Where Does Bitcoin Fit Into Traditional Finance

You know, understanding the intricacies of the global financial markets is difficult, if not almost impossible for the average person. It takes a lot of specialty training, education and dedication to study these markets and understand how they work. And today we sit down with Nick Batia. He's a researcher with Tantra Labs. He's an adjunct professor at usc speaking and teaching about the bond market, the financial market, and

he gives us some great insights. We're get into some conversations talking about his three of money, how it works different types of assets, from currencies, treasuries, oil, gold, et cetera. Of course cryptocurrencies bitcoin. We talked about what he saw in the traditional financial markets buying and selling treasuries that kind of caused him to want to jump over into bitcoin.

Full time. We have a lot of good conversations about bitcoin itself, specifically, including how it's exactly where it needs to be today, how it's scaling, what the evolution of bitcoin looks like today, and where it's going over the next five and ten years. We both agree it's exactly where it needs to be, it's doing exactly what it needs to be doing, and it's on the course to set it up for a huge success in the future. It was a great conversation with Nick that I really enjoyed.

So let's go ahead and just jump right into it. Everyone, Welcome to another episode of the Market Disruptors podcast. Today, I'm joined by Nick Botia. He has a he does research with Tantra Labs and open Nodes. He's also an adjunct professor at USC talking about finance and bond markets and stuff. So many things that we could talk about. We're trying to keep appointed. I'm excited for this interview. So Nick, welcome to the show. Thank you for having me.

I appreciate it. Yeah. So, like I said, there's a lot of things we could talk about, but but I want to keep it on track. But before we dive into all that, why don't you just kind of give us a background of of kind of how you got here, on what you're working on right now. Sure. So I joined the bitcoin industry formally just a few months ago as a research strategist for open node payment processor that's enabled by the Lightning Network UM, as well as Tantile Labs.

It is a hedge fund. They're both here in Los Angeles. UM. They're both extremely exciting opportunities UM, and I'm really happy to be part of both of them. Before that, I was part of the traditional finance industry. I was a bond trader trading US treasuries and other interest rate products for an asset manager UM for a few years, and worked at a hedge fund before that for a couple of years. UM. So I'm really just excited to have made the transition from the bond market to bitcoin. Yeah.

So what a what a big jump to go from like traditional finance working with billions or trillions of dollars to go into like this small kind of brand new technology. Uh. What was that decision like to go from you know, the big traditional market to something that's like risky and unproven and small. Sure, well, it was a process that happened over a few years. First started with my interest in bitcoin and the dive down the all the bitcoin rabbit holes, um, and that you know process lasted a

couple of years. Then I started writing about bitcoin last year and some of that work was embraced by the bitcoin community. They encouraged me to write more and I wanted to have conversations about some of the things that I was interested in, and all that snowball all into meeting real bitcoiners in person and starting to form relationships, going to events and uh, and then the gravity of bitcoin just kind of pulled me in. And in the end, UM, I made the you know decision that it was it

was time. I love that the gravity of bitcoin pulls you in. Man, it's success all in, doesn't it. So when you were working for like a traditional manager institutional manager, UM, and you were trading treasuries, like I said, I mean, those are those are big markets, global markets, So you were looking at like the big kind of macro global picture when you were when you're doing those things, and UM,

what what were you looking at? Um? What were there certain things that you were seeing that that we're kind of pushing asset prices around that kind of caused alarm

for you. Well, you know, one of the things as a treasury trader that you really sink your teeth in is this bull market that treasuries have been in for uh three three plus decades in the United States, um SA the eighties when interest rates were at and so then you start to ask yourself, why have rates been trending lower for decades even though they can pop higher for a couple of years at a time. If you zoom out, what you see is just this persistent demand

for US treasuries. So I started to ask myself what are the things that cause this persistent demand? And those were the things that I ended up focusing on. And uh, you know, some of those things are just the unlimited demand for safety and liquidity um of of safe, relatively safe assets versus all the other risky assets out there. Let's let's unpack that just a little bit. So um, for those that aren't aren't kind of tuned in, what are treasuries? Real quickly? I mean, how how does that?

