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Participants:
Adam B. Levine (AL) – Host
Andreas M. Antonopolous (AA) – Co-Host
Stephany Murphy (SM) – Co-Host
Bradley Jansen (BJ) – Freebanking.org
Farzod Hashemi (FH) – Correspondent
AL: Hi and welcome to “Let’s Talk Bitcoin”, a show f or users new and old of cryptocurrencies and the
king of them all: Bitcoin. Coming up on today’s show:
*US exchange Bitfloor forced shut – “can exchanges even exist in the US?”
*What is FinCen, and why it’s the biggest threat to Bitcoin – with Bradley Jansen of Freebanking.org.
*Listener question – why don’t people sell Bitcoins for credit cards or Paypal?
* It’s all about perspective when we breakdown switching from Bitcoins to Mili-Bitcoins
*Butterfly Labs: a tale of promises broken and the lessons of dealing with volatile currencies.
*Is mining causing global warming?
*Andreas takes on Krugman and brings the heat
And finally, correspondent Farzod Hashemi tells us about burying treasure with your mind. Visit us at
Letstalkbitcoin.com to subscribe for free to our twice weekly show. My name is Adam B. Levine, I’m
a writer and speaker who likes to explain complicated topics and understandable terms. That’s really
the purpose of what we’re doing here, taking the complicated issue about cartographicly securedmoney and helping people see what it could mean in their own lives. Joining me in our quest for
clarity are Andreas M. Antonopolous and Dr. Stephany Murphy.
SM: Hi.
AA: Hello.
AL: Thanks for being here everybody.
SM: I’m really excited to be here.
AA: Great opportunity. Thank you, Adam.
AL: Glad to have some assistance in this sort of impossible quest that we’ve been barked on. So,
getting right into the news, we’re recording this at 11:14 AM pacific time on the 23rd of April 2013.
The top story of where I sit is the recent closure of the US exchange Bitfloor. They released this
statement a few days ago, quote: “I’m sorry to announce that due to circumstances out side of our
control, Bitfloor must cease all trading operations indefinitely. Unfortunately, our US bank account is
scheduled to be closed and we can no longer provide the same level of USD deposits and
withdrawals as we have in the past. As such, I have made the decision to halt operations and return
all funds. Over the next days, we’ll be working with all clients to ensure that everyone receives their
funds. Please be patient as we processed your request.”, and it signed Roman who was the President
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of that company. This is a big deal, not necesarrily because of their size but because this is another
US exchange that is being closed for kind of reasons that don’t seem to be business related.
AA: -And don’t seem to be Bitcoin related. Once again, it’s all about the friction between, you know,
wonderfully flexible Bitcoin and legacy currencies that are really difficult to deal with.
SM: I was really excited about Bitfloor and I had a bunch of friends who were starting to use it, and
people like it a lot because they were doing, what was it? 0.1 percent, a commision on trades, which
is insane, you can’t find it anywhere and it was relatively easy to get money into it via this Capital
One peer to peer transfer. -But, I guess it was too good to be true at least according to the US
government who’s got this insane money laundering regulations that’ve just been really ratcheting
up over the last couple of years.
AL: -So, do we think that there is any space in the United States for an exchange that isn’t gonna run
out these problems? Or do we just think that exchanges should just stop functionally operating in
the US?
AA: I absolutely think that exchanges can operate in the US, and not only are other exchanges
operating can be accessed. A good example: one could say coin-based is another one, new ones are
opening at the same time when we’re seeing a couple of new ones being funded, including one
that’s Venture Capital pack. I think it’s definitely a difficult regulatory environmental working, but if
you do your regulatory homework and persisted it, there’s a really excellent opportunity for profit.
AL: -So, it’s that what we think then? That just Bitfloor didn’t do the regulatory homework and broke
some rules that they didn’t know about and so that resulted in this? -Because, kind of the way that I
was reading it, it seemed like Bitfloor was actually one of a more above board, you know, they’re
operating in New York which has a lot very strict anti-money laundering that are even beyond the
federal scope. I understand that more exchanges can start up, but what’s to say that the thing that
stopped Bitfloor won’t stop ‘em all.
AA: Nothing much. I mean, the main problem is that these regulations are not very clear and their
enforcement is not very consistent, so I might goes far using the words arbitray and capricious.
SM: I think people are really scared, especially those who are sort of more inside the legacy banking
system, they’re really scared of running afoul of these regulations and so they just got out of the way
bend-over backwards to comply and kinda screw their customers. -And I think people who are
interested in Bitcoins really, maybe don’t have some of that fear or don’t have that impulse, andthey’re in Bitcoin because they want to offer people better alternative to dealing with the legacy
banking system. -So, maybe that’s just one of the problems that any Bitcoin exchange would run up
against. -And as Andreas said that regulations are so vague that they can essentially be brought on
anyone, so I’m not feeling very optimistic about US based exchanges, except maybe ones that even
more decentralized in kind of peer to peer, like you know, meeting up with people via local Bitcoins
or finding some kind of local merchants that people can buy from, so it spreads out the risk of all a
bunch of people.
AA: Well, maybe there’s also two aspects of this, one is doing all your homework in advance such [as]
checking all the boxes, making sure you fulfill all the regulations. The other one is actually being
prepared for what happens when FinCen or someone else decides to shut a spotlight on you and
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that means having the lawyers to fight this, and fight this vigorously in court, so when they
shutdown one of your bank accounts you file temporary injunctions, you appeal the closure, you
open another bank accounts, you have your lawyers fighting every step of the way, and this is not
one of those things where you preparing if all goes well, all goes well, otherwise you’ll just fold. A
part of this has to involve a fighting spirit, and you know lawsuits in the US are part of doing business,
so you should be prepared for them.
SM: I don’t think anyone expects this banishing the Spanish inquisition, basically what’s coming
down on them. I mean it’s millions of dollars to comply with these anti-money laundering statutes
and I know, but instead of having a hell of the time even though they’re making a lot of profit, some
of them just are really hard to predict and people are starting with very little start up capital even
though there’s a great profit opportunity in trading Bitcoins and I think it’s just really difficult to be
prepared for it.
AL: I think it’s hard for anybody to sink a substantial amount of money into Bitcoin right now if you
are a serious player. If you don’t have anything to lose then it doesn’t really matter, because you
know, [the] worst case scenario is you’re gonna go back to where you’re started. -But if you’re an
existing institution and you step into this ambiguous arena, it really seems like it’s just dangerous
territory.
AA: Well, I think Paypal faced a lot of the same issues when it first started up, and had a lot scrutiny
from regulators and managed to persevere and maybe the days of doing that are over and it’s a lot
harder now. -But, perhaps professional investors and larger organizations coming into the market
can withstand that kind of scrutiny. Perhaps exchanges are not really a game for startups in this base
and you really need to be experienced. If you only have a small amount of capital and a small
starting base, maybe exchanges isn’t a good idea.
