Brett Scott: Cloudmoney – The Future of Cash #456

Transcript

welcome to epicenter the show which talks about the technologies projects and people driving decentralization and the blockchain revolution i'm frederica ernst and today i'm speaking with brett scott who is the author of cloud money um a book that's just out about money and how it works and how it doesn't work so before i talk with brett about cloud money let me tell you about our sponsor this week stake wallet is your new favorite multi-chain mobile wallet that puts the power of web3 at your fingertips in just three tabs um you can stake and manage your assets on over 22 built-in protocols including all major evms layer 2s and non-evms like cosmos solana near and more

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in the show notes as well please also share with anyone who you think might be a good fit for this brad thank you so much for coming on the show hey it's great to be here i'm a big fan of the show so i've been listening to it for like yeah a long time on and off so yeah cool to be here super cool um we're here to talk about cloud money this is your recent book about the banking system and the different banking systems that we often don't realize exist um in parallel in unison um maybe maybe before we get into that um can you give us a little bit of

background on yourself sure i will try to do a short version of some sort i'm from south africa uh my family is from zimbabwe so i grew up in southern africa and uh yeah i guess i kind of like i studied uh anthropology uh university so i come from a kind of economic anthropology background rather than an economics background so um i'm a big fan of the work people like david graber and many other economic anthropologists but actually around the financial crisis i worked in the financial sector

partially out of a kind of anthropological desire to explore the financial system which i found a very like fascinating place because i was also coming from quite a critical political kind of background and i was very fascinated about the sort of mechanisms of finance and how this extremely powerful system that underpins the global capitalist order essentially works so i actually ended up working in exotic derivative contracts for a couple of years in the midst of the financial crisis uh for those of people who don't know exotic derivative contracts they're just elaborate contractual bets upon things in the world [Music]

i was personally working on inflation derivatives uh property derivatives even longevity derivatives uh which bets upon how long populations live for so these are all very they considered exotic systems because they just they're just kind of like non-means they're not like the most popular derivatives so they're considered exotic it's like an exotic flavor of ice cream rather than vanilla um so that's i was working on that stuff and then i was commissioned to write a book after i left that sector called the heretics guide to global finance which was came in the wake of the occupy movements uh where these people realize there's lots of demand from the public to understand some of the mechanisms and

workings of finance so i wrote a book in 2013 or came out in 2013 called the heretics guide to global finance i had like a little bit of stuff on crypto in there but it wasn't like a sort of dominant topic it was more looking at you know hedge funds and private equity all this kind of stuff all these um and then i kind of became involved in alternative finance uh alternative you know alternative forms of money alternative forms of banking and so on and so i have a lot of experience around people who attempted to build different styles of finance um and this kind of eventually led me to look at sort of the tech world how it meets with with the financial sector um but i became quite critical about fintech world and digital finance more generally and this was culminated in my my latest

book cloud money which is looking at how big tech and big finance are sort of fusing together and crushing the cash system in the process and how the crypto communities imagine themselves to be countering this potentially it's super interesting to hear that you enter the finance field um first and foremost out of an anthropological interest that's what i've never heard before so um what are your anthropologists findings about uh the human in financial markets sure the first thing i'll say is that there actually are academic anthropologists who do go and do ethnographic research and finance so people like kyron ho for example the

person who did the book i think i think it's called liquidated maybe i forget the actual name of it but you know that's like it's very academic anthropology of finance so there's a whole sort of scene around these sort of academic anthropologists i had more of a kind of like you maybe want to call it the kind of gonzo journalism type style which is like less academic it's just more kind of experiential so i was i wasn't actually officially sort of studying the financial sector as an official academic anthropologist i was just doing it for myself um with a kind of loosely anthropological mindset in the process right so i'd be in these like meetings with like big skyscrapers with like fund managers and stuff and um there'll be part of my brain which is

like this is really like fascinating like what's this is like watching what they're doing and how they imagine what they're doing and all this kind of stuff you know whilst i was actually involved in uh working with these people so um you know and i guess one of the most interesting things in it is that you kind of realize how sort of diverse these sectors are a lot of people who are sort of critical of finance often imagine that there's a kind of uniformity within a powerful system like the financial sector they often imagine that there's particular people with particular political outlooks but actually you find a huge diversity of people um but what you do find are certain evolutionary processes whereby if you don't make profit for the firm you get ejected all right so really these are kind of amoral institutions

they uh which will uh you know operate at this huge transnational scale and if you don't eventually align with their interests you add right and this is partially what ends up creating these sort of systemic effects in the financial sector so it's not that there's like bad bankers it's just really that there's a structure that is uh extractive that will do certain things in the world um that's a very high level description but it's quite fascinating obviously being in these institutions right now if you for example in big tech you'll probably be experiencing the same thing um yeah i can i i think that's uh that's probably

um very valid take on the parallelisms between banking and big tech but tell us how you got into the into the fintech um universe or how you started being interested in the technology behind finance because that's quite a stretch from um from kind of exotic derivatives and hedge funds and banking in general right it's a very particular flavor sure well my first book the heretics guide to global finance was very much pitched as at least one part of it was um it was sort of framed in like hacker philosophy partly which is like you know you go and explore a system so i was encouraging people to firstly go and explore systems to understand the

underlying workings but the sort of secondary effect of that is that you can try to start like mess with them or sort of rewire them right so a lot of that book was looking at alternative finance you know how would you build an alternative style of money how would you build alternative um you know structures and so i was using the term alternative finance and this was back in 2013 so that book's a bit outdated now but um lots of people in the tech sector had a self-image that they were disruptors and also trying to build alternative forms of finance lots of fintech entrepreneurs like to use the term alternative finance to refer to what they were doing as well so there was this kind of crossover between what i was doing and i started getting

