Pushkin from Pushkin Industries. This is Deep Background, the show where we explored the stories behind the stories in the news. I'm Noah Feldman. This week marked an important watershed in the history of crypto and cryptocurrencies. Coin Base, one of the leading exchanges for buying and selling crypto, went public, and although appropriately enough, its share price was a little volatile, it has achieved a very substantial valuation above the eighty five billion dollar mark where it first launched. Simultaneously, Bitcoin, the most popularly traded of the different crypto assets, remains, notwithstanding its own volatility, at a price higher by almost four times than what it was just a few months ago. Bitcoin, the most popularly traded of the cryptocurrencies, retains a price much much higher than it was just a few short months ago. I am thoroughly fascinated by the phenomenon that is crypto. For one thing. Among my friends, opinions seems to be very deeply divided. On the one hand, are economists, investors, capitalists of all kinds who tend themselves to be highly skeptical of the idea that there's something of enduring value or meaning in this new asset class. On the other hand, are enthusiasts, open minded, creative tech people, many of whom have themselves invested heavily in crypto, who are wildly optimistic about the possibility of this asset class not only to endure, but to grow and to develop and to spread. Alongside this fascinating debate is a further question about the nature of power. Who has power over finances? Is it individuals? Is it the nation state? Is it a distributed international network of the kind that, via the blockchain, is sought to be created by the cryptocurrencies? A few questions could be more relevant for this year's theme on deep background the theme of power. To discuss all of these issues with me, I'm joined today by a pioneer in crypto, Bobby Lee. Bobby was the co founder and former CEO of China's first bitcoin exchange. Right now, he's founder and CEO of Ballet, a startup that helps people securely store their digital assets in its own unique wallet. On top of that, he's a member of the Bitcoin Foundation's Board of Directors, and he's the author of a forthcoming book, The Promise of Bitcoin. All in all, a perfect person to answer my persistent crypto questions, Bobby thank you so much for joining me. Let me start with the most basic question, which is what exactly do you think crypto is? Is it a currency or is it something else? Yeah, this is a great way to start. So colloquially we call a cryptocurrency, and bitcoin was the first to come to market as a es central secryptocurrency in two thousand and nine, and even the white paper called it peer to peer electronic Cash's I think that's how it got the name cryptocurrency. This year marks my ten year involvement with bitcoin, and through my ten year journey I have come to the current understanding is that cryptocurrency should be more considered as a digital asset class rather than currency. And the reason is that in society, when we think of currency, we think of the money we use in day to day, whether it's a paper notes, the coins and bills, whether it's a forigm currency like the euro or the Canadian dollar. And even though cryptocurrency in Bitcoin have used the term currency in cryptocurrency digital currency over the last ten to twelve years, I'm more and more am a believer that fundamentally the power and the strength of bitcoin is in its usefulness as a digital asset. As a sort of a global reserve asset class. So to answer your question promptly, it's more of an asset than the currency that people are used to. That's really helpful and it's totally reasonable. But most assets are either a promise of future payment in some currency or form, or an ownership stake in some legally constructed entity in some form, or they're tangible, right. I mean, that's I think if you know, we had to sort of do assets one O one, we probably say, at least before the emergence of crypto, that those are three classes of what assets could be. Crypto doesn't seem to be any of those three things. So I'm wondering what does it mean to call it a digital asset class. Yeah, that's a that's a great point. Basically, the tributional asset classes people are most familiar with are the ones you talked about, like stocks. Stocks fundamentally represent ownership in a company, which is an entity that can make money through sales, revenue through providing products and services to the community. So that's the notion of a stock in a company. Bonds are also an asset class. That's a notion of debt you're lending your money to someone else, in this case the United States government or any other foreign government, or even a corporation like corporate debt, corporate bonds, and the ideas that you lend it to them with a notion that they're taking a risk to make the money, and then you get rewarded with an interest rate. And the third class is real estate, which, as you pointed out, it's something very tangible. It's like a home, a plot of land where you have title to it, and then it gives you the government, society gives you the right to stay in that or stay on that property. You own that property and derive income, rental income, or whatever business you do. And then the other asset class, the major ast classes precious metals. So these are commodities. Most people know them as gold and silver, but if you want to just expend that, we also have things like diamond, jewelry, and if you expend that further even fine art, more tangible goods. The value of those kind of tangible assets is in the eye to beholder. Why is that worth something when when the only when it's only pretty right, you can't eat it. I think that's a really good clarifying question and I think we can direct it straight at crypto because yeah, I think everyone can buy that. There's something arbitrary about saying we value gold, or we value silver, or we value diamonds. The question is whether, if that's what crypto is going to be, is it in some meaningful sense comparable to those assets. And I think maybe that's a good place to then focus. Yeah, so looking at gold and silver I think is very insightful in terms of helping people understand why crypto, especially bitcoin, can be valuable even as something that's sort of in the ether. You can't touch it, you can't see it. Right, For a lot of people, the virtual aspect of it scares people. Imagine something like my mother who has never seen or touched her. You know, she doesn't understand what bitcoin really is is just a stream of numbers. Right. So, going back to gold and silver, the reason why multiple societies and multiple regions all around the world all ended up using gold and silver as a monetary instrument, there's