Due to advances in technology and the rise of centralized systems that limit privacy, the very nature of how we think about money and the government’s role in it is evolving.

The clearest manifestation of this is the rise of cryptocurrencies, of which bitcoin is the most prominent.

In today’s conversation, we go back 5,000 years to explore the beginning of money and then trace how the way we think about money and how we distribute money has evolved over time. Along the way, we touch on gold, central banking, Modern Monetary Theory and yes, bitcoin. It’s a wild ride!

My objective in this episode is to give you some historical context that has led to the development of bitcoin and how it is being used today so you can speak more confidently to your clients when they ask about it.

My guest to discuss all this is Michael Casey. Michael is a true pathfinder. He spent over three decades in journalism including 18 years with Dow Jones and the Wall Street Journal. He’s been in business and academia, and he has a real grasp on the big technological, geopolitical, economic, and social trends that impact businesses, communities and individuals.

Currently, he’s the chief content officer at CoinDesk.

In addition, he’s the author of five highly acclaimed books including:

“The Truth Machine: The Blockchain and the Future of Everything”

“The Social Organism: A Radical Understanding of Social Media to Transform Your Business and Life”

“The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order”

Resources Featured In This Episode

Money Reimagined Sign up for Michael’s CoinDesk newsletter.

“The Deficit Myth” by by Stephanie Kelton An informative primer if you want to read more about Modern Monetary Theory.

Values Clarification Toolkit Click here to download this FREE tool and start living your values.

Full Transcript

Steve Sanduski: Bitcoin and its related blockchain technology have been around since 2009 and in recent years, they’ve begun to capture the imagination of the public. Yet, there’s a lot of noise out there in terms of what bitcoin is, what problems it’s trying to solve and how it might be used as a new asset class. In today’s conversation, we go back 5,000 years to explore the beginning of money and then trace how the way we think about money and gold has evolved over time. And I think it’s important to have this historical context to understand how bitcoin is not some fly-by-night thing, but rather it’s essentially, in my view, the natural evolution overtime of advances in technology and banking.

So regardless of your opinion on bitcoin, having this historical context for the development of bitcoin is essential to understand the implications of it and help you speak more confidently to your clients about it. And my guest to discuss all this is Michael Casey. Michael is a true pathfinder. He spent over three decades in journalism including 18 years with Dow Jones and the Wall Street Journal. He’s been in business and academia, and he has a real grasp on the big technological, geopolitical, economic, and social trends that impact businesses, communities and individuals.

He’s traveled and lived all over the world. He’s the author of five highly acclaimed books including The Truth Machine, The Social Organism, and The Age of Cryptocurrency. He’s currently the chief content officer at CoinDesk. And with that, please enjoy my conversation with Michael Casey. Michael, welcome to the show.

Michael Casey: Steve, thanks for having me.

Steve Sanduski: Well, it’s great to have you here. You’ve got such a great arc in terms of the different experiences that you’ve had that really connect what’s happening with technology, what’s happening in the geopolitical area, what’s happening with economic and social trends and just how that impacts the businesses and communities and individuals, and really tying all that together with what’s happening in the area of blockchain and cryptocurrency. So this will be a lot of fun.

Michael Casey: Thanks, Steve. I sometimes feel like my life has been one of eclectic mixes because I haven’t been able to focus on one thing, but somehow it’s weirdly coalesced around actually finally at this stage of life having some sort of overarching meaning. So at this point I think I’m putting all those threads together.

Steve Sanduski: So why don’t we just start with a little bit on your background and how did you really get interested in what you’re ultimately doing today with technology, and economics, and finance, and money, and banking.

Michael Casey: Well, I mean finance and banking and money, I suppose generally almost out of a default by accident, not even really wanting it, I was a journalist and I wanted to be a foreign correspondent and I was in Indonesia because my then girlfriend now wife was there and I wanted to be there. I definitely wanted to have a foreign correspondence job and I met some folks from AFP. I thought I was going to work for them and they said, “No, but we have a position for you to be the bureau chief for this new financial news wire called AFX.” And I was like, “I don’t want to cover finance. That’s boring.”

Eventually love prevailed and that was the option that I had and so I took on a position in Jakarta. It was the two the last two years of the Suharto regime and anybody who knows about Indonesia in the 30 years that that dictator was in power, this was a phenomenal moment and his collapse ended up coming at the first of what would be many financial crises to hit the world, the Asian financial crisis in 1979 and suddenly all of that stuff became really interesting for me.
The role of the IMF, the problem of fixed currency regimes and the kind of the post-cold war boom that had led to then this bubble that ultimately led to these collapses and all these regimes. So ultimately, that was the beginnings of it. Fast forward to the fact that when I then moved to New York and I was covering, I became a currency reporter. Again, lots of further crises and IMF coverage and then I would end up in Argentina from 2000. In the beginning of 2003 through 2009 covering the aftermath of their financial crisis.

And that I think was probably the most formative period for me because I gained an understanding, I think of the nexus, the connection between this concept of trust in the sovereign and the failure or otherwise success of money. And that there is this covenant with the people that needs to be maintained and when it’s lost, the vicious cycle of mistrust and corruption and the breakdown of essentially that social covenant manifests as failed money.

That became an obsession with my thinking about that aspect of it, which by the way has led me to have an aha moment in about 2013 around bitcoin and what I saw as the starting point for understanding why that concept could be extremely powerful.

Steve Sanduski: So I want to go back into history a bit here because I think there’s an arc here in terms of how we ended up with digital currencies today and I think there’s really been a natural evolution that essentially I guess I could argue it’s happened over 5,000 years. So let’s go back several thousand years and think about how did this concept of money even come into being and what is the definition of money?

