0:00 Hello and welcome to Drivechain Twitter Spaces. 0:02 We're thrilled to have another conversation today, August 4th, about Drivechain, Bitcoin Improvement Proposal 300 and 301. 0:11 Welcome to everyone who joins us live as well as those who listen. 0:14 This is a recorded space. 0:16 I see some familiar faces in the audience. 0:19 Thank you for all those who join and study Drivechain to understand its potential power to strengthen Bitcoin through hashrate escrow and merged mining, 0:31 strengthening Bitcoin's fee revenue, strengthening the mining sector in Bitcoin, strengthening the network effects of Bitcoin, 0:38 enabling experimentation and innovation on Bitcoin sidechains to accrue value to the main chain, 0:46 enabling the main chain to be more ossified and making sure any changes to the main chain are tested thoroughly on sidechains first. 0:56 This is such a powerful idea. 0:59 It's essential Bitcoin adopt this design to succeed. 1:04 Without Drivechain, Bitcoin is at grave risk for flippening, for security budget problem, and for failure to optimize and failure to grow as rapidly as possible. 1:18 We really need this change. 1:20 The sooner the better to strengthen this project. 1:25 Bitcoin is in existential competition against the fiat money and against the other peer to peer protocols that have emerged and accrued hundreds of billions of value. 1:40 By being more attractive to development and more user oriented, Bitcoin must be a place where users can get whatever they want. 1:49 Any tradeoff, any feature for scaling, for low fees, for privacy, oracles. 1:56 And other innovations and experiments should be run on Bitcoin using the Bitcoin token. 2:03 Sidechains would enable that. 2:07 We had our biggest space ever last week with Adam back here. 2:12 It was awesome. 2:13 We had thousands of listeners. 2:16 I saw in the audience almost every big name of Bitcoin. 2:19 I'm so glad we had Dr. 2:21 Back here to talk for three hours. 2:23 The space is recorded. 2:25 Everyone can go back and listen to it. 2:26 It's on our Twitter timeline. 2:30 And today we might have an open mic. 2:32 Primarily, everyone's welcome to come on up. 2:35 Thank you to those who've been analyzing Drivechain, whether from a favorable or critical lens. 2:41 The truth is on our side. 2:45 We believe this is a powerful idea that would only strengthen Bitcoin. 2:49 And is essential for the survival of Bitcoin. 2:53 If you're in the audience and you have a question or comment, come on up. 2:57 Share your thought. 2:59 Don't be shy. 3:01 Hello, Moon Settler. 3:02 Nice to see you in the audience. 3:04 Hello, Professor Warner. 3:05 Nice to see you in the audience. 3:07 Everyone's welcome to come on up and. 3:11 Share thoughts. 3:13 Welcome to the stage, Paul and Austin. 3:16 Co-founders of LayerTwo Labs. 3:20 Thanks. 3:24 All right. 3:27 So if you want to speak, what you have to do in this Twitter space is click to raise your hand. 3:33 And then I will let you on up to the stage and you can share your question or comment. 3:40 There's been a lot of great questions and comments on Twitter lately about Blind Merged Mining. 3:45 And how it works. 3:52 It's always been amazing to me how Satoshi explicitly wrote in 2010, so long ago. 3:59 He explicitly wrote that merged mining can strengthen Bitcoin by bringing fees from every blockchain. 4:07 And yet today, the mainstream view in Bitcoin is that it doesn't matter. 4:14 Ethereum yesterday had $5.4 million of fee revenue, while Bitcoin had $692,000. 4:23 Ethereum has roughly, roughly speaking, 10 times the fee revenue of Bitcoin. 4:30 This is a major problem for Bitcoin. 4:34 In the long run, if most fees are on other blockchains, those blockchains will accrue value and be stronger than Bitcoin and eventually flip Bitcoin. 4:47 And then Bitcoin will have lost its primacy, its network effect leadership. 4:56 So we have to be the biggest. 4:58 That's very important in the market for money. 5:00 Network effects are more important in money than any other market. 5:07 I think Professor Warner published a giant thing on Blind Merged Mining recently, which I didn't really read in detail. 5:18 But I think the right way to think about Blind Merged Mining is just that whether or not you bid on L1. 5:28 If you pay the fees on L1 and you hash in the right spot, that is the same. 5:34 That is supposed to be equivalent to the sidechain meeting the proof-of-work requirement. 