Translator: E. M.
Reviewer: Michele Gianella
We are at the dawn
of the digital civilization,
we have probably already figured that out
because our mail has become digital,
music and movies have become liquid,
and all those things
that used to sit on our shelves,
like encyclopedia, have gone,
replaced now by Wikipedia.
Nowadays we expect, correctly or not,
that an entire banking
and financial system
will fit in our smartphones.
The Nobel Prize in Economics,
Milton Friedman, had already predicted it.
In 1999 he said: “What we are missing now,
and will be certainly created
in a short while,
is a digital currency –
mind you, not a digital coin
linked to an individual;
but rather personal cash
that can be used anonimously,
by anyone, online.
This prophecy has been fulfilled
by the creation of Bitcoin,
which absolutely is
pole position in the race.
Not so much for being,
quite obviously, digital:
our euros and dollars have been digital
for quite a long time too.
Rather, it’s because it is decentralized:
there is no organization,
no government behind it
that holds the power to manage it
and supervise its functionality.
And this, albeit a bit scary,
it’s a very strong guarantee
that Bitcoin cannot be manipulated.
It’s that type of innovation
known in the English-speaking world
as “permissionless innovation”.
What does that mean?
It’s a type of innovation
that has no centralized safety mechanisms,
no entry checks,
not even an editorial
content control system.
If you’re getting scared
by this seemingly anarchic plan,
there’s no need to worry.
We’ve already witnessed
this type of innovation in action,
and it proved to be
both effective and gentle.
The e-mail, for example:
it was not invented
by a consortium of post-offices,
the Internet was not invented
by a telcos consortium,
So why should a transactional
network of value
be built by a consortium of banks?
I can’t really wrap my mind around it.
I came across Bitcoin in 2014 –
I studied physics,
and I worked for more than 20 years
in the field of investment banks,
finance and so on.
But I had never asked myself,
not even once, what money is.
The first time I thought about it
was when I stumbled upon Bitcoin:
up to now, that’s the best gift
that Bitcoin has ever given me.
So I’d like to play a game with you,
let’s try and go over the history
of currency in only three minutes.
Here we go!
The earlies form of currency
we find in history is gold.
It might seems weird,
but gold had two peculiar characteristics:
there wasn’t much of it, and it shone.
Turns out, human beings
love shining things.
Gold was also quite malleable,
and it is fairly easy
to determine its purity.
Take a pot, put it on the fire,
let the gold melt
and then wait for it to cool down.
If it’s still shining
after this thermal shock,
it’s definitely gold, trust me:
any other material would stop shining,
But if for every business transaction
the process needed to be repeated,
it would have been difficult.
So we asked Julius –
yes, I mean Julius Caesar –
“Look, Julius, how about
putting your face on the gold coin
as a guarantee there’s
that much gold in it?”
The first deflationay crisis
came about with his heir,
Even the peasants realized,
sestertia did not contain
the figure amount of gold.
But for the medioeval merchant,
gold had even another problem:
it was really heavy.
Gold has a very high density, so it was
uncomfortable to carry it around.
And also risky, for you
can be robbed by bandits.
Almost at the same time in history,
and those who would later become
the Italian bankers,
they came up with the same idea:
they suggested the merchant
to leave the gold in their vaults
in exchange for a certificate
that first was nominal,
and would later become
a bearer certificate.
It was a bank-note
with which one goes to her pawn counter
and redeem her gold back.
That’s how the banknote was born:
a currency that represents
an amount of value stored elsewhere.
But both the Britons and the Italians
couldn’t resist a temptation:
after noting that most of the time
people did not ask for the gold back.
So they had what we might call
a spark of genius.
They thought: “If we print more banknotes
than there’s gold in our vaults,
who will notice it?”
Do you know what the answer is?
No, no one!
So the fractional coin appeared:
there are more banknotes
that the redeemable gold.
Jumping forward in history:
in 1972, even in a regime
of fractional currency,
the redeemibility of money,
US dollars in this case, in gold,
was still a limiting factor
for those in charge of monetary policy.
But Richard Nixon had enough,
and he decided that
the US dollar couldn’t be converted
in gold anymore.
From that point on, we have “Fiat money”,
and I do mean exactly
“Fiat Lux et Lux Fuit”:
a currency whose value
is purely conventional,
its value it’s based on a social contract
that we all agree on.
And if someone does not agree,
we can force that person
by using something know as “legal tender”,
which means that fiat money
must be accepted to pay back a debt.
Let me say it, this is a bad coin,
actually, we could even say
that it’s a terrible coin:
we don’t need to recall
the most egregious examples
in the history of money.
Our dear old friend US dollar,
already proves it:
it’s not exactly impeccable.
Starting from 1913, the year in which
the Federal Reserve was funded,
the USA dollar has lost
more than 96% of its purchase power.
That means, it’s a bad currency.
It’s the typical result
of a monopoly situation.
