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bill geiger paper bitcoin summer summer of phil which one is it

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well every summer summer of phil so this summer i think is paper bitcoin summer um i'm i'm enjoying

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it quite a bit i think it's a really unique time in bitcoin the bitcoinification of wall street if

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you will it's not my my favorite topic in the world is the financialization all that but it is

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pretty wild to me to see the explosion of paper bitcoin summer yeah i should have known you know

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i wrote the piece bitcoin is the great definancialization that there there would be

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some financialization of bitcoin before fiat ends and then true definancialization happens but

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i wouldn't say i was wrong about that it's just you know after pierre wrote speculative attack in

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2014, we should have, we should have known that this was inevitable and, uh, maybe that wasn't

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going to take this form, but it's also perfectly logical. So I love it. Wall street and all the

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kind of financial markets around the world, they feel there, or they feel like they're,

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they're dipping their toe into Bitcoin right now, but Bitcoin is a black hole. And so actually

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they're kind of crossing the event horizon, uh, without even realizing it. So I'm, I'm a huge fan

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of all of these different products.

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But yeah, I think it is a short time period

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where Bitcoin is going to be rapidly financializing

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before, to your point, to your paper,

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things rapidly de-financialize.

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Yeah, I love that it's drawing people in like Jim Chanos

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and that there's probably a bunch of people in TradFi

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that are looking at it saying that this is all a scam

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and what they don't realize is that the bottomless pit of fiat

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and the arbitrages in the fiat world

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is actually what's creating it um so you know if that capital is going to go to somewhere better

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to go to bitcoin than some zombie company that was going to be extended just by the fiat system

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absolutely and i was looking at a chart i think it was crucius's chart of you know bitcoin at

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two trillion dollars in asset class and then the different financial markets that are you know 100

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x the size of bitcoin and somebody plotted all of the different uh michael saylor you know

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preferred stock products that he's launching and how it taps into these

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different markets. Uh, and I think that's really fascinating. It's, yeah,

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it's just wall street, you know,

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getting sucked into the Bitcoin black hole. I think they're in charge,

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but you know, we'll see. Yeah, it was, it was interesting. I listened,

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there was a podcast that Michael Saylor did where he was in person.

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I don't know. I didn't recognize guys who were interviewing him, but when he,

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he basically gave a 30 minute explanation of how they,

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they,

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they basically unintentionally stumbled into this whole dynamic and that it was

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also,

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then he connected the ideas of why Bitcoin's volatility was particularly

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attractive to these markets and,

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and that,

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that it really wasn't a grand,

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you know,

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it wasn't an idea that he had when he started getting,

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you know,

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interested in Bitcoin and got orange spilled. It was something that they issued a convertible bond

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and then through that process realized that there was this whole arbitrage opportunity to

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suck in and tap more capital. So. Totally. And I think what Bitcoin is doing right now to a lot

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of markets around the world, and I think you've spoken about it, you've written about this,

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a lot of markets are kind of zombie markets, right? They're running out of steam and that's why

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the money printing has to just continually happen because it's just like they can't they can't get

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the growth that they need and bitcoin is like a shock to the system right it's like an ekg right

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if the if the patient is is flatlining and dying like as soon as you give a little bitcoin exposure

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to a market you see like rapid uh rapid adoption and and you know not even adoption but just like

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attention short sellers go people going long like all kinds of focus just goes right there to bitcoin

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And I think it's really cool.

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Yeah.

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And that's one thing that he also talked about with that.

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The short sellers serve a purpose for him,

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that they will then be buyers of a stock when they need them to be buyers of

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the stock.

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And so I think that,

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and then that will be what we,

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you know,

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not that specifically,

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but talking about the incentives of Bitcoin that create all that frenzy that

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ultimately create the demand for is what we'll talk about today and appreciate

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you coming on the show.

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This is episode four,

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The first episode will actually be released next week.

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So by the time this one comes out, people have gotten to listen to a few.

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But this podcast is focused on mining and energy and the convergence of Bitcoin, the money side of it.

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And the first few episodes, we're talking about mining in kind of a broad sense.

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The last episode, we went deep on a specific strategy in the mining ecosystem, specifically upstream natural gas, mining off of upstream natural gas.

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You're not a Bitcoin miner, are you?

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I'm not.

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You're not.

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I've done it just as a hobby, just on a computer, just to try it out, see how it works.

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But unfortunately, I rationalized myself out of becoming a Bitcoin miner, and maybe we can talk about that today.

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I did the same. But you're what you, at least in my opinion, what I would consider you as an expert in the economic incentives. Neither of us are economists, but we understand the economics of Bitcoin very well.

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And I think that one of the things that is easily lost in the Bitcoin mining sphere, particularly for people who are legacy energy professionals that see Bitcoin solving problems in the energy sphere, that those make sense.

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But then when they zoom out and then relook at Bitcoin and what is creating all of this demand for power, they then get re-lost because they can't connect those things.

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So I think, and this won't be the only discussion on the incentives of Bitcoin, but I think you had written an article back when we were still both at Unchained.

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I also think that you were my first hire at Unchained.

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Potentially, yeah.

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I mean, I got the job in 2019.

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I just DM'd you on Twitter.

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I think I actually had heard you on either,

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it was either what Bitcoin did or TFTC

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and just reached out to you.

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And that rest is history.

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Yeah, we were very close to hiring somebody else.

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And then your resume came through.

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I remember I was in San Francisco,

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hopped on the phone,

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or I was interviewing the other person

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when I was in San Francisco and I had a doubt.

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And then yours came in and yeah, the rest is history.

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and soon thereafter i started writing about bitcoin you would read my pieces before they'd

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be released and give me feedback and then you had written several pieces and i started giving you

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feedback but one of them was 21 million is non-negotiable and that in that piece you really

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walk through the logic of why bitcoin didn't have a security problem why the existence of bitcoin

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and the fact that bitcoin was as secure as it was was a demonstration that the market was working

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and then you explain the the mechanisms that actually dictate that and that's a lot of what

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i want to dive in today to help anchor um combination of miners that are all either

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so heads down on actually getting hashes out of the ground, but don't necessarily think

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as much about the incentives of the network, as well as people that are new that might struggle

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to connect where and why all this demand for power is being drawn from the Bitcoin network.

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So maybe to start, if you could explain in your words, a lot of power is being consumed

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by the Bitcoin network.

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A lot of people that don't understand Bitcoin think of it as waste.

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But how do you think about what's creating demand for all of this power?

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It's funny because I think the people who are skeptical about the power usage, looking at Bitcoin and crypto as a whole, they're directionally correct.

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Like a vast majority, in fact, in my opinion, all of the power that is used in quote unquote crypto that isn't Bitcoin is a waste.

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It's a waste of power.

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The reason that Bitcoin is not a waste of power is that it solves a really fundamental and crucial problem, in my opinion, for the entire world.

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And that is the problem of money printing.

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So it's my view that Bitcoin is the very first form of money that is absolutely scarce with a fixed supply of 21 million. Nobody can create more Bitcoin. You can try to make a copy of Bitcoin as we've seen, you know, hundreds and thousands of different cryptocurrencies and all coins explode over the past 16 years.

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You can try to make copies, but what you can't do is print more than 21 million Bitcoin.

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And that's a really, really significant problem in my view, because money is the most fundamental

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form of communication that humans have.

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You can use money to communicate value across different cultures without even speaking the

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same language.

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It's almost a problem, I think, at a lower level than something like written language

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or spoken language.

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You don't even need to be able to speak language

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to be able to transfer value with people in exchange.

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And so, yeah, I think having a really strong,

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solid form of money at the base of any civilization

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is absolutely critical.

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So the reason that the Bitcoin network demands energy

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is in order to solve this problem

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of creating a form of money that is absolutely scarce,

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it is tied and it's digital, right?

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but it is tied to the real world via energy.

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So as the network continues to grow bigger and become more and more valuable,

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it's going to continue to demand more and more energy.

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Now,

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as an energy producer,

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I think that that's an amazing opportunity and we can maybe go into more

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details there,

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but maybe I'll stop there and to see what your thoughts are.

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Yeah.

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So maybe,

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um,

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expand on the connection for the demand for Bitcoin,

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the money,

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to the function within Bitcoin

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that necessitates that energy be consumed?

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Sure.

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So there's different ways.

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So when Bitcoin was created,

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the way that it was issued out into the world

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was via transaction processing

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every 10 minutes via a block.

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So a block of transactions is processed every 10 minutes.

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And in order to process that transaction,

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you need real world electricity and you need that in the form of hashes right so if you're

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a bitcoin miner if you will you have to connect your computer you have to use energy to generate

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numbers in order to solve a block and transact and process transactions so that the energy demand

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at a fundamental level is for issuing the 21 million coins out to the public and processing

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transactions. And then ensuring that anybody in the world can do that and that valid transactions

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functionally can't be reversed. That's right. And one of the ways that you describe it from the

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energy producers perspective or the the bitcoin miners perspective is that they're the reverse

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side of that is that they're selling their electricity to the bitcoin network do you think

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about demand being created by the network itself as one aggregated source or demand being created

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by miners how do you think about the relationship between the the source of demand the underlying

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fundamental? So the, the energy is demanded by the network and the network is made up of people

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who save in Bitcoin, people who, uh, engineer Bitcoin miners. It's made up of people who run

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full Bitcoin nodes. Um, it is the Bitcoin network. And the reason that all these people do these

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things is again, they, they want a form of money that they can save in that they know cannot be

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printed. Right. So that's where the value is, is like this fundamental value of 21 million.

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And then there's an entire ecosystem of people that are demanding Bitcoin or using Bitcoin in different ways, kind of at the, you know, to gain access to that 21 million.

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And then the miners, right, are just one component of that.

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And when I say that they're selling electricity to the network, I always think of miners not really as their own.

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I don't think Bitcoin mining itself is its own industry, right?

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like hashing on a computer by itself is not really important.

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And as I mentioned before,

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like for all of the other cryptocurrencies that are using energy to hash and

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process blocks,

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I don't think it's important because they're not solving a problem with

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Bitcoin.

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I think it's extremely important.

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And yeah,

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I view it more as Bitcoin mining is more of a component of the energy

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production industry or a tool that any energy producers can use and less of

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you know, Hey, this is, um, this is an entire industry that needs to be, uh, sprung up. Like,

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I think, I think of basic chips more as, you know, a demand response tool for energy producers,

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like similar to a battery, right. But you can flip it off on and off, um, with a switch and

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there isn't any energy that's lost through transportation with, um, Bitcoin miners.

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and so yeah i do think um i think it's really it's like a it's a monetary bitcoin's a monetary

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revolution but it's also an energy revolution yeah i agree with that it's one of the it's one

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of the other reasons why i'm pursuing this initiative to host this show and record these

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episodes is that as first and second derivatives bitcoin revolutionizes both money and energy

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And I also see, I think, over time, Bitcoin mining will go closest to the points of generation and will likely be paired with generators themselves.

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And that doesn't mean just on-grid generators, but wherever power is generated.

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talk about

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one of the aspects that makes this work

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because

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one of the ways I think about it is that this demand for energy

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to secure the Bitcoin network and its fixed supply is an entirely new segment of demand for power that didn previously exist And if we thought about legacy money systems there derivative uses of energy like the Fed uses energy to waste resources

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Or gold miners consumed a lot of energy to get gold out of the ground.

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So there've always been derivative uses of energy at higher orders to make monetary systems work.

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Bitcoin's the first where there's a direct use for power.

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The second thing what I want to ask is the way that people are paid for electricity in the Bitcoin network is permissionless.

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they do the work in advance and they get paid

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without any counterparty risk

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can you talk to just that dynamic and why that is

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important to the integrity of the system

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working? Yeah and I think it's man there's a lot

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to unpack there but the first thing is it's not just important to the integrity of the system

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but it's important for energy producers because now you can go out into

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a green field and start generating or capturing energy and immediately monetizing it from anywhere

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in the world. There's nothing that can stop you from producing energy and then monetizing it

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almost instantly. And one thing that you mentioned just about the Bitcoin network and how it's like

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directly tied to energy production, I think it's important. The Bitcoin network does demand energy,

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but it always demands the absolute cheapest energy available.

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And so there's a lot of situations as an energy producer where, you know, maybe you're overproducing energy or, you know,

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the demand for, you know, for people to heat their homes or whatever is not quite where you anticipated it.

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So, yeah, you're overproducing in a given period of time.

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What's amazing about this is for all the energy that you couldn't sell to them, to people and deliver to their homes.

