This Too Shall Pass

Every passage, on the record.

1. 00:00Claim

   This too shall pass, and this will not be remembered except as another shining example of how antifragile the Bitcoin system is: how any attack makes it stronger, and how any person or entity that wishes to do harm or discredit Bitcoin is ultimately rejected.

2. 00:59Reference

   Warren Buffett, for all of his downfalls in terms of what he understands about Bitcoin and how wrapped up he is in the legacy system, has been successful for his entire life for some very specific reasons, one of which he mentions in his latest letter to investors around the annual Berkshire Hathaway meeting.

3. 00:59Claim

   It's a really simple strategy around Bitcoin: you transform energy in the physical world, you exchange it for Bitcoin with someone that needs that energy now, and you just wait until you need the energy. If the extended order is more productive in that time, if we make ourselves more efficient in that time, you are one of the beneficiaries: you get more energy in return for donating it to the system.

4. 02:29Idea

   The beautiful part about Bitcoin is that it self-selects for the most efficient energy allocators; those are the ones that receive the most amount of Bitcoin and therefore bring the most amount of energy to the network.

5. 02:29Analogy · condensed

   Warren Buffett's idea is that you should project onto your life that you have the opportunity to make 20 different investment decisions across your time on this earth, 20 decisions that define your success; you don't get 21, you get 20. He credits roughly 12 decisions over a 70 year career with the vast majority of his positive results.

6. 03:28Claim · condensed

   That's about expressing low time preference: when you see something with an advantage, a moat that shields it from competition and lets it improve itself as the most efficient means of transforming energy in its sector, you should go in heavy, believing the actions you're taking are in your best interest, and that discipline makes you careful about how you allocate your energy in investment decision-making.

7. 03:28Quote

   There's been vastly more capital which has been squandered preparing for corrections than in the actual corrections themselves.

8. 03:28Claim

   You will do yourself more harm trying to run around finding ways out of a situation than by just going through that situation and coming out the other side, continuing to transform energy; the beautiful thing about the Bitcoin thesis is that you no longer have to, on your own, invest the time and energy necessary to locate the sectors that are advantageous to your portfolio, because that job is now done by Bitcoin, by the extended order, the hive mind that emerges from this exchange of value.

9. 04:59Idea

   The tassel, the total accessible supply of energy. That is what we are learning from that constantly. That is the signal that has been filtered from the noise; the noise is no longer possible.

10. 04:59Claim · condensed

    If every major decision Warren Buffett credits with his success works out to one every five years across his career, then every five years, if you can allocate energy to Bitcoin, you are essentially playing the same game Warren has played and been incredibly successful at.

11. 04:59Claim · condensed

    This arbitrage of information, which is really an arbitrage of energy, will not last forever. People don't understand what Bitcoin is or how it works or the problem it solves, and because you do and they don't, all you have to do is buy Bitcoin, hold it, and wait.

12. 06:30Claim · condensed

    Once you find a tool that manages your energy allocation for you, every other aspect of your life becomes significantly more efficient, because the time and energy you would have spent filtering through the noise of the markets can instead go into transforming more value in the physical world, which brings more energy back to you, which should leave you with significantly more Bitcoin than you started with.

13. 06:30Quote

    That eliminates future uncertainty from your life.

14. 08:19Claim

    We want to make sure we are constantly validating our thesis, to make sure we are one step ahead of everyone else, because the last thing you want to do is have your life's energy in a system that can be exploited and not know about it.

15. 09:19Claim · condensed

    Bitcoin has limited block space, so to get your transaction included in a block you need to bid for that space on an open, permissionless market; you need to entice the miners with a large enough fee for them to include you in the next block.

16. 09:19Idea

    We have for a number of years been in the Golden Age of Mempool depth, because very few people understand what Bitcoin is, and that means usage now versus peak future usage is incredibly small.

17. 09:19Prediction

    Everyone in the ecosystem is used to very low fees, fees that don't make sense going forward as adoption grows.

18. 10:50Claim · condensed

    If the supply of block space is limited and demand increases, the price has to go up, because the utility is going up; it used to be very cheap to get a transaction included in a block, one sat per vbyte, and that is no longer the case, by design.

19. 10:50Idea

    Bitcoin creates its own clock of which the blocks are the ticks. The block separates the past from the future: there is causation before, we knew exactly what happened to get to the current state, and unpredictability after, we don't know what the next block's transactions or nonce will be.

20. 10:50Reference

    One of my favorite pieces on Bitcoin is Gigi's Bitcoin Is Time, which lays out exactly what the system is creating when a block is configured and propagated through the network.

21. 12:20Claim

    We need to be able to accurately track when the initial movement of UTXOs inside the system happened; this prevents things like double spends from being possible in the first place.

22. 12:20Quote

    Bitcoin is time: the frequency of the tick is not nearly as important as the consensus that the tick has taken place.

