The market has changed from speculators to allocators.
Magic internet money.
Sent me down the rabbit hole looking into.
Welcome back to the Magic Internet Money podcast.
This is Brad Mills and the banks are failing.
Who could have predicted this?
Okay, this episode was recorded about a month
and a half ago and it was a very special episode for me
because I've always looked up to Adam Back
as a good resource, a good voice in Bitcoin.
He always has nuanced measured takes on technical issues
like scaling and also has been pretty vocal
in terms of building conviction for Bitcoin's price.
Adam Back was the author of the hashcash algorithm,
the idea of like creating a proof of work
that was referenced in the Bitcoin white paper
and he's from Blockstream, which is one of the companies
that builds Bitcoin software, does Bitcoin mining,
the Bitcoin satellite, all kinds of stuff.
So I met with Adam, we occasionally would communicate
through DMs over the last few years,
interact on Twitter a lot and, you know,
kind of run things by him every once in a while,
gives good feedback and then I was at a conference
that he was at, so I said,
"Hey, why don't we do a podcast chat?"
And he agreed and then I also figured,
well, Jameson Lopp is gonna be there as well.
There was a couple of controversial sort of things
happening at the time, the ordinals had just launched,
which is like an ability to use Bitcoin
as a data storage layer and we were gonna weigh in
on that topic, plus we were talking about drive chains,
there was a debate around drive chains,
which would be like a soft fork to add functionality
to create like Bitcoin side chains.
And since Adam's the company created Liquid,
which is a Bitcoin side chain, a federated side chain,
you know, Jameson Lopp has always been weighing in
on these conversations as well and his company, Casa,
which I've said before on this podcast, I'm a user of,
decided to add Ethereum support.
That was another controversial thing.
I figured, why don't the three of us get together,
Adam, myself and Austin, who is an early Bitcoiner,
that not as people don't know him as well,
but Austin, I've talked with him for years,
met with him at different conferences
over the years in Canada.
And he was at Kraken for a while
and recently started a new company
that's building drive chains.
And he raised some millions of dollars for that.
So I figured, let's do it.
I was kind of, we were hanging out at the pool with Adam,
talking about this different stuff.
I was playing some pickleball with Jameson Lopp
and I was working out in the gym at the resort with Austin.
I figured, why don't we just, you know,
instead of talking about this stuff privately,
let's have a podcast chat about it.
So I was very glad that that worked out.
And, you know, so this is kind of a little bit outdated,
but not so much.
We don't talk about what's happening
with the banking system right now.
I'm sure you're aware that five US banks have failed,
Signature Bank, Silicon Valley Bank, and Silvergate,
as well as a couple of others, and Credit Suisse,
which is one of the major G-SIB,
globally systemic important banks in Europe,
which is kind of bringing out the idea
that there's not a lot of safety in the banking system.
There's not as much money really in the system
as we like to think.
And there's more losses that are gonna be incurred
than the FDIC can actually insure you with.
Like there's only 2% or so of the money in the FDIC fund
that actually is supposed to be backing
the money in these bank accounts.
And we saw just recently that the FDIC kind of,
it's a sham, it's just a LARP, it's a confidence game.
The $250,000 limit is actually unlimited
if you're too big to fail, which Silicon Valley Bank was,
because just a week before they were talking about
how strong the US banking system is
and that they don't see any potential for a banking crisis.
Janet Yellen, who said recently a few years ago
that she doesn't think we'll ever see a banking crisis again
in our lifetimes.
And then like now, literally,
we're living through a banking crisis.
So these people don't know what the hell
they're talking about.
They don't instill any confidence.
It really is a confidence game.
And it's almost like a cult,
like the whole macro finance, CNBC, MarketWatch stuff.
It is culty.
It's completely irrelevant to most people,
the things that they talk about.
And they actually don't have a clue.
Like they were telling us for a decade
that quantitative easing and printing money
does not cause inflation.
They actually target 2% inflation.
And like just that alone is inflation.
So it's just ridiculous.
They said that they were worried about disinflation.
They worried about deflation.
Like these central bankers and politicians
that think they're so smart on like macro finance
and money and banking,
their biggest concern was deflation.
So they were like actually trying to cause inflation,
but not cause too much inflation,
but cause more inflation
because they were worried
that it wasn't gonna be enough inflation.
It's the most craziest thing that they were trying to do.
And they ended up screwing it up,
printing more money that existed
in the first like a hundred years of,
or the last hundred years or whatever.
They printed 10 trillion or more just in the US.
And wouldn't you know it, they overshot the mark.
And now we have the highest inflation
that we've had in decades.
And they raised the interest rates
to try to combat inflation
because they said that inflation was transitory,
meaning they thought that it was just a short-term spike
caused by COVID.
Not our fault.
It's not because we printed $10 trillion.
It's a supply chain problem
and it's gonna resolve itself.
It's transitory.
That's what Jay Powell was saying,
the head of the Federal Reserve.
And then literally like within a year,
they said they were never gonna raise the rates.
They were gonna keep them low.
They jacked the rates up higher
than they've ever have before
because inflation got out of control.
Turns out it was not transitory.
And what did they do?
They actually made banks insolvent.
So the Federal Reserve has totally screwed this up.
The FDIC is a LARP.
And Bitcoin is the only thing
that you don't have counterparty risk in.
We see with the Russia sanctions,
what's happening is that over the next decade,
the dollar and the treasury is gonna lose relevance
for sovereign nations
to want to deal in dollars and treasuries
because Russia just got sanctioned last year
where no US and European banks
were allowed to do business any longer with Russia.
And the Russian Central Bank had their assets seized,
the treasuries that they owned.
So what is the signals does this send
to the rest of the world?
This isn't a political thing to say like,
"Oh, I'm for or against Russia."
But this is a nuclear bomb that was dropped on the economy.
And literally it took a year, I was predicting this,
it took a year to resolve out
into what we're seeing right now,
which is these banks are failing
because Credit Suisse and Deutsche Bank
do a lot of business with Russia.
And you can't just cut off all that derivatives exposure
and all the loans and all the business that they do.
You can just cut that off
and expect that that's not gonna have follow on effects.
Like that's going to cause a spillover
into the US banking system.
It's gonna cause them to fail.
And then it's gonna cause more exposure, more contagion,
because now US banks have had exposure
to Credit Suisse and Deutsche Bank.
And they're failing.
So that's gonna cause more losses in the US banking system.
And we've seen the banks have started to fail.
So now you have Balaji Sreenivasan,
who is pretty well known in Silicon Valley circles,
come out and say that he thinks that Bitcoin
is gonna go to a million dollars in 90 days
because the banking system is insolvent.
They don't have enough money actually for everybody
to withdraw or to buy Bitcoin
or to whatever they're gonna do,
like get it out of the banks,
because that's what happened with Silicon Valley Bank.
Silicon Valley Bank had a bank run
and they didn't have enough to cover the withdrawals.
It wasn't a traditional bank run
like you see where people are lining up to take cash out.
It was like these millionaires and billionaires
were trying to wire their money out of the bank
to another bank.
And when they did that,
it caused the Silicon Valley Bank
to have to sell their collateral.
You know, you've heard of fractional reserve banking,
which is kind of not really how it works,
but the reserves that most banks keep are treasuries.
US treasuries, the most safe and liquid collateral on earth,
apparently.
So when the Federal Reserve raised rates
the highest they've ever been in decades,
you know, the fastest they've done it in decades,
the treasuries, the US treasuries lost value.
They started to go down in value.
It's one of the biggest bubbles in the world
and it's falling apart.
So the Federal Reserve and the FDIC and the treasury
had to step in and rescue this bank.
And they had to basically go above the $250,000 limit
and say, "Everybody's insured.
We're gonna take care of you."
And 97% of the people in that bank
were not small mom and pop businesses or individuals.
They're Silicon Valley elites.
They're like the 0.1%.
They are the people that run the Ponzi scam
of investing in Silicon Valley startups,
seed rounds, and then do that whole like a series A,
they're not profitable,
do the series A at a 10X valuation, et cetera, et cetera.
So what we're seeing right now
is some pretty serious contagion in the banking system.
It's time for Bitcoin.
And this conversation is relevant because we talk,
it's not quite about this banking system stuff,
but it's about the idea of how are we gonna scale Bitcoin
to be able to get a billion people onto Bitcoin?
So one of my favorite episodes for sure,
thanks to Adam, Austin, and Jameson for doing the podcast.
And we'll see what people think of this one.
I do think that there's a need for sidechains in Bitcoin.