invited into a lot of these sort of circles um to kind of you know go and talk or whatever or take part in projects and stuff um but i started to realize that you know a lot of what was referred to as alternative finance back in you know like 2013 2014 2015 in these fintech circles was basically just financial automation right they would basically be taking the same financial system and automating it right so be like hey automate insurance claims you know automate loan decision processes you know whatever it is automate trading like like this is this is what fintech was its big claim was and essentially the idea was

through the process of automation or whatever it is you wanted to automate you would lower the costs because you'd basically be firing people and like standardizing processes and this would enable finance to spread more because one of the things that traditionally keeps big financial institutions out of certain populations is that they're not profitable enough right so banks don't go and target particular demographics precisely they can't make money out of them because the fixed costs of providing those services are too high sometimes so automation is one technique by which you lower the cost and thereby spread the power of the financial sector or spread its its uh its reach which is sometimes called financial inclusion right so

and the fintech sector was often specializing in doing this and this was their sort of claim to being alternative right so um and i became quite sort of skeptical about that that viewpoint and that sort of uh but then there's lots of interesting things in fintech but uh that's how i became involved in looking at that intersection okay so tell us about the central thesis of cloud money yeah well cloud money you can you can look at sort of different levels on at a sort of very surface level it's a defense of the physical cash system um interestingly many people in crypto circles historically would have uh come out of

you know a lot of the cypherpunk movements which led to the you know the origins of bitcoin and stuff you know we're looking forward in the future and saying hey in some hypothetical future cashless society there's going to be huge problems of surveillance and censorship et cetera um and we need to be forming some alternative form of digital cash rights and so there's lots of these insured of concerns about what if the cash system goes down um so in some ways i'm channeling some of that same tradition um but rather than like promoting say crypto i'm actually promoting cash like i'm making a defense for why the cash system needs to be protected right which is controversial because it

goes against the grain of most mainstream debates right now which take digitization automation as for granted they just say this is happening you can't do anything about it and just get used to it right whereas i'm actually making a strong counter argument for why you actually do need to protect physical money systems um so that's the sort of like surface level of it but as if you sort of zoom out what cloud money is looking at is you know broad processes of corporate capitalism saying uh if you if you kind of like press play on a large-scale capitalist system it'll tend towards accumulation of power in large corporations which will attempt to fuse with each other and form like huge oligopolies right and right now the tech

sector and the finance sector are the ones that are kind of doing that the tech sector can't actually operate unless it fuses with the finance sector you can't have these global tech empires unless you have these huge globe spanning digital money systems so the ideology that emerges from that that process going on is one that's anti-cash so you'll find the sort of mainstream circles it's just taken for granted that there's something wrong with the cash system and that if you haven't yet quote unquote updated to digital money it's because you're somehow like slow or you've you've lacked the opportunity to yet upgrade but there's actually many people in the world who actually prefer the cash system and who want to keep the cash system but their voices are never heard because it doesn't go with the grain of the ideological structure of our economy

right so and so i'm basically arguing that the cash system kind of stands in the way of the fusion between big finance and big tech um and the actual the crypto world in an interesting way is a kind of is coming out of that saying actually sort of partly agreeing with the the mainstream narrative and saying you can't stop automation you can't stop this sort of acceleration process so what we're gonna do is work with it and build alternative forms of digital money right um which is a viable approach i mean it's i understand the intuition but i'm sort of like putting the crypto world in the context of this bigger battle there is a lot to unpack here um maybe let's start in the beginning because i

think money is something that we um all of us use all the time and often um with very little thought about how it actually works or what it is at its heart um so if if i go to like the very first central thesis of the book um it's that not all money is created equally right so basically so that you you you very much pit um the notion of central bank money um against the notion of commercial bank money can can you explain that sure yeah this is um there's multiple dimensions upon which i could discuss the monetary system

um one thing i'll immediately say is when there's a sort of backdrop to this is that sometimes when economists are discussing money their users terrible approach which they call the functions of money approach which is i'm just gonna go out and say it's an atrocious approach right it's really atrocious and i wish it was just scrapped right but they basically talk about money in terms of these functions you know it's like describing you know a chair as like a thing you can sit on right rather than describing what an actual chair is right um and so they do this thing right and they never describe the structure of money they never describe like what the actual institutions are what's actually happening um and there can be different structures of money over time right

which might achieve certain similar things but there's you've got to kind of like describe these structures a lot of the time i'm doing is trying to describe what the current structure of money is um is a sort of triple tiered system where there's at least three different issuers of of what we call money right now um and so for example something like the us dollar is actually at least three different forms of money with the same name okay and it'll be similar with the euro system or any other system um and at the core there's a these state players who are issuing and this gets slightly complex but a form of iou so by iou i mean like a kind of promissory

promissory uh instrument all right and uh so first tier money is these kind of like state promises if you want to call it that's there's different ways to describe it that i issued out and pulled back in so a large part of the sort of monetary dynamics is about issuance outwards and pulling back in issuance out towards pulling back in this is kind of like pulsating structure to the monetary system um and so it's dynamic it sort of expands and morphs and changes um incidentally this is something that like for example bitcoin is hate right uh i can't really don't like this idea of expansion contraction they'll kind of like like the idea of like rigid structures that sort of stay fixed right so but in our actual monetary

system there's this like expansion contraction processes but it's occurring on at least three separate levels so there's at the state level sort of tier one level is occurring but then there's a sort of secondary layer which is the commercial bank money system whereby commercial banks will take that first tier money and take ownership of it and issue a second layer of money um one of the ways i used to describe this actually with a simple metaphor is to think about casinos um so if you take your mind briefly away from the monetary system and think about a casino if you walk into a casino with like let's say let's see let's use the us dollar right now but like uh i'll walk in with a hundred us dollars into a casino i'm holding a first tier unit of money

