I do feel like 202425 season is the finally the mainstreaming of
Bitcoin. We crossed 6 figures for the
first time. We crossed 2 trillion in market
cap for the first time. We are up about A7X from the
2022 low. And we've done all of this with
Fed policy rates still above 4%. Bitcoin will have one of these
years that just blows people away.
If belief is the basis of most money today, then people are
under a spell because that credit that people hold, if
they're not trying to do something with it, as in buy
assets or buy Bitcoin, that practice of keeping money in
credit, it negatively impacts people's lives.
It hurts them. The reason that they are hurt by
it is not because they've chosen that, but they are under a mind
trick. The crypto war was won by
Americans versus the government, including the NSA and the State
Department. Joe Biden was involved in that.
They came hard at the private industry's ability to actually
communicate in an encrypted way. The government wanted a back
door and they didn't get it. Say what you want about the
United States, I sincerely believe that we have our First
Amendment right rights and that we express them everyday and we
fight for them by saying and writing controversial things.
And the more people that do it, the healthier the First
Amendment is. I believe that just talking
about it is continuing that fight.
It is a First Amendment issue, the attack on self custody, It's
the same thing, right? Are you, are you trying to make
the argument that writing down 12 words is somehow dangerous to
national security? You can make a very good
argument that the previous administration's stance on
Bitcoin and crypto might have caused them the election.
America is a slow moving decentralized vehicle itself,
and I do believe the will of the electorate and the people in
this great Republic will prevail over the long term.
How important. Was the announcement of the
strategic Bitcoin Reserve for Bitcoin to be integrated into
the financial system itself, Bitcoin?
Is already taking on its financial role, the ETF
adoption, the spread of Bitcoin around the world, these
positions being taken at pension funds and sovereign wealth
funds. All of that stuff happened
before the strategic Bitcoin reserve.
And I believe that financialization of Bitcoin was
heading that way with or without it.
And now the US government likes the idea, and that's going to
bring more people along. And it gives Bitcoin a type of
legitimacy that can grow the network from 500 million people
to 2 billion people. But anybody who was already in
Bitcoin did not need that stamp of legitimacy.
They already believed in it. And belief is key, right?
It it it matters. Hey Nick, how are you?
Long time no talk. Nico, good to see you, man.
That crazy, crazy, crazy world Bitcoin land, you know, the, I
think the first quarter of this year has been absolutely wild.
You know, with this, with the recent election freedom of Ross,
the strategic Bitcoin reserve announcement.
I mean, in a way, a lot of us bitcoiners got a lot of what we
were expecting. But I I don't think as of yet,
you know, that hasn't been yet reflected on the price.
So what's your take on on on the current events?
What's currently happening in Bitcoin, Nick?
Yeah, I think that we are in an exciting time for Bitcoin.
We are in a period of mass awareness.
So I think this is finally the mainstreaming of Bitcoin that
people have been waiting for. Think I think, you know, as a
Bitcoiner that went through 2017 and then 2021, each time it felt
like the mainstreaming of Bitcoin.
I'm you know, that's the kind of just the feeling that you got in
2017, you know when the price went to $20,000 and it was on
the front page of CNBC everyday we were like, OK, Bitcoin is
here mainstream in 2021, you know, we had the Super Bowl
commercials, you know, and Matt, Matt Damon and Larry David and
you know all the stadiums being named and the sports teams
wearing all the Bitcoin logos. But this time around with a
strategic Bitcoin reserve and a Bitcoin presidency in the United
States of Bitcoin having a significant and clearly a
material role in the in the election.
It we'll never know officially if Bitcoin was the swing vote,
right? If the Bitcoiners were the swing
vote or not, we'll never know officially.
But what what we do know is that the contribution there was
material, right, full stop. And so this time around with an
electorate going, you know, Bitcoin and the government
embracing it, it, it is now and and then the world responding,
right, the world getting into a reactionary dynamic to American
political action. I do feel like 202425 season is
the finally the mainstreaming of Bitcoin and that by itself has,
I would say has been reflected in the price and that we crossed
6 figures for the first time across 2 trillion in market cap
for the first time. We are up, you know from through
to peak about A7X from the 2022 low.
So and we've done all of this with Fed policy rate still above
4%. So I think a very strong run for
Bitcoin price action is going to be choppy.
But look at the 200 day moving average.
Look at the realized price of Bitcoin.
This is this is definitely a good time for Bitcoin adoption
and I do think it's being reflected in the price.
You know, even though we can look at the election date versus
today's price and make comparisons or you know, what
happened in on Inauguration Day versus today and make
comparisons, but I think the the trailing 12 to 24 month time
horizon is a better way to judge.
And let me ask you something too, Nick, like, so do you feel
like Bitcoins best days are behind it, like a lot of people
were expecting, you know, a, a, a higher return at this point in
the cycle? Like if you compare the cycles,
it's very clear that, you know, Bitcoin is not performing the
way it has performed in the past.
Is that something to be expected as the market cap continues to
grow and, you know, diminishing returns law of big numbers, you
know, yes, I mean, A7X from the bottom in any type of investment
is absolutely incredible without a shadow of a doubt.