And I'm not technically smart enough
to be like weighing in on this debate technically,
but I think whether it's sidechains like drive chains
or element style sidechains that Blockstream's doing
or whatever, we need more capacity
to be able to onboard people to Bitcoin.
'Cause if the banking system is going under
and we need people to get onto Bitcoin,
then there's gonna be a mix of people coming on.
Some people will go on in a custodial way
with lightning wallets.
Some people will be sovereign Bitcoiners,
run their own nodes and secure their own keys like that.
And some people will just buy wallets
and secure their Bitcoin that way.
But many will wanna use lightning network,
many will wanna use custodial services.
So there's all these trade-offs we can make
and to make Bitcoin more able to absorb
the next billion people that need to get out
of this corrupt broken banking system and broken money.
So again, thanks for listening to the podcast.
If you enjoy the podcast, I would appreciate,
send a review over, ratethispodcast.com/bitcoin.
And if you write me a funny review,
I'll read it on the next show.
All right, here's the episode.
All right, welcome to the Magic Internet Money Podcast.
We've got Jameson Lopp, Austin Alexander,
and what's your name again?
- Adam Back.
Adam Back, I think I've seen you on Twitter before.
- Yeah. - All right.
Got together and we've been having
interesting conversations over the last few days
about different topics that may be somewhat controversial
in Bitcoin circles.
So I wanted to have a longer form conversation
about some of this stuff.
Jameson is a CTO and are you now like the CEO as well?
- Well, I'm co-founder and CTO. - Co-founder.
Okay, of Casa.
And Austin just recently started Layer 2 Labs.
- Yeah. - And that's a,
recently did a fundraise for a company
that's building on the concept of drive chains.
And Adam has just recently announced
a round for Blockstream.
So yeah, everybody here is like an entrepreneur in Bitcoin.
I'm investing in Bitcoin companies
and we're all Bitcoin.
- Do you say Bitcoin or Bitcoin maximalist?
Like, what do you guys think about that term?
- Well, at this point,
I don't think I would call myself
a Bitcoin maximalist any longer.
- Well, we can get into that as well.
- Let's do it.
- When I got canceled a few years ago
for participating in a securities,
like regulated securities token thing,
I wrote a whole blog post about my perspective
on Bitcoin maximalism and comparing,
contrasting that with the fact that I'm a technologist
and I'm interested in a lot of things
and I'm a cypher punk, so I'm interested in privacy.
And so like, for example,
I'm interested in any new technology
that may improve privacy.
And sometimes that means there are tokens
that are not Bitcoin that may help people
improve their privacy.
And so I often get quote unquote canceled
for even talking about such technologies.
Anyway, I think in that blog post,
I tried to pin down my take on it.
And I said, I consider myself
a Bitcoin monetary maximalist.
Like there's been an explosion of different projects
and different functionality that's all, you know,
cryptography based.
And of course, all these different things
have their own economics and some of them
are outright scams, some of them are just bad ideas.
And I don't think any of them hold a candle to Bitcoin,
like from a security perspective
and from all of the just guarantees that Bitcoin has,
but some of them still have interesting utility.
- Maybe I would say I'm at this point a Bitcoin Protestant
or a Bitcoin reformationist,
because even though much of the dogma,
a lot of the rights that the orthodoxy demands,
I follow and believe.
I just think that the term Bitcoin maximalism
has come to be associated with this very moralizing,
self-righteous perspective
that I definitely don't want anything to do with.
Even when it comes to Bitcoin
and all these other things in life
that has come to associated with the orthodoxy,
like eating steaks or whatever, which I love steaks,
I eat them almost every day.
I even feed my barely out of infancy son steaks every day.
But the moralizing and the culture surrounding it
as it has where like the bulk of the conversation
is occurring on Twitter and the like,
it's definitely not for me.
- Yeah, there's a thing about it where in politics,
and I think it makes sense to apply it to Bitcoin
and any other similar thing that gathers so much energy
that like the 2% most active people in a community
are gonna be the ones that are like vocally on Twitter
and in social media, but especially Twitter.
So like the 2% most active Bitcoin maximalists
are the ones that are getting the most likes
and follows and retweets on Twitter.
But it's definitely not representative
of like the wider view of like Bitcoin maximalists.
And I find myself in that position too,
where I'm maybe it's 'cause I'm Canadian or something,
but like I wanna have like a devil's advocate perspective
on things, but if I'm talking to like a crypto shitcoin
person and they're shitting on Bitcoin maximalism,
I'm gonna identify as a Bitcoin maximalist and say,
no, that's not true.
Look at all the things that are happening in Bitcoin.
But if I'm talking to one of those toxic Twitter
Bitcoin maximalist people, I'm gonna be like,
no, that's not true.
There's actually some interesting things happening
over in privacy and even in some blockchain things,
there's some interesting technology being built.
So I'll try to like bring more people towards
this sort of rationality.
But I find myself personally,
like when you guys added ETH and Casa,
I'm a Casa member, I've been a Casa client
since the beginning, I was just like,
no, they're adding ETH, I gotta leave now.
I gotta leave Casa.
And like, why would Jameson do this to me?
He's supporting the network effects
of a shitcoin, Ethereum.
So like, then I sat on it for a day and I was like,
there's a nuanced thing there.
So I think people that are so passionate about Bitcoin
and what Bitcoin still needs to do for the world,
like there's still so much work we need to do,
can genuinely feel offended by blockchain stuff
and Ethereum support, like for example, with Casa.
And sure, there's a lot of people that are just part
of that toxic tribe Austin that you were talking about
that are just trying to moralize
and prescribe their beliefs to people.
But I think there's a lot of us that are actually
kind of like somewhat get hurt by things like that.
Like, do you think about it from that perspective?
- It's a natural evolution and fracturing.
It's no different than what happens
with historical traditional religions, right?
I think that as the size of a group grows,
it's inevitable that fault lines appear.
Humans are very complex creatures
and the mere thought that you could have millions
of people who all believe like the exact same set
of things is pretty ridiculous.
And so eventually what happens is some
of those slight differences start to appear just
as a result of interaction of people within the group.
And this is sort of a tribalistic nature of humanity.
People start to focus on those very slight differences.
Even if you have 99.9% agreement on everything else,
eventually the 0.1% will come out
and people will get offended and then they focus on it
and they don't stop focusing on it until, you know,
people get ostracized or they leave of their own accord.
And I think that's basically the phenomenon we're seeing.
- Of course, if we look back at all the various schisms
throughout history and organized religion,
sometimes we laugh at how, from our modern perspective,
the help of the time that's passed,
the centuries often that's passed,
we can't help but like laugh at how insignificant
these points of conflict are.
Something like two sects will like basically go
to the point of war over, is God three separate entities
in one or one entity separated to three?
These types of points.
I think Bitcoin's more powerful.
Fundamentally, Bitcoin is ideologically from all sides
about personal liberty and about self actualization
in that way, that the individual, it's freedom money,
as it's been often called.
And Bitcoin would be much more powerful
from the perspective as a coalition building tool.
Then there's some religions that are very exclusive, right?
And require mountains of rituals and dogma.
And then others that are, and it's obviously a spectrum,
I think if you get too inclusive, maybe there's downsides,
but with Bitcoin, I think it really towards the end
of the inclusive spectrum is much more helpful.
- So I think Bitcoin is for everyone.
So it's kind of like electricity or something or gold.
There are lots of people who wanna protect their savings,
who own a bit of gold with vastly different political views.
Now, of course, there may be a bit of correlation
with some views of maybe more self-reliance theme
or something, but generally it's a useful tool
for everyone and a major innovation in monetary technology.
And crypto has like at times very little regulation
or effectively self-regulated.
And so, I've had debates with Trace Mayer in the past,
who's a very early Bitcoiner.
His views typically that people are only gonna learn
by losing money in the market.
And my view as well, it's a self-regulated market
and a self-regulated market, it's useful to educate people
and like try to explain why some things
are potentially a bad idea to save them
the pain of losing money.
And Trace would have taught that, well,
most people won't learn until they first lose money.
So if you sell the fork or you short the fork
and they lose money on it, caveat emptor,
they're gonna learn and not do it again.
So the maximalist term even was invented by Vitalik
as an altcoin promoter and kind of the genesis
of the whole ICO craze, which like pretty clearly
torched billions of dollars to very little output, right?
I mean, there are some innovations that came out of that,
but not many proportionally to the amount of money
that was spent, right?
And so the original maximalism was just really about
the ethical nature of excessive misallocation of capital
or dishonest selling or something like that, right?
