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Episode 40 Back to New York!

Participants: Adam B. Levine (AL) Host

Stephan y Murph y (SM) Co-host

Peter John Manglaviti (PJM) Special Guest CIO Feathercoin

Marc Hochstein (MH) Special Guest American Banker

AL: Hi and welcome to Lets Talk Bitcoin, a twice weekly show about theideas, people and projects building the new digital economy and thefuture of money. My name is Adam B. Levine and today we're back inNew York. Marc Hochstein is a journalist and the editor of AmericanBanker. The day after the Inside Bitcoins conference he and I sat down

for a wide ranging interview on themes in crypto currency, bitcoin,altcoins, how it's all perceived within the legacy banking space andmuch more. But first Stephanie sat down with Peter John Manglaviti,the CIO of feathercoin to discuss lessons learned, alliances formed andfinding your place with an altcoin. Visit us at Lets Talk Bitcoin .com forour daily guest blog, show archive, and of course tipping options! Enjoythe show!

SM: Okay hello and welcome to Lets Talk Bitcoin . I'm here talking withPeter John Manglaviti. And you are from Feathercoin, right? You're theCIO from Feathercoin.

PJM: Yeah, I assume responsibility. I do more of the strategic planning.I'm a developer as well, but not as good as the other guy so I handle theother side of things. I've been recently working with both Feather,Phoenix and World to kind of coordinate all three of those coins now.

SM: Oh, yes, I heard about this. I saw a press release about this. Sookay, and until I had seen that press release I had never heard ofPhoenix Coin or World Coin. Just Feathercoin. But first let's start withthat. So for our listeners who have never heard of Feathercoin what isit?

PJM: Sure. Feathercoin is a de-centralized currency. So if you're abitcoin fan you'd probably also be a Feathercoin fan. Some of thedifferences that we have is in terms of some of the geeky things - re-targeting trying to control how difficult it can be. But more importantly

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trying to focus on Feathercoin is grassroots. I come from not only an ITbackground but a political background. I was one of the guys behind themeetups with the Ron Paul campaigns. So we had an idea that, couldthis translate to digital currency? Can you take a bunch of volunteers,

and we have quite a few now, and just get them motivated to just dosomething. To just, do good. And that's how we developed ourcommunity.

SM: Oh interesting. So is there actually a libertarian ideology behindFeathercoin?

PJM: Absolutely.

SM: Explicitly? Oh wow.

PJM: Yeah, absolutely.SM: See, I didn't know about that. And I can consider myself a libertylover. Maybe not so much into the political system more outside of thesystem you could say, but I certainly have been following Ron Paul sincebefore 2008.

PJM: Yeah, I was the guy with the Free State project and all those guys. Iwent to New Hampshire, I was waving signs.

SM: Well, actually I live in New Hampshire. So...

PJM: Oh do ya?

SM: Yeah. I moved there because of the Free State project in 2006, so.

PJM: Well yeah. But the idea was - so, with Ron Paul. I'd spend myweekends making signs with a bunch of guys. And at first, the idea ofvolunteering, I'm like, how much fun could this be? I had a blast. I hadso much fun doing work so when I met Peter Buschnell, the LeadDeveloper Feathercoin, I thought huh! Could this work? You know, can

you make it fun? Can you make it something where people want tocontribute and then everybody celebrates in success? And that's reallythe direction of Feathercoin.

SM: Wow, that's cool. So how, I mean how do you accomplish that witha crypto currency?

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PJM: Yeah, um, that's a good question. I started off very small. When Igot on board there was maybe 20 or 30 of us. And we have over 10,000members right now. Yeah, it was just a matter of - I asked people whatthey liked to do. I said hey, what do you enjoy doing? I'm an artist, hey,

we have sculptors, we have musicians, we have people that aren'tnecessarily your typical crypto-techie guys. And I just figured out, Ithought, hmm! Is there a way kind of to make this work? So forexample if we have a project we have artists that will do the graphics forus. We have a sculptor that does stuff on the side for us. We havebusiness people that like doing press releases like you've seen. It's theidea of Stone Soup. I was a big fan of that in elementary school that youstart with this idea of this is the best soup ever if everyone just adds alittle bit to it it'll be awesome. And people have fun, you know, it's aplace - our community is very much against trolling as the kids say andwe don't accept it. We just say that's not us. I want it to be a place thatmy parents would enjoy going to. Because if you go to some forums itcan get nasty at times. And people... I don't believe that. I believe thatyou should say what you want, express your feeling, but attack thepoints and not the people. And we have a community that I don't handlethat, they step in and go - appreciate what you're saying but atFeathercoin we do this. So I'm really proud of what developed. I don'ttake credit for that. We just had some really bright people come aboardand I happened to be the mouthpiece at the time.

SM: So um, Yeah, it sounds pretty decentralized just like the nature of allcrypto currency. It's supposed to be decentralized, right? Is there aFeathercoin forum? I'm not familiar...

