I heard some coughing over here. I mentioned the word "crypto." What are we doing here, Matt? I mean, what would Jack say? I'm amazed you invited me. I am a Boglehead, so I feel like this is the prodigal son returning. Let me read your bio so that people don't throw things.

So Matt is a Chief Investment Officer of Bitwise Asset Management, the world's largest provider of cyber currency index funds. They use the word "index." More than $5 billion in assets under management. Prior to that, Matt was the CEO of Insight ETFs and the former CEO of ETF.com and the Managing Director of Global Financial Informat.

Now Matt is a Boglehead. I've known Matt for a long time. Before he had gray hair. Before I had gray hair. He's been to conferences before. He was a big advocate of the, I think you created, I forgot what it was called, the low-cost ETF portfolio. What was that?

The world's lowest-cost ETF portfolio, yeah. Every year I used to go to a conference and Matt would put up there, "This is the lowest-cost total stock market fund, the lowest-cost international fund," and so forth. And it was kept on going down and down and down and down every year.

So Matt is a diehard Boglehead. But he made this pivot to the dark side. So first of all, why don't you explain why you've made the pivot? Oh, good question. I'm a diehard Boglehead. I wrote the foreword to Eric Balchunis' incredible book on Jack. I operated in the ETF space for 15 years.

I think ETFs were an incredible invention. I think they did a lot to lower costs and improve tax outcomes for investors. And it was really fun to see them go from something that people didn't trust, something that people didn't believe, but that I thought had value in the world, into mainstream apple pie of investing.

And I think they've done a lot of good. And so after I sold ETF.com with my colleagues, I looked around for the next great technological breakthrough that I thought could bring efficiency and lower costs to the world, that I thought could help investors, but where the public didn't understand it and didn't like it.

And that was crypto. So that's where I made the jump. I will remind everyone that there were congressional hearings about ETFs destroying the American dream. And even Vanguard didn't like ETFs. So I've seen technologies go from hated to well-understood and adopted. And although it may be unpopular in this room, I think crypto is on that journey as well.

Well, just as a reminder for people, Bogleheads.org, the forum, does not allow discussions on crypto. There's a couple of reasons for that. You could read about it. But what happened as soon as people started discussing it, there was so much spam that started to hit the boards that the moderators were just overwhelmed with Bitcoin spammers.

And I'm sure you've seen them. That was one of the reasons why, in addition to other valuation reasons, why Alex decided-- and Alex is here. You can talk with him about it. There he is. You can talk to him directly. He's the man. He made the decision. So if you're a crypto fan and you want crypto on Bogleheads, grab his ear.

Talk to him for three hours about it. Maybe he'll change his mind. Anyway, OK, so crypto. Bitcoin. This has grown. I mean, how much money now is in, say, just Bitcoin? How much is in Bitcoin? Bitcoin's about $1.3, $1.4 trillion today. That's a lot. It's a real number. And if we add everything else, like Ethereum and just the cyber currencies, how much are we talking about?

It's about $2.4 trillion altogether. That's the asset class, if you want to call it. $2.4 trillion. Yep. When I did the interview with you-- oh, it must have been only a few months ago-- it was just breaking two. So we've grown up 20% since then. It's crypto. So first we went down, and then we went back up.

Yeah, that's the way it works. There's a lot of volatility in this asset class, I guess you could call it. Right? OK. But today, we're not talking about-- even though it says, does crypto merit a place in your portfolio? That's not what this is about. That's not what this discussion is about.

I think I titled this discussion, but I titled it wrong. Anyway, it's about what is this thing called cryptocurrencies? And it's a very confusing term. I mean, it sounds like Superman, right? Was that Kryptonite? I mean, it sounds like Hollywood. And it puts people off, I think, just the name itself.

But in fact, the name goes way back. And it really is the basis for what's called the blockchain. So start from the beginning. Talk with me like I'm a third grader, OK? And tell me, what is the history of the blockchain, which is what this Bitcoin and all the cyber currencies sit on?

