LET’S TALK BITCOINEpisode 16 – Making History

Participants:

Adam B. Levine (ABL) – HostAndreas M. Antonopoulos (AA) – Co-hostStephanie Murphy (SM) – Co-hostRyan Gold (RG) - ListenerCedric Dahl (CD) – Co-founder of Buttercoin.netJason King (JK) – Founder of Bitcoin Homeless Outreach CenterBrian Armstrong (BA) – Co-founder of Coinbase.com

Coming up on today’s show:

Listener mail – East Coast Bitcoin events Let’s Talk Bitcoin, at the Inside Bitcoins conference in New York City on July 30th 2013 A Piece of History with Ryan Gold, at the first ever Satoshi Square, Los Angeles The Missing Piece - Software Solutions for Live & In-Person Trade events Stephanie’s conference interview with Cedric Dahl, Co-founder of open source

Buttercoin Exchange Platform Bail-in vs. bail-out vs. jail-in - How to deal with failing banks? Stephanie’s conference interview with Jason King, Bitcoin advocate for the homeless Has Butterfly Labs gone from horrible warning to shining example? – Their Bitcoin

Development Fund The First ASIC Single ship Stephanie’s conference interview with Brian Armstrong, Co-founder of Coinbase.

All this and more on Episode 16 of Let’s Talk Bitcoin.

ABL: My name is Adam B. Lavine. I’m a writer and speaker who likes to talk about complicated topics in understandable terms. I’m very excited to be joined as always by the other hosts of Let’s Talk Bitcoin. Andreas M. Antonopoulos is an expert in distributed systems and decentralized networks. [1:21]

ABL: Hi everyone! [1:22]

ABL: Dr. Stephanie Murphy is a scientist and syndicated radio host. [1:25]

SM: Hello. [1:26]

ABL: We’re going to start off this episode with some listener mail and Stephanie, would you like to take it away? [1:29]

SM: I got an email from somebody asking about East Coast Bitcoin events. The person said - Oh, it’s great that there was this conference, it sounded really exciting, that was out in San Jose but are there any events coming up on the East Coast? I thought that was a perfect opportunity to talk about what we are going to be doing, at least you and I, Adam at the end of July. [1:50]

ABL: We’ve been so excited with the response that this show has gotten. It’s been really great. We’re still very new to the scene. This is I believe, we are in the 6th week of our production but we’ve already been invited to co-sponsor several events and the first one of those is going to be July 30th in New York City. It’s an event being put on by Media Bistro and it’s called Inside Bitcoins. It’s a one day event. There is a good line up of speakers and actually I, at least, and we are talking about having Stephanie speak there as well, will be speaking at this event. [2:19]

SM: What are you speaking about Adam? [2:20]

ABL: I’m speaking about media monetization again and at Bitcoin 2013, I gave a talk called ‘YouTube is Broken – Rethinking Content Monetization with Bitcoin’ and actually, what this talk is going to be about is how advertising in general is broken and how we can fix it with Bitcoin. I’m really, really excited because I feel like since I gave that last talk, we’ve had some pretty substantial breakthroughs in this space and it’s still very much under development. There is a lot of infrastructure that needs to be built in order to support it, but just from a moving this thing forward and trying to provide a killer app for Bitcoin, I think this could be really powerful and I’m super-duper excited about that. The goal is to be able to give this talk on the 30th, in July at the Media Bistro event and then to correspond that with the release of a white paper. That open source is the idea. Hopefully we’ll have our first implementation ready to go but you know, these things take time so, I’m less attached to that. [3:11]

SM: I think it’s really funny that your previous talk from the Bitcoin 2013 Conferenc about how YouTube is broken, is on YouTube. [3:19]

ABL: Yeah. It’s really interesting to note actually that the videos of those talks, some of them have QR codes on them and I just checked the QR code the other day and the person that posted, that did the video tape and uploaded them, has actually earned almost four bitcoins so far from a couple of those videos. That’s money that otherwise would have gone nowhere and it was money that wasn’t required. Anybody who wants to watch these videos of these talks can watch it, they don’t have to do anything but if you really enjoy it, or you feel like you’re getting value from it, it’s really easy to put that value back in and give it to the person. They are more likely to say - Hey, this was good! We had a good experience; we had fun; we were compensated a little bit for our time; paid our travel expenses a little bit. I think it’s nothing but good. [4:02]

AA: I think it’s brillant because YouTube has its own monetization scheme. The problem is their monetization scheme is not granular enough. Yes, the ‘YouTube is Broken’ video is on YouTube but is monetizing through Bitcoin not through YouTube’s monetization scheme because that one is broken. [4:20]

ABL: I’m for sure speaking. That’s a talk that I’m definitely given at this event. Stephanie is going to be there reporting and she might be on a panel, or I might be on a panel. We’re still

figuring out the details of that but we’ll have more to talk about later. This will something we talk about periodically. [4:32]

SM: Or we’ll just combine into a three-legged Bitcoin monster and both be on the panel at the same time. (Laughter) That one sounds really cool; it’s about Bitcoin and free speech. [4:42]

AA: I’m really jealous, you guys. I would love to be there. Unfortunately, I can’t make this particularly show so, instead, I’m going to pitch the YouTube video from Bitcoin San Jose 2013. My speech at Bitcoin Conference is now up on YouTube. It’s called ‘Bitcoin Neutrality’, and you can find it by searching my name and Bitcoin Neutrality. I did my little pitch and you know, next time, I hope I can join you guys and participate because I really, really love these events, especially because you get to talk to all of these different people and get so much new information and new ideas and new discussion topics. Usually, we are buzzing for weeks after and have so much stuff for the show. [5:24]

SM: I hope you can join us next time too, Andreas. I did want to mention that if you are nearby the area but not going to the Conference, or if you are going to the Conference and want a little extra time with us, we’re going to be having a Let’s Talk Bitcoin meet-up at EVR, which is the Bitcoin bar. That’s pretty famous in New York City with Charlie Shrem who’s involved in that. It’s the night before this Conference so that’s gonna be on July 29th. We’ve got a meet-up event posted on www.Meetup.com under the Let’s Talk Bitcoin account. [5:55]

ABL: Yeah. Basically if you are interested or going to be in New York, you definitely need to visit www.letstalkbitcoin.com. There are going to be links that will be readily accessible that will let you sign up for the Conference, or sign up for the meet-ups. If you are going to sign up for the Conference, we really encourage you to take a short listener survey that we’ve put together. At the end of the survey, you actually get a 20% discount code to the Conference, which to my knowledge is the only 20% code out there. There’s some 15% codes floating around but because we’re speaking, we’ve got the special one. Also, even if you are not going we’d really appreciate it if you’d fill out the listener feedback survey. I’ve been trying to learn something about our listeners and it’s been really, really cool because again, it seems to prove out the thesis that the people who are involved with this technology right now, or who are interested in this technology right now, are really ahead on the curve. It’s cool to see. You can visit www.letstalkbitcoin.com and you’ll find links to all of these things, and more. There is a banner at the top of page that you can click through that it will again, associate with our account and help us out there, because we’re trying to figure out how large our audience is and it’s sort of difficult sometimes. Now, in addition to the event in New York on July 30th, we are also going to be at in event in Atlanta on the 5th. [7:02]

