Yan Pritzker explains his journey from the Soviet Union to Bitcoin evangelist

A Q&A about how to explain Bitcoin, the evolution of money, and the cultural shift on the horizon

Yan Pritzker has been a developer and startup entrepreneur for the last 20 years and most recently was the co-founding CTO at Reverb.com where he ran technology and infrastructure from 2012 to 2018. Today, he’s focused on Bitcoin education and consulting for early stage startups. He writes about Bitcoin at yanpritzker.com and he’s the author of Inventing Bitcoin. We recently chatted with him about his views on Bitcoin and the best ways to onboard folks who are new to Bitcoin.

Onboarding to Bitcoin

Interviewer: I’m curious about the transition you had from being CTO at Reverb.com to entering the Bitcoin world. How did you onboard into the Bitcoin world?

Yan Pritzker: I actually knew about Bitcoin in 2011. I first heard about it on Slashdot. I heard that it was some kind of payment system. I ended up buying around $30 at the top of that bubble. And then I watched it go all the way down to $2 and basically thought, “Okay, this is kind of a joke. It doesn’t really matter.” Around 2016, I got interested in Bitcoin again because it was in the media and my cousin was working for Microsoft doing blockchain strategy. He came to me and said, “Hey, you should look at Ethereum. I saw that it was an interesting value proposition for developers. And I basically started watching every Andreas Antonopoulos video I could get my hands on. And as soon as I started doing that, I just fell down the Bitcoin rabbit hole and I realized how important it was. It actually took me awhile because I came from a technology background. At first, I looked at the very interesting technology aspects. But Bitcoin’s a lot more subtle. Bitcoin is an economic phenomenon first and foremost. And until I understood the money aspect of it, which took like a year of education, I couldn’t get really excited about it.

It actually took me awhile because I came from a technology background. At first, I looked at the very interesting technology aspects. But Bitcoin’s a lot more subtle. Bitcoin is an economic phenomenon first and foremost.

Yan Pritzker
Yan Pritzker

Growing up in the Soviet Union

Interviewer: What was the tricky part of the money aspect that took you a while to understand?

Yan Pritzker: I came from the former Soviet Union. So I actually moved to the USA when I was seven years old. And in the former Soviet Union we had a centrally controlled economy where the government was setting the prices of everything; we had a tightly controlled central economy, we had the government printing money. The ruble was devalued by factors of a thousand many times over. And when we left the Soviet Union, we were not able to keep our money. It was illegal to own US dollars, it was illegal to own foreign currency. It was considered speculation and speculation was illegal. So you were forced into using this government currency which was constantly devalued and you couldn’t buy anything. So we left the country with $400 in our pockets.

So I was very familiar with the idea that the government controlled money. But I didn’t think about it until much later when I got into Bitcoin. I started understanding what it actually means for the government to control money. And then I started looking at the Soviet Union, Venezuela, China, and other countries that exert extremely tight central control over their currency and payment systems. And you start to see all the negative effects of that. I started understanding there are actually problems with the financial system and how we think about money. Most people don’t give it a second thought. But if you come from a broken economy, it’s a bit more obvious. Once you start looking at Bitcoin, you think, “Hey, this is a thing that if we had it in the former Soviet Union, we would have had this stash of wealth that we could have taken with us.” That’s where it kind of clicked for me.

Once you start looking at Bitcoin, you think, “Hey, this is a thing that if we had it in the former Soviet Union, we would have had this stash of wealth that we could have taken with us.” That’s where it kind of clicked for me.

Yan Pritzker

Bankless transactions

Interviewer: GiveBitcoin is a way for people to gift Bitcoin to people who may not be familiar with it. What do these recipients most need to know?

Yan Pritzker: For me, it was understanding why the claims around Bitcoin are credible. So some of the things I say about Bitcoin are things like it is scarce – there are only 21 million Bitcoins. It is portable. You have privacy on your transactions. I think one of the first things to understand is how Bitcoin works as compared to systems that people may be familiar with. And this is actually what I address in my book because a lot of people are familiar with banks or mobile payments or something like that, but they don’t really think about what actually happens when you send a payment from one phone to another. What’s actually happening is they’re moving some numbers in a database somewhere and that database is kept by your bank. So once you understand that, I think the next thing to ask is what if there wasn’t any bank? That’s Bitcoin. With Bitcoin, we democratize that process of moving those numbers around instead of it happening in one place. Anybody can participate.