SM: It is getting harder because these regulations are growing by the minute, I don’t know if you
guys have heard the suspicious activity reports but they’re basically like this money laundering kind
of reports, where somebody deposits a large amount of cash in a bank account for instance, or if
they try to transfer more than $10,000 either into or out of the US. It triggers the suspicious activity
report, so called, and the person may not even know that they have one of these attached to their
name but they’re being investigated by the Department of Justice. -And there are millions of these
filed every single year and they keep increasing every year, most people don’t even know that’s
happening, so the regulatory climate definitely is getting bigger. -And I also just want to mention
about Paypal, I mean at what cost to them and to the service that they provide have they complied
with these regulations? -Because I know a lot of people who had been disatisfied with Paypal the
way it is now compared to how it used to be. They’ve been freezing people’s accounts, I’ve had
personal experience with that actually with the business that I’m part of. You know, they locked
down the famous Wikileaks’ account and there have been a lot kind of high profile cases of this. -So,
I think Paypal had become a kind of slave to the existing, like legacy banking system or not that much
different than traditional banks. -So, I think that’s something that Bitcoin users may not be willing to
do to become sort of part of the establishment.
AA: There’s a shocking irony here and something that concerns us all which is apparently the
regulations don’t apply to the larger financial institutions, they can do pretty much whatever they
want. -And there’s no such suspicious activity report when you steal billions or crash the economy.
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There seems to be a category of too big to fail on one end, on the other end there seems to be a
category for too small to succeed, and that’s really shocking right now because on the one hand the
small companies are being penalized for activity that has nothing to do with any of these crimes that
they’re looking for, while the big guys are getting away with the, with half all of massive scale, it’s
quiet shocking.
AL: It’s actually a great lead in for the interview I did this morning with Bradley Jansen, where
basically we talked about undissected the FinCen regulations anyone over a lot of the history and we
touch a lot of these issues in more detail
*background music*
BJ: [I’m] Bradley Jansen, I’m the director of the senate for Financial Privacy and Human Rights, and
in a previous life I was Ron Paul’s legislative staffer for banking monetary issues, and I edited a
newsletter forecasting foreign exhange rates as my first job out of college.
AL: How did that go?
BJ: It went well until the recession came and I need to, well, I got laid off.
AL: Okay, I thought it makes sense. You’re also the editor for...
BJ: Freebanking.org, yes. Yeah, it’s a grouplog of most of the promenade free bankers, Larry White,
George Selgin, Steve Horwitz, and others.
AL: What’s the elevator speech for how someone would define themselves as a freebanking
advocate?
BJ: They’re not fans of central banking.
AL: As the editor of Freebanking.org, you’re written a few articles recently on the FinCen guidelines.
Can you tell us what FinCen is and what their function is?
BJ: Yeah, FinCen is the financial crimes enforcement network. It’s a bureau within the treasury
department. It’s sort of a vault within the treasury to help the network on financial crimes and then
was made administrative agency under the USA Patriot Act. The reason for having FinCen is to
enforce the anti-money laundering laws from the Bank Secrecy Act. The Bank Secrecy Act was
passed in 1970 as part of the Nixon’s war on drugs. The argument being is money launders from thedrug trade were walking in with, you know, duffle bags full of cash and dumping it on the counter
and depositing it at the banks. -So, they argued if we passed the Bank Secrecy Act, the money would
dry up for the drug war and then kids wouldn’t have opportunities to buy drugs on the streets
anymore. Forty years later, I’m not sure that, that argument really carries the same weight than it
did then, and you need to go back and re-examine this. There were some other reasons why there
are agitated need to pass the Bank Secrecy Act, part of that was the access to records for tax fraud
and cheating on your taxes, though forty years later we still have a lot of problems with financial
fraud and we still have problem with people cheating on their taxes. Another reason that’s not much
discussed, that was argued on the house floor, is that in 1970 it was illegal for Americans to own
monetary gold. You can still use gold for your dentistry and religion and other purposes but not as amonetary instrument. Some Americans were getting bank accounts in Switzerland, where the Swiss’
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franc was tied to gold. The US Treasury argued that because of Americans were illegally owning gold,
we needed to pass the Bank Secrecy Act to stop them from doing that. Of course, the next year
Nixon closed the gold window, and a few years after that we progressively re-legalized the
ownership of monetary gold and then also the use of gold clause contracts. So, those justifications
for the Bank Secrecy Act are gone.
AL: -So, now the name jumps right out of me when you say Bank Secrecy Act, I’m thinking that it
means, you know, that it’s enabling banking secrecy but it sounds like it’s actually the opposite of
that from what you’re telling me...
BJ: Well, it’s actually Anti-Secrecy Act. In fact, there were couple of supreme court decisions,
because the bankers and their customers and others challenged the Bank Secrecy Act, the cases
were consolidated under the Californian Bankers Assosiations versus Shultz. The Californian Bankers
argued that they had a common law obligation to protect the confidentiality of their banking
customers information from third parties. They argued that they had a contractual obligation based
on the signing up of accounts and the requirements of sharing information that they had established
with their customers. -And they argued that there were explicit expectation of privacy under the
California state constitution that for all of those and other reasons, the Bank Secrecy Act violated
their obligation to protect the privacy of their customers. Long story short, because of that decision
and US versus Miller, the court basically found that it was premature to argue that we had an
expectation of privacy with information we share with the third party, and they punted it back to
Congress in the 70’s. Congress has never properly picked it up, we’re just now sort of dealing with
the pandora’s box that they opened up, which is what we called the Third Party Doctrine, you have
no expectation of privacy with information that can be shared with the third party. -So, if you write a
check and your bank cast it and notified with the other bank in order to clear the other accounts,
you can’t expect that information can be held private. All of these goes back to the Bank Secrecy Act
and this is the mission of FinCen. -So, again, FinCen’s been around in some form or another as it
evolved in order to enforce the Bank Secrecy Act. In the 1990’s we had a big development in
cryptography, the sharing of information over the internet and a lot of technological advances on
privacy in incription and other developments. Out of that primordial ooze this developed crypto-
banking movement and a lot of other alternatives. Paypal was the most famous example of the
alternative currency movement that began then, but the federal regulators came down very hard on
Paypal because people had resources in their Paypal accounts, and the feds basically forced them to
stop being just a payment system and to become a depository institution FDIC insured with other
rules and regulations that come with all of the rest of banks and financial institutions. In addition tothat, there was another payment system called e-gold, that was one of the most successfull of the
electronic commodity money approaches. And that was the FinCen that shut down the e-gold
company. They argued that it was in violation of the Bank Secrecy Act, was a haven for money
launders and other people that were trying to skirt the law, and because they were in violation of
the Bank Secrecy Act, FinCen had them shut down. What we have seen now is a similar opportunity
for new electronic currencies of which Bitcoin is the most successfull. -And again, we’re seing FinCen
wrapped up their resources and focused their attention on emerging payment systems. The most
likely result of this is going to be a repeat what we saw under Paypal and e-gold. Either they’re going
to force them to change and become depository regulatory institutions and stop being a payment
system, or FinCen’s going to set their sides on them as they have with Bitcoin, and we’re going to see
prosecutions, and we’re going to see possibly the death of the emergent payment system.
