On today’s Creating Wealth intro, Jason talks about how he was not able to go heli-skiing this past weekend and is currently in San Diego attending a marketing conference. He talks about how so many people attend these conferences and don’t actually take action on anything. He also cites some of his main marketing influencers when growing up and why his guest, Jon Evans, is talking about Bitcoin and how that relates to real estate investing.
Jon Evans is today’s Creating Wealth guest and he is a TechCrunch journalist with a background in software engineering. He gives a more technical breakdown of what Bitcoin is, what Block Chain is, and how Bitcoin works on the whole. Jon and Jason sit down to discus Bitcoin scams, how you can track your Bitcoin transactions, and also how Bitcoin is probably the most transparent currency out there on the market today.
Key Takeaways:
1:60 – Sunday is becoming Jason’s favorite day because he gets to read all your reviews!
7:10 – Jason likes the Libertarian ideal, because as government gets bigger, it becomes inefficient.
9:30 – Do not be the guy that spends all his time going to seminars, buying products, and take no action on what he’s learned.
12:45 – Why is Jason talking about all this extra stuff that has nothing to do with real estate? He explains why.
22:45 – Don’t forget to check out the properties listed at JasonHartman.com.
25:10 – Jason talks about upcoming episodes.
27:35 – Jason still has a few extra Meet The Masters home study courses, so order now!
28:25 – Jason introduces Jon Evans to the show.
31:10 – The alternative coins could be considered easier to take over than Bitcoin, because there’s not enough people monitoring and searching for bugs and holes.
34:30 – There’s a war on Block Chains. What does Jon mean by this?
36:20 – How would we be able to decentralize the internet?
41:00 – Bitcoin scams? Jason picks Jon’s brain about this.
46:20 – Jon thinks Bitcoin will succeed in places like Venezuela and Zimbabwe.
52:30 – Is Jon a gold bug? He says it’s too 20th century for him.
Tweetables:
“People refer to Bitcoin has anonymous and it’s anything but.”
Mentioned In This Episode:
See You at the Top by Zig Ziglar
Psychology of Winning by Dennis Wadley
Ready, Fire, Aim by Michael Masterson
The Singularity Is Near by Ray Kurzweil
BlockChain.Info
http://techcrunch.com/author/jon-evans/
Transcript
Jason Hartman:
Welcome to the Creating Wealth show. This is Jason Hartman, your host, and this is episode 478. Our guest today will be Jon Evans who is a journalist for TechCrunch. He wrote a really interesting article on the Bitcoin war. I think you’ll find that of interest, but first, wow, well, gosh, wow, where do I start? It is Sunday evening. I just arrived in San Diego, flew down here in Vancouver. By the way, folks, I guess you know I’m still alive. Global warming did not, if global warming is even true and real, whatever, that’s a whole another decisions that we’ve had many times on past episodes, whatever it was, it wasn’t a very good ski season up in Whistler, Canada. So, I did not get to heli-skiing, so I remain among the living and you’ll have to put up with me for a while long. So, I guess that’s a good thing, at least for me, hopefully for you too.
Judging by the reviews, because Sunday, I think Sunday is becoming my favorite day of the week and here’s why it is, it is becoming my favorite day, because it is the day that every Sunday morning this little program that I use emails to me all the reviews on all of my different podcast that the Hartman Media company publishes. We’ve got 20 shows now and I just love seeing those reviews come in and I thank you so much for reviewing the show on iTunes, Stitcher Radio, SoundCloud, where ever you’re listening and saying good things about it. Those really keep us going and make us want to do better and better and more and more you listeners. So, we appreciate your support. If you haven’t reviewed the show already, please take a moment and do that, it is very, very much noticed and appreciated. That’s why Sunday is my favorite day I think.
Gosh, I’m here at a conference that starts tomorrow evening, I’m here in San Diego. I attended this conference last year and last year there were about 2,000 people. It’s a big marketing, internet marketing kind of conference and when I attended last year I couldn’t help but think back to the old days when I would attend these real estate conferences and how, you know, these gurus, they get up on stage and they’re usually selling a highly exaggerated product or service that’s that old saying, what is it, caveat emptor, right. Let the buyer beware and you’ve got to beware, because there is no shortage of snake oil salesmen out there.
I just, you know, when I was at the conference last year, I don’t know if it’ll be any different this year, we will see. It was just amazing, they were like all these people and they were all coming and, you know, you could tell a lot of them were just wanna be people. They were looking for answers and probably struggling financially. We have the real estate gold rush, you know, that’s been going on for decades of course, because income property does happen to be the most historically proven asset class in America, oh but wait, I repeat myself and the internet is kind of the same thing.
There’s this whole group of really groupies, you know, that go to all these conferences, they go to all these seminars, and they buy all this stuff. I don’t have any empirical data on this, I don’t have any numbers, I don’t have any facts, I just have my impression, okay, and my impression is that just like in real estate, every thing, you know, is sort of this gold rush mentality. Bitcoin is like that, we’re going to talk about Bitcoin today and it’s like that and many things are, of course. I just get the impression that a lot of these people are just kid of wasting their money.
They buy all these things and they don’t implement them and that’s why when I got into this investor-only business just over 10 years ago now that, of course, when I was in traditional real estate for many years, I worked with lots of investors, but not like this. This is just investors-only, you know, financial services for real estate investors. The complete solution for real estate investors. I didn’t want to do that thing. I didn’t want to be one of these hokey seminar-type of companies. Does that make any sense? I know it’s kind of like a double positive, I guess, or a double negative in this case, because I’m talking about the negative side of it.