Michael Casey: All right. You’ve got me in my fun space. A number of my presentations, I got one of my first slides is often a photo of a Sumerian tablet and it’s actually 5,000 years old. It’s actually the first form of writing, uniform writing is on these kind of terra cotta tablets. What’s interesting about what that writing is, is it’s not a poem. It’s not some beautiful, some sort of play or anything, or some creative work, it’s a ledger. Essentially the most boring thing in the world. With all due respect to accountants, I now have great and much better respect for them. It’s about how many bushels of hay are being swapped or should be swapped for a sheep and so forth.

To me, that is the beginnings of money, right? And it’s also the importance of record keeping as this sort of fundamental element of society. Unless we can keep track of who’s up and who owes what and who doesn’t, then we can’t really enter into exchange. And exchange is the foundation of civilization, right? So whatever city you’re in or not, look around you. You will see the outcome of civilization and that in itself is a function of having organized a system, a storytelling device, something that we can all agree upon that allows us to basically exchange and then money comes out of that as far as I’m concerned.

There’s this whole battle between what they call the metalists and the chartalists. I think of myself as a chartalist. I think that money is a record-keeping device. It is something that essentially the society usually by the power of the sovereign, creates for the purposes of tracking debts and maintaining that exchange system. Whereas a metalist tends to think that money is kind of innate, that it is connected to a commodity like gold.

Even though I’m a believer in the value of scarcity and hard money as a powerful necessity in how we maintain value and therefore why bitcoin is important. I actually think that the function of money is actually this debt clearing systemic thing. Money is the actual system. So it begins with that ledger keeping. It’s all about the record keeping which by the way is why blockchain matters because it’s a new form of record keeping for keeping track of money. And then that’s really all money is.

We don’t think of it as a ledger because we think of it, and this is where again Yuval Harari and his ideas of stories and myths and why they matter. We’ll talk about money as being the greatest myth ever told. But what he means by that is that that’s what makes it powerful. Because we all agree and once we can all believe in something together, we can use it. So that piece of paper that we imbue it with value thinking that it carries the hundred dollars that’s written on it when it’s really just a piece of paper, that is in fact a record-keeping device.

It’s actually a piece of this kind of metal ledger if you like that is society and the transfer of those pieces of paper becomes the means by which we keep the record. The other piece of it is the… Now, in modern banking times is the bank ledgers constitute the bulk of what our money is. But it’s a combination of those pieces that give us that overarching record-keeping device. And as I say, it all begins back in Mesopotamia when civilization was born, right? And by the way when writing was formed, the very first form of writing. It all comes together around this capacity to keep track of our exchanges with each other.

Steve Sanduski: Then the way though that we’ve done that over the past five thousand years has evolved. So today we have money in most cases fiat currency that is really not backed by anything other than the good faith of the government that’s issuing it and we have either paper currencies that represent that or we have entries in a bank ledger system that show how much money we have. Correct me if I’m wrong, that’s really more of a modern version of money like maybe in the last 150 years or so.

Michael Casey: It’s a little older, but it’s not. I mean in the grand scheme of things, it’s not that far different. But it starts with the Medici in the late 15th century and the introduction of double entry bookkeeping to banking. So that entry bookkeeping was an Arabian invention, but it was discovered by a traveling Franciscan monk.

The Medici then absorbed this idea and took it into their banking. They weren’t just lenders now, now they could actually act as intermediaries of exchange because they could debit one person’s account and credit somebody else’s. So for the first time, if you trusted the Medicis, and that’s the key word trust here, which we ultimately did, then an importer in London could essentially pay an exporter in Venice, right? Because I didn’t have to now physically carry the gold or the note, or whatever it was that was their currency. I could use the bank simply by managing either side of the debits and credits on each person’s account, right? And the bank would have its own double entry system in the middle that would reconcile across that.

So that act of reconciling between two parties accounts and the bank being the intermediary whose ledger actually manages both of those, that became the mechanism and it emerges out of double entry bookkeeping. Then there’s a whole lot of other things that happen with regards to central banks and the role of the sovereign, specifically things like the bank of England, funding. I think it was King Charles if I’m not mistaken in his war efforts and then essentially issuing paper. Banks were issuing paper that would fund the government and then that paper, those bonds essentially became currency issued by a bank against the debts of the state. And the two things came together as this kind of merged thing.

The Bank of England was initially a private institution, but then it kind of evolved into becoming, because of that relationship, a central party. So now, you have this combination of banks as ledger keepers. The issuance of notes as something tied to the sovereign coming together in a kind of an unholy alliance. Well, it was an unholy alliance to start with, but it’s had its history. It’s had its ups and downs and some sort of very bad mistakes to come with it. And I would argue it all comes down to, again that question of trust and the frequent times in which that trust is breached, but we can get to that.

Ultimately, there’s all these phases and then of course I think the third wave, the modern era is as much defined by, I suppose, the rise of the nation state as a much bigger figure than the concept of global money being kind of coordinated in a global way. The Bretton Woods system being emerged initially as a gold-backed model, that was international in scope and therefore institutionalizing the role of the dollar in this particular case as a reserve currency, because reserve currencies have always been there as the lingua franca kind of currencies of different international moments, but in the modern era, I think, there’s this institutionalizing, formalizing role that the IMF and the World Bank and others played to establish the dollar in that role.

