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Enjoy the conversation.
Adam, welcome back to the Bitcoin Infinity Show, newly rebranded.
It's a good name.
Good to be here again.
Yeah, yeah, the correct greeting would be, good morning, Adam, uh, no, welcome, Adam,
back to the Bitcoin Infinity Show, right?
So, how are you
today?
Yeah, pretty good.
Good to be back in Riga at this conference.
One of the few kind of Bitcoin only conferences that's still running.
I mean, they did a panel yesterday talking about the history of
Bitcoin, of the conference.
And they observed that there were some people that came to all of them.
Apparently I was one of them.
I didn't realize, that's, that's true though, in the sense that
I like Bitcoin only conferences.
So, you know, there's too many conferences really for people who
have a day job to go to, or maybe even for anybody's case at this point,
there's so many conferences, right?
But.
If you've got to make a choice, you want to come to the Bitcoin Only ones.
And this is one of the good ones.
Yeah, I missed the first one, but I've been to all the other
ones.
So like, this is where everything started for me.
And I, I really like it because it's so high signal, low noise.
Uh, yeah,
And I don't think there's a single shit coiner in here this year.
Like it's
I've met a couple of, met a couple of, um, people who are, aren't fully orange
pilled, but, but yeah, there, there aren't any crypto, crypto vendors or
anything.
Like, yeah,
one's shilling this stuff.
Yeah, yeah, yeah.
I've got a good thing going.
So, so how has your year been?
Well, I mean, last time we interviewed you was here in Riga last year.
it was.
What has happened?
You made a price prediction then, I think.
Uh, yeah, I was seeing the, well, let me see what time of year.
Yeah, it's probably this time of year.
So I think the price was like a bit depressed, 30k range or something.
And I was saying, we might see 100k before the halving and everybody thought
I was insane because they thought we were going to see 10k or something dismal.
What's the next, uh, outcome?
And so, you know, of course, if you make a price prediction and you miss,
you always get ragged, but like, it's not a precise science, right?
And so, so my argument is, well, I was directionally right, that we had
a new all time high before the half inc, which had never happened before,
and it wasn't 100, but it was like, over 70, which nobody saw coming.
So, and there's a lot of stuff going on in the world, so I, I take that as a
kind of philosophical win, personally.
yeah.
The all time high was when we were on Madeira, I believe.
That's when it happened.
So that was a big moment.
So, so we'll, so yeah, direct stupid price.
We never talk about price, but when, when does Bitcoin hit a hundred thousand?
well probably, maybe even this year or next year, like, uh, I think there are
a lot of, um, kind of, there were a lot of temporary headwinds which are wearing
off, you know, the um, the bankruptcy selling, like FTX bankruptcy selling.
Because Some of these bankruptcies take a dollar denominated definition.
So they declare a bankruptcy date and they sell everything to dollars.
And then they run their process, try and claw back what they
can, and then pay it out.
And so people get back, you know, the people who had the bitcoins on there
would sooner have the bitcoin and experience the bitcoin price movement
between the bankruptcy date and today.
Even if it's like a fraction of the bitcoin.
I don't know, what they did is they sold to dollars and they declared
that everybody made a profit.
But now they have to buy the bitcoin back, uh, you know, four
times the price or something.
So, uh, I mean, there's a lot of things like that, you know.
Um, different bankruptcies, selling, government seizures, uh, Mt.
Gox paying out.
Mt.
Gox doesn't seem to be having that much effect.
Uh, but people are presumably just holding it.
Um, But, you know, there's a new, new game in town, which is the ETF buyers.
And they are, I think, predominantly in the U.
S., I mean, these U.
S.
ETFs, of course you can buy them internationally, but presumably mostly U.
S.
buyers.
And if you look at a segment of the U.
S.
kind of individual investors.
So if you take the top 10 percent of wealth, you subtract the top 1%, you
know, the billionaires kind of thing.
The top 1%, sorry, top 10 percent might be, you know,
professionals, doctors, lawyers.
Business owners, people with a portfolio ranging from a few hundred thousand
to a few million kind of thing.
And between them, they have, um, 30 trillion worth of stocks
and bonds and different things in their portfolio, basically.
And so we think it's those guys that are buying.
And if you look at the ETF inflows, Um, so, you know, 30 trillion, 1 percent
of, if they did a 1 percent allocation, it'd be 300 billion, which would move
the Bitcoin price, because even though Bitcoin's market cap's like maybe 1.
3 trillion, price is set at the margin, and there's a multiplier
of money in, as we know, right?
Um, and so if you look at their allocations so far, if you assume it's
all US, they're like at six basis points or something, so they've got a way to go.
And, you know, not all of the wealth management firms have internal
approvals or training materials or, you know, rules about what they can,
how they can sell it in place yet.
So, I think that's got some room to go.
Another thing that was going on is post harving, miners are having a bad time.
You know, hash price is down, miner profitability is not so good.
There's still a surplus of miners.
And so, you've got people with sunk cost miners.
So, they're going to turn them online, even if they are
just to reduce their loss.
Right?
And so that, that kind of suppresses the hash price.
Um, and so some of them have been selling Bitcoin.
I mean, they try to accumulate and keep Bitcoin on a balance sheet,
but some of them have been selling their Bitcoin, uh, you know, to, Get
through this tough period, right?
Um, so once, I think once that runs out and you've seen some consolidation,
like acquisitions and mergers and bankruptcies in the mining sector.
So once they're selling stops, that helps as well, right?
So it's all about like the balance of sellers and buyers.
So yeah, I think, um, and the other kind of positive surprise is the ETF
buyers Uh, seems to be good hotlists.
Like, they buy and they don't sell.
Like, you know, there's a decent pullback and there's very
little outflow from the ETFs.
And, you know, they're even inflowing.
You know, buying the dip a bit at times.
So, and of course that affects the, the money multiplier because, you know, if, if
somebody buys and they're new to Bitcoin and the price drops 10 percent and they
sell, they're not really helping because, you know, they push the price up and
they push it down and they offset, or maybe they make it worse, right, because
Bitcoin tends to, uh, I don't know.
Have, you know, with, with stocks, there are analysts who are looking
at prices that work for pension funds and things like that.
And they will have a price target.
And if the price gets low, they'll say it's cheap and they'll put
money in and they'll buy it because they've got a thesis.
With Bitcoin, most of the people who have the thesis have no fear left.
And so absorbing downside is difficult.
Structurally, right?
So, so people who buy and panic actually might be a net negative.
So, um, but the ETF buyers apparently are not like that, so that's, you know, that's
positive news, uh, for the price, you know, for the structure, market structure.
So, yeah, I mean, I think there's a lot of, uh, goods set up here, and, you know,
people are talking about institutional.
Interest, but I don't think there's that, that hasn't landed yet, really.
You know, there's a few very early funds.
So institutional, we would mean right, um, pension funds, mutual funds, like
managed by professionals on behalf of individuals rather than individuals making
allocations within their own portfolio.
And so there are a few places where, you know, BlackRock has added it to
some managed fund or Fidelity, but there's very few of them right now.
And they've made small allocations.
So I think, you know, there's lots of, all of that is ahead of us.
And that's even more money than this, you know, the top, you know, 10 percent minus
1 percent band of investors in the US.
That's a much bigger part of mine.
Yeah, uh, you mentioned minor profitability there, and one thing
we've explored on this show a lot is the spam issue, so I'd love to
pick your brain on what your stance on that is, and how big of a problem
it is, how we solve the problem,
Yeah.
what the fee spikes are doing to it.
You know, custodial lightning providers and stuff like, what are your thoughts?
Yeah.
I mean, um, of course, because Bitcoin is permissionless, there's
nothing we can do about it.