PJM: Yeah, forum.Feathercoin.com, we have a pretty large forum there.

SM: So go there, no trolling.

PJM: Yeah, no trolling allowed. But you know we're not gonna sitaround and try to landbass you. You know, you're a horrible person.We'll say look - attack the issues. Because believe me, we attack. Justrecently theres things I've done that not everyone agrees with. But youattack the issue and not the person and we can respect each other thatway. And that keeps developing moving forward.

SM: Well I'm kind of curious about some of the conflicts that come upand get resolved.

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SM: So it kind of put the breaks on the difficulty changing?

PJM: It did. It kept it consistent. Next to Litecoin we are the largest cashnetwork for script.

SM: Okay. Are there any other script based coins? Besides Litecoin andFeathercoin?

PJM: Oh yeah, there's... it seems endless at times. I'd say there's at least40 I can name off the top of my head.

SM: Wow, oh my.

PJM: Maybe my new listeners aren't familiar with some of the smaller

ones but there are script coins for Final Fantasy. There are script coinsfor gas. I mean there are very specific coins. Where they'll end up Idon't know, but there's a lot of forks out there. A lot of peopleexperimenting. Which is not a bad thing. I enjoy that I think it'simportant for people to try new things. To make mistakes like we did inthe past and then be willing to admit. Say hey, this is an issue we didn'tforesee, how are we gonna fix it? Because in the end that's whatmatters. How do we move the currency forward?

SM: Sure, yeah. Okay, so a hard fork. That means that you make adifferent blockchain essentially.

PJM: Yeah, exactly. Everyone has to- you know, it's not an optionaldownload, you have to grab the new wallets. So you had challengesinvolved with that as well. We worked with some of the forforums andhelped coordinate that so they were really good about getting the newsout there and allowing us to kind of ramp up to it.

SM: Okay, in that case could you just upgrade to a different client orwould you have to like send your coins from the old client to a newclient or something like that?

PJM: You can upgrade, you can use an existing wallet. But again youhave to get the upgrade finished. So it's not something you ever want totake lightly.

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SM: Do you think that shook the trust in Feathercoin in the community?Or the bitcoin community?

PJM: Sure, it's hard to say. There's always going to be those that don'tlike us. And look, I'm okay with that. But often times when I dig aroundthe ones that don't like us the most they have coins somewhere else.And I respect that. You know, push your coin that's fine. What we diddo though for the miners is we offered 10 btc. What we did at eachpoint we offered a bonus, whoever found that block went ahead and got1 btc. And I contributed an additional 5 on top of that for the last one.So the person that hit the last one got 10 btc for hitting the 33,000 block.

SM: I see.

PJM: You know, we're not trying to bribe the community, what we wantto do is say look, we know this is an inconvenience. What can we do tohelp get people motivated. We turn it into something more that's apositive. We could have left it alone and said, you know what, forget it.It'll sort itself out but that doesn't do anything for the community;. Thatwould lose trust. I think quicker than to say look, it's not working out,we have a solution in place, we talked about it with the community - weexecuted.

SM: Yeah, I mean that's - I really like your attitude about that becausethis is just - it's an unknown frontier. We're trying new things, stuff'sgonna happen and...

PJM: ...and it does!

SM: And it does. Yeah. (laughs)

PJM: You see that over and over.

SM: So you're rolling with it, so... cool.

PJM: And you mention the 51% attacks.

SM: Yeah I was gonna ask about that next, tell me more about that.

PJM: In truth I'm not gonna hide that, we've been attacked a coupletimes now. We've been tapped with massive hash. We're talkin', 7 or 8gig. I mean which is unheard of on all coins.

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SM: How do you think. Do you think it's one person or do you think it'slike a botnet, or.

PJM: Um, I'd rather not say. I have a pretty good idea. What I'll sayabout it is this. There are some bigger coins that definitely need toprotect, that want to protect their investments and if you can makeFeathercoin look unstable if you can send massive amounts of miners atus it can make people move away from us. But that's not the casebecause if you look at our price over the last couple of weeks we wentfrom about 7.9 cents to 12 cents. So it hasn't shaken the community butwe take it serious. Something new needs to be solved. Litecoin doesn'thave this issue because they have the network to support them. But ifsomething happened with them and I'm not saying I hope that happens,but let's say for example they don't end up on Dox. And let's say for

example that they lose some of their miners. Their script base, they'd bein the same boat that we are. So what we feel like it's our responsibilityto solve this. And one thing we're implementing is something called anadvanced check pointing system. I'd rather have Bush Star talk aboutthat. I'm the PHP guy he's the main guru coin guy. But we're workingwith Sonny over at PVC coin that we hope that proliferates to all coins inthe script community.

SM: Oh interesting, okay.

PJM: You know what, we got beat up a bit but I feel like it's ourresponsibility as one of the leaders in all coins for script to come up withsolutions. We don't hide that fact.

