Episode 8: Do we even need to reinvent money?  Samantha Yap [00:03]: Hi! I’m Samantha Yap. Welcome to The Story of Money by YAP Cast where we talk about where money is heading. Join me and Jacob Goldstein on this episode of the Story of Money by YAP Cast. Welcome, this is the second of two episodes where I have had the pleasure of interviewing Jacob Goldstein, a journalist with the Wall Street Journal and former host of the popular Planet Money podcast.  He is the Author of a Book called Money: The True Story of a Made-Up Thing, which was published in September 2020. We finished up in the last episode talking about money and control — and what that means for privacy. So, I wanted to explore more about this idea of who controls money, and what that control means. Moving on to talk about who controls money you had a chapter on the European Union, as they created a new kind of money where everyone in this group of countries has a common currency. Is this the natural evolution of money - to have a universal currency? Jacob Goldstein [01:10]: I don't think so. I mean, the Euro hasn't gone that well. Right? I think the Euro has gone worse than people thought. One of the big lessons of the Euro is it's really hard to have one currency and lots of different countries. It kind of doesn't work, and Europe, at some point, will have to choose - do they want to be more like one country and have a more integrated fiscal policy and redistribution, like the United States or is the Euro going to work, right? Different countries have different economies and the way basic monetary needs change with how your economy's doing. Sometimes people need more money, sometimes people need less money. And when you have one currency for lots of really heterogeneous economies and no redistribution, it doesn't work that well. And I think that's pretty clearly the lesson of the Euro. The current authoritarian monetary system works okay Samantha Yap [01:57]: So, a single currency to cover a bunch of countries doesn't work. But within one country, who do you think should control the money - Is it the monetary authority do you think that should be some political influence? Who should dictate the money of a country? Jacob Goldstein [02:13]: That is a complicated question. I mean, we might just start with who does control it, right? This is already a somewhat complicated question. In most developed economies, including the US, fundamentally, it's the government at the centre of it, although elected officials in the US and other countries have to some extent tied their hands, right? They've created central banks that are independent. I think it's pretty impressive the extent to which central banks are still seen as primarily technocratic rather than political and certainly, they're political on some big kind of macro level, but think of the fact that Jerome Powell, the head of the FED was given the job by Donald Trump and then reappointed by Joe Biden, right? That wouldn't happen with the Supreme Court. It wouldn't happen with the Secretary of the Treasury. It's wild that those two guys both put the same person in the job. It speaks to how, at least, nonpartisan it is. Sure. It's political on a very big level, like the system, but it's very technocratic, very nonpartisan. And so that's a big piece of it. The other big piece that I think people often overlook is private banks also have a ton of control over money. Fractional Reserve Banks create money and take money out of circulation when they make loans. And when they call in loans, essentially. When they reduce their lending. So, a big part of the monetary regime is the choices that private commercial banks make. So, it is this complicated system where you have the government with a lot of power and also private banks with a lot of power and they're sort of somewhat in tension, somewhat working together, but that's the system we have now. I think it is basically functional. Yes, it's bad that inflation is 8% right now, but if you look at the last whatever, 50 years, 70 years now, if you look at the monetary regime, we have now can date it to the early 70s, you can date it to 1945. But in either of those cases, it has basically worked. The economy has grown tremendously. There hasn't been a monetary collapse. So, I think it works okay. The adoption of a new universal currency Samantha Yap [04:11]: So, you're saying there are all these functions and people involved to manage this made-up thing and it's working. Let's then talk about Bitcoin and Crypto because there is this community and group of people that, like you said it's working out fine, but off the back of the 2008 financial crisis, Bitcoin was born because there's this issue of trust with these centralized authorities. What