And so, of course, as somebody promoting such a model,
Vitalik had to find a way to legitimize what he was doing.
So he's like, well, you guys are like anti-innovation.
And so maximalism was his way of saying that.
But like Jameson said, that's actually incorrect.
Like, Bitcoin technology people are actually
very interested in innovation.
And actually the innovation per dollar of R&D spend
in Bitcoin is something like 100 or a thousand times
literally of the R&D output of altcoins.
Now let's not say there aren't altcoins with innovations
and they clearly are, but you've got to separate that
from the funding model and the sort of pump and dump nature,
which has got a lot more in common
with early last century stock fraud, basically.
Now, of course, there's some gray area in between
where there are projects which are effectively stocks
in a company that provides a service or something.
And everything is kind of gray, right?
But so that's where maximalism came from.
And sometimes people who are subject to a slur,
they adopt it as a kind of self-identification, right?
It's like, oh yeah, yeah, we're maximalists.
- The protest.
- Yeah, and I mean, it's often still used
in a derogatory form.
You've got the tribalism between all
of the non-Bitcoin stuff.
Now we're seeing interesting tribalism
even within the Bitcoiners and like the more hardcore,
like puritanical, moralistic folks.
But I think regardless of how you're using it,
my general retort these days is that like,
when you're making a broad sweeping statement
about like Bitcoin maxis do this or believe that,
you sound as ignorant as someone who says,
all Hispanics do this or all African-Americans do that
or all Christians do that.
It's over generalization.
- Even in crypto, the people that are criticizing
quote unquote shit coiners or whatever,
like all shit coiners are this and maxis are this.
I find that like people that are propagating
that maxi straw man, that like Bitcoin maxi straw man
are just as dumb as the people that are actually
the Bitcoin toxic maxi people.
Like that 2%, that one 2% of most like really
actually dumb toxic maxis.
Like for sure there's really dumb toxic
Bitcoin maximists out there and they make a lot of noise
and they turn off people like Austin for like trying to say
that you're an idiot if you don't eat meat
or whatever it is.
But those people that are saying like all Bitcoin maxis
are blah, blah, blah are just as bad as the people
that are the toxic maxis that are intolerant or whatever.
But I'm curious, Adam, like if someone doesn't know
who you are or whatever, and they're like,
oh, what do you do in crypto?
Like, do you ever like identify as a Bitcoin maximalist
or like how do you, I'm curious how you handle that?
- In a way I was like one of the earliest people
to decide I didn't want anything to do with altcoins.
And a lot of people come to a realization
by like losing money on altcoins
or like trying a bunch of stuff
and then deciding that was a bad idea
or in hindsight or something.
And in my case, I joined a Bitcoin talk forum in 2013
and some guys pounced on me.
They see you join and they invite you
to a private channel and they start like,
I wanna talk to you.
So they wanted me to join their altcoin basically.
And it turns out these guys had started
a couple of previous altcoins
and they wanted to start a new one.
And so I realized like, well, wait a minute,
they're asking interesting technical questions,
they're looking at papers and stuff.
And I'm like, well, wait a minute,
why do they want me to join their project?
I was like, oh, like they want like name branding
to like increase the profile of their project.
I was like, I guess that will be pretty profitable, huh?
And then, but that's gonna be really bad for my reputation.
I'm gonna go out and play history as a scammer.
And then I was like, well,
if you want to torture reputation,
you might as well take all the money yourself.
Like, why do you have these guys like,
market it and take all the money
and then destroy your brand name, right?
So I'm like, well, I don't wanna do that
because that's scamming.
Like Bitcoin is a huge innovation
for the future of humanity.
And I viewed the projects that try to restart
or leach are sort of subtractive from the network effect.
And the growth rate of Bitcoin.
So I resolved that, you know, I'm only gonna do Bitcoin.
I'm not gonna get involved in any of that stuff.
And I was all in the space of like a minute or something.
So that was my kind of thought experiment about coins.
Yeah, I was like, you know, maybe kind of single track mind.
Like if there's something that has a network effect,
it's better to build on it.
Of course, there are other network effects situations
in the past, I guess, the early internet technology,
there were competing stacks other than TCP/IP.
And you know, once there's a dominant one,
it tends to win and the other things
just kind of fall out of favor
and disappear as a footnote in history.
So I think it's kind of that way with Bitcoin
because money is a very network effect thing.
Yeah, so that's the way I think about it.
- But when someone says like, oh, what do you do?
Do you say, like, what do you say?
- I work on Bitcoin.
- Okay. (laughs)
I'm similar to what you just talked about.
And that's why I respect Paul Stork
from the drive chain proposal, BIP300 and 301,
because unlike many people who came into Bitcoin early
and then decided they have some cool idea
that they wanna do,
but that they couldn't get pushed through
the approval process for whatever reason,
they go off and they do a shitcoin, they do an ICO,
they raise a bunch of money and they capitalize on it.
But Paul has been like, it seems like,
stick with the Bitcoin thesis for a long time
and slowly just keep building.
And sure, maybe he's like built some stuff
with the Zcash foundation or whatever,
I don't even know the full story there,
but they like built a drive chain implementation
using Zcash or something, but he never did an ICO.
He never like launched a token
or did any kind of scammy stuff at all.
- He built a clone of Zcash using drive chains
on the testnet.
- Oh, I thought he built a drive chain on Zcash.
- No, it's actually the opposite.
It would be something I imagine
that the Zcash foundation would actually,
they'd probably pay money not to have it happen.
- Right.
So it's interesting that that's your choice
and that's also seems to be Paul's choice.
And it's great to see that there's competition
and people willing to fund drive chain promotion
and research and building without resorting
to unethical kind of grifting stuff.
Jameson, is there anything that you wanted to say
about the choice to put ETH on Casa?
How did you get to that decision?
I'm curious, as obviously you're publicly a Bitcoin guy
and you've previously said on Twitter
and in your blog and stuff
that you would never add altcoin stuff,
but what was it that caused you guys
to go back on that and add ETH?
- I just wanna clarify,
I don't believe we've ever said
that we would never add any other coins.
- Oh, you didn't?
- This is a huge misconception.
Now, feel free, if anyone out there can go find
a blog post or whatever where we said
we will never add support for anything else,
I'll happily retract that.
- I see, I thought I read that somewhere, I guess.
- That's the narrative.
Now, my perspective is we certainly had plenty of places
where we had FAQs and people asked us,
do you support stuff other than Bitcoin?
We said, no, we only support Bitcoin.
Some people, they hear what they wanna hear
and then they heard, we are Bitcoin only forever.
- That's probably what I filled in the blanks on.
- Yeah, so we have said for a long time
that we are a self-sovereignty company,
we're a private key management company.
We've certainly received many questions over the years,
like when are you gonna add X, Y, or Z?
And the answer is generally like
when we think it makes sense for us to do so.
And I worked on Ethereum Multi-Sig Tech at BitGo
like six, seven years ago, and I wrote about it
and about how it's really complicated
and it was not fun to work on.
At BitGo back then, we had to write our own smart contracts
and that was a year-long multi-audit process nightmare
that found so many edge cases,
like as a security professional, it was very scary.
And I said, we are not ever going to write
our own smart contract, like internally,
I said, we are not gonna roll our own crypto,
this is not something I'm comfortable with.
So we were continuing to wait and see,
survey the landscape, but also it's a business decision.
And so we received more and more pressure
over the past couple of years of both our own clients saying,
I have Ethereum and it's in a relatively insecure place
or even with a custodian, and I would like to put it in Kasa.
Or we had a lot of deals come through where they say,
look, I have multiple different tokens
and I don't wanna be managing them
in all these different setups.
And so they would say, I can't use Kasa
'cause it's too much complication.
I've actually spoken to a number of customers
that lost a lot of money in FTX.
And they didn't lose their Bitcoin in FTX
'cause they had it on Kasa,
but they lost like their ETH and their stable coins on FTX
because they couldn't withdraw to Kasa.
So I look at this more pragmatically
from like I'm offering a security service.
I, in many cases, don't agree with some of the things
that people want to secure,
but I also can't disagree with the economic reality
that there is a lot of value there.
You can certainly go down rabbit holes of,
well, now I'm helping the network effects or so on,
or maybe those people deserve to lose millions of dollars
in ETH and other tokens
because they're fundamentally immoral or whatever.
But I have to be more on the business side of things
than the subjective ethics and morals
of all of the token domics with what's going on here.
So it's the free market, right?
So we knew that we would lose standing
in the eyes of some people
because we're no longer pure in this standpoint.
And it is something that we've known
has been coming for quite a while
and that our long-term goal is not just crypto assets.