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AL: Do you think that’s what’s in the cards for Bitcoin? On the one hand it seems that FinCen is really
focused on disclosure and Bitcoin kind of makes it hard to do that. -But, at the same time as you said,
they forced Paypal to become something they kinda weren’t, do you think that was a good thing or
bad thing for Paypal and for its users?
BJ: I think the lesson from the 90’s was that either you become what FinCen wants you to be oryou’re not going to be.
AL: Does that still apply in the case for something that is decentralized like Bitcoin? -‘Cause again,
with e-gold comparison, there was a structure there, there was a company that functionally ran that
and so that they were able to target it. Is that...it seems like it’s different with Bitcoins. Do you think
it’s different?
BJ: It is clearly different and FinCen recognizes it’s different, which is why they put up the recent
guidance. FinCen, the other regulators are all trying to grab all with the new technologies, peer to
peer networks, and the decentralized payment system developments. I don’t know how it’s going tounfold, but I do know what the history has been, and I do know that FinCen hasn’t changed on how
they approach these issues.
AL: So, taking it in a face value based on what they’ve said so far, what is FinCen’s plan for Bitcoin?
BJ: I have heard through the great vine that FinCen has prosecutions in the works for Bitcoin, broadly
speaking, my guess based on the timing of the guidance and what I had heard previously through the
rumor mill about the prosecutions is that FinCen put up the guidance sort of ex post facto in order to
justify the prosecutions that they’re about to launch.
AL: -So you expect this to happen within the next couple of months based on that timeline?
BJ: Again, I’ve heard different rumors so it’s difficult to predict, but yeah, we knew that [the]
prosecutions were in the works and then later the guidance came out, it’s seems sort of a CYA
approach of how they’re doing it.
AL: What do you think that’s gonna do to Bitcoin and do you think that it’s gonna have a lasting
impact or something that’s standatory? I mean, we haven’t really seen any sort of regulatory action
in the space yet, so it seems a little up in the air about the impact.
BJ: No, it’s a great question, that’s the question that all of us are asking. I don’t know that any of us
have a firm answer. There a lot of different way where this could go, I think it’d be who’s Bitcoin
community to stand up and recognize what the challenge is from FinCen and understand that history.
-And again, regulatory guidance is meant to clarify issues, so that people know what is wrong what is
right that they can stand at the right side of the law. The guidance that they issued here seems, in
some respects, to be modelled mass and raised more questions than it answered. There were also
questions that in the guidance they exceeded their statutory authority by making rules beyond the
scope of the intentive Congress. -And again, I think there needs to be a dialogue between
representatives of the alternative currency movement with the regulators just to work out some of
these questions, but as long as they’re not talking with each other, we kind of know what to expect
based on FinCen’s history.
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AL: With that same history in mind, I’m just trying to figure out how they reasonably impact Bitcoin if
there isn’t any centralized point of contact? Is like you’re saying, you’re saying that, you know, the
community as a whole needs to interface with the financial regulator which functionally what FinCen
is. -And to, you know, work with that essentially put together something that is better than what
they would do if they just do something, unilaterally by themselves without involving the
community...
BJ: -Or at least have things where they understand what the definitions mean and understand what
the terms mean and understand what their responsiblities are, and FinCen would have a better
understanding of what their guidance would mean in a practical way in the real world.
AL: -So, you think that the fundamentally they don’t understand the impact of what they’re going to
do, because they don’t have enough education on the topic, they don’t have enough experts who
have really...
BJ: FinCen has a mission and they’re working to fulfill their mission, and their missions is not tounderstand Bitcoin, their mission is to stop financial crimes.
AL: Right. -So, from that perspective one of the other things that they really focused on is AML or
Anti-Money Laundering activities. You know, I’ve been looking at Bitcoin, again, from that
perspective, from the perspective of someone who exists in the current currency paradigm, and
looks at this thing that has no centralized structure, I mean, doesn’t at all look like money-laundering,
how do you tell what’s bad and what’s good from regulatory stand point?
BJ: Bitcoin got a lot of publicity for appealing to people that we’re trying to get around the law. Silk
road in buying drugs or other illegal caravanalia that attracted the attetion of the regulators. From
FinCen’s perspective, if you’re trying to stop financial crimes, and this is a tool for financial crime, it is
something that warrants their attention.
AL: -So, do you think that they’ll succeed? I mean, do you think it’s possible to succeed in this
scenario for them?
BJ: Again, I’ve given you their history. They’ve been the single biggest factor for stomping out
currency competition, from my perspective.
AL: I guess the thing that I get back to, it seems like if you’re going to look at this from the regulatory
stand point, there has to be some entity that can be regulated, and I...looking at Bitcoin, I don’treally see how that works. -So, you’re saying that they’ll stomp it out, that they can stop it out just
by saying, you know, that this doesn’t work because it’s illegal, or...
BJ: FinCen was able to stop currency competition with technical innovations in the 90’s even before
their expanded power under the USA Patriot Act. -And what we’ve got now is FinCen on steroids
without clear restriction from Congress, and it’s a failure of Congress to do its job. We knew that
these guidelines and these prosecutions were in the works even last Congress Ron Paul was the
chairman of the house subcommittee that had jurisdiction over FinCen, and he never had a single
hearing on this. Congress has dropped the ball.
AL: Why is that do you think?
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BJ: For a lot of people these are relatively obscure questions.
AL: -So, you just think it’s a general, so many things to worry about that this is low on the totem pole
relatively speaking?
BJ: I mean, Congress is a representative body that works to meet the demands of their constituents.Their constituents are demanding a balanced budget or gun control or immigration reform or
something else, those are the issues that you deal with.
AL: -So, it’s just too small of an issue to have bend and enough cause for concern, and especially in
the Congress we have for the last, you know, five or so years doesn’t seem like too much has been
done in general on anything, much less these smaller niche issues.
BJ: Well, okay, but you also need to understand, I mean, look at the gun control as an example. The
proponents of the Gun Control Bill were arguing that 90 percent of the people were favored of what
they’re trying to do, but it was a small dedicated vocal energized and organized community that was
able to stop them. -And if that does not describe what’s happening with Bitcoin, I don’t know what
does.
AL: -So, you think that the majority in this case would be in favor of this type of financial competition
or freedom that we’re talking about here. -And that it’s just a small group of very entrenched
interests that have a total, it can’t happen from their perspective. Is that what you’re saying?