5:40 So in Bitcoin, there's whether or not the block is valid and whether or not the block header meets the proof-of-work requirement. 5:47 All the hashing, the SHA-256, all the actual work that all the miners are doing with all their machines, that's only on the header. 5:57 They could do that work on an invalid block and then broadcast that header and that block to everyone. 6:06 Or they could just do this work on a header and then there could be missing the data of the block. 6:14 In these cases, a full node will at first say, oh, this is probably the next block. 6:21 But then when it checks with the actual block itself, it will say, oh, wait a minute. 6:27 This is not a valid block. There's no valid block here. 6:31 And then they will invalidate it. 6:34 And so there's sort of two hurdles you have to jump. 6:36 And in Blind Merged Mining, it just says the sidechain. 6:39 The second hurdle is exactly the same as always, which is that the sidechain nodes will get the whole block. 6:44 They'll check every message in the block to see that it always validates. 6:49 All the rules of the sidechain are being followed if it's an EVM sidechain, if it's a ZK-SNARK sidechain. 6:57 So the second hurdle is exactly the same. 6:58 But the first hurdle, instead of whether or not the 80-byte header hashes to something that has the right number of zeros, zero leading bits, 7:08 instead of that, it's just, do you have a transaction in L1 that has the hash of the block? 7:16 So that is why it is supposed to be a pretty good analogy, since almost everything is the same and only one thing is different. 7:26 Paul, could you respond to this sentence in the piece that he published today, which was, I mean, we'll all get a chance to read it. 7:33 It was published only 10 minutes ago, I think. 7:36 But I'm reading through it, and this sentence seems important. 7:39 Near the end, Professor Warren wrote, 7:43 For this reason, blind-merged-mind sidechains offer a fertile sandbox for L1 miners to test out all sorts of deviant strategies, 7:53 fee sniping, undercutting, bullying, extortion, bribing, all without messing with the mainchain. 8:01 This could provide a series of stepping stones toward this behavior on the mainchain. 8:06 How do you respond to that thought? 8:09 Well, I mean, that seems like kind of a strange argument to me. 8:12 Like, you could say anyone, the chains are very separate. 8:16 So you could say, like, I think if those type of behaviors are profitable at the end of the day, 8:24 then eventually miners will figure out how to do them. 8:26 And then it would just mean that either the design of Bitcoin just doesn't work. 8:30 Or it does. 8:31 So, however they come to that knowledge doesn't really seem to make any difference. 8:35 But it's like, they can try fee sniping on the, you know, the sidechain will start with no block subsidy, 8:42 because that's a special feature of sidechains. 8:44 They don't violate the 21 million coin limit. 8:47 So, you know, I don't know. 8:50 It's kind of like, I disagree, I guess. 8:54 Like, fee sniping is like, again, a fee sniping thing that could always end up happening or not happening. 9:02 I once tweeted something about how if Drivechain isn't embraced, 9:07 then inflation will come to Bitcoin eventually to fund security. 9:12 And Professor Warren replied, saying something about how inflation is a, 9:20 that my concern about inflation is a moral panic. 9:23 And do you think, Paul, that if Drivechain isn't embraced on Bitcoin, 9:30 if merged mining is specifically rejected by the Bitcoin technical community, 9:36 in other words, if Peter Todd, you know, his view of merged mining is bad, 9:41 but inflation would be an improvement for Bitcoin. 9:45 Do you think that that is ultimately an important issue here, 9:50 is that among the critics of merged mining, 9:53 there seems to be, as far as I can tell, not a lot of strong opposition to inflation. 10:00 And they seem, many of them, the critics of merged mining, 10:06 seem to think that inflation wouldn't be so bad. 10:09 And some of them explicitly endorse it. 10:12 Like in my conversations with, you know, different people, 10:17 I don't want to name names, but they're all on Twitter publicly 10:22 and they say things like inflation would be an obviously good move 10:27 if Bitcoin has low fees in the future, then we need inflation, that would be fine. 10:34 Whereas it seems like among drive chainers, there's a recognition, 10:38 I think a truth that inflation would be very bad 10:42 and that migrating to inflation would be a risky move for Bitcoin. 