We want to help people empower themselves with cryptography,
with private key management in whatever form that may be.
So years from now, I fully expect,
and we're already seeing this with stuff like Nostr,
there are going to be other forms of utility
that require the ability to securely use private keys.
I'm also hoping we're going to see stuff
like decentralized identity.
Right now, it's way too early to say
what's going to get the network effect there.
But I want Casa to be that sort of central place
for people to manage all of these different
cryptographic enabled technologies.
- That makes a lot of sense.
That'll be pretty valuable when decentralized apps
like Nostr, Keet, all that stuff is ubiquitous
and you have a public key that you're logging
into things with to have your private key
for your online identity be securely stored
in like a 305 or something.
Adam, are you going to be putting your ETH in Casa?
- I don't have any ETH.
(laughing)
- Okay, this is a great time to kind of like move on
to the discussion of protocol ossification
and the debate around whether or not new features
might get themselves into Bitcoin proper
because like Adam, you got confidential transactions
and covenants that you're working on with Liquid Network
and like building that out.
And Austin, like you guys are working on BIP-300-301.
Jameson, I'm not sure if you've got anything
that you're working on, but you're definitely
always interested in the whole ossification conversation.
So I'm kind of a dummy on this side.
So I'm just gonna let you guys talk about this.
And maybe we can start with,
we were talking about this yesterday,
the idea that if you got a BIP-300 type
of drive chain activated,
then maybe you don't need to have SNARK verify
or covenants or confidential transactions soft fork
because it could be done as a drive chain or something.
So why don't you guys discuss that?
- The ossification phrase, by the way,
was first described by Satoshi on the BitcoinTalk forum.
So I didn't really join the BitcoinTalk forum
and I think until a year or so after Satoshi left,
but I went through and read all the old posts
and there's an early one where he says something like
he rushed the script system,
like adding it last minute before he released it
because he thought that Bitcoin should be frozen
for all time after it was released.
So you can see the idea that got the electronic cash system
and then you got a scripting system so you can extend it.
And so you don't need to change it
into any extra features you want
for like spending conditions.
You could program them using the script system.
That seemed to be his concept.
And also some concept, which is kind of insightful
if you consider how long ago this was,
that it's important that you shouldn't be able
to change Bitcoin because if it became changeable politically
I guess it would erode its guarantees, right?
So it's been a lot of the battle over the years
with like the fork wars and the drama around any change
that the status quo is like no change.
You don't mess with people's digital gold.
But it turned out like pretty immediately to have problems
because some of the op codes that Satoshi had rushed
turned out to have pretty severe defects.
And so they got disabled in a rush,
like in the very early days.
So it was a op version, which it turns out, yeah,
you could, that would just immediately cause a fork
if anybody used it.
And so, and there were some of the like less over.
- How long ago was that one?
- Oh, it was before my time, but I don't know,
probably like 2010 or 11 or something.
- Yeah, definitely 2010 era.
And this has turned into a very interesting series
of changes to the protocol.
And it seems like every time the protocol is changed,
it's done in a different way.
And I'm sure there's pros and cons to that.
But one con is we don't have this sort of repeatable process
that can give developers a sort of sense of confidence
of like, if I do these things,
then my proposal is likely to get implemented.
- Right.
- There's no mention in the white paper
of the processor protocol for changing Bitcoin.
If we're gonna have hyper Bitcoinization of the world
and have Bitcoin be a relevant asset
and the global economy, ossification is necessary.
It's required in order to properly
and finally secure Bitcoin.
And it should be, in my opinion,
it should be considered sacrosanct as 21 million coins.
The problem of course being is that there's so much more
that Bitcoin can do, should you allow degree of flexibility
or amendability or whatever, adding new features and such.
And so of course, like many things,
DriveChain solves this because DriveChain allows you
to fully and finally, you know,
absent some sort of existential bug,
fully and finally ossify the base layer
with attributes that are focused on decentralization,
focused on long-term security
and minimizing any sort of bloat,
but allow basically unlimited innovation
in the layers, in the side chains above the base layer
so that any developer or anybody with a good idea
can work on Bitcoin and add that idea to Bitcoin
through the side chains.
And they can do that without threatening the integrity
of the base chain.
And importantly, without having to ask anybody's permission,
without having to kiss any rings
or go through some process, which is very difficult,
arbitrary and ill-defined.
- So there's some interesting dynamics here.
Once again, you'll see some friction and conflict
between the ardent pro-ossify now argument.
And then I would put myself on the, once again,
the technologist side of like,
there's still so much work left to do.
I think if you look at the history of internet protocols,
correct me if I'm wrong,
ossification has never been a goal of any internet protocol.
It has been a natural result due to network effects
and the fact that eventually a protocol
that becomes mainstream grows to be adopted
by so many people that it just becomes impossible
to coordinate change to the protocol
'cause it would just result in so much breakage.
Protocol is not a centrally issued,
centrally administratively changeable thing.
It is this peer-to-peer communication language.
And so you have to coordinate updating software.
So doing that in Bitcoin has been challenging
and it feels like some people say,
we should just sort of give up
even trying to do that challenging thing.
And also, there's risks and there certainly are,
but me as a technologist would say,
you have to look at both the risks and the rewards.
And there's, I guess, there's a saying,
there's known knowns and unknown unknowns
and known unknowns.
And I think some people are focusing a lot
on the unknown unknowns,
which like that's gonna be true all the time,
regardless of if you're making changes
or not making changes.
- Yeah, I think the rigor of testing
and amount of care in coding
and sort of ratio testing to coding in Bitcoin
has escalated over time as the value has gone up.
And I went to different like meeting
when there were a bunch of people
who were kind of like fund managers
and people who had significant Bitcoin savings
and some technologists,
just kind of general mix and match
of people interested in Bitcoin.
And one of the questions I got to put to these people
who are like either holding Bitcoin of their own accord
or managing funds with Bitcoin in it,
is like, what do you think?
Do you want more smart contracting on Bitcoin?
Do you care about lightning?
Their general view was maybe a little bit surprising.
I was like, the main requirement is just don't break it.
Right?
So they really like security first,
dependability, minimize risk.
And so actually, sadly,
they don't care very much about lightning.
But lightning is like a separate layer
and it's pretty permissionless
and you can make different variants of lightning.
And some implementations can have kind of opt-in features
that others don't.
So it's much more conventional protocol evolution
on the layer two.
I think the challenge with the Bitcoin layer one
is that it's difficult to have opt-in features
because you need to retain security for the old client.
So basically everybody has to upgrade their clients
if they want full security.
If they don't keep up with soft forks,
they end up being slightly SPV.
And I think if you're slightly SPV,
you're effectively fully SPV.
And so now you're trusted miners.
And so, that means you're asking everybody
to upgrade some code.
And a Bitcoin network is a kind of,
and particularly, the verification is a thing
where you need the most work valid chain to win.
And so everybody has to be systematically compatible,
which is a very fragile standard to attain.
And so there's a higher degree of care.
But there's certainly other scenarios.
I think Austin alluded to, for example, TCP/IP, right?
That really hasn't changed in decades, like many decades.
And it doesn't need to
because everything's happening at a higher level.
So most networks are layered.
And there is IPv6, but it's been a while, like a few decades,
and it hasn't actually got that much adoption.
And it's bridgeable, and it's kind of backwards compatible,
and you can nest it and stuff.
But even then, it struggled, right?
So it's definitely inertia is a factor.
And like historically,
I think one of the challenges for Bitcoin is the,
because of this consensus fragility,
it's inherently hard to make modular,
or harder to make modular than most networks
and operating systems and stacks.
And so, my experience with this is,
when I got like, fell down a Bitcoin rabbit hole,
as people do, in 2013, I thought I would try
and use expertise I had from previous electronic cash systems
to try and improve anything I could about Bitcoin.
And surprisingly, almost nothing about Bitcoin
was improvable, it seemed like optimal,
you change anything, you make it worse.
I was like, that was an interesting learning experience.
'Cause most people come in,
they've got the superhero cape,
and they're here to fix Bitcoin, and you try,
and you can't improve it.
But one thing I did cook up
was the confidential transactions,
which is reasonably compatible with the UTXO model,
it fits quite well.
So I was serious, like, talking to developers,
let's integrate it, let's go, right?
And I came to realize, oh, it's like actually pretty hard,
so that I'm making unreasonable demands,
this is like a complicated change, it's got some new risks,
so I'm probably not gonna be able to do it.
So, I kind of left it at that, right?
But I thought, what's the root cause of this?