SM: That is really interesting that the 51% attacks didn't seem to effectthe price negatively. Or did it go down after?

PJM: Very little.

SM: It's hard to have - when you don't have far to fall it's hard to have aprice crash, right?

PJM: It is, but even if it goes from 7.9-7.7, that's pretty significant for us.So you know for us we're almost double the last couple of weeks now.And I think it's just because we're doing the right things in thecommunity. I feel like people support the idea of Feathercoin. And theytrust we're gonna do the right things and try to fix this. We're nothiding anything, we have a section on our form that says atacks . And

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here's what's happening, we want input from the community. We'reopen on how we want to solve it, and I think ultimately that's whatpeople care about. And then our great PR people are out there gettingFeathercoin in bars. We have different merchants coming aboard. We

have a Batman system being developed, specifically for merchants thatwe're about to release. People are excited, and I'm just happy to be apart of this. I feel like I was invited to the party.

SM: Yeah. So okay, tell me more about this partnership with PhoenixCoin and World Coin. First of all, what are they? I have not heard ofthem.

PJM: Absolutely. So Phoenix Coin, these guys come from the casinoworld and adult world, actually. That was their Market. And theydecided..

SM: So it's like porn coins. That's cool.

PJM: Yeah, they've had quite a bit of success in that Market and theywanted to kind of ease into... they liked the idea of crypto currency. Ofcourse the customers being casino and adult, anonymous and somewhatanonymous transactions, so they came with a coin. What we felt like wecould bring to the party is a bit of guidance in terms of we have a bigcommunity - a lot of developers. So we've kind of transitioned from thatworld into crypto currency. And then World Coin is very focused onmiddle sized business. They have a lot of background with banks andaccountants and areas that Feather has no experience. So what I talkedto Peter about is, Peter Buschnell our lead developer is - we can't beeverything to everyone. We're very good at some things. We're verygood on the develoPJMent side, community develoPJMent,experimenting. But we certainly don't have the experience with thebusiness side. We definitely don't have the adult world and the casinoworld. So I met with John Carr, who is the leader of Phoenix Coin I justsaid here's what I'm thinking. It'd be nice if we can compete against oneanother, why don't we figure out a way to pool resources. I mapped outa strategic plan because I'm a geek that way, that's like my porn, right?Here's how we can make it work, and here's how we can like, you know,go ahead and move forward as a group. And that's how it came about.

SM: Cool, so okay. What is involved in the partnership, what is it doing?

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PJM: Sure. So for example right now we're about to release the UNIXBridge. And that's gonna allow us to do instant transactions betweenexchanges, merchants, and customers. So think about it almost as abank account. If you deposit at Bank of America, they have systems

where you can - I've seen commercials for this. If you have your bankaccount with Bank of America, your babysitter does as well, you caninstant transfer, right? Well that's the same idea here. That's whatPhoenix Coin is good at, they worked on back end systems. Theyworked on credit card processing, banking type systems. Feather didnot. We had no experience. So they're bringing that to the group andthen all three of us are able to use it. And we'll be talking more aboutthat real shortly. Coindesk has an exclusive on it, they already have thearticle written. Walked them through it, I just gotta wait till we getthrough penetration testing.

SM: Okay, cool, so it's some kind of system where potentially you couldpay for something with Feathercoin that you might've only previouslybeen able to pay with Phoenix Coin.

PJM: Sure, so for example let's say you want to sell something. Let's say,do you sell anything?

SM: I'm a freelance voice over artist. So I sell my voice.

PJM: Okay. So you sell your voice. Ok, so let's say you have an mp3, asample, and you want to sell it for like a couple dollars. And you and Iwant to exchange Feathercoin for it. How would we go about that?

SM: I guess I would send you a Feathercoin address and you'd pay me,right?

PJM: Right, so you'd have a wallet, right? And then I would go ahead andsend it to you and you'd wait for a couple confirms to verify that it's legitand you have these coins now, right?

SM: Yup.PJM: Okay. Now what if my coins were on an exchange. I want to goahead and pay you. So now I have to go ahead and go to the exchange,withdraw, wait for confirmation, go to your wallet, wait for aconfirmation. What this will do is allow me if the exchange, you, myself

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know we really want you to deal with Feathercoin. They're like, oh welike the idea but we're not techs. We don't understand this wholewallet. I want to make it so, hey do you have an online banking? Yeahwe do! Great, do the same thing.

SM: Is that pretty much like the future where you see Feathercoingoing? Do you have other ideas?

PJM: We do. Gosh, there's so many things we're working on right now.Okay, sure. One of the biggest challenges right now... my Mom. I wasthinking my parents. Because they are not computer tech at all, letalone crypto. How does my Mom buy Feathercoin? I mean think aboutthat process, how do you buy Litecoin?

SM: Oh, you gotta go on BTC-E.

PJM: You go through that process and you have to do it with anexchange and, oh my goodness. To get your user to buy anythingbesides bitcoins is a challenge, isn't it? There's a lot of things involved.