And a little bit about how it works. Great. Yeah, I think it's both really easy to understand and understood by very few people because it's wrapped in so much spam and nonsense. What crypto or blockchain is about is about a technological advance in actually in computer database design. And it's not an idea that popped out of nowhere.

It was something that people worked on for 50 years at the NSA, at Stanford, at MIT, that links back to cryptography and its use in the military. This was like a series of technological breakthroughs trying to make a jump in how computer databases work. And that jump is called the blockchain.

And here's the way to conceive of it. It's actually very simple. The way computers have always worked from when they're first designed to today, the vast majority of them work as individual nodes. So we talk a lot about crypto and finance. So I'll use a finance example to make this clear.

JP Morgan has a database of their customers and how much they own. Bank of America has a database of their customers and how much they own. Wells Fargo has a database of their customers and how much they own. And any computer architecture that you look at looks like that.

It's a series of individual databases. All a blockchain is, all this 50 years of work, is how do you build one database that's available everywhere in the world, that everyone can see into, everyone can contribute to, that updates in real time and is always true, but that's not controlled by any single entity.

So if you think of JP Morgan's database, JP Morgan controls that. Wells Fargo database, Wells Fargo controls that. What a blockchain is, is a solution to a computer science program. How do you have one database that's available everywhere in the world, everyone can see into, updates in real time, but that no single party controls, that's controlled by the crowd.

And the reason that's interesting, and we can get into this, is you can do things with this decentralized database, that's the buzzword people rap into it, that you can't do with a centralized database. And I'll make just one example. I think it's the least interesting thing crypto does. So I don't want to get hung up on this.

I don't think this is what crypto is about, but it makes the point. You know that the Bitcoin blockchain is pretty incredible in that it can move money faster than JP Morgan, which is just a fact. Like if we wanted to send money today, somewhere around the world, JP Morgan could get it done on Monday.

The Bitcoin blockchain could move a billion dollars in 10 minutes. How does it do that? Well, if you think about it, the core problem with moving money between JP Morgan and Bank of America is that there are two databases. So if I send you money, I'll write you a check from my JP Morgan account, and you deposit it at Bank of America, Bank of America has to check with JP Morgan to make sure I have the money, because they can't see into that database.

If we all have one database that we're all operating from, and I say I want to move money from my account to Rick's account, it's trivially easy to update it. It's like updating an Excel spreadsheet. It can happen in seconds. So all crypto, and we can talk about the use cases, but when you hear crypto, when you hear blockchain, think about a computer science problem, which is how do you have one database that's available everywhere in the world, everyone can see into, updates in real time, is always true, but there's no single person or entity controlling it.

It's decentralized. That's what it's actually all about, and I think it's the most important financial technology breakthrough of the last 40 years. So where does the idea of crypto or cryptology come into all of this? So yes, you can give money to me, I can give money to you through this decentralized control database, but why can't people just go in and just make false transactions and take everybody's money?

Yeah, that's exactly right. So where the crypto comes from, and I think crypto is a terrible name, like crypto sounds dangerous and sounds bad and sounds scary and sounds like criminals, but where it comes from is cryptography, and cryptography really emerged out of the military during the world wars in a way to send encrypted messages, and basically the way it works is something called public private key cryptography, but the easy way to think about this is I have a house, you could look up my address, but you can't come into my house because you don't have the key to my front door.

Cryptography is the same way to do that electronically, sort of how can I have an address? But you can actually look in my windows, you can see everything I have, correct? You know everything I've got in my house, you can see everything, you just can't take it. That's exactly right, and so how do you apply that into a digital setting?

How can I have a digital address that everyone can see into, but they can't access it? And the answer is something called RSA or public private key cryptography, which for what it's worth is not a new idea. All military communications uses the same cryptography as Bitcoin. All point of sale transactions, when you bought a coffee downstairs, how Visa communicates is the same cryptography as crypto.

The way the internet works is the same thing. This is a fundamental technology, but people just stacked a few other innovations on top of it to create the blockchain, and that's where we are today. So when we talk about blockchain, just to confirm, there's not just one big blockchain out there that controls everything, right?

