Let's Talk Bitcoin - Ep 73

8/12/2019 Let's Talk Bitcoin - Ep 73

1/28

LETS TALK BITCOIN

Episode 73Reset Your Expectations

Participants:

Adam B. Levine (AL)Host

Andreas M. Antonopoulos (AA)Co-host

Stephanie Murphy (SM)Co-host

Amir Taaki (AT)Bitcoin developer, core collaborator at Dark Wallet & CoinJoin

Peter Todd (PTBitcoin core developer

Today is January 7th

2014. Welcome to Episode 73 of Lets Talk Bitcoin, a twice weekly show

about the ideas people and projects building the digital economy and the future of money.

Visit us atwww.letstalkbitcoin.comfor our daily guest blog, all our past episodes and, of

course, tipping addresses. [0:23]

My name is Adam B. Levine and today were going deep.

We start the show with the conclusion of the Vegas Host Session. Stephanie, Andreas and I get meta and talk the origins of LTB, the journey so far and

frankly, lots more. The second part of todays show features one of my favorite peoplein the space,

Amir Taaki, the Minority Report, as I like to call him sometimes, of Bitcoin

development. He sat down last month with Peter Todd, Bitcoin developer and now

chief scientist at the Mastercoin Foundation to talk... well, everything.

This interview is very wide ranging and definitely not to be missed. Enjoy the show! [1:04]

___________________________________________

AL: If theres one thing that is true about Bitcoin, or true about cryptocurrency, broad

speaking, is that things move incredibly fast. I was thinking about this recently and I realized

that the reason why this is moving as fast as it is is because we really have had almost no

financial innovation in about fifty or sixty years. Thats been because every time financial

innovation has come along, there has been a way to stop it and because the incentives to

stop it for the existing power structure have always been so great that we get little sneaks

through, like a debit cardWhoo-hoo! But ultimately, were talking about the same

systems, the same companies. I mean, what other industry has that? Now we have a

system where you dont have that problem, where the fail states arent reliant on central
http://www.letstalkbitcoin.com/http://www.letstalkbitcoin.com/http://www.letstalkbitcoin.com/http://www.letstalkbitcoin.com/


2/28

points of failure and are instead reliant on either broad invalidations of technology, or mass

exodus from these new technologies. Failure by their adoption or failure by technical

failure, but not failure by permission and so, if that what was stopping us before, then that

means that we have about fifty or sixty years of technological and financial innovation that

should be happening pretty much all at once because as its been bottled up, suddenly the

cork is off and the pressure can be released. Thats kind of a long way of saying that westarted this show seven months ago. (Laughter) [2:21]

SM: So much has happened in that time. [2:23]

AL: Yeah. [2:24]

AA: What a wild ride. [2:25]

AL: Seriously. [2:26]

SM: Holy shit! [2:26]

AL: Were recording this and I think we just released Episode 66 and that doesnt include

the bonus content that weve released, that doesnt include the debates that weve hosted,

that doesnt include the... the amount of things that have changed in this amount of time is

crazy and I wanted to share some perspective. When I started Lets Talk Bitcoin,I had been

unemployed for two years and was living off of savings at that point and also help from my

parents. I had sort of retreated into the trees, as I like to say. I grew up in the Napa Valley

and we have some red wood forests up there thats very,very steeptoo steep for

agriculture, too steep for conventional agriculture but for the type of unconventionalsystemic permaculture that Ive always been interested in, and that my wife has been very

interested in, it was kind of perfect. The point is that when I retreated into the trees, at that

point, I had been reading Zerohedge every morning at 4.00am for about two years and

trying to learn... and watching (??.org) videos and lectures from conferences, and things like

that, and was really looking for a way to have an impact in this space. This is where I saw

that we could have an impact. [3:26]

Initially, I started a different show besides Lets Talk Bitcoin and on the last episode of that

show, The Daily Bitcoin Show, we had Andreas on as a guest and he described, in very fiery

fashion, why MtGox was criminally incompetent and why that was probably never going tochange. Stephanie, we brought her in initially because I wanted to have someone who was

not me doing the introduction to the show. We initially contracted with Stephanie to do

voice work for the show and, as we talked and we got to know each other a little bit better,

it crossed my mind that I was interested in her as a guest host because you were already

doing a liberty show at the time. That project imploded after five days. It was a daily show

and I was doing all the work myself on zero budget. I called it my Feats of Strength. The

idea was that you do an impossible thing, in an impossible timeframe, with absolutely zero

budget and no talent whatsoever, and then people think that youre amazing. We did this

and my timing was great because that initial showthose initial five episodes were during

the price bubble, where we jumped up to $260 and, at the end of the price bubble, Icollapsed. (Laughter) [4:29]


3/28


4/28

problem is that when I started Lets Talk Bitcoin, the conversation that I wanted to have... I

had in my head that I wanted it to be for new users because that was where I really saw the

nichenew users just coming in had no options, zero options, it was terrible. Now they

have things likewww.tryBTC.comand there are solutions out there that arent audio

podcasts but that actually can help walk you through that process. The conversation I feel

like that weve been having is this more higher level conversation - is this conversation thatis necessary to have, simply because its the important one right now. Its not a new user

friendly conversation because were talking with these concepts on a high level, were

talking about... people are struggling to understand what Bitcoin means to them now and

were thinking years out. *7:55+

SM: There are tens of thousands of people who listen to this show. How do we keep all

those listeners if they cant follow the conversation because they are too new? I think they

can. [8:03]

AA: Trust the audience. They learn about Bitcoin and then they use this show to increasetheir level of knowledge and catch up. I think thats why you see new listeners coming in

and catching one episode and then starting from the very beginning and listening to sixty

eight episodes back to back. [8:18]

AL: Thats completely right. *8:19+

AA: Weve seen this pattern repeat again and again. I dont think thats a problem.

Essentially, youve created a library of content that people can catch up with but lets talk

more about the accelerating nature of this phenomenon. I mean, the last six months have

gone past in a blur but, at the same time, I think theres this really interesting dichotomywhich is that its very easy for us, being in this bubble and being caught up in all of this

forward motion, to assume that Bitcoin has arrived, to assume that essentially, all of the big

things have already happened, or that the price has really shot up to high levels, or that now

Bitcoin is expensive the opportunities have been missed. I think that is so wrong. [8:58]

SM: Yeah. [8:58]

AA: I think, right now, people are panting from the great ascent up the mountain and Im

looking up and I see Everest ahead of us. We havent even crossed the foothills. This is so

small. I remember at the San Jose conference, I was ranting and raving to one of my friendsabout how amazing Bitcoin was, and how amazing this conference was, and how theres all

this global recognition. Imagine, at that time, all this global recognition about Bitcoin and

how were beginning to get awareness in mainstream. My friend sent me a link to a

conference that was happening at the San Jose Convention Center, that I think was about

agricultural equipment that had ten times the audience that we had at the Bitcoin

conference, with one word underneath the link. Perspective! (Laughter) Such a gift.