But I think as Bitcoiners especially, you know, they've
been around since 2016. You know, we remember the day,
the years where you know, Bitcoin would be up 2000%,
right? So are are those days long gone?
Because despite its great performance to this point,
despite this amazing election, I think a lot of people were
expecting it to be a lot higher right now, especially I, I just
saw a video from the Bitwise CEO and he was saying like, look,
Bitcoin should be at 200K right now.
So what's your take on that, Nick?
And then, you know, we'll talk about, we'll talk about this new
book that you wrote that I'm really excited to talk about as
well. So what's your take on that,
Nick? Yes, Sir.
So I'm going to give you probably the most hedged dancer
of all time, but it's a pure market.
Its answer. OK, so the price is the truth.
The price has all the information in it.
We can talk about bitcoins financialization and the fact
that there are more ways to short Bitcoin now from a paper
perspective. There are also equally number of
you know, equal number of ways, new ways to go long.
So Bitcoin is a market and the price is the reflection of
today's marginal buyer and seller coming to me.
So markets are driven by supply and they're driven by demand.
What we expect is just a figment of our imagination.
OK, So I'll answer your question in a few parts #1 should we
expect a lot of diminishing returns in Bitcoin?
Yes, I think that bitcoins realized return should
marginally decline over time on an annual basis, right?
So the greatest returns in bitcoins history are probably
behind it on an annual basis. That doesn't mean that, you
know, a year where Bitcoin goes up, you know, 1000% is it can't
happen, right? Statistically, it can definitely
happen, right? You know, so I am.
So then it becomes actually my base case scenario that Bitcoin
will have one of these years that just blows people away,
right? I don't think that that is a
foreign concept to Bitcoin just because I believe in the law of
diminishing return. So I've given you a hedged
answer for that one. Now let's talk about the
expectations just being a figment of people's imagination.
If the price is a is a function of demand and supply, then more
demand can only lead to a higher price if the supply doesn't come
to meet it. But in a world where there are
long term holders willing to come to the market and sell
coins, short term holders willing to come to the market
and sell coins, paper sellers willing to do it.
And then now option sellers willing to sell calls basically.
And in the process of selling options and selling optionality
to people that want exposure to the upside, they mute the
volatility. And that's just a that's a
function of the math because implied volatility is, is an
output. The input is the how expensive
options are. So if there's more options
buyers, unless there's more options sellers, volatility is
going to go up, implied volatility is going to go up,
the price of options go up. But if there's sellers willing
to play and collect that premium, willing to risk it,
that I don't think the price will rise that much.
And I will just introduce that insurance into the market.
That knocks volatility down and it has a suppressing effect on
the price because it just dampens the type of moves that
you can get in the market. And so from an implied
volatility perspective, option sellers coming to play this game
and make money, basically think about all the money that was
made from traders that came into the market at 110 and said this
thing is not going to run to 100 and 25150.
I will sell every call to everyone of you for the next six
months at every strike there. You know, they're collecting
their premium and everyday that goes by, they're realizing more
of that gain as options expired that they sold into the market.
So it's just, it is just a figment of our imagination that
we expect the Bitcoin price to do something.
It's just it, it's just a function of supply and demand.
So demand is just it just it's too little of a picture.
And we can, we can love the demand side of it and we do love
the demand side of it right now, you know, but there's also the
whole credit creation machine that makes it easy to print,
print money and sell options. Basically it's that's, you know,
how you have to think of it. It's just a market maker willing
to just print money above the price and, you know, knock that
volatility down. So I hope that answers your
question. No, it absolutely does.
And Nick, I am very excited because you're coming on today
to talk about your book that you just wrote.
It's called The Bitcoin Age by Nick Bhatia.
And I love the fact that essentially you started off with
a star, a Star Wars reference and essentially you were
painting the picture. I think this was episode 1 where
essentially the the guy who trained Anakin, I forgot not not
a not a Obi Wan, but Obi Wan's like master guy, the guy who
trained Anakin. They went to Tatwin, which is
like the desert planet and their Starship broke down and they
wanted to buy a drive and he offered them credits.
I think it was like Republic credits and the guys like
Republic credits are worthless here.
And I thought it was such a great analogy.
Why did you why did you start off your book with with a Star
Wars reference? Because I think with what you're
trying to describe, it was, it was very, very fitting.
Yes, so this is the Jedi Master Qui Gon that he was he was the
master to Obi Wan and both of them taught Anakin, you know,
before Qui Gon, before his demise.
So yes, this is this is a great scene in in Star Wars and it
really encapsulates this, this mind trick that we're under now.
So why did I come up with this? Because credit itself, right?
As we, as I talked about in layered money, credit itself is
just a derivative of money. And that money used to be gold,
right? So we think of, you know, why is
currency worth something? Oh, it's a promise to pay gold.
That's the simple layered money framework.
The promise to pay is backed by something.
It's backed by belief. It's backed by confidence.
And credit literally means to believe, right?
The Latin root of it means to believe.
