WBD462 Audio Transcription

Will Bitcoin End Central Banking? with Eric Yakes

Interview date: Tuesday 15th February

Note: the following is a transcription of my interview with Eric Yakes. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I talk to Eric Yakes, author of The 7th Property. We discuss the genesis of the book, the Federal Reserve, the role of libertarianism in our future, and the foundational and unique strengths of Bitcoin.

“Now that we’ve got a technology that actually is not only immutable, but it’s better in terms of every other category for money; it’s a true innovation and the strongest sense of the word we can prioritise that as something that we should value as part of money now and we can say: ‘okay, we don’t even need this trade-off anymore,’ we’ve literally just innovated that away.”

— Eric Yakes

Interview Transcription

Peter McCormack: Right, Mr Yakes, cheers.

Eric Yakes: Cheers.

Peter McCormack: We won't tell anyone what time it is.  Right, thanks for coming in, man. 

Eric Yakes: Thanks for having me, man.

Peter McCormack: No, it was an easy choice.  I like your book, want to get into it, want to talk about The 7th Property.  But let's do some background stuff.  Take me on the journey to writing the book, what took you there?

Eric Yakes: Okay, so you want to start background, because it's kind of a long story?

Peter McCormack: Let's go, we've got time, we've got a drink.

Eric Yakes: All right, so I'll start this in freshman year, college.

Peter McCormack: How old are you now?

Eric Yakes: 28.

Peter McCormack: You're a fucking baby, Jesus!

Eric Yakes: Yeah, I'm kind of that age though where everybody's starting to get a little bit older now though.  At 27, 28, all my friends are starting to get married, so I've got to grow up.  I'm kind of the immature one.

Peter McCormack: You wait until you hit 43 and everything stops working, it's bullshit!

Eric Yakes: So, yeah.  Freshman year at college, I went to school, I was studying finance and economics.  And back then, I was very structured, and I was thinking career path, I want to work in private equity, and I had this goal that I set up, and I set up this plan very structured to get to that point.  All the while, I graduated college, I went to work for a management consulting firm.

Peter McCormack: What did you major in?

Eric Yakes: Finance and economics.  And that was just, I was a younger kid and I took personality tests and I was like, "Okay, I want to go into this field", and I was always interested in economics, so it was kind of a hobby of mine.  The first book I feel like I read was Capitalism and Freedom, by Milton Friedman; that was my senior high school.  That got me pretty hooked on the libertarian ideology.  I don't like to put myself into groups necessarily.  There's problems with libertarianism and it's not a fully worked-out theory, but there's a lot of stuff to gravitate towards.

Peter McCormack: We can get into that.  We had Stephan Livera in here -- not Stephan Livera, what a fucking idiot!  No, we had Vijay Boyapati in yesterday; it was because we were discussing Stephan Livera.  But we got into libertarianism yesterday, so we can cover that.  I'd be interested to talk to you about that.

Eric Yakes: Okay, cool, we'll get back to that.  So, I always saw economics as a hobby, and finance was a good tool to be able to operate in the business world.  When I started going down that journey, I graduated college, I was like, "I need to get the best job I can so that I can get the skills I need to work for a private equity firm", and I was working for this company, FTI Consulting. 

So, we did corporate restructuring which is, when companies are going through challenges, or they're going to go into bankruptcy, or somewhere in between, we were advisors that would get brought in to help either assist them, or bring them through bankruptcy.  That's like you take control of the company and you turn around the operations, or you negotiate with the creditors for them, and a bunch of different things and just help them with whatever shitshow they're going through.  I thought that was a good way for me to cut my teeth and get into the financial field and see where shit gets really bad.

What was interesting that I didn't really think about, but in hindsight that gave me a lot of exposure to all of this malinvestment that exists within the economy.  And after a while, after a few years, I was amazed at how many companies can actually still keep staying alive for the periods they do just by rolling over their debt.  A lot of these companies should probably just close up shop, and there's not a lot of value being created.

So, I was learning a lot about that, and when I moved to this private equity fund, I was dealing with a similar type of company.  So, there's this private equity fund out here actually, it's called Platinum Equity, and they specialise in buying corporate carveouts, which is just when a larger enterprise wants to remove a division of it, you need a buyer who specialises in doing that, because it can get really nasty; because, when you take a piece of the pie away that doesn't have a back office with it, the accounting gets really nasty, you need people who specialise in doing that.

That's what this guy, whose name's Thomas Gores and he owns the Detroit Pistons, and he created that idea.  So, my bosses were his lieutenants and they spun off and did a fund out in Denver.  And I was working there for about a year and a half, and after being there, it was like I loved the experience I was getting and it gave me a lot of valuable skills, but I wasn't as passionate about the stuff as I thought I would be.

It was like, you're like a kid and you're trying to come up with a plan for what you're going to do, and you think, "Okay, these things seem really interesting", and then you get there and I was a bit, disillusioned is probably not the right word, but I was like, "This isn't it, what is it?"

Peter McCormack: Bored?

Eric Yakes: Yeah, not even bored, man.  It's like, okay, I was grinding out projects for six months, and you're working 80-hour weeks.

Peter McCormack: Unfulfilled?

Eric Yakes: Yeah, a little bit maybe.  I'm gaining weight, not socialising, losing friends because I just don't see people as much anymore, and I'm working on stuff and it's like, "If you're going to work that hard on something, you've really got to care about it".  After a while I was like, "Is this it?" and my future started to get definable features.  So I was like, "Five more years, I get to this position.  Eight more years and maybe at that point, I'll be 40 pounds heavier and I'll probably have a nice car, but I'll probably be divorced", things like that.

Peter McCormack: You've literally just described my life!

Eric Yakes: Oh man, I just roasted you, didn't I?  Oh, shit!

Peter McCormack: You just literally roasted me!  Divorced, 40 pounds…

Eric Yakes: Well, I'm talking about specifically for career-related things.

Peter McCormack: Yeah, oh shit!  But you're right, that's what happened, and then it becomes unfulfilling.  You realise that 10 years goes by, 15 years goes by and you're like, "What the fuck have I actually done here and what did I do; what did I get out of this?  Was I happy?"  They're all fair points.

Eric Yakes: Right, and I started to see that a bit.  And I was like, "All right, well do I want to do that?" and this time, I was almost 26 and I was like, "Well, if I'm going to take a jump, now's a good time", because I can still go back to my career path, I can still recover, I'm still young to take that kind of risk.  You can't really do this as easily in your 30s unless it's much more structured and less risky.  So, that was when I started to get the years turned on, then I was like, "Well, what do I want to do?"

It was a weird process, it kind of just hit me all of a sudden.  I was spending a lot of my free time just reading about Bitcoin -- or going back to the start of my Bitcoin journey, that was in 2017 when I was working for my first company, and I had this buddy and he would just bring up Bitcoin all the time, and he was like more like this tech focused, kind of nerdier guy.  I was like, "With a finance background, it's a speculative investment, I can't really get behind that.  I don't know how to measure its value, that's not going to gain.  It might be worth a lot one day, I just don't know".

He just kept harping on me and then I was like, "All right, I'll read into this thing one day, just because I love you, buddy!"  I started reading into it, and then once the freedom aspects of it started to hit with me, that's when I was like, "Oh, this is a solution to a lot of the issues of central banking".  Once that hit me, I got a lot more interested, and I started off -- you research Bitcoin and you're immediately like, "Okay, well what does Ethereum do, and what do all the other ones do?" and I spent probably a lot of 2017 just looking into that kind of stuff, and you get a lot more confused, because you start getting hung up on all these different distinctions between the different consensus algorithms and learning about all this.  You realise there's this huge spiderweb of knowledge out there that people are just getting led into in different directions, and there wasn't a ton of really core information that people should be focused on, because there isn't a curriculum that exists for this industry yet.

So, I don't know if I'd call it all wasted time, but probably a lot less productive forms of research back then.  I remember back then too, at one point, I was thinking, "What if I jumped into this industry?" and I was like, "That's a crazy thing".  But there's all these crazy people on Twitter yelling at each other, but it was interesting to me.  And then fast-forward two more years, and I went into the private equity firm, again I'm thinking, "What do you want to do?" and I'm thinking, "You could think of doing something in Bitcoin".

There was the Bitcoin set of things, there was the general career side of things.  When you're working in private equity, I was like an analyst, so I read numbers, we had meetings, we negotiated, we did due diligence where we found out all the details we could about companies, and it's good work in terms of being an analytical person, but there's no media aspect to it.  I'd be on Bitcoin Twitter and there's all these people saying their opinions with followings and talking about what they think is wrong in the world, what's right in the world.  That was always something that was really appealing to me.  I just thought that being in these professional environments nonstop is just so cringe.  I just couldn't deal with that all the time.  I was just, "Can't we just kick it for a little bit sometimes, guys?"

Peter McCormack: Did you have to wear a suit?

Eric Yakes: We didn't have to wear suits, which was nice.  The only people who wear suits nowadays are lawyers.

Peter McCormack: And had you dismissed all the other altcoins at this point?

Eric Yakes: No, it took me a while to dismiss them.  It was more -- and I'm still not at a point where I think there is a 100% failure rate.  I wouldn't qualify myself as a pure bitcoiner.  I don't know what any of these names mean really, but I wouldn't qualify myself as a pure Bitcoin maximalist.  I'm totally focused on Bitcoin, I think that from risk to reward to value that's expected, everything else pales in comparison.  But I think the idea that all of this will fail and there will be 100% one form of money, the far extreme, is debatable at this point, and I'm not certain of that.

