# Why Only Virtual Money is Real Money

- Channel: [Devcon](https://streameth.org/devcon)
- Date: 2023-10-09
- Duration: 32:36
- Topics: blockchain, smart contracts, distributed ledger, ethereum, Science & Technology
- Watch: https://streameth.org/watch/yt-oIltSCAABvM
- YouTube: https://www.youtube.com/watch?v=oIltSCAABvM

## Description

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https://archive.devcon.org/archive/watch/6/why-only-virtual-money-is-real-money/index

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Speaker(s): Bruno Macaes
Skill level: Beginner
Track: Opportunity & Global Impact
Keywords: geopolitics

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## Transcript

foreign [Music] what is this new virtual world that we are about to enter and how do we go about building it my starting premise is this is the most important thing that Humanity will ever build a virtual world to rival the real world and how do you do that and I shouldn't hide from the very beginning that I see crypto as part of that project after many years of trying to come up with my own view on what crypto is all about this is uh this is where I am right now that crypto is a lather towards a virtual world that we're trying to build let me tell you a little bit about my book history has begun where I describe a theory of virtualism how do we build a society built on on virtual reality and also my manifest of virtualism that was sold as an nft in 2021 and that you can find easily I think on openc or Zora if you want to take a look and it's up 15 points of how to build a virtual world I'll start with nfts very briefly and then we'll move on to currency monetary history and ether and how ether fits into that this happened just uh yesterday or a couple days ago Damien Hurst famous contemporary artists burned a number of his works I think a thousand of his works you can see some of the works hanging there on the wall and he burned them because they had been sold as nfts and the buyers were able to choose whether they wanted to keep the nft or whether they wanted to keep the physical object and we could only keep one which I think is an interesting premise interesting of the ten thousand that was sold about half five thousand chose the nft and therefore the physical work was destroyed and have chose the physical work and the nft was destroyed first does it with considerably considerable style you see here this is almost a medical covid-like operation by which it destroys the the works and here he is looking attentively at that there won't be any slides let me make a a few initial comments I see this as not a big fan of Damian hers but I see this is a very interesting premise that nfts only make sense if there is no physical object directly correspond to that the virtual object the nft cannot really survive if there is a physical object on the side and you have to pick whether you want the physical object or you want the virtual object where I think that Hurst is not going far enough and most of us are not going far enough is that in this case the nft still refers to a physical object there on the walls and even if it's destroyed it was there to begin with we still haven't figured out how to have nfts that don't refer to physical reality at all how to truly Embrace this symbolic gesture of destroying the physical object that's what I like about this the symbolic gesture of destroying the physical object and being left only with a virtual object now how do we do that and I think the answer is more or less clear I'm interested in in how you're thinking about that yourselves nfts cannot be a gpac cannot be a painting cannot be a video nfts have to be a form of access permission to a program to a metaverse of some kind it's very different to have a painting you can hang on the wall and there's an nft corresponding to it but is this really what we want you know the nft is in your wallet on the blockchain but in fact when you show it to your friends you show it on the wall perhaps a video on a screen that you have in your apartment this is not what we want we want an ift that lives entirely on the blockchain that is entirely a virtual object and this can only happen with some kind of metaverse if you hang your painting on a metaverse a virtual object on a metaverse what is really happening here is that you're having access to the metaverse program you are becoming a co-creator in that metaverse and that's what an ad nft is about an nft is a form of power over a virtual environment with an nft you become a co-creator in that environment an nft is not a physical object and does not refer to a physical object an nft can take the form of a painting that you hang on a virtual apartment in a virtual building in a virtual world that already involves some access and deployment of the metaverse program but more radically and more interestingly a metaverse would be for example the ability to drive a car in the metaverse where the access to the program is much deeper and allows for much more functionality and many other possibilities as we know in the future if you operate a shop in the metaverse you have an nft that allows you to operate that shot this I think is much more interesting than the Commerce driven idea of NXT as giving you property and perhaps access to income the nft gives you power to enter the code to enter the program of a virtual world now with this in mind with this symbolic gesture of destroying the physical world and migrating fully to a virtual world how do we think about money and I hope I'll give you a broad perspective uh rooted in monetary history of how in fact we are very close to what I would call the Holy Grail of monetary economics what is my what is money money is not real money