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Jeffrey Robinson Bitcoin interview by Chris DeRose

Jeffrey Robinson Bitcoin interview by Chris DeRose

Jeffrey Robinson is a notorious Bitcoin skeptic and the author of "BitCon: The naked truth about Bitcoin". In this interview, Jeffrey and I discuss the culture and ...

Transcription

What's up party people? Chris DeRose here, community director of the Counterparty foundation and today we have a very unusual guest for the show. His name is Jeffrey Robinson. You may or may not have heard of him before but if you haven't I'll let him introduce himself. Let's begin the show. Jeffrey, welcome. Why don't you introduce yourself for the audience and tell everybody who you are? I'm the guy the Bitcoin community doesn't like.

Yeah, well some of the community. That's for sure. Tell the audience what is it you did to piss off the Bitcoin community, perhaps. Oh, just about everything. I've scored on absolutely every level. Look, I'm an old fashioned journalist who has been writing books for 35 years.

About a year and a half ago somebody said to me, "You know, have you heard about Bitcoin? It's a great way to launder money." Now I wrote the definitive book on money laundering. A book called The Laundrymen which is still around in various forms, especially e-book, and several other books on money laundering after that. As soon as somebody said "money laundering" my ears perked up. I said, "Oh, let me look at this." I decided to take a step and find out what this was all about.

The short answer is it really sucks for money laundering. It's no good for money laundering. All of the Bitcoin fans were told, "Well, you have to be careful because this stuff is good for money laundering." Tell them Jeffery said, "It's not." It really isn't. What I did was I started going to Bitcoin meetings and started talking to people.

I was pretty surprised at what I found. What I found was in that first meeting I went to, and it's the opening part of the book called BitCon: The Naked Truth About Bitcoin, what I found was that the room was filled with pre-pubescent 12-year-olds who probably had to get their mother's permission to go out after 5:00 at night. They were all telling me how Bitcoin was gonna topple the dollar and all of the central bankers were gonna end up in jail and that the American government was gonna crumble because of this. I listened to all of this and said to myself, "If this is the Bitcoin community, these people are delusional," because those kids were, they really were. Now, that's not the whole Bitcoin community. I kept looking further and I got into the whole idea of the technology.

I sat down with a very interesting guy, a grown up, who was telling me about the technology and I kind of make fun of it in the book, but I do understand it. And I do understand that Bitcoin, this currency, is necessary to pay the miners to verify these transactions and that's the whole reason for the currency. What bothers me is, A, the currency is actually not needed. I found ways around it. Now, I said this eight months ago. I was excoriated.

The Bitcoin people went nuts insulting me and my parents' wedding license and all sorts of things because I dared to say, "You don't need the currency," which now people like Eris and Etherium and Ripple are showing that you don't. What bothered me was there was this great technology that was really doing something very interesting or promising to do something interesting and there was too much noise by all these kids saying they were gonna overthrow the government. There were too many sharks in the water and that's what really bothers me. A lot of the criticism about me is that, A, I don't understand the technology. Actually, I do. And, B, I'm a statist.

Well, we live in a world where the government does control things. Like it or not, it's not gonna change overnight simply because somebody is using Bitcoin. But we also live in a world where there are an awful lot of sharks and I've said right from the beginning that the technology is interesting and I'm not against crypto-currencies because I think that's the future. But if people are going to get into this ecosystem they really need to know what's going on and you can't buy into this lock, stock and barrel without saying, "Hold on a minute. There are an awful lot of snake oil salesmen who are not telling me the truth." What I'm saying in the book is, "Go find out the truth.

" I looked at it and I found an awful lot of stuff that really worried me, that looked like con games and looked like a pump and dump in this pretend commodity market and all of this gets in the way of the technology. That's my gripe. That all of the sharks and all of the snake oil salesmen are pissing in the water. That's exactly what they're doing. Okay. I'm a little bit different that a lot of people in this space in that I actually agree with a lot of your points.

I find it rather endearing that there are so many young people in Bitcoin but certainly it is community comprised primarily of 16-year-olds. I've said that many times and I see that often. I think it's great that the young people are in Bitcoin. I really do. No, have no problem with that. But you can't jump into this with your eyes closed.