You know, I didn’t want to charge $2,500 to come to a seminar and then sell books and tapes or, you know, stuff at an incredibly inflated prices and oddly, it’s not really even a bad deal if these promoters sell that stuff at these incredibly high prices and people pay those high prices, because if people actually use this stuff and if the promoter is not massively exaggerating and if they’re not lying and if they’re not getting indicted by the Federal Trade Commission, which you know, the Federal Trade Commission isn’t always right, okay. The government definitely makes its share of mistakes and we just did a show on that.
Well, we’ve done a few with Three Felonies a Day guy was really interesting. We just had him on. Of course, we just had that other recent episode about the department of justice and the corruption there. Every human organization is just plagued with this type of thing. You know, by the way, that’s why I have a libertarian outlook on government, because most people on the left and the right side of the aisle, tangent warning; you know we should have a sound effect. Hey, our editor, you’re editing this show, let’s get a little sound effect for when I go off on a tangent, it’ll be like, tangent warning beep, beep, beep.
Anyway, here’s one: that’s why I really like the libertarian ideal, because government or any human organization as it grows and gets it becomes more inefficient, it becomes more corrupt, and people on both sides of the aisle agree that, yeah, they mostly pretty much agree that government is inefficient, government is corrupt, so look, if we just agree that is true and most people do on both sides of the aisle, then we can agree that if you make it smaller, the amount of inefficiency and the important of corruption will also be smaller. It will shrink as the size of the overall entity shrinks or it’ll grow as the size of the entity grows and obviously for the last 5 decades we’ve been in massive growth mode. I think we’re starting to see and suffer from the weight of that massive growth mode.
Okay, so what were we talking about? Oh yeah, seminars and snake oil salesmen, that’s right. That’s the thing about information, it really can be incredibly valuable if used and back when I was 17 and I discovered the people who went away raised me or, you know, at least in a way saved me probably, Dennis Wadley, Zig Ziglar, Jim Rohn, Earl Nightingale, and there were others, but those were the big four, we’ll say. That first 9 dollar and 95 cent cassette tape, I brought it Waldenbooks in Cerritos Mall, walking through Cerritos Mall California.
Well, I actually bought two of them at the same time. I bought the audio of Zig Ziglar’s See You at the Top and the audio of Dennis Wadley’s Psychology of Winning. Those were information products. They were $10, adjusted for inflation, of course they’re more today, but much cheaper than the kind of stuff you see sold at these really slick programs.
The marketers have definitely learned that there is a certain methodology, a certain thing that works and triggers people to buy and so we as consumers need to know their game and we need to be aware of it and we need to not, you know, just necessarily throw our money at everything, okay. I guess what my point is here is that don’t be the seminar junkie person. Don’t be the person who spends all your time going to everybody’s seminar, buying everybody’s info product or educational product. Don’t be even the person who is listening to everybody’s podcast and, you know, that person who knows all the stuff about all of these gurus.
I mean, it’s better than not knowing, for sure. It’s certainly better to be informed and educated and engaged, you know, it’s better than watching TV. It’s better than a lot of things, but action has its own wisdom as I’ve said before. Kind of that concept of the Michael Masterson book, Ready, Fire, Aim and I’ve talked enough about him and that book, which by the way, that’s a pen name, not his real name, on the show that I do need to actually get him on the show. I haven’t gotten around to that one yet, so I’ll let you know how this goes. I’m here until Friday for that and then I go home for one whole night. I do my laundry, I repack my suitcase, I go to bed, I get up the next morning and I fly off to a mastermind meeting in Florida and I gotta tell ya, this masterminding stuff, I love it. It is really, really, really powerful on so many levels. So, more to come about that in the future, but Napoleon Hill, he just, he was so right about masterminding and the power of masterminding.
So, Apple, it looks like Apple is very likely working on an electric car and, of course, it’ll probably be self-driving too and you know how much I love the idea of autonomous vehicles and self-driving cars and, of course, that means that the three big cardinal rules of real estate might be renegotiable. What are those three rules? Of course, you all know that, they are location, location, and the last one is location. Location, location, location. So, with an autonomous self-driving car being common place, that rule might be renegotiated, but it also depends on the price of oil.
So, I want to talk about that for a moment and a really interesting article here that was, it’s not a real journalism-type story I guess I wanna say. My friend who I met years ago in Young Entrepreneurs Organization, YEO, now known as EO, because they didn’t want to lose their members as they aged out, so instead of calling it Young Entrepreneur, they just called it Entrepreneurs Organization. Anyway, he is a very successful attorney who is very engaged in the automobile industry and represents clients in that field and in the auto world and he wrote this interesting article about how electric vehicles drown while we swim in a sea of oil and why am I even talking about this? This is a real estate investing show, right? Why are we talking about oil? Why are we talking about alternative currencies? Why are we talking about Bitcoin? Why are we talking about politics? Because it all relates to our real estate investing, so we can not be so myopic that we just think about which house do you buy in the neighborhood or which apartment building do you buy? We’ve got to look at the big picture stuff and the small picture stuff.
