LET’S TALK BITCOINEpisode 105 – Let There Be Price

Participants:

Adam B. Levine (AL) – HostStephanie Murphy (SM – Co-hostJonathan Mohan (JM) – Co-founder of Bitcoin New York CityJeffrey Paul (JP) – Hacker, entrepreneur, security expert

AL: Today is April 29th 2014 and this is Episode 105. This program is intended for informational and educational purposes only. Cryptocurrency is a new field of study. Consult your local futurist, lawyer and investment advisor before making any decisions whatsoever for yourself.

Welcome to Let’s Talk Bitcoin, a twice weekly show about the ideas, people and projects building the digital economy and the future of money.

My name is Adam B. Levine and today we’re back in New York with Stephanie on the day after the recent Inside Bitcoins event. She sat down with LTB favorites Jonathan Mohan and Jeffrey Paul to talk regulation and realism, walking time bombs of companies and the magic of price discovery

Enjoy the show! [0:49]

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Stephanie Murphy interview with Jonathan Mohan and Jeffrey Paul

SM: This is the Let’s Talk Bitcoin podcast wrap up of the Inside Bitcoins New York City event. I am Stephanie, of course and I’ve got with me Jonathan Mohan and ‘Sneak’ Jeffrey Paul. Hi guys, thanks so much for joining me.

JP: Thanks for inviting me. I made it here last minute for this conference and I’m really excited to be here. It’s so much larger than every other Bitcoin conference I’ve ever been to. It’s really amazing to me. [1:17]

JM: It’s always fun to get on. [1:18]

SM: Yeah, you guys have both been on the show before so I think people know you but just in case anyone’s meeting you for the first time, Jonathan, you are the organizer of the Bitcoin NYC meetups. You can introduce yourself if you want to. [1:33]

JM: I do a meetup group for New York and we’ve had 57 meetups in twelve months, so that’s as it relates to our activity. I also am the New York representative for Ethereum, so any hate or love can come my way for that. [1:47]

SM: Cool. Shall I call you Jeffrey or Sneak? [1:51]

JP: You can call me Jeffrey, that’s totally fine. [1:52]

SM: OK. [1:53]

JP: All computer hackers have to have two names. They have their name that goes on the indictment and then they have their name that they use on the internet. [2:00]

SM: (Laughter) Right. [2:01]

JP: I’m excited to be out here. My role in Bitcoin is really a lot pretty much as an observer as I got into Bitcoin through the cryptography side of things. I’ve been a hacker and whatnot for years. I started talking about it years ago when no one was listening and now it’s cool because now everyone is listening and it’s really exciting to see huge conferences going down that would not have been possible, even twelve months ago. Being at San Jose last year and kind of getting this feel that Bitcoin was about to explode and this is the last time we’re going to know everyone in this room. Coming here and suddenly not knowing anyone in the room. We knew it was coming but now this 2014 is really an incredible year for Bitcoin. [2:47]

SM: Let’s talk about that actually. I think that’s a perfect way to lead into the discussion about this conference. It was a big... it was in a large space. They definitely had a venue where there was plenty of room to expand. [2:59]

JM: Actually, the Javits Center which is where Comic Con and pretty much any major trade show in New York City is held there. Now, granted it was in a very tiny part of the Javits Center but just that it’s in there alone, that’s like the Carnegie Hall of conferencing. [3:13]

JP: It surprised me a lot what when I saw that. [3:15]

SM: There was a big billboard outside that kept flashing the signs for different events that were going on and just seeing Inside Bitcoins up in lights was pretty cool because a lot of people pass by that. [3:26]

JM: It was on buses too. [3:27]

JP: All of my friends in New York City, who’ve known me for years, have heard me, this crank, talking about internet money for years and years and suddenly, it’s on buses

everywhere and I’ve got four or five camera phone shots of it just in the last couple of weeks. Hey, it’s that Bitcoin thing you’ve been talking about, it’s at the Javits. (Laughter) It was a wakeup call for me. [3:44]

SM: MediaBistro really does know how to put on an event that gets a lot of press. We saw a lot of mainstream media, just like their event last year, they had another event in New York City that was very well attended by mainstream press. This year, we saw tons of investors and VCs, of course, as I think we were expecting for an event like this. You said, Jeffrey that you didn’t know a lot of the faces there and you were surprised about that. Can you talk a little bit more?

JP: I knew that Bitcoin was expanding in terms of just mindshare, forgetting about the actual currency itself and just the mindshare, people who know about it, people who talk about it, people who have even a fundamental understanding and obviously, every year it gets bigger. It’s the rate at which people have been learning about it has been growing, I think. One of the Let’s Talk Bitcoins from January (I think it was) tipped 2014 as going to be the year of Bitcoin and that’s absolutely true. This is going to become the year that everyone, even if they don’t understand Bitcoin, knows what it is. Walking into a giant hall, and yes, like you said it was a small section of the hall, but walking into a giant hall, seeing it on buses and walking into this room where there were these people just milling around and it took me ten minutes before I found one face I knew. Every other Bitcoin event I’ve ever been to, I find three people in the first thirty seconds. This time, I was lost in a sea and this really just shows how much business interest there is, how much economic interest there is from the academic side of things, economists and policy makers and regulators and also just entrepreneurs, and programers, and engineers, and people building new companies and new services in the ecosystem. It’s really exciting right now. [5:28]

