There’s little doubt that one topic dominated financial headlines in 2017…and it took most investors by complete surprise. Bitcoin’s parabolic rise from $997 on January 1, 2017 to almost $20,000 has been nothing short of spectacular.
In part 1 of the Best of Bitcoin, you’ll hear from Wall Street Journal senior writer Paul Vigna, author of the Age of Cryptocurrency and the upcoming Truth Machine. Paul helps you understand the origins of Bitcoin and how the underlying decentralized blockchain technology running it has the power to reinvent traditional financial and social structures.
Porter interviews perma-bear David Tice who tells you why he thinks bitcoin is real, why it’s here to stay, and how it offers a complete paradigm shift for how businesses can operate. Tama Churchouse, editor of Crypto Capital and senior analyst at Stansberry Churchouse Research joins Buck and Porter to tell you exactly why Asia is the melting pot of crypto activity, how to get started in Bitcoin, which crypto assets to watch, and why learning the difference between Bitcoin, blockchain, and token function is crucial before investing in the crypto space. www.stansberrybitcoin.com
President, Tice Capital
Tice founded the Prudent Bear Fund (BEARX) and served as portfolio manager from 1996-2008. For the ten years ended 12/08 when Tice sold the fund, BEARX increased in value at a 8.0% annualized rate, while the S&P 500 lost 1.4% annually. Tice utilized short sales of overvalued common stocks and stock indices, as well as being long mining companies to achieve a negatively-correlated investment return profile.
Market Reporter, The Wall Street Journal
Paul Vigna is a reporter for the Wall Street Journal and also contributes to the popular MoneyBeat blog. He is the author of two books (with Michael J. Casey), the critically acclaimed The Age of Cryptocurrency and The Blockchain.
Editor, Stansberry Churchouse Research
Tama-Richard along with his father Peter established Churchouse Publishing Limited in 2012, with the aim of bringing independent, no-nonsense analysis and research to those who take an active interest in creating and managing their own wealth. He draws on extensive experience gained by nearly a decade working for investment banks in Asia, most recently at JPMorgan working on derivative structuring and marketing across a wide range of asset classes (including rates, credit, equity and FX) for private banks in the Asia region as part of the Structuring and Solutions Group. Tama-Richard also oversaw Alternative Investment Structuring in Algorithmic Index Strategies, as well as other bespoke longevity and equity hybrid structuring. Prior to joining JPMorgan, Tama-Richard worked in Derivative Solutions at ABN Amro.
Announcer:Broadcasting from Baltimore, Maryland, and New York City, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.
Buck Sexton: Welcome everybody to another episode of the Stansberry Investor Hour. I'm nationally syndicated radio host Buck Sexton, and it's the last week of 2017. Merry Christmas. I hope this broadcast finds you enjoying time with family, friends, and all those you love and care about wherever you are. Over here at the Stansberry Investor Hour, we'll all be taking some time off from the show to do the same. But we certainly didn't want to leave you hanging at the end of the year, so we've put together a special episode for you today on one of your favorite topics. But first, a note of thanks.
Whether we happen to find you right now in your car, at the gym, at home, on the train, or on a plane, we're grateful you choose to take an hour of your time each week to listen to our discussions and interviews. I know I speak for our fearless leader Porter Stansberry and the whole gang here at Stansberry Investor Hour when I thank you for your time, interest, and continued support. You are the reason we do it. So let us know how we're doing, dear listener. Write to us at [email protected] or jump over to the Stansberry Investor Hour page on the Apple iTunes store. Rate the show, leave a comment, and share the podcast with a friend.
OK, let's get started. There's no doubt that one topic dominated financial headlines in 2017 and it took most people by complete surprise. You've heard Porter and many of our guests say there's a bubble in just about every asset class these days, but the one exuberant financial instrument that can't be ignored right now is none other than our beloved revolutionary cryptocurrency bitcoin. So for your listening enjoyment over the holidays we've put together a series of two episodes covering the best of bitcoin from the Stansberry Investor Hour in 2017.
For the next two shows we'll revisit Stansberry Investor Hour interviews with Wall Street Journal senior writer Paul Vigna, author of The Age of Crypto Currency and the upcoming Truth Machine with Michael Casey, which is all about blockchain as opposed to bitcoin. If you haven't picked up a copy of Age of Crypto Currency yet, do yourself a favor this holiday season and get it. Age of Crypto Currency is one of the first books that will teach you why you need to care about bitcoin and the blockchain technology behind it.
Never mind investing in the crypto space. Understanding the revolution behind reinventing traditional financial and social structures is probably more important right now. You'll also hear Porter interview perma-bear David Tice on how he's navigating the world of cryptos looking in the rearview mirror. You'll hear why David thinks bitcoin is real, why it's here to stay, and how it offers a complete paradigm shift for how business can operate.
Next week in part two of the best of bitcoin, Porter talks with author and legendary investor Jim Rogers during an extended segment outlining what Jim sees as some of the biggest obstacles to bitcoin adoption and acceptance as a store of value. And that's not all, my friends. You'll also learn the three main asset classes of cryptos from Tama Churchouse, editor of Crypto Capital and senior analyst at Stansberry Churchouse Research, which is based in Singapore. Tama will be featured twice during our best of bitcoin series to tell you exactly why Asia is the melting pot of crypto activity, how to get started in bitcoin, what crypto assets to watch, and why learning the differences between bitcoin, blockchain, and token function is crucial to understanding how to make sense of it all.
If you're ready to take the leap into cryptos and learn more about how to trade them, you can find everything you need to know by reading Crypto Capital from Stansberry Churchouse Research. Just go to www.stansberrybitcoin.com for all the latest details on how to access crypto capital. Tama and his team will tell you exactly which cryptos are worth owning and which are not. They've developed extensive training tools to show you how to trade them, which exchanges are the best to use, how to securely store your cryptos, and a whole lot more. Visit StansberryBitcoin.com and get started today.
