Hello, and welcome to another episode of the Mark Mass Show, where we talk about, of course, the decentralized Revolution, talking about the way the world is changing from a centralized world to a decentralized world as we look at it
through the lens of politics, finance, and technology. And you know, I like to bring to you some education to change the way you think, some of the latest breaking news so you can stay with this revolution step by step, and of course some interesting people so you don't have to just listen to me all the time. And that's what I have for you right now. I'm joined in the studio today with Eric Yates. He's the author of The Seventh Property. You can find him on Twitter at
Eric Yeakes. That's y a key, k Ees and Eric, thanks for joining me today.
Hey, thanks for having me. Man, Let's get into it.
Yeah, let's get into it.
You know, so you wrote this book, the Seventh Property, talking about Bitcoin, the Monetary Revolution, and I thought it was I thought it was really good. There's there's some really good points that I want to dig into. And you know, something that I kind of see you talking about here in this Monetary Revolution and the Seventh Property of Money and Currency so I want to talk about your thesis in the book. But let's set this up
a little bit. You know, I believe that one of the problems that people have, and I'm sure you would agree, specifically with money and finance and even more specifically with bitcoin, is that they don't even understand money. And if you don't understand money, then you can't understand these other things. Now, people think they understand money because we all use money, we get paid in money, we have in my walllets, whatever, so we.
All think we know it, but we don't.
So I was thinking, maybe you could maybe tell us what you think some of these misconceptions are with money, and then what's what the main attributes of money are?
Totally?
Yeah, you know, when I wrote the book, the first chapter was focused on that exact idea. I think when I was first going down the rabbit hole of trying to understand what is money? There were bits and pieces that I collected along the way. You know, I heard it, what are the properties of money? What are the functions
of money? In Safety's book, he talks about money across different dimensions, and you know, Carl Menger defines it as a good salability and there's all these different frameworks from which people piece it together. So when I was writing the book, I was like, okay, like how does all this stuff piece together? And I put together this graphic in the book where I basically show, you know, at the very top we kind of have like the original definition.
You know, nineteenth century Carl Menger was defining money as the most salable good, the good that can be sold at an arm's length that ease more more so than anything else. And there are certain goods that ultimately became more saleable than other goods. And then that kind of boils down into okay, well, how do we think about saleability. Well, we can think about salability basically across the three dimensions, which is kind of how safety and defines it in
the baitcoin standard. You know, we have salability across time. We can you know, things that hold value very well over time. We have saleability across space, things that we can move across space very easily. And then saleability across scales, things that we can easily group and divide. So it's like, okay, well, now that we understand across these three dimensions, then.
And then just to kind of to expand on that saleability, meaning that people will take it.
People will take it.
It replaced the barter system, and if you don't want my chicken or my goat, then we don't have a deal, and so we use a medium of exchange instead. It's the most saleable good to the point that you made. And just for everybody listening, what that means is the good that everybody will.
Accept, exactly right, exactly, yeah, it's the one that everybody's kind of agreed upon. This is the most common good in primitive societies. It was something that was typically very
often utilized. In a modern economy, it's a little bit different, but nonetheless, the three functions of money when we think about, you know, money being a store value, or a medium of exchange or a unit of account, those kind of line up pretty well with salability across the three dimensions, right, Like a store value function means it's something that's highly saleable across time. It's something that holds its value really well over time. Medium of exchange function is very similar
to it's something widely accepted across spaces. And unit of account function it's something that we can easily group and divide very well, and thus measure money in. So what I boiled all that down to is, well, there's these properties of money that ultimately say whether something's going to be good at those functions. And you know, there's kind of like six primary properties of money, and you know, the most important, most common being like a very scarce form of money is something.
That's very good.
We have things like portability, divisibility, et cetera. And money's always been defined throughout history kind of within this groupings. You can say, there's other ways of looking at it, but generally speaking, it's kind of like this common framework
we operate off of. And when I was going into the research and I was thinking about bitcoin, and I was like, okay, well, all of these properties of money that kind of enabled moneies to emerge originally, like gold and silver, these are what made people naturally converged upon those types of money because they had these properties that are very scarce. They're poor enough, they were divisible enough.