And we need that to be the case because, you know, censorship is, um, I mean, if
censorship is possible, it can be directed at anything at spam and, uh, things that,
you know, some group of people don't like and say, there's not much we can do
about it in terms of selective filtering, just inherently rank because Bitcoin is
permissionless and censorship resistant.
But in terms, and some people would say just a kind of market
statement that spam doesn't exist.
If people pay, it's not spam because they, they paid for it.
But I disagree.
I think it's, you know, it's clear that Bitcoin is, You know, focused on
use cases and an outcome for savings and ability to transact the savings,
ability to do transactions, to use it, to support second layers for more kind
of permissionless payments and activities that degrade the ability to transact.
Um, that, that hurts, you know, hurts layer two.
Maybe, you know, they're also consuming UTXO space and it's a
scarce resource, so they're gonna price some newcomers out of it.
Like the wealth levels in the, in the world are quite dpar disparate.
And so, you know, they may price some newcomers out of being able to even own
A-U-T-X-O, which is not a positive thing.
And you know, the, uh, the spam transactions are not.
know, as a value judgment, I think they're useless and stupid, right?
They're just putting JPEGs on the chain that, you know, obliterate the
space of a hundred UTXOs at a pop.
And so, you know, maybe they think they derive value from it
in their kind of NFT Ponzi game, but it's a negative for Bitcoin.
Yeah.
So, so, um, what about an initiative like Ocean, for instance, that, that
just chooses to, or let's, let's the individual miners select the block and.
Well, I mean, I think it's good.
It's good for individual miners to be able to select blocks
because, or select block policies.
Because you, you want like, um, it's kind of decentralization theory that you
get a more robust system, especially, I mean, that's basically how censorship
resistance works in, in Bitcoin, which is you, know, if one miner won't process your
transactions because he doesn't like you, another one will because there's, there's
a fee involved or because philosophically he doesn't want to see any policy there.
Right.
And, um, So from that point of view, it's good.
Now they do get some ribbing because their blocks may be less profitable.
And so, you know, some people will philosophically, well, they'll, they'll
mine the block with the highest fees, even if it's full of JPEGs or something.
Yeah,
but I think the rationale there, as far as I understand it, is that the bigger mining
pools, mining these blocks with all the spam in them, that they might be getting
payments under the table, so to speak.
So it's not transparent, so the individual hash salesman that sells their hashing
power to that particular pool, Might not get, uh, as big a cut of the reward as
they think they do, uh, and that in the long run you might be even more profitable
mining with something like Ocean.
That's been, there was, uh, I think Bob Burnett looked at this and did
this over quite some, quite some time and his ocean pointed, uh, ASICs did
better than, uh, Various FPPS pools.
He didn't name the pools, but yeah.
So apparently, yeah.
I mean, it's clear that when they're doing this, the fees go up.
I mean, they saw a fee spike just a few days ago, right?
And, well, I mean, it's very positive if, if the rational thing to do, you
know, that's, that's positive for Bitcoin, actual native use cases also
is more profitable because it shows the free market potentially has a solution.
And, and also, you know, just because we are, Economic actors doesn't mean
we have to be, uh, hyper rational.
Like, you know, there is some ethical, like some people won't accept stolen
goods on a principle, a lot of people.
And like you say, but it's cheap.
You save money, you make money by doing it, but they don't want to do it
because they disagree philosophically.
And so there is potentially some scope within Bitcoin mining for, um, Kind of
soft, uh, policy type of things, right?
Which is, you know, they choose to deprioritize JPEGs or something, right?
Um, it's interesting.
I mean, it's possible that what that's saying as well is that the
pools taking under the table payments are being unethical actually, right?
So they are, um, Under reporting or keeping the profit or excluding
the profit from their payout calculations or something.
So, yeah.
Maybe it's not that they're being unethical, but that the hash
salesmen aren't vigilant enough in checking what is actually going on.
So they just accept, oh, I'm making a profit, so therefore I'm good.
When they could have been making a bigger profit with a more ethical behavior.
I mean, the spam, like the long term risk of the spam is that the cost of firing up
a new node gets so high, so it's somewhat of an attack surface that in the long
run will reduce the number of attacks.
Uh, individual nodes because they're too expensive to run,
uh, and hard decentralization.
So what's your take there?
Well, I mean, I think, you know, the miners are typically, I mean, not
the pools, but the miners themselves are typically Bitcoin holders.
They want to mine a Bitcoin at discount and keep as many of it as they can.
Because they're trying to build a bitcoin stash or treasury for
the company or, you know, stacking sats for the owner or operator.
And some of these pools have been around a long time, so they're like privately
owned and stuff like that, right?
And some of the miners too.
So, If that's the case, they're not just kind of short term profiteers.
They have a long term alignment in Bitcoin's adoption curve, usefulness.
And, you know, if you take it to the extreme case, which sometimes
helps to reason about things.
If everybody went crazy and like, you know, shrunk the blocks effectively,
or made it very disruptive.
So it hurt use cases, made Lightning harder to use.
Then, you know, that could impact people's confidence in transact with Bitcoin.
Um, or it could push everybody to like, you know, custodial wallets or something.
So it could have a long term negative effect on the Bitcoin economic,
you know, price and adoption curve.
And so from that point of view, as a long term investor in Bitcoin, as a, as
a miner, let's say, Maybe you're willing to forego some, you know, fee spikes
because you think that, uh, that will help Bitcoin and you help everybody eventually.
Now the problem is the freeloader, right?
So, you know, if, if everybody takes that view or enough people
take that view, it works out.
But if, if it's, you know, only 10 percent of people do it, then the people who take
the more freeloader kind of mentality, they actually profit short term.
So.
Yeah, yeah, so, so the question boils down to, is that, that incentive strong enough?
The, the incentive to keep Bitcoin alive for a long time?
Or, or, or is that a weak, a weak chain in the link of Bitcoin security?
Well, I mean, I think, uh, I mean, because one, one other sort of risk
that people talk about or like to talk about, which I think is premature,
is, is the prospect that the reward eventually stops because the halvings
or becomes less significant, right?
And, um,
and then they wonder, does the, does the network have enough
incentive to secure itself?
And My argument is, um, you know, like the, there are lots, most
other forms of money are weaker.
You know, so like fiat depends on, you know, 10, 000 banks, none of them
being hacked, kind of weakest link in the chain and like audit discovery
of insider theft or unauthorized printing and stuff like that.
So I think people, need money to work.
And so, you know, with Bitcoin, there's a trillion dollar incentive for it
to work from all the savers, right?
And so I think they would actually find ways to make it work regardless, right?
Um, even if it meant, you know, spending 1 percent to do a bit of
mining that doesn't make a profit.
Because they value bitcoin, or you know, they have a business that makes money
because of bitcoin, and if it becomes less functional, that has their business.
So, there are other,
you know, kind of mutual cooperation situations.
I mean, a close one is internet peering arrangements, right?
So, you know, the internet, everybody, retailers using an internet connection
is paying a service provider.
But at a certain level of service provider or telecom provider, they have peering
arrangements where they agree to transit each other's traffic in like a tit for
tat or, you know, without payment or with some calculated rebalancing or something.
So it shows that, those companies need the internet to work.
And so they'll find a way to cooperate, even if it's not, you
know, hyper, hyper rational behavior.
Um, Because ultimately they make all their money from selling,
from the internet working well.
And so you could see that working with Bitcoin.
If Bitcoin is the internet of money, why couldn't that go up with Bitcoin?
So I think it could ultimately.
So I'm not really worried about, you know, I think long term things will work out.
And, and I think the other point is, you know, these use cases
might just price themselves out.
Like, you know, the fee spikes haven't lasted that long so far.
And also they tend to be You know, rug pull the investors and I think
the investors are getting fatigue, like, you know, get sick of losing
money and then they eventually learn.
