The Inflation Trap: The Ethics of Money Creation | Bitcoin 2026

This is the inflation trap panel. That means the ethics of money creation. Very hot topic right now. I am your host, James Polus. I'm a senior fellow at the Foundation for American Innovation and have mucked about uh publishing books onto uh Bitcoin and uh doing some stuff with film now. Um it's uh it's a good time and I see lots of smiling faces, inwardly smiling faces. Uh but there are big questions and we're going to answer some of them today hopefully. uh going from uh my right to my far right. Uh Guido Hulzman is a senior fellow at the Mices Institute. Uh Alvroy is uh many things. Uh he's uh a member of the board of directors at Strive. And uh Hector Alo is the chief operating officer of Rhino Bitcoin. Uh so let's dive into it. I think one of the best ways that we can crack into this question of what's at stake philosophically and morally right now when it comes to Bitcoin is to look through the lens of stables. everyone's favorite, some people's favorite. We now have some legislative clarity, quote unquote. Um, and I think Staples really raises this question of like, you know, to what extent is this a state project and to what extent is it a project of other actors with other sorts of frameworks that they're applying to the the question that we're looking at today? Uh, so maybe we could just take a cut in there uh from there. say a little bit about uh what your sort of uh philosophical or moral view is about the fundamentals of Bitcoin and then uh apply that to what's going on in the debate around stables. Go ahead. I I can jump in. Um so actually I I um I wrote a chapter for a book called the Satoshi Papers which is actually on sale in the book area and we're going to be doing a sign at 3 p.m. on this this angle of the topic which is the Clarity Act. It's very it's important for crypto projects, important for a bunch of things. I I don't want to poo poo it, but for the long-term issue of the pending fiscal collapse of America and how inflation is connected to that because the government has to print money to fund the fund the debt. This is where the the the the future of the dollar in terms of the technological rails the dollar is on is really important. uh because when the fiscal collapse happens and and our view at at the think tank I chair the foundation for research on equal opportunity is we have no more than 20 years maybe it's 10 maybe it's five maybe it's 15 but we have no the math just stops working at 20 years in terms of the amount of money we have to borrow and the supply of lenders in the world to lend us the money and so when you get to that point what will the government do and in this uh this essay they call then they fight you. Uh I argue that the most likely scenar not not it's not the only scenario but the most likely scenario is that the government is going to engage in the same things governments always do in these situations which is capital controls. They restrict like you look at Argentina or Venezuela or Turkey or any of these places. What do they do? They say you are not allowed to exchange your native fiat currency for some better currency like Bitcoin. And so how would they do that? They might say you like we did in 1934. you're not going to be able to hold Bitcoin yourself, even though that's going to be hard to enforce. They'll say corporations can't hold Bitcoin or you have to sell it back to the government or all your Bitcoin has to be in the form of an ETF. They'll do things to control your ability to hold Bitcoin outside of the dollar system. So, how do we avoid that outcome where the government really restricts your ability to own Bitcoin? My argument in the essay is that what we have to do is we have to come up with a decentralized permissionless censorship resistant way to exchange US dollars for Bitcoin. Not just to buy Bitcoin or send Bitcoin to other people. That part I think we figured out a long time ago thanks to Satoshi, but to actually be able to exchange US dollars for Bitcoin. And to bring this back to your original question, James, right now that's not what we have. uh Tether just worked with the US government to shut down 334 million of Iranian uh USDT like you Tether and the stable coins that are being discussed in the Clarity Act and the Genius Bill. Those are all the Treasury Department has a kill switch for all that and that's I understand why they need that. But the point is, unless we have a permissionless way to exchange fiat currencies for Bitcoin, we will not be able to escape the capital controls that are coming when the fiscal collapse inevitably takes place. That's my concern. That's my call to all of you in the tech space. Help us figure out how to do that. Hector, I see a lot of nodding over there. Are you black coloring? >> Uh, no. Uh, but I do highly recommend uh OIC's article because it's fantastic. Uh, so speaking to your question around sort of like the moral underpinnings of of Bitcoin and maybe the lack thereof of our fiat monetary system, when I when I started thinking about this topic, uh, my mind for whatever reason went to Thomas Jefferson and specifically the last of the inalienable rights that he enshrined in the Declaration of Independence, right? We all know the one, right? life, liberty, and the pursuit of happiness, right? And we think of those words usually in historical or in uh political discussions, but I would submit that they are equally as important in conversations about money. And here's why. Uh it's because money does a lot more than just represent value, right? It shapes our belief about whether or not we think that the work we do today is going to help us build a better tomorrow. And in order to understand why that is, we need to talk for a minute about property, which is ironically the exact word that Jefferson set aside from the Magna Carta in order to put the pursuit of happiness into the declaration. Right? So the thing is