The Fundamental Values of Bitcoin : Interview with John Vallis ②

Interview Date : 23th March 2021

Should a portfolio be diverse or not?

I’m of two minds about this, and I think this is where everyone’s situation comes into consideration, like ages, and what are your unique circumstances, lifestyle, etc. I think bitcoin is the most asymmetric opportunity anyone alive today, and perhaps ever, has ever seen. Paradoxically, I also see it as the most conservative investment one can make today. In my mind, that warrants a majority allocation. Of course, it may be prudent to hedge your bets in some way, but that’s beyond my area of opinion really.

Many often use gold as the ‘safe hedge’, and I think this is potentially quite dangerous and counterproductive. As far as monetary competition is concerned, I think gold will largely be demonetized over the next decade, which is a crazy thing to say because we’ve used that as a store of value for over 5000 years. 

But we have to remember that we used horses as transportation for over 10000 years. In the early 1900s, cars, and horses coexisted for a time. The people on the horses were saying “cars are dirty” “they’re loud and clunky” and “they don’t do well in the mud” or “you need roads for them.” Nevertheless, the car was a technology that could be upgraded and improved but the horse wasn’t. So over time, the car improved; it got less clunky, got better in the mud, it got less stinky. Then the infrastructure to make it even more efficient, like roads and such, was further developed. So, it was a constantly upgrading technology that overcame the previous solution to the problem of transportation. 

I think the same thing is going to happen with gold and Bitcoin, and over the next 10 years, gold will lose a lot of its monetary premium to Bitcoin. Then gold will be what it should be; a useful industrial metal. It has lots of industrial uses and the costs will come down to use it in that way. Therefore, it’ll start to be used in more industrial applications.

How will people in cultures where Gold is used as jewelry and status react to this shift?

Part of the reason why gold is jewelry is that it’s valuable. When it becomes less valuable, people won’t want to adorn themselves with it as much, because it doesn’t communicate the same thing by wearing a lot of it. 

Now, it’s a very opportune time to make the switch because gold hasn’t demonetized yet. It hasn’t had a great year in light of everything that’s happened, but it’s near its all-time highs. So, now is the perfect time to sell it all in and convert it to Bitcoin. If you don’t, it’s going to be a difficult circumstance, similar to the way silver fared in China over 100 years ago when China was on a silver standard. So, as much as you may like the shininess and as difficult as it may be, the prudent move in light of the environment we’re currently in is to sell precious metals for bitcoin.

What kind of upgrades are there to Bitcoin?

There are upgrades all the time to Bitcoin, but there are two elements to this; the things that you upgrade because it makes everything more useful and efficient, and the things that make Bitcoin what it is that you don’t ever touch. Many people fail to understand that Bitcoin and all cryptocurrencies are special because of how they fundamentally are.  Once you change it you lose what’s special about it. One of the things that are special about Bitcoin is its aspect of immutability, and if you agree that you can change some of the core and most important aspects of it, then you open the door to change anything in any cryptocurrency forever and lose its magic.

Part of the magic is that certain things shouldn’t be changed. In Bitcoin’s case, 21 million hard cap supply is something that should never be changed. I don’t think it ever will be because the owners, people who run nodes, etc., will never have an economic incentive to do so.

Still, there are occasionally conversations like, “in the future, there should be inflation because the fees may not cover the security costs,” etc. Those conversations completely misunderstand why Bitcoin is special.  

There are certain aspects we can change which don’t change the fundamental value proposition, but other things shouldn’t change even if you think it would make it better. If we can agree that we’re not going to change those fundamental value propositions, then we’ve got something really special that can serve as a foundation for a newer and fairer economic system.

What happens if the fundamental values of Bitcoin would change?

If we allow those to change, we have to figure out who changes them, who has the power, and what’s to stop us from changing it depending on the political or philosophical winds that are blowing at any given time. No, Bitcoin’s fundamental propositions are meant to be an absolute constant which is something we’ve never had in the field of economics. We’ve never had an absolute constant for measuring value, but now we have one, and we should not fail to understand or recognize the importance of that.

In the world today, disagreements so often lead to physical disagreements and violence because there’s no constant. I often think of Bitcoin as kind of a proposition that says “if you can agree on X and not change it, then I’ll let you disagree on everything else.” And, that’s important, because we need to disagree to come to the best decisions.

Also, no one is in control of any one lever. Nobody has the power to unilaterally change something, and for that reason, I think it’s very important not to change some of the fundamental aspects.

What is the truth about the bond and stock market?

Almost any other market than the Bitcoin market is highly manipulated. Maybe the stock market is less so, but the bond market is a farce. The bond market is supposed to reflect two things; the capital stock, so the aggregate of all savings that are available for lending or investment, and the time preferences and the risk preferences of all the participants in the market. Those two things come together to create a cost of capital – how much does it cost over what period of time to lend a certain amount of money. That is supposed to be an emergent truth that comes from all the participants in the market making those individual decisions. But it couldn’t be further from that. Instead, it’s just the government saying “we want more consumption, so let’s lower interest rates.” The central bank will help them by making sure to buy up all the bonds so the interest rates stay low. 

When will the major economies default?

