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← Bitcoin, the gold of the 21st century | Ferdinando Ametrano | TEDxLivorno

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Showing Revision 21 created 08/30/2019 by Michele Gianella.

  1. We are at the dawn
    of the digital civilization,
  2. we have probably already figured that out
    because our mail has become digital,
  3. music and movies have become liquid,
  4. and all those things
    that used to sit on our shelves,
  5. like encyclopedia, have gone,
    replaced now by Wikipedia.
  6. Nowadays we expect, correctly or not,
  7. that an entire banking
    and financial system
  8. will fit in our smartphones.
  9. The Nobel Prize in Economics,
    Milton Friedman, had already predicted it.
  10. In 1999 he said: "What we are missing now,
  11. and will be certainly created
    in a short while,
  12. is a digital currency -
  13. mind you, not a digital coin
    linked to an individual;
  14. but rather personal cash
  15. that can be used anonimously,
    by anyone, online.
  16. This prophecy has been fulfilled
    by the creation of Bitcoin,
  17. which absolutely is
    pole position in the race.
  18. Why?
  19. Not so much for being,
    quite obviously, digital:
  20. our euros and dollars have been digital
    for quite a long time too.
  21. Rather, it's because it is decentralized:
  22. there is no organization,
    no government behind it
  23. that holds the power to manage it
    and supervise its functionality.
  24. And this, albeit a bit scary,
  25. it’s a very strong guarantee
    that Bitcoin cannot be manipulated.
  26. It's that type of innovation
  27. known in the English-speaking world
    as "permissionless innovation".
  28. What does that mean?
  29. It’s a type of innovation
    that has no centralized safety mechanisms,
  30. no entry checks,
  31. not even an editorial
    content control system.
  32. If you're getting scared
    by this seemingly anarchic plan,
  33. there's no need to worry.
  34. We've already witnessed
    this type of innovation in action,
  35. and it proved to be
    both effective and gentle.
  36. The e-mail, for example:
  37. it was not invented
    by a consortium of post-offices,
  38. the Internet was not invented
    by a telcos consortium,
  39. So why should a transactional
    network of value
  40. be built by a consortium of banks?
  41. I can't really wrap my mind around it.
  42. I came across Bitcoin in 2014 -
  43. I studied physics,
  44. and I worked for more than 20 years
    in the field of investment banks,
  45. finance and so on.
  46. But I had never asked myself,
    not even once, what money is.
  47. The first time I thought about it
  48. was when I stumbled upon Bitcoin:
  49. up to now, that's the best gift
    that Bitcoin has ever given me.
  50. So I'd like to play a game with you,
  51. let's try and go over the history
    of currency in only three minutes.
  52. Here we go!
  53. The earlies form of currency
    we find in history is gold.
  54. Why?
  55. It might seems weird,
    but gold had two peculiar characteristics:
  56. there wasn't much of it, and it shone.
  57. Turns out, human beings
    love shining things.
  58. Gold was also quite malleable,
  59. and it is fairly easy
    to determine its purity.
  60. Take a pot, put it on the fire,
    let the gold melt
  61. and then wait for it to cool down.
  62. If it's still shining
    after this thermal shock,
  63. it's definitely gold, trust me:
    any other material would stop shining,
  64. But if for every business transaction
    the process needed to be repeated,
  65. it would have been difficult.
  66. So we asked Julius -
    yes, I mean Julius Caesar -
  67. "Look, Julius, how about
    putting your face on the gold coin
  68. as a guarantee there's
    that much gold in it?"
  69. The first deflationay crisis
    came about with his heir,
  70. Augustus Caesar.
  71. Even the peasants realized,
  72. sestertia did not contain
    the figure amount of gold.
  73. But for the medioeval merchant,
  74. gold had even another problem:
  75. it was really heavy.
  76. Gold has a very high density, so it was
    uncomfortable to carry it around.
  77. And also risky, for you
    can be robbed by bandits.
  78. Almost at the same time in history,
    London-based goldsmiths
  79. and those who would later become
    the Italian bankers,
  80. they came up with the same idea:
  81. they suggested the merchant
    to leave the gold in their vaults
  82. in exchange for a certificate
    that first was nominal,
  83. and would later become
    a bearer certificate.
  84. It was a bank-note
  85. with which one goes to her pawn counter
    and redeem her gold back.
  86. That's how the banknote was born:
  87. a currency that represents
    an amount of value stored elsewhere.
  88. But both the Britons and the Italians
    couldn't resist a temptation:
  89. after noting that most of the time
  90. people did not ask for the gold back.