I mean, there's individual blockchain, there's private blockchains, there's public blockchains. That's exactly right. So you can architect a blockchain in a bunch of different ways. So you mentioned private versus public blockchain. Vanguard uses a private blockchain to settle transactions internally. The right way to think of a private blockchain is it's like corporate intranets.

If you remember the early days of the internet, I do, the internet was terrible and it was scary and you weren't supposed to go on it and no one trusted it and Wikipedia would never be anything. In the early days of the internet, everyone thought corporate intranets were the future.

Why? Because they were safe, secure, and controlled. Your company could have an intranet and you could trust the information on it, but you wouldn't go into the wilds of the public internet. There be dragons. The same thing is true in crypto. You can have a private blockchain that only five people can work on, and J.P.

Morgan uses a private blockchain to move money from Department A to Department B within the bank, because it's the most efficient way to do it. As I mentioned, Vanguard uses a private blockchain for certain securities transactions. And a lot of people have been excited about private blockchains. My sort of base case is that just like with the internet, it's actually the public open blockchains that are the valuable one.

And we can get into this. There are many different blockchains, even publicly. There's Bitcoin, there's Ethereum. They do different things. They're good at different things. And they have different use cases in the world. So you take something like Bitcoin. Bitcoin is just one blockchain that everyone can access. It's a public blockchain, correct?

Yeah. And if you have another type of cyber currency like Ethereum, that's a separate blockchain. But it's just all ledgers. It's just all spreadsheets in a way. Yeah. So we can all have access to all of this. We can all see it. But to actually make a transaction and get it to work, something has to happen where if you're going to give me money or somebody in this room, we're going to transact and we're going to give each other money on this blockchain.

It has to be verified in some way. So talk about the verification of all these transactions. Yeah. Let's sit with Bitcoin. We can do Ethereum later because it's actually a more complex story. It's actually going to appeal to more of you because Ethereum has cash flow and Bitcoin doesn't.

But you're right. If you think about what a bank does, a bank secures your money and processes transactions. And for that, they charge you a fee and you pay them in cash or they take your interest income depending on the bank. In a blockchain, Bitcoin blockchain, same thing. It processes transactions and it secures the blockchain.

But there's no one person doing it. So how does it work? The way it works is what you've heard called mining in the Bitcoin space. And what mining is, is all these computers around the world. Anyone can run one of these computers. You could run one of these computers, Rick.

And these computers work to verify transactions and then settle them on the blockchain and secure the blockchain. So to use your specific example, if I put in a ticket, if you want an order to send you a Bitcoin or half a Bitcoin or a third of a Bitcoin, it goes into a pool.

And then these computers around the world, they take all the people who want to send Bitcoin from person A to person B. They check to make sure that I have the Bitcoin that I'm trying to send to you. That's a valid transaction. They package a bunch of them together into what's called a block.

That's where the word blockchain comes from. And then one of them gets to settle that block. And then that enters and is sort of formalized in the ecosystem. And the way mining works is everyone's racing. One person gets to settle a block. Those transactions are finalized and then they do it all again.

And every 10 minutes, a new block is processed. But it's the same thing banks are doing. It's just in a different way. So you've got all these transactions all over the world that are happening with Bitcoin. They're kind of adding all up in this block. And then at a certain time or a certain capacity of this block, then the miners go in and they try to solve some key.

They try to figure out what the key is to verify all of these things. And if they're actually the winner, and by the way, this takes a tremendous amount of power, a tremendous amount of computing power. These are not simple transit, simple keys, if you will, that they have to figure out.

Anyway, they then verify that yes, all of this is correct. And when a miner verifies that it's all correct and they find the key, they're the ones who get to the key first because there's all these competing miners out there trying to get to that same key. They get the key.

What happens after that? Yeah. So when they solve this math problem, and then I want to explain why there's this math problem, because I think people think it's just a waste. When they solve this math problem, they raise their hand and say, "I've solved the math problem. Here are the 10,000 transactions that should be settled." Everyone checks their work and it's finalized.

