got more and more interested as I realized it was a more and more significant problem.

00:06:05

I’ve come to believe that intellectual property is not only a theoretical, technical thing that specialists have to worry about, but it is extremely damaging to the human race and prosperity, freedom, innovation, internet freedom, all these things.  And it’s one of the most harmful things the government does, so I put it up there with big state evils like taxation and government schools and the Federal Reserve, central banking, war, the drug war.  It’s up there with those, so it’s one of the things we really have to focus on and work to abolish because it’s extremely harmful in every way.  There are no good arguments for intellectual property I’ve come to believe, and we would just be better off in every respect without it.

00:06:50

MAX HILLEBRAND: That for sure sets the scene adequately with emphasizing the importance of understanding what cyberspace and the realm of ideas is actually about and then why it’s so fundamentally different to material scarce resources.  And so let’s go down that path.  Why do we need property rights in scarce resources?  What problems does this concept solve?

00:07:16

STEPHAN KINSELLA: So you could go back to fundamentals, and I always invoke a concept that Ludwig von Mises, the kind of preeminent Austrian economist, used.  It’s called praxeology, and the word sounds daunting, but it’s really not that complicated.  Praxeology is just a word he came up with, which means the logic of human action.  So it was how he analyzed what we do, and he did that more to analyze the consequences of our action, which is really what economics studies, the consequences of human action in the world where we interact with other people, where we have trade and interactions with them, and where we live in a world of scarcity.

00:07:52

So that’s the fundamental backdrop and that’s the backdrop of all economics is recognizing that we live in a certain type of world of scarcity, and scarcity means that we don’t live automatically and for free.  We have to do things to achieve what we want.  So we don’t live in a magical place where you can just get something by wishing for it, and we don’t live in a world of infinite plenty like the Garden of Eden.

00:08:15

So there’s shortages and scarcity, and there’s the need to do things to achieve things.  And to do that, we have to use means.  Mises called it means.  We have to use scarce resources or tools, things in the world that we can use to achieve what we want.  And these things are the type of things that includes our bodies and land and food and other resources like wood and metal, all the things that we use in life to achieve things.  These things are called scarce resources because their nature is such that only one person can use them at a time.

00:08:48

And two people can’t use them at the same time to achieve the same thing.  If I’m using my fishing pole to catch fish, if you take the fishing pole from me, I can’t use it anymore to catch fish.  So there’s – because of the way the world is, there’s always the possibility of conflict among people, that is, the struggle over the use of these resources.  Now, we would prefer to use them peacefully and productively so that we can get more things done instead of fighting with each other.  So we prefer to each be able to use the things that we need to use, and if we need to use someone else’s thing, we need to get their permission.

00:09:25

We need to pay them to use it or ask them permission or trade with them.  So that’s what property rights are.  Property rights are the rules that in society that we agree upon that determine who owns which one of these resources that otherwise would be subject to conflict.  So that’s really what the law is and what property rights are.  They are the assignment of an owner to everything that could be contested or have a conflict over.

00:09:52

And traditionally in the private law of the western world like in the common law and the Roman law and the civil law of Europe, these systems and other systems too – they tend to follow certain basic principles like – so most people are against murder and theft.  But you can think of those as just the consequences of having a property right in people’s bodies and in other things of the world.  The basics of property rights of private law is that you own your own body, which means you’re the one who gets to decide if something is done to your body, which is the distinction between rape and consensual theft – I mean consensual sex.

00:10:30

And you’re the one who gets to decide if you first use a resource that was unowned, like you pluck it out of the state of nature and start using it, that’s called homesteading or original appropriate.  And you have the ownership of that thing because you were the first to use it unless you give it to someone else by contract in which case they have the better title.  So these very simple rules that you own your body and you own a resource if you were the first to use it or if you got it by contract from a previous owner, those three rules are the basis of all private law.  And if you apply them very consistently, that’s when you get the libertarian conception of these rules.

00:11:07

We just don’t make exceptions.  The conventional legal systems of the world follow these rules in a rough way, but they make lots of exceptions like you own your property usually unless the government needs to take some of it in the form of taxes to fund their army, something like that.  So normally you’re the owner of your property, your crops let’s say, unless the government takes some of it, which we would call theft in a private setting.

00:11:33

So that’s the basic background.  Now, if you understand property rights in this way, then you will understand why the attempt to assign ownership to ideas or knowledge, which is what intellectual property does, patent and copyright law, you will understand that it’s in conflict with these basic principles because a patent, for example, gives the owner of the patent the right to stop another person from using his factory to make a product.

00:12:01

So it’s telling him what to do with his own property when he was supposed to be the one that had the right to do that because that’s what property rights and ownership means, and copyright is very similar.  The copyright holder can prevent someone from using their printing press to print a book because it has a certain pattern on it that’s similar to the pattern you put into your book.  That’s the argument there.  So the copyright gives the copyright holder a partial ownership right in your printing press and even in your body if it can prevent you from saying something or singing a song or performing a play or something like that.

00:12:37

So the problem with these rights is ultimately that they take away, the redistribute property rights that are assigned according to the natural way, and they reassign them to someone else.  So they’re tantamount to theft.  Now, the consequences of this is that, although patents are granted – the system is justified based upon the idea that it encourages innovation, it actually does not.  It actually impedes innovation because it makes it illegal for someone to use their property in a way to compete with someone who has a patented product.

00:13:11

So they don’t bother to innovate in, say, trying to improve the product because it would be illegal to sell that product because it’s patented, so they don’t bother to innovate.  And likewise, the person that gets the patent on their innovated product slows down on their innovating because they don’t need to innovate anymore to keep customers because they have a monopoly for about 17 years where they’re free from competition.  So they don’t innovate as much, and their competitors don’t bother to innovate because it wouldn’t do them any good.  So patents actually impede innovation, not that the purpose of law is to encourage innovation in the first place.

00:13:48

The purpose of law is to set these rules down, to assign ownership to scarce resources so that we can live in peace with each other and cooperatively and we can trade.  So the purpose of law was never to encourage innovation because people that tinker with the law to achieve their pet social goals, they always make exceptions to the basic law.  And they say, well, one purpose of the law is to make sure we have enough – make sure we have a spaceship landing on the moon.

00:14:15

So let’s tax people, take their property from them, and use it to fund NASA, or I want to make sure people don’t starve, so I’m going to have a welfare system and I need to take people’s property from them to fund that, or we need basic education for free for the public, so we’re going to take people’s property and pay for education.  So if you come up with a pet project, you can always use that as an excuse to steal people’s property, but the purpose of law is to protect property, not to invade it in the service of some artificial goal that you happen to have.

00:14:47

MAX HILLEBRAND: Yes.  There’s a lot to unpack in this eloquent and quite realistic approach to the problem matter.  And one thing I would like to highlight is on the actual definition of scarcity because this is so important in our analysis that it’s very deep in the logical foundation of it.  So scarcity is about having potential conflict over who can use this resource.  So only one person at a time can use this good for only one specific task, and there are literally endless amounts of opportunity costs where this good can no longer be used because it has been used up.  So – but one of my questions here is that it’s – does this potential conflict of ownership only arise if there is not an abundance of the good, or how closely is the abundance, the quantity of the good tied to its actual scarcity?

00:15:47

STEPHAN KINSELLA: This is one of the issues that – where it’s important to think a little bit more carefully about it, to be very careful with the use of words because this issue does trick up a lot of people who are new to the issue because they think of scarcity as just relative lack of abundance.  And so they’ll say something like, well, good ideas are scarce, so why can’t they be subject to property, something like that.  So you have to keep in mind that the term scarcity kind of has two meanings.  In economics, it has more of a technical meaning, which does not just mean lack of abundance.