And so if belief is the basis of most money today, then people
are people are under a spell because that, that credit that
people hold, if they are not trying to the second that they
make that money in terms of income, if they're not trying to
do something with it, as in buy assets or buy Bitcoin or, or
reinvested in something. If they're holding deposits over
any time horizon, even if you want to consider fixed income
securities with next to 0 or sometimes negative real return,
right, your, your interest rate is eaten up by your inflation
rate. That practice of keeping money
in credit is a, it is a negative force on society.
It negatively impacts people's lives.
It hurts them. And the reason that they are
hurt by it is not because they've chosen that, but they
are under a mind trick. And in pop culture, the Jedi
mind trick and that concept it there's, there's, there's a
relationship there that could, could be explored.
And this scene from Star Wars is something that I have always
loved this scene because I've always loved the idea of money
and versus credit. My whole research career is
basically about this concept, the difference between money and
credit. Did you like the scene before?
Sorry to interrupt. Did you like the scene before
you found Bitcoin? Yes, yes, because I was a a
sound money student before Bitcoin, for years before
Bitcoin. And then Bitcoin was the
solution. So were you a fan of gold?
Yes. And I had gold, I had gold.
So let's I had gold and silver investments and I did liquidate
all of my silver investments at around the time of falling down
the Bitcoin rabbit hole. Yeah, I mean, I think that's
that's what happens where you find Bitcoin and you're like,
and if you're a sound money fan, you're like this is this is the
perfect solution. Anyways, I want to I want to
jump to a specific chapter. It's called Intergalactic
Computer Network and I have a question regarding that.
So how did the early development of communication protocols from
Morse code to the Telegraph influence the creation of the
Bitcoin protocol? It's a it's a great question.
You know, why did I start the networking story so many years
before Bitcoin And Nico, I do have to just point out, and I
hope you don't mind, the book is called Bitcoin Age.
There's no the in it. Did I just put?
Did I put the in there? I apologize.
No, unfortunately there's a gentleman.
His first name is Adam. I've never met him or spoken to
him, but he's written a book called The Bitcoin Age.
It has an orange cover and it is not the same as my book.
So just so people when they're on Amazon, just make sure it's
this one and has my name on it because there is a book called
The Bitcoin Age, but. I, I just searched it on Google.
The good news is that your book is the one that pops up.
But yes, it's the Bitcoin age. We'll put the details, of
course, the Amazon link in the in the podcast description, of
course. Thank you, Nico.
I appreciate it. So the the chapter, it's Chapter
5, Intergalactic Computer Network, it goes into the
history of ARPANET and the ARPANET is the predecessor to
the Internet. Now today's Internet is just
think about going online, going to a website.
What are you, what are you doing there?
You're using really a pair of protocols.
You're using several, but let's just say you're using 2 main
protocols. One of them is HTTP or
Https://rightsoyour. Your web browser, when you go to
www.something you are on the interweb right?
That's using the hypertext transfer protocol HTTP.
That protocol HTTP let's people use websites and access websites
right on the web. But then how does that
information go from point A to point B?
So when I Google something and I hit enter, that information
travels to Google. So how does it travel to Google?
It travels via a pair of protocols, TCP and IP.
And those two protocols are what breaks down the data packets and
then routes them to an address. The address that it routes to is
the IP, right? So your IP address and TCP is
how it breaks down and and reassembles the packets.
So that is the that's the basis of the Internet.
And we all take those two things for granted.
And so when we use Bitcoin, which is also a network
protocol, it's a software that has a cryptographic transactions
and the information about these transactions is sent to other
network participants and it's sent via the Internet.
I know there are offline and parallel ways to use Bitcoin,
but it is an Internet based software.
It uses the Internet. So it's using, it doesn't use
Http://explicitly, but it's using TCPIP as the packets go
around the the world using IP addresses just as anything else.
So every Bitcoin node is going to have an IP address.
So Bitcoin itself is built on top of Internet protocols.
So where did TCPIP come from? They actually came from the
ARPANET, which is the first attempt to network computers
together. And the ARPANET was a project
created by ARPA, which is a Defense Department research
agency. ARPA was started during the Cold
War, and the purpose of ARPA overtime shifted from missiles
to space to the Internet. But when it arrived at the
Internet, it was really the people that were designing it.
We're really thinking about how can the military communicate
more quickly with each other? How can we stop attacks on a
central server or a Tele, you know, our telecommunications
network? And so just thinking about ways
to speed up communication and to actually distribute
communication and to decentralized communication
because it really was this. Paul Baron was a gentleman who
who originated the idea of distributed networking and data
packets. There's actually a person I
didn't mention in the book. He actually Co inventor
parallelly invented this technology in England at the
same time. But anyway, Paul Barron, his
whole purpose was to figure out a way to prevent a a missile
attack taking down the army, army communications.
And so they used Paul Barron's papers to design the Internet
to, I'm sorry, to design the Arpanet.
And so the Telegraph was a way to take messages from horseback
basically or visual signals to electric communication and to
have that communication start travelling much more quickly
than ever before. And the and Arpanet.