And then that miner receives a reward from the Bitcoin network of new Bitcoin. So right now, these blocks are settled every 10 minutes. And the reward you get is a couple of Bitcoin. So a few hundred thousand dollars. And that's why everyone races to do it. What is it?

3.125? That's right. Yeah. So about 200 grand. And then you might be wondering, so why this complex math problem? And the reason is, you need to make it costly to propose a solution to the network and say, "I've settled these transactions." Because otherwise, everyone would spam it with fake transactions, right?

They would just spam it because it would be free. If you make it costly, then the only people who are going to raise their hand and say, "I did this," are people who have processed valid transactions. And then the network adopts it, and then they run the race again.

The incredible thing about this system... One thing about it. Once the network adopts it, everybody out there gets an update, correct? That's right. And the incredible thing about the system... Remember what I tried to explain earlier, which is it's the first decentralized database that updates in real time and is always true.

The reason it updates in real time is in order to run the next race, you have to have the information that was just settled in this block. So if you think about how do you solve this problem of getting a million computers around the world to update in real time, the way it's solved is they all want to run this next race.

And they can't run this next race until they update their database. And this is what allows it to work over time. And here's an incredible fact that's just true. Bitcoin blockchain has been working for 15 years, has 99.99% uptime. It has better uptime than the Swift network, the Visa network, or any major bank.

And it's never processed a fraudulent transaction. It's an amazing result. And it's this mining algorithm that keeps people doing that. So a couple of questions there. There's money involved for the miners. The first thing, if they solve this equation and they beat everybody to solving the equation, they get 3.125 Bitcoin for doing it.

Where does that Bitcoin come from? Yeah, it's issued. So we started with zero Bitcoin. It's created out of thin air. Well, Rick. Kind of like the Federal Reserve in a way, right? Yes. Yeah. With limits. I mean, it's created from the energy consumed. But yes, yes. We started at zero Bitcoin.

There will only ever be 21 million Bitcoin. The way we get to 21 million Bitcoin is through this process of mining. It follows an asymptotic curve. So the amount of Bitcoin you receive falls in half every four years. If you heard the halving, that's why they call it the halving.

Crypto loves to make up fancy terms. And eventually there'll be no more Bitcoin in 2140. Well, there'll be a limited amount of Bitcoin, but it would all be issued. It'll all be issued. But I just want to confirm. I mean, there's not like this bank of Bitcoin sitting over here that's underlined by gold or anything, correct?

That they just issuing 3.12. I mean, it is literally created and... No? Yes. Yes. So it's created like most things. By who? By the people. It's the people's money. Now, let me go straight into this. Sounds like our government. No, hold on. Everyone, this is sort of the fundamental question that I know you are asking, which is, why does Bitcoin have any value?

Well, we're not there yet, but I just want to say. We'll get there in a minute. You've got me pinned in this theoretical place. I want to make sure I get there. I'm going to let you up for a minute here. So the miners get 3.125. So that's their incentive.

Yes. At least for the next hundred years until all the Bitcoin are issued, correct? And it keeps halving. So it gets less and less and less. Correct. It's more and more expensive for them to do this. But also, if I was going to send you my money through the blockchain, the Bitcoin blockchain, I have to pay a little bit of a fee too, correct?

You can pay a fee. So there's a tip or incentive fee. The way to think of it is these blocks can only process so many transactions. If there's more than that, if you want to jump to the head of the queue, you append a tip. I'll give you like a dollar, I'll give you two dollars.

Is that a tax-free tip? It's taxable revenue, Rick. Everyone in crypto follows taxes. The elegance of this is you're probably wondering what happens in 120 years when all the Bitcoin's gone. Well, the idea is that this tip revenue takes a bigger and bigger portion of the stack. And that's in fact true.