By the way, we’re going to look at some micro stuff here in just a moment, because wow, have I ever got a deal that by the way I’m going to buy this deal. I just posted it on my Facebook page, on my personal page as well as the JasonHartman.com Facebook page, the business page, so if you haven’t like that on Facebook, which I know, we just take it for granted that most everybody is on Facebook like most everybody has a smart phone and a computer and a telephone, well, maybe you don’t even have an actual telephone anymore, the plugged in type, you know those. Anyway, I posted it on there and it’s already getting tons of interest, this will probably be sell tomorrow or the next day, so by the time you hear this it may well be gone, but I’m gonna talk to you about a really good looking property here in just a moment.
So, the oil, why does oil matter? Well, because what’s going on oil right now may be the sign of a deflationary spiral, I don’t know. I’m listening to Ray Kurzweil’s audio book of The Singularity Is Near. I was listening to that on the plane today as well as some music. You know, there are some songs that just, you know, that you just never get sick of them and there are just so good. I highly recommend that you go listen to, you can look up the video on YouTube, buy it on iTunes, whatever, the song One by U2. Oh, that’s so good. I wish I could play music for you on the show without getting sued. I can’t, sorry. That’s the way that is.
Anyway, so I was listening to that on Ray Kurzweil’s audio book he talks about how the price of integrated circuits, of course, you all know about Moore’s law and basically Intel, you know, the biggest manufacturer of integrated circuits or chips, they don’t even call them integrated circuits anymore. When I was a kid that’s what they called them, okay, and it was like a big deal to have a IC, an Integrated Circuit, now it’s just a chip. These incredible, incredible devices, they basically..Intel’s product deflates by 50% every year and that’s basically the effect of, you know, Gordon Moore, Moore’s law, right. It’s just amazing.
So, we need to look at these big broad trends and then we also need to look at the micro as well as the macro. So, we’re talking about some macro stuff here for a moment, so a couple of things in this article. It says that for every 20 dollar decline in the price of a barrel of oil, consumers should expect to see a 50 cent decline in the price of gas at the pump. So, now you know, when oil goes from $60 to $40 or $70 to $50, when it goes down that equates to about 50 cents per gallon in your pocket and it says the national price of gas hovering around $2 per gallon and the Energy Information Administration estimates that the average US household will save $750 per year because of lower gas prices.
Hmm. So, you see how this starts to tie in? If the average household, which by the way I think the average household makes about $54,000 per year, okay, they are your renters. If they’ve now got another $750 per year in their pocket, what does that mean? Well, heck, it means you can raise the rent, right? No, maybe, not exactly, maybe, but it might mean they look for a nicer place to live or they start spending money on some other things or maybe they expand their family and need an extra bedroom. This has far-reaching effects, okay. The article goes on to say, as Goldman Sachs chief commodity analyst Jeff Currie stated, the oil crash is the most “startling and far-reaching market development” since the financial crisis.
So, that’s referring back to, you know, 7-8 years ago, right? This is a big, big, big deal what is going on with oil and, you know, we’ve talked about it before, so some interesting stuff there. We are swimming in oil in this world. So, it’s just amazing that in the 70’s we had the peak oil theory that was very popular. We’ve had massive like conservation movement, we’ve got the coal burning Tesla car, which is beautiful by the way, I love that car, but I do think it’s very overprice and now, I would imagine and, I do not know this, that Tesla sales have declined significantly.
I remember walking into the Tesla, they won’t let you call it a dealership, but the showroom, whatever that distinction is, because, of course, the government over regulates that business and you gotta have a dealers license and they don’t want to let you sell the car in certain states, which is absurd, another example of, you know, lobbying and corruption and too much government interference, but walking into that Tesla show room in Scottsdale Fashion Square in Scottsdale, Arizona and they have these big calculators, you know, how many miles a year do you drive and what’s the price of gas and here’s how much you’ll save having the Tesla, which is powered by 50% or 60% coal, because where do you think that electricity comes from anyway? You know, it mostly comes from coal.
Granted, if we had our head on straight in this country, which we unfortunately don’t, we would have nuclear power, because that’s the safest, cleanest thing going. Now, granted solar is catching up. It’s getting a lot more efficient, but it’s still not even close to..you know, what happens when you deal with nuclear, maybe as I talked about on a prior show Lockheed Martin will have nuclear fission reactor, right, no, fusion, oh, I always get that mixed up, gosh, your host is really just not that sharp, especially at 10 o clock at night on Sunday evening. Anyway, they’re going to have that new one that’s really cool and produces no waste and super clean, unlimited free energy, and it’ll fit on the back of a pickup truck in 10 years they say and be portable and totally safe. So, pretty awesome. It’s an amazing time to be alive. It is an amazing time to be alive. Lot of great stuff to look forward to.
So, let me talk to you about a few upcoming episodes here before we get to our guest Jon Evans from TechCrunch and talk about the Bitcoin war, okay. Well, before I talk about that, actually, you know I’m always going back and forth here, I want to talk about this property I just saw today, wow! We’ve got some good looking properties in Chicago, well, not Chicago proper, but in the Chicago metro area, okay. This one was, of course, you know, re-developed, which I don’t like that word that our providers are using on there, our local market specialist. I would say rehabbed, re-developed in 2014, I’m going to ask them to change that, okay, but anyway, it’s in the 60425 zip code, which is Glenwood, Illinois.
This property is beautiful. It is gorgeous looking. I’m going to buy it myself in a day or two if you one of you doesn’t buy it and I probably won’t have the chance to bu it, but run out and get this one if you can, 1,742 sq ft, $140,000. Yes, Illinois is not my favorite place for landlord friendliness, I’ll give you that. Appreciation potential, I’d say it’s pretty darn good and the rent to value ratios are awesome. They are awesome. So, check this out. This property is $80 per sq ft. If you were looking at the picture of it right now, you would be amazed. The projected rent is $1,600 per month.