there i hand it to the cashier they take ownership of that and they issue me a hundred dollars worth of chips right now that chip that i suddenly hold in the casino is a second tier form of money it's actually a promise for the first tier of money but i it now operates independently i can use it within the casino and i'm guessing right now for example in the crypto world this is like you're the distinction between layer one and layer two stuff right you can kind of create these secondary forms on top of primary forms but like just as looking forward but like in the in the monetary system this is happening all the time right you when you go to for example deposit cash in a bank they will take ownership of that and issue you a second

tier form of digital chip as it were you know kind of equivalent to a casino chip but in digital form and in an account structure all right and so when you're looking at a bank account and you see numbers there those are basically privately issued chips issued out by commercial banks and uh you can then develop secondary tiers upon that for example paypal can take ownership of that second layer and issue a third layer all right which is kind of like a stable coin but so you have these basically these chains of money that are issued out and of course in that second layer of the commercial banking sector one of the biggest most controversial areas is the fact that commercial banks can issue out far more of those digital chips than they have in

government money right which is often called fractional reserve banking more accurately referred to as credit creation of money they basically can just issue out digital chips and then manage their reserves in the background all right um and they do that through the process of issuing loans which i can't go into if you want me to um but what we call just you know just to wrap it up slightly what what we call cashless society would really be a society where you transition from being able to use those first tier form of government money and you would be forced to use uh bank issued or corporate issued digital chips for payments right which has a bunch of immediate implications right um and uh

yeah there's a that's that's an initial initial exploration for you let's talk about the implications that it would have if we were all forced to use digital money exclusively well i mean if you're using that metaphor i'm just i just uh use their own sort of um digital chips right the the normal account structures of banks you basically require this intermediary to engage in any form of payment right so um in order for me to basically move digital money around i have to send a message to some kind of institution and ask them to do it on my behalf all right so

this is the normal uh account based digital money systems that we use right now so i use my phone or i use my computer or i use an actual telephone and call them there's many different ways i can contact the institution and i say hey you've issued me digital chips please can you like retract them from me and give them to somebody else right that's the kind of digital money system in a very like crude you know description but you can immediately from there see the kind of implications of if you're forced to use that system well for the first implication is that well it obviously gives those institutions lots of economic power so for example in a country like the uk where the banking sector is already incredibly powerful and too big to fail forcing people to use ever more of that like digital money

system basically still like reinforces the power of the banking sector which is a political problem because having one industry too powerful in the country creates a bunch of political distortions so just at some basic level this is like a bad thing right um but then more specifically obviously it enables surveillance they can watch everything you're doing and that's something that libertarians often get very sort of immediately aware of this is the implication for being watched by commercial institutions in this case which can then obviously be tapped in by the government can tap into that and watch these institutions too um that subsequently leads to for example the ability to censor so you say well you know right now for example if i'm a political dissident i have the option to

use the cash system which can't be remotely tracked or remotely sort of stopped um and now i can engage in forms of activity like that but if i'm certainly now forced to use these digital systems and when i say force i don't necessarily like the state forcing me it could be some uh network coercion effect where basically like the banks and and these other groups have basically managed to like recalibrate our networks our economic system such that you have to use these systems so for example in london right now it's largely not a choice anymore to use digital money you kind of have to all right so once you kind of get forced into that situation obviously you now have if a bank says we're going to stop you doing something

they can or if the government orders them to stop you doing something they can right it has huge resilience problems right because of course as you become dependent on these institutions uh they become points for attack right so if you're doing cyber attacks you want to ground an economy to a halt you just attack the banking sector um or you attack the the visa mastercard network so you there's this lack it becomes a huge nightmare for for resilience of systems um but it also finally it enables centralization of power because if you think about how organizations like amazon work they basically like they can't they can't operate with a cash system it just goes directly against centralization of power cache inherently is localized and peer-to-peer and the way it moves around comes from a central

authority but it then it percolates around in a sort of very localized peer-to-peer kind of way if you're if you're a an amazon in the world and you want to be able to operate at scale and at speed you have to right you you want to deal with visa and mastercard and the banking sector you don't want to deal with individual people trying to send you cash all right so in terms of like changing the structure the economy corporate centralization depends upon digital money right whereas cash has this like inherent drag it creates localization and the sort of like human scale activity so these are the main categories of issues so before we kind of go into each of these issues at

more depth um let's talk about the arguments that people who are proponents for the cashless society often bring um so things like aml and ctf um consensus and anti-money laundering and countering the financing of terrorism issues and tax evasion how do you feel about these or do you think these are valid reasons to kind of reject a cash flow society there's two approaches here if you if you're wanting to counter the arguments of the sort of uh anti-cash propagandists and there are many of these people

um bear in mind anti-cache propaganda is pretty like the standard the standard line in most innovation circles um so there's two ways to counter it you either like attack each claim as they make it so for example with tax evasion you say well actually the banking sector facilitates super large scale tax avoidance and uses the normal banking sector it uses digital money all right like it doesn't use the cash system there's huge amounts of tax avoidance that happen just by the normal bank payment system all right or for example safety safety is another one that's often talked about like hey you can get mugged if you have cash it's like well you can get hacked too and

they can drain your entire bank account um unlike with cash where you can have maybe a part of your money taken but not your full savings right um there's many of these kind of like sometimes cash attacks has been dirty especially during the pandemic which has been proved to be like totally unscientific in terms of an actual disease vector but even then like you know the uh bank of international settlements and all these like people bank of england who did studies on this would say actually you know automated checkout counter screens and the pin pads on card terminals are more contaminated than units of cash are all right so um so you can you can go through each