Peter McCormack: I think I agree.  I don't care about any of the others, I don't care about Ethereum, I don't care about Solana, I care about Bitcoin, that's my focus.

Eric Yakes: Exactly.  And it's just, when you think about the market size that we're competing for and the market size of everything else that's competing, when you get that core understanding of how this industry is ultimately built out, and you say, "Okay, it needs to settle on the firmest foundation".  We're talking about a massive, massive question here.  We're talking about the foundation for an entire new financial structure in money, which is the largest market in the world.  So, we're going to do that right, we're going to do that on firm ground, and the market's going to gravitate towards that one way or another".  And when you think about it from that perspective, a lot of this bullshit floating around is just a bit more laughable.

I think that, why would you focus on anything else?  But is there potential for things that ultimately settle in Bitcoin, and will that be centralised companies, will that be decentralised in name only companies, will that be some sort of other layer that's decentralised?  That's what Lightning is, it's another layer, it's kind of the second form of money.  I mean, it's so closely tied to Bitcoin that you can argue it's basically the same thing, but the risk and trust nature of it is different, so I qualify it differently.

Peter McCormack: Yeah, that's fair.

Eric Yakes: So, there are other forms of money that are already being created to enable this ecosystem.

Peter McCormack: Well, I think there will always be people trying to compete with Bitcoin, because they don't like some of the tech, they think they can do more with other platforms, or the incentive model exists to create something else because of the reward mechanism.  But I think on a long enough timeframe, they always lose to Bitcoin, because it's not so much about utility.  It's like you said, it's more about the firm groundings of what Bitcoin is, and if you want a base currency for the world, Bitcoin is really the best out there.  So, I'm with you on that.

Eric Yakes: Yeah, and I think that in my book, when I think about that problem, I do that in the first chapter.  But I think the three, and I don't know if this is completely exhaustive, but this is just where I got to; I think the three things that ultimately constrain whether or not there will be one form of money is sovereign coercion, so the ability for governments to control things, and that's why we have so many different currencies today; information opacity, so the amount of how transparent information is today versus how it used to be, like if you go back in time, a lot of the reasons people were using different forms of money was just because they were in different geographies, nobody knew who each other were, and they were just using different money that was native to wherever they were. 

But now we have the internet, information opacity's been largely reduced.  It's not perfectly reduced, not everybody's on the internet, and even governments can still control telecommunications, so it's not like that's going to be perfect, but it's been largely reduced.  And then monetary utility trade-offs, and that will be the big thing, is whether or not there is going to emerge at some point in the future some sort of major utility trade-off between Bitcoin and something else in some edge market, I would say.  It's possible, I mean I don't know, but in any event that will probably be maybe best-case scenario 5% of the market, so why would you care that much about that?

Peter McCormack: Yeah, that's fair.  So you went, "Fuck it, I'm going to go write a book!"

Eric Yakes: Yeah.  So, I'll hop back on the story.  I wasn't like, "Okay, I'm going to go write a book for this industry".  I came to the conclusion, "Dude, you read about this the whole time, it's what you care about, it's what you're interested in, it's fun to you, it's your hobby, maybe you could do something in this direction".  Then I had to put together in my head, "From a career perspective, I want to get involved in this media side of things".  I enjoy that, I'm good at that.  That's one thing that can -- there's not a lot of people that are highly analytical that I met in my past career who are also really good communicators.  Oftentimes, I'd see a trade-off with that.

I was like, "If I can communicate stuff well and I love educating people on stuff, then there's a route I want to go in that as well".  That's kind of the framework I had in my head and I just wanted to be more open and transparent about things and tell a story to the world.

Peter McCormack: You felt like you could carve a space within the Bitcoin space as that guy?

Eric Yakes: Yeah, I didn't even know what it was yet though.  I was just trying to think first principles.  Here are the things I'm interested in, and I can probably figure something out.  So, I kind of put together a plan where I was like, "Okay, I could probably go for two to three years runway and figure something out", because I didn't have a lot of time to work after hours at my private job.

So, I quit my job and decided I'm just going to jump full-time into this industry, and the first thing I did was take three months off and reconnect with a bunch of my old buddies, and had the best summer of my life, it was good for the soul; and then I started getting to work.  I put together a curriculum for myself, and that was a whole process in and of itself, because it was like, "What books do I read?" 

Well, you find this stuff out from Twitter, which you hop in Bitcoin Twitter, you see Peter McCormack, you see Pompliano, you follow them for a bit, then you see other people after that and then you follow them for a bit, and eventually I would be, "Okay, I agree with these people, I disagree with these people", and that's at least a multi-month process of even figuring out where all the deeper information lies.  So, it's like this whole rabbit hole you have to go down to even acquire the right information.

Now, that's a lot better than back then, but that was a whole process and I put together this curriculum for myself, and I got deep into money, history of banking, I had to teach myself -- I didn't know anything about computers really before going into this.  I had some knowledge; we were looking to buy a semiconductor company one time and I learned a bit from that, but I didn't know that much.  I had to teach myself Python to do like Jimmy Song's Programming Bitcoin book, which I wanted to get to, because in my job, if I want to understand a company, then I need to model out all the details of it.  And it was like that with Bitcoin, so if I want to understand how it works, then I need to actually model out how it actually works.

Peter McCormack: You went deep?

Eric Yakes: Well, yeah.  What sucks about that though is after I wrote the book, I haven't used a lot of that technical knowledge, because I'm not a developer.  So, it stinks because it's amazing how much knowledge you can actually lose if you're not maintaining it all the time, because I've kind of de facto been this Bitcoin economics person on Twitter a bit, so I talk about that a lot and I don't talk as much about technical aspects of Bitcoin.  So I haven't been iterating over that knowledge very much, so I kind of lost it a bit.  But that book was awesome for understanding it.

Peter McCormack: What did you learn from that book, going down that rabbit hole of learning to programme Python; what understanding did that give you of Bitcoin that I wouldn't have because I've not done that?

Eric Yakes: At a high level, not as much.  But you see how actual keys are generated, and you get a bit of an understanding of elliptic curve cryptography.  You'll be like, "Okay, so we use random numbers to generate keys, and it's an important piece of that form of randomness that needs to be really good, and certain wallets can and cannot have good forms of randomness", and I'm assuming that most wallets nowadays are good with how they actually do that, I don't know.  But you're aware of more granular risk, and we all have this common generator point that's used across the whole of Bitcoin.  And if you take that random number and you multiply across this standard point that everybody uses to generate wallets, the secp256k1, or whatever it is, elliptic curve, then that's how we ultimately generate a Bitcoin address. 

Through that I could be, "Okay, so that's effectively taking A, multiplying it by B and it equals C".  What I learned was, if you take A times B, then it's easy to calculate C; but what if you only had B and C and you didn't have A, you wanted to figure out A?  You could just divide C by B, based on normal algebra, but no.  Bitcoin uses finite field maths, or the secp elliptic curve cryptography uses finite field maths, and that's a very different form of maths.  Because of that, the way it's described, which is analogous, it's not perfect, but it's like a clock.  Operations are done similar to how you do maths when you're calculating on a clock.

So, you have something called an "order" and on a clock, your order would be 12, the maximum number of the clock.  And any time you do a calculation that exceeds that maximum number, then your answer is the remainder.  So, if I were to say, "It's 1.00 today, and I'm going to add 13 hours to that", then my answer is 2.00; it's the remainder, it's not 13 all the way around.  It's just simply the amount that's greater than 12 after that. 

So for that reason, we can use these forms of maths to create -- and if you use prime numbers and really, really large numbers as the order, then this is more just about cryptography, but it's very hard for computers to run division problems when we use that type of maths and we use very large numbers, because they can only solve these forms of division through iterative guesses, which means that requires computing power to do.  And if you have big enough numbers, like the order of the generator point for Bitcoin I think is like 10­­77 and there's 1080 atoms in the universe, so it's this incomprehensibly large number.

So, because of that, and this is a quote from Jimmy Song, "It would take a trillion computers doing a trillion calculations per second a trillion years to find an answer to that division problem for any given Bitcoin private key", and that's what makes it so secure.  So, things like that, you fundamentally can understand how the security actually works, and then you're like, "Okay, that's good", because when I'm talking to a boomer or something and they're like, "Well, what if my Bitcoin gets hacked?" I can explain that to them and then it's like, "Oh okay, I get it now, it's not going to get hacked".  Things like that make a lot more sense.

But quite a bit of detail, like I said.  I don't remember all the details and it gets very technical, and anybody who wants to understand exactly how Bitcoin works, I highly recommend it, but you get to see how actually a lot of the code works.

Peter McCormack: So, you went down the rabbit hole of his book, your other books?

Eric Yakes: Yeah, I mean I read so much, there's a bunch of different essays I read, and all these things like far corners of the internet I had to go to to find a lot of information.  I did a lot of reading through old papers of the Federal Reserve to figure out some of the nature of the thinking behind how it works.  Through that process, when I was done, I was like, "Okay, what's my next step?"  I was like, "I should probably be just writing this stuff out, so I can really understand what I think about this industry".

I started off just, "I'm going to write a series of essays".  Then going on that journey, kind of midway through that, I was like, "There's so much I want to write here, I'm just going to turn this thing into a book, and I guess I can do that", anybody can publish a book.  So, I started doing that.  My book's 14 chapters, but I probably wrote a total of 18 chapters and then ending up removing a lot of them.