When we moved into the modern economy and we had paper money, we sacrificed a lot of the ultimate decentralized nature that these originally had. You know, when we had coinage systems originally emerging, it was the merchant class that was doing it. It wasn't governments that was creating that. And people were finding a lot of primitive forms of
money themselves and creating it themselves and verifying it amongst themselves. So, you know, in antiquity, money was something that was pretty decentralized, and this trend throughout history was basically that as money became more efficient for transactions, as we moved from a you know, gold system to a paper type system that's backed by gold, that required more intermediaries to enter into the system, and that ultimately made the system more centralized
to the point where the money didn't serve its fundamental properties anymore. Gold no longer was scarce on a gold standard. Eventually we moved that into fiat money, where the supply money isn't scarce at all, and it's quite the opposite. So the the seventh property that I kind of defined throughout all this is that this trend of centralization. Bitcoin's primary innovation is that we're reverting back to that original idea of what money was, where people were creating it themselves.
Much like bitcoin can be mined by anybody, people were storing it themselves, much like anybody can store bitcoin on themselves, and people are verifying it amongst one another themselves, much like how you can do that with bitcoin. Bitcoin's kind of returned to the anti created form of money, which is actually just returning to the optimal form of money, which we can now do in this modern technological framework
with the Internet. So the true innervation of bitcoin was that it has not only all the efficiency of our current fiat type system with paired with the Internet, it's actually much more efficient and it's still decentralized without having to sacrifice that as we have throughout history. So that was kind of like the primary idea around the thesis.
So it goes back to the essentialized nature where each of us can get it. So if you kind of go back to some of these previous iterations of money, whether it's seashells or rocks or feathers or whatever, it was, again that was decentralized. So I can go collect the seashells, I can go collect the rocks, the feathers, whatever they may be.
I can go collect the gold.
Obviously, it starts getting more centralized when you get to the money changers, the goldsmiths who made the coins, things like that. But still I get that, and so I guess the seventh property isn't so much a different property such as portable, portability, divisibility, durability, but rather that it just goes back to kind of the original decentralized nature of it.
Yep.
So I define it as in the book immutability, and it's defined as a decentralized production, storage, and verification of money. So immutability is a term that means like resistant to change, and that's ultimately what bitcoin is. It has this property of immutability which is enabled by the fact that you can decentralize in a decentralized manner. You can produce, store, and verify it.
Yeah.
Yeah, I think if we run through some of those attributes, So some of those properties I think, you know, for people to kind of think about. So one of them is scarcity, which obviously you talked about and the FIA money is the opposite of scarceh right, it's it's endless. Jeff Boo says that abundance and money is scarcity and everything else, and so that's kind of where we're at. But most people don't really understand that basic concept. Again, that this big misconception there.
But I think probably all across the board. I mean, bitcoin seems to win.
I mean it's it's more portable, it's more divisible, it's more durable. The saleability piece of it might still be the one in question, but that's rapidly that's rapidly growing as well. I mean, you could pretty much use bitcoin anywhere in the world at this point. I think it's based off of transactions. It's in like a top five currency in the world already, something like that.
Totally.
It's uh, and that's one of the kind of like vague a lot of these ideas around money, they are vague ideas. So you know, you were to be on Twitter debating an economist on the other side of this, they would say like, oh, it's not widely accepted enough. And then the question becomes, well, how do you define what widely accepted is as a globally accepted you know, bitcoin can be accepted on any continent, it can be accepted by anybody with an Internet connection.
That's that's pretty widely accepted.
I got an option, I gotta I gotta cut you off right there. We're going to have to take a quick break. If you're just tune in you're listening to the Mark mass Show. I'm sitting down with Eric Yaks, the author of the Seventh Property, Bitcoin and Monetary Revolution. We're back more talking about this money and how it can change the world. In a second, we'll take a quick break. Don't go away, I'll be right back.