Perspective peoplewe are still smaller than... there are fetishes with more people in their

community than ours at the moment. There are specialized dentist conferences that have a

hundred times the audience that we have at even the biggest Bitcoin conferences. Still,

99.999% of the population of the world has never heard of Bitcoin. In the heart of SiliconValley, you go speak to some of the most cutting edge, forward thinking technologists and
http://www.trybtc.com/http://www.trybtc.com/http://www.trybtc.com/http://www.trybtc.com/


5/28

nine out of ten of them havent even heard about Bitcoin. If they have, they think its some

kind of funny money; they dont understand what it is and theimplications it has. The weird

thing here is that while were going at this breakneck speed and it feels like so many things

have happened, weve barely touched the consciousness of the world. What that tells me is

Oh my god! 2014 is going to be absolutely breakneck. I mean, hold on to your hats! Human

beings have a very hard time intuitively understanding exponential growth curves. Itssomething that Ray Kurzweil wrote about in The Singularity is Near. Its a very interesting

book if you want to read it but we try to extrapolate and we can only extrapolate intuitively

on a linear scale. When youre doing that on an exponential curve, when you look out

before the elbow of the curve, everything looks horizontal and then one day, without you

even noticing, you look ahead and everything is vertical and you just pass the curve. We

havent even hit the elbow yet. If this is the rate of growth in breakneck speed, weve got at

this point; at some point were going to have our (??) moment. At some point,were going

to have a crisis precipitating event that is going to shift the balance dramatically. That

tipping point has not happened and when that tipping point happens, what were seeing

today is going to be small potatoes compared to where Bitcoin could go. Now, dontdiscount the possibility that we could all crash and fall on our faces because of some

insidious bug in the code. I dont think there are any external factors that can bring Bitcoin

down anymore. Were past that hump. Were too big, were too global, and weretoo

widespread to shut down from the outside. We can only do it from the inside now. Bitcoin

can only commit suicide and that is a possibility over the next three years. [11:59]

AL: Thats the Facebook paradox, right? [12:01]

AA: Its a diminishing possibility and really, what I see is the potential for us to make it as

far, just simply survive at this breakneck speed until we hit the elbow and then amazingthings will happen. Then, we change the world. [12:15]

AL: This is true about any network reliant, right? If youre talking about Facebook,

essentially, theyre also trying to not break themselves while also trying to make it so that

theyre good for the future, so that they can have models to monetize, and all these various

things. Its the same thing with Bitcoin. Ultimately, MySpace isnt going to destroy

Facebook, but Facebook could destroy Facebook. Basically, is that what youre saying here?

[12:35]

AA: Yes but theres one big difference and I think the big difference that most peoplehavent realized is they look at parallel models like, for example the deployment of the

internet and that required some serious infrastructure heavy lifting, which we dont need in

Bitcoin. You look at Facebook. For Facebook to sustain its growth, it had to develop an

entirely new model for server deployment, for server provision, for building servers, for

building data centers and for operating a massive global network. We dont have any of

that. You install the appadoption itself creates infrastructure. Every person who adopts

becomes part of the infrastructure by running a full node client if they can, by buying some

mining rigs if they can and essentially, whats really interesting about this is that there are

no constraints to the scale of Bitcoin in terms of infrastructure because adoption and

infrastructure happen at the same time. We dont have a problem of running out ofcapacity because every new user brings the capacity with them and, in fact, if you take it to


6/28

its extreme, Bitcoin really expresses the core network effect concept of Bob Metcalfe who

first talked about it in 1984, which is the value of the network increases exponentially with

the addition of each node because there is no overhead to adding a node, the value of the

network, the capacity of the network, the velocity of the networkall of those things really

do increase exponentially with the addition of each node. I think in the next year, the most

important metric, the only metric that matters is user adoption and so we dont have manyof the constraints. In fact, if we do nothing in the core protocol in Bitcoin right now, we can

scale it. There are a few problems with blockchain size, there are a few problems with

transaction velocity and capacity but theyre not that difficult and they can be addressed.

Other than that, this network really doesnt have too many capacity constraints. What

were going to see is a level of exponential growth that you very rarely see in technologies

and then, add to that the other side of the cointhe economic incentives. Oh my god! The

economic incentivesthis is the first network effect thats fuelled by money because it is

money. We have never, in the history of technology, seen that before. The first money that

is digital has its own level of network effect that is a huge multiplier so it creates investment

from the inside out, instead of expecting it to come from the outside in. If we actuallymanage to bootstrap peer to peer crowd-sourcing, we can accelerate it another factor of

ten, another order of magnitude. When people think Bitcoins expensive at $1,000, were

reaching our capacity limits; I laugh because you have seen nothing yet. I really am very

optimistic because the more time that goes by, the more Bitcoin survives, the stronger it

gets and it is already, I think, unstoppable and its simply accelerating like a freight train and

anybody who stands in front of it, will be squished like a bug. [15:38]

________________________________________________

ADVERT:

Purse.io is a gift exchange that lets you get bitcoins at only a 6% premium and with a credit

card. How does it work? You purchase items for other Purse.io members from their

Amazon wish lists. In return, you get bitcoins in the amount of the Amazon purchase. The

more people participate, the more bitcoins will be available. So, tell your friends. Get

exclusive access today atwww.Purse.io. [16:29]

ADVERT:

EasyDNS is the Swiss Army knife for your domain names. Helping meet their customers

individual needs since 1998. EasyDNS has been an outspoken critic of SOPA and CISPA.

EasyDNS was an early supporter of Bitcoin and now they are proud to sponsor this show.

Do business with a company that shares your values. Get a 13% discount when you pay

with bitcoin. Go tobitcoin.easyDNS.comand be sure to use discount code LTB. [17:01]

__________________________________________
http://www.purse.io/http://www.purse.io/http://www.purse.io/mailto:[email protected]:[email protected]:[email protected]:[email protected]://www.purse.io/


7/28

AL: Whenever were talking about the price, the difficult thing is to try and stretch out the

timeframe. I think, ultimately, thats what youre doing here Andreas, right? Youre saying

over the next say, long time in Bitcoin; lets say a year, thats what youre talking about.

[17:32]

AA: Yeah. People talk about a ten year horizon for Bitcoin, which I think is ludicrous. I put

an upper limit on Bitcoin of about three years. Pretty much everything important in Bitcoin

is going to play out in the next three years. Over time, what Im doing is Im compressing

that timeframe. Previously, I thought that a lot of the things that we would achieve in 2014,

we have now achieved in 2013 and if we continue at this pace, this three year timeframe is

going to compress down to a year and a half or two. Really, I think people need to reset

their expectations and their perception of where Bitcoin is going and how fast its going.

[18:03]

AL: Where is Bitcoin going and how fast is it going there? Lets reset peoples expectations.I feel like Im pretty forward looking on this Andreas, but Im sitting here having this

conversation with you and I feel like I should just be interviewing you rather than doing this

as a host thing because you very clearly have it in your head where you think were going.

Im still more unclear on how long it takes us to get there. I agree that things are

accelerating really fast but I mean what do you think were going to see over this three year

time horizon youre talking about. *18:29]

AA: I think were in a unique position because of the work we do, we get a lot of people

who come to talk to us about their start-ups well before even the planning stage and ask us

for our opinion, and ask for our help and technical advice. We can see some of the thingsthat are in the pipeline. What Im seeing is this completely new wave of companies that are

coming in that are pushing adoption in three different ways. The first one is bringing in

mature operational and management teams, a whole new spirit. The age of PHP MySQL

developers who throw together an application and try to build a global exchange on top of

thatthat era is truly over. People who are coming into this business now, come with deep

technological expertise with deep management and operational expertise. Thats going to

change the velocity of Bitcoin. The second one is that were seeing the development of the

developing world and so, we saw the shift in the center of gravity and as more and more of

the countries in the developing world come online, you get this simultaneous rush of new

user adoption which is going to push the price up and at the same time you get newdevelopers, new companies, new start-upsstart-ups that can now operate on a global

level. If youre in Argentina and you have Bitcoin, you can start behaving like a globalized

Mom and Pop shopa Mom and Pop multinational and you can actually bring to bear the

resources of the entire globes financial, capital, development experience, your own

developers, cheap labor within your own country and compete head to head with every

other company in the Bitcoin ecosystem. That unleashes a torrent of innovation at the

edges. The third part of this is this new wave of Bitcoin innovation that is basically shifting

the focus from Bitcoin currency and enabling exchanges, payment networks etcsort of the

peripheries of Bitcoin enabling some of the on-ramps and speeding up adoption. As that is

playing out, now were seeing the focus switch to the layers above to implementing all ofthe other applications beyond currency that can be implemented e.g. digital shares, digital