a fundamental reason to it. It wasn't like there was one king we said the whole earth shall use gold and silver as money. Gold and silver evolved to become money as instruments of monetary transfer independently in different, many different regions all around the Earth. Okay, And I think to crack that sort of mystery is to look at the properties. It turns out that it's really fungible, it's got this shiny look. But the really interesting thing about gold is really dense. It means that for every similar unit of volume where there's cubic inch or cubic centimeter, it's very very heavy. And it turns out something dense cannot it cannot be counterfeited using something lighter, whereas something lighter can be can be counterfeited using something heavier. So for that reason, I think, now certainly gold is not the most heaviest element. But the fact that I was just gonna I was just gonna say, Bobby, I mean, I think what I naturally would say in response to that is sure. One of the features that gold had that made it useful was that because it's dense, it's harder to fake. Of course, history is literally with people who try to fake gold, and people try to use lead and a whole range of other dense metals. Silver was a little less dense, but it also managed to become an effective exchange of value. But what I really want to press us on is what are the features of bitcoin that would be comparable and also why we need another assets that's comparable to a gold and silver. So bitcoin being a digital sort of ascid digital good, digital currency, it shares none of the physical attributes or properties of gold and silver. However, what it does share is in terms of digital form, it is fungible. Okay, So unlike a house. For example, if you have a large house and now you want to retire, you can't just say I want to sell off my unused garage and go on a vacation with that money. Right the house, You either sell the whole body. You were saying those are arguments for a bitcoin as a currency, But as you were saying, that's probably not the right way to think about it. Now, I think we need more conceptual clarity here, because assets can be translated into currencies. Right, So if I'm owning, you know, pork belly futures, that's an asset, an intangible asset. The pork bellies are still on the pig, but I can trade them because there is agreed upon mechanism that makes them fungible. A measure of how much pork we're talking about accepted by a market, and because I can translate them into currencies, so they are salable assets. But no one would say that they are currencies. You know, you bring up a good point. So pork belly, technically the pork bellies you're talking about it, it's probably the traded form, the commodity's futures former version. These are future contracts. You're not literally talking about pork belly that's on a live pig, right, So that's it's what fantasy terms. It's like a derivative. So when you say you want to then convert that to something else, like like a supermarket, you know, grocery shopping, you really need an into medium. And this is where the word money comes in. That's why money was invented in a society. So before money came about, it was all barter. As you know, back then we didn't have pork belly contracts. But if we did have prop valuy contracts, the contract is worth this much value and you can only exchange it for something else that's worth that much value because there's no intermediate money to break it down and allow you to spend smaller amounts. So money was a human invention allowing people to exchange different valuable things, items and promises so that they can save their value and use it across time. Money is what transports value through time. I'll drop the what's the difference between currency and money as to philosophical a question? So I do understand that the genius of the creation of crypto was to draw on the metaphor of gold and silver, Right, why do we need this new set of things? Let's say in the best case scenario, crypto goes alongside gold and silver and is treated sort of like the way gold and silver are. Why do we need another asset class like this? So technology has progressed really fast, and the Internet has fundamentally changed how society operates, and up until bitcoin, how does value transfer on the Internet. It's always through a third party, meaning if you and I were to do business, if I owe you money, I could send it to you by PayPal, Venmo, or a bank transfer, Swift, wire transfer, and so on so forth. It always involves a third party. Over the last twelve years of Bitcoin's existence, it turns out more and more people agree that what bitcoin can provide society on the Internet in terms of payments is useful. The evidence speaks for itself. Over the last twelve years, we've seen more and more dollars worth of bitcoin being transacted on the so called public blockchain, and I think that trend will continue. So the only way to do that transfer value through the Internet and the direct peer to peer fashion. Today, at least the market degrees, bitcoin is the most popular way to do that. From a market capitalization and a sort of brute amount of volume that goes on for bitcoin. I've a lot of people say, you know, it doesn't make sense, but I'm a little confused by it still because I've heard a lot of people say that the original idea of crypto was just what you said. It would be the online currency that we would use to transact business on the Internet, and for that reason, there was a logic to it, and I think that made a good deal of sense. And yet, because it turns out so far, at least that the value of crypto, including bitcoin, has been extraordinarily volatile, that has made people pretty skeptical of the idea or some people at least that this will be the means of exchange on the Internet. Add to that the fact that there are governments out there in the world that don't love the idea of their currencies over which they have a certain amount of regulatory control, not total, but some regulatory control being displaced, and who are also worried about unregulated uses of currency transfer over the Internet. If that's the case, then the argument for the value of crypto then shouldn't be based on it as a means of exchange on the internet, as something else, some store of value. And I took that to be behind your initial statement that it's too simple to think to think of crypto as just a currency. It sounds like the arguments are kind of constantly in motion. You know. If someone says, well, is it a store of value? People say, no, no, it's not a store of value. Primarily it's a mechanism for doing business on the internet. Then someone says, well, it's kind of hard to do that. People say, well, it's a store of value, and it hedges