Now, you do have higher property taxes here, but again, just like most of the Texas markets and most of the Texas properties, at least the ones we tried to recommend, your rent offsets the higher taxes. I’ve always said that in Texas, the tenants think they’re getting away with murder, because they don’t pay, there’s no state income tax, so they don’t pay income taxes and if they don’t own a property, they don’t pay property taxes, because they’re just renting, but that’s such a silly idea, because we know because we have a brain that a business, a corporation, an income property, all these things are simply past through entities.
So, when the expenses are higher, then the landlord gets a higher rent as long as the overall economy is healthy and the population is either stable or increasing, of course. This is not…don’t try this in Detroit. It doesn’t work the same there, okay. By the way, I might get a little more open minded to Detroit some day, because, believe me, I’ve been following it. You know I love to tease Detroit, right, and I’ll be there in about a month and a half I think it is, maybe two months. I’ll be checking out some real estate deals and reporting back to you on it.
So, this one, back to Chicago area, $1,600 projected rent and your overall return on investment should you qualify for the financing that is in the pro forma here and you can find this exact property at JasonHartman.com in the properties section, of course. It’s a debt coverage ratio with 20% down of 1.58%. That is excellent, excellent. Cap rate, even though we don’t really care too terribly much about cap rates, because they don’t really tell the full story, but I know the commercial real estate people always like to talk cap rates, so I’m going to give it out, it’s 7.9%.
The cash on cash return, 13% and most importantly, because income property and you just heard on a very recent episode before my Valentine’s day special episode with Dr. Gary Chapman on The Five Love Languages that was out yesterday for Valentine’s day. The one before that was a flashback Friday of the three dimensions of income property or the three dimensions of real estate, as I call it. There’s really more than three, of course, but that’s what we love is that income property is a multidimensional asset class. So, with all these dimensions considered, except one by the way, because our pro forma does not account for one of these and you could have some arguments as to whether inflation-induced debt destruction that is not quantified on our pro forma; if that is really just the sort of the byproduct of leveraged and appreciation. I argue that it is not. I think it is different and it does actually juice the return even more.
So, we’re not including that or we are, you decide for yourself. I’m not a mathematician or a theoretical physicists who could actually figure that out. The overall return on investment here, 46% annually. Yes, that is not nuts, it’s not snake oil salesmen, 46% annually and, like I always say, even if it only goes half as well as expected 23% annually and you can see projections are all very reasonable. The whole pro forma with all the numbers, JasonHartman.com or right on the Facebook group, the JasonHartman.com Facebook group. So, you just go to Facebook and type JasonHartman.com in the search bar and like our page there, so you can get all kinds of cool updates and stuff.
So, upcoming episodes, on Wednesday we’ll have doctor David E. Goldberg talking about a whole new engine, the design of innovation, and genetic algorithms. On Friday, flashback Friday, which also happens to be a 10th show, sometimes they just hit both at the same time, we’re going to have Jeff Myers back on talking about leadership and communication. He did a great interview, so I think you’ll enjoy that one and then on Monday, episode 481, we’ll have Garrett Sutton back on the show. He’s written a couple of the Robert Kiyosaki’s Rich Dad Advisors books. He talks about loopholes on real estate, he talks a lot about asset protection and tax and then on the following Wednesday, episode 482, I think we’re just going to have yours truly and we’re going to do a market profile maybe we’ll do a market profile on Chicago, because we haven’t done that yet and then 483 will be a flashback Friday episode of me talking about the ultimate investing equation.
484, I think we’re going to do some listener Q&A, some questions and answers, and by the way, thank you for going to JasonHartman.com or to HartmanMedia.com and using that handy little speak pipe where you can just leave a voicemail message right from our website. So, it’s really super convenient and Karen, I’ve got your question, Steven I had yours, we’ll get to yours, I know it’s been a little bit slow. We don’t really have a system for that, but we’ll get your questions all answered for you. So, please do leave questions and comments on the voicemail, which is right on the website. It takes a second, it’s easy, you don’t even have to make a phone call, you’re just at the website, you click go, you make a recording and boom, we’ll play it on the air for ya and answer your question, okay.
And then, after the ultimate investing equation, we’re going to do a little more Q&A, we’re going to talk about getting paid to burrow on an upcoming episode and then finally episode 480 will be Peter Sage. We had to kick him back a little bit with our new format unfortunately, but I’m really excited to bring you that Peter Sage interview. He was really an awesome guest. So, lots of great stuff coming up, lots of great properties at JasonHartman.com in the property section.
We do have just a few more of those Meet the Masters home study courses and I know a bunch of those just got delivered, because I get the delivery confirmations. They just got delivered I think on Saturday, so that was kind of Valentine’s day gift for a lot of people. How do you like that? Anyway, please order those while they last, they’re almost gone. They’re super cheap, we make like a whooping I think $30 bucks on each of them. So, we’re definitely not doing this for money. It’s just to get them out of my storage unit. So, you can get those at the store at JasonHartman.com and let’s get to our guest, Jon Evans from TechCrunch, here he is.