How does that work? Right? So, treasuries are obligations from the US government, So they are it's a it's a debt instrument, and and the buyer the bond is lending money to the US government, and over time, the US government pays back that that lender with interest payments and then eventually the principle at the end, the reason why treasuries are held as this quote unquote risk free asset, even though we know that the government could default, um,

the fact of the matter is that they haven't, and that precedent the US government's credit worthiness has positioned treasury bonds as the quote unquote risk free asset of the entire financial system. Right, and so because of that, because the dollars the reserve currency of the world, and the United States has kind of been the underpinnion of the financial system. That's why their bond, where their treasury is the most risk free asset, and they have the track

record I guess as well, not defaulting, that's right. And uh and uh part of part of that is that the dollar isn't backed by gold anymore, so you know, the people look for, uh an asset that is a safe haven away from the dollar. Um, they look to US treasuries because the dollar is not backed by anything but the treasury or the bond is backed by the government. The credit of the government. That's right. Well, see, the

thing is that the dollar is backed by the Federal reserve, right. Um, that's if you have a cash note, those are federal reserve notes. Um. Dollars that are in a bank are liabilities of that bank, their dollar deposits, and so those dollar deposits aren't backed by anything but that bank. And that's really why people seek the safe haven of treasuries in the financial system. It's kind of the default thing that you own instead of bank deposits because you don't

want to have to trust that bank. You'd rather trust the government. Right. And so we're talking like on the billion scale, the trillion scale, so like other sovereigns, right, other governments and things like that. Yeah, and you said, over the last thirty years, we've had this massive demand growth for that for those treasuries as interest rates have gone down. Um. Is that is that because other governments are kind of falling left and right, in the US

just continues to get stronger and stronger. Well, it's a combination of several things. Um, inflation rates in general have been low in the Western world for a long time, and UM growth expectations as well. UM. And so you know, interest rates are kind of that combination of growth and inflation expectations of the future, and so as those two

things have trended down, so have interest rates. Now, I mean currently, right now we're seeing the kind of this race to the bottom where all these other governments are starting to try to devalue their currency to kind of play that game. And so that's only making the US

dollar stronger or the treasury is even stronger and more demand. Well, um, it's it's it's interesting because the US dollar is the center of the financial system and for that reason, um, as goes the US goes the rest of the world, and so I actually like to think more in terms of the rest of the world trying to devalue their currency is simply just a reaction to what's going on

in the dollar system. Right. Okay, Now you talked about we talked about treasuries, but when you were looking at the macro markets, I mean, did you look at treasuries, which are you know, credit essentially of the government. But you kind of referenced before you also looking at gold and oil equities? How they all related together. Um, gold and oil obviously our commodities, those are real world assets. That's that's real wealth, right versus treasuries just being credit.

How do you see those moving together or or what do you see there when you look at those together? Yeah, so the best thing you can try to do is UM just under stand which wants to watch. Trying to predict which causes the other to move or how they all react in you know, in relation to each other

is really almost an impossible task. And unless you um you know, you have the quantitative tools, which actually there are a few hedge funds out there that you know, have dedicated hundreds of millions of dollars into the infrastructure to analyzing this data. So tracking it, being able to try to predict it is not something that I did.

The only thing that I was trying to do is look at what was moving and why it was moving and and try to understand, you know, some of the relationships between asset classes, equity, fixed income, currencies and commodities. I guess what I was asking is UM. So. I just recently did a video on YouTube where I talked about UM the doubt of gold ratio and we I was basically talking about, you know, which a lot of people are kind of in tune with, but like gold

being real wealth or real value. It's priced in dollars, and it looks like gold is getting more expensive. It looks like houses are getting more expensive. Looks like all these things are getting more expensive. But really the dollar is going down in value. And you when you look at um, when you look at home, the medium home price in the United States fifty years ago was twenty seven thousand. Today it's two. But when you price it in gold, it's kind of priced the same amount of

ounces per gold or whatever. So that's I guess that's what I was curious about. So over the last you know, since nine seventy one or whatever, as that money supply has been exploding, I would imagine we've probably seen similar things, like in the treasury bond market. Um. Yeah, they definitely the the cost of living and especially the cost of things that have been subsidized by government programs. UM like the mortgage market and uh, the student loan market and

the healthcare market. These three things have massive government subsidies here in the United States. UM. And it just leads to higher and higher prices bubbles, that's right, anywhere they want to put money because it creates artificial demand, right, And so you create artificial demand and it produces bubbles. Now, you wrote a paper recently called the Triumvirate, which was which was really cool as well received in the community.