against inflation in the same way that holding gold might heade you against inflation. And so that's the part that I'm just a teeny bit confused by. Yeah, here's how I would approach it. Okay, So bitcoin fundamentally is money, So let me make that statement loud and clear. Bitcoin is money. The usefulness is of money doesn't mean it has to only be used for payments. Money has to hold its value. So to clarify, for example, look at gold is money, right traditionally people who leave gold is money, And the same thing with the US dollars. We know for fact that in a gift day, in a giving twenty four hour period, this much gold goes around being exchanged for people to buy and sell, okay, meaning trading hands. Okay, now it turns out for gold and sober people don't do that anymore much. Okay. However, for the US dollar, we know how much US dollars traded is exchanged from person to business and so on in a given day. Okay, that's a large number. However, more US dollars stays put in a given day than the amount of US dollar that moves around. So my point is both of those are valid and legitimate use cases of the US dollar, meaning the US dollar as money is not just valuable because it's changing hands to pay for coffee or grocery shopping, but it's also extremely valuable the fact that staying put sitting in the bank account, so this is what happens with bitcoin as well. So Bitcoin today is valuable as a digital asset, as digital cryptocurrency because of its two features. One is it can be used to send as payment of value between two individuals directly on the internet, or it can also be used just staying put holding value. Now to your point about what about the fact that bitcoin prices fluctuate so much, And my explanation for that is simple. One, Bitcoin is still young. We are in the thirteenth year of bitcoin. Bitcoin is only twelve years old. It hasn't even become a teenager yet. In my opinion, bitcoin deserves to be in the greatest of all asset classes, like housing, real estate, stocks, like bonds, like derivatives, and like precious metals. We'll be back in a moment. One thing you know a ton about, and I'd love to get your thoughts on, is how the Chinese government has, in the past and will in the future attempt to regulate or engage bitcoin. And I'd really love to hear your thoughts about that. And here's why. Sometimes one hears big bitcoin optimists talking about how one of the huge benefits of bitcoin as an asset class is that you can sort of view the individual owner can evade central governmental scrutiny. And what it makes me wonder is can the Chinese government, using the regulatory tools that has available to it, really substantially regulate the use of cryptocurrencies. Does China suggest that other governments, even governments that are more concerned about individual liberties like property rights, will also be able in the long run to engage in pretty aggressive regulation of bitcoins such that it's not really going to be an asset that's in some way free of government regulation. Yeah, that's a great question. I think there's a very important topic. It's very timely as well. So here's my perspective. There's a lot of confusion about the term regulating bitcoin. So each country's government certainly has a right to regulate and allow or disallow business activities. That said, today China openly does not allow banks, exchanges, restaurants, and others to circulate and transact in bitcoin. That's just a hard rule. It may not be written in law, but all the implementation is such that even in private, banks and exchanges are told you cannot through this business relate to bitcoin. However, bitcoin itself as as a pure commodity that cannot be touched because it is decentralized, meaning no matter how the Chinese government might hate bitcoin, might disallow it to circulate in China, bitcoin itself can still exist and will still exist and will not be squashed by Chinese government. Does that make sense? So's there's a very minor distinction there. It's a very important, it's a very subtle distinction that people need to understand that bitcoin itself cannot be squashed due to the decentralized nature. Let me ask you another question about the creation of this asset class. The metaphor of mining was used by the creators of crypto, and unfortunately, it turns out that much like literal mining, which is terribly destructive to the environment, and which people will do anyway because they really want the gold and the silver or the diamonds that they can get out of the earth, similarly, mining crypto is detrimental to the environment, potentially extremely so. I read recently that the amount of energy that's currently being used in mining bitcoin is comparable to that used by the country of Argentina in a year. In some parts of the United States and of the world, it's as high as ten percent of total energy use, and we're already starting to hear environmentalist voices saying this is a disaster, you know, much like mining was originally. Does that seem to you to put a damper on the possibilities of crypto? In other words, does sustainability effectively become a limitation on the capacity of crypto in the long run. So, unfortunately I don't share that perspective, And let me explain to why. So, as you pointed out correctly, traditional mining is very destructive, is very energy intensive. Any sort of industry where they pull natural resources its destructive to the earth if you look at it more holistically, any action we do, when done to the excessive damages the earth and the environment. So it's all about moderation, whether it's fishing in the North Sea, whether it's it's mining. Forgive me, humans have never been very moderate when it comes to mining, you know. I mean the whole idea of a gold rush is to embody the idea that people are not moderate when it comes to mining, and so I don't expect that people will be moderate when it's absolutely So my point is, this is a government problem, it's a regulation problem, it's a society problem. It's not a problem unique with bitcoin. So even before bitcoin came around, if you look at the petroleum oil industry, I mean, that's hugely destructive. You know, if you want to pick on we should pick on the energy industry self. Right, Why do we rely on fossil fuels. We can criticize the energy industry, and I'm very happy I do so on my show, and I think it's totally legitimate to criticize it. But what we're talking about here is not energy that's being used for some necessary function to drive the economy. We're talking about the inventions brand as you were saying, of a brand new asset class, and that brand new asset class doesn't need to exist, right. We could go back to the drawing board like the clever people who created cryptocurrencies