It’s my pleasure to welcome Jon Evans to the show, he is a novelist, a journalist, and a software engineer. Now, if that isn’t a crazy combination for you, there’s more, he wrote a really interesting article in TechCrunch a while back about Bitcoin battle is brewing and I want to talk to him about that and some other things today. Jon, welcome, how are you?
Jon:
I’m doing very well, thanks for having me.
Jason:
Good, give our listeners a sense of geography, where are you located?
Jon:
I’m in Berkeley, California though I’m originally Canadian.
Jason:
Yes, okay, Berkeley, my mom’s alma mater based in of liberalism.
Jon:
It’s a natural expertium to come to in California.
Jason:
Yeah and a journalist too I would say, huh? Now, is TechCrunch based there? Where’s TechCrunch located? Never known that actually.
Jon:
TechCrunch is across the bay in San Francisco proper.
Jason:
Now, it’s interesting, you’re really not interested in Bitcoin in terms of, you know, an investment or anything else, but the technology is quite fascinating and with your background as a software engineer, your probably one of the most qualified people to write about this. What is the battle that’s brewing in the Bitcoin world?
Jon:
Well, Bitcoin is based on a pretty interesting tech breakthrough called Block Chain, which is now I think fairly well known and one interesting side effect of Block Chain is that the more people use one and the bigger network that is connected to one and verifying one, the more powerful the effective they are. So, on the one side you have the Bitcoin Block Chain, which is enormous and is, you know, a monthly billion dollar industry of sorts and as much as it’s an industry, but neither hand you have all these people saying, hey, we have this cool new software thing of Block Chain, why don’t we experiment with it, see what else we can do, look at all the other potential applications. Naturally the people who have collectively put billions of dollars in Bitcoin are a little less enthusiastic about sort of random experimentation on the structure, so as a result you’ve gotten all these so-called Altcoins. I think 543, last I checked.
Jason:
Of Alternative coins? You’re talking about Dodgecoin and Kaynecoin and all the others, is that what you’re talking about?
Jon:
Precisely yes. I’m a big fan of those two in particular.
Jason:
Well, Kaynecoin I heard went away, but yeah, interesting. So, 500 and how many alternative currencies did you say? 541?
Jon:
Yes, something like that, but last I checked.
Jason:
Wow. You know, Robert Metcalfe talked about the network effect. That’s really that same thing applies to the Block Chain, doesn’t it? I don’t know if it’s the same exact math, but I think he said something like, you know, it’s the square of each node on the network is the power of..I can’t remember, but something along those lines and, you know, when a network crows, it really does becomes a lot more powerful. Is it related to that or is it different to that?
Jon:
It’s related to that. It’s also that, I mean, you’re talking about currencies and, you know, typically other financial instruments and so you want to be sure of the security and so the more people that are working on a particular block chain, the more confidence you can have in its security and also the more people that are looking at the code and ensuring that they’re no bugs, you know, there were a couple of fairly significant bugs in the early days at Bitcoin which were hunted down and eliminated early on. So, the risk with Altcoins is that someone could come along and just take over the network, because there aren’t a whole lot of people using them or that someone could come along and discover a hole in whatever is experiment on technically by that Altcoin.
Jason:
So, I’ve never held out a lot of hope for Bitcoin, I would love to be wrong about that, I just think that any currency that is a competitor to the central banking government complex is just not going to have a great chance of succeeding because it’s competing with the fiat currency the government issues or, well, federal reserve government, that’s a murky difference, by the way. I would love to see something like this take off, it would be great, it would give the power back to the power, but you know, maybe just take us through and we’ve done shows on this before, so it’s not like the listeners haven’t heard about the Block Chain and a lot of people are hearing about it from other places, but just give us the really high level of how it works and why it matters and when you talked about those bugs that were discovered early on in the world of Bitcoin, they were discovered because the code is open source, right? So, just the open source community just hunted down these bugs, right?
Jon:
Yes, although I think in both of those cases it was, you know, be a small group of people who are intimately involved in Bitcoin and doing a lot of development on it more than somebody randomly wandering by and discovering the hole, but yeah, the fact that it’s open source does contribute immensely to..
Jason:
But, when you say they’re doing development on it, what are they developing? You mean, developing wallet for it, exchanges, other software to do things? Like what?
Jon:
They’ve tweaked the protocol to make it more efficient. In fact, a number of Bitcoin’s co-developers have just founded a company, which is funded to the tune of $21 million dollars, $1 dollar for every Bitcoin that will ever exist, which I thought was financially symbolic. It’s called Blockstream, which is especially devoted to, making changes to into expanding the core of Bitcoin software.
Jason:
So, Jon, give us some of the examples of the world of Bitcoin software development and why someone would choose to spend their time on this.
Jon:
Well, there’s a very large number of startups that are being built around Bitcoin. In particular, I think the world of remittances, people transferring money from the US to other countries. It’s an enormous market. It’s highly inefficient and it has high fees and these are all things that Bitcoin can actually natively address, so there’s a lot of working people building relatively simple interfaces that people can transfer money from US dollar to Bitcoin to a currency somewhere say Malawi or the Philippines or what have you.
Jason:
So, do they take a commission on that just like Western Union or, you know, the bank would charge a wire fee or how do they make money off of that?
Jon:
Yes, precisely. The current fees for Remittance can be fairly crippling. I mean, people quote 10%, which is actually really and no one actually pays that, but Western Union I believe is 2.5% to 3% or credit card fees and payments, you know, Amex can charge up to 3%, Visa and MasterCard up to 1%, so the current business model for Bitcoin is in large part undercutting the fees from other money transfers.