BJ: No, I think you got it backwards. I think most people don’t understand what Bitcoin is, what it
does, or why do you need an alternative to federal reserved notes, but it’s not a very important issue
to them. It’s not something organized, it’s not something they’re gonna put hold, political donations
about or get active on. On the flip side, those people that are interested in, are using Bitcoin andother alternative currencies, do have a vested interest in being a vocal dedicated organized and
energetic minority of the issue. Unfortunately, they’ve not been so yet.
AL: -So, last question. One of the common things you hear in the Bitcoin community about these
recent guidelines issued by the government is that basically is good news, because on the one hand
they’re acknowledging it, and saying, you know, that this is something that legitimate enough to,
you know, for us to talk about from regulatory stand point. -And on the other hand, the impression
is that they’re treating it like, quote “World of Warcraft Gold”, which is to say that in game currency,
which is to say not a real currency, which is to say they’re not really regulating it. Does that ring true
to you?
BJ: I think it’s very cleary a mixed verdict. On the one hand, regulatory clarity would be a good thing,
and the recognition point is well taken. On the other hand, we did not get the regulatory clarity that
I think we need from a guidance from FinCen. -So, that ambiguity, the possible over reached from
the Administrative Procedures Act and some other issues, make the situation more cloudy and that
is gonna lead to a lot of confusion which I think could bring about Bitcoinsdemized.
AL: Bitcoinsdemized? -So, you think they could fail? When we’re talking about that, do you mean
that the particular currency Bitcoin could fail or we’re talking about cryptocurrency in broad sense?
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BJ: Well, I mean you used Bitcoin as the example, so referencing that. If the perception comes out
through loan forcement, that anyone who uses Bitcoin and also uses the US dollar, and potentially
trades Bitcoin for a dollar, receives Bitcoin for payment, and then pay somebody else in dollars, if
they’re not working exclusively within a Bitcoin environment, then they’re going to fall under certain
regulatory procedures and certain regulatory definitions that they’re gonna require prior registration,
regular forms and approvals, and if they’re not doing that, they’re going to go to jail. -And if they
start arresting people who are using Bitcoin and using dollars, potentially under confused guidance,
yes, we can see the end of Bitcoin.
AL: I know I said that was the last question but I got a follow up for you. -So, the pressure point, the
place where it looks like they have all of the leverage in this relationship from a regulatory stand
point is when people who accept or create, you know, or mine, Bitcoins, changed them into local
currency, in this case we’re talking about US dollars. Does this apply if you don’t convert them into
US dollars? What happen if somebody just decides to completely exist, you know, in receiving
Bitcoins, sending Bitcoin ecosistem never touching another currency?
BJ: One of the few things that is clear in the guidlines is that if you sticks exclusively in a Bitcoin
world, you don’t have to follow the same registration requirements and reporting requirements to
FinCen. -But I assume these people also required to pay taxes.
AL: Yeah, I mean, that assumption seems to be there but doesn’t there need to be recognition of it
as a...this is something that I’ve been trying to do ‘cause I’m involved with a number of Bitcoin
businesses that are getting started, and one of the things we keep running up against is how do we
value Bitcoins are received? Do we use that as a cost bases? -And then if we sell them at a higher
value at later point after we received them, is that a capital gain transaction? We’ve been talking to
lawyers and nobody really have anything to say about it. Do you think that is gonna get cleared up at
any point in the near future?
BJ: It should had been cleared up in the guidance but it was not. On the tax side, there are a lot of
multinational companies that deal with multiple currencies all the time: US dollars, the Euro, Swiss
Franc, Japanese Yen, they final their taxes and other reporting requirements, even in a multicurrency
platform. The FinCen guidance should have, from my perspective, clarified those questions that
Bitcoin valuations those kinds of reporting should follow the same platform that they do for other
recognized currencies. They did not. -So, this is one of those examples where the guidance should
have clarified the question, where they actually made it worse.
AL: Put yourself in the shoes of FinCen for a second. Everything that’s happened to this point, has
happened to this point. What do you do next about Bitcoin?
BJ: I believe that they’re continuing their work on current prosecutions.
AL: -So, we’re just talking court cases. Are we gonna establish presidents? I mean, is that the goal
here? I’m just trying to figure out what their motivation for these actions. It seems like you said that
they made the situation less clear, not more clear when the intention is to make the situation more
clear.
BJ: Well, their intention is to stamp out financial crime, and if criminals are using Bitcoins for crimes
that it something that they should be going after. I mean, I see a need for the alternative currency
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people to be working together, and then also liaisoning with FinCen to adjust some of these
questions to bring more clarity on both sides. If other people see that need, they should send
donations to, via the Freebanking.org site, actually interested in this trying to help you guys and I
don’t see anybody else really stepping up to the plate where the biggest threat to Bitcoin comes.
AL: When you say “you guys”, what were you talking about?
BJ: People who are interested in alternative currencies. There’s a lot of people working on encription,
and a lot of other parts that are reported for successful alternative currency, but the biggest threat is
going to come from FinCen, and I don’t see anybody else working on that.
AL: Well, thanks for joining us today, Bradley, to help kind of clarify this obviously very complicated
and counter intuitive issue. If you’d like to support Bradley’s work, you can visit Freebanking.org and
donate to them there.
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AL: I really enjoyed my conversation with Bradley and I have to say I’ve already invited him back as
he has anything else he wants to talk about. You know, talking through these complex issues takes a
lot. You have to really have a comprehensive understanding of the issue and then to able to put it
into words that the average person can understand. A big part of what makes regulation andlegislation in general so hard to understand is the words that they use are often just way too
complicated from what they’re actually trying to say, and so you wind up with kind of two senses of
language. One language is legal language, and one language that’s, you know, for everybody else
that you can actually understand. That was fun. From the listener mailbag, we have an interesting
question, quote “Why hasn’t any company taken the risk of allowing users to buy Bitcoin via debit or
credit cards? I understand the whole chargeback thing, but I would at least thinks someone would’ve
tried to buy now or come up with a more full proof way of doing it. Obviously, whoever figures this
one out is inline to make some serious cash. What do you think, Andreas? Why hasn’t this been tried?
AA: With great reward comes great risk, and the listener’s right saying that there’s serious cash
involved here but there’s also a very serious risk, and it’s not just a chargeback risk. -So, if you look
at the interface between Bitcoin and national currency, that’s where most of difficulties arrised. -
And it really shines a spotlight on the weaknesses of the traditional currency systems and payment
systems. -So, chargeback risk, what is that? Well, if you receive money from Paypal or credit card or
any of the other traditional payment systems, you don’t actually get the money. What you get is an
attentive promise that you will get the money over a period of time, and during that time the sender
can reverse that transaction. That applies to ACH transactions under the NACHA rules, it applies to
credit card transactions under the Visa Mastercard rules, and it also applies to wire transfer,
surprisingly. -So, there are lots of ways how a sender can reverse a transaction, basically leaves you a
hole in the back. On the other side, you’re giving out Bitcoin. Bitcoin is irreversable and guaranteed.