When it started, it was 100% this issuance, which by the way, is called a Coinbase award if you want to know where Coinbase got its name from. This issuance of new Bitcoin is called a Coinbase award. The amount of tip revenue is zero. Now it's about 3 to 10%, depending on the day.

And the idea is that in 2140, it'll be 100%. So it's a self-sustaining ecosystem of fundamental value. Let's go way back to the first Bitcoin transaction, which I believe was 2010? The first commercial transaction, yes, of buying something, yep. Where it took 14,000 Bitcoin to buy two pizzas, correct?

Yep, something like that, yeah. We've had some inflation in Bitcoin, have we not? It's the best way to hedge yourself against inflation. They look like pretty good pizzas. I'm not going to lie. No, look, yeah. Originally, Bitcoin wasn't worth very much, which has to be true. If you're inventing a new store of value, it has to start at zero and eventually become very valuable.

It has to start with high volatility and eventually become low volatility. That's actually exactly what's happened in Bitcoin. It's gone from zero to 1.2 trillion dollars. Vol has fallen by more than 60% over the last 14 years in Bitcoin. So yeah, some guy bought a Bitcoin, a pizza for what amounts today to like $400 million, which seems bad.

It sounds like a lot, however good it was. It's a good pizza. But the reality is, it's unlikely he would have held that Bitcoin until today. So it's interesting. So these two people decided they're going to do the first transaction and it's going to be a couple of pizzas and it's going to cost 14,000 Bitcoin.

But then other people started just adopting this. And not only did they, by the way, this first took place in California, this transaction. I think the transaction, yeah, it was U.S. based. Okay, so it went through the U.S. and now it's all over the world. And now we have millions of people on this, which is kind of amazing if you think for this private currency that this is going on.

Now, so tell us why other, say other countries like Ghana or Libya, whatever, why would they like to adopt this? It's not because they think it's going to go up in value. They're using it actually for currency, correct? Well, I mean, they're using it to store wealth in economies where they have terrible currencies.

You don't have a great one. As Bill mentioned on the last panel, the government inflated away about 25% of the value of the dollar over the last handful of years. That's not great, but it's certainly the cleanest shirt around the world. If you're in another economy and you can't gain access to dollars, Bitcoin appeals to a lot of people.

My starting point is that it's not physically impossible for a new store of value to emerge in the world. It's not impossible for there to be a digital store of value, and it appears as if Bitcoin is filling that role. So yes, in these countries around the world, people are using it to store value.

Some people are using it for payments, although I think the primary use is store value, and it's gaining adoption. Okay. Oh, by the way, if you have questions, we'll collect them, and we'll get to your questions. We've got about a little over 15 minutes left in this discussion. Now, your company is not a miner.

No, your company has created products. You were one of the first exchange-traded funds. In fact, the least expensive, if you want to look at fees, being in Boglehead, to hold Bitcoin. So it seems to me, in the world, there are two types of people who buy Bitcoin. There are people who want to buy it as an investment or a store of value, and there are people who are using it for transactions, correct?

Yeah. And the people who are using it for transactions, say, in the United States, it's a little difficult, right? I mean, if I buy Bitcoin to buy a car or buy something else with it, this is treated by the IRS as an asset. So on my tax returns, even if I buy a pack of gum for $2, I have to actually list that on my tax return.

Do I not talk about this? Yeah, it's terrible to buy stuff. I've never bought a coffee with Bitcoin, but I've never bought a coffee with gold either. Well, it's true. You would have had to do that. And it'd be a lot easier to send you a little piece of Bitcoin than it would be to like shave a bar of gold.

So, you know, look, it is not used for... Again, I think the primary value of Bitcoin is to be a store of value, a way to store wealth outside of the fiat system in a digital format. I think more people will want to do that in the future than do that today.

But in the US, it's not a great transactional tool, and I doubt it ever will be. I mean, we have the dollar. Dollar's great. Okay. So if you're going to store your value in Bitcoin, when you're going to buy something, you convert it to dollars and you use dollars to do it.