All right, Welcome back.
If you just tune in, you're listening to the Mark Moss Show. I'm sitting down with Eric Yaks, the author of the Seventh Property, Bitcoin and the Monetary Revolution.
You know, Eric, I kind of.
Cut you off there, we were jumping into this commercial break, but you know, you were talking about bitcoin going back to this kind of like decentralized nature, which I love. I also think about it, and you mentioned immutability. Also, it's permissionless, and it's also borderless, and so it's sort of like this neutral money, right, it's not tied to a commodity good and it's not tied to a nation state.
Is that something big that you see, like the ability to store value that's not tied to any specific geography, any government, anything like that.
Yeah, it's It's one of the biggest aspects of bitcoin and one of the primary drivers I think of its adoption in the future is going to be associated with that idea. I think that over the past you know, a few years, this bitcoin's gained a lot of prominence. You know, a lot of narratives brought it into the fray and people would say, you know, it's digital gold, or you know, bitcoin is this inflation hedge, and these narratives kind of grew and I, you know, I don't
think that those are the right frameworks. I think truly the idea of really thinking about what bitcoin is is pointing to those ideas. If it's this neutral globally political monetary system, it's an alternative monetary system that people opting into. And we think about out what's happening today in the economy.
You know, we have.
The most rapid interest rate increase that the FED has made, and that's happening while we have more debt in our economy that we ever have, when we're hitting you know, historic levels inflation that we haven't seen in forty years, and these guys don't know what they're doing. And this monetary system of these people who control our money, they're.
Just winging it right now.
And we have an option to opt into this neutral system that anybody can be a part of that's global and it's borderless, and we're we're getting really close to that inflection point where that narrative I think, is going to become much more obvious, It's going to become much more widespread, and that's when we're really going to start to see that inflection point and adoption bigcoin to truly achieve its value proposition.
I mean, certainly, as we're watching FA currencies die left and right all around us, we're seeing countries go into massive inflation Lebanon, Turkey, you know, Peru, Argentina.
We could saider it rattle them all off.
But as we're seeing that, then they have a choice. Those people in those countries are like, well, I can't have this currency anymore, So what do I do? I can't really get us dollars, Gold's hard to get. Well, there's bitcoin, right, And so we're starting to see that
take place. I'm curious though, to the point that you're making about these different narratives from digital goal to whatever, right, and the way that I kind of look at it is sort of like the problem is with humans is that we're not in any good imagining in the future. All we can do is imagine better versions of what we already know, and then we try to understand things based off of some of being relative to something else. So, if you think about when electricity was first invented, the
killer application was a light bulb. So what is this electricity.
Thing, Well, it's sort of like a digital candle.
I guess which it was, but it became so much more, right, And so we think about what does this internet thing? Well, I guess it's the way we have these digital message boards. Well, sure, we didn't know we'd have a cloud or with our car being navigated around traffic using social media because we didn't have that stuff. Right, So we think about bitcoin, digital culture, digital gold. It is digital gold to bank
count in your pocket. Okay, it's that too. Do you think that as these narrative change, it will be even bigger than that? So if you think, if you think in broader terms, what is money? Money's communication communicates value? So is it a communication network a value exchange network?
What does that even mean?
Yeah?
So here here's how I view this point. I think that, yeah, absolutely, like bitcoin is this synthetic digital online commodity like gold, and that there's certainly true there's so many parallels between that. But I think that the innovation of bitcoin and what its potential could be and why I guess actually I'll start with why does this matter?
Right?
Depending on the level of potential that bitcoin ultimately achieves will determine the ultimate market price that it finds equilibrim at, how much of the market size it'll ultimately saturate at.