Jason:
And, how big is the market?
Jon:
Yeah, I don’t have it to hand exactly, but I think it’s, well, it’s well over a 100 billion a year. It’s a significant fraction of the GDP of a large number of countries. Nepal, for instance, 25% of its GDP is remittance’s.
Jason:
Wow, unbelievable. That’s amazing. That’s an amazing number, it really is. So, you say there’s a war of the Block Chains. Is someone trying to introduce a new Block Chain or is it just a different kind of a Block Chain for a different currency, what do you mean by that?
Jon:
The core Bitcoin developers are afraid to earlier the Block Chain people. They’re trying to introduce a slight technical tweak that will allow people to generate different kinds of Block Chains that are tied to the Bitcoin Block Chain. So, you can move a Bitcoin to some other structure, something with different rules, something that can handle more transactions, something that could be used for say stock certification or conceivably the options or puts or calls, but it’ll still be a full viable Bitcoin transferred back to the standard Bitcoin Block Chain and you can spend and use it there as you like.
This is sort of diametrically opposed to the notion of building your own Block Chain that is entirely separate and using an alternative system there. The most visible the example on that side is really interesting project called Atrium, which is a Block Chain based star up, which wants nothing less than to decentralize the entire internet.
Jason:
That’s really kind of an interesting paradox. You want to decentralize something that’s already decentralized. That’s the beautiful of the internet, isn’t it?
Jon:
Well, the internet is not really decentralized as it used to be. I mean, your email provider may be Google, your service provider may be Google, the Bruce Sterling approach to the stacks as we approach them. The American commies, which have taken over a really significant fraction of internet traffic. He means Amazon, Microsoft, Facebook, and Google and when you think about it, the internet is not actually as decentralized as it used to be. A lot of the actual behavior and the actual traffic is controlled by four or five companies.
Jason:
Yeah, right, well, that’s what always happens, doesn’t it? The corporatocracy comes in and they offer something really cheap or convenient and they sort of take all the freedom out of it, you know? Then they all cooperate with the NSA, right, so it’s a real bummer, for sure. So, how would they decentralize the internet more?
Jon:
Well, consider your email right now if you’re using Gmail, your email actually lives on Google’s service somewhere on their massive firms scattered away, but conceivably your email could live scattered in pieces all over the internet and reconfigured when you need it and the distribution of this could be control in sort of this trust-less, decentralized, and no one actually has control except the person that has the signature authority, which is you via something like the Block Chain.
Jason:
So, that would be like applying the Block Chain concept to data traffic rather than currency, because all the currency is is data anyway, right?
Jon:
That’s correct. To be clear, on a technical level, this is still somewhat hand-babied. People are experimenting with it via Atrium’s so called Genesis block. The launch of the project should be in the next couple of months, the Block Chain is not a very efficient database. What you gain in decentralizes you do is an efficiency, so a lot of work is going to have to be developed for it works remotely is competitive as, you know, this standard centralized websites that we’re talking about, but it’s an interesting possible direction and in an example of one of the things that might be possible with Block Chain development and research.
Jason:
Okay, so we kind of got off track a little bit. I want you to just sort of explain from a high level of the Block Chain and how that works, if you would.
Jon:
Alright, so, a block is a group of transactions. Say, Alice has sent $1 Bitcoin to Bob, that sort of thing and you look at a 100 or 1,000 of those which are grouped together in a block and then a block is cryptographically signed. The trick is the signature and the validation is preformed not by anyone person that you have to trust, but by an enormous network, which is consumer vast amounts of electricity that’s scattered all around the world and as long as the majority of those people agree these are the transactions that happened an hour ago, we’re all going to say yes, these transactions are valid, then they’re signed, sealed, delivered, put into these so called Block Chain and can be relied upon in the future and say you have a distributed a ledger, if you will, that everyone agrees on that no one controls, which describes all the transactions in Bitcoin and the remarkable thing with this is there’s no central bank, there’s no central authority, there’s just a distributed edge network that’s control of this.
Jason:
Yeah, fascinating. I’m not a fan of central banks or central bankers, so I love this idea and that’s why I say I’d love to be wrong about Bitcoin and I’d love to see it succeed widely. I bought one Bitcoin, so I could try it, and I purchased something and I put it in a big long code, big string of numbers, and then I completed my purchase. What happened? I mean, did somehow people around the world agree that transaction is valid somehow? I don’t understand. What happened in the Block Chain when I did that?
Jon:
That’s exactly what happened, in fact, the big long code of numbers, the address and your signature was sent out at some end point on the network, I’m not sure which service you used. I’m fond of Coinbase myself, but behind the scenes, yes, someone received this little package transaction maybe 700-800 bytes or there abouts and then it was passed around the entire network and then those people said, okay, the money that’s going in is valid, the address is valid, we accept this transaction. No one is trying to spend this money twice, which is the key thing for digital concern to currency preventing that and then the miners who are the people spending vast amounts of electricity solving the problem of validating the information, package it into a block, sign the block, agree with each other that this block is valid and then send it back out into the network. It sounds complicated, because it is, but on the end all it simply is you just saying, okay, I’m sending Alice a Bitcoin.
Jason:
But, no human being had to affirmatively do anything for that transaction to happen. Does it happen on anyone’s computer or does it happen in the example you used, Coinbase, how is that really happening? I mean, I just don’t understand the mechanics. It’s sort of very ethereal.