SM: Sorry, the 5th of what? [7:03]

ABL: Sorry, on the 5th of October. [7:06]

SM: Well, I don’t know if we’re going to be there yet but we’re definitely following that and making plans for it. I also got invited to speak at a Bitcoin Conference that is being planned in Boston for early September. Although they don’t have formal dates announced yet, they are planning to do something, and some of the guys from MIT are involved in organizing that so, we’ll keep you posted as things develop. [7:28]

ABL: If you have an event that you are working on, or that you are aware of, that you think we should be involved with, or aware of, either as a media partner, speakers, whatever, we really, really like these events. Bitcoin 2013 was an incredible experience and I think that we’re all looking to repeat that. Really as often as is feasible for us so you know, again, mail at www.letstalkbitcoin.com, get’s us and we’d love to hear about it. [7:48]

AA: Keep in mind this is all about a grassroots currency with a grassroots audience, so one of the things I’ve been really excited about is meet-ups. Yesterday, I was invited to a panel at the Financial Technology meet-up here in San Francisco and it had about a 150 people in the meet-up, which was pretty amazing. All of whom had no idea what Bitcoin was and were mostly from financial services and I learned so much just from the questions and the interactions. I got a lot of context, got a lot of business cards and I think also got the chance to really evangelize and educate people about Bitcoin and bust some of the myths. Even if you are not organizing a massive show but you just have a meet-up and you want to find out how to get involved with a (inaudible cut-off) Bitcoin, drop us a line. [8:35]

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With conventional Bitcoin exchanges under pressure, we’ve seen in-person so called Buttonwood exchanges emerge. First, in New York City the ideal of an in-person exchange is powerful and infectious. On Wednesday 12th of June, LTB listener Ryan Gold attended the first Los Angeles Buttonwood. He recorded some of the happenings in a brief interview with the organizer of the local event. If you’d like to do something similar, I’d love to discuss it. Email me at adam@letstalkbitcoin.com. [9:00]

Male voice: Anyone selling three at 108? Three at 108?Male voice: You’ve got to stand up taller than this.Male voice: You guys, hand signals.Female voice: We have a buy order from New York.Male voice: We are selling three at 108. We have an order from New York. Male voice: None sell. Everyone is checking.Male voice: We’ve got some more to log here.Female voice: Alright, $20 worth for the sake of the first transcontinental trade?Male voice: Did you say 140?Male voice: Twenty dollars, bro.Female voice: Yeah.Male voice: Just want to make history here.Female voice: Between the two.Female voice: 185 and that was for Kirill and web job. So, Kirill is the buyer? K-i-r-i-l-l?Male voice: What was the price?Male voice: He had an ask for 112 and I fulfilled his ask.Female voice: Ok.

(More distant trading voices)

I’m Ryan at Spelunk.in with Craig and David Moon. This event was actually started by a guy named Josh in New York and they do Satoshi Square. They’ve been doing it maybe three or four times already and it just seemed like a lot of fun. We were in New York and had all these meet-ups and exchange events and it was just really exciting to see the app developed and people coming together to trade coins in person at a safe location and that didn’t feel shady. We decided to do one here. I think we have more people, way more people, selling than buying. I would say maybe half or a third of the people here had never bought a bitcoin before and just were curious about it and wanted to learn more about it. Whereas, the difference between this event and the one that we were at last week, the LA Bitcoin Group, is that this is more public and accessible, whereas the other one felt like you had to be into bitcoins already and maybe it was a little more intimidating to people that didn’t know anything about it - whereas we were really pushing the newby, friendly aspect of it. I liked seeing that people are into the bitcoins for lots of different reasons. It’s basically telling people that it felt like when e-commerce and the web were starting, back in the early 90’s, that kind of feel is the same sort of feel that Bitcoin has for me. It is interesting to see all the different ways that people store their bitcoins and the different places that people are choosing to send them to each other. Because it is just an awkwardly long chain of numbers that if you don’t do it as a QR code, I’ve seen people using email addresses. For the Bitcoin I sold today, it was with the blockchain app. That worked out easier that I thought it would, too. I think the event was really successful and a lot of people came out to something that really is still obscure; not a lot of people know what bitcoins are yet. To see this many people willing to come in and bring cash out to a public location, to a park. This park is new; nobody even knows that really exists. All these factors kind of played against us and despite that, we had thirty five people, so I think we did pretty good. [12:41]

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ABL: I really appreciate Ryan doing that. We don’t have anybody located in Los Angeles so he contacted me about a week ago and was like - Hey, I’m going to be at this event. Is there anything that I can do? and I was like - Yeah, if you could record something there, that would be fantastic, so this is perfect. It feels like we just get this little chunk of history. It was great to hear this first Los Angeles to New York transaction happen. I really feel like that’s… [13:19]

SM: Transcontinental? [13:21]

ABL: Yeah, yeah, there you go. It’s a powerful thing, I think, and the thirty five people there, that’s not that many when you think about the number of people but then, as someone who, you know... Andreas, we had our first Napa Valley Bitcoin meeting and it was you, me and my wife and a friend that you brought and that was it. It was great! That was still good. [13:37]

AA: That was fantastic. I enjoy every meet-up opportunity but the buzz in that audio clip was just palpable. We keep talking about regulation of exchanges and the dangers of over-regulating exchanges and shutting them down. Yeah, good luck, shut down a Buttonwood, see how you can do that. This could pop up virally in thousands of locations, in houndreds of countries. There really is no stopping individuals from trading face to face. I think that is always the relief valve for Bitcoin. If all else goes poorly, or gets regulated, or co-opted, or messed with by authorities, at the end of the day, if there is supply and demand, two people can meet up in a park and trade bitcoin and that’s all you need to have a sustainable economy; a smaller one, a

slower one perhaps, but still a sustainable one. It would be nice if we could talk a bit about the need for ease of use and software that addresses the real time face to face trading scenario, ad-hoc, unplanned. “I just met you, let’s trade”. [14:41]

SM: Hey I just met you. This is crazy. Here is my bitcoins. (Laughter) [14:48]

ABL: How do you solve that problem, Andreas? I mean, are there any software solutions out there, or is this just something where someone needs to develop a solution that makes it easier to do these person to person transactions without having to wait around for confirmations? [15:03]

AA: I think that the big issue wasn’t the confirmations what we heard from our Los Angeles correspondent. One of the big challenges is the thirty seven character address is damn hard to convey verbally without making a mistake and being able to verify it, and if you don’t verify it correctly and you just send money off into the ether and it disappears – whoops! That could be a pretty serious problem. I think easier ways for doing face to face and in-person transactions that are not pre-planned, essentially a trading platform for in-person trading, would be a fantastic application. We have www.localbitcoins.com which is a great solution for planning and executing a two person trade. We really don’t have the kind of trading pit application where, let’s say, for example, you have a system for people to set up a mesh wi-fi network in the facility and put orders on an order book and match bid and ask electronically, while shouting in the pit. That would be fantastic. If you could do settlements; so a few people with Ipads, a few people with Android phones, and a few people with Iphones, essentially building an ad hoc trading pit right there and being able to do settlement. [16:17]

