Podcast

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Patrick Byrne: Why Cryptocurrencies Matter

They make freedom from the central banking cartel possible
Sunday, July 30, 2017, 3:28 PM

This week we talk with Patrick Byrne, CEO of Overstock.com, and rare courageous voice within corporate America raising concern that powerful interests on Wall Street are destroying US companies for profit, robbing investors and destabilizing our financial system in the process. 

Byrne has been an early advocate for digital currencies and their potential to protect financial wealth from the massive policy missteps being undertaken by the Federal Reserve. (In 2014, Overstock.com became the first major retailer to accept Bitcoin payments.) 

In this week's podcast, Byrne details out the promising potential of cryptocurrencies and the blockchain, as well as his thoughts as to whether they will be able or not to evade subversion by the world central authorities:

In the 1980s, I was a graduate student at Stanford in philosophy, but with a heavy quantitative and logic approach. I studied the mathematics that underlies cryptography. It’s called computation theory. It was a fascinating field, probably the only religious experience I’ve ever had in my life. I felt like I was seeing the face of God -- I loved it.

So, in about 2012, I was reading Fast Company or Wired, and I saw this blurb about this new form of money that no government was behind, based on cryptography. And, I realized, Gee, this is like an application of that math I’d studied 30 years earlier. Someday I want Overstock.com to be one of the first companies to take it.

So, on December 19th, 2013, a journalist interviewed me. Near the end of the interview, she asked, “Are you ever going to accept Bitcoin?” And, at the time I thought in maybe a year and a half I’d get around to doing it, so I said, “Yeah, I hope someday that we'll do that.” She put that in her article, and I started getting Google alerts from newspapers in Thailand, in South Korea, in Africa. I mean, that little mention got picked up all over the world. And I realized, Geez, there’s a subculture around the world who is waiting for this.

So on January 1st, 2014, we started working on it. We put 40 guys in a room, sliding pizzas under the door so they could work day and night. And, by January 9th, we got Bitcoin up. As soon as we announced it, it became global news. At that point I realized that the world was ready for this earlier than I had expected it to be.

Bitcoin and other cryptocurrencies are a form of money that's a stable field that the government can’t destroy and can’t distort. Because its creation is governed by the laws of mathematics. It can’t happen any faster or slower than a certain rate, and it all sort of self-adjusts. What that means is -- unlike Janet Yellen, who can sign something and whisk 85 billion new U.S. dollars into existence -- there’s nothing she can sign that will whisk new Bitcoin into existence. So, cryptocurrencies in general give us a stable medium through which we can communicate our information about values and prices in a way that no government mandarin can distort or usurp.

For the predators who have used our central institutions to predate on the rest of humanity, it’s a very bad development. 

Special note: at the end of the podcast, Patrick extends a 72-hour offer to listeners. That special offer has now expired.

Click the play button below to listen to Chris' interview with Patrick Byrne (46m:35s).

Transcript: 

Chris: Welcome everyone to this Peak Prosperity podcast. I am your host, Chris Martenson. It is July 18th, 2017. Today, we’re going to be talking with Patrick Byrne, CEO of Overstock.com, about digital currencies and why they are a necessary part of protecting yourself from massive policy missteps being undertaken by the Federal Reserve. It is also the predictable nature of government to kick the can so far down the road that major fiscal and monetary damage become inescapable results. Can digital currencies help to protect you when that happens?

Our guest says they can. Now, founded in 2007 by Patrick Byrne and launched in 2009, Overstock initially sold liquidated inventories from at least 18 failed dot com companies. In 2002, it went public via IPO, and in 2010, hit a billion dollars in sales. And, by 2009, was doing something that Amazon has not yet reliably done, earning actual profits. In 2014, Overstock.com became the first major retailer to accept Bitcoin payments.

Patrick Byrne has been and remains a leading voice in what we can call a growing movement, convinced that powerful interests on Wall Street are destroying American companies for profit, robbing investors and destabilizing our financial system in the process. His views and efforts to expose the corruption were met with a virtual wall of condemnation by a complicit press. His claims were ignored by the SEC, but his company certainly wasn’t, undergoing six separate SEC investigations. And, Wall Street did everything it could to bury his views, all of which turned out to be absolutely correct, by the way.

Patrick, welcome to the program.

Patrick: Chris, you covered it all pretty succinctly. Thank you very much. It’s a real honor to be on, really is. Peak Prosperity, I know your site and I think the world of it. And, since I even heard the name, I thought, man, that’s a very clever name and it’s a real honor to be on.

Chris: Well, thank you. The pleasure’s all ours. And, before we get into the solution space, which is where digital currencies belong, let’s set the stage. You pointed out some ways markets were broken back before the great financial crisis hit in 2008. But, now things are better, we’re told by that same press that pilloried you. Things have been fixed they say. What are your views on the financial markets today? Fixed or still in some state of disrepair?

Patrick: Well, some of the things I was teaching 10 years ago have been fixed. The settlement system was where I saw a big flaw. They have been at least somewhat fixed, because some people in Washington finally figured out it’s a national security issue to get them fixed. But, ultimately, I think that we are living in a, you know, a debt-based, fiat-based currency, Keynesian magic money tree system that’s all going to come crashing down. This is a big Ponzi scheme and I do not believe it is sustainable. And, then you couple on top of that the government can’t live within its means, and at the end of the day, there’s no free lunch. We can’t just—I think what’s actually happened is that we all figured out—can I give you a quick take on American history?

