So, I noticed something recently about some of my favorite movies, TV shows, and video games. They all have one thing in common. I was thinking about Lord of the Rings, Pirates of the Caribbean, Game of Thrones, Harry Potter, and games like Skyrim, the Civilization franchise, Age of Empires, and so many others, even Super Mario Brothers. They all use gold coins. It's like somehow we know deep down that gold is valuable. And we know that collecting it is a sign of wealth. [Music] Is gold outdated? Is it archaic? It's


been called a barbarous relic, but we still use it. Or at least central banks do. Could we design a money that's even better than gold? Maybe it has all the same store of value properties, but it's more portable, more lightweight. Maybe we could transact it with less energy. Well, we've tried to do that with cryptocurrencies, and so far, none has surpassed the popularity of gold. But let's take a few moments and explore the design trade-offs that we're going to encounter if we try to design the


perfect money. [Music] Anytime we want to design a monetary asset to be either money or currency, we have a three-way trillemma between these three choices. Scalability, security, and decentralization. And one of the features of a trillemma is that you can't have all three things. You can have one or two, but not all three. One of the easiest ways to understand this is the popular trillemma of good, cheap, fast. If you want someone to do some work for you, you can choose two out of those three options.


You can have them do a good job and you can have that work be cheap, but you won't be able to get it done quickly. If you want it to be done quickly, well, you might have to pay them more, so you lose the cheap option. Or maybe they won't do as good of a job, so quality suffers. And there's this trade-off between all three things, between good, cheap, fast, and we have the same trade-off between scalability, security, and decentralization. So, if we want to design the perfect money, which of these three options do


we pick? Well, we have to choose security and decentralization because remember, money is an entry in an honest database. So we can't afford any counterfeits and we can't afford any corruption through a centralized party. As a result, the perfect money has to forego scalability. We simply can't have it if we want to maximize the other two parts of our triangle. [Music] That's true of gold, silver, Bitcoin, and it's going to be true of the perfect money that we design. When we design a


money, it's not going to be scalable. So, if something doesn't scale, what do we use it for? If we can't use it to buy a cup of coffee or groceries, then what do we do with it? Well, remember, saving your value is a use case. So, what do all these worlds have in common? They all use gold. In order to do well, you have to collect gold coins. It's like our society knows that we should be collecting gold if we want to be better off. [Music] If you're looking for something that you


can use to buy groceries or a cup of coffee, that's a currency. That's going to be a medium of exchange, and it is going to be highly scalable. But in order to achieve that scalability, there has to be some compromise from the trillemma. What do you give up? Do you give up security and allow counterfeits or do you give up decentralization and allow potential corruption or breaking of the rules? So for almost every currency, it chooses to forego decentralization and instead allow a centralized custodian to keep


track of the asset and make sure that it stays secure and scalable. [Music] There's a common claim that I hear about a lot of cryptocurrencies that they've managed to achieve all three parts of the triangle. They've found a way to be secure, decentralized, and highly scalable. And what I found from researching dozens of these cryptocurrencies is that they're using the word decentralized, but they actually mean distributed. The difference between the two is that something decentralized means that


absolutely nobody, no person or group has any official permissions to do anything on the network that's special from anyone else. Everyone is completely equal. Whereas with something centralized, there is some subset of users. Maybe it's one person or one group or one entity that does something on the network that is different and special that other people can't do. So for most cryptocurrencies, there is a subset of users that have a special permission to be a certain kind of node or validator on the network. This is


just like how the Federal Reserve has a special set of privileges that you and I don't have when we use US dollars. And so just like the Federal Reserve system is centralized, so too are most cryptocurrencies. The one glaring exception is Bitcoin. There is no user on the Bitcoin network that has a special permission that other users don't have. Everyone is equal. And this is just like gold. Gold is as decentralized as Bitcoin. Anyone can mine gold. Anyone can refine it. It's atomic number 79. And it's accessible to


anyone. Many crypto projects claim to be decentralized and what they cite as evidence is the fact that they have dozens of nodes spread out across the system to perform the important task of scaling the network. However, this is just like the Federal Reserve. Instead of having one Federal Reserve Bank, they have 12 Federal Reserve banks. That doesn't make the Federal Reserve less centralized. It's still a centralized entity. They've just distributed the responsibilities among 12 different


nodes. So, the Federal Reserve is centralized and distributed. And that's true of most cryptocurrencies as well. So, one of the most important takeaways from this discussion is that if you hear a crypto project or a CBDC claim that it's going to become more decentralized over time, don't believe them. In order for them to become more decentralized, they would either have to sacrifice the security or the scalability of the network. And it's unlikely that they'll sacrifice either.