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yeah you can just instantly monetize uh to the entire world who of people who want to save in

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bitcoin yeah i think like making that connection that because it's one aggregated source of demand

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but i think and you just you made this point which is it's like everyone's taking the same price

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regardless of where bitcoin mining is occurring and those hashes are occurring

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they're selling to one aggregated source of demand that is setting the price of power so

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the miners are functioning all price takers and that creates this incentive that they're all taking

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the same price that the cheapest source wins um talk about the if you could maybe in terms of the

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maybe where i'm steering is towards the permissionless nature of bitcoin and it's

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censorship resistant that you know why it's important that anybody selling power to the

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bitcoin network or selling electricity via hashes gets paid without there being counterparty risk

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like to the actual integrity of the system being anybody being able to plug into it

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as well as nobody being able to censor the network well it's i think there's a component

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or a property of money that until Bitcoin came around wasn't really well defined.

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And I think it's neutrality is really important for a good form of money.

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And I think gold is extremely neutral, right?

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Like as long as you have a gold mine nearby, you can harvest it, mine it out of the ground.

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And that was one of the properties that Bitcoin also adopted, which is that as long as you

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have connection to the internet as long as you have energy you can now start participating in

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the bitcoin network there's no you don't have to go out and ask permission so i think a good

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counter example here is something like the proof of stake cryptocurrencies so the most popular one

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being ethereum in order to actually mine in ethereum or process transactions you essentially

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need to get permission now because you have to have a certain amount of money in order to participate

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and what's cool about Bitcoin is you don't have to,

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outside of very basic equipment,

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you don't need really anything to get started.

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This is, I think, is just a really important facet

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of remaining neutral, right?

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Because as soon as there's any sort of human emotions

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or politics involved,

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as soon as you have to ask anyone permission,

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it's a point of failure

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and it's a point where human nature can kind of corrupt it.

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And so, yeah, super important that

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regardless of where you are in the world, as long as you have inexpensive computer hardware

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access to the internet, you can participate without asking permission. We've seen places

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like Venezuela, where they're going through, where they went through really serious currency

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crisis. You see Bitcoin miners spring up all over the place and they could become kind of like black

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market Bitcoin miners. We've seen it in China as well. But yeah, it's, it's really important. You

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You know, people want to be free.

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People want to be able to save without, you know, permission and oversight.

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And yeah, I think just for the long-term strength and security of the network, it has to remain

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open, permissionless, and give everybody the ability to get on board.

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One of the concepts was we kind of came up at a surface level, but I want to spend a

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decent amount of time talking about, because this is one of the key parts of the piece

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that you had written, I believe in 2020 or 2021,

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about why there is always a profit incentive

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to generate hashes and functionally sell those hashes

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or sell the electricity to the Bitcoin network.

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And so I want to kind of have a back and forth here,

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but this is where we'll risk losing some people,

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but we'll try to kind of go down into the weeds

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and then come back up to relate it and make sure it's relational.

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But I think this is a really important idea that you put forward

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because it will then go into the next part of what I want to discuss

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around the nature of Bitcoin's security model.

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This is one piece of it, but a key aspect of that,

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and we'll get into Bitcoin's fee market and its long-term mechanism

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to pay for power, to pay for security.

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explain best you can this idea that there is always profit incentive incentive to

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produce power secure the bitcoin network and what that mechanism is and how it works

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sure very deep question so i'll maybe i'll even start at a super high level and talk about

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what was frustrating me at the time and why i chose to write this article and i think the

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thing that um that was bothering me was that there was a lot of people you know outside of bitcoin

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trying to sell their cryptocurrency or whatever just you know cast fear or uncertainty on on

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bitcoin i would say well the mining rewards aren't even going to be worth it in a few years

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to be able to secure the network.

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And that just never sat right for me

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because, yeah, Bitcoin's whole kind of mining

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and issuance and transaction system

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is its own market, right?

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So it operates completely regardless of any US dollar

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or Bitcoin price in any other currency.

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it's it's kind of designed to be a closed loop where and this is one of the the most critical

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inventions that satoshi put out there is is that he created a system that was a closed loop with

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the only you know external or outside resource requirement being electricity right it doesn't

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bitcoin doesn't need and you know a group of people to um go through and sort transactions

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It doesn't need, you know, the price of Bitcoin doesn't need to be a specific dollar amount before it's secure or insecure.

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The security and the energy demand of the network scales linearly with the value of the network.

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And the way that that happens is kind of broken down into a few different components.

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And it all starts at the fact there's only 21 million Bitcoin.

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So the reason that Bitcoin is so interesting and valuable for people is that it has an absolutely fixed supply that is released on a schedule, you know, until the year 2140.

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So you might think like, OK, well, at some point, no more Bitcoin is going to be released in these blocks.

305
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How is it going to secure itself?

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You have to kind of dive a little bit deeper beyond that to find the answer.

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But it's in a few different ways.

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So first of all, a block of Bitcoin transactions is made up of a coin-based reward, block subsidy.

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That's the issuing of the money.

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The issuing of the 21 million.

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The issuing of the 21 million.

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And then transactions and transaction fees.

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So as people make transactions in Bitcoin, they include a little tip to have their transaction prioritized and process.

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So a block of transaction is a specific amount of data.

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It's a specific size.

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And so if you want your transaction processed in the next 10 minutes, you need to include a tip to say, hey, this is a really high priority transaction for me.

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And then as miners are going out and processing these transactions, they're looking for the transactions with the highest fees, right?

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So that they can include in the block and get the largest reward.

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Now, another really, really important component to kind of keep everything on track without Bitcoin itself being able to keep track of time is this idea of the difficulty adjustment.

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So as computers get better, right, you would assume that, OK, the blocks are going to be easier and easier to find and you'll find them faster, faster and faster.

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the difficulty adjustment is and technically it's it's little you know over my head but

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it it looks at the average of the last like set of blocks that were found and if they were found a

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little bit too close together it makes the next blocks to be found more difficult so as computers

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get better, the difficulty of finding and processing the blocks gets more difficult

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to try to keep that average block time of about 10 minutes. All right. So how does this all fit in?

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So if you're, if you're a Bitcoin miner and you're, you're interested in mining Bitcoin and

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processing transactions, one of the reasons you're probably maybe the most primary interest

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reason you're interested in this is because you think that Bitcoin's value is going to go up in

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the future. And this is going to be a worthwhile endeavor. If I can mine some Bitcoin today,

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I can, I'll have to sell some of it for my operating expenses, but the value will continue

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to go up over time and I'll be able to make a profit. Now, again, the reason that you think

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it's valuable and maybe this isn't top of mind at the moment is because of its fixed supply,

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right? I think it's always, I think that's an important part to like re-anchor to like your

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expectation of why it will go up is because people can't create more of it. Exactly, exactly.

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but you don't know what the price of a Bitcoin is going to be tomorrow.

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You can see the difficulty adjustment.

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You know that the blocks are going to be coming every 10 minutes.

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And so what is the number one lever that you can pull

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in order to out-compete other Bitcoin miners?

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It's the cost of electricity because that is the real world input there.

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And so if you can get electricity that is, you know, as close to zero as possible, or one of the reasons I even got interested in, in writing about this in the first place was in 2018.

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I wrote an article about renewable energy and how ASIC chips will help kind of revolutionize renewable energy production.

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Because I was looking at windmills and they were, you know, spinning or it was a windy day and someone would just be stopped.

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I looked it up and about 20% of the time they are overproducing electricity.

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And so they have to just turn off the windmill.

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Right.

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So in those scenarios, when you're generating energy and you can't sell it fast enough, that's where Bitcoin mining steps in.

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You can sell all of that energy to the Bitcoin network as close to zero dollar.

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You know, you'll you'll you'll turn a negative return into a positive return.

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And I don't know exactly what the positive return is, but that's, that's kind of the, um, that's, that's a calculus that you're, that you're running at that time.

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It's like, yeah.

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And so I think that, cause one, one thing you mentioned as, you know, computer processing becomes more efficient, but also just as more demand, you know, as, as more energy, you know, there's two, there's those two levers of.

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Mining rigs becoming more efficient, but also just more energy being devoted.

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And that Bitcoin can functionally absorb all of the demand up until the point where it's profitable to mine Bitcoin.

355
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And that everyone's cost to produce is different.

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and so now connected to the idea that if a lot more demand to mine bitcoin or people

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value bitcoin less people sell it what ensures that there is always miners out there that are

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profitable that then have the profit incentive that that can produce a bitcoin or that can secure

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the Bitcoin network, you know, regardless of where that level of difficulty is, uh, in a way

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that is below what the secondary market price of Bitcoin is. Sure. So we talked about the

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difficulty adjustment getting more and more difficult, but I think you brought it up a good

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point and throughout Bitcoin's 16 years, there's been many scenarios, you know, many times, uh,

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where there's been a bear market and the price of Bitcoin has crashed by, you know, 80% or even

364
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higher in a few different situations. And, and yeah, if you're mining, then it really changes

365
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how much profit that you you'll be making or, or your losses. But at some point, you know,

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if the price of Bitcoin crashes too low, the value of Bitcoin drops too low and the difficulty

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is too high for you to make a profit, you're going to switch off your miners and sell them.

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What happens at that time is if the network is noticing that blocks are coming and on average,

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on a longer time frame than 10 minutes per block,

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the difficulty adjustment can actually drop.

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So it'll get easier to mine Bitcoin.

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And maybe when it drops there,

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it gets to a level where somebody who previously wasn profitable is now able to flip on their chips and mine it But I think at the highest level it really just a functioning market for the cheapest energy that is available

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And it will always, as long as there are some people who are still saving in Bitcoin and transacting in Bitcoin,

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they will always pay a market rate for energy to be able to secure the monetary policy and make transactions because of the difficulty adjustment,

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rebalancing if the price drops or if the price increases or if computers get better.

377
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It's like a fully closed and calibrated system.

378
00:31:28,790 --> 00:31:52,970
Yeah. And there's one thing that that made me think about, which is like, say that the amount of combination of energy or processing power declines by 20 percent and you're a low cost producer of energy that's securing the Bitcoin network and you can continue to run profitably at 100 percent clip.

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you would on average get 20% more Bitcoin such that if the price of Bitcoin dropped by 20% that

380
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induced this reduction in the overall demand to secure the Bitcoin network, you're being rewarded

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with more of the nominal resource. That's right. And you made this comment. I think it's a really

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important one which is that like we all accept that the dollar is still the unit of count

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and the consequence of that is that putting nominal units of bitcoin into dollars

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is almost like necessary to our subconscious but that the bitcoin network does not actually

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have any concept of the outside world or in terms of value.

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The one piece of the outside world that is piped into Bitcoin

387
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is that underlying energy demand converting to hashes on a computer

388
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and these Bitcoin miners being able to measure the rate of incoming blocks

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and then having this self-regulating system.

390
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And it's like, and I want to get your thoughts on this because it's a bit of a rabbit hole that there's some relationship between the demand for Bitcoin and the pricing of electricity in Bitcoin terms.

391
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Like basically like one way to think about it is as the price of Bitcoin goes up, if you have a fixed contract for electricity denominated dollars, your Bitcoin denominated electricity price is actually going down.

392
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um but if you could like talk about that like the dynamic of and again with that and

393
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i mean well it's impossible not to get into the weeds but this this idea that that miners

394
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are are all independently able to determine what the the difficulty is without relying on on

395
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single sources of truth,

396
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basically how they derive

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at the calculation of what the difficulty target is

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and how that might impact

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their view of their own profitability.

400
00:34:19,630 --> 00:34:21,350
Sure, so everyone in the world

401
00:34:21,350 --> 00:34:25,450
is able to run the Bitcoin software

402
00:34:25,450 --> 00:34:28,090
on a relatively simple computer at home

403
00:34:28,090 --> 00:34:29,950
and you just download it.

404
00:34:29,950 --> 00:34:32,890
it syncs the entire history of transactions.

405
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It's called a full Bitcoin node

406
00:34:35,370 --> 00:34:37,210
and you can download it from bitcoin.org.

407
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There's many different places you can download it.

408
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But once you have a full node,

409
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you can start to really explore the network.

410
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And one of the things that you can look at

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is the current difficulty adjustment.

412
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You can look at, I think,

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I'm not sure all of the different calls that you can make,

414
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but you can really explore that intersection of,

415
00:34:58,410 --> 00:35:04,410
of, hey, here's where the hash rate's at, here's where the difficulty is, and the anticipated

416
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difficulty adjustments. So you can typically anticipate, you know, whether the next adjustments

417
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can be 10% harder or 10% easier, just by exploring the current status of the network on a full node.