Peter McCormack: What got the cut?

Eric Yakes: I had a chapter that focused quite a bit on inflation.  Inflation was too much of a pie in the sky-type debate, I think, for me to include that as a fundamental chapter of understanding Bitcoin.  I was like, "You don't necessarily need to understand this".  That was a really good example.

Peter McCormack: Well, some people question bitcoiners' use of inflation as a reason for Bitcoin, because some people believe that bitcoiners sometimes misunderstand inflation.  They're putting all inflation down to the expansion of the monetary supply.  I did an interview with Cullum Roche recently where we discussed inflation and he said, "Inflation comes from multiple reasons.  It's not just an inflation of the money supply.  It can come down from the growth and the economy, productivity".  So, it's a more complicated picture.

Eric Yakes: Exactly, and I see this so much on Twitter.  It's aggravating, because it's so hard to debate these topics without a holistic picture of things.  And everybody argues for things in a very myopic way.  They understand one aspect of what's going on, and then they'll push their narrative for that aspect, and it's like, you want to be very holistic with how you're making this argument. 

The way I like to think about the inflation argument is there are three primary buckets.  You can make arguments for or against whether or not prices are going to rise or decline; there's the supply and demand aspects, and that's a massively complicated argument to make, because if you're talking about inflation as a general rise in prices and then you're talking about the supply and demand aspects of that general rise in prices, then we're talking about a bunch of different markets all over the world at any given point in time, and that's incredibly complicated to make arguments for.

You can see general trends for things.  You can say, "Well, we're going through a commodity cycle right now, there's a lot of underinvestment.  That could be very inflationary.  That will resolve itself".  The energy industry, for example, maybe it's going to take five or six years for us to start capitalising that industry enough to solve those problems.  I don't really know, I'm not an expert, I just listen to what my friends in the energy industry say.  Or, if the supply and demand imbalances, and people are like, "That should be resolving itself pretty soon".  I guess I don't really know.  There's probably a small group of people who really know the answer to that question pretty well, and then a lot of people parodying what they hear from other people.

So, the supply and demand bucket, and then there's the measuring stick, which is, it's our money and there's the question of how do we measure that, and what's the appropriate way to measure the money supply?  Then, there's also how we measure the measuring stick and supply and demand, which is the CPI, and I can go into all that about the CPI, but that's how they debate it.  And then, there's also just people who are defining things differently and not talking to each other.  A lot of people in Bitcoin, I hear them, because I'm a big person, like definitions are very important.

But what's more important is speaking in the proper terms of the people that you're talking to, so you don't talk past each other, than being right and then telling people to go fuck themselves, or whatever you do.  But it's important to actually get your point across.  I think that with this inflation piece, there's a lot of people in Bitcoin that are like, "Okay, well the Austrians used to define --".  Inflation was originally defined by an increase in the money supply.  Over time, we've gravitated away from that, and now inflation is defined as, "A general rise in prices", which is some arbitrary concept created by the powers that be that control these numbers.

So, I agree that it's not necessarily right, but it doesn't really matter, because the Federal Reserve defines it that way and mainstream financial media defines it that way, and that's pretty much how it works, so you need to communicate on those terms with people and make arguments for how that's defined, and at least make a distinction between what you're saying, which I don't see happen all the time.  So, yeah, I just said a bunch of stuff to say that inflation is a really complicated argument.

Peter McCormack: I think you're right, though.  Perhaps that's a second book!

Eric Yakes: Right!

Peter McCormack: What's it like approaching a book for your first time?

Eric Yakes: Honestly, it was like I really give a shit about the stuff, so it was actually pretty easy.  Not easy, I don't want to sound arrogant, it wasn't easy, it was hard.  But it was fun.  I'd wake up at 5.00am in the morning the whole time and just wake up and write all day.  And I'd be in this cold room in the basement with my hood up, and I'd just sit there and write about stuff. 

I was thinking through things for myself, so I went through a ton of iterations on it, because you think there's something and it's just, "How would that look if the whole world was scrutinising it?" and then you're like, "Okay, that's not a complete thought".  And then you're like, "I've got to go back to the drawing board, I don't understand this well enough".  There were periods like that where I'd write for a bit and think I understood something, and then as I'd write it and as I'd try to conclude things I'd be, "I don't understand this well enough", and then I'd go and research for a week or something, or a few days, and then get back to it.

Peter McCormack: And there's a lot of Bitcoin books out there, a lot, a lot of very good Bitcoin books.  What did you want people to get out of this one that was different?

Eric Yakes: So, going through that whole process of just reading everything that I could, and back then too, once again, there's a lot of Bitcoin books that I haven't read and probably should read, but back then I wasn't aware that they existed.  I wrote the book that, from what I'd been researching, was the book I wish I had been given when I first discovered Bitcoin. 

Peter McCormack: So you're saying you've written the best book on Bitcoin?

Eric Yakes: That's exactly it!  I mean, I didn't say that.

Peter McCormack: I did.  But is it more for -- so something like, for example, The Bullish Case for Bitcoin, I think is a great book for my normie friends when they say, "Pete, tell me about Bitcoin", I'm like, "Just go and read this.  That will give you the basic understanding of the history of money and why Bitcoin's the best form of money".  I feel like with your book, it's probably a little bit more higher intellect level, so maybe people who've got a broader interest in economics and a deeper understanding of why Bitcoin matters.

Eric Yakes: Yeah, it's definitely geared for people with a background in finance and economics.  But I was very surprised at some of the demographics it started to hit with.  It was kind of odd.  When it first started to get traction, I started getting a lot of emails from dentists, a lot of dentists liked the book.  I was like, "That's cool, I'm happy with that".

Peter McCormack: Did your mum read the book?

Eric Yakes: Mum got all the way through the book, she did, and she was talking to me a little bit about the elliptic curve of cryptography one night and I was, "Damn, mum, damn!"

Peter McCormack: And did she buy some Bitcoin at the end of it?

Eric Yakes: Oh yeah, she bought the dip too.

Peter McCormack: She bought the dip?  Go, mum!

Eric Yakes: She's kind of a good barometer.  If I ever get a fund set up, I will probably use my mum as my barometer of when's the right time to buy, because every time there's a dip she's like, "Okay, I think I want to get some more", and I'm, "Are you sure?  It could go down more", and she's like, "No, I think now's the time", and she gets the bottom nearly every time.

Peter McCormack: I used to have the mum test when I used to work in digital marketing.  Whenever we had a new project we were working on, say it was a new web build, UX was central to what we did; it was the foundation of every project.  If the UX doesn't work, the website doesn't work.  You have to have a solid foundation for the user experience.  I would always go to my mum and say, "Test this", and see wherever she got stuck and what she didn't understand.

Eric Yakes: Yeah, that's the best way to do it.  Mums are the best.  Love mum, shout out to you, mum!

Peter McCormack: Talk to me about central banking.  What did you learn about the establishment of the Federal Reserve and how it's changed?  Did it start with honest intentions?  I know that some people argue, "No, it's always been evil".

Eric Yakes: That's a hard question, just because I think that it depends on the person.  There's a lot of people involved, obviously, with starting this organisation, and I think that there was definitely a core group of people who I don't think had honest intentions.  They definitely had selfish intentions, maybe they were honest.

So, the Federal Reserve was founded in 1913, just before World War I, there was the Jekyll Island Club, and that was Senator Nelson Aldrich, the Treasury Secretary at the time, and then five different Wall Street bankers, who a lot of them had ties to England.  So, the initial group of people that were creating the Federal Reserve, and then also how they positioned it, they didn't use the words "central" or "bank" in their name as part of their public marketing campaign, because the public historically had a very bad taste in their mouth over central banking.  There had been three central banks that had been created and fell before the Federal Reserve was created.

Peter McCormack: I didn't know that.

Eric Yakes: Yeah.

Peter McCormack: Why did they fail?

Eric Yakes: Well, it's complicated.  So, there was the Bank of North America, and that was created pretty much to finance the Revolutionary War, and then it was closed after that.  And then there was the First Bank of America, and that was closed during -- there was this battle between Jefferson and Alexander Hamilton.  That was a very controversial bank, and they ultimately had a very high degree of inflation, and I think it only lasted for about 20 years, and it was ultimately closed when Congress voted to close it after that period.  Inflation was just getting very high. 

Then there was the Second Bank of the United States, and that one was probably the most interesting and more modern.  So basically, the bank was created and there was this Chairman, Nicholas Biddle, and this is just the factual story and there are a lot of ways that people could read into this, but the Chairman created it.  And when Andrew Jackson was up for his second run at presidency, he was campaigning to close the bank and he wanted to move back to gold.  He was actually campaigning and paying people with gold during that time.

Nicholas Biddle was campaigning an alternative way, and he was paying off members of Congress by advancing their payments from the Fed, because the Fed is the treasurer of US funds.  And he was also paying members of the media to support a lot of what was going on with the central bank during Andrew Jackson's campaign.  Jackson, one day, he decided, "Okay, we're going to pull the treasury's account from the Fed, and we're actually going to hold it ourselves", and that was very bad news for the Fed.  That was a very large portion of how they were generating revenues and institution.

So, Nicholas Biddle created this deliberate economic contraction, and then was paying off the media to try to get them to play it off as if Andrew Jackson, it's his fault, he pulled his money from the Fed, and therefore we have to contract the money supply when he just raised interest rates.  And then he was ultimately charged with fraud, and they closed the bank immediately after that.  Well, not immediately, it went through a court process; but years after that, it was all closed, and that bank effectively ended in a fraudulent way of the Chairman.