So, you know, I saw a post last month by some altcoin guy, but it was basically
a plea to altcoin creators and memecoin creators to reduce the pre mine.
Because it was making hard to sell new coins because there was no possible,
almost no possibility even for a lucky retail investor to make any money because
the insiders were just, you know, dumping on it before it had a chance to succeed.
And the users just gave up, lost, lost interest in playing the roulette game.
Right.
So near from that point, if you, this kind of profiteering is sort
of killing itself slowly as well.
I guess the devil's advocate argument to that is that what if a spammer
has an actual money printer and like And this is a, the, you know, it's
conspiracy theory waters, but like, if this is actually a state funded
attack to like reduce the usability of Bitcoin and thereby saving the legacy
system, it's far fetched, I know, but
Hmm.
Yeah.
even possible?
I mean, I guess they would be.
Paying.
So, I mean, you know, potentially the Bitcoin ecosystem would have
more money to fight back because the attacker is paying it.
So, you know, maybe something creative could be done.
I mean, I think there are like, if it became a problem, there
would be workarounds, right?
All right.
Um, next topic.
Well, a follow on on this one is the effect on the layer twos.
And I mean, Liquid, I think, saw quite a bit of adoption, right?
As a result of these fee things.
Like the incentives, the other incentives that people move
to other layers, basically.
And people with lightning channels were very happy, but other people without
lightning channels were less happy.
Um, things like, uh, Boltz's interoperability with, uh, with liquid
and things like that seems to have solved that, so I mean, what has been
the effect on liquid, uh, in all this?
Yeah, I mean it, I think we were talking about this last time, so it was like,
it had just started to happen then, and it's actually continued and grown.
Um, and, so there are more wallets using liquid and bolts combo, so it's a way
to, You have a lightning wallet without having a lightning wallet, kind of, right?
So you have a liquid wallet and use the bolts exchange to swap liquid for
lightning or swap lightning for liquid.
And so to the user, it feels like they are able to interoperate with lightning.
It feels like they have a lightning wallet, but actually they're using
the managed channels, using bolts, his own capital on the main chain.
And they're atomically swapping liquid.
So I mean, the original mechanism they built was to rebalance lightning channels.
And it started on the main chain, it got disrupted by the first
wave of ordinals and inscriptors.
And so they rapidly implemented a liquid Bitcoin atomic, submarine atomic
swap to rebalance the main chain.
But over a period of months, that became used by wallets as an API.
You know, originally it was just for people managing channels to rebalance
channels, but it became actually second use, which is a wallet API.
And so that, that has continued to grow in popularity.
So it's sort of competing with other Lightning stacks.
You know, say Blockstream, for example, has Core Lightning, which
is, you know, uh, there are a few, like three or four Lightning kind
of node and library implementations.
And Core Lightning is one of them that focuses on interoperability,
um, and standards, you know, evolving the standards, doing things
in a standard interoperable way.
And then we have Greenlight, which is a kind of.
Lightweight, uh, way to integrate Lightning into wallets.
Um, it, it puts more of the kind of support intelligence on a
server and, but the key signing and verification is done on the device.
So it, it makes it more lightweight cause you don't have to download as much stuff.
And so effectively BoxStream has two products indirectly.
Now, of course, like, because these are infrastructure products,
other people are building things around them and innovating, right?
So.
But effectively Blockstream has part in two things, which ended up competing
with each other, which is Greenlight as a, as a way to make a Lightning Wallet
and Liquid plus Bolt's Atomic Swaps, which is, uh, now, I mean, both of
those things are growing, but they're like competing with each other, right?
Because there are alternatives, you know, you either, you either run a Greenlight
integrated Lightning Wallet, or you, you do a full node Lightning Wallet
or, you know, some other system, right?
Or, You don't do a lightning wallet and you get one anyway
by using bolts API and swaps.
So that's pretty cool.
And like, since we talked last year, there have been.
Ball Bitcoin stepped up and really gone for this model.
Peach Bitcoin is doing it.
I just hope somebody at this conference is also doing it.
And Breeze is, um, Breeze is actually using, um, Greenlight.
But, yeah, so it seems to be growing as a convenient way.
And I think the other thing that is, you know, the next bottleneck you
could foresee coming is that, okay, you can use other layer twos and you
could also use like e cash, right?
Like the, the cashew and a fetty, the glue that holds those together and they,
they can have multiple mints, right?
Um, is lightning.
So you can also implicitly rebalance a lightning channel using, you know,
fetty cash or cashew cash, right?
So the ability to rebalance existing main chain lightning channels with
other layer twos, like you said, that helps if you already have a channel,
but what if you don't have a channel?
Now you've got to establish a channel, and if the fees are really high,
maybe that becomes impractical.
So, now you can clearly see that Boltz maybe helps because it's,
you don't actually have to lay any channel, they do, right?
And so they can survive in higher fee environments because they've
got fat channels, because they're shared amongst lots of users, right?
But for users that actually want a soft custodial channel, um, They, uh,
I mean, like just, just to be clear that you are self custodial with,
with bolts, it's just that your, your custody is on liquid, right?
So it's, it's kind of neat cause you get the sort of reliability and performance
advantages of a custodial channel like arrangement, except that not yours.
There are bolts and it doesn't affect your self custody, right?
Whereas, um, A wallet, I think Blue Wallet was an Satoshi is the biggest one,
right, where it's actually custodial.
You just own a share of the, of a big channel, and that's
it, it's an IOU, right.
So, so Boltz doesn't have that problem.
So, the obvious problem is, nevertheless, like, what's gonna happen next?
Um, and, so, what, what we What we're doing with Greenlight is, there is
lightning on Liquid, so, you know, because Liquid is, is organized in the same way as
Bitcoin as a blockchain, lightning works on it, and a core lightning implementation
has worked on Liquid for, I don't know, five years or something, right?
But there has never been enough demand or reason to, you know, grow a network and
liquidity and interconnectivity there.
Um But the time may be rising for that.
And so the idea there is that using green light, we can, um,
kind of merge the networks.
So there are like a kind of merger of the two networks.
So you can route through, through both types of channels.
And that's good because it means that you get interoperability.
So somebody has a main chain channel.
They don't really need to know or care that the sender has
a liquid lightning channel.
Or, um, or if they also have a Bitcoin Lightning Channel, but some of the
intermediate hops are liquid Lightning Channels, because, you know, it all
interoperates and it's anyway atomic.
So, right, you don't really care if the characteristics of the channels
are slightly different in the middle.
Um, and so, you know, that opens a new prospect, which is some,
once that's in play, that's in development now, some wallets might.
You know, the different types of users in the network, right?
We've seen that the The service providers, the API providers, and the
stores, they can afford fat channels.
So actually they can, they're okay.
They can survive, right?
But, but the retail endpoints, that gets expensive.
You know, if you want to like set up a lightning wallet and receive five,
five dollars of liquidity, which, which by the way, somebody is probably,
you know, lending you and trying to recoup by charging you fees later.
So that, that liquidity is expensive.
Um, if it costs 5 of fees to put 5 on there, that starts
to get problematic, right?
And so, you know, there is a, there is a, the world where retail users end up
using Liquid on Lightning and for the, for the endpoints that are, you know,
direct soft custody, not using bolts.
And they, you know, and they're cheaper and, you know, the obvious thing to say
about Liquid is, you know, blockchains blockchain and, you know, if you pushed it
too far, you know, giga blocks, like some forks we won't mention, then it will also
stop being a blockchain for many purposes.
But I think the middle ground is that because it's anyway not as
decentralized, you can assume a.
Kind of more power user profile, like you need a reasonable, you know, home
internet connection with, you know, 10, 20 megabits or something higher, right?