is virtual and by definition it has to be virtual I think many people today in our society still have an enormous difficulty accepting this the money is the most sacred thing they can think of and the idea that it is not real that it is virtual is very disturbing and you see a lot of resistance to this a little later I'll argue that Bitcoin is a very good example of how people do not accept money as virtual and kind of retrace back to the idea of money as a physical thing and you know that Michael sailor for example is now very interested in this idea that money is energy so we're now suddenly converting money back into something entirely physical when I'm going obviously to disagree with that but I think on the other hand it's becoming easier and easier for us to think of money as virtual a good turning point was I think the financial crazy of 2008. where everyone suddenly realized that rather than being something very solid very sound money was a set of entries into a computer program that could be change that will and a lot of money could suddenly disappear be canceled or transferred for someone else and banks that were bankrupt suddenly the next day were not bankrupt because someone had turned the switch in a central computer for many people this was dramatic and still is and it's affected our products very deeply but it was a learning moment of money as virtual many people in the system already knew this but I think 2008 was a moment when the public in general suddenly woke up to that reality crypto I think is also part of this learning process perhaps some of you are going to resist the idea that crypto is not real that it is virtual but I think it's easy to make the argument that it is virtual after all before 2010 before 2008 there was no crypto so it can't be something that has always existed like gold it's something that is created is a product of recreation five eight years ago Bitcoin was worth I don't even remember almost nothing and today uh it is worth I think about twenty thousand one Bitcoin so how does this correspond to something real and not to the way we look at it not to a virtual world and finally and this is very much in in the line of my of my work what happened to russian Central Bank Reserves back at the beginning of March you remember that after Russia invaded Ukraine Janet Yellen and Mario draghi had a phone conversation and they came up with the idea that the reserves that the Russian Central Bank had in Europe and the United States were going to be frozen it turns out that all these treasuries and Bonds were not something that Russia had they were again only an entry in a computer program and they could be disconnected from central banks in the UK in the US and in Frankfurt the European Central Bank even cash that Russia had in facilities at these European central banks were suddenly canceled very easy to cancel you just have to ban your central banks from dealing with the Russian Central Bank and suddenly all the 300 billion of reserves that the Russian Central Bank has parked in Western central banks have been frozen and cannot be touched think about this that the the very top the apex of the money hierarchy treasuries suddenly evaporated and Russia found out overnight that it no longer had that those 300 billion in the future I can conceive very easily that this will be used again and not after a phone call between to Central Bankers now converted into politicians but actually demanded by the public imagine 10 years from now bolsonaro is still president of Brazil the Amazon is burning bolsonaro doesn't do anything what can we do we're not going to send our military there but how about we communicate to bolsonaro that these reserves have been frozen and they will only be unfrozen if it does if it does something about the Amazon it's very easy to do I think the genie is out of the bottle and it was very difficult to stop this this affects how we think about money because suddenly it's difficult for many developing countries to park their reserves in Western countries as they're always thinking about what could happen in the future and the way this is going to affect the dollar is is a very important story 2008 crypto geopolitics and the way geopolitics has also transformed the way we think about money I think if you think about this there is clearly a sense in our societies today that money has evaporated that we lost a hold of money that is something that can be manipulated or will by the elites of the people in charge there is now a desperate search to find a kind of money that cannot be manipulated in this way which is of course a goal very Central to crypto economists call a form of money that cannot be touched a form of outside money as opposed to what I've described so far inside money what is outside money is money that does not correspond to a liability or to a promise to pay or to an obligation if you have treasuries they are essentially a promise that the FED has to give you that money back if you have a bank deposit is a promise the bank has given you to return your money but if you have gold there's no promise no one is needs to to promise to your gold is yours it's an object that you can hold and have property in without any corresponding liability and that's what makes it solid and sound it's an actual uh it's an actual thing rather than just a promise all the other forms of money if you think about it they are they turn out to be forms of credit they turn out to be promises to pay not real money there's a search for a form of outside money for many people would be gold for many others you would be Bitcoin because the same applies to bitcoin when you have Bitcoin it's not that anyone owes you Bitcoin particularly if it's not in a in an