most property represents the past. It reflects what somebody decided was the best thing they could try their time and energy for in a given moment. So whether that's a house, a car, a vacation, these are all the choices you've already made. But money is different. Money represents the future. It's the bridge between the work you've already done and the life you hope to build. Right? Whether that's a business, a family, a dignified retirement, property represents happiness already chosen. But money actually enables the pursuit of the happiness still to come. And that's why I think that our current fiat monetary system is so unethical. Because when a privileged few can create money at will, without any effort, it hurts our society in a much deeper way than just degrading everybody's purchasing power. And that's because it increases the distance between effort and reward. It tells people little by little that discipline doesn't matter, that patience doesn't matter, that saving doesn't matter, how the future doesn't matter. And when people stop thinking that their efforts matter, they eventually give up on the pursuit entirely. So fiat money, in my opinion, is a theft of hope. And we see that in our society all around us. Whether that's record levels of substance abuse, whether it's deaths of despair, or whether it's betting on the weather in Paris. When people stop believing that tomorrow is going to be better than today, that's when they start looking for shortcuts, for escapism, or for hoping for lucky breaks instead. And that is why Bitcoin matters. Because by offering them money whose supply can't be manipulated, whose rules are transparent, and that insiders don't have privileged access to, Bitcoin can restore that hope. And so, Bitcoin protects not just purchasing power. Bitcoin protects the pursuit of happiness itself. Very nice input. Uh, how acute is the risk or the danger that over the next whether you want to call it one to 5 years, Bitcoin is just kind of folded back into that fiat system. the the the danger. Let me just say a few words about the the the moral dimension is reinforcing what Hector just said in this magnificent uh presentation. Uh the Bitcoin was created precisely as a response to this big moral problem that we have with a coercive fiat money system. Right? The problem in the fiat money system is not just any monetary system but that people are coerced into using something that is actually not very good money but fiat money itself. So the dematerialized u with uh token uh uh paper support and so on or uh accounting support is just the last stage of an evolution that started already before and uh which involve all kinds of financial shenanigans in favor of government funding most notably fractional reserve banking fraudulent fractional reserve banking. So that's the the model on which all our commercial banks function still today. And this was invented in the middle ages and then came into full swing as from the 17th century and governments were always promoting this. Now the problem with fractional reserve banking is that it's uh fragile, right? So the banks do not have all the money that they promised to pay to their customers. So eventually the government steps in and creates a central bank in order to bail it out the commercial banks. the the the central banks themselves were first operating on a fractional reserve basis. So they were vulnerable themselves and that's why eventually fiat money has come to be instituted as a response to this. Once you have fiat money the the central bank doesn't have to pay anything else but what it itself creates zero cost and that's not this very good money but everybody has to use it. So the problem is that we have institute in institutionalized a fraud fraudulent financial practices. Now my my warning here in this uh bitcoin community because I'm not really a regular part of it. I just said to my colleagues here that I have a couple of doctoral students who are working on this but I'm not really a bitcoiner myself. My warning is a my concern when we are talking about the ethics of manipulation is that bitcoin itself is not immune to such shenanigans right if you are trading bitcoin uh so quick rich uh the scheme uh and so on right you already have one foot in the current financial system if you're using bitcoins as collateral you're having one foot in the current financial system if you're oper operating a bitcoin fractional reserve oper operation like Benin Freed and various others, you already fall, right? You're in the Ponty scheme. So, Bitcoin it as for itself can be a very powerful tool, but it's not an automatic thing. We, right, users have to be vigilant. If you use Bitcoin, you have to look very closely with whom you're getting into bed. >> Welcome to predict. The world is a market. Everything is a market. Get a 100% cash back up to $100 on your first predict bet if it loses. Predict where everything is a market. Uh we're doing great on time. I'm happy to report uh all these monitors are telling me so. Uh, so I'm just going to throw in maybe one more kind of ingredient into the soup here and then we can all talk amongst ourselves. Um, I'll make you you brought up permissionless and just how important it is to to Bitcoin and you know it has all kinds of ethical and and philosophical and legal implications. Uh, when you know when some people hear permissionless innovation they get kind of scared. Uh, some people get excited say no this is what we need. Um, there's one other sort of moral category that I think is just such so tightly bound with the permissionless character of Bitcoin and that's, you know, quote unquote trustless. Right now, I think there's this kind of paradox in in human society where trustless works best among people in a community who trust each other. And so, you know, when you think about fiat and it's sort of like when did fiat really start looking really bad? Well, you know, one way of sort of