I know, I got a lot of a lot of publicity and and there was some really good stuff in there. And you talked about a little bit about the history of money, um, gold and then dollars built on top of gold. Um. But really there was a point where the euro dollar was created. It kind of change the whole system. Um before really we even lost the gold standard.

What was that difference? Maybe real quickly as you walk through that sure, so um, what you did, what basically happened was in Europe after World War two, UM and the breton Wood system was started, where the dollar was the reserve currency. Banks in Europe needed a way to settle balances between each other, so they came up with this system of a dollar liability and uh that wasn't connected to the federal reserve regulated onshore US dollar system.

But what were they using before that? Just dollars? That's well, they were using the balances between the between um between the two banks. And so those balances, whether they were denominated in the currency Europe or in gold um. They weren't able to facilitate the economic activity that was required of them in dollars because they just couldn't have the access to that many dollars with their own in currency, the euro dollar to help facilitate that trade. That's right.

So they still had dollars, right, and those dollars um were actual notes, and but that only limits them to facilitate the amount of dollars that they had. So if they wanted to grow their business, they have to come up with something else. So they came up with this tool called the euro dollar to actually facilitate payment beyond the actual dollars that they had, right and so um that was a big turning point. You think in like the the the change in our money from golden dollars

to then kind of the system that we have today. Well, what happened was the supply of these euro dollars started to increase and then they started to mix in with regular on shore dollars. So the Federal Reserve admitted sometime by the nineteen eighties that they had lost track of the money supply and they went from targeting money supply in their monetary policy to the price of money, which

was you know, the federal refunds rate. They started targeting interest rates instead of the money supply because they actually didn't they lost track of it completely. And they they they have ad did this, uh, you know, slowly, but surely you know since the nineteen eighties, and um, in some papers that I was reading in preparation for this article. Sure they used to track it. They used to say, like because it was backed by gold, and they'd say,

like how many times more than gold? And then they at tracked it for quite a while and then they just gave up and said, I forget it. Right, Um, you made a point that that in the paper, you made a point that at that point, Um, the dollars were no longer that risk free trade, and that's kind of what started pushing everybody into the treasuries. That's right, shift,

that's right. So once the Fed you know, admits that they've kind of lost track of the supply of the dollar, um, the whole system realizes that the dollar is just a banking liability and not really an asset that's worth holding onto for any long duration of time. And so that's what causes the demand for US treasuries because you can think just think of it as the dollar substitute, and if the dollar is a banking line of liability, then

you just substitute it with the government's liability. And that is basically what happened in the capital markets where um cash doesn't actually sit in cash, it sits in treasuries, T bills, et cetera, because that's a safe way to store dollars. It's interesting, you know. I saw just recently, in the last couple of weeks, I think I saw a survey and it said something like maybe up to thirty percent of people still think the dollar is backed

by gold. And really there was kind of the sly switcher rue bait and switch whatever, where the dollar still looks the same, right, they changed it at the top that some of the text a little bit, but for the most part of the dollars the same, so the most people think it's still the same. Um. I thought it was interesting is that people thought it was still backed by gold. I wonder how many people never even knew it was even backed by gold, though that's probably

a pretty high number. Yeah, I mean, it's it's it's funny. I um, you know, I didn't start trying to understand what the dollar was until I started studying economics, uh in in college. So you know, I think that it's just not on most people's radar. The dollar is their store value, it's their medium of exchange, and it's their unit of account. The dollar works, um. And so because

of that, uh, people tend to not notice. But if you zoom out like you were saying, and you look over a multidecade time horizon, that's when you start that's when you start to notice that maybe this isn't the best way to store value. Yeah, that's such a good

point that you made. Just like in the last week, another tweet that that kind of went around the world was that I think it was Larry Cernac posted or something and said that you know, the dollar by design is supposed to inflate by two annually, and even though it steals money from people or value from people, they're not supposed to be storing their wealth in in dollars, right, And he said they should be buying treasuries. Um. But as the point you just made, which I agree with, yeah,