If you're gonna put your money into it, you gotta keep your eyes open. One kid said to me, "When we capture 10% of global trade, my Bitcoins will be worth a million dollars each." I said to him, "Good luck with that," because he had no idea how big one tenth of global trade was. He had no idea how he was gonna capture it. Another one said to me, "As soon as OPEC (starts trading in Bitcoin) we win." Well, I got news for him.

OPEC is not gonna start trading in Bitcoin. It's that kind of thing that really worried me. Because here are people who are spending real money to get into this ecosystem for ideological reasons and that's probably the worst investment you can ever make when you start buying ideologically. You have to look at it the way a real investor does. If you're gonna put your money into it, you have to understand there are people in this swimming pool who want to eat you alive and take your money away from you. That's what I'm saying.

It's a warning shot to say, "Open your eye because what you see is not what you get." So, I'm not gonna argue with any of that if not for any reason other than I never tell people to invest in Bitcoin. You can look at all my videos, you can look through all my stuff. I don't believe that that is something that people should do as investment primarily because the understanding and the comprehension of Bitcoin by everybody involved is very low. But sidestepping that issue let's back up on something I do feel passionately about which is that I think you've suggested that you understand how blockchains work but that you can achieve the blockchain consensus or the technology without Bitcoins themselves. Do you want to perhaps elaborate on that some? Yeah, sure.

One of the things about Bitcoin and the Satoshi blockchain is, and I have to be careful here because I don't want to single out a church, but it's like certain churches. We are the only way and if you don't follow us, if you go off to one of the other churches that have protested you're wrong. We are the only way and we are the guiding light. It's not true because there are all sorts of different blockchains now. The idea that you need the miners creates a real problem commercially. Think of this and I'm not the only one who says this.

Tim Swanson is saying it and John Levine is saying it and a lot of people. Preston Burn is saying it. A lot of people are saying this. (If you're a) bank or commercial institutions and you're gonna move, pick a figure, $5 billion on the blockchain. You're going to have the trust the miners for 10 minutes with your $5 billion. And I'm telling you, there is no banker in the world that's gonna do that.

Now, here's what gave the game away. I got in touch with Marc Andreessen. And Marc, we all agree, is a very bright guy. He's putting his money where his mouth is, but he's also putting his money where he wants the food on his plate to be. I talked to him about the delusional 12-year-olds. He said, "I'm not interested in that.

I don't even have a lot of Bitcoins." He doesn't hold a lot of Bitcoins. He says, "My interest is in funding technology to find practical solutions for real problems." That's what gave the game away. When you look past that you say to yourself, "Wait a minute. Who's he gonna sell this technology to?" A bank or a finance house.

He's not gonna sell it to me or you because he wants a lot of money for it. So he's gonna develop these programs and if the idea of putting your money into the hands of the miners for 10 minutes and knowing that 92% now of the mining is done in China, it's not gonna happen. He's gotta find a solution which will allow the banks to move the money between themselves and not have to use the miners and as soon as you've cut the miners out, you cut out Bitcoin. Hold on a second really quickly though. What is it that a blockchain achieves exactly, at least in your mind? What does a blockchain do? How about that? It's another kind of database. Just another kind of database? It's just another kind of database.

Why exactly did it become an issue then in 2009 through now? What makes it a different kind of database than the ones prior? (Its not a) kind of data base is the trust thing. The trust thing? Right? That's right. The trust thing is what makes it different. The fact that you don't need a third party to trust, so Satoshi says. But the third party are the miners. The miners are the third party.

Now, let me suggest this. Let's say you're Bank of America and I'm Chase and we're gonna move assets between us. Why don't we have a closed blockchain and just do it? We can verify it between ourselves without actually creating a currency to create the verifier. Those systems work very well. That's certainly been used for decades, at this point, right? No. We've had closed systems for a long time.