digging into that question is to say, huh, if you look at, you know, social trust in America, like we went from being a very high trust society coming out of the Second World War to being like an extraordinarily low trust society over the course of just, you know, 25, 30 years. And that was around the time when, lo and behold, you know, the gold standard is gone and Nixon has to pull it. And um and fast forward to now and you know we've got just endemic social decay, a very low trust society, uh an inflated fiat currency and all these things seem in some way to be bound together. And so when we look out over the the landscape here and the figures who dominate the space tend to be people who have some kind of trust gap. You think of you know Bankman Freed going to jail. you think of, you know, Donald Trump sitting down and yelling at Howard Lutnik because him and his sons are sort of like doing stuff that doesn't make Trump feel very good. Um, obviously all the guys across AI have have various kinds of of trust gaps, you know, like Sam Alman, not a high trust figure. Um, and so I just want to kind of introduce this idea of like how much can can these questions around the future of Bitcoin and the foundations of social coherence that we need in order to ensure that we don't just get sucked back up into the the fiat complex? How much of that has to do with us? Yeah, it's a really interesting question, James. You're hitting on something that really we could have spent the whole session on just this topic. Well, we've got half of it. So, uh, you know, I'd say a couple things. a lot of thoughts on this, but I'll try to say a couple things. One, I've never loved the term trustless to describe the Bitcoin architecture because, you know, if you're not a coder who can audit the the code yourself, you're trusting that the code works. So, yeah, you may not trust a bank to hold your money, but you are trusting that Bitcoin, the blockchain, and the consensus mechanism works because you don't know. I mean, how many of you are coders? Raise your hand if you've audited the code. Okay, we got one hardcore guy over there. That's great, too. two out of like 300 people who are sitting here right now. So that gives you a sense we're all we're all trusting that this works. And why do we trust that it works? Because it's been working for almost 20 years. It's never been hacked, etc., etc., etc. So there good reasons to have confidence that Bitcoin works, but we are trusting it on a certain level. So that that that so the term trustless I don't love. But having said that, I think sociologically you're on to something which is that um the people who who are into Bitcoin are people who don't trust the broader economic, fiscal, monetary system. And and that's a kind of a cultural thing that you see at conferences like this that we're all kind of like a little we have a little screw loose on our heads because we don't we we're dissenting from the world that everyone else thinks is completely great and works working fine. And um that's I think you we notice that those of us who are in the space we notice that that's the common mental thread that we all have that we're we we see that there's something wrong and that and that you pull on that thread. And I think actually there's a degree to which Bitcoiners can overreact to that that that point which is to say you know I am chief strategy officer of Strive which is a Bitcoin treasury company that buys a lot of Bitcoin and a lot of other financial institutions are here like Morgan Stanley now has a Bitcoin ETF etc. And there's some people look at that and say, "Oh, that's just shitcoiners or suitcoiners." Or they use all these terms. They if you're not a cipher punk, you know, with your one, you know, S19 in your basement, then you're not a real Bitcoiner, you know. And and I would say I think, you know, to to go back to the first answer I gave you about, okay, how do we actually um survive the fiscal collapse that's coming? You got to understand how to build new institutions. We have to have things that people can trust where people can put their money normies where like let's say I get hit by a bus on my way out of here. It's great that my bitcoins and stole cold storage but how are my kids going to get it? Right? That requires institutions. That requires things that you can trust that we all have to build together. And again, I think the most important thing we have to build is uh a censorship resistant way to trade dollars for Bitcoin. It's great that Kraken and Coinbase and all the great businesses are out here are helping us buy Bitcoin with our dollars, but but those institutions exist at the permission of the government. And so we do have to have some mistrust with the government, but we also have to build new institutions that we also trust. Hector, >> yes, I completely agree with you uh OIC. I I'd never have liked the word trust less because that really is not reality. I've always preferred the term uh trust minimized and more importantly it's the fact that you get to choose as a Bitcoiner what you want to trust and who you have the option not to trust anyone. So if you want to dig down into the code because you don't want to trust it, you don't have to. If you don't want to trust somebody else holding custody of your of your wealth, you don't have to. If you don't want to trust somebody else else's rules or record of the blockchain, you can run your own node. You don't have to. So, in my opinion, what makes Bitcoin so valuable is not that we're trying to get to this perfect utopia of trustlessness, because that's probably an ideal we can approach but never reach. It's the fact that you get to choose is that somebody is not forcing their rules on you, their custody on you, their code on you, and you always have the opportunity to inspect it yourself. That's what I think makes Bitcoin powerful. Um the the the consequence of the fiat money system is to centralize