And so when we think about telephones, telephones are
actually not that much of A leap in communication to Telegraph
because it was using the same infrastructure, the same lines,
the same switching, manual switching, actually physical,
you know, operators taking out, unplugging it from 1, you know,
a wire from one input to the other to actually allow long
distance communication. So that technology didn't really
change from Telegraph to telephone to teleprinter
exchange, also called telex, if there was no real advancement in
the true speed or infrastructure until the Defense Department got
involved with the ARPANET and then the Internet and the rest
is history. So, but you have to start with
the government starting ARPANET to really bring the whole
communications protocol story together for Bitcoin to give it
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I have a question regarding Paul Baron.
Right. So you know, and, and AT&T and
if you live in the United States, you definitely know what
AT&T is. Why did AT&T resist Paul Baron's
idea of packet switching? And how did this resistance
ultimately shape the development of the Internet?
Yes. So AT&T came to or Paul Baron,
they proposed this idea to AT&T and they said, we think that you
should distribute your networking, right?
And we can. This is how this is my idea.
And AT&T, at that point, they were so established, they were a
monopoly. They didn't have incentive to
invent because they literally owned the entire long distance
communications network in the United States, and so there was
no incentive for them. So instead of trying to
understand Baron's idea, they actually just paraded executives
and engineers out and explained to that to Baron and his
associates why it couldn't work and how their system actually
functioned. And so they weren't, they
weren't speaking the same language at all.
And so the project, the project died.
You know, AT&T didn't advance it.
And actually, it wasn't until the ARPANET became an idea, a
concept that the engineers at ARPANET went out looking for
those distributed solutions that might be able to allow their
idea. But you know the the answer to
your question, actually, you can even bring in banks and Bitcoin
today. 10 years ago. Why would a bank be motivated to
really study and embrace Bitcoin, right?
Because it has the potential to end them or to obsolete them in
a way. So the Internet and the Internet
did, you know, and AT&T's true monopoly in many ways over time,
it wasn't just the only thing, but communications itself was
changed forever because of the Internet.
And AT&T probably suffered, you know, from its monopolistic from
that angle because of it. So that's why AT&T rejected it.
And, you know, how did it, how did it end up leading to the OR
to any of what, what transpired after a little bit of luck in
timing, honestly, because if nobody had come along.
See, Paul Baron wrote, I believe it was 11 volumes about this
idea of distributed network. And he wrote it over four years.
So this was his life's work. And they were just collecting
dust. So yeah, you know, for years he
wrote this thing in the early 60s, and Bob Taylor and Larry
Roberts at ARPA didn't really get it going until the late 60s,
so. They work, yeah.
And, and all of this is incredibly important because
essentially, and please correct me if if you think I'm using the
wrong word, Nick, but these are the, what you're talking about
is the foundational layer of which a protocol like Bitcoin
can work without this foundational layer called the
Internet, right? Not only is it difficult to
understand Bitcoin, but Bitcoin can exist in its current form
today. So it's just, it's just
interesting how that development happened.
And I forget where I heard this from, but it was, and it's to
add to your point, but it was basically like if AT&T was in
charge of, you know, the development of the Internet, we
would all have a little coin slot in our laptops and we would
have to, you know, add coins to just, you know, extend
essentially your Internet time. So I don't know if you guys have
been around for this, but I remember when I was growing up
and I would travel overseas and I'd have to make a call to the
US, You know, it was ridiculously expensive.
And then you'd get that little annoying message like, please
add a coin if you'd like to continue your conversation,
right? So 100% like AT&T definitely
got, you know, hurt in the process.
I'm sure a lot of their business model came from being able to
monetize long distance communications, but it made the
world a lot better. Right now you have essentially
free instantaneous worldwide communications.
That wasn't the case 20 years ago.
It was it was prohibitively expensive to say the least.
So my next question Nick, regarding your book, which is,
but let's talk about the euro dollar system because that's
something that you keep referencing that you that you've
referenced a couple times in your book.
And you also said that there is parallels that can be drawn
between the unregulated expansion of offshore dollars
and bitcoins decentralized financial system.
Yeah. So the parallel there is that
the banks that operate in a euro dollar realm do so by their own
governance. They don't use the Federal
Reserve as a Reserve Bank. So when they settle between
themselves, they're actually just settling with IO us between
themselves. That's what a euro dollar is.
It's a settlement vehicle for euro dollar banks.
And because they don't, they don't have Fed accounts and only
with a Fed account can you have a Fed reserve.
And if you don't have a Fed account, you don't have Fed
reserves. So you can't settle with other
banks via Fed reserves. So that that bilateral
settlement and is a is a highly decentralized way of settling
versus a domestic. And I guess that is probably the
strongest parallel between the two, that the euro dollar system
doesn't have a central bank. Gotcha.
And and OK. And you also mentioned that this
potentially could be a threat to US monetary sovereignty.
Is that correct? So it's the euro dollar system.
And what I explained in the book is that I believe the euro
dollar system was allowed by the Fed and U.S. policy makers to go
on after they discovered it around 1960.