00:16:19

It really means lack of super abundance you could call it.  So in the limit, abundance goes to superabundance, which means so plentiful that it’s infinitely possible.  But that doesn’t exist in the real world.  So the way we use the word scarcity has a technical meaning that’s more akin to the economic idea of rivalry or rivalrousness, or a term I’ve been using—conflictability.  So really it’s about things that there could be conflict over.  So even if we lived in a world – let’s say bananas are a useful thing.  People like to eat bananas, and we lived in a jungle where there’s just banana trees everywhere.

00:16:55

Now, they’re still not superabundant in the sense that they’re infinitely provided.  But they’re so abundant that it’s the same to any human actor whether they’re infinitely abundant or not, sort of like air is right now.  We can treat the air as if it’s super abundant because we don’t have to economize on its use.  And that’s the whole function of economics is to study how we produce things that are not superabundant because – or not abundant enough that we need to produce them, so we have to produce some things.  And when we produce things, we have to use resources to do that, and we have to choose the most efficient way to do that.

00:17:29

That’s what economizing means, and that’s what economics arose to study.  How do we react to a world where we have to make some effort to achieve these things and to produce these things that are not just there for the grabbing?  But if you imagine if we lived in a jungle with a virtually infinite supply of bananas, each individual banana is still scarce in our sense.  It’s still conflictable because that particular banana still can’t be used by more than one person at a time.

00:17:55

So if I pluck the banana out of the tree and was about to eat it and someone took it from me, they would be taking my property or a resource that I own.  Now, the thing is, it’s such an unreal construct.  The question is why would anyone take my banana?  Because they don’t need to, because they can just grab their own banana.  And furthermore, why would I care if they took my banana?  If someone takes my banana, I could just grab another from the tree.

00:18:20

So the more plentiful things get, the less we really need property rights, and the less people care about them, the less relevant would be the concept of stealing or property rights because people just wouldn’t care because it would be so plentiful.  But when it comes to the point where people do care, and that happens when things are scarce enough that it matters, that’s when property rights apply, and that’s when theft has a meaning, and that’s when I would – it would matter to me if someone took my things.

00:18:46

Like if someone takes my car from me or my home or my crops in my field or my animals or my car or my iPhone, I do care because I no longer have that thing anymore.  So really it’s about anything that there could be a contest or conflict over where there could be a dispute.  So the idea is that when two or more actors desire to use the same thing and that’s impossible, they have a dispute.  And if they care about peace in society and civilization at all, they would prefer to have a civilized, peaceful dispute-resolution process, which is why they go to a legal system to decide who gets to use a thing.

00:19:25

And hopefully they respect the outcome of that, and they go about their business and then they can trade.  So when the case – when the judge or whoever decides or the legal system decides which one of the two contestants has the proper right in that thing or the property right in that thing, then the other guy, if he wants it, now he can buy it, or he can make a deal.  That’s – so that’s how the system ideally would work and how it does work to some degree even now.

00:19:49

MAX HILLEBRAND: Yes.  And it is somewhat of a social construct to – for the victim to be able to get help from other people to defend off against a thief and bully.  So basically this court system is a way for other humans to decide how they want to act towards that victim and the aggressor and, first of all, find out who is who and who has actually stolen someone else’s property against his consent so to then, for example, punish him and apply defensive force against the aggressor.

00:20:26

STEPHAN KINSELLA: Right.  So you can think of – you can imagine a few different ways of looking at it.  So every human actor needs to employ scarce resources.  That means they need to possess or use them.  They need to have access or control over them to survive.  So if you imagine Robinson Crusoe alone on a desert island, he doesn’t have any conflict with anyone else, so he just uses these things.  He doesn’t really own them because there’s no one to own them with respect to.  He possesses and uses them.

00:20:50

So one way to avoid this conflict would be to live as a hermit or a hermit away from society.  But then you don’t get the benefits of living in society, which is the comfort and communion with other people, their company, intercourse with other people, trade, division of labor, all these things.  So once you live in society with other people, you get benefits from that, which is trade and the other benefits of living with people.

00:21:17

But now the danger is that someone could steal or harm you or harm your things.  And so if we live in a society with no law and no morals and no rules, we live in a war of all against all, like where your life is precarious.  It’s at the whim of other people.  But it so happens that humans have a social aspect, and they do, by and large, prefer peace.  And they’re also somewhat empathetic.  Not everyone is 100% atomistically selfish and cares only about their own wellbeing.  They care about other people too.  We’re an empathetic social species, and because of this, we tend to favor – most of us favor rules that promote peace and mutual prosperity.

00:22:01

So this is why there tends to be a mutual society-wide recognition of these property rights.  And it has to be recognized widely enough to be of any use to you because you can use technical means to defend your property.  You can just use locks and guns and self-help, but that’s very inefficient.  It would be better if you could also appeal to norms.  That is, you can appeal to the person trying to harm you.  You can say, listen.  This is wrong.  Please don’t do this, and that has some effect, or you can appeal to your neighbors or the legal system.  You can say, listen.  Everyone else help me out.

00:22:34

There’s one guy that’s an outlaw, and these people tend to be shunned and punished because 90% of society or more agrees with these civilized rules.  And because they do, you can appeal to these norms for assistance, and this is how society has developed.  This is why we have society and we have the immense progress and prosperity that we have now is because we have had some degree of this among most people over the centuries.

00:22:58

MAX HILLEBRAND: Yes, and it’s quite a marvelous achievement to come to such a conclusion on a large scale because it’s so tempting to just go out and take the stuff of others that you haven’t worked for that you can just pick up all the fruits of their labor.  That’s – it seems to be a good game to play, a good strategy, but it does break down in the long run, especially considering the retribution of the victim where that resentment of the victim will boil up and eventually come back to haunt you on multiple levels.

00:23:36

STEPHAN KINSELLA: I tend to think – and again I’m not really an expert on the psychological or social aspects of why people do this, but my own personal opinion is that it’s part of human nature, number one, because we did evolve as social creatures.  I mean just the way that women have children because we evolved bigger brains, because intelligence started giving us a survival advantage, we started developing bigger brains.  And because of that, mothers – women had to have children earlier than the – before they were ready to go.

00:24:08

Like horses – the horse comes out and is ready to run around, but a baby is a helpless, and the reason the baby is helpless is because he has to be born before he’s ready because otherwise his head would be too big to be passed without killing the mother.  So because of that, mothers and families and tribes that had this empathetic or social aspect and they tended to care for other people are the ones that cared for the babies, and they survived, and they passed those genes and those habits down.  So I think we developed empathy because of our nature as an intelligent species, which needed empathy to be a social species.

00:24:43

Now, I’m not a sociologist or a psychologist, but this is roughly what I think.  So it just – it’s a fact that most people tend to have this empathy, so their character is that what makes us psychologically happy in life is being part of a community and having empathy for others.  There are outliers.  There are psychopaths and sociopaths, but they’re a minority so that they can be treated by the majority who is also wealthier because we traded with each other.  So people that participate in this division of labor tend to be more successful and wealthier, so we have more resources at our disposal to fight off the outlaws and the sociopaths.

00:25:19

Now, I do believe that even if you imagine a future society, which is far richer than we are now and far more peaceful and far more advanced, more libertarian in a sense, where crime has diminished to such a small point, I do think that even then crime is impossible to totally eradicate because of this economic incentive thing where, let’s imagine a world of immense wealth, and no one even locks their doors anymore because they don’t need to because crime is so rare.

00:25:46

In such a world, the temptation for one guy to break it would be so immense because it would be so easy to steal he could get away with it, and there would be so much to steal.  So on occasion you’re still going to have crime.  Of course, in such a rich world, people might not even care that much because they have so much.  If a guy takes a little bit here and there, they can afford it, and they also can afford to just regard these guys as little wayward children who won’t do much harm to the species.  But I think that just the way economics works, we can never totally eradicate crime, and I don’t think we want to live in a fortressed society if we don’t need to, to stop the occasional act of theft.