I was, person has no idea. They just think that they store their money in dollars, right, Yes, And that's why we also see that most of the stock market is owned by UM. You know, I think it's ten or fifteen percent of the American population, So you know, most people don't own financial assets in general. Yeah, what's interesting when you go through history, and again bitcoin drags you into all these different little rabbit holes as we

call them. But when you go through history, you can see how UM, you know, in the mid I don't know, fourteen fifteen century, the whole world got onto the standardized gold system where all the coins had the same size and weight, and how it just blew up free trade and allowed everyone to start specializing. And then the world had several hundred years of massive prosperity UM during that period, and UM people were able to specialize, store their value

and have it retain its purchasing power. But today, let's even if you're the best brain surgeon in the world, you should be able to be a good brain surgeon and park your money, have its store its value. But you can't, and so now everyone's forced to be an investor. And then it's created this whole financial system that would wouldn't even be necessary if we could just store our value. That's right, that's what happens. And when you're in a credit based or debt based money system is that it

has to gradually inflate to stay alive. And it caused yet it causes everybody to have to be an investor. What's interesting, And you have the traational finance background, and it seems like a lot of people still because maybe the way that's predominantly taught is that we have to have this inflationary system, which I think is the point that he was trying to make on that tweet, because

we need this system to inflate. And I sent a follow up tweet out and I said, would you rather your money I'm more in the future or less in the future. And everybody, of course wants more money or to buy more in the future. Um, but they want us to believe we need our money to inflate. But really it's the debt, right. Do you want to pay less for your debt in the future or pay less

or pay more for your debt? Right? Yes? And I'm glad you brought that up because it's one of the things that I'm going to be spending a lot of time on over the next several months is coming up with an answer to your question about UM, how do we answer the criticism that we need to have this moderate early, moderately inflationary system UM, and that you know,

the deflationary system of bitcoin is bad. So I'm I'm gonna be spending a lot of time researching, writing, trying to come up with ideas, asking some smart people there. There have been great pieces written about bitcoins, specifically with this UM, but also in terms of the gold system that we used to have UM. So I'm looking to research and summarize some of that stuff. I think. I mean, I think an inflationary currency only we're only helps, is

only good in a credit based system. UM. In a non credit based system, you want a deflationary currency, of course. And and they want to say, well, people want to feel like their true wages are going up, UM, But I don't know. I think even though yeah, our wages went from four dollars and our eight dollars an hour, we know that they buy less today. So I don't

that's not a great argument. What's that It's not a great argument to say that people, you know, want to feel like the numbers are going up, so that's why we have an inflationary system. No, it's not a good argument at all, you know, so it only helps the people with the credit. Now. You also made a point in that Triumgrant article that really the banks broke um the dollar in two thousand seven, and and now we're in a system of permanent disrepair? You said, yes, And

so why is that? What happened there? Well? So the system of euro dollar interbank liabilities UM was kind of uh free reign system, strike of the pen um, not with a lot of limits, and not with really any worry uh what would go wrong? Um? And then when it did go wrong in two thousand and seven and they realized that you can't just leverage up six two one and survive um. That at that from that point forward, the banks trust of each other really just started to unwind.

And so the reason why I say that we're in permanent disrepair is because we keep from going through these periods where banks uh just stop lending to each other and we can see that the system is not the same as it used to be. Now you say that in two thousand seven, So that's that right before the great financial crash happened, Um, they realized they can't leve up fifty one. But did they really? Aren't they levered

up that much? Today we're worse. Well, sure, So the way that the central bank backs the system um makes the banks comfortable with taking risk. They just know that the their fellow banks are not the ones that are going to that are going to step in and keep the system alive. It's the central bank. And so the FED came in in two thousand and eight and two thousand and nine and two and ten and basically said we're going to provide all the liquidity that you'll ever need.