And you need a faster computer, you know, like maybe a reasonable laptop
class computer and not a Raspberry Pi or something, and then it can keep up.
But if you, if you try it with a Raspberry Pi and we have to scale it in this
kind of middle range, I mean, at the moment it runs on a Raspberry Pi, but
if it gets, if it needs to get scaled.
Then that won't be the case.
So, so I think there's a sort of incremental scale you can
get to, but beyond a certain point, it stops making sense.
So I think that means that there is scope for, uh, lightning
on liquid to fill in a bit.
But like the, the other observation is that, you know, the market is still
evolving things like the bolts API is like a pure market innovation and, you
know, almost a happenstance, right?
The people who built it weren't anticipating it.
So there's like three parties involved.
Like we built liquid, built an atomic swap, and then wallet users started
using their channel rebalancing to build a new architecture standard, right?
So, you know, who knows what the future holds, right?
There may be new things that evolve.
Um, of course the, the e cash protocols are very scalable, but
they have a different trade off.
Um, so the limitation there is.
Firstly, the model is quite similar to Liquid, like it's a federation, it's
just that the federation is, you know, a community situation, where Liquid is
a federation of Bitcoin exchanges and wallets and different companies, right?
So, um, so you've got that factor, but then laid on top of that, you also have
the trade offs of the e cash protocols, and so they have extremely good privacy.
They're unauditable because it's a side effect of the privacy.
You can't
how many coins have been issued.
And so you don't know, you can audit the coins that are pegged into it,
but you can't audit if they, if they issued a matching number of coins.
And so you have to prospect that, you know, with, with any kind of peg, there's
a, there's a risk that the peg gets bypassed somehow and the peg coins get
taken out and then you're fractional and then that's game over, right?
But with the e cash protocols, you've got the possibility of it
going fractional in an undetectable way and staying that way for years.
Uh, like a kind of slow theft, right?
If, if there's people generally paying in and not paying, you know, if, if you
can see that there are a hundred Bitcoin in and, um, you know, a hundred Bitcoin
out, but people are still using it and think they have Bitcoin, then clearly
it's been, it's fractional, right?
But you won't find out until that's the case.
But now, so in between.
You know, you could think there's a hundred Bitcoin in there, but
actually they issue 200 and you, you wouldn't, you don't have to
have a way to detect that, right?
So that, that's the trade off.
Now, there's a positive side effect of that, which is because you can't audit
it, there's no audit stream, there's no like, big amounts of data, of past
transactions to download and blocks.
And so it becomes very scalable, right?
So you, you don't have to sync a node.
You just like connect to a new cash server.
There's very little data.
So that's a trade off there.
So, I mean, I think the other variable is other than custody,
we don't know how much people will favor the Feddy and Cashy approach.
You know, if that gets a lot of adoption, that's form of scalability
with a different trade off.
So we'd have to wait and see what the market likes, you know?
Yeah, I think it was Lynn Alden that made the point that Yes, because even with
custodial lightning and stuff like this you can you can do a fractional Fractional
reserve banking on Bitcoin effectively, but, but to a much smaller degree than in
the legacy system, because, um, because you have something to measure against.
You can see, uh, it's not, it's not like there are cameras in Fort Knox
that we can see all the gold there and how much is actually there and stuff.
But you can still see on chain transactions, so that it's
possible, but not to the massive,
not on the scale that the legacy system has.
Well.
Yeah, I mean, I hope that, you know, I think Lynn is talking about
kind of competitive free banking.
So the concept that you could have a fractional reserve Bitcoin bank.
Now, I hope that never happens and that people refuse to use
any such proposals, right?
But, I mean, And maybe some free banking people would think that's okay.
You know, that you can have fractional Bitcoin banks and people
can choose them based on how well managed they are or how long they
lasted or whether people trust them.
But I, I would say never accept fractional Bitcoin.
Like, and so I hope that the market like takes that outlook,
does not use fractional Bitcoin.
But I think the challenge is that.
You know, particularly with some of these community run things, you
don't necessarily know who's running them, or even that, you know, if
it's like a three or five, that that's not all the same person.
Can't necessarily tell, right?
So sooner or later, somebody is going to try and rug pull them
and you don't actually know, you know, how many coins they printed.
Right.
Cause you, you literally, cause I mean, basically what happens is you,
what's supposed to happen is you peg in coins into the mints and it issues
you with coins, but because of the privacy, they can issue, the owners
of it can issue, if they collude as a federation, can issue themselves
more coins and you can't audit it.
You can't detect that.
And then they can spend them.
Um, they overdo it.
Eventually it might become apparent because, you know, People might
withdraw and then it hits zero.
And yet there are lots of people who think they still have a balance, right?
Then you'd notice.
So that, that kind of trade off.
And of course it's like, it has IOU risk as well, right?
Cause it's, it's um, if the operators are regulatory attacks, they might be forced
to like freeze it or something, right?
So, and it's a very interesting trade off as well between, you
know, identified company operated federations and community federations.
So, I think, you know, people tend to trust themselves, so like, they
feel good about community because they can participate, they can run
their own and they trust themselves and their friends trust them.
And But on the other hand, it might be more of a grey area about
whether that's regulatorily okay.
Now I assume that, you know, because families de facto do, you know, like,
some shared financing and things, that in a small scale there's probably
nothing that could be said about it.
And it differs in countries, right?
Some countries have very little banking and so everything is
organized like this, right?
So maybe that's, you know, the target use case, but at least with the
exchange companies, you, you know, the pool of companies that may be
running the, uh, the hardware, the nodes, and they are anyway operating
regulated businesses typically, right?
I mean, they're, they're operating an exchange where they do KYC and they have
banking, you know, their bank accounts.
And saying.
It's maybe not introducing them to, you know, they're already regulated, right?
So, you know, maybe it doesn't change their profile that much.
Um, yeah, so that's, that's the kind of interesting trade off.
So, I mean, my, my viewpoint is generally, you know, uh, just, just build things
and react to what works in the market.
And cause it's like very, you can't like centrally plan or plan ahead because it's
too complicated to like map out You know, like, like some of these altcoins do, you
know, there's a, there's a dictator, like, who thinks he's benevolent, who's like
drawing roadmaps and waving his arms and saying this is how it's going to work.
And I think in the real world that doesn't, that never works.
So people are just going to build things.
And if you want to succeed in that environment, you have to adapt to what
gets innovated, what gets traction and what, what the market wants to use.
You know, users are maybe, could be more pragmatic.
than the operator of an individual company who thinks, you know,
things really should work this way and they like this and not that.
If users make a pragmatic choice, they won't use that product, right?
So I think that's, you know, that's one of the reasons you have to adapt.
I mean, some people already make the choice not to use specifically Wallet
of Satoshi and choose just a different custodial provider because it seems
like the risk is lower in others.
The Wallet of Satoshi seems to be like the big one that if that one were to collapse,
it would be a big deal, basically.
Yeah.
I mean, it's interesting in, uh, in some areas you see people gravitate towards
the biggest because I think it's the best, but in this case, the biggest is
the highest risk because it's relevant.
And, you know, they have more users, so one of the users will do something
incredibly stupid or illegal and create the external investigation.
So it's probably the most at risk.
Um, probably a balance though, right?
If it's super unknown, maybe it's just set there to like rug
pull some unsuspecting users.
So I guess, you know, there is some kind of owner reputation, like if the
owner is publicly known and, Also, if they've been involved in the space
for a long time, probably helps, like, they've, a Lindy effect, right,
that's been operating for a while.
There's no guarantee, like, you can get late rug pulls.
Yeah, if I got the point right from Lynn's book about free banking, it's
like that there's nothing inherently wrong with fractional reserve banking,
as long as it's transparent and the users or the customers of the bank
know that that is what they're doing.