If bitcoin's just becomes digit gold, then it's effectively just going to be this reserve asset and we're going to be using other assets on top of it that are dependent upon it for trade in some form, which means a supply that's probably going to expand a lot, and there's going to be some sort of like fractional reserve type nature to it. If that does happen, bitcoin probably won't achieve its full market potential, Whereas if we don't have a system like that and bitcoin becomes this global
payment network of money. At the other extreme, the market size of bitcoin is in the hundreds of trillions, as opposed to a few tens of trillions.
Like it would be for gold.
So bitcoin's potential in the span at which it can expand throughout the world is massively determined by this question of what technology is going to be built on top of bitcoin and ultimately how is that going to be propagating Bitcoin throughout the Internet for various functions beyond just being a store of value. So when I view it long term, I view bitcoin as it's going to be the base layer, substrate of a new financial system that's
going to be neutral. It's going to be global, and it's not going to be run by any sort of political initiative. And as long as this system is kept very informationally transparent and there aren't any points of centralized attack over it, and it's a highly competitive type system, then I think we're going to see bitcoin not just become a store of value. We're going to also see it become a medium exchange and unit of account for
the global capital markets. And at which point the value bitcoins and the hundreds of trillions, and that's going to be the full potential that is really going to allow society to achieve an independent monetary network, Because if it's just digital gold and we still stay on some central bank type system, but bitcoin expands so much that you know, say central banks are forced to start adopting it as a reserve asset. Fine, that's a great thing for bitcoin.
That's not going to fundamentally change freedom throughout the world and the property rights that the individual has. So this a political neutral system and it expanding across all these chasms with a you know, strong, competitive, informationally transparent financial system. That's you know, what I'm a part of this industry for, and that's what I expected to ultimately achieve.
I guess, yes.
So I see all that, and I want to talk about that, what that potential monetary system looks like. And I know I've heard you on some other interviews talking about you know, and you kind of hinted on that, like if we have other assets on top of it, and does it expand in fractional reserve So I.
Want to get into that.
But just jumping back into this question for a second. If you think about bitcoin as a open borderless, permissionless, CENSORSIP resistant, immutable network, well what else couldn't that network be used for other than money? So sure, everything has a first killer application. The Internet was email, electricity was a light bulb. So for example, we now have ordinals, okay, and that's like NFTs okay, whatever, that's stupid people argue against it whatever, But what if we were able to
put or not. What if we are able to put books or three D printed guns or other things that the government want to censor, and now anybody in the world open borderless mission listenship could access that data. Right, that's like one example. It's hard for us to imagine where these things can go because we don't have those building blocks. It'd be like when steel was invented, you know, two hundred years ago, going, oh, one day we'll have
spaceships like we didn't know that. Or I know you've been talking about like fetimint right, and so Fetiman's a way to pool money, but you can also do like private messaging in that pool. So now it's like a communication protocol. We've seen Jack Dorsey with his Web five where they're taking these decentralized IDs, these d IDs and they're hashing it in the Bitcoin blockchain because it's a decentralized,
you know, censorship resistant platform. So like, these are those three examples of use cases of this open borderless permission that sensor persistant network that aren't really money uses m.
Yeah, I agree, it's it's actually Eric.
Sorry, before you before you answer that I want to hear what you have to say. I know you're interested in the venture capital side of it, so that's why I'm trying to ask you these questions. But I got to take a quick break. So if you're just tuning in, you're listening to the Mark Maas Show. Of course we're talking about the decentralized Revolution. I'm talking with Eric Yates, the author of the Seventh Property.
Bitcoin, the Monitary Revolution.
I'm gonna take a quick break, but you don't want to miss what's next, so don't go away, all right, Welcome back. If you're just tune in, you are listening to the Mark Maas Show, sitting down with Eric Yikes, the author of the Seventh Property, Bitcoin and the Monetary Revolution. And before the break, I kind of had to cut you off before your answer, so hopefully we left everybody.
On that cliffhanger.
But I was given examples of potentially other use cases of this network other than monetary uses, and so I was just curious on your thought of that.
