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  • The title of today's talk is: "Fake News, Fake Money: Living in a World Without Authority."

  • "Fake news" has been in the news a lot lately. You have all of these accusations swirling around.

  • The established media -- The New York Times, the Washington Post -- are pointing fingers and saying,

  • These [are the] purveyors of fake news!" Primarily at internet-based, [alternative media].

  • [The internet] is pointing right back and [asking], "Do you remember Judith Miller?"

  • Who remembers Judith Miller? “There are WMDs with aluminum tubes in Iraq!” Bullshit.

  • 'Fake news' happens on both sides, right? That is really the perplexing thing.

  • How did we arrive in the world when we can't even tell what is true and what isn't?

  • Well-established backbones of "authority" and "truth," like the Washington Post and New York Times,

  • or even CNN, Fox News, and other [television stations like] CBS and ABC, and what are they doing?

  • They are cheer-leading for war based on false premises. And that was just last week, again!

  • Not Iraq, but Syria this time! Did we learn nothing? We didn't learn anything.

  • How did we arrive at this world? Why do we have this debate over fake news?

  • Part of it has to do with the rise of the internet in the early '90s. Work with me here.

  • Let's walk through the steps.

  • The internet didn't disrupt newspapers and television companies by "stealing" their audience for news;

  • that came much, much later.

  • First, the internet disrupted their sources of most profitable revenue.

  • For newspapers, that was the classified advertising section, where they made most of their money.

  • Small business advertising in the classified section.

  • The internet came along and Craigslist-ed that shit, just completely undermined it.

  • Now you can do all of that [online, almost] free and instantaneous. Boom!

  • Suddenly, all of their most profitable revenue disappears and the newspapers have to adapt.

  • Then it happened again with television.

  • They started losing advertising revenue to new popular websites that were [attracting] more eyeballs.

  • First they lost the local and small advertisers, who were able to position ads to target specific demographics...

  • and audiences, because they could [gather] much more fine-grained information.

  • Television is a one-way thing, you have [little to] no idea who is watching. So what do they do?

  • Trim the fat. In newspapers, that's journalists. "We don't really need them. No foreign desk, cut that."

  • "Investigative journalism, cut that."

  • What is selling more papers?

  • 'AskJudy', the astrology section, infotainment, cartoons, sensationalist news... "If it bleeds, it leads."

  • Inexorably, the long downtrend of the news industry started.

  • They gutted their foreign desks, gutted their investigative journalism, gutted their fact-checking,

  • gutted their copy editor desks.

  • What was left? A bunch of interns, running around copying press releases from powerful corporations...

  • and presenting them as fact; taking notes when someone seemingly important said something.

  • Not questioning any of it, just writing it down and publishing it as "the truth."

  • "Fake news" happened because the very basis for producing truth was removed from the institutions...

  • whose job it was to produce truth.

  • This caused a very weird situation. Until that time, how do you know if something is true?

  • Well, the New York Times said it. The Washington Post said it.

  • It was on CBS. Surely, they have fact-checked it? Therefore, it is the truth.

  • The fundamental basis for discovery of truth was to examine the source.

  • When you go to college and write essays, they ask, "What are you basing this argument on?"

  • "Give me citations." "Source your argument." "Where are the facts?"

  • If you took a headline from the New York Times and sourced it, they would say, “Okay, great."

  • "That is a citation from a valid source.”

  • We used the issuer to determine the quality of what they issued.

  • We looked at the authority of the news based on the authority of the institution that said it.

  • Because that was a good model, a good heuristic. It gave us a good false-positive, false-negative ratio.

  • It was a bet, a way to say, “I can't fact-check all [of these claims], but these people have, so if I read it...

  • I will become not only educated but informed.”

  • Now we are in the situation where the people who watch the most television and read the most newspapers...

  • are [often] the least informed part of the electorate.

  • How did that happen? The institutions are still standing. Their authority is still standing in some eyes.

  • The basis of credibility is still there. They still have the big buildings, circulation, and big names.

  • But the mechanism that delivered truth, that ensured quality, is no longer there or significantly eroded.