418
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There's lots of different websites out there now that have great visualizations of all of this,

419
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so you don't even need to necessarily run your own node. But in order to be as permissionless

420
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as possible, you can actually just check yourself and verify the status of the network.

421
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Now, shifting a bit, but talk about the relationship because you mentioned it before,

422
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but in a different context of there's the concept of the issuance of the 21 million supply. And then

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there's the what you referred to as tips or the actual transaction fees that people are paying to

424
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miners as they send bitcoin transactions um in the piece you wrote on 21 million is not negotiable

425
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you have the idea that the the network itself is paying via the the bitcoin that are actually being

426
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issued the 21 million supply and that the the users who are sending transactions but just

427
00:36:14,730 --> 00:36:19,310
talk a little bit about that the distinction of the relationship and where i'm going then is

428
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you know what your framework of thinking and what the underlying incentive is that dictates that

429
00:36:26,010 --> 00:36:32,650
there will be this fee market but first kind of lay the dichotomy of how you view who's actually

430
00:36:32,650 --> 00:36:40,070
paying the miners between those two different levers yeah i was actually going back and just

431
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reading the paper and there one of the cooler charts uh that i put together at the time was

432
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kind of the percentage of the entire Bitcoin economy that was mining versus other use cases.

433
00:36:54,670 --> 00:37:02,110
So now, you know, mining is just one of many different facets of the Bitcoin economy.

434
00:37:02,390 --> 00:37:05,650
And it makes up a very small percentage, you know, overall.

435
00:37:05,790 --> 00:37:07,510
Like mining is still, of course, extremely important.

436
00:37:07,610 --> 00:37:12,290
And it's probably, you know, orders and orders of magnitude larger than it was

437
00:37:12,290 --> 00:37:15,130
even five years ago when I wrote about it.

438
00:37:15,630 --> 00:37:23,870
But as a percentage of the overall Bitcoin economy, it kind of continues to either get a little bit lower or is kind of like stagnated around like a few percent.

439
00:37:24,750 --> 00:37:25,750
But that wasn't always the case.

440
00:37:25,750 --> 00:37:40,270
So for the first the first four years of Bitcoin, mining Bitcoin and the issuance of of the tokens into the economy was like 60 percent of the Bitcoin economy.

441
00:37:40,270 --> 00:37:46,130
It was mostly just hobbyists that were mining Bitcoin to play around with it.

442
00:37:46,710 --> 00:37:52,110
And so over time, the issuance gets less and less important.

443
00:37:52,630 --> 00:37:58,210
And what becomes more and more important is that people are using Bitcoin for transactions.

444
00:37:59,330 --> 00:38:04,210
And now, you know, the question is always like, well, how many transactions do we need?

445
00:38:04,550 --> 00:38:07,130
Do we need to have for Bitcoin to be safe?

446
00:38:07,130 --> 00:38:12,270
and again i kind of point back to well we have a functioning market and and we don't have to worry

447
00:38:12,270 --> 00:38:18,810
about the specific number of transactions or how how um how full a block is because if the value

448
00:38:18,810 --> 00:38:24,710
is demanded more uh the network is going to demand more electricity and there will you know with the

449
00:38:24,710 --> 00:38:28,510
difficulty adjustment will always make it profitable for somebody to mine bitcoin and then the opposite

450
00:38:28,510 --> 00:38:35,890
is true as well if the value crashes um it'll demand less energy so the bitcoin economy has

451
00:38:35,890 --> 00:38:41,090
really evolved from the first epoch, which was the first four years where mining and issuing the

452
00:38:41,090 --> 00:38:47,510
money was like the primary source of the economy. And I think you could even look back at, you know,

453
00:38:47,570 --> 00:38:53,250
companies like Bitmain really being massive, massive players in Bitcoin and being able to kind

454
00:38:53,250 --> 00:38:59,270
of set the direction in a lot of ways, or at least they tried to set the direction in many ways.

455
00:38:59,430 --> 00:39:05,690
And now they're, of course, still a large company, but they have way less kind of political influence,

456
00:39:05,690 --> 00:39:14,790
I would say now than when they did back in 2012, 2013, 2014, because mining was a much larger component of the Bitcoin economy.

457
00:39:15,790 --> 00:39:21,790
I guess for the second part, it's it's hey, how do we ensure that Bitcoin always remains safe?

458
00:39:21,790 --> 00:39:37,290
What I think about now is I think about the block subsidy, the block reward as value that all the savers in Bitcoin are paying every 10 minutes for people who are sending transactions.

459
00:39:37,290 --> 00:39:41,370
Right. So it's almost like a subsidy by by just holding Bitcoin right now.

460
00:39:41,370 --> 00:39:44,070
And with Bitcoin being issued into the economy.

461
00:39:46,310 --> 00:39:53,450
Every 10 minutes where, you know, the savers are creating a little bit of value and subsidizing the production of that next block.

462
00:39:53,630 --> 00:39:57,550
So I just think of it more of as like a block subsidy that everybody is paying right now.

463
00:39:57,950 --> 00:40:02,050
And over time, it continues to be a smaller and smaller subsidy.

464
00:40:02,050 --> 00:40:06,550
And so the the the burden of the fees just goes to people who want to send the Bitcoin.

465
00:40:07,290 --> 00:40:11,350
So instead of a kind of socialized system right now, it just becomes more privatized.

466
00:40:12,310 --> 00:40:21,610
And as long as anyone is sending transactions, the market will find the right fee for somebody to then want to go and sell energy to the Bitcoin network.

467
00:40:23,070 --> 00:40:33,890
So I was going to go one way, but then you said something made me think about just zooming out to the high level again before I go deeper down the rabbit hole is.

468
00:40:33,890 --> 00:40:36,630
connect

469
00:40:36,630 --> 00:40:39,650
the

470
00:40:39,650 --> 00:40:42,770
the relationship between

471
00:40:42,770 --> 00:40:45,230
the enforcement of the fixed supply

472
00:40:45,230 --> 00:40:46,670
to this mining process

473
00:40:46,670 --> 00:40:49,330
and the

474
00:40:49,330 --> 00:40:52,430
the reason why cost

475
00:40:52,430 --> 00:40:54,290
in your mind is important

476
00:40:54,290 --> 00:40:57,090
to say the integrity of

477
00:40:57,090 --> 00:40:59,270
final settlement of a Bitcoin transaction

478
00:40:59,270 --> 00:41:00,310
or just like

479
00:41:00,310 --> 00:41:01,550
if someone's kind of tracking

480
00:41:01,550 --> 00:41:02,510
but then they suddenly

481
00:41:02,510 --> 00:41:03,690
you know wake up and they're like

482
00:41:03,690 --> 00:41:05,730
okay, wait, but why is all this power needed?

483
00:41:06,610 --> 00:41:10,330
Just like reinforce that side of like how

484
00:41:10,330 --> 00:41:14,630
as miners are following along with this schedule

485
00:41:14,630 --> 00:41:17,090
and hitting difficulty targets,

486
00:41:17,170 --> 00:41:19,370
which is an esoteric concept in itself,

487
00:41:19,910 --> 00:41:23,090
how they're also enforcing the fixed supply

488
00:41:23,090 --> 00:41:24,650
at the same time

489
00:41:24,650 --> 00:41:26,690
and how when transactions are sent,

490
00:41:26,830 --> 00:41:30,910
why they can't be invalidated once they're validated.

491
00:41:30,910 --> 00:41:41,570
sure so so if a miner so the miners i kind of view them as like uh they're they're in a lot

492
00:41:41,570 --> 00:41:47,450
of ways in service to this the rest of the network and and this fixed supply because as they're going

493
00:41:47,450 --> 00:41:54,130
through and building blocks of transactions and you know trying to hash to to process the transactions

494
00:41:54,130 --> 00:41:59,470
they have an opportunity to try to cheat.

495
00:41:59,770 --> 00:42:03,830
They can say, maybe I'll just give myself a little bit more Bitcoin

496
00:42:03,830 --> 00:42:06,370
as part of the Coinbase reward.

497
00:42:06,370 --> 00:42:12,250
Or maybe I'll just include, I'll try to double spend a transaction

498
00:42:12,250 --> 00:42:12,970
or something like that.

499
00:42:13,410 --> 00:42:18,250
As soon as they, if they solve the block and try to propose it to the network,

500
00:42:18,890 --> 00:42:21,530
everyone else who's running a full node on the network

501
00:42:21,530 --> 00:42:28,950
will see that they've tried to cheat and basically kick the block off and banish that user so and

502
00:42:28,950 --> 00:42:33,750
mining bitcoin as many of you i'm sure know is extremely expensive right so there's a very real

503
00:42:33,750 --> 00:42:40,310
cost to trying to cheat the system as a miner the best the best thing that you can do in my view is

504
00:42:40,310 --> 00:42:47,310
just try to maximize transaction fees and and process blocks as efficiently as possible um

505
00:42:47,310 --> 00:42:52,850
but yeah they're they're you know just like with anything there are ways that people can try to

506
00:42:52,850 --> 00:42:58,030
cheat but what is amazing about bitcoin is just how rigid the rules are and how effective they

507
00:42:58,030 --> 00:43:02,050
are at preventing cheating does that kind of answer your question it's on the on the fixed

508
00:43:02,050 --> 00:43:07,610
play and then on the transactions kind of why cost is important to if you've sent a bitcoin

509
00:43:07,610 --> 00:43:15,870
transaction to somebody a bitcoin miner mines it validates it um why is the the mining function

510
00:43:15,870 --> 00:43:22,370
and the cost associated with it critical to ensuring that that transaction isn't reversed?

511
00:43:24,030 --> 00:43:24,210
Sure.

512
00:43:24,210 --> 00:43:31,210
So mining it, so the block then gets, so once a miner has proposed a block, constructed it,

513
00:43:33,690 --> 00:43:40,070
hashed and solved the block, solved for the block, it gets added to what's known as the blockchain,

514
00:43:40,330 --> 00:43:45,630
which is just a chain of every single transaction that has ever happened in Bitcoin.

515
00:43:45,630 --> 00:43:54,650
And so you can, you know, you can go back to the, from the very first transaction until, you know, right now and look at every single transaction that is ever made.

516
00:43:55,270 --> 00:43:58,390
And now cheating that system is extremely difficult.

517
00:43:58,650 --> 00:44:02,270
So in order to cheat and like kind of double spend, is that what you're trying to get at?

518
00:44:02,430 --> 00:44:03,630
Kind of like, yeah.

519
00:44:03,910 --> 00:44:06,950
Not necessarily even double spending, but like why it couldn't be reversed.

520
00:44:08,010 --> 00:44:11,270
Like once it's in a block and we're on to the next block.

521
00:44:11,710 --> 00:44:11,850
Yep.

522
00:44:11,970 --> 00:44:15,970
So as soon as the block is solved and it's valid, right?

523
00:44:15,970 --> 00:44:19,490
So I talked about when you try to cheat and you have an invalid block and it gets kicked off.

524
00:44:19,690 --> 00:44:26,350
As long as it's valid, it spreads out to the entire world in seconds or even, you know, probably less than a few seconds.

525
00:44:26,710 --> 00:44:27,070
Milliseconds.

526
00:44:27,490 --> 00:44:27,790
Right.

527
00:44:27,930 --> 00:44:32,330
And so every single node in the entire world is now verifying, hey, yeah, this block looks great.

528
00:44:32,330 --> 00:44:37,290
I'm adding it to my database and now I'm not going to accept any invalid blocks.

529
00:44:37,290 --> 00:44:44,570
there's a lot of different kind of theoretical attacks when it comes to mining and there's

530
00:44:44,570 --> 00:44:51,490
there's times where you know somebody will mine a block on one side of the world somebody will

531
00:44:51,490 --> 00:44:56,210
mine a block on the other side of the world and they're both valid and then in that scenario

532
00:44:56,210 --> 00:45:04,750
it's really like whoever mines a block that is subsequent to either one of those blocks where

533
00:45:04,750 --> 00:45:06,890
that chain becomes kind of the source of truth.

534
00:45:07,430 --> 00:45:09,470
Yeah, this is, I think it kind of gets a little bit

535
00:45:09,470 --> 00:45:10,690
in the weeds here.

536
00:45:11,010 --> 00:45:12,010
Yeah, that's fair.

537
00:45:12,470 --> 00:45:16,130
And where I was going though then to connect for people

538
00:45:16,130 --> 00:45:18,770
is like, hey, reference the year 2140,

539
00:45:18,890 --> 00:45:22,590
maybe it's 2139, depending on how much power gets

540
00:45:22,590 --> 00:45:25,130
devoted to the network and the rate at which.