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The moment you have six confirmations, and honestly quiet a bit before that, ‘cause it’s difficult to
do a double spend even with zero confirmations, that money’s gone. -So, if you’re a merchant taking
in uncertain money on one end and giving out certain money on the other end, so you’re exposing
yourself to a lot of risk. Then you’ve got the possibility of your account being frozen or closed on the
US side or the national currency side as happened to Bitfloor we just discussed. -And of course then,
when you open a window between the initial charge that you take in and the actual payment of
Bitcoin, it’s about 7 to 10 business days window, that means you receive the money and you’re not
guaranteed to hold it for at least 7 days, so you have to wait. During that time, the price of Bitcoin
may change dramatically. If you assigned the price of Bitcoin based on the first day, you swallow all
the risk of the Bitcoin you’ve purchased. If you don’t, you have to purchase Bitcoin in advance, and
like keep stocking Bitcoin, that causes all the problems, and generally it exposes you to a lot of
fluctuation. Then your Visa, Paypal, Mastercard, or other merchant account may be closed, and
those rules are pretty arbitary and capricious too. They may decide that what you’re doing is against
the terms of service, shut you down, and really, you have very little recourse to get your account
back. A lot of this is really driven back by the anti-money laundering regulations we just talked about,and of course that exposes you to even more risk because if you are under investigation of any of
these money laundering regulations, almost immediately one of the first things that happen is your
account’s getting frozen, which then leaves you a holding enormous liabilities to your customers and
a bunch of money you can’t touch. -And if that’s not enough, if you really do become successful at
this endeavour, you’re gonna have a lot of money going in and a lot of money going out, and an
enormous volume of cashflow to your organization. The tiniest hiccup on either the inputs or the
outputs will leave you with either a very large amount of money flowing in, or will leave you with a
very large deficit because the money isn’t flowing anywhere you need it. -So, all of these things
make it very complex, very risky from operational perspective or legal perspective, and the financial
perspective.
SM: Yeah, I really appreciate you perspective on that, Andreas, because I actually have the same
question why nobody hasn’t started this yet? -But that makes a lot of sense, about there just
enormous amount of risk involved. It does sound like just as we’re talking about a little bit earlier in
the show, somebody would have to be already a pretty large entity with a lot of lawyers on their side
to undertake this, and so far we haven’t seen anybody step up who’s got the power.
AA: A good example of this is really what we’re seeing with some of the existing services that are
transacting cash or currency for Bitcoin, those services are trying to address each one of these risk
areas individually. For example, Bitinstant which is one of the organizations used quiet a lot, is usingmoney orders and cash transactions through money gram, that reduces their input risk. -But they’re
still having major problems with cashflow in extreme growth and trying to just to handle one of
those five problems that I’ve mentioned is a full-time job for that company. By the time that
company is able to handle all of these problems simultaneously, they’ve probably grown quiet a big
size and that’s not an easy endeavour.
AL: Do you think we’ll reach a point where we can see real financial institutions actually start to
enable these transactions? -‘Cause it seems like, the company like Bitinstant, really almost any of the
companies that are popped up over the last couple of years, they’re more like stop gaps, where
they’re saying, “Okay, this is someting that the legacy system bank doesn’t want to engage with thenew banking system, so we’ll be the bridge essentially between them.” -And then everytime they get
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squished, you know, everytime they got pushed out of the business, so you know, pressure is
applied it’s because the banking system has decided that they’re no longer want to deal with this
middleman, and they’d just rather not have the business at all. I mean, that’s how it all looks to me
from the outside. Is that an accurate reflection?
AA: Indeed, they are bridges. -And eventually I think regular financial institutions will be joining thegame. At the moment, what we’re seeing is that all of the on-ramps and off-ramps into and out of
the Bitcoin economy represent the steepest areas of difficulty or the largest inefficiencies. -But if you
are an entrepreneur, you look at an efficiency and you see opportunity. -And I think in the end, this
is a continuous balance if you like. People are looking at this and saying, okay, does the reward
exceed the risk? Not quiet yet, not for me, but at some point when the reward does exceed the risk
on a certain type of company and they jump in and fulfill this market. These kinds of inefficiencies
can’t go on forever without someone taking advantage of them.
AL: I’ve heard this described before in the context of the prisoner’s dilemma where even if as a
whole banking system doesn’t want to engage with Bitcoin because it kind of moves their monopoly
on currency, at the same time there’s an enormous incentive for them to buy in early, so that as it
continues to appreciate if it succeeds, they’ll stand the game from that too and it’s a sort of a thing
where first one that buys in has the, you know, the lowest price because non of the other banks are
in, and then by adding in they’re essentially adding the demand without adding the supply. -So, I
mean is this, are we just at a point of equilibrium right now where nobody wants to make the first
move and then the soonest some major institution makes the first move is gonna start a cascade?
AA: I think there’s a deeper problem than that, Adam, quiet honestly, and that is that you’re
assuming that financial services institutions have incentives to innovate. -And they don’t, financial
institutions don’t have incentives to innovate and in fact, a large part of our economy has no
incentives to innovate because taking existing money flows, tapping into them and leeching off the
profit or securitizing, again and again and again, the same stuff, and adding more and more leverage,
is clearly much more profitable than making real things innovating or investing in real companies,
and that’s the main problem in our economy right now. A part of what we’re seeing is the reflection
of the banks or making far more money essentially as rent seekers on money streams, and that kills
innovation.
SM: Yeah, right on.
AA: Take that bankers.
*background music*
AL: With only 21 million Bitcoins in circulation and at the point where we stop essentially create
Bitcoins, there’s been a lot of talk about what’s gonna happen to transaction sizes as the value of
Bitcoin goes up. One of the checks that’s built into the Bitcoin system is the ability for people on an
individual basis to change how they look at the Bitcoins that they have and they receive. -So, you can
look at Bitcoins as Bitcoins which is the 1.0. You can look at the Bitcoins as Mili-Bitcoins. You can look
at Bitcoin as Micro-Bitcoins, which are seven decimals or five decimals, somebody correct me here...
SM: I think it’s six, right? -‘Cause Mili-Bitcoins would be three decimal places and then Micro-Bitcoins
would be six places, both of them are factors of a thousand.
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AL: Let’s go with that, math is not my strong suit here. -So, now that we essentially reached 100
dollars in the Bitcoin value, we starting to talk, “Well, okay...should we switch the way we look at
them to Mili-Bitcoin?” Is that would then take that 1 Bitcoin at, you know, 100 dollars or more, and
essentially take it down to about 1 penny per Mili-Bitcoin? -So, [do] you guys think it’s time for that?
Is this pretty mature? Does it even matter if we decide as a comprehensive basis?