Then of course the momentous moment in 1971 when Richard Nixon pulled the dollar off that peg that everybody else was then pegged to then create the fiat currency era. And that of course had a huge impact on the value of money in a fostered inflation, everything else. But to be honest, I think gold bugs often focus on it and they should do it. It’s a hugely important moment.

Fiat money is just one other way in which we are still getting back to the issue that money is a fiction, right? It’s still something that we’ve created out of thin air to enable our capacity to exchange that’s how well that’s managed? What system we use to enforce the sovereign issue of that currency to maintain the trust relationship with those who use it. That’s the question. Should it be gold? Should it a central independent central bank? Should there be other straight jackets on that issue? Is it just pure politics?

So that’s where I think where we’re at right now. Removing that particular check on control of gold has had this broad implication. It’s nothing holy, it’s just that was that option. And now we’re in this moment where I think that store of trust that has been so important is looking relatively thin. That’s why I think many of us feel we’re on the cusp of a radical change because the trust in the system is being severely challenged.

Steve Sanduski: And it seems like for centuries, we’ve almost been moving the goalposts and so let’s go back to the 1800s. Why did we move to a gold standard? What problem did we think being on a gold standard was going to solve?

Michael Casey: In fact, weirdly enough, United States has had quite a unique experience with money and banking. It would go on and off the gold standard. Gold has always been there as this kind of like root system of money.

Again, I think people both overly give it too much in importance and at the same time don’t fully understand how incredibly powerful it is. I know that sounds like a contradiction. But the bottom line is it doesn’t have innate value. Gold is only valuable because we tell it has value. It’s not like it is deigned to be worth $2,000 an ounce because it is. It is there because it is. Now that said, the reason why people value gold as this kind of solid benchmark, it does have key properties. It’s scarce, it’s very hard to mine.

It’s not something that can be radically increased in terms of supply very quickly. It’s fungible, it’s durable, right? It has all these qualities that allow for a store of value and a medium exchange to happen. There are plenty of other commodities that potentially could have that function. So what is it about gold? It’s just the historical accident. It’s just that it was the thing. And then it carries value because it’s got that cultural root. It’s the very idea that’s written into all of our children’s story fables.

All of our mythology is filled with it and so that’s what makes it valuable, this unique cultural connection to gold. I would never want to diminish that, but at the same time it’s not innate. It is a construct of human society and that’s something we need to be clear with, right? Let’s push it all back and say, “Okay, it’s a cultural construct. It has this incredible value because of that and we’ve historically used it for this role.”

So having it as the backup to say, “All right. Here’s the rules.” If I have a dollar in my hand, I know that I can always redeem that for a certain amount of gold and the government cannot issue any more paper than they hold in gold. Then I am protected by that value. And that’s the basic idea. How well those reserves are maintained? Are they accurately reserved? What is the record keeping on the reserves? Can I even see the reserves? All those sorts of things come up.
That’s what it’s always been there for. At the same time, the economists in sort of the modern era have made, certainly on the Keynesian side, but others as well, sometimes a reasonable argument that a deflationary environment where I cannot increase the supply of money in a time when there is desperate demand for money is going to create this horrible deflationary environment. Gold standard can be quite restrictive in that environment and do harm.

I’m not going to go into the arguments of all of that, but I do want to point out one thing that I think is important about the United States and that is in the late… For much of that second half of the 19th century, the issuance of paper against gold was issued by multiple banks. All these little banks and they were all regional. You were supposed to be able to redeem it against gold, but each banknote could only be redeemed in that particular bank.

You could trade it with each other and I could swap it for another bank’s thing. But if I wanted to redeem that for gold, I had to go to that specific bank. Each of these banks, they were only in one place. They weren’t allowed to set up branches. So now if I’m holding the banknote of a bank in Illinois and I’m in Louisiana and I want to trade it with somebody else, they’re not going to give me one-to-one value for it because the actual cost of redeeming it is an expensive one to travel all the way north to Illinois, right?

So physical challenges, I think led to a kind of a breakdown of that decentralized banking model that arguably might have been less of a problem if you had the capacity to build branches everywhere. And it’s just an interesting way to think about things, but in any case the failure of that system and then the sort of multiple financial crises that came with the fact that there really wasn’t a stable value for the dollar whether it was against the gold standard or not, the American experience was one of volatile currency experiences. There was repeated crises through the 19th century.

Then the big crisis of 1907 with JP Morgan having to rescue single-handedly the stock market. All of that stuff ultimately led us to the federal reserve and the need to consolidate around one system. 1913 was this moment in which the system became sort of what we know it to be today essentially of a central authority of managing the money of the country regardless of whether it was against the gold standard or not, I think the federal reserve’s creation was the sort of the most fundamental thing that came out of all that.

Steve Sanduski: So then over time this idea of the gold standard gets weakened and then FDR says Americans cannot hold gold. You got to turn your gold in. And then as you mentioned Nixon in 1971 said, “We’re officially taking us off the gold standard. There’s not going to be an exchange here.” So when I talk about moving the goal posts, it seems like there were good economic reasons for coming off of the gold standard because we needed to have more flexibility and monetary policy to add more money into the system if need be to help out with economic crises.

I don’t want to get too far ahead of ourselves here, but then we have economic crises after economic crises, and then we have the federal reserve that comes in. We have long-term capital management in, what, 1998 where they have to be bailed out by the federal reserve. And then we have 2008-2009 economic crisis and we put a lot of money into the system and people said, “Oh, we’re going to have massive inflation after 2008,” because of all the money. It didn’t happen.
Now, we’ve got the pandemic and we’ve got trillions of dollars not just in the US but worldwide that central banks are putting into the system. But yet we haven’t had this massive inflation yet and essentially we’ve had disinflation for the last 30 or 40 years here in the US. So kind of the thinking and the economic models that people have been using, it seems like either they haven’t worked or maybe they haven’t worked yet, we just haven’t gotten to the boiling point where they might work.