Friedrich von Hayek,
Nobel Prize in Economics
and founder of the Austrian school
of economic thought,
wrote an entire book
bemoaning the fact that:
“We deem essential the government’s
monopoly of the currency.
We would accept the monopoly
over no kind of good,
in a market economy.
Yet we do accept the monopoly
of that syntethic product
that has half of the power
in any business transaction:
Like any type of monopoly,
not only it delivered us a bad product,
but it forbid us
from looking for a better one.”
Therefore, Hayek did conclude:
“If we ever want to have
a good currency again,
we have to take it away
from the control of the States.
And since we cannot do that using force –
he was a good man,
and I comply with his invitation –
we should do it with a clever gimmick,
something they wouldn’t be able to stop.”
Bitcoin is exactly that clever gimmick.
Now let’s try to dive deeply
into what a currency is.
Money is, in it’s essence,
a tool for social relationships.
I know that this might not be
the definition you were expecting;
but if you think about
your own experience,
we were all born in a gift economy.
I hope that none of you had to pay
for all the parental care you received:
otherwise I would feel
very sorry for you all,
and quite happy for your therapist,
who will certainly have
a lot to work on with you.
But this gift economy
doesn’t only encompass our family,
our friends, our neighbours,
what we could call “our tribe”.
It’s an economy that doesn’t scale,
because sooner or later
we will run into people we don’t know,
and that is why we don’t trust them –
or maybe, sometimes,
we don’t trust them
precisely because we know them,
which is more or less the same.
But we are inherently social animals,
that’s what we are anthropologically,
so we want to cooperate
even with those we do not trust.
So, at first, we invented
the practice of bartering:
I give you my eggs, but it just so happens
you’re going to give me your milk today.
Alternatively, in order to barter
anywhere and anytime,
we invented the currency:
a syntethic good that allows us
to cooperate with people we do not trust.
I’m not sure about you, but I hope
for a moment of intellectual upheaval,
because I reckon this remark
as hugely important:
a currency is a tool we use to cooperate
with people we have no trust in.
So it’s quite clear that, today,
in what it’s for the first time
a digital and global information economy,
the need arises
for a supranational currency,
a digital coin, not controlled by states,
a global currency,
a currency of the Internet.
The problem is, it is insanely hard
to create an Internet currency.
The biggest problem is known
as “double expense problem”.
Every time that we have a digital artifact
that represents a value,
we’ve always needed
a centralized authority
in order to prevent its duplication.
Digital as it is, it’s easily duplicable.
It’s easy to grasp:
consider your current account balance.
If I transfer my current balance account
to your account –
don’t get your hopes up,
I don’t have that much money –
and then I try to transfer it again
to the gentleman here,
my bank, which controls the updates
of the ledger, is going to tell me:
“No Ferdinando, you cannot do that.”
How are we going to create
a valuable digital asset,
that is to say an non-duplicable asset?
Because – think about
the painting “Gioconda”.
Gorgeous, no doubts about that.
Its market price is incalculable.
But if the painting
could be duplicated without control,
for an unlimited number of perfect copies,
it would still be gorgeous,
but its market price
would drop down to zero.
That’s what is happening with Bitcoin,
and it’s limited to 21 milion Bitcoins.
Bitcoin, in a way, is as scarce
as physical gold:
gold on the physical level,
Bitcoin on the digital level.
Bitcoin is, or at least is aspires to be,
the digital counterpart of gold.
And now I’m going to hope
for a second moment of upheaval.
I’m pretty sure, you all today
came here in this theatre
believing every digital thing
can be duplicated.
This is the very intuition
that Bitcoin proves wrong:
It’s a digital gold
and attached to it,
inside of the Bitcoin itself,
there is a transnational network,
which is both safe and not-censurable,
that can be used
to transfer this gold globally.
I know you are skeptical,
I can see it in your faces.
Let’s play another game, then:
imagine that an alien
was going to land here, okay?
You have to explain
the traditional currencies to him,
and I’m going to explain Bitcoin.
I will start right away
by telling the alien:
“Look, their currecies
have no inherent value.”
At this point you might respond,
“The same goes for Bitcoins, Ferdinando!”
And I will say, you serious?
I’ve just explained to you
the shortage in the digital world!.
But your game is easy:
What about the social contract,
centuries of history of the currency,
the legal tender –
Alright, 1-1, time for the kickoff,
let’s start this over.
This time I’m going to start
by pulling your leg,
saying that the cash you carry around
is just a bunch of colored paper.
Yeah, right, special paper, special ink:
but, let’s be honest, it’s just the same
as the cash in the game of Monopoly.
My coin, on the other hand,
is pure math and encryption.
Not only that, I will also tell the alien
that while I am a kind person,
I’m not forcing my Bitcoin on you,
you are instead rather coercive.
I cannot refuse your euro.
The legal tender tells me,
if a debtor wants to settle
his debt with me in euro,
I can’t deny him that.