00:26:24

MAX HILLEBRAND: Yes, I would agree.  I think that there’s a form of entropy in nature alone that just things start to decay and fall apart.  And there’s also a sort of – the ability for the individual to manifest chaos as well.  So eventually you will go crazy and just start breaking things for the sake of having them broken.

00:26:46

STEPHAN KINSELLA: There’s sort of two – I’ve thought in my mind there’s sort of two competing tendencies in human society.  Because we live in a world of entropy, as you say, creation is more difficult than destruction.  Think of the Twin Towers being knocked down by the Muslim terrorists.  It took immense ingenuity, effort, resources, and civilization to build those towers, but it just took a small act of 11 savages to knock it down.  So in a sense, it’s always an uphill battle to survive and to produce and to achieve civilization in society because destruction is so easy.

00:27:24

But on the other hand, like if you play the game Risk or Castle Risk, you’ll know that the rule is it’s harder to attack than to defend because if you’re going to attack someone’s homeland, they’re going to fight to the utmost to defend it.  So you need overwhelming forces to defeat someone in war.  So on the one hand, destruction is easier than creation, but on the other hand, defense is easier than offense.

00:27:48

MAX HILLEBRAND: Yes, that’s a very interesting point too.  And one way also to spin this is about some preemptive defense.  You brought up the earlier analogy of a lock, the lock being very efficient to keep people out of a certain room or a box and therefore to not give them access to the contents inside of that box.  It’s preemptively preventing the theft just because the good is…

00:28:15

STEPHAN KINSELLA: I sense a Bitcoin question coming up, but go ahead.

00:28:17

MAX HILLEBRAND: Exactly.  That’s where I want to take this here.  What do you think about the qualitative difference between that kind of preemptive defense and a retribution against theft after it has happened?

00:28:32

STEPHAN KINSELLA: As a libertarian thinking about the tangible material world and property rights and the idea of force, force – I mean the way libertarians put our rules that I described in property terms earlier is we call it the non-aggression principle, which is the idea that the use of force against other people is permissible only in response to force.  So initiated force is wrong.  We call that aggression.  So that’s sort of how we think about that.

00:28:58

And in a strict set of libertarian analysis based upon that, strictly speaking it is just if you use force to punish someone.  I mean obviously it’s better to use means, institutions, locks, measures to prevent crime in the first place.  So that would be the most optimal way to deal with crime is to prevent it.  But once it’s happened, justice has to come into play, and we have to decide what are we entitled to do now.

00:29:28

This is a suboptimal response because you can never undo the crime at this point.  You can only hope to achieve some measure of justice, maybe some restitution.  So theoretically you could punish people, which means you could theoretically even execute people that have done a severe enough crime.  But I do believe that those types of systems are very undesirable and unlikely in a free society for a number of reasons.

00:29:50

Number one, having a punitive or retributive-based system just doesn’t do very much because it’s after the fact, and what does it do?  It doesn’t really rehabilitate the criminal.  It doesn’t really give you restitution back.  It might give you some measure of retribution, like it might give you some pleasure in knowing that the guy that hurt you is being hurt himself.  But that’s also costly because it takes a big costly legal system and enforcement system to do this, especially because there’s a possibility of mistake.

00:30:19

And if you end up punishing someone who is innocent, then now you’re liable for that, and so you have to pay a lot of money.  Just like war is expensive, punishing people is also expensive.  So I think that in a free society we would tend to gravitate towards a restitution-based system, not because it violates the rights of an actual criminal to be punished.  I do think that it doesn’t violate their rights, so I think it’s just for the victim of a violent crime to use proportionate force to harm the guy.

00:30:48

And then you could use that threat or that right to use force to bargain with him for some kind of monetary payment.  So you could use it to extract restitution, so there’s all kinds of ways that the use of force is useful or the right to use force is useful.  You can use it for self-defense, and you can use it for retribution, and then you can use that just to get vengeance, or you can use that to bargain for restitution.  But I do think that in any system it’s hard to imagine a working institutionalized penal system.

00:31:16

And the only reason we have one now is because the state does it, and the state doesn’t really care much about morals or the cost either because they pass the cost on to the victims, which doubly victimizes them.  The victim is victimized by the crime, and now they’re taxed to pay for the jail for the guy, so they don’t really get any good out of that in most cases.  So I think that we would tend to have a restitution-based system, but what you can think of is – Mises makes this point that there’s a difference between what he calls juristic or legal ownership and catallactic or sociological or economic ownership.

00:31:53

What he really means is possession, and you can think of that almost like this abundance and superabundance distinction, like one being the limit of the other.  So the reason that we as human actors need to use things is because we can possess or use them, and the more effective we can use them, the better, the more efficient we are in our economic actions.  And so if we have a widespread norm or legal rule in society that people respect and help us to enforce, that sort of like adds on to this ability to use a thing.

00:32:22

So the right to use a thing, or ownership, complements and buttresses and supports the ability to use.  But the whole purpose of a right to use a resource is to be able to use it actually.  So if we could have a system, which is self-enforcing in a sense like the ability to use it simply can’t be taken away by anyone else, then you don’t really need the right to use it, and this is where we get into Bitcoin.

00:32:47

But to make one more analogy, imagine that we were all – we had this hyper technology where we all were infinitely wealthy or super wealthy and had these robotic and high-technology things where we basically are all walking around in a suit of armor that’s impenetrable, like crime becomes impossible.  If crime became impossible because we just had technological measures to prevent anyone from being able to harm us, then the notion of rights might fall away because they would just be useless.

00:33:14

You wouldn’t need a norm respected by people in society to prevent them from taking your stuff.  Your technology would prevent them from taking your stuff, so that’s all you need is the ability to use your stuff.  And in Bitcoin, I think we have something like that, which is why, when I say you don’t own Bitcoin, people get upset because they’ve equated ownership with the right to control.  Just like in economics and in law, the right to control, which is ownership, complements and protects the ability to control, which is possession.  So when you criticize ownership, you’re just talking about the right to control.

00:33:48

MAX HILLEBRAND: Yes, and this is such a beautiful thing to contemplate that it’s worth stabbing at it at multiple levels.  And I think first of all, as you said, you don’t own the Bitcoin, and maybe to start unpacking this, because you mentioned about control, and what the person actually does control is a private key.  But you would probably still argue that you do not own a private key.  Now, why is that?

00:34:18

STEPHAN KINSELLA: Well, in the real world, a real key would be a physical object that you actually own because it’s a piece of metal, let’s say, that you own.  But the purpose of the key, the reason it’s valuable to you, is it allows you to unlock a door or a safe or something like that.  And in Bitcoin, we call it a key like it’s a metaphor or an analogy because it’s similarly lets you use this network in a certain way.  But it’s not physically a key.  It’s just a string of data.  It’s just a number that only you know.  And so the critique of intellectual property is basically based upon the recognition that you can’t own information.  And the reason you can’t own information is not only because it’s not a scarce thing, but because information is not an independently existing thing.

00:35:03

Information is just a knowledge – let’s say information is always the impatterning of an underlying thing because information can’t exist in the world without a carrier or a medium or a substrate.  So a novel is just the – is the way the ink is impatterned on the pages of a book, let’s say.  If the book disappeared and the ink disappeared, the novel couldn’t exist anywhere unless it’s stored in a memory somewhere, someone’s mind or somewhere.