541
00:45:25,270 --> 00:45:27,750
But when there's zero Bitcoin,

542
00:45:28,770 --> 00:45:30,490
newly Bitcoin being issued

543
00:45:30,490 --> 00:45:32,290
or another contract that you have

544
00:45:32,290 --> 00:45:33,830
is that they're already issued.

545
00:45:33,830 --> 00:45:35,030
we won't go down that rabbit hole,

546
00:45:35,550 --> 00:45:40,690
but that the miners are still at that point in time enforcing the fixed

547
00:45:40,690 --> 00:45:46,230
supply and all will be left is the transaction fees.

548
00:45:46,230 --> 00:45:46,590
Right.

549
00:45:48,070 --> 00:45:51,750
You previously mentioned the concept of a full block.

550
00:45:53,270 --> 00:46:01,550
Explain that less technically and more substantively why that dynamic or what

551
00:46:01,550 --> 00:46:20,425
that dynamic is that ensures scarcity and bidding to um and maybe also tie it to the fixed supply and like just the demand for the network Yeah these are big questions So I would kind of then go back and say

552
00:46:20,545 --> 00:46:22,345
all right, so this is all, again,

553
00:46:22,865 --> 00:46:25,405
at the behest of the 21 million supply.

554
00:46:25,565 --> 00:46:28,685
The entire reason of doing all this mining

555
00:46:28,685 --> 00:46:30,485
and really everything that we're talking about

556
00:46:30,485 --> 00:46:33,825
is to ensure that the supply remains at 21 million.

557
00:46:34,165 --> 00:46:36,825
Another extremely important component

558
00:46:36,825 --> 00:46:38,545
of maintaining that fixed supply

559
00:46:38,545 --> 00:46:42,845
is that the network continues to grow in decentralization.

560
00:46:43,545 --> 00:46:46,025
And what I mean by decentralization is that

561
00:46:46,025 --> 00:46:50,945
not just that the Bitcoin itself is given into the hands of more people,

562
00:46:51,085 --> 00:46:52,985
like that's one form of decentralization, I would say,

563
00:46:53,045 --> 00:46:54,345
is more and more users,

564
00:46:54,525 --> 00:46:57,745
but also more and more people who are running the software at home,

565
00:46:57,745 --> 00:46:59,745
more and more people individually mining,

566
00:47:00,045 --> 00:47:02,065
more and more mining pools, and so on.

567
00:47:02,105 --> 00:47:07,185
So everything about Bitcoin ideally should be increasing in decentralization,

568
00:47:07,185 --> 00:47:15,405
And that really helps to kind of anchor and cement the fixed supply of 21 million.

569
00:47:17,085 --> 00:47:24,525
So I kind of lost my train of thought here, but the full nodes must be growing in decentralization.

570
00:47:25,185 --> 00:47:34,245
Otherwise, like if the network starts to kind of reverse and start to centralize, then it ends up being like, I think, a security issue and a point of failure.

571
00:47:34,245 --> 00:47:41,285
let me phrase it a different way which is there's eight billion people competing yeah for

572
00:47:41,285 --> 00:47:47,065
block space and you know they they demand uh a currency that has a fixed supply

573
00:47:47,065 --> 00:47:53,205
there's a fixed amount of block space block space right and that will so yeah to talk about that

574
00:47:53,205 --> 00:47:58,025
dynamic and then we'll talk about how after that you know your idea that you put forward why why

575
00:47:58,025 --> 00:48:01,465
inflation could never be a solution yeah sure so uh the reason i was talking about why it's so

576
00:48:01,465 --> 00:48:06,945
important that decentralization increases is because there is a real world cost to running

577
00:48:06,945 --> 00:48:13,045
the software at home. It does require, I think at this point, over a terabyte of memory,

578
00:48:13,045 --> 00:48:18,885
and it's going to grow faster. And the reason that it grows faster is that every 10 minutes,

579
00:48:19,305 --> 00:48:26,865
your computer is adding an additional few megabytes of data, and it has to store that forever.

580
00:48:26,865 --> 00:48:34,025
so the reason that there is a kind of marketplace for space in the next block is that you don't want

581
00:48:34,025 --> 00:48:40,645
to overload people's computers at home and people's databases with too much data right so it's very

582
00:48:40,645 --> 00:48:45,745
important that there's a very limited amount of data added to the blockchain every 10 minutes

583
00:48:45,745 --> 00:48:51,525
and so that also creates the the fee market and the transaction kind of bidding market that is

584
00:48:51,525 --> 00:48:58,125
really important for bitcoin's longer term success after the subsidy goes away um that you have to

585
00:48:58,125 --> 00:49:01,845
you have if your transaction is important you have to bid against you know everybody else in the

586
00:49:01,845 --> 00:49:08,845
entire world uh who wants to settle their bitcoin in 10 minutes to fit in that few megabyte uh

587
00:49:08,845 --> 00:49:15,585
block of space and yeah this is something for me that i think is just absolutely critical is that we

588
00:49:15,585 --> 00:49:18,625
maintain a really small,

589
00:49:18,745 --> 00:49:21,005
like as small as possible block space

590
00:49:21,005 --> 00:49:24,045
and try to engineer our way around

591
00:49:24,045 --> 00:49:26,165
how we can cram more value

592
00:49:26,165 --> 00:49:27,965
or more transactions or more data,

593
00:49:28,645 --> 00:49:29,925
I guess not more data,

594
00:49:30,005 --> 00:49:33,145
but more value into a limited amount of data.

595
00:49:33,685 --> 00:49:37,065
And it's, again, going all the way back

596
00:49:37,065 --> 00:49:39,665
so that we can help secure the supply of 21 million

597
00:49:39,665 --> 00:49:42,725
by ensuring that Bitcoin continues

598
00:49:42,725 --> 00:49:44,925
to decentralize in every way possible

599
00:49:44,925 --> 00:49:52,245
and people running the full software at home and being able to validate and review transaction is an absolutely critical component of that.

600
00:49:53,045 --> 00:49:59,805
And the component of that that's really important is that the amount of new data added to their computers every 10 minutes is as small as possible.

601
00:50:00,205 --> 00:50:01,745
Yeah, and it's finite and it's known.

602
00:50:01,785 --> 00:50:01,985
Yeah.

603
00:50:02,425 --> 00:50:06,245
And that also allows for the predictable rate of growth.

604
00:50:06,245 --> 00:50:18,665
That's right. If you look at other cryptocurrencies out there that have tried to cram more data into the network or the blockchain, they all end up really heavily centralized.

605
00:50:19,445 --> 00:50:28,745
Only the most advanced server farms can run the nodes because it's trying to compute and store and transmit so much data.

606
00:50:28,745 --> 00:50:37,265
So there's two typical lines of, for lack of a better term, FUD, of concern.

607
00:50:37,525 --> 00:50:41,505
And this could be people that have been involved in Bitcoin for a long time that are Bitcoin miners,

608
00:50:41,585 --> 00:50:47,745
or it could be somebody who's looking at Bitcoin for the first time that's considering mining Bitcoin or just owning Bitcoin

609
00:50:47,745 --> 00:50:52,125
and trying to grapple with the integrity of the system.

610
00:50:52,125 --> 00:51:00,845
one is that this fee market won't exist or won't be sufficient we've kind of talked about that in

611
00:51:00,845 --> 00:51:05,045
two different concepts why there's always a profit incentive and to sell electricity and that will

612
00:51:05,045 --> 00:51:11,125
hold regardless of where we're at today versus in the future because of the network having this

613
00:51:11,125 --> 00:51:18,805
self-regulation right it doesn't it doesn't require any other external currency outside of

614
00:51:18,805 --> 00:51:23,645
energy in order to be able to regulate itself yeah and then the other thing that that comes up

615
00:51:23,645 --> 00:51:32,005
as relate in relation to this is well we're going to need to create more money because we don't know

616
00:51:32,005 --> 00:51:37,425
that this is going to be sufficient so in the piece that you wrote you specifically talked about

617
00:51:37,425 --> 00:51:47,745
why inflation can never be a solution to this problem explain that concept yeah inflation uh

618
00:51:47,745 --> 00:52:04,345
We live, I guess, it's kind of like we've just lived under this inflationary environment for so long that it's almost hard for people, even staunch kind of Austrian economists, to really grasp this idea that you actually don't need any inflation.

619
00:52:04,345 --> 00:52:07,525
You want zero inflation because money is like a ruler, right?

620
00:52:07,545 --> 00:52:12,645
And you want the ruler to be the same length always so you can measure value effectively and transfer value.

621
00:52:12,645 --> 00:52:21,925
um but there's there's always there's always a few folks who just think that okay well i'm you

622
00:52:21,925 --> 00:52:27,365
know i'm feeling nervous personally about you know transaction fees not being quite enough like

623
00:52:27,365 --> 00:52:34,505
what if we just what if we just you know add a little bit more bitcoin uh you know to the block

624
00:52:34,505 --> 00:52:40,785
rewards and just change it a little bit over time add a little bit of inflation and this this like

625
00:52:40,785 --> 00:52:47,345
would throw the entire system out of whack because, again, we're building, we're doing

626
00:52:47,345 --> 00:52:51,565
all of these things in order to support the fact that Bitcoin has a fixed supply of 21

627
00:52:51,565 --> 00:52:51,865
million.

628
00:52:52,005 --> 00:52:55,805
The entire reason that we're here talking about this is because Bitcoin has a fixed

629
00:52:55,805 --> 00:52:56,665
supply of 21 million.

630
00:52:56,925 --> 00:53:00,805
If you start tampering with that, the entire network gets out of sync.

631
00:53:01,745 --> 00:53:06,625
There's been many cases of people who tried to tamper with very kind of minimal aspects

632
00:53:06,625 --> 00:53:11,245
of Bitcoin that ended up being seen as a totally separate currency.

633
00:53:11,965 --> 00:53:13,785
And this would continue to happen in the future.

634
00:53:13,905 --> 00:53:17,245
But whenever you tinker with it, there's a split.

635
00:53:17,885 --> 00:53:24,885
And then economic actors have the option to hold both, sell one, sell both, and so on.

636
00:53:25,405 --> 00:53:29,725
And when you make a change in Bitcoin, like adding inflation, for example, it would create

637
00:53:29,725 --> 00:53:30,645
a split in the network.

638
00:53:31,005 --> 00:53:33,565
I would be given Bitcoin and Bitcoin inflation.

639
00:53:33,565 --> 00:53:36,345
and then I individually have the opportunity to be like,

640
00:53:36,445 --> 00:53:38,085
all right, am I going to hold Bitcoin inflation

641
00:53:38,085 --> 00:53:39,165
or am I going to hold Bitcoin?

642
00:53:39,945 --> 00:53:41,805
And what I've personally always done

643
00:53:41,805 --> 00:53:43,705
is whenever there's a split like that,

644
00:53:43,925 --> 00:53:46,225
I always sell the one that I don't believe in immediately,

645
00:53:46,325 --> 00:53:47,325
all of it, right?

646
00:53:47,365 --> 00:53:48,265
And buy more Bitcoin.

647
00:53:49,205 --> 00:53:50,165
This has happened again,

648
00:53:50,165 --> 00:53:52,485
like many times throughout Bitcoin's history,

649
00:53:52,585 --> 00:53:55,385
Bitcoin cash being the biggest example of that.

650
00:53:55,685 --> 00:53:57,425
They weren't trying to add inflation.

651
00:53:57,425 --> 00:54:00,765
They were trying to change one little component of Bitcoin,

652
00:54:00,765 --> 00:54:06,585
but the market kind of viewed it as a form of inflation in a lot of ways, because again,

653
00:54:06,585 --> 00:54:11,885
I was given control of two different forms of money. There was one that I believed in and one

654
00:54:11,885 --> 00:54:17,665
that I didn't believe in, and I sold the one that I didn't believe in. So anyways, adding inflation

655
00:54:17,665 --> 00:54:22,685
would not only, you know, just completely break all the incentives and all the markets that exist

656
00:54:22,685 --> 00:54:28,525
right now, but it would also create a separate currency or separate form of money that economic

657
00:54:28,525 --> 00:54:33,745
actors would then have the option to sell. And so the market would very quickly punish the person

658
00:54:33,745 --> 00:54:39,365
who tried to create inflation in Bitcoin. And it would extract kind of all the value out of people

659
00:54:39,365 --> 00:54:43,465
who believed in Bitcoin inflation and the value would accrete back to Bitcoin itself.