It's a lot easier to just to convert, say, a big block of Bitcoin than it is, you know, each little individual transaction. Yes. Yeah. A hundred percent. Yes. One question came in, and I think we need to circle back to this. It has to do with the security of Bitcoin.

So we hear a lot about it's a great platform for laundering money, a great platform for organized crime. Thanks for having me, Rick. Well, just tell us why things have gotten better. So things have gotten a lot better. The most important day in Bitcoin's history from my perspective was a day in 2019 when the travel rule began to be applied to all digital asset service providers around the world, including things like Coinbase, including things like finance, etc.

And if you look at the leading reports of the volume of activity that's illicit on the Bitcoin channel, it fell from about 1.2% of transactions to about 0.3%. And today, even the Department of Justice says that Bitcoin does not have significant criminal use. And the reason for that is every Bitcoin transaction is traceable.

It's synonymous, but it's traceable. You can go back in time for every Bitcoin forever. And what happened is they began regulating entities like Coinbase, which are the exit points to the traditional system. And any time an illicit transaction hits one of those exit points, it's seized. And I know people are skeptical of this, but the government itself has come out and said it's not primarily used for criminal activity now.

There's a huge amount of regulation. Now, there are parts of crypto where that's not true. These things called privacy coins, which I think will be made illegal. These things called mixers, which are being made illegal. But traditional just use of Bitcoin, there really just isn't criminal use anymore. There used to be, but there's not.

Less than for cash. So I'm a rogue country, North Korea. I buy a quantum computer. Now, this is way beyond the power of anything. It's just being created. Let's say this quantum computer, it can break the code of the Bitcoin blockchain and basically take everybody's money. Tell us the threat of quantum computing, which by the way, is an interesting area.

I do follow this industry. It's really come a long way. What safeguards are being put in place to protect things like this, in a way, legacy Bitcoin blockchain, which is quite old, as we talked about, against new technology such as quantum computing? Yeah. I mean, the place I would start is that if North Korea has a quantum computer that breaks RSA cryptography, Bitcoin is going to be the last thing they look at.

I think they'll look at US military communications, because they would be able to see through all of that. I think they would look at the fundamental functioning of the internet and the energy grid, all of which relies on the exact same cryptography that Bitcoin has. Bitcoin, it wouldn't make sense to steal people's money using quantum cryptography breaking, because the act of doing so would destroy the value of Bitcoin.

I don't worry about it, because there's been huge advances in quantum resistant cryptography, because it is the centerpiece of how the internet and all military communications and all commercial transactions take place. I think quantum resistant cryptography will be solved before steady state quantum computing. And if we're wrong, I really think Bitcoin's the last thing to be worried about.

I'd be worried about nuclear codes. Let's go on to another topic. So we have an energy shortage here, and we're trying to make energy more green. We have climate change and so forth, and a big discussion about that. And of course, there's two sides to it. But there's no doubt that mining Bitcoin takes a heck of a lot of energy.

And as more and more and more energy is being used to do this mining of cryptocurrencies, I mean, isn't that sort of counterproductive to where society is trying to go? Yeah. I mean, I'd say two things. First, it uses about the same amount of money, energy, as video games.

And I would argue that a new currency... A heck of a video game. Well, I'm saying. It's just facts. But look, this is like anything. We have gas powered cars and we're moving to electric cars. Blockchain started with an energy intensive infrastructure, and it's moving to an energy light infrastructure.

So Ethereum, the second largest blockchain, doesn't use mining. It started out using mining. It uses a new technology called proof of stake, which requires people to put up collateral to guarantee their honesty in processing transactions. Bitcoin is still on the original version, which is called proof of work, which involves all these computers running things.

That's because Bitcoin is, I know you'll laugh, because in this setting it seems ridiculous, a very conservative blockchain. Ethereum is more open to innovation. I think eventually we'll move to a more energy resilient system in Bitcoin. But it's actually the transition's happening a lot faster in crypto than it is in almost any other industry around the world.

So I think we're going through the same energy transition there. Okay. Well, you mentioned a few things about, and I said this too, and Bitcoin's been around for a while now, what, 14 years, 15 years, right? Been around for a while. And there's new technologies that have come along.