And so, yeah, why would the banks go to each other anymore? Right? They wouldn't. When when doesn't that doesn't that almost make them more reckless knowing that hey, now we have this back stopping and we're always gonna get built out. Well, actually it's turned into something kind of scary where they are kind of reckless for most of the quarter and then as we go into quarter end they have to window dress, as we call it, um.

They just have to make their balance sheets look good for all the regulators, and they start paring down a bunch of risks with each other, and so really bad things can happen on quarter ends or year ends as we saw last December, as we saw this September. Um, you you you have a system where you have kind of make believe risk for eighty days of eighty out of every ninety days, and then you have to reconcile

to reality. It's not a great system, you know. I like to say that, like people like to say like knowledge is power, and I like to say that, really, only actionable knowledge is power. Otherwise I think ignorance is bliss. And a lot of times, like you've you peel, you peek behind the curtain, you see this stuff and then

you can't unsee it. So I'm curious, um, you know, being that you were studying this in in in uh you know, becoming a professor and working for these institutional managers, did you then you made this shift into this brand new financial system technology, which is kind of scary. But was it almost like what you were seeing going on was so bad that you knew that system is doomed and you might as well jump onto the lifeboat. We had a chance. Yeah, not not doomed, uh necessarily, but

um beyond actionable repair. Um not something that I could try to go out and fix. So let's work on something that we can build and we can change and um, you know, something something exciting. And it was basically yeah, kind of that black hole of this system is it's maybe it's not doomed tomorrow or even in the next

ten years, but it's decaying and uh not something flexable. Yeah, you know, I want to you know, I want to have something that excites me, you know, with a long term I like how you say that because a lot of people in the bitcoin space we talked about it where it's an alternative system, so we can just opt out and so we don't have to wait for one to crash before the other takes off, and we can just kind of build this alternate system. And that's I

guess that's what you are trying now to push. Yeah, it's definitely a parallel system. Um, you know, I don't. I mean, I it's hard to see, um, the United States relinquishing control that it has um in a short in a short time horizon. Uh you know, with the with the with the tool that they have in the dollar. Um. So yeah, we have to build a parallel system and make it as good and then better as the dollar system.

Before you know, we can say, hey, you should you know, you should come over to the bitcoin world and that's just gonna take time. Yeah, I know. I think I always like to say people are expecting way too much,

way too soon. I did a video where I talked about how the dollar and actually you know, the reserve currency has changed about every hundred years for the last five six years, and I made I just I just really broke down the change from Britain the sterling into the dollar and how really it was about a thirty to forty year process and today we're seeing the same thing happen. But it's going to happen over a thirty

to four year process. It kind of happens with a whimper, not a bang, as as I said, UM, so kind of like what you're saying, we can start to build that alternate system. Now, well, we didn't get super deep into the existing system today. But in your article the Tranprit you talk about the trying the three pieces. I guess right that bitcoin can kind of build this alternative system you want to break down with those three r

for us. Yeah. So what I'm basically referencing is that in the world of uncertainty, uh, people and investors want things that are safe and liquid. The reason that UM, even things that are even things that are relatively safe, can be extremely a liquid and uh, it defeats the purpose of the safety in the first place. And so to buy it right, right, right, And so the combination of safety and liquidity is what people are going to seek.

And so what I see is and I reduced all government bonds to US treasuries because they're the dominant, but you could you could consider all UM global government bonds, you know, including those in Europe and Australia and Canada, etcetera. You know, a lot of government bonds that have really really strong track records. So these government bonds is one asset that people are going to and have flocked towards. UM.