So it, it started in the 50s, it got going without the knowledge
of U.S. policy makers or the Fed just by the act of European
bankers, European clients, Russian clients, etcetera, and
Soviet clients, I should say. And that system that got going
in the 50s, it news of it got back to the United States in the
late 50s. So around the late 50s, nineteen
60, the Fed sent delegates to Europe to investigate what what
is going on there. How are they using the dollar?
Why are they using the dollar? How are they using the dollar
without our knowledge, without our permission?
How is how does it work? What's going on?
They went, they came back and they basically said banks are
using dollars. They called them continental
dollars. They're using dollars to settle
balances, to invest in a money market, to gain yield.
You might recall that there was Regulation Q at the time in the
United States, in the United States, which which capped
interest rates. So a New York bank could only
offer 3% yield, where a, a euro dollar bank, a London bank could
offer whatever market yield they wanted to.
So money was flowing over there. Dollars were leaving the United
States for these investments. Companies in Europe that were
making dollars would invest them in the euro dollar market,
invest them in basically funding other banks with deposits.
And that system, when the United States became aware of it, when
the Fed became aware of it and they published about it, they
said this is on net a good thing for the dollar, a good thing for
the United States because it increases the size of the dollar
network. Importantly, at the time, it
kept dollars in Europe instead of calling gold out of the
United States. So that was a key.
That was one of the one of the great benefits at the time of
the euro dollar system. It kept dollars in Europe
instead of claiming US gold. The US wishes that it was
actually probably used more because France and Spain were
actively calling gold away from US gold reserves with their US
currency during the mid 1960s. So it wasn't attractive enough
because there was this understanding, Charles de Gaulle
had an understanding that there were too many dollar credits
floating out there and they probably wouldn't be worth $35
for one ounce of gold for that long.
It would probably take more dollars in the future to get
that one ounce of gold. And so let's convert now.
And so there was a run on the dollar during the 1960's.
The BIS and and the Fed basically went to Switzerland
and said we need to form a gold pool in which we sell gold into
the market and suppress the price and prevent it from going
up from 35 and continue that mind trick.
This is why the mind trick is so strong, because the mind trick
it. They tried so many different
ways to employ this mind trick. How did you find all this out,
Nick? Because this is not common.
This is not common knowledge. What you just what you just
talked about. Yeah, so I did a lot of
research, Nico. I love this topic and I read a
lot of books for layered money and I've read a lot of academic
research papers over the course of my time.
I've been teaching at USC fixed income since 2019.
So it's six years of syllabus formation and just reading
papers and, you know, understanding this topic.
And I'm still a student, right? I'm, I teach, I teach my
students, but I am a student and I'm not a master.
I, so I, I want to just keep learning.
I have so many learning goals and research goals, but there
were, there were two books that changed the course of Bitcoin
age research for me. I'm holding both of them right
now. The first one which I read
during the spring of last year. So this would have been about
11-12 months ago. This is called central bank
cooperation by an Italian economist, Tony Yolo, Gianni
Toliani. Tony Yolo.
So I'm sorry for all the Italians out there for
butchering that central bank cooperation at the Bank for
International Settlements 1930 to 1973.
So at the time, I was understanding that the BIS had a
main role in protecting the euro dollar system, which was a story
that I was hip to for a while, right.
So the euro dollar system was a story that I told and layered
money. And, and it's something that
I've taught in my class for 5-6 years.
So I wanted to go deeper into the euro dollar system.
And so I, I, I have a academic research database for all the
people that are students at universities.
You can go to jstore.org and login through your university
and get access to more things than you'll ever, ever have the
time to read. So I basically did a a euro
dollar be at, you know, a bank for international settlements
money markets crossover search in J store and read dozens of
papers from the 50s, sixties, 70s and 80s just poured through
papers and papers and papers. And I just I made these
incredible discoveries. And so you if you guys are
looking at the footnotes, one of the authors is a Mr. Byrne,
Katherine Schenk. This was an incredible story.
Katherine Schenk who wrote one of the foundational papers about
Midland Bank in the Euro dollar system in the 50s.
I found out that my editor Joe Kim book, who also edited Aaron
von Weirdem's book The Genesis Book, which I used in my
research, that Joe Kim was a student of Professor Shank at
his Business School in Europe. A a a couple decades ago or a
decade or so ago, so there was an amazing crossover and through
those papers, I found this book on the bank for you can even see
my, my dog ears. I've I get really active when
I'm when I'm doing my, when I'm doing my research here and.
It's a small world. This, this book was, I mean,
this book was so foundational and I learned so much about the
history of the monetary system and the euro dollar.
And but the gold pool stories were really from here
specifically. And the, the great, the greatest
euro dollar stories were in those papers.
Then in this book, which I, I'm trying to remember how I
stumbled upon this one. This one is about Walter
Wriston, Citibank, and the rise and fall of American financial
supremacy. I believe that this book was
cited also in one of my papers. That's how I came across it.
And in this beast, it tells basically the history of
American finance through the lens of Citibank.
So all the way back to its founding in 1812, which I
learned from this book that Citibank was basically founded
by a bunch of New Yorkers after the first central Bank of the
United States, Hamilton's bank expired after its twenty year
charter in 1811. And they needed they needed a
bank to continue on with their activities, helping, you know,
the government finance its activities.