That period with this national banking system that we had after, and some of the fractional reserve issues that occurred during that, was ultimately what made the public really not trust how central banks work, nor banks in general.  And this isn't just in the US, you know, this was in England, similar things were going on in France, and I highlight that within my book. 

There's this pattern throughout history of these failures, where it's effectively, and it's not true in every scenario, but it's true in most of them; there is a need to finance war, a central bank gets created, they print too much money back when a lot of these banks were running on a gold standard and fiat was largely rejected by private markets back then.  There would be too much money printing beyond the gold reserves, war ends, people realised, "The money's been debased, because now they're demanding it in gold, the gold's not there".  There was some sort of run on the banks and then inflation ensues, price controls get implemented, supplier shortages occur.

Peter McCormack: It's like now!

Eric Yakes: It's literally eerie, because I wrote this book before all this stuff happened, or not before all this stuff happened, but the price controls and stuff hadn't popped up yet, so I was calling for that on Twitter a bunch.

Peter McCormack: Well, there's been certain calls. Elizabeth Warren has certainly hinted that those price controls should be implemented, or are required.  It's really eerily like what is happening right now.

Eric Yakes: Right.  And then the last major thing that happens is, after that, it's just a ton of economic dislocation starts occurring, and then there's eventually some form of regime change that occurs, and I think we'll probably follow a similar pattern at some point.  It might be a bit more drawn out, just because our system's structurally different than how it used to be and there's a bit more control over it, so I think it can be managed for a bit longer. 

But regardless, taking that all back to the Fed, so the Fed was created before World War I by a bunch of wealthy people.  So, that Jekyll Island Club was estimated, and this was in a major magazine publication back then, I can't remember, it's sourced in my book, but one-sixth of the world's wealth was represented by the group of guys who were on Jekyll Island.

Peter McCormack: It was really about protecting themselves?

Eric Yakes: There's a lot of ways -- like the famous book, The Creature of Jekyll Island, and he reads into a lot of that stuff, and I don't know, maybe he's right about some of it or all of it.  But it's just not really a firm way to make certain arguments, and this was one thing I tried to cling to in my book.  I didn't want to get too tin-foil hat with anything, I just wanted to say, "Here's factually what happened and you can read into things, but here are the facts of certain situations and the ultimate outcomes that occurred", and we can kind of see a pattern with a lot of this stuff.

I also wanted to source a lot of my information.  I do source information; I source information from The Creature of Jekyll Island, I source information from a lot of Austrians.  But I also made a point to source a lot of my information directly from the Fed, from alternative sources.  And I think, even doing that, the story just tells itself with the Fed.  The Fed has had 16 material economic recessions since its inception.  It was started as the goal of just price stability back then, and it's had a recession on average every seven years. 

The symptoms of our fractional-reserve banking system that was ultimately used to justify why we should have a central bank controlling monetary policy, because people are incapable of doing it themselves, those symptoms are more just related to the fact that we have moral hazard inherent in our system through bailouts.  As long as that exists, then private markets are going to act based on that information; and if we can eliminate that, which is what Bitcoin is a solution to, then we should expect that market actors will be relatively rational on the whole.  That will probably take an adjustment period.

I'd say if we're on a Bitcoin standard tomorrow and we have a free banking system emerge, I think that a lot of people -- we're probably going to have a lot of banks that take advantage of things, and they fail and they extend too much credit, and their reputations will be at risk and they will fail and not be bailed out.  That's the key thing.  It will probably take some time for people to learn, but I think eventually people will learn, and banking institutions would learn, "We fail.  When we fail, we fail.  We can't privatise our profits and socialise our losses anymore", and that will probably take time.

Peter McCormack: And the Federal Reserve has survived 108 years.  Why did the Federal Reserve survive when these other three central banks failed?

Eric Yakes: That's a good question, I've never gotten asked that.  So, because of us being -- the Federal Reserve effectively put us into the most dominant international monetary position we could be, and I think that that's something that's underrated a bit when people talk about Fed policy today.  It's not that people don't talk about this, but a lot of people are like, "The Fed's constrained by inflation", and that's true.  But there's also a whole international monetary game going on, and it's incredibly important for the US to continue to maintain this perpetual trade deficit that they have, and the Federal Reserve is instrumental in that process.

Peter McCormack: Explain to people why they must maintain that.

Eric Yakes: So, it's effectively, in the simplest terms, and this is complicated; but in the simplest terms, it's just that -- this is interesting, because recent news was, in 2019, 80% of foreign transactions were conducted in the US dollar.  Contracts were made in that and people are conducting trade, and those are general estimates that people get to.  And then 60% of foreign reserves are in the US dollar. 

So, that's effectively the power that the Federal Reserve or the US dollar has in the global economy is that people need to use it to conduct trade with one another.  So, if people stopped trading in the dollar tomorrow, if that just went to zero, then there really wouldn't be a need to hold it in reserves anymore.  So, those two numbers are pretty tied well to one another.

Peter McCormack: What would the implication of that be though?  Less demand for the dollar?

Eric Yakes: Yeah, less demand for the dollar.  It would be that people are conducting trade in alternative forms of money, whatever that would be.  The better way to answer that is for me to go back to the beginning.

So, when the US is in this position where people need to use dollars, then there's demand for dollars at a global level, and the US can create dollars, aka nothing; they don't create a good, they don't create a service, they don't have labour, none of those things.  They just create dollars and they supply them to global markets in certain situations, and then the global markets can pay them back in labour and capital, so they get resources back in some form. 

So, it allows us to trade nothing for something, and that's a huge position of power to be in.  France would refer to it as the "US exorbitant privilege", and that is something, when people look at these labour-intensive economies, like China and India, it's like, "Well, how come all of our labour is being exported to those economies?"  It's because they can artificially suppress wages to make themselves competitive in a global environment to be able to export that and receive dollars in return. 

That comes at the cost of our domestic labour force for a lot of these blue-collar industries, and there's not enough jobs, and wages are getting too low, and that's because they have to compete against artificially suppressed wages abroad.  So, that's referred to as the Triffin dilemma, and that's just an example of one of the costs that comes from this when you're the world reserve currency.  So, the world reserve currency has benefits internationally, but it also has cost domestically, and that ties me back perfectly to what I was going to say with the Federal Reserve back in the Great Depression. 

So, we got to this point where, from the period of World War I until the Great Depression era, the gold standards were on and off for certain economies throughout the war.  They were turned off and they emerged again.  And what happened is, after World War I, England was in a very weak monetary position, and the US was attempting to help them.  So, a little background.  When you're on a gold standard and you want to attract gold to your country, then you want to have higher interest rates.  The higher your interest rates are, the more people will take money from the lower interest rate economies; they'll borrow it at lower interest rate, and then they'll invest it in your economy with a higher interest rate.

So, depending on your monetary policy, you've got a trade-off.  You can have low interest rates at home, and you can have credit expand at home, and you can have a more thriving economy; but that comes with a cost of your international monetary dominance, because your gold starts to leave your economy, and your currency isn't as sound at that point, especially when you have a mandated gold standard that you need to abide by, and people get worried.

That was the trade-off that was going on between England and the US, and the US was supporting them for a period of time.  Ultimately, the US was effectively lowering interest rates to support England, because the US had a ton of gold and England didn't have much at all.  They were lowering interest rates to support England have some of that gold flow back into England, and then it was the panic of 1921 happened, when the US raised interest rates from 1.25% to 6%-ish, and that effectively just caused this little mini recession, well kind of large recession. 

Then we went back into this low interest rate environment immediately after that again, and then the roaring 20s spurred and the stock market was flying.  And then it was around 1925, England started to get to a weak position again.  Mind you, they were the global monetary standard back then, and so the US once again was lowering interest rates to try and support England.  What was interesting, when we got to this really frothy level in 1929, before the Stock Market Crash, and then flowing into 1931, is some of the monetary policy decisions that the Fed made during that point in time.

So back then, so around 1931, the mandated gold reserve ratio was 35%, and the US had reserves of around 51% and they were still raising interest rates.  I argue a bit for this in my book, there's a lot of dynamics that affected this, but I don't think this point is really talked about a lot.  The fact that we did it, we were so far above our mandated gold reserve ratio, we didn't really need much gold, and we spiked interest rates effectively causing a depression within our economy; then also taking international monetary dominance from England during that period of time, I think that that's a strong argument that the US wasn't motivated to support their economy domestically, they were trying to gain international monetary dominance over England during that period of time. 

What's also interesting is when Executive Order 6102 went into place, that 51% turned into 61%.  So, after that happened, we confiscated the private gold, we were getting close to double the amount of our mandated ratio.  So, I think that that motivation is really important, and when you bring that to today of something more topical, so I was quoting those 2019 numbers for 80% of foreign transactions were in the US dollar. 

There was a Wall Street Journal article last week.  I tweeted on Twitter and it didn't get as much love as I thought it deserved.  But in this article, there was a statistic, and there's this report out of this research firm, ING, I think, I can't remember exactly; but it was in the Wall Street Journal that that 80% number from 2019 is estimated to be 56% now.  So that means US dollar transactions on a global scale are estimated to have declined from 80% to 56%.  That's a matter of two years; that's a very large decline.  We have a petrodollar system still in place, it doesn't mean the US dominance is going away overnight, there are still a lot of transactions conducted in the US dollar.  But that's a huge change and it's something I want to do more research into.