ABL: On the address problem. I was talking with a listener the other day. He was talking about putting his Bitcoin address on like a t-shirt that he was going to wear somewhere and I was like - What if you put a QR code on it that had your Bitcoin address in it? I mean, what if that became the thing? Where you have like a badge, or something that’s got your QR code for your public address and whenever you do a trade with someone, essentially all they have to do is snap a picture of your badge. Or are you looking for something that is more granular? Where every transaction has its own address and therefore something like that is too permanent. [16:46]

AA: I think part of the problem with that model is that it requires everybody to prepare and print and have badges, or t-shirts, whereas if you had a software solution everybody could just show up, download the app and boom, they are off running. Also, if you heard in the background, you had that transcontinental transaction so, how do you communicate the fact that somebody in New York wants to buy something that is in Los Angeles? It should be able to transfer that information more conveniently than having to exchange email addresses - some kind of IRC backend, where you can communicate essentially these addresses across the wire. I don’t know. I’m just speculating here but where there is a need, there is an opportunity for smart developers to build an app that enables this kind of Buttonwood trading. [17:33]

ABL: Another thing about that, of course, is that this is a really nascent market right now. This was the first event that happened in Los Angeles and as they said, there have been three or four that have happened in New York to this point. Do you think that this is something that we

are going to see replicated into every city, or do you think it will be major cities? I mean, how pervasive do you think something like this could get? [17:52]

AA: I would hope it gets very pervasive because this is the alternative approach to exchanges and exchanges, as mean of centralization, have a lot of really big weaknesses. Again, I think this is more of a model for the other six and a half billon. What do you do about trading Bitcoin in countries that don’t have exchanges? What do you about trading Bitcoin with people who don’t have bank accounts? I think this model has even more applicability and is much more enticing to people when they don’t have the infrastructure to trade Bitcoin. It’s already hard enough here but in many other countries it is nearly impossible. Yeah, I think that would be a great way to combining, essentially, local bitcoins with meet-ups. [18:33]

SM: I was going to say Localbitcoins is actually my favourite way to buy and sell bitcoins and I think the popularity of Localbitcoins, at least here in the US, shows that there is really a demand for decentralized exchange mechanisms. I also think there is a social aspect to it too, as I’ve said before on the show, where you end up meeting people and making connections which are more valuable than just maybe selling or buying bitcoins, you know? Often there are people who have common interests and may become friends or business partners and so, I just really like that model. [19:04]

ABL: Further to this point of ‘Listeners do stuff. Everybody’s got a project’. This is one of those things where if you live in a place where there are people who might be interested in this but it doesn’t exists yet, I mean, there is not even one of this in San Francisco yet. I know there are a couple of people talking about starting one but to my knowledge it hasn’t happened yet. I don’t know if there is a date set. If you are looking to start something like this, give us a call at 1855-wetalkbitcoin or email us at mail@letstalkbitcoin.com. We would really love to hear about it and again, what I’m actually thinking I’m going to do is pull on, like the principle from the New York event, the principle from the Los Angeles event - and maybe one or two other places if somebody makes himself known - and kind of do a group interview with everybody and see how the experience has been from the perspective of people who’ve been doing this for a while and what guidance they can offer to people who are just getting started. [19:51]

AA: Yeah, this is about making Bitcoin trading robust, sustainable and very difficult to ban or regulate out of existence. That matters even more in countries that are oppressive, or have oppressive legal systems so yeah, absolutely, start the trend, build it here when it is easy and then help spread it as a practice. You know, it is not just about technology, it’s about cultural norms, it’s about process, it’s about habits. All of these things can be gradually developed and refined so that they become widespread and consistent. [20:24]

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(Interview)

SM: I’m talking with Cedric Dahl from Buttercoin. Hey Cedric! Thanks for being on the show with me. [21:35]

CD: Hey, it’s good to be here. [21:36]

SM: Tell me what is Buttercoin and what do you do with Buttercoin? Tell me all about yourself. [21:41]

CD: Sure. Buttercoin started as a high performance Bitcoin exchange engine and it has grown into becoming a full scale realized bitcoin exchange. [21:52]

SM: OK and it’s open source, is that right? It’s built on open source platform? [21:57]

CD: Yeah, we wanted to make sure that the trade execution engine was available to anybody who could use it. We found that the MtGox’s lag has been creating a lot of problems for the stability of the Bitcoin price. [22:08]

SM: Oh, yeah. [22:09]

CD: We really wanted to help fix that problem and so that’s where Buttercoin came from. [22:13] SM: Necessity is the mother of invention and I can definitely see why there is a real need for better exchange so, what makes Buttercoin better than Gox? [22:24]

CD: You know, you’ve got to really respect the guys from Mt. Gox for what they attempted to do. They started off with Magic – the Gathering online exchange and they evolved into Bitcoin. You know, when you’re taking that route being scrappy, using php mysql and just putting something together with hope, spit and a lot of ingenuity, you have to tip your hat to that. As I understand it, they sort of cap at around five trades a second and so, when you have that, what happens is whenever there is a Bitcoin rally, you end up having these hour lags which create

panics and people lose faith in the economy and the price tanks and you can’t have it. In one week, we were able to get the Buttercoin trade execution engine up to a 100,000 trades a second and that’s unoptimized. We are aiming at having a millon trades a second and we’re maybe a week away from that. [23:11]

SM: Just for comparison, what does the New York Stock Exchange do or the NASDAQ do? [23:16]

CD: Buttercoin is actually on par with those. It uses the LMAX architecture. Right now, it has built-in node but we are going to be changing things up as we scale. [23:24]

SM: OK. Awesome. Since this is open source, anybody could take that code and start their own exchange, is that right? [23:31]

CD: Absolutely and we hope they do. We hope that they are able to get around the regulatory hurdles and put something out quickly which is what we are also trying to do. [23:38]

SM: Yeah, that’s cool so, how did you get started with this? How did you get into Bitcoins? How did you get started with Buttercoin? Tell me more about that. [23:47]

CD: It’s a little bit of a story, so bare with me. Bitcoin is at $13 and I buy a ton of it, mostly to give it to Wikileaks, because I believe in them and my credit card company says that I can’t pay them and I disagree with that. [23:58]

SM: Yeah, right on. [23:58]