8/28

autonomous corporations, peer to peer lending, peer to peer crowd-sourcing, peer to peer

payments, remittances. These are the killer apps. Currency was just the first shot. If we

manage to put a pin prick into the remittance market, something that Alan Zafahi of ZipZap

is doing with a passion and a level of principle that I absolutely admire. Put a pin prick into

thatcreate a single little flow and watch the dam break as $500bn of pent up capital pour

out of the developed world into fuelling the developing world and uplifting poverty. Thosekinds of things that bring with them the potential to huge global social change, those are the

applications that are being developed now. Things like Mastercoin and Coloredcoins and

Nxt, the protocol layers above that enable not just new innovation but entire new types of

innovation and entire new industries to be decentralized and disrupted with Bitcoin. Weve

moved past payment and all of that is going to happen in 2014. I didnt expect it to happen

this fast. Weve been talking about the layers above and now theyre happening and we can

see this coming down the pipeline. Those three forces together are simply accelerating

everything. The other thing to realize is the wave of adoption trails three to four months

behind the media burst, so China wasnt the symptom of $1,000, it was the cause. We

havent seen the symptom of $1,000 Bitcoin yet. We created this huge media bubble from$1,000 Bitcoinwait until February because all of that is going to turn into user adoption.

All of the people who heard about it in October and November and December are going to

jump onto the bandwagon in January and February. These waves feed on each other

because that wave of adoption brings its own price increase which creates the next media

bubble which, three or four months down the line, creates the next wave of adoption. The

cycle is getting shorter by the time. What you have is all of these feedback loops that are

rushing into Bitcoin because why? As you said, 1950s technology and suddenly we have the

opportunity to move seventy years forward. Sixty years forward in terms of financial

innovation and to do it without permission at the edges of the network. Weve now

reached the point where people are beginning to do that and their efforts are not evenvisible yet. When they become visible; a whole different ball game. [22:58]

AL: Talking about trends again for a second. At this conference, I think I met more people

who are from outside security, consultancies or companies, full service, what have you than

really at any other previous conference. A lot of times its been the libertarian side and then

the investor side but this time it really feels like the service industry is starting to come in

and look seriously at this. [23:15]

AA: Yeah. Remittances are possibly just the first part and then you have the whole

outsourcing, off-shoring, services, talent that you can bring in. I think the big event in 2014will be India and when India wakes up, they have the parallel tracks of being the second

largest remittances destination in the world with billions of dollars going to India every year

and, the largest outsourcing off-shoring center for technology in the world. They havent

even woken up to Bitcoin yet. [23:43]

SM: Yeah, I was seeing a lot of the layers on top at this conference. I saw a lot of talk.

People are excited about crypto-equities, Mastercoin, ProtoShares and that kind of thing.

There was some scepticism about those two but it was being talked about a lot. [23:59]

AL: Cryptocurrenciesyou dont have the ability to stop it but then again, there is also nota central company backing it but something like ProtoShares, Invictus Innovations is based


9/28

out of Virginia. Thats not a licensed... theyre a corporation but they havent done any of

the due diligence requirements to do any sort of equity offering in the way that ProtoShares

could be interpreted under certain interpretations. [24:23]

AA: Im hearing from all of the companies that are not doing things like Mastercoin and

Coloredcoins but are doing things on top of Mastercoin and Coloredcoins and are takingthat platform and finding incredible new ideas of how to build layers above it that leverages

that protocol layer. Thats going to fuel the development of the protocol layer even faster.

Its going to be an exciting year. *24:44+

AL: Yeah, without a doubt 2014, and 2015thats been my feeling is that these are the

years. These are the years where the important stuff is going to happen, these are the years

where we figure out if we stay in the United States because, to a certain extent, we have

risk doing a show like this in the United States. We have a corporation in California that all

of the costs run through, and pay taxes, and try to comply but, at a certain point, VC is

obsolete. You dont need to be here anymore after youve been in Bitcoin for a while.[25:11]

AA: Absolutely. You can grow organically. I work as a technical advisor at a board level for

a number of Bitcoin companies and one of the first discussions I need to have with them is

you do not need to raise capital. You do not need to give part of your control in equity away

to a venture capital firm that doesnt understand what youre doing and just has money to

throw at you because you can both grow organically by riding the logarithmic dragon of

Bitcoin and, if needed, and you need to float for a few months, you can crowd-source or find

a couple of Angel investors within the Bitcoin community, express the vision to them and

they will come and help you float long enough so that your viral, organically growing ideacan take off on its own. Then, you can get both the full control and freedom and the

success that you need. VCs are already obsolete in Bitcoin, apart from the fact that there

are some people within the Bitcoin community who are, in effect, VCs and Angels and what

they bring to the table, which is a really important thing, is expertise. Expertise in

operations within Bitcoin companies and in management of Bitcoin companies because

managing operations on a logarithmic scale is scary. The biggest issue that Bitcoin start-ups

have today is that you cant do linear growth and you cant do local deployment. You are

global from day one and if you are successful, your growth curve is going to be 10, 1,000,

10,000, 100,000, 1,000,000, 10,000,000. Month, after month, after month and youre going

to die, not from starvation of funds but from being so overwhelmed that you cant deliveron the operational promises and your users abandon you for someone else who can do

operations better. Tony Gallippi, from BitPay was talking about scaling his organization

from 15 or 20 people to 115 people over a period of just a few months. One of the biggest

problems were going to have, and possibly one of the most exciting opportunities in

Bitcoin, will be sourcingresources, human resources. We need to hire hundreds of

thousands of people into Bitcoin companies over the next year and train them in Bitcoin and

leverage their skills. Its now much broader than I just need a developer and a web

designer. Its operations, its marketing, its security, its business development, its

infrastructureall of the traditional basics of a serious company and we need all of them.

[27:34]


10/28

AL: The development thing has been a problem though. Talent is now starting to come into

this space but to this point, I know a lot of people who are doing start-ups whove had a lot

of trouble finding developers who are actually able to deliver on what they need in a

fashion. Having to teach people about Bitcoin has been... it seems like a hurdle that these

companies that are trying to hire developers have had to go through to this point. The cost

of developing in the United States... again, were based out of California so the cost of hiringa developer... when we work with somebody down in Latin America, the cost is a quarter, if

not less and so, that means if you have a budget, you can hire four developers for the price

of one. That doesnt mean that the developer in California is better (I mean, they might be

better) but ultimately, the cost is more based on locality. Bitcoin doesnt care about that so

again, this outsourcing thing... I just feel like again, the development teams that are really

going to make a difference in this are going to come from outside, simply because its less

expensive to actually pay them to do this full time. That has been a problem. [28:29]

AA: Thats why I think India is going to be critical in 2014 because the reason theyre going

to come onboard is because the more of the talent resource from there, the more we infectthem with the idea of Bitcoin. Heres another little point that people are missing right now.