Peter McCormack: Yeah, what are the implications of that?

Eric Yakes: In 2009 during the Great Recession, China and Russia were calling for a neutral global currency and there wasn't really an option back then.  There was the IMF SDRs, or whatever, but those don't effectively work for anything.  So, there wasn't really an option, but China and Russia had been wanting to get on a neutral currency, because of this US advantage that they have and because of this game that they have to play.

So, they were calling for that back then, and then China's been effectively, since probably 2014, they started to significantly reduce the amount of US dollar reserves and debt that they were holding.  And then Russia has been effectively doing the same thing.  All these economies are trying to wean themselves off the dollar so that they can operate autonomously, or at least relatively more autonomously than they were before.

So right now, Russia's looking to invade Ukraine, the US has economic sanctions.  What do we do?  We can exclude their banks from the international SWIFT system, which is the system that's used for US dollar transactions internationally.  So, it's a major point of leverage, because so many transactions are conducted on the system with dollars, to exclude other banks in a particular economy from using it.  That hurts their economy quite a bit, that hurts how they can actually trade with other people and get the resources that they need.

So, economies that are realising that the US is taking its monetary position, and when you are the global monetary reserve and you expand your money supply 40% since February of 2020, that hurts these economies, that hurts how much value they have as well, and they don't want to be a part of that.  So, the US is in a tricky spot now, because not only do they have bad inflation, but they're also starting to lose international monetary dominance since apparently, and I've got to do more research into that, but it seems apparently in a much larger way than I was expecting.  That's just a pretty big deal.

So, I think when people are talking about, "What's the Fed going to do next?" well, we have this perpetual debt cycle and they can't sustainably continue to raise interest rates, because debt has expanded so much.  Even very small increases in interest rate, when you have such a large amount of debt outstanding, causes massive fluctuations in credit.  So, just the amount of convexity that occurs from it is really large.

So, we're in that position, which means we probably won't be able to raise rates for too long, and a lot of people, and until I saw some of this news I was of a similar mind, that we're probably going to see the Fed do some sort of fake-out at the end of this year; they'll go, "We're lowering rates to zero", there's going to be some sort of crisis.  But when I think about their international monetary position, it's like, "What did they do in the Great Depression to gain international monetary dominance?" and it was different back then, but they put us into a great depression and we became an international monetary reserve, I think effectively from a lot of those actions taken back then.

Where we are today, with a similar constraint facing us again, we're not as constrained, because the US dollar is already a reserve, so we have some leeway there, and we have a petrodollar system in place, and we're not on a gold standard.  But it still is a constraint to be considered.  And I wonder, if that continues to happen more and more and we do see some of these major economies start to de-dollarise themselves, I could see the Fed taking a much more hawkish stance on what they're going to do with interest rates this year.

Peter McCormack: Have you read Alex Gladstein's article regarding the petrodollar?

Eric Yakes: I cracked it one morning and I think I read the first few paragraphs, and then I didn't finish it.

Peter McCormack: So, one of the most interesting things that came out of that and the conversation I had with him is, there's still real confusion about why the Iraq war happened.  We know now that Congress was lied to, we know it wasn't a war that was created because of WMDs, but Alex put forward a hypothesis; because at the time, Saddam Hussein was looking to move off the petrodollar, he was looking to move to the petroeuro, and Alex made the suggestion, his hypothesis is perhaps that was a reason for that war, to protect the petrodollar.

Eric Yakes: The hard thing about these conversations is there are so many things we were kept in the dark about to fully understand these situations, from a military perspective.  But with my limited knowledge, I agree, I think that's a major motivation. 

Peter McCormack: Interesting.  So, as we are seeing now, aren't we seeing Russia and China are now trading oil, but they're not trading in the dollar; I don't know what they're trading in?

Eric Yakes: I don't know exactly what the alternatives are that they're opting into.

Peter McCormack: I know they're looking at CBDC.

Eric Yakes: They're definitely looking into those, but I assume that they're trying to conduct as much of it as they can in their domestic currency.

Peter McCormack: Yeah, interesting.  Okay, so are we finished on that?  Because, my next question for you really is, a lot of people who are supporters of Bitcoin are supporters of the idea of having no central banks.  Now, without Bitcoin, what does the economy look like without a central bank?  Just forget that we have Bitcoin; how does a country operate without a central bank?  Is that essentially a free banking era?

Eric Yakes: A free banking-type system, yeah.  It's hard when you compare things to history.  Number one, history is one of the hardest things to write about, because to write about it holistically, there are so many facts, especially on these types of topics.  There are so many facts and details that are relevant that you ultimately, like when I was writing my book, some of my history I'm writing it as a response, because I was educated on the alternative side of these things, most people are.  So, I'm writing a lot my history as a response to that, because it's impossible unless -- there's very few intellectuals out there who want to go and read some massive book that's just physically a recount of history and you interpret it as you may, and it just requires a ton of writing to really explain small situations.

But I think, when you look at our wildcat banking systems and how property rights worked back then, and how information was just not very transparent back then, I think a lot of the failure of these systems was due to things like that.  And they still would work, but I think in our modern economy, with very transparent forms of information and reputations online and the ability to transmit that very rapidly, I think that that makes the argument for a free banking-type system much more viable. 

It's effectively just, you have private banks that are issuing their own forms of paper that are backed by whatever they would choose to be backed by, and then they have a reputation that would be based around that, and people would be, "Okay, I'm using First Bank of Malibu, because they have a really great reputation and they're the standard", and that's what banks would be competing for, it would be some form of reputation.

Peter McCormack: So, there'd be multiple currencies?

Eric Yakes: In a free banking?  Yeah, absolutely.

Peter McCormack: So, you'd have the Bank of Malibu dollar, Bank of New York dollar?

Eric Yakes: Right, yeah.  I don't know, they could effectively standardise and form federations and things; there are a variety of ways that could all work out.

Peter McCormack: And do you think reputation would lead to a discrepancy in the value of those dollars?

Eric Yakes: Yeah, absolutely.

Peter McCormack: Interesting.

Eric Yakes: It would depend on how transparent they would be.  What's tricky is that you can be transparent with blockchain technology, for example, you can be transparent about an asset, but you can't necessarily be transparent about the liability.  So theoretically if it's, "We're a bank, we have a website, at any given time you could look at our reserves-to-loan ratios that we have outstanding, or whatever it is that's backing our paper".  You'd have to trust them on the actual paper that they're issuing, unless that was also on a permissionless blockchain as well, which I guess I haven't thought through how exactly that would work.

Peter McCormack: So, do you think Bitcoin ultimately leads to the end of central banking, or could lead to the end of the central bank?

Eric Yakes: I think it ultimately could lead to the end of the central bank.  I want to believe -- okay, here's how I'll say it.  I think that Bitcoin will reduce significantly the role and probably the nature of a central bank, in any event, to be more of an administrative-type entity, as opposed to a monetary authority, something that would administer the system and allow it to function with oversight from some sort of legal authority, and not making monetary decisions necessarily.  But on the whole, I guess yeah, I think it's going to end central banks.

Peter McCormack: And, the end of central banking and a move more to this kind of idea of a free market for banking, what are the implications therefore on the economy?  Does it change the market for cheap credit; does it change malinvestment; does it fix all these problems?

Eric Yakes: I don't think it fixes it, but I think it allows a private market to make those decisions.

Peter McCormack: Or reduce the extremes?

Eric Yakes: Yeah, exactly.  I mean, economies still fluctuate, and this is one thing, so people have come at this from the perspective of "Bitcoin solves everything", and it fixes everything, and everything's going to be perfect and it's going to be a utopia.  At the end of the day, there's a reason that we value more stability in a currency as well, and we're able to use that as a selling point.

There is going to be volatility; volatility will be inherent, even when Bitcoin reaches maturity.  It will still be more volatile than a currency that supplies constantly backstop to have stability.

Peter McCormack: Is that because it's inelastic?

Eric Yakes: Well, yeah.  It's inelastic because every time the demand fluctuates, the central bank can change its supply to respond to that, exactly, which is an easy decision for a centralised entity to say, "As long as the costs aren't on us, then we can have this stable currency", and there are still benefits to having a stable currency.  Ideally, we want to have both.

Peter McCormack: Well, yeah, that's a really interesting point, because again there are proponents for Bitcoin being the only currency, and I'm still in the place where I think we need two currencies.  We need Bitcoin, as more of a reserve asset, and we accept the fluctuations in its valuation; and then we have a more paper, I say paper, but you know what I mean, more like a fiat currency, which has a more stable price, which protects trade.  Because, massively fluctuating prices in trade is an issue.

Eric Yakes: Yeah, and it's a global experiment right now.  So, when Bitcoin is $100 trillion in market cap, what is its volatility going to be at that point?  We just simply don't know.  But the good news is, we do have alternatives for its stability, and it could be used as purely a reserve if we can have some sort of other alternative form of money, and effectively it will be that we have the Lightning Network, and then we have some smart contracts being built on top of that, that are creating these stablecoins that can have various monetary policies that people can pick and choose from.

If there is a real demand for that stability at that point in time, then there probably may be a handful of those that people are using in different areas for different reasons.

Peter McCormack: Yeah, I wonder how the Fed, or central banking itself actually ends, and what are the implications of it ending, because there's clearly a period of pain for something like that to happen?  There's no political will, unless you are driven by long-term thinking and an ethical position on what is the best way to operate an economy.  There would be no political will for the current administration or other administrations to say, "Let's end central banking", because they benefit from the fact there is a central bank.  So, the process of ending something like the Fed, I wouldn't even know where to begin, it's way beyond my paygrade; you might have ruminated on this?