It's not very modular.
You want like, in Linux, there are kernel modules,
and you can implement things into the core,
like a driver for a new piece of hardware or something,
in a modular way, so you don't need like,
Linux 12 vaults permission to,
or like, the people that reach consensus
on what features go into the Linux kernel
and how it evolves, 'cause they give you a framework,
you can build your own kernel module,
you can even do it in user land, right?
So it becomes much more permissionless.
So that's where the sidechains idea came from,
it's like, well, what would it take to have a module?
'Cause when you're writing new code that goes into Bitcoin,
you've got a number of risks,
a major one is that you have some code
which behaves differently on different software,
and it could fork the network, and that's a catastrophe.
So you have to really give an answer
or an architectural reason why your experimental code
cannot possibly fork the network.
And a way to do that is to have a kind of loosely bound
modularity layer, and that's a sidechain,
because it's connected to Bitcoin,
the assets in it are Bitcoin,
it doesn't have a native currency,
you just transfer Bitcoin in and out of it,
but you can have multiple sidechains,
and it can do very different things,
and they could be risky,
like, so the people that opt to use them
might be taking a risk in an alpha sidechain,
but that doesn't hurt Bitcoin.
When you get into details,
people are so cautious about Bitcoin,
they start to worry about meta effects,
like, well, economic incentive,
what if there's too much value in the sidechain?
Will the tail wag the dog and start to impact
the economic incentives on the mainchain and stuff?
So I mean, that is a little bit hard to argue with,
but Paul Stortz took that comment
and developed a whole system around it,
which was this blind merge mining concept.
So he developed a kind of technical argument
how you could avoid that, basically.
- That seems to be the only good argument
against drivechains that I've ever heard.
Like, I haven't really heard any good technical arguments
or any other arguments against
why we wouldn't want to see something like drivechains.
And I'm not saying good as in, like, I agree with it,
it's just like the only debate that I've heard
around what could potentially be negative
about drivechains is maybe the economic incentive
of too much activity and volume and value
being locked into a drivechain
would make, like, the political process
more taxing on developers' resources
and incentivize miners to maybe behave in a way that's-
- I mean, there is one subtle one,
which is that it could increase the bandwidth
and storage cost of being a miner,
'cause you'd have to, well,
most mining goes through pools anyways,
we have that other worse problem,
but in principle, the pool has to,
if they want to merge mine a sidechain,
they have to ingest the data,
and a sidechain's making different trade-offs,
so it might be a lot of data.
But, you know, on the scale of things,
it's not that bad because miners are relatively big
and pools are centralized,
that's another area to improve.
- But of course, the blind merge mining
greatly reduces that burden
relative to traditional merge mining,
which, even today-
- Can you explain that, though?
Like, I don't even know what blind merge mining really is.
Can you kind of give a TL;DR Eli Five style?
- Yeah, I'll try to do, like, a layman of it is,
so basically, the sidechain miners
will be vying to have the mainchain
or the basechain miners
include a small piece of data
in the next mined basechain block.
And that piece of data being included in the block
acts as a proof to the sidechain
that the proof of work has included
their reference point to that sidechain.
The miners don't need to know-
- Is that kind of like how Stacks works,
or is that different than how Stacks works?
- I'm not familiar enough with the Stacks architecture
to speak confidently or soundly about that.
However, because of the way that that functions,
the basechain miner does not need to know anything
about the state of the sidechain
that they are actually mining,
because all they need to know is that somebody
acting as a miner on the sidechain
is willing to pay me X number of Bitcoin
in order to include this reference point in the block.
- Yeah, so, like, the simpler,
before the blind merge mining,
the straight merge mining,
was the idea that there would be fees on the sidechain.
So there's no reward on the sidechain,
but there would be fees.
And by merge mining,
the miner could claim the sidechain fees,
which are like sidechain Bitcoin.
- So it's likely in a free market
that the cost, that would be a very commoditized activity
for the sidechain miners.
So it's likely the amount of fees collected,
I would assume is going to be somewhere near to
99 plus percent of the fees collected on any sidechain
will flow down to the basechain miners.
And this is a very important, very important concept,
especially as we see now that tail emissions
is beginning to be discussed
because people are beginning to worry about
the long-term security model of Bitcoin post-block subsidy.
And of course, some people will say,
"Oh, well, that's a hundred something years away."
But I think by a decade from now,
we'll have over 99% of the Bitcoin mine,
and the idea of perpetual doubling
of the market cap of Bitcoin
to keep up with the reduction in the block subsidy,
that can only be feasible for a much shorter time period
than a hundred years.
The problem will come,
and allowing all this other activity to occur on sidechains
and flow that revenue to flow down to the miners,
I believe probably fully solves that issue.
To me, the scariest data point you can look at
for Bitcoin right now is the amount of paying customers,
meaning the amount of fees collected
by some of these altcoins for their block space
is at this point far exceeding Bitcoin.
So right now we're in kind of a bit of a lull.
There's not like an insane altcoin exuberance,
and yet Ethereum's paying customers
are over an order of magnitude,
which means over 10 times as much fees collected
on the average day.
At the peak of the exuberance in the last cycle,
you know, whatever, 18 months ago,
we reached a day I believe where it was,
that number was 100 times the Bitcoin fees collected.
If you look back at the chart and you put it in log
and you go to the beginning of ETH's existence
and you see the data point of ETH over BTC fee revenue,
it started out at 1/1000th,
and it's now has peaked at 1/100th,
but is now kind of steady at 10 times.
I mean, it peaked at a hundred times.
Now it's steady at about 10 times.
- I mean, it's the economic reality.
- It's the economic reality,
and if you put your head in the sand on this as a Bitcoiner,
you are doing a massive disservice
to the goal of bringing sound money to the world.
This is no joke.
This is a real threat to the network.
And drive chain solves this problem now.
- So I mean, you can be moralistic and say,
well, yeah, but you know,
that's all that activity
is 'cause people are scamming each other.
So, you know, that's where the value is.
- That's the hole I like to put my head into usually.
- But I mean, maybe we would prefer
that people be scamming each other on Bitcoin side.
- And the reality is, is that,
I'm sure all of us here have seen it,
being immersed in the industry
and with a lot of smart people, not stupid people,
they get interested.
They get interested because there's space
to develop and innovate.
And that is fun.
It's fun for users.
It's fun for developers.
And right now, in that regard,
that space doesn't exist to the same extent on Bitcoin,
but it can, and it should, and it will.
And when that happens,
it's gonna be very difficult for altcoins
because you have all the innovation,
potentially, of altcoins.
In fact, hopefully, the templates are there
and robust enough that you can quite literally
copy and paste the code of these altcoins
and create a side chain that includes no assets
and let people start sending their Bitcoin there.
But Bitcoin is a far stronger network.
The network effect is stronger.
It's more distributed.
It's more secure.
It's more, most importantly, it's more valuable.
At least for now.
So you have all the innovation space
of the entire altcoin world available
without the extractive nature,
without the VC pump and dumps,
without the speculative altcoins.
All of that and all of that energy
and all of that liquidity and all of that security
can and should and inshallah will be on Bitcoin.
- I mean, interestingly,
when the side chain paper was first published,
that was like by a bunch of Blockstream guys
right at the Iranian corporation time of Blockstream in 2014.
And apparently the altcoin prices collectively fell
because people thought side chains,
oh no, it's going to like absorb all the innovation.
And, you know, I mean, of course side chains took a while
to come to reality in the first version
and it's federated because we don't have the op code
or like op codes to do that yet.
But I do wonder, and that was my view as well, right?
That, you know, it would absorb innovation
as you can have innovation without speculation
as we try to make a concise version of that story.
But, you know, over time I've been like
kind of trying to amuse about the economic phenomena of,
you know, you think according
to the efficient market hypothesis
that the market should correct
for economically irrational behavior.
And most of the alts have very little fundamental value.
And so it was always puzzling to me like,
well, why is the market not fixing this problem?
Of course, they're very dangerous to short
because they can, you know,
they can manipulate the price up.
So it's hard to correct that price.
But after a while, I came to a different conclusion,
which is, you know, it's just a different market.
There is a market for hard money
and there's a market for casinos.
And these things are like gamified roulette games
and Ponzi's and stuff like that.
But there is actual innovation in there.
And some of the people playing in it,
not really part of the Ponzi,
they're just trying to build an app
and they're excited about these centralized things.
So it's definitely interesting to have more playground
for people to do that,
to build applications who are serious
about the application and not part of the Ponzi.
But I do think that, you know,
one of the problems in Bitcoin
is the relatively lean capitalization.