I’m goint to let you figure out
how the alien is going to see all of this.
Oh, I almost forgot,
maybe I should also tell the alien
that a gentleman, in Frankurt –
a very composed gentlemen,
the most serious of us all –
he can print as much of that colored paper
as he likes, whenever he likes,
and give it to anyone he likes.
He was not elected,
and he won’t need to take responsability
for how he carries out his duty.
Meanwhile I’ve already
explained to the alien
that Bitcoin’s monetary policy
is perfectly deterministic,
it can’t be influenced.
You might say: “Right,
but no one is using Bitcoin.
there are no business transactions
carried out using Bitcoin.”
That’s for sure:
those who bought, in 2010,
two pizzas, paying them 10.000 Bitcoin –
which at the current rate
woul be 40 milion dollars –
Well, let’s just hope that
those pizzas were really, really good,
because I wouldn’t have been able
to digest them in any way.
Bitcoin is a safe-haven asset,
so it’s stored.
Therefore it makes much more sense
not to compare it to a currency,
but to actual gold.
Gold has been accepted
by all civilizations
as the earliest form of currency,
without any type of centralized planning.
It was for centuries
the most successful currency,
it set off the development
of all the monetary systems we know,
it was overtaken by forms of currencies
much more sophisticated
without it becoming outdated.
What happened over the centuries
to physical gold,
is happening in these ten years,
and will probably happen
in the upcoming decades, to Bitcoin.
The Bitcoin’s most scary trait
is the value volatlity:
it goes up and down.
There isn’t much to fear, to be honest.
I mean, every time
someone talks about Bitcoin
you should fasten your seatbelts,
because the ride tends to be quite bumpy.
But Bitcoin’s volatility is physiological.
When market mechanisms
of supply and demand
try to assess the value of a certain good,
if the product is controversial,
like digital gold,
the process is going to be
just as mush controversial.
We’ve seen it already happen,
in history, with e-commerce:
take a look at the history
of Amazon’s ratings, its volatility.
The worrying part about Bitcoin
is the so-called “drowdown”:
highest to lowest point,
it managed to lose
more that 93 percent of its value.
So my bottom line is,
if you ever plan to invest in Bitcoin,
do it with a small percentage
of your savings,
small enough that you would be able
to reasonably sustain its complete loss.
The good news is that
Bitcoin is not correlated
to other investment asset classes,
to other investment opportunities:
It doesn’t move with them,
it diversifies the risks.
So, if put it in an investment portfolio,
even if it sounds counterintuitive,
but it draws dawn
the risks of that portfolio,
expected rate of return being equal,
or, given the same risk,
it increases greatly the expected return.
So it is a good idea
to invest a small amount in Bitcoin,
and this gives us a cue
for some final considerations.
Let’s imagine that 2 percent
of the assets under management –
I’m not referring
to 2 percent of the global wealth,
but 2 percent of those assets
that are professionally managed –
let’s imagine that they invest in Bitcoin
over the next few years.
Well, if we do the math,
the value of a Bitcoin is going to be
a hundred thousand dollars.
But if Bitcoin is, or proves to be,
the digital gold –
I say if because it’s a bold experiment
and it might fail, let’s not forget that,
but it’s an experiment substantiated
both culturally and technologically –
again, if it proved to be
the digital gold,
well, ladies and gentlemen,
it would be better than actual gold:
extremely light, instantly transferable,
low transactional costs,
no logistic problems,
non-censurable and unstoppable.
Therefore, if Bitcoin was to capitalize
the same amount as gold today,
its value would raise to 400.000 dollars.
100.000 dollars, 400.000 dollars –
I’m not here to sell you Bitcoin,
I’m just saying,
if Bitcoin is digital gold,
it’s currently greatly underestimated.
Someone might object saying that:
“I’ve read that it’s not Bitcoin,
It’s the blockchain,
the technology underlying it,
the real deal”.
When it comes to this,
I love to paraphrase Confucio, he said:
“When a wise man points at the moon,
the fool looks at the finger”.
The moon is Bitcoin,
the finger is the blockchain.
You can’t overlook the relevance
of the Bitcoin phenomenon.
If you have the slightest understanding
of the role that gold played
in the history of civilization,
finance and currency,
the rise of gold’s digital counterpart
in the digital civilization
and in the future of finance and currency
is going to be explosive.
I would like to end with a thought:
25-27 year ago,
I used the e-mail and surfed the web,
but I’d never imagine
that on top of the TCP/IP protocol,
the technology underlying
the web and the e-mail,
would be used to organize our weekends
in digital clubs – Facebook,
or buy liquid, digital books and CDs
from online shops,
or we would ask questions
in natural language
to a computer, a digital assistant,
expecting a meaningful answer.
I can’t tell you, 20 years from now,
what we will be able to make
on the value’s TCP/IP protocol,
which type of incredible apps
we will have managed to create:
that’s exactly the adventure
that is waiting for us over the horizon.