660
00:54:43,785 --> 00:54:49,425
Yeah, I think that's really important to anchor someone who it's easy to get lost in these

661
00:54:49,425 --> 00:54:53,405
layered ways in terms of the Bitcoin network actually works. I do think it's critical for

662
00:54:53,405 --> 00:54:59,925
somebody to think about them to understand them to tie everything together but to not be lost in

663
00:54:59,925 --> 00:55:06,705
the fact that the very basis of value right the reason why all this demand for power exists

664
00:55:06,705 --> 00:55:11,845
is because the thing of value is the money that can't be printed that's right and that

665
00:55:11,845 --> 00:55:19,545
the solution can never be undoing the primary that's right value proposition and it is funny

666
00:55:19,545 --> 00:55:28,305
you brought up because bitcoin very much is of the austrian school and i didn't even realize this

667
00:55:28,305 --> 00:55:33,165
through my time of writing but i've got you know there's this one particular troll on the internet

668
00:55:33,165 --> 00:55:41,625
who will say things like hayek wouldn't have said that a fixed supply is necessary and uh i've seen

669
00:55:41,625 --> 00:55:46,605
people argue that misis wouldn't have liked uh bitcoin because he wrote about like commodity

670
00:55:46,605 --> 00:55:51,225
monies only and i'm like yeah it was a hundred years ago like yeah nothing like this could have

671
00:55:51,225 --> 00:55:57,945
even existed it's like we now live in reality where this market exists yeah and that the market

672
00:55:57,945 --> 00:56:02,885
gets to decide rather than the theory be debated which i think is one of one of the great things

673
00:56:02,885 --> 00:56:07,985
about bitcoin in general is like back you know 100 years ago where the debate between austrians

674
00:56:07,985 --> 00:56:11,945
and keynesians it was like it was a it was an intellectual debate and the keynesians won

675
00:56:11,945 --> 00:56:15,285
and their policies led the world into the brink.

676
00:56:15,465 --> 00:56:17,585
And now we have a market test

677
00:56:17,585 --> 00:56:19,525
that everyone can voluntarily opt into.

678
00:56:19,745 --> 00:56:22,705
But being very important to realize

679
00:56:22,705 --> 00:56:24,885
that the thing that makes everything work

680
00:56:24,885 --> 00:56:27,225
is that, and that aligns everybody.

681
00:56:27,425 --> 00:56:29,325
The one thing, everyone has competing interests.

682
00:56:29,445 --> 00:56:32,525
Everyone is adversarial to a degree,

683
00:56:33,085 --> 00:56:34,265
not necessarily everyone,

684
00:56:34,405 --> 00:56:36,005
but from a functional perspective of the market.

685
00:56:36,005 --> 00:56:38,845
But the one thing everyone agrees on is the fixed supply.

686
00:56:38,945 --> 00:56:41,205
And in my view, it's the one thing

687
00:56:41,205 --> 00:56:43,125
and this was part of your,

688
00:56:43,205 --> 00:56:44,345
the core part of your piece,

689
00:56:44,405 --> 00:56:46,925
which was 21 million is non-negotiable.

690
00:56:47,485 --> 00:56:50,465
That is the social consensus.

691
00:56:51,225 --> 00:56:52,425
And that, in my view,

692
00:56:52,445 --> 00:56:53,525
I want to get your thoughts on this,

693
00:56:53,525 --> 00:56:55,325
that that is the one thing

694
00:56:55,325 --> 00:56:59,945
that Bitcoin would hard fork to protect.

695
00:57:00,125 --> 00:57:01,965
If there was like an inflation bug

696
00:57:01,965 --> 00:57:03,345
or if somebody,

697
00:57:03,665 --> 00:57:04,445
it wouldn't just be like,

698
00:57:04,525 --> 00:57:06,285
oh, well, now the money exists,

699
00:57:06,285 --> 00:57:08,205
that the thing that ties it together

700
00:57:08,205 --> 00:57:10,165
and part of the enforcement of consensus

701
00:57:10,165 --> 00:57:13,565
is 21 million, but that's also because it's its basis of value.

702
00:57:13,825 --> 00:57:17,505
Yeah, I think I even wrote this in that piece, or the one before it,

703
00:57:17,825 --> 00:57:19,405
all 21 million Bitcoin already exists.

704
00:57:19,585 --> 00:57:25,305
But even assuming that there are more inflation bugs that are discovered,

705
00:57:25,505 --> 00:57:29,425
and Bitcoin, maybe for the listeners who are newer here to Bitcoin,

706
00:57:29,605 --> 00:57:31,665
Bitcoin actually had an inflation bug.

707
00:57:31,665 --> 00:57:36,625
I think back in 2013, it was patched very quickly,

708
00:57:36,625 --> 00:57:38,485
and the market,

709
00:57:38,865 --> 00:57:40,165
it wasn't just like one developer

710
00:57:40,165 --> 00:57:41,625
who's like, okay, here's the fix.

711
00:57:41,945 --> 00:57:42,385
All right.

712
00:57:43,265 --> 00:57:45,205
The market itself rallied around

713
00:57:45,205 --> 00:57:46,905
preserving the 21 million supply.

714
00:57:47,065 --> 00:57:48,185
So in that scenario where

715
00:57:48,185 --> 00:57:52,545
the inflation bug was found and patched,

716
00:57:53,065 --> 00:57:53,945
it did in fact,

717
00:57:54,385 --> 00:57:55,645
it would have in fact created

718
00:57:55,645 --> 00:57:57,425
two versions of Bitcoin,

719
00:57:57,725 --> 00:57:59,545
Bitcoin inflation bug and Bitcoin

720
00:57:59,545 --> 00:58:01,385
and the market then has that choice.

721
00:58:01,785 --> 00:58:04,425
And so I think it's-

722
00:58:04,425 --> 00:58:05,685
And that was specifically for the one,

723
00:58:05,685 --> 00:58:09,965
if it's the one I think you're talking about, where once it got done with the 21 million,

724
00:58:10,025 --> 00:58:14,345
it would restart over. I'm not sure. I don't remember the specific one. Yeah. But there's

725
00:58:14,345 --> 00:58:19,225
been maybe a few inflation bugs and, and yeah, and it is software. And so I think we can anticipate

726
00:58:19,225 --> 00:58:26,645
that there will be unforeseen bugs in the future. And that doesn't even scare me though, because

727
00:58:26,645 --> 00:58:34,765
I'm an economic actor, right? In that situation where, you know, there is a split in the network

728
00:58:34,765 --> 00:58:36,405
or there is a bug that's found,

729
00:58:36,865 --> 00:58:41,925
there will be another version that is forked off

730
00:58:41,925 --> 00:58:44,725
or depending on how you think of it,

731
00:58:44,825 --> 00:58:46,525
it continues the original idea.

732
00:58:47,185 --> 00:58:48,785
And then I'm given control

733
00:58:48,785 --> 00:58:50,385
because I have keys to Bitcoin.

734
00:58:50,585 --> 00:58:51,625
I hold keys.

735
00:58:52,065 --> 00:58:54,525
I'm given control of both splits

736
00:58:54,525 --> 00:58:56,025
and I get to decide what to do with them.

737
00:58:56,725 --> 00:58:59,705
And so as a rational economic actor,

738
00:58:59,705 --> 00:59:02,565
what I will do is sell the buggy one

739
00:59:02,565 --> 00:59:05,065
for the one that preserves the supply.

740
00:59:06,105 --> 00:59:09,225
And yeah, there will be other forks of Bitcoin in the future.

741
00:59:09,405 --> 00:59:13,165
And I think it will inevitably create forks

742
00:59:13,165 --> 00:59:15,125
and then we'll just see it's just a market test.

743
00:59:15,805 --> 00:59:17,365
Yeah, I think, and I also,

744
00:59:17,905 --> 00:59:18,885
it's similar how I think about it.

745
00:59:18,885 --> 00:59:20,545
And then for anybody evaluating,

746
00:59:20,745 --> 00:59:22,945
it's like, hey, 99 out of 100 people,

747
00:59:22,945 --> 00:59:26,425
would they opt for the version of Bitcoin

748
00:59:26,425 --> 00:59:30,405
that preserved fixed supply versus any alternative?

749
00:59:30,405 --> 00:59:52,305
Yeah, I think I think this whole and I already touched on it briefly, but really one of the most critical events in Bitcoin's history was when Bitcoin cash forked off of Bitcoin and there were two very similar but competing versions of Bitcoin that existed at the same time in the free market.

750
00:59:52,305 --> 00:59:58,685
and the reason that that's so important is you can kind of just run that uh you first of all we

751
00:59:58,685 --> 01:00:05,445
saw what happened like very rapidly uh bitcoin cash tanked in value relative to bitcoin and now

752
01:00:05,445 --> 01:00:11,365
it's not even i don't even this is like a minuscule fraction it's essentially dead there's still people

753
01:00:11,365 --> 01:00:19,785
out there that swear those poor souls um but uh contrarians till the very end

754
01:00:19,785 --> 01:00:28,445
but but but you can just see like all of the hash power moved over very quickly moved over to bitcoin

755
01:00:28,445 --> 01:00:33,165
um you know there was still quite a bit amount of hash power on bitcoin cash but it was all

756
01:00:33,165 --> 01:00:38,705
subsidized by uh the the kind of proponents of bitcoin cash and they could only do it for so long

757
01:00:38,705 --> 01:00:46,585
because you really can't outlast economic reality right yeah that's a it's an important concept of

758
01:00:46,585 --> 01:00:49,945
that was the market set of value on one versus the other.

759
01:00:50,405 --> 01:00:54,785
And that connects into that idea of what the market is willing to pay for

760
01:00:54,785 --> 01:00:55,085
power.

761
01:00:55,165 --> 01:00:55,465
That's right.

762
01:00:55,725 --> 01:00:55,965
Right.

763
01:00:56,025 --> 01:00:57,365
And that the,

764
01:00:57,365 --> 01:00:57,705
the,

765
01:00:57,705 --> 01:01:02,265
the market Bitcoin increasing in value,

766
01:01:02,265 --> 01:01:03,145
or if there's a,

767
01:01:03,225 --> 01:01:06,825
if there's a split or someone proposes a change and one is described more

768
01:01:06,825 --> 01:01:07,605
value than the other,

769
01:01:07,605 --> 01:01:11,465
then it is a pure economic demand for power.

770
01:01:11,465 --> 01:01:15,705
And if you have a fixed cost functionally as a producer,

771
01:01:15,705 --> 01:01:19,805
as a miner, you are going to mine what the market value is the most.

772
01:01:19,925 --> 01:01:20,225
Absolutely.

773
01:01:20,585 --> 01:01:26,585
Yeah, you'll see very quickly the value in the subsidy, if there's any subsidy remaining,

774
01:01:26,725 --> 01:01:29,045
or the transaction fees that are being paid.

775
01:01:29,685 --> 01:01:33,845
And yeah, that will dictate a good business decision there.

776
01:01:34,105 --> 01:01:35,185
Yeah, and I tend to agree.

777
01:01:35,185 --> 01:01:40,125
I'd have to give it more thought in terms of singularly, was that the most important

778
01:01:40,152 --> 01:01:46,472
i don't know but i was i was like bitcoin had just started to click for me at the time so i was

779
01:01:46,472 --> 01:01:53,872
more of a outside observer than i'd say an active participant in the debate for sure i was not

780
01:01:53,872 --> 01:02:01,312
but but observing it and then and then looking into the future there hasn't been a contentious

781
01:02:01,312 --> 01:02:09,232
hard fork yet and my my assessment is it was like there was change bitcoin versus not change and

782
01:02:09,232 --> 01:02:12,252
that even though it was something that

783
01:02:12,252 --> 01:02:14,692
might have been marginal,

784
01:02:14,852 --> 01:02:15,952
I mean, there were good arguments

785
01:02:15,952 --> 01:02:17,472
for why it wasn't marginal.

786
01:02:17,612 --> 01:02:18,652
It wasn't marginal for me,

787
01:02:18,792 --> 01:02:20,492
but in the grand scheme of things,

788
01:02:20,492 --> 01:02:21,572
it wasn't like they were trying

789
01:02:21,572 --> 01:02:22,992
to add inflation to Bitcoin,

790
01:02:23,132 --> 01:02:25,332
which would be a way crazier change in my view.

791
01:02:25,552 --> 01:02:26,812
Right, but that once,

792
01:02:27,912 --> 01:02:29,112
if it were established

793
01:02:29,112 --> 01:02:31,352
that you could change a core rule,

794
01:02:31,972 --> 01:02:35,172
then you'd follow that down the path.

795
01:02:35,392 --> 01:02:37,452
It's, well, we've set a precedent

796
01:02:37,452 --> 01:02:39,992
and how do I know something more significant

797
01:02:39,992 --> 01:02:41,032
isn't going to change?