How money evolved

Interviewer: You teach high school kids about Bitcoin sometimes. What do you focus on when you talk to them?

Yan Pritzker: What’s interesting about high schoolers is a they haven’t actually had experience with the real world. They haven’t thought about money at all. So I discuss how money evolved. For example, with Native Americans, how there was a system of using beads or shells that were turned into necklaces. Then the European settlers arrived and they looked at these beads as displays of wealth or power. And they tried to turn them into money by trading furs and other actual goods for those shells. Soon they started to realize, “Hey, if we produce a lot of these shells, we could be rich.” So the Europeans started producing a lot of these shells which eventually destroyed the value of the shells.

The same thing happened in Africa. European settlers came to Africa, noticed the Africans were putting value in these glass beads, and began using their superior glass making technology from Venice and other places. They were able to mass produce beads in order to buy up actual wealth. In this case, that was human capital – slaves. This is one of the biggest reasons why the continent was exploited by Europeans; they were able to mass produce these beads and become wealthy because they could “print” the currency that was important.

These examples show why money matters and why we don’t use, say, grass or tree clippings as money since they’re very easy to come by. So what kinds of things make good money? All over the world people started to think about using metals since they are very hard to produce and/or dig out of the ground. Metals and coins are better money than seashells because they are much harder to inflate.

And once we had gold, people started putting it into vaults and started issuing pieces of paper that represented a claim on their gold. And that’s how we got some of our earliest paper currency. Eventually, we lost the ability to redeem our dollars for gold. Then the dollar became like gold, the thing that everybody wants all over the world. It became a store of value. And it’s the best one that we have today. The dollar came to be the thing that represents gold and eventually became something that represents value, without any actual metal backing it.

So going forward into the future what are the ramifications of that? Well, sometimes governments mess with their money supply and print money in order to subsidize people, which results in inflation. There are government abuses of money (via central banks, etc.) that are possible. They happen a lot in other places and even here in the United States. But Bitcoin gives us a different kind of money that doesn’t have those problems. Nobody can control the supply of it.

After examining monetary history, I think you need to look at the problems with the money we have today. First, the printing of it is under human control. Greed comes into play. Human error too. Things can go wrong.

After examining monetary history, I think you need to look at the problems with the money we have today. First, the printing of it is under human control. Greed comes into play. Human error too. Things can go wrong.

Yan Pritzker

Secondly, now that we have digital payment systems, cash is being eliminated. All over the world, governments are eliminating cash in favor of digital systems, especially in remote regions where there are no banks. That’s extremely convenient, but the downside is every payment is now monitored by the government. They can trace transactions very easily. For example, China could see there are a bunch of people buying train tickets to go to Hong Kong to protest and decided to stop that somehow. This could lead to a very Soviet future.

Now, I don’t think it’s going to happen in America but it’s all really up to us in terms of who we elect and the laws they pass. If we allow payment systems to be completely centralized, we create a system where the government could control what people can do. We already have examples of it. You can go and buy cannabis in a state where cannabis is perfectly legal, yet the cannabis shop can’t actually process credit cards because they’re not allowed to do so according to federal law. Understanding these potential issues is the next step to understanding why Bitcoin is necessary.

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Bitcoin vs. the current banking system

Interviewer: What’s the next thing newbies should learn re: Bitcoin?

Yan Pritzker: I don’t think people understand or value Bitcoin because they don’t understand what the purpose of it is. It’s a new type of monetary system that is censorship resistant that’s going to help safeguard us against things like what’s happening in Venezuela and can prevent the next Soviet Union from happening. It prevents totalitarian states from having an undue influence over their citizens. That’s the stuff that’s really important. So I don’t start with how wallets work, I start with how Bitcoin works.

Then I move on to Bitcoin education. How do you use it? How do you set up a wallet? How do you store it securely? All of that. I look at how a normal payment works. We have a payment from point A to point B and that payment is all about contacting a third party, which is a bank – PayPal or Apple Pay or Chase, it doesn’t matter; all banks are effectively the same things. They’re really just databases. We tell the bank to move money from account A to B. And what the bank does is they debit one account and credit another account. And what does the bank do to secure that? They have security guards that use physical means as well as digital means. They check the databases and have audits and they have all kinds of ways to find out if somebody has intruded on to the system. So the bank is essentially just a glorified database with some guards around it. We need to reproduce the same system in Bitcoin. Now the way that we do it is we take that ledger that the bank has where it says how much everybody owns and we decentralize it. We distribute it, we give it to everybody. Anybody who wants to can download a copy of the bank’s ledger.