If you have a Bitcoin company and youre able to generate Bitcoin cash flow, as a result of

that, you can offer, effectively, a stock option package for your employees, which is a really

simple proposition. Take a part of your income, your weekly pay check and get it paid in

Bitcoin and hold. Essentially, what youre doing is youre giving your employees stock

options in the entire Bitcoin ecosystem by paying them in Bitcoin and creating a source of

low cost dollar to Bitcoin exchange through payroll. We can attract talent and I think even

in North America, weve now reached the point where you can have a serious conversation

about people aboutWhat do you want to do with your life? Do you want to be part of the

most exciting technological development of the last two decades, something that will have aworld impact? Are you willing to put in long hours for low pay and take a stock option in the

form of Bitcoin and stock in equity in the company? I think youre going to find a lot of

people who are going to say yes because a lot of people are beginning to see the difference

between working for one of the old corporations that are fuelling war and economic

exploitation and being able to be part of something where they can align their principles

with their skills and actually sleep at night and feel good about themselves, instead of hating

themselves every morning because theyre working for the Man. You combine that with

stock options in Bitcoin that have the possibility of appreciating. I think we wont have any

trouble hiring talent. What were going to see is Bitcoin sucking development talent from all

of these ecommerce, Web 2.0, find another way to do shopping and push more ads, theboring jobs that nobody will want to work anymore. [30:24]

_________________________________________________

Heres to the crazy ones. The misfits, the rebels, the trouble-makers, the round pegs in the

square holes, the ones who see things differently. Theyre not fond of rules and they have

no respect for the status quo. You can quote them, disagree with them, glorify or vilifythem. About the only thing you cant do, is ignore them because they change things. They


11/28


12/28

democratic carries a lot of baggage. It makes people think you can go vote for changes to

Bitcoin fundamentally, which is sort of true but its sort of isnt. Whats really important

though is that, going back to the village example, the way Bitcoin comes to consensus to

figure out who really made what transaction, is by having nodes to do something special

called mining, go show that they agree that the transaction has happened, as a vote. Its a

very strange vote because its whats called a random ba llot. Approximately once every tenminutes, a miner, completely at random is picked and then they get to decide what the next

block of transactions will be. Over time, this is approximately like everyone voting in

proportion to the hashing power they represent. Hashing power is a special thing where

because there is no known way to vote over the internet without involving some central

authority to determine who is a human, who is someone who is alias, instead we completely

side-step that problem by having voting involved solving this useless math problem called

the Proof of Work problem. Thats a technical thing but long story short, you do some

useless work and you get a certain amount of voting powers, so to speak, which gets

referred to its hashing power and then thats how you decide where the Bitcoin blockchain

goes. [34:59]

AT: Some developers dont like using the term voting. Maybe there is also some feeling

that its like people who arent participating in the changes. *35:08+

PT: I think what it really comes down to is, an analogy would be Bitcoin as a system of an

incredibly strong restrictive (?? prostitution). The voting in the system can do nothing more

than decide what transactions are accepted and what ones arent. It cannot make a

transaction that is invalid if it doesnt follow the rules of Bitcoin and get accepted into the

chain. It cannot make the rules of Bitcoin change. All it can do is decide that the transaction

may or may not be included in the blockchain at a particular t ime. Thats it. You really cantdo much with that kind of voting. Thats nefarious. At least assuming everyone checks the

rules. [35:47]

AT: Bitcoin is a consensus system. Is that awesome or not? Whats the problem or is

there... every technological property has its upsides and its downsides. What are the

upsides of a consensus-based system and what are the downsides? [36:04]

PT: Certainly the upside is that, when its working properly, its very free from outside

interference. The consensus automatically is a consensus of a majority, so anyone who

participates in Bitcoin fully, is part of that consensus, part of that choice and for someoutside force, such as a government or large corporation, to go manipulate that consensus

is only possible if they choose to participate in it. Now, of course, this does leave Bitcoin

open to something called a 51% attack where some group, or person, or whatever, chooses

to buy enough hashing power to outvote everyone else on Bitcoin and because they can do

that, then they control the destiny of the Bitcoin blockchain. They cant go and put invalid

transactions in the chain if everyone else is checking it but what they can do, is they can just

stop transactions from every appearing, or they potentially rewrite history. Transactions

that have been confirmed, as part of Bitcoin, get undone bit by bit. [37:06]

AT: How will Bitcoin evolve and what is the power that the miners have and how will thatbalance of power change? [37:13]


13/28

PT: I keep on saying that if everyone uses Bitcoin correctly, miners dont have any power

but there is a big catch with that, which is a lot of people are using Bitcoin without actually

verifying Bitcoin, the history of the blockchain. The technical term for this is called SPV

nodes, which stands for Simplified Payment Verification and an SPV node skips all this

laborious checking that everyone is being honest and following the rules, rather it assumesthat everyone is following the rules and assumes that the majority of hashing power is

correct and just leaves it at that. The problem of this then, is it does create a situation

where mining is voting. If everyone only used SPV nodes, then a miner could very well

decide that yes, 51% majority now decides that Bitcoin can be inflated and we can make

however many bitcoins we deem necessary. If they choose to do that, they can make

bitcoins out of thin air and unless you check the history, you have no way of knowing if that

has happened. Of course, in practice someone does this and youll see it on the news, youll

see it in so on and so forth, but from a software level, your software isnt checking that.

Thats a real problem. We do not yet know how the political science of decentralized

cryptocurrencies actually works. If miners choose, as a majority, to create bitcoins out ofthin air, does that mean people shun those miners, does that mean people start running full

nodes? I dont know. I dont know that were going to know until it happens. *38:50+

AT: The blockchain is getting bigger and bigger, so how can we own that infrastructure?

[38:55]

PT: This is the big catch with Bitcoin. If you have a consensus systemto have consensus

over the history of the blockchain, every person who has part of that consensus must have

the entire blockchain which just doesnt scale. If you (peer ??) science terminality, if you

have N people who are participating in this Bitcoin blockchain and each of those peoplemakes a transaction, then every person needs to process everyone elses transaction, N

squaredits exponential growth or that should be more (??) quadratic growth and that just

doesnt work as you get enough people. Fortunately, computers are extremely fast and

efficient and weve been able to get away with this system for a lot longer than, in some

rights, we really shouldnt have. In some senses, weve made this pig fly by attaching rocket

motors to it. That only goes so far and any longer, and we have to do something about it.

How that will actually take place, I dont know. What I do know is that if we dont solve this

problem, and were already seeing this we see people run Bitcoin clients, or use Bitcoin in

ways that doesnt verify this history and is therefore outsourcing your trust to someone else

to do the job for you, which sounds very much like conventional banking anyway. [40:10]

AT: You said something about good Bitcoin, like a political science. In some ways, its also

about the economics of how the miners and all the different groups in Bitcoin interact - the

manufacturers, the developers. What are some of the interesting models or concepts that

you see emerging out of that, that will happen in the future? Can you give us a glimpse

about how this system will function on a macro scale? [40:37]

PT: What I want to see happen is for there to not be distinctions between all those different

groups. Itll only have these distinctions, thats when Bitcoin is (??) because when you have

those distinctions, you are putting (especially with regard to mining) control into a smallergroup than everyone. The ideal Bitcoin system would be everyone participates equally,


14/28

everyone does a bit of mining, everyone does a bit of validation, everyone is pulling their

own weight and its very unfortunate that due to the technical issues, were not seeing that.