798
01:02:41,232 --> 01:02:43,072
There's always going to be a future bigger emergency.

799
01:02:43,512 --> 01:02:43,692
Yeah.

800
01:02:45,092 --> 01:02:45,572
Now,

801
01:02:46,352 --> 01:02:50,012
and this is kind of along the same lines of conversation,

802
01:02:50,092 --> 01:02:51,692
but we might need to connect it for folks.

803
01:02:52,672 --> 01:02:54,232
I'll ask the question,

804
01:02:54,592 --> 01:02:55,532
and maybe then elaborate,

805
01:02:55,712 --> 01:02:56,032
but it says,

806
01:02:56,032 --> 01:02:58,572
does the Bitcoin network need to quote,

807
01:02:58,712 --> 01:03:03,712
create more use cases for Bitcoin to drive fee rates?

808
01:03:04,112 --> 01:03:05,352
And I think when people talk about,

809
01:03:05,352 --> 01:03:08,812
well, we need more monetary use cases.

810
01:03:08,932 --> 01:03:10,752
I'm not 100% sure what they mean

811
01:03:10,752 --> 01:03:13,952
other than create more transactions.

812
01:03:14,512 --> 01:03:19,952
How do you think about the engineering of Bitcoin

813
01:03:19,952 --> 01:03:23,452
or potential debates around changes to Bitcoin

814
01:03:23,452 --> 01:03:29,432
as it relates to creating more demand for Bitcoin?

815
01:03:29,652 --> 01:03:32,932
Like the relationship between changing the surface area

816
01:03:32,932 --> 01:03:39,172
of how Bitcoin works for this idea of creating use cases or demand.

817
01:03:41,252 --> 01:03:43,432
Yeah, that one's a, it's funny.

818
01:03:43,512 --> 01:03:47,272
It's like, I can, I can give my opinion on it, but I think that's just it.

819
01:03:47,312 --> 01:03:50,992
At the end of the day, it's an opinion and everybody has their own kind of opinions there.

820
01:03:50,992 --> 01:03:51,192
Right.

821
01:03:51,212 --> 01:03:55,492
And it's like, we need to create more use cases.

822
01:03:55,632 --> 01:03:57,772
No, we don't need to create more use cases.

823
01:03:57,772 --> 01:04:02,512
If you individually feel like you want to create a new use case, like go for it.

824
01:04:02,932 --> 01:04:06,132
Um, but there is no real, we here in Bitcoin.

825
01:04:06,132 --> 01:04:10,592
Like I think a lot of people think that there's a, uh, like a small group of people who kind

826
01:04:10,592 --> 01:04:11,412
of control everything.

827
01:04:11,412 --> 01:04:14,552
And I, I just, I still don't believe that that's the case.

828
01:04:14,552 --> 01:04:23,812
Um, and I definitely don't think that, you know, any, any one company or individual is

829
01:04:23,812 --> 01:04:30,432
going to be able to have the political sway to, uh, generate more demand or different

830
01:04:30,432 --> 01:04:31,812
types of demand for Bitcoin.

831
01:04:31,812 --> 01:04:38,952
And I think people, it's funny, it's like, you know, in the national forest or whatever, right?

832
01:04:38,952 --> 01:04:44,472
You have these beautiful, you know, in the redwoods, you have these massive trees or whatever.

833
01:04:44,672 --> 01:04:51,032
And somebody like carves like, you know, Phil was here on one of the, on one of the trunks.

834
01:04:51,072 --> 01:04:58,432
I think it's just like humans kind of have this desire to like, you know, leave their mark on something.

835
01:04:58,432 --> 01:05:10,392
And I think it's kind of what I think of when I think of like the whole ordinal debate from last year or whatever, where it's just like the blockchain is this beautiful redwood and it is so pristine and glorious.

836
01:05:10,392 --> 01:05:18,512
And like, yeah, somebody is going to want to come up and just carve, you know, whatever ordinals were here and you can't really stop them.

837
01:05:19,332 --> 01:05:21,572
It's not what I would choose to do.

838
01:05:21,572 --> 01:05:36,672
I don't think that like architecting new and different use cases for Bitcoin outside of it just being a great form of money is required for it to succeed beyond its wildest beyond our wildest dreams.

839
01:05:36,812 --> 01:05:41,492
But like I know that my opinion there isn't going to stop somebody from doing it.

840
01:05:41,552 --> 01:05:43,252
And so I don't know.

841
01:05:43,512 --> 01:05:44,252
I don't really.

842
01:05:44,472 --> 01:05:50,432
Yeah, I think like my answer is no, we don't need to figure out more and different use cases for Bitcoin.

843
01:05:50,432 --> 01:05:55,152
if you feel like there aren't enough transactions happening one of the best things that you could do

844
01:05:55,152 --> 01:06:01,072
is start making more transactions or sell a product for bitcoin that is just so good that

845
01:06:01,072 --> 01:06:07,132
you can get people to part with their bitcoin and send transactions um but outside of that no i don't

846
01:06:07,132 --> 01:06:13,732
think we need to like really do a lot of additional engineering there yeah and i think it's some it is

847
01:06:13,732 --> 01:06:23,412
good to reinforce that there is no we right right um and that it is the market yeah um and it's so

848
01:06:23,412 --> 01:06:30,512
funny it's like some of the articles from altcoin marketers are like bitcoiners need to figure out

849
01:06:30,512 --> 01:06:36,292
this security budget issue and it's like first of all who are you talking to like bitcoin is

850
01:06:36,292 --> 01:06:42,672
you can't just like talk to gold gold needs to figure out how much gold there is like you don't

851
01:06:42,672 --> 01:06:48,232
say something like that right it's like um i guess it's they're really just it's like an affinity

852
01:06:48,232 --> 01:06:52,652
scam where they're their product is extremely centralized and so they have a small group of

853
01:06:52,652 --> 01:06:56,972
people and so they're trying to like show that bitcoin functions the same way when bitcoin is

854
01:06:56,972 --> 01:07:03,572
extremely different but uh yeah it's kind of like pissing into the wind bitcoin needs to do this

855
01:07:03,572 --> 01:07:04,672
It's like, all right.

856
01:07:05,232 --> 01:07:10,772
Yeah, and so with that kind of framework or heuristic

857
01:07:10,772 --> 01:07:12,572
that there is no we,

858
01:07:13,112 --> 01:07:17,672
and realistically, you can control what you can control.

859
01:07:18,152 --> 01:07:19,992
If there's a fork of Bitcoin, you can sell it.

860
01:07:19,992 --> 01:07:23,912
If you're running a node, you can run certain code.

861
01:07:26,772 --> 01:07:31,812
The market does have, in different ways,

862
01:07:31,812 --> 01:07:42,052
a decision-making mechanism how do you think about the risks of centralization in bitcoin to the

863
01:07:42,052 --> 01:07:48,732
integrity of the economic incentives because it is both true that there is no we and you're only

864
01:07:48,732 --> 01:07:56,152
in control of of i yep and that could be selling goods and services for bitcoin and sending bitcoin

865
01:07:56,152 --> 01:08:01,132
trying to decide to pay in bitcoin like there's a lot that you're in control of but that there still

866
01:08:01,132 --> 01:08:08,832
is this market mechanism that adds up centralization in bitcoin is and you mentioned

867
01:08:08,832 --> 01:08:14,092
earlier that decentralization is important but speak to like tying the economic incentives

868
01:08:14,092 --> 01:08:19,772
together and and bridging the gap between hey there really truly is no we but why

869
01:08:19,772 --> 01:08:24,312
centralization risk could potentially distort incentives

870
01:08:24,312 --> 01:08:34,392
or if you don't see risks that you know it's like centralization is is in any form i think is a big

871
01:08:34,392 --> 01:08:39,392
risk in bitcoin and so when we're when we're thinking about like more use cases of bitcoin

872
01:08:39,392 --> 01:08:56,787
that that the use case that i want to see totally eradicated it like the somebody who trying to co or send centralized bitcoin like the more engineering time and energy and resources we can focus on um eliminating those kind of like centralization choke points that

873
01:08:56,787 --> 01:09:03,207
that's where i think you know i i would spend most of my time if if i could you know engineer

874
01:09:03,207 --> 01:09:07,767
bitcoin that's what i would focus on is like different ways to increase decentralization

875
01:09:07,767 --> 01:09:12,267
because, you know, decentralization is, it's so funny.

876
01:09:12,387 --> 01:09:14,267
It's not binary at all.

877
01:09:14,447 --> 01:09:17,487
It's not like a, you are centralized or you are decentralized.

878
01:09:17,787 --> 01:09:19,367
It's very much a spectrum.

879
01:09:19,947 --> 01:09:22,747
And so in my view, what's really important

880
01:09:22,747 --> 01:09:24,687
about Bitcoin's decentralization

881
01:09:24,687 --> 01:09:28,987
is that it just increases in any and every way,

882
01:09:29,067 --> 01:09:31,547
like more miners, more users, more nodes,

883
01:09:32,147 --> 01:09:35,307
you know, more transactions, like all of that.

884
01:09:35,307 --> 01:09:38,647
we saw 80,000 Bitcoin moved last week

885
01:09:38,647 --> 01:09:40,547
and then I think just today we learned that

886
01:09:40,547 --> 01:09:43,347
30,000 of it was just sold or something.

887
01:09:44,347 --> 01:09:46,107
I love that. I love it.

888
01:09:46,347 --> 01:09:49,627
That is 30,000 Bitcoin that are now being decentralized

889
01:09:49,627 --> 01:09:51,707
further out into the ecosystem.

890
01:09:52,207 --> 01:09:53,327
They'll never get them back.

891
01:09:54,587 --> 01:09:57,507
Maybe they will, but what I love to see is

892
01:09:57,507 --> 01:10:00,867
just large OG holders

893
01:10:00,867 --> 01:10:02,007
that are starting to sell.

894
01:10:02,007 --> 01:10:06,967
that's how the units of Bitcoin

895
01:10:06,967 --> 01:10:09,747
actually decentralize out into the hands of different people

896
01:10:09,747 --> 01:10:12,707
but yeah, decentralization in all facets is really where I'm at

897
01:10:12,707 --> 01:10:16,187
I agree too with the idea that

898
01:10:16,187 --> 01:10:20,607
the point that you mentioned about

899
01:10:20,607 --> 01:10:24,207
we never know how much decentralization is enough

900
01:10:24,207 --> 01:10:28,527
and you really can't know whether Bitcoin

901
01:10:28,527 --> 01:10:32,047
sufficiently decentralized to resist some threat

902
01:10:32,047 --> 01:10:34,287
until the threat appears.

903
01:10:34,887 --> 01:10:37,767
And you could think of that as someone hard-forking Bitcoin

904
01:10:37,767 --> 01:10:39,787
and doubling the block size

905
01:10:39,787 --> 01:10:42,707
or proposing any change to Bitcoin

906
01:10:42,707 --> 01:10:44,887
and whether it's followed or not.

907
01:10:45,967 --> 01:10:49,527
And then the other aspect of it, though,

908
01:10:49,567 --> 01:10:53,187
is that there are areas of Bitcoin that are more centralized than less.

909
01:10:53,907 --> 01:10:56,547
And so while it's always an endeavor

910
01:10:56,547 --> 01:10:58,787
without there being central coordination

911
01:10:58,787 --> 01:11:01,727
to advance different aspects of Bitcoin

912
01:11:01,727 --> 01:11:06,187
that are potentially more centralized than less

913
01:11:06,187 --> 01:11:08,987
and efforts to increasingly decentralize those

914
01:11:08,987 --> 01:11:12,387
without knowing what the defined bogey is.

915
01:11:13,007 --> 01:11:15,327
But mining is one of those areas

916
01:11:15,327 --> 01:11:19,187
where there are centralization risks.

917
01:11:19,827 --> 01:11:21,487
Like questions specific to there.

918
01:11:21,827 --> 01:11:21,967
Yeah.

919
01:11:22,307 --> 01:11:24,747
Like if there were risks there

920
01:11:24,747 --> 01:11:27,107
from a centralization perspective,

921
01:11:27,107 --> 01:11:28,887
in your mind, what would they be?

922
01:11:28,887 --> 01:11:32,427
And then also, what makes you sleep at night

923
01:11:32,427 --> 01:11:36,847
that doesn't cause you to lose sleep

924
01:11:36,847 --> 01:11:39,307
because you understand the incentives of Bitcoin,

925
01:11:39,467 --> 01:11:42,227
why you think the incentives of Bitcoin are secure

926
01:11:42,227 --> 01:11:43,987
despite those potential risks?