claim that's made um and dispute them actually one of the other big ones is that you know cash facilitates crime and cash uh facilitates all this kind of like uh dark money kind of stuff but it's like well yeah maybe so maybe a small percentage is used for that but it comes with an inherent limitation right if you're a transnational criminal you really don't want to use the cash system it slows you down it's physical you have to actually try and transport it across borders and like suitcases there's an inherent like limitation to the cash system for transnational criminals and you know there's stories of these like big you know drug kingpins who like bury their their cash and then it actually like rots away because they can't actually store it properly so there's there's interesting like crime

prevention features built into the cache system in the sense that it actually slows stuff down whereas if you're operating on like actual transnational digital systems it becomes much easier to do like transnational crime um so for each of the claims made you couldn't counter it but even if we took the claims made by the um anti-cash proponents seriously you could still say look there are trade-offs in society and even if the cash system comes with certain problems the benefits it brings outweigh those problems all right so you might be a zealous anti-cash campaigner saying hey this will help to solve corruption and tax evasion and you destroy the cash system and now you've suddenly created a whole bunch of new

problems you've created surveillance you've created a lack of resilience and also you create a huge amount of exclusion all right in your society in terms of many people actually can't use the digital systems and rely upon this this uh public infrastructure the cash but you know one of the biggest things is resilience i mean the uh federal reserve i was changing the federal reserve employees about this it's like when a hurricane's approaching the us there's a huge demand on cash there's a huge increase in cash to mind because people just know it's just like offline money is way better to have when you're in the middle of a storm like it's literally more advanced in that situation right um now you suddenly want to get rid of it okay it's fine maybe you you sort of

half solve a little bit of the tax evasion question through that process but now you've like screwed the resilience of your monetary system which is a bigger problem right so this is the kind of way i would i tend to approach those questions okay so i mean clearly there's different kind of clusters of issues here right so basically there's the resilience issue and obviously this comes with being a a form of a payment that that with cash being a form of payment that you don't need electricity for you don't need reception and so on um you you just need to

have a piece of paper in your hand um the the other um part being the privacy concerns namely that basically everything you spend money on is on record which is not the case if you have cash on you and the third concern um is the centralization of power in for-profit organizations um kind of the fintech amazon kind of group of concerns right so basically maybe let's tackle them one by one so basically i think the security or the resilience point of view i think this goes without saying that something that has fewer contingencies works best

works better in particularly in crisis situations but let's talk about the data privacy um uh argument i know a couple of years ago there were these when when facebook still was a thing or when facebook still was a thing in our circles there was a figure going around how much your data is actually worth to facebook a year do you know do you have an idea how much the the financial data that we kind of leave behind and you know in terms of paper trades for cashless payments how much that is actually worth on a on a per person basis i don't know that no there's no there's no as far as i know there's no sort of official studies i mean these these

studies are quite dubious in their methodologies anyway um in terms of how much can be extracted from from financial data i mean you can probably work out an elaborate way to do it um by looking at the different uses of it for different organizations so for example google um or alphabet now i guess um one of the reasons why they want to track payments uh data and they they've entered the deals with the big data brokers to do this is they want to be able to for example measure the effectiveness of online advertising right so if i see some like ad on google i might not actually immediately use it to purchase something online i might

actually it might sort of seep into my consciousness and later manifest as me like buying something from a shop now if they can find a way to correlate you know credit card or debit card payments with my viewing of an ad um that becomes a way for them to like make these like um correlations and start to like make claims um about the effectiveness of their advertising so this obviously for advertisers is a big thing like being able to prove that their adverts are effective so that's like one use for the banking sector obviously which runs the underlying account infrastructure of all of this like for them uh watching payments data is one of the methods by which they determine say credit worthiness right you can gain a huge amount of

information from people's payments data about how creditworthy they are right by watching the inflows and outflows and doing this kind of stuff so if you know in terms of like their profitability of their their loans and so on like that that becomes a big um data is one of the big aspects of that also like cross-selling products being able to you know what facebook does right now is you know they they would make these profiles of you and then sort of sell access to third parties to sort of sell you stuff based on your profile um banks can do that themselves they can either be selling third-party access or inter division into divisions at the word like cross-division access so their insurance division can see certain things about you and so on

um i don't exactly know how to calculate the exact uh sort of monetary value of this but it's very very clear there's a big incentive to try and gather as much of this data as as it can um and obviously the cash system represents a kind of often small-scale transactions right so historically most people are using the digital systems for their big transactions like rent and so on right but they're not gonna for the everyday transaction they're kind of like granular stuff often the cash system is like hiding that and taking and sort of removing that data um which is why you know there's this kind of like this kind of data grab as the sort of if you're if you're in london right now the amount of financial

data being generated through contactless tapping is huge compared to like 10 years ago there's not an enormous amount new amount of data now whether banks and these other organizations can actually monetize that or make use of it as a sort of separate question right if they can actually figure out how to do like ai methodologies or whatever like big data methodologies to make use of it as a kind of a separate question i think but that's the basic point is that there's now this new frontier brett um do do banks actually are they allowed to sell this data so basically say i i have an account with say revolut and i use my card for everything so basically i have it like five to ten times a day for whatever this is a fictional example um

but is revolut allowed to sell my payment data to third-party uh service providers like the amazons or googles and so on of the world well they're not like taking like salad right so uh there are i mean this gets complex because it depends on what jurisdiction you're in and which particular country you're talking about and i don't know the details of every single financial data law right now but the basic idea is so for example you know facebook doesn't technically sell your data it'll hold the data and sell third-party access to you right so they'll say we know something about a person