Chris: Please, absolutely.

Patrick: 60 seconds?

Chris: Yeah, let’s do that.

Patrick: Okay. The Constitution worked, worked for a while, then we got some guys in the 1930s who sort of jacked the Constitution and made outcomes determined by Washington. And, we all found, different groups found they could organize as a society and go and pressure Washington to divert resources to them and improve their outcomes. And so, from the 1930s to the 1980s, political life was a lot of people getting organized into pressure groups to do this, were getting organized into pressure groups to prevent checks from being written on their bank account. So, the pressure groups there to get Washington, D.C. to write checks on other people’s account and give it to me.

Well, by the 1980s, that had all log-jammed. We had figured out, everybody had, there were enough pressure groups, they all knew how the game was played. So, everybody figured out, wait, there was one group that could never organize to prevent us from writing checks on its bank account, and that group is the group of future human beings. And, so there’s been sort of a 30, 40-year run of society writing checks on the bank account of future people. And, what do you know, the future has shown up and it has been looted from the people who lived before. And, whether you’re talking about Social Security or the environment or Medicare, so the same basic story. And, for 40 years, America wrote checks on the bank account of the future. And, now that future has arrived.

Chris: Well, let’s talk about that future a little bit more. I have a dim view of that future, because I think it’s been looted in a number of dimensions. Many of them, so listen, our economy has been looted in some ways, our monetary models fiscally, all that looting has happened, but ecologically as well. And, more worryingly for myself, it’s respective our principle consumption of nonrenewable energy sources.

So, look, to address any one of these, let alone the combination, you have to have a very clear view of the predicaments you face. You have to be able to really look them straight on. And, this is why I have a dim view, because I look across the landscape and I don’t think our culture, I don’t think our press, I don’t think our regulatory or our political establishments are really facing the predicaments as you’ve just articulated them or I’ve seen them. But, is that fair in your view? Do you think we’re not really facing our predicaments yet?

Patrick: Right. We’re still, we’re still electing politicians who have a bunch happy talk, who give us a bunch of happy talk about how they can make the music keep on playing, and we can keep on doing this, and don’t worry, you know, la di da. After us, the flood, as Marie Antoinette allegedly said. You know, they’re not really addressing the core problems.

They are addressable. The earlier you address them, I mean, would not be very hard to fix Social Security. It would be a little harder to fix Medicare and stuff, but it can be done by the—what we’ve, we’ve broken the business model that made America work. And, we’re foundering around, and we don’t have any, a few politicians are saying the right solution is to get back to that pay-as-you-go business model.

Chris: Now, you know, to get historical again, when the Romans, four emperors in a row debased the denarius, the silver-based coin from pretty pure down to .01% purity. Amazing. They managed to electroplate lead slugs with a fine coating of silver, and they didn’t have electricity. So, it was an amazing chemical reaction, good on them. But, what happened during that period of time was that they saw that speculation arose as the primary occupation, because it was so much easier to speculate on a devaluing currency than to do the hard work of building a business and managing people and watching your P&Ls and all of that.

My main critique is that what the Federal Reserve and other Central Banks have done by pumping the markets up has just created a speculator mindset. And, then the second place is that I think our markets now, the technology has outpaced our slow-footed regulators enormously. And, so our markets really are places where prices are settled between willing buyers and sellers based on publicly available information. But, have become a Wild West of computer algorithms, massive unfair seed and information asymmetries. They don’t care about fundamentals, but they love all the money thrown in by the central banks.

My view, again, it’s a little, kind of a dim view, but that’s what the market structure tells me. Are you, do you track along with that? Do you, what do you make of our markets today?

Patrick: You have it exactly right. You have it exactly right, and you’re touched on a lot of things there. I’ll reduce my answer to two parts. First of all, on the question of central banking, you know, what a price is, economists like you know that a price is a little packet of information about value and scarcity. That it’s two things: humans need a way to communicate with each other about value and scarcity of things. That’s really what a price is, and what we—unfortunately, we are now communicating that through a monetary system that is, is a distorted field. You’ve got somebody in the Federal Reserve who’s got a dial, and they can dial and distort that field. So, our ability to communicate honestly with each other about value and scarcity is compromised. And, no more so than on the price that is the most important price a new civilization faces, which is the price at which it discounts the future against the present, which is to say interest rates.

You know, we laugh at the Soviet Union for trying to run a society, 23 million prices being set by bureaucrats, apparatchiks in Moscow. That’s how they tried to run their society. But, in our world, the single most important price we have, the price at which we discount the future to the present, i.e., interest rates, is set by some bureaucrats, some apparatchiks in a central planning office called the United States Federal Reserve.

So, that’s the first issue, and then the—so, I’m with you on central banking as pernicious. As Milton Friedman said in a 1992 interview with the Federal Reserve magazine, they said what’s the most important problem facing America? And, he said, “The most important problem facing America is how do we get rid of you.”

Secondly, what’s going on now, and this was absolutely explicit under Ben Bernanke, was let’s use the Central Bank to create a wealth effect. When you have markets go up and somebody, somebody makes, let’s say, $100,000 a year, but their 401K, or let’s say they’re making $80,000 a year, but their 401K goes from 400 to 500,000. They think like they made $180,000 this year and they spend like they made $180,000 this year. That’s called the wealth effect. Well, they really didn’t, and it’s not, you know, and, but anyway, so they—and, that, so by the Central Bank, the Federal Reserve started thinking if we flood the money with, the economy with cheap money, we can drive up these asset prices, both homes and stock markets, and people will think of themselves like they’re making more money and they’ll spend like that. And, that will boost the economy.