Gold is another. As we see, the long term price of gold has been in steady appreciation, you know, give or take. Uh, you know the interim volatility that we saw during quantity of easing and UM and then bitcoin. We all know what's happened to the bitcoin price since two thousand and nine when it did not have a price UM because it didn't you know, it just started

to exist. So these three rethinks, uh, these three assets, these three asset classes I believe will be in massive demand over the next couple of decades and as bioins treasuries, gold and um uh, bitcoin and bitcoin, and that Bitcoin will start to take up more and more of that demand amongst those three assets. Right now, bitcoin um is still significantly less than one percent of the total market

value of this trianvirt um. But in two thousands seven, during that interim bitcoin bubble, uh, bitcoin was over one percent of you know, the market for treasuries, gold and bitcoin. So that's pretty incredible. And as we see that go from one percent to five over the next several years, Um, that's you know, that's why I want us. I want US bitcoin ers to monitor where we are in relation to these other two assets. Uh. It's I'm curious because

you talk about them as risk free assets. And I understand you made the case like treasuries or bonds are backed by the faith of the government. They've never failed, so it's pretty risk free. They're gonna pay you back. Maybe it won't be worth as much, but they're gonna pay you back. Right. Gold is is real wealth, real value the central banks or stock pond. That's risk free. But how do you call bitcoin or risk free asset

today it's yeah, it's more a colloquial way to describe it. Um, nothing is risk free, like you said, the treasuries can um be worth zero of the US government defaults uh where they keep inflating them away right right? And then UM, you know technically your gold isn't risk free because um, you know it could be faked or um used sees exactly. Um, and your bitcoin isn't risk free because um, you know show to fifty six could break or you know, something

could happen to bitcoin. So nothing in this world is risk free. However, Um, there is this echelon of safety and liquidity that gold has reached um through thousands of years of track record, and that treasuries have reached through um a hundred plus years of track record. The US government has had different forms of obligations since its inception, um,

and bitcoin has eleven years of track record. So UM, let's see the let's see bitcoin where it is with twenty years of track record, where you know, versus where golden treasuries are after hundreds or thousands of years. Yeah. Now, currently it seems like the central banks are on a mass buying spree of gold. Last year, they accumulated more gold than anytime since nine since we got off the

gold standard. Um So, the central banks are buying gold to hedge against their currencies, right to collapse and currencies. Um So, you think at some point maybe as bitcoin gets more trusted, the central banks are also buying because so so central banks are buying treasuries, they're buying the bonds, they're buying the gold. Two of those three you called, and then eventually they'll start to buy bitcoin. Absolutely, well, there's no I wouldn't have joined bitcoin if I didn't

think that. The answer to that was yes. So I can't tell you when it's going to happen. Um I would. Uh if I were to make a prediction, I would say within a decade. But um, I think that it will happen. And so what we're doing is trying to build up this system to get to the point where they, you know, they're forced to buy bitcoin because it's the

best risk adjusted investment that they can make. Yeah. Again, there's so many pieces with bitcoin that does make it so interesting, and one is the game theory that's been built into it, and and having that fixed cap adds to that. It's kind of like that game of musical chairs. And it's interesting the position the U S is in because, as you've made the case, the dollar is the reserve asset that you know, it's the it's the risk free trade,

et cetera. And it's also the weapon that the United States employees, right with the being uh sanctions and whatnot. And so really the US is the country that has everything to lose, and so they're gonna have to fight against bitcoin the most, whereas other countries they don't care. They don't have a reserve asset, so they're going to be faster to adopt bitcoin. Uh. Do you see something like that kind of playing out that maybe changes the

power structure. Yeah, the the US does have a lot to lose, um for sure, but a currency is a very powerful tool for government. So um, I you know, I think that they all are thinking in terms of um, you know, will we lose power if we lose the power of the currency. Um. Yeah, so not just the US, but sure as the reserve currency, the US does might have the most to lose. But I mean I really

don't see the US fighting bitcoin. Um. I think that the I think bitcoin as freedom of speech freedom of expression, freedom to use software, UM, freedom to store your wealth, and whatever you want. I think that bitcoin is kind of does have a lot of American ideals, and I just don't see any real fight against, um, the legality of bitcoin here in the United States. I love your optimism, and I hope you're right. It is American. It was

created here in America, right, I mean it is. It is American, it should be American, and like you said, it does align its help with the American ideals. But we also know that money is power, right Rothchild told us, I care not who makes the nations laws, Let me control the money. And so they can't give up the control of money. And so it's like this, like what are they gonna do? So I will see how that

plays out. But one of the things that we do see is banks themselves fighting by you know, um, not allowing their customers to access bitcoin services. Buying bitcoin gets account shut down or uh exchange wires two exchanges are blocked. So the banks are going to fight UM that. I definitely believe the banks are gonna fight UM so UM, but the US government, UM, I hope not. I and I see some great trends we see Trace Mayor and