10:48 These are separate topics, you know, but they're linked. 10:51 If we don't do merged mining, inflation is the main other path. 10:56 Is that right? 10:58 Hmm. 11:00 Well, it seems to me that people are not going to be willing to pay high fee rates. 11:09 In other words, the fee per layer one transaction will be low. 11:14 And that means that the block size will stay small. 11:18 So that means that the total fees collected will be very small. 11:21 And so right now, Bitcoin is bolstered by the block subsidy, 11:26 but the block subsidy goes down by 94% every 16 years. 11:31 So it's basically eviscerated very quickly. 11:37 And if there's no money, all the money going to miners, the minor revenues, 11:41 the minor costs can never exceed the minor revenues. 11:45 So whatever we pay them at most, that's what they spend on. 11:49 That's what they spend on hashing. 11:53 There's a so-called security budget, 11:55 and that is the cost of an endless 51% attack that destroys proof of work and destroys the network. 12:01 So that value needs to go up somehow. 12:07 And it's not going to be, it's either the fee rates have to go up, 12:10 like people have to be willing to pay like $500 per layer one transaction, 12:14 which I think will never happen. 12:17 Or the block size needs to increase, which I also think will never happen. 12:22 Or something else has to happen. 12:24 So it's either merge mining or the 21 million coin limit. 12:29 I don't know when people say moral panic. 12:31 I can interpret that two different ways. 12:33 I can interpret that saying, yeah, well, add inflation, but it won't be a big deal. 12:36 Or I can interpret someone the exact opposite way saying, 12:39 well, no one would ever consider doing such a horrible thing. 12:44 I honestly don't know. 12:45 I've heard both, so I honestly don't know which one is being referred to there. 12:53 Well, the way I take it is the response that I got was, in my opinion, 13:00 it was meant to say that my concern about inflation coming to Bitcoin is a moral outcry 13:08 and that it's not a legitimate economic fundamental problem. 13:14 In other words, that if Bitcoin were to do inflation, then that would be okay. 13:18 That was the perspective I thought was being expressed. 13:24 But psychologically, the pivot to inflation would involve a lot of risk 13:30 because it would be Bitcoin's community giving up on one of the most powerful narratives 13:37 of Bitcoin, which is that it has absolute scarcity. 13:41 It's kind of a betrayal of trust because people take it so seriously, 13:44 and it's been repeated so long that it would be a very serious betrayal, I think. 13:51 It would be a lot like the block price war all over again. 13:55 I personally know many miners who have said eventually there will have to be a split. 14:01 If the fees don't go up, eventually there will have to be a fork of Bitcoin in that. 14:07 Passive inflation. 14:09 So they plan on doing it. 14:17 And, of course, adopting inflation imposes taxes on holders. 14:23 Oh, great. Professor Warren is here. 14:26 Welcome to the stage. It's always nice to have you in our space. 14:29 Please share your thoughts. 14:31 Thanks. Yeah, sorry. I was dealing with some weird headphones. 14:36 But I mean, I think what you guys just said is precisely what I mean by moral panic, 14:42 by saying that it's such a big deal. 14:46 It's such a moral issue that it would be monumentous to the whole project. 14:56 I mean, either you agree with that or you don't. 14:58 But if you look at it from the perspective of this is a moral panic, 15:00 then that's exactly what you would be saying, how you would be describing it. 15:05 Does that make sense? 15:07 I mean, well, Peter Todd himself has written that it is perhaps more likely 15:13 that Bitcoin will fail than adopt inflation. 15:17 So even the leading advocate for the inflation and against merge mining thinks that 15:23 if the technical community aims for inflation, 15:28 then the users more broadly may resist that and prefer to have the project fail. 15:34 So it's not a I feel like your phrase moral panic is kind of like it's it's not it's not accurate. 