CD: I buy bitcoins in a coffee shop from a guy who I’ve never met before, not really knowing what I’m doing at 13 bucks and I watched the price grow, and grow, and grow, and grow. I watched this rally as it goes up to $200. A friend of mine, Paul Bohm, is having a Bitcoin party, celebrating all things Bitcoin. At the party, we watch the price peak up to $250 and it’s almost hitting $260. We party, we pop champagne, everyone is celebrating. We’re all thinking - We’re Bitcoin millonaires! Hara! The next morning, I wake up to my phone ringing and it rings, and rings, and rings, and finally I answer it and my friends are asking me – Cedric, what are we going to do, Bitcoin just crashed. I’m asking them - What do you mean it crashed? Bitcoin is at $50 dollars, and I’m asking - How is this possible? To make a long story short, it was because of the lag, because of the MtGox lag. We were so upset that the entire Bitcoin economy could be so hurt by lag and that’s really where Buttercoin came from. The next day our friend Paul Bohm, who threw the party, tweeted - Hey, let’s fix Bitcoin. Let’s get a high frequency, high transaction Bitcoin trade execution engine out there. It’s a really big mouthful, and just something that can do more. My business partner Bennet Hoffman and I, we basically started living on Paul’s couches and just doing everything we could to actually make Buttercoin real. Before we knew it, we were doing 20,000 times more transactions per second than Mt. Gox could, and we realized that we had something here. It wasn’t enough to just put that out there for anybody to use it. We felt compelled actually, to build a company and do it correctly; make sure that we were completely above board with compliance; make sure that we were able to make something that actually worked; that had liquidity. [25:38]

SM: What kind of compliance are you talking about? Like, with being an exchange? I mean, I assume you mean that. [25:43]

CD: If you are an exchange, you are a money transmitter in America. That means you need to have money transmitter’s license, or you need to work with a bank or somebody who has money transmitter’s exemption. [25:56]

SM: You got that? You jumped through that hoop, is that right? [25:59]

CD: They are crazy hoops to jump through. [26:02]

SM: I imagine so, yeah. [26:03]

CD: We have managed to actually get two different companies to work with us. I can’t disclose who they are. [26:07] SM: Yeah, that’s fine. [26:08]

CD: Yeah, we are getting the compliance side of things rapped up and you should be expecting to see Buttercoin out in the wild pretty soon. [26:15]

SM: How long did that take? Just like a month and you are done with all these regulations? I find it hard to believe. [26:20]

CD: Yeah, it’s a crazy, hard, uphill battle but we’ve got the majority of the difficult things solved. There is a bunch of ways to do it, but if you’re savvy you can do it quickly. [26:29]

SM: Yeah, that’s a really interesting personal story. How many people are working on Buttercoin overall? Can people join the project, or is it kind of closed? [26:37]

CD: Anybody can contribute to the open source project. In terms of the Bitcoin exchange that we’re launching, we’ve got four full time employees and we are always looking for talented engineers, so if there are any listening, reach out to us, go to Buttercoin.net, send us a mail, we’d love to work with you. [26:53]

SM: Oh, alright. Anything else you want to add Cedric? [26:56]

CD: Viva Bitcoin! [26:58]

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ABL: This topic is not specifically related to Bitcoin but it kind of talks about larger financial picture in the situation that we find ourselves in. I feel like it is worthwhile to have a discussion about this. For the last five years, six years, the global economy has been in kind of a financial crisis, a banking crisis caused by a lot of debt in the system that doesn’t really have a good way out. We won’t get too much into that. The point is that consistently, there have been a lot of bank failures and up until recently, the way that those were taken care of, if they were

important enough to save, which means large enough that they feel like it would be detrimental to the economy, or whatever the reason is, then the process has been to take tax payer money from the country that the bank exists in, and to essentially use that to even out the imbalances in the balance sheet. Without that evening out, the bank would go out of business, which would then cause the government to have to cover the losses because they provide deposit insurance but they don’t actually have the money to pay for the deposit insurance should it come to that. That’s been the problem up until this point. What we were talking about before is called a bail-out. What happened with Cyprus is called a bail-in, where instead of the government coming in and covering the difference in the balance sheets with tax payer funds, instead, what they did is they took depositor funds - people who had trusted the bank and decided to keep their money with the bank, had a certain percentage confiscated or transferred, whatever you want to call it, to cover the holes in the bank’s balance sheet. This was a really disruptive thing because it had never been done before. It was something that was very contrary to everyone’s expectation and so to prevent people from pulling their money out of the system wholesale, they essentially had to put capital controls on, make it very difficult to pull out money and make it very difficult to leave the country with that money. Now, what’s happened since Cyprus, is that other countries have started looking at that bail-in model and they are saying to themselves - Oh! This could solve our problem because now, if a bank goes bad, it’s not on us. It’s a bad thing because it would be better if the banks just were able to stand on their own, but also if you announce it in advance and you make it the standard policy, I think it might actually be a good thing because it is all about expectations, right? It was so disruptive in Cyprus because nobody expected it. Everybody felt like they had deposit insurance and so they didn’t need to be concerned about what the bank was doing. In the case of New Zealand which is an interesting example of this. They’ve been talking about making this an institutionalized practice. Where if your bank goes out of business... [29:50]

SM: Wow. [29:50]

ABL: No, no, wait for it. If your bank goes out of business then they take a certain amount of money from you, whatever is required, in order to cover the holes so that the bank keeps going with the thought being that, if the bank went out of business, if it wasn’t going to be rescued and it went out of business, you’d lose a lot of more money. You’d have to go through a process to recover it, because it would essentially, be bankruptcy and then division of the assets that are left over. You’d get back whatever percentage relative, but it would probably be worse than if you’d just paid for it. Here is the interesting part. By making it a policy, doesn’t that mean that everybody who keeps their money in an unsafe bank is going to be really concerned and move their money to a bank that they consider safe? [30:28]

SM: A lot of people investing in mattresses to store their money under, in that case. I mean, everybody likes to know what’s going to happen. They want certainty about the future and some level of security and as you noted Adam that was what was really terrible about Cyprus. It came out of the blue and people were blindsided by it; caused a lot of instability. Having this as a policy, I think people will really start looking for alternatives and maybe one of those alternatives is Bitcoin because you can’t, frankly, do this with Bitcoin. [30:56]

AA: I look at this and I think well, who hasn’t been touched by this? Essentially, you have given us two options, or if you like, the world’s bankers have given us two options. Bail-out, screw the tax payer. Bail-in, screw the depositor. Hey, what about investors? What about bankers? When

did they get screwed? When did they lose their investment? This is the massive perversion of capitalism. The whole concept behind capitalism is that you take risks and if those risks don’t work out, you lose your investment. If you don’t lose your investment, essentially what we’re doing is - privatizing the profits and socializing the risks. [31:38]

SM: Yeah. [31:40]

AA: The bonuses keep flowing whenever the banks goes well, and whenever it doesn’t go well, screw the taxpayer, or screw the depositor. That’s a great model because essentially, it means you can’t lose by being in banking and the result of that model is that banking is the only sustainable industry because no one wants to invest money in anything else because everything else carries risk. I have a third practice, instead of bail-in and bail-out. I like the Icelandic practice which I called ‘jail-in’. Take the bankers and jail them. Take the investors and fleece them, drop all of their holdings, take away all of their investments from the bank investments they’ve done, and make them suffer a 100% loss, and then let capitalism work it out. Because then, investing in crappy banks becomes a risk and when banks go out and invest in bad loans and don’t do due diligence, they screw their shareholders, not the taxpayer, not the citizen, not the depositor. Jail-ins, thank you. Not bail-ins, not bail-outs. All of this is a massive distraction to ensure that the one person, or the one group of people, who never get touched by any of this, are the investors and bankers themselves. Let the bonuses flow and screw the taxpayer. Well, I don’t think that’s the right answer. [33:04]