did, and say, let's do something new. Let's come up with a new asset class where mining it does not require the destruction of the environment, and then perhaps we could come up with some alternative. And I think it is reasonable at this stage. As you were saying, crypto is brand new, and if we look at something that's brand new and is harming the environment, it seems as a regulatory matter entirely plausible to say, let's ban mining it, and if you ban the mining of it, you will have greater protection for the environment. I disagree. I very much disagree. The reason people mind bitcoin is because the market forces convince people to want to mind bitcoin. There's no directive by some evil empire that says thou shalt mind bitcoin at the at the detriment of the Wait wait wait wait wait wait wait wait a minute, Wait a minute. The free market doesn't care at all about the environment, right. The very definition of why you have environmental regulation is that, left unregulated, the free market would destroy the earth. As in fact, I agree with you, so think about it. If you want to regulate, you should regulate the energy. If we bann fossil fuel, if we banned coal production power plants, then bitcoin mining will be all renewable energy and solar energy, wind energy, geo thermal energy. If we ban all fossil fuel by regulation, then by definition, bitcoin mining will still continue to be unrenewable energy. I don't agree because although I strongly support the limitations on the use of fossil fuels for energy, the reason it's taking us a long time to get there, as human societies. Is so much of our economy is already bound up in useful methods of consuming those fossil fuels, and it's taking There's a long transition period in historical terms, as you transition economies to new forms of energy production, and so adding in a new massive energy suck raises the question of costs and benefits. So that's really the issue. To me, you'd have to let me just finish. You'd have to convince me that the benefits of crypto outweigh its costs, and that to me, would be the regulatory question, the same way it would be for any other a human activity that takes up a lot of energy. No, it's all subjective. Okay, here's what I mean by that. So back to about democratic elected governments. What I love about democratic governments. In the end, the government has right to set the regulations. But in the end, the government is also elected by the people. If the people of the citizens of the country want to allow fossil fuel learning cars and fossil fuel burning airlines and airplanes, then so be it. But maybe one day the people will say, hey, I'm fed up with fossil fuel, I'm fed up with a greenhouse. Blah blah blah. Let's span all internal combustion engine cars. Let's span all planes and only allow for electric trains. Right, that's a valid approach too. And if the people want to want to elect a government that says, let's put the ban on all cryptocurrency, then so be it. Right. All I'm saying is the people today have chosen to embrace cryptocurrency, and by virtue of the amount of activity that's going on and people doing it right, that's just the evidence of people embracing it. The value is always in the eye of the beholder. Babbie, I really want to thank you for sharing your ideas and your expertise. Thank you for joining me. Thank you. No, I'm really grateful to by leave for joining us. On deep background, I confess that I do feel still a little bit confused about certain crucial aspects of crypto in the aftermath of our conversation. For one thing, should we think of crypto as a currency a form of money, or should we think of crypto as an asset class that is not indeed a form of money or a form of currency in the way that gold and silver are. The reason I asked that is not purely philosophical, because it has everything to do with whether the world needs a new asset class, and that question, in turn has to do with whether the world will tolerate a new asset class. Here's where the power of governments and regulators comes in. I'm convinced that if governments really decided that they didn't want crypto to continue, they would have the capacity, ultimately to make it so difficult to engage in the sale and trade of that asset that the sale of the asset would inevitably decline. And although in a decentralized world of computers the assets still might quote unquote exists somewhere out there, they would really very much be likely to decline in value if it was very costly to access them. So what we need to know is what will governments do. Will environmental regulators decide that this new asset class is just too costly in terms of what it does to the environment. Will government regulators be too worried about the possibility of people using crypto for unlawful purposes, or more broadly, of undercutting the power of the nation state to control the finances of its nation and of the people who live there. These are ongoing, pressing and challenging questions. Crypto in some sense is the digital manifestation in financial terms of the Internet. To that extent, crypto assets would continue to exist wherever there was an Internet, even if government's made it more difficult to access that. And in that sense, especially with a broader public embrace of the possibilities of crypto, it does seem entirely possible that even if it is bad for the environment, we are still going to see a significant expansion of crypto. If that's the case, all it takes is for people to converge on the belief that the asset is valuable, and that will make it so. That might sound like magic, but it isn't. It's no different than the basic economic logic of all money and of all currency. My takeaway from my conversation with Bobby Lee about crypto is that there is much more to be said. It is an issue that we will revisit here on a deep background, either in a further conversation about crypto in its extensions, or more broadly when we talk about financial and economic forms of power. Until the next time I speak to you, be careful, be safe, and be well. Deep background is brought to you by Pushkin Industries. Our producer is Mo laboord our engineer is Martin Gonzalez, and our shorerunner is Sophie Crane mckibbon. Editorial support from noahm Osband. Theme music by Luis Guerra at Pushkin. Thanks to Mia Lobell, Julia Barton, Lydia, Jean Coott, Heather Faine, Carl mcniori, Maggie Taylor, Eric Sander, and Jacob Weisberg. You can find me on Twitter at Noah R. Feldman. I also write a column for Bloomberg Opinion, which you can find at Bloomberg dot com slash Feldman. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot com slash podcasts and if you liked what you heard today, please write a review or tell a friend. This is deep background

