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Crypto 101 · Conversations: Special Guests with Preston Scott

• 0:02
  Speaker 1: If I passed the hour third hour Morning Show with
• 0:05
  Speaker 1: Preston Scott. Great to be with you friends. We're about
• 0:07
  Speaker 1: to wrap up the month of April. Tomorrow's it and
• 0:11
  Speaker 1: then we head into the fifth month. Already time is
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  Speaker 1: just screaming by, and great to have you with us
• 0:20
  Speaker 1: this morning, and it is terrific to have back with
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  Speaker 1: us from the Heritage Foundation. Richard Stern and Richard Take two.
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  Speaker 1: We're going to talk crypto. How are you, sir, hey
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  Speaker 1: doing well?
• 0:30
  Speaker 2: Thanks again for having me back.
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  Speaker 1: On Absolutely all right, I am gonna lay my stupidity
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  Speaker 1: out there in front of everybody. I've been talking about
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  Speaker 1: it for months. I don't get it. Let's start with
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  Speaker 1: as fundamental as you can go. How does something become
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  Speaker 1: a currency that is outside the realm of a government?
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  Speaker 2: Well, if it makes you feel better. Most economists don't
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  Speaker 2: even get this, So for everybody listening as well, this
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  Speaker 2: is really a new even for economists. So the way
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  Speaker 2: I would think about this, right is that a currency
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  Speaker 2: basically does two things. It's something that stores value. You've
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  Speaker 2: worked hard, You've produced something of value. How we keep
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  Speaker 2: track of that? And then the other thing is it's
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  Speaker 2: something you can use to exchange in the moment with somebody,
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  Speaker 2: which again is an indication that you've got something I want.
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  Speaker 2: I don't have anything you want right now, so I'll
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  Speaker 2: give you currency. So then the question becomes, well, that
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  Speaker 2: could be absolutely anything. So the more important parts of
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  Speaker 2: it are, how do I know that the thing you're
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  Speaker 2: giving me is something somebody else will value and not
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  Speaker 2: just you writing IOU on the back of an appkin. Right.
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  Speaker 2: The thing that crypto right is that it's a unique
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  Speaker 2: code packet that mathematically has to be unique, but fits
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  Speaker 2: in like a jigsaw piece puzzle to every other bitcoin
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  Speaker 2: or whatever that currency is. So every single holder of
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  Speaker 2: another one of the cryptos knows instantaneously if your jigsaw
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  Speaker 2: piece puzzle fits their broader puzzle or not. That's why
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  Speaker 2: you can verify whether crypto is or isn't what you
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  Speaker 2: claim it is.
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  Speaker 1: I'd love to say that helped me.
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  Speaker 2: I hear you.
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  Speaker 1: For example, last hour, I joked in the day that
• 2:28
  Speaker 1: we're living in the price of chicken eggs is just
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  Speaker 1: gone crazy, right, And so in theory, eggs could be
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  Speaker 1: turned into a form of currency.
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  Speaker 2: And in fact, in a lot of countries they used
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  Speaker 2: to be. I'll I'll tell you want to see even
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  Speaker 2: better about this. So if you want to ask yourself,
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  Speaker 2: where does the word dollar come from? It comes from
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  Speaker 2: this very long chain going back to the Roman word
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  Speaker 2: for a day. In fact, they have the same route
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  Speaker 2: for word, and it comes from the Roman word for
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  Speaker 2: a day's worth of grain rations, And so that's the original.
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  Speaker 2: In the West, the original concept of money was what
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  Speaker 2: was a day's worth of grain?
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  Speaker 1: Is crypto an umbrella that for example, underneath that umbrella?
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  Speaker 1: Is you mentioned bitcoin? Is that one form of crypto?
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  Speaker 2: Oh? Absolutely, But I'll say I'll give you this. I
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  Speaker 2: think the best way stepping stepping back out from the
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  Speaker 2: technical part of it, I think the best way to
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  Speaker 2: think of a crypto. So let's take bitcoin or ethereum,
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  Speaker 2: or is literally a million of these. I would say
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  Speaker 2: that the way to think about it is you have
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  Speaker 2: a million artists. You've got what I would do, which
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  Speaker 2: is at best finger painting, but then you've also got
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  Speaker 2: red Brand and Vermier and Picasso. The way to think
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  Speaker 2: of bitcoin is that each individual bitcoin is each of
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  Speaker 2: the individual paintings of Brant, and all of the rem
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  Speaker 2: brands together make up all of the bitcoins. So I
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  Speaker 2: and my finger paintings would be one of the mean
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  Speaker 2: coins that nobody buys and nobody wants. But bitcoin would
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  Speaker 2: represent all of the paintings of a master painter. And
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  Speaker 2: I think that's probably the best way I think about it.