SM: Even to buy bitcoin is a challenge.

PJM: That's even a challenge. Good point. I mean, and then smallerones good luck on that. With this bridge we're working on the bondingand we're working on the regulations where you'll be able to buy

through fiat. Fiat currency you'll be able to buy our coins directly withcash.

SM: That's really useful. Cool.

PJM: The challenge of course is regulation. There's a lot of things wehave to get in place, but for the Feather side this is all new to us. Wehaven't had to work with accountants and lawyers and those things.Phoenix has that experience, so they're pulling those resources andwe're guiding that thing. So eventually you'll be able to sell it for cash,

deposit with cash - basically anyone who wants to get a hold of a coinwill have easy access to it. It's not around next week, next month, butit's close. I refuse to give a date again because we missed our big releasefor the bridge. Because I've heard about that. So I learned somethingwhen it comes to crypto develoPJMent - when it's done. I'm gonna saywhen it's done.

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SM: Ok fair enough. Peter, thank you so much for talking to me today.

PJM: Really appreciate sitting down with you kind of Indian style.

SM: Yeah! We had a pow wow, this was fun. And where can people

find-? Is it Feathercoin.org?PJM: Yeah you can find us at Feathercoin.com, yeah, or the partnershipat unocs.com.

SM: Cool, thank you so much, this was fun.

PJM: I appreciate that, thank you.

Break

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AL: I'm joined this morning by Marc Hochstein, editor of the AmericanBanker Magazine. That was an interesting conference that we justattended. It was a little bit of a different crowd than I think I wasexpecting. There was a lot of miners there. There was a lot of venturecapital there that we saw. There was a lot of regulatory institutionsthere. You know it seems like there are some changes that are kind of

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again it seems like this compliance stuff we're starting to come to a headon it and right now we have some guidance but there aren't really anyrules and the guidance could change. Is there, was there a vibe youthought? That this is going one way or the other?

MH: There was some nervousness I sensed. Tony Gilleppe from BitPaysaid that every bitcoin business has been dropped by at least one bank.And he mentioned that there was an actual merchant. Not an MSB ormoney transmitter or a bitcoin exchanger but just a merchant thataccepted bitcoin and got dropped from their bank just because theyaccepted bitcoin as a form of payment as opposed to whatever otherforms of payment they take. So I mean I think that there's like an... andeven bitcoin friendly banks are at the very least full up on the amount ofbusiness they'd be willing to take on. I'd be lying if I said I had a crystal

ball and I knew how it was gonna pay out. But I do think that there hasto be some kind of a confrontation. I use that word a little bit looselybut there could be congressional hearings. I wouldn't be surprised tosee that before the end of the year. The best outcome would be if itprompted a candid discussion about all these rules, these legacy rules inthese legacy systems and these legacy regulations that are kind of beingshoehorned to apply to these new business models. I think that thereshould be, and I sort of have gotten at this at some of the things that I'vewritten and John Matones would put it in even stronger words in the

columns that he's written. People need to take a hard look at the wholeAML regime in policy circles. You know, how much are we getting out ofit? How is it really benefiting us? And what's the collateral damage? Ifwe are going to a cashless society, which I believe we are doing slowly -and that's mostly a good thing if you consider cash inefficient. But if weare gonna go in that direction where it's gonna be a world of mostlyelectronic payments shouldn't we have to carve out a space forpayments that are anonymous. And I'm even framing it too narrowlyalready because if we can get rid of physical cash that's all well andgood, but there should be some form of digital cash. And bitcoinhappens to be the most successful digital cash that there has been.There have been other attempts at it that have just sort of flopped.Bitcoin has gained the most traction. I've talked about anonymitybefore and I stand by the position that we have to live with that and thatthere has to be a space for that. That there are perfectly legitimatereasons for people to want to make payments anonymously whether it's

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in person or whether it's on the internet. Another aspect of cash - andthis came up at the conference, it was great. You had Tony, and you hadsome other merchant processing types presenting, is that for certaintypes of merchants, one of the virtues of cashes, the irrevocability of

transactions.. I fear that the next wave of trash talking about bitcoin isgoing to be focusing on that. Is going to be focusing on, oh it's all a ripoff. And you know, the virtue is that supposedly there's no charge backsand the consumers are gonna pay for stuff online, they're gonna getripped off. Even as we get rid of cash, some merchants should be able tohave ways to get paid that are irreversible. Or at least irreversible ornot unilaterally reversible. One of the great things about credit cards,and this is a valuable thing that a credit card company provides. Thereis consumer protection, there is fraud protection. That is valuable, noquestion. But it shouldn't be mandatory. There has to be lots ofdifferent flavors in the world that we go to.