JM: There’s actually a book that I’d recommend everyone check out which is ‘Crossing the Chasm’, which essentially is a seminal work on how technology gets adopted and the phases of adoption. You know, one of my favorite talks was this guy, I think it was a DEFCON talk, where he brings out the booklet and the booklet was every single person who was on the internet. It was like eighty names and it included their phone number, their full name and their home address. That was THE internet. When you’re talking about how you couldn’t see any business... [5:59]

SM: They got doxed before the internet even existed. (Laughter) [6:01]

JM: That’s what the internet was and as we’ve seen Bitcoin go through the same process, we’re seeing exactly the same thing. I think a consequence of that is what they focused at their conference. It’s sort of an interesting thing to see what the Texas conference focused on and the difference between a community driven media event versus when industry does it and how they approach it. I think we were talking before about how surprised you were, happy, that it was very regulatory focused. [6:31]

SM: I was not happy about that (laughter) but that’s a good segway in to talk about that. There was, I think, a huge focus on regulation, even on the panel that I was on, which was called Bitcoin Remittances and the Developing World. I thought that was going to be one of

the panels that was more human interest and more humanitarian focused but even on that panel, most of the panellists were talking about regulations and to me, that just... it’s struck me really odd because that’s not the focus of a panel about micro-lending and remittances. The focus is on the people who need money, right? [7:07]

JP: I think the flip side of that coin is that it has to focus on the people who are building these systems and subject to national laws, as the sphere of Bitcoin’s influence grows, we can’t help but have regulators who traditionally move very, very slowly. They’re starting to come into the fold. There’s been enough press about Bitcoin and these people are not stupid. We might not like what they do sometimes but they’re not stupid and they’re hearing about this and anything that we do, especially humanitarian efforts, are going to have to... it would be a shame to build something that allows micro-lending or something that actually helps people and changes people’s lives and then have the regulators come in and say – Well, you didn’t cross this T, or you didn’t dot this I. We’re going to shut you down. It would be a tragedy and so, if we’re going to do it in America, we have to kind of... [7:47]

SM: I disagree with that because there are so many things that you can do with Bitcoin that just can’t be regulated. They take place on a peer to peer, totally decentralized... in a decentralized way and regulations just don’t really matter to those kind of things. [8:02]

JP: If you look at Andreessen, he was on a talk and he said – Look, what we’re seeing at Bitcoin is the maturation of an industry. What that means is the fringe elements... once it matures, you get more and more people and Bitcoin becomes less and less fringe and then the people who were fringe go on to the next fringe thing. That what you might be experiencing is just the selling out or the maturation of the space and I actually think that, as it relates to Bitcoin, I don’t think Bitcoin’s going to be the thing we wanted it to be from a visionary standpoint, from the ‘Change the World’ sort of standpoint. I actually think that these ideas of smart contracts and that Dows and Dax, that those are the things I think that will be non-regulatable because they have regulation internal to the system. I think this niche, this idea of regulating something, regulating a system is needed and Bitcoin doesn’t have that internal to itself so when Mastercoin comes online, I think it could do that for Bitcoin. In so far as that Mastercoin or is it now Bitcoin, I really think that the idea of regulation needs to be there but I don’t think we need government regulators doing it, I think we could do it internal. I don’t think once we do that... [9:11]

SM: They don’t think you can do it internal. [9:13]

JP: If only government regulators agreed with you. (Laughter) [9:15]

SM: Yeah. [9:15]

JM: Right, right. [9:16]

JP: Just as a business person, you look at the environment in America and I’ve spoken with a few people in the federal government about Bitcoin recently and the idea that it can just be Wild West, even if it’s not, let’s say Bitcoin had features that allowed it to continue being

like that, the regulators are not willing to accept that. Honestly, Bitcoin lacks... doesn’t have quite the completely anonymous nature that a lot of people thought it did and it can be regulated in the US as we’ve seen. I think that’s going to continue whether we like it or not. Just from a business standpoint, or even a humanitarian standpoint, we have to figure out how to coexist with regulation in the US. [10:02]

JM: I look at it in terms of how can I do a business in it and Andreas explicitly states – I’m going to talk about this space but I’m not going to be doing a business in it because those are the people they go after. That’s exactly why you see regulators and entrepreneurs interested in that discussion because when you say regulation, you’re not talking regulation, what you’re talking about is liability reduction, how do I need to dance as a monkey so that the government won’t throw me in jail. I think when you see the house packed, what you’re actually seeing is the interest in Bitcoin and in so far as they don’t want to go to jail, they have to listen to this guy talk. [10:42]

SM: Let’s be honest about that. Nobody really says that. They’re all doing this song and dance saying – Oh, it’s really protection of the consumer. This Bitcoin thing is too dangerous for you and it’s for your own good. I mean, that’s just crap. [10:57]

JM: I forgot, I think it was (I don’t want to get too deep)... I think it was Nietzsche, or somebody, the slave morality which is when your environment forces you into something that you didn’t get to choose, you then make a virtue out of it culturally... [11:10]

SM: Mmmm. [11:11]

JM: ...and turn it into a positive. For instance, this notion of Americans, or New Yorkers as greedy, whereas I was talking to a European and he said – Hey look, we see that as you get one job, you do it, you’re the best you can be, and I said – How much of that is an extension of you having social programs that don’t need you to worry about wants in the same way that we do as New Yorkers, and how much of that as a New Yorker is the extension to which like we can achieve our dreams here, whereas we don’t need to be satiated by just being an amazing butcher, or an amazing nutritionist, or plumber. We could actually change the world by being here. Sometimes it’s the cart leading the horse where it’s the environment that you then are forced into that you make a virtue out of, so I think these people, these entrepreneurs don’t even realize that they’re a slave to the system or they do but in order to see themselves in the mirror and sort of face it, that they need to make a virtue out of it rather than a vice because that’s how they can deal with it. [12:07]