00:35:35

So the thing is that those underlying media or carriers are always physical things that have an owner.  And so information is just the feature of an owned thing.  It’s the – it’s sort of like if you have a red car, the redness is one aspect or characteristic of that car that you own.  But you don’t own redness.  You happen to own a car that happens to be red.  And likewise, if you own a piece of paper, which has – which is impatterned in a certain way, you own a book that has a certain configuration, but you don’t own its configuration separately.  That’s just a feature or characteristic of the thing, or if you own a machine shaped – which is just material shaped in a certain way, you own those resources, those materials, but you don’t own the way in which they’re shaped, which would be the invention as abstracted.

00:36:23

So that’s why you can’t own knowledge or information, and if you did own it, you really can’t own it because force – ownership is an enforceable right, and force is a physical thing that’s applied against physical things.  So ownership can only be applied against physical things, so when the law decrees ownership of an informational pattern, it’s really not the information that you own.  It’s just a disguised way of transferring ownership to physical things like in the examples I gave earlier about the printing press and the factory.

00:36:51

That’s why really a patent is not an ownership of an invention.  It’s really an ownership of someone else’s factory based upon the excuse of ownership of an invention.  It’s sort of like the religion idea.  People say we fight over religion, but that’s really just a shorthand explanation of a physical fight over physical things, and religion is the reason why we fight.  It’s the motivation to fight.  But you don’t – you can’t really fight over religion because religion is not a physical thing that people can own.

00:37:21

But when people disagree over religion, they use that as an excuse or as a motivation or as a fake justification for harming other people’s land and cows and women and bodies.  So really it’s still a fight over ownable things like people’s bodies and their land.  They say religion is the reason.  So likewise, the nominal legal classification that you own an idea is not really true.  It’s just – it’s an excuse that the law gives to let you own someone else’s factory or something like that.

00:37:53

So because you can’t own information and because the key in Bitcoin is just knowledge that you have which allows you to participate in this distributed game in a sense – it’s a game with certain rules that everyone is playing by.  They’re all participating in this network, which runs according to these distributed rules, which are distributed in the sense that they’re rules that are embodied in the code running on thousands of independently – of independent servers, which are all compatible enough to network together.

00:38:26

So your key is the key that will let you plug into that network and cause Bitcoin to be moved from one location to the other, but that again is just a metaphor.  Bitcoins don’t really exist as a physical thing.  That’s just how we describe the operation of this network, like the rearranging of these electrons that change the digital configuration of entries in this large spreadsheet called the blockchain.

00:38:50

So your key allows you to participate in this network, but it’s not an ownable thing, and the information in there is not ownable.  If you were to own your Bitcoin, it really means you own the configuration of all these thousands of hard drives, memory devices around the world, the way that they’re arranged.  Everyone’s copy of the blockchain right now—there are tens of thousands of copies I believe on different nodes—each mirrors each other, and they all reflect a certain distribution of Bitcoins or Satoshis to different address spaces, each of which could be unlocked by a given private key.

00:39:26

So that’s why you can’t own the Bitcoin either.  If you were to own a Bitcoin, it would mean you have a property right in other people’s computers.  So you would be able to get a court order to tell them to change how their computer memory devices are arranged to reflect a certain ownership of Bitcoin, which is, by the way, what some people are trying to do.

00:39:47

Some of these lawsuits by Craig Wright and others that fought the – I believe they fought the split when Bitcoin Cash – the Bitcoin Cash/Bitcoin SV split happened, or maybe it was the BCH/Bitcoin split.  I can’t remember which one.  Maybe it was both.  But the idea was that when the split happened the smaller one was supposed to become dominant, but it lost the fight.

00:40:13

And so now they’re arguing that they should have won the fight, and it was unfair use of – it was unfair collective action like an antitrust violation or something like that for the miners and others to follow the main chain.  So they want a court order to all the main node operators to unwind it to give the Bitcoins back to the guys that think they own it.  So that would be taking ownership of the computers owned by people, but they own their computers, not Craig Wright.

00:40:40

MAX HILLEBRAND: Yes, and this whole conundrum is really a big – both a big opportunity and a big problem that we have non-scarcity in cyberspace that nobody owns the number four because nobody needs to sacrifice his own use of the number four just if someone else uses the number four.  That’s nonsensical, and the same with a private key.  The private key is just a large random number.  It’s, after all, just a number.  You knowing that number does not prevent anyone else from knowing that number.

00:41:13

STEPHAN KINSELLA: Correct.

00:41:14

MAX HILLEBRAND: So I think the first genius of cryptography is to have a potential number space, a list of numbers basically that is just gigantically huge, like unfathomably huge.  And then randomly – finding out a way to randomly pick one of those numbers in a way that it is just unbelievably unlikely, not impossible but unlikely that someone else will ever consciously think about this incredibly large random number.

00:41:48

STEPHAN KINSELLA: Yeah, I mean an analogy could be if you have a home, which is secured by extremely good – a lock system such that no one practically can get into your home unless they can open the lock.  And the lock is just a numerical keypad, let’s say, and you just have a code in there that is so large that it’s so unlikely anyone can guess what it is they can’t get into your home.  So it works as – it works practically as a way to keep out everyone you don’t want in your home even though it’s not 100% guaranteed.  And so I think Bitcoin is analogous to that.

00:42:22

MAX HILLEBRAND: I would say it goes even earlier than Bitcoin because this is just basic cryptography, and we can use cryptography to enforce access rights very well.  That might be a PIN code to a lock on your door, or it might be an encryption with PGP key, and you have cipher text, and it’s just only possible to decrypt the cipher text if you know the private key.  There’s just no other way around it.  So – but I think that the problem here still is that, especially for a monetary network where we want to achieve scarcity – this is a core aspect of money is that it is scarce, that it is rivalrous, and there is a potential conflict over who can spend the money on what.  And in order to figure out this – who has sacrificed what, because it is not self-evident because there is no scarcity in cyberspace, it’s kind of that like everyone needs to agree that this is what it is.

00:43:25

STEPHAN KINSELLA: I think this is a really interesting and difficult-to-sort-out issue because the word scarcity, when people in Bitcoin say, well, we’ve achieved digital scarcity, I think they’re using it in a slightly different way than I would use to me, say, conflictability or rivalrousness.  It’s analogous because it works similar to that within this realm, but – so let’s say take the digits zero to nine.

00:43:48

You can say it’s scarce because there’s only ten digits, but like you said, everyone can use the number four at the same time.  But, in fact, in Bitcoin, the entire blockchain could be copied, and it has been.  So the entire blockchain could be copied, so there could be an infinite number of copies of the entire blockchain.  It’s just that the way money works, money has a network effect.

00:44:10

So there’s only going to be one network of people using this particular instantiation of the blockchain that the money is going to center on because you’re going to have this network effect.  So people can copy Bitcoin, but no one would use it, or very few people would use it, and it wouldn’t harm the holders of private keys on the original network.  So I would think that Bitcoin works and it mimics a type of scarcity in the – like in the real world on purpose because of the unique nature of what money is.  So once you understand that money – according to the Misesians, money is not a good like other things.

00:44:48

It usually arises in a rivalrous scarce commodity like gold or something else because that’s the way the pre-digital worked.  But the nature of money is that it’s not a good like other goods, so you have consumer goods and capital goods, producers goods and consumption goods.  The nature of a good in that sense is something that the more of it we have, the better off we are because the good is correlated with wealth.  So if food is a good, if we have more food, that’s better.  If fuel is a good, the more fuel we have the better.  If a home is good, the more homes we have, same thing with air conditioners and things like that.  Or for producers goods, if tractors are good and factories are good, if we have more of those, we’re made wealthier.

00:45:32

Now, the next one might not be as valuable as the first one because of the marginal utility, but still, the more of a good, the better off we are.  But that’s not true of money because money – the purpose of money is simply as a medium to go between producers and consumer goods, and over time in between people.  It’s to solve two problems.  The purpose of money is to solve the problem of barter.