AL: But is that the way that society is moving. Because it seems likewe're moving towards a place where risk is being socialized to a certainextent and we're looking towards America specifically you look atsomething like healthcare and it seems like we're moving away from anopt in system to one where you almost opt out at a cost. Let me back upa second. We're talking about anonymity and money, and I think it'simportant to define really what that means. Anonymity and money as I

understand it, means basically separating the concept of value from theconcept of identity, because in a world of credit cards, it's not that younecessarily possess the money as a person. It's that your financialidentity has the rights to spend the money. Whereas with somethinglike cash, or like gold or like bitcoin, possession is the entirety ofownership.

MH: Right, and that's what makes it cash-like. And once you spend it it'sgone. That has its benefits and its draw backs for both parties.

AL: So it's not one size fits all basically when it comes to money then.

MH: Yeah, exactly. And I could see a world where a merchant willaccept payment from credit cards or debit cards or Paypal or maybe wewon't call them credit cards in the future we'll call them credit accountsbecause they won't actually be physical - you know they'll all be on aphone or whatever. And then they'll accept digital cash which could bebitcoin or it could be one of the alt coins or it could be Bitcoin 5.0 or

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whatever. That the Market would find kind of a balance where if youdon't trust the merchant or it's a big ticket item you might choose to sayI'm going to put that on my credit card. I mean you know, if I was gonnabuy an electric guitar or a computer I'd probably want to put it on my

credit card today unless I really really trusted the merchant and thoughtthey had a good reputation. And the merchant can say okay, you canpay us that way but there's a discount if you pay us with cash, bitcoin, orsome future alt coin. You know one of the nice things now is that afterall the legal settlements and anti-trust settlements with the credit cardcompanies is that merchants now can do a little bit more steeringtowards preferred payment types which that previously the VisaMasterCard rules barred them from doing.

AL: It's more of a monopoly system.

MH: It was. Now it would be nice if instead of having to work that out inthe courts and having to pay lawyers and have congressional hearingsand all this stuff. It would be nice if the Marcet could force that tohappen as opposed to bludgeoning it. But that's happened somerchants, you know. Merchants now, what they're allowed to do nowis surcharge for credit cards which is almost the same thing as saying adiscount for cash. It's almost symantec. Why couldn't you have a worldwhere a merchant has a surcharge for the protected payment or theidentity based payment - better way of thinking about it - and then adiscount for the possession based payment, the cash like payment.Different strokes for different folks.

AL: You moderated the panel on essentially crypto currencies and freespeech. It was bitcoin and free speech. Really broadly was talking aboutthe tools for free speech. That was one of the most interesting panels Ithink. A lot of really interesting things said there. I was wonderingmoving forward, what role do you really feel like crypto currencies oridentity list money forms can play in our society? I mean like in apractical sense.

MH: You know, one of my favorite stories that we've looked at lately onBank Think which is American Bankers' Blog is the issue with theSomali communities. This has come up in Minnesota, it's coming up inthe UK where this Somali immigrants send money home and in Somaliathat's a big part of GEP. It's a completely ravaged country. It's gettingharder and harder, there's fewer and fewer choices. Here in Minnesota

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they would use the Hawala brokers. You know, Hawala is an ancientsystem it goes back thousands of years and it's totally trust based. Youknow, I want to send money to my Aunt back home so I hand the UScash to the Hawala broker and he calls up the $100 or whatever, and

that guy calls up his friend Hawala broker in Somalia and says give theequivalent of $100 to this guy's Auntie. And at the end of the monththey settle up and you know, they take a fee out of that or whatever.There's no records.

AL: So it's like a relationship based money transfer system.

MH: And Western Union does not serve Somalia. So that's the way youget it over there. Last year in Minnesota the last community bank thatwas banking the local Hawala broker had to cut off that relationshipbecause of ANL money laundering regulation concerns. And there was abig uproar and then there was like, people were pressuring US BankCorp., Wells Fargo which are the two biggest banks in that Marcet. Theindividuals were saying we as consumers are gonna pull our depositaccounts unless you start servicing money transfers to Somalia. Andthat put them in a bind. Because from the bank's perspective it's a bigrisk for them to be in any way involved with facilitating money transfersto a country like that. Because if it turns out that somewhere along thefood chain someone sent money and it ended up in some terrorist orsuspected terrorist' account, they're gonna get a big fine. And they don'twant to touch it, they amount of money involved is probably not worththe risk to them. I'm not gonna get all moral and high and mightytowards the banks because they're in a tough spot. So you know it wasa big PR headache for them. US Bank Corp. to their credit did eventuallyannounce a pilot program with Tahab Shahil which was the biggestmoney transmitter serving Somalia. And I don't know what the status ofthat is, that was about six months ago. In fact I called a couple weeksago and I haven't heard back so I'm going to stay on their case to findout how that's going. Over in the UK recently Barclay's had a very

similar situation. Barclay's started dropping relationships with moneytransmitters. About 80 of them and about a dozen of those were servingSomalia. And they got raked over the coals in the press in the UK, like,you're gonna cause a humanitarian crisis Barclay's. And it might cause ahumanitarian crisis if you really cut off remittances. And again, youknow, Barclay's looked at what happened to HSBC you know, I mean,HSBC guys didn't go to jail but I mean, they did have to pay a big fine

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and they got a lot of bad press and they had to go to congressionalhearings and have these pompous...