So if you like, the alt coins tend to have,
be awash with cash because it's a very Keynesian thing,
right, they're printing money.
And so they can, you know, do some of them,
like literally the alt coin founder
or some group of them hired like a thousand developers,
like they straight up on their payroll
to build hundreds and hundreds of dApps,
many of which may not make much sense,
but it creates a lot of excitement
and pulls in some real developers, right?
And Bitcoin can't do that
'cause it doesn't have like, you know,
$10 billion that they collectively have.
- Can't do that yet, but post drive chain,
every alt coin developer will be a Bitcoin developer.
So when this alt coin does their billion dollar ICO
and hires the thousand devs,
every line of code, those thousand devs write,
somebody in their underwear, in their basement
can control a C and paste it right
into their side chain template.
And those devs will have done tremendous work
for Bitcoin as well.
- I don't know if that makes a ton of realistic sense though,
like that argument about how like the activities
that were happening in the past
and will happen in the future to like pump and dump
and get their hundred X on their coin
will automatically go to the Bitcoin side chains,
drive chains, just because of the reality
of what Adam said, that the money's going there
'cause they're speculating on a token.
- You're not gonna port over a hundred percent.
- I'm a supporter of the idea of having people
like the Linux example there,
like having something in Bitcoin, like BIP 300, 301,
if that's the consensus that everybody gets to,
to allow people to have the ability to build that stuff.
But I don't think the argument makes a lot of sense
that people will stop doing token ICOs
and do with them on drive chains instead
because the whole reason they're doing it
in 99% of the cases of why they're getting billions
of dollars is because they got easy exit scam liquidity.
- It introduces a variable that we don't know
for certain what will happen.
But when you have this variable introduced
that undermines each and every sentence
that each and every altcoin promoter will say
about anything, everyone in the back of their mind
post drive chain will know.
When they're talking about these transaction times
or they're talking about this amount of block space
or they're talking about this functionality,
they're talking about the smart contracts,
everyone will know, oh yeah,
and they're gonna put that on Bitcoin
or and that's also on Bitcoin.
So it takes a little umph out.
Now, of course there's a huge element,
like you said, 99% probably of that is casino.
However, all of that casino is finished with a veneer
of some sort of claim to innovation.
Nobody makes an altcoin and says,
this altcoin does nothing, come and buy it.
They always have something.
- Unless it's Shiba Inu.
(laughing)
- Shiba Inu, there's an element to, well, anyway.
- They did evolve.
The early ones were like icons and that was enough.
- Yeah, yeah.
- They had to have the features so they became--
- We're the color orange, give us millions of dollars.
- Tweak the mining algorithm as if anybody cares.
But with all of these things,
there's still work required, right?
You can't just copy, paste, network, effect.
Even copying, pasting code is never that simple.
It kind of reminds me of like,
there was always this Bitcoin Cash argument that,
oh, if we ever actually need lightning,
we'll just copy, paste it.
And I'm like, that is theoretically true,
but it is complicated and requires a lot
of real engineering talent.
- They also rejected SegWit on principle, right?
- Yeah, but you can theoretically do lightning
without SegWit if you put the effort into it,
which they're not going to.
Now, one thing, the distinction that I like to make
about ossification, the way that I think about ossification
is we should agree and strive for ossification
of the inviolable principles of Bitcoin.
And we can argue about what those are.
Everybody knows 21 million,
like well-known supply is the obvious one.
There are plenty of other good principles
that I think most people agree upon
are important for sound money.
However, what we should steer clear of is the idea
that ossification means we stop working on Bitcoin software.
I think one of the best ways that you can understand
what I'm trying to point to is if you look at the research
that I published a year or two ago,
where I went back and I compiled and ran every version
of Bitcoin Core that I could.
And I actually showed what the protocol developers
already know, which is that the Bitcoin protocol
is not just a series of well-known rules,
but there are all of these other really nasty dependencies
in there that over the years we suss out.
But an example is that really early versions
of Bitcoin Core, even though theoretically
from the software level, they are compatible
with the Bitcoin protocol of today,
you can't actually easily compile and run that software
because of changes that happened in the OpenSSL library
over the past 10 years.
Like really inane low-level dependencies
that almost nobody fully understands.
Another example of course is the 2013 fork,
which was due to a database issue
between different types of database that the node was using.
The actual protocol rules themselves,
as we understood them as humans, were the same,
but there are other rules that can unintentionally
be hiding under the surface.
And then also just in general,
if you try to run a node from 10 years ago,
the performance is abysmal.
And so we need to continue maintaining Bitcoin software
just to keep up with the times,
to keep up with the fact that we live
in a very complicated world,
and there are all of these other dependencies
that are constantly changing.
- Yeah, I mean, I think people,
I mean, of course it's partly due to altcoins
who are in a marketing competition,
and Bitcoin is the gold standard.
So if they want to be listened to at all,
they've basically got to scrape some argument
for why they're better than Bitcoin
or why they're even relevant.
And it's a noisy space
'cause there are literally 20,000 of them, right?
So they've got to get noticed.
But partly because of that noise
and just partly because people
are not involved in development,
they assume that Satoshi dropped the Bitcoin code
and walked away,
and it's just been running in a server room ever since,
people's houses, and nobody's touched it.
And while the protocols are backwards compatible
and they've been soft forks and things
to add opt-in features,
the network protocol, in terms of its efficiency,
has undergone a frightening pace of change.
I mean, to me, when I first got active in 2013,
I was kind of, you know, I'm also a developer,
and I was like, well, I could go change the code,
but I'm like, I'm really scared to touch that code
because you make a subtle change without expecting it,
it could fork the network or blow something up.
So the fact that it's changing really, really fast,
I mean, in terms of open-source projects,
it's right up there in terms of lines of code change
per month or year or what have you, number of contributors.
It's kind of scary,
but they've got some very good engineering practices,
and not everything is consensus critical, right?
Some things will just degrade the performance of one version
and not cause a network split,
fortunately for most of the code, right?
But the efficiency gains in terms of bandwidth usage
and latency and sync time have improved.
I think Peter Wohl said at one point
that the initial block download
had improved four times by a factor of 10,
so it's like 10,000 times more efficient for us to sync,
'cause it's just like rewritten and redesigned
and rewritten and redesigned like major ways.
And it's like, at this point,
there's not much optimization left.
So Bitcoin tends to get hyper-optimized
in terms of space efficiency.
The ECDSA library in Bitcoin is the most optimized
and fastest implementation in the world
used by other unrelated projects, just 'cause it's faster.
So it really gets hyper-optimized and stuff,
but that's part of the reason
for the kind of ossification thing,
because it's really a kind of thing
that's converging to sort of perfected
in terms of scope for optimization on space
and network sync time and byte efficiency
and all this stuff.
But of course, then we have the cat pictures and stuff
kind of wasting that hyper-optimized space,
but that's another story.
But I mean, to come back to the layer twos
and the modularity, I think that's super important
because you can't have conflicting trade-offs
in the base layer.
The base layer has to stick to these invariants,
like 21 million coins, to be decentralized,
to be censorship-resistant, to be bearer, unseizable.
And some things people wanna do would degrade that.
That was the cause behind the block size wars.
And during those block size wars,
I remember talking with Paul Storz,
and he's like, "It's simple.
"Let's just make a big block side chain.
"People who want that trade-off,
"which is a perfectly reasonable trade-off,
"can opt into it, and people who want
"the optimum, self-efficient, unseizable stuff
"can use the main chain."
And so that's actually a much better trade-off.
So I think each layer,
and you were talking about the fees being low,
I think part of the reason the fees are low
is that some of the layers have been successful.
So I think Lightning sucked a lot of retail trade
off the main chain, 'cause even though
there's not that much, like 5,000 Bitcoin in it,
it's very high velocity, so it doesn't take that much.
And all of the coffee trades, and paying for a flight,
paying for a hotel, paying a friend for a restaurant,
almost all of that's happening on Lightning.
So it's kinda reduced the demand on the base chain.
But that's good in a way, because as Bitcoiners,
we really like the censorship-resistance
and the uncensorability and unseizability,
and we want as many people in the world
as possible to enjoy that.
And that's something we share in common
with people that wanted the big blocks, right?
But to do that, you need everybody in the world
to be able to own a UTXO.
And people have done calculations and said,
even for one billion people to have a Lightning channel,
it's gonna take 10 years apart for the block space
to just create the channels, right?
So we really have some technological steps to go to.