[Music] It's like our society realizes that gold coins have value, both intrinsic and exttrinsic, and we should collect them if we want to be better off. But a lot of people are reluctant to buy their first ounce of gold. It's like they're playing a video game on level one and they're learning the controls and they're afraid of making a mistake. But what I found is that in a video game, just like in the real world, once you get over that initial hurdle, you're a lot better off and it actually becomes a


lot more fun to play the game. Now some people claim to solve the trillemma using layer 2 technologies. So what are layer 2 technologies? Well, first of all we have to talk about what is layer 1. Layer 1 in a monetary system is something like gold. It's the most foundational part of the economic pyramid. And gold or any layer 1 money does not have any counterparty risk. There's no promise attached to it. Every additional layer, layer two, layer three, layer four, and so on, is a promise to pay the layer of money


underneath it. So, a credit card, for example, is a layer four money, which is actually a currency. And a layer 4 money or a credit card is a promise to pay you layer three money. In this case, what does a credit card pay? It pays bank deposits. So, after you swipe your credit card, you promise to pay bank deposits later. Well, what is a bank deposit? It's layer three money, and it's a promise to pay layer 2 money. What is that? Well, a bank deposit is a promise that if you go to the ATM, you


can take out banknotes. So, what are banknotes? Banknotes are a layer 2 money. And banknotes are a promise to pay layer 1 money. So historically, if you were to take a bank note into a bank, you would be able to trade it for the equivalent amount of gold. And that's your layer 1 money. And then the chain of promises is over. Once you have your gold, that's it. And the reason we have all these different layers of money is because each one has a different set of trade-offs. [Music] As we've said, gold is highly secure and


decentralized. Its goal is to minimize entropy. But as a result, it's not very scalable. So what happens is we leave all the gold in the vaults and we create banknotes which is a claim check to gold and we circulate those banknotes in the economy. But then we realized that banknotes are still not quite as scalable as something digital. So then we had digital bank accounts with bank deposits that are a promise to get those banknotes in the future. And all those digital bank deposits circulate much


more quickly. They're more highly scalable. And as a result, what we see when we look at the different layers of money is that the first layer, layer 1, is actually money. It's a store of value. And all the other layers two and higher are all different types of currencies. However, there's an important point that today's banknotes are not actually a claim on gold. As of August 15th, 1971, the US dollar is no longer backed by gold. So if you take a dollar to a bank and ask for the equivalent amount of


gold, you're not going to get it. Now what that means is that the base layer of our economic pyramid has been completely removed. And that's why our economy has been slowly in freefall for the last 50 years. And since all of our institutions are built on our financial system, our institutions are collapsing as well. So, if we want to get our institutions and our economy back on solid footing, and if you want to get yourself and your family on solid footing, you have to bring layer 1 money back into your


economic pyramid. You have to use gold, silver, or Bitcoin as the absolute base of everything you build your life upon. [Music] and this is just like the US dollar which is not designed to be an entropy minimizing asset. So as a result it leaks value. It leaks energy over time, day by day, year by year. And as a result, anyone holding dollars will see their purchasing power dwindle over time. And that forms the basis of our whole economic pyramid. And that's why everything feels like it's collapsing in


slow motion. [Music] [Applause] [Music] So, if you feel like you're on a financial treadmill and you have to work harder and harder just to stay at the level you're at, it might be because your energy is dissipating through the currency. And you can get yourself back on solid financial footing and effectively step off the treadmill by acquiring gold, silver, or Bitcoin. I want to thank you for watching and remind you that the best investment you can make is your own financial education and golds.com is filled with free


research and ways to help you protect your future. We'll see you there.