SM: I think the market will figure it out, honestly. I mean, everything about Bitcoin is decentralized,
and so how to refer to them, how to denominate them is another thing that I think is also going to
be decentralized. I mean, even with Mili-Bitcoins people are pronouncing it differently, they’re
taking different names for them. I remember reading a page on the Bitcoin Wiki, like a couple of
years ago actually, about what the different fractions of Bitcoins should be called, and even then
there were several different proposals. I do think there is sort of a psychological obstacle or
psychological thing that comes into play when people think, “Wow, 1 Bitcoin is worth over 100 US
dollars. If I’m going to donate to somebody, do I really wanna give them 1 Bitcoin that’s more than I
want to give, but I don’t want to give 0.01 Bitcoins, that seems a little bit stingy, what do I do here?”
I think that having different denominations would help people kind of overcome that psychological
block, even I’ve had it before. I mean, when I wanted to make a donation or pay for something and
wanted to have like a nice round number that was over 1, but you know, I guess that’s not the case. -
And, maybe I’m used to just using US dollars, maybe that’s why that comes in. There’s the dollar
store that right the popular thing in the US where everything costs 1 dollar, or it’s in multiples of 1
dollar but not very expensive, and, people are happy to do that. –But could you imagine a store
where everything costs 0.01 Bitcoins? That’s a little bit different, right?
AL: -So then, my question is: is it better from your perspective to give a donation of 0.01 Bitcoins or
100 Mili-Bitcoins, ‘cause that’s the same number, right?
SM: Yeah, exactly, I think it would be better, I would feel better about it for no rational reason at all,
giving a donation of 100 Mili-Bitcoins.
AA: I think this goes to the fundamental idea that we’re all rational decision makers, which of course
we’re not. There’s a very big psychological factor here, and people who’ve lived in countries with
massively deflating or inflating currencies used this concept you know, once a coffee cost a 100,000
lyra, you chop off three zeroes off the end and turn it into 100 lyra, and vice versa, you add zeroes if
you have a deflicionary situation. What’s important is the calibrates the unitive value to people’s
perception of a small purchase. I personally like the purchasing power parity index that the
economist does on the Big Mac.- And what that allows you to do is to calibrate all of the currencies
around the world to a common cheap meal that anyone combine in most countries. I think we
should have something very similar for Bitcoin which is if the unit we’re currently displaying, it was,
it used to be used by Big Mac, the price should be between 1 and 10 because that makes sense to
human beings. If you’re trying to encourage smaller transactions which is a really fantastic capability
of Bitcoin, it’s very counter intuitive and counter productive to dominate in Bitcoin because
essentially transactions end up being 0.00..something, and that’s very difficult for people to
calculate. I often to find myself pulling out the calculator and that’s no way to do transactions. What
you really need is an intuitive correspondence tool and everyday tangible experience. I suggest the
Big Mac, what that would mean essentially is really moving to Mili-Bits. -And this is something, will
impact transaction volume, it does impact people’s perception of what a price is, and whether
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expensive or not. -And for all those reasons, it’s not just a technical issue, it’s absolutely a critical
part of economics.
SM: There is the pizza index, right? -But that’s about a million dollar pizza or ever, you know, over
that much right now. I thought of that when you said about the Big Mac index, but I absolutely think
you’re right, and I’m even wondering if this idea of, you know, people like to have a small units thatare kind of easy to calculate for small transactions, I’m kinda wondering if that might be part of some
of the popularity of Litecoins because right now Litecoins are worth about 2 US dollars and change
per Litecoin. -And maybe people are more comfortable doing small transactions with them as
oppose to Bitcoin.
AL: What is the tipping point for you where it makes sense that, okay, Bitcoin is worth 500 dollars, is
that the point? What is the magic number where these all make sense to switch to Mili-Bitcoins?
Kind of just on a general level.
AA: We passed it at about Bitcoin of ten, after that most of the price start to not make sense for dayto day transactions that most people are comfortable with. -So, as soon as a cup of coffee costs less
than 1 unit in your currency, you’ve got a problem and you have to adjust the currency to reline it.
We’ve passed that point.
SM: There maybe even another point. Andreas, you said we passed one at ten, but you know,
perhaps there is one at 100 as well, like between 10 and 100. -And, over 100, significantly over 100 it
may need to adjust again. Over 1000, who knows?
AA: I’m a strong proponent of the idea that human perception of currency is tight with logarithmic
scale, that’s why the big psychological barriers to the price were 10 and 100, and rarely the next
one’s going to be at 1000. -So yes, I would totally agree with that. There are several reflection points
where you have continue redeviding, and I would suggest again this simple rule of thumb, a day to
day transaction should be somewhere around 1 and 10 of units of currency. If it isn’t, you’ve got a
problem.
AL: It’s very interesting how we’ve placed ourself in this distribution, because my choice is about
1000. I think that that’s the point, you know, where the Bitcoin is worth 1000 and a Mili-Bitcoin is
worth a dollar, I think that’s kind of an interesting parity point because then you can compare the
smaller unit to the essentially standard unit of another currency. The fact that we all kind of have
these varied opinions on these numbers and yet are still confining ourselves to that, you know,
round digit of 10, is telling as is to why is this something that should be undertaken on a person by
person basis instead of, you know, everybody all at once?
AA: There seem other culture experience which is really that for most Americans they’re used to
feeling rich by buying other currencies at multiples for a dollar, and Bitcoin makes them feel poor.
AL: Right, I mean that’s definitely true is that Bitcoin turns all of that on and suddenly it’s the
cleanish shirt.
AA: Yeah, and you feel like you’re buying something expensive and that’s not a good place where
Bitcoin to be. When people start to feeling Bitcoin is expensive, again, we’ve passed that point now.
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AL: Right.
SM: Yeah, absolutely. I know a lot of people who had been saying to me recently, “Oh Gosh, I
would’ve totally been buying Bitcoins at 8 dollars per Bitcoin, that’s totally managable, but now that
they’re 100 dollars plus per Bitcoin, I just can’t afford them.” -And it’s like well, you don’t have to
buy multiples of 1 Bitcoin, it’s not like a stock or where you should have at least one share, but there
sort of this resistance to understanding that, so I think that is definitely accurate.
AA: Yeah, the flip side of that is if you tell them, well, you can buy a 0.1 Bitcoin, now they feel that
they haven’t bought enough. -So, the flip side of that, again, it makes them feel poor. It’s either
expensive or they can’t afford enough.
SM: I heard an interesting interview with Jeffrey Tucker when Bitcoins were on this massive
parabolic escalation up to the most recent high at about 260 dollars. -And he was saying that
Americans are not used to having anything that resembles a deflicinary currency, something that
gets more valuable the more you hang on to it, and has more purchasing power. And as result ofthat, it really effects the way you live your life, right? -Because, if the currency you primarily use,
such as US dollars, is kind of slowly losing its value overtime, there’s no incentive to save, there is no
incentive to hang on to, you wanna buy what you can now before it decreases in value. But if
something does appreciate overtime and gets more purchasing power, then you really start to
evaluate your decisions about whether you want to spend it right now, or perhaps get some extra
value in the future by hanging on to it. So, I just think it’s interesting psychologically.