So I think there's a fundamental trade-off
where we're gonna need layers
optimized for different trade-offs,
and if we want everybody in the world
to benefit from bearer censorship-resistant,
hold your own UTXO,
unless there is some major computer science breakthrough
that allows us to compact them more,
we're gonna need bigger blocks.
And the only way to have bigger blocks
without breaking the decentralization
and censorship-resistance of the main chain
is to have bigger block side chains.
- And you know, the users,
if they have demand or need for these trade-offs,
the paying customers, the blockchain's paying customers,
will find another way to meet that demand or that want.
If not Lightning, perhaps those transactions
would have been occurring on a custodian
or some sort of centralized database.
Maybe they would have been using,
sending funds from their Coinbase account
to another Coinbase account.
Instead, they're using Lightning because it's available.
Maybe, and this is another reason why,
some of the features or wants or perceived wants
of the altcoin user base,
they have no option to use Bitcoin.
- Well, you know, that was one of the first postulated ideas
for scaling by Hal Finney was that, you know,
Bitcoin would become like gold
and it would end up in a bunch of, you know,
central custody vaults, you know,
and basically be like banking system 2.0.
And I fear that that is one potential outcome
if we don't have more scaling solutions.
Lightning is great.
It would be great if we had things like, you know,
L2 and batched Lightning channels.
Anything that can give us order of magnitude more,
call it magnification or efficiency,
or I really like, you know,
Adam says cryptographic accumulator.
Like we want the base chain to have incredibly dense data.
And, you know, maybe that represents data on a side chain
or data that's being manipulated
at high velocities off chain.
But whatever it is, you know,
we understand that Bitcoin block space
is a highly scarce asset.
And we don't want to make it less scarce
because of all of the negative trade-offs there.
But the flip side is we want everybody
to be able to use this thing.
There's still so many scaling challenges out there.
You know, it's one of the reasons why I'm pessimistic
on the idea that we just stop developing
the protocol at all,
because I think that there are certain changes
that will give us such orders of magnitude,
greater scalability over the long run
that the reward may very well be worth the risk.
- If you had something like PIP 300, 301,
if you have drive chains,
would it make sense to put liquid as a drive chain
to remove that federated peg
and just use the drive chain peg?
- I mean, actually in the 2015 side chain paper,
it has a drive chain like mechanism,
but with a compact fraud proof.
There's a couple of ways to do it.
One is this compact fraud proof,
which is sort of,
you're sort of proving that when people take coins
out of the side chain,
they're doing it from the most work chain,
but you can't prove that because you're not verifying it.
So then you sort of assert it,
and then somebody who disagrees
can disprove it with a compact proof.
And that's a little bit complicated to do,
so it's a bit complicated.
Whereas a drive chain, it implements part of that,
but then it also just leans on like economic game theory,
right, makes the withdrawal process slow,
months instead of hours or days.
And the assumption that you'll get human intervention
'cause you'll get this kind of slow motion theft
and people will overwrite it.
So that's the concept.
- One of the criticisms that I hear about Liquid Network,
which I'm a big supporter of Liquid Network
'cause I'm a fan of security tokens.
If someone has a legitimate business,
they wanna launch an equity as a digital token
on a Bitcoin side chain,
makes a lot of sense to me.
I like collecting digital art and playing video games
that I own the ships in like Samson Mow's "Infant Fleet."
I'm a big fan of the Liquid Network
and people want to have USDT
in countries like Nigeria and El Salvador
where they have hyperinflationary
or just currencies that just don't hold their value.
So maybe they're not yet ready to go to Bitcoin fully,
so they would need Tether.
So I love the idea of Liquid,
but the criticisms is people think it's like federated,
it's not trustless.
Would drive chains actually remove,
'cause the way I understand,
people are explaining it to me,
it makes it more trustless, the peg is more trustless.
- Yeah, I mean, that's what the main paper was about,
mechanisms to do it in a trustless way
without importing kind of fork risk into the main chain.
So it's kind of loose coupling,
merge mining and drive chains adds,
blind merge mining and the slow withdrawal
to sort of lean on,
'cause in a way that's less convenient
'cause you have to wait a long time,
but you rely on arbitrage and services in interim.
Whereas with Liquid, the withdrawal is like relatively slow,
but it's like under a day, right?
But there are services that will swap it instantly
for like 10 basis points or less.
- Yeah, it's like there's second layers on Ethereum,
like roll up chains where it takes a long time,
but there's services where you can just go on a Dex
and swap the layer two coin for the layer one coin.
And there's an arbitrage market develops around that.
- And with Bit300 side chains,
this is why it's definitely not a competitive technology
to Lightning.
They actually are, they strengthen each other
because as I understand it,
you will be able to open Lightning channels
between side chains and help facilitate decentralized swaps.
And of course, there will always be entities that,
including miners, because they would obviously have
some confidence in the drive chain withdrawal succeeding,
that would, you'd be able to buy and sell coins
between the various chains.
And the arbitrage is extremely, extremely low risk.
So the rates for those transactions
are likely to be extremely small.
- Yeah, you see it already with stable coins,
people arbitraging the peg as it goes up and down
on the decentralized exchanges
and the centralized exchanges, they make a small-
- Those arbitrage are priced in fractions of a cent.
- Yeah.
- Well, I mean, it's a time value of money thing
'cause in one direction you can do it yourself.
You can peg in more coins and just wait.
And so, somebody be willing to pay a tiny interest rate
for a day to have the opportunity cost of doing a trade now
rather than waiting a day or something.
- And so, of course, that could be perceived
by miners especially, but also exchanges
or even individual whales
as kind of a near to risk-free rate of return
where I will give you base chain Bitcoin today
and buy the claim or buy the encumbered Bitcoin
that I'm going to receive on the base chain
in one, two, three months from now.
- Yeah, so I think Liquid has, I mean,
so you've got the Federation model at the moment
which is a bit of a limitation,
but we want to get something to market
and the opcode discussion kind of got delayed
by the block size drama, I think really.
And then there were other things people were focused on.
So really to get opcodes into Bitcoin,
you have to kind of build a momentum
and support an interest from a group of people
to like review and critique
and like provide slight variants and stuff like that
till you get to something that people like
and then see if the ecosystem likes it.
But in case of Liquid, you know,
it's proven to be an interesting test bed for opcodes,
some of which have actually ended up in Bitcoin
like years later.
So it had additional signatures quite early,
but the version that got into Bitcoin
is like an improved version of additional signatures
that were like various defects with a multi-sig back then.
And that was in like the open source code base,
the actual Liquid code base itself
didn't end up with additional signatures.
And I think some of the kind of relative time lock stuff
that was in Liquid first
and technically the malleability fix was there,
but not as a soft fork,
we just fixed it like at the base level, right?
- I think that's actually an interesting point to touch on.
And this actually goes back to Bitcoin maximalism.
In the early days when most altcoins
were fairly trivial tweaks to the Bitcoin code,
one of the primary thesis of maximalism was,
this is fine, we let people experiment with their shit coins
and if they actually managed to stumble across something
valuable, some new utility innovation,
Bitcoin will just implement that functionality.
And I've certainly heard some pushback recently
from like the pro ossification movement of quote unquote,
we should not be experimenting on Bitcoin main chain
'cause it's $400 billion worth of value.
So once again, why not experiment on these side chains
and let them play out there.
- And of course, for what it's worth
in the early Bitcoin talk forums,
Satoshi almost flippantly assumes
that there's going to be side chains and multiple chains
and was a supporter of Namecoin as well.
You didn't really see in that way,
Bitcoin maximalism from Satoshi himself.
- Of the things in Liquid,
I think it's interesting to observe as well
that some of them probably never belong in the main chain,
like the user issued assets,
stable coins and shares and things like this.
But other things could be interesting for Bitcoin,
we think, and that's, you know,
we implement them to like learn from them.
And I think sometimes people,
it's difficult to form an opinion about something
without playing with it basically, right?
So we had a version of Covenants in the original release.
And last year we made a kind of second revision to Covenants
which was informed by like developer feedback
from the first one.
So that complaint was, you know, with a Covenant,
you're basically sort of constructing the scripts
that should be in the next transaction.
So you're sort of placing a limitation
on the template of the following transaction.
And they said it was a bit difficult to like introspect
and assemble the transaction
'cause there weren't many helper functions.
So we added, I think in total about 32 different
kind of introspection and serialization functions
to make it easier to do,
but the same like Covenant mechanism.
So, I mean, there's some discussion
about Covenants in Bitcoin,
and I think they are potentially interesting
to help with vaults.
So I think if Bitcoin is like about censorship resistance
and secure storage,
you don't wanna ossify that key piece.