Jon:
Eventually, there would have been one computer that would solve a particular mathematical problem in such a way, with such an enormous amount of difficulty that everyone could agree that this was something that’s not going to happen very often thus we can trust it as a reliable source and that has passed around. I mean, that’s a high level approximation, but essentially everyone is trying to solve encryption problems that are extremely difficult to the point that if you’ve got a solution, you know, enormous amount of work has gone into that solution.
Jason:
What do you make the different frauds that have gone on in the world of Bitcoin so far? People disappearing with money and so forth. I mean, I suppose, I suppose it’s just to be expected in any endeavor. You always have bad players, but any thoughts about this?
Jon:
Yeah, it’s fascinating. I don’t think the whole truth has necessarily emerged about any of them. I mean, there was the famous Mt. Gox collapse of almost half a billion dollars worth of Bitcoin at the time where no satisfactory explanation was ever actually issued as far as I can tell. There’s a great tweet someone said, Mt. Gox should pivot to a business model where for $5 dollars they explain what happened to your money, which I thought was pretty assuming. The interesting thing about these frauds is that Bitcoin’s, you know, don’t vanish and they’re actually not hidden. People refer to Bitcoin has anonymous and it’s anything but. Every transaction that it has ever occurred in Bitcoin is publicly available on the ledger that is available to everyone.
Jason:
So, how would someone look that up for example? Where can I go, can I go and find the transaction I did?
Jon:
You can indeed. BlockChain.Info is the resource I use most, but there are quite a few others some simply Googling like Block Chain research or Block Chain transaction would let you track it without too much difficulty.
Jason:
And I heard this is how feds got to Silk Road is that people were thinking those transactions were private, but they’re not private at all, right?
Jon:
Well, I have a bunch of security friends and they were all pretty dismissive of the Silk Road operators, operation of security as they refer to it. They made a lot of fairly transparent mistakes from my understanding. If you’re going to register your dark net sites domain name, maybe you shouldn’t use your vanity URLs email address to do so, I think the most recent Silk Road’s problem, but it is the fact that anything, any Bitcoin which is stolen is out there. People know which address it belongs to. They may not know who controls it, but they know it’s out there and they know it has been spent. So, you can actually track money that has been stolen and find out where it’s going, which is very (#42:46?) Gibson’s Cyberpunk he may not necessarily help you actually get it back. I’m not sure what’s more reassuring to know that where your stolen money has gone.
Jason:
So, I’m at BlockChain.Info now and I see all these transactions happening and they’re clickable, so you can click on one of them and it’s going to tell you, wow, it’s going to tell you where that happened. That’s fascinating and then inputs and outputs and fees and huh. Well, it’s interesting, but this doesn’t tell me the person who did it. Well, it gives an IP address.
Jon:
No, it doesn’t. You have to do some fairly sophisticated networking analysis to find out who the person is, but as soon as you connect a person to any of their transactions, then you can knock them back down. It’s sudo-anonymous network, it’s not anonymous. However, one of the possible iterations and one that I’m not sure how well it will be received by governments everywhere is something called Zero Cash in which it wouldn’t be a fully anonymous monetary network where as the sender, the receiver, and even the amount would actually be hidden from those people.
Jason:
Very interesting, okay, so what else do you want us to know about this, you know, in your article you talk about one coin to rule them all. I mean, do you think that’s Bitcoin? I mean, they are obviously the dominate player. They are the first mover too, I guess they are the first mover.
Jon:
I think, personally, I think that okay, I think, so Bitcoin right now, although it’s only 5 years old is a little long on the tooth, a little hyped down, they’re changing the people would like to make, but I think this Blockstream and it should’ve, will allow people to sort of gently, slowly modify the fundamental Bitcoin Block Chain and sort of iterate from there. I’m not a true believer in Bitcoin myself necessarily, although, you know, its success is remarkable and, you know, has to be appreciated, but I do think the potentials that are brain stoned, that the notion of programmable money or things like smart contracts or replacing stock certificates with Bitcoin like crypto currency open up huge vistas of possibility and, you know, whether it’s Bitcoin itself or some Bitcoin variant or something else down the road, I do think we’re going to be seeing a lot more of that time to come. It’ll maybe less of a wild west world then Bitcoin today is, but I think that’s common with all sort of interesting transformational developments.
Jason:
Oh yeah, when you say, it needs to be appreciated, I mean, you are so right. It is truly amazing. I mean, it is amazing that initially an unknown person could invent this currency and it could just become this global thing without government, without military, without a marketing campaign. I mean, that is truly a phenomenal thing. I think it just speaks to how much people are starting to understand the nature of currencies and how they want those currencies to be decentralize, independent, and they don’t believe that one government should control them and I think that’s a wonderful thing.
Jon:
Me too. I mean, I think, you know, central bankers may have a grasp of how things are going in the developed world, you know, people will obviously dispute this, but people in the US and Canada and Europe are not generally calling it for some sort of replacement. People in Venezuela, people in Zimbabwe, you know, possibly people in China depending on what’s happening there, there’s a lot of Bitcoin activity, which I think are people hedging against the possibility of a hard landing there. Those are the places where I think Bitcoin is actually going to be important and relevant. I mean, the inflation rate in Venezuela right now is hard to measure, but not great regardless of who you believe and Bitcoin is looking like a less volatile and more stable sort of money than the Venezuelan bolivar at the moment.