Yeah, and the way that I think about this question is exactly what you said. This is a global data store and the most secure network in the world. It's the true source of information that we can depend on because we know that we can't attack this network, could know that this ledger of information cannot be changed. Now we know that whatever information we decide to record on
that is information that can't be changed. And that's a very valuable proposition that you know, I'm not smart enough to understand every implication that could possibly emerge from that, but you know, and I think, like going back to like what I expect a lot of this to be, it's you know, I think the I think the ordinal's
point is a really good point. So it's something where right now people are just trading JPEGs and they're inscribing a little bit of information on the blockchain, and then they're using that to say, we have these pictures that we like and it's a collectible's market, and that's how it's emerging. What could it be in the future. I think that long term, I guess, like, well, there's two points if we think about today how our system works.
You know, the title to your home is something that's very valuable and you can't live in the title to your home, but it provides you a claim to your home. And what does that mean when we say provides a claim, Well, it means that we have a legal system backing. It's where if somebody else breaks into your house while you're gone, locks you out and says you can't come back in here, you can go to the government and they can get guns and they can pull that person out of your house.
So that's kind of an interesting point, right. These claims in these contracts and the protection of property rights within our society are valuable because they enable us to do something like that, and they're predicted under judicial system. So when I think about what would make these types of this type of information valuable. A claim to something on an immutable blockchain, Well, it does need to be respected by some sort of authority if we want to have
that same type of use case for it. So if there is a form of legal system backing that eventually emerges within a society around it, I could see that being pretty valuable. And in which case, you know, any sort of asset like a stock or a bond or anything could be inscribed on this ledger and.
Except if you have to rely on this offline authority to back up the claim to the house. So I went to the crypto conference the Consensus Conference last year in Austin, and my head spinning, like what are all these people here doing, and what's the best thing you've seen? And everyone's talking about these deeds on the blockchain. I'm like, what's the point, right? So I let you live on my house, I have in the blockchain, I have the deed, but now you don't pay.
I have to get you out.
Well, I got to go to the court and then they're gonna want me to prove I own it, so they have to go to the recorder, and then I have to get the police and all those things. Then what's the point of the blockchain? So it seems like it works really good for digitally native stuff totally. Not for like physical stuff.
I don't know.
That's kind of my opinion and feel free to very differ off that. But for digitally native stuff like a three D printed gun schematic. You know, we know I'm going to talk about in another segment, this massive move for censorship. Of course you saw like the restrict Act, but it's coming from every direction, from every country, massively
control the Internet and just sensor everything. And so we're going to have the need for that more and more, and so digitally native stuff for sure, we're gonna need a place for that.
Yeah.
Yeah, And it's the part I'm trying to make is that exactly these things require some sort of legal backing. So it's like, what's the efficiency that it ultimately like provides this society. Whereas you know, as long as the title system works, it works. It's just maybe perhaps a more efficient form of transfer, which I think is probably true for a lot of these things.
But you know, I.
Think that in terms of long term a lot of the value proposition that can emerge from being able to inscribe data simply being able to like prove knowledge of very valuable things in a way that we couldn't prove knowledge about something before, which will have you know, a lot of implications I think.
Down the line, Yeah, and transfer data.
Right, So, like I said, like the movie what is it Fahrenheit four fifty one right where they go around and burn all the books. I don't know if you've seen that, read the book or the book, and then they made a movie about it, but basically they said, you know, the world erupted into a civil war because everyone saw a different information, not too unlike where we're at, right,
now to opposite sides. And so the way to solve everything was to get rid of all the information and have one arbitrary of truth.
So they went around burning all the books.
And so if we want to they were trying to protect those books, and they were trying to memorize the books. But we could just inscribe them into the bitcoin blockchain and then no one could ever get rid of those books, right, Like, that'd be right, That'd that'd be pretty beneficial. Anyway, interesting, let's talk about back back to kind of what we see happening right now, which I think is arguably the biggest use case, uh, the most important use case in
the world. We say, fix the money, fix the world, and so we can probably point back to almost any problem in society pointing it back to a problem with the money. And so let's talk about what you think happens with that, you know, this future world you had hinted before, and I kind of want to come back to that. If we wanted to get off of just the store of value and kind of use it more of a medium exchange, do we have other assets on top of it?