927
01:11:44,387 --> 01:11:47,907
I think mining itself is,

928
01:11:48,787 --> 01:11:52,307
the actual act of plugging in ASICs

929
01:11:52,307 --> 01:11:54,567
and selling hash electricity to the network

930
01:11:54,567 --> 01:12:02,787
is pretty decentralized. What is more centralized than I would like is the number of mining pools

931
01:12:02,787 --> 01:12:06,727
that are out there. So the way that it works, right, is if you have a single computer,

932
01:12:07,107 --> 01:12:13,587
single ASIC, and you want to mine, you point your hash rate towards what's known as a mining pool.

933
01:12:13,707 --> 01:12:17,507
And the mining pool is the one that actually constructs the block and says, all right,

934
01:12:17,507 --> 01:12:23,507
here's a block that we're all going to be working on. Your individual computer chip is going to be

935
01:12:23,507 --> 01:12:32,847
focusing on processing that block. So there's a very limited number of mining pools out there

936
01:12:32,847 --> 01:12:38,247
and they're set up in different ways with different payouts. And I think we, you know,

937
01:12:38,267 --> 01:12:45,567
what I gather is that we've kind of settled on the best way to pay out individual miners,

938
01:12:45,567 --> 01:12:49,967
or at least like the most practical way to pay out individual miners. The problem is,

939
01:12:49,967 --> 01:12:56,087
is you're trusting the mining pool to actually be honest with the transactions that they're

940
01:12:56,627 --> 01:13:01,307
including in their block. You're trusting them to not be taking like a bunch of fees on the side to

941
01:13:01,307 --> 01:13:06,147
put a transaction in that you might not have really wanted included, or you might not have

942
01:13:06,147 --> 01:13:11,687
wanted to spend your electricity on. And, uh, and there are, there are a lot of the mining pools

943
01:13:11,687 --> 01:13:16,407
are kind of under the control of just a few different, like larger organizations. So I really

944
01:13:16,407 --> 01:13:23,367
think uh there's a lot of good work being done uh to to decentralize that right now um stratum v2

945
01:13:23,367 --> 01:13:29,167
is the one that i'm most familiar with and i would say i'm relatively unfamiliar with it but the way

946
01:13:29,167 --> 01:13:37,107
that i understand it is that with stratum v2 you individually can construct your own block

947
01:13:37,107 --> 01:13:43,107
and then contribute your hash power but still be able to contribute your hash power to a mining pool

948
01:13:43,107 --> 01:13:48,927
a pool of ASICs, but you're able to really define what goes into your block. So I think that would be

949
01:13:48,927 --> 01:13:58,087
a tremendous help for decentralizing mining. What allows me to sleep like a baby today is that

950
01:13:58,087 --> 01:14:06,467
the actual ASICs, the chips themselves, and the places that are running the Bitcoin mines

951
01:14:06,467 --> 01:14:08,247
are extremely decentralized.

952
01:14:08,247 --> 01:14:10,887
And if they catch wind that a mining pool

953
01:14:10,887 --> 01:14:15,227
is trying to stiff them on fees

954
01:14:15,227 --> 01:14:17,207
or is acting maliciously,

955
01:14:17,207 --> 01:14:19,807
they can very quickly point their hash rate

956
01:14:19,807 --> 01:14:21,287
to another mining pool.

957
01:14:22,127 --> 01:14:23,667
Again, I wish there were more mining pools.

958
01:14:23,967 --> 01:14:25,147
Yeah, where I was going to ask there,

959
01:14:25,207 --> 01:14:26,407
if there's few mining pools,

960
01:14:27,587 --> 01:14:30,287
that seems to be the crux of it.

961
01:14:30,327 --> 01:14:31,927
It's like this idea that you can change,

962
01:14:32,007 --> 01:14:33,467
but if there's relatively few

963
01:14:33,467 --> 01:14:34,867
and they're in coordination,

964
01:14:34,867 --> 01:14:43,667
is it practically yeah i think that's a good question i i think you know you can i think if

965
01:14:43,667 --> 01:14:50,567
there was uh enough of a suspicion that the mining pools were behaving maliciously it would be

966
01:14:50,567 --> 01:14:57,287
relatively straightforward to set up your own mining pool um it's just again the mining pools

967
01:14:57,287 --> 01:15:02,387
are pretty well understood how they function and how to best operate them i'm sure you know i'm

968
01:15:02,387 --> 01:15:08,987
way oversimplifying there, but, uh, because it's permissionless, you can still set up your own

969
01:15:08,987 --> 01:15:15,127
mining pool and start, uh, pointing your hash rate there. Uh, and these aren't, you know, these are

970
01:15:15,127 --> 01:15:20,047
big problems, but they're not catastrophic problems. Like setting up a mining pool is not

971
01:15:20,047 --> 01:15:28,507
a, uh, huge barrier to entry in the worst case scenario. Um, but yeah, I do think that

972
01:15:28,507 --> 01:15:36,967
the engineering that goes into kind of decentralizing mining pools is very valuable

973
01:15:36,967 --> 01:15:42,147
uh right now yeah and you know one of the ways i think about i want to get your thoughts on this

974
01:15:42,147 --> 01:15:50,387
is that there's a view of it that is that it's always the marginal next block and i can switch

975
01:15:50,387 --> 01:16:02,302
And so the perception of the risk as a Bitcoin miner or somebody that isn Bitcoin mining that is a stakeholder network because they own Bitcoin It like

976
01:16:02,362 --> 01:16:02,602
well,

977
01:16:02,722 --> 01:16:03,042
if,

978
01:16:03,102 --> 01:16:05,662
if one becomes compromised or if,

979
01:16:05,742 --> 01:16:05,862
you know,

980
01:16:05,862 --> 01:16:07,222
and that might be,

981
01:16:07,222 --> 01:16:07,642
um,

982
01:16:08,482 --> 01:16:08,862
you know,

983
01:16:09,982 --> 01:16:12,522
siphoning off fees that are out of band and not,

984
01:16:12,522 --> 01:16:12,962
you know,

985
01:16:12,962 --> 01:16:15,362
properly rewarding the miners that are actually hashing,

986
01:16:15,402 --> 01:16:16,242
but it also could be,

987
01:16:16,242 --> 01:16:17,482
you know,

988
01:16:17,482 --> 01:16:20,942
running different versions of the software and effectively not including

989
01:16:20,942 --> 01:16:27,022
specific transactions yeah there's this parallel to you know if you have your bitcoin at coinbase

990
01:16:27,022 --> 01:16:34,702
coinbase is running the node for you and they're basically deciding what's yours and not and you

991
01:16:34,702 --> 01:16:39,042
might say hey there's the rule of law and you know i i should be able to get to choose this after the

992
01:16:39,042 --> 01:16:44,262
fact but if they make a decision you're you're in this position of weakness and and if it's your

993
01:16:44,262 --> 01:16:50,382
funds if you say if it's your life savings it's all or none right with bitcoin money there's this

994
01:16:50,382 --> 01:16:56,022
view that it's not the same because it's the marginal next block and if something happens

995
01:16:56,022 --> 01:17:02,602
that we can change but if you do you see a parallel there you know of like the individual

996
01:17:02,602 --> 01:17:10,342
hashes pointing at the aggregation point being the pool um and the you know holder and the

997
01:17:10,342 --> 01:17:17,262
incentives with someone like an exchange in coinbase i gotta say i think the using a custodian

998
01:17:17,262 --> 01:17:21,122
for Bitcoin is a significantly higher risk for your Bitcoin

999
01:17:21,122 --> 01:17:24,162
than mining pool centralization.

1000
01:17:24,822 --> 01:17:25,822
I think...

1001
01:17:25,822 --> 01:17:28,282
But it's predicated on the idea that you could switch.

1002
01:17:29,542 --> 01:17:34,082
And what if you functionally couldn't

1003
01:17:34,082 --> 01:17:35,522
at the time that you needed to,

1004
01:17:35,582 --> 01:17:37,562
in the sense that you might be able to change,

1005
01:17:37,662 --> 01:17:41,662
but what if all of the large mining pools are in coordination?

1006
01:17:42,162 --> 01:17:45,662
Just that changing doesn't really...

1007
01:17:45,662 --> 01:17:52,562
um have the impact that you were expecting it to like does it is it then more similar i know i know

1008
01:17:52,562 --> 01:17:57,622
that like there's always going to be a difference because you have some option but like if they have

1009
01:17:57,622 --> 01:18:03,542
your bitcoin they have your bitcoin right i know it's never going to be the same acuteness but um

1010
01:18:03,542 --> 01:18:10,942
yeah it's i mean it's a tough hypothetical right because like uh you know okay so all the mining

1011
01:18:10,942 --> 01:18:17,782
pools start colluding and don't include you know a transaction like again in that situation there

1012
01:18:17,782 --> 01:18:22,262
could be a time period where you're saying you just say hey i gotta turn off my my chips and

1013
01:18:22,262 --> 01:18:27,002
like not devote any hash rate to this during that time you know it's a couple weeks or whatever maybe

1014
01:18:27,002 --> 01:18:31,082
you spin up a mining pool and say all right here's a mining pool here's we're you know stratum v2

1015
01:18:31,082 --> 01:18:37,782
we're verifiably uh honest or whatever um i think you would see rapid adoption there right because

1016
01:18:37,782 --> 01:18:43,442
it's like again you know that's where the kind of human politics come into play where i don't think

1017
01:18:43,442 --> 01:18:51,022
that you know bitcoiners and miners around the entire world are just going to sit and let a few

1018
01:18:51,022 --> 01:18:59,322
organizations um corrupt the system right forever right yeah like one of the things i'm getting is

1019
01:18:59,322 --> 01:19:05,782
like do you think that is there and there was a quote i don't need to i'll read it because it's

1020
01:19:05,782 --> 01:19:10,322
the same thing that i would have i would have said yeah the thing where is like as a result of

1021
01:19:10,322 --> 01:19:15,402
fixed rules fierce competition increasing scale and specialization bitcoin mining becomes more

1022
01:19:15,402 --> 01:19:20,382
decentralized over time with further increased security mining pools in my mind have become

1023
01:19:20,382 --> 01:19:25,142
more centralized over time which is again i would have i would have had the same exact view of you

1024
01:19:25,142 --> 01:19:34,022
and it's like the thing that i would have expected to happen has not and it is difficult to see how

1025
01:19:34,022 --> 01:19:40,342
you know in that idea that like one individual making a decision doesn't influence it

1026
01:19:40,342 --> 01:19:51,122
is it is it something like a mount gox or the pools that incentivizes this distribution where

1027
01:19:51,122 --> 01:20:02,162
where greater um risk is ascribed of like the tail risk that that forces a cleansing of the

1028
01:20:02,162 --> 01:20:08,602
system in a in a more decentralized version or do you think that you know people look forward and

1029
01:20:08,602 --> 01:20:14,222
say hey it's not in any of our incentives for this degree of centralization to exist as miners

1030
01:20:14,222 --> 01:20:27,102
and force the change prior to um some yeah i think okay i think i think it it happens before

1031
01:20:27,102 --> 01:20:34,682
it's not going to be like a catastrophic malicious mining pool breakdown i mean it could be but i do

1032
01:20:34,682 --> 01:20:41,842
think you know if you're marathon or riot or whatever and you get so big that you're running

1033
01:20:41,842 --> 01:20:48,862
like a significant chunk of a mining pools you know marathon's credit they do but i think they

1034
01:20:48,862 --> 01:20:53,602
run their own pool right i think like where you're going is right like the the riots of the world or

1035
01:20:53,602 --> 01:20:54,982
the core scientifics of the world.

1036
01:20:55,262 --> 01:20:55,422
Yeah.

1037
01:20:56,502 --> 01:20:59,002
If you're getting large enough

1038
01:20:59,002 --> 01:21:01,762
from your Bitcoin treasury operations

1039
01:21:01,762 --> 01:21:03,102
that we started the whole conversation with,

1040
01:21:03,442 --> 01:21:06,562
that you're now running a significant chunk

1041
01:21:06,562 --> 01:21:07,982
of a pool's hash rate,

1042
01:21:08,142 --> 01:21:12,662
like, yeah, it's going to be in your economic best interest

1043
01:21:12,662 --> 01:21:14,342
to just create your own pool.

1044
01:21:14,922 --> 01:21:17,782
And then you can verify exactly

1045
01:21:17,782 --> 01:21:19,642
what transactions are going into it.

1046
01:21:20,142 --> 01:21:23,462
So I think, and this is all in this hypothetical situation

1047
01:21:23,462 --> 01:21:26,602
where new technological breakthroughs don't come out.