Instead, were seeing people outsource all their trust to centralized services like

Blockchain.info, centralized dependent technologies like SPV nodes, like Android wallets and

again, Electrum follows the same sort of problem, whereas using Bitcoin with full nodes, as

is done with Bitcoin reference implementation or with Android wallet, thats not so popularand people are, in a sense, taking the easy way out. Now, if you go and change the way the

technology works to make it easier to, for instance, verify parts of the blockchain, then

everyone can go and pitch in, everyone can be part of this but there has to be will that yes,

this is important and yes, we need to change the technology to do that. Currently, weve

got people who get a lot of attention and a lot of respect by some parts of the Bitcoin

community who dont see these issues as important at all. They just dismiss it as something

that... whatever, Bitcoins working fine. Bitcoin needs to fix scalability but lets just have a

quick patch on this and go on from there, whereas I think the more thoughtful people, like

me realize that its not so easy to fix problems in Bitcoin once you cause them because

youve got this huge moving system. Youve got actors who may have incentives to leavethe problems in place and, furthermore, youve competitors to Bitcoin, like Litecoin and

other alt currencies that may very well just take Bitcoins place instead. [42:31]

AT: What do you think are the technical problems that are driving this kind of inevitable

specialization? [42:38]

PT: I dont think its inevitable. If we study this issue and we think carefully about it, we can

go find ways to make it not inevitable. In some small ways, Ive done things myself like that,

like I proposed this technology called TXO commitments that enables nodes to not store the

full history of the blockchain while still, with other technologies, can still verify parts of it, sothat is a collective of the entire history (??) Theres also things like fraud proofs which

enables nodes that once they do find the rules are not being followed, to sound an alarm

and tell everyone else so that they can immediately take action. There are also concepts for

how to go shard the blockchain, to go reduce individual (??) The scope that any one person

has to evaluate to come to consensus. Finally, on top of all that, there is sort of more

immediate, more practical ways to achieve this stuff, like off-chain transactions which just

takes the load off the system and buys us time. None of this stuff is all perfect but its

important to go and research this stuff and accept that the road ahead is bumpy and we

cannot allow Bitcoins decentralization to be sacrificed. We may find that, by doing that, we

wind up with Bitcoin that doesnt grow quite as fast as some investors would like but that isa much better trade off than destroying what Bitcoin offers to the world. [43:59]

AT: Whats the sharding? Thats interesting. *44:02+

PT: The basic idea (??) mentioned that you dont necessarily have to have one consensus

(??) and thats kind of a very technical term that really means you dont actually have to

have everyone have a complete view of the entire state of the whole system at once. If

youre clever, you can restrict the view that any one person has to have. A very simple

example I like to use, which isnt necessarily a great idea, but its an idea that can work, (??)

a ring of blockchains and you make the system such that areas of adjacent blockchains onthis ring have to be verified in parallel to allow mining to progress because each pair is


15/28

verified, you can move coins in a series of transactions around this ring from one blockchain

to another. [44:50]

AT: That uses a special transaction (??) [44:56]

PT: Yeah, a special type of transaction. Yeah, which we already actually have the ability to.[44:58]

AT: Right. Its on the wiki, isnt it? [45:00]

PT: Yeah. It just doesnt work as well as we might like but if you built a system around this

concept, you would make it work. What that means is that even though any individual

miner only needs to keep up with a small section of this weird ring system, you can still

spend coins from anywhere, you can send them to anyone and the whole system, as a

whole, actually works. Of course, there is a ton of practical issues that need to be solved

and need to be studied but if you accept that decentralization is important, you go solvethese issues. You go study them rather than just taking the easy way out. [45:34]

AT: The blockchain is getting bigger and bigger but there is a limitation in the code which is

limiting the size of the blocks... [45:42]

PT: Correct. [45:43]

AT: ...and making them a scarce resource so there are less transactions getting into a block

than if this limitation didnt exist. *45:51+

PT: (??) the blockchain is big, with certain technologies like TXO commitments, and its close

cousin UTXO commitments, you dont actually need to download the entire blockchain to

get your node started. You can download a subset of that data or (??) with TXO

commitmentsno data at all, but you still have to keep up with the bandwidth of new

blocks as they come in. Thats a real problem because if you allow the blocks size to grow,

the size of an individual block, then at some point, (??) amount of bandwidth that not

everyone can keep up, especially not people on low bandwidth connections, like home

residential connections and especially anonymous connections. On top of that, and

something thats been found more recently is that, you create very perverse incentives in

that (and Im going to get a bit technical here) the cost to include a transaction in the blockis related to how fast you can tell other miners about that transaction, and about that block

as a whole and if you are a miner who has a lot of money and can invest a lot of effort into

fast internet connections, your cost goes down, which means you make more money and

therefore, you can have more equipment therefore, you can make more money. Also, just

by being bigger, youre less likely to have someone find a block at the exact same time and

not be the one who found the block that wins. Thats called your orphan risk and again, the

bigger you are, the lower your orphan risk is and its just this set of interlocking incentives

that drives centralization. With a block size limit though, at least incentives have a limit in

that, sure, there is still an incentive to be a bigger miner than a smaller one but the amount

of incentive, compared to the total incentive to mine at all, is much smaller. We, in thetheoretical community if you will, we can go see how potentially that incentive will not


16/28

cause disaster, whereas if you have no limit at all, that incentive is much, much stronger and

its hard to imagine how mining wouldnt become very centralized in that circumstance.

[47:55]

AT: The block size limit is a really important issue for you and youre saying that the

consequence if we just got rid of it, while transaction fees might drop, might become low, itwill allow miners to form an even bigger cartel. [48:12]

PT: Yes. It would not so much allow but encourage them to. [48:15]

AT: Encourage them to. [48:16]

PT: Yes. [48:16]

AT: Right. Surely, the market will self regulate? [48:21]

PT: Why would it? [48:22]

AT: Some people say that if a miner produces a block that is too big, then another miner

will just reject it. What do you think? [48:28]

PT: Right, but this is the issue. If you produce a block that is too big, the actual incentives

end up being that you earn more money, in many cases, than the miners who didnt do this

and the reason is, if your block ends up being accepted, while other miners were not mining

to extend your block rather than the block before, they were wasting their time. That

means some percentage of the time, where they could have been earning money, was spentwasted, whereas for you, 100% of the time wasnt wasted. If your goal is to earn more

money than other miners, which is generally what a business wants because, after all, if

earning more money the miners (or I should say the hashers) who are mining at that pool,

will go move from the smaller pool to the bigger one. You get this ugly set of incentives. Its

not enough to go make the assumption that the market will self regulate. In this case, it

doesnt. *49:20+

AT: You think weregoing to have to increase the limit in the future? [49:23]

PT: I dont know. I think in the near future, we definitely shouldntincrease it because wealready know that increasing it will lead to disaster. Now, if we only increase it a little bit,

maybe it wont lead to disaster but we know, at some point, if we increase it enough it will

and because the political science of decentralized cryptocurrencies isnt well understood,

we dont know whats going to happen when that limit is breached. It may be that you cant

recover because there are simply too much incentives from a large part of the community to

continue in a bad situation. Again, talking about pools, if a pool knows it will make less

money as the limit gets reduced, theyre going to push very hard to keep the situation as it

is, even if it leads to Bitcoin where effectively, only a handful of people control with no

other way around it. [50:09]


17/28

AT: How destructive are the effects of increasing the block size limit and will it be

observable? For instance, if we doubled the block size limit, would it be ten times less

worse than if we twenty times the block size limit, or is it something that you increase and

you might not see the effects but then, you breach some limit and the system breaks down.

In your model, how would increasing the block size limit affect the system? [50:37]

PT: Keep in mind, were not strictly talking about technical stuff here, were talking about

social stuff. For instance, in an environment where governments do not attempt to regulate

Bitcoin, you can get away with much, much bigger limits than in one that it can. The reason

is that if governments do not attempt to regulate Bitcoin, its much more acceptable for

miners to be publicly known, its much more acceptable for them to be forced to have the

type of high bandwidth internet connections that are easy to find and shut down, whereas if

government decides to start regulating Bitcoin more heavily... and remember were talking

regulating here, I really dont think they would ever try to ban it, rather they would do

things like sayminers must only mine approved sets of addresses, or even more likely,

miners must not mine transactions related to certain blacklists. That kind of regulation cancreep up and while its happening, its very easy for larger mining pools which have an

incentive to exist because they make more money, to then start following these regulations.