SM: I agree with you there that people do often make virtues out of things that aren’t virtues and that they have no control over just to get by but a lot of the moral support that people give stuff like regulation, they don’t have to be giving it that moral support. [12:27]

JP: There are ways of protecting consumers without getting government thugs involved? Is that what you’re saying? [12:34]

SM: Yeah, of course, absolutely, but some of the reason that... OK, take taxes for instance. The IRS doesn’t have the manpower to go and audit everyone’s tax return and track every

single dollar you spend and make sure you’re reporting every piece of taxable income. The reason that they get so much tax revenue is because people obediently and dutifully file and report it. So much of their power is just in people’s minds and so, when people lend legitimacy to the concept of – Let’s try to regulate this wild Bitcoin and even the words that we use are important like trust and legitimacy and fringe, like you said before, you hear a lot of that vocabulary at conferences like this. That’s all optional. We don’t need to be using those words. Bitcoin is already legitimate and we don’t need trust this person because Bitcoin is designed so that you don’t need trust. It’s a trustless, decentralized system so why are we talking about bringing legitimacy to it. It already has legitimacy. [13:45]

JP: I think that kind of ignores one thing is that Bitcoin exists in a vacuum and this idea that the government has authority in a lot of cases only in people’s minds, not in practice, but I mean, Bitcoin only has value in people’s minds and for Bitcoin to have value for most people, most people who use cryptocurrencies in the economic state of the Earth in the next couple of decades, have never used them today. [14:09]

JM: Although I would also like to say that the intrinsic value argument infuriates me to no end because value only has value in people’s mind. [14:16]

JP: The subjective theory of value, yeah. [14:18]

JM: I would like to see some food or some gold with no humans on the planet and then you argue to me how much value that has.

JP: Certainly. The subjective theory of value is the one I subscribe to and everybody has their own but I think that this idea that it only has power in their minds, or only has value in their minds is an important one that we need to pay attention to. Most people that are using cryptocurrency five or ten years from today, which will be, I think, most people on the planet, is certainly ten years out, most people on the planet will be using some sort of decentralized cryptocurrency. To get to that point, right now Bitcoin exists in a vacuum; you can’t get in or out of it without touching some business whether it’s a person on a street corner that you meet, or whether it’s an exchange on a website that you sign up with. Those people have real considerations as far as their businesses, and things like that. That’s something that we really need to pay attention to. We can’t just say – Bitcoin doesn’t matter, or rather that regulation doesn’t matter because it does matter to the people that are going to be using these things. [15:19]

SM: It does, I agree and it matters and it affects businesses absolutely but I’m saying that there are some parts of the Bitcoin ecosystem that don’t have to care and that don’t have to worry about it so much. [15:31]

JP: Right. [15:31]

SM: I think that people give regulation and government way more power than it actually has because they believe in its power. You know what I mean? It’s the subjective theory of ‘power’. (Laughter) [15:43]

JP: That’s a good one. [15:44]

SM: You’ve got to free your mind (laughter). I don’t know, you go to a conference like this and you see some people who... like their talks really excite me. They’re talking about the future and they’re talking about ideas and they’re talking about how Bitcoin is going to change the world, and technologies that are built on top of it, and blockchains, and stuff that’s like Bitcoin is going to change the world. That’s the exciting thing. I don’t really get excited about legal Bitcoin stuff. [16:16]

JP: There are going to be rocks on that path to that world. My focus right now is making it as safe and easy as possible for people to not trip over those rocks on the way between the system we have now, which essentially total government control to total popular control, where people individually can control their monetary future. [16:35]

SM: Sometimes you don’t have to worry about tripping on the rocks if you just go round them. I know we’re taking this metaphor way too far but... (laughter) It’s like a river, you know? [16:46]

JP: In the short term, I see most people who don’t necessarily have our ideological attitude where they’re willing to maybe make sacrifices or be inconvenienced to go around the rocks but I think a lot of people just don’t care about these things and they might want to use them and if their life... people were using MtGox, a perfect example, those people would have been benefitted by regulation because maybe they wouldn’t have lost money that was important to them. Whether or not you think the regulations are a good or bad thing, in this one case, it may have actually saved some people’s money. [17:15]

SM: There’s an unseen part of that too because who would have been hurt by other... by the regulations? [17:18]

JP: It would cost other people, certainly. [17:21]

JM: I also think that it’s also sort of a crock of poop. It was because of the regulation and, by that I mean the lack of, which is to say we’ll throw you in jail no matter what you do. In New York and in America, that prevented American companies from going online that made MtGox MtGox. Tradehill had three implementations, four if you count... forget how you count them, where they were compliant each and every frigging time and if you look at every single time they did it, the last time they actually had a credit union, they actually had it working. Tradehill worked for three days and then the federal government called the credit union and scared them into closing their account. If you’re saying that regulations... if we had better regulations, or we had regulations, MtGox wouldn’t have happened, I’d say that it was the regulators who caused MtGox to happen because I can list more companies than I have fingers on my hands that would have been online and operating and doing way more volume than MtGox would have and were trustworthy and wouldn’t have done that massive scam.