So the bank is essentially just a glorified database with some guards around it. We need to reproduce the same system in Bitcoin. Now the way that we do it is we take that ledger that the bank has where it says how much everybody owns and we decentralize it. We distribute it, we give it to everybody.

Yan Pritzker

In the bank system, we have to contact the bank in order to move money from account A to account B. In Bitcoin we don’t have anybody specific to contact, so we contact everybody. We tell everybody who’s connected to the Bitcoin machine: “We’re moving money from point A to point B. My name is Alice and I am moving money from my account to Bob’s account.” So now we have a system where everybody has the ledger and now we have a second layer created by telling everybody about it. Everybody goes ahead and writes entries to the ledger. So now we have a distributed ledger. Everybody’s got the ability to write to it. Now if everybody’s writing to it, how do we know that everybody’s keeping it accurately? How do we know that somebody isn’t going to go ahead and cheat and put it in their own balance? And so we come up with a lottery system.

A lottery system allows one person in the world, chosen at random, to be able to write these things into the ledger. The benefit of that is that anybody at all can participate. We want an open system. We don’t want to be able to choose who gets to write this ledger because those people will be under threat of being attacked in some fashion. And the biggest innovation of Bitcoin is that instead of having a central authority, you buy these lottery tickets from in order to participate, you buy the tickets from the universe by burning energy. So when you burn a bit of energy, that’s a lottery ticket. That’s a proof to the rest of the people in the network that you have expended some costs in order to play the lottery. This requires a bit of funky math called hashing. So the idea is we’re going to burn some energy in order to play a lottery and then we’re going to prove to everybody else that we actually burned this energy. And the way that works is there something called the hash function which, essentially, takes some data, mashes it together, and produces a very, very large number. So we have a huge range of possibilities and we’re trying to hit a very, very small area on that number line. So every time we burn our energy, that allows us to throw these dice and get a random number and hit a certain spot on this number line. We say, “This is what I’ve done. I’ve burned this amount of energy, I produced this number, and this is where that number falls in the number line.” And this proves that I have burned sufficient energy to run it to the Bitcoin ledger. That’s the fundamental idea. The fundamental idea is we’re allowing anybody to stay in the lottery by burning energy. And what that does is it creates “unenforceable costliness.”

Hashing is generating a value or values from a string of text using a mathematical function. Hashing is one way to enable security during the process of message transmission when the message is intended for a particular recipient only. A formula generates the hash, which helps to protect the security of the transmission against tampering. (source)

Money has to be very difficult to produce. If we had tree leaves that are money, then you could just go and shake a tree and you’d get a whole bunch of money which just isn’t sustainable. So we need something that makes that money scarce. And what Bitcoin uses for that is energy. Energy is a scarce resource in the universe; you can’t just make it out of thin air. So you actually have to convert that energy into Bitcoin. And that creates a certain cost to produce Bitcoins, to produce ledger entries in this Bitcoin ledger. And that makes it very difficult for you to cheat because if you were to produce something that wasn’t actually Bitcoin, that doesn’t follow the rules of Bitcoin, than everybody else on the network would not accept your lottery number. And essentially you will have burned all this energy and spent all those resources without producing anything of value. You need to produce something that’s valid by the rules of Bitcoin, something within the 21 million supply limit, and that follows all the other rules of Bitcoin. And only then will everybody else take your entry and write it into the database.

Environmental impact

Interviewer: That sounds wasteful and not environmentally friendly.

Yan Pritzker: We have a lot of waste in the world. The waste is actually a lot better in Bitcoin than it is in a lot of other places because Bitcoin has something called the difficulty adjustment.

Difficulty adjustment means that every time a mining rig is shut down, the bitcoin protocol increases the incentive for other miners to stay online. It’s as if every time a Sears shut down, all the remaining stores became more profitable. (source)