So the banker can tell.
Uh, the clients that, uh, okay, we're, uh, are you okay with
us using a portion of your, uh, wealth to invest in other things?
And if you are, we will be able to give you an interest in the long,
uh, to give an interest over time.
And she always said, like, the problems come in when you have a central bank
and banks get bailed out and you have all these government guarantees and
stuff because then that whole system becomes way, way, way much more complex
and it's very hard, at least if you have a bank that, a fractional reserve
bank, and it goes bankrupt, it's the users of that bank that pay the
bill in the end.
it's true that it avoids the moral hazard and kind of perverse side
effects of central banking, Buh.
And it's also true that the right people suffer the consequences,
which is if you thought this was a good idea, and there's a bank run,
Yeah.
it's, it's you that loses, right?
But at the same time, like, there were a lot of bank runs.
So historically, right before they introduced central banking,
now I don't like central banking.
And, but I also don't want to experience a bank run when Bitcoin repeats the
pre central banking fractional reserve situation, so I want full reserve banking.
In fact, I want like multi, like either single custody or a multi sig
so they can't spend it without, so they can't make fractional without
my approval or something, right?
And I mean, there's a gray area of fractionality, which is kind of
rehypothecation, which is to say, you know, you put your Bitcoin into
a bank, they make a business loan of the Bitcoin to somebody, and they
have collateral for the business loan.
So if the business fails, they can sell the business assets and
rebuy the Bitcoin and pay you back.
So, you know, A small amount of rehypothecation sort of sounds okay.
And like, I think a lot of that happened in the DeFi though.
And the problem is that people get greedy and the competing
people offering interest.
Um.
They have a race to the bottom, right?
They, they offer a high and higher interest and they take more and more
crazy risks till they're ultimately lending to people who are running
Ponzi's or hedge funds making directional bets that backfire.
Because like, you know, to their point of view, they take the upside
and if it fails, they shrug, right?
Now, it's not, you know, if a, if a wealthy investor chooses
to take that risk profile as a hedge fund investor, Fair game.
But if somebody who is a, I don't know, let, let's say Gemini Urn user who just
thinks, you know, oh, they're offering interest and assumes that it's in
some, you know, they don't, they don't think about how does that work, right?
That it's, um, yeah, it, it creates problems and you get,
you get contagion and so on.
So I think the, uh, non fractional reserve is the, is the way to go or.
At least fully collateralized, like over collateralized lending.
And the problem is, people know, but the prevailing interest rates on Bitcoin
and dollars in the Bitcoin trading and exchange ecosystem are very different.
So the dollar interest rates are double digit, 10, 15, 20%,
depending on the market conditions.
It's mostly used for leverage, right?
But also for business work in capital, like miners will borrow.
Dollars to, I don't know, buy more miners or something against
Bitcoin or against miners.
So the prevailing interest rate is, is high because there's a shortage
of dollars because too many people are, I mean, I think it's a good
thing, but like everybody's very all in, so they don't have any dollars.
So there's a shortage of dollars and the big pools of institutional
capital and bank capital outside of Bitcoin doesn't understand the risk.
And so they're scared, right?
So, so they, you know, they'll be earning, you know, 5%, they could earn 15, but
they're scared of the risk profile.
They think it's not worth it, right?
So, and then on the Bitcoin side, know, there are very, very few people who are
short Bitcoin for long periods of time.
And so it's very cheap to borrow Bitcoin to short it on exchanges.
There's, there's lots of, I mean, people leave their custody of
Bitcoin on exchanges, many traders.
There's lots of bitcoins sitting there, so they've got like a free market rate,
there's a huge amount of bitcoin and very few people that want to borrow it.
Because the borrowing rate is like, you know, a fraction of a percent.
It's not, I mean, it's not worth lending.
It's not worth intentionally exposing yourself to the custody
risk to get the interest rate.
That's a bad deal, right?
So, so consequently when people offer you, you know, mid single digit
interest rates on Bitcoin, like five percent, it's, that implies necessarily,
for the most part, that they're making unsecured, uncollateralized
loans of Bitcoin to other people.
And then if they, if that person is, you know, how are
they creating an interest rate?
Or they're gambling on something, right?
And if they get it wrong, then the person rehypothecating
it, it's going to lose money.
And then you're going to lose, you're going to lose the coins.
And that, that's basically what happened in the DeFi implosion.
And especially if you have a a UA huge bull run in the midst of it, then they'll
never be able to buy back the coins.
Yeah.
I mean, uh, it's also, I mean, it's all about directional bets.
So lots of examples, you know, I mean, so, you know.
Some users, because the problem is the RISC profile is getting laundered through
intermediary Borrowers and lenders, right?
So you'll put it in something that is trying to be conservative and they'll
give it to, to some other party that's providing an interest rate and on
what, you know, hand waving about, oh, how they, you know, they do due
diligence, they only lend to reputable borrowers, blah, blah, blah, right?
And all that they stand in the, in the way, like they will repair a loss.
But then what really happens is it lends to somebody else who lends to somebody
else who's doing something crazy, right?
And then, you know, even if these guys say that they'll stand in the way,
they're just doing that to make a sale.
And when too many things go wrong, they go bankrupt, right?
So the guarantee is also not worth anything.
It's the big short, that's
basically the plot synopsis of the big short.
Yeah, I love that film.
And it's very ironic that, you know, the Bitcoin ecosystem is like
repeating the exact same problems.
Yeah.
Did you see the um, the GameStop one?
I don't remember the name of the film, but it was very similar to the big short.
I haven't seen that.
you haven't seen
I'll go look.
Yeah,
Yeah.
Yeah, you should because it's very like.
There's, uh, so it's about the game shop's, uh, uh, stock and, um, there's
a ton of Bitcoin, uh, uh, memes in it that originates from Bitcoin,
like HODL, for instance, and we're not selling and all of this stuff.
And, uh, the, the thing is when you, when you see that movie, it's like all of these
people that were involved in this did this when, uh, When Bitcoin was already
a thing so like it's it's not that far back So if they had done the exact same
thing with Bitcoin Then the the big hedge funds and stuff and Robin Hood couldn't
have like suppressed it at any point So so that it gives you like holy shit when
when Some guy like that gets gets the same idea and gets the same momentum on
social media and stuff on Bitcoin It's like game over when it's every Every
single saver starts just, I'm not selling,
Yeah, I mean, um, yeah, I mean, like the GameStop is interesting
because of, exposes a few things.
I mean, one is the, the, people, like people with different power
have different access to the market.
So the retail traders are trading through Robinhood in this case.
And Robin Hood, for technical reasons, might have to suspend trading.
Just when you need to trade.
yeah,
And that's a problem.
reasons.
I mean, the technical reason is that they, they, um, the delayed
settlement, like the T plus one stuff.
And so, and of course, like the technical reasons could
be politically biased, right?
Is to save their big friends, right?
So.
It's like, any, any kind of brokerage like that is going for a prime broker and a
clearing house, so there's a stack rank.
And, because of the delayed settlement, it's really naked selling, right?
So you're selling and buying on your platform, if there's an imbalance, like
your users are more buying than selling.
Now, you haven't actually paid for it yet, and so they're worried you're
going to be able to, if the price moves.
And so, You know, they have to have a certain amount of, uh,
working capital with their prime brokerage to guarantee their trades.
But if they get like a massive, you know, crazy run of buying, they run out
of capital and their broker, their prime broker cuts them off because they're like,
well, we're not going to absorb that risk.
You either post us, you either send us like tens of millions of
more capital, or we're going to suspend trading on this stock.
And they couldn't do it that quickly.
Right.
And so for the users, it was horrendous because, you know,
they got stuck holding a bubble.