Caitlyn Long doing absolutely awesome things in Wyoming. And we do see the conversation about bitcoin in d C progressing very nicely after the entire Libra incident um, where you know, Congress had to face the music and realize that this whole cryptocurrency thing is not going away. And I think that we heard insightful comments from people in Congress about bitcoin. So I'm optimistic. Yeah, great, well we'll run with that.

And I the other thing that I like that you're talking about is really you're talking about this long range perspective, which I think is the most important thing. And I think everything I commented already that people expect too much too soon, and so you're talking about like in the next decade and really in the in the big picture, it's not that long, um, but you know you're talking about like this this big picture, and we can talk about like maybe the trajectory or or the evolution of

bitcoin just in the last ten years alone. And um, I know something that you're working on, which is, you know, currently bitcoin has started as this uh you know, potentially for the white paper, is this this this cash, digital cash, but now it's moved to this store of value narrative because it's slow, because it takes time, it's expensive to transfer and whatnot. But just like the evolution of money,

we're seeing bitcoin evolved as well. You want to talk about that, yeah, so you know what you're what we're referencing here is the advent of the lightning network, and the Lightning network has made bitcoin um go from just that store of value and moving asset to now that

asset with a currency layer on top of it. And that currency layer is basically a standardized financial contract um, you know, between bitcoin users, and so it allows bitcoin to be used now at the speed of light um between users, and I think it's an incredibly important evolution of bitcoin um here you know today. So to give that just a little bit of context, So gold was used as money for five thousand years. To to settle

in gold is very slow and expensive and clunky. If I had to send you gold across the ocean, for example, would take a long time and be expensive. And so the banks gave us paper certificates and those could be used easier. And so bitcoin maybe a little slow and clunky, I mean, and now I mean to be real, I mean, the chance for millions or billions of dollars in an hour is not that slow and clunky. But going to a layer to similar to like gold certificates, we have

lightning which is now speeding that up. And so the evolution is kind of working just as it's intended to. Absolutely. Um, you know you had gold and then you had gold certificates. Um, we have dollars, and we have PayPal and Venmo and so payments happen. Payment stacks are built in layers. And the way to think about Lightning Network, if you've never heard of it before, is it's an app and to use the app, you just have to have real bitcoin and so um, once you have real bitcoin and you

use Lightning, UM, bitcoin becomes instant. Yeah. Now, in the beginning when Lightning was first coming out, and maybe if people heard this where you have to open up a channel and you have to deposit money into that channel. UM, our services that are coming out now kind of taking away that need to do that. And now I can just download the app and just use Lightning directly. Uh So we as a lightning industry are on a great path forward. Um. Right now, there are a couple very

easy to use wallets and UM. Open node is a very easy to use payment processor UM and so infrastructure is being built right now in the Lightning network. UM. I would say that we're still a little bit of time away from it being able to process UM all the transactions that go on in Bitcoin, for sure. UH. At open node, we see most of our transactions are done on the Lightning network, but most of the value

is done on the regular Bitcoin blockchain. So we still see most of the value moving the regular way, but the frequency of the transactions it's happening on the Lightning network. So it's a really great UM, it's a really great progression. So UM real quickly, UM we're using Lightning. Then all those transactions are done off the main blockchain, which is why they happen fast. That's right. They don't settle to the main block chain unless one of the two parties

decides to do so. So you don't have the burden of every transaction that you make confirming to the blockchain. You can just keep editing or do new ones all the time. UM and so as long as both parties don't have uh the desire to close the channel, you don't have to use the blockchain and not everything has