Pushkin from Pushkin Industries. This is Deep Background, the show where we explored the stories behind the stories in the news. I'm Noah Feldman. This week marked an important watershed in the history of crypto and cryptocurrencies. Coin Base, one of the leading exchanges for buying and selling crypto, went public, and although appropriately enough, its share price was a little volatile, it has achieved a very substantial valuation above the eighty five billion dollar mark where it first launched. Simultaneously, Bitcoin, the most popularly traded of the different crypto assets, remains, notwithstanding its own volatility, at a price higher by almost four times than what it was just a few months ago. Bitcoin, the most popularly traded of the cryptocurrencies, retains a price much much higher than it was just a few short months ago. I am thoroughly fascinated by the phenomenon that is crypto. For one thing. Among my friends, opinions seems to be very deeply divided. On the one hand, are economists, investors, capitalists of all kinds who tend themselves to be highly skeptical of the idea that there's something of enduring value or meaning in this new asset class. On the other hand, are enthusiasts, open minded, creative tech people, many of whom have themselves invested heavily in crypto, who are wildly optimistic about the possibility of this asset class not only to endure, but to grow and to develop and to spread. Alongside this fascinating debate is a further question about the nature of power. Who has power over finances? Is it individuals? Is it the nation state? Is it a distributed international network of the kind that, via the blockchain, is sought to be created by the cryptocurrencies? A few questions could be more relevant for this year's theme on deep background the theme of power. To discuss all of these issues with me, I'm joined today by a pioneer in crypto, Bobby Lee. Bobby was the co founder and former CEO of China's first bitcoin exchange. Right now, he's founder and CEO of Ballet, a startup that helps people securely store their digital assets in its own unique wallet. On top of that, he's a member of the Bitcoin Foundation's Board of Directors, and he's the author of a forthcoming book, The Promise of Bitcoin. All in all, a perfect person to answer my persistent crypto questions, Bobby thank you so much for joining me. Let me start with the most basic question, which is what exactly do you think crypto is? Is it a currency or is it something else? Yeah, this is a great way to start. So colloquially we call a cryptocurrency, and bitcoin was the first to come to market as a es central secryptocurrency in two thousand and nine, and even the white paper called it peer to peer electronic Cash's I think that's how it got the name cryptocurrency. This year marks my ten year involvement with bitcoin, and through my ten year journey I have come to the current understanding is that cryptocurrency should be more considered as a digital asset class rather than currency. And the reason is that in society, when we think of currency, we think of the money we use in day to day, whether it's a paper notes, the coins and bills, whether it's a forigm currency like the euro or the Canadian dollar. And even though cryptocurrency in Bitcoin have used the term currency in cryptocurrency digital currency over the last ten to twelve years, I'm more and more am a believer that fundamentally the power and the strength of bitcoin is in its usefulness as a digital asset. As a sort of a global reserve asset class. So to answer your question promptly, it's more of an asset than the currency that people are used to. That's really helpful and it's totally reasonable. But most assets are either a promise of future payment in some currency or form, or an ownership stake in some legally constructed entity in some form, or they're tangible, right. I mean, that's I think if you know, we had to sort of do assets one O one, we probably say, at least before the emergence of crypto, that those are three classes of what assets could be. Crypto doesn't seem to be any of those three things. So I'm wondering what does it mean to call it a digital asset class. Yeah, that's a that's a great point. Basically, the tributional asset classes people are most familiar with are the ones you talked about, like stocks. Stocks fundamentally represent ownership in a company, which is an entity that can make money through sales, revenue through providing products and services to the community. So that's the notion of a stock in a company. Bonds are also an asset class. That's a notion of debt you're lending your money to someone else, in this case the United States government or any other foreign government, or even a corporation like corporate debt, corporate bonds, and the ideas that you lend it to them with a notion that they're taking a risk to make the money, and then you get rewarded with an interest rate. And the third class is real estate, which, as you pointed out, it's something very tangible. It's like a home, a plot of land where you have title to it, and then it gives you the government, society gives you the right to stay in that or stay on that property. You own that property and derive income, rental income, or whatever business you do. And then the other asset class, the major ast classes precious metals. So these are commodities. Most people know them as gold and silver, but if you want to just expend that, we also have things like diamond, jewelry, and if you expend that further even fine art, more tangible goods. The value of those kind of tangible assets is in the eye to beholder. Why is that worth something when when the only when it's only pretty right, you can't eat it. I think that's a really good clarifying question and I think we can direct it straight at crypto because yeah, I think everyone can buy that. There's something arbitrary about saying we value gold, or we value silver, or we value diamonds. The question is whether, if that's what crypto is going to be, is it in some meaningful sense comparable to those assets. And I think maybe that's a good place to then focus. Yeah, so looking at gold and silver I think is very insightful in terms of helping people understand why crypto, especially bitcoin, can be valuable even as something that's sort of in the ether. You can't touch it, you can't see it. Right, For a lot of people, the virtual aspect of it scares people. Imagine something like my mother who has never seen or touched her. You know, she doesn't understand what bitcoin really is is just a stream of numbers. Right. So, going back to gold and silver, the reason why multiple societies and multiple regions all around the world all ended up using gold and silver as a monetary instrument, there's