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SM: It’s important to point out those things that aren’t readily apparent. Sometimes the hidden consequences of laws and regulations can be really huge and they’re unseen so people just say – Oh, look at all the benefits that come from this, but there are costs too. [20:20]

JP: My thing is this, I know that regulators are not subscribing to this and they have a lot more power in these markets than we do, unfortunately. I see just the business path and that’s what we’re seeing already, like you said, there are lots of businesses that would have been online if not for these. The reason for that is because the regulatory environment is powerful and we have to cope with it in some way, whether we embrace the regulations and... I’ve talked to a number of people who talked about innovating in terms of not just the letter of the law but the spirit of the law. Financing terrorism is something that everyone wants to stop, financing violence is something that nobody wants to actually have happen and so, as an industry, there are probably ways of innovation within Bitcoin and within cryptocurrencies of stopping things like that, that the regulators have not thought of yet because they’re still working on the old model. I think that there will be some sort of symbiosis in the future because nobody wants to finance criminals, nobody wants to finance... [21:26]

JM: I don’t want to finance criminals so that’s why I try not to use the dollar. (Laughter) [21:29]

SM: Yeah, right. (Laughter) I don’t either want to finance criminals and terrorists but anyone can be labelled a criminal or a terrorist for doing things that don’t hurt anyone for simply moving over $3,000 from one bank account to another, or $10,000 across an international border. Who have they harmed? What’s the crime there? But they are terrorists suddenly because... what? Somebody wrote it down on a piece of paper. [21:56]

JM: Not me. [21:57]

JP: I think everyone has pretty much been through this struggle of what is criminal and what isn’t. That’s why my first go to where there was violence. I think there are certain parts of what regulation is designed to do that we can all agree on and the regulators, of course, use this as their go to – Well, if you don’t comply with regulation then you’re going to be financing terrorists and that’s scary to a lot of people, especially, being here in New York, that’s something that resonates with people. [22:25]

JM: I think that what people like to forget is history likes to repeat itself and people tend to forget how cyclical these things are. George Bush got a lot of heat when he compared himself to Lincoln. Good old George W. Bush said, they said – Who do you most think of yourself as? He said – I most see myself as Abraham Lincoln. We’re like – Oh, it’s preposterous. Actually go back to what he said, Abraham Lincoln did speeches where he said he needed to suspend habeas corpus, and the fourth amendment, and search and seizure, in order to fight the terrorists. [22:56]

SM: Wow! [22:57]

JM: The terrorists he was referring to were pirates in the waters. When George Bush compares himself to Lincoln, it’s actually a very astute... he is a 20th century Lincoln... 21st, excuse me. Everything is cyclical. You really just need to look back and see the lies that they tell us now are the lies they told us two hundred years ago, or the lies they told us three thousand years ago. There’s always going to be a reason to take liberty away from you. The question is, is the reason more legitimate now than it was two hundred years ago and why do we need it taken away now when we didn’t need it taken away then. [23:29]

JP: I think the human concerns that drive those cycles are probably the same today as they’ve always been. [23:35]

SM: Sure, fear and... [23:37]

JP: Whether you’re getting attacked on the high seas or if some sketchy dude in Japan disappears with your money, people are afraid and what I want... my drive here is not whether or not we comply with regulation, it’s not whether or not there are regulators, or is it’s possible to be regulated, it’s just how do we help people out the most by building businesses, and building useful things, and making people able to exercise their basic rights.

I think if we’re going to do that in America then that means some level of regulation just because the regulators aren’t going to suddenly go away. I’m really excited to see, even with the somewhat oppressive regulatory environment we seem to have, there are tons of new companies and there are tons of new... way more than I would have expected considering the guidance that’s come out about what the regulators want. There are several new exchanges that I saw, several new trading platforms that I saw, I’ve heard talk of funds and things like that. It’s really interesting to me to see, that even despite all this, there’s still this fertile ground. The mind reels what will happen in a country that decides that they’re going to be completely hands off Bitcoin and allow anyone to come and build a business from this. The country that does that is going to explode. [24:48]

SM: We’re already seeing that with Switzerland and perhaps Hong Kong and other places around the world, and Panama, and Bitcoin companies moving to those places. I think it’s still an open question what is going to be the best place in the world for Bitcoin but one thing’s for sure, Bitcoin can always go all over the world. [25:06]

JM: I’m excited that the question is where is the best place in the world for Bitcoin entrepreneurs? (Laughter) [25:11]

SM: Right, yes. [25:12]

JM: Bitcoin is fine. It’s an abstract idea and numbers. [25:14]

SM: Yes, absolutely. Thanks for that. [25:16]

JM: It’s us and the meet space I worry about. [25:18]

JP: It’s interesting the idea... some of the ideas in Ethereum and other people working on self-executing entities, and autonomous companies, and smart contract, smart property. These things will, as you pointed out, resist regulation but they set up in some ways a new jurisdiction, that is, not in a given place and I think that there’s going to be innovation in jurisdictional positioning. The lawyers are going to catch up to the new reality of... and they will because this is how things are happening and I don’t think there will be that many ruffled feathers but to... perhaps some sort of special law or category of law that applies to things that exist virtually within the internet that are governed by cryptography, as opposed to a national jurisdiction. We’re definitely headed there. I see that very soon. [26:13]

SM: Let’s turn this conversation a little more positive away from the gloom and doom of government. Jeffrey, I wanted to focus in on something that you said which was that you walked through the conference floor with all the exhibitor booths and all of these companies were new. You were surprised to see some of these companies coming up and these exchanges that you mentioned, are these the people who were saying six months ago, a year ago – Oh yeah, I’m going to start a new exchange. Are you sceptical of that at all because there were a lot of people saying that and they were getting a lot of investment. [26:50]