So that kind of takes us up to where we are today, but now I want to go back 10, 20, 30 years and talk about why was digital cash or digital currency, would you say that that is more of a natural evolution of factors that are coming together at this point in history where we’ve got a need for another way to think about our economic system. We have a technology that makes it possible to create something that’s digital and portable.

We have some people who are saying, “I don’t want the fate of my country to be at the hands of the central bank and so I want something that’s decentralized from the central bank,” and kind of put these factors together that leads some people out on the edge to think about DigiCash in the 1980s, to e-gold, to bit gold, to bitcoin, blockchain. So can you kind of weave a little bit about how we came to people saying, “Hey, we need to create an alternative to say the dollar and an alternative to a central bank controlled monetary system”?

Michael Casey: Okay. Before I do, let me just pick up one thing what you said on thinking about this whole, why are we not seeing inflation when we’ve gone off the gold standard and everything else? The mantra has always been like without gold, it’s going to get inflation. Of course, we did see it in the ’80s and then Paul Volcker, bless his heart, did this incredible job of of breaking the back of inflation and therefore doing what I think is the most important thing of all and gets back to the same word trust.

He rebuilt trust in the American financial system and then American stewardship of the financial system. So the dollar kind of just was reasserted as this big international trustable currency. That became its own force of its own right, which meant that the US has been able to issue massive amounts of debt and run this thing just because people are going to give it their dollars. They’ve got dollars to spend and so there’s always that backdrop. But at the end of the day, that itself is founded upon trust. And when there is a breakdown of trust in the system that runs the money, that’s when you get runaway inflation.

It’s not the absence of gold as a backdrop per se, it’s the absence of trust. So that’s what we’re aware of. And I personally think that the moment we’re at in right now with an enormous amount of… I think the fed’s quantitative easing whether it’s justified or not is going to inevitably undermine trust because it’s just crazy amounts of money being printed. It just that story around scarcity and belief in the value of the piece of paper, it gets challenged when there are $7 trillion of this stuff being created, right?

I just wanted to put that on the table. When we talk about the emergence of digital money where it came from, it’s critical to think about the ethos around a group called the cypherpunks that emerged really at the late ’80s, early ’90s. The early days of the internet. These kind of Bay Area radical thinkers really who captured, I think a certain mindset that the internet enabled, which was that we should build decentralized societies. If you can find ways to remove yourself from these centralized systems for publishing information, for connecting people together.

And the internet’s architecture was all about this packet switching model that enabled me to connect with anybody anywhere without having to rely on a gatekeeper or at least an obvious gatekeeper. Then we had a framework around which to think really broadly and radically about all these other systems that have relied upon centralized control. And one of the things that the cypherpunks got excited about was money because they were smart enough to understand that money wasn’t a piece of paper or nor was it even gold that money was a record-keeping system that any group, any society could spin up and traditionally the formation of that society and the order around which its systems get built was at the behest of the sovereign, the government.

Now, these guys are going, “Hey, why do we have to have anybody do that? Why can’t we build that system around a decentralized model?” So lots of experiments were made. Yes, there was e-gold, there was DigiCash which was this really interesting thing created by David Charm that actually ran as an experiment in the Netherlands and other elsewhere. But I think that at the end of the day, none of them were able to solve the problem that ultimately bitcoin was able to solve. I think the timing of bitcoin is interesting that it happened around the time of the financial crisis, but I think it’s mainly so people tend to see that as the key point.

I think it’s more just an accident of history that Satoshi who developed bitcoin was able to finally crack the nut on how to actually create a fully sort of permissionless, decentralized consensus system for managing a ledger without anybody in charge of it, which was the holy grail. At the end of the day, what everyone was trying to achieve was that. How do we have that ledger keeping role, that fundamental record keeping function that is critical to money? How do I do it now in a decentralized way so that I can actually essentially create a model that would never need a bank in the middle of it?

Well, I need to be able to run that ledger without anybody being able to control the ledger. How do I create no mechanism by which any one single party can take control of? And that’s what bitcoin achieved and it’s an incredible achievement. It is just such a breakthrough that it is… That’s why people who recognize this went holy shit. This is a big deal. It really stemmed from the ethos of the internet and the cypherpunks. Guys like Timothy May who sadly died about a year ago. He wrote this thing called the Cypherpunk Manifesto in there.

They were all about freedom, right? And freedom from not just the government. It wasn’t entirely just a… They were typically libertarian, but it wasn’t always framed in terms of against government, literally about any institution centrally being able to control my capacity to engage with other people.

Steve Sanduski: Now, when Satoshi Nakamoto whoever that person is or persons are, we don’t know, when they release-

Michael Casey: He, she or they.

Steve Sanduski: He, she or they, yeah. When they release the white paper and released, I guess the code out there that enabled bitcoin in the first block that was created, wasn’t there some kind of message in there? What was that message?

Michael Casey: Yeah. UK chancellor prepares second bailout for the banks or something. I can’t remember the exact line. If you would remember, just like the Wall Street was going through this massive collapse, Britain was having an incredibly difficult time with its financial crisis at the time. There was bailouts for banks, there was takeovers of different banks. The white paper itself was released in October of 2008. So just right after the Lehman collapse. And then the first block was mined right at the beginning of the new year in 2009.