And the fact that the trading stopped probably caused the
bubble to collapse as well.
And they've got to sit there and watch it fall where they can't react, right?
Dysfunctional.
I mean, the Bitcoin market never does that, you know, because it's, it's
global, 24 by seven, it's, it's real time.
There's no delayed settlement.
Nobody's naked selling anything.
You don't have these problems, but it shows like the structure problem.
And then, I mean, the other thing, which is,
I mean, the thing is a dog, right?
It deserves to be shorted and the hedge funds for shorting it for good
reason, because it's a defunct business.
And, um, But, you know, if you're short, it's dangerous to short things.
And so, you know, these crowded social media guys on Reddit decided to You
know, play a game of chicken with the hedge funds and like basically
bankrupt a few hedge funds along the way and cause the short squeeze.
So as well as the hitting the limits of the market function due to the way it
works and exposing the biases, right?
Cause the hedge funds will be desperately calling in favors with
a prime broker and they're big.
So maybe the prime broker wants to keep them happy and doesn't mind
screwing over the, you know, the retail users on GameStop, right?
Sorry, on Robinhood.
So it's a pretty ugly situation.
Um, Yeah, so, uh, I mean, in Bitcoin terms, I mean, you have
different, different games.
I mean, I guess like Luna, Terra Luna was an example, right?
That, that there you had basically what was pretty clearly a Ponzi to
anybody who bothered to look at it.
And I, I don't care about it, but the reason I looked at it was because, They
were buying a lot of Bitcoin, I think like a hundred million dollars or something.
And people were getting excited.
Like, you know, Bitcoin, some Bitcoiners were saying, well, look, this is great.
There's a new buyer in town.
They're buying lots of Bitcoin.
And I, my view was, well, wait a minute.
Like, what are they doing with it?
You know, are they going to like, is that Ponzi going to collapse and they're
going to market sell a hundred million Bitcoin in an automated, you know, they
have these automated market makers.
They're kind of trading bots that.
become dysfunctional if there's a huge reaction in the market and,
you know, they could cause a stupid flash crash or something, right?
At least in their local market.
So my thought was, I don't think this is a good thing.
I think it's some ponzi that's going to collapse.
So I went and looked at it and I was like, yeah, that looks like a ponzi to me.
You know, within a few months, it died spectacularly, right?
Yeah, it was glorious.
Yeah, and actually, it didn't look like they actually had finished automating
the, the Bitcoin selling part of it.
So I think some of that got sold through, you know, uh, you know, some kind of
market maker that did it carefully.
And I think they stole some of it.
Like the insiders.
So it didn't actually all get sold in one go.
But if, if, if you just do a mock, you know, a dumb market, if you
just hit market sell on something like that, you can wipe out the
order book basically, right?
So you don't, you don't, but I think it also shows that making a trading bot,
I mean, the, the, the smart contract guys in Altcoins like to, think they're
a bit naive about market function.
So they will If there's a smart contract and it's magical, right?
So they've got a smart contract and it's, it's gonna sell if this happens.
And, and it's like, you know, either it's centralized, so Decentralized smart
contract that has an API to a centralized exchange that's, you know, with, where
the account is owned by a business entity that's not decentralized, or
it's decentralized and the decentralized things are using these automated market
makers, which are, have some liquidity and they have like some kind of mathematical
curve where it will react to an imbalance of trade and put the price up.
But, but the problem with those is that I think they only work within a narrow
band, and if things get extreme, like there's a massive rush of selling or
buying, people can pull their liquidity out, and the curve can get steep, and it
can just get silly and stop functioning.
So, that was what I thought was going to happen to that bitcoin, but it turned
out, you know, they stole it, and it wasn't, they hadn't done the development
work to add it to their automated market.
Well, the thing that was automated.
Suffered the most radical hyperinflation in history, right?
Like, billions of percent in a few days or something.
the crazy things that can happen on Bitcoin and kind of this still early phase
where kind of things are still finding the equilibrium as more capital flows in.
And I mean, the other thing that we've been at, uh, this week has been
the, the Nostriga and the, this is another thing that's very early days
and it's decentralized communication.
And then just overnight, this is day two of Baltic Honey Badger.
Uh, the news comes out that the CEO of Telegram has been.
Arrested for, I don't know, the charges are, I guess
they're in the news, but, but,
Refusing to censor people.
basically seems to be that, so, what are your thoughts about that whole
situation, and maybe there's some, uh, um, solutions in the development pipeline?
What do you think?
Well, I mean, we have this book in front of us with the, uh, clown world logo,
and that's pretty much the situation.
I mean, the charges are, like, ludicrous on their face, and You know, there are
lots of communication channels in the world and, uh, I think they were, I mean,
you described it as censorship, but I think they were, what they were saying is
like, he hadn't put moderation in effect.
Well,
Same thing.
I mean, yeah, exactly.
And I mean, I mean, actually some people are like, Pro moderation,
anti censorship, because they draw a distinction, but I hate moderation too,
because, you know, I used to, there are a few sort of mailing lists related to
Bitcoin, some of them are still around.
One of them was Cypherpunk's list, and one of them is the cryptography list,
and the cryptography list was operated by an individual who has, who's still
there, and You know, he's moderating.
So, you know, like for example, there was a long discussion about Bitcoin like in
2009 where people were saying, Oh, that won't scale and like blah, blah, blah.
Like there's like, You know, a long discussion and he cut it off like, oh,
that's enough talking about Bitcoin.
I think it's kind of silly and you know, if you write a paper about
it, maybe we can, maybe I will allow the conversation to continue.
And that, that just enrages me, right?
Because like, if I want to talk about something, I don't want anybody citing
it's boring or They've had enough of the discussion, or they don't like the topic,
or they don't like how you're saying it, like, you know, fuck that, excuse
the French, but So, so like, moderation enrages me, basically, I hate it.
So, yeah, I mean, the idea that the government should, know,
demand moderation, I mean, actually, isn't there a, um
Some kind of, uh, what do you call that?
Like with the internet where you're a common carrier, so you're
not responsible for the content.
And so, at least in some countries, if you do moderate a content, you lose
your common carrier status and you really don't want to do that because
then you become responsible for what people are doing and saying on your
platform, like if you fail at moderation.
So like the fact that they are trying to insist that he moderate it would actually
like lose his common carrier status and you don't want to do that, right?
So, now I guess like architecturally the, the problem is that he could
implement a moderation policy, uh, and I think there are people who
get their telegram accounts banned.
I've heard people complaining about that.
So, you know, they're kind of probably in a bit of a gray area where they're kind
of, you know, reactively censoring things.
Um.
the, uh, that, that exposes the difference between, you know, decentralized
chat platform and a centralized one.
And, and Twitter was like horrendous for, uh, I mean, I think people still
get banned on Twitter unreasonably, but, you know, at least Elon cares about free
speech and does a lot less of it and fired a lot of people who were doing political,
I mean, there's like moderation for some kind of policy, but then there's like
political interference, moderation, abuse, which unfortunately Twitter and a number
of companies were doing in a very extreme way, like interfering with election
discussions and all kinds of stuff, right?
So.
Yeah, I think the Nostr protocol is, you know, that's, that's
showing that actually we need, we need more of that kind of thing.
Um, so yeah, I don't, I don't know, you know, what's going on behind the
scenes with Pavel Djurov at Telegram.
Um, you know, maybe there's something they're trying to squeeze in for like
access to some data or something.
Like, I have no idea, or maybe they're just like.
Don't like free speech.
Somebody was saying that there is something political going on in one
of the French jurisdictions, like offshore jurisdictions, where there's
some political upheaval and people are coordinating their protests with.
Telegram, so it could be related to that timing wise, who knows, but it's,
it's like clown world ridiculous that, you know, a government or, I mean, it's
effectively a group of governments, right?