Well, that’s, you know, that’s picking up dimes in front of a steam roller. Most days, you make a dime. Some day it goes really bad on you. And, that, it’s a horrible plan, and it was absolutely explicit. Ben Bernanke actually, in ’09 or 2010, I mean, they revealed that this was their strategy. And, Janet Yellen did the same thing, that they have talked about the wealth effect and why it’s good by doing this and pushing up the stock market. It creates this wealth effect follow-on spending by people in the economy.

Well, that’s exactly what, you know, that’s what went wrong, one of the aspects that went wrong in 2007, 2008. We had a 16, 15, $16 trillion economy, out of which a trillion dollars, 1.4 trillion of home refinancings occurred that year, refinancings. And, out of that 1.4 trillion, a trillion got spent. So, one trillion out of the 16 trillion was just purely that wealth effect as applies to housing. Well, that works until, you know, the housing goes, stops going up, when they can’t, when this game doesn’t work anymore. And, even before it crashes, if it just stops going up, there’s a trillion, or so to speak, 7% of your economy that just turns out to be foam. It’s not based on real activity, it’s just this Ponzi scheme. And, that goes away, and that’s why we have, or the initial stages of the Great Recession was a 7% annual shrink.

So, now they’re doing the same thing, but just instead of it being about housing or only about housing, they’re doing it with the stock market and it’s just, you know, it’s, it’s just an incredibly pernicious strategy.

Chris: It’s really social engineering, too, isn’t it? You know, I talk with a lot of millennials, many of them disengaged. They’re saying, “Wait a minute. We’ve got all this debt that you guys are going to leave behind. I can’t afford a house. I don’t own any stock.” So, really, what the Fed was saying, the wealth effect, here’s what’s unstated, it only applies to people who actually already own those assets. For the people…

Patrick: Correct.

Chris: …who are on the outside of that story, they don’t get any entrance into that. Because, of course, these assets are now inflated in price. Who wants to buy things or who can even afford things when they get high in price?

So, it was really the Fed saying, “We’re going to pick winners and losers in

this story.” Did they pick well?

Patrick: Well, the losers who were the people who were poor and the winners were the people who were rich. It was a big transfer of wealth from poor people to rich people. So, I don’t think they picked well. I think it’s social engineering. I think it’s all, you know, central bankers are supposed to be immune from political pressure. These guys have become the lapdogs of the political class. It’s all, it’s exactly what the worst critic, the most ardent critics of central banking accuse central banking of always, ultimately, veering in this direction. It has in fact veered in this direction for the last, you know, several decades, really, and it’s all going to come to a very ugly end.

Chris: Well, I remember seeing a cartoon drawn in 1918 where the, like an octopus-like thing and it was exactly what you just described. Like, this was their fear. It’s sort of come true.

So, listen, in many ways, this problem definition, it’s kind of a done deal is how I look at it. And, so the question becomes given that this is already here, given that we’ve already gone this far over the tips of our skis with respect to indebtedness, unfunded liabilities, the whole, the whole dim package there.

Let’s turn now to money, then. We touched it on it briefly, but I really, before we get into digital currencies, let’s hone in here so people get this. Money is not just this thing printed on paper. Money is a social contract, is how I see it. It’s the glue that hold society together. It’s, together with value and scarcity and you get price, money is just a means of making that final transmission of that very important packet of information, as you described it. What’s wrong then with our current version of, to use your words, debt-based, fractionally reserved fiat currency?

Patrick: It means that if we go to communicate with each other about information about value and scarcity of different things, we are communicating through a field that is not a stable, reliable transmitter of that information. That field is ultimately, there’s somebody in Washington who has a rheostat at his desk, and he can dial up and down that field and distort it different ways to achieve their political objectives. In the process, distorting our ability to communicate with each other.

So, you want a form of money that can’t be distorted by some government mandarin. And, that means it’s got to be, it should be a form of money that the mandarins cannot whisk new money into existence with just declaring it with a pen stroke and just saying it exists. And so, very few things meet that need. Gold would, a gold-based form of money, you know, no government mandarin can just write a law that says, “Okay, we now have a new ton of gold.”

You know, just so viewers or listeners understand, there’s actually a checking account at the Federal Reserve established in 1913. There’s a specific checking account, which has nothing in it, but which can never be overdrawn. So, that, they write checks and buy government securities now in the marketplace, so they’re creating, it’s like the Crab nebulae in astrophysics, the place where stars are born, the nebulae. That checking account is the Crab nebulae of the global financial—at least the U.S. financial system. That one checking account is where money is born out of nothing and comes into existence. And, a few years ago, they were creating $85 billion a month out of that checking account. That’s insanity.

There’s no free lunch, and they do—now, and another pernicious aspect of it is it means that that organization has this unique right. It’s, it’s creating, it’s loaning, because it’s buying U.S. treasuries through an intermediate step that I’ll leave out, but it’s buying U.S. treasuries. It is effectively loaning us fake money, it’s loaning the United States fake money. We have to pay it back with real money. I mean, it’s not real money in the sense of gold, but we have to pay it back through taxation.