OK, with all of that said, welcome to part one of two of the best of bitcoin. To kick things off we'll go back to Episode 8 released on July 14 when bitcoin was trading at only $2,300. Paul Vigna from the Wall Street Journal and author of the bestselling Age of Crypto Currency joined me and guest host PJ O'Rourke for the very first time we covered bitcoin on The Investor Hour. If you bought bitcoin back in July when this interview first aired, you'd be up approximately 700% on your trade in only four months. Oh my, dear listener, where will it go from here?
OK folks, it looks like we have Paul Vigna from the Wall Street Journal on the line. Paul is the author of The Age of Crypto Currency: How Bitcoin and Digital Money are Challenging the Global Economic Order. Along with co-author Michael Casey, Vigna demystifies cryptocurrency, its origins, its function, and what you need to know to navigate the new cyber economy. Now, bitcoin and blockchain is a subject that a lot of Stansberry readers have been asking about, so we did some research, reached out to Paul, and he was kind enough to give us some of his time today.
As I mentioned, Paul is a market reporter for the Wall Street Journal with 20 years of journalism experience covering equities and the economy. He's also a writer, editor, and host for the daily web show Money Beat. Paul has been a guest on the Fox Business Network, CNN, and the BBC as well as a well-regarded expert on bitcoin, crypto currencies, and blockchain technology. His latest articles for the Journal include "Why you won't be buying a coffee with bitcoin any time soon," and "Forget an IPO; coin offerings are the new road to startup riches." Please welcome to the Stansberry Investor Hour Mr. Paul Vigna.
Paul Vigna: Guys, thanks for having me. I'm very happy to do this.
Buck Sexton: PJ, you go first, sir.
PJ O'Rourke: Well Paul, explain this to us. I guess what I need explaining most is the blockchain technology. I mean we can talk about bitcoin, pro, con, whatever, but underlying this cryptocurrency there is an electronic technology called blockchain and that's all I know.
Paul Vigna: Yeah. All right. OK, look, the first thing I want to say is, and sometimes I forget to say this to people so I'm saying it at the outset, because really the most important thing to remember about all of this is that this is totally experimental. This is a giant live experiment in developing a new kind of technology and it holds some great promise and it could be a really good thing, but we're far away from a point where this is a proven technology that is being used every day and it's part of your life and that kind of thing.
So you have to keep that in mind, because I think people see a lot of things happening in cryptocurrencies. They see this bank is on board with this experiment. This bank is on board. Bitcoin is up 1,000% or whatever the percent and they think, "Oh my god, this is really happening." It's really happening, but it's really an experiment. So just keep that in mind and then we can kind of move on and talk about all of it.
PJ O'Rourke: That's interesting. So this is not like the steam engine as we knew it in locomotives before diesel came on. This is back at the very beginning when Thomas Watt has got this reciprocating piston with tolerances of about an inch on each side.
Paul Vigna: You know if I had to put it in those terms of an analogy, I might say we're at the point where you're in your little town with dirt roads and everyone has a horse and a buggy and you've just seen your first car come down the road and you're saying to yourself, "Oh my god, what is that thing? That is a tool of the devil. That thing has go to be banned. We can't have it on the road. It's dangerous for the horses. We've gotta get rid of it." But it's there.
PJ O'Rourke: Or you could be like – this actually happened to my grandfather. My grandfather was born in 1877. He was a wagon repairman, a buggy repairman, and he saw his first horseless buggy, and his reaction was exactly the opposite. He's going, "I am with that. No more getting kicked."
Paul Vigna: That's where we are and yeah, you're right, some people are with it and some people are against it and it's a very different way of thinking about a number of concepts. So I'd say the most important feature of this technology is this idea that you have an open ledger, which is basically just a database that is maintained by a network of computers that are all running the same exact software. They all have the same exact copy of the database. Every time a transaction goes into the database a copy of that transaction goes to every single computer on the network.
What that does is it creates a situation where anybody can verify the database. Anybody can verify the transactions, but nobody has absolute control over it. So rather than have a situation where – a good example of this is like you think about these centralized servers where all our personal information is stored and it's on one server and a hacker gets into it and they take it and it's gone. This is different in that the data is not held in one server. It's held on every single server, every single computer on the network, so that it is harder to manipulate that data if you get your hands on it.
So that's the most – I don't even think I'm kind of explaining it in a way that makes it as clear how groundbreaking this is. This is an idea of taking control of these networks away from centralized servers and moving them out to a decentralized network. It could be, again, it's an experiment if it works, but if that works it really could be sort of a sea change in just how we record data, how we store data, who has control over that data, and I use that personalized information.
The better analogy probably is what happened in the financial system, because that's where bitcoin comes from. It was an idea of getting around banks. Banks are trading these exotic securities that nobody has any real information on and they manipulated the data and they did it to a terrible degree and we had a huge financial crisis. With this decentralized database nobody would be able to do that. All the information would be in a public sphere. All the information would be instantly verifiable by anybody on the network, and it just creates a very different dynamic than what they're used to.
Buck Sexton: Paul, can I ask a question, by the way? Sorry, PJ, I just want to say that Paul is the author of The Age of Crypto Currency: How Bitcoin and Digital Money are Challenging the Global Economic Order. So if we're going to have him on the podcast I think we also should be plugging his book on the specific topic. So give me a mulligan. Give me another shot on that one.
Also, Paul, why is it that bitcoin can't be counterfeited? This is what I don't understand. People say it's made online. Why can't people just make more of it the same way that – I know people talk about the Fed and printing money and they're not actually printing money. It's on a computer screen anyway. But why can't bitcoin be – this is what I don't get, and apologies PJ for jumping in with this one.