You might, for instance, find that your transactions which were related to some nefarious

deed that some government has decided needs to be stopped, you suddenly cant spend

the money in your wallet without waiting, maybe a couple of hours to let 1% of miners, who

are not following those rules, finally get round to finding the block. Maybe five years down

the road, youll never be able to make a transaction. We do not quite know how this is

going to play out but we can certainly go see that. Having mining power more centralized

makes it much easier to control what the mining power does. [52:09]

AT: You see miners as the biggest threat to Bitcoin. [52:13]

PT: In some ways, yes but not minersmining pools. [52:17]

AT: Mining pools. [52:18]

PT: The size of mining pools is a very, very big threat. [52:22]

AT: Yeah. Weve all seen the big ASICs, like the big facilities. *52:27+

PT: ASICs are another matter. Youve got to remember theresa difference between

mining pools and mining hardware. [52:32]

AT: Right. [52:33]

PT: Mining pools seem to be a fundamental, desirable feature because people want it to be

easy to get their hashing equipment and start hashing and earning money, and its much

easier to do this by selling your hashing power to a mining pool. [52:47]

AT: Youre talking about lowering your expectation but also lowering your variants. *52:52+


18/28

PT: Yes, lowering your variants, not expectations. [52:54]

AT: Well, youre sacrificing some expectation for that lowering of variants. *53:00+

PT: You have to define what you mean by expectation. [53:01]

AT: Your average payout. If solo-mined, youd get more. *53:05+

PT: Right, but thats not necessarily true and, in fact, it appears that mining at a mining

pool, you do earn more money per block assuming (??) mining pools fees, the bigger mining

pool earns more money per unit of hashing power than a small solo one. [53:23]

AT: Why is that? [53:24]

PT: Thats because they are more efficient. They are more efficient because they find...

because more of the blocks that they find are not orphaned. [53:30]

AT: Ahhh, I see. [53:31]

PT: They are also more efficient because they have one set of expenses. Its (??) server all

clients, whereas you had to go pay for a full Bitcoin node and, like it or not, its not free. You

have to go pay for your time setting up, you have to pay for your computer and those

expenses are only getting higher in the future. [53:49]

_________________________________________

ADVERT:

When you shop with Bitcoin on Gyft, you can get gift cards from over 200 retailers. Think of

the possibilities. Not only is your holiday shopping taken care of in a snap, from your

Android device, or on the web but now, you have a way to purchase everyday items from

stores like Target, CVS, Gap and GameStop using your bitcoins. Thats not even the best

part. When you shop with Bitcoin on Gyft, you get 3% back. Ready to shop? Visit

www.Gyft.comtoday. [54:26]

ANNOUNCEMENT:

Happy holidays from Lets Talk Bitcoin. If you like the work were doing, we appreciate

Bitcoin tips of all sizes atwww.letstalkbitcoin.com. Just as importantly, share the show with

your peers and review the show on iTunes. Dont be kind, be honest. LTB reaches nearly

10,000 listeners but has less than 50 reviews anywhere I can find. Id very much appreciate

your help in remedying this situation. Thanks for listening. [54:53]
http://www.gyft.com/http://www.gyft.com/http://www.letstalkbitcoin.com/http://www.letstalkbitcoin.com/http://www.letstalkbitcoin.com/http://www.letstalkbitcoin.com/http://www.gyft.com/


19/28

_________________________________________

AT: Bitcoin as a systemits like weve got the merchants, the wallets and then maybe

have some (??) code and then you get down and down and you get to the actual Bitcoin

mode, which is at the bottom of all of this infrastructure. In the Bitcoin mode, you have thenetwork stuff, and so on but the core part of this is the consensus part. [55:20]

PT: Yes and keep in mind what I study about Bitcoin. For the most part, I only care about

these lower levels. I dont really care that much about what merchants are doing, I dont

really care that much about what their customers are doing. I mean, I do care that they use

Bitcoin in ways that are obscure. [55:34]

AT: Maybe explain a bit more about what this part of Bitcoin is and why its... *55:38+

PT: I care about the software. I care about the way the technology works. Im not thatinterested in the financial environment around exchanges. I dont really care that much

about the latest merchant API. None of that really matters that much to me. I care about

when Bitcoin transactions happen, how do Bitcoin users use wallet software to go and make

those transactions happen, and so on. [56:01]

AT: What is the consensus part of Bitcoin? [56:04]

PT: If you want to talk about the consensus part, the consensus part is the protocol. The

Bitcoin protocol is defined by a couple of thousand lines of C++ source code. That is the

source code that Satoshi wrote. [56:18]

AT: You mean the network protocol? [56:20]

PT: No, I mean the Bitcoin protocol. [56:22]

AT: The block validation? [56:22]

PT: Remember, the network protocol I think you mean the way that blocks are passed

around between the nodes. That is not part of the Bitcoin protocol. [56:31]

AT: Right. You mean the block validation and the scrypting. [56:34]

PT: Yes. When we developers talk about the Bitcoin protocol, or at least when some of us

developers talk about the Bitcoin protocol, we refer to the rules that decide whether or not

a block is valid, in turn, what is the state of the current blockchain, given the set of

information you know about. That protocol is defined by a few thousand lines of C++ source

code. People often have this idea of this protocol specification based on something (??)

specification needs to be written. The easiest thing to do is just say that specification is this

small portion of the source code from the Bitcoin reference implementation, as related to

consensus. [57:13]


20/28

AT: This is what makes Bitcoin, Bitcoin. [57:15]

PT: Yes. Its exactly it. *57:17+

AT: How do all the different Bitcoin versions work together? [57:20]

PT: I think you have got to understand that when it comes to the reference

implementation, on GitHub/Bitcoin/Bitcoin, very little of the core consensus code is ever

changed. For the most part, what has changed has either been cosmetic, such as adding

primitives just to go and give debugging messages or potentially moving a bit of code

around or changing the indents, or stuff that we really hoping wasnt important, like the

LevelDB upgrade which, of course, is a great example because we screwed it up and we

ended up creating a hard fork. In general, it doesnt change because it is the specification of

what Bitcoin is. [58:00]

AT: Why is important not to change it? [58:02]

PT: The moment you change it, the network doesnt have consensus and Bitcoin is unique

in that consensus is a security issue. I like to use the analogy ofLets suppose youre in a

crowd and you have a bagful of valuables, maybe the Queens jewels, or something and the

only way to protect that bag is by holding onto it. Meanwhile, you have thieves trying to

come in and grab that bag and steal the Queens jewels and you have to ask yourself, would

you want everyone pulling in the same direction trying to hold the bag in one place against

the thief trying to steal it, or do you want the consensus to break down over who is the thief

and have people pulling against each other, making it much easier to overpower the

strength of those who are trying to hold that bag and keep it secure. In the case of Bitcoin,if nodes disagree about what is the Bitcoin blockchain, and especially if mining nodes

disagree, you can have work done that is not in consensus, create a fork and then attackers

can go and use the fact that work was not done in consensus to go create transactions that

appear to have confirmed but havent. From that, of course, then you can go and steal

money from people. Youve destroyed what Bitcoin is supposed to be a secure way of

determining whether transactions have actually happened or not. [59:16]

AT: The consensus code, it needs to be the same between nodes, or the nodes need to

operate in a deterministically singular way. [59:25]

PT: Yes, yes. [59:26]

AT: How much can this code deviate? I mean, you gave the example of the LevelDB

upgrade, which caused a fork. [59:35]

PT: Were at the level where even if people ran the exact same code, deviation still can

happen because the execution (??) the computer that the code runs on isnt always exactly

the same, which I think should give people a sense of how hard it is to make sure consensus

is maintained. I have never seen an alternative implementation from the ground up that

has even come close to getting it right. The ones that you do see, you find bug, after bug,after bug where it doesnt quite match the semantics. It may even be that they fix the bug