So, that’s a weird-enough system to begin with, but when you add into it that the Federal Reserve is not a government, it’s no more federal than Federal Express. It’s a private institution, it’s a bank that some people own, and it’s a big secret who owns it. And, it has, I mean, wouldn’t you like to write, to create this, by law that you, Chris Martenson, could create fake money and loan it to the U.S. and three years later, the U.S. has to pay you back with real U.S dollars. I’d love that right. Well, somebody has that right. Nobody knows who, but it’s, Federal Reserve is a private institution with its very unique right. So, even if you set that aside, it’s a crazy architecture anyway. When you add on top of it that it’s some private people who have that right, it’s complete insanity.

Chris: Now, let’s go further with this. You know, when I ask this question, I usually stump people. I say, “Who is the largest landlord in America today?” And, the answer is the Federal Reserve, they own $1.75 trillion in mortgage-backed securities written out of this magic Crab nebulae checkbook you just described. So, at a flick of a pen, or a couple of keystrokes, they ended up owning more real estate asset than any other one entity. Bank of Japan now is the majority owner, I believe, of many of their ETFs. The Swiss National Bank is a large owner of top-10 U.S. stocks and equities.

These are central banks printing money out of thin area and buying real assets. That feels like it crossed a critical threshold for me and nobody said boo about that.

Patrick: Right. And, they therefore have a claim on the assets and future productivity of us. And, they have that claim in return for having created, you know, fake money, fake U.S. dollars. Now, one could argue that all U.S. dollars are fake, because they’re, you know, they’re not based on—it’s all fiat. But, these people have like fake squared dollars. They’re not even, you know, they don’t even have to work to get their fake dollars, they’re just creating it out of nothing.

And, so I guess that’s a silly architecture to begin with. Thomas Sole [PH] was, I saw him back, he was doing an interview with a conservative organization, Hoover, where he works. And, he was, but a conservative, conventional, in-the-box organization, and they asked him something like, “Well, what would you do with the Federal Reserve?” expecting him to say Ron Paul was crazy and everything. And, he said, “No, no, no, what I would do with the Federal Reserve is I would kill it, and I’d kill it immediately.” And, the guy said, the interviewer said, “Well, what would you replace it with?” And, Tom Sole said, “It’s a cancer, it’s a tumor on America. When you go to take out a tumor, you don’t say, ‘Well, what am I going to replace it with?’ You just cut it out.” And, he’s exactly right.

Chris: Absolutely. So, you know, another thing that Bernanke said is, along with his famous, “We have to boost the wealth effect,” he also said, “The Federal Reserve needs to repair the credit markets.” Now, if you take a long sweet view of history, you notice that credit in the United States, total credit market debt growing twice as fast as income, GDP in this story, starting in the early 1980s. And, the story that the Federal Reserve is trying to preserve as the one we have to live by is this idea that you can grow your credit, your debts twice as fast as your income forever.

Now, you know, a person that I love is von Mises, who said, “There’s no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of voluntary abandonment of further credit expansion, to which the Fed said, ‘Not on our watch,’ or later as a final and total catastrophe of the currency system involved.”

This is how I lead into this idea of alternative currencies, because that, I actually believe that that’s correct. What are your views there?

Patrick: You have it, you have it exactly right. All booms brought about by credit expansion end in, or monetary expansion, end in a crash. I’d add to that, have you ever seen the calculation of—you’ve probably done it on your site—how much new debt was created in America if you go back 40 or 50 years, how much new debt there was for each dollar increase of GDP? It used to be sort of, it used to be X and now it takes, you know, 8X as much credit to get an extra dollar of GDP. In other words, the—have you ever seen that calculation? Do you remember what the numbers are?

Chris: Yeah. It used to be just under two for a long period of time, and I think we’re closing in on 12 now, 10 or 12, depending on how you run the numbers.

Patrick: Yeah. And, at some point, if you think of the real rate of interest is let’s say 6% over time, that really means that when that number, to me, when that number gets to 16 or 17, you’re creating a, if you’re creating $17 of debt to create $1 of GDP, well, that $17 of debt comes with it, a price tag at 6% of a dollar. So, at that point, the tires are completely flipping on the pavement. It would get, you’d have to take on one new dollar of interest payments to achieve one new dollar of GDP growth. At which case, which means you’re not making any progress at all. And, so you’re, the tires on this would just be spinning. I doubt, so if it’s gone from two to 12, I’d say the upper limit is gets to about 16 or 17. But, I don’t, I don’t even know if we’re going to get that far before the music stops.

Chris: Yeah. I think you hit some other limit before the actual math function goes to zero, something happens. Somebody, eventually people catch on and go, “Hey, it’s a game of musical chairs and there isn’t just one chair missing, about half of them are missing. Uh-oh.” Right? And, then you get that famous scramble for safety.

Patrick: Exactly.

Chris: In 2014, Overstock became the first major retailer to accept Bitcoin. I want to transition here into these digital currencies. I know you’re a big fan, big proponent, have been. Let’s start here. How did you come to be aware of Bitcoin. What drew you to it? I’m sure a lot of steps were necessary before that ability to begin accepting Bitcoin in 2014. So, where did you start with it? What drew you?

Patrick: Well, I would start with, in the 1980s, I was a graduate student at Stanford in philosophy, but with a heavy quantitative in logic approach at Stanford. I love Stanford, it was great, great to me. And, I studied the mathematics that underlies cryptography. It’s called computation theory. It was a fascinating field, probably the only religious experience I’ve ever had in my life. I felt I was seeing the face of God when I sort of came to understand girdles and complete logarithms and so forth. I loved it.