Paul Vigna: No, it's a great one, Buck, because it sort of is a core concept of this. So, when they built bitcoin, the guy who built it was this sort of pseudonymous character. No one knows his real name. He went by the name Satoshi Nakamoto. He designed it with a hard cap of 21 million bitcoins. That was all that would ever be created, and each one of those is divisible to I think the eighth decimal place, so it's almost endlessly divisible. You can have smaller and smaller portions of a bitcoin, but the idea is you have this hard cap, 21 million bitcoin. Why can't it be counterfeited is your question.
Because of what I was just describing, this sort of open database, what happens is every single transaction on the Bitcoin network is recorded in the open database. Every single transaction is instantly verifiable by anybody on the database. So any time a bitcoin is moved, everybody knows it, and it is recorded and it is sort of hard-wired into the history of bitcoin.
When people talk about the blockchain, essentially what they're talking about is this open database. Once it's in there the history cannot be altered, and the history can't be altered because everybody has the exact same copy of the history. That's why each individual bitcoin cannot be counterfeited because if you did it everybody would know it because it's all open. It's not hidden.
Now not to get too complicated, what you can do and what people have done is you can create your own copy of bitcoin. It's open source software. So anybody can take the software, adapt it, put whatever features they want in it, and create their own kind of bitcoin, and you have a lot of those. They call them alt coins, and you have somewhere north of 700 of those. So you can have different versions of bitcoin existing, but you can't counterfeit one single bitcoin for that reason because everything is open and is verifiable if that makes sense. I hope it does.
Buck Sexton: Yeah, absolutely.
PJ O'Rourke: So the idea was to create something like a finite supply of gold that would anchor the currency's value.
Paul Vigna: Right. Exactly. Yeah. I mean, bitcoin's entire existence in history is really a reaction to the existing monetary system and the existing financial system. I mean, it's designed to get around things that the creator at least saw as problems. One is an inflationary currency, which is what most VR currencies are. They're not on a gold standard, not on any real standard. They're fiat money. Right. So that's why bitcoin was created with that hard cap of 21 million bitcoin. It's designed to be a stable currency, to be essentially deflationary, I guess.
The other idea was that by having this open ledger, by having these transactions that could be verified by anybody, you wouldn't need this third party. You wouldn't need a bank. You wouldn't need a central government standing behind the currency. Everybody could see it, everyone could understand it. Trust me, it's hard to understand the mechanics of it, but in terms of just whether or not a transaction is there, you can trust that the transaction is there, you can trust that the history is there, and what that allows is that it allows you and I, Buck, or you and I, PJ, or any of us to transact directly.
You're not going through a bank. You're not using a third party to settle your transactions. We are doing it directly between each other. The idea was to totally get around the banking system, which is pretty radical.
Buck Sexton: What's interesting to me is what you're talking about here, and for everybody listening we're speaking to Paul Vigna who is a market reporter for the Wall Street Journal and author of The Age of Crypto Currency: How Bitcoin and Digital Money are Challenging the Global Economic Order. And of course I'm joined by my main man PJ O'Rourke, author, international man of mystery, and pundit extraordinaire.
Paul, why is it that what you're talking about seems to be an absolute transparency, and yet when people these days, online criminals and all the rest, when they want payment they want sometimes bitcoin. We saw this with ransomware I believe, some of the big ransomware cases recently. They said, "Well, pay me in bitcoins." So there's this perception that bitcoin is – while you're saying it's all out there for everyone to see, it also is somehow not really traceable, or at least it's a way to move currency without the government being able to stop it.
Paul Vigna: Yeah, you're right. It sounds like a contradiction, but it really isn't. They're just two different features of it. One is the transactions themselves are completely open. It's the identities of the people using this network that are shielded, and the way they're shielded is that you don't have to – like, if you go to the bank and you open up an account, they're going to want a lot of information from you. They're going to want your birthdate, your social security number, your address. Basically they want everything about you and then they have that information.
With bitcoin, none of that information is required. The only thing that is required when you have a bitcoin wallet, which is the online account, and this is in the purest form of Bitcoin. If you really wanted to be a Bitcoin purist what you would do is you would download the bitcoin software itself, which has a wallet attached to it, an online account attached to it. The only thing you need to operate that is the private key.
Every wallet has a public key and a private key and it's just basically an encrypted string of numbers and letters, and if you have the private key you have access to that account, but that is the only thing you need to access that account. None of your identifying information has to be attached to it, and that's why some people use this to try to move money anonymously.
Now the trick of it is, fellas, as I explained, because every transaction is in the public realm, the trick of it is – and law enforcement figured this out pretty quickly – the trick of it is that every transaction is recordable and can be followed, and if you're in law enforcement the real beauty of this is that if you can attach an identity to that transaction history, you then have that person dead to rights. And that is especially what happened in the case of Ross Ulbricht, who was running the Silk Road website, which was this online drug bazaar.
They eventually had a bead on who he was, they figured it out, and once they were able to get their hands on him and get their hands on his computer – which had his server, which had the transaction history – they had everything they needed to convict him. So it actually is not as good for committing crimes as you might think it is. It's OK I guess if you're going to do it, if you're sort of a very small person just going online to buy some drugs or something that you think you're going to fly under the radar, but if law enforcement gets a bead on you and they get this transaction, they get your private keys, you are done. You are going to jail.
PJ O'Rourke: You're toast.
Paul Vigna: So it's a very mixed bag for malefactors.
PJ O'Rourke: The other thing that interests me about this is it's secure, it's transparent, it's private, so how is it that things have gone wrong with bitcoin? I'm thinking particularly about Mt. Gox. Am I saying that right?
Paul Vigna: Oh sure. Yeah. Well, I mean, Mt. Gox was the first major trading site, the first major exchange, and what went wrong with it is that the guy who was running it knew nothing about financial networks. He was basically a gamer and he did not understand how to secure money, how to store money, even bitcoin. And it was a very poorly built exchange and platform, and some hackers just went in there and broke into the accounts and just took the money out.