do you think about the movement of people adopting Bitcoin as their universal currency of the world or the world? Jacob Goldstein [04:44]: Yeah, I think it's really interesting and I've started covering Bitcoin. I did a story about Bitcoin in 2011, and in the middle of reporting that story, my colleague, who was working on the story with me, he and I were shocked that the price of Bitcoin went from $10 a Bitcoin to $20 a Bitcoin. Samantha Yap [04:59]: Did you buy it then? Jacob Goldstein [05:01]: We bought. And then, because this is supposed to be the new kind of money, we went and we bought lunch with it. We bought falafels and smoothies for, you know, a Bitcoin. Samantha Yap [05:10]: Wow! How much did you buy? Jacob Goldstein [05:12]: I would think it was like two Bitcoins. So, it was the $40,000 lunch, right? Samantha Yap [05:16]: Yeah. It's like the pizza story. Jacob Goldstein [05:18]: It’s like the pizza story. And that speaks to why it's not money, right? If you're a fool for spending it, it's not money. So that to me is a big, important point, right? It is a speculative asset. It might be useful in some way, but if someone's going to make fun of you for spending it, it's not money. Right? What you do with money is you buy stuff. So that I think is a big, important point. Samantha Yap [05:40]: No, but earlier…I just want to challenge that because you’re like it's not money, but then you're like money is made up. So then could not people think that Bitcoin is money in their world? Jacob Goldstein [05:49]: Well, sure. People could think anything is money in their world. People could think whatever...a flower is a money in their world. They're allowed to think whatever they want. Yeah. I think a reasonable definition of money is it's a thing you buy stuff with. I mean, we could do the textbook definition. It's a store of value and a unit of account and a medium of exchange. Medium of exchange means it's what you buy stuff with. A unit of account means it's what you say, the value of other things is. So, you know, falafel used to be 2 Bitcoin, and now it's 1/10,000th of a Bitcoin or something. So, it's kind of absurd as a unit of account, right? It is the case that when Bitcoin came out, people thought you would use it to buy stuff. And I don't think that people who are really into Bitcoin itself today say that. They say, it's digital gold. That's the most sort of pithy description I've heard of Bitcoin. Samantha Yap [06:35]: What do you think of that? Jacob Goldstein [06:37]: It seems weird. I mean, it's weird to go back to gold, which is like the most irrational thing you can think of to have value, but like, it seems plausible. I mean, A Bitcoin is still worth a lot of dollars, right? It seems like the main value of Bitcoin, as far as I can tell to people is that you trade in your dollars for Bitcoin. And then, in the future, you trade in your Bitcoin for more dollars than you started with. Right. That seems like the main use case of Bitcoin itself at this point, as far as I can tell. Which seems a cool move if you can do it. But it's not exactly money, right? It's like a speculative asset. Gold isn't money. You don't denominate things in gold. You don't really buy stuff with gold. Yeah. I think there was the Bitcoin civil war. Right? And, and we can move beyond Bitcoin, but there was this big fight in Bitcoin over. Should we make it easier to buy stuff with Bitcoin? Should we change the block size? Right. And that was pretty much settled in favour of...no, we should not make it easier to buy stuff with Bitcoin. We should make it more like digital gold, which is fine. But I mean, that seems non-controversial to me. Right? Yeah. Does that seem controversial to you? Samantha Yap [07:36]: Not really, but I think the digital gold part comes from the fact that it's programmed so that there are only 21 million Bitcoins that can never exist, which is similar to how gold is in terms of there's only a finite amount of gold in the world. What do you think of that comparison? Jacob Goldstein [07:53]: I think it's valid. I think it's valid. Samantha Yap [07:57]: So, then moving beyond Bitcoin, then there's, you know, there's Ethereum and, and, and other cryptocurrencies you know, and I think in the last year and a half, I mean, yeah, I'd love to hear your perspective and especially, maybe from an outsider's perspective, because I'm like deep in the space, but yeah. What do you make of the growth and the surge and interest of Bitcoin and crypto in the past two years? Jacob Goldstein [08:18]: Well, I'll tell you one detail that strikes me. You know, when I started covering it, it was cryptocurrency and everybody talked about money because the word currency is right there. People have stopped