21/28

but, in Bitcoin, fixing a bug is not fixing anything. Its breaking the consensus. You must

implement Bitcoin exactly the same way as everyone else does, or you risk breaking

consensus. Its a very tough barrier and I dont think computer science is at a point where

we can reimplement Bitcoin and get it right. You can certainly change all the stuff around

that consensus codeyou can have completely different wallets, you can have completely

different rules, or how transactions are relayed from one node to another but when youreceive a block, you must perform the exact same actions to determine whether or not the

block is real, as everyone else does. [1:00:46]

AT: They say in their software development, there is never any software without any bugs

in it and so, do you think that in the consensus code that there are bugs in there that we

dont know about that need to be replicated that maybe an alternative? [1:01:00]

PT: Yes, absolutely. Thats what is so hard about replicating Bitcoin. Every time I go spend

some time looking at the code in detail, it seems I find another thing I didnt know about

before. People underestimate just how complex a few thousand lines of source code can bewhen you have to match its behavior exactly. [1:01:20]

AT: The problem is not a few thousand lines of code; its not a difficult thing. Its relatively

easy. Youre making the argument that its not that we have to write a couple of thousand

lines of code but its that those couple oflines of code must perform very singularly in its

functionality. [1:01:40]

PT: Whats interesting about that is to write Bitcoin is easy. If you want to implement an

altcoin or if you were the person who wanted Bitcoin in the first place, writing that code is

not that hard because what it does is actually pretty simple. When you want to write a bugfor bug compatible reimplementation, thats just a nightmare. Its incredibly hard.

[1:02:00]

AT: How about how Satoshi made Bitcoin. [1:02:03]

PT: Theres a lot of suspicion that Satoshi wasnt even a programmer because, frankly, the

Bitcoin source code sucks. Bitcoin was very badly made. Bitcoin uses software

development practices that were awful but it worked well enough and, early in its history,

some bugs were fixed and last minute changes. What we have is what we have. We have to

go deal with what we have and work from there. [1:02:25]

AT: Is Bitcoin the future of our financial infrastructure? Or local financial infrastructure?

[1:02:31]

PT: I would suspect, no. I would suspect that we would go see lessons learned from Bitcoin

applied to more conventional financial infrastructure because Bitcoin is a very unforgiving

system. Bitcoin has no ability to be fixed, other than by convincing everyone to go fix

something when an issue comes up. [1:02:49]

AT: Do you think thats solvable? *1:02:50+


22/28

PT: No. [1:02:51]

AT: Maybe with an alternate coin, would that be solvable? Possible even? [1:02:55]

PT: Yeah but an alternate coin is going to go look like the current financial system, whereby

human intervention you can make it do anything you want. [1:03:03]

AT: Ah right, with human intervention. [1:03:05]

PT: Yes. [1:03:05]

AT: But then, thats not Bitcoin is it really? [1:03:07]

PT: Whereas Bitcoin says no, there is no human intervention other than everyone agreeing.

[1:03:11]

AT: Yeah, its fixed. *1:03:11+

PT: I think, in reality, for most purposes thats too strict. *1:03:17+

AT: Oh really. [1:03:18]

PT: Most examples will not want to deal with that. [1:03:20]

AT: Why do you think that? Its too strict? *1:03:23+

PT: Its quite simple. When people make mistakes, they want to have the ability to have

those mistakes fixed. The legal system is really good at this. The legal system can make

anything happen. I love using the example of hundreds of years ago when various treaties

were made between (Im not even going to say what term Im going to useuse) but the

people who came to the new world and made treaties with the people who already lived

there. Even three hundred years later, those treaties are getting ripped up and redefined

and remodified because it was decided that they are not just and they needed to be

modified, whereas in a Bitcoin system, that would be impossible without having every single

person who used the system to agree to make the change. All you have to do to rip up a

treaty from three hundred years ago is convince maybe a dozen judges but to go changesomething in Bitcoin requires thousands. [1:04:16]

AT: What do you think of BitShares and Mastercoin and other proposals like these ones?

[1:04:22]

PT: I dont think they are as interesting as Bitcoin itself. *1:04:24+

AT: Whats interesting about Bitcoin? *1:04:25+

PT: That it is money, that it is something of value without any reference to anything in thereal world. On the other hand, Coloredcoins, Mastercoins and so much other stuff like it,


23/28

theyll really just counting systems based on central identities. Fundamentally, Coloredcoin

is only as valuable as the thing that it was issued by. While its certainly very interesting that

you can go create an accounting system for shares that is independent of the company, its

not as interesting as going creating something out of thin air thats valuable with no ties to a

real world identity. I certainly dont want to go put down Coloredcoins. Its a fascinating

experiment but its not as fascinating as Bitcoin itself. *1:05:12+

AT: BitShares want to create an alternate blockchain that gives them all the power to create

all these different concepts that you cant do with Bitcoin, whereas things like Mastercoin or

Coloredcoins wants to leverage the blockchain and use all the existing mining power and

momentum thats behind Bitcoin to fuel their technologies. Which do you think is the

better approach or is there no better... [1:05:38]

PT: Absolutely Mastercoins and Coloredcoins. Trying to go create your own blockchain

from scratch for your own purpose is crazy. Mastercoin is embedded in Bitcoin.

Coloredcoins is embedded in Bitcoin and that means that you get the security of Bitcoinbecause youre embedded within it, whereas if you try to go create a blockchain from

scratch for your own purpose, it only has as much security as people are willing to throw

away in money mining it which is likely not very much, therefore its not secure. *1:06:07+

AT: If a tool has a lot of economic incentive for people to use it, maybe people could drive

the adoption of a new blockchain. [1:06:16]

PT: No. [1:06:17]

AT: No? [1:06:17]

PT: No, because it has to get to the level of incentive that is secure very quickly or it will be

attacked. Until it gets to that point, its not secure and therefore there is no incentiveto use

it. [1:06:28]

AT: Why was Bitcoin so lucky? [1:06:30]

PT: Because it got lucky. [1:06:31]

AT: Right. [1:06:31]

PT: Thats all it comes down to. Bitcoin could have been killed off early on but we were

lucky enough that it didnt. In some respects, it could still be killed off and maybe a hundred

years from now, were going to be able to say We were pretty damn lucky it didnt.

[1:06:47]

AT: It seems pretty inevitable that the blockchain is going to be used and abused and

people are going to do all kinds of different applications, leveraging off of it. Its a new

concept or a new data structure in computer science which we havent fully investigated.

The Bitcoin 1.0 is the one thats there and you can start putting stuff inside it. Bitcoin isstruggling right now with the blockchain. Already, its becoming a problem that, as its


24/28

becoming more resource intensive, well have to think OK, how can we make it more

easier for people to run it. [1:07:24]

PT: The thing is Bitcoin isnt becoming more resource intensive in the way that matters.

The way that it matters is how much bandwidth it takes to keep up with the blockchain.

That bandwidth is fixed. If we keep the block size limit, it cannot be more than 1Mb,approximately every ten minutes. [1:07:40]

AT: Also write speeds. [1:07:42]

PT: Yeah but thats irrelevant. You have 1Mb of data, approximately every ten minutes.

That amount of specs and the problem stays the same. Now certainly you have a large

amount of data to sync up if you wish to sync up from block zero but we already have a very

good handle on how to make cryptography that doesnt require that to be done. We know

how to solve that problem but what we do not know how to solve is how to make the block

size bigger without risking a disaster. There are certainly some approaches that seem prettypromising like the sharding stuff but equally, I can tell you that the people who looked at

that think that, to go make sharding the blockchain work requires different economic

incentives than Bitcoin currently has. On the other hand, the economic incentives behind

Bitcoin are broken anyway and what that really comes down to is in Bitcoin, in the long run,

security gets paid for by transaction fees but the security is needed by everyone who owns

Bitcoin. Unfortunately, the deflation rate of Bitcoin approaches zero in the long run. I

mean, it does go to zero in the long run. At some point, that deflation rate will become too

low to, by itself, support enough mining hashing power to keep Bitcoin secure. Maybe

transaction fees will go pick up the slack, maybe they wont. If they dont, were screwed.