15:43 It belittles the concern that we have that that the drive changers have, 15:47 because even the critics of Drivechain are notably saying perhaps the project will fail 15:52 if inflation is the only option. 15:55 OK, yeah, I guess that's precisely what I mean. 15:59 Someone who is describing a moral panic is necessarily belittling the concerns 16:03 that the people with that morality have. 16:05 So I guess we're not really disagreeing, except for the point on which we're disagreeing. 16:09 Right. Well, can I just ask you, are you saying that you don't think that it would be which way? 16:14 I still don't know which side of the argument you have, which is that either. 16:21 I'm saying that in twenty thirty two, if the last having ever happens. 16:28 It would not be the end of the world. 16:31 I feel like I usually have this described to me, like if you you stop having having's, 16:36 then what stops the miners from, say, increasing the subsidy or, you know, doing all sorts of stuff that. 16:43 OK, so you think that will you say the Bitcoin community will add inflation and it will not be a big deal? 16:49 Yeah, if they did in the future, it would not be like it would not open the door for all the demons to rush in 16:57 and take over the miners and and ruin everything for everybody. 17:02 But the community, I mean, I don't know how long you mind if I ask you how long you have been like participating in the Bitcoin community. 17:13 Is that a fair question? 17:16 Well, the question is, what's the nature of the community in 10 years, 15 years? 17:22 That's true. It might not be that it's not going to be like in 2013. 17:26 Yeah, of course. Like the you know, 8000 people that were like actively in it would have just like vomited at the idea. 17:34 But, you know, the the goal is to have like billions of people in 2036 or something. 17:40 And in which case people are like, OK, yes. 17:44 I mean, that's the way what's that? That's what we need to do. That's what we need to do. 17:49 Yeah, well, I think that that makes a lot of sense. 17:52 And it tracks the experience with gold and why gold was ultimately replaced by banknote money and why banknote money would be replaced with Bitcoin. 18:01 But there is an intriguing aspect to that, which is, of course, since these are all open source pieces of software, 18:08 whichever one, if there's two that are viable and one has a lower inflation tax, that will make it that will give it a pretty big advantage. 18:20 Yeah, this is a very niche view that you have that the like the people in the community today. 18:28 Will be horrified at this prospect that. 18:32 The many people will join Bitcoin, the community's priorities will change, and then in 2038 or something. 18:39 We will violate the 21 million coin limit regularly. 18:50 Yeah, I just try to game out like what would happen. 18:52 I mean, because I think a lot of a lot of the goal for a lot of people is to try to, you know, increase this adoption, have people all over the world using this. 19:00 And in which case you have to ask the question, what if everybody's doing this every day? 19:05 What are they going to actually worry about? Whether you're, you know, it's being devalued point five percent per year or whether it's secure. 19:12 And I think a lot of people will. I mean, that's a small trade off. 19:15 If you can tell me that it's more secure and I'm losing point five percent versus point two five percent in the next four years, I'll probably take that. 19:26 I mean, a lot of people, if you're running a business and you're just trying to decide. 19:31 If you want to use this, you know, hold it, transact in it, do all these things. 19:38 Then you're going to want some guarantees and it's secure. 19:40 And if people tell you that it's more secure this way, I think, you know, you're willing to take that point to five percent or whatever it is. 19:47 Well, Moon Settler has his hand up. 19:50 I just wanted to ask that. So I don't think it's unreasonable to make the hodlers chime in to the security budget. 20:06 So this is not a morally outrageous aspect to me. 20:10 They are the main beneficiaries for the Bitcoin network effect that in theory relies on the security of the chain. 20:18 So I also think that this could be justified. 20:23 My problem is how anyone imagines this to work, because I just don't see that any amount of inflation that would actually fly with people would actually secure the network. 