saying cryptocurrency and started just saying crypto, which I think is meaningful. Right? I think that's not just because it's shorter. I think it's because the ideas have moved beyond money. Right. It really hasn't become money in the way people thought it would. People really thought people would use it to buy stuff, which is a reasonable thing to think. And that hasn't happened in a broad way. I'm sure people can point to this thing or that thing where people are buying stuff. But people thought everybody would use it to buy stuff because it works better. And that clearly hasn't happened yet. Maybe it'll happen. But it hasn't happened yet. The thing that has happened that not that many people were talking about at the beginning is people have thought of other possible use cases that are not money - Smart contracts, payment rails, various things. And so that part seems interesting and promising. Though I will say the one thing that I keep sort of hoping for, to the extent I'm rooting for crypto is like the killer app, the use case that everybody uses, even if they don't care about crypto, the thing people do not because they want to get rich, but just because it's a better way to do some boring thing, they do already. And then suddenly everybody does it, even though they probably don't even know it's crypto, it's just crypto on the back end. Like that's the thing that I keep waiting for. Right. The killer app, the thing that, that breaks out and that everybody just does because it's better, it's cheaper. It's more efficient. That to me is the really exciting sort of thing of technological progress. It's not like people getting rich, it's not, you know, whatever. It's just a useful, boring efficiency gain. I don't think that…that clearly hasn't happened yet. There's nothing that has like conquered the world just because it's better and cheaper, but it could happen. Yeah. I'm hoping it. Samantha Yap [10:04]: Yeah, me too. No, it's interesting coming from your perspective and having written about Bitcoin in 2011 it's obviously been from 2000. It was created in 2009 and I think we’re what? Do the math - more than 10, 12, and 13 years. Jacob Goldstein [10:20]: Yeah. More than 10 years. Samantha Yap [10:21]: More than 10. Yeah. 12, 13 years more from that. And you're right. Like I'm still buying groceries with fiat currencies, not with crypto, or Bitcoin or Ethereum, but yeah, I guess, like you said that is the killer app. And I think people are working to build something like that. People talk about, like better user experience and adoption. Have you interacted with anything in the park lately to do with crypto? What do you think of the user experience? If at all? Jacob Goldstein [10:54]: I mean, I haven't. You know, I'm not like out on the frontier, you know, I have a wallet, and I played around with some NFT stuff, but I haven't found anything amazing. Have you? Let me ask you this, if you were going to pick - I mean, you don't have to name one company or another if you have a complicated relationship with your clients. But is there some domain like, I would have thought say remittances, like, remittances seemed like one, you know, workers going to another country, they have to send money home, it's expensive. That seems like a very natural place for crypto to just be cheaper essentially, be cheaper and more efficient. But is there a domain where you are particularly optimistic? If you're going to pick one to be like the first breakout use case? What do you think it would be? Samantha Yap [11:34]: Yeah, well, I think it's interesting that you said NFTs because I feel like the last year and a half, you started to see celebrities start to buy NFTs and that seems to be the kind of most interesting thing to onboard is what we call it, more users into this space. I can talk about this, but what I quite like is ENS domains. So, it's basically, you know, having a .Eth, and the username, that you can use to interact with different applications on the Blockchain. I think that is pretty interesting. I know that Jimmy Fallon, for example, created a .Eth and changed his Twitter name to it for a short period of time. It's also a way you can show off your NFT's like a gallery. So I think when you talk about that killer app, it’s not really a killer app, but it's more of like, if you've got jacobgoldstein.com why not have jacobgoldstein.eth? Jacob Goldstein [12:24]: Why is that better? What is the gain there? Samantha Yap [12:27]: That connects with your wallet. So, if I want to send money to you, instead of me sending, using this, your copy, and pasting a 24-25 character phrase, I can just send it to jacobgoldstein.eth, and that connects to your wallet. And similarly, if I want to receive money, I just need