Eric Yakes: It's funny, because when I go on podcasts, I get asked a lot of the theoretical questions of the future a lot, which I get it, it's fun to think through these concepts a lot.  But I think a lot of my thinking in these areas is, it's so speculative at this point, I don't spend a ton of time really thinking about it.  I just think, "What am I certain of?" and what I'm nearly certain of is that Bitcoin's not going to fail, and I'm kind of moving forward with how an ecosystem's going to build on top of that.

Peter McCormack: Okay, talk to me about that then; why are you so certain it's not going to fail?  I mean, I'm certain it's not going to fail, but why are you so certain?

Eric Yakes: This was one of the main reasons too when I was thinking of going, "Time to go all in".  It's just that the cost of an attack on Bitcoin is so high, just from even when you're quantifying it.  So, these are some dated numbers, but I think it would be like $40 billion in infrastructure, and then a run rate of $50 million annually -- sorry, not annually, I think that was a weekly number, to attempt to conduct a double-spend on the Bitcoin Network.  And, the US defence budget is $80 billion or something, so it's theoretically possible, but actually implementing that…

Peter McCormack: Yeah, I mean you've got to build out the infrastructure, you've got to be able to get the ASICs, you've got to be able to start mining and without really raising the eyebrows of people.

Eric Yakes: Correct, do it discretely.

Peter McCormack: "What's this new massive amount of hashrate that's happening in DC right now?" under the White House!

Eric Yakes: Exactly.  So, from a practical perspective, you can't do that.

Peter McCormack: It's impossible.

Eric Yakes: It's impossible.

Peter McCormack: And people would fight back.

Eric Yakes: Right exactly, people could fight back, people could respond, it would be obvious.  I mean, there are so many different ways that that would just not really be a possible scenario.  And, once you get to that point, it's like the network can't be attacked anymore, and that means now that it can't be attacked anymore, people are going to go with their next best incentive, and what I like to say is I think that the negative game theory behind Bitcoin of everybody -- that's how a lot of people, when they first understand Bitcoin, think; they're just like, "What are all the bad things that could happen to stop it?"  That's not even the stuff you should be focusing on; we should be focusing on it as a positive game theory, of what is going to be so attractive about Bitcoin, that people are not even going to want to think about doing anything negative towards it.

At the end of the day, I operate on the assumption that people are selfish, people respond to incentives, and we're going to continue to see that play out as it always has, and it's going to be the game theory of these fringe economies that want to opt into a neutral global currency that's going to continue to expand, and that's what's going to continue bringing people in.

Peter McCormack: Like El Salvador.

Eric Yakes: Like El Salvador.

Peter McCormack: Whoever number two is.

Eric Yakes: Yeah, I mean Russia's starting to flirt with the idea.  At the end of the day, China and Russia called for a neutral global currency back in 2009.  Bitcoin's a neutral global currency.

Peter McCormack: And you don't want to be the last country to adopt Bitcoin.

Eric Yakes: Exactly.

Peter McCormack: I'm intrigued to see who's number two.  We're seeing rumours there's going to be another South American country.

Eric Yakes: Yeah.  Iran's in an interesting position too.

Peter McCormack: Well, they're not on the SWIFT Network, right?

Eric Yakes: Right, they're completely removed.  I mention them in my book.  I think that they could be a big -- I mean, anybody who just doesn't have that much to lose.  All the major economies that have the most to lose, those are the ones that will be last.

Peter McCormack: Well, it's also a good point when you talk about positive incentives, because if you really think about it, the number of people who have negative incentives, it's actually a very small group of people; it's this little political machine that operates out of Washington, London, Paris, etc, and they're the people who have the most to lose, whether it's because they think at an individual level, "This affects my career", or whether they're thinking at a more macro level, they think this is dangerous.

Most people would say, "They're politicians, they're being selfish", but I actually believe there are people who actually think this is dangerous, that fundamentally believe that the idea of the centralised currency is dangerous.

Eric Yakes: Yeah, there's definitely people, and I think there's a lot of people who legitimately have good intentions who believe things like that.  I think there are very few people who really fundamentally have read as in-depth on some of these topics as the Bitcoin people.  I think, when you have exposure to this stuff on Twitter, there will be a few figureheads from the other side, who have done some sort of understanding and you'll be like, "This guy's making a few good points, he says some smart things", and then he'll say something and it's like, "Okay, that's not a very good point".

I think you get exposure to some of these figureheads, but I think that when I talk to some of my buddies, who are much more liberally-minded, much more Keynesian Economics-type thinkers, they genuinely think the Federal Reserve does its job, and it's a good thing for them to implement stability, and they haven't spent much time reading into a lot of different things.

Peter McCormack: Yeah, and you're trying to sell fringe ideas.  I sit down with my friends and talk about Bitcoin with them; I certainly don't sit down and talk to them about Austrian Economics, or libertarian principles, because they just won't buy the idea of no government.  So, it's really difficult.  I did an interview recently; I had Balaji and Glenn Greenwald on together, and Glenn made the point, I can't remember it.  Do you remember what he said, Danny? 

He said, "One of the things that bitcoiners have not been great at is selling the concept of Bitcoin.  It comes too much from a libertarian angle", which is something some people haven't even fucking heard of.  And when you start to talk about libertarian ideas, they're like, "What the fuck is this?  This is not a world I've ever considered we could live in", so it becomes fringe, so it becomes a little bit difficult.

Eric Yakes: I completely agree.  I mean, when I was first getting into this, when I first got exposed to Bitcoin Twitter, I was like, "What the fuck is happening in this place?" yeah, it's crazy.  And I always thought, before I got into this world, I thought I was an extreme fringe view.  I come into this world and I'm much more moderate.  I'd never met people who are anarchists before.  I won't delude on any of that, but I kind of see the intellectual side of what they're going for; I disagree for a number of reasons, but I get what they're saying.  But before, I just thought anarchists are people who like punk rock and want to break shit.

Peter McCormack: Yeah, at G8 conferences smashing up McDonald's in black outfits!

Eric Yakes: Yeah!

Peter McCormack: That was an anarchist to me, and I actually think it is an interesting area to get in, I actually do want your position on this, because I sometimes, as a more moderate European bitcoiner, I feel quite isolated with my opinions in this area, in that I get called a statist cuck.  I had a great conversation yesterday with Vijay Boyapati, and he definitely showed me the picture of how society evolves beyond democracy, but I still felt there's some flaws in it.  But what he was talking about is not whether I like it or not, it might become inevitable anyway.  But I'd be interested to know what your thoughts are.

On paper, I fundamentally completely agree with the libertarians, I think they're 100% right in the theory.  But the theory doesn't account for human behaviour, and I think that's the number one problem.  Libertarian ideals are great if you're libertarian minded, but if you break down some of the structures of society, other people aren't similar minded, and I think perhaps the net impact is negative.

So, you might have, for example, the ultimate freedom, which is the idea I talked about with Vijay.  He actually bought it up, which was interesting, he says he understands that there are risks of pure freedom, there are risks in the structure of society.  I'm more interested in what we've lost from progressives and the civil rights and equality side of things that we may lose in a libertarian society.  But I'd be interested to know your thoughts.

Eric Yakes: Yeah, so I guess for the extreme of anarchism, this idea that people can operate in localised groups is fine, as long as people choose to do that, and people don't choose to do that.  People choose to organise and form hierarchies and scale those, and they do that because there are lots of efficiencies to be gained.  That type of vision for the future, I think, can only exist if the cost of those efficiencies gets lowered so much that it's no longer a consideration; then localisation makes a lot more sense.  I think that's what technology is bringing us towards over the long run.  It's definitely a tech-enabled idea.

Then, bringing that a little bit closer into libertarianism, libertarianism is defined as, "An individual is entitled to the fullest extent of freedom, as long as that freedom does not infringe upon the rights of others", and that's saying a lot.  I remember I would work with some guys who said they were libertarian, and I would talk about something and they're like, "Dude, you're not.  You've got to sign on to some shit to really be a libertarian". 

I think that the two primary issues that I think are very grey and very hard to resolve under that doctrine are natural monopolies and negative externalities.  Those are the two really big things that are hard.  So, natural monopolies will continue to form as long as resources are constrained within particular areas.  And until those resources can be moved easily enough which is, I don't know, it depends on a lot of different things for different industries, the national monopolies will always form.  So, that means either the resources need to be able to move or the people need to be able to move really quickly.

It's interesting.  One of my friends gave me this book years ago.  I never even read the whole thing, but it was on this idea called "seasteading".  You know how Peter Thiel wants to have a private libertarian island or something?  It's kind of that, but for the world.  It's like a bunch of people have these little -- everybody's house is like a puzzle piece floating around the world, and you can drive your house over to one island, and everybody puzzles their houses together, whatever, and they have this island that everybody can aggregate together on, and that island is subject to certain laws.  And if you like that island, you can stay there.  If you don't like that island, you can leave, and you can go to another island of people.

Peter McCormack: American HODL's in the house!  What up, dude!

Eric Yakes: What up, dog!

Peter McCormack: Do you know Eric?

Eric Yakes: No, we haven't met.

Peter McCormack: Wow, here we go.  We've got Eric Yakes, we've got American HODL.

Eric Yakes: We're going to be chilling after.