exchange but even in an exchange it's a different question it's a sort of storage it's not like a security where the security itself is a promise that someone is made to pay so form of outside money can we find well an obvious candidate would be gold and for many people the beauty of gold is that it is a form of outside money it stands gold doesn't correspond to any promise to any form of credit but the problem with gold is the opposite even though it's a form of outside money it's not a form of virtual money remember we want to have a form of virtual outside money a money that is not a promise to pay but it is virtual and throughout history people have been very aware that called had serious problems and the serious problems were essentially that is not programmable it's not virtual it's not programmable it's just a thing it's a physical thing the problems with the gold standard were obviously as Ben Bernanke said at one point the money supply cannot be adjusted according to economic circumstances I've already mentioned Michael seller and Ben bernank and again didn't get any booze uh for any of them very very nice very polite but uh so gold cannot be adjusted according to economic circumstances economic adjustment takes place very slowly in the gold standard through prices and through salaries slow and painful adjustment you don't have the ability to adjust the money supply you don't have the ability to increase you know true gold standard you don't have the ability to increase the money supply as the economy grows to adjust money creation to GDP growth all these are fatal flaws when it comes to building a genuine economy monetary history and this is very clear in the book by David Graber that that I understand lots of people here like and lots of people in the ethereum community like describes a permanent tension oscillation between two views on the one hand money is a real thing on the other hand money is a virtual thing and from the point of view of what I've talked about so far you understand this tension and this oscillation on the one hand you want money to be something real that cannot be freely manipulated by those in power so you turn towards gold for example but then when you embrace the gold standard you end up with a problem that it's not programmable and you cannot build a modern economy on a form of money that is not programmable and then you return as you did after 1971 abandoning the gold standard you return to a form of virtual programmable money which is what we have today but then you run into the problem that it's not really money it's just credit today all the money around us is credit is not money so you see the the goal here the Holy Grail is to have a form of money that is virtual but that when it becomes virtual does not stop being money and does not turn into credit the turn towards virtual money often destroys money and turns it to credit but to turn towards physical reality also to turn destroys money because it turns it into a physical object a piece of gold is not what we call money and is not what we want for money so I already mentioned sailor this idea that Bitcoin is a real thing it's a Quantum of energy each Bitcoin corresponds to a Quantum of energy and apparently he likes this but I think the view in the ethereum community is quite different as we'll see um is is Bitcoin virtual or there's actually the Bitcoin Community kind of refrain from going all the way and accepted a form of of virtual crypto crypto does offer the promise of combining what people used to think was impossible combining the idea of virtual money with the idea of outside money a money that is virtual but does not correspond to an obligation or credit or promise to pay I would argue and I'll finish with that I will argue that ether is like Bitcoin a form of outside money again if you have one youth no one owes you one if it's yours it's you the relationship is between you and the eve and there's no one else there's no third party this is what defines outside money but as opposed to bitcoin and uh uh I I I think this is how I would distinguish Bitcoin from from ethereum the idea of virtuality as opposed to bitcoin uh ether is also a form of virtual money and I'll make uh two preliminary arguments not being an expert uh and talking to an audience of experts on ethereum two initial comments first of all the idea of layer one and Layer Two and roll-ups I find the idea very promising and very intriguing because it allows you to do what money always has to do to have a level of elasticity to be able to expand according to circumstances not just according to economic growth but to kind of follow people in what they want to do you don't want a form of money that is a restriction on economic activity you want a form of money that allows people to do different things now in the system that we have today that's also possible I can personally create money if I pick someone in the audience and I say you know up a year from now I will give you uh the house in Florida and here is a IOU this IOU is actually a form of money and then the question is whether you trust me and you accept it so I can two of us can can create a form of money and we want to have an ecosystem where this is possible now I think Roll-Ups in Layer Two allow this to be possible people can create different apps on top of the ethereum network to do different things and they can create their own currencies these currencies are going to be different from ether in ways we're going to talk about now but you can create these currencies and you can do whatever you want to do with other economic agents and and create all kinds of utilities and functionalities and ethereum allows you to do this there is a hierarchy during periods of