And the history on the 1812 version of Citibank is then, but
that you know, some of those stories are back there and and
I've snuck them in the book. But but City's role in
discovering the existence of the Euro dollar from the New York
vantage was fascinating in this book because all of a sudden it
was like a trader, a forex trader in London heard that a
bank in London had solicited dollar deposits and paid out a
rate that was higher than the Regulation Q capped rate.
And it was just like a rumor on AFX desk in a City Bank branch
in London that started the wave of U.S. banks moving into London
to capitalize on non regulated dollar activity.
And that move of U.S. banks taking over a City of London
happened in the early 60s. So the timeline is important.
The 50s was when the game got going and the early 60s was when
the New York banks joined the game.
So it happened after Alfred Hayes, the president of the New
York Fed, went to Basel in 1960 and said, OK, the euro dollar
system is fine, but what we really need is a gold pool.
Then the American Bank said, you know, basically, let's go.
So, and you said and, you know, and this, this is fascinating
because it's like shadow banking, you know, kind of
happening in, in, in the back in the.
Background shadow banking. It's not like shadow banking.
This is what shadow banking is. And and you say there's
parallels with the Bitcoin. What are those parallels
exactly? So the parallels in Bitcoin and
the euro dollar, yeah, the the euro dollar system is that it
has, it's not governed by an entity, right?
It's it's not governed. And so I had this debate
actually with Saifuddin. He said, no, the euro dollar
system is explicitly allowed by the Fed and therefore it's
controlled by the Fed. But it actually emerged outside
of the Fed. And then the Fed basically said,
OK, so from my perspective, who who controls whom, right?
There is a strong argument that it's actually euro dollar banks
and global banking dollar bank, a banking cabal that is in
control of the US currency via the Federal Reserve Channel.
There's a strong argument there. I also debated whether to try to
formulate an idea to split the dollar between a nationally
sovereign dollar and a a global banking dollar and to lay out an
idea. I do have an idea there for how
the US can take its currency back, but there's so much
speculation there that that was a real challenge.
I know I'm not doing a great job maybe of answering the question
to your satisfaction of the parallels between the euro.
Dollar, I think and. Bitcoin.
I think the way you described it, Nick was perfect.
There is just no central authority and it's just
something that happened organically like it happened out
of market. There was a market necessity of
this and the and the system essentially happened organically
because it was in need. It was in something that was top
down. So you did answer my question
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I want to continue because there's so many good things.
And the the latter, your book, you start, which is the really
fascinating part to me, right? You, you lay out the context,
you give the history and then you start tying in Bitcoin,
right? So that's the direction we're
heading right now. And one of the things that you
talked about was essentially the NSA had a monopoly on
cryptography. And until these three people by
the name of Whitfield Diffie, Marty Hellman and Ralph Merkel
challenge that monopoly. And you made the case that
essentially, their discoveries actually lay the foundation for
not only modern digital security, but Bitcoin.
Absolutely, yes. So the NSA was an agency founded
by President Truman under a secrecy order.
And the efforts were, you know, military, militarily inspired,
and the government needed an arm to engage in security
intelligence. And so part of that effort was
the study of applied cryptography and protecting or
encrypting, because security and encryption go hand to hand.
But the first, the first US agency or first US actors that
tried to take advantage of this was the NSA.
And so for a few decades, they had a monopoly and basically
every student that went through any cryptography related work
in, in, you know, science departments went into the NSA to
work. And so 100% of the development
of encryption technologies happened in what, you know,
behind the triple fence, which is the nickname at the time for,
for this triple, this triple fence electric fence facility
that they had in Maryland. So the NSA with its monopoly
over encryption, there was no private sector because everybody
that studied just went into the NSA.
But then the breakthrough moment came when a pair of
whistleblowers from the NSA went to the Soviet Union and, and
basically spilled a bunch of secrets about how the NSA
operates. And, and basically they're in,
they're encryption secrets. And a gentleman by the name of
David Kahn wrote a book. It took him years to write it.
It's called The Code Breakers. And that book was actually
submitted to the government as basically a warning that, hey,
this is coming out. We're about to expose a bunch of
things about. In the end the government came
back and said please take a couple things out but it didn't
materially change the story in any way and he got to publish
basically this. Tell all of the NSA.
That was 1967. Before that book, awareness of
anything that even happened at the NSA was minimal, let alone
actual P Americans walking around on the street or in
universities, inspired to learn and explore cryptography,
encryption, computer based encryption.
There, there was nobody. So the first readers of the Code
Breakers were those founding fathers to encryption, leaving
the mind hive of the NSA and landing on the streets of the
United States of America. Where there is free spirit,
there's innovation, there's computer science departments
and, you know, brilliant people. And so that event was the the
defining event was the publishing of the Code Breakers.
And then Whitfield Diffie being one of those first readers.
And he carried that thing around everywhere he went.
And, you know, he treated it like religion, literally he
would. He even said that.
And, you know, then he started to look for people.
He met Marty Hellman, They published together.