JP: There were a lot of people saying that and lots of investment. I think there’s still a lot of money in Bitcoin right now chasing too few deals. There aren’t, as far as I see, that many great deals in Bitcoin right now, from the opportunities for investment in the companies but there are several and I’m sceptical by default of anything. That’s kind of what I do. I’m a hacker and so the moment someone comes to me and says – Oh well, this is secure. I say – Oh really? That’s interesting. I said the same thing about Bitcoin when I first discovered Bitcoin. [27:23]

JM: The best thing you could do for a product is say it’s unhackable, right? [27:26]

JP: (Laughter) Totally. People are going to find out. Any time someone says that, we find out very quickly whether or not it’s true. That’s one of the reasons I don’t really have many bitcoins today because like everything else that is new and claims to be unhackable, I didn’t buy it. There are a lot of businesses starting and I guess this is... I forget who said this but someone pointed out that a good startup seems like a bad idea at the time but is actually a good idea. There is this clash of things that seem like bad ideas and then there’s some little sliver in them that are actually good ideas, you just can’t see them yet. [28:02]

JM: We actually had that conversation on our way here where I said that I wanted to resolve all judgment about Counterparty because it is an innovation and it does sound great but it’s a type of thing where immediately when I heard it, it’s like – That sounds like a horrible idea. Proof-of-burn. What are you doing? My poor money, my poor money. The more I look at it, the more I’m like – Hey, this does pass the smell test. I just need to reserve judgment until I’ve heard more about it. [28:27]

JP: I think a lot of the businesses that we’re seeing pop up are probably terrible ideas considering the regulatory environment. I could have started many of them and didn’t because I’m afraid of the future in terms of what’s going to happen in the United States. There’s a lot of regulation that I’m sure we haven’t seen yet that’s going to happen in the next six to twelve months as more and more... MtGox is not going to be the last one, there are going to be other idiots that start companies and try... [28:53]

SM: Oh yeah. (Laughter) [28:53]

JP: As long as there are people, there are going to be idiots. [28:56]

JM: But that’s not to be discouraged. The whole point of a free market is that you get the idiots out. The worst thing that you could have is these bailouts that keep these idiots around so you can never actually flush the system. [29:08]

SM: Yeah. They have to be allowed to fail. [29:10]

JM: I mean, the whole point of a free economy is to have failure. If you don’t have fires in a forest, the entire ecosystem breaks down. [29:18]

JP: I just see that there’s a lot of fear right now from a lot of people because now, there’s more people to be afraid. I guess that’s the big difference is that a year or two ago

everyone was like - MtGox, that’s terrible, it’s going to collapse and then, it did collapse but when it collapsed there were so many more people in the Bitcoin space than when we first started seeing signs that it was going downhill that it had a much bigger effect than I thought it was going to, in terms of perception and attitudes about Bitcoin. The stakes are higher now. Even people that didn’t have money in it, they point to it and say – Well, this is might be bad because of this. It’s not an actual practical concern, it’s more of an emotional concern because I want to see Bitcoin businesses explode. I want to see more and more... (like you were saying) I want a free market. I want people to start ten businesses and then for them to all try ten different things and nine of them to go under and the one to succeed. You know, the standard entrepreneurial startup ecosystem. I love that kind of stuff. I love building things, conducting experiments and finding out if they work. This is going to spur all kinds of innovation for new service categories and now we have multi-sig and there’s all sorts of new businesses around that. I met with Will from BitGo yesterday and they’re doing a really cool thing that’s really going to help a lot of people, I think, because they have a multi-sig set up that is a lot safer than what most people are using. I’m sure they are the first of many different service providers that are going to be offering that. [30:44]

SM: What? A multi-sig set up for what? [30:47]

JP: For Bitcoin holders. [30:48]

SM: OK. [30:48]

JP: Whereas you can set it up so you have two of three keys required so your exchange or your online wallet holds one of them and then you have one in cold storage and you have another one on your computer. If any one of these three points is compromised then you don’t lose all of your money. [31:03]

JM: For instance, in the case of Fr33 Aid, if blockchain were to have something like this, blockchain could have said – Hey, you withdrew more than $200 today, that’s an abnormal behavior for you. Do you want us to confirm this or could you take your third key out of cold storage and sign this to confirm that you wanted to take more than $200 out. [31:23]

SM: Right. [31:24]

JM: That could prevent things like that. [31:26]

JP: Absolutely. There are a lot of companies using these new technologies to make things safer and I’m excited about that because it’s going to mean that there are fewer instances where regulators say – Well, something must be done and come in and try to meddle with a perfectly working economy. [31:41]

SM: Somehow I doubt that but I do think there’s a need for security and services in the area of security and insurance and all that kind of stuff. I’m glad to see those things popping up. Another thing that I really wanted to talk about on this show was there was a lot of buzz at this conference about MaidSafe. Did you guys hear that? Everybody seemed to be talking about it, along with, of course, the Bitcoin 2.0 type of protocols, like everybody making their

own coin or company IPOs, and things like that. We had a talk from Xavier Hawk with Permacredits and he was talking about this sort of... it’s built on Counterparty and it’s a currency that’s backed by the permaculture ecosystem. I’m sure you’ll hear more about that later but John, you also had a talk about DAX and DAOs and so, that was exciting to me. Do you want to talk a little bit about what you said in your talk about DAX? [32:37]