economic uh normalcy and perhaps during periods of expansion all forms of money and all forms of credit seem to be the same in the current Fiat system in periods of expansion money in deposits is essentially the same as money as cash but in a period of Crisis suddenly you realize that deposits are not real money and cash even though I don't think that cash is outside money it's the form of inside money but it's a form of inside money that is getting a little bit outside we can talk about that cash is better than deposits and I think in the ethereum community you can have something similar now in periods of expansion all the apps on on Layer Two look the same as ether in periods of contraction and discipline it turns out that they're not quite the same and the collateral is going to be recalled and it turns out that ether is much more solid what distinguished the hierarchy is that even though a layer 2 you can create whatever you want it's critical that on layer 2 you cannot create ether ether is it's in a higher level in the hierarchy of money is in a higher level and it's that sense that on layer 2 you cannot create ether it's that sense that provides discipline to the system at the same time that having a layer two and having Roll-Ups allows you to have elasticity so that the ethereum community the ethereum economy just like the Fiat economy that we have today can expand and contract according to economic circumstances what is the difference between the ethereum community economy and the Fiat economy that we have today it expands and contracts according to what a decentralized system of billions of economic agents decide to do it does not contract and expand according to the decisions of a central Authority so it allows you to do the same without the flaws of the Fiat system the second way and here I'll talk with a lot of trepidation I I heard Justin Drake yesterday talking about ultrasound money I'm still trying to digest and to understand everything that is involved here but I was struck and I'll finish with this I was struck by this idea that in the ethereum economy in the ethereum system money can be destroyed it is permanently being created and destroyed there's permanently issuance and burning of ether which seems to me a radically different way of thinking about money than perhaps every previous way of thinking about money and certainly from Bitcoin as well because it breaks with the taboo that money is a physical thing that has an existence of its own the idea is that we have control over ether and we can create a system where if it's necessary for ether to be issued for reasons providing security to the system to the network that can be done but then it can also be freely destroyed and consumed by the system then you have a kind of permanent cycle of creation and destruction in the ethereum system ether is in the service of the system David Hoffman told me yesterday this is very different from Bitcoin where Bitcoin system is in the service of Bitcoin the currency but this I believe one way to put it is that if there is really the code of an economic metaverse and ether is understood as a virtual currency in a way that Bitcoin is not finished with two minutes to spare or perhaps even seven minutes to spare very glad to answer your questions uh please don't ask me questions about proofs uh I I am not the best person to answer that but uh very very happy to answer all your questions thank you is there an issue for the modernness of ether that it's not backed by men with guns it's not backed by men with guns yes uh I mean I I think it is uh every political system is ultimately based on the Monopoly of violence so how do we solve this problem for for ethereum um that's one of the reasons I think and I've argued many people in in the crypto community that this approach that we're going to do whatever we want to do and political authorities will have to go along seems to be naive and that if ethereum or crypto are going to take over our economies are going to become the center of our economies this will have to be a process of transformation from within with high levels of cooperation with political authorities if there is a confrontation the sense that cryptography is resistance to violence seems to me profoundly naive because there are many ways and I think over the past year or two people in the crypto space have discovered this there are many ways that you can use violence to destroy crypto so the way I see it is perhaps in one article that I published a couple of years ago I thought that the tax issue would be Central that eventually there might be some kind of agreement compromised between political authorities and crypto that crypto acquires a certain of evil unvulnerability to political coercion in exchange for some form of access and and some form of collaboration with political authorities on the taxing issue but I feel very strongly that this has been done cooperatively throughout the process and I'm kind of optimistic that I see in my contacts with the crypto space that there's been a lot of evolution on this point and that sense of that we are in a deadly confrontation with Fiat and political authorities slowly disappearing in a more constructive attitude is developing thanks we have six minutes so if you want Hello uh I want to ask you how do you think is going to be the transition from Fiat money that we have today to Virtual money especially regarding uh how fast this is going to be and how traumatic this is going to be I think it will be traumatic that I agree with the kind of consensus view in in the community I don't think and you can probably tell from my from my comments I don't think the question is really about inflation I don't think that and again Bitcoin