20:35 It's technically a non-starter because I think we would need a level of inflation going forward in the future if the adoption of Bitcoin continues and the Bitcoin block space gets more and more demanded. 20:56 And the fees start to rise and the economic density of transactions start to rise on main chain. 21:03 You know, the transfer settled while you start to rise. 21:06 So it's still worth it. 21:10 Then the entire proof-of-work security model just doesn't work. 21:17 It would require a level of inflation to provide decent security for these transactions through proof-of-work that nobody would find justifiable or acceptable. 21:29 It would basically be worse than fiat on average. 21:32 So I don't understand why people keep talking about it. 21:35 It doesn't work. 21:40 Okay. 21:42 So you're saying that inflation is unlikely to come because the community would never support a sufficient amount? 21:49 No, no. 21:50 I'm saying I can see how people would agree that this is a fine thing. 21:57 It worked in the past. 21:58 It worked great in the past. 22:00 And they could actually agree, I imagine. 22:05 I'm not sure if they would. 22:07 But I think people would find it reasonable. 22:10 I'm just saying it would not technically work. 22:13 Like it can't secure the network. 22:15 We would need more in fees than like half a percent of inflation. 22:20 That's ridiculous. 22:21 If the adoption keeps going, right, if Bitcoin remains some niche project that almost nobody uses and the blocks are almost always empty, then I can see that it would work. 22:33 But then who cares, right? 22:35 So a Bitcoin like that long term would be displaced by something else. 22:39 It's the number one project. 22:41 It's almost guaranteed. 22:42 And it would fade into oblivion slowly. 22:45 So that's not a future in this regard that we should be worried about, I think. 22:53 That's not what we are trying to do here. 22:56 So in a future where Bitcoin actually gets adopted, then 0.5 percent inflation is just not going to cut it. 23:04 It's not going to secure the transactions that are economically viable in such a scarce block space higher adoption future. 23:15 It's not okay. 23:18 I don't know what to say about this idea. 23:21 I don't want to be very, very rude. 23:24 But I think it's a complete misunderstanding of how transactions gain security from proof of work. 23:36 I also think that in practice it would be very difficult to coordinate the community on one alternative because it would open the door to all the bike shedding that we normally have and all the normal questions of who controls Bitcoin, who decides and why. 23:53 They'd have to pick a certain strategy for inflation. 23:58 They'd have to say at this block we are not going to do. 24:03 Cut the subsidy in half anymore or something like that. 24:06 And I'm sure that that could be resolved. But actually, in practice, I think it would be a huge nightmare with the giant arguments and so. 24:18 We've talked a little bit now about whether or not the Bitcoin community would ever support an inflation fork, which drivechainers oppose. 24:28 So we've talked about that a little bit. Maybe we should talk about the question of whether fees are going to rise. 24:34 So the Drivechain view is that fees for Bitcoin in its current form probably will not trend up substantially because transaction throughput is a production good. 24:48 Meaning that society through capitalism is constantly introducing valuable alternatives to Bitcoin's block space to enable users to opt in to lower fee transactions denominated in Bitcoin. 25:04 So people can transact on Coinbase, on Lightning, on wrapped Bitcoin, etc., open dimes. 25:12 There's many ways to move a unit of Bitcoin value around that avoids paying a fee to Bitcoin's miners. 25:18 And because of this proliferation of alternatives, the Bitcoin block space will not accrue high value. 25:26 Even in the future, if Bitcoin has a $5 trillion market cap, the block space might still be paying only half a million in value per day. 25:37 And therefore, Bitcoin will be less secure in terms of miner revenue as a ratio to total value protected. 25:45 So a lot of Bitcoiners think, well, if Bitcoin's adopted, then the fees will rise. 25:50 What's there to worry about? 25:51 But they're ignoring the 14 years of data that show that fees aren't rising consistently. 25:58 And they're ignoring the arguments that Paul has laid out crystal clear in the two security budget blog posts as to why the fees aren't rising. 