No, no, no, no. If you look at the SWIFT system, for example, that system is bulky and takes time and creates a lot of problems and creates cost. But let's say you and I, as bank of America and we bring in Citi and we've got Chase and we've got TD and we setup our counterparts in England and we're just gonna move dollars and pounds back and forth and we create a closed blockchain just between the four of us. We don't need anybody to verify it because I'm gonna say, "I trust you because you're not gonna fool around because if I catch you fooling around it's a federal crime and I'm gonna see it on the blockchain." But isn't that what we have with Fed Wire? Why is that better than something along those lines, right? You broke up, sorry. If there is trust in the system.

What's wrong with something like Fed Wire or any other centralized trust actor? Why do you use a blockchain? Because then there's a third party involved taking fees. Cut the third party out. Okay. Take out SWIFT. So, you're saying there is no third party in the private blockchain. Take out SWIFT.

Let's just say it's you and me and you're sitting on that side of the table and say, "Can I borrow five bucks?" and I hand you five bucks. You say, "Okay. I got the five bucks." And I say, "Gee, I need three. Can you hand me three?" And we just trade money back and forth for whatever reason. We don't need a third party.

Now if the banks can do that on a blockchain without a third party because they trust each other, then you've eliminated the miners. What I'm saying is you eliminate the miners and Dreessen said that to me. "I'm looking for practical solutions to real problems" and the real problem is staying with the SWIFT system is the expense and the third party. Now SWIFT is owned by the banks but there is still a verification process which slows it down. If we can eliminate all of that then you've got a very cheap system without the trust element having to be verified by a miner and you've eliminated Bitcoin. Are you aware that the miners themselves can't actually manipulate the system state? They exist to solidify the state but that they can't change the state.

Are you aware of that? What happens when the verification process takes longer than 10 minutes? The network calibrates itself to adjust it to 10 minutes every 2016 blocks. A month ago it was up to an hour and a half. No, there's a standard deviation that's fairly high, that's correct. But that doesn't mean that the block itself is necessarily not reliable. But if I'm a bank if I'm moving a million dollars I've suddenly lost control of that million dollars for that amount of time and no bank is gonna go for that. Well, right now these wire transfers take even as long as a day or two.

A day or two but I'm the bank and I own the system. Right. I own SWIFT. Right. I would not argue that centralized solutions aren't more efficient when there's trust but I think that what the delineation was . .

. That's right. . . . when I'm talking of no trust.

What I'm saying is the ideology behind Satoshi and decentralization is noncommercial and the commercial solution will always be centralized. That's probably true. I'll give you a very good example. One of the things that the Bitcoin community says is, "We hate Western Union. Western Union is charging five dollars per transfer of $50, that's 10%, that's too much money. We can do it cheaper.

" Absolutely. You can do it cheaper. But you know what can do it even cheaper when you're talking about the developing world? I did this whole thing about this woman in New Jersey. The hawala system. The hawala system is much cheaper than Bitcoin and the hawala system is built on tribal trust and family trust. It's built into the system and the woman in New Jersey doesn't need WiFi and doesn't have to worry about currency fluctuation.

She's giving it to somebody she knows. He's simply sending an email to somebody in Somalia who is in her parents' village, probably married to her mother's sister and handing them the money. The hawala system is a brilliant system. When I wrote Laundrymen I was quite surprised at how big hawala was. And we established that the banking network between Pakistan and the gulf was, I forget, how many billions of dollars a day. The hawala system is three times biggest than the commercial banking system between those two points.

I'm not terribly familiar with that system but I don't actually have a problem with Western Union. I suspect that it's fairly efficient in terms of capturing a margin . . . I don't have a problem with Western Union either but a lot of the Bitcoin people do because that's the model they've put up saying, "Oh! Western Union is this big villain charging all these people." The inefficiency in Western Union, does that not represent the inefficiency, or at least the risk, in the current system fairly accurately? Does not that not very much portray that? No, it represents the expense in the system.

If you want to move your money from New York or Miami to some place in Somalia, Western Union will charge you, I think, $5 up to $100, something like that. They've gotta support the independent business man who owns the store because he's a franchisee. Of course, absolutely He's got to get his cut. They've got a franchisee on the other end and they insure it. The cost of actual transmission is very little but it's the insurance cost, it's also the regulation cost . .