  91. So they had what we might call
    a spark of genius.
  92. They thought: "If we print more banknotes
    than there's gold in our vaults,
  93. who will notice it?"
  94. Do you know what the answer is?
  95. No, no one!
  96. So the fractional coin appeared:
  97. there are more banknotes
  98. that the redeemable gold.
  99. Jumping forward in history:
  100. in 1972, even in a regime
    of fractional currency,
  101. the redeemibility of money,
    US dollars in this case, in gold,
  102. was still a limiting factor
    for those in charge of monetary policy.
  103. But Richard Nixon had enough,
    and he decided that
  104. the US dollar couldn't be converted
    in gold anymore.
  105. From that point on, we have "Fiat money",
  106. and I do mean exactly
    "Fiat Lux et Lux Fuit":
  107. a currency whose value
    is purely conventional,
  108. its value it’s based on a social contract
    that we all agree on.
  109. And if someone does not agree,
  110. we can force that person
    by using something know as “legal tender”,
  111. which means that fiat money
    must be accepted to pay back a debt.
  112. Let me say it, this is a bad coin,
  113. actually, we could even say
    that it’s a terrible coin:
  114. we don’t need to recall
    the most egregious examples
  115. in the history of money.
  116. Our dear old friend US dollar,
    already proves it:
  117. its performance
    it’s not exactly impeccable.
  118. Starting from 1913, the year in which
    the Federal Reserve was funded,
  119. the USA dollar has lost
    more than 96% of its purchase power.
  120. That means, it’s a bad currency.
  121. It's the typical result
    of a monopoly situation.
  122. Friedrich von Hayek,
    Nobel Prize in Economics
  123. and founder of the Austrian school
    of economic thought,
  124. wrote an entire book
    bemoaning the fact that:
  125. "We deem essential the government's
    monopoly of the currency.
  126. We would accept the monopoly
    over no kind of good,
  127. in a market economy.
  128. Yet we do accept the monopoly
    of that syntethic product
  129. that has half of the power
    in any business transaction:
  130. the currency.
  131. Like any type of monopoly,
    not only it delivered us a bad product,
  132. but it forbid us
    from looking for a better one.”
  133. Therefore, Hayek did conclude:
  134. "If we ever want to have
    a good currency again,
  135. we have to take it away
    from the control of the States.
  136. And since we cannot do that using force -
  137. he was a good man,
    and I comply with his invitation -
  138. we should do it with a clever gimmick,
    something they wouldn’t be able to stop.”
  139. Bitcoin is exactly that clever gimmick.
  140. Now let’s try to dive deeply
    into what a currency is.
  141. Money is, in it's essence,
    a tool for social relationships.
  142. I know that this might not be
    the definition you were expecting;
  143. but if you think about
    your own experience,
  144. we were all born in a gift economy.
  145. I hope that none of you had to pay
  146. for all the parental care you received:
  147. otherwise I would feel
    very sorry for you all,
  148. and quite happy for your therapist,
  149. who will certainly have
    a lot to work on with you.
  150. But this gift economy
    doesn’t only encompass our family,
  151. our friends, our neighbours,
  152. what we could call “our tribe”.
  153. It’s an economy that doesn’t scale,
  154. because sooner or later
    we will run into people we don’t know,
  155. and that is why we don’t trust them -
    or maybe, sometimes,
  156. we don’t trust them
    precisely because we know them,
  157. which is more or less the same.
  158. But we are inherently social animals,
  159. that’s what we are anthropologically,
  160. so we want to cooperate
    even with those we do not trust.
  161. So, at first, we invented
    the practice of bartering:
  162. I give you my eggs, but it just so happens
    you’re going to give me your milk today.
  163. Alternatively, in order to barter
    anywhere and anytime,
  164. we invented the currency:
  165. a syntethic good that allows us
    to cooperate with people we do not trust.
  166. I'm not sure about you, but I hope
    for a moment of intellectual upheaval,
  167. because I reckon this remark
    as hugely important:
  168. a currency is a tool we use to cooperate
    with people we have no trust in.
  169. So it's quite clear that, today,
  170. in what it’s for the first time
    a digital and global information economy,
  171. the need arises
    for a supranational currency,
  172. a digital coin, not controlled by states,
  173. a global currency,
    a currency of the Internet.
  174. The problem is, it is insanely hard
    to create an Internet currency.
  175. The biggest problem is known
    as “double expense problem”.