You wanna be able to like, you know,
finalize and finish support for secure storage
and key management policies and stuff.
So that's an interesting area.
And, you know, we have some prototypes
and of course there are other ones.
So, you know, even if it does a small part to inform it
and something else happens in Bitcoin,
we still helped, right?
But I think other things that Liquid has
is the confidential transactions.
So of course I'm an enthusiast for that
and it'd be great if Bitcoin had that
'cause it's an extra bit of privacy and stuff.
But, you know, that's the kind of more debatable area
because technically it's harder to verify the 21 million.
You can verify it,
but you're relying on some mathematical proofs
and you can't look at it with your own eyes as a programmer
and like run a small script to add them up or something.
Right?
Now, so that's an area where sidechains maybe are
where they end up staying.
And of course the drive chain project has implemented,
you know, the Zcash protocol in a sidechain,
which is a more complete form of privacy
because the confidential transactions
hide the values and the types,
but not the history in the same way.
- So it sounds like we're gonna get
at least one more soft fork with some upgrades to Bitcoin
at some point in the next few years.
There's a lot to talk about things like covenants
and BIP 300, 301 now over the last couple of years.
And people want to add more tap root functionality
like any provote.
I hear people talking about wanting to get that.
So it's like, obviously the protocol,
like the changes to Bitcoin is not finalized.
We've got more upgrades to do.
- Well, it's not obvious, right?
Ossification is something we won't know until hindsight.
Like if we've gone 10 years without any protocol changes,
then I think we can confidently say it's ossified
barring some sort of existential crisis.
- And it's not unrealistic or out of the question
to think that maybe it's already been reached.
- Right.
- The last six years of Bitcoin,
I think it was average of like two soft forks every year.
And there were some years where there was zero,
there were some years where I think there was the years
where there was three, four.
- Momentum has slowed down considerably.
- In the last six years, there's been two soft forks
that were much less ambitious, let's say.
And they took much, much, much longer.
Those being just segwayed in tap root.
And I mean, it's very unlikely we get to see a soft fork
in 2023, I think we can say confidently.
And the space between segwayed and tap root
is by far the longest space and time between soft forks.
And it's not like tap root was the most contentious
or ambitious features to Bitcoin.
- It was an inflection point with the scaling wars, right?
Is like a lot of the protocol level developers
still kind of have shell shock from that.
Like we want to avoid that type of contentious thing
coming up again.
And I guess the thing that,
one of the things that concerns me is even the few developers
who still have the grit to go out there
and be making consensus level proposals,
common theme of what you're seeing now is they're saying,
this is the proposal,
I am not proposing activation parameters.
- Yeah, so one other technology arc for us for QA
or ossification is to go back to Satoshi's original
aspiration to make a scripting system,
to make it possible to ossify
that would allow general extensibility.
So clearly there's an intent there.
Evidently it failed for two reasons.
One, it had a number of bugs
and the number of the op codes got pretty immediately
disabled for safety reasons.
But secondly, the script is not that general.
And it says it's hard to implement some things
where there were some things maybe inefficient
or impractical.
And so I think in like 2012 or something,
Russell O'Connor,
so he's a kind of formal language security guy,
guy with a PhD in formal language security area things.
And he'd implemented a version of Bitcoin in Haskell.
And because he came from that formal security area
and he did a re-implementation,
he found edge cases
where his implementation didn't match Bitcoin's
and he actually uncovered a number of bugs
in Bitcoin itself by doing an exercise.
And so he started on this kind of track
of designing a new scripting system
that could be soft forked into Bitcoin.
And so when people talk about MOST,
that's actually referring to his concepts,
which was more elaborate than the tree idea.
And so at some point, I think quite a few years now,
we succeeded to recruit him to go ahead
and build that thing.
And that's now called Simplicity.
And we've been working on it for a few years,
hope to get it into Liquid,
the first version later this year.
And there's many more people working on it now
at Blockstream and it is open source.
You can look at it,
there's a branch of Bitcoin with that integrated into it.
And there's a branch of Liquid with it integrated.
So the characteristics of that
is that it's a soft forkable new scripting language
and it is much lower level and complete.
It has some novel properties that you can,
it's kind of like effectively microcode
to write new opcodes or to write new behaviors,
probably more for library writers than application writers.
But if somebody writes the missing library pieces for you,
then you can write applications.
So as an example, using Simplicity,
Schnoor itself wouldn't have needed a soft fork.
You could have just implemented it.
And it's surprisingly compact,
it's kind of bit level interpreted code.
The formal provability is nice.
If Bitcoin has that,
all these things we're talking about,
like the APO thing, you could just implement it directly.
It's only a few bytes because it's like,
it has access to internal functions it can call
and a mathematical definitions of them.
So you basically write your extension in Simplicity
and it's compacting, just use it directly.
Eventually, if it's widely used,
you can implement it in C
and construct a formal proof that the C code
is equivalent to Simplicity code in all circumstances.
So you get an easier argument for why this is safe.
It's like, well, we can already do it.
And here's a more efficient implementation.
So soft fork doesn't become a behavior changing thing,
but a efficiency thing.
So you wouldn't even have to upgrade,
you're still verifying the script, right?
So that could potentially be the last soft fork, kind of.
I mean, technically there are soft forks
to make it more efficient,
but in terms of extensibility.
- Would it make sense to do both at once?
Like do BIP 300, 301 and add in Simplicity
so that like that could be the last soft fork
that anybody could then create anything they wanted?
- Yeah, so Austin and I have been talking about this
on and off for a few conferences now.
I think drive chains or like side chain op codes
are likely possible to achieve faster
because they're a smaller, simpler, narrower soft fork.
But as a plan C, I think that Simplicity
could easily implement the op codes for a drive chain.
So, and paradoxically, I think it might be easier,
not that Simplicity is at a stage
where anybody could sensibly propose it
as soft fork for Bitcoin.
That's five years plus away, presumably,
after people have experimented with it
on Liquid for a while.
But it might paradoxically could be easier
to get consensus to add a script upgrade
because then the question is to the community,
do you want soft extensibility so you can also fire it?
Whereas with the new feature that comes in,
people start to critique and like try to value,
like do I care about it?
Do other people care about it?
Is it worth the risk, the features that enable?
So that was a debate around lightning.
It's like, well, is this worth it?
Oh, I guess lightning is useful.
So it's sort of like they want to judge the feature.
Whereas if the feature is general stuff,
extensibility, like extensibility is good.
Okay, great, we'll go implement a drive chain with it.
So it's a funny thing, but that's not a discussion
that's going to happen for like years.
But it's a sort of plan C.
There are two ways to get there basically, right?
- Well, this has been a really awesome conversation.
I have to go ride some camels
and have dinner with my wife.
So let's pick this up maybe next conference.
- In five years.
- In five years.
No, it's been great learning from you guys.
And I think I'm looking forward to hearing more
about the conversations about the next Bitcoin soft fork
over the next year or two.
And hopefully people have more of an open mind
because definitely there can be some negative
sort of closed-minded ossification
like as like that's the goal on Twitter.
And that may impact the class of 2020 and 2021,
which are very noisy.
And we want to make sure that, you know,
people should be having these conversations a lot.
- So I want to make a pitch for the timeline here, right?
So at the beginning of this year,
I looked at the Bitcoin price 10 years ago
and it's coincidentally a little over doubled every year.
So it's a thousand times up from 10 years ago.
If that trajectory continues,
which in prices like loosely correlated with adoption
and saving and adoption for use,
that in another 10 years, we might be at global saturation,
at least if that trajectory continues.
And if we want all those people,
we don't know what the top of the S curve is
in terms of people who ultimately are full saturation,
care about Bitcoin and want to hold Bitcoin,
but we might have to accommodate all those people
within 10 years.
And that's not a very long time
for some of these things we're talking about, right?
So really you get this balance.
I think Austin alluded to this,
that you're sort of, you know, if there's not a capacity,
people end up using lower trust things.
So it's not really a debate about, you know,
is lightning good or is the drive chain trade off
not quite as secure as the main chain,
but you know, the alternative is they use a custody solution.
And so it's clearly better than that.
So, you know, I think we want to provide the option
for as many people as possible to benefit
from as good as possible, like security
and censorship resistance assurances as we can.
You know, we don't have decades and decades to wait.
I think that the rate things are going
is looking like this decade is the time.
- So let's have the conversation quicker.
- Side chains now.
- Side chains now.
All right, well, Austin, Jameson, Adam,
really appreciate it.
This has been awesome.
Thank you very much for coming on the show.
- Thank you.