00:45:55

See, barter emerges because it’s better to specialize and to trade with people.  We take advantage of the specialization in division of labor, so that’s one advantage of being in society.  We can trade with each other.  But one problem of barter is the double coincidence of wants, finding someone who wants what you make.  So the medium of exchange arises so that we can have trade without having this double-coincidence-of-wants problem.  So money solves that problem, but having more money doesn’t solve that problem anymore.  Any supply of money will do, so it’s unlike other goods.

00:46:26

And the second problem it solves is economic calculation. ¹  Once you have things stated in money prices, everything on the market can be reduced down to a common comparable price in terms of arithmetic, that is, heterogeneous or different goods that are incomparable normally, which make it difficult to plan and to choose projects.  So if we’re trading on a barter system and I want to use resources to build a bridge or to build a boat to cross a river, it’s hard to know which one is the most efficient use of resources because we’re comparing so many different types of things that go into these different alternative ways of doing something.

00:47:02

But if you have money arise, you can compare them in terms of their money cost.  So if one costs $1 million and one costs $2 million, you go with the cheaper one, so money helps you have more efficient use of resources by enabling economic calculation.  So basically the purpose of money is to overcome the problem of barter and to enable economic calculation.  But neither one of these functions is aided by producing more money.  So that’s why money can work as a digital good that is not a rivalrous good as long as it’s even artificially scarce within a network because it still serves the same function.

00:47:39

MAX HILLEBRAND: Yes, as long as the abundance of the monetary is basically limited.  This is what you’re pointing out, but I would still like to say that there needs to be absolute scarcity in the monetary unit just as a fact that it is a medium of exchange.  And exchange does imply sacrifice of the use of a given good to another party in exchange for him sacrificing the use of a different good to you.  So in any monetary transaction, there must be scarcity of the money in the sense that when I have money and you have pizza, and you give me the pizza, then I give you the money, then you expect that I no longer have the money.

00:48:22

STEPHAN KINSELLA: Correct.  And not only, as I said earlier, is it not beneficial to create more money because it’s not a good like a capital good or consumer good, it’s what Mises calls a sui generis good, or a unique good.  It actually is better for it not to increase in supply.  I mean so I think what tended to be chosen as money were products that have a relatively low supply and also a low stock-to-flow ratio so that it’s hard to produce more of it.  And ideally you would have a fixed supply.  So gold was not even ideal because gold still expands, and you can mine more, but at least it’s hard.  So the stock-to-flow ratio is high.  So it’s more ideally suited – it’s more suited to be money.

00:49:05

It’s closer to the ideal than other things.  That’s why it was selected over other things like seashells or copper or something like that.  So money tends to be selected from things that have characteristics that make it more suitable as money.  That is, they approach the ideal, so it’s divisible.  It’s durable.  It’s recognizable and verifiable.  It’s not too abundant so that you don’t need too much of it.  Like if you use copper, you’d have to carry too much around.  So gold is just rare enough where you can carry it around.

00:49:35

But gold has some disadvantages.  It can be mined.  It also has non-monetary uses so you’re diverting the product, non-monetary uses of gold for the money purposes.  And also it’s so rare that it’s not that suitable for small transactions, so you have to have silver or something like that.  So you have to have bimetallic or whatever standards.  So the benefit of Bitcoin is that it solves – it’s like gold except it’s even better in most of those respects.  So it’s like an improved version of money that approaches the ideal of what money should be even more closely.

00:50:10

MAX HILLEBRAND: I would say though that the aspect of Bitcoin’s 21 million is not the main part of interest because this is the relative abundance of a good.  And then we said that this is part of scarcity, but it’s not about the absolute scarcity.  The absolute scarcity is about the conflict of – potential conflict of ownership, but I do think that it exists in Bitcoin in the sense – so we said before that cryptography is kind of this lock, that’s it’s a preemptive measure towards control.

00:50:43

But we have this other problem in Bitcoin that, in the past, centralized systems of cryptographic monetary tokens failed due to basically censorship, that there was only one party who could write to the ledger of who has how many tokens and who has spent them, the Central Mint.  And the beauty of Bitcoin is that it creates a data structure where literally anyone can write to this data structure of who has sacrificed which tokens, who has destroyed which coins, and which new coins were generated.

00:51:24

STEPHAN KINSELLA: I totally agree with that.  So Bitcoin has other advantages that gold doesn’t even approach.  So if we go back to – let’s take an ideal gold standard system without government intervention and central banks where everyone just carries gold coins around and uses them.  So in that case, I think you would solve the – you don’t have a centralization problem because people just go peer to peer.  They trade their gold coins, and they can verify what it is.

00:51:50

You don’t have a centralization problem there, and you also don’t have a double spending problem because the gold is the gold, and it’s only held by one person at a time.  But when we move to banks for various reasons to enable – for safety and security and storage and for convenience, at that point in time, then you have to have the double spending problem avoided by having centralized control.

00:52:13

So the bank has a checking account or a savings account with your name on it, and you can write checks on it, and the bank ensures that you don’t double spend, but that’s centralization.  So Bitcoin goes back to sort of the daily physical peer-to-peer decentralized nature of a gold exchange system but without the drawbacks of that, which is that you’re carrying too much around.

00:52:36

And by the way, on this maximum or absolute scarcity thing, I would say that the absolute supply of gold matters for its suitability for money because it’s a physical commodity.  And if there’s too much gold, you would have to carry too much around physically to use it.  And if there’s too little gold, it would be so rare that you would have tiny, tiny specks, which would be worth too much.

00:52:56

But for Bitcoin, the 21 million is totally irrelevant.  I agree because it’s digital so it doesn’t matter because you don’t carry it around.  And as long as there’s enough decimal places, you can just subdivide it as much as you want, so it avoids that problem too, which makes it even more suitable to being a fixed money supply.  If gold was fixed, then over time, if the world economy got bigger and bigger and bigger, the value of gold would get so immense that it would become too rare to be used as money in a physical sense to be transacted.  So you might need more money mined, more gold mined just to keep the supply big enough for it to be usable.  But you don’t even have that problem, as I understand it, with a digital currency like Bitcoin.

00:53:43

MAX HILLEBRAND: I think your – again, the analogy to gold, which is a very useful one, starts to break down in the sense of what defines the absolute scarcity of gold.  And well, it’s difficult to say that, but – well, basically it’s just nature or God.  There is just clearly I think 72 atoms in a chunk together define a gold coin, and either that chunk of – the chunk of atoms – sorry, the chunk of protons in one atom is gold or it’s not.  And either it’s on the table or it’s underneath the table.  So there’s this – already this conflict of where this atom is and this chunk of gold is, is kind of intrinsically and non-manmade importantly.

00:54:36

So therefore, it cannot be changed by man.  Man cannot all of a sudden say that only 40 protons together in a bunch make a gold atom.  That’s just not the definition of what a gold atom is.  So – but with Bitcoin, the absolute scarcity in the sense of who can write to the Bitcoin blockchain, and under which rules is a writing to the Bitcoin blockchain considered valid, for example, only if it spends a previously existing coin, stuff like this, like all these consensus rules.  If that is manmade, like manmade, man-defined, verified and enforced, and this is a very dangerous thing because, again, if it’s manmade it can be changed, meaning that the actual scarcity can be messed with based on further human action.

00:55:31

STEPHAN KINSELLA: I don’t know if I follow all that.  I don’t see anything to disagree with.  I do think there has to be some connection because we have to have an explanation as to, say, why gold became money and why Bitcoin can become money.  So they both are similar enough in that they both – there’s reasons why they both can become money.  They have certain features.  It doesn’t mean they’re the same.  And in my earlier almost idealized case of people trading gold, we’re assuming verifiability.