Could those inflate it? Would that turn into fractional reserve.
Uh, do you have some ideas on how you think that could play out?
Oh, quite a.
Bit, Mark, Yeah, you're going to have to shut me up, but yeah, I think that I think the best way to start is the idea is that if we if bitcoin is going to remain a form, is going to you know, move into the medium exchange aspect without turning into some type of fractional reserve system, then we need the system to emerge in a way where either this would be like the Lightning network for example, you can always voluntarily exit from participating in the Lightning network back
to just owning your bitcoin on the base chain. So that's an incredibly valuable characteristic and I think that that kind of like qualifies Lightning is like a layer on top of bitcoin. I feel like the idea of layers is misused a bit. There's a lot of things that are you know, more like on the side of bitcoin
that it probably aren't. I would define a layers something where you have to be able to voluntarily exit back to the layer below it in order for it to be considered that anything else is just kind of using
bitcoin in some sort of way. And I think that when you think about what could emerge in fractional reserve When we think about what's happening with like fetiment that you were mentioning earlier, they're sharing e cash, and it's technically possible that if you are participating in fetiment and you're using e cash for a form of trade, people that are issuing it could issue more without you knowing it. And the complexity of all that we could talk about
for a while. But I think the high level takeaway of all of it is that if we move into systems where there is a receipt to Bitcoin that we're using in some form, then that opens up vectors for whether or not we could have a fractional reserve system. But and I think that this is going to be a key area criticism, but I think that the solution is more so I don't think it actually will be
as big of a deal. If these notes do emerge, the question is going to ultimately become how efficient are these systems, how transparent is the information, and ultimately how competitive does it become, Because when we talk about digitally native assets that are underlying some sort of note within the system, if the information is transparent enough and there's enough competition then it's going to be very very hard in the system to actually run a fractional reserve type institution.
I think that for the first time in history, we'll probably see a naturally emerging full reserve system, which we actually have never seen really in history. We've had examples of like one off full reserve institutions that have kind of been relegated to being a full reserve for a
period of time, typically in markets throughout history. Because information wasn't as transparent, the government was always meddling in how the system functioned and creating these perverse incentives which reduced the amount of competition and increase the centralization that always caused fractional reserve to emerge somehow. Now that we're in such a transparent system, it's just going to be very
very hard. So I think that if we do get to maturity within this, even if we do have note type systems, it's going to be very easy for individuals to bankrupt any sort of institution that goes fractional reserve. I mean, we can even see that within the Fiat system today with how quickly bank runs are happening with
just simply mobile money applications. Imagine that being a digitally native bitcoin system where the user has full control over everything, it's going to be very hard for these institutions to maintain fractional reserves.
Yeah, it's certainly going to change thing. We're seeing how social media has just changing the speed has had a big effect on the banks, and so you can just figure out where that's going to go, leading to more bank rungs and make it much harder for the banks to keep that. If you're just tuning in, you're listening to the Mark Mass Show, I'm sitting down with Eric Yanks, the author of the Seventh Property, Bitcoin and Monetary Revolution. We're going to come back a little bit and talk
more about the future of this system. Don't go away, We'll be right back, all right, Welcome back. If you're just tune in, you're listening to the Mark Mass Show, I'm sitting down with Eric Yeks, the author of the Seventh Property.
Bitcoin and the Monetary Revolution.
Now, Eric, before the break, I had to cut you off there. We were talking about this fractional reserve system that could happen and how potentially with technology, moving money faster could be harder to maintain.
You know a couple of things I think about that one.
Bitcoin is kind of this first asset that gives us the store value and the velocity all in one asset.
Right, So typically with gold, we would.
Need to add debt on top of it in order to get that velocity, and we don't. We don't have to do that, So that that's one thought. Like, So, I know you're talking about like lightning and potential other layers, fetiment, et cetera.