  • What is their response to that? "We will try harder"? No. They turn to the internet and shout, “You're fake news!”

  • Arguably, a lot of the stuff on the internet is fake news, because it never had any of these mechanisms.

  • But the internet that had none of the mechanisms, and newspapers that no longer have the mechanisms,

  • are now producing truth on a relatively equal basis.

  • Every now and then, some blogger uncovers some incredible story that nobody's noticed;

  • it is the truth and the news networks pick it up.

  • Every now and then, the traditional institutions fall flat on their faces and deliver bullshit to us,

  • packaged in a fancy name.

  • People start questioning whether they should believe anything. What is the other option?

  • Where do you go from here? Must you evaluate every fact for yourself?

  • Do you have to build into your critical thinking the fact-checking department that they fired?

  • How do you go about evaluating every piece of knowledge as fact or fake news?

  • Well, there is one easy heuristic...

  • If the esteemed leader of your political party says it is fake news, then it is fake news.

  • Now we outsource fact-finding to the tribe that we belong to.

  • If the tribal leader says those guys are lying, we just go along with it. This happens in Bitcoin, too.

  • Tribalism is part of the human nature.

  • What has just happened in news, leaving an entire generation unable to discern truth from fiction...

  • and easily manipulated by propaganda -- I'm about to suggest today that this [will] happen to money.

  • This is about to happen to money. How do you know if money is valuable?

  • I am asked this question every time I do a seminar about bitcoin,

  • especially if there are new people in the audience.

  • They say, “But bitcoin isn't backed by anything."

  • "[Whereas this piece of paper] I have in my pocket says [it is backed by the] 'Central Bank of Blah Blah.'"

  • It is backed by "the nation" / "the Queen" / "the King" / "the Parliament" / "the GDP of my country"...

  • or "the gold that we have in our vaults.”

  • You don't have any gold in your vaults! [Laughter] They still think there is gold in the vaults.

  • Many people do. It is a common misconception.

  • Most of our understanding of money comes from myth. It is just barely removed from the level of Santa Claus.

  • We have this constructed fantasy about money that we received as children.

  • As adults, when we notice inconsistencies, we shore it up with some rusty nails and planks to keep it in place.

  • We try to keep the illusion.

  • As part of that, we adopt these preposterous ideas such as, “Oh, there is gold in the vaults."

  • "It kind of works, I don't know... Go make your room, don't ask me any more questions, honey."

  • I don't understand money either.”

  • We had a heuristic: if a stable democratic government based on some broadly free principles...

  • sanely manages the economy -- if they say it has value, then it has value.

  • That's a great heuristic.

  • That removes the necessity for us to independently evaluate every note that comes into our hands.

  • Will this [note] still be worth $20 tomorrow?

  • Okay, not this one because it was counterfeit, but this other 'real' one? Yeah, it will be worth $20.

  • Maybe it won't buy you $20 worth in today's money; maybe it will buy you $19.80 [worth of goods] in a year.

  • You don't really notice that, it is okay. You trust that it will still be there...

  • Unless you're Greek. Or Cyprian. Or Venezuelan. Or Argentinian. Or Brazilian. Or from Zimbabwe.

  • Or from the Ukraine. Just keep adding to that list, it has happened so many times.

  • One day, you wake up and you discover the banks are closed.

  • The bank governor is on TV and they say, “People, don't panic! Everything is under control!”

  • When a government official says that, you know... panic! [Laughter] That is the time to panic.

  • It is about who is first to line up in front of the bank. They will not open again next week as they promised.

  • The temporary emergency measure becomes a permanent emergency measure.

  • Guaranteed, every time. So line up and run for your money in the bank.

  • Suddenly, the institution of money has crumbled. Now what do you trust?

  • You go back to basics, things you can examine and validate for yourself: gold, chicken, rice, salt,

  • sugar, whatever you can get your hands on.

  • Or that other country's money. The U.S. dollar is hard currency, right?

  • Money is one of those things that primarily holds value because we attribute [value to it]

  • as a direct result of its issuance by a trusted authority.

  • We outsource our own determination of value to this trusted third-party.