So, about 2012, I was reading a fast company or a wire, and I first saw this blurb about this form of money that no government was behind, and it was based on cryptography. And, I read about it and I realized, gee, this is like an application of that math I’d studied 30 years earlier. And, so I was tuned into it. And, then in late 2013, so by 2013, I was thinking, gee, someday we want to be one of the first companies to take it, at some point we’ll take this. And, I was even thinking in 2013 if the schedule freed up in our schedule, if space freed up in our schedule, maybe even 2014, maybe around the end of the year we would get around to implementing Bitcoin.

So, on December 19th, 2013, a journalist interviewed me about something. And, just as, near the end of the interview, she said something like, “You ever going to accept Bitcoin?” And, I think, well, maybe a year, a year and a half from now I’d get around to doing it. I said, “Yeah, yeah, I hope someday that we would do that.” She put that in her article, and what I learned, what I saw from Google alerts that occurred over the next week, I started getting Google alerts about me and this sort of off-hand claim that, yeah, we’re going to accept Bitcoin someday. I started getting Google alerts from newspapers in Thailand, in South Korea, in Africa. I mean, that little mention got picked up all over the world, and I realized, geez, there’s this, there’s this subculture around the world who is waiting for this.

And, so on January 1st, 2014, we started working on it. We put 40 guys in a room, sliding pizzas under the door so they could work day and night. And, by January 9th, we got Bitcoin up, and as soon as we announced it, it became global news. And, I realized that the world was ready for this earlier than I had expected it to be.

Chris: Now, the beauty of the math behind it, understanding all of that, tell us about your views on digital currency as it pertains to all of our prior conversation about monetary madness and government missteps and all of that. How do you start to marry these pieces in your mind?

Patrick: Well, it’s a form of money that is a stable field that the government can’t destroy, can’t distort. Because, you know, the creation of Bitcoin is governed by the laws of mathematics. It can’t happen any faster or slower than a certain rate, and it all sort of self-adjusts. What that means is no, unlike Janet Yellen can sign something and whisk 85 billion new U.S. dollars into existence, there’s nothing she can sign that whisks new Bitcoin into existence. So, it gives us, cryptocurrencies in general give us a stable medium through which we can communicate our information about values and prices in a way that no government mandarin can distort or usurp.

Chris: All right. Bitcoin itself is one of many, if not thousands of different coins at this point. What do you, based on your views, what do you see, how do you see this evolving at this point? Are we really early in this crypto game, or do you think it’s far enough along to say we’re good, Bitcoin’s an actual horse that we can ride for a good long time here?

Patrick: I have to stay agnostic about which coin is going to win. Bitcoin, of course, has a special place in the hearts of many people, because it’s the first and your first is always, you know, it’s special. It has been hacked at more than any system in history and survived. So, it has, it’s an open source project that sort of self-repairs and self-improves through open-source voluntariness. So, it has these emergent properties that, you know, it’s, it’s the hardest thing in the world to hack. Because, it’s been, it’s had more hack attempts than anybody in the world, and it’s robust. So, Bitcoin is special, but you can, those properties can be built into new coins that are happening all the time.

But, I stay agnostic about which coin to back. I just think that this movement I call crypto currency, where really blockchain is, I back it and I’m agnostic about which horse is going to win.

Chris: All right. Well, let’s, I’m wondering if you can address a personal sort of concern of mine which was I became personally suspicious that Bitcoin was given essentially a free pass by the government. And, in following currencies as they came up, alternative currencies all through time, I’m unaware of any other currency, especially one of this magnitude that the Treasury Department hasn’t come with a heavy-handed sort of regulatory piece. I can’t even find their presence on this, really. There’s been no obvious PR stories paid for by somebody trashing Bitcoin planted in the Wall Street Journal to drive opinion away from Bitcoin.

What I’m saying is it seemed to me like it was allowed to evolve and that feels intentional. And, it means that Bitcoin is out there evolving in the wild, serving some purpose that the government has said, “Eh, we’ll let it go.” But, perhaps, maybe one day that won’t be true and we’ll see Bitcoin blocked and replaced with Fed coin or Treasury coin or whatever. Do you think that’s, is that a fair view, or am I just being overly suspicious at this point?

Patrick: I think you’re partially right and partially, there’s an angle that you’ve left out, and that is this got away from them. I did start thinking about a year ago that if they had it to do again, they would’ve tried to stop this. But, it went from being a curiosity to being a global news story too quickly for them to—and, for once, the lethargy and indolence and indecisiveness of the government worked in the favor of freedom…

Chris: Yes.

Patrick: …and liberty instead of against it. And, by the time they sort of were getting organized to try to figure this out, people were downloading wallets, it sprung up, people were talking publicly about the enormous changes this could bring to society. I do think there was a point about 18 months ago where they realized, holy cow, this, if they could’ve gone back to 2011 and made all this, you know, illegal, they might’ve.

However, there are some advantages and I’ve spent a lot of these last 18 months educating regulators about, look, things that are built on blockchain actually—so, we’re creating a blockchain-based capital market called two zero. People who are, who do that, you can create a version of Wall Street based on blockchain where all kinds of mischief that currently occurs on Wall Street can’t even occur. And, it’s much more systemically robust than is the current Wall Street.