23. 13:09Claim · condensed

    Miners are rewarded in two ways: through the coinbase transaction, the block subsidy itself, which is the first transaction in every block and allocates the block reward to the miner who finds a nonce that satisfies the difficulty set by the network; and through transaction fees.

24. 14:01Claim · condensed

    The block subsidy is the number that gets cut in half during the halving cycle every four years, until it eventually goes away as Bitcoin reaches its ultimate number of 21 million, or somewhat under that figure.

25. 14:42Claim · condensed

    The FUD has centered on taking Bitcoin's low-fee history and projecting it forward, modeling a case that limits mining profitability, which means fewer miners are inclined to take up the responsibility, which weakens the energy wall protecting users and makes the network more vulnerable to attack as miners exit.

26. 15:55Claim · condensed

    Limited block space is good because it allows decentralization of the system; we have small blocks because that makes it that much easier to decentralize around the world, rather than raising the cost of running a node and lowering the total number of copies.

27. 16:42Reference · condensed

    This war has been fought before, in the block size wars of 2016 and 2017; the market spoke and it was overwhelmingly unsuccessful for the organizations and individuals pushing for larger blocks.

28. 17:20Claim · condensed

    The big blockers' argument came from a flawed understanding of how a money system is constructed overall: money works more efficiently in a layered ecosystem, the same way fiat currency is built up in many different layers, and it will be like that in the Bitcoin system too.

29. 17:20Idea

    Layers are simply a more robust solution that allows flexibility and security to be maximized for the largest number of participants; the most important elements on the base chain are that it continues to be decentralized, secure and trustworthy, and speed can be solved for in other ways without compromising those things.

30. 18:50Prediction

    When hyperbitcoinization takes off and fiat collapses, either gradually or suddenly, the energy will flow into Bitcoin.

31. 18:50Reference

    We have to step back and try to project out into the future what a layered world might look like when hyperbitcoinization takes off.

32. 18:50Analogy

    Imagine the fire alarm blasting at max volume and the exit is only so large; that's the moment when confidence slips in the fiat world and the extended order goes looking for the exit, and the only place experiencing any success is Bitcoin.

33. 20:20Analogy

    Like at a movie theater when there's a fire and the exit is only so big, we're going to have some serious bottleneck issues; it works, but not very well, for people who don't already have a ticket. If you're standing outside the door, you win; for people on the other side, it's going to become very, very expensive.

34. 20:20Prediction · condensed

    As more people compete for the same amount of limited block space and no new supply can be issued, the only result when demand increases is an increase in price.

35. 21:51Quote

    Remember that Bitcoin is an opt-in system. You can't be forced to use Bitcoin.

36. 21:51Prediction

    As people climb over themselves to remove themselves from the fiat system, there's going to be a very high priority on doing that, and that is going to send transaction fees through the roof.

37. 23:15Claim · condensed

    As transaction fees rise, Bitcoin miners' revenue increases, so more miners come online, which increases the security of the network because it becomes harder and harder to attack as the energy wall surrounding Bitcoin grows larger.

38. 23:15Quote

    It is certainly, it's achieved escape velocity, and it's not going to be caught and it's not going to be overcome. It is the most secure network in the world.

39. 24:45Claim · condensed

    This effect flows downstream of the miners to energy providers: as new miners come online they need energy, so miners winning means energy providers win too, which means there is more energy in the system overall, which means the extended order wins, even those who don't know anything about Bitcoin and are vehemently against its use.

40. 24:45Reference · condensed

    The extended order has access to more energy reserves; those same individuals and groups benefit from rising transaction fees whether or not they hold Bitcoin.

41. 25:53Reference · condensed

    We have done a tremendous amount of work and podcasts on the Lightning Network, and seen how rapidly it has grown, how the use cases have piled up, and how efficient and reliable the system has become.

42. 25:53Claim · condensed

    It could be a problem for hodlers if the main chain were the end-all and be-all of moving and transferring Bitcoin, but it isn't; the solutions are already there for an attack like this once you're far enough down the rabbit hole to understand them.

43. 27:05Claim · condensed

    The downside of high fees for users is that it can price out sending smaller amounts; if the fee is a hundred thousand sats to move ten thousand sats, that doesn't make sense. Fees on the base chain are time-dependent: the faster you want in, the higher the price, or you can simply wait longer.

44. 28:10Claim · condensed

    The higher fee environment doesn't affect the store-of-value argument as much as the medium-of-exchange argument, since speed isn't the main objective Bitcoin is solving for, though it can still read as less bearish to skeptics who see impedance in the flow of energy.

45. 28:51Quote

    The map is the territory in Bitcoin.

46. 28:51Claim · condensed

    Because Bitcoin bridges the digital world to the physical world, whatever we see happening on chain, we know something must have happened in the physical world; the entity paying a larger fee to get into a block can't lie about how much they're willing to part with to do it.