SM: Don’t you think these people, bank executives and so forth, are protected from personal liability if they screw up something and don’t run their business well by the government though? [33:14]

AA: Of course they are because they get to write the law. This is not just a matter of whoops, we made some mistakes and lost some money. This is a matter of widespread, consistent fraud; front running trades; doing these predatory loans, with full knowledge that they are crap loans and then trying to sell them to other counter parties as good loans; fudging the numbers, fudging the audits, fudging all of the regulatory protections; pricing things at levels that have nothing to do with anything; co-opting all of the rating agencies in order to ensure that there’s a little back channel payment for every rating; all of these things - the corruption of IPOs, the corruption of LIBOR. This is outright theft. It’s fraud and the only reason these people haven’t gone to jail is because they own the law. Otherwise, please, can you find evidence of all of this fraud? Sure you can. Start rolling the little people in the banks, get them to rat on the bigger people who own the banks for plea deals; stick wire taps on all of them and within a month you’d have a wonderful RICO - racketeering and corrupt organizations, it’s what RICO means. You’d have a wonderful RICO prosecution and you take them down. The problem is prosecuting bankers is hard, it takes time and it takes a lot of political capital because they own the campaigns spending of all the politicians. At the end of the day, this is all bull. This isn’t lawful; this isn’t capitalism; this is a corrupt cleptocracy. This is a mobster action at the highest level of the entire world financial system and they get away with it again, and again, and again, and all that does is reinforce that corruption; reinforce that theft. It basically means that the entire banking system is a pit. [35:02]

ABL: I’m not disagreeing with anything you said there Andreas, but at the same time I think that expecting the system to change in the way that you are saying it should, it’s not likely to happen. [35:13]

AA: Of course not, I mean, you need extreme action to change these entrenched powers, for sure. [35:20]

ABL: That’s kind of what I’m saying here is that compared to what we are doing now, compared to the bail-out practices where a goverment just gives them the money and it comes out of the taxpayer’s pocket, isn’t it better to instead, make it so that the loss affects a smaller number of people in a more significant way, while giving them the knowledge and ability to withdraw themselves from the unsafe situation? I mean, again, Cyprus is different than New Zealand because in Cyprus it was a surprise but if New Zealand makes this policy then, as someone who has money in a bank account, if I felt like my money was not as safe in one bank as another, because this bank that I’m with takes more risks and has riskier practices, or whatever else, then I’m really greatly incentivized if I know that if they fail, it comes out of my end; to take my money and to put it in some place that I’m sure is absolutely safe. I mean Stephanie, I think you kind of said it there with the mattress analogy, when people just put money in the mattress but at the same time, doesn’t this mean that there is value to being a bank that isn’t taking risks? To being a bank that does do it right? [36:29]

SM: Yeah, but how would people know that? It’s really difficult for people to… that their banks... I mean, maybe that is a solution but personally, I would feel more secure in a situation like that, taking my money and putting it under the mattress if I could. [36:43]

ABL: Well, there has never been a reason, that’s the thing. When you have a market like we do now for banking, where every bank is functionally the same because if any bank fails, then you are supposedly covered by insurance, there is no reason to have any difference between banks and there is no reason to have any apparatus to tell the difference between banks… [36:58]

SM: That’s true. [37:00]

ABL: …because it’s just about - Oh, what kind of reward card are they going to give me versus the other guy? But if this was the policy, if deposit insurance was not a thing and instead, you just had this expectation then I think that yeah I mean, certainly I’d be looking into that and going - Man, there is a newsletter. Let’s take it and let’s dig in to bank financials and see who is taking stupid risks and who is not. [37:17]

AA: Yeah, the problem is right now, all of them are taking stupid risks. [37:21]

ABL: Well, yeah. (Laughter) [37:22]

AA: Depositor funds and consumer credit and small business credit are no longer profitable enterprises and the reason they are not profitable enterprises is because this perversion of the financial system has driven all of the profits into financial securitization. Find a flow of money, stick a straw in it and start sucking. That is the only profitable financial activity right now and as a result it has pushed out all other investments, and all of the money is flowing in the trillions and dozens of trillions into these derivative instruments because basic innovation, credit, the

things that make an economy run, are no longer relevant. They are not relevant because you can run an economy that is entirely an elitist economy just for the 1% that basically sucks everything out of the taxpayer; sucks everything out of the depositor and funnels it up the ladder. You know, I don’t wanna give up on the idea that we should have rule of law, that contract should be enforceable and the losses should be suffered by the investors because, if you give up on that idea, then essentially, you’ve got a house of mirrors. It’s really a protection racket, it’s nothing more. [38:32]

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SM: I’m talking with Jason King. He does homeless outreach and runs a charity that’s based on Bitcoin, right Jason? [38:49]

JK: That would be right. [38:49]

SM: Tell me more about what you do. [38:51]

JK: I run two homeless outreaches. I run Sean’s Outpost which is homeless outreach in Pensacola, Florida and then I’m also the founder of the Bitcoin Homeless Outreach Center which is a sort of homeless support center. We’re gonna have chapters all over the country, not just in Pensacola. [39:06]

SM: That involves helping people build houses for others, is that right? [39:10]

JK: Yeah, absolutely. We’re encouraging, we’re hiring, basically, homeless day labor to build homes for the homeless which does two things; it provides a home for a homeless person but it also gets them… someone who has a skill that’s been sort of rotting away, back into engaging with other people and helping build a home and you see hope in their eyes when they do it. It’s been a really good process. [39:36]

SM: Yeah so, how does Bitcoin fit in with all that? [39:38]

JK: We’re actually a Bitcoin only charity. [39:40]

SM: Oh, cool! [39:42]

JK: We’ve been only ever taken Bitcoin. [39:43]

SM: Wow. [39:44]

JK: It’s pretty cool to see a house be constructed from raw materials and know that the only engine that ever pushed that was Bitcoin. We’re very proud of that. [39:55]

SM: That’s amazing, yeah. [39:56]

JK: To date, through Sean’s Outpost, we’ve fed over six thousand meals to homeless people and so it’s all Bitcoin funded. The Bitcoin community has been super, super supportive of us. It’s been a lot of fun here at the Bitcoin 2013. Lots of good support; lots of good vibe here. [40:11]

SM: Yeah, that’s so outstanding to hear about. I’m really excited about that but you’ve been encountered some difficulties from the municipality where you are, is that right? [40:19]

JK: Yeah, absolutely. Actually this Thursday, in Pensacola, they are actually going to make it illegal to be homeless in the city of Pensacola. [40:25]

SM: Oh my god, are you serious? [40:28]

JK: They’re pushing through what they are calling an anti-camping ordinance but essentially, it makes it illegal to warm yourself if you’re sleeping outside. [40:35]

SM: Wow. [40:35] JK: Yeah so, you have to make the choice to either put a blanket on and not freeze to death or go to jail. Criminalizing a human necessity; it’s actually a human rights violation. [40:44]

SM: Yeah, wow. I remember hearing, in Orlando, about Food not Bombs. We were just talking about this off the air; getting arrested for distributing sandwiches in a park. [40:54]