. Right, the fixed costs are very high. . . . it's all of that that's built into the system.

Yeah. What Bitcoin says is, "We can beat the regulation costs and we can beat the franchise cost and we can do it very cheaply." The way it's doing is, at least theoretically, is to side step the regulation is what that value add would be. That's right. I'm saying the hawala system is legalized. You register as a hawaladar and it's a very efficient system.

One of the things that utterly fascinates me is this whole idea that some how Bitcoin is going to solve the problem of the world's unbank. Look, I don't want to argue with that. That's a noble cause. I don't actually believe that. I wish it could. Right.

You have to understand, I get where you're coming from. A lot of Bitcoiners are 16 years old. I've been a businessman all my life. I've dealt with financial services in various forms and my parents before me. I'm not gonna take an argument with you on a lot of these things because it's true. But a lot of people buy into it because of that.

Andreas Stefanopoulos testified before the Senate Banking Committee in Toronto, in Ottawa. That was in October and I testified before them in January. I spent a lot of time debunking the stuff that Andreas was trying to sell them, trying to pull the wool over their eyes. One of the things he said was, "What you can do with Bitcoin, which is fascinating, are microloans and crowdfunded loans." Now, (breakup). If you need a small loan and you can't get a credit card and you can't get it from your bank, you can crowdfund this thing for a very small percentage for a very short period of time and that would be great.

But what he didn't say to the Canadians and what I'm saying to the whole Bitcoin community is you're not being told the whole story. People are telling you the part of the story they want you to hear so they can further their own self-interest. Hold on a second really quickly though. Can I back up a second? There is something I wanted to return to you. In this model where Western Union perhaps is capturing a pretty solid representation of the risk involved in value transfers how would a centralized blockchain be able to offset that risk whereas the current centralized system can't? How in your mind would a centralized blockchain solve that problem? Or it just wouldn't? If the risk is currency fluctuation in Bitcoin it immediately is offset by the fact that your dealing in dollars or you're dealing pounds or you're dealing in Somali shillings. I know.

Blockchains are independent of the token. In the Counterparty Project what we expect will happen is you'll be transferring dollars over Bitcoin. If the blockchain is just Citibank, Bank of America, and Chase they innately have to trust each other and they don't need verification. I want to get back to this idea of the microloans because this is really very important. A lot of people are saying, "Oh, this is terrific!" I got in touch with a guy who is in Brazil and he said to me, "I run a wine store. I've got a wine business, a legitimate business and I have the ability to buy two cases of really great Spanish wine.

I take Bitcoin in my business and I hold them." One of the rare businesses who doesn't trade them in right away. "I take them and I hold them. Now I can buy these two cases and I can pre-sell a lot of the bottles. I can't put it on my credit card and the bank won't loan me the money. I want to borrow.

" I think he wanted 1.1 Bitcoin when it was about $300. No, it was at $400. He wanted $440 to buy this really expensive Spanish wine. Twenty-four bottles divided by 440, whatever that is or 440 divided by 24. He got online, he went to one of these sites where you can do these microloans and he got himself a 1.

1 Bitcoin loan at 2%. That's a terrible idea. The unit of account is horrible on Bitcoin. That loan ends up being so volatile Even worse, I said to him, "What was the length of the term of the loan?" He said, "Two weeks." I said, "Tony Soprano charges a point a week. This is loan-sharking.

This is usury. This is crazy." You can't sustain a business at those rates. I don't disagree with any of that. I certainly get that. It seems very obvious to anybody who has ever borrowed money which is not 16 year olds.

I understand that, certainly. Chris, there's another problem. Let's say you loaned him a tenth of a Bitcoin and you're gonna get back a certain interest rate. He's in Brazil. You're in Vancouver, Canada. How are you gonna collect when he defaults on the loan? Of course.

Loaning is a very mature industry. There are a lot of competitors. It's a very well defined and a very well understood problem. And you don't just come here with Bitcoin and say that goes out the window. I get that. Yeah.