And by the time he realized that this was going on, it was too late. It was gone. The money was just taken. It was moved from his accounts into their accounts, and this is another feature of bitcoin. Listen, it's supposed to be like digital cash, right? It's supposed to be an online version of cash. One feature of that is that once these transactions are done, once these transactions are put into that history I was talking about, they cannot be altered – which means that once a transaction is completed and confirmed it is done for all time.
So if you lose your bitcoin, if someone gets into your account and takes it, it's gone. Unless you can find that person and force them to give it back, it is gone. There's no backsies in bitcoin. It's not like you call up your credit card company and say, "Hey, I'm a victim of fraud" and they just erase the transactions. In bitcoin that doesn't happen. Once the transaction is confirmed and completed it is done for all time.
PJ O'Rourke: So it is kind of eerily like cash in that respect.
Paul Vigna: Yeah. Oh, absolutely. If you lose your private key it's gone. That's it. You're gone. The money is absolutely gone forever. And even people who are pretty savvy have gotten hacked from time to time and have lost money, and that's a problem. So you have other exchanges that have grown up since Mt. Gox that use a different model, and there are some protections for consumers and they're more like traditional banks.
With those you do have to give more information to them. They adhere to regulatory standards of anti-money, money laundering laws, know-your-customer laws, and you do have to provide more information and they're a little more traditional. This is sort of what you're seeing in bitcoin now is this sort of movement between – it's almost like a sliding scale of how bitcoiny you want to be.
You can be the person who is essentially your own bank and you have your own wallet and you've downloaded the software and you're anonymous and you're completely out there on your own, or there are services that are much more like traditional banking services and you can access on of those too. So it's kind of a sliding scale of privacy and services, if that answers your question. I'm sorry, the problem with Mt. Gox is that Mt. Gox is just a terribly run site and the guy didn't know what he was doing. In the years since a lot of the exchanges learned from that and a lot of them have much better features, much better security. It is much harder to get into them and they don't suffer the same kinds of catastrophic hacks that Mt. Gox did.
Buck Sexton: Jamie Diamond says bitcoin is a terrible store of value. Warren Buffett says it's a mirage. Your response, Paul?
Paul Vigna: Well look, my response is, first off, as I'm sure PJ will understand especially and Buck, you will too: Look, I'm a reporter. I'm a journalist. I'm here to talk about bitcoin and try to explain it as best I can, but I'm not necessarily here to defend –
Buck Sexton: You're not an evangelist. I get it.
Paul Vigna: I'm not an evangelist. However, what I would say to that is when Jamie Diamond made that comment it was a couple of years ago, and since then JP Morgan itself has gotten very much on board with the idea of the technology. They're not advocates for bitcoin itself, but the technology they are keenly interested in and they have a number of projects going on that make use of the concepts behind it, and a lot of Wall Street is doing the same thing.
They're trying to figure out what is good about this, what is bad, how can we negate the bad and use the good and how can we make this work for us, because what they do see is an option. I mean, this is taking a process that on Wall Street right now is still very manual and very labor-intensive and digitizing it, atomizing it almost, and making it very immediate. There's one startup that their tagline was "the trade is the settlement," and the idea is that as soon as you – traditionally if I buy a stock or a security or some other asset, derivative or whatever, it could take days for that to settle and there are a lot of intermediaries that that has to go through and a lot of people hold some portion of that transaction for several days.
The idea with this is that it goes through automatically. It is confirmed. You have this open network, this transparent network that makes that happen very fast and very cheap. And Wall Street is really entranced with this idea that they can take a lot of processes now that take them days and cost a lot of money and make it very cheap and very automatic, and they're trying to do that in a way that still preserves that sort of transparency and opacity that the markets love to have. I mean, the markets are really about information, right? If you have it and the other guy doesn't you have the advantage.
So the banks are trying to still figure out how they can use this sort of open network and still kind of twist it in a way that it will still have some of that transparency. Look, I'm not trying to say that they're all corrupt. I'm saying that if you're a bank you don't want everyone to know what your order book looks like. So they're trying to figure out a way to do all that, but they're very interested in it. So yeah, Jamie Diamond made that statement, but it was a couple years ago and since then there's been a big sea change in how Wall Street looks at this stuff.
PJ O'Rourke: Well that was actually going to be my next question, was if you're looking into the future on this. It sounds to me like the underlying technology might be of greater value to large institutions in terms of lowering market friction and speeding up market settlements and also avoiding arbitrage situations. That looks to me more like the future of the blockchain than bitcoin ATMs all over the place and everybody buying their organic kale with bitcoins.
Paul Vigna: Yeah. It will probably be the case that in 10 or 15 years this technology will be underneath a lot of what we do on a day-to-day basis and we won't really even realize that it's there, that it's operating. Right now bitcoin has held that as a sort of very mysterious, very esoteric, very anti-
PJ O'Rourke: Establishment, in a way.
Paul Vigna: Yeah. I think you'll have a situation where you will have this technology in a lot of places. You will have it in some very decentralized systems. You will have it in some very centralized systems. It will probably be underneath a lot of what Wall Street does. Again as I said at the very top, if the experiment pans out, it'll probably be underneath a lot of what you do on a day-to-day basis but you won't really realize it. Kind of in the same way that you turn on the sink, you turn on the tap in the sink in your kitchen and it works. You don't really understand how it works.
PJ O'Rourke: Right. You never think about the amazing amount of machinery that's behind that.
Paul Vigna: Yeah. You don't think about the indoor plumbing. You don't think about what that little elbow in the drainpipe does. You just know that it all works. I think in 10 or 15 years we'll probably have that kind of a situation with this technology.
Buck Sexton: How long is it before I'll be able to get my non-fat latte with caramel drizzle and mocha soy additives and pay for it via bitcoin? Or a better example, how long before when PJ is in town I can say, "Give my friend here your finest single malt and here are some bitcoins, my good man."
Paul Vigna: I wouldn't hold out for it being this year, I'll say that.
Buck Sexton: Sorry, PJ.
Paul Vigna: Will it ever happen? I tend to think it will, but I don't know exactly when that will be. Probably not for a while.