to send you that instead of your number. Jacob Goldstein [12:46]: So maybe the analogue there, rather than a domain, is more like an email address. Samantha Yap [12:50]: Yes. So, the term is Web3. But what have you observed with decentralized finance? I think your book ended in 2020, and then in 2020, there was a global pandemic. But there was this world kind of forming an ecosystem called DeFi Summer, where the DeFi industry or market, in crypto terms, it started at the start of the year with $500 million in total value locked, which is how they explained themselves. And then, towards the end of the year, it grew to $14-15 billion in total value locked in cryptocurrency. So, it just exploded and it was these decentralized exchange applications. Some people say it's like financial treadmills moving around online. I mean, I don't know if you had any observations about DeFi and how that exploded. I would love to hear about that from you. Jacob Goldstein [13:42]: Yeah. I mean, It's similar to my broader thoughts about crypto in general. I believe in finance. Finance is useful when you can lend money to someone who wants to buy a thing and will be able to pay for it in the long run. I need to buy a car to get a job. You give me a loan, I buy the car, I pay you back over time with the money I make at my job. Like that's what finance is useful for. It seems like DeFi was not primarily that right? It seems like DeFi was largely about yield farming about people getting money, lending money to other people so that they could buy more crypto so that they could lend more money. It seemed as far as I could tell, largely kind of internal to crypto.I will say just old school crypto and NFTs and yield farming, like the vibes that come off of them to the broader world have largely been about getting rich, right? Not about doing something useful or solving a real problem but like “Look! You can get 20% yield on this DeFi.” “Look! this thing that somebody bought for 10 bucks is worth 1000 bucks, like, get in on this and get rich.” Which is like fine. I'm not opposed to getting rich. But it's not to me the really cool thing. To me, the really cool thing is making something useful. And finance is another case where “Great do better finance”, you know get rid of title insurance when people are buying their houses. Make it easier for people who really need a loan to get a loan at a lower interest rate. Like that, to me is the promise of it. And it didn't seem like it was mainly about that. Samantha Yap [15:08]: Yeah. I appreciate how that might come off in terms of the vibes if you're coming from an outsider perspective. And I like to think so that there are certain founders and people that are trying to experiment with this new technology to see how it can improve the current financial system, especially for example, with lending, and I know, it hasn't had a good rep with the recent crypto contagion. But there's this divide between CeFi - Centralized Finance and DeFi, where all transactions are on chain. So, there's a bit more transparency to what's going on. And I think that's something that the space is trying to change with the current banking system that isn't quite transparent. And we don't really know what goes on behind the scenes at Goldman Sachs or JP Morgan. Jacob Goldstein [15:52]: Why is it better to know? Why is transparency better in that setting? Samantha Yap [15:56]: I guess it's kind of where the funds are going. If you're kind of entrusting a centralized organization with maybe lending your money, knowing that it's being used in the right way and also, you're going to get it like returned. So, and then having that on chain track record, or just to know where it's going. Because I think what happened with the whole Celsius situation was that people didn't really know what they were doing with their money that they were entrusted with. So, that is what I think certain, there are certain organizations, companies, protocols, they don't like to use word companies, but like protocols are trying to experiment with in the lending space. There's this world, like you said, it gives off a certain vibe of a group of people that just want to get rich, and then there are people who are trying to kind of transform or revolutionize the way the financial system is today. Do you see these different worlds forming? And that's kind of growing in two different worlds? What do you think of it? Jacob Goldstein [16:52]: I don't know that it has to be that separate. I mean, I feel the decline in the price of big headline cryptocurrencies and the various troubles in DeFi, might be useful in kind of washing out the people who are just there to get rich quick and keeping the true believers. You know, maybe analogously