But also the fact that I got on one of the sites and I saw and Andreas was saying, "You can get these loans at very small interest rates." I found the interest rates were 200% and 300 APR. I found one at 2037 APR. You cannot possibly sustain a business of any kind at those interest rates. You're platform is very much about Bitcoin as a currency which I personally distance myself from. That's right.

I don't see it as currency for a lot of these reasons. I think that talking about it as a currency is not worth anyone's time. The smart money does distance itself from the currency. Absolutely. Because the technology is where the interest is. The smart money does.

But what I say about the technology is look at the Winklevoss twins. The Winklevoss twins are running around trying to get out of the currency. Their act is pretty transparent. They own 100,000 some odd Bitcoins. They can't sell them. They can't do anything with them and the price is going down.

That's not true. There is a lot you can do with Bitcoin though. That's what I think your platform always misses. Not with 100,000 Bitcoin. You can't cash in. You'll crash the market.

It'll come down to a dollar a Bitcoin. Hold on a second. I'd like you to listen to this then tell me what your opinion is just because I am very curious. I'm a programmer and in my life as a programmer I've never had the ability to persist what's called "an immutable value," a value that cannot be changed. There is always, in programming, the ability to change variables. When you look at the blockchain what it lets you do is solidify, in history, a value that you know will always be there.

You know that it will be there for as long as energy is being pumped into that chain. The value case for Bitcoin as a commodity is this intrinsic value of persisting immutable variables. Is that something you've thought about? Is that the value of a blockchain? Have you heard of that before? That's not the value of the commodity and it's clearly not the value of the commodity because it's being traded like a pretend commodity. People are saying there is intrinsic value in the Bitcoin as the pretend currency. Bit it has no intrinsic value. Look at the Winklevoss twins.

Let me explain what they're trying to do. They're sitting on 100,000 coins. At one point, it was 1% of all the Bitcoins, right? They can't cash out. There is nothing they can do with this 100,000 coins. So what they've said is we're gonna set up an ETF. We're gonna set up a traded fund and what we'll do is, for every five shares in the fund we will back it with one Bitcoin.

Now, where are they gonna buy their Bitcoins from? Themselves. If you look at the theory of the greater fool that is what the Winklevoss are all about. They get on television, they get on CNBC and they get on FOX News Business and they pump the value of the Bitcoin saying it's gonna reach $40,000 a coin. They know it's not gonna do that. They're snake oil salesman. I don't speculate on the price.

I'm not gonna argue that either. That's what I'm saying. If you're gonna get into this you have to understand the sharks in the water are trying to take your money. I get that. I totally get that. I don't even disagree with it.

I think the major crux of what I disagree with, in your platform, is the intrinsic value case. I think you said earlier that blockchains have intrinsic value though? Was that not something you said earlier? By definition. By definition they do not, you say? Or they do? No, they don't. What's the definition of intrinsic value? The use of a commodity outside of the speculated interest. Sure. Like gold.

It's ... I'm not actually a big believer of gold having a huge intrinsic value but it has some certainly, yes. It does! Are you wearing a wedding ring? Are you wearing a gold watch? Are you wearing gold jewelry? Do you have gold in your teeth? It is a wonderful decoration and if decoration is intrinsic value then yes, absolutely. I'll go with it for the purpose of conversation.

There's a whole world of jewelry out there. I know. That's what creates the floor and the ceiling of the commodity and the floor and the ceiling are very important concepts. There is no floor and there is no ceiling with Bitcoin. Gold is perfect example because gold is a global market . .

. It's a market. . . . with global floor and a global ceiling.

When the price of gold goes too high miners are encouraged to bring it out of the earth which creates more supply to meet the demand and it lowers the price. When the price gets too low the jewelers buy and the wire people buy and the dentists buy which creates demand and raises the price. What is the floor and what is the ceiling of Bitcoin? Well, it's a market so there is no inherent floor or ceiling but it's purely speculative. I don't necessarily disagree with that all. That's right. There is no intrinsic value.