Okay. Now, before we get to some of those new technologies, if out with the old, in with the new, what keeps the value of Bitcoin at $60,000 a coin if there's better, newer, faster, cleaner technologies that do more out there? Oh, this is a great question. I'm glad you like it.

Finally. Let me do one minute to explain the difference between Bitcoin and Ethereum. And then by that means, answer that question. So every crypto asset is two things. It's a blockchain and an asset, the Bitcoin blockchain and Bitcoin, the Ethereum blockchain and Ethereum. The blockchain is just a piece of software and you can optimize a piece of software to be good at different things, right?

Microsoft Word is a piece of software and Salesforce is a piece of software, but they do different things. The same thing is true in crypto. Bitcoin was the first blockchain. And it's very simple. All you can make Bitcoin do is send money, receive money, hold money. That's it. That's it.

Ethereum was the second major blockchain. It looked at Bitcoin and said, it's amazing. You can move a billion dollars around the world instantaneously. What if we could program this like we program other features? So Ethereum is a Turing-complete programming language, which means you can program Ethereum to act like a bank or to do conditional things.

Give Rick my Ethereum if he says something nice about me. So it can do contracts. They can do contracts. Now, it can do anything. You can build the New York Stock Exchange on Ethereum. And there are examples like that. You may wonder why is Bitcoin worth more than Ethereum if Ethereum can do everything Bitcoin can do and then some.

And this is the answer to your question. In designing software, having limited capability has one big advantage, which is it makes your software extremely secure. If you think about the Bitcoin blockchain as a piece of software, it's relatively simple. It's been around for 15 years. It doesn't update much.

There's very little chance of there being a bug in it. If you think about the Ethereum software, it's very complex. It goes through major upgrades every two years. The chance of a bug is substantially higher. And that gets to use case. Bitcoin is used as digital gold. If you want to build digital gold, the only thing you care about is it's secure.

It doesn't need to sing. It doesn't need to dance. It just needs to be secure. Digital gold is a $17 trillion market. Bitcoin's penetrating that. And that's what it's rewarded for. If you want to build a new financial ecosystem, you need to sing and dance, etc. That's what Ethereum is doing.

But it won't ever compete with Bitcoin because it will never be as secure as Bitcoin. The other reason that Bitcoin can't be surpassed for its use case of digital gold is that the security of a blockchain depends on how much money people spend mining it or doing proof of stake.

And Bitcoin just has a lead. And it's hard to assail. You and I could create Matt Rick coin, but it would be secured only by the power of my phone. Anyone could hack it. It'll be hard for another asset to disrupt Bitcoin as digital gold. But other use cases of blockchain, you'll see a lot more competition.

Well, we've got a couple of minutes left. Let's just get into valuing Bitcoin. I mean, value Bitcoin. Is that an oxymoron? Not at all. Bitcoin provides a service. Unlike stocks and bonds that pay cash flow or real estate that pays cash flow, where you could say, OK, here's a series of cash flows that you're going to get so we can discount those cash flows by some discount rate based on risk and we can come up with what the net present value of that stream of cash flows is out to perpetuity.

Well, Bitcoin, like gold, granted, doesn't have any cash flow. And so you can't, by some standards, you cannot put a value on it because there's no cash flow. But it does have a value. I mean, it trades at a price. It trades at a price every day. And I asked you this question on the podcast, but I'll ask it again.

I mean, it seems to me, and maybe I'm wrong, that if it cost me as a miner, it cost me $60,000 or $30,000 per Bitcoin to mine, that at least should be somehow factored into the price. So, I mean, that might be one determinant. In other words, how much does it cost a miner to mine Bitcoin has some factor in determining what the price is?

Does it? I think it has some factor in determining the price, but the amount of cost to mine a Bitcoin has a reflexive loop with the price of Bitcoin because the more the value goes up, the more people mine, the harder it is to mine, the cost to mine goes up.