Because it's in Europe.
If you'd been in another European country, they would have done the same thing.
So yeah.
They're just losing the pretense of independence of law and the rule
of law, but they're just going to arbitrarily, you know, see somebody
off the street, like in a, you know, a third world tin pot dictatorship.
It's like insane.
Yeah.
Fortunately, fortunately there, they just, um, uh, increasing the,
the, the, the, uh, what's the word?
The pace of the, the process because like the, these things
have been going on for a long time.
Right.
When, uh, I remember the Pirate Bay founders in Sweden were.
were prosecuted on very loose grounds because they had a
website that provided links.
There were no actual files on the site.
And Google was pointing to their website.
So why are they guilty and Google not?
And so it's all grey area.
And it's like, where do you draw the line between moderation and
censorship and political censorship?
Uh, and, and there is, it's so clear to me that the, the, the people in
power, the so called elites, the most successful thieves are abusing
this on, on such a grand scale.
And the way out of it is not through another private companies, through
things like Nostr and Bitcoin, that we truly take the power back.
There's no other way.
And
this, uh, it's just, Oh, we need to spread the message about it and
get it out there and get people to adopt these things because that,
that is the only way to fight it.
Yeah.
I mean, it's true, you know, like it's in a way it's positive that there
are people who are fighting within the system, like Elon, who will, you
know, go to court or buy the company.
And,
His, his price tag is higher.
If anyone wants to censor him, they have
to pay a very much a higher
but you know, he may not be immune, like, you know, because, mean, he's doing the
right thing standing up for free speech, but they do have levers to attack him.
And he has some vulnerabilities, like, for example, the subsidies that a
Tesla company is receiving, maybe the military launch contracts that SpaceX
has, or just trumped up, you know, uh, political charges like Jurov, right?
So, you know, I mean, could that apply to Twitter?
Like, maybe.
It, it could be called, if it does, it could be called
a $5 trillion wrench attack,
like that.
basically.
So, um, so, I mean, like, it's, it's, you know, I think we should care
about the rule of law, like, if, if there are rules, they should be
impartially exercised by an independent judiciary, and the fact that that is
going downhill is, like, a bad thing.
So, in a sense, you know, us retreating into decentralized technology, Is,
you know, a defense mechanism for, you know, civilized society to continue
while governments are devolving.
But it should be a nice thing if governments want devolving and, um, but
I think there's things into play as well because if things are decentralized,
you know, while the establishment powers that are pulling the strings
behind things like the Jurov arrest, um,
they want some control outcome, right?
They resent that people can talk privately and coordinate on
channels and things like that, that.
If they could see that arresting somebody would have no effect,
they're probably not going to do it.
So you know,
yeah,
it's Nostr, and there are some people who are like lead developers, you
know, there's no central server.
There's no company operating a server.
You could like seize one coordinator or, you know, arrest that guy or shut down
that company or sue this person, but it's going to be pointless, you know, and it
might even have a stride stand effect that, you know, there were 10 servers.
Now there are a hundred and more jurisdictions or something.
So to that point of view, it forces a bit of internet physics on these people
that want to abuse establishment power, which is like, You know, Pi is 3.
14, you can't say it's 3 because the internet doesn't care, kind of thing.
So I think it's the, you know, it's decentralized things that erode the
internet physics and that things should be implemented in robust, decentralized ways.
yeah.
And, uh, I mean, the same logic that applies to Nostr sort of
applies to a plethora of other things like Fede, for instance.
Mm hmm,
things are going to be much harder to, to take down in the future.
And that's very promising.
Yeah, I mean, I think if you think about it from that point of view,
you know, we were discussing the trade offs between Feddy and Liquids.
The one advantage Feddy has is that You know, it has a higher rug pull
risk of a federation because you don't know who they are and some,
and they could be all one person, but it's, there are multiple of them.
So if, if, you know, and Feddy, the company is not operating them.
Now look, uh, Blockstream, the company is not operating Liquid, but you know,
the federation members, potentially, if there was like some kind of
major global crackdown on Bitcoin or something, could be told to stop, right?
Now, with FedE, they could stop some, but like people have all the tools
and could start all the ones, right?
Now, it's also true with Liquid, you know, like there's a lot of, most of
the technology is open source that, you know, you could stand up another
Liquid network and a few, like, very technical people have done that, so,
you know, for experimentation purposes.
And we're interested to take steps to make that easier, like to sell the
hardware, because part of the formula as well that we didn't talk about
is that With a federation, you know, it's, it's a blockchain, I mean, the
interpretation that people have, uh, taken from independent legal advice and so on,
from regular, like, regulatory expert independent advice, and from asking for
opinions from a few, a few government regulators, is that this kind of
collection of software decentralization, it qualifies as a blockchain.
That's the argument, and that's the opinions that,
that people have had, right?
But, um, Part, you know, if you compare that with Bitcoin, now nothing, nothing
as good as Bitcoin is as good as Bitcoin.
And if anybody generally invents some technology that would improve the picture,
Bitcoin would generally want to adopt it.
So it's like any kind of layer two is generally going to be inferior to
Bitcoin in, in multiple ways, right?
Um, including their lightning and liquid and FedE and all these things, right?
They're, they're making trade offs because if there was a silver
bullet, Bitcoin would already do it.
So the point is.
You know, like with Lightning, you get faster transactions,
but it's all a hot wallet.
So, you know, there's a trade off, right?
You get something, you lose something, and that's sort of inherent, I think.
But, um, So, I mean, what we're interested to do is to um, sell the HSMs, so
that people can, you know, and they're programmable, tamper resistant devices,
and so they do help the, um, um, The blockchain argument, right, which is the
architecture of Bitcoin that makes it neutral or censorship resistant is that
there are competing miners in anybody, then people that will mine things, right?
So if one doesn't mine it because they don't like your op return, or they don't
like something about, you know, some taint tracing, another one will mine it.
And What helps with that, with Liquid, I mean, that's possibly true, right?
You know, one, uh, block signer could refuse to sign and other ones would,
and it only takes two thirds of them to make us, to make, process it, right?
So that's one factor.
Another factor is it has confidential transactions, so it's harder for them
to tell what the transactions are about.
So like, you know, if you, if you want, if, if somebody has a
policy view that they want to like.
Block this type of transaction or something.
Maybe they lack the information to make their policy decision because
they enhance confidentiality.
So that's another factor.
But the third factor is that you have an HSM in place of the, so
it's a block signer instead of the miners, comparing two architectures.
And.
The block center is a piece of hardware, and so it's a black box.
You know, you can't like, reach in there and change its behavior
because you'll reset the keys.
And it's only running signed software.
So Blockstream doesn't have any kind of auto update for obvious reasons.
So the operators of the hardware, you know, they have the source code, they
can look at the changes, they can see there's nothing malicious about
it, they have to upgrade it, but once they've upgraded it, they can use it.
They can't, you know, open the box up and like change the software
in it because they'll reset it.
And so, you know, it's not a piece of software in a decentralized system.
It's a slightly less decentralized system, but with a piece of hardware.
And so, you know, it gets to a similar location via different technologies.
Confidential transactions and, uh, hardware tamper resistance.
So I think the hardware tamper resistance is a useful tool.
And as you may be aware, one of the very early sort of Bitcoin like
systems, uh, RPAL by Hal Finney, Reusable Proof of Work, is actually
using this tamper resistant hardware.
I mean, the much earlier first versions of it, they're trustworthy computing stuff.
So he bought an IBM manufactured tamper resistant hardware device.
And his system was, you would, you would mine using hashcash.
You would send it to his server.
And it would send you an e cash token, and so that would prevent the rug
pull inflation, because the, you know, him as the owner and operator of the
server couldn't change the software.