26:21 Any thoughts on that? 26:25 I mean, I think we could get into the ideas of the Blind Merged Mining article. 26:32 I just wanted to mention that one thing that people have assumptions on how things will be. 26:42 And most of the Bitcoiners have assumptions of high adoption or extreme high adoption in the future. 26:50 That's most of the thesis. 26:53 Some of them actually want Bitcoin to remain more niche, remain at low adoption. 26:59 I'm not sure they are thinking through the implications of that, like socially and legally and network effect wise. 27:09 And ultimately, that will affect Bitcoin's valuation. 27:16 So I'm not sure they are thinking this all through. 27:19 But I think most of the Bitcoiners are going to assume that everyone will want to hold their own keys because people will learn their lessons. 27:26 And everyone will want to hold Bitcoin. 27:29 And that's just impossible with low fees. 27:32 So people are going to have to start giving up self-custody. 27:37 Or we are going to get into a territory where only extremely rich people are able to afford Bitcoin. 27:45 And eventually, for me, all of these paths pretty much lead to a realization that what secures people's wealth is not actually proof of work. 27:55 So all of these paths where proof of work does not actually secure these transactions for their economic value. 28:02 All of these paths lead to a realization that it's actually needed and it's not justified and actually would be cheaper to be without it. 28:13 And one way or another, it probably would be worked out of the system. 28:19 That's how I see it. I just wanted to mention this. 28:23 Thank you. Let's go to Professor Warren's article. 28:27 I shared it in the Nest so everyone can find his tweet, which includes a link to his Medium post on Blind Merged Mining. 28:35 Since we have him here, which is great, let's talk about it. 28:39 Yeah, I have been skimming through it. 28:43 It seems kind of pretty negative on Blind Merged Mining. 28:46 But as I said in my opening comments, Blind Merged Mining is really, really similar to regular mining with just like one thing swapped for another thing. 28:58 Which is that whether or not the block header meets the proof of work requirement of having many leading zeros. 29:06 That task is swapped with whether or not there is a transaction in L1. 29:12 And similarly, just like miners have to do a lot of actual thermodynamic work in the real world to get that header to have many leading zeros. 29:22 That is a cost. It's a proof of work. 29:26 Similarly, in the Blind Merged Mining world, there is a cost, which is the exact amount paid on the L1 fees. 29:35 So that's the part that is an analogy or sort of transformed, but everything else is the same. 29:44 So I don't know where all the differences are coming from in the article. 29:51 Like which things would apply to Blind Merged Mining that would not just apply to proof of work mining. 29:59 I don't know exactly where those come from. 30:03 Yeah, well, you don't. I mean, the problem is you can just someone can come in off the street like today. 30:10 If they see a BMM chain, all they need to do is buy the L1 token. 30:16 And they can say buy the next 15 blocks, right? 30:20 Like with proof of work, I mean, if you want to get 15 blocks in a row, you have to be incredibly lucky. 30:27 I mean, it's impossible. 30:29 But even if you want to get one out of the next 10 blocks, you have to spend probably billions of dollars. 30:34 If you want to do that in proof of stake, you probably have to spend billions of dollars to get the stake. 30:39 But that equals in the security budget. 30:41 If there was no Bitcoin block subsidy, then it would also be a trivial amount of money. 30:46 So this is the security budget concept coming back. 30:51 There was no block subsidy and no inflation and Bitcoin fees were only $5 per block. 30:56 Then you could just show up and with $50, you could own the next 10 blocks. 31:02 I don't think that's true. 31:04 I mean, I think it's over-economizing the security model. 31:11 I mean, it's not true that I could just go right now and look at the next block, 31:14 pull $2,000 out of my pocket and pay a miner to mine that block for me. 31:19 That's exactly what ordinals are, basically. 31:23 Yeah, I mean, ordinals are… 31:26 You just buy up the block. 31:28 You pay $2,000, $3,000, $4,000. 31:30 You own the whole block. 