It doesn't really need it.
I mean, I suppose we need that second layer lightning to move it faster, although it's still just one asset, it's still just bitcoin. But I think the point that you're making is when you put the bitcoin into a lightning channel or a fetti mint, then there's potential to increase that. They could they could add more units to that, right, that's kind of what you're talking about. They could inflate that or create that fractional reserve, right right, And and
aren't and aren't we so answer to that? But also aren't we already seeing fractional reserve? Didn't we see FTX with you know, one point five billion dollars worth a bitcoin on their books? People thought they had bitcoin at FTX, but really they had, was it like one bitcoin or half a bitcoin or something like that to work maybe already seeing that.
Oh yeah completely, and the system that we're in is not you know, I'm thinking much more long term once we kind of converge upon like a bitcoin standard. But yeah, certainly the system has all the prefers incentives that are needed to create a fractional reserve system, especially when we have c FI operators that are you know, creating paper bitcoin on top of it. I think that in order
for the incentives to all align eventually. This is very long term proposition of what it would look like in the world on a bitcoin standard for the foreseeable future.
As long as we have centralized providers within this type of system, and as long as it remains free as it's an adolescence, I expect us to continue to see, you know, fraudulent actors do this, which is why we're towing a very interesting line when we're innovating finance and money, because the it's not just bringing new products to market that can if you don't like the product, then you don't have to use it again. It's if you don't like the product, you lose a lot of your wealth.
Oftentimes for people that aren't totally informed, which is one of the hard parts about this industry and one of the things that people have to be really careful about. But I think that so yes, the fractional reserve aspects I expect to exist for a while when it comes to exchanges and the way that they're operating. Hopefully after this last cycle, more people learn their lesson and the system starts to mature and become a bit more efficient.
But I think once we're in a digitally native system of operators where they're still going to be centralized providers, I'll be clear, But once we're on like a Bitcoin standard of some form, that's when things change quite a bit.
So a way that I think about a lot of this right now, if we operate on the lightning network in the future, then lightning institutions Lightning has certain issues right like lightning is naturally could seyentralize over time, We don't totally know, but there's a lot of incentives that are probably driving into a system of banking type institutions, which may not be a bad thing as long as it remains competitive. So if you're depositing like and to
explain this for listeners to. If you are if you want to participate in the Lightning network and you want to send bitcoin to somebody, then you can easily just put bitcoin into the Lightning network and whatever amount that you've put in is the amount that you can send.
That's pretty simple. But if you're a merchant and you know you have a store and you want to go sell some amount of bitcoin, you're limited by the amount of capacity that you can accept from the other person you've opened a channel with when you put that lightning in.
So because of that, that limitation means that there's probably going to be centralized providers who are saying, Okay, we have a lot of bitcoin that we're sitting on, we can open up a channel with you, and if you can, you can pay us a fee and we'll allow you to accept. You know, if you're a store and you're bringing in, you know, one hundred thousand dollars in sales every day online or something, then they can provide you a capacity for a fee so that you can accept
that on the Lightning network. That's fine, but it'll create centralization over time. So it's arguably we'll probably create some type of lightning banking system that will emerge that's providing that capacity for people who are accepting a lot of lightning payments, and that system. As that emerges, that type of system could become fractional.
In some form. There is a risk of it.
So we do know on the digitally native side that the amount of bitcoin that somebody has, because we can verify that on chain, But what we don't know is if that person is taking on any sort of loan that's outside of what this institution is doing. So, you know, I could go set up a lightning big tomorrow. I can have one hundred biitcoin in my address, and I can make a bunch of you know, I could be taking out loans outside of this system that are ultimately
creating a fractional liability on top of it. So like that's something that will probably exist today. I think that the scenario that's going to make it really hard for
a lot of these systems to be fractionals. Like if you envision this new digitally native world, you could go and there's gonna be a lot of people that are speculating against that because moving money is going to be so cheap and efficient, it's going to be really easy to put these guys out of business, so we can look at their own chain address, we can say, okay, you have this much, and if there's like a certain amount of claims that are being put out on top
of that, it'd be easy enough to go buy those claims, redeem them and take out you know, some form of for people that aren't as familiar with there's flash loans, which is a way of like scaling a really instant loan for like an arbitrage trade that allows people to
scale transactions very rapidly for arbitrage. And because you could do that and this would probably be more this would be a better example would probably be instead of doing this for a lightning bank, if you were to look at like a feediment that's issuing not it's not bitcoin lightning cash that you're issuing on top of a bitcoin reserve.