If it gets too low it doesn't mean people are suddenly going to buy for some other reason. What I think you don't understand though, that can't probably understand unless you're a programmer, is that there are many times when you want a value to be constant and never changing and in the history of computer programming we've never had that option without a center. How come the price of Bitcoin goes from $1200 to $230? It's a market because so many interests are competing and so many evaluations that are completely screwy. What are those interests? At the moment it's probably 99% speculative 16-year-olds. I wouldn't necessarily disagree with that. Not just 16-year-olds but it's all speculative.

For example, if you look at the volume, there is another thing that I get at. There is no serious journalism being done about Bitcoin. Everybody is buying into the whole thing. I don't see any serious journalism. I don't see it in any of the business publications. I don't see it any of the newspapers.

They're all buying into this. There was a story the other day that came from Coinbase that was fed to a journalist who simply repeated the PR. It's scandalous. I'm an old fashioned guy. I made phone calls. He repeated the nonsense of Coinbase.

Coinbase said the volume of Bitcoin trading is 120,000 a day. One second though Jeffery, just back it up. What does a blockchain do? It seems to me like it's a little inconsistent in that you suggest a private blockchain provides some security, but the public blockchain doesn't necessarily have that same... Look at Eris.

That's where the future lies. That's where the development lies. You have Ripple, you've got Eris and sure, Ripple has the XRP coin, but no one is trading it. There is no speculation market. None of the sharks are in the water there. Look at where the future is.

Look at what Andreessen is really saying when he says, "I want practical solutions to real problems." He's saying, "I'm looking to sell this to somebody who is gonna buy it if there is no guarantee that you're not gonna lose your money if I can cut out Bitcoin." That's all I'm saying. The future belongs to blockchain that will cut out Bitcoin. The Bitcoin Satoshi blockchain is the big church. It doesn't mean there aren't other churches.

I know a guy in England who is probably one the world's great experts, maybe two or three experts, on payment systems. He said to me, "I am now working on several major projects that are being funded on blockchains that have nothing to do at all with currency and nothing to do at all with the Bitcoin." Right. Two things really quickly. I don't actually disagree with you that the Satoshi religion is a religion. Though I would probably suggest that all currencies are probably little bit faith based in general where we probably don't see eye to eye.

When you've got the government of the United States standing behind it . . . Fair enough. Oh, and to be clear . .

. . . . I think that's a risk worth taking. .

. . the dollar is not going anywhere. I'm not gonna argue with you that the dollar is bad . . .

That's another thing. . . . because it's not. Here's the best one.

The best one they came up with was, "The central bank is evil because they built into the system inflation. Bitcoin doesn't have that." No, Bitcoin has deflation and Bitcoin also has devaluation, but there's no inflation. Okay. If you have a $100 bill in 1913, today, 102 years later, that $100 bill would be worth $3. So you've lost 97% of your value.

This is a libertarian argument. It's not even a Bitcoin argument. That's true. This has been going on forever. I don't have any 1913 $100 bills under my mattress. I'm not gonna argue that.

A 2015 hundred dollar bill is worth $100. It's not worth three dollars, it's worth $100. It built into the system of interest where you can make money instead of leaving it under your mattress which is a dumb thing to do. You make money on the interest, you get a salary raise, you fight inflation, you're able to maintain your money. Inflation in Britain, last week, was 0%. If you've got a 1% savings account you're 1% ahead of the game.

You're not losing to inflation. So that argument is spurious. I get that. I would suggest, Jeffrey, a lot of your complaints or a lot of your criticisms of Bitcoin are very accurate complaints and criticisms of 16-year-olds and libertarians more so than the technology which is fair enough. And the Winklevoss twins and Andreas and Roger Ver and Jon Matonis and Tim Draper. All of these guys are snake oil salesmen and I say it to their face.

They're trying to pull the wool over people's eyes. Respectfully, I don't think you have quite the technical competency to understand what a blockchain does. That's irrelevant. There are people putting money into Bitcoin. We can agree to disagree on that. Wait, wait.

There are people putting money into this pretend currency and they're gonna lose their shirt. Listen, when you look at the trading volume every day, 120,000 trades a day, most of it, 90 some odd percent of it are the miners moving it between wallets and addresses. Then there is the gambling. The actual buying and selling of goods and services, and this is not me, this is Coinometrics, this is John Levine and Tim Swanson, the actual buying and selling of goods and services is about 1% or less. I get that. Nobody is using this to buy stuff.