Ralph Merkel read their paper, Then Ralph Merkel got involved
and then they published together.
Even though Merkel's name wasn't on one of the ground breaking
papers. Merkel went on to publish, you
know, based off of Diffie and Hellman's papers and through
their papers that trio, the what was in the NSA behind closed
doors was now on the street. There was a break.
Whether or not Diffie, Hellman and Merkel invented something
that the NSA never knew or not. We actually, I don't, we might
never know that, but it was, it was discovered outside because
there were people that really wanted to know and learn and
explore. And from that we have modern,
modern encryption. We have public key cryptography
which is the root of Bitcoin. That's that's app first of all,
absolutely incredible and fascinating.
And that's a perfect segue to my next question, which is the
cypherpunk movement, right? And I remember, you know, and I
think it like the, I remember, like Adam back was part of the
so-called crypto wars that was happening in the 90s for the US
government's attempt to essentially ban certain types of
cryptography. But in, in, in your book, you
essentially one of your chapters is, is about this.
And I, I wrote a question regarding it.
So how did the cypherpunk movement's battle against
government control over encryption contribute to the
creation of Bitcoin? And why was?
Proof of work a. Crucial innovation in achieving
decentralized digital money. Yeah.
So we'll do the, we'll do the proof of work.
Second, the the government wasn't trying to ban types of
encryption. It actually was trying to
classify encryption. As a weapon, I.
Mean as a weapon. And so and so posting it online
is a version of exporting a weapon.
And you know, it's exporting munitions.
And so that was the stance taken by the government with Phil
Zimmerman and PGP, which Halfini was instrumental in helping beef
up that code base. And then versus Daniel
Bernstein, who was a student who just wanted to publish and he
submitted his paper. I found this tidbit very
fascinating. When he submitted his paper, not
only was he told, hey, you can't, you know, this is you're
exporting munitions or you're, you're getting involved in, in
an area that we would deem illegal.
But now if you have any foreign classmates that might ever read
your paper, they have to register with us as just to get
permission as foreign because they could be foreign agents to
gain access to American intellectual property in this in
this crypto regard. So it was a very specific
approach and the victory was a First Amendment victory.
Yep. Right.
And so the in the Bernstein case, 3 consecutive federal
courts protected his right to publish under the 1st Amendment,
basically saying if economist can have mathematical models,
then, you know, encryption scientists can publish code
because it's part of their work. Yeah, and it's part of their
research. So that's, that's the the origin
of the crypto war. And Adam back what he made
shirts with the PGP code on it. I'm wearing.
I'm wearing a weapon. Yeah, I'm wearing a weapon.
So if you get on a plane with that shirt, you're, you're
proving the absurdity of, of the ban or not the ban, the, you
know, the classification. Of course.
Itself, so you know that the the cypherpunks reacted, Zimmerman
said. I read the letter that he wrote.
He said that publishing PGP was a reaction to what the
government is trying to do. You know that this is this is an
effort to break free and to get gain privacy.
And this isn't this. He basically said I am the
crypto war, you know, in, in his, in his letter.
And he said, I'm this is the frontline and he knew it.
He got the support. The cases were won or the
Zimmerman case was dismissed. Bernstein won his case and the
crypto war was won by Americans versus the government, including
the NSA and the State Department, right.
And you could even say not even you could say the the
legislative branch because the Senate came hard.
Joe Biden was involved in that. They came hard at the private
industries ability to actually communicate in an encrypted way.
The government wanted a back door and they didn't get it.
The, you know, the Senate wanted a back door.
And so there were a lot of victories and you know, all of
that. It just made the desire for that
freedom to grow stronger and stronger.
And, you know, say what you want about the United States, I
sincerely believe that we have our First Amendment rights and
that we express them everyday and we fight for them by saying
and writing controversial things.
And the more people that do it, the healthier the First
Amendment is. And we owe a lot to the people
in the 90s that fought for the 1st Amendment.
And I believe that just talking about it is continuing that
fight. So it it's a First Amendment
story. It still is.
And. I would say what's up the the
fight, the fight for because I had the the the way that I would
and nick me and you are in totally different.
I'm a I'm an I I have to cover the news every single day.
So I remember vividly for the last two years the previous
administration's attack on Bitcoin and we we reference the
original crypto war that happened back, I believe it was
in the 90s multiple times because it is a First Amendment
issue, right? It and you know, if if you you
know the the crypto War 2 point O, you know the attack on the
attack on self custody, it's the same thing, right?
Are you are you trying to make the argument that writing down
12 words is somehow dangerous to national security?
They were using essentially the same arguments.
Now I think it was solved in a different fashion.
I think this one was solved via an election, right?
That one was more solved through the judicial process, but it
will still work solved regardless.
And tying this up with what you were saying earlier on regarding
the election. You can make a very good
argument that the previous administration stance on Bitcoin
and crypto they tried to walk it back might have caused them the
election because a big part of their voting demographic we is
the younger generation. The younger generation tends to
own Bitcoin and crypto, right? So, yeah, I mean, I, I think
this is all it, it still is a First Amendment issue.