  176. Every time that we have a digital artifact
    that represents a value,
  177. we've always needed
    a centralized authority
  178. in order to prevent its duplication.
  179. Digital as it is, it’s easily duplicable.
  180. It’s easy to grasp:
    consider your current account balance.
  181. If I transfer my current balance account
    to your account -
  182. don’t get your hopes up,
    I don’t have that much money -
  183. and then I try to transfer it again
    to the gentleman here,
  184. my bank, which controls the updates
    of the ledger, is going to tell me:
  185. "No Ferdinando, you cannot do that.”
  186. How are we going to create
    a valuable digital asset,
  187. that is to say an non-duplicable asset?
  188. Because – think about
    the painting "Gioconda".
  189. Gorgeous, no doubts about that.
  190. Its market price is incalculable.
  191. But if the painting
    could be duplicated without control,
  192. for an unlimited number of perfect copies,
  193. it would still be gorgeous,
  194. but its market price
    would drop down to zero.
  195. That’s what is happening with Bitcoin,
  196. and it's limited to 21 milion Bitcoins.
  197. Bitcoin, in a way, is as scarce
    as physical gold:
  198. gold on the physical level,
    Bitcoin on the digital level.
  199. Bitcoin is, or at least is aspires to be,
    the digital counterpart of gold.
  200. And now I'm going to hope
    for a second moment of upheaval.
  201. I’m pretty sure, you all today
    came here in this theatre
  202. believing every digital thing
    can be duplicated.
  203. This is the very intuition
    that Bitcoin proves wrong:
  204. It’s a digital gold
  205. and attached to it,
    inside of the Bitcoin itself,
  206. there is a transnational network,
    which is both safe and not-censurable,
  207. that can be used
    to transfer this gold globally.
  208. I know you are skeptical,
    I can see it in your faces.
  209. Let’s play another game, then:
  210. imagine that an alien
    was going to land here, okay?
  211. You have to explain
    the traditional currencies to him,
  212. and I’m going to explain Bitcoin.
  213. I will start right away
    by telling the alien:
  214. "Look, their currecies
    have no inherent value."
  215. At this point you might respond,
    slightly irritated:
  216. "The same goes for Bitcoins, Ferdinando!"
  217. And I will say, you serious?
  218. I’ve just explained to you
    the shortage in the digital world!.
  219. But your game is easy:
  220. What about the social contract,
    centuries of history of the currency,
  221. the legal tender -
  222. Alright, 1-1, time for the kickoff,
    let’s start this over.
  223. This time I’m going to start
    by pulling your leg,
  224. saying that the cash you carry around
    is just a bunch of colored paper.
  225. Yeah, right, special paper, special ink:
  226. but, let’s be honest, it's just the same
    as the cash in the game of Monopoly.
  227. My coin, on the other hand,
    is pure math and encryption.
  228. Not only that, I will also tell the alien
    that while I am a kind person,
  229. I’m not forcing my Bitcoin on you,
  230. you are instead rather coercive.
  231. I cannot refuse your euro.
  232. The legal tender tells me,
  233. if a debtor wants to settle
    his debt with me in euro,
  234. I can’t deny him that.
  235. I’m goint to let you figure out
    how the alien is going to see all of this.
  236. Oh, I almost forgot,
  237. maybe I should also tell the alien
    that a gentleman, in Frankurt -
  238. a very composed gentlemen,
    the most serious of us all -
  239. he can print as much of that colored paper
    as he likes, whenever he likes,
  240. and give it to anyone he likes.
  241. He was not elected,
  242. and he won’t need to take responsability
    for how he carries out his duty.
  243. Meanwhile I’ve already
    explained to the alien
  244. that Bitcoin’s monetary policy
    is perfectly deterministic,
  245. it can’t be influenced.
  246. You might say: "Right,
    but no one is using Bitcoin.
  247. there are no business transactions
    carried out using Bitcoin."
  248. That’s for sure:
    those who bought, in 2010,
  249. two pizzas, paying them 10.000 Bitcoin -
  250. which at the current rate
    woul be 40 milion dollars -
  251. Well, let’s just hope that
    those pizzas were really, really good,
  252. because I wouldn’t have been able
    to digest them in any way.
  253. Bitcoin is a safe-haven asset,
    so it's stored.
  254. Therefore it makes much more sense
    not to compare it to a currency,
  255. but to actual gold.
  256. Gold has been accepted
    by all civilizations
  257. as the earliest form of currency,
    without any type of centralized planning.