00:56:00

Of course you can’t assume verifiability.  It’s because how do you know that that’s really gold ultimately?  And also you could imagine technology that we can just energy to create gold.  I assume it’s possible now.  It’s just expensive, but there’s no reason why it couldn’t be created, some day, not just mined but actually created.  But the Bitcoin system – yeah, I mean I’m a Bitcoin supporter partly because of this.  It has advantages over gold in lots of ways, and I think the ways you’re pointing out seem correct to me.  There are ways I hadn’t even thought of.

00:56:32

MAX HILLEBRAND: Maybe another interesting way to look at this is that in a sense when you want to get paid in Bitcoin, then you need to verify that your address basically, your public key, is inside the Bitcoin blockchain that at least you considered to be valid.  So that you define for yourself which monetary rules to follow, and then you prove for yourself if a customer proposes a payment transaction to you, if this transaction is valid according to your own rules.  So and if you don’t do that, then the definition of what that Bitcoin is to you is shattered.

00:57:18

If you do not verify it, then for all intents and purposes, the Bitcoin does not exist as a scarce good because the scarcity is intrinsic to that model of rules set of which is valid and which is not valid.  Only within that strict rule set can the scarcity come about, which is contrary to gold.  You might not even need to verify that gold itself is accurate, and as soon as you have a chunk of metal with you, well, that’s yours, and that is in and of itself already enough.

00:57:53

STEPHAN KINSELLA: I don’t see anything to disagree with there.  I don’t know if I have anything to add, but I think that’s brilliant and provocative.  I mean I agree I think, if I understand what you’re saying.

00:58:03

MAX HILLEBRAND: So I think that’s one part of the genius of Bitcoin that you can verify the sacrifice of someone else.  And even more so that there is a beautiful game theoretical concept that other people come to follow the same rules as you are and then reach the same conclusions as you do.  And this is expressed in this decentralized network that there’s not just one person verifying but that everyone is verifying the transactions of everyone else.

00:58:35

And if everyone is following the same rules and if everyone sees the same transactions, then they will inevitably reach the same conclusions, meaning who has sacrificed which coins, who has made which transaction of the scarce Bitcoin in the one non-scarce blockchain.

00:58:54

STEPHAN KINSELLA: I see that.  I mean this is a little bit off the abstract plane we’re on right now, but the one kind of concern or question I have is it does seem to me that unless we rely upon sidechains for divisibility, that the divisibility of Bitcoin right now defined by the eight decimal places could at some point in the future become a problem because not only is the supply of Bitcoin fixed, I think it’s reducing.  It’s going to reduce all the time once it reaches a certain point, reaches a certain peak, certainly at 21 million.

00:59:30

Bitcoins will on occasion be lost by friction I would think, so the supply will actually reduce over time, which again is not a problem in monetary or deflationary terms.  But you could reach a point where a Satoshi is worth $1000.  So how do you make small change beyond that unless you have a consensus to have a fork and expand the decimal places or if you use some kind of sidechain technology?  I don’t know if you have any thoughts on that, but I’m curious.

00:59:58

MAX HILLEBRAND: Yes.  It is, as far as I understand it, not possible on the Bitcoin base layer blockchain to send less than one Satoshi, so to create an output that has less than one Satoshi.  That is not possible that it would be zero – or no, actually, you can’t have zero Satoshis, but what I’m saying is you cannot have 0.5 Satoshis.  The atomic unit is 100 millionth of a Bitcoin, one Satoshi.

01:00:25

However, you can make, as you say, off-chain payments already right now that are not on the parent layer for blockchain where you can, in fact, send less than one Satoshi with some weird trust tradeoff.  So it is still a problem, and it’s not solved.  Now, can this be changed?  And, well, that kind of goes back to the crux of the previous issue.

01:00:47

Bitcoin is kind of defined by the people who run software, and this is free software.  They can run whatever they want, and they can change the code to whatever they want.  So yes, we can change this thing of Bitcoin easily the same as we can change anything else in Bitcoin easily.  The question is, can we find a global consensus coordination for that change so that the people who previously all agreed on the same rules will, in the future, still agree on this new set of rules?  I mean in the sense – if it’s something like something “non-controversial” like reducing the decimal point further…

01:01:28

STEPHAN KINSELLA: Correct.

01:01:29

MAX HILLEBRAND: But non-controversial to whom?  And what if all of a sudden a bunch of Keynesians start drilling Bitcoin really hard and change the mindset to, oh, it’s very non-controversial to have an infinite supply of money, and that’s a very scary thing.

01:01:46

STEPHAN KINSELLA: What concerns me is that the immutability is such an important part of it, which leads me to think that you could never have a change that requires a fork because – and in fact that’s what seemed to happen with the Bitcoin Cash attempt.  The hard fork was defeated because if you ever had a hard fork to make one change, then people are going to lobby for other changes too.  So it seems to me you have to basically live with it, and if you have to live with it, I wonder if that could grow into a problem or if it could be dealt with in other ways like you say.  Now, we’re talking 100 years down the road maybe or 30 years down the road, something, when one Satoshi is worth more than a penny, but that could come.

01:02:22

MAX HILLEBRAND: Yes, very much.  And the way that the users will act in this new circumstance is incredibly important because literally the existence of Bitcoin depends on it.  And that’s so contradictory to gold.  In gold, the existence of base layer gold does not care about human perceivance or the human agreement to rules.  But in Bitcoin it does, and I think that’s why maybe even calling Bitcoin the digital gold is very scary because that’s one so-important property of gold that Bitcoin obviously does not have.

01:03:03

STEPHAN KINSELLA: I see.  So you think the digital gold metaphor is misleading, and we should avoid it.

01:03:10

MAX HILLEBRAND: I think it’s like all metaphors.  It tells a very nice story in a beautiful picture that is very accurate on many levels, but it is not perfect.  And it falls short in many areas, and some of them can be quite catastrophic if misunderstood.

01:03:29

STEPHAN KINSELLA: Well, one Bitcoin maximalist narrative is that the price can reach a certain amount because people can envision that it supplants the role of gold right now.  So if you can’t call it a digital gold or an improved digital reserve currency that adopts some of the features that gold could have or used to have, then you can’t even make that argument.

01:03:52

I mean you see what I mean?  Why would we say the future value is 10 trillion because gold has a $10 trillion value now if it’s not a digital replacement for gold?  You see, it seems to be these things are all bound up together.  If you say that it’s just totally different than gold so you can’t even call it digital gold, then you have very little basis for saying, well, then it’s potential value in the future is the value of gold right now.

01:04:15

MAX HILLEBRAND: Yeah, that’s very true.  And it’s – I mean it’s kind of presumptuous to say that this crazy idea that we have in cyberspace is as sold and as unbreakable and undecayable as gold is.  I hope we can live up to the claim.  As of right now it certainly seems that we can, but it’s a big claim and…

01:04:38

STEPHAN KINSELLA: It’s a little presumptuous, but Bitcoiners are not – don’t have any shortage of cockiness and confidence, do they?

01:04:46

MAX HILLEBRAND: That’s very true.  This – Bitcoin really seems to be a system bordering chaos and complete collapse, but it’s thriving at that level.

01:04:59

STEPHAN KINSELLA: Well, what’s interesting is to listen to talks from 2013, 2015, and the narrative even of the guys that are still around now is different than what you hear now because we learned something.  We learned that, no, it’s not a PayPal.  It’s not a payment mechanism.  So maybe the fact that we’ve learned something over the years about economics and the economics of digital money and the way Bitcoin works should give us a little humility in predicting what’s going to happen in five years or 50 years.

01:05:30

MAX HILLEBRAND: Yes, and I find it also a bit of an interesting exercise to imagine being one of the founding fathers of America and trying to come up with this new consensus rule set that everyone should agree with and to formulate it in a way that – well, it protects theft fundamentally.  And – but protecting theft is one way, and arguably Bitcoin does that perfectly.  There has never been a single Bitcoin transaction in the current most preferred blockchain that is invalid.  Every single transaction is valid.  Every single transaction provides a signature script to its script.  So there has not been a single theft, not a single breaking of the rules within the Bitcoin construct.