Jason:
Oh, yeah, yeah. The next time Argentina has a crisis, they’re about due for one again. They have them on a regular basis pretty much. It may become a lot more creditable there too, but gosh, those..especially like Venezuela, you know, these dictatorshipish type governments, they don’t want people trading in Bitcoin. One of the big powers is the control over the currency. I mean, why would they let it occur? I mean, aren’t they just going to stomp it out?
Jon:
Well, it’s not clear to me how they would stomp it out. I mean, they could illegalize it, but unless they actually willing to shut down the internet, it’ll be extraordinary difficult to actually prevent anyone.
Jason:
I know, I know, but look, I mean, if they make something illegal, you know, people will be concerned that every time that they engage in a transaction, they’re taking a huge risk, you know, they don’t want to do that. I mean, heck, people could use cocaine to do trade, too. Maybe it’s not as portable as Bitcoin, but some illegal drug could be traded. I mean, certainly people trade in gold and silver of course, but those aren’t very portable or handy or divisible, so making it illegal is kind of a big deal, don’t you think?
Jon:
So, that’s true, I mean, I think the reaction to things being made illegal does vary by country, but you know, there’s I think there’s a certain healthy disrespect for the law in places like Venezuela or Zimbabwe more so than say the USA or Canada, but I also think that the advantage Bitcoin has is you don’t actually have to necessarily own or keep anything. All you need to have necessarily is a password to a safe that no one knows you have a password to and you could be storing value there. Now, like, I understand about governments are not enthusiastic about this.
I was talking with this to let’s say a venture capitalist and he was suggesting that in the future these extremely wealthy could just maintain their wealth in crypto currencies and then not pay taxes on it. Well, which would be unpopular among governments and pretty everywhere around the world, but at the same time I do think there is a place for people to be able to control and store their own money and for people to be able to use currencies like Bitcoin as a way to transfer to other currencies.
Jason:
So, my thought is that you’ve got to get government buy-in if this is going to work and why would government ever would buy in? I mean, the US is the most important buy-in, because, heck, the US as the reserve currency, the US has the biggest brand name around the world, it has the biggest military, it’s got the biggest economy. Why would they ever buy into this? I can see that maybe there will be a crypto currency, a cyber currency ultimately and maybe it’ll use Block Chain technology, but it’ll be controlled by the US government and its federal reserve. I mean, they can make their own. Heck, if Kayne West can do it, you know, Janet Yellen sure can.
Jon:
I’m sure they’re not ruling that out and I think it’ll be a very interesting development when the first sort of government does have its own fiat currency introduces some sort of experimental Block Chain-based quasi currency as an experiment, which I kind of expect to happen in the next ten years.
Jason:
Yeah, I do too, but the problem is it won’t really solve any of the problems that Bitcoin that could address, which is the debasement of currency and how governments just steal the wealth from people, not through taxation, the most effective way they do it is through inflation.
Jon:
Yeah, although to be fair, economist frown on Bitcoin, because it doesn’t actually have any inflation and there’s a belief there’s an optimum level, which they’re probably more than scared of.
Jason:
They believe that we should have, you know, 2-3% and they believe in the Phillips curve and all that stuff. I believe that it should be no more than the GDP and the population. That would be the only factors that should influence inflation. The rest of it is all just irresponsible government spending. You know, beyond that. They’ll still have to have a way to debase the currency or they’re never going to go for it, right?
Jon:
That’s true. At the end of the day, by law you pay your taxes in US dollars and the US government predetermines what happens with those US dollars. I think asking Bitcoin to deal with that is probably somewhat optimistic, but I do think it’s open the possibility of at least smarter and more efficient financial transfer and possibly applications and contracts that don’t involve government intervention and so forth, but are enforced on both sides by the software, which don’t exist today and will be useful in terms of independence.
Jason:
The other thing that would be great about it is that you could really understand the money supply if there were a finite number of coins, you know, you could know M1, M2, and M3, which they stopped publishing years ago and really know what’s going on with the economy. You could understand the velocity. Heck, going to BlockChain.Info, you can see the velocity of money right there on your screen. It’s amazing.
Jon:
The Bitcoin economy is also in some ways the most transparent economy by far.
Jason:
Of course it is, yeah, which governments and central banks hate that too, but yeah. This is a beautiful dream.
Jon:
Which I think is a pretty good summery of Bitcoin. It is a beautiful dream, but it’s one that’s become much more real that I think anyone would have expected 5 years ago.
Jason:
Yeah, yeah. It’s amazing. It really is. Give out your website, Jon, or tell people where they should find you. Just TechCrunch or do you have something else?
Jon:
I have weekly TechCrunch columns on there, Saturday mornings and my authorial site is Rezendi.com.
Jason:
What does Rezendi mean?
Jon:
It’s actually the name of a gold mine in Zimbabwe appropriately enough that my grandfather once managed.
Jason:
Alright, so, are you a gold bug? That’ll be interesting to know how that ties in with your Bitcoin ideology.
Jon:
That’s too 20th century for me.
Jason:
Too old-fashioned. Good, good stuff. Well, great. Jon, anything else you want people to know before we wrap up?
Jon:
I think I would like to stress that I actually believe we’re just scratching the surface of the possibilities of, you know, digital currencies and smart money and programmable money and the next 5 years are going to be awfully interesting whether Bitcoin itself succeed or fails.
Jason:
Yeah, good stuff. Well, Jon Evans, thank you so much for joining us.
Jon:
Thank you, Jason.
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