What happened was different regulators started to get that. They started to get that, and the people who were concerned—so I dealt with, say example, FINRA or the SEC. And, the people in that shop who are concerned with systemic risk started getting right away why this could be—I remember the actual conversation where 40 people in a room, and the guys who started lighting up were the people involved whose job is preventing systemic risk. Also, the people who take enforcement seriously, when they start realizing that a blockchain-based capital market becomes, it actually becomes impossible to do a bunch of the mischief that they’re supposed to be in the business of preventing, you know, at least half of them actually do care about preventing it, that mischief. And, they started, their eyes lit up. And, so there’s that kind of support.

In addition, there’s another kind of support. There’s of course the national security state, who sees in a digital economy the ability to make everything traceable and trackable. Government needs to remember that, you know, that goes both ways. It’s also going to really put a dent in corruption, because of the, if the government taxes the people to build some bridge over a river and the money is actually ending up in the bank account of the brother-in-law of the generalissimo, the local generalissimo, that’s all going to become visible.

And, then lastly, you know, the U.S., we basically have a 40% tax avoidance. I forget what the taxable term for it is, but basically, taxes are underpaid by 40% because of the nature of the black economy, and the unseen economy. And, the government figures 40% is, of their taxes, their theoretical taxes go uncollected. If we move to a digital economy, now they, if everything went digital, it would become impossible to avoid taxes. Everything would become traceable, and would actually solve overnight the entire United States budget shortfall. It would be wiped out overnight, we’d have a—so, there are different constituencies, and government’s not monolithic.

There are different constituencies within the government, and in particular, this last one, you’ll notice how there’s been this big movement to get away from paper currency. India was a test case, probably engineering in Washington. But, Sweden, Europe, Europe is, you know, outlawing 500-euro notes, and I think they’re going to see the U.S. maybe come someday 100-year note, $100 notes. That’s where like over 90% of the value of the currency out there is in $100 notes. If they outlaw them, the people start carrying around a lot more 20s or things get more digital. The reason the governments have been doing that, and like I said, I think that India did this about, do you remember in the last year, India had—and, you had, everybody in India had to line up and turn their currencies, their rupees, their paper currency into, deposit it and get it digital. I think that was engineered in Washington, D.C. as a test case. Or, there’s evidence that it was, and then when you go Zero Hedge and read all about that.

So, the government’s been realizing, governments who have spent themselves into oblivion, have realized they can delay the day of reckoning if they do get away from paper money and get everything digital. And, so blockchain comes along, or blockchain-based currencies and it helps do that for them. So, there’s the different constituencies within the government for which it solves problems.

When you look at the thing in its totality, it will free us from control. It will allow us to communicate information better. I think that the government’s preference would’ve been digital economy, but it wasn’t blockchain-based. It would still be economics they could manipulate by, that everyone would’ve been forced off paper money into digital fiat money.

And, now we have, you know, Overstock has invested in a lot of different blockchain-based companies. One of them is in Barbados, and it is creating central bank in a box. It is creating, we’ll have this, all the components done by September if all goes well, where central bankers will be able to issue fiat, their fiat currencies into the blockchain. And, then everyone in that country would just download an app on their phone and the whole economy could keep working.

You know, we, a great problem in development economics for 25 years has been this discussion over the un-bank, the problem of the world un-banked, 85% of the world doesn’t have a bank account. And, if you don’t have one, if you’re cutting sugar cane and you make ten bucks a day, you put it in your sock, you take it home, you know, you got, store it at home. I mean, that’s how 85% of the world lives. There’s only 15% have bank accounts. Well, if you have, imagine a world where, say Venezuela is collapsing. We could show up with a laptop. Here, Mr. Central Banker, here, issue you bolivars or whatever, your new bolivars, your fiat currency onto the blockchain through this system. Everyone in Venezuela just download an app onto their phone. And, this is what’s amazing, even though maybe only 15% of the people have a bank account. I know in Barbados, 140% of the people have a cellphone. A lot of people have two. They’re ubiquitous, and so even without the, even without bank accounts, everyone with a cellphone can take part in this economy. The merchants just download an app, the individuals just download an app. You could go around and start paying for your chickens and everything with just, with cellphone-based blockchain, or blockchain-based currency transactions. And, you take a country that’s collapsing like Syria or Venezuela. You could show up in 24 hours, have this, everyone just downloads the app onto their phone, the whole economy can just keep on functioning. But, now it will be through these blockchain-based payment systems.

What’s also funny about that, if I may continue, or…

Chris: Please do.

Patrick: …am I rambling on? There’s a, I think of how 25, 30 years ago, development and Congress were talking about how many millions of tons of copper it was going to take to wire a place like India or a place like China with telephone wires to every, every village, every home. You know, just immense amounts of copper. Well, then the cellphone industry exploded and then you had to realize you don’t have to wire every household with a copper wire. And, they just bypassed that.

Well, similarly, here the West has been allegedly trying to help the poor, you know, less-developed countries develop by saying, “Here are our institutions and now you have to, you’re going to build your own banks and financial system that looks like our institutions.” And, you know, that’s the advice we’ve been giving for half a century. This, so the idea was they’re going to build their own banking systems, their own capital markets modeled after the U.S.’s. That, this blockchain-based stuff does the same thing to those institutions as the cellphone does the copper-based telephones. It’s like they can skip these. You can have a whole functioning payment system just with everybody using their cellphone without having to have the bank accounts if you do what I just said. You can have capital markets and peer-to-peer lending and all people just run out of, people with their cellphones. And, it means these countries can develop without copying us and building over decades these central institutions that we’ve been recommending, which is good. Because, as we’ve discovered, a lot of those central institutions have at their core, they’re predatory.