JK: Yeah, I think that we actually had about 25 people get arrested in that, altogether. [40:58]

SM: Oh my goodness and you were there, right? [41:00]

JK: Yeah, I was part of that organization that was there and we’d still go down there and sort of do it gorilla style and risk prosecution. [41:09]

SM: That’s really brave of you, wow. [41:11]

JK: The ordinances they are passing in Pensacola are actually literally based completely on what was done in Orlando, so if anything, the next step in Pensacola will be to criminalize feeding homeless people too. It would just make our entire organization a criminal organization which is why Bitcoin is important because if you want to aid and abet a criminal organization, you should be able to do it anonymously. [41:31]

SM: Yeah, well it maybe the only way you can survive because I’m sure the legacy banking system would participate in blocking Paypal donations, or whatever, if the city asked them to. [41:41]

JK: Absolutely and when I spoke on my panel earlier today, we talked about that a lot, about how that was a huge problem. If anything was ever controversial that you are doing, your funds being frozen, no one can stop you from transacting in Bitcoin. People can stop you from transacting in USD. [41:58]

SM: Ok Jason. Where can people find you online if they want to get in touch with you or find out more about your organizations? [42:04]

JK: Ok, www.seansoutpost.com or www.bithoc.com [42:16]

SM: Thank you so much Jason. I appreciate talking with you. [42:18]

JK: Ok. Rock on. [42:19]

__________________________________________

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__________________________________________

SM: We talked on Episode 4 of Let’s Talk Bitcoin about the promise that Butterfly Labs, which is a company that makes Bitcoin mining hardware, had made to donate a 1000 bitcoins to charity if they didn’t make their power specifications on the items that they have sold on pre-order. We had said that they had not done it, to our knowledge, had not made that donation. Well, it looks like aparently they did, at this point. Now, whether that’s because they are listening to Let’s Talk Bitcoin and they felt the pressure or because they were going to do it anyway, I’m not exactly sure, but there is a new organization out now called The Bitcoin Development Fund and currently they’ve got 708 bitccoins. That’s because they had a 1,000; it was from Butterfly Labs, and they funded several projects already, which are either charitable organizations that use Bitcoin, or open source projects that provide value to the Bitcoin community. So far, some projects that they have funded are Sean’s Outpost, which I talked to Jason King from Sean’s Outpost at the Bitcoin Conference. It’s a homeless advocacy organization. He’s also involved in Food not Bombs in Pensacola, Florida and he says that one bitcoin will feed forty homeless people, so they gave him 75 bitcoins, which is great to see. They’ve also funded the Electronic Frontier Foundation; funded a couple of open source projects - the Free Software Foundation,

Open Source Ecology, CGMiner and BFGMiner. The latter two are open source Bitcoin mining software projects. They’ve got a bunch of other projects for funding on the docket. I think this is pretty cool. They followed through on their promise. Some people are mad at Butterfly Labs and say - Oh, this is the least they could do. Some people are also critizing it. I saw a post on Reddit saying - Oh, well they’re funding Bitcoin mining software projects so this isn’t really charity, it’s actually to benefit them. I don’t know. I see some charities and charitable educational organizations on there. I think it’s pretty cool. You can apply to be on their board that decides who gets the funding if you email them through their website, which is www.bitcoindf.org. [45:25]

ABL: I think it’s great. I think that this is an example of a company really stepping up and doing the right thing. There was a big question about whether or not they were going to pay this out because at the time that they promised it, it was worth somewhere in the range of about 5% of what it cost them now. Their story all along has been that they can’t refund bitcoins because they simply aren’t keeping them in Bitcoin form. Instead, what they’re doing is they’re converting them into USD, or some other local currency, so that they can be used to, essentially, do the manufacturing. This was no small cost to them to do it. I have to definitely commend them for doing the right thing and deciding that it was better to follow through than to try to beg out by saying that the value was too high. Honestly, I didn’t know what to expect on this case. I think that the way that they have set it up as a fund, where people can apply, I think that’s great. This is an example of good action, I have to say. I have nothing bad to say about it at all. [46:18]

SM: There is also some more news about Butterfly Labs. Apparently, this is kind of breaking news! Beep, beep, beep! Breaking news – Butterfly Labs has actually shipped. (Laughter) Apparently, earlier this week, and we’re recording this on June 13th, so just a couple of days ago on June 11th, they apparently shipped their first single SC 60g/hash per second Bitcoin miner. They posted about that online. Some very lucky person is going to receive it and there is a lot of excitement about this. People have been waiting for, at this point, almost a year to get some of the units that they had sold on pre-order (that Butterfly Labs had sold on pre-order), and people were getting really antsy and anxious and angry. A lot of people got refunds. I know Adam that you got a refund. You did a pre-order in Bitcoins and got a refund when Butterly Labs did not ship in a timely manner, as you thought they might. [47:12]

ABL: Yep. [47:12]

SM: A lot of people are angry at them but maybe they’re starting to actually deliver on what they sold. [47:19]

ABL: It’s a great start I mean, you’ve got one down, 35,000 to go. I think they are off a wonderful start. (Laughter) [47:23]

ABL: I have no idea how many pre-orders there are but... [47:26]

SM: The journey of 1,000 miles starts with one butterly. [47:29]

ABL: Exactly. [47:31]

SM: And jalapeño. [47:31]

ABL: There were a lot of pre-orders so I mean again, now that they have got all these pre-orders that are all stacked up with people who have put money in earlier in the process and now they’re going kind of to be getting it over a relatively shorter period of time than they’ve been waiting. What’s the network going to do? What is this going to do to miners? Is this the end of GPU mining for Bitcoin? What do you guys think? [47:51]

SM: Will they all shift to Litecoin and then the Litecoin difficulty will also go up? Yeah, I think absolutely that will inevitably happen but it’s not going to happen until it happens, so we have to remember that. I mean, people have been saying for months - It’s not over until the fat lady sings - that classic expression. It’s not over till Butterly Labs, and maybe other players, ship in large quantities and even then, it’s not really over, it’s just changed, you know? It’s a change in Bitcoin money. Also, as GPU miners drop out en mass, perhaps the difficulty will go down a little bit so maybe there’ll be a balancing effect. I’m really not exactly sure what’s going to happen but everyday counts and if you are mining, you can still operate pretty much the same way you have been for the last couple of weeks or months. [48:38]

ABL: I don’t believe that any of us are mining bitcoins. Stephanie, are you still mining litecoins? [48:43]

SM: Yeah, I’ve been mining litecoins. [48:45]

ABL: Ok, so I don’t mine anything. I don’t think Andreas mines anything. Stephanie mines litecoins but not bitcoins. If you are someone who is mining bitcoins and you have an opinion about this, again, a great way to reach us is 1855-wetalkbitcoin. We’re actively looking for people who have actually some experience, hands on, in the mining space, who can give us some more educated perspective than we are able to provide with our speculation. [49:08]

AA: I live in California. The cost of electricity here is prohibitive. [49:15]

ABL: Not competitive, yeah. [49:16]

AA: Yeah. [49:17]