And the reason is that the hardware gives you a kind of call it a remote
attestation, but basically the hardware signs and provides to the users a
signature of what code is running.
And he can't influence that, right?
I mean, he can load new code, but then change the signature.
And so people can see, Oh, that, that new code is malicious.
I'm going to stop using it or something.
Right.
So I think that trustworthy computing or temp resistant HSMs are an
interesting building block for a lot of things like for cache, for FedE.
For lightning routing nodes, you know, cause they're hot wallets.
So if you can provide better security for lightning routing nodes, it
becomes safer to have big channels.
Cause you know, if somebody compromises a hot wallet, lightning
routing node, they could steal the channel balance, let's say, right.
So, um, and you know, as, as they become more accessible,
like if we, if we resell them.
Then that helps.
I mean, cause we're just going to like, it's a programmable device.
You can do what you want with it, right?
So you can use it to build like an arc thing or a cache thing, whatever you want,
basically, or to make, um, you know, to make an HSM for cold storage or something.
Right.
So like another sort of blockchain adjacent building block, which can be used
to harden some blockchain related things.
Sounds like an exciting new thing.
Looking forward to seeing that coming out.
Anything else you're excited about in the coming year?
Um.
So I mean, we've been working on a Bitcoin ASIC.
So really the idea was that a couple of things.
So at the time we started, so we acquired Spondulis, which is a company
that's been making ASICs, Bitcoin ASICs since 2013, I think, or maybe in 2012.
So they made multiple generations of Bitcoin ASICs.
And the team is like, you know, came from, you ASIC design company,
so they had some prior experience.
And I think the Bitcoin ASIC is a challenging type of ASIC design
because of the duty cycle and the hand optimization that's needed and so on.
So just say we have a team with a track record on, you know, we're making, we've,
we made an ASIC, we've done a shuttle run, which is a kind of a test run.
So we have sample chips that we're testing and continue to optimize.
So.
You know, the, the motivation really at the time was that all of the mining
manufacturers were in China and, you know, not that the foundries weren't
because none of the, um, kind of, uh, advanced nodes foundries are in China.
They have, they have foundries, but they're like a generation or two behind.
So, you know, you've got, but still there aren't many foundries.
So.
And that, that seemed potentially like a centralization risk and
China is like intermittently hostile to Bitcoin, like banning Bitcoin,
banning mining, things like that.
So, you know, it's not inconceivable they could apply pressure to those
companies to stop making Bitcoin miners or impose something, right?
So we thought it was, you know, potentially risk and we'd like to try
and reduce that risk for, you know, because we're interested in Bitcoin.
Um, So we embarked on that.
I think, you know, the, the situation has improved a bit.
There are a few more companies internationally making Bitcoin ASICs now.
Um, some talking about them publicly, for example, Block, uh, Intel was for a
while, but they, uh, exited the business.
I think they were having like general, like economic problems in the company.
So they, uh, cut back some divisions.
So they, they exited the business.
there are a few other companies that have been making ASICs like, you know,
yeah, so we're, you know, hoping that we'll have some more announcements
about that in the next year.
Um, and I think another motivation for having an ASIC is that none of the Bitcoin
mining companies would sell anybody ASICs.
So people who have made.
Bitcoin devices like block eruptors and space, you know, space heaters
and water heaters and things like that, which are kind of cool.
Um, they can't buy the ASICs.
They have to buy the miners and desolder the ASICs off them.
And of course you break some doing it and it's kind of inefficient, right?
So, you know, I think we were more interested to You know, allow people
to buy ASICs, like have some more like, uh, open innovation where people can
build, you know, different profile miners or consumer miners or appliances
with ASICs in for various reasons.
Yeah.
Um, so yeah, I think it's time to wrap this up soon.
So anywhere, anywhere else you want to, anywhere you want to
direct our listeners other than to.
Blockstream.
Um, no, I mean, I think it's an interesting time
for Bitcoin at the moment.
Um, we've also been.
You know, getting into the hardware wallet space recently
with the Jade hardware wallet.
So we're continuing to involve that, you know, improving the
firmware, improving usability.
Um, and so, you know, the differentiator for Jade is that it's full open.
Now, some of the other hardware wallets are also open hardware, like OpenSpec.
You could, you know, take the blueprints and build one, but the difference
with Jade is that it's even more open in the sense that it will work
on some IoT devices you can buy.
On the market today or from electronic like Fry's or an electronics store,
you can, you know, go, go pick some parts out of a hopper and pretty
much run it or snap a few things together and flash Jade on it.
Compile your own software, modify your software.
Now it won't, you know, it won't be as elegant a piece of hardware
or maybe be bulkier or have lumps sticking out of it, or, you know, no
case or something like that, but it's, it can also be pretty cheap, right?
You can buy a, lower spec device, you know, without the battery, without the
camera, and it will still function, right?
Because you can use Jade in different modes, you can use it with
Bluetooth, you can use it with USB.
You can use it with a camera.
And you know, when it's in Bluetooth mode, you can, of course, if you're using it
with USB, you're anyway powered over the USB, so the battery is not necessary.
But if you're using it on Bluetooth or with a camera, then the battery is useful,
but you can do without the camera, right?
So, you know, you can, you can buy one of these, uh, ESP32 devices for
maybe like 10 is able to function with Jade software on USB mode.
So that's pretty cool.
Um, so it, you know, it opens the door for emerging market people to do
things and for people who want to try building custom apps to, to do that and
like maybe send them back to us and, you know, we could, we could add them.
Fantastic.
So, again, it's awesome to see all this innovation and the drive
to decentralize all this stuff.
Democratize is a weird word, but that's what comes to mind.
To give the power to people to run their own things and sovereignty that way.
Well, I mean, it's, it's an interesting strategy.
I guess it comes partly from the open source mindset, which is, you know,
a lot of software companies in the kind of feels like tradfy world, like
the, uh, the traditional software world, like the Microsofts and Oracle,
it's all super proprietary, right?
It's like secretive, It's closed source, or Apple's another good
example, it's aggressively licensed, they try to price, you know, they try
to like muscle in to the application space and demand payment on the
downstream applications in Apple's case.
And the open source mentality is more, well, you know, the sec, the,
the, um, rising tide, you know, rises, rises or ships kind of thing.
That actually the ecosystem would grow faster and everybody would be
better if everything is super open.
Like it's open source, open hardware.
You get faster innovation on open networks.
You get faster innovation on open source.
And, you know, Bitcoin is more an area of, uh, friendly competition, right?
In the sense that, you know, the people that are competing are not enemies.
They're like comrades trying to like, you know, grow Bitcoin.
So I think there's one specific unique thing about Bitcoin, which is a lot of
things kind of have to be open source or you shouldn't really trust them in a don't
trust verify sense, like a closed source.
Hardware or software is something you should worry about because
it could have a bug in it or a backdoor and you wouldn't know it.
No, I mean, 100 percent we talk about that all the time, how
in Bitcoiners are inherently incentivized to help one another
because we help ourselves by doing so.
And it's, it's, it's, it's just awesome to live that way.
Like it's it's so rewarding.
You get to have conversations like this.
So, Adam, thank you very much for coming back to the show, uh, great
to see you and, uh, make sure you get a signed, uh, we'll sign you a
copy of, of Clown
I hope we can climb back from the precipice and I think Bitcoin is one
of the few kind of technologies and societal forces that is pushing in
the right direction at this point.
that is why we wrote the book, it's, uh, describing how, how the
process, what the process looks like.
So, yeah, hope you give it a read and tell us what you think, but yeah, Adam,
thank you again for coming on, this has been the Bitcoin Infinity Show, and thank
you for listening, and yeah, Adam, thanks again, this has been a great conversation.