JM: I think that the thing that’s least understood about distributed autonomous organizations, or whatever you want to call them is the most transformative thing that they do is they create price discovery where there was none before. I like to call it ‘Let there be price’, which is a light switch. When we’re looking at behaviors or systems where there is no price discovery, there is no capacity to know whether or not you wish to invest in that behavior as a business, or to do it in any way because you have no idea. Once there’s a price mechanism and that price mechanism will not go away, which once you’ve created a distributed autonomous system, that price vehicle, that thing that is creating the price discovery, will still exist. It will always be incentivized for people to do it because what happens is once you have price discovery, it doesn’t matter how risky or how dangerous. It doesn’t matter how hard or annoying, there will always be someone willing to do it because that just means the price gets higher. The concerns related to the service or the product gets internalized into the price that the market is willing to bear for it and the service will always be rendered. There may not be that large of a volume for it but it will always be rendered by somebody because there’s always someone doing something for the right price. I think that when we apply that to everything, that’s a really transformative idea. When we’re talking about a very simple example, you know, Mastercoin is doing their Rideshare program. They said – Hey, this whole idea of Uber and having problems with the regulators, why don’t we just make Uber a DAC and then it’s done. [34:05]

SM: Exactly, yeah. [34:06]

JM: It doesn’t matter. Once you have price discovery, I mean, all these sorts of things are able to happen. [34:11]

SM: That’s what I’m talking about with moving things away from traditional corporate structures that can be regulated and put pressure on and just decentralizing everything so that there’s nothing to put that pressure on. If you think about Uber, it’s really hard to argue against it, or Lyft, or whatever, one of these Rideshare apps. It’s really hard to argue against it unless you are either an existing taxi driver or somebody who is profiting from taxi services being monopolized. If you’re a regular person, you can now get a ride on demand for a cheaper price than you would have been able to pay before, so what’s to lose about that? [34:50]

JP: One of the issues that people have brought up over and over again is their pricing model is not flat or fixed and so it sort of, in times of extreme demand, (I don’t necessarily disagree with this but some people do) it favors people who are willing to pay maybe a few hundred bucks to go a few blocks. You can always get a car, like you said, when you have price discovery you can always find someone willing to render a service at a price but then the problem is what if that price is beyond what you think is sane. [35:19]

JM: The idea of price gouging is total malarkey. [35:25]

SM: (Laughter) Yeah and I agree with that. [35:28]

JP: I agree as well but I think there are a lot of people who don’t. [35:31]

JM: Price elasticity is... [35:32]

SM: Right. [35:33]

JM: ...a very important thing to bring the economy to life. If you look at systems to which don’t allow price gouging which really means allowing elasticity of demand, what happens is you have people dying in the streets because you can’t quantify people who need it versus people who want it. When you look at things like Sandy where gasoline became a scarce commodity... [35:53]

SM: Or water. [35:54]

JM: ...and you had people dying from cold exposure and things like that because they needed heat, they needed electricity. There were people who couldn’t leave the house. [36:02]

SM: They couldn’t price it at a level that would really allocate it most efficiently because there was price gouging. [36:08]

JM: And, the people who did that got thrown in jail. I know somebody who went around the block and said – Hey, I’m driving all the way up the State and I’m going to get some gasoline and I’m going to drive it back. Can I charge you $7/gallon and would that be something you’d be comfortable doing? You wouldn’t have to wait in line, you wouldn’t have to spend four hours waiting in line. Is this something that you’d be interested in? Everyone said – Sure. Then, one of those neighbors called the cops on him and got him arrested. [36:30]

SM: Wow! That’s too bad. [36:32]

JM: What ended up happening? Now people don’t have... price discovery is needed and gouging in a system which isn’t manipulated by an oligopoly, or a monopoly, or government intervention is the market driven demand. [36:45]

SM: I agree. I’m glad you brought that up Jonathan because it sounds like a case of basically determining transaction fees. Almost like exactly like on the Bitcoin network; transaction fees to send Bitcoin from one place, transaction fees to move a person from one part of the city to the other. Those transaction fees can and should be determined by market mechanisms. If they’re set by a board of directors, then it’s like – OK, that’s probably not the best way to do it and I would kind of agree with you there. Yeah, let the market decide, exactly. There will be price. [37:18]

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Hey listeners. In the cryptocurrency space just like the Wild West, there are pioneers and explorers. Explorers don’t want or need permission, also known as rules, because they’re just mapping the terrain, testing the limits and that would just slow them down. Pioneers don’t initially need permission, but they do want rules. How else could you invest in building, whether a home or business that will last in an environment whose future rules you don’t know. Both of these users serve a purpose and fill a need. It’s worth considering though, are you an explorer, or are you a pioneer? Back to the show! [38:33]

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SM: Price is such an important piece of information that just tells you so much but anyway, we’re getting a little bit off track but this is a great discussion about DAX and about transaction fees. I just want to ask you guys quickly because we’re short on time but I want to ask you, Jeffrey, what do you think of MaidSafe which everybody was buzzing about. MaidSafe is a... basically, it’s going to (according to David Irvine) decentralize computing. You’d be able to log in with a couple of passwords from, essentially, any device, access all your files, all your apps and it’s a completely decentralized method of computing where everything is encrypted and you’re accessing your computing environment through a location that only you know and can be conveyed by your passwords. [39:25]