to be censorship resistant immutable. My Starbucks coffee doesn't have to be saved for all time being censorship resistant, right well, and that and that's and that's also the point here about the Lightning network is that even though uh, you know, there's a lot of fear around opening channels and how do I do it and all that, um wallets are abstracting that away. Open note is abstracting that away. We're going to try to make it just really seamless so

that you don't have to think about those things. And some of that might require a custodial solution. Um, you know, we don't think that it's wise to keep any of your bitcoin in the custod of an exchange or a third party unless it's intra money and you just have a plan to withdraw it or it's not that much money, so twenty hundred bucks or for our merchants, um, you know, they're accepting bitcoin and they're withdrawing their bitcoin within a couple of days and so, um, you know, it's just

an infrastructure. Yeah, so yeah, I can already see how much it's progressed just in the last year or so, and it's and it's definitely exciting. So um, definitely something to keep an eye on. And that's where you see the evolution going. And and then that's why the banks are scared. Right. So in my understanding, there's like three functions of a bank. One is to store your money, which we don't need anymore. Bitcoin can do that too, is to settle the transactions, and three would be the

lending market. So um, bitcoin kind of takes most of those functions away from them. Yeah, and uh, the lending of bitcoin is something that will be very important ecosystem to watch as bitcoin matures. The use of bitcoin as collateral in loans UM is part of that equation. So we look to see, you know, things that are happening, um in the regulatory sphere that you know, bitcoin is being accepted as this um safe collateral or a good

collateral for loans. And so any legal precedent that establishes bitcoin as collateral is going to be huge for entities being able to operate as bitcoin banks. Yeah, I got it, all right, We're running out of time here, but I just curious to ask you, so, do you think now with lightning and making it really easy to send micro transactions for cheap and fast. I mean, do you do you think that's really gonna maybe be the piece to start to finally push this adoption or do you you think

people are still gonna want to hold all their their bitcoin? Well, I think it's The use cases are definitely, um, you know, multiple fold for bitcoin. As we've talked about the need to houddle bitcoin and store well away from your currencies or or government bonds, even um won't won't won't go away, and it will only continue to get stronger. The need to use bitcoin for freedom of speech, transactions in sanctioned countries or things of that nature, will not go away.

It's only going to grow. It's only going to grow. And so Lightning Network, UM it enables all these new business models. This concept of streaming money um micro transactions with a currency that we can rely on has never been done before. And so I'm really excited to see how Lightning Network adds to bitcoin. But I can't say that it's going to be the only thing or the most exciting thing. It's just it's just another piece of

the puzzle. I love that perspective because you know, I look back over the last you know, five six years or whatever, I've been involved in the space, and I see how my thinking changes and evolved, right, and and uh, I started to think, like, maybe bitcoin doesn't need this mass adoption. I mean, if it goes, if it takes over the treasury more get the gold market, uh, the offshore banking markets. I mean those are hundreds of killions of dollars already, right, and you don't see anyone pushing

bitcoin or gold as like mass adoption. But then you talk about the will we see censorship continue to grow? And of course we will. We just saw the other day PayPal blocked porn Hub, right, and and we're gonna only see that grow and grow. So um, yeah, maybe we we need it on both sides. Yeah, you know, I I like to think about about it, um from every different user. Um. You know, not everybody is going to use bitcoin in the same way. And I don't

think we need mass adoption. We just need adoption one person at a time, one institution at a time that figures out they need bitcoin. That's how we get bitcoin of grow. Awesome, We're gonna end it right there. I love that. Um Nick, thanks so much for taking the time to talk. It was a great conversation. Um, you've been writing a lot of good stuff, like I said, so where can people find some of that stuff that you're writing and keep up with you? Right? So I'm

on Twitter at time value of BTC. Um, that's where I linked to all my stuff. So I'm writing for Open Note on their blog, UM Contra Labs on their medium page UM as well. But I linked everything on my Twitter. Awesome, and we'll put it in the notes for everybody else. So Nick, thanks so much. All right, thanks for having me. I appreciate it. Hey, if you like this episode of The Market Disruptors Podcast, please help us take this to the top of the podcast charts.

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