There was a recent panel discussion at the ₿ Word virtual event between Jack Dorsey from Square, Elon Musk from Tesla Motors and Cathie Wood from Ark Invest and Moderator Steve Lee, Lead at Square Crypto. The B word is a Bitcoin focused initiative that aims to demystify and destigmatize mainstream narratives about Bitcoin and explain how institutions can embrace Bitcoin. The discussion addressed topics such as: what makes Bitcoin special, its relationship with energy and its overall ethos and relationship with its community.
In this post I wanted to summarize the topics discussed and highlight some of the most important statements made by the panelists.
What or who influenced your interest in Bitcoin and how has it shaped your views?
The panelists were asked about what influenced their interest in Bitcoin and how it shaped their views. Each of them gave some background on what led them to Bitcoin and how it gave them the perspective necessary to take it seriously.
Elon is no stranger to internet money. As co-founder of Paypal, he was an early pioneer of internet value transfer. This makes a ton of sense that Bitcoin would appeal to him. Paypal could never become what Bitcoin is today. He thinks of money as an “information system for labor allocation” and that Bitcoin is better from an information system standpoint than something like Paypal.
Elon points out that the current financial system is a series of heterogenous payment systems. There’s little to no homogeny and systems are built separately in their own bubble. It’s archaic. ACH & Credit card systems are ancient and not secure. The vast majority of systems are batch processing where settlement is not instant. Transactions can be reversed which is the opposite of Bitcoin. He compares a credit card transaction to “handing over your information to a stranger in a restaurant.”
Jack’s influence was much different. His first answer was actually the “network and the community of Bitcoin” was what was most influential to his interest in Bitcoin.
It’s a “deeply principled community”. “Weird as hell” and “reminds him of internet when he was a kid”. He didn’t touch or get into digital monies until he started Square in 2008.
His second answer and other influence was at Square. At Square, they tried to build an abstraction layer around the predatory traditional financial system and make it work for the people. When he saw Bitcoin in 2009, he saw a “chance to replace the whole system”, not just abstract around the existing parasitic legacy system. It’s crazy to him that credit cards and the existing system still exist in their same form today with how out of date and irrelevant they are, especially internationally.
He had a great anecdote about an entrepreneur he spoke to in Ethiopia who was trying to create the “Lyft of Ethiopia”. She still had to take paper fiat cash from drivers which meant she had to pay her drivers the same way: in cash. It was highly inefficient and slowed down growth. Bitcoin has a lot of potential to help people build their business in a much faster way.
The big question in his mind: “The internet gets a chance to have a native currency, to me that’s Bitcoin”. His experience at Twitter has shown him that community is a major factor in adoption. That’s what inspires him the most about Bitcoin. The community driving it.
Bitcoin changes everything.Jack Dorsey
“Our current monetary systems cause so much distraction and so much information is lost”. With Bitcoin, no trust needed to verify the network. Any particular person can help drive the future of it. No bank or person controls it. Jack says it’s a good sign that Bitcoin core developers are constantly debating the future roadmap. The Bitcoin consensus model is very unique.
Jack believes that the separation of money and state is essential to human progress. Bitcoin is attractive because of its irreverence and resilience. At first it can feel prohibitive but most will find out that this will actually make it more accessible long-term.
Rules-based monetary system
Cathie’s inspiration came from an influential mentor in her life: Art Lauffer — An economist and author from the Reagan era. Her firm Ark Invest collaborated on a paper with Art Lauffer which investigated whether or not bitcoin is a currency, serving the three main functions of money: a means of exchange, a store of value, and a unit of account. In order for bitcoin to take on the role of other currencies, it must satisfy all three functions.
Cathie said that once Art really understood bitcoin, he became really excited. He had been waiting for something like Bitcoin his entire career. A rules-based monetary system like Bitcoin was a game changer and a “very big idea”. This ended up launching Ark Invests research efforts around Bitcoin.
Her research found that Bitcoin is primarily functioning as a store of value. This is because of the 21 million units protocol rule which cannot be changed. The idea of purchasing power going up over time globally around the world was very appealing because it allows people to hedge against the confiscation of wealth from inflation caused by printing money recklessly. Coincidentally, it allows people to hedge against deflation which she says will affect many businesses that aren’t investing in innovation.
The other functions of a currency such as a means of exchange and a unit of account are are also being fulfilled by Bitcoin to a lesser extent right now because it’s still early. Stable coins are helping to fill in the gaps at the moment and the medium of exchange function will improve with apps being built on top of bitcoin.