trust. So eventually all people just trust the central bank that the central bank do will do what's necessary to bail out banks and governments so that you don't lose your pension that you don't lose the money that's on your bank account and all these things. Now in a way ironically bitcoin does something very similar. It centralizes trust. So I'm a bit skeptical about the further social consequences that follow from it because we're still centralizing. We're not relating horizontally to others but just to this one system which is a private system which is big progress but it's it's a centralization. So um I I think right as I said I said said before right the the important thing is always when you take care of your life and your your money which is important part of your life you have to look very closely at the people with whom you are cooperating right it's there's no easy way out right it's not just I trust this one thing this one thing in my life and uh everything will be automatically following from this you still have the homework to Bitcoin does not fundamentally change the fact that you have to find the right people to whom you can relate your life. You who will help you with mining, who will help you with uh custodian services and and various other things. Yes, you have to find the right people. Hey, you know, if you don't mind, I ask a question. How given your experience and your research and your background, how can we be vigilant to sort of preserve and find that right level of trust to diffuse the tendency towards centralization, right? You know, the price of freedom is eternal vigilance as one of our founding fathers said. So, what what would you suggest from having seen the failures of other systems that we can try to be proactive in Bitcoin so that we can resist that tendency to centralize? Well, first of all, of course, you have to familiarize yourself to a minimum with the functioning of the Bitcoin system and see the potential threats, right? Currently, there are lots of potential threats coming from quantum technology to governments weaponizing uh the financial system, governments weaponizing the internet, they can block your Bitcoin exchange and various other things. So, you have to be aware of these risks. And then if you're looking at the people with whom you're interacting, you look at their track record. Of course, that's the very first thing. What has this person been doing is it pops out of nowhere and it just suddenly has this Bitcoin business that promises you to get rich in 3 months. Well, that's probably not the right person for you to to cooperate with. Somebody who has a long-standing career, maybe in the financial industry, maybe as an engineer and and has this demonstrated himself to be a reliable partner for others, for customers, for employees and and so on. Well, here we are on safer grounds, right? It's it's the basic homework that you need to do. >> Why why was why did gold work for as long as it did? Because gold was everywhere, right? And and gold was funible and that gold worked in Asia, it worked in Europe, it worked everywhere. It worked in South America. So, Bitcoin can be similar in that as more nation states, more countries, more jurisdictions become open to Bitcoin be and and use Bitcoin and mine Bitcoin and operate nodes in Bitcoin, then yes, Bitcoin can be more decentralized. It already is pretty decentralized. And again, just to hammer the point home, I think the real the the next step is to decentralize the exchange of fiat for uh for Bitcoin because right now there's a handful of institutions that drive most of the trading volume in uh in in between fiat and bitcoin and that's the thing that we need to decentralize to uh I think improve and strengthen the resilience along with the trust. these two things are related that that the what we call I think I think it's I think what you said yo is exactly right it's not so much trustless it's decentralized trust like I don't uh I trust that the code works because even though I don't know the two guys who said they audited the code I know enough people who I respect who have and that someone among these smart people would have figured it out by now and hacked the thing right so similarly with the exchanges the more we can make the system not dependent on any one exchange or anyone currency uh that we're exchanging into Bitcoin, the better. Uh but there is I think right now the trend is towards more permissioned uh involvement between the the mainstream financial system and Bitcoin. So we got to just make sure that there's always that escape hatch that if people try to crack down, people can still use it. What about centralization of hardware and centralization of energy? Uh Bitcoin isn't really Bitcoin if all the mining stops or if there are only a few mega miners. uh you look at what's going on with AI and you know aside from kind of all the things that are that are making the real headlines uh you kind of can't get a Mac Mini right now you know and uh the the electrical grid you know maybe there are all kinds of state regime level explanations for why we should be funneling more energy into those data centers but gosh you know if if you do not have uh the the rig that you need to mine um then your right to compute is going to look pretty thin paradoxically I I think the AI, the fact that a lot of Bitcoin mining uh companies are transitioning to AI is going to increase the decentralization of Bitcoin. And the reason why is like everyone was worried a couple years ago that oh gosh, there are these big companies like Riot and Mara who are going to like because because mining is so brutally competitive and it's a very hard business to make money on actually that it's going to be a couple a handful of companies that are going to dominate the space and mining was going to get very centralized. Then all of a sudden AI comes along and says, "Hey, we'll pay you even more for your energy." And so