Rediscovering Savings Technology | Pierre Rochard

all right let's get started so first question obviously uh is what is saving um there's this word gets used uh both in the banking industry is kind of a advertising word right savings account um but it actually has an economic uh definition to it and uh in the world of mainstream keynesian classical neoclassical whatever you want to call it but really this is kind of a um this is a fairly modern uh definition of saving yeah this concept of a savings rate right which is uh how much of the income was not spent on consumption and then from there the the income can either actually go into savings or it can get invested into producer goods uh you know usually through financial intermediation but um the the accounting view and i think the the austrian view and and probably actually the the classical view uh pre-20th century is that um you have a cash inflow right it can be income but um it actually doesn't have to be income in the accounting sense it could be you know the sources of cash uh there's a long list of them but it could be from uh any any kind of source not necessarily just income uh and then you hold that cash on your balance sheet and that's where the saving is that that to me is what savings is it's just holding cash on your balance sheet now maybe you you borrowed that cash from a financial institution but if you hold it on your balance sheet that's still savings uh from an economic perspective it's no different than if you are operating a business and you get a cash inflow from a customer paying you and then you hold that cash um holding cash is holding cash so the the source of the cash flow doesn't really matter in this framework and then the reason you're holding this cash is because your future cash flows are uncertain and it's really great to be uh giving this talk after um after the previous talk because we were really talking about uncertainty a lot uh in that and and the pervasiveness and inescapability of uncertainty so uh ultimately we do have to hold cash because future cash outflows are uncertain and we can we can list out different reasons why future cash outflows might be uncertain not all of them are uncertain uh there are there are some that are actually uh risks right and those few those those risky future cash outflows uh we can actually insure against uh so whether that's life insurance or fire insurance etc so there are some future cash outflows that are uh quantifiable risks um but for the most part they're actually uh very uncertain and um you you might conceptualize an uncertain cash outflow in the negative sense of having a catastrophe either man-made or natural happen to you but also in the positive sense right you don't know what if you have a very compelling investment opportunity uh in two years right there's there's no way to ensure you're again yourself against that you don't know what the timing is going to be you don't even know the size of that investment opportunity or whether you're going to find it interesting and want to participate in it so lots of uncertain future cash outflows and that's why we hold cash okay so what is cash well in this framework i would argue that cash is the asset with the least uncertainty right because any other asset that has more uncertainty than it um would would be inadequate for hedging right you would want to if you're trying to hedge uncertainty you're going to want to do that with the asset with the least uncertainty now that doesn't mean that cash is a certain asset in the sense that the uncertainty is zero that's that's impossible right but we're trying to find the asset with the least uncertainty so that we can hedge against future uncertainty all right what is uncertainty well we kind of covered this in the previous talk but we don't know the possible outcomes and we certainly don't know the probabilities of those outcomes right if you if you don't even know the outcomes in the first place there's no way you're going to be able to assign probabilities to it in advance contrast with the concept of risk where we know in advance what the odds are for each possible outcome so the the set of possible outcomes is known and the probability distribution for those outcomes is known so these are two profoundly different um concepts even though uh there's they unfortunately they're often used interchangeably right people talk about risk talking about uncertainty um but they they are uh very different um concepts let's see next slide okay so what creates uncertainty in a monetary system specifically uh from a savings perspective right of trying to hold cash uh easily seized and arbitrary supply create uncertainty it's uncontroversial that uh it's going to be impossible for you to insure yourself against the government seizing your cash right uh and uh the the reason that is is because ultimately the insurance company itself uh would be under the jurisdiction of this uh pillaging uh government is kleptocracy um and then arbitrary supply uh is also something that you cannot insure yourself against um now you might be able to buy products that uh attempt to do that uh but uh the results obviously will be mixed and the reason is that um the supply is explicitly discretionary right and that there is a phd economist at the fed who is creating uncertainty and they're doing it deliberately they're not um they're actually not trying to establish uh long-term rational expectations right they're not trying to minimize the uncertainty about supply in fact they they explicitly want to maximize uncertainty about supply and we'll explain why that is although from the previous speaker you might guess um and so when even someone is as uh reliable as jeremy powell you know uh someone is respectable and is even keeled what he will tell you is that the the federal reserve stands ready to create as much money as needed right so it's really maximum uncertainty there um and then on the payment side you have uh permissioned access creates uncertainty so uh having to ask for permission to uh transfer uh the cash uh is by definition going to create uncertainty right versus the the opposite um and then being easily censored so uh and even having your transaction reversed uh creates uncertainty as well uh from from a payments perspective of trying to uh you know if you if the savings technology component is holding cash on your balance sheet the payments technology component is your statement of cash flows right your ability to receive cash and your ability to send cash and so from a permissioned access perspective if you are unable to receive cash because you need to get someone's permission to receive it that creates some uh uncertainty