to what happened in Silicon Valley at the beginning of the 21st century, people who were around then talk about the early aughts in San Francisco and Silicon Valley as being like, just the people who really believed in the Web were left because all the people who came to get rich quick left when the bubble burst. And so technologically, crypto seems really interesting. And so, it's taking kind of a while for it to really achieve its promise. And I guess, you know, maybe the surprising thing to me and if I go back to it 2011 when I first started covering it, I guess I thought at the time, like, oh, it's interesting, maybe it'll work. And suddenly people will be using Bitcoin as money. Or maybe it won't work, and it will go away. The thing I did not think is maybe it won't work and the price of Bitcoin will go from $20 to $60,000. Like, that, I would not have guessed. Samantha Yap [17:56]: So, imagine if you did. Jacob Goldstein [17:58]: If I did, I wouldn't be here talking to you respectfully. And so, the fact that so much money has flown into it before it has really proved itself, before it has really found its Killer App is interesting and surprising. And it is persisting, and so I remain genuinely curious as to what's going to happen. And, you know, fundamentally still interested not in people getting rich, but in making useful things that people who don't care about crypto or technology use, just the way that everybody uses an iPhone, and everybody uses FaceTime. And everybody uses email all these amazing technologies, not because they care about technology, but just because they're really useful. Samantha Yap [18:35]: I appreciate your curiosity and the crypto community see that the future is Decentralized. I mean, Decentralized Finance seems to be the direction everyone's going in. But, you know, earlier, you were saying, you know, the current system, it works fine. Yes, it's not perfect, but it's efficient. Jacob Goldstein [18:52]: You give up a lot of efficiency. You give up a lot of efficiency to get decentralization. Samantha Yap [18:58]: Yes, I wanted to hear your thoughts. Do you think we could have a decentralized financial system that also kind of works maybe? Jacob Goldstein [19:05]: Maybe, I mean, it's not clear to me-- I mean, it reminds me a little bit of the privacy debate and this idea, you know, David Chaum being like, “Oh, my God, you're going to lose your privacy, we better come up with this digital cash that'll keep your privacy.” And people like, “yes, that's a great idea.” And then, in fact, they're like, “oh, whatever, I don't actually care that much about my privacy, it's really easy to use my credit card. I'm going to keep doing that.” I mean, the centralization thing might be a little bit like that. The idea of decentralization is compelling. But I don't think most people even know about it still. Frankly! And a lot of the people who do we're like, “Oh, that's interesting. Now I'm going to go about my life.” One of two things: One, there might be some really profound financial crisis, like worse than 2008, more like the Great Depression. That is traditionally the way you get monetary regime changes. So, there might be that. There might be some really horrible thing that persuades people that centralization is a bad idea. The other thing that could happen, is, decentralization might be just an undeniable sort of efficiency improvement in some way. So that's a little bit hard to imagine. Because you tend to give up efficiency to get decentralization. But there might be some use case where a decentralized system is just obviously works better, not in a theoretical way, but in a practical way, where it's cheaper, you get more money out of it, it's more efficient. Something. So, you either need some terrible financial crisis to get people to be really wary of centralization, or some killer use case, where decentralization is just obviously better. And of course, for the sake of the world, I hope we don't have a horrible financial crisis. And I hope somebody does come up with a killer use case, right? I like when technology makes people better off. And that's what I hope happens with crypto. Samantha Yap [20:41]: So, we're here now where crypto and DeFi still hasn't come up with this Killer App yet. You know, money as it stands at the moment is working okay, it's working fine even though inflation is at 8%. Where do you think the future of money is heading in the next, say, 5 to 10 years? Jacob Goldstein [20:58]: I don't know is the most honest answer. And anybody who says they know is…they don't know. They're not right. Even if they guess, and it happens what they say it doesn't mean they knew it just means they guessed right. I mean, 5 to 10 years isn't that long. In