What that means is that Bitcoin is always creating a competition between miners. That competition is about efficiency. Only the most efficient operations will produce a Bitcoin. A difficulty adjustment means that as more miners come on, the difficulty increases in order to slow down the production of Bitcoin. If miners operate in an environment where their energy is expensive, let’s say in Chicago where energy costs 10 cents per kilowatt, and some other miner is operating in a remote region like Iceland where they have a waterfall that uses hydro power that costs only 4 cents per kilowatt, the miner in Iceland is going to mine a lot more Bitcoin. This is actually really good. Bitcoin, over time, forces out inefficient miners and forces expensive electricity out of the system. We now have a drive towards the cheapest possible electricity anywhere in the world. And what that means is that Bitcoin over time incentivizes us to cheap energy and renewables. We have a lot of governments that subsidize things like coal or gas, but with Bitcoin mining they’ll end up using renewable energy like hydro much more. A recent report showed that as much as 74% of the Bitcoin network is powered by renewable energy. We’re going to see vertical integration between energy producers and miners. Right now, a lot of renewable research is government funded. Governments are subsidizing renewables, but the reality is those subsidies are not sustainable and they will go away one day; they’re funded by the taxpayers or by printing more money. So with Bitcoin you have this very interesting capitalistic free market incentive.

Bitcoin, over time, forces out inefficient miners and forces expensive electricity out of the system. We now have a drive towards the cheapest possible electricity anywhere in the world.

Yan Pritzker

The long term view

Interviewer: Why hodl?

Yan Pritzker: It would be silly to spend Bitcoin today if we actually think that the end goal is for it to become a global money. At this point, it is a speculative asset. My vision for Bitcoin is very long. I’m thinking about it as something for my grandkids. There’s a cultural shift that needs to happen. Kids need to be born with it and see it as normal. When a kid is born with Bitcoin, they have Bitcoin from an early age. They know how it works. Then, they’ve already been using Bitcoin for years and then when they’re told about the current system, like the bank is closed during certain hours or it takes a week to transfer funds to a different country, it will seem crazy.

Identity and security

Interviewer: How about Bitcoin and security? What are the advantages to using Bitcoin in that area?

Yan Pritzker: Let’s think about how accounts work. Most people have an account with a bank. They store your cash and give you a digital representation of it. And then when you want to spend it, you have to contact the bank. You have to give them your identity, username, password, pin code, etc. And then you’re able to send that money.

Now with Bitcoin, we don’t have identities. Why does this matter? Look at Equifax which lost 140 million Americans’ data. Capitol One just got hacked – 100 million people’s data. Bitcoin solves this by not having these sorts of honey pots of information.

Look at Equifax which lost 140 million Americans’ data. Capitol One just got hacked – 100 million people’s data. Bitcoin solves this by not having these sorts of honey pots of information.

Yan Pritzker

So what does Bitcoin do? Well, we don’t have accounts in the traditional sense because we don’t have a banker. We have nobody to actually contact and register with and give our name; we allow people to generate accounts by essentially creating a very large random number. That’s what we call a Bitcoin address. We generate a special kind of key and that key allows us to conduct transactions from that account. The interesting thing is we do that without actually telling anybody who we are. So I don’t tell the Bitcoin network that I’m me and I’m moving my money. What I’m saying is “I have generated this address. People have sent me Bitcoins to this address. Now I can sign a transaction because I have the key that controls the standards, and all of that is done on my computer or on my mobile phone. Instead of having accounts, we have something called a wallet, which is a piece of software that runs on a mobile phone or our desktop (or it could be a piece of hardware or even a piece of paper). You’re not actually storing that Bitcoin on your phone or on your computer; what you’re storing are the keys, which is basically the rights to be able to move that Bitcoin.

One thing worth mentioning: if you know somebody’s key, you have complete control over their money. But there are a lot of companies coming up with cool solutions for this. We’re in a situation where we were transitioning from legacy financial system to this new thing. And maybe it’s not even transition; It’s possible the legacy system remains intact and this ends up being this kind of side pocket that’s a check on government authority.

How being a Bitcoin believer changes you

Interviewer: What are the life benefits that come along with learning about Bitcoin and being exposed to it?

Yan Pritzker: Money that we use changes how we look at time. So if the money that I use is like a hot potato and it’s going to be worth nothing tomorrow, then my intention and my incentive is to spend it as soon as I can. That’s why people look for US dollars. People are looking for currency that isn’t going to inflate on them. When you hold Bitcoin and you’re about to spend money on something, you really think about it. Like, is it better if I spend this money or is it better if I put this money in Bitcoin and just wait? When you have money that holds its value or goes up, you have an incentive to wait and spend it only on things that you really need. That drives us to create better goods for society. Things that last longer, things that are higher impact, investments that are going to actually pay off.

When you have money that holds its value or goes up, you have an incentive to wait and spend it only on things that you really need. That drives us to create better goods for society. Things that last longer, things that are higher impact, investments that are going to actually pay off.