The reason why they haven’t defaulted, and why I don’t think most of the major economies will, is because the citizens of the country are forced to use the government-issued currency. This means the government has access to the entire productive capacity of the entire population in perpetuity. So, when the central bank buys government bonds, they’re creating money out of thin air to buy these bonds. That money out of thin air comes from diluting all the money that’s already in existence – that’s the savings and the capital of the population. Instead of asking “when will all this break?” it’s better to understand how much it’s been breaking already. How far it goes depends on how much people will put up with.

I suspect that major governments are not going to explicitly default. That would be too damning and condemning for their mismanagement of everything, so what they’ll continue to try to kick the can down the road, continue to use the money-printer effectively to steal the wealth of their population to try to cover over the mistakes, mismanagement, corruption, and abuses that they’ve done.

Is there an opposition against that?

A lot of people are saying  “No, I’m opting out of that” because those savings were their sacrifices; they went to work every day, they stayed up late working on that project, they went to school for 4 years, etc., to have those savings. People don’t want the government to slide their savings right out of their bank accounts without them being able to do anything just because the government failed. That’s why people are opting for Bitcoin.

This will continue happening, and so the government will be less able to steal from people over time. Unfortunately, the people that don’t take responsibility for protecting themselves will get hurt the most. I suspect they won’t understand why they’re being hurt either. Certainly, the governments won’t be honest and forthcoming about why they’re being hurt, and those people will be the ones that ask for even more government intervention.

This is the downward spiral that we’ve been in for a long time; the worst things get for the citizens, asking for more government intervention is most of the time their only solution. But the government can only continue to do what they’ve been doing, and that continues to make the problem worse and worse.

Will people leaning to governments for support be against Bitcoin?

I’m not naive to think it’s not possible that a certain cohort of the population, in conjunction with the government and mainstream narrative, could turn against people who are using Bitcoin to preserve their wealth. That’s an entirely plausible and perhaps even probable outcome. But I agree that how the bond market and central banks work, and how governments have been abusing their power of money is complete insanity. The asymmetry of power and ability of governments and central banks to create money has found us in a world where there’s such a huge difference between the power of the apparatus, this machine of government, and the population.

The citizenry is powerless against a government with massive military, nuclear weapons, huge police forces, etc. So, the only thing we can do is to stop the theft. All we can do is say, “you’re not getting my money anymore, and you’re not taking it from me without my consent.” If enough people do that, then you choke off the monster of its lifeblood. That’s when we start to see change. Now, unfortunately, some of that change will probably be messy because a lot of the systems and structures that were erected for us depend on the way things work now for their survival.

After the corona pandemic, do you want things to go back to normal?

I certainly don’t want to. Human beings are creatures of comfort. So, when things emerge that disrupt our comfort and plans, or disrupt the things that we’re used to, we just want to go back. But historically, things never go back to the way they were. Even though there’s a cyclical nature to things, there’s also a chronological progression of things.

For example, people may have yearned for a renaissance in the 1700~1800s but what happened next was the industrial revolution. So, you have to look forward, and the best way to look forward is trying to do so with as much clarity as possible through educating and informing yourself. Nobody knows how to move forward in chaos, and nobody can anticipate the future. It’s entirely uncertain, especially now with so many world-changing technologies emerging and converging at the same time. In terms of deciding how to move forward, “meaning, truth, and values” have to be your compass and your guide. And, you have to try and understand what these are for you. 

What are some of your objectives in life?

One of my primary objectives is to see with the utmost clarity. That’s no easy task because human beings are so subjective. We have our biases and prejudices, and our perspectives and conditioning, etc., meaning that it’s really difficult to see something with clarity. If you look at how far our social, economic, political, monetary, medical, educational institutions, etc. have fallen and what the true appraisal of those things should be, I find it terrifying. So, I try to channel that terror into the solution, which is Bitcoin for me.  I feel that most people don’t at all see what’s happening with clear eyes. They’ve been misled, conditioned, diluted, and misdirected through various means.  The worst part is not that people aren’t seeing with clarity, but they don’t even seem to want to.

If you had an objective that was important to you to see with clarity, there are ways of doing it. There’s a lot of easy ways to educate yourself today; especially with the internet. If you want to educate yourself and take that responsibility, you can do that very easily and for no money. All it takes is time. But the fact that so few people want to see with clarity, and are just willing to accept on faith whatever is said to them by whoever, that’s the most disheartening aspect of all. 

What upgrades of Bitcoin are you looking forward to?

Taproot seems to be coming to Bitcoin that will allow for better functionality and some innovation on Bitcoin. We also have the Lightning Network, which is super exciting. It is starting to seem like the Lightning Network might be internet 3.0. It’s all predicated on the base layer being Bitcoin and maintaining its primary characteristics.

Message for Japan:

Think for yourself, and don’t trust but verify for yourself, and come to your conclusions. That is the only way you can have faith in yourself. Take in all the information you can, and put it through your filter, so that the actions you take, you can have a conviction that they are actually yours. You’re not an avatar for somebody else’s ideology, but you’re a unique thinking individual who’s making their own decisions and exercising what is ultimately a divine process of being in the world.

Interviewer , Editor : Lina Kamada


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