It’s software. You can write information. You can write stuff into the code. So the block carries this message in it and it’s there for eternity. If you go back and do a block explorer and get the right client to read the blockchain, you will see that message. As I said, I don’t know that bitcoin necessarily emerged out of the crisis. I do think that it was incredibly fortuitous timing because it meant that now there was a narrative that those of us who were interested in this thing and I was amongst them because I come out of Argentina and I was back in New York in 2009 and obviously, as a financial journalist then at the Wall Street Journal. I wasn’t doing anything else, but writing about the biggest financial crisis in 80 years.

It was top of mind. I wrote a book called The Unfair Trade about this whole thing before I even discovered bitcoin. Because of that, the presence of bitcoin’s promise of a new model that didn’t have us depending upon these institutions, in particular banks, it was incredibly well timed. It meant that that the narrative and the uptick around bitcoin could gain all this momentum.

Steve Sanduski: What I’m curious about from your standpoint is some people would suggest that that message that Satoshi put in there would suggest that one of the reasons for bitcoin or this type of technology was A, don’t want to be controlled by central banks and B, we want to have some check on the unlimited ability of a sovereign to just print money like crazy. And with bitcoin built into it is a limit of 21 million bitcoins which if things continue as is, what is it like the year 2140 is when all 21 bitcoins would be mined and then we’d have no more.

Well, a lot of people call it e-gold and that’s one of its benefits, one of several potential benefits of bitcoin. So it seems like there may have been the people that were into the digital currency, digital coin idea was part of a rebellion against Central Bank’s ability to just print, print, print. Is that fair to say?

Michael Casey: I think it’s two things. I think that’s one of them definitely. I think the interest in bitcoin comes from two sides. And they’re both actually interrelated, right? One of them is absolutely that, right? That the issuance of the monetary policy, if you like, is not something that a central bank that’s not answerable to anybody and so forth can just like willy-nilly create it. It needs to have a structure to it and that’s why yes, it is often described as digital gold and I think it’s a very accurate describer of it.

But the other is the banks themselves, the commercial banks because Satoshi described it as peer-to-peer cash. And the thing about cash, a banknote is that I don’t need a bank to be the intermediary. It may be issued by a bank and I may be able to deposit it in a bank, but I can hand you a bank note and I don’t need that transfer to be signed off by it. There’s no ledger. It’s that transferability of this bearer instrument that is really interesting about cash.

Now, what bitcoin did is create that principle around a digital currency. So in addition to the actual scarcity function that gives us this monetary policy that can’t be changed, it also allows us in a non-physical cache-like world that is a digital world for the very first time to transfer something another person to another without the commercial bank being in the middle. So I think the message in Satoshi’s statement there is both about the government and by extension the central bank and its role in bailing out and using whatever resources it has that it can’t control to just print money and look up these things. But it’s also about banks.
What do we do about these guys? They’ve created so many problems. That sort of too big to fail story, the corruption of the system you know Wall Street’s connection to the federal government. All of that circularity was sort of front and center at that time and I think was asking really important questions about the dependence we have on banks as the intermediaries in our financial system and particularly our payment system because at the end of the day if we just created… There’s this narrow banking idea where the only thing the bank does is enable payments and it doesn’t have the capacity to do fractional reserve lending.

Every payment that I facilitate is backed by a reserve that I hold, right? Whether it’s gold or dollars or whatever. The problem to me always was not the risk that came with bank lending and asset taking because it could be… Not per se. It’s the fact that that process, that fractional reserve activity was intrinsically linked to the thing that society needs most which is a payment system.

So therefore the creation of a payment system that doesn’t depend upon those guys is really quite liberating, right? Now, what a bank is going to do if they’re not involved in payments, maybe they just lend and they take risks and they go under. We don’t care if they go under because it doesn’t matter about the payment system. It’s only because of the payment system that we care about the collapse of banks which was the mechanism by which they basically held us hostage.
It’s not just the monetary policy per se, it’s this fact that we’ve let banks become, going right back to the Medici, these integral institutions in how we actually move money around the world.

Steve Sanduski: I mean, among the fascinating things about bitcoin is that it has multiple properties like you’re describing there. So when people think, “Well, what’s the value of bitcoin?” Well there’s multiple things depending on what your perspective is. So if you’re concerned about all this money printing or expansion of the monetary base, then you might view this as a store of value. It’s your digital gold because there’s a scarcity and there’s only going to be X number of bitcoins.

So if that’s your world view, “Well, bitcoin could be an answer to that.” If you’re looking for a payment system that does not involve the banking system, well, bitcoin can do that through blockchain technology. If you’re concerned about a centralized governance system with central banks and in governments, then this is a potential solution because it’s decentralized.

So depending on what your concern is, there’s several different ways that this type of technology might be able to solve what you’re looking for. At the risk of going down another rabbit hole, let’s just briefly talk about modern monetary theory. So that’s something that’s been around for a number of years. It’s certainly become pretty popular here in recent years and most currently with Stephanie Kelton’s book, The Deficit Myth, which you and I have both read.

So that really talks about a way of framing how we think about essentially the monetary system and how money gets created. So if you can take a moment and maybe talk about how people thinking about modern monetary theory, some people would argue, “Oh, it gives the federal reserve and fiscal and monetary policy the runway to just put as much money out there as they want without having to worry about inflation.”