So, it’s just going to, it’s going to be great for the, for development, for addressing poverty, for all kinds of things. But, for the predators who have used these central institutions to predate on the rest of humanity, it’s, it’s a very bad development.

Chris: And, that’s a development I’m personally excited about, because the disintermediation of the banking structure and also the payment processors, the Mastercards, the Visas, all of that, couldn’t happen to a nicer group of people, right.

Patrick: You got it, you got it.

Chris: So, I’m personally excited by that.

Patrick: Civilization, it’s civilization scraping dog shit off its shoes as far as I’m concerned.

Chris: Taking sand out of the transmission, whatever metaphor you like. But, so, but the risk in this story, so if we’re all wired by our cell phones, we’re doing this, if we have a grid-down event, you know, there’s certain ways you could, you could sort of scenario out how that might happen. Does society just come to a screeching halt in that moment, that’s difficult to recover from?

Chris: So an obvious risk in this story is if we have a grid-down event, if we have a massive loss of power failure, I don’t know, coronal mass ejections, you know, major hacking attack because we’re in a cyber war with Russia, whatever. But, if the grid goes down and we lose, we lose our ability to communicate with cellphones, our whole currency—physical currency at least had a value, like in Katrina, there was a role to play in money. So, would we have all our eggs in one basket if we did go cashless that might be risky?

Patrick: Well, if our grid goes down, civilization collapses anyway, whether or not you’ve got some money in your show it’s, it all collapses. Because, everything, everything is made—there’s a wonderful book called One Second After, about the effects of an EMP attack on the United States. They don’t even really make clear who, they kind of imply it would be, say North Korea.

And, what happens over the next three months, and there’s all kinds of supply chains unspool in society. And, a very interesting book in how, you know, for example, there’s three days of food in the tip of the supply chain in cities. And, you know, food is carried around the U.S. in trucks and the trucks burn diesel, and the diesel is carried by other trucks. And, it comes out of pumps in the ground that are run by electricity. And, if all that stops, you know, within nine meals, people are starving in the cities.

Drugs, there’s about 28 days of drugs in existence. You know, it runs on a 12 or 13 turn cycle, so about 50% of adults in the United States are walking around alive because they’re taking pharmaceuticals that in 28 days, you know, would be gone. Insulin disappears, heart medications, so 50% of adults will die within 30 days if those systems get disrupted.

You’ll have rioting in four days in the cities. They’ll start being rioting, and that’s at the outside. You know, what actually has been shown in many cases is when law and order goes down, it takes about three hours before people start rioting. Even affluent people start, you know, cleaning out grocery, you know, not rioting, but what is the world when you go to a grocery store and you smash the windows…

Chris: Looting.

Patrick: …and you just take what you want? Looting, looting. You know, even that happens in affluent areas. So, the truth is if there’s kind of a collapse, if there’s kind of collapse of the grid, everything goes down.

And, there have been models of it in national security circles. Jim Woolsey, former Director of the CIA under Clinton, wrote an essay recently where he said, look, this was modeled in the CIA and in the Pentagon, what the effects of an EMP strike. And, the effects are within one year 90% of America is dead, because not from the, the radiation or something, which is diminished, but because as the supply chains break down, we return to an 1880s technology level, which supported about 10% of our current population.

So, that happens. And, then they did the same experiment. There was actually a war game on this back around 10 years ago in the Pentagon. And, they did the same experiment from what happens if the financial system collapses. And, it’s the same outcome. Within one year, 90% of Americans are dead.

However, this is why I feel like I’m in a race against time. Because, I, pretty common, and I mean, that this is going to happen in our lifetime and I think it can be, we’re not talking about our grandchildren or our children. I think we’re talking in our lifetime that the system crashes. We can build, if we have a couple few years on these blockchain developments, we will have robust blockchain alternatives to all the current fiat-based, Keynesian magic money tree systems. When they crash, if we are allowed to continue building our systems, there will be these systems in place, you know, warm standby, hot standby will actually be in use. And, everything can shift to them and we’ll be able to keep going.

So, my great fear is the government comes in and tries to put a damper on all this, because they don’t understand that when their current system goes the way of the wild buffalo and the women's movement, which it’s going to, it’s going to, that if they just leave us alone, we will have an alternative system that’s robust and honest and out there that will be able to take its place.

Chris: Well, very well said, and I concur with all of that. So, a final question, do you feel that, does gold actually have a future, or is it actually now through this technology become finally the relic that the central banks claim it is?

Patrick: It could have a future in that there are blockchain companies that are building gold-based currencies where the gold is stored in one place, but it’s 100% reserved. And, then there’s a digital representation of that gold that gets put, that is blockchain. And, that can get traded. So, the disadvantage of gold today is in, in the kind of economy we have, you don’t want people carrying around, you know, satchels of gold. It just wouldn’t work. How are you going to buy online and stuff? But, if all that gold can be stored in a vault and generated one for one receipts for the gold, and then those receipts trade, we would be back to a world of basically a gold-based monetary system. And, just like when dollars were originally issued, they were claims against, they were convertible into actual ounces of gold. That could occur, but instead of being paper money, it’ll be some sort of digital blockchain-based money. So, gold could definitely have a role.

