In this episode of Bitcoin Study Sessions, Lucas and Grant continue their discussion of Lyn Alden's "Broken Money", diving into Part Five of the book, which covers internet native money and potential solutions to the failing financial system.
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The discussion begins by recapping the core arguments from the previous sections of "Broken Money", emphasizing that money is fundamentally a ledger for recording transactions and storing value. Historically, gold served this purpose due to its scarcity, but the advent of telecommunications created a speed gap that gold couldn't bridge, leading to the rise of modern banking and fiat currencies. The current fiat-based system, exemplified by the U.S. dollar, is prone to abuse due to its flexibility and the ability to create money on demand. This results in boom and bust cycles and long-term debt spirals, with governments often resorting to money creation and capital controls.
The conversation then shifts to Part Five of the book, which explores the concept of internet-native money as a potential solution. The speakers highlight Hayek's quote about taking money out of the hands of government through sly, roundabout ways. Bitcoin is introduced as a decentralized, cryptographically secured, and open-source protocol that aims to close the speed gap in a way that doesn't rely on abstraction. It's described as a distributed public ledger maintained by nodes, miners, and users, eliminating the need for a trusted third party.
Lucas and Grant delve into the mechanics of Bitcoin, including mining, block creation, and the emission schedule. They also discuss the tradeoffs between Bitcoin and other cryptocurrencies, particularly the differences between proof-of-work and proof-of-stake consensus mechanisms. Proof-of-work, used by Bitcoin, relies on energy expenditure to minimize trust and establish an unforgeable history, while proof-of-stake, used by Ethereum, involves coin holders locking up their coins to vote on new block creation. The speakers argue that proof-of-work is more robust for money due to its decentralized nature and reliance on energy as an arbiter of truth.
The conversation moves to energy usage. Bitcoin mining primarily consumes stranded energy that would otherwise be wasted, enabling the exploitation of underutilized resources and the stabilization of power grids. The discussion also touches on stablecoins and central bank digital currencies (CBDCs), with Alden highlighting the potential for CBDCs to be used for surveillance and control by central banks. This leads to a broader discussion about the fork in the road that this era represents: one direction leading to further centralization of the financial system and the other leading to greater financial autonomy for individuals. The hosts discuss the opportunities presented by bitcoin, and opportunities lost in the legacy financial system. They specifically use the example of how the legacy financial system would handle bailouts versus how bitcoin would handle the same situation.
The episode concludes with a discussion of the potential risks associated with cryptocurrency, including market dilution, software bugs, government bans, and computational threats. Lucas expresses skepticism about all these vectors of attack. Grant concludes with a question of a concerted, combined attack on bitcoin by many coordinated entities.