And the only time we have to worry about how much money we’re printing is if we have inflation, and then we can just raise taxes, take some money out. So that’s kind of a simplistic way of describing it. Is there any connection between the, I would say, the rising popularity of MMT and a certain group of investors desire to say, “I think MMT is going to lead to a disaster and therefore I want to be in something like a bitcoin which is kind of the anti-MMT. Does that make sense?

Michael Casey: Absolutely. I think it’s no coincidence that you’re seeing a rise in the value of gold, a rise in the value of bitcoin and a rise of interest in MMT. I mean, those two things go in parallel. It’s like you often see this through big moments in history as well where they’re two extremes. And you were alluding to that. I think there’s probably not necessarily an accurate black and white distinction between the two. There’s definitely a difference of opinion. But it doesn’t really matter. It’s as much about the stories and the myths and the sort of the ideas that people take from it.

So even the perception, I think as you were saying that MMT is this carte blanche for central bankers and others. It’s governments essentially just to print their money to produce everything is inevitably going to lead to this concern about the monetary base and debasing the currency and the threat to that. It just stirs up even more concern in addition to the fed’s QE policies. It just feeds into that story.

Just to backtrack a little, I think there is some real validity to the framing at least of the way MMT explains money. Again, I’m a chartalist, not a metalist. So I actually think that the governments as the representation of the sovereign have essentially done what Kelton and others describe and that is they’ve used their taxation powers as a way to create an imperative around the money that they issue into the system through their spending and that that therefore taxation plays that role as a way of giving value if you like. You can only pay your taxes in that currency and therefore the currency has value and that’s how it comes into being.
I also share the view that we need to recognize that a sovereign really can’t go bankrupt and therefore thinking about the deficit and the government’s fiscal situation as something that is connected to a finite amount of funds that will run out if you don’t tax it, I think it’s essentially true. Now, the problem is that what are we… Again, this idea of stories being really important, what about if we get away from that? I think we lose a really important discipline and we ultimately undermine therefore what we’re getting at here. I keep saying the word the trust in the system.

I kind of need to believe that the government is going to have some check on itself to not allow this thing to go into some sort of inflationary spiral, and I just think that that taxation actually imposes that discipline in this… So if you think about taxation not as a means to make a currency viable, but rather what we generally think of it as the fundraising vehicle with which we then accumulate funding, then it really is this important requirement for the political process.
So if I am going to spend exorbitantly, I must be ready to go back to my taxpayers, my voters and say, “All right. I’m going to raise taxes.” And that political discipline is an important check on the way we think about the viability. I think the fear of an MMT model says, “Okay, you don’t have to worry about taxation anymore.” You can use it as a tool for managing the money supply in the future and for figuring out what income distribution you want to have. But hang on for now. Just print your way into solving your expenses.

Now, that may be true as the way it actually works, but the absence of that discipline means that I as the user, the owner of that currency are going to feel a lot less comfortable in the capacity of those people managing the currency to do what the MMT is telling me they have to do which is to manage inflation. The discipline isn’t there, the check isn’t there. What is to stop them from just inflating their way out of whatever problem they have, right?

And that’s the core problem because any good macroeconomist will tell you inflation begins with inflationary expectations. So it’s all about perception and trust. And if I just decide that, “Oh my god, I don’t trust this anymore, I’m going to have to start dumping my dollars and buying cans of spam or something, right?” Inflation comes from that process and then wages get bumped up.

There’s no inflation right now in the US because we still are in this huge shock from the pandemic and because the demand for dollars is so strong that it doesn’t matter that much that the fed is printing seven trillion of them. But as that trust dissipates and it can just be because of something like this perception that MMT is creating along with everything else, then that game becomes much harder down the road for the fed to manage and that’s what I worry about that we’re really not just chipping away, we’re bashing away at the kind of various institutions whether they are mythical or not around which we collectively believe in the capacity of our authorities to manage the monetary system.

Steve Sanduski: I think there’s really three key pieces here that you’re talking about that are building into this narrative whether you believe in gold or whether you believe in bitcoin or whether you believe in MMT, it seems like it revolves around three key variables one of which is the story. So you said that very eloquently here just a little bit ago about the cultural history of gold and how it’s been around for thousands of years and how we’ve ascribed value to it for thousands of years.

So it’s almost like it’s hardwired into our DNA almost that there’s a story and a mythology around it that gives it value. And then a second is you talked about trust. As long as collectively, we have trust in the system, we have trust in our institutions, we have trust in our politicians then things will be okay. But then the third piece you talked about was discipline and the idea of using taxation as a discipline mechanism.

But I think you’re so right that one problem with MMT is we are giving a lot of trust to the politicians that if they do put all this money into the system that that money is going to be used for productive uses and MMT would suggest that, “Hey, as long as the economy is operating at less than capacity and we put money into the system and that money is being put to good economic use, and we start getting closer to the economy’s maximum output given our resources, then we’re probably not going to have inflation. But it’s just when we start bumping up to the economy’s max capacity if we keep flooding the system with more money and it’s unproductive, then that’s when we might end up with some inflation.

Well, it used to be the Republicans were the ones who were the fiscal conservatives. Well, that’s certainly gone out the window here. And so if we don’t have a political party that is somewhat known as the discipline when it comes to fiscal policy. We might have a potential problem. So I think all of these are really coming into play with the timing of bitcoin in terms of why it’s getting a lot more interest here because it might be a way, almost an insurance policy I would say against us losing trust, us losing discipline and losing control of the story.

Michael Casey: Yeah, absolutely. All of this stuff coming together I think is a critical moment. I feel like we are at a convergence point because… As I said before, the lesson I took from living in Argentina was money and its success or otherwise is completely contingent upon the success or otherwise of a government to maintain a trusted relationship with its citizens, really that goes away.