um and we will offer this to you as an advertiser and i know this i mean i've used facebook for advertising before you can sort of like tailor who the person is and then you don't actually know the data right but you're you're getting access based on facebook's knowledge so they're not technically selling it in the situation but they're they're using it to curate access um and but in terms of actual sharing of data yes there's a whole bunch of um inter collaborative data sharing models that banks and other financial institutions will have some of them created through like regulation right but for example like credit scoring agencies are basically these like data sharing clubs where these groups come together like experian and they say things like

if we or we'll all be collectively better if we share data with each other if you guys share data with each other you will all like have a better idea of what's going on so we'll enter into these deals where we can sort of uh experience or kind of sit in the middle and act as this intermediary for the data um and banks can tap into it and governments allow that right based on these like i guess concerns about financial stability they say well actually it'd be good to have data sharing and between these institutions um so yeah i mean again i don't necessarily go into the or i don't necessarily know all the specific uh legal stuff around that there are specific scholars who literally study like the minutia of financial data laws

um but no banks can't just like randomly sell data to anybody and that's that's protected by financial privacy laws but they can certainly enter into these like deals where they're where they're sharing it it sounds like um part of your issue with the system is is that banks are an extractor force right so basically if you look at kind of value that's being created for humanity uh banks kind of tried to siphon part of that off without without always giving a service of equal value in return so basically if you were to remove this

profit layer if for instance um we had a central bank um that issued um that issued central bank money to private citizens kind of like the cbdc models that have been pioneered by um a handful of states so far but i mean i think more or less every other state kind of has plans to so eventually um what's your take on central bank digital currencies does this make it better or does it exacerbate the problem well look i don't necessarily think of the world in terms of like straightforward like goods and bads often i'm looking at contradictions and

trade-offs right so i don't necessarily even claim that the banking sector is um the banking sector if you're trying to hold together a large-scale capitalist economy this is how you do it right it's like they're a crucial foundational component of how the monetary system works so if if the question is like you know do you want to keep that system running intact it's like well yes these institutions are core to how that happens right um so if you're like a financial regulator you're very concerned about the stability of the banking sector precisely because it's such a foundational part of the economy in terms of like holding the monetary

system in the in the credit extension processes right um but that comes with a bunch of negative things for example concentrated power in the banking sector a huge amount of economic inequality by where by which financial elites become insanely wealthy right um and get a stranglehold over the political system um and all these new ones that are mentioning right surveillance all these things it's like fine you're gonna you can be able to run a large-scale capitalist economy but you're gonna have to take this other stuff with it as well all right now the cbdc debate is kind of like you've got to see it in this context um the cbc debate's quite fascinating and multi-uh

multi-dimensional the first thing i'll say about the cbdc debate is a lot of people in the crypto community have come to a slightly uh slightly delusional consciousness that somehow it's related to bitcoin or somehow it's related to the crypto world which it's not right um it might be partially related but it's it's really the cbdc debate uh precedes the crypto world all right so basically in the previous incarnation of our monetary system we had this sort of balance between um going back to that image i was using earlier of these different layers of the monetary system you would have the state issuing the physical cash um and you would have the banking sector

issuing these digital chips right so you'd have physical state money and digital bank money okay and then there was a third hidden part of the monetary system which is digital state money right uh which is often just in monetary parlance jargon called reserves right which is the digital equivalent of it's well a digital analog of cash or something like that like it's but it's only usable by the banking sector all right so cbdc already exists it's only that banks have exclusive usage of it we can't personally use it we have to use the physical version right which is the cash system okay now that's the traditional power

balance the state has a sort of like physical money and then the banking sector controls the digital money um now because the banking sector and all these players like visa and mastercard have spent so long undermining the cash system because it goes against their profit impulse so they've been undermining it it's creating financial stability problems right because if the cash system actually deteriorates far enough you have the implosion of public access to state money right now this is this becomes a very bad problem in the context of actual like financial crises for example where what happens during a financial crisis is people often try to pull out of the banking sector and go back to safer forms of money so like for example in a

bank run people are going to the atm which is a little bit if you're using my like casino metaphor it's like conceptually equivalent to like running back to the cashier with your casino chips and saying hey give me back my cash right i'm redeeming my chip back for cash right now because the banking sector issues out lots more than these chips and they actually have in cash this is like people rush for the exits they try to like get it out before the system implodes okay now in a situation where you don't have no access to cash or no access to state money you can actually have huge problems for the overall like confidence in the monetary system people need access to state issued money to believe in the second tier chips

okay now because because the second tier chips in their physical form are being undermined the state's now thinking you know oh crap maybe we need to start issuing these digital words so for example it's no surprise that sweden was the first country to start thinking about the e-chrono precisely because in sweden they basically let the cash system deteriorate to such a level that they are now in a real problem real trouble okay so the cbdc debate has seen that in that context for some countries if you're in if you're a low down the geopolitical pecking order and you have a uh and your currency is sort of like a weak currency within the global system you could be inspired by things like libra

all right so this is like these third tier stable coin corporate stable coin systems um could have a chance of out competing your local money through this digital technology so for some smaller countries they have been partially inspired by like the stable coin world for thinking about their cbdc's right but not for like a mainstream it's not the euro is not thinking about that right so but the the cbdc creates a huge problem because what will start to happen is the central banks will start to compete with their own banks on on the digital pla on digital playing field right which if you're a capitalist state which many of these states are is a bad problem because you don't want to

undermine your own banking sector all right so i'm always surprised by like libertarians in the us for example they're they're com completely like fixated on this idea that like maybe like the the federal reserve will start issuing the cbdc and it's going to start like doing this nefarious surveillance but i'm like well you do realize the us government's like a massively capitalist government um the us government does not want to destroy the american banking sector all right so it's true that it might have a desire to have increased surveillance but it also doesn't want to just like uh wreck bank of america okay so they'll be very very careful about how they design that they'll probably say stuff like well if we do issue a cbdc you can only use very small amounts of it or up to a