the very long run, money will definitely change again. Money now doesn't look like money looked 100 years ago, and it doesn't look, then it didn't look like 500 years before that. So certainly, in 100 years, money is going to look really different than it does today. The power dynamics will be different. That's super interesting to think about. I have no idea what that'll look like. 5 years, I mean, I feel like it'll probably look a lot like it looks today unless some really horrible unexpected thing happens. And there's some kind of giant collapse. You know, governments don't want to let go of money. They're not going to rush to stop printing fiat. And you know, it works well enough for most people that I think in 5 years, this sort of monetary regime will look a lot like it looks today. Samantha Yap [21:51]: I really appreciate this conversation to just get a perspective that's not pro crypto and pro DeFi, because it's a bit of a reality check as well for some of the hype. Jacob Goldstein [22:01]: I am not anti! For the record, I’m not anti. I am pro crypto. Samantha Yap [22:06]: I know you are not anti but I appreciate that you're like, in 5 years, because I talked to some people that I hear that like, yes in the next year, and the next… so yeah. Jacob Goldstein [22:14]: Here is one interesting approach. So, there's actually a thing I did when I was hosting Planet Money, I had the Venture Capitalist of Ben Horowitz, half of Andreessen Horowitz, the giant VC firm. Yep. He made a bet. He came on the show, and he made a bet. And this was in maybe, 2014, something like that. And the bet was, in five years, some percent I think, like 10% of Americans will use Bitcoin to buy something every month. So, he made that bet. That's what people thought of Bitcoins, which were used to buy stuff. He lost the bet, obviously. But he came back on the show was like, he didn't really care that he lost the bet, because he got super rich betting on crypto. But you know, and now he is like a somewhat more cautious now he's like, “Well, it's going to take a long time if you think about the internet, it's maybe it's the internet in 1980, or something.” The Internet was around for a long time before the web came along. And so, I think you can be pro crypto and not think the world is going to look really different in a year or in 5 years. Samantha Yap [23:08]: Yeah. More of a personal question to you: will you be writing another book and would you look more deeper into crypto for the next one in your quest to study the history of money? Jacob Goldstein [23:18]: You know, I feel like, I'm not eager to write another book about Money. I'm focusing more on technology now. Now I have this new podcast called What's Your Problem where I'm talking to entrepreneurs. And so, you know, technology and money go close together, but the sort of less directly financial side has become more interesting. And maybe you can tell that in my answers, like technology as the source of productivity gains, efficiency gains, as the big picture the way people get better off in the long run. That's really interesting to me. So maybe I'm just waiting for that Killer App, killer use case to come along and maybe that'll get me excited. Samantha Yap [23:50]: And I guess that's where the technology comes in. Well, thank you so much for your time, Jacob. It's been an amazing conversation with you. Thanks for joining in. Jacob Goldstein [23:59]: Yes, it was really fun to talk with you. Thanks for having me on the show! Samantha Yap [24:02]: That’s Jacob Goldstein, former host of Planet Money and author of Money: The True Story of a Made Up Thing, offering amazing insights into exactly what money is, and what it isn’t. As Jacob clearly indicated, he’s not against crypto, but he has a nuanced view of its potential — and the fact that we have perhaps been premature about when and how crypto might make more serious inroads into our lives. But that’s not surprising: depending on who you believe, Bill Gates or Stanford computer scientist Roy Amara declared: “we overestimate the impact of technology in the short-term and underestimate the effect in the long run.” Gates was famously wrong — or late — with many things, from computer memory to the internet. If we accept Jacob’s main thesis — that money is a made-up thing — then we probably have some way to go before we converge on the new paradigm that DeFi, and crypto offer. Perhaps it’s not about finance, or another iteration of the web, or a currency based on cryptography. Perhaps it’s something entirely different, a brand-new chapter in the Story of Money. Thanks for listening! Thanks for tuning in to another episode of YAP Cast. I’m Samantha Yap. For new episodes, follow The Story of Money by YAP Cast.