So there really is a breakdown in trust I think globally in governance not just… By the way, it’s not just… We can blame whatever politician we want and there’ll be plenty of that to go around the next few months I know. I think it’s even more than that. It’s because the internet as much as anything else has detached us from the structures that we used to have and I think there’s actually this other element of this where a digital decentralized world that the internet has enabled, right?

Decentralization is not just a cryptocurrency concept. We are decentralizing all sorts of things and the internet is a… We’ve flattened the way we publish, right? Social media, you and I are doing this. Podcast, right? There was never a chance for you to run something like this, say 10, 20 years ago. It always fed through the centralized controls of large media organizations. So we’re decentralizing everything and that’s great in many respects, but it also means that the political structures that we have to manage our value exchange systems, our money, everything else can’t keep up with all of that, right?

So trust is undermined when these things don’t work. We’re really at an inflection point, which is also again why I think bitcoin is really, really relevant because you could just say, “Why do I need bitcoin? I could just get gold.” Well, gold, it’s a 20th century concept, right? It’s an analog concept. It’s not to say it’s not a store of value for everything we just talked about, that rich cultural tradition. What bitcoin is it speaks to something else. It speaks to this sort of decentralized system that we have that kind of has humanity attached to it underneath those machines but is kind of…

It gets to this idea of a self-sovereign which I think is really interesting and it recognizes that in this digital world that is now like driving everything, we need some digital form of value. We need something that is a unique measure of digital scarcity to sort of sit as a base layer for that system. People talk about bitcoin being the kind of reserve asset of the internet itself, right? This incredibly important base layer of value upon which we can start building everything else.
It doesn’t mean it will become the payment system for everything, but if we recognize it as the underlying reserve asset because it is like nothing else, sort of an unbreakable record of those exchanges, I think it is going to play a very, very important role in this awkward transition that humanity is going through.

Steve Sanduski: Now, let me play devil’s advocate here for just a moment. I know we’ve got to be wrapping up here. There’s obviously a lot of interest in bitcoin, but then you also have professional advisors who are saying, “Hey, it’s fake. It’s not real.” I mean, how do you respond to that? How do you give someone a comfort level that might be in a position to advise a client, “Hey, maybe you should allocate 1%, 2%, 3% of your portfolio to bitcoin or cryptocurrencies?” How do you help someone get a comfort level where that might actually be a reasonable thing to do at least for some clients.

Michael Casey: Yeah, sure. There’s a bunch of ways we can approach it. I would be completely glib and just say, “Well, all money is fake, right?” We all just have to believe in it. You have to believe in this thing of value once you believe in it. So choose what you want to believe and have that use your money. If you don’t believe in bitcoin, why do you believe in the dollar? That’s just a simple kind of power game that we can play, right?

Let’s just think about the word, fake, right? So fake has to be something that is deliberately created to deceive. So who is the person that’s creating this… What is the entity that is deliberately trying to beat you with bitcoin? Now, of course early bitcoin investors, maybe they’re behind it because they’re sitting on bitcoin and they want to sell that to you. But they can’t actually control the system. They can’t write the stuff. So the very word fake to me is a challenge.

Now, maybe Satoshi, whoever he, she, or they are is sitting on a massive… And we do believe they’re sitting on a lot of this stuff, but maybe that person, persons have some other agenda. Maybe they’re connected to the CIA, NSA, there’s all these theories out there and they’re trying to just stir us into a crazy frenzy, and that’s what the fake thing is, right? But to me, fake again has to have this agenda.

I just tend to believe that it’s not. It is an open source system that cannot be manipulated and it’s kind of been proven to be that over and over again people have tried to hack it and they can’t. So that very fact gives you that like what do you mean by fake, right? But then the thing is okay… So the other question that people tend to come up is where does it derive its value from? Part of that is just, well, money gets its value from… If everybody accepts it, right?

So gold was valuable in the early starts of the colonial era. Again gold was value because people assigned value to it. We clearly don’t have the masses of people doing that with bitcoin in the way that we do with gold or with dollars or anything else, but there’s a lot of people who do, right? So that’s giving it value, just simply that collective exercise.

Now, beyond that though, there’s always this question, what’s it backed by? And I never liked that phrase because I just feel like nothing is backed… It’s all backed by a story. But that said, what is interesting is the mechanism within bitcoin that keeps the system accountable and it’s the way in which it imposes a cost on the collective community of ledger keepers, which is the miners, the guys whose machines are essentially racing to try to get the next bitcoin reward for themselves.

The reward for doing that is only paid out to the extent that they can expend energy on having their computers resolve a really difficult math puzzle. So at the end of the day, the base cost of this is actually the energy that’s being expanded, the electricity. That raises all sorts of questions about is this a wasteful form of energy? Do we have climate change risk problems? I’m just going to set that aside for a moment. But the real issue is energy, the expenditure of that is the cost that imposes the security on the system because without that cost, I could very easily run over the system and start to double spend.

That is create fake bitcoin and change the ledger. All the things that bitcoin can’t do, I could do if there weren’t an underlying cost to me to do so. So the cost aspect of this, is what gives it reality. It’s what gives it strength. It’s what gives it this sense of being kind of backed. Again, not backed by gold or the good faith, but by a global system that is rooted in the core cost of energy. And energy is about as ancient as it gets, right? It comes from the sun. It’s the very beginnings of life itself.