bitcoiners are very obsessed with the idea of inflation the question for me is fundamentally about this search which is becoming more and more desperate for a form of outside money that that the system we have where money has really disappeared I would go so far as to say we live in an economy where there is no money there's only credit there's a credit everywhere and everything is credit even cash is credit because after all credit cash is a promise to pay a certain basket of goods and with inflation of 10 this I think a point where inflation is important that promise evaporates but even in India in 2016 banknotes will recall coercively recall and so even cash is not the kind of money we want there is today in our societies more and more discontent with the sense that we don't have anything like money we have forms of credit there are obviously under the control of the correlators and debtors are subject to relations of power I think it's a very political question of this kind and it is also geopolitical the system today works because at the top at the Apex it's the dollar the dollar is quite interesting because even though it's not a form of outside money it is hierarchical superior I think I would argue that even treasury bills are hierarchical superior to cash if the cash is in a different currency at the top of the system is the dollar but then the question you have to ask yourself is not a question that is discussed in in the crypto space a lot is to what extent is the system reliant on the survival of the dollar as the top of the pyramid and how much is that survival of the top of the pyramid dependent on American geopolitical power and America's ability to project and impose its power worldwide now that that power is in crisis and increasingly Under Pressure what impact will that have on the monetary system can the monetary system survive without a negomonic power at the top and I would argue with Kent and we're seeing already the uh the waves of that and of course I advise you to be very attentive to what is happening this week both in the UK with guilds and yesterday Janet Yellen said that she is extremely concerned by the lack of demand for treasuries uh so things are happening hi my question is could you give a real life example of why it's a shortcoming that gold is not programmable yeah many many ways to do it I mean the most Prozac problem is since it is a physical object there's problems of storage there's problems of transfer there are problems of movement you cannot program it in the sense of determining that at your death your supply of gold will be divided between your children in three parts I mean you can tell a bank to do this but you cannot program the gold itself but obviously you can program ether to do this very easily so at very Prozac level it's this then at a more systemic level it's an economic question of how do we for example counteract pressure a certain heating up of the economy how do we adjust the economy to different circumstances and we know from economics this is necessary I'm sure there's a lot of resistance in this room to this idea of adjusting the economy but I would suggest that the resistance is to the idea that a central Authority will do this adjustment but if the adjustment is being done by everyone collectively I don't see that that is such a big problem and I don't see how a modern economy can work in that way we're going through booms and busts in the gold standard extremely painful adjustments and most economic historians that I respect think that the two world wars were directly connected to the inability to have some control of our economies the idea of the virtual world is that we are in control as human beings it's not that reality is in control hi over here very very nice talk I found it really I found it really thought-provoking and I wanted to ask you about these properties of money as both virtual currency and debt representation um over the last couple of improvement proposals ethereum has effectively implemented deflationary properties and I wanted to ask what do you think about this and if this can affect ethereum as virtual currency and real money yes yes so as I said what I find interesting is just so Justin thinks that it's the first currency that is deflationary not that it has a deflationary impact on prices but that the currency itself is deflationary that the money supply will reduce I'm not entirely sure that economists might argue that Fiat in some circumstances can also have these characteristics when a central bank decides to contract the money supply but I do think it's different and I think it is a revolution in the way we think about money the sense that money can be destroyed the sense that money is just a a a code a social code a way of organizing society and not a physical thing and yesterday I was thinking after just in stock that it actually seems to make intuitive sense to me that as you use money part of it has to be consumed when you use oil you don't end up with the same amount of oil that you started when you go to a shop and buy something why should you end up with the same amount of money some of it should be consumed as it is uh in in transaction fees in the ethereum system but then of course you also have to create it and allows you I think uh like to know what Justin thinks about this but it allows you to the more ether is burned the more ether can be created and the sense that you can create ether uh also allows you to do lots of things that for example Bitcoin will not be able to do in terms of providing for the security of the system so I do think it's a new way to think about money or not quite clear yet of all the implications I think maybe a last question there the blue sweater see us