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  Speaker 2: There's an infinite number of cryptos in the same way
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  Speaker 2: there can be an infinite number of painters if you
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  Speaker 2: bring in all the Kindergarten finger paintings as well as mine.
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  Speaker 2: But some of those are people like Ramier and Rembrandt
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  Speaker 2: and Picaso.
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  Speaker 1: You said, there's a million different versions out there that intuitively,
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  Speaker 1: I think to myself, well, doesn't that then diminish the
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  Speaker 1: value of it if there's all these different iterations.
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  Speaker 2: Oh? Absolutely, But again what I would say is the
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  Speaker 2: best way to think of each crypto is it's the art.
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  Speaker 2: It's the painting works of a painter. So the question is,
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  Speaker 2: you know, does every random street painter or finger painter
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  Speaker 2: or you know, like if you or I want to
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  Speaker 2: take up art, I assume you don't. You know, I
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  Speaker 2: don't either. By the way, then you know, do we
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  Speaker 2: diminish the value of Monet's paintings or rem brand or
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  Speaker 2: a mirror? And so that's why you can have a
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  Speaker 2: million of these, but they don't change the value of
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  Speaker 2: each other because and like I said, I really would
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  Speaker 2: view it as each crypto is like the collected works
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  Speaker 2: of an artists. So most of them are random street painters,
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  Speaker 2: but nobody likes them, nobody cares about them. There's really
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  Speaker 2: only a handful of them that have gotten to this
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  Speaker 2: position the way that the very famous artist has. And
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  Speaker 2: that's why there's value, because everybody else identifies that they
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  Speaker 2: like that coin, but that's where the value comes from.
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  Speaker 1: One of the things that I've heard explained Richard is that,
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  Speaker 1: for example, there is a finite amount of and let's
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  Speaker 1: just stay with bitcoin because it seems to be among
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  Speaker 1: the most well known. Would that be a fair statement.
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  Speaker 2: It's not the most well known.
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  Speaker 1: Okay, So if bitcoin is the crypto of choice for many,
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  Speaker 1: that its value is derived in part from the fact
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  Speaker 1: that it's finite in number, there's just so much of it,
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  Speaker 1: and they're not going to be quote producing even though
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  Speaker 1: it's digital, right, I mean, it's digital money, So how
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  Speaker 1: do we know that they're not going to produce more
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  Speaker 1: of it?
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  Speaker 2: Absolutely? So, it's mathematically set, and I know that everybody's
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  Speaker 2: favorite way to understand something is to bring math into
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  Speaker 2: the situation.
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  Speaker 1: But there's a percentage of my audience that now hates
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  Speaker 1: you exactly.
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  Speaker 2: Well, you know they would be in luck. Most of
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  Speaker 2: the people in DC hate me as well, so they're
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  Speaker 2: a good company.
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  Speaker 1: Okay, here's the way here.
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  Speaker 2: I'll give you a physical way of thinking about it.
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  Speaker 2: Imagine a jigsaw puzzle that's a circle. And because each
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  Speaker 2: no layer finishes, the puzzle always extra pieces at the
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  Speaker 2: edge of the circle, so you could always add more
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  Speaker 2: pieces to the puzzle each layer you go out, each
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  Speaker 2: circle you add to the puzzle, it gets larger and
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  Speaker 2: larger and larger. There's a moment where the next circle
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  Speaker 2: you'd put on the puzzle, the next ring is you know,
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  Speaker 2: the size of a state or the size of the planet.
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  Speaker 2: There's a moment where physically you're just not going to
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  Speaker 2: add to the puzzle because that next ring would be
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  Speaker 2: so large. That's how bitcoin limits us. The supply is
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  Speaker 2: the mathematical calculations you have to do to get the
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  Speaker 2: next coin are exponentially larger than the coin before it,
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  Speaker 2: And so it's mathematically set up so that it would
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  Speaker 2: be physically impossible to actually do the number of calculations
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  Speaker 2: needed to get over twenty one million bitcoins. So we're
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  Speaker 2: not at twenty one million, but we're getting close. Because
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  Speaker 2: each coin that gets one lot, it gets harder and
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  Speaker 2: harder and harder to do the millions billions of calculations
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  Speaker 2: you need to get there.