and then from the ability to actually send that cash to someone else if that is impaired it creates uncertainty as well so this can actually be summarized to the fact that trusted third parties increase uncertainty and uh it's it's kind of axiomatic because uh you're not going to increase uncertainty for yourself uh you know unless you're you've got some weird masochistic uh monetary issues going on uh you're not going to uh censor your own uh payments and whatnot or or or or create supply uncertainty for yourself uh it's kind of a logical absurdity um it has to be someone else doing it to you uh and so trusted third parties are are the problem in a monetary system they are the um the chaos monkey that is throwing wrenches into the gears okay so um on the opposite side what reduces uncertainty in a monetary system well for for savings you know having seizure resistance so the more seizure resistant your asset holding is right in the sense of the what is the cost of taking your cash well the less uncertainty you have the greater that cost is and then on the monetary policy side you know the most uncertain or sorry the least uncertain monetary policy is one that is fixed ahead of time one that says there will only ever be 21 million right now you could dial that back and have a little more uncertainty for example with gold where you have some uh some boundary conditions but that you're still introducing more uncertainty relative to a system like bitcoin and then we already talked about fiat trying to maximize uncertainty on this on this particular point um for the payments and you really want to have a a technology that allows you to generate a private key uh generate a public key drive an address uh without asking for anyone's permission so you can spin up your btc pay server instance and be sending and receiving bitcoin on the internet over tor or using a satellite there's all sorts of uh different ways for bitcoin to be permissionless and censorship resistant and the full scope of that is kind of outside of this particular presentation um so this can all be summarized by decentralized verification decreases uncertainty so if you are able to verify that the system is operating how you expect it to operate in a trust minimized manner right where you are running this own software on your own computer you might even have evaluated the underlying source code yourself so you're not even trusting the developers you're really putting all the trust in yourself and that is what is going to decrease the uncertainty as as much as is possible so this is my argument bitcoin is the least uncertain monetary system in existence however bitcoin is still uncertain right so uh access to the network can be disrupted your private keys can be compromised we've seen that happen um now nobody brute forced the private keys right so we're not talking about that aspect of it but in terms of uh being able to to uh hack into your computer and whatnot um you know that's what famously happened with mount gox another component that we haven't touched on yet is that uh bitcoin has very volatile um transaction fees so high transaction fees could make the system uh using the system uneconomical and low transaction fees could undermine long-term transaction finality and that is the topic that is going to be discussed at the conference today uh the the long-term transaction finality of the system so there's still there is still uncertainty in bitcoin there's not uh by no means am i saying that bitcoin is a system with full 100 certainty uh that's that's not possible okay so what increases risk in a monetary system the first one is the the cost of using the system uh holistically whether that's the transaction fees for sending transactions or the cost of running a full bitcoin node uh those are uh risks uh and then the loss of purchasing power is also a risk you could argue that on both of these that the the the positive side is also a risk uh strictly speaking right uh although we generally don't conceive of uh increasing up in purchasing power to be a risk for us personally right or a negative risk right like we we want that to happen um but in any case uh the the reverse is true so decreasing risk in the monetary system uh if if it's getting less expensive to use the system or if your purchasing power is increasing um the reason i argue that that decreases risk is because you're moving further away from the negative downside risk so if the price of bitcoin goes up relative to when you first bought it you are moving away from the risk of the price of the value going down relative to when you bought it right so in this sense bitcoin is the riskiest monetary system uh and this is why people talk about how volatile the price of bitcoin is uh or they talk about the the cost of transaction fees being volatile or the uh cost of running a full node potentially uh being volatile um so bitcoin is a very risky system and i i think that the the focus is on the purchasing power it is on the price stability as was discussed on in the by the previous speaker thankfully because these are risks they are insurable so uh you can actually start insuring yourself uh from the cost of running a full node by syncing one today right so uh go get yourself a a computer to to run your own full node on um it generally works on most laptops or desktop computers you just might need to upgrade your hard drive because it is several hundred gigabytes at this point uh transaction fee risk you can actually hedge by opening lightning channels today uh while uh on chain fees are low uh and then the exchange rate risk you can buy bitcoin derivatives we'll talk about that so um you should evaluate bitcoin or holding bitcoin as an asset on its fundamental uncertainties first because you can hedge the price risk away anyway so it doesn't really matter um what your view is on the price risk you know you could you could be fundamental you could be bearish on the uh price risk but be bullish on the fundamentals of the system right so you could build a portfolio where you own a large amount of physical bitcoin uh but you also and here we go you can also hedge risk by buying put options or selling futures uh and that way you've constructed a portfolio uh that has a you are mitigating the risk of the downside exchange rate right don't want devaluation but you're also benefiting from minimizing the uncertainties associated with the rest of the monetary system right outside of the exchange rate risk so conclusion uh bitcoin is the best savings technology and uh i will uh argue with you uh unhesitatingly if you disagree with me and i hope you enjoyed this presentation let's let's talk about it in the speaker sessions you