Maybe it will take twenty years, maybe it will take ten, and maybe it will take a hundred. Idont know but its pretty easy to go see that that declining curve will hit a point where

there is not enough incentive to mine and the whole thing collapses. [1:09:07]

AT: What are the most important topics we have to research into the blockchain to

investigate? [1:09:12]

PT: I would say scalability, I would say figuring out how to go make mining... [1:09:17]

AT: Scalability in what way? [1:09:19]

PT: Just scalability in general. Its a huge aspect. *1:09:24+

AT: You mean reading the blockchain, for instance, yeah? [1:09:28]

PT: For all these things. Maybe out of that subset the most important thing is making sure

its always possible to mine in a scalable way. *1:09:37+

AT: You said it was a solvable problem and the biggest one was bandwidth, right? [1:09:41]


25/28

PT: Right. As I say, syncing up old history to obtain a decent level of trust in old history

thats a solvable problem, or at least we think it is. We havent implemented the solution.

[1:09:53]

AT: Right, so its taking these concepts and applying them. [1:09:57]

PT: Yes but solving the problem of making the block size bigger, that is not something we

know how to solve other than solutions like off-chain transactions, which just dodges the

issue. [1:10:08]

AT: Yeah, yeah. [1:10:09]

PT: It certainly dodges in a very nice way but for the consensus system of Bitcoin, it does

not solve the issue. [1:10:16]

AT: Off-chain transactions loses the recordthe fact that you have a recorded entry in theblockchain. [1:10:22]

PT: Off-chain transactions just means that rather than relying on the consensus of

everyone, you rely on the consensus of a very small group or you trust some central service.

[1:10:33]

AT: Do you think Ripple could provide something like that. [1:10:35]

PT: Sure, but Ripple relies on trust in small... groups of people. It is not the same sort of

model as Bitcoin. Now, the thing with off-chain transactions is you can go use a lot of otherclever cryptography and other tricks to create systems where you can trust third parties

with your money and put those third parties in positions where if they run off with your

money, they will actually end up with less return than otherwise. What you cant do is make

it impossible for those third parties to not do some harm to you. Its not like Bitcoin where

you can make it impossible for a third party to do anything to you. [1:11:14]

AT: Do you think that by thinking more about these fundamental problems in Bitcoin,

rather than new merchant solutions, or different Bitcoin websites, or payment gateways,

this is really a more fundamental area to invest our energy in? Would putting resources into

solving these problems help also the merchants and the wallet users, and so on and how?[1:11:44]

PT: I think this is just a long term/short term investment thing. You should do both but the

main thing is to go and accept that thinking about long term issues is important.

Unfortunately, we have some members of the Bitcoin community who think that long term

issues arent important and I think whats important is to go say to those members of the

community that theyre short-sighted. Its as simple as that. Equally, when someone does

come up with some clever new merchant API, or some nice new wallet software, Im not

going to put them down for it. Theyre doing good work. The chances are theyre the sort

of people who will do good work in that field and Im the sort of person who will do goodwork in my analysis field of long-term thinking and that is totally fine. [1:12:25]


26/28

AT: Work in this kind of thing, like off-chain transactions, or blockchain scalability, or so on -

how can this impact the people who might do the merchant solutions or the users of the

wallets in tangible ways? [1:12:42]

PT: The immediate impact is that if problems in these fields arent solved in some way oranother, and that includes being solved by compromises and quick hacks, you wind up with

people increasingly who are not able to go and use Bitcoin for very small value transactions.

I dont see that as a big issue given that its very easy to see that most of what Bitcoins used

for is as an investment. The way you know this is true, is you just take all the money that

must flow into Bitcoin to keep the price stable given the deflation rate and you divide it by

the number of transactions. Currently, each transaction costs about $30 and it spiked up to,

I think, $50 maybe... actually no, its probably true, and it probably is about $50 right now.

$50 is much, much, much more expensive than anything that an average person is going to

use Bitcoin for, to even make a small purchase. On the other hand, its not very expensive in

terms of being able to go and transfer value around the world with no intermediaries andwith no ability to block. A wire transfer between arbitrary banks around the world tends to

be about $50. For us investing in Bitcoin as an asset, as an asset that cannot be confiscated,

$50 of transaction doesnt necessarily pose much of a problem. *1:14:00+

AT: Bitcoin as a new fundamental primitive of trade, economic tool of business, inevitably

creates new markets that didnt exist before. What is the potential that hasnt yet been

realized of Bitcoin that could become a reality? What are the really interesting applications,

or possibilities, that maybe things that will undermine, or power structures, or things that

will improve peoples lives in fundamental ways? What are the things that you really think

are interesting about Bitcoin we havent explored yet? *1:14:35+

PT: I could go and name various pieces of technology that havent been fully developedbut

I think the most interesting thing still boils down to the fact that you have a way of storing

wealth that cannot be confiscated. That is really fundamental. Anything else can either be

confiscated by simple decree, as in your bank account is frozen, or it can be confiscated by

physical force. Bitcoin is digital yet it cannot be confiscated by decree and that is absolutely

fundamental to what Bitcoin is. It only is possible because Bitcoin is decentralized and that

is something that no other system comes close to providing. [1:15:12]

AT: Nothing else in the world. [1:15:13]

PT: Yeah, nothing else in the world. [1:15:14]

AT: How will that change things? Why is that important? [1:15:17]

PT: It changes things in so many ways because it changes what politicians, what

governments can do, whereas all the other stuff that Bitcoin can enable, things like low cost

payments, even things like identities on the internet that are artificially made expensive. I

mean, all that stuff, there are other ways to do that but a store of value that cant be

confiscatedthere arent any other ways to do that. *1:15:42+


27/28

AT: What are some of the practical things? [1:15:46]

PT: I told you the practical things - people who are able to go and store wealth that cannot

be confiscated. Thats a very practical purpose. *1:15:53+

AT: What would I see out of that? Would it collapse the governments or the banks?[1:15:59]

PT: Why would it collapse anything? [1:16:00]

AT: Thats what Im asking. *1:16:01+

PT: It gives people options. It makes it much easier for them to go take action say, against

government, knowing that theyll have something to fall back on. It returnspower back to

those who are able to go and have some money stuffed away. Im not going to say it

returns power back to the peoplethats not true. When I say it returns money back to thepeople who are in a position where storing wealth will be useful for them. [1:16:26]

AT: Excellent. Thanks. [1:16:27]

PT: Youre welcome. *1:16:30+

________________________________________

CREDITS:

Thanks for listening to Episode 73 of Lets Talk Bitcoin.

Vegas Live Part 2was produced by Adam B. Levine with additional engineering byKrystal Levine. It was edited by Matthew Zipkin and featured Andreas M.

Antonopoulos, Stephanie Murphy and Adam B. Levine

Amir and Peterwas produced by Amir Taaki with additional engineering by Adam B.Levine. It was edited by Matthew Zipkin and featured Amir Taaki and Peter Todd

The audio for Think Different, an Apple commercial from the late 90s was played inits entirety. All branding was visual and listening to it again last week, I was struck by

the words and really wanted to share it. I hope you enjoyed this out of context

thought

Music was provided for this episode by Jared Rubens, Calvin Henderson and Matthew

Murkowski

Questions or comments? [email protected].
mailto:[email protected]:[email protected]:[email protected]:[email protected]


28/28

Have a good one! [1:17:21]

Documents

Let's Talk Bitcoin - Ep 73