a fundamental reason to it. It wasn't like there was one king we said the whole earth shall use gold and silver as money. Gold and silver evolved to become money as instruments of monetary transfer independently in different, many different regions all around the Earth. Okay, And I think to crack that sort of mystery is to look at the properties. It turns out that it's really fungible, it's got this shiny look. But the really interesting thing about gold is really dense. It means that for every similar unit of volume where there's cubic inch or cubic centimeter, it's very very heavy. And it turns out something dense cannot it cannot be counterfeited using something lighter, whereas something lighter can be can be counterfeited using something heavier. So for that reason, I think, now certainly gold is not the most heaviest element. But the fact that I was just gonna I was just gonna say, Bobby, I mean, I think what I naturally would say in response to that is sure. One of the features that gold had that made it useful was that because it's dense, it's harder to fake. Of course, history is literally with people who try to fake gold, and people try to use lead and a whole range of other dense metals. Silver was a little less dense, but it also managed to become an effective exchange of value. But what I really want to press us on is what are the features of bitcoin that would be comparable and also why we need another assets that's comparable to a gold and silver. So bitcoin being a digital sort of ascid digital good, digital currency, it shares none of the physical attributes or properties of gold and silver. However, what it does share is in terms of digital form, it is fungible. Okay, So unlike a house. For example, if you have a large house and now you want to retire, you can't just say I want to sell off my unused garage and go on a vacation with that money. Right the house, You either sell the whole body. You were saying those are arguments for a bitcoin as a currency, But as you were saying, that's probably not the right way to think about it. Now, I think we need more conceptual clarity here, because assets can be translated into currencies. Right, So if I'm owning, you know, pork belly futures, that's an asset, an intangible asset. The pork bellies are still on the pig, but I can trade them because there is agreed upon mechanism that makes them fungible. A measure of how much pork we're talking about accepted by a market, and because I can translate them into currencies, so they are salable assets. But no one would say that they are currencies. You know, you bring up a good point. So pork belly, technically the pork bellies you're talking about it, it's probably the traded form, the commodity's futures former version. These are future contracts. You're not literally talking about pork belly that's on a live pig, right, So that's it's what fantasy terms. It's like a derivative. So when you say you want to then convert that to something else, like like a supermarket, you know, grocery shopping, you really need an into medium. And this is where the word money comes in. That's why money was invented in a society. So before money came about, it was all barter. As you know, back then we didn't have pork belly contracts. But if we did have prop valuy contracts, the contract is worth this much value and you can only exchange it for something else that's worth that much value because there's no intermediate money to break it down and allow you to spend smaller amounts. So money was a human invention allowing people to exchange different valuable things, items and promises so that they can save their value and use it across time. Money is what transports value through time. I'll drop the what's the difference between currency and money as to philosophical a question? So I do understand that the genius of the creation of crypto was to draw on the metaphor of gold and silver, Right, why do we need this new set of things? Let's say in the best case scenario, crypto goes alongside gold and silver and is treated sort of like the way gold and silver are. Why do we need another asset class like this? So technology has progressed really fast, and the Internet has fundamentally changed how society operates, and up until bitcoin, how does value transfer on the Internet. It's always through a third party, meaning if you and I were to do business, if I owe you money, I could send it to you by PayPal, Venmo, or a bank transfer, Swift, wire transfer, and so on so forth. It always involves a third party. Over the last twelve years of Bitcoin's existence, it turns out more and more people agree that what bitcoin can provide society on the Internet in terms of payments is useful. The evidence speaks for itself. Over the last twelve years, we've seen more and more dollars worth of bitcoin being transacted on the so called public blockchain, and I think that trend will continue. So the only way to do that transfer value through the Internet and the direct peer to peer fashion. Today, at least the market degrees, bitcoin is the most popular way to do that. From a market capitalization and a sort of brute amount of volume that goes on for bitcoin. I've a lot of people say, you know, it doesn't make sense, but I'm a little confused by it still because I've heard a lot of people say that the original idea of crypto was just what you said. It would be the online currency that we would use to transact business on the Internet, and for that reason, there was a logic to it, and I think that made a good deal of sense. And yet, because it turns out so far, at least that the value of crypto, including bitcoin, has been extraordinarily volatile, that has made people pretty skeptical of the idea or some people at least that this will be the means of exchange on the Internet. Add to that the fact that there are governments out there in the world that don't love the idea of their currencies over which they have a certain amount of regulatory control, not total, but some regulatory control being displaced, and who are also worried about unregulated uses of currency transfer over the Internet. If that's the case, then the argument for the value of crypto then shouldn't be based on it as a means of exchange on the internet, as something else, some store of value. And I took that to be behind your initial statement that it's too simple to think to think of crypto as just a currency. It sounds like the arguments are kind of constantly in motion. You know. If someone says, well, is it a store of value? People say, no, no, it's not a store of value. Primarily it's a mechanism for doing business on the internet. Then someone says, well, it's kind of hard to do that. People say, well, it's a store of value, and it hedges