Buck Sexton: So what can you buy with bitcoin right now? I mean if someone is listening and they're like, "I wanna go try this thing out," how do you do it?
Paul Vigna: The more interesting thing for bitcoin I think too is what it'll be able to do for you online. Where you'll be able to use it online I think ultimately will be sort of the more interesting question. There are several websites that take it. Probably one of the more prominent ones I think are Expedia, Overstock. The one that people talk about all the time which would be a complete game changer for bitcoin would be if Amazon ever said, "Yeah, we'll take bitcoin." That would be the day that this thing really does go mainstream for obvious reasons. It's Amazon.
But I guess the two places to look for this, and again it's still very limited. I saw some report that said less than half a percent of all people in the U.S. have ever even used bitcoin in a transaction, and that's probably true. It gets a lot of attention. It gets a lot of media attention. I think it's a very exotic story and it attracts people and that's what attracted me to it, but in terms of how much it's used on a day-to-day basis it's still very, very small.
But I think the places you want to look for it catching on, assuming it does catch on, are online and mobile. If you start to see it take off in those places you will know it's really becoming a thing, and so that's just for bitcoin. The other thing is to see if any of these other sort of bitcoin... I don't want to say clones, but versions of bitcoin take off. One people talk about is ethereum. That's one to keep an eye on. Again not really used –
PJ O'Rourke: They just lost a whole bunch of ether.
Paul Vigna: Yeah, it's really down right now. It was up from January to the middle of June it was up I think about 5,000% and now it's down about 50%. That's another thing to keep in mind. If you're trading these things, keep in mind these are still small, relatively illiquid markets that are extremely volatile and they are very rudimentary compared to what we have in the traditional capital markets. So if you're an adrenaline junky, these are great. If you're a mom-and-pop retailer who's thinking, "I need something to retire on," I don't know that these are so great for you.
PJ O'Rourke: Yeah. Well I sort of foresee a future of kind of limited use of this, but the blockchain thing that you were talking about, we could be doing a lot of our ordinary transactions with blockchain technology behind them and never even know it – the way we have no sense when we use our GPS, the amazing amount of rockets and satellites and billions of dollars of stuff that's gone into finding Grandma's house.
Paul Vigna: Yeah. The other interesting one would be the extent to which this technology can be used to sort of undergird the whole "Internet of things" idea, this idea that we're going to have all these connected devices. Your media question is who's going to control the data, right? If it's one or two central servers, that gives them an incredible advantage over – it's almost astounding the idea that you could have one or two people controlling all this data and all these devices.
So the idea is that, well, rather than having that sort of centralized control, what if we had a decentralized control? What if all the data was stored on a blockchain-like network? People at IBM are especially big on that idea. They're going to try to build that out that way and that would be a very interesting use of this technology.
PJ O'Rourke: You know, this interests me for one sort of big-picture reason. A lot of the history of the modern economy starting with the beginning of the Industrial Revolution and right down to now has been about a decentralization of power and production, is that things that could only be controlled by the aristocracy in the 16th/17th century, just the automobile. The power of mobility and independence that it put in the hands, that the Model T put in the hands of ordinary people, we've seen a whole history of empowerment of individuals by technological advances. I think this fits into that general pattern.
Paul Vigna: Oh yeah, you are absolutely right. I think when you start looking at it in those kinds of terms it becomes a lot more understandable. Look, for hundreds of years we have had systems and hierarchies and networks that really only worked if they were centralized. You had to have somebody at the middle of it sort of controlling it to make it work because of the technologies we had at the time, and those centralized systems worked very well for us for hundreds of years. Technology is absolutely changing that. You've seen it.
You know, it's funny who gets it, who got it instinctively are corporations. Corporations understood supply chains instinctively. Corporations understand tax regimes and where they can go to get better deals. They understand those things instinctively and they're going to get this technology instinctively as well, and they're going to start figuring out, oh, is this something we can use in our supply chain? Is this going to help us on that front?
You do see a general decentralizing trend in technology. I mean, think of it this way: When I was growing up, I knew people in my town, and maybe I had relatives in a town far away and I knew two people in that town. My children are growing up. They're online. They know people all over the world. Their friends are all over the world.
PJ O'Rourke: Yeah, or another example would be broadcast television. I remember getting our first television and we had one channel. One. Eventually we got an antenna and we had three channels, one of which was Canadian, and I mean the network system that I grew up with in the '50s and '60s is gone forever due to this technological decentralization.
Paul Vigna: Yeah. I mean look, I'm old enough – what I remember is being a kid in the '70s and I guess we had nine channels so we were very advanced, right? You had to get up off the couch and turn the knob, so that seems archaic now. But I mean you're right. Technology is sort of changing our culture, and I think that bitcoin and blockchain is going to sort of seamlessly fit in with that eventually.
Buck Sexton: Okay, next we're going to go back to Episode 18 from September 22 when bitcoin was trading at only $3,600. We'll hear from famed money manager and founder of The Prudent Bear Fund David Tice. Porter asked David about the legitimacy of bitcoin as an asset class and whether or not he's been investing in the space. Here's what he had to say.
Porter Stansberry: One last question, David and then I know you've got better things to do than talk to us yahoos all day long, but what about bitcoin? Have you bought any? Would you ever buy any? Do you think that these digital currencies are a legitimate asset class?
David Tice: I have bought some. I wish I would've bought more. I think they're going to work. I really think that I'm scared to death that we have some tulip mania phenomena, but what you do have is you are reducing friction costs for money being moved around the world and that's a great thing. It kind of is a goal 2.0 in that you can move it around a lot more and it's divisional, and you can see it working in Venezuela. You can see it working in various places now. China is trying to clamp down, and the big advantage that we understand that all the proponents have said is because it's distributed there's no way any government can shut it down, and if that's the case and we do have a finite supply, I mean, that's one thing that we don't have with currencies.