SM: Somebody needs to make a solar Bitcoin ASIC miner. Hook it up to a big solar panel. [49:22]

AA: Well, if the price of electricity is not competitive I can tell you, the price of real estate, to actually put up solar panels, is way not competitive. [49:31]

SM: That’s why you’ve got to carry it around on your back, wearing it like a sandwich board. (Laughter) [49:35]

AA: Also, I live in the fog zone so, no sunlight. [49:39]

SM: Damn, I guess you are out of luck. Well, I mean, it is really interesting because we have seen so many companies offering ASIC miners for pre-order. The people who have been around

and have seen this developing are incredibly sceptical which I don’t blame them for. Even some of the miners that looked really promising, that we’ve covered on Let’s Talk Bitcoin before, I haven’t seen much about them lately. We talked about that little USB ASIC miner; we talked about the Jupiter and the Mars that were offered for like $20,000, or something on pre-order. None have really come to fruition yet. Avalon is still the only company that has really gotten their first round of ASIC miners out there and I don’t even think they’ve gotten the second and third rounds out yet either. It’s still very much up in the air and like we said before, it’s not over until those things are delivered and it has whatever impact on the network it has. There could be some other disruptive technologies that could change things even further, so there is a lot of uncertainty, a lot of risk but also a lot of excitement. It is totally like the gold rush. [50:43]

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SM: I’m talking with Brian from Coinbase. Brian Armstrong. [50:53]

BA: Yep. [50:54]

SM: Hi Brian and thanks for being on the show. [50:56]

BA: Thank you for having me. [50:57]

SM: Yeah, tell me what is Coinbase, for anyone who doesn’t know. [50:59]

BA: Sure. Coinbase is a wallet for Bitcoin. It’s hosted in the cloud so we let you buy and sell Bitcoin by connecting any US bank account, which makes it really easy, and then we do secure storage and we also let merchants accept Bitcoin. [51:11]

SM: What’s coming next for Coinbase? What have you been doing here at the conference? Tell me more about your future plans. [51:16]

BA: We’ve just been meeting people face to face. Trust is a very important thing in Bitcoin, so we want people to put a face to the name and let people know that we are real people behind this. What’s coming next for Coinbase? We want to accept more payment options; make it even easier; turn on the instant buys. We’ve just raised a bunch of money. We announced the largest fundraise in Bitcoin last week - $5 million from Union Square Ventures, so that allowed us to really raise the amount that we can sell in Bitcoin everyday. [51:42]

SM: OK. Are you’re going to be adding new features with that as well? Are you are hiring new people? [51:47]

BA: Yeah, we’re building out our team quite quickly and interviewing two or three people everyday. We’re trying to find great software engineers, designers, business development people, compliance officers, people who could work locally in San Francisco, in our office. [52:01]

SM: How did you get the idea for Coinbase? Tell me about that. [52:05]

BA: Well, I was working at Airbnb about two years ago. [52:07]

SM: I know Airbnb, yeah. [52:08]

BA: Yeah, it’s a great company and we were moving money all over the world and I was doing software engineering for them. It turned out that’s a very difficult and time consuming process with lots of fees all over the place and so when I read the paper on Bitcoin, I realized that this was going to be a big a thing. It is going to be a fast, cheap payment network for the whole world. [52:25]

SM: And when was that? [52:26]

BA: This was about two years ago so I started working on a prototype. Basically, the idea of Coinbase was just that if this new protocol can become easy to use, it’s a huge idea and that’s what is happening. [52:38]

SM: It would be cool if Airbnb would integrate Bitcoin with their services, ha? [52:43]

BA: Yeah, it would make the nice ‘close the loop’ here on the story... [52:46]

SM: I bet they’re sad they’ve lost you. [52:47]

BA: Hopefully and I wouldn’t be surprised if maybe, they start accepting it the next year here. [52:53]

SM: That sounds great. I know you’ve got to run so thanks for talking with me today. I appreciate your time. [52:57]

BA: Yeah. Thank you for having me. [52:57]

SM: And www.coinbase.com [52:59]

BA: www.coinbase.com. Get yourself a free Bitcoin wallet. [53:01]

SM: Woo hoo! [53:01]

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ABL: We recently spoke with both the creator of Litecoin, the creator of Feathercoin. There are a lots and lots of other coins out there, with more coming up nearly every week. One of the big things that, in my mind (and I’m curious what everybody else thinks) differentiates a good potential chain from a bad potential chain is whether or not they were pre-mined, right? I brought this up with Peter, the lead developer of Feathercoin, and he explained to me that

people think of pre-mining as a larger thing than it actually is. Because the way that he defined pre-mining, he said the technical definition of pre-mining is that the first blocks are mined before the currency is publicly available and so long as you don’t start mining before the currency is publicly available and announced, and people can start mining with you or against you, then it’s not a pre-mining. What I was wondering is, what do you guys consider pre-mining? And, do you think there are any circumstances where it’s not a net negative for the currency that is being pre-mined and where it is actually a beneficial thing that helps? [54:29]

SM: I could see how it would be kind of a grey area as to what’s publicly available. Is beta public? Is anyone free to participate or to download the code or the software? There is an incentive not to pre-mine, which is that you want a large and robust network, right? So it’s not vulnerable to 51% attack. You want as many people jumping on the network as possible. Although I guess if you keep it secret among, maybe like a group of developers, how would anybody know to attack your network? Of course, there is this sort of pump and dump idea, that’s an incentive to pre-mine which is you pre-mine a bunch of coins, you somehow get them on an exchange and then once the value goes up, you dump all your coins and then abandon the project. I think there are incentives in both directions. Is it ok? I don’t think there’s anything immoral about it. I mean, it’s kind of a crappy thing to do, it seems like. You don’t know if those coins are going to have any value anyway, so anything could happen and people might not like that you have pre-mined after the coin comes out and starts getting acceptance. You might get some backlash, and boos, and hisses from the crowd, in which case the coin may not be worth anything. When I interviewed Charlie Lee, he said that he believes that the success of Litecoin was actually in large part due to the fact that there was no pre-mining. He had that as a specific principle that he had in mind when he put Litecoin out there, that there was going to be no pre-mining. He saw, already, that there were several coins that had bailed and he thought it was basically because of that. I don’t know. Pre-mining might be tempting perhaps. In the long term, it would be in the best interests of the coin and of the developers to stay away from it. [56:18]

AA: I think people should be sceptical and apply caveat emptor - buyer beware. When you see a coin that is recently released, check out and find out how much of it has been pre-mined. You can see the blockchain and see exactly what’s going on. I’d like to paraphrase Douglas Adams when people say - It was publicly released so it’s not really pre-mining. Oh, it was released, really? Yes! It was released. I had to go down into to the cellar to find the release software. [56:48]

SM: (Laughter)

AA: Yeah, that’s the software release department, with a flash light. Oh well, the lights had probably gone; so had the stairs. Hey! But look, you found the software. Yes, it was in this place at the bottom of a locked filing cabinet, stuck in a disused lavatory with a sign on the door that said: Beware of the leopard! - Oh, I love that quote. [57:05]

SM: (Laughter)