  • What happens when that trusted third-party stops delivering on that promise?

  • On purpose? By accident? Through mismanagement? Who knows?

  • But one day, that phrase which seemed so meaningful and strong and satisfying...

  • "The full faith and credit of the United States government." America! [Laughter]

  • "The full faith" -- not just 'some' of the faith -- and credit of the entire United States of America!

  • Satisfying! Okay, compare it to this one: "The full faith and credit... of the national bank of Zimbabwe!"

  • Do you cry? Do you laugh? Do you run? What do you do at that point?

  • That sentence no longer has much weight to it, that thing that you put all your faith in.

  • They give you their full faith and credit, and in return you give your full faith and credit.

  • Every time you receive one of those bills, you are giving credit.

  • You are giving them a product or a service in return for the bill -- that's credit.

  • You are giving faith, your full faith and credit.

  • Your full faith and credit is based on absolutely no rational thinking, other than you somehow believe...

  • in [these worlds] printed on it: “The full faith and credit.”

  • I have a prediction. This sentence will become increasingly untenable; not just in the hotspots,

  • not just in the backwaters, not just in developing nations and the 'Third Worlds' as we used to call them,

  • but in many places simultaneously.

  • That $220 trillion dollars of debt saysthe full faith and creditis ringing hollow all around the world.

  • What happens when they can no longer shore it up?

  • Bitcoin is not going after replacing national currencies. Oh no, it is doing something far more dangerous.

  • [Bitcoin] is encouraging people to put their savings outside the system.

  • That is the worst thing you can do to a system based on full faith and credit.

  • We're taking away the faith by presenting an alternative that people will find more useful.

  • In some places, where the full faith and credit of the national currency has been damaged,

  • they will flock to bitcoin as a valuable alternative, because they know that it is safer.

  • We saw it happen after November 8th in India, when Modi demonetized 86% of the country's money.

  • Where is the faith now? No full faith.

  • Can you print on the moneythe 14% faith and credit of the National Bank of India”?

  • [They] took out 86%, so that leaves 14%.

  • "This money is backed by the 14% faith and credit of the National Bank of India." Doesn't sound so good.

  • People flocked to bitcoin.

  • Just as it wasn't bloggers challenging the truth of news that created this dichotomy of fake news,

  • it wasn't better news gathering that undermined the newspapers, it was undermining advertising revenue.

  • Cutting off their feed, cutting them off at the knees, forcing them to adjust their news gathering...

  • to the new level of income they had.

  • What happens when Bitcoin does that to banks?

  • Because when they say "close all the doors and keep the money in," there is one door they can't close: bitcoin.

  • The money keeps leaking and leaking. They say, "Put the Minister on television!"

  • "Tell them everything will be fine. The yuan will not be devalued any further!"

  • "The full faith and credit of the People's Bank of China is behind this currency!"

  • Then a month later, it is devalued another half percent. That has happened eight times in the past year.

  • At some point, you [realize], “That [excuse] doesn't count any more. I am taking my money elsewhere.”

  • A few people do. A trickle of billions of dollars has fled into bitcoin from the yuan.

  • The damage that is doing is not in offering a better way for Chinese people to buy things,

  • to invest in companies, to transact with each other.

  • It is undercutting the very source of revenue, value, and stability of a national currency...

  • by removing "the full faith and credit" of the people and putting it into an alternative currency.

  • Instead of putting their savings in a deposit account,

  • where it becomes the basis for fractional reserve lending, they are sucking liquidity out of the economy.

  • That is the worst thing you can do with an economy like that. What will they do next?

  • What the hell can do they now? Drag the finance minister on TV.

  • "Dear citizens... drug dealers! Terrorists! Pornographers! Criminals! And most importantly...

  • those really nasty people who live in the country next door!"

  • "They are undermining our nation through this fake currency! Bitcoin is fake money!"

  • "They are in a criminal conspiracy to damage our economy! Don't trust it."

  • "Don't invest your money in bitcoin. It is fake money. It is backed by nothing! Fake money! Fake money!"

  • "Fake money!" they cry, and scream, and protest. "Fake money!" You think that is not happening?