Bitcoin and its energy usage: Fact or FUD?
The panelists spoke briefly on the topic of Bitcoin’s energy usage and how that may or may not affect future adoption and growth for Bitcoin.
ESG movement is real and Bitcoin should embrace it
Cathie discusses Bitcoin is the context of the ESG movement (environment, social, governance).
From an environment standpoint, she believes Bitcoin will become much more environmentally friendly over time.
Socially, many institutions think diversity and equal pay when discussing ESG. Her point of view is that social is much more than that. It’s about saving lives. Bitcoin does this by allowing access to payment technology and remittances without friction for countries heavily dependent on remittances. In El Salvador, remittances alone account for roughly 24% of GDP. This is why they pushed hard to lead the way to make Bitcoin legal tender.
Double, triple and quadruple inflation in some countries prevent people from investing in their future because they are unable to save. Bitcoin allows them to have a persistent savings account which is inflation proof. Emerging markets suffer from significant inflation.
She also discusses Deflation and how bitcoin can be used as a hedge against bad deflation. Good deflation is caused by technology and innovation and makes our lives better. Bad deflation has a lot of counter-party risk because many companies are not investing in innovation and their business model is going obsolete. Debt will catch up with them. Bitcoin hedges this.
As for Governance, Cathie brought up the topic of democracy and transparency. In a democracy, education is key. She referenced the white papers authored by Yassine Elmandjra an Analyst at ARK Invest in collaboration with Coin Metrics. The transparency of research by ARK in social media has been part of their way of helping the Bitcoin community.
A transparent financial system is radically different from what we have today. Bitcoin is open source. You can see all the rules and they cannot be changed without consensus.
She had discussions with many Bitcoin core developers. “Core devs understand economic history” she said. This makes her feel comfortable. “We need to encourage support of the Bitcoin developer community. Their sense of purpose is strong.” The governance of Bitcoin is way better than traditional financial ecosystem. It’s much more transparent and predictable.
When asked about institutions looking to put bitcoin on their balance sheet, she said there are some drawbacks. Bitcoin is treated as an intangible asset by FASB. This needs to change because when Bitcoin goes up in price it can’t be marked up on books, but if it goes down it must be marked down. It doesn’t make sense and will make it more difficult for institutions to hold Bitcoin.
She also believes that growth could be explosive if we take friction out of the existing financial system. Ability to do business anywhere in the world easily will make things way more efficient. Migration to bitcoin sounds practical.
Having the best Bitcoin we can from an ESG point of view is important. Convergence of blockchain technology and artificial intelligence is exciting and looking forward to it changing the world in ways we cannot even imagine. Solving problems and creates others but more importantly creates opportunities. Rules based monetary policy making lives better.
Tesla will accept Bitcoin again. Elon, Tesla & SpaceX hold Bitcoin.
Elon is still evaluating whether or not Bitcoin’s mining comes from at least 50% renewable energy but it appears lately that the mining industry in Bitcoin is heading in the right direction and Tesla will eventually accept Bitcoin again. Elon is adamant that bitcoin mining should not use dirty coal to power the network security. He believes that long-term renewable energy will be the cheapest energy, it just takes a long time.
Bitcoin mining energy usage is worth the trade-offs
Jack approached the question from a completely different angle. He says that a “bigger conversation is missing” from the Bitcoin mining energy topic. Specifically he talks about wasted energy produced that we are doing nothing with. “Bitcoin mining is a worthy trade off for securing an open, world financial system.”
Energy efficiency is not just powering Bitcoin mining from renewables, but also making sure the energy we produce today does not go to waste. Energy distribution and storage is highly inefficient and the majority of energy produced is lost or gone to waste whether it be nuclear, coal, natural gas, or solar.
Jack spoke about how Bitcoin is creating a movement towards energy efficiency, not just renewable energy. He mentioned innovative companies in the industry leading the way such as Great American Mining who specialize in natural gas off-grid mining. GAM allows natural gas producers to mine Bitcoin off-grid with their unused natural gas that they would otherwise burn off into the atmosphere.
Personal Role in the successful outcome of Bitcoin
Panelists were asked what role they could play within their companies to support Bitcoin without having negative drawbacks.
Decentralization, Usability and World Peace
Jack decided early on that supporting and promoting open-source development in Bitcoin is in Square’s best interest. He is funding open source bitcoin developers with grants to be able to work on whatever they think is important. Open-source software, open developer platform, open-source hardware designs for hardware wallet, and more contributions to the community will help the Bitcoin ecosystem thrive.