AA: I love the idea that Bitcoin will actually leads to the solution of our consumerism and obesity
problems.
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AA: BFL, they showed up at csf and charge 30,000 dollars for a box of fans. That was the tweet that
you’ve seen the other day.
AL: Oh, I think that’s great. You know, continuing all we’re just talking about, in a deflicinary currency
environment, really, this just lead straight into BFL. -Because Butterfly Labs is one of the primary, at
least most out there in a public sense, asic manufacturers, which is to say the newest and
supposably pentacle of Bitcoin mining technology. These are applications specific computers that
used a small amount of energy relative to the amount of mining math that they can do in order to
generate Bitcoins and process transactions. Back in August of 2012, I’ve placed an order in Bitcoin, a
pre-order in Bitcoin for a Jalapeño, and by the time I finally got my money back for it in January, the
number that I was able to get back of Bitcoins I dropped from 24 Bitcoins to 11 Bitcoins. -And, if I
hadn’t got my money back at that point, I was gonna trying to get a refund at this point, I would be
getting less than 2 Bitcoins back.
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SM: Oh, I’m sorry to hear about that.
AL: You know, it’s fine, I got my money back. -So, the money I got back in January is now worth, you
know, at current exchange rates like 16 or 1,700 dollars, what was originally 149 dollar purchase. -
But that’s the point by using a deficlinary currency, it makes absolutely no sense to try and spend
money in advance when you actually want to use or expect to receive a product.
AA: -But if your merchant makes absolute sense, except to pre-orders, you can then cash the money
in and make the way out if you at least believe that it’s going to continue deflating.
AL: That’s exactly right.
AA: That leads to some very perverse incentives.
AL: You know I really support the concept of something like Bitcoinstarter.com which is basically
Kickstarter but with Bitcoin. -But I look at what they’re trying to do and I say, have you set youself up
in a way that can possibly succeed? I mean, ‘cause people have to make kind of the wrong decision,they have to choose to spend in advance when they don’t know what the value would be by the
time it is delivered. -So, you could wind up spending, you know, again, in the case of BFL if I had set
through it, those 22 set of Bitcoins, I would have been getting, you know, let’s assume that they’ve
delivered it today, which they still have it. I’d be getting 150 dollars worth a value for over 3,000
dollars worth of initial investment. I mean, that’s just crazy. How can you as a consumer engage in
any kind of thing that could end up like that?
AA: Yeah, as an entrepreneur, you have the opposite problem. I try to put up a bounty to get a
graphic design work on Bitcointalk, you know, I offered a 10 Bitcoins a couple months ago. I certainly
didn’t intend to spend 100,000 dollars.
AL: Right.
SM: Wow, so do the bids come in at the end of the price started to go up of Bitcoins?
AA: Well, haven’t yet finished the project, they’re still going. -So, it’s basically getting more and more
expensive by the day which means I want to get it over and done with quickly, and all of the graphic
designers would rather wait to it.
AL: -But does it matter?
SM: Yeah, great question, Adam, whether or not it matters. I’ve actually come up with the similar
problem myself because I do freelance voice over work and narrations and stuff, and I’ve, I would
prefer to get paid for my services in [Bit]coins. -But, sometimes I have trouble calculating what I
should charge, because the price fluctuations in Bitcoin are so great and sometimes from the
beginning to the end of a project. It may take quiet a while, and the valueof Bitcoins in terms of US
dollars could be quiet different from the beginning to the end. -So, usually what I end up doing is like
kinda loosely tying it to US dollar rate, and saying, “Look, we could renegotiate this later if the prices
changes drastically” but it’s been kind of a challenge. I’d like to get to a point where it doesn’t
matter what the US dollar price is, but I’m just not sure exactly, you know, what the value of 1
Bitcoin is, and I’m not sure that I’m the right person to determine that, even. It has to be determined
by the crowd essentially.
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some other promises publicly like they would ship by a certain date and that kept getting pushed
back, so I’m not sure if they have a lot of credibility. I know that there are lots of people who pretty
pissed, frankly, at Butterfly Labs right now.
AA: So, the question is are they going to increase their credibility by fulfilling this promise or they’re
going to allow us to repeat the narrow advice quotation, “Fool me twice, you’re never fooling me
again!”
SM: Right.
AL: I’d like to talk about the Asic thing more in detail on probably the next show ‘cause we’re
running out of time on this one. -But it’s a really complicated topic, and I think it could be a really
really messy sort of roll out over the next couple of months if suddenly all of these asic hit all at once,
and all the whole network gets upgraded all at once. I’m very curious about what’s gonna happen
with that.
SM: Yeah, me too. I mean, up until pretty recently, there was no even evidence that Butterfly Labs
had working prototypes. -So, it was great to see that little video that David did where the thing was
mining. -But yeah, I get it wasn’t exactly what was promised, it was larger, and it was also using
more power. Maybe it also speaks to the challenges of actually engineering these Asic miners and
putting products out there. -And, of course the saying is real artists ship, right? I get it that they’ve
probably encountered a lot of unforseen issues and problems, and they had to kind of tweak their
design to get it working. But, maybe that’s the lesson to other people who are thinking about
jumping in to the Asic market, making their own Asics, that is gonna required a lot of planning and a
lot of testing.
AL: Well, like my mother always says, if I can’t be a shining example at least be a horrible warning. I
think that Butterfly Labs so far has definitely fulfilled the horrible warning monicer.
SM: Right.
AA: So, one of the things that we’ve been hearing a lot late cly is regarding the energy input of these
devices. Obviously, this particular device that was tested was consuming more energy than promised,
and that matters because if you are a miner, you’re looking at the ROI of energy in first versus
Bitcoin out. -And, this equation has come under quiet a lot of critisissm including by nobel prize
winner economist Paul Krugman and others, regarding the energy consumption of the Bitcoin
network. I’m calling BS on that and quiet honestly, I think it’s a very shallow argument. Let’s look at
that in a bit more detail. A lot of the descriptions you hear out there compare the energy consumed
in mining with issuing a national currency, but that’s not a fair comparison because mining does a lot
more than just mint the coin. It actually ensures the integrity of all the transactions as well as the
integrity of the network against attack, both in the form of injecting transactions that are bogus and
in the form of trying to take over the mining pool. -So, mining is doing a lot more to Bitcoin economy
than just minting. -And, a more fair comparison would be to compare the energy that goes into
Bitcoin mining with the energy that goes into the mint, the paper, the metals for coins, but also the
energy that goes into the payment network, such as Visa Mastercard, Discover, Amex, and dozen of
others that exist, the energy that goes into their data centers to do far prevention, the energy that
goes into the security that point of sale merchant systems, and all of the energy that goes into the
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regulatory frameworks that are built around trust that cannot be guaranteed through computation. -
-So, it’s really an unfair comparison because if you look at it from that perspective, really the energy
per volume of transaction in Bitcoin is cheap.