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  Speaker 1: Is there an actual bitcoin that someone can put in
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  Speaker 1: their safe.
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  Speaker 2: No, so this is this is I think the least
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  Speaker 2: tangible part of this. It's really just a strain of
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  Speaker 2: zeros and ones. That's a it's a code packet, if
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  Speaker 2: you will. But what I would say is like a
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  Speaker 2: jigsaw piece puzzle of the other holders of bitcoin. No
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  Speaker 2: mathematically whether when you say, hey, I've got a bitcoin,
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  Speaker 2: here's my code, everybody who's already a holder of bitcoin
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  Speaker 2: knows mathematically whether your jigsaw piece actually fits into the
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  Speaker 2: broader puzzle. That's why you can verify it, because you
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  Speaker 2: can't just walk up with random mask, because everybody else
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  Speaker 2: in the network knows instantaneously if you're holding the unique
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  Speaker 2: puzzle piece you claim to be holding or not. That's
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  Speaker 2: why the network allows you that verification. In the same
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  Speaker 2: way that the serial number on a dollar tells you
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  Speaker 2: whether it's a real dollar or not, or rather tells
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  Speaker 2: the bank whether it's a real dollar or not.
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  Speaker 1: I have to believe hurting in some fashion is that
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  Speaker 1: whenever you see a story on cryptocurrency, they put on
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  Speaker 1: some sort of like this bitcoin an actual coin, and
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  Speaker 1: I think it causes people to think that there's an
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  Speaker 1: actual such a thing.
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  Speaker 2: Oh absolutely, but I will say there is mathematically such
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  Speaker 2: a thing in terms of the code. But yeah, no,
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  Speaker 2: I hear you. Es people said, so there's a thing
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  Speaker 2: you can actually literally put your hands on.
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  Speaker 1: Yeah, yeah, absolutely. I'm staring at articles right now, even
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  Speaker 1: on the Heritage site, and they've got the B on
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  Speaker 1: the bitcoin and it's like, okay, whatever, So let's get
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  Speaker 1: down to it. It's actual useful valuation here. And you
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  Speaker 1: were just telling me in the break that one of
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  Speaker 1: the big keys here is its ability to be a
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  Speaker 1: hedge against inflation. How soo.
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  Speaker 2: So the important thing to recognize them, by the way,
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  Speaker 2: to the extent that you feel like a dollar is
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  Speaker 2: you know, a physical piece of paper can put your
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  Speaker 2: hands on. I hate to break it to everybody, most
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  Speaker 2: dollars exist as digital coding in the banks and the
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  Speaker 2: APT the Federal Reserve. And this gets to the problem
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  Speaker 2: with this, which is that the Federal Reserve in DC
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  Speaker 2: can print as many dollars as it wants. And every
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  Speaker 2: time the FED prints a dollar, the dollars you own
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  Speaker 2: lose value. There's no cap on the supply of the dollar.
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  Speaker 2: In fact, the joke that we have at Heritage is
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  Speaker 2: that the dollar is the ultimate meme coin. Now, you
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  Speaker 2: might ask yourself why does the FED print money? And
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  Speaker 2: the answer increasingly is because the federal government runs a deficit,
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  Speaker 2: needs more money, so they don't have the courage the
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  Speaker 2: transparency in public to tax the American public. They simply
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  Speaker 2: print more money at the FED, causing inflation, devaluing your dollars.
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  Speaker 2: And so it's really just a silent tax policy that
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  Speaker 2: shuffles your purchasing power towards the government. But if you're
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  Speaker 2: using gold or silver or crypto, then your money is
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  Speaker 2: protected because it isn't controlled by the FED. They can't
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  Speaker 2: just print it and devalue your money.
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  Speaker 1: What determines out of you sent me to a website
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  Speaker 1: coinbase dot com as a reputable place where people buy
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  Speaker 1: and sell crypto. And as you look at the first
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  Speaker 1: page of one thousand and eight hundred and seventy some
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  Speaker 1: odd pages, some are valued at a dollar. Some are
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  Speaker 1: valued at ninety five thousand dollars. What determines that.