JM: I think the internet was created by the government for the government and we’ve just all hung along for the ride. When we look at the problems we have with the internet today, it’s because it wasn’t market driven, and it wasn’t created in an organic way. What we have now is sort of bootstrapped from what was created. A total overhaul of what we call communications over the internet, what we call the internet, I think would be awesome. I haven’t looked at MaidSafe enough to make that determination but all the people who I

trust in this space are saying – Oh my god, this thing is awesome. I really want this to pass the tests when I look into it. [40:05]

JP: I think that MaidSafe is the latest incarnation in a lot of previous ideas to build decentralized services on top of IP network. If you go back throughout the time... I’ve been tracking this space since even long before Bitcoin and I was talking with some other pioneers (you had them back on this show not long ago, an excellent episode) and I was talking to Adam Back recently, who also has been involved in this space long before Bitcoin. He was the one who invented the proof of work that ended up being used in Bitcoin. There are four or five failed projects that immediately come to mind that tried to do things like this that failed because they didn’t have a blockchain, and a distributed system, and a proof of work, and value store that could now be resurrected with some bitcoin, or an altcoin, or something that interoperates with Bitcoin to bring those ideas back to life. MaidSafe, like I said or rather like you said, I haven’t looked at the actual technical implementation yet, so I can’t speak to whether or not it’s going... [41:16]

SM: It’s not available yet. [41:17]

JP: ...whether or not it’s going to be MaidSafe but something that delivers on these ideas of distributed trustless computing is going to be built and it will use cryptocurrencies as its base idea to prevent abuse and to compensate people for their computing resources and storage resources. That’s pretty inevitable. It actually surprises me every single day that more Cloud providers don’t accept Bitcoin right now because with cryptocurrencies it becomes very easy to minimize counterparty risk. Right now, if I want to use a thousand machines from Amazon to run some scientific computation, I give them my credit card and to get your accounts limits raised you have to have a rep and they have to know you and know that if you’re going to bill $40,000 of computing time in 24 hours, that they’re going to get paid for that. It would be really cool if the infrastructure were in place to be able to use on demand commune resources without really them risking more than a certain small threshold because then, you’re just constantly settling. The idea of daily billing or monthly billing is a throwback to when we had to print out bills, or even write bills, or type bills and put them in the mail then they return another piece of paper that instructs the bank to pay them, and all of this. With cryptocurrencies, now we can do things like minute to minute settlement to keep counterparty risk at levels far below wherever possible for. I think that’s kind of the future of a lot of service providers. Things like MaidSafe, or reincarnations of the mini attempts the Cypherpunks had in the ‘90s, are definitely going to become prominent. There’s a huge need for them, both from the service providers’ side because it reduces the risk and from the customer side because it reduces the friction of the transaction. Everybody’s going to win. [43:03]

JM: I think fundamentally, when we’re looking at why is it that this stab at the cypherpunk war is winning... [43:09]

JP: It’s because of Bitcoin. [43:10]

JM: It’s not because of Bitcoin. I would argue it’s because we have one thing that they never had which is price discovery. In any system, when you add price discovery, it now

becomes viable. If you look at Tor and if you look at the things that they’re doing in this environment, Tor is a system to which when you have a node, there is no incentive other than ideological as to why you would want to be a node on Tor. What happens on Tor is that that prices out people who want to do it for pragmatic reasons because based on whatever locality you’re in, you need to internalize the costs associated with both operating it and the risks associated with operating it. Being a node on relay, a relay on Tor, is not without risks, especially dependent upon which country you’re in. [43:51]

JP: Absolutely. [43:52]

JM: There are people in America who have gone to jail for being relays for Tor. When you have the price discovery mechanism, it doesn’t matter how risky it is, it doesn’t matter how onerous it is to do; that will be factored into the price. When you have price discovery, you have the ability to act. I think what we’re seeing with cryptography is now that we have a system for price discovery, that was the missing component in all these awesome cryptographic things that now is why we’re seeing all these awesome behaviors. I think Bitcoin is this for money but I think that the key innovation isn’t Bitcoin, it’s the blockchain and the key reason why the blockchain works is because it facilitates price discovery in a way that cannot be shut down. [44:30]

SM: That’s cryptography with good economics, right? [44:34]

JM: Yes. Well yeah, there’s Austrian economics and Keynesian economics. I always like to call it Keynesian economics and economics. (Laughter) [44:42]

SM: (Laughter) Right. We are actually about to head to the Let’s Talk Bitcoin meetup, however, I just wanted to give you guys both the opportunity to add anything that we didn’t cover or that you wanted to make sure we said. [44:56]

JP: Big news today is Gavin Andresen is stepping down as lead developer of the Bitcoin core... [45:03]

SM: That’s right. [45:04]

JP: ...which is some pretty ground breaking news. His posts on the Bitcoin dev mailing lists are some of my favorite and he’s always kind of been this stable source of what’s best for Bitcoin in my eyes. It was good news to me anyway to hear that he was sticking around as chief scientist, so he’s still going to lend insight and whatnot. I think you mentioned his plan was to focus on developing some other things. [45:31]

JM: Right. I think he said he wanted to address some specific issues and being the man in charge wouldn’t allow him to sort of have a laser focus on one or two particular topics. [45:41]

SM: Is that really the reason? (Laughter) If I were him, I probably wouldn’t [inaudible] [45:50]

JM: No one at high level ever gets fired, they resign... [45:51]

SM: Yeah. [45:52]

JM: ...is what you’re saying? They have to take care of the kids. [45:53]

SM: Or any other reason, like it could be anything. [45:57]

JM: Hey, four years is a long time to have any job. [46:00]