01:06:23

STEPHAN KINSELLA: And this is another reason why I say that Bitcoin is not ownable is because the concept of theft is a correlative of ownership.  So if you say something was stolen, that means it was owned, and by the same token, if something is ownable, it could be stolen.  But the way the Bitcoin system works, it does not have a – this is a legal point, but there’s no term of service.

01:06:44

If I go down to the bank and I fake your identity to get your bank account, that is a violation of several rules.  You’re violating the bank’s property rights because they don’t want you to use their system unless you agree to certain things.  Or if you’re a Twitter user and you do certain things that violate their terms of service, then they can kick you off, something like that.  Or if you’re a member of a private club and you agree to certain things, you’ve agreed to them.

01:07:11

But Bitcoin being pseudonymous and just by the nature of the rules a valid transaction as you describe it, only has to fulfill certain criteria.  There has to be a valid private key provided.  That’s it.  So if I somehow do guess your key – now, if I get your key by breaking into your home and hacking into your computer, I have violated – I have committed an act of trespass.  I violated your property rights to do that, so if I take your Bitcoins using the key that I got from you with those illicit means, the theft is in the original trespass, so there’s a theft there.

01:07:44

But if I just guess your key, I haven’t violated your rights to guess the key, and the Bitcoin rules permit that.  They permit you to use the key that you guessed.  The transaction would still be valid if I used the guest key to transfer some Bitcoins.  It’s just that it’s so unlikely people aren’t worried about that eventuality.

01:08:02

MAX HILLEBRAND: Yeah, and this is, again, the beauty of preemptive protection by cryptography that we can be calm with having rules that basically say anyone anonymously can change the ownership structure of Bitcoin.  Anyone can do it.  This is a – anyone can write to this list that we all consider valid.  It’s kind of a crazy idea, and you would only agree to that if, despite that openness, you can still carve out for yourself a space in this open ledger where you have complete control over it, where you have the choice of when and how to sacrifice this scarce resource.

01:08:46

STEPHAN KINSELLA: Well, and what’s interesting about that is so in the tangible, physical world, in the meat world, people that have a lot of money and resources, they’re worried about being stolen from them by thieves or by the government or something like that.  They’re not worried that they’re going to accidentally lose it.  They’re worried that someone will take it, whereas in Bitcoin it’s the other way around.  A lot of newbies are afraid of Bitcoin because they’re afraid they will lose keys or something like that.

01:09:09

So their attention has been focused on the external world and external threats to themselves, but for the Bitcoin enthusiasts, that’s one of the features.  We’re glad – that’s why we say not your keys, not your coins because all you have to do is keep your key secure and then no one can take your coins.  But some people are afraid of that.  They’ve been so used to being coddled and having an institutional system with a bank or whatever protect them from their own mistakes that now, even though Bitcoin protects them from anyone else taking their stuff, they’re worried about being responsible themselves.

01:09:42

MAX HILLEBRAND: Yes, exactly, and it’s so fascinating.  Bitcoin is just actually mind-blowing.  I’m baffled by it the more I think about it.

01:09:52

STEPHAN KINSELLA: Me too, and people come up with these crazy things like, well, what if the time delay is more than ten minutes if we have an extra solar civilization?  It’s like, are you really worried about – I mean my only guess is they would have their own Bitcoin network operating on their planet, and we would have a currency exchange system.  Okay, that’s what you would do.

01:10:09

MAX HILLEBRAND: I actually think what you brought up earlier, sidechains, are an interesting way to solve this because you can have sidechains even with two-way pegs so that you can send Bitcoin from one chain to the other.  And you do that with a long peg-out, so it takes months for a peg-out transaction from the one chain to the other chain to confirm.  And because it takes months, the high latency of communications, of locks and unconfirmed transactions is all right.

01:10:42

STEPHAN KINSELLA: And I suppose in theory you could have sidechain upon sidechain upon sidechain like turtles all the way down.  So theoretically in the future, you could have – the next sidechain would actually itself be an immutable sidechain like Bitcoin that was expensive and slow and all that.  And then beneath that there would be another sidechain that was less secure and quick and – I don’t know.  This is just an architectural question.

01:11:06

MAX HILLEBRAND: That is for sure possible.  And one other point to the intergalactic mining is that – so mining is basically having hardware so computers, internet connectivity, and energy.  And energy is kind of the kicker that I want to focus on here.  So you are more – you’re a better miner, a more profitable miner, if you have more energy at your disposal and having it cheaply, abundantly with low opportunity costs.  So therefore, wherever in the galaxy basically we have the most efficient energy production, we will have an incentive for miners to go there to produce the energy to create Bitcoin blocks.

01:11:54

Now, the – but of course, as I said, there’s the latency problem.  If we go to a distant sun that has ten minutes or twenty minutes, light minutes just to travel from A to B, and if only one miner goes out to that distant star, he will be completely unprofitable because he has – he has very high latency even though he has a lot of energy.  So he will not be a profitable miner.  However, the more miners go over there, the more blocks are going to be produced in that area of the universe meaning that the latency for those miners decreases.

01:12:32

If someone at this distant sun finds a block, then the other miners at the distant sun will know about that block much earlier than the miners here back on Earth.  So we will eventually have a – somewhat of a map of the gravity of Bitcoin miners, and the larger that gravitational pull of one geographical area is, the more the tendency for miners to move there for the reason of latency.

01:13:01

STEPHAN KINSELLA: So it’s sort of like right now on the Earth context, we’re talking about how Bitcoin can help populate the world with energy because they will go to remote places where energy is relatively cheap, and they will produce energy.  And that will attract populations to move there, right?  And then so they will help colonize the world with energy.  But when people move there, the energy cost goes up, so the Bitcoin miners will move somewhere else.  So they’ll help colonize the entire world with power and energy, and you’re imagining that even on a more global scale partly because of the latency issue on top of that.

01:13:36

MAX HILLEBRAND: Yes, and I’m not sure if this is a causation or a correlation, probably a bit of both.  But there’s for sure a link between civilizations and efficient energy usage.

01:13:48

STEPHAN KINSELLA: Of course.

01:13:49

MAX HILLEBRAND: So the more efficiently and with the larger abundance energy can be channeled and used, the more prolific and profound the civilization.  Now, again, which comes first is the question, but with Bitcoin, again, we have that gigantic economical incentive to produce efficient energy or to channel it.  And that will hopefully lead to a general increase in civilization.

01:14:18

STEPHAN KINSELLA: Well, I’ve always been a nuclear advocate, and the governments are in the way of that.  But I’m just – I’m waiting for some Bitcoin operation to basically come up with a thorium nuclear power solution just to mine Bitcoin and that that will develop the technology and spread that across the world and provide the world with clean, cheap, safe energy way better than the soft solar green stuff.

01:14:47

MAX HILLEBRAND: Yes.  I’m quite happy that right now the eco-fascists and social injustice warriors are screaming that Bitcoin is boiling the oceans and has a carbon footprint of whichever small nation.  I’m – and right now the Bitcoiners are just burning diesel to create electricity to mine Bitcoin, and yes, in the future probably a nuclear reactor too.  And what are the eco-fascists going to do about it?  Because again, Bitcoin is that permissionless system where anyone can write the data to the blockchain.

01:15:25

So it’s very difficult to stop, but again, not impossible.  So this has many implications and again specifically because if the overarching moral standards of society are not in line with those of Bitcoin, then again Bitcoin effectively ceases to function if nobody upholds its values and defines and verifies and enforces the rules that make up what Bitcoin means.