  • It is happening right now. Watch or translate what Venezuelans said about bitcoin just a few months ago.

  • "Fake money!" In fact, they said, “It's the Colombians doing it!” [Laughter]

  • ["The enemy"] is always the weirdos next door who speak with a funny accent.

  • Soft tacos instead of hard tacos. Abomination!

  • And so the cry starts, slowly at first: "Fake money, fake money, fake money!"

  • Bitcoin is considered fake money in a few places in the world. Where do you think it is considered fake money?

  • Not here. Nobody has [really] called bitcoin "fake money" here, certainly no [government] official did that.

  • They would [prefer that] it remains in obscurity.

  • But in Venezuela, bitcoin is "fake money." In Zimbabwe, bitcoin is "fake money" and they write articles about it.

  • In China, they have tried it a few times; it hasn't played very well with the audience.

  • In the absence of institutional authority, there is no basis for evaluating whether money is real or not.

  • Or is there? What is fake money and real money? Who knows? Are we back in the same conundrum?

  • Are we back in the same situation, where we can no longer tell the difference?

  • Is this just like fake news? [Must] we all discover the truth for ourselves?

  • No, because money has markets and markets discover truth. That is what a [free] market does.

  • If you want to know if bitcoin is fake money, if the bolivar is fake money, you have an easy test.

  • You take your bitcoin, you take your bolivar, and bring them to someone on the street [in India].

  • Ask them, “How much will you give me for this?”

  • If the official exchange rate for the bolivar is five times less than the unofficial exchange rate,

  • and if bitcoin carries a 20% premium [to buy], the market is telling you exactly which money is fake.

  • The market discovers truth.

  • No matter how many pronouncements, currency controls, bank bans, bank holidays,

  • and demonetization incidents you do...

  • No matter how big you try to make that wall, once the dam has a pin prick hole and water is flowing through,

  • it will make that hole bigger and the truth will come out.

  • The truth will be evaluated by the market. You can call bitcoin "fake money."

  • The market will say, “Well, I would rather take that fake money than your fake money.”

  • On November 8th in India, the price of bitcoin went up and maintained a 22% premium against the rupee...

  • over any other currency in the world.

  • I was asked when I went to India, “Why is bitcoin so expensive here?

  • Are the exchanges making obscene profits? No, they're not. They're not allowed to do arbitrage.

  • Individuals are doing the arbitrage. I explained, “It is not bitcoin that is expensive."

  • If I go down the street with U.S. dollars and [try to] buy bitcoin,

  • the price [will be about the same] as what I can get in San Francisco.

  • Bitcoin's price is exactly the same. But if I give them rupees, they will want 20% more rupees.

  • It is not bitcoin's price that went up -- it is the rupee discount that went up.

  • The rupee price collapsed by 22%.

  • Bitcoin can be moved across borders to settle the arbitrage difference, but then you are stuck with rupees.

  • You can't move them, [which] immediately imposes a 22% discount because that money is not portable.

  • 'Portable' is one of the three characteristics of what makes it currency. You just lost one of them.

  • Actually two, because you demonetized most of it.

  • Rupees are trading at a discount against bitcoin. Bitcoin is the stable price.

  • The market is telling you, 'This [money] is more real than that [money].' The market discovers truth and it tells us.

  • Be ready. We will start hearing this again and again as economies collapse, as currencies go into crisis.

  • It is happening even in developed nations. It is happening in the European Union.

  • It could happen here in the U.S. dollar, who knows? The markets are trying to correct the situation.

  • They will create a flow of money into bitcoin.

  • People will remove their "full faith and credit" from the system, put [their savings] in safe-haven assets:

  • gold, silver, bitcoin, etc.

  • As soon as that happens, you will see articles in the the news media.

  • The fake news telling you about the "fake money."

  • Maybe you can't tell what is "fake news" and what isn't "fake news," but you can tell what isn't real money.

  • The easiest way to find out, is to go out on the street and ask the market. The market will tell you the truth.

  • Thank you. [Applause]

The title of today's talk is: "Fake News, Fake Money: Living in a World Without Authority."

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