against inflation in the same way that holding gold might heade you against inflation. And so that's the part that I'm just a teeny bit confused by. Yeah, here's how I would approach it. Okay, So bitcoin fundamentally is money, So let me make that statement loud and clear. Bitcoin is money. The usefulness is of money doesn't mean it has to only be used for payments. Money has to hold its value. So to clarify, for example, look at gold is money, right traditionally people who leave gold is money, And the same thing with the US dollars. We know for fact that in a gift day, in a giving twenty four hour period, this much gold goes around being exchanged for people to buy and sell, okay, meaning trading hands. Okay, now it turns out for gold and sober people don't do that anymore much. Okay. However, for the US dollar, we know how much US dollars traded is exchanged from person to business and so on in a given day. Okay, that's a large number. However, more US dollars stays put in a given day than the amount of US dollar that moves around. So my point is both of those are valid and legitimate use cases of the US dollar, meaning the US dollar as money is not just valuable because it's changing hands to pay for coffee or grocery shopping, but it's also extremely valuable the fact that staying put sitting in the bank account, so this is what happens with bitcoin as well. So Bitcoin today is valuable as a digital asset, as digital cryptocurrency because of its two features. One is it can be used to send as payment of value between two individuals directly on the internet, or it can also be used just staying put holding value. Now to your point about what about the fact that bitcoin prices fluctuate so much, And my explanation for that is simple. One, Bitcoin is still young. We are in the thirteenth year of bitcoin. Bitcoin is only twelve years old. It hasn't even become a teenager yet. In my opinion, bitcoin deserves to be in the greatest of all asset classes, like housing, real estate, stocks, like bonds, like derivatives, and like precious metals. We'll be back in a moment. One thing you know a ton about, and I'd love to get your thoughts on, is how the Chinese government has, in the past and will in the future attempt to regulate or engage bitcoin. And I'd really love to hear your thoughts about that. And here's why. Sometimes one hears big bitcoin optimists talking about how one of the huge benefits of bitcoin as an asset class is that you can sort of view the individual owner can evade central governmental scrutiny. And what it makes me wonder is can the Chinese government, using the regulatory tools that has available to it, really substantially regulate the use of cryptocurrencies. Does China suggest that other governments, even governments that are more concerned about individual liberties like property rights, will also be able in the long run to engage in pretty aggressive regulation of bitcoins such that it's not really going to be an asset that's in some way free of government regulation. Yeah, that's a great question. I think there's a very important topic. It's very timely as well. So here's my perspective. There's a lot of confusion about the term regulating bitcoin. So each country's government certainly has a right to regulate and allow or disallow business activities. That said, today China openly does not allow banks, exchanges, restaurants, and others to circulate and transact in bitcoin. That's just a hard rule. It may not be written in law, but all the implementation is such that even in private, banks and exchanges are told you cannot through this business relate to bitcoin. However, bitcoin itself as as a pure commodity that cannot be touched because it is decentralized, meaning no matter how the Chinese government might hate bitcoin, might disallow it to circulate in China, bitcoin itself can still exist and will still exist and will not be squashed by Chinese government. Does that make sense? So's there's a very minor distinction there. It's a very important, it's a very subtle distinction that people need to understand that bitcoin itself cannot be squashed due to the decentralized nature. Let me ask you another question about the creation of this asset class. The metaphor of mining was used by the creators of crypto, and unfortunately, it turns out that much like literal mining, which is terribly destructive to the environment, and which people will do anyway because they really want the gold and the silver or the diamonds that they can get out of the earth, similarly, mining crypto is detrimental to the environment, potentially extremely so. I read recently that the amount of energy that's currently being used in mining bitcoin is comparable to that used by the country of Argentina in a year. In some parts of the United States and of the world, it's as high as ten percent of total energy use, and we're already starting to hear environmentalist voices saying this is a disaster, you know, much like mining was originally. Does that seem to you to put a damper on the possibilities of crypto? In other words, does sustainability effectively become a limitation on the capacity of crypto in the long run. So, unfortunately I don't share that perspective, And let me explain to why. So, as you pointed out correctly, traditional mining is very destructive, is very energy intensive. Any sort of industry where they pull natural resources its destructive to the earth if you look at it more holistically, any action we do, when done to the excessive damages the earth and the environment. So it's all about moderation, whether it's fishing in the North Sea, whether it's it's mining. Forgive me, humans have never been very moderate when it comes to mining, you know. I mean the whole idea of a gold rush is to embody the idea that people are not moderate when it comes to mining, and so I don't expect that people will be moderate when it's absolutely So my point is, this is a government problem, it's a regulation problem, it's a society problem. It's not a problem unique with bitcoin. So even before bitcoin came around, if you look at the petroleum oil industry, I mean, that's hugely destructive. You know, if you want to pick on we should pick on the energy industry self. Right, Why do we rely on fossil fuels. We can criticize the energy industry, and I'm very happy I do so on my show, and I think it's totally legitimate to criticize it. But what we're talking about here is not energy that's being used for some necessary function to drive the economy. We're talking about the inventions brand as you were saying, of a brand new asset class, and that brand new asset class doesn't need to exist, right. We could go back to the drawing board like the clever people who created cryptocurrencies