AL: Why do you think that this is a common argument that we’d come up against?
AA: I think it’s really fear on certainty and doubt spread by people who don’t understand the topic. -
And, just like any technology that introduces rapid change, there would be people who are shocked
by that change or worried by that change and afraid by that change and grasp with straws to empty
bucket.
SM: People may believe it because they’re not necessarily educated about how the Bitcoin network
works or they’re not. It’s kind of an unseen thing how much cost actually goes into creating the
legacy currency system and how much pollution it might actually create. -So, maybe education is an
issue too, but yeah, I agree with you Andreas, there are uncertainty and doubt.
AA: I’d like to, maybe, make fewer excuses for the journalist discussions, because ignorance may be
[an] excuse if you’re a late person and you’re actually just discussing this in your living room. -But, if
you’re writing a story that is putting to question the environmental credibility of a currency that’s
running transactions, I think a modicum research and perhaps reaching out some people who know
what they’re talking about would be an order. And, that’s a problem.
SM: I don’t know if you gentlemen were aware of this, but there’s been a story recently found on the
Bitcointalk forum, that there are certain people who have been people spokespeople for Bitcoin for
quiet a while up to this point. -And, now that there are some people saying they’re too radical and
they’re shouldn’t be allowed to be listed on this speaker pages for press. -So, I think there is even an
active kind of effort to suppress certain view points within the Bitcoin community, that might be
considered too free or too radical.
AL: If we’re presenting Bitcoin to the mainstream media, then I think that there’s a lot of fear that
people will essentially just be laughed off the stage if they have anything that can be typed in a
negative way. The flip side, though, is that I don’t really think that’s who spokespeople for Bitcoin
are talking to. I think people who wanna portray themselves as spokespeople should be talking to
people who don’t know anything about Bitcoin from the perspective of them not knowing anything
about Bitcoin and try to help them see how it can, you know, have an impact in their own lives. -
‘Cause, you know, money in general is a really abstract concept once you start talking about digital
cryptocurrencies then suddenly the abstractness goes to the roof. It seems like it’s a mismatch to me
of who we’re talking to and how a small group of people are assuming that the targeted audience
will react.
SM: Right.
AL: At the same time, because Bitcoin is such a decentralized system, there’s nothing really stopping
anyone who wants to be a spokesperson but doesn’t want to engage through this Bitcoin apparatus
where there’s a list that are a couple of approved sources. -So, I mean is there anything stopping
anyone from just saying, “Hey, I would be good at this job press contact me.” What happens then?
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AA: There’s nothing stopping anyone and in fact, even for the people who are on the official list. The
bigger issue is hat nothing stopping anyone from taking Bitcoin and projecting all of their own
political opinions, desires and expectations onto a currency, this relatively neutral. Taking that and
then to show how Bitcoin is going to bring on this new world of XYZ or whatever their expectation is.
I think that’s the other, the flip side of that argument and the danger which is really people see
Bitcoin the way they want to see Bitcoin.
AL: So, if you think that you would be a good spokesperson for Bitcoin, you should definitely e-mail
us. Right now the e-mail is still [email protected]. -So, that’s about all the time we have for
this episode of “Let’s Talk About Bitcoin”. I’d like to thank my co-hosts, both Dr.Stephany Murphy
and Mr. Andreas M. Antonopolous for joining me for today’s episode.
AA: Thank you.
SM: Yeah, thank you so much, Adam, this is really fun.
AL: Was indeed a lot of fun. We’re gonna leave you today with an interview with a correspondent
name Farzod. We were originally gonna talk about money transfers, but it kinda wound up being
brain wallets and burried treasures. We’ll see you on the next episode of Let’s Talk Bitcoin”. You can
visit us and subscribe at Letstalkbitcoin.com. Enjoy.
*background music*
FH: My name is Farzod Hashemi and I’m a cryptocurrencies design and integration strategies
consultant. What I like is people themselves need to step up to the back, take this as an example, I
see that they’re already have problems in their lives that they’re going to solve, they just don’t know
how the solution applies.
AL: So, what problem of yours do they fix and how do you apply them into your life?
FH: To be honest with you, none, I didn’t have much problem. Well, gifts its a very nice and sexy way
to give gifts. I just give a post card to somoene and the message itself is a Brainwallet. I really like
doing that. It has tremendous reception. People love it. I just give them a postcard for birthday or
particular occasion or wedding gift. -And then later on tell them by the day like the day after. The
message in that you can enter it in Blockchain info and get a bunch of Bitcoin. -And they just love it,
they go estasic, it’s like nothing else, it’s just a message, it’s a piece of text for the first time in history,
you can put litteral value in information, just that piece of information. Brainwallets facinate me. Ithink there is tremendous application for them.
AL: -So, your talking about sending physical mail that has a Brainwallet essentially phrase written on
it, and then anybody even if they are not connected to the same internet [that] you are. They can
still retrieve that.
FH: Abosulute liquidity, just words, you can whisper to someone even before choosing to put the
money, before having the money in the Brainwallet, tell them 1 PM 1 Bitcoin in this phrase and it’s
done, you can put the Bitcoin there later you have had your transcation, you see what just happened.
I mean, af there is a minimal trust between two people that this person is going to pay my on that
date you see how that went?
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AL: Are you familiar to the project called open transactions?
FH: Vaguely, yeah.
AL: From what you are telling me it sounds like you are using Brainwallets the same way that open
transcations, basically hiding something plain site. Where it’s not like there any great lockingmechanism on it so much as it is that you, and whoever you share the information with are the only
people who have that information. -So what open transaction functionaly does, is it says, “Okay, we
can’t hide anything because we want complete transparancy”, think of a giant grid with a million
squares in any direction and in order to look in a particular grid you have to know the coordinates of
that grid. –And so, all you do then is just take whatever it is you want to leave you know if it’s a
couple of Bitcoins or whatever, and you place it on one specific point on that grid and only someone
who specifically looks there can access it, and the grid is so large it’s impossible for any person to do
that in a reasonable amount of time. It’s like you’re burying treasure, almost, with you mind.
FH: Exactly, exactly. Now imagine if that treasure itself is something that requires thinking, it’s theanswer to a riddle. Now I just keep trying to come up with base of doing that, their limitations,
because of the past needs to be exact, you need to have some ground rules.
AL: Thanks for tuning in to the pilot episode of “Let’s Talk Bitcoin”. Whether you liked or hated the
show, we want to know what you think. Please send all comments, listener questions, and critic to
[email protected] . Stay tune for or next episode, coming Saturday the 27th of April,
featuring an interview with David Perry, the only man in the universe to ever received an Asic
product from Butterfly Labs, or maybe not. But he’s been mining for a week now and I got some
questions for him, so stay tune!
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