Over thousands of years, governments have always debased the currency because they create more of it in order to maintain the standard of living of their constituents. So therefore there's this great advantage. I think the weight of the evidence is going to work and it's very, very likely to continue to go up, but it still scares me a little bit because of the tulip mania component of it, but I think it's real.
Porter Stansberry: That's a great answer. I share your enthusiasm, by the way. I think that the idea behind it is beautiful and very Hayekian, spontaneous order. It's a natural currency. It's not anyone else's liability. You can take it with you. It has all of these attributes that are similar to gold, and I think it's going to be with us for a very long time. I wouldn't be surprised if somebody eventually comes up with an even better version of bitcoin that's even more trusted, but I don't see that necessarily means that bitcoin would radically lose its value.
I think there's probably room in the world for several reserves if you will digital currencies that are widely accepted. One of the greatest things about it is you can put your key, you can put the passcode to your digital wealth onto a tiny micro device and you can take it with you anywhere, and it's very hard to beat that. So I think it's a great challenge to governments and I think it's by far the most significant risk that central banking faces in the near term.
Buck Sexton: OK. David Tice says bitcoin is gold 2.0 and since there's a finite supply, bitcoin has an advantage over other currencies. David thinks it's real, wishes he bought more, and Porter calls it the most significant risk that central banks will face in the near term. Now let's go back to Episode 22 from October 19 when Bitcoin was trading at only $5,700. Notice a trend? Porter and I discuss the potential problem of governmental regulators getting involved in cryptos and we welcomed bitcoin and blockchain expert Tama Churchouse to tell us how he got involved in the crypto asset space and the difference between cryptocurrencies and crypto tokens.
Porter Stansberry: The idea that it is a currency that is not under any government's control is extremely attractive, especially when you understand how indebted the major Western economies are, which is something that I kind of specialize in.
Buck Sexton: I just wonder at what point governments get a little antsy about it, because that will happen if at some point –
Porter Stansberry: Some governments have, right?
Buck Sexton: Right. I mean our government.
Porter Stansberry: That's a lot of downsides to simply prohibiting it because you're going to really stifle innovation, and what if other countries don't stifle that innovation and it becomes incredibly more and more important? It'd be like, I mean, what if you had said, "Oh no, there's no Internet protocol, we're not gonna allow commerce on the Internet." Where will we be as a country? So yes, it undermines the status of the Fed, and yes, it undermines the role of the dollar, but what if it also generates enormous amounts of wealth and productivity and leads to an entire new industry?
Buck Sexton: Sounds great to me.
Porter Stansberry: I don't know. Jamie Diamond says it's all garbage.
Buck Sexton: I don't understand how it's not all garbage, but I also don't understand it, really. Like, fundamentally it is beyond my ability to conceive of how this is – from this perspective, anything is essentially hackable that is connected, right? There's a way into anything.
Porter Stansberry: It's not hackable.
Buck Sexton: How is that possible?
Porter Stansberry: Because the security is driven through the nature of a distributed registry. The thing that people can't quite fathom, they can't wrap their heads around because it is a really new technology, it's a really new idea. It's the idea that every single person who's ever owned that bitcoin, the receipt of their ownership is noted on the bitcoin and every other person who's ever owned any other bitcoin is also on that registry, and that information, that blockchain, that is why it is valuable because it is an accurate registry and you cannot alter the registry unless I think it's 70 percent of all the people agree to.
So if there has been fraud or if there's a need to change the registry in some way it is alterable, and in that sense it is hackable as you would say. But it's not hackable in that you're not going to be able to hack every single person's bitcoin at the same time. Can't be done.
So if you have one key for example, you've got your bitcoin account and you figure out a way to hack it, to give yourself more bitcoin, your registry is not going to match with anybody else's. It's not going to be accepted – it's going to be rejected. And that kind of technology is very hard to defeat with a hacker. Think about it, the reason why information has been subject to hacking is because it is warehoused. It is vaulted. It is held apart. What's so different about the distributed registry is it's nothing secret. The entire registry is always available to every owner of bitcoin.
Buck Sexton: So this is like radical financial transparency is what this would allow.
Porter Stansberry: Radical. Nothing has ever been this transparent. In fact, the way that the math works is if you try to alter the code then it will not work. So an interesting thing about bitcoin, the guy who wrote it used a pseudonym, Satoshi somebody, Nakamora. I can't remember the guy's fake name, but it was a person or a group of people, and it's a really elegant, beautiful breakthrough in computer science to be able to do this.
By the way, a distributed registry like this has been a goal of computer science for more than 50 years. It's been theorized that something like this would evolve with the network, but no one had ever been able to figure out how to do it until now. Instead of putting his name on it because he feared, I suppose, he feared retaliation from governments. Who knows, maybe he's Chinese. Maybe he lives in an oppressive regime. We don't know, but the cool thing is he still owns a million bitcoins because when he did the original programming, hey –
Buck Sexton: He gets a piece.
Porter Stansberry: "Hey, let me wet my beak." Think about this for a second. This guy owns a million Bitcoins. Bitcoin is now $5,000. If I do my math right, that's $5 billion this guy has made by designing bitcoin. The really interesting thing is you can see when he begins to sell and he's never sold one. So I think it's a really unbelievably cool technology. It'll definitely be around for a very long, long time, and it's going to change everything about the way we record ownership.
It's going to change everything about housing registry. It's going to change everything about stock trading. It's going to change everything about bank accounts, and that's why Jamie Diamond fears it so much.
Buck Sexton: Where is your uncertainty with bitcoin?
Porter Stansberry: I have no idea what it's worth.
Buck Sexton: OK. That's where the point of uncertainty is.
Porter Stansberry: You can make a serious legitimate case that it's worth $100,000and it's not fanciful. You can also make a very serious legitimate case it's worth nothing.
Buck Sexton: How is it worth nothing?