He says “We can’t just look at this as an asset or investment we own”. Bitcoin has potential to change everyone’s lives. We need to support it.”
As for his personal role at Square, his focus is to push for more decentralization and non-custodial solutions in Square and Twitter. Project Bluesky a decentralized open-source standard for social media platforms such as Twitter is an example of his efforts for more decentralization. He says it’s super early and he is still learning. Supporting decentralization and open-source projects in Bitcoin will benefit many people.
He thinks that Bitcoin and decentralization will eventually allow for many other revenue models for Twitter so that they will be less dependent on advertising. Bitcoin went after a single problem [decentralization] and it solves it in a beautiful way. It’s important people hold their own private keys to their data and money.
Jack also spoke about usability as the biggest hurdle for mainstream adoption of decentralized projects, products and services. “The more energy we spend on non-custodial wallets, the better. Non custodial is the way.” Simplicity and usability is the key which is why Bitcoin needs better designers and UX experts.
His ultimate hope for Bitcoin is that it helps create world peace. Bitcoin eliminates monopolies on violence by governments. Current monetary system creates distractions from solving real problems. These distractions take away from important solutions that will better peoples lives. “Fix the money and everything improves.”
Tesla & SpaceX and Elon all own Bitcoin
Elon pointed out that decentralized cryptocurrency will make for a prosperous future. He admitted that Tesla & SpaceX both hold Bitcoin on their balance sheet and he personally owns mostly Bitcoin along with some Ethereum & Dogecoin.
Bitcoin has the potential to increase power of individuals vs. government. Government is just a monopolistic corporation in the limit. Governments have a monopoly on violence. If you don’t like government you should like Bitcoin.
Elon mentioned that Tesla’s bank balance in Europe has negative interest rates which he described as “insane”. Tesla’s bank balance drops in real-time in Europe. “Buy bitcoin not bonds” the moderator quipped in response to Elon’s comment on negative interest rates.
“Bitcoin improves efficiency for the information system we call money” said Musk. There is less error. Errors such as government interference and fraud affect money in a negative way.
He also highlighted the importance of Bitcoin’s throughput. Can bitcoin become peer-to-peer cash? Bitcoin does have fundamental scarcity at the base layer. 2nd layer solutions like lightning network may also help Bitcoin scale, but he remains skeptical and believes that we are not pushing the envelope on layer 1 main chain enough.
He thinks that there may be some merit to Dogecoin. Consider something that has higher max transaction rates. How far can you take a single layer network where exchanges act as a defacto 2nd layer. Musk believes we can take layer 1 Bitcoin farther than people realize which will lower transaction costs and increase throughput.
Over the long-term, smaller block sizes may be less relevant because people will have world wide access to gigabit-level connectivity with low latency at low cost. Base layer can do a lot of transactions if you take that into account. He believes that “the average person is not going to run a bitcoin node.” Elon isn’t too concerned about losing decentralization properties of Bitcoin by scaling layer 1. “The parameters on block size were set in 2009. Now it’s quite common to get 100mb connection for a rural house. Starlink is playing a role in this by providing high speed low latency internet to anyone around the world.” He argues that you can make the blockchain bigger without suffering from a loss of decentralization.
On the topic of Dogecoin, Musk was asked if he sees any gaps in Bitcoin that cause you to be drawn to Dogecoin?” Musk described the Doge community as having great memes and an affinity for dogs which he loves. The community “doesn’t take itself too seriously”. He used the expression “Occam’s razor” where the simplest answer is the most likely one. The most entertaining and ironic outcome is the most likely to happen. If that’s true, then Dogecoin might have a shot at “become the leading cryptocurrency” he said somewhat jokingly.
Overall the panel was very good. Three of the most influential people in this space presented viewpoints without much filter. I felt that Jack was the most genuine and on par with the culture in the Bitcoin community. I really appreciated Elon’s ability to present opposing viewpoints and thoughts on some of the most debatable topics in Bitcoin like Blocksize and how Bitcoin should scale. Cathie Wood did a great job at outlining some of the obstacles preventing many institutions from holding Bitcoin on their balance sheet and solutions that can lead to more adoption by institutions.
Don’t take my word for it, just ask Busta Rhymes:
I want to thank those at the B conference for putting this event together. It brings more people into the discussion and creates more awareness on some of the important issues in Bitcoin. Godspeed to Jack, Elon and Cathie and most importantly…Bitcoin!