It’s based on physics. There’s a lot underpinning this that is not easily identified as being created by a particular party. There were definitely first movers who have a lot to gain from its advances and we can’t deny that and it’s not a particularly decentralized or just widely distributed wealth function. There’s a lot of very wealthy big bitcoin holders and lots, and lots, lots, lots of tiny little ones.

So that’s an issue, but I don’t know that that makes it fake and I think that we can get over that. We can work through that. The other one thing I’d say as well, people should just look at the kinds of people who are buying into this and I know that this is just… It’s easier for financial advisors and the like if they can think, “Okay, who is…” I would draw attention most specifically to the announcement from MicroStrategy. I was so struck by this.

They put out a statement saying that they are now going to treat bitcoin as their primary treasury reserve asset. And the way that Michael Saylor described it, he says this, and I just think it’s just one of the most eloquent descriptions of this. “We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility and community ethos of bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long-term store of value. Bitcoin is digital gold, harder, stronger, faster and smarter than any money that has preceded it. We expect its value to accrete with advances in technology, expanding adoption and the network effect has fueled the rise of so many category killers in the modern era.”

So they put $250 million of cap previously in cash into bitcoins treating it as their own reserve asset. It’s a very powerful statement because he’s getting this idea about it’s this network effect, it’s this fact. Bitcoin could be copied, right? We know there were countless forks of bitcoin which start off being essentially the same code, but it’s not just about the code, it’s not just about the thing, it’s about the community, the network, all of that power that comes from the collective buy-in and it’s the brand. Bitcoin is a brand and it’s very hard to break that down once everybody starts to buy into it.

So the network effect is really important. It’s a very, very complex idea. As you said the rabbit hole. You go down the bitcoin rabbit hole, you start unpeeling lots of stuff. But I really like that statement from MicroStrategy because it kind of captures all the bits and pieces that come together I think to lay out why this thing matters particularly in this day and age.

Steve Sanduski: It’s really this centuries-long narrative this arc that has led us to the point today where we have the technology, we have the need for a new way of thinking about our monetary system, about our exchange system, about our payment mechanisms. Yes, we’ve had gold for many thousands of years as a store of value, but as Michael Saylor says and many people say, he thinks and many people think of bitcoin as digital gold.

So we have a technological way that is not controlled by any individual or by any entity that allows us to accomplish many usable things in our society as we’ve advanced today. So I think it’s just interesting and I just encourage everyone that’s listening, whether you think bitcoin is good or bad, I would just encourage you to spend some time and do some due diligence and do some research on it. If for no other reason I think you’re going to find it fascinating and I think you’re going to learn a lot about money and banking and the economy that is going to help you be more thoughtful as you’re working with your clients.

Let me do two quick things here. One is, I always like to ask, Michael is there anything else that you want to share here before we wrap up that we haven’t talked about yet?

Michael Casey: Very, very glad you asked that because I have to do one big plug here and that is that CoinDesk, the company that I represent, I’m the chief content officer there. We’re putting on events is one of the things we do. This one will be sadly like everything we’re doing at the moment, a virtual event, but this one is going to be specifically designed for RIAs and and FAs. Some of you might know, Tyrone Ross who is helping us with that.
It will be November 9th and 10th at this stage. We haven’t sort of set it formally, but just want to get out ahead of that. This is a work in progress in terms of the dates, but just second week of November a conference for RIAs and FAs to sort of grapple with some of these questions, make it easier for people to understand and see why it matters from some folks who really actually have walked that line in the financial advisor community at the same time being in the crypto and bitcoin space. So that may well be of use and interest to your listeners.

Steve Sanduski: And then also I would encourage people to go to coindesk.com and, Michael you have an email. Is it Money Reimagined that you send out?

Michael Casey: Yeah. Thank you, another plug. Money Reimagined is my weekly email newsletter. Today was out. It’s out every Friday. You can subscribe to that. There’s a newsletter button on the CoinDesk site to subscribe to that but obviously read all the stuff on the site as well. If you’re interested, I’ve written a couple of books in this space. One called The Age of Cryptocurrency, the other called The Truth Machine. Both of those were co-written with my former Wall Street Journal colleague, Paul Vigna. I think people generally regard them as quite good introductory books to folks about bitcoin, and crypto, and blockchain.
Steve Sanduski: We’ll link to those as well on the show notes at stevesandusky.com. All right, Michael, here is the final and most important question. Are you ready?

Michael Casey: Okay.

Steve Sanduski: So who do you think Satoshi Nakamoto is?

Michael Casey: I don’t know. I do think that it’s the work of more than one person and I think that it is definitely people that were in some way connected to the cypherpunk movement. Probably that’s not a particularly profound statement, but folks who had something… I really feel like the thing, it emerged out of that movement and Satoshi placed their white paper into what was known as the cypherpunk mailing list. So I don’t know. That’s my view. I don’t don’t know exactly who it is, but I think it’s more than one person.

Steve Sanduski: And that’s, I think, also part of the whole narrative here and part of the story that whoever it is or they are that created this, it doesn’t appear that they’re in it for the glory because they’ve remained anonymous and it doesn’t appear that they have really done much to try and have some huge monetary gain at least at this point from its creation. So I think that’s all part of the story here as well.

Michael Casey: Absolutely. The genesis story around bitcoin is an important one and the fact that it attaches to this mysterious figure is all part of its important mythology. As we’ve been saying myths are important to the way these things work.

Steve Sanduski: Michael. We will wrap it there. I appreciate it, fascinating conversation, and we’ll have all the links here in the show notes and we’ll look forward to the conference coming up here in November as well.

Michael Casey: Great. Okay. Thanks a lot, Steve. 

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