31:31 You inscribe in there, Professor Warner is the coolest.jpg. 31:38 Yeah, I mean, ordinals, I'm not suggesting ordinals are a great model. 31:43 But the ordinal thing reveals that the true model is the security budget. 31:49 The ordinals are just an example. 31:52 You could also, instead of an ordinal, you could just construct dummy transactions, 31:57 a big chain of dummy transactions that has no ordinal shape, 32:02 but it is just a list of like 2,500 transactions that are all controlled by you, 32:08 and you have them as a set. 32:10 You outbid the fees, and now you have the whole block. 32:15 It's true that in proof-of-work… 32:17 I mean, in proof-of-work, you don't know that you're going to find the next block, 32:22 and in Blind Merged Mining, you don't really know either, 32:25 because you can say, I'm going to pay a huge amount. 32:29 I'm going to pay a huge amount, but someone could always outbid you, 32:33 so maybe you get into a bidding war with them. 32:36 Yeah, and with signaling, I can win that war, 32:41 whereas I can't do that with proof-of-work. 32:43 If you have 18% of the hash rate, there's no way you can just sort of bully your way 32:48 and say, I'm going to win the next 12 blocks, 32:51 whereas if you show up with a lot of money, you can throw it out on the table 32:56 and say, I'm going to win the next 12 blocks. 32:58 Yeah, but people, they could still bid. 33:01 They could bid against you, and if they lose, then they get their money back. 33:04 Their transaction never enters the block. 33:08 If they win, you let them win once, and then you outbid them again, 33:11 and then they lose their money, and then they don't do it. 33:14 Now, each operation is them earning what you might call $10 on L2 33:21 and then paying like $9.99 on L1 or whatever it is. 33:28 So do you do the bid? 33:30 So if the sidechain block is worth $10, you can bid up to $10, 33:36 and either nothing will happen because you'll lose the bid, or you'll win, 33:40 in which case you're up. 33:43 So I bid $11. 33:47 Right, then you win the block, and the other person – 33:51 you understand that if I bid $9.99 and you bid $11, 33:54 that I don't pay $9.99. 33:56 It's just a bid. 33:59 Oh, sure, sure. 34:01 Well, I mean, okay, I don't know exactly how the transactions are structured. 34:06 Yeah, they're all broadcast, but only one is allowed. 34:10 This is the BIP301 rule. 34:12 Only one per sidechain block is actually allowed into L1. 34:16 Right, right. 34:17 So miners pick the highest one. 34:18 They pick the highest bid, you know. 34:20 Bid $7, $8, $9, $10, $11. 34:24 So your bid wins. 34:25 The sidechain block is only worth $10, though, 34:29 in terms of its objective public value of the fees. 34:34 So you won, but that's not really any different than a miner, you know, 34:37 investing, running their ASICs at a loss. 34:44 But if I say you mine block, you bid for block D, 34:49 and there's a lot of fees in that. 34:52 I say I'm going to go mine more. 34:54 I'm going to go bid higher than the block D plus 1 fees are to get block D again. 35:01 And then you are going to lose the money that you bid in good L1 Bitcoin, right? 35:08 Yes. 35:10 So this becomes just like a pissing contest, 35:13 where if I just signal that I really have strong motivation to, say, 35:18 reorg the last six blocks, if everybody believes me, 35:22 nobody's going to fight me, and I can go back and reorg these six blocks 35:27 and create a little chain split. 35:30 I don't know why you introduced this concept of belief. 35:32 It's just a normal fee sniping situation. 35:35 So, like, let's say that every 10 minutes the sidechain block is worth another $5. 35:41 So it's $5 every 10 minutes. 35:43 And then we have sidechain blocks A, B, C, D, E, F, G. 35:47 I'm on G. I bid for block H. 35:51 I pay $4 on L1, and I find the block. 35:55 Now, there's reorg risk. 35:57 In the analogy, there is reorg risk, but that's the same as with any – 36:01 when a miner mines and they mine a block that meets a proof-of-work requirement, 36:04 they also have reorg risk. 36:06 And, in fact, they don't have – there's the 100-block maturity rule, 36:11 so they actually have pretty severe risk. 36:13 They have to hope that the chain moves forward. 36:17 And I considered doing something, but I won't get into it right now. 36:20 We can get into it later if you want. 36:22 But I considered doing something, some kind of analogy of that. 36:26 But I decided against it in 3.01. 