certain certain amount before you have to go back to the banking sector right because they're trying to protect their banking systems that's super interesting to to to learn especially that you think there's going to be limits on how much cbec private people will be able to spend let's talk about the limitless spending in blockchain so blockchain technology has the power to kind of disintermediate um the uh payment process um in that basically the the central uh the commercial bank um go-betweens are replaced by

um this consensus network so it already sounded like you are intensely critical of the ecosystem um let's maybe start there so how do you see this entire movement because i mean it's been around for a long time right so we basically we've had uh digital gold digi cache and so on e-gold and um and basically it's kind of it's it's um changed it it's moved over the last 30 40 years um into uh the first real uh blockchain currency bitcoin like 15 years ago and uh yeah i mean now there's obviously myriad

different ones out there um what are your views on the ecosystem i have complex views on the ecosystem um i was an early user of bitcoin i was actually an early user of dogecoin as well um i was involved in the sort of early london bitcoin scene and partially again i have this anthropological kind of side to me where i like to actually just explore systems through experience so i was always just very like gung-ho to just try out systems and see what was happening and sort of feel the dynamics so i spent quite a lot of time with the early crypto community yeah and i initially with things like bitcoin i found them really really

fascinating and i was like relatively uncritical at the beginning you know like many people who come into crypto are initially very uncritical right it's a little bit like when there's like a new convert to some kind of like exciting movement they become like you know more catholic than the pope this sort of you know become very very like hyped up about it and they're just like um and if you're a person who's like further down the line who's become a bit more like subtle about it the person who's like in the early stages believes that you haven't entered the first stage yet they think that you still haven't realized right so i often have this in my like crypto commentary i have all

these like newbie crypto people being like ah you don't yet understand the brilliance of these systems because you've never bothered to try them and all this kind of stuff you know which is of course like slightly irritating but uh you know i was i was involved in them but i guess my first uh doubts started to merge which was i i could see that there was a bifurcation in the bitcoin system between the technology and the monetary theory all right and they're related to each other in complex ways but from a technological perspective the system was highly radical right so if you're thinking about a sort of very broad brush description of something like bitcoin you could say well it's a means to move tokens between people without the banking sector being involved

all right that sort of superficially sounds quite profound right so for digital tokens it's historically it's a hard problem like how do you move them between people without essential intermediary kind of like keeping score okay now that was authentically interesting a system by which a large network of strangers people who don't know each other across the world can somehow form consensus on the movement of tokens i mean that's authentically interesting right that's uh actually many political groups can agree that that's interesting you can say if you're a left-wing anarchist you might find it fascinating if you're like a right-wing libertarian or somebody who's like a super anti-state and stuff from a sort of more kind of market perspective you might find it fascinating so there's quite a

lot of interest around around that from the technological perspective but that technological infrastructure partly through its design was forced into a very conservative position on money all right so there's fixation upon like hard money now hard money historically is a conservative way of thinking about money in the sense that it imagines that money should be this constrained commodity and there's a lot of subtlety to this it draws very very heavily upon a commodity orientation to money and when i say a commodity orientation to money i don't mean um people literally believe money is a commodity it's a it's a way of thinking

about money in which you imagine it's like a commodity okay it's an orientation it's a it's a mode of thinking all right so the crypto world was very heavily influenced by commodity orientations to money where they imagine like money's like a thing with value and you have to like grab it and move it around right um and so the dave factor all the messaging all the imagery around bitcoin is around this idea that it's like we're gonna use this radical decentralized architecture for quite a constrained conservative form of money okay uh and this is where it bifurcates away from sort of more like my political orientations right because i come from more a kind of anthropological more left-leaning anarchist-y sort of way of

thinking about the world um and yeah so in reality and i'll try to close this off now but like in reality the bitcoin system is quite fascinating because um it isn't it doesn't actually and this is where it gets very controversial right i actually think bitcoin's a very successful system all right but i believe it's successful because it's a parasite right now when i say parasite i don't mean that with some like value judgment laden kind of way right if you look at an ecosystem parasites are often very effective right they work they survive they do what they do they can actually be very

good right at doing what they do i think bitcoin system is a parasitic system that rides upon a bunch of things and it depends on host systems it depends upon the us dollar but it parasites upon it now this is how i see it working but this conflicts with the self image of the bitcoin community which imagines that actually this is an apex predator that's about to like destroy the u.s dollar system okay so i actually see bitcoin is a very successful system and very good at having certain marginal use cases for example for example if i am actually like a political refugee i can use this parasitic system to bridge between different places i'm going there's things i can do with it right

that are very useful but it's not it's not about to bring down the us dollar system in fact it depends upon the us dollar system in order to work right via a process called counter trade which i often talk about and i spend lots of times having these debates with like bitcoin is about that but my critiques about bitcoin can be separated from my sort of more general interest in the broader space obviously the ethereum community and stuff does a lot broader things than bitcoin um so i am quite like interested in lots of these sort of more interesting um experiments in the broader space so i don't want to somehow just lump my take on bitcoin with everything else in terms of um talking about a constrained view on monetary uh

system do you refer solely to the fact that there's like this 21 million cap for bitcoin um that is that you know you can't and i mean i i i know that this is what bitcoin is hark on about all the time that basically it's sound money because uh uh there's not an infinite supply of it this is not true for a lot of other cryptocurrencies right so i mean things like ethereum for instance there is not a capped supply does this change your judgment no not really i mean look bear in mind to to understand my position would probably take a little while because