1048
01:21:26,782 --> 01:21:29,242
Maybe Stratum v2 just becomes wildly popular

1049
01:21:29,242 --> 01:21:33,722
in the next few years and super easy to use,

1050
01:21:33,782 --> 01:21:34,942
and then it just becomes no-brainer.

1051
01:21:35,202 --> 01:21:39,402
I think a vast majority of individuals who are mining

1052
01:21:39,402 --> 01:21:42,322
are going to just go with the solution

1053
01:21:42,322 --> 01:21:45,242
that is the most profitable and easiest,

1054
01:21:45,902 --> 01:21:48,522
until they're large enough, and then it's like,

1055
01:21:48,562 --> 01:21:49,582
okay, we have to figure out,

1056
01:21:49,642 --> 01:21:51,382
because this is a major business risk to us.

1057
01:21:51,382 --> 01:21:53,022
Yeah, I think that's key.

1058
01:21:53,022 --> 01:21:55,422
It's like when it becomes apparent to them that it's a business risk.

1059
01:21:55,422 --> 01:21:55,642
Yeah.

1060
01:21:55,842 --> 01:22:01,202
And, you know, with the existing state of the market,

1061
01:22:01,202 --> 01:22:04,722
it does become logical for those largest to move first.

1062
01:22:06,542 --> 01:22:08,842
Well, I think I've covered everything I want to cover.

1063
01:22:09,462 --> 01:22:13,922
The last thing I wanted to ask is as part of Summer of Fill

1064
01:22:13,922 --> 01:22:19,242
and, you know, we both were at Unchained and, you know,

1065
01:22:19,242 --> 01:22:27,662
you after me achieved some serious milestones there 100 000 bitcoin on the platform um now

1066
01:22:27,662 --> 01:22:34,342
shifting your attention elsewhere what are the things that you look out in the world of bitcoin

1067
01:22:34,342 --> 01:22:40,062
that that interests you that you're focused on you're now an advisor to um branta branta yep

1068
01:22:40,062 --> 01:22:46,642
branta um that helps improve the security on sending on-chain transactions or maybe in general

1069
01:22:46,642 --> 01:22:49,662
But just what's on the horizon?

1070
01:22:50,662 --> 01:22:52,222
What's piqued your interest?

1071
01:22:52,682 --> 01:22:57,342
Yeah, well, I mean, my time at Unchained has been absolutely unforgettable.

1072
01:22:57,942 --> 01:23:15,577
And yeah achieving like over 100 Bitcoin secured on the platform and over a billion dollars of lending originations And the company company itself is just a rocket ship I mean it it awesome and loved my time there but I yeah I have had a nice kind of couple of months step back um to really reevaluate

1073
01:23:15,577 --> 01:23:21,277
what I want to be doing and, um, posted a couple of tweets out there and got a lot of really

1074
01:23:21,277 --> 01:23:26,697
awesome, um, inbound interest. And I would kind of break down the different categories into like,

1075
01:23:26,697 --> 01:23:30,457
new Bitcoin collateralized lending products,

1076
01:23:31,037 --> 01:23:34,157
new technical Bitcoin products,

1077
01:23:34,757 --> 01:23:37,577
and new kind of financial

1078
01:23:37,577 --> 01:23:40,337
or tax advantage Bitcoin products,

1079
01:23:40,377 --> 01:23:41,097
as well as, you know,

1080
01:23:41,117 --> 01:23:42,397
like the Bitcoin treasury companies.

1081
01:23:42,977 --> 01:23:44,517
So those are kind of the different categories

1082
01:23:44,517 --> 01:23:46,397
of folks that I've spoken with.

1083
01:23:47,097 --> 01:23:51,077
And why I decided to join Bronte as an advisor

1084
01:23:51,077 --> 01:23:53,837
is because it's solving a problem

1085
01:23:53,837 --> 01:23:55,377
that I think is actually near and dear

1086
01:23:55,377 --> 01:23:56,277
to both of our hearts.

1087
01:23:56,277 --> 01:24:09,137
Like we, uh, I was, I was reflecting back on it, but Unchained has a feature where you can, before, you know, sending Bitcoin into your vault, you can verify that you have the keys to your Bitcoin address by using your hardware wallets.

1088
01:24:09,257 --> 01:24:24,657
And one of the reasons that, uh, we worked on this, uh, together back in like 2020, I think, is because there was a big discussion at one of the early Baltic honey badger conferences about, uh, malicious browser extensions, swapping Bitcoin addresses.

1089
01:24:24,657 --> 01:24:29,117
And so we're like, OK, you know, Unchained was already very secure at that time.

1090
01:24:29,537 --> 01:24:42,257
But adding the ability to actually confirm offline that you have your address and you can see that you're about to send to your real address and not some attacker was a really awesome competitive advantage for Unchained.

1091
01:24:42,997 --> 01:24:48,837
So when I met with Keith from Bronta, he was solving the problem in a very similar way.

1092
01:24:48,837 --> 01:24:57,757
um bronta is it gives you an additional verification before you send bitcoin transactions around that

1093
01:24:57,757 --> 01:25:03,417
uh the address that you see on your screen is valid now it's never going to be quite as strong

1094
01:25:03,417 --> 01:25:08,517
of a verification as confirming that you control the keys to your address with an offline hardware

1095
01:25:08,517 --> 01:25:14,317
wallet but um the problem with just confirming that it's your address is that when you want to

1096
01:25:14,317 --> 01:25:18,517
send to somebody else it's like well how do you confirm that that address is there to us working

1097
01:25:18,517 --> 01:25:22,537
at ZapRite of bridging this gap to be able to make payments more secure.

1098
01:25:22,797 --> 01:25:26,217
Yeah, exactly. So I met with Keith and this is just a problem that I've

1099
01:25:26,217 --> 01:25:30,057
been really passionate about, having broad address verification

1100
01:25:30,057 --> 01:25:34,257
or helping popularize it at Unchained. And he was solving this problem

1101
01:25:34,257 --> 01:25:38,437
in a really novel way for both inbound and

1102
01:25:38,437 --> 01:25:41,397
outbound transactions on Mainnet and Lightning.

1103
01:25:42,177 --> 01:25:46,197
The first release is actually available now. It's a pretty

1104
01:25:46,197 --> 01:25:52,137
lightweight and privacy preserving release but essentially at the moment that you're about to

1105
01:25:52,137 --> 01:25:58,677
send the transaction you'll have a button that says verify with bronta um the whatever company

1106
01:25:58,677 --> 01:26:04,837
you're working with they'll at that time uh like ping bronta's servers with an address and then

1107
01:26:04,837 --> 01:26:10,957
bronta will verify that it is uh valid and show you yep this is a valid address or no and specifically

1108
01:26:10,957 --> 01:26:15,677
what it's designed to protect right now is like zero day exploits and browser extensions um

1109
01:26:15,677 --> 01:26:22,477
there's a more kind of robust product that keith is envisioning um but yeah even the first version

1110
01:26:22,477 --> 01:26:27,877
of it is just like a really great double check um before you're moving around transactions i think of

1111
01:26:27,877 --> 01:26:33,497
it you know you know it's not just valuable for like an individual it's also valuable for

1112
01:26:33,497 --> 01:26:38,937
exchanges moving funds and settling across it's like hey about to move i keep using 80 000 bitcoin

1113
01:26:38,937 --> 01:26:43,317
but that's kind of the topic du jour you're about to move 80 000 bitcoin michael saylor wants to

1114
01:26:43,317 --> 01:26:50,197
move his 600,000 Bitcoin off of an exchange and, you know, into the keys that he controls,

1115
01:26:50,397 --> 01:26:51,497
you know, he's going to need.

1116
01:26:51,717 --> 01:26:56,497
Well, yeah, he'll want to, you know, confirm that he holds the keys and then, you know,

1117
01:26:56,517 --> 01:27:01,077
any other verifications that might be available to him is probably worth just doing a double

1118
01:27:01,077 --> 01:27:01,457
check.

1119
01:27:01,857 --> 01:27:03,217
And that's where Bronta comes in.

1120
01:27:03,257 --> 01:27:06,077
So, yeah, really excited about that service.

1121
01:27:06,077 --> 01:27:08,537
And, you know, Keith is a rock star.

1122
01:27:08,637 --> 01:27:13,217
I've met him a few times and like we just were really aligned on this problem.

1123
01:27:13,317 --> 01:27:14,997
And so, yeah, I was happy to join as an advisor.

1124
01:27:15,857 --> 01:27:26,597
But yeah, I'm still just kind of in discussion with a bunch of different organizations and thinking about whether I want to just remain an advisor for a bunch of different companies or go full time with with one.

1125
01:27:26,697 --> 01:27:28,977
And yeah, just kind of seeing where things are at right now.

1126
01:27:28,997 --> 01:27:30,557
It's been a really exciting few months.

1127
01:27:30,877 --> 01:27:33,577
Well, I was trying to take a break and then I was like, got too excited.

1128
01:27:34,617 --> 01:27:36,097
Hard to do that in the world of Bitcoin.

1129
01:27:36,097 --> 01:27:48,737
I do think that like one of the things I like people need to send a Bitcoin transaction, but to themselves on, on chain, do all of that validation to really understand the power of it.

1130
01:27:49,397 --> 01:28:05,397
But then as you're getting more active and you're actually sending real value around versus just tests, it's, um, it, you gotta know, you know, it's a, it's a, it's a learning process and it's almost the, the more, you know, the more, the more, you know.

1131
01:28:05,397 --> 01:28:18,857
And that drives this idea of why Bitcoiners are so adversarial in their thinking to create solutions that help make these problems that are daunting more consumable.

1132
01:28:19,277 --> 01:28:19,397
Yep.

1133
01:28:19,517 --> 01:28:20,337
And I think it's awesome.

1134
01:28:20,697 --> 01:28:22,857
Yeah, I think it's funny.

1135
01:28:22,937 --> 01:28:28,057
A client, an old client at Unchained, he called sending Bitcoin transactions like the pucker factor.

1136
01:28:28,057 --> 01:28:34,357
Like you always just have like, like, OK, I have like your blood pressure is going to spike a little bit.

1137
01:28:34,357 --> 01:28:47,077
Like, you know, especially if you're moving around, yeah, real amounts of value on, you know, for yourself or on behalf of your clients, like you just want to you want to make sure that you're verifying in every through every channel that you have available.

1138
01:28:47,077 --> 01:28:57,477
Right. So if you're looking at a browser and you're about to send your life savings, like check the address on a mobile app, check the address with Bronta, check the address on your on your device.

1139
01:28:57,477 --> 01:29:02,177
You know, before I left Unchained, actually implemented confirming via email as well.

1140
01:29:02,177 --> 01:29:07,417
So when you see a confirm on device button in Unchained, you can also confirm via email.

1141
01:29:07,537 --> 01:29:08,317
You get a little email.

1142
01:29:08,757 --> 01:29:18,077
But all these different verification channels are just really, they add up to feeling a lot more confident that you're not getting, you know, attacked or scammed.

1143
01:29:18,497 --> 01:29:18,597
Yeah.

1144
01:29:18,657 --> 01:29:25,457
And I think, you know, particularly if you ever send to River or Strike, there's no way to do that.

1145
01:29:25,857 --> 01:29:29,297
You know, and it's not because of any faults of their own.

1146
01:29:29,297 --> 01:29:36,957
You can verify it if you have the keys, but if you don't have the keys, that you need to rely on tools like Bronto.

1147
01:29:37,477 --> 01:29:37,937
That's right.

1148
01:29:38,577 --> 01:29:39,237
That's awesome.

1149
01:29:39,597 --> 01:29:42,037
Well, Center of Hash episode four.

1150
01:29:42,457 --> 01:29:44,257
Phil, thank you for coming on.

1151
01:29:45,317 --> 01:29:50,697
And I'll probably need to bring you back on to dive into some of these concepts again at some point in the future.

1152
01:29:50,777 --> 01:29:51,417
Absolutely, Parker.

1153
01:29:51,477 --> 01:29:52,417
Thanks for having me, man.

1154
01:29:52,517 --> 01:29:53,197
And it's funny.

1155
01:29:53,517 --> 01:29:55,217
You're in Bitcoin for long enough.

1156
01:29:55,697 --> 01:29:57,317
It's inevitable that you're going to start a podcast.

1157
01:29:57,537 --> 01:29:57,977
Inevitable.

1158
01:29:57,977 --> 01:30:00,557
So I'll have you on my podcast next year.

1159
01:30:02,137 --> 01:30:02,537
Perfect.

1160
01:30:02,957 --> 01:30:03,337
All right.

1161
01:30:03,377 --> 01:30:03,777
That's a wrap.