And in a way, you know, I wish it was solved through the
judicial process because what happens in 2028 when the next
election comes around, right? I, I just hope it, it, it
doesn't remain a partisan issue. But anyhow, I I didn't mean to
go off on a tangent, but. Let me just say quickly, I'm
just. Connecting the dots.
On the judicial process, the legislative process, America is
a slow moving decentralized vehicle itself.
And I do believe the will of the electorate and the people in
this great Republic will prevail over the long over the long
term. And so, you know, we need laws.
Those laws will inevitably be challenged.
The courts will have to uphold them.
And that process will take years, regardless of who who had
won the election, you know, because somebody would have sued
then the courts would have ruled.
The courts were already starting to rule in the favor of Bitcoin
if we look back at the Grayscale case in late 2023.
And that was before the election.
So the election definitely helped us skip a lot of
jurisprudence, but it doesn't mean that we'll avoid it in the
future. And legislation should be and
that's why legislation is important in addition to
executive orders and changes at the regulatory level because the
those, those can be fleeting, which I think is you know what
you're what you're referring to. Yeah, you know, and, and you
know, This is why the Bitcoin Act is so important.
Like This is why, you know, the, the IT because there's only so
much they can do via executive order, right?
And executive order is just one election away from it being
reversed. If you know, if they want this
to essentially remain, you know, policy for the long term, right,
something like the Bitcoin Act or something equivalent to it is
incredibly important. Now I know we are getting to the
top of the hour and I want to be respectful of your time, Nick
and I want to tie in one of the one of the chapter, one of the
one of the final chapters of your book.
So the US government has had an evolving stance on Bitcoin.
Obviously early skepticism in the beginning, now full-fledged
adoption. How does that shape that it's
global legitimacy? And as bitcoiners, I, I, I, you
know, I hate saying that, right? Because it's like, I don't need
the approval of the US government for Bitcoin to be
legitimate. But in the eyes of the world,
you could make that argument. And then how?
How important was the announcement of the strategic
Bitcoin Reserve for Bitcoin to be integrated into the financial
system itself? Yeah, I'll take the second
question first. I don't think that important.
I think you know, Bitcoin is already taking on its financial
role. The the ETF adoption and the,
the spread of Bitcoin around the world, these positions being
taken at pension funds and sovereign wealth funds,
strategic mining positions across the world.
All of that stuff happened before the strategic Bitcoin
Reserve, and I believe that financialization of Bitcoin was
heading that way with or without it.
Does Bitcoin need the government, U.S. government, for
legitimacy? No.
What it does is it brings in, it brings the net, it grows the
network, it grows the potential size of the network because
there are people who are leaders and people that are followers.
So the leaders get in first, the followers get in second, and the
followers don't come until certain leaders say this is OK.
And so Bitcoin has its own leaders without the government,
but it has a new leader, meaning it has a another participant for
people to say, oh look, that person is doing it.
I think I'm going to follow them because every Bitcoin person was
told about Bitcoin by somebody or read about Bitcoin from
somebody else, right? Hal Finney being the first
really person who read Satoshi's idea.
And he was like, I like that idea.
And, you know, then Hal Finney liked the idea.
Then Hal Finney joined the network.
Then other people liked the idea.
And then, you know, then you and I liked the idea several years
later. And now the US government likes
the idea, and that's going to bring more people along.
And it gives Bitcoin a type of legitimacy that can grow the
network from 500 million people to 2 billion people.
And that might not have happened without the political shift in
the United States. I think it's a good thing for
Bitcoins network to gain more participants.
It's a good thing for the United States of America to understand
Bitcoin really well, and I'm happy that we have some leaders
who do now. I would say that there are some
excellent people in the Senate and the House that understand
Bitcoin. The executive branch is getting
there. They also have some people that
do understand some of the right things too.
They won an election with a lot of support from Bitcoin people.
But the actual Bitcoiners in the government are in Congress, and
that's a good thing for the electorate, especially if people
voted for those people because they are bitcoiners.
I think that that's relevant. So I don't, I mean, I don't want
people to walk away from this interview or from my book
thinking that I think the USA gave Bitcoin legitimacy in 2024
and 2025. That's definitely not what I'm
saying. But it increases the size of the
network and it does make Bitcoin legitimate in many more eyes
than before, right. But anybody who was already in
Bitcoin did not need that stamp of legitimacy.
They already believed in it. And belief is key, right?
It it it matters. Yeah, I, I love the way that you
phrase that right, which is it doesn't need to just me, but it,
it definitely it, it, it made the network bigger.
Exactly, exactly what you said. So guys, go check out Bitcoin
Age by Nick Bhatia. It's on Amazon right now.
And I do want to read a quote by Senator Lummis.
Nick is a master at deconstructing bitcoins
complexities to make it digestible for the average
reader. Bitcoin Age brilliantly bridges
the knowledge gap and is a must read for both seasoned Bitcoin
veterans and curious newcomers in the age of digital currency.
So get it on Amazon today. Bitcoin Age by Nick Bhatia.
Nick, thank you so much for joining me today.
I appreciate it. Nico, I appreciate you very much
and all the best to you and your family.
Thanks.