Peter McCormack: Dude, I've got your favourite here.  Look what I've got; look, buddy.  I've got a bottle of Blanton's, you want some?  Go on, hook him up.  There we go.  So, I'll compare it to something that Vijay talked about yesterday, and correct me if you think that this is a poor analogy.  But what he was talking about is what happens beyond democracy, if Bitcoin takes us to that place where governments can't function; we essentially move to the city state, which is essentially almost like each city becomes run more like a company with a leader.  And then, if you like the rules in Miami, but you see there's better rules down in Santa Monica, you can go to that city state.  Is that a similar concept?

Eric Yakes: It's conceptually similar.  The problem is the cost of mobility, and that's what it boils down to, and that's what this whole idea of seasteading is a solution for apparently.

Peter McCormack: So, you do it on the ocean?

Eric Yakes: You do it on the ocean, you can float around more easily.

Peter McCormack: It sounds like a rich person's --

Eric Yakes: It sounds like a rich person thing, it's not going to be very easy.  Then, it brings us back to this idea of Elysium; have you ever seen that movie with Matt Damon?

Peter McCormack: Yeah, I have, up in the sky, yeah.

Eric Yakes: Yeah.  And it's just, I inevitably see something like that occurring at some point in the future.  Humans have always devolved in ways like that and certain people accumulate more capital, they're probably continue to organise with one another.  I don't know how that all works, but it's probably not as simple as, wealth inequality gets super-reduced and everybody lives together and we have a perfectly highly mobile form of society that people move across.  They can traverse across whatever borders between one another, and we have a competitive market of government organisations that people are living under.

It's probably like people are branching off and doing different things, and people are organising with each other, because they have something more in common, which is also good and it's bad.  If all the rich people left tomorrow and went up into space, then that leaves everybody else in society with the same amounts of resources to say, "Okay, time for us to take leadership roles and see what we can do about this place".  That could be a good thing; it could also be a hard thing.  As long as the rich people aren't mining the resources of the Earth and extracting things, then it would probably work out in the long run.

But it's a hard question to answer.  There are always people that will get left behind in any of these equations at the end of the day.  The question is, "What's the net benefit, and who has to make the hard decisions to have that pan out?"

Peter McCormack: Yeah, the net benefit, that's the one I think about a lot on multiple topics.  I find healthcare is a really interesting topic.  We have a socialist healthcare system in the UK.  Whether you put money in or you don't put money in, if you had a car crash, you have a heart-attack, you will be seen, it doesn't matter what your social status is, what your economic position is.  If you want to opt out of that, there is private healthcare and it's very reasonably priced in the UK, embarrassing for the US how reasonably priced our private healthcare is.

I get private healthcare for me, my son and my daughter for £180 a month.  When my back went, I was in hospital within three days being operated on for that cost; it was fantastic.  But I think the top end of our healthcare, again I was explaining this yesterday, is not as good as the top end of US healthcare.  Our cancer services are just not as good as US cancer services.  If you have a very serious cancer, you can well have the money or raise the money to come here and be seen, but it's like, "What is the net benefit?"  Yes, the US has a capitalist -- well, it doesn't, it has a fucked-up healthcare system, but we have a socialist system.  If you're anti-socialist, you'll hate the NHS, but the net benefits, everyone in society whoever they are, can get seen and it's not going to have a long-term detrimental economic impact on them.

So, I think those net discussions are really important, because then when you discuss anarchism, you have to say, "I might have ultimate freedom, I have nobody who can rule over me, I have property rights", but what is the net benefit to society?  Does it lead to a worse society?  What is the impact on equality; what is the impact on civil rights; what is the impact on human rights?  Is the net benefit not there?

Eric Yakes: Right.  And then it comes down to your timeline of consideration as well.  That's the hardest part, is because we're limited in lifespan, people think within those time periods, and because we consider things from shorter perspectives than the indirect long-term consequences of our decision-making, it might provide short-term benefits for 50 or 60 years.  But eventually, we've created an incentive that erodes at the infrastructure that's underlying all of that, and that can ultimately have the system crumble.

I think that's what we're seeing happening with central banking.  And, in as much as centralising services because it provides a net benefit is a good thing in certain situations, it's always hard, and I'm no expert on healthcare.  What's the optimal limitation of government power over a very important good or service for an economy?  And then, how constrained should they be in actually having control over that, particularly when it's a critical input to people's lives?  That is the trade-off between that and, "Okay, we can provide something that's socialised and can benefit people and people can be more comfortable if something bad happens; they're going to be okay", which is a big benefit.

It's hard to say, it's hard to quantify, a lot of uncertainty and some people are incentivised to want to control things, and it can lead to negative long-term outcomes.  But I don't know enough to be like, "Okay, administrative costs are this level and they should be this level, and the government should have this level of control; that's optimal for the next century".  It's a very complicated question.

Peter McCormack: Yeah, interesting to talk about though.  And one of the things I've harped on about is I wish from libertarians more, and it's antithetical to being a libertarian for many of them, but it was to engage in more of the politics, because what we have is this traditional left and right.  In the UK, we have more of a three/four-party system, unlike the US two-party system.  But either way, there's always a pull from the left or the right.  And if you have too far to the right, we end up flipping back, which is this back and forth.

We have this escape valve, called the Lib Dems.  If you can't support either party, that's what you go for.  But when you've got this pull from the left and the right, it doesn't stop government getting bigger and bigger and bigger, and I just feel like if you had libertarians more engaged in politics, you would have that push and pull that would hopefully make governments smaller, and I think that would be a more ideal situation.

Eric Yakes: Yeah, and I think that push is probably going to come through a technology-enabled movement.

Peter McCormack: Like a Bitcoin.

Eric Yakes: Like a Bitcoin.

Peter McCormack: Funny, that.

Eric Yakes:  I didn't vote the last election cycle, but the last one I voted for in the US, it was Gary Johnson, and he was the fringe libertarian candidate saying a bunch of crazy shit.  And it wasn't that I totally agreed with everything he said, it's just I said, if enough of us start voting libertarian, eventually we'll have the critical mass where we won't be insignificant, but you've got to start somewhere and hope for it.

Peter McCormack: So, let's get back to the book and finish out.  7th Property, immutability, why did you feel the need to focus on that as a name, because it's quite a stake in the ground?

Eric Yakes: It just kind of came up.  I was writing, and when I was initially thinking about the monetary properties, I was initially defining that, and so for anybody listening, it's in my book, I qualify the way to assess money is, there are six defined monetary properties.  You can provide similar quantitative, similar qualitative assessments for all these properties, and you can say that the good that is optimised across all these properties is the one that will ultimately merge as the best form of money in an economy, assuming no constraints like violence from governments, and things like that.

But throughout time, I identified that throughout history, we had this trade of trust for efficiency that existed between money and banks.  Over time, we said, "These forms of money are more efficient, and we're going to evolve into not just precious metals, but into coins.  We're going to trust the government to mint them for us.  Then we're going to evolve into dollars and we're going to trust banks to hold all this stuff for us and governments to print that for us".  And now, we're at a point where we trust them to not even have reserves, and we had this trade of trust for efficiency.

That ultimately is starting to create this very strong level of economic decay.  And it's obvious at this point that that is a trade-off that we probably have taken too far.  If we thought about money from not just a perspective of six properties, but if we had a seventh property in there of immutability, then if the money is immutable and nobody is in control of it and it can't be changed, then that framework would probably have made us -- we would have been slower to make a lot of these trade-offs that we made throughout history.

So, I make that argument, from a fundamental level, if we think of money today now, now that we've got a technology that actually is not only immutable, but is better in terms of every other category for money, it's a true innovation in the strongest sense of the word, we can prioritise that as something that we can value as part of money now.  We can say, "We don't even need this trade-off anymore, we've literally just innovated that away". 

With immutability, when I was first thinking about what to call that property, I was defining it as, "The decentralisation of production, storage and verification of money".  Those are the three primary functions of how intermediaries can get involved.  And it took me a while to really think through it, and it was actually funny.  When I was thinking through what I should call it, first I was just thinking I'd call it decentralisation, or something.  Then, I was on Twitter one day and I saw some sort of comment of Erik Vorhees that eluded that concept to being immutability, and I was like, "Yeah, that makes sense".

I looked up immutability, and immutability, there's different ways you can define it.  People with a developer background are like, "That doesn't make sense, that means it doesn't change at all".  And from that perspective, when you're defining it in that world, that's what it means.  But immutability's also defined as, "Highly resistant to change", as well, and that's how I'm defining it in the book, is something that's very highly resistant to change.

So, if it maintains that property, then I think it would be fundamental money.  And I think, if you look at history, history's a testament to how things can go really poorly if you don't have money that includes that property.  We have the innovation now to where we don't have to give up any sort of efficiencies in order to have that; well, almost.  We still need to build out a thriving ecosystem on top of Bitcoin.

Peter McCormack: Do you think that's lacking?

Eric Yakes: Yeah.  Coming out of the traditional finance world, if I go to somebody and go, "You should get involved in Bitcoin", they go, "Okay, where do I get it?  Can't get it from anywhere; how do I pay people in it; what do I do?"  The amount of handholding and education that's required to get people there, it's going to take quite a bit of time.  But not only that, we need all of the current financial products and services of our current system to be replicated in this new system, and we're very behind on that.  We need full-scale insurance solutions, we need full-scale lending products, which is the first to emerge.

Peter McCormack: We've got lending products.