those companies, a lot of them are migrating their big uh mining farms, mining rigs into AI rigs. Which means that, you know, the hand, you know, the the the the guy with six uh six miners in, you know, Iguazu Falls or wherever, you know, where there's so much stranded energy all around the world, those people are actually more relevant again. I hope. Um, I mean, so that's my that's what I'm observing anyway, but I'd be interested if anybody else has any thoughts on that. Uh, a couple more minutes. You know, one one thing that I always think about going back to the trust and trustless bit is, uh, you know, people talk a lot these days about tribalism and the rise of tribalism and, you know, they're not real tribes, right? It's not like multigenerational families living in one spot over a period of time and they care about bloodline or they have coming of age, right? it's a little bit different and some of these tribes are are online only. Um, but what I've noticed is there is a resurgence of sort of like spiritual life going on in America right now. Whether it's in the more traditional religions, um, or whether it's in the, you know, the the the classic American cult, like America's been a great place for cults over the years. We're seeing resurgence of cults right now, especially, you know, in around San Francisco. you got I don't know if there are any EAs in the audience right now but you know a lot of lot of words flying around a lot of people seem to be needing to up their spiritual engagement in order to kind of process what's going on with the rate of technological change and so I wonder you know when you're looking at Bitcoin from that standpoint you see a resource here that great thing about Bitcoin is you can use it you know to grow markets that benefit your friends your family your community that seems to plug in very well into the kinds of approaches that religious communities, whether they're very new or very old, have toward building that trust and kind of, you know, soft exiting from this overarching political economy superructure that, you know, seems like it could be on its last legs unless some traumatic action is taken. >> Well, it u it relates intimately to the fact that Bitcoin is not supposed to lose its money by unlimited printing that we have in the fiat money system. And it's precisely because you can rely on the value that you've acquired at the past that you don't need to run after new opportunities. And that's the implication of the current monetary system. If prices constantly rise, everybody's getting into debt in order to invest as early as possible. If you're into debt, you need to watch the annual money stream or the the monthly money stream, the weekly money stream because you have to put the money back on the table. So your life becomes more materialistic. That's something that I explain in my book uh on the ethics of money production which is at sale at the mis institute and bitcoin carries the promise to cut this uh because you the tendency of a bitcoin system is that prices will fall a price deflationary monetary system and that is uh the beneficial for saving for a spiritual life for for for moral lives. So there is this promise there and I appreciate this involved. >> 60 seconds here. Yeah, I I'll leave you with this side. I went to my first Bitcoin conference in 2021 and I'll never forget it was right after co it was in Miami. This place was completely packed or that place was completely packed and I'm like I found my people, you know, I'm like I finally found my people. The people they everyone else is ranting about the Fed and the deficit and all this is great. And um the thing that I actually took away from that conference that really gave me the most conviction I've ever had about Bitcoin that's I've maintained up to this point is that Bitcoin, you go to a crypto conference and people are just looking to make money. You come to a Bitcoin conference and people are really trying to change the world. There's very much this sense that this is a social movement and not merely a group of people who are looking for a trade. That's what I discovered at the 2021 Bitcoin conference. It continues to be true. And what I've observed in history and politics is that those are the movements that always win because the people who oppose Bitcoin, who criticize it, they don't have the same motivation and conviction to defeat us that we have to win. And that's why I think Bitcoin will be ultimately successful. Hector, we got standing room only. You got a a standing ovation just about. I'll give you the last word here for the last minute. >> I appreciate that. Thank you uh James. Uh so when we think about the sort of the three primary drivers of human motivation, right? Mastery, autonomy, community, right? You're asking about the third one, right? Community, right? We all want to we all want to believe like we're that we're part of something bigger than ourselves. And we all want to believe that what we do in this life is going to extend beyond the time when our life is over, right? And Bitcoin, I think, surrounds itself and proposes a set of ideals, right? a better tomorrow for ourselves, for our children, for our families, for our communities that people are drawn to. So whether it was a specific, you know, spiritual uh, you know, motivation or a specific set of goals that people can shield around, Bitcoin is another one of those opportunities. I think it's valuable. I think it's important. Uh, and I hope for those of you who are new to the community that you'll join us. >> Nice big round of applause, everyone in the back, for having a great turnout. I'm James Bis. Thanks so much. Have a good basketball. >> Every year this community comes together to celebrate, to debate, to build what comes next. And every year the stage gets bigger. Sound money, center stage. So, where do you go to celebrate the next chapter in Bitcoin history? You come home. Nashville, July 2027.