I get that. It's being sold as a real currency. That's my gripe. I have two more questions for you I don't want to take up too much more of your time. I appreciate where we've gone thus far. They're probably both quick questions.

Are you familiar with the project that I'm affiliated with, The Counterparty Project? Has this crossed your path at all? Do you know about it? No. Okay. That's probably a quick question then. I would suggest to you that maybe it's worth spending 5 or 10 minutes looking over as it is probably the best way to understand the best way to understand the intrinsic value of Bitcoin and that's my motivations of Bitcoin if you're wondering why it is that I'm hanging out with these people. Moving onto the last question I want to ask you, what do you think of paper money? Why do we still use paper money? You know why? It's easy. Because it's easy? It's easy.

Yeah. Interesting. Now, I think paper money, over the course of the next 20 years, will almost disappear. There are cash based societies which are not cash based because they can't get a bank account. Because this is business of helping the unbanked is not gonna work. It hasn't done it.

There is not a single unbanked human being in WiFi popular America who has switched over to Bitcoin and gotten himself a bank. In fact, the big players like Bank of America and Walmart are getting into the unbanked area and getting people bank accounts. In Kenya, everybody points to M-Pesa. "Whoa! Look at that! You can put it right on your phone." But M-Pesa is a centralized system with Vodafone and a bank. It's not a bunch of guys with t-shirts on bicycles, missionaries, with the "in thin air we trust" t-shirt.

It's real commercial interest. That's what I'm saying, the commerciality. The idea that you can live on this currency is foolhardy. You can't. It's much too bulky, much too complicated. My mother is never gonna give up her dollars for Bitcoins because we have dollars, it's easy.

You have it in your pocket or you have it in your bank or you've got on your iPhone and you do iPay and it's simple. The whole world functions because there is something called circular flow of income. In other words, I pay you in dollars, you pay him in dollars, he pays them in dollars, they eventually pay me in dollars. Everybody is using it. there is no circular flow of income with Bitcoin. Every purchase by Bitcoin is actually a sale of Bitcoin because very few of the companies actually take the currency and use it.

Here we get back to the journalism again. Huge headlines. "Dell Accepts Bitcoin" and "Expedia Accepts Bitcoin" but they don't. They allow you to pay in Bitcoin, but they don't accept it. They go right through Coinbase and don't touch the Bitcoin and that's significant because if it is going to be a currency then you want them to hold onto it and nobody does. Have you considered that Bitcoin as payment mechanism might actually have a lot of potential in the same way that Apple pay has potential and that we use the currency as dollars? But no one is using it.

That's what I'm saying. Oh, of course not. We're talking about the technology potential, not what people are doing today. As soon as they put the blockchain into dollars and you eliminate the miners and the pretend currency, Bitcoin it will take off. But not until then because no one is actually gonna start spending Bitcoin. Listen, one other thing.

There was a guy in England I got into an argument with. He's got a credit card that will allow you to spend your Bitcoins anywhere in England. You go into Selfridges, you give them the credit card, okay. So I said to him, "That's great, but it's completely illogical." It makes no sense whatsoever and you're not gonna fool everybody all the time with this stuff because you have to take your pounds and buy Bitcoins and then you go into Selfridges where everything is charged in pounds. Why would you put Bitcoin in the middle? There's no added value to that.

You're simply adding cost to that. Just walk into Selfridges with your pounds or your Visa card in pounds and buy what you want. Why would you put Bitcoin in the middle? It's completely illogical. It makes no sense. The argument, and I'll give it you, is that in the same way Western Union charges and captures a 5% to 10% regulatory related overhead in economic rent you could also conceivably see that Bitcoin at 3 cents could move dollars without the same level of regulatory encumbrance and that would be a way to do that. Where is that happening? This is the holy grail of the blockchain.

I think we all agree to this. Everybody sees that the blockchain has potential. Eris thinks it's gonna be one way, Ripple thinks it's gonna be another, but I think that everybody agrees at some level the blockchain can provide this. You're not familiar with the Counterparty Project, but that's certainly our goal, to move dollars over Bitcoin. That is what we do at a two-second level. That's fine.