you've got to unpeel a bunch of layers of stuff around monetary systems so and that's takes takes quite a long time um but but let me just say this okay in the normal monetary system when i see a number in front of me it's actually a it's actually it's an asset to me all right so if i look at my bank account that's an asset to me but on the other side of that if you like look around it on the other side is a liability right it's actually a liability issued out by the banking sector right so it's experience it's created by the banking sector as a liability essentially as a promise right when i owe you now and it's also a liability for reliability okay so it's a second tier

promise right so and i really don't need to go into the structure that but basically in the normal monetary system um there's a double-sided nature to it it has both an asset and a liability side and this is partly what creates the circuit the circuit-like structure of the monetary system is the interaction between the issuers of money and the users of money so the users of money are the people who perceive it as an asset right the everyday person perceives money as an asset but there's a shadow side which is the liability side which is the issuer side and it's a totally different way of looking at money now in the crypto world historically it's asset only it's only it's only seen as an asset so for example when you're looking at like a bitcoin miner when they're quite good at creating new tokens

they're basically like writing out numbers after exerting energy and attributing them to themselves as an asset all right the banking sector does not do this the bankies either issues money out as a liability there's a completely different structure even though they superficially look like they might look like numbers on the screen um in reality when you start to delve into the crypto world this becomes very very fascinating and you ask yourself what are the tokens at least in say bitcoin they're literally numbers right and i wrote a very controversial piece about this called i token which is looking at the difference between uh and stop me if this gets too weird but like the difference between numbers as nouns and numbers as adjectives okay

so in most everyday usage of numbers we're using numbers as adjectives so if i say there's three cups on the table um the three is referring to something beyond itself all right right whereas if i say there are three there is three i'm actually referring to the three itself as a mathematical object all right it's actually a noun so when mathematicians are talking about numbers they're using them as nouns they say 3 plus 3 is six those are nouns all right whereas if i said like three dogs uh that's like an adjective now in the normal monetary system numbers are actually adjectives right and again that's a complex topic but in the in the

bitcoin system they're literally nouns right they're literally mathematical objects written out that then have monetary branding pasted over them all right a monetary language which is why there's this huge effort in the bitcoin community to create this idea that like these numbers that you're moving around are actually aren't numbers they're like objects they're like sort of like gold or something right there's a huge cultural effort that's required to convince somebody that the number is something more than a number all right the normal monetary system doesn't have this problem because it has this liability structure right um and this will apply regardless of the supply of the tokens all right so i can say for something like a bitcoin there's a limited amount of numbers i can write out that's what that cap is right so i'm only allowed to write this out a certain number of times um

it's not going to change the the fundamental issue that you're dealing with mathematical nouns this is this is uh and so so where crypto becomes a lot more interesting when you go past this right so some of the more interesting experiments in the crypto world involve moving beyond the fixation on the mere token right i i think i don't agree 100 with the counter trait and the um uh the asset via versus liability kind of string of argumentation but i i see where you're coming from so let's talk about um the systems where you think crypto becomes interesting yeah sure i mean partially to understand uh to understand the stuff you kind of

need to be have a certain grounding in the historical battle between commodity versus credit thinking on money all right so commodity thinking of money is the the de facto standard way people think about money they think about it as an object carries value it's like almost like a substance right it's like this imagined substance of value and you either think about it as a literal substance or as a sort of metaphorical fictional substance so for example when you hear people say it make statements like money is just a collective belief in our heads that's like a fictional substance of value metaphor they're basically saying we've have these arbitrary objects and we've sort of just collectively agreed to

imbue them with some substance like value okay that's a very commodity way of thinking about money playing out in a non-commodity token system right this is what and actually crypto is full of this so you'll find people being like clearly the object isn't the commodity but we're just going to like imagine that the community will imbue it with commodity-like substance all right through enough usage okay this is very heavily commodity orientated now there's an alternative theory or tradition in monetary thinking which you'll be very exposed if you do anthropology um which is credit thinking of money where basically you see money as promises right so you will see money as ious issued out through

um so i can get things by uttering promises and you know this through your friendship groups i can go up to my friend and i can say something like um hey please could you just give me uh some i don't know can you can you give me some flour please um and i will you know i'll give it back to you some other point basically what i just did there is i added a promise it came out of me and back came flower or whatever some kind of commodity right so you can see the bi-directional structure promise for thing and so you basically you're paying by promise okay and that's an iou and you can formalize that if you want you can write that out as a piece of paper you can write it out on a computer and these are iou systems

right and this is a sort of proto form of money and our large-scale monetary systems right now are like highly elaborate um iou systems now if you're thinking about interesting forms of alternative money you want to at least for me maintain this idea of paying by promise but to sort of like make it more horizontal so what i find fascinating is there's ideas of these kind of like peer-to-peer networks of ious so this right now for example is being exemplified in projects like trust lines circles um which are trying to think about how do you create these sort of like vast network structures of rippling credit ious right um that to me is far more interesting as a monetary experiment than trying to just like issue out these like commodity like

digital objects and hope that they get adapted adopted by a community i understand um the two different facets of money that you're talking about so basically the commodity like um be it real commodity or like an imagine commodity view on on money and you know debt the first five thousand years kind of uh uh approach in as how much do you think if you if you kind of think them to their logical end um what actually changes between the two systems so basically if you if you if you kind of pit them against another one another um how do they look different um

you know in uh at the end of the day so basically how is the iou system fundamentally different from the money as a commodity system it's much more flexible and dynamic that's the basic point so if you're imagining monetary systems if you know human economies if you let's reverse back in time like beyond capitalist economies there's one common feature of all human economies throughout time um the basic underlying reality of any economy is human beings applying themselves to the earth you know every single thing in the room around you right now comes from this process right a human being has applied themselves to the earth right everything comes from that