01:15:55

STEPHAN KINSELLA: Maybe get your thoughts on this one thing I’ve wondered.  People always say, well, what if a better one comes along and all this kind of stuff.  It’s hard for me to imagine a digital reserve currency.  I mean it seems to me that Bitcoin has the features that you need to have an almost ideal world reserve currency.  So even if it could have been tweaked slightly differently, had a slightly different block size or something like that, it’s so close to being perfectly ideal that once the network effect is in place, there’s no sense in replacing it.

01:16:23

But I’ve always imagined that in the future, most Bitcoiners seem to imagine that you don’t need to put your wealth in the stock market or in real estate like we do now to avoid the ravages of inflation, price inflation.  By holding your wealth in money, you can just keep most of your wealth in money.  I always imagine that in the future of the Bitcoin world, most people would still only have a small percentage of their wealth in cash, that is, in Bitcoin, say 10%, 5%, and the rest would be in more productive investments so that if a new digital currency did want to emerge, it wouldn’t be like everyone would be wiped out of their savings because you would just switch to the better network maybe.

01:17:07

I don’t know.  This is just one of my thoughts.  And not only that, the transition would be gradual enough where people could gradually transition away from one and went to the other.  You just don’t want to be holding all your wealth in Bitcoin and have it replaced by Bitcoin 2 and everyone is wiped out who was previously a billionaire.

01:17:23

MAX HILLEBRAND: Yes, and again I find it very presumptuous to say that Bitcoin is the best money that humans will ever experience.

01:17:33

STEPHAN KINSELLA: Right.

01:17:34

MAX HILLEBRAND: Because I mean who are you to make that statement?  But it’s for sure a very beautiful solution to it, but it’s never going to be perfect on many levels.  It’s not elegant on many technical details like stuff like a limited decimal point and things like this, like latency issues, many things that could potentially be done better already in our current paradigm.  And who knows?  Maybe someone will come up with an exponentially different and exponentially better, newer paradigm that has better assumptions and better reasoning than Bitcoin has.

01:18:18

I think it’s absolutely possible, and I have the hope that if such a better technology comes up that free individuals will gravitate towards that better, more optimal technology.  Now – but still I’m extremely bullish on Bitcoin, even maybe negatively bullish in the sense that I feel that the Bitcoin incentives are set up in such a way that they are just damn near perfect, as good as it gets for sure.  So I do believe that Bitcoin will succeed even though it has all these many downsides.

01:19:00

And the issue is that if we set the premise that it does succeed regardless of having downsides, then we will have serious consequences of having bad downsides in the protocol like, for example, the lack of privacy.  If Bitcoin succeeds, then we live in a very different world if that Bitcoin has good privacy for its users or if it has not good privacy for its users.

01:19:26

STEPHAN KINSELLA: I agree.  I agree totally.

01:19:28

MAX HILLEBRAND: So this is somewhat of my motivation of why I do what I do because Bitcoin is basically unstoppable.  And hopefully we can fix some of the broken things while the plane is flying so to make the future even better than it could be.

01:19:43

STEPHAN KINSELLA: I think you’re a libertarian too, right?

01:19:46

MAX HILLEBRAND: Very much, yes.

01:19:47

STEPHAN KINSELLA: As a libertarian, I mean to me it’s given me so much hope because I always thought that – I mean libertarianism is great, but it’s just – it’s not going to work just by running around being activists, trying to persuade people.  It’s never going to work.  There’s just too many reasons why that won’t work.  It’s why it hasn’t worked.  That’s not how democracy works.  That’s not how politics works.  That’s not how economic incentives work.

01:20:10

So I always thought liberty was going to be a long time in coming because it had to arise naturally, and it was going to take all kind of revolutions in society, and I guess actually this is correct.  I just didn’t envision what it was going to be.  I think it could be the money.  It could be the Bitcoin revolution in money is what’s going to actually achieve liberty on top of all the – well, I guess the main advantage of Bitcoin as money is in terms of prosperity.

01:20:34

It will help promote prosperity, but one way it will do that is by helping us to achieve liberty by basically strangling the state because the state’s control over money is its main way of surviving and throttling progress.  And when we starve it of its main source of funding, it will necessarily be limited to a much more – like a rump roll and then whither away.  I mean that’s my utopian, Bitcoin, libertarian, anarchist hope.

01:21:01

MAX HILLEBRAND: Yes, and I share that hope, and I think that the Bitcoin in its current conception has very high potential or prospects to succeed on that mission.  But where I am more and more uncertain is about whether the society of Bitcoin, let’s say, will change in a way that will become more evil and leaching.  What if somehow the Bitcoin community finds consensus on a new change of rules that gives universal basic income to every address?  A rule change like this is conceptually conceivable, right?

01:21:43

STEPHAN KINSELLA: Correct.

01:21:44

MAX HILLEBRAND: And it might happen very well, and at that point – well, the question is, is it then still Bitcoin?

01:21:50

STEPHAN KINSELLA: Correct.  I think if that happens, it shows that it’s just not workable then.  So what you’ll see – it seems to me that the incentive nature of it is so maybe unintentionally beautiful that it just – it’s hard to imagine that happening because so many people would be so invested in it.  Even though they have the wrong ideas, ultimately they don’t want to shoot themselves in the foot.

01:22:14

MAX HILLEBRAND: And on top of that comes just the complexity of code, and we are having already trouble to express our thoughts about Bitcoin just in verbal language and writing it as precisely as code and mathematics does is even more complex.  So just code failures are another thing to consider.

01:22:35

STEPHAN KINSELLA: Correct.

01:22:36

MAX HILLEBRAND: So there is a lot of things where Bitcoin might actually – or where Bitcoin is very different than gold, and it might be both a strength and a weakness.  But it is what it is, and we will have to see if it works in the long run.

01:22:50

STEPHAN KINSELLA: We need someone to die and have a near-death experience and come back and tell us how they do it in heaven because you know God – you know they use a type of perfect Bitcoin up in heaven.  We need to see how we need to tweak ours to emulate theirs.

01:23:03

MAX HILLEBRAND: Yes, yes.  Well, Stephan, it was an absolute pleasure to talk to you, really amazing to spitball and to expand our minds in all these areas.  I think it was a very fruitful conversation.

01:23:19

STEPHAN KINSELLA: It was fun.  I enjoyed it.  Thanks for suggesting this.

01:23:23

MAX HILLEBRAND: And keep up your great work.  Where can the people find you, and what are you tinkering on right now?

01:23:28

STEPHAN KINSELLA: At stephankinsella.com and on the IP-related stuff my website is C4—the number 4—C4SIF.org, which means Center for the Study of Innovative Freedom.  I’m working on collecting my essays together into a book on libertarian theory, and I’m also working right now on the side on drafting my own – I don’t want to call it libertarian constitution because I don’t like the concept of constitution.  But I’m going to draft my own statement of principles of libertarianism like from the ground up and in a systematic fashion.

01:23:59

It will take me a year or so maybe, but I’m working on – and I’m just going to do it myself because I’ve been part of lots of projects where – Libraland and these others, and I’m on a committee, and there’s all these compromises.  I’m just going to do it myself.  I’m just going to call it Kinsella’s Libertarian Précis or constitution.

01:24:15

MAX HILLEBRAND: Creed.

01:24:16

STEPHAN KINSELLA: Credo, the libertarian credo, something like that.

01:24:19

MAX HILLEBRAND: That sounds very interesting, both book projects.  I’m very eager to read them.

01:24:24

STEPHAN KINSELLA: Well, thanks a lot again.

01:24:25

1. See also my comments here: https://www.facebook.com/nskinsella/posts/10158404058053181; and comments on this in LIBERTARIAN ANSWER MAN: Smart Contracts and KOL401 | Sazmining Twitter Space: Bitcoin & Property Rights. [↩]