Then I'm interested because I don't want to have anything to do with Bitcoin the pretend currency. That works. Not if it's gonna fluctuate 10% in a hour. That's perfectly fair. I don't disagree with that even. Here's another example, one of the great spokesman for Bitcoin, at least last year, was my friend Patrick Burn at Overstock.

Yes, we're well aware of him. He was a doubter, he got into it, he announced that Overstock would accept Bitcoin when it didn't, when it went through Coinbase. He was very clever about this. He said, "We'll take it and we'll go through Coinbase." Then Fred Ehrsam at Coinbase said to him, "I'll tell you what, we won't charge you when we convert from Bitcoin to dollars. Somebody will pay a Bitcoin which is $500, we'll send you the $500.

We're not gonna take our commission. We'll charge them but we won't charge you." So he figures, "I'm gonna eliminate 3% of my Visa cards that way." That sounds like a good deal. And the very first day, Patrick is a very smart guy. Yes he is.

The very first day he took $133,000 in Bitcoin sales and said to me, "Most of it were people in the Bitcoin ecosystem saying, 'We're gonna support you because you're supporting us.'" That's very true. And he played on that. Within six months, he was taking less than $7,000 a day. It's hockey stick down. Now, in a very little publicized statement to the SEC.

..Patrick said to me, "What I want to do is I want to take 10% of our Bitcoin sales and keep it in Bitcoin." Okay, that's fine. I don't think that's fine. I think that's a bad idea.

Seven thousand dollars a day in Bitcoin sales, that's a lot of pillowcases and garden furniture, I guess, and he was taking $700 a day to put on his books. He spent $400,000 putting Bitcoin on his books and said to the SEC he would probably spend another $400,000 because it's an accounting nightmare because every movement of Bitcoin becomes capital gains and capital loss according to the IRS. It's a nightmare. So now's he's gonna spend $800,000 to save 3% of $700 which I calculated will take him almost 10 years to get his money back. In other words, even Patrick Burn, champion of Bitcoin has to say is, it's not profitable. It's not even sustainable.

What you should consider, I would say, and where the movement will probably go, I think, is people will be moving dollars over Bitcoin. And in the same way that you use Apple Pay.....

.like this to move Amex IOUs, you'll also be moving dollars in the same way. So I would suggest that you probably... I agree.

Okay. That's probably a good way to end the interview then. What the hell? You might as well end it on a positive note, right? All right, cool, Jefferey. I totally agree that it will end up in fiat terms. It has to. Otherwise it's just not gonna work.

I don't disagree. Managing money is a lot harder than 16-year-olds think. If they disagree it's understandable. I don't disagree with you on that part at all. I appreciate your time, Jeffery. Is there anything else you want to do? I'm really not the big, bad monster that they make me out to be.

Honestly, I'm not. You've been pretty good. I appreciate your time. Twenty years form now I think we're all gonna be dealing in crypto-dollars and crypto-pounds and crypto-euros. I think crypto-currency is the future. You hear that? Look at the project the Canadians did called MintChip.

It's very interesting because they came close. The Canadian mint was gonna mint crypto-loonies and crypto-twoonies and they came very close and then the Senate, the same committee I testified before and Andreas testified before said, "No, we shouldn't be in this development stage. Just sell it off to somebody." You know who's supposedly interested in buying it from the Canadians, the whole concept of crypto-dollars? Walmart. There's the future. I like it.

I think that was great interview Jeffery. I appreciate your closing notes. I appreciate your time and maybe we'll do a follow up in a year from now or something and see how things progressed. Does that work for you? You just broke up. I didn't hear that. I was just closing it up and yeah, we did break up for a second.

I was saying it was a wonderful interview. I appreciate your time and I look forward to putting up this interview soon and maybe we could try it again in a year and see what has transpired since then. Sure! Sure, it's a pleasure. Thank you, Jeffrey. I appreciate it. Have a good day.

My pleasure. Thank you. Good luck. Bye bye.