Eric Yakes: That's what I'm saying, the first to emerge was lending.  But if you get into sophisticated forms of institutional-grade lending of structured finance and things like that, that's just an emergent thing that's happening in the industry right now.  I think we might have it, but at the level and the quality that people expect of our current traditional system in a lot of different forms, I don't think that we're there yet.

Peter McCormack: But is it a chicken-and-egg problem?

Eric Yakes: A bit, yeah.  I'm not saying that there's any sort of blame to be had here.  What I'm saying is, it's a new industry and it's growing, and there's a lot of work to be done.  And I think that people can spend time actually building things.  I mean, a lot of these debates about altcoins and the stupid utilities that they provide, that apparently some people want, that they don't want, those debates wouldn't even be occurring if Bitcoin had utility.

Peter McCormack: More utility.

Eric Yakes: More utility, sorry.  If it had those levels of utility that we're referring to with them.  And I don't think that that's the right way to go about doing it.  If you were going to go hit on a girl at a bar, you don't talk shit about other guys to her to get her to want you; you go in and display value to a girl.

Peter McCormack: Is that where I'm going wrong?

Eric Yakes: No, man, you have the age, you're kind of a type.

Peter McCormack: Yeah, an old type!  I get what you're saying.  I mean, my defence of this is the "move slow, don't break things".

Eric Yakes: Exactly.

Peter McCormack: And we're all patient for this to happen.  I mean, I'd agree with you, in the shitcoin world, whether it's Solana or Ethereum or any of that bullshit, they've built things quicker, but at what cost?  How much money has been lost in rug pulls, hacks, smart contract failures?  And essentially, they're A/B testing shit for us, which is great.

Eric Yakes: Exactly, I make that point all the time.  It's an outsourced R&D sector for the Bitcoin world, and they're going to experiment and fail, and then Bitcoin can replicate things that are ultimately desirable out of that ecosystem over the long run.  I definitely agree with that.  And to be clear, I think that Bitcoin's the tortoise that wins the race approach is exactly the right approach. 

I'm just trying to make a point for the other side and say, maybe we spend less time raging about shit on Twitter, and maybe we spend more time actually building things so that you don't have to rage about shit on Twitter.

Peter McCormack: I agree with that point.  Have you been sucked into all-day arguments with a picture of a dog that has 22 followers?

Eric Yakes: I haven't got in any dog arguments yet, I don't think!  Well, I kind of avoid arguments for the most part.

Peter McCormack: Good move.

Eric Yakes: If I have a good quip, maybe I'll quip, but other than that, I don't really.

Peter McCormack: Is there any particular stuff that people give you shit for or challenge you on?

Eric Yakes: Not yet.  I don't have any followers.

Peter McCormack: How many followers have you got?

Eric Yakes: Like 5,000.

Peter McCormack: Yeah, we need to work on that.

Eric Yakes: I've got to get those numbers up, man.

Peter McCormack: We'll get those numbers up.  Dude, I've fucking loved this, I've really, really enjoyed this conversation.

Eric Yakes: Me too, thanks for having me.

Peter McCormack: Do you feel like there's anything we didn't cover?

Eric Yakes: Oh, one thing I was talking to Ben about, I had this thread that popped up on Twitter, and it was the whole "Bitcoin is backed by digital energy" argument.

Peter McCormack: The Saylor thing.

Eric Yakes: Yeah, and I kind of took the other side of that.  No shit on Saylor, that dude's a badass, but I think that, okay, this kind of goes back to some of the points I was making from earlier.  But I think a lot of people come at arguments within this industry from their perspective, they're a bit myopic, and that's cool.  So, Saylor's an engineer, and engineers hear this idea that Bitcoin is digital energy and that makes perfect sense to me.  And I'm assuming, because it's such a big narrative, people are outside of that, it also works for them too.

So, I'm not saying it's a faulty argument necessarily -- not faulty, but a beneficial argument, because people are rallying around the concept, and it makes sense to some people.  But my thread, I was discussing, if the purpose of definitions is to provide distinctions in meaning, then we want to do that precisely and in the best way that we can that will ultimately show, in a succinct way, the value proposition of Bitcoin.

When we say something like, "Bitcoin is backed by energy", it's like, "Okay, well everything is backed by energy".  It's just a broad category, it's not distinctly defined.  If you said that to me, I'd be like, "You're in a cult.  That doesn't make sense to me at all".

Peter McCormack: Well, I think we discussed this, Danny.  I think we were saying, if Bitcoin is digital energy, then the US dollar is paper energy.

Eric Yakes: Right, exactly.  You can make that argument for basically anything.  And that's the point I make in the thread, is I'm like, "Number one, if you're going to make that argument, then be complete.  So, if you're going to say --" okay, I'll start back here.  So, we're talking about money, so if we're talking about money, then the term "backing" has a very distinct meaning.  Backing means redeemability, and if you read economic history, that's how it's implied.

Somebody on Twitter one time was, "Who are the powers that be that defined it as such?" and it's like asking, "Who are the people who determined a house is a house".  It's just something that emerged and people decided that that's what it is.  And if you read a lot of economic literature, that's very obvious. 

So, I think if we're defining money, then when we say "backed", we need to be clear.  Because, if you talk to people who have a background in monetary economics, people in finance, and you say it's backed by energy, it's like, "That doesn't make any sense.  I can't redeem it for energy".  So, this a value add for me, coming out of the finance world, is I can say, "Okay, well that makes a lot more sense to people", which is going to be, I think, a huge wave of people coming in the cycle are big capital allocators.

When you say, "Sound money isn't backed by anything", sound money has inherent monetary properties.  Now, those monetary properties are enabled by all these things, and it's not just energy, it's property rights, it's contracts, it's supply chains, it's resources, it's governments, it's people working.  There's all these different things and ultimately amounts to you're basically making the argument that some form of labour, or some form of capital is enabling it to have sound monetary properties, and that's what makes it good money.

So, I think you're diluting that framework a bit, and you're not creating the proper distinctions in meaning with that narrative.  Now, you might be able to sell every engineer out there with that narrative, I'm not to say he needs to get necessarily shut down, but if this is getting pitched in a serious way as something to major capital allocators, then I think making the argument that sound money has monetary properties, it's fiat thinking to think that our money needs to be backed by something.

It was only when we had paper money emerge and paper money was good across all the monetary properties and much more efficient than gold, except for it wasn't scarce.  So, it needed to be backed by gold, because gold was scarce.  As long as it was backed by gold, then we could have the benefits of gold scarcity and all the other good monetary properties that paper had.  When we had the inventions of double-entry accounting and the printing press and the telegraph, that's when paper was the perfect form of money.  It was moving trade all across Europe very rapidly.

So, that idea of money being backed emerged with paper money, and Bitcoin is something that no longer needs that.  And when we have secondary forms of money that are existing on top of Bitcoin, like a free banking system, or some sort of Layer 2 solutions that have their own distinct type of money, whatever it is that ultimately settles in Bitcoin, then we can use that idea that it's backed by Bitcoin.  But I think that that part of the narrative probably deserves to be sorted out at some point right now, and then that would be good when you're talking to people in finance, at least.

Peter McCormack: Well, me and Danny discussed it, and we struggled with that concept of it being backed by energy.  But at the same time, I do like the concept and the narrative of the Bitcoin Network making energy systems more efficient, so just a slight deviation from that to explain, and Saifedean explained it to Jordan Peterson recently.  It was really good and really interesting that you can be in one part of the world, have an energy system that isn't being fully utilised, you can mine with that excess energy, create Bitcoin, you can move that Bitcoin around the world.  And maybe in that other part of the world, you can buy more energy, but you have the ability to make the energy infrastructure, or the grids more efficient.  I think it's a great story for Bitcoin.

Eric Yakes: Totally.

Peter McCormack: It's totally relevant for Texas.  I think the grid there ERCOT, it's called ERCOT.  There's a narrative there that Bitcoin mining's becoming really important for that system, because its fragility was exposed, what was it, a year ago?  I think that's a great argument, a great discussion to have, but just saying "backed by energy", I'm with you, I struggled with that.

Eric Yakes: Exactly, and I completely agree.  The way that Bitcoin is going to revolutionise the energy industry and enable these technologies is absolutely massive, and I don't want to take away from that narrative.  I just want to make the argument, that is a very separate narrative from Bitcoin's function purely as just money, and whether or not it's better money than other forms of money.  These are separate. 

It's like, Bitcoin isn't just a good store of value, it's also a permissionless payment technology, it's a new form of property rights.  There are other dimensions outside of money that we can think about Bitcoin from.  But when we're talking about it in the dimension of money, I think that we need to be concise with that narrative.

Peter McCormack: Yeah, man.  Well, listen, you crushed this, I fucking loved it. 

Eric Yakes: Oh, yeah, man.  I had a good time.

Peter McCormack: I'm telling you now, this was great.  Anyone listening, go and fucking buy Eric's book, The 7th Property: Bitcoin, go get it now, go follow Eric on Twitter, we'll have it all in the show notes.  Just tell people where to get the book, where to find you as well.

Eric Yakes: Yeah, you can get the book on Amazon and you can find me on Twitter @ericyakes, that's my handle.

Peter McCormack: All right, man, well listen, thanks for coming on dude and stay in touch.  If you've got a big thread that's not getting the traction you want, just drop me a DM.

Eric Yakes: I'll tag Pete!

Peter McCormack: I'll ping you out, and we should do this again.

Eric Yakes: Absolutely, I'm in.

Peter McCormack: All right, man, take care.

Eric Yakes: Later.