If you're expecting that fetiment to be issuing too much e cash, you can buy a bunch of e cash out of the market and then go redeem them all at the FTAMAN and see if you can put them into insolvency. And there's it's just going to be so efficient for people to do that, and we can have all these mechanisms like flash loans to instantly create arbitrage when it's on chain type trades that it's gonna be hard to run a fractional reserve institution.
Yeah, and the and the transparency. I mean, it's the bitcoin network is not private. I'm sorry, it's private. It's a it's anonymous. It's not private's anonymous, right, So it's like it's yeah, pseudonymous.
So you have the visibility.
You can see how much bitcoin there is, and then well it looks like they're you know, they're creating more and then you could easily pull that out, et cetera, and so you can create runs on the bank. We don't have a lot of time left, but I was just curious as I was thinking about that, you know,
something I wanted to dig into. We're gonna have time at this point, but you know, thinking about people trying to earn yield on bitcoin, and so if you think about like people would put their money in the banks historically. One obviously gold was very slow and clunky, so I'd give to the bank. They'd speed it up by giving me paper closertificates, and so then we put our money into the bank. One because I need someone to store my money, and I need someone to control the payments.
Let me send money in and out of that bank. And then also historically we would earn yield as the bank would loan that money out, they would pay me percentage back. But if I don't need them to store my money anymore, and I don't need them to handle payments for me anymore, then the only function left would be the yield. Of course, bank's pay no yields. That's
kind of out of the equation. But I kind of think, you know, Jeff Boose says that it's hard to see the new system when you're living in the existing system. And so like, in this existing system with massive inflation, we need some sort of yield. But maybe in that new bitcoin world we don't need the yield. We're not chasing yield all the time. If we were really living in a deflationary world, a world of abundance, maybe we would need to go chase yield and it would take
away that third need for the banking system totally. You got about thirty five seconds, Go ahead, tell me what you think.
All right, Yeah, so here we go.
The number one. Yeah, if we're dealing with a disinflationary type supply currency, then we probably are not going to be as interested in finding interest on it in order to keep up within our current system. Inflation is why we want the interest. And then two, the other big thing is in this new system, there's actually gonna be ways of earning a rate of interest by supplying liquidity to the Lightning network without assuming any sort of counterparty risk like you do at a bank like banks today,
or just credit funds. And we're assuming these like leveraged long credit fund risk for your savings, which is like this absurd scenario that should never exist. In the first place. Lightning banks would just be deposit the baitcoin. You can earn a minimal rate of risk risk free, not risk free, but you can put into effectively a hot wallet that's your risk, earn a rate of return on top of that. And you can also lease liquidity and earn a great rate of return, So you can earn yield through that
without assuming risk from a counterparty. You actually don't even have to go through a bank. You can do that yourself. So those are the two things that I think are going to be really big in terms of people want yield. And while fractional reserve can incentivize that. I think that there's going to be much more efficient ways of doing that that are can be done by the individual as well as you know, I don't think that that will be as attractive in a disinflationary type system.
Yeah.
Man, there's so much to dig into there. I'd love to talk more about that, but we're out of time. Maybe another time we'll have to get into that. If you just tune in your listen to the Mark Mass Show, I've been sitting down with Eric Yeks. He is the author of the seventh property, Bitcoin and a Monetary Revolution. Will put links to that book in the show notes. You should go buy a copy and read up on it.
And that's what we got. Thanks so much for listening.