SM: Sure and imagine there is such a huge amount of pressure being asked to go to the CFR, speak to the CIA. [46:09]

JM: Maybe he just wants his inbox back. [46:10]

SM: Yeah. (Laughter) [46:11]

JM: Also, how underappreciated of an asset is he? [46:15]

SM: Yeah. It’s a thankless job for sure. [46:19]

JM: You look at everyone who... not to make it a governmental example but people who run an institution and then go work for the free market and get $10 or $20X. I wouldn’t be surprised if daily he gets hounded with absurd levels of salaries to work for X company or Y company. If that’s the case, I think no one deserves it more than he. Fundamentally, we keep talking about Bitcoin as this awesome decentralized thing and one of the things that sort of hurts my soul is when we talk of Bitcoin, we’re really talking about 100 or 200 so developers. When we look at someone who had as much concentrated power, via clout, not necessarily power over the system as Gavin Andresen, I think that however much power and influence and just great support they were able to provide this network, as it matures and as we wish it to become more decentralized, that their time has been served. We really need, as a community, to grow beyond them to be able to have as much influence as they do currently have. If he’s stepping down, I think that that is probably the most healthiest thing for Bitcoin because while he’s still contributing and he’s still being a part of the discussion, I think that his ability to sway people to agree with him is having a sort of group think mentality as what Bitcoin is and how it’s evolving. [47:30]

SM: Mmmm. I definitely agree with you there that the minute it starts to become about a person, we’ve kind of lost something important with Bitcoin. It’s not about a person; Satoshi gave us a great gift as I like to say but it’s not about him. It’s about Bitcoin and it’s about the technology that comes from it. I think it probably is good to have some rotation in the prominent figures that get tabbed with Bitcoin. [47:59]

JP: If only so that they don’t burn out and run away. (Laughter) [48:02]

SM: Yeah. I can’t even imagine what it would be like to have that job. Speaking of burnout, wow! Gavin, take a vacation, please. [48:14]

JM: When I have a typo in what I write, no one cares. When he has a typo and what he writes, $10 billion get angry. [48:19]

SM: Yeah and a lot of people. Cool. Alright, shall we say, shall we say thanks and have a nice vacation? [48:26]

JP: Thank you Gavin. [48:27]

SM: Yeah, please. I hope you take one and we’ve got Vladimir stepping up as the core maintainer of Bitcoin, right? [48:35]

JP: Yeah, it’s sort of a laser beam kind of job, right? You step right into that spotlight and there are a lot of eyes. Like you said, having Bitcoin be about one person is definitely dangerous, if only just because we really don’t want one person to face all of that stress and drama. There’s enough drama in Bitcoin without the media spotlight manufacturing more as I’m sure a certain man named Dorian can tell you. Maybe that’s something that can be formalized at some point. That might be a good Bitcoin improvement proposal. [49:10]

JM: Speaking of Bitcoin improvement proposals, Trace Mayer was talking about... he wants to put a proposal in to officially change the name of an unconfirmed Satoshi into a Dorian. [49:20]

SM: (Laughter)

JP: It’s not the first time I’ve heard that and I think that’s a wonderful idea. I was really happy to see that after the media spotlight that ruined that guy’s month, a lot of Bitcoiners kind of banded together and set up a little fund for him and passed the hat. I think it was... [49:37]

SM: Including Andreas. [49:39]

JP: Yeah. [49:39]

SM: I thought he handled that really well. Not trying to draw attention to him; just really try to compensate him and that’s it. [49:46]

JP: One of the things that I’ve always loved about Bitcoin and the people that flock to it is how nice everybody’s been. The ecosystem is still really friendly. It’s refreshing to be in an environment where everyone is competing so heavily in this market for this very quantified thing. We have a very defined success metric, in terms of number of Satoshi that are under your direct control, yet everybody is still really friendly and kind and courteous. We see a lot of... what made me really happy was I saw a Bitcoin donation company, or organization, I don’t know if they’re a non-profit, I didn’t speak to them but I saw them at the conference. I thought that was really cool that there are people actually... [50:29]

JM: You’re referring to BitGive. [50:30]

JP: Yes. There are people working on things that allow people to take this wealth and allocate it to people that are less fortunate and that’s something that’s really... that’ warms my heart a lot. It’s easy to go down the rabbit hole of like, capitalism, finance. We have to remember that Bitcoin’s power to change the world extends far beyond the ability to just make a lot of money, or secure your money, or operate your business with impunity. It also allows us to enrich people’s lives. [50:59]

SM: Yeah. Not that there’s anything wrong with making money but it is impressive to see how generous the Bitcoin... and even altcoins... OK, I have to say Doge. They do a lot of charity. [51:11]

JP: No, they’re very generous. You wouldn’t expect it from the crowd and they come out in force. It’s really excellent. [51:14]

SM: Yep. Tip culture is huge with Bitcoin and I really like that note to end it on and we do have to get to the restaurant. Adam, I wish he was here because he would love the name. It’s ‘Suspenders’. He always wears suspenders to conferences; like a journalist thing. I think we’re going to sign off. [51:29]

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CREDITS:

AL: Thanks for listening to Episode 105 of Let’s Talk Bitcoin.

Content for this episode was provided by Stephanie Murphy, Jonathan Mohan and Jeffrey Paul

This episode was edited by Adam B. Levine Music for this episode was provided by Jared Rubens, Calvin Henderson and Nils

Frahm

Any questions or comments? Email adam@letstalkbitcoin.com

Have a good one! [51:51]