AA: It’s like his guide to the galaxy. The concept of publicly available software is a slippery one, right? [57:13]

ABL: (Laughter) Yeah right, exactly. If it’s publicly available but you don’t tell anybody then it’s a little bit questionable. Yeah Stephanie, I think that you are totally right, it’s a trust issue more than anything else. Beyond that I guess, if there was only one cryptocurrency available then maybe it would be fine but since there are new cryptocurrencies coming out, it’s almost like it’s a competitive disadvantage. That’s kind of the position that I’ve wound up finding myself on is that it’s not so much a moral issue as it is, if you truly want your currency to succeed, then you want to give it the best potential to succeed. In order to give it the best potential to succeed, there can’t be this appearance that you’re in it for the short term and that you are in it to get rich. You have to be in it because it is legitimately a better idea that fixes a problem. If you need to pre-mine in order to accomplish that, then maybe that’s not what your goal is. The reasons people why usually tell us that they pre-mine is because the development team needs to be compensated, right? The development team needs an incentive to carry forward developing this coin because if miners come in and they get all the reward, then there’s no reason for the developers to keep going. I mean, do you guys think that that’s true? How do you think that the developers of new cryptocurrencies should be compensated, if at all? [58:28]

SM: Well, they’ll be compensated because they knew about it first. Even if there was no pre-mining, they still have the opportunity to get in and mine super early in the lifetime of that currency. If they really steward it well, if they really promote it, if they develop resources for it and if it’s a good idea, they will be compensated in the long term because the popularity of that thing is going to increase. I mean, I’m sure Charlie Lee is doing great on litecoins, even though he didn’t pre-mine them because they’ve been a long term investment of time and energy. [59:01]

AA: It depends on what the coin is and how it has been developed. I’m very sceptical of this idea that developers need to be rewarded and the only way to do that is to pre-mine the coin. I mean, really, come on. First of all, this entire system is based on open source software and a lot of people can benefit very nicely from mining early, not pre-mining. At the end of the day, if your contribution to this amazing software edifice is that you went in and did search and replace, and replace Bitcoin with Andreascoin, and then change two parameters and recompile it, well yeah, you should be lavished with reward for your amazing contributions. People have been slaving away on this software for years and have contributed incredible amounts of quality code for nothing. Please, spare me the sob story about unrewarded developers. This is a community. Put up. [59:58]

ABL: The final part here is that beyond the technical pre-mine, a lot of times what I’ve been seing - because I’ve been really trying to dig in some of these altcoins and figure out which ones are real and which ones aren’t - and one of the things I’ve noticed is that a lot of coins are really now wary of the idea of being labeled as a pre-mined coin because it makes it so that people are less likely to pay any attention to them. What they do instead is, they change the block reward, right? Like the difficulties really, really, really low at the very beginning and the reward per block is a multiple of what the reward per block will be after a week. They essentially release it publicly and then inmediately start mining and because the difficulty is so low, and because the rewards are so great, they still manage to acumulate a large number of these coins with still relatively little effort because of these conditions that they put in to the actual code itself. Do we think that that is still functionally pre-mining? If they front load the mining so that it’s more rewarding at the very, very, very beginning than it is in any other point? [1:01:00]

SM: Yeah, I think people would call that out and say - Hey, that doesn’t look exactly fair, that’s a little bit, errr…. you know? [1:01:07]

ABL: It’s not so much about the technical part, it’s about that it looks like they are trying to profit, right? [1:01:15]

SM: Which is why I think what you said early Adam makes a ton of sense. There has to be the mesasge conveyed that the reason that I’m making Stephaniecoin is because I think it adds value to the community and I’m in it for the long term not because I want to, basically, get rich quick. [1:01:31]

AA: There is a spectrum here that you go from the outright scam coin, the pump coin, the greed coin, the icky coin, the slightly-slimey coin, the slimecoin...

SM: (Laughter)

AA: There are really degrees of sliminess and greed and just outright scaminess out there. This is printing money. Anyone who has no ethical compunction, no morality or whatever else, will try to print their own money. This is one of the areas where people need to be extremely vigilant and ask themselves, what is this really adding to the ecosystem of coins? Does it solve an actual problem? What is the attitude of the core developers of this particular coin? Is it enriching the ecosystem and supporting the community? Is it perhaps giving back for the amazing gift they receive from Satoshi for nothing? Or, is it just their way to make money and so far I’ve seen few coins that really are community developed and giving back to the community and lots and lots of scam coins, greed coins and slime coins. [1:02:42]

SM: What about this idea of bounties, right? This is one of the reasons, beyond the developer reason, that I’ve been hearing. Actually, Peter from Feathercoin, they didn’t pre-mine but again, he was able to, in the first five days, I think he said he mined 150,000 coins, something like that. He then used those as bounties and gave them all away over the course of I believe it was a month maybe (it might have been a couple of weeks), as bounties for people to create services. On the one hand, I can see that and I can say - OK, that makes a lot of sense to me, because you want other people to be investing, you want other people to be into developing it. At the same time, doesn’t that sort of present a conflict of interest almost? By giving away coins that you think are going to be higher value and incentivizing those people to then make them higher value? Or is that just how this adoption has to happen? [1:03:35]

AA: That’s the IPO component to this. I mean, every coin is an IPO of sorts. I think there is nothing wrong with the initial inventors of a new coin to make some money off the IPO - as they are the earliest adopters and take some risks by mining something when they could be using that CPU power to mine an existing coin, that’s already well stablished. There is nothing wrong with that. The issue is really a matter of transparency and process. If you up front tell people how you’re going to use the coin, and you do bounties, and you invest them back into the currency, that’s a whole different consideration. If you just pre-mine all the coins and stick them in your pocket, make a pump and dump scheme, that again... It’s all about how you manage it both before, in terms of disclosure, and after, in terms of actions. [1:04:21]

SM: Like anything, I think it’s not really for us three to decide, is it OK? That was sort of the initial question. Is pre-mining OK? The community decides if it’s OK. I think the answer that is coming out at this point is, ‘no’ but that’s a community decision and that is something that is up to the market and that’s something that I love about all of these decentralized cryptocurrencies. [1:04:46]

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ABL: Thanks for tuning in to Episode 16 of Let’s Talk Bitcoin. Whether you liked, loved or hated the show, we want to know what you think. Please send out comments, questions and offers to help to mail@letstalkbitcoin.com. If you like what we are doing and want to support us with Bitcoin or Litecoin donations, please visit www.letstalkbitcoin.com for episode specific addresses. If you’ve got a question that you like to be answered on air, call us at 1855-wetalkbitcoin. That’s 1855-wetalkbitcoin.

Thanks to Andreas M. Antonopoulos, Dr. Stephanie Murphy, Ryan Gold, Thomas O’Brien, Michael Megan, Cedric Dahl, Ryan Armstrong and Jason King for providing content for this episode.

Music for this episode was provided by Jared Rubens. For more information about the music we used and the open source artists who create it, please visit www.letstalkbitcoin/music.com.

Stay tuned for Episode 17, coming up Tuesday the 18th June, featuring more discussion and interviews.

Thanks for listening. [1:05:51]