Porter Stansberry: Well, it's worth nothing because right now it is the most popular version of a blockchain currency. It was the first one. It has the most users. It has the most liquidity. There's the most trading in it. It's the basis of all of the other virtual currencies, so it's kind of like the reserve virtual currency. But what if somebody comes out and says, "Here's a better, here's an improvement, here's something new that no one else has thought of that makes it better somehow." I don't know how. Maybe somebody comes out and says, "You know what? We're going to link a virtual currency with gold and with a sovereign."
So the Swiss come out and say, "Hey, buy the Swiss coin. We're going to back it 20 percent with gold, plus we're a sovereign country and you'll have a regulated banking system in which to use it." You could see tremendous competition for who's going to be the reserve currency of this new form of money. So I have no idea what it's worth, but I can tell you I felt strongly about how beautiful and important the software was years ago, and I never bought it because I never knew what it was worth and now of course like every other person you feel like a damn fool.
Buck Sexton: Do you think bitcoin is going up? You, yeah you, come on.
Porter Stansberry: Country club guy.
Male: Well, the only question I hadof the blockchain technology, is that gonna help me get tee times any faster?
Porter Stansberry: Tee times? I think that the registry would change the country club world.
Male: Well, then I'm all for it.
Buck Sexton: So we've got Tama Churchouse with us. Tama opened his first brokerage account at the age of 16. Along with his father Peter, he established Churchouse Publishing in 2012 with the aim of bringing independent no-nonsense analysis and research to those who take an active interest in creating and managing their own wealth. He draws on over a decade of experience working for investment banks, most recently at JP Morgan, working on derivative structuring and marketing for private banks in the Asia region. Along with his role at Stansberry Churchouse Research, he manages a portfolio of internal money for the family office in listed securities and real estate, he has a degree in economics from the School of Oriental and African Studies in London, and he lives in Hong Kong with his wife and three children. Please welcome Tama Churchouse.
Porter Stansberry: How are things?
Tama Churchouse: Good, thanks, Porter. Glad to be here.
Porter Stansberry: OK, so I just want to dive right into this. Tama, when did you buy your first virtual currency and which one did you buy?
Tama Churchouse: It was bitcoin and it was in 2013 I believe.
Porter Stansberry: So that was pretty late into the whole process. Bitcoin had already had a couple big peaks and valleys at that point.
Tama Churchouse: It was still pretty early. It was still very difficult in our part of the world in Asia to actually buy bitcoin. So finding a decent exchange was pretty difficult. My first bitcoin I actually bought in cash from a friend of mine, and it was still $100 or so I think at the time, so it was still pretty early on compared to where it is now.
Porter Stansberry: And why on earth did you do this? What possessed you to go out and put money into a currency that's not backed by any tax base, that's not backed by any commodity?
Tama Churchouse: There were a couple of reasons. One, it was interesting to me. As a researcher and someone who's interested in financial markets it was interesting, and the second reason was a good friend of mine who is a real tech evangelist had kept bugging me and bugging me and bugging me and finally I relented, and that was really when I kind of started the journey and opened the Pandora's box that is crypto assets in general.
Porter Stansberry: So you bought your first bitcoin and then what happened next? How did you go from that to being on the boards of these companies and becoming a bitcoin or virtual currency evangelist yourself?
Tama Churchouse: Well, I mean, I was skeptical for a very, very, very long time and really a big part of that was because most of what you read about bitcoin in the media in particular was extremely negative. It was bitcoin is for drug dealers, bitcoin is for money laundering, that's all it is. There's no other use case for that. I'll admit I think I was pretty swayed by some of that, and it took me kind of a long time until really early 2016 where I was able to kind of put that aside and actually see the emergence of these other crypto assets and think actually there is something much, much bigger at play here and much, much bigger than bitcoin.
Porter Stansberry: So, I do understand a little bit about bitcoin. I understand the software. I understand how it works. I understand how its value is really fascinating how it grows incrementally so it requires more and more computer power to make the same amount of bitcoin and it's basically in tandem with Moore's Law.
So it's not getting easier to mine bitcoin. It's getting harder, and it'll get astronomically harder before the final bitcoin is mined. It's a really brilliant software idea. The question I have for you is since we have bitcoin and it works very well, it's incredibly robust, it's a beautiful elegant software, why do we need more virtual currencies? Why can't we just use bitcoin?
Tama Churchouse: So one of the biggest misconceptions is – there are around 1,200 crypto assets trading at the moment, and generally you'll hear them referred to as cryptocurrencies, which is a real misnomer because they're not currencies. A currency that we would view as bitcoin for example whose sole function is the transfer and storing of some modicum of digital value.
Most digital assets, most crypto assets are not currencies. They have some other element of utility behind them. They're either decentralized organization, almost like shares in a way, or they can be utility tokens, or they can be protocol tokens. There are a huge array of crypto assets out there. So currency is just a tiny, tiny fraction of what the technology does.
Porter Stansberry: See, this is the limit of my knowledge. I can't figure out what the other tokens are for. Can you give me an example?
Tama Churchouse: Okay, I'm trying to phrase it a different way. If you think of the Internet in the 1990s, what was really one of the first use cases of the Internet? The real proof of concept was email. Do you remember in the early '90s they started Hotmail, and that was a fantastic proof of concept and it was really the first thing that everyone could kind of grasp and go, "OK, I can send an email. I can receive an email. This is what the Internet brings." Then you can see everything that has come from the Internet, all of these businesses.
It's similar with blockchain and Bitcoin at the moment. Bitcoin is just the first proof of concept. It's the equivalent of email in the 1990s, and what's coming behind it are all of these extraordinary businesses. One of the biggest ones are crypto protocols, and I'll give you an example. If you think of the Internet it was entirely built on things like HTTP, IMAV, SMTP, all of these protocols which underpin the entire Internet backbone as we know it. Now those protocols are being built for a blockchain version of the Internet, and you can actually buy into those protocols.