Chris: All right. And, the blockchain enables a greater degree of divisibility, which increase its utility enormously in this story.

Patrick: And, mobility, it’s the, as they say on “South Park,” it’s space cash. It’s the first form of money that can be beamed across the universe. You could have it be both gold-based, yet you could beam it across the universe.

Chris: Fantastic. Well, that’s all the time we have for today, Patrick. Thank you so much for your time. And, if people wanted to follow your views as we’ve discussed, learn more about what you’re talking about, or join the movement as it were, where would you direct them?

Patrick: I would, Wired magazine has done a very good job of sort of letting the philosophical implications of this be—if you Google my name and Wired, Patrick Byrne and Wired, you’ll see half a dozen stories that sort of develop these thoughts in more detail. Let me ask you, when is this podcast going to play?

Chris: This will probably go up this weekend. If not this weekend, next Friday.

Patrick: I’ll make a deal for your listeners, if you want.

Chris: Okay.

Patrick: We at Overstock have something called Club O. It’s the, it’s been written up as the most generous loyalty program online at Amazon Prime. It’s $20 value normally. When this goes live, anyone who contacts us within 72 hours, we will give that $20 program to. You contact us by writing to [email protected]. She’s my assistant. Kirstie is K-i-r-s-t-i-e, [email protected]. If you write within 72 hours of this going live, she’ll give you a $20 Club O account.

Chris: Fantastic. Thank you for that generous offer. And, I feel sorry for Kirstie’s inbox already. So, with that, so with that, thank you so much for your time today. It’s been a real pleasure. I’ve learned a lot and it’s been fascinating.

Patrick: You’re generous to say so, Chris. Thank you. Call me any time.

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9 Comments

pat the rat's picture
pat the rat
Status: Bronze Member (Offline)
Joined: Nov 1 2011
Posts: 99
amazon

Amazon leads a charmed life, somebody needs tell them to make a fiat profit. They are insolvent!

TravelinGerry's picture
TravelinGerry
Status: Member (Offline)
Joined: Sep 16 2011
Posts: 2
Debit Cards

I am wondering why no exchange has yet to issue bitcoin debit cards.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 4666
amazon

One theory is that Amazon is very patient.  Once they destroy bricks & mortar retail through their low pricing model, they will be able to start acting like The Company Store, and charge whatever they want.  Who will compete with them?

Another theory is that they'll automate fulfillment to the point where it will be so cheap, no humans will be involved and - once again - they'll destroy bricks & mortar which has to maintain inventory, staffing, as well as pay for real estate while Amazon just rents cheap warehouse space and has robots do all the work.

 

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5392
Another theory...

Another theory is that during bubbles sparked by massive central bank liquidity expansion episodes people are entirely willing to throw financial rules out the window in favor of "explanations" that are merely rationalizations that boil down to "this time is different."

During every bubble you can find a plethora of "reasons" for why it makes sense for houses to cost 8x incomes, or a company to be burning through cash at an alarming clip, or why profits don't matter at this stage...

Here's a recent favorite of mine...the CEO of Netflix "explaining" why the enormous quantity of negative free cash flow at NFLX is a good thing.  You can practically hear the bullish analysts cheering him on to make it even more negative in the background.  ;)

If you cannot hear the word "bubble" being screamed into the air with this explanation then I would strongly suggest Q-Tips are in order.  

Look, when we produce an amazing show like Stranger Things, that's a lot of capital up front, and then you get a payout over many years. And seeing the positive returns on that for the business as a whole is what makes us comfortable that we should continue to invest and integrate to basically self-develop many more properties as Ted (the content head) can find the appropriate ones.

And then there's comfort with being able to finance it, and of course, our debt-to-market cap is incredibly low and conservative, so we've got lots of room there. And I think that combination that it's spent well and we can raise it is what makes us very excited.

And the irony is the faster that we grow and the faster we grow the owned originals, the more drawn on free cash flow that we'll be. So in some senses, negative free cash flow will be an indicator of enormous success.

(Source)

DennisC's picture
DennisC
Status: Silver Member (Offline)
Joined: Mar 19 2011
Posts: 212
Kinda Reminds Me

of the phrase (that goes something like), "we'll make it up on volume"

Mohammed Mast's picture
Mohammed Mast
Status: Bronze Member (Offline)
Joined: May 17 2017
Posts: 74
tourcarve's picture
tourcarve
Status: Member (Offline)
Joined: May 22 2009
Posts: 2
Debit Card Link

Mohammed Mast - Thank you for the link regarding debit cards.

thatchmo's picture
thatchmo
Status: Gold Member (Offline)
Joined: Dec 14 2008
Posts: 413
Does he pay to work there?

Netflix dude: "So in some senses, negative free cash flow will be an indicator of enormous success."

Just not that sense referred to as "common"...........Aloha, Steve

bowskill's picture
bowskill
Status: Bronze Member (Offline)
Joined: Mar 16 2012
Posts: 78
TenX

I am wondering why no exchange has yet to issue bitcoin debit cards

I have a TenX VISA debit card that makes bitcoin and other cryptocurrencies spendable. It works very well. I made a small investment in the company by buying PAY tokens - but you don't need to do that to get a card. It was not available when the list linked to above was created.

tenx.tech

 

 

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