AL: It was very inconvenient

MH: It was inconvenient. For them life is too short. You know, so theymade a business decision to drop those. Now, bitcoin, I don't knowwhat internet connectivity is like in Somalia, but if you have an internetconnection, that's pretty much all you need to get a bitcoin from point Ato point B. So the only other thing that you would need is someone topay for bitcoin in whatever the local currency is. So it just cuts out allthis nonsense. I just spent 9 10 minutes explaining this Rude Goldbergchain of events that in the end hurts poor people all in the name ofstopping terrorism. Bitcoin is neutral. Bitcoin doesn't care who you are.Bitcoin doesn't care if you are a hard working immigrant sending moneyhome to Mom or if you're an evil terrorist. It just does what you tell it todo. And it does it very well and very fast. I think that if we try to makemoney not neutral there's a lot of collateral damage. And is that theonly way to address the issue of terrorism.

AL: I think I'd like to dig a little bit into this one size fits all kind of worldthat we're starting to live in. It's sort of strange because you know onthe one hand you have all sorts of technologies that enable people to getexactly what they want, the exact specifications. You've got things like

3d printing that are continuing to expand that further play on thatmean. And yet you look at the way the rules are made and the way thatpeople's lives essentially are governed, and you see that increasinglywe're moving towards one-size-fits-all solutions that wind up not reallyfitting many people at all. So I mean in a global world this is a problemthat bitcoin runs into because a micro-transaction in the Western Worldis a large transaction in many parts of the underdeveloped world - in the3rd world. I don't know a nicer way to say that is...

MH: The emerging Markets.

AL: Emerging Markets, there you go.

MH: Some of them are quite emerging.

AL: But they will eventually. So many things are changing to make it sothat it doesn't need to be that way but I don't understand why it seems

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like more and more with regulation we're finding ourselves in thatsituation.

MH: I think a lot of it is just that the regulations are outdated and they'retrying to be applied to new things that don't quite map to the oldcategories. And you see this outside of bitcoin too. I mean moneytransmitter licenses... it's not just bitcoin that this is a problem for. Imentioned last time the sad story of Eric Greenspan and Face Cash. Iread a law professor article that came up very recently talking aboutthese transmitter- state money transmitter laws. And some of themdefined money transmission so broadly that they could apply to bikemessengers or app stores. And these were laws that were meant toregulate- and I'm not talking about AML here I'm talking about statetransmitter laws that are originally designed to regulate businesses like

Western Union from a consumer protection standpoint. So you can givethe money transmitter your money making sure that it actually gets tothe place it's supposed to get to - that you don't get ripped off. But theyare being applied to businesses where there really isn't that much riskto the consumer. Like businesses that basically act like an agent for thepayee are happy to get this licensing and this guy argues quitepersuasively I think that you gotta take a hard look at those laws andlook at is there really risk of harm to the consumer? Because if thereisn't, if the businesses accepting payment on behalf of a merchant and

even if that intermediary doesn't pay the merchant there's no risk to theconsumer. Why do you have to pay these fees and add all thesecompliance costs because it's discouraging startups, it's disturbinginnovation - it's creating higher barriers to entry. Protects incumbentswhich is nice if you're an incumbent but...

AL: It's good work if you can get it.

MH: But you know it's not necessarily good for innovation andcompetition and all these things that we supposedly believe in as a freeMarket liberal society. Bitcoin might help force the issue. In some waysa cause for optimism would be that now that there's a big debate aboutsurveillance broadly and all these big revelations keep coming aboutwhat the NSA is up to. People are questioning the third-party doctrine,if you have records stored with the third-party you have no expectationof privacy. Which has been around forever in banking I mean the BankSecrecy Act which is what, I think 1980 or earlier. The Supreme Court

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ruled long ago in a banking case that if you have no expectation ofprivacy for records stored with the third-party for the bank. So that'swhere it all got started. It seems like a long shot to say that we'll re-evaluate this in light of the Snowden revelations or whatever. But you

know I mean the Nash amendment was only narrowly defeated which Ithink surprised everyone. Surprised the people who are for it, surprisedthe people who are against it. The administration has to scramble thejets to defeat that. It looks like there's very strong intredged interestthat would want to straight-jacket the new technologies but optimismwould probably be the only way to look at things because if you'repessimistic it's almost close to giving up. I mean you can be realistic andyou can be careful and you can- I wouldn't advise someone to blatantlybreak laws because that's very risky. I think if people speak up and theyare honest and candid about these issues then I think it might make adifference.

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AL: So let's talk about alternative crypto currencies for a second. Marchave you looked at any crypto currencies besides bitcoin?

