No One Understands Bitcoin with Allen Farrington

 
 

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“For literally every other financial asset, there’s always a price people will be willing to sell at, and there’s always an opportunity cost of some other asset that they could have instead…for a decent proportion of the supply of Bitcoin it will never be sold, and that creates a completely new market dynamic.”
— Allen Farrington

SHOW DESCRIPTION

Allen Farrington is a professional investor and the co-author of Bitcoin Is Venice. In this interview, we discuss the problems with fiat, or as Allen characterizes it “fiat fuckery”. We talk about how money printing leads to inflation and a misallocation of capital, the complexity of the fiat system hiding the resultant theft of capital, the slow demise of pension funds, and the confusion around what growth is and isn’t.

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Fiat currency experiments started centuries ago often resulting in catastrophic failure; since fiat has been ubiquitously assimilated into national economies. Whilst Bitcoiners are well versed in the inherent weaknesses of fiat currencies, there is a general ignorance of the long-lasting consequences for economies and citizens of maintaining an unbending faith in fiat money. Reducing this ignorance is perhaps the best way to grow Bitcoin’s adoption.

The obvious problem with fiat currency is the tendency for governments to print money to tackle economic exigencies. The impact of this money printing is often inflation, in which prices rise faster than wages and the purchasing power of money is reduced. Eventually, the currency can be debased, causing individuals to lose money without even realising it.

There is cruelty at the heart of this process: the complex nature of the fiat economic system means individuals can easily lose money without even knowing it. Many investors make decisions that are far too complicated for them to understand, and so it is easy to get caught up in financial schemes that value money to the detriment of the individual.

But, it is the second-order effect of this inflationary impact that is most pernicious. Businesses and investors are seeking to add value, and the inflation rate is the baseline for any return. When inflation increases, this puts pressure on those seeking investments to match or exceed it. The result is investments made in increasingly more speculative projects. This is the misallocation of capital, which starves more productive uses of capital.

The obvious topic of conversation following this is how Bitcoin mitigates these problems. This is a question to be debated with Allen Farrington for a future episode. However, understanding what Allen calls “fiat fuckery” is a sound basis for building the why of Bitcoin.

TIMESTAMPS

00:01:31: Introductions
00:07:10: Allen's background, and introduction to Bitcoin
00:16:39: Analysing on-chain data, and pricing Bitcoin
00:23:37: No one understands Bitcoin
00:28:48: The problem with fiat
00:44:16: Mispricing of capital
00:56:19: How we arrived at "fiat fuckery", and why gold made it inevitable
01:08:04: Why Bitcoin is better than gold or fiat
01:17:14: Money is a proxy for time
01:21:39: Pension theft, and pension companies chasing yield
01:29:51: Has fiat had any benefits?
01:37:00: Misunderstanding growth, and capital misallocation
01:46:02: Is Bitcoin violence?
01:50:26: Final comments

 

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SHOW NOTES

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Mentioned in the interview:

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