  258. It was for centuries
    the most successful currency,
  259. it set off the development
    of all the monetary systems we know,
  260. it was overtaken by forms of currencies
    much more sophisticated
  261. without it becoming outdated.
  262. What happened over the centuries
    to physical gold,
  263. is happening in these ten years,
  264. and will probably happen
    in the upcoming decades, to Bitcoin.
  265. The Bitcoin's most scary trait
    is the value volatlity:
  266. it goes up and down.
  267. There isn’t much to fear, to be honest.
  268. I mean, every time
    someone talks about Bitcoin
  269. you should fasten your seatbelts,
  270. because the ride tends to be quite bumpy.
  271. But Bitcoin's volatility is physiological.
  272. When market mechanisms
    of supply and demand
  273. try to assess the value of a certain good,
  274. if the product is controversial,
    like digital gold,
  275. the process is going to be
    just as mush controversial.
  276. We’ve seen it already happen,
    in history, with e-commerce:
  277. take a look at the history
    of Amazon’s ratings, its volatility.
  278. The worrying part about Bitcoin
    is the so-called "drowdown":
  279. highest to lowest point,
  280. it managed to lose
    more that 93 percent of its value.
  281. So my bottom line is,
  282. if you ever plan to invest in Bitcoin,
  283. do it with a small percentage
    of your savings,
  284. small enough that you would be able
    to reasonably sustain its complete loss.
  285. The good news is that
    Bitcoin is not correlated
  286. to other investment asset classes,
    to other investment opportunities:
  287. It doesn’t move with them,
    it diversifies the risks.
  288. So, if put it in an investment portfolio,
    even if it sounds counterintuitive,
  289. but it draws dawn
    the risks of that portfolio,
  290. expected rate of return being equal,
  291. or, given the same risk,
    it increases greatly the expected return.
  292. So it is a good idea
    to invest a small amount in Bitcoin,
  293. and this gives us a cue
    for some final considerations.
  294. Let’s imagine that 2 percent
    of the assets under management -
  295. I’m not referring
    to 2 percent of the global wealth,
  296. but 2 percent of those assets
    that are professionally managed -
  297. let’s imagine that they invest in Bitcoin
    over the next few years.
  298. Well, if we do the math,
  299. the value of a Bitcoin is going to be
    a hundred thousand dollars.
  300. But if Bitcoin is, or proves to be,
    the digital gold -
  301. I say if because it’s a bold experiment
    and it might fail, let’s not forget that,
  302. but it’s an experiment substantiated
    both culturally and technologically -
  303. again, if it proved to be
    the digital gold,
  304. well, ladies and gentlemen,
    it would be better than actual gold:
  305. extremely light, instantly transferable,
    low transactional costs,
  306. no logistic problems,
    non-censurable and unstoppable.
  307. Therefore, if Bitcoin was to capitalize
    the same amount as gold today,
  308. its value would raise to 400.000 dollars.
  309. 100.000 dollars, 400.000 dollars -
    I’m not here to sell you Bitcoin,
  310. I’m just saying,
    if Bitcoin is digital gold,
  311. it's currently greatly underestimated.
  312. Someone might object saying that:
  313. "I've read that it’s not Bitcoin,
  314. It’s the blockchain,
    the technology underlying it,
  315. the real deal".
  316. When it comes to this,
    I love to paraphrase Confucio, he said:
  317. “When a wise man points at the moon,
    the fool looks at the finger”.
  318. The moon is Bitcoin,
    the finger is the blockchain.
  319. You can’t overlook the relevance
    of the Bitcoin phenomenon.
  320. If you have the slightest understanding
    of the role that gold played
  321. in the history of civilization,
    finance and currency,
  322. the rise of gold's digital counterpart
  323. in the digital civilization
    and in the future of finance and currency
  324. is going to be explosive.
  325. I would like to end with a thought:
    25-27 year ago,
  326. I used the e-mail and surfed the web,
    but I'd never imagine
  327. that on top of the TCP/IP protocol,
  328. the technology underlying
    the web and the e-mail,
  329. would be used to organize our weekends
    in digital clubs – Facebook,
  330. or buy liquid, digital books and CDs
    from online shops,
  331. or we would ask questions
    in natural language
  332. to a computer, a digital assistant,
  333. expecting a meaningful answer.
  334. I can’t tell you, 20 years from now,
  335. what we will be able to make
    on the value's TCP/IP protocol,
  336. which type of incredible apps
    we will have managed to create:
  337. that’s exactly the adventure
    that is waiting for us over the horizon.
  338. Thank you.
  339. (Applause)