47. 29:26Event · condensed

    Transaction fees have reached new all-time highs while the fiat price is over 50 percent down from its all-time high; that mismatch doesn't make sense unless the network has become more valuable or useful to whoever is paying those fees.

48. 30:17Claim · condensed

    Depending on who you talk to, the ordinals and inscriptions phenomenon is either an attack or a new use case, a new feature that increases Bitcoin's utility, but the results are the same either way, so we don't even have to decide which it is.

49. 30:17Quote

    Like all things, everything is good for Bitcoin.

50. 30:57Claim · condensed

    To get data onto the time chain you have to get it included in a block, and block space is limited, so if lots of people want to get this data onto blocks, transaction fees have to rise; because block space wasn't in demand before, it was very cheap, but as competition ramps up so do the prices, which is the fee structure self-regulating.

51. 31:43Analogy

    You can think of it like energy being transferred from inefficient allocators to more efficient allocators; it's a petri dish example of what is happening in the physical world happening right on chain, and you can see that transfer taking place between inefficient and efficient allocators.

52. 31:43Claim · condensed

    The attacker relies on Bitcoin to work, so the purveyors of the attack need Bitcoin to keep engaging in this behavior; as demand for Bitcoin increases to mirror it, energy transfers from people who think this is a good return to people who don't, and we don't need anyone to state their preference because we can just look at where the sats are flowing.

53. 33:13Claim · condensed

    Thanks to absolute scarcity, Bitcoin holders are rewarded too: because the attackers need more Bitcoin to continue the operation, and supply stays constant while demand increases, price goes up, the tassel grows larger, and your share, if you're holding, increases.

54. 33:13Claim · condensed

    It isn't only a question of economics; the pressure put on the system makes Bitcoin more antifragile, self-correcting to adapt to new circumstances with minimal input from the outside world, which drives adoption even further because it highlights the resiliency of the code.

55. 34:09Claim · condensed

    The attack only takes place once before it shows all future would-be attackers that particular angle isn't effective, which means the attack surface becomes smaller and smaller, making the system more reliable, which increases trust, which increases value.

56. 34:09Prediction · condensed

    If it's not effective once, it's not going to be effective in the future when the system is even larger; future attackers will avoid this path.

57. 34:57Claim

    There are temporary downsides: there has to be a period of readjustment, it does become more expensive to get transactions included in blocks, and it will force smaller participants to higher layers on the stack, into things like Lightning.

58. 34:57Prediction

    If Bitcoin is a million dollars a coin, the transaction fees will be higher, and solutions will be needed elsewhere to combat that reality.

59. 34:57Prediction · condensed

    You're not gonna be able to kill Bitcoin; it's going to outlast fiat, and energy will eventually make its way to Bitcoin whether fiat dies gradually or suddenly.

60. 35:48Prediction · condensed

    Being able to transact on the base chain will be a luxury that the majority of Bitcoin users in the future will never experience, because of the value that will accrue to Bitcoin relative to how many users there will be.

61. 35:48Claim

    The higher up the layer stack, the more potential for centralization, which increases convenience, and convenience is simply another form of efficiency that lowers the bar for required energy transformation enough to entice previously uninterested parties; the masses will demand convenience because the alternative is too much friction, and friction is bad.

62. 37:19Claim · condensed

    This doesn't recreate the traditional gatekeepers of the fiat system: the existence of the main chain, and the properties that emerge from it, completely upend the power structures no matter where they sit on the layered cake that is Bitcoin as money, because the ability to exit a layer at the speed of light keeps the system honest, and no entity can shield itself from having to provide value.

63. 37:19Analogy

    The layered cake that is Bitcoin as money.

64. 37:19Open question · condensed

    There's some nuance around whether there is genuine utility in the ordinals and inscriptions activity, and whether or not it would be censorship if we decided not to allow it to happen.

65. 38:46Prediction · condensed

    The ordinal supporters will either succeed in creating demand for their on-chain toys or they won't; if they aren't successful, they'll end up with less Bitcoin, less energy, and a worse position than when they started.

66. 38:46Claim · condensed

    Let the market decide, let anyone challenge for block space, and the best ideas will emerge as the victor; whoever implements a layer that overcomes the hurdles of this new reality is rewarded with energy, and Lightning has the biggest head start and looks like the clear favorite for medium of exchange.

67. 38:46Quote

    And if frequency is, frequency is downstream of immutability.

68. 38:46Claim

    The more ferocious the attacks, the greater the response, the faster they are launched, the more obvious the reason: everything is good for Bitcoin. The spotlight gets bigger and bigger with each passing attack and with each passing block.

69. 38:46Quote

    The more ferocious the attacks, the greater the response, the faster they are launched, the more obvious the reason. The spotlight gets bigger and bigger with each passing attack and with each passing block.