and whether that's you know you applied yourself to the earth to build a piece of technology which then subsequently enables you to build something else that the process is still the same right um there is nothing that doesn't come from that so the underlying substance the underlying reality of like value and economy is human beings applying themselves right and this is a dynamic process it's organic it shifts over time it's not static or fixed okay so if you're looking and the other core feature of all human economies is interdependence all right so there is no historical solo wilderness man who fends for himself out in the wilderness this is like a fantasy right um i'm always fascinated by watching like libertarian

survival things where they could imagine like wilderness survival and i partly like i used to do this a lot myself like wilderness survival stuff in south africa where you have those imaginations like what it's like to survive in the wilderness is you got to go out and like build like a tent out of like leaves or something you know and like it's like robinson crusoe idea right if you actually go to a society where people survive in the wilderness it looks nothing like this right so if you go to uncontacted groups in the amazon there is no solo wilderness men people operate in these tight clans right where you have high levels of interdependence you basically survive upon each other as a unit right and this is the de facto starting point of all human economies is intense levels of interdependence now the key

thing in modern economies is that we large-scale monetary systems have sort of made those networks so huge that you start to perceive yourself as not being connected all right you you generates this like fantasy of individualism which is what like typical of most like classical liberal thought right um even though you're intensely interdependent okay so um and the reality of these interdependent networks though that we survive upon is that they're high dynamic they morph they change there's population changes there's all sorts of shifts going on and if you're trying to rely upon a fixed monetary system to intermediate relations within a dynamic underlying economy

it's gonna break basically right it breaks you can't have rigid structures so for example even if you try just for example use bitcoin as the foundational uh system i guarantee what would happen is credit creation of money all right i guarantee you private banks would take that bitcoin and issue new promises against it to expand the money supply automatically precisely because it's too rigid to deal with the actual underlying dynamism of the economy all right you would literally have private market actors creating new forms of money in order to deal with the structural rigidity of the bitcoin system which is why it would literally break right so uh this is like if you're thinking about like

that's what the problem is commodity thinking it's it imagines the strange rigid stuff right whereas the credit thinking acknowledges this it says okay right now we depend upon these expandable and contractable systems to mediate these huge interdependent networks that we're dependent on but there's huge power dynamics built into those monitoring systems so what happens if for example we say let's try and flatten the power relations whilst maintaining the dynamism okay and that's what things like these rippling credit systems try to do and i'm not saying they're going to work yet but that's a very interesting intuition all right um to create these like expanding contracting peer-to-peer credit networks like i would i would be motivated to actually work on something

like that because that's actually interesting what can people do what can people do if they feel with you that the you know banking tech sector has become too powerful and they can kind of they want to um help cash or help you know these rippling credit credit systems where do you think people should start well i mean i don't want to speak for everyone there's there's different roles of different people and bear in mind just you know having earlier said i disagree with some of the monetary theory of things like bitcoin i still see it as useful in the context of the overall structure right so i'm not dissing anybody who decides they want to

work on those systems you know you just got to kind of put yourself in context and understand where you sort of sit in the system right so sure rigid sort of collectible structure money thing kind of has a use in the global system right um this is i personally wouldn't want to put my efforts into that now um in terms of the cash question the cash question's slightly different right it's like how do you uh it's working in the existing monetary system you're saying how do i want to try and stop the dystopian dynamics in the existing monetary system or they slow them down by maintaining the cash system and that's really like a policy question to some extent you need basically a top-down action you need people to be saying we have to lobby for the protection of the cash system to provide us with this like buffer against

total bank domination all right um so that's the issue on people who want to work on policy or protection of the cash system and bear in mind the cash system is super super important for over half the world's population so it is a massive system and it gets so little protection in the public realm even though it's so huge and so dependent upon right it's the world's most widespread use of payment if you're interested in the more idealistic end of things like if you're interested in like new experimentation which i imagine most people are listening to this podcast are probably more on that end um then sure you should be thinking about like um because personally i would be interested in like how do you create non-static

uh or like dynamic forms of credit-based money systems using crypto technology i think that's super interesting and i would i would love to see the energy that gets poured into the kind of like hard money stuff being redirected towards like dynamic money stuff right um i think that'd be like and i think it already is i think it's already it's we're already seeing it in the fact that the bitcoin community increasingly tries to distance itself from the broader like uh web 3 world right because actually many people in the sort of broader movement are starting to intuit that there's something a little bit like toxic lurking below the surface of a lot of that sort of conservative thinking of

money so there's something interesting happening right now cool thank you brett um tell us about your book where can it be bought can it be bought on amazon or do i need to go to a physical bookstore to buy it uh it can definitely be bought on amazon you know i i i do recognize the contradictions of the systems that we live in and the fact that actually we all have to be dependent upon these systems even if we critique them so it is available on amazon it's also i would encourage people to try and go to the local bookstores and pay with cash um to to do it but i'm not going to judge you if you don't if you don't do that and it's coming out in nine languages 10 languages

so this coming month is coming out in dutch spanish italian german but the english versions already exist it'll be out in portuguese and korean and chinese and various other languages too in due course perfect and where can people learn more about you and what you're up to is twitter a good place to follow you yeah i mean on i'm on twitter as a suit possum which is uh i won't explain that now but like a suit possibly s-u-i-t-p-o-s-s-u-m um but i think right i mean for people interested in sort of the summer stuff i've been talking about maybe my newsletter my subsequent newsletter which is brett scott

dot sub stack dot com which is called altered states of monetary consciousness um i put out these pieces about this kind of stuff on there although that's been in a little bit of a temporary hiatus while i'm promoting the book but that'll get going again pretty soon so yeah check out my newsletter thank you for coming on brad it's been a pleasure thanks for having me it was a fun discussion