did, and say, let's do something new. Let's come up with a new asset class where mining it does not require the destruction of the environment, and then perhaps we could come up with some alternative. And I think it is reasonable at this stage. As you were saying, crypto is brand new, and if we look at something that's brand new and is harming the environment, it seems as a regulatory matter entirely plausible to say, let's ban mining it, and if you ban the mining of it, you will have greater protection for the environment. I disagree. I very much disagree. The reason people mind bitcoin is because the market forces convince people to want to mind bitcoin. There's no directive by some evil empire that says thou shalt mind bitcoin at the at the detriment of the Wait wait wait wait wait wait wait wait a minute, Wait a minute. The free market doesn't care at all about the environment, right. The very definition of why you have environmental regulation is that, left unregulated, the free market would destroy the earth. As in fact, I agree with you, so think about it. If you want to regulate, you should regulate the energy. If we bann fossil fuel, if we banned coal production power plants, then bitcoin mining will be all renewable energy and solar energy, wind energy, geo thermal energy. If we ban all fossil fuel by regulation, then by definition, bitcoin mining will still continue to be unrenewable energy. I don't agree because although I strongly support the limitations on the use of fossil fuels for energy, the reason it's taking us a long time to get there, as human societies. Is so much of our economy is already bound up in useful methods of consuming those fossil fuels, and it's taking There's a long transition period in historical terms, as you transition economies to new forms of energy production, and so adding in a new massive energy suck raises the question of costs and benefits. So that's really the issue. To me, you'd have to let me just finish. You'd have to convince me that the benefits of crypto outweigh its costs, and that to me, would be the regulatory question, the same way it would be for any other a human activity that takes up a lot of energy. No, it's all subjective. Okay, here's what I mean by that. So back to about democratic elected governments. What I love about democratic governments. In the end, the government has right to set the regulations. But in the end, the government is also elected by the people. If the people of the citizens of the country want to allow fossil fuel learning cars and fossil fuel burning airlines and airplanes, then so be it. But maybe one day the people will say, hey, I'm fed up with fossil fuel, I'm fed up with a greenhouse. Blah blah blah. Let's span all internal combustion engine cars. Let's span all planes and only allow for electric trains. Right, that's a valid approach too. And if the people want to want to elect a government that says, let's put the ban on all cryptocurrency, then so be it. Right. All I'm saying is the people today have chosen to embrace cryptocurrency, and by virtue of the amount of activity that's going on and people doing it right, that's just the evidence of people embracing it. The value is always in the eye of the beholder. Babbie, I really want to thank you for sharing your ideas and your expertise. Thank you for joining me. Thank you. No, I'm really grateful to by leave for joining us. On deep background, I confess that I do feel still a little bit confused about certain crucial aspects of crypto in the aftermath of our conversation. For one thing, should we think of crypto as a currency a form of money, or should we think of crypto as an asset class that is not indeed a form of money or a form of currency in the way that gold and silver are. The reason I asked that is not purely philosophical, because it has everything to do with whether the world needs a new asset class, and that question, in turn has to do with whether the world will tolerate a new asset class. Here's where the power of governments and regulators comes in. I'm convinced that if governments really decided that they didn't want crypto to continue, they would have the capacity, ultimately to make it so difficult to engage in the sale and trade of that asset that the sale of the asset would inevitably decline. And although in a decentralized world of computers the assets still might quote unquote exists somewhere out there, they would really very much be likely to decline in value if it was very costly to access them. So what we need to know is what will governments do. Will environmental regulators decide that this new asset class is just too costly in terms of what it does to the environment. Will government regulators be too worried about the possibility of people using crypto for unlawful purposes, or more broadly, of undercutting the power of the nation state to control the finances of its nation and of the people who live there. These are ongoing, pressing and challenging questions. Crypto in some sense is the digital manifestation in financial terms of the Internet. To that extent, crypto assets would continue to exist wherever there was an Internet, even if government's made it more difficult to access that. And in that sense, especially with a broader public embrace of the possibilities of crypto, it does seem entirely possible that even if it is bad for the environment, we are still going to see a significant expansion of crypto. If that's the case, all it takes is for people to converge on the belief that the asset is valuable, and that will make it so. That might sound like magic, but it isn't. It's no different than the basic economic logic of all money and of all currency. My takeaway from my conversation with Bobby Lee about crypto is that there is much more to be said. It is an issue that we will revisit here on a deep background, either in a further conversation about crypto in its extensions, or more broadly when we talk about financial and economic forms of power. Until the next time I speak to you, be careful, be safe, and be well. Deep background is brought to you by Pushkin Industries. Our producer is Mo laboord our engineer is Martin Gonzalez, and our shorerunner is Sophie Crane mckibbon. Editorial support from noahm Osband. Theme music by Luis Guerra at Pushkin. Thanks to Mia Lobell, Julia Barton, Lydia, Jean Coott, Heather Faine, Carl mcniori, Maggie Taylor, Eric Sander, and Jacob Weisberg. You can find me on Twitter at Noah R. Feldman. I also write a column for Bloomberg Opinion, which you can find at Bloomberg dot com slash Feldman. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot com slash podcasts and if you liked what you heard today, please write a review or tell a friend. This is deep background