So the difference is every single time you go to a website or open an email you're using SMTP or you're using HTTP, but they're free. In the blockchain space you can actually buy into these new protocols, and those are the foundation that an entire new Internet of value transfer is going to be built on. So that's kind of when things start to get really exciting, and it's really nothing to do with currency at all.
Porter Stansberry: Well, now you've told us this, Tama, why should we be tuning into the webinar tomorrow night? What else do you have to share with us?
Tama Churchouse: Well, we're going to go through everything from bitcoin outlining really what it is to obviously talking about ICOs. I think a lot of the press at the moment will be talking a bit about some of the guys who have been very vocal recently, Jamie Diamond, Larry Fink. Is that his name? I cannot remember his name.
Porter Stansberry: Larry Fink at Blackstone?
Tama Churchouse: Yeah. He's been very negative.
Porter Stansberry: Well, this is very threatening to the established banking order.
Tama Churchouse: Hugely. I mean these guys are terrified because the future –
Porter Stansberry: Well, their real job is maintaining the registry. We don't need that anymore.
Tama Churchouse: The bank of the future is not a financial institution – it's a technology company. Lloyd Blankfin realizes that. That's why a third of his employees are in tech.
Porter Stansberry: Let's hope that the future of newsletter companies is not a technology company.
Tama Churchouse: Absolutely not.
Porter Stansberry: Can robots tell stories?
Tama Churchouse: Nope, certainly not.
Porter Stansberry: I hope they don't get that good. We'll be in trouble.
Tama Churchouse: But yeah, so in the webinar we're gonna cover a lot of people's main objections to bitcoin, things they're worried about, volatility, ICOs. It's gonna be pretty exciting and we've got a special guest here and he's a pretty extraordinary young guy. He built and sold his first multimillion-dollar company when he was a teenager. He is one of a handful of people who I would say are kind of real visionaries in the space. You kind of see three or four steps ahead of the rest of us, and I'm kind of going to be delighted to introduce him to you as well.
Porter Stansberry: I'm looking forward to it. Well, that'll be tomorrow night. Buck, you have the details for folks who want to learn more about virtual currencies, Bitcoin and blockchain.
Buck Sexton: Yes. Just go to www.stansberrybitcoin.com. You can check all of it out for free and I am going to as well.
Porter Stansberry: Okay, Tama, I got one more question for you not relating to virtual currencies or blockchain. You have been around the financial industry for a long, long time and you have seen lots of bad financial ideas; you've seen lots of great financial ideas. Besides blockchain, where do you have capital invested and what is an area of the global economy that you're excited about outside of virtual currency?
Tama Churchouse: I think Chinese technology is still gonna be I think equally as big an opportunity as blockchain. If you look at what's happening in China at the moment, I'm based in Hong Kong. Stansberry Churchouse Research are based in Hong Kong and Singapore. The Chinese have decided that they are going to be the technological leaders of the world, and what does that mean? It means artificial intelligence, it means quantum computing, and these guys are pouring just an insane amount of money into dominating these two spaces, and I can tell you right now the rest of the world doesn't stand a chance.
Every year you've got around 4.5 million STEM graduates, science technology engineering and mathematics graduates in China, 4.5 million every year. I think in the U.S. you have around a half-million graduates total. So every year you've got 5 million qualified workforce folks going into technology domestically. They've got the backing of the government. You've got effectively a new Silicon Valley being built in the greater area in Shenzhen. A friend of mine who is an older guy, he works for one of the most respected and prestigious quantum computing outfits out there.
I mean, the guy when he was interviewed, one of his interviewers was Stephen Hawking. He went and visited Tencent. He'd been meeting with them for about five minutes and they just simply turned to him and said, "How much? What's it gonna cost for you to come and join us?" That's the state of play at the moment. So I think you have to have some exposure to China's technology sector, you absolutely have to.
Porter Stansberry: Great answer. Tama, thanks for joining us. I think we're going to be spending the afternoon together. I don't know how many pheasants you've ever shot before, but I'm hoping to increase that number this afternoon.
Tama Churchouse: Zero. I shot a duck once, but it was sitting down at the time.
Porter Stansberry: Well these will be flying, and most important rules are don't shoot the guy in the orange shirt, that's me, and don't shoot the dog. Otherwise we're going to have a great time.
Tama Churchouse: Outstanding. Can't wait.
Porter Stansberry: All right, thanks very much.
Tama Churchouse: Thanks, Porter.
Buck Sexton: All right, folks, there you have it for part one of two of our year-end best of bitcoin series on the Stansberry Investor Hour. If you're ready to take the leap into cryptos and learn more about how to trade them you can find everything you need to know by reading Tama Churchouse's Crypto Capital. Just go to StansberryBitcoin.com for all the latest details on how to access Crypto Capital. Tama and his team will tell you exactly which cryptos are worth owning and which are not. They've developed extensive training tools to show you how to trade them, which exchanges are the best to use, how to securely store your cryptos, and a whole lot more.
Visit StansberryBitcoin.com and get started today. This week we'll hear the utter sadness in the voice of legendary investor Jim Rogers as he tells you why he hasn't been in on the unbelievable crypto trade of 2017. Famous speculator Doug Casey will enlighten you and share his "a-ha" moment with bitcoin and how it led him to make a huge speculation in the crypto space last summer. And we'll get a second visit from Tama Churchouse in part two of the best of bitcoin where he and I get into a deeper discussion on the different crypto asset classes and why the market cap for bitcoin could easily reach into the trillions.
As always, let us know what you're thinking and what kind of job we're doing for you. Write to us at [email protected] Love us or hate us, just don't ignore us. Thanks again for listening, everybody. This is Buck Sexton signing off for Porter and the whole gang at the Stansberry Investor Hour as we wish you and yours a very Merry Christmas and all the best in the New Year.
Announcer:Thank you for listening to the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to InvestorHour.com and enter your email. Have a question for Porter and Buck? Send them an email at [email protected] If we use your question on air we'll send you one of our studio mugs.
This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.
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