Yan Pritzker

The other thing I think it really does is change your perspective. You see countries where things have gone horribly wrong; you see in Zimbabwe people with a wheelbarrow full of cash worth less than $5. And then you look at what’s happening in Venezuela; they have these suitcases full of money that are worth nothing. Why did that happen? Are we safe? What if the government starts to implement bad monetary policy where I live?

Dealing with volatility

Interviewer: I think one of the things that people seem to focus on with Bitcoin is the volatility of the price swings.

Yan Pritzker: We are very early. What we’re seeing now is these hype cycles where people all of a sudden think it’s going to the moon and then they think it’s going to zero. And so we’re seeing more and more of these psychological hype cycles, but these cycles are possibly possible by two things. One being the market is not very deep, so it’s easy to manipulate. Bitcoin is still a very, very small market. So the amount of money that it takes to actually move the market up or down is relatively small. A hedge fund that’s got $100 million at their disposal can move the market quite significantly. So the bigger the market gets and the more liquidity we have with Bitcoin, the less volatility will be an issue because it will take a lot more money to move the market.

The bigger the market gets and the more liquidity we have with Bitcoin, the less volatility will be an issue because it will take a lot more money to move the market.

Yan Pritzker

Also, the culture hasn’t shifted yet. 25 years from now, when everybody thinks Bitcoin is normal, we’re not going to see people entering and leaving the Bitcoin market every day. They’re just going to be using Bitcoin as an actual money. And when that’s the case, we’re not going to see the market fluctuate quite as much.

Also, I read an article by Caitlyn Long recently where she said that the system we have today with central banks creates short term stability but systemic instability. We stabilize the short term. But in exchange for that, we have systemic instability. We have the dot com crash, the financial crisis of 2008, and recessions that are the result of manipulations of currency markets.

In Bitcoin, it’s completely flipped. We have extreme systemic stability. We know the supply cannot be changed. There’s no ability to have the supply react to demand. So people want more Bitcoin, the price goes up like crazy. People want less Bitcoin, the price goes down. think that’s an interesting trade off that you make between should the system be stable or should the prices you pay be stable. And you can’t really have both.

The Myspace of crypto?

Interviewer: How do I know Bitcoin won’t be the Myspace of crypto? What if some better version that’s going to come along and make me feel silly for having invested so much in Bitcoin?

Yan Pritzker: We’re still quite early, but there are network effects. With Facebook and Myspace, there were no real costs to opening a Facebook account. So a couple of people tried it and they liked it and then a couple of more people tried it and liked it, etc. They transitioned themselves slowly into using Facebook. And Facebook had a better user experience so everybody kind of moved over there and then it became more and more sticky.

Now with Bitcoin, and money in general, you can’t do that, right? If your money is in Bitcoin, then it’s not in some other form and you want to hold the money that is the most widely accepted, the most liquid. If you hold the coin that is only on one exchange versus the one that’s on every exchange in the world and accepted in every country in the world, then you’re kind of hurting yourself. Bitcoin is the most liquid coin, it has the most amount of economic activity. Anybody who says otherwise, who thinks, “I don’t believe in Bitcoin. I’m going to buy another coin.” Well they’re actively punishing themselves by thinking all this economic activity over here is going to all of a sudden move towards their coin.

That’s just one of the network effects it has. There’s also the developers. It has the best developers in the world working on it. And we’ve seen similar things happening in the open source world with things like Linux. Anybody trying to compete with Bitcoin needs to steal the developers or grow their own developer ecosystem.

Then we also have the effects of time. Bitcoin has been around for ten years. It grew slowly and was able to attract the right growth, it was attacked and it survived. Anything new that’s coming up today has to catch up to those 10 years that Bitcoin has been around. And there’s no way to catch up the time.

The other thing I would say is everybody needs to just chill out a bit and not expect this to happen overnight because it’s going to be a long haul. We need to strap in and we need to educate folks and we need to make things a lot simpler. The education is really just one aspect of it. The product has to be self-explanatory. So we need to get to a point where people can open up an app and have an onboarding experience where they understand everything.

The other thing I would say is everybody needs to just chill out a bit and not expect this to happen overnight.

Yan Pritzker

To learn more about Yan’s thoughts on Bitcoin, check out his book Inventing Bitcoin: The Technology Behind The First Truly Scarce and Decentralized Money Explained.


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