I think of it a little bit differently and pretty simply. You know that sort of thing you do with kids where you draw nine dots and you ask them to connect it with four lines and they can't do it if they stay within the parameters. I feel like people are like that with this cash flow thing.

Bitcoin provides a service, which is the ability to store wealth without relying on a government or a bank. You may not like that service. I like that service. Millions of peoples around the world like that service. If more people want that service, the value of Bitcoin goes up. If fewer people want it, the value goes down.

If no one wants it, the value goes to zero. That's actually not different from any other service. Salesforce provides a service. If more people want Salesforce's service, the value of Salesforce stock goes up. If fewer people want it, the value goes down. If no one wants it, the value goes to zero.

The only difference is Salesforce is a centralized entity, so to get that service, you can pay Salesforce a subscription. There's no Salesforce. There's no centralized entity. You can't pay a cash flow to get this service. The only way you can get the service Bitcoin provides is to buy Bitcoin.

The more people do that, the more value goes up. It's actually just the same. More people, more value. Fewer people, less value. More people, more value. Fewer people, less value. >> So it's supply and demand. >> It's supply and demand. I think it's going after a market that's probably $30 to $40 trillion in size.

So how much could a Bitcoin be worth? If Bitcoin captured the gold market, if it had the same amount of wealth in Bitcoin as is in gold, every Bitcoin would be worth $1 million. Right now, the market is saying it has about a 6% chance of doing that before you take discounts into effect.

Maybe a 10% chance on a discounted basis. If you think it has a 20% chance or a 50% chance, then no matter what your discount factor is, the net present value is actually higher. So that's how I approach valuing Bitcoin. I estimate its chance of penetrating a market, and then I apply a discount factor to that.

It's not that far off of cash flow. >> But there is this black swan risk out there, right, where the first quantum computer that nobody knew about breaks the code, and now nobody wants Bitcoin anymore. >> Yeah, or every government around the world bans it. That's why you don't put 100% of your portfolio in Bitcoin.

I mean, at Bitwise, we talk about 1% to 5% of your portfolio, with 5% being the absolute max. Because above that, it makes your overall portfolio more volatile and subject to mass drawdowns. If you put 1% of your value in portfolio in Bitcoin, the most you can lose is 1%.

And that's how I handle that sort of existential risk. >> So let's look forward. We talked about Bitcoin, we talked about Ethereum, there's others. What is the one really interesting new thing that's coming along that you're excited about? >> Yeah, I mean, first I should say from an investment perspective, we run a crypto index fund because my family had a Betamax growing up.

You never know what the future of technology will look like. What are the applications that I'm excited about? I'm excited about digital gold. I'm excited about stablecoins disrupting payments. Stablecoins are digital dollars on the blockchain. I think it's a crime that we pay a 2.5% fee every time. >> 2.9%.

>> Every time we use a Visa card. >> And then if a client pays me on a Friday afternoon after 4 o'clock, I don't get the money until Monday. And I still have to pay 2.9%. >> Yeah, remember when we paid a dollar a minute for long distance phone calls?

To me, the Visa fee feels like that. It's something that we've grown to accept as reality, but it doesn't have to be. Today, there's about $160 billion of dollars on blockchain called stablecoins issued by firms like PayPal. And those can move around the world instantaneously, settle instantaneously 24/7, 365.

And the cost to transfer them is like sub-penny. And that's all built on blockchain. That's all built on the Ethereum blockchain. I think we're going to wake up and stablecoins are going to disrupt Visa, MasterCard, and PayPal the way cell phones disrupted AT&T. And that could happen almost in a day.

I think we'll get stablecoin legislation next year and it'll be a game changer. We've got 15 seconds left, so I'm going to leave you with the floor and final comments. >> I would just say thank you all for having me today. I know that crypto is outside the norm and really appreciate the open minds.

Even though I've gone to the crypto dark side, as Rick said, Vogelheads remain my home. So thank you all for having me. I really appreciate it. >> Thank you. >> Thank you. >> Thank you.