MH: No not really. I've listened to you guys talking about Litecoin andwhat not. I had an interesting conversation with one of the speakers atthe conference who was working on an alt coin. I think it was like alocal alt coin. This was at Charlie Shroom's bar, and this was after acouple drinks, so I don't remember the details but. I think it's great thatthere was all these different mutations coming out. You know, the morethe merrier. First of all because even though bitcoin is very hard to shutdown because it's very decentralized, you know there is that whole... Iwas actually pretty shocked when I heard on your program when thiscame out at the San Jose conference that something like 48% of dividingpower is in one pool. And I think that they're very consciously trying to

keep it below that threshold because they understand that the valuegoes away once you get to 50, 51%. It is conceivable that someonecould do the 51% attack thing. And of course if you destroyed bitcoinsomeone could always start it over again. I think the more the merrier.As you said one size fits all doesn't work and a lot of them might just failor go nowhere but you can't knock anyone for trying. That's the nicething about bitcoin and that whole community is that they'reexperimenting and they're doing things and they're building things.Everyone's talking about projects. They're talking about starting a

company, and starting a startup, and starting an alt chain. You know,they're creators. They're not just bullshit artists like me or. You know alot of people in the media kind of like sneer at bitcoin and either say ohit's a waste of time or you're off in your own little world. It's a retreat -it's not a retreat. It's very social. Both in terms of the aspect that it'speer-to-peer and that just in terms of like the meetups and events likeSatoshiSquare. It's very social and interactive. They're buildingsomething. And who knows how long it will last but when people scoffat that, "Well what have you done?" You know, they're trying. Frycoinis interesting, I actually want to try it. You know it's a very differentphilosophy behind it than the Austrian Economic perspective. But youknow, it's kind of interesting.

AL: So Frycoin is an altcoin that introduces a demorrhage feature.Which basically means that the currency over time disappears actually.It's not that it devalues it's that literally some amounts of it go away. Is

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my understanding. I also have not used it but that's my understandingof it.

MH: It addresses the hoarding issue. If you believe that's an issue. As anaside, hoarding is a judgmental synonym for what our grandparentscalled saving. But admittedly yes I mean in a weak economy like thiswhere inflation has not been that great even though despite monetarypolicy. I could see why people say well why do you care about inflation.Crypto currencies don't have to be Austrian. You could have a (inaudble49:00) crypto currency I suppose, you could have a modern monetarytheory crypto currency. You know one idea that keeps coming up is thegovernment (inaudible 49:15) crypto currency. And I wouldn't mindthat as long as it really was like physical cash in the sense that it had theirreversibility and the sudonimity. I don't think that's gonna happen but

it's nice to imagine.

AL: But you know I think the more the merrier. So this guy I was talkingto who was talking about one of his altcoins. He had a great analogy. Hesaid like in a forest you need lots of different types of foliage.

MH: Monoculture doesn't quite work as well.

AL: Right. Exactly. So maybe it should be that way with money. Even

Dave Birch who is not very popular in the bitcoin community becausehe's always the person quoted in bitcoin articles sort of damning at hisfake praise. But even he, he takes that position that you should have lotsof different stores of value. So in the future there will be governmentcurrencies and private currencies and people will keep some of theirvalue in bitcoin or crypto currency, some of it in dollars and some of it inkilowatt hours. The experimentation, I see very little downside from it.But like we were saying earlier with the merchants the morealternatives the merrier. One of the things I wanted to mention about

neutrality that I didn't get a chance to say on the panel but it's just agreat example. If you go to a site called coinDL.com, they sell content,they sell eBooks, they sell music. There's a musician in Iran MuhammedRafiq. I'm not sure if I'm pronouncing his last name. He's in Iran. hesells mp3's of his music through this site. It is not illegal under thesanctions to buy music from someone in Iran. I have confirmed that. Icalled the US Treasury and I specifically asked them that. They said

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there is an exception for information. As a practical matter though itwould be very difficult were it not for bitcoin for this guy to sell hismusic anywhere outside the country he's in. But I in the United Statescan go online and for a miniscule price I can download his mp3's. And

by the way people do still pay for music and musicians are trying tomake some bread in a country under crippling sanctions as ourpresident put it. You know, if it helps them a little bit that's good forhumanity. The album is...

MH: Is it to your taste? It was more about the support.

AL: It was more about the support... I mean it's okay. It's the type ofmusic you hear in the spa when you're getting a micro-derma facial orsomething but. It's good to listen to when you're in a room burningaroma therapy candles. It's not an album I would want to go to jail for.You occasionally write about bitcoin but American Banker it seems likehas been running quite a few stories about bitcoin between you andJohn Matones. You speak to financial professionals and people who arespecifically in the industry, what type of reception have you gotten fromyour audience? Are you getting people saying why are you covering thisor is it more curiosity? Or what's the?