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  Speaker 2: Oh, the market on coinbase. But you know, this gets
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  Speaker 2: back to the analogy of you know, famous painters. You
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  Speaker 2: can to think of it as that there's one thousand
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  Speaker 2: and eighty six painters whose work is on sale on
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  Speaker 2: the market, and the same kind of thing. It's what
• 12:01
  Speaker 2: people looking at it want to sell it for and
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  Speaker 2: want to buy it for. Some of these coins are
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  Speaker 2: limited and supply, some of them are not. What the
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  Speaker 2: numbers are limited on. All of that gets into the valuation.
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  Speaker 2: But the important thing here again is that you know
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  Speaker 2: who is producing it, and it's not the government that
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  Speaker 2: can just unlimited make whatever and want and devalue your holding.
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  Speaker 2: So there's especially for bitcoin or the ones or the
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  Speaker 2: limited supply, is real trust that they can't just inflate
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  Speaker 2: away the value of it after you buy it.
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  Speaker 1: How does one learn whether there is a cap on
• 12:36
  Speaker 1: how much of it is there versus it's there's there
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  Speaker 1: is no cap As you mentioned, some of these don't
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  Speaker 1: have one.
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  Speaker 2: If you if you look it up, you can you
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  Speaker 2: can often find the information. Coinbase themselves gives you a
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  Speaker 2: real full detailed breakdown on all of the cryptos that
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  Speaker 2: are on sale on coinbase. And again, Coinbase is a
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  Speaker 2: very reputable company. You can you can use them to
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  Speaker 2: do that research and get to know all of the
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  Speaker 2: details about each of the different cryptos.
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  Speaker 1: So if I'm looking up that, for example right now,
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  Speaker 1: the number two, because Bitcoin is way far and away
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  Speaker 1: the largest in terms of value, Ethereum is sitting right now.
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  Speaker 1: But inside the stats it says mac supply, it says
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  Speaker 1: not enough data.
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  Speaker 2: Yeah, so Ethereum is a little less transparent about their algorithms.
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  Speaker 2: Part of why bitcoin is is so popular is that
• 13:33
  Speaker 2: everything about bitcoin is very well known, very robust. We
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  Speaker 2: know there's a finance cap on it, gotcha, and so
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  Speaker 2: that's why it's impart why bitcoin is so valuable, why
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  Speaker 2: it's market cap is so large. But yeah, no, each
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  Speaker 2: crypto has its own little flavor. They're each engineered to
• 13:51
  Speaker 2: do different things.
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  Speaker 1: When you say engineered to do different things quickly, what
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  Speaker 1: does that mean.
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  Speaker 2: So one of the other advantages of cry goes is
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  Speaker 2: that the coding keeps track of all the transactions that
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  Speaker 2: have ever happened. It's a little bit like a running receipt,
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  Speaker 2: and so you can verify what's happened, where it's been
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  Speaker 2: know that it's in fact a real coin. But part
• 14:15
  Speaker 2: of that is, if you think of it this way,
• 14:17
  Speaker 2: when you go swipe your credit card, you and the
• 14:20
  Speaker 2: business pay a feed to the credit card companies so
• 14:24
  Speaker 2: that their network can move the money around. And in
• 14:26
  Speaker 2: fact that's actually where they get the money from to
• 14:29
  Speaker 2: give you awards points, which is to say that they
• 14:31
  Speaker 2: overcharged you in the first minute and then are giving
• 14:34
  Speaker 2: you awards points in the back end. Cryptos technologically work
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  Speaker 2: the way that a credit card exchange works, but they
• 14:42
  Speaker 2: don't charge you for it. So each of them is
• 14:44
  Speaker 2: engineered to handle those transactions, the physical movement of the
• 14:49
  Speaker 2: data in different unique ways. Some of them are a
• 14:52
  Speaker 2: lot better, a lot faster than banks are. You know
• 14:55
  Speaker 2: right now, if you want to transfer money, it can
• 14:58
  Speaker 2: take three to five business days. Cryptos generally can do
• 15:01
  Speaker 2: this from a human perspective, basically instantaneously, but they're each
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  Speaker 2: engineered differently to handle different data transactions.
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  Speaker 1: Gotcha, Richard, fascinating topic and thanks for illuminating it a
• 15:14
  Speaker 1: little bit for us today.
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  Speaker 2: Well, thank you for having me on the talk about it.
• 15:18
  Speaker 2: Is as helpful as I could be about it.
• 15:19
  Speaker 1: Thank you, I thank you. Richard Stern with us from
• 15:22
  Speaker 1: the Heritage Foundation. Hopefully you know a little bit more.
• 15:26
  Speaker 1: Twenty eight past the hour