MH: There's a lot of curiosity. it's all over the map. For most bankersright now, I wouldn't say bitcoin is top of the line for them. They've got

a lot of issues. They've got the Dodd Frank legislation which isthousands of pages long. And a lot of it hasn't really been put intopractice yet because the legislators haven't put in all the rules. They'vegot the Basel three capital regulations which are still being ironed out.interest rates, low interest rates have made it very hard to make moneyin their traditional business of taking deposits and making loans. Loanreturn rates are starting to tick up but that's been a mixed blessing forthem because the mortgage refit' boom that they've been enjoying,they've been getting a lot of earns out of for a while just came to anabrupt halt and now they've got to lay off all their mortgage people thattheyve been hiring. So bankers are very conservative by nature.They're risk averse at least when it comes to certain kinds of risks.They've got a lot of things on their plate right now. There's someskepticism. Obviously you can tell from behavior that they're wary ofdealing with bitcoin related businesses probably just out of acompliance risk concern. But there's also curiosity about it and I think

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there is some recognition that there needs to be innovation. We did aseries on bank think called the future model of banking which Johncontributed to and John thinks that there's an opportunity for the banksto serve these businesses to help them on the compliance front because

the banks if nothing else know compliance very well. He said it's kind oflike their last mulligan payments before they get truly disrupted. I'mvery glad that John writes a column for us. I really like having a voicelike that in the mix. I mean it's not core quite yet bitcoin but it's part ofa core theme for financial services now and for the years to come isdisruption and bitcoin is one of the most disruptive technologies thereis. It's funny because in banking we ooh and aah over things like mobileremote casher of checks. That's really just sort of

AL: It's an update to an antiquated technology.

MH: It's a patch. And at some point that Shaq did on that panel we did.

AL: That's Shaquille Kahn.

MH: Right, that's Shaquille Kahn. Jus the absurdity that in 2013 I cansend you an email and you'll get it in seconds. You know, you candownload an mp3 in seconds or I can send you any kind of data file inseconds. But to transfer money to someone even like $10 through thebanking system is such a hassle. It can take days. And it can cost morethan the amount of money that you're sending.

AL: That one size fits all thing again.

MH: Exactly, exactly. And I think that an important example is in theAutomated Clearing House there's a payment system that is collectivelyowned by the banks. Sometimes if you look on your banking statementyou see the ACH, that's what that means that means that this money wassent through the Automated Clearing House. It is one of the lower costpayment systems in the traditional banking world. About a year agothere was a vote among the banking members over whether to basicallymake it mandatory that everybody be ready to do same day settlementof funds on ACH. A majority of members voted for it but they did not getthe 75% that they needed to pass it. So instead what NACHA, that's theassociation that oversees ACH is doing is a voluntary same daysettlement. What that means is that if both the sender's bank and thereceiver's bank are participating.

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system like we have now for any kind of alternative that fixes theseproblems to the detriment to the existing system.

MH: I hope so. I mean I really hope so. The reaction to bitcoin so far.You can read it either way. I mean the (Finsend 58:30 ) director did saywe welcome the innovation of virtual currencies and we just want themto follow the law and follow the rules. We'll see if that's lip service orhow sincere that is. I think in the long term it's - and we talked last timeabout the anti-fragile book. In the long term it's better for stability tohave lots of centers than have one center if you buy Nassim Talib'sargument one center, one point of failure it's more dangerous. And ifyou have lots and lots of different heads and lots of different nodes... Ithink it's in everyone's interest to be a little more flexible and say let athousand flowers bloom. To use a phrase by a coin by a guy who didn't

mean it but it's a great phrase and that's the way I think about this.Even if it threatens your. Because I don't think bitcoin tomorrow isgonna take away a whole lot of revenue from Western Union or Paypal.You know and it might over the long term but supposedly we live in asociety that competition is healthy and that competition will... bitcoincould be good for banks in the long term sense in that if it forces them tobecome more responsible customers and it forces them to streamlineand to not have this confusing like: your available balance is, yourpresent balance... I can't believe they still do that in 2013. And you

know as a consumer I never got that. And I know it's because they'vegot these old systems and it's complicated. Maybe it's comparing applesto oranges to compare the two. It's just funny, bitcoiners get frustratedwhen they have to wait 20 minutes for the confirmation. But that'sgonna be what the standard is and that's gonna be what people demand.I think it's in everyone's interest to let the alternatives bloom.

AL: Marc Hochstein, American Banker. Thank you very much for yourtime.

MH: My pleasure, always.

AL: Thanks for listening to episode 40 of Lets Talk Bitcoin . Content fortoday's show is provided by Stephanie Murphy, Peter John Maclaviti,and Marc Hochstein. Music was Provided by Jared Rubins. And if youcan't get enough original thought and discussion, read our daily blog atLets Talk Bitcoin .com, sign up for the weekly newsletter at

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theweeklybitcoin.com and participate in our listener interactionary atLets Talk Bitcoin .com/talk. See ya next time!

Transcriber Address:

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