36:29 But, anyways, the point is, so I find one for – 36:35 I spend $4, and I win the $5 block. 36:38 Now, you say, okay, I'm going to go back, 36:41 and instead what I'm going to do is I'm going to bid – 36:44 now there's a whole new group of transactions that are coming in for the sidechain. 36:49 So if you add the ones that were already mined to the new ones, 36:54 then there's like roughly $10-ish there of bids. 37:00 So you could say I won't – I'll go back, and I'll find a new H, H2, 37:07 and I'll pay whatever amount that is to pay $8 or $9 to find H2 that has $10. 37:21 But now the issue is what's my incentive to extend H2? 37:25 I already burned $5 for my H1. 37:31 And so now I'm going to lose, as you say, 37:35 I'm in a position where I'm going to lose the L1 coins. 37:38 So now I have an incentive to bid extra to extend H1, the original. 37:43 Right, so this becomes a dollar auction. 37:48 No, well, I don't think so because I'm down five, and I have the new – 37:54 now that you've done that, now there's three blocks. 37:58 I can bid – I'm willing to bid up to 15 to extend my original. 38:05 Yeah, and if you win that, and then I come back – 38:09 like so every – it's almost literally a dollar auction 38:12 because you're paying in every time. 38:15 So if I let you win a couple, and then I come back and take it over again, 38:19 you're down worse. 38:21 And the next person that challenges me is not going to do this. 38:24 The number of blocks is in the lead. 38:30 If there's a fork, and we both mine six blocks on the fork, 38:34 we've both paid fees for these six blocks, right? 38:37 And these are gone to both of us. 38:39 Right. 38:41 So we're going to continue this until we look at each other and – 38:44 Well, no, this is why no one would do it in the first place though. 38:47 Unless they believe they can win. 38:51 But why would they? 38:53 Because they're just a Chad like that. 38:56 Because they know – I mean, they know that if they do this, 39:00 if you destroy one person who challenges you, 39:03 the next person is not going to challenge you. 39:06 I don't really think there are any reputations in this type of a thing. 39:11 Okay, but if you saw this happen to a fellow miner – 39:15 Yeah, there's real risk. I agree with that. 39:18 And that is one of the reasons why the L1 may not be exactly equal to the – 39:23 it'll be the same dollar amount, 39:25 but it won't be the same Bitcoin amount necessarily. 39:29 What do we think about the expected behavior of the sidechain network participants? 39:38 Because normally if someone tries to do a reorg, 39:41 then what this means is the chain tip is getting stalled on the sidechain. 39:46 That's how that network perceives it primarily. 39:49 So people are seeing that the mempool is getting more full. 39:53 People that are in a hurry are going to pay higher fees, 39:59 offer higher and higher fees. 40:02 They are going to build that up. 40:04 So they basically increase the – for anyone that wants to work, 40:08 build on the chain tip. 40:11 So this is the basis of the assumption how any reorg attempt would play out, 40:18 that people would basically naturally start bidding against it, right? 40:27 I don't see anywhere where the analogy breaks down. 40:31 Like in proof-of-work, you could also imagine a scenario 40:34 where two miners are each stubbornly extending their chain tip. 40:41 And then you could call that a dollar auction. 40:45 No. 40:50 With Nakamoto consensus, that gets resolved by somebody picking. 40:54 If we're both tied, there's 80% of the other hash rate out there. 40:58 They have to pick. 41:00 And they're not going to – if it's a bidding war, 41:03 they're not going to dive in and try to get in the middle of our fight. 41:07 But that's exactly what they do. 41:09 Whatever they pick is what they've invested there. 41:12 They pay the opportunity cost of the fee. 41:14 It's the exact same cost. 41:15 Right. 41:16 And then whoever is behind is now – I mean this is a huge deal. 41:19 If you're behind by two blocks in Bitcoin, you're toast unless you have a lot of hash rate 41:25 or you're bribing people. 41:27 But if you're behind in two blocks in blind MIRG mining, you're still in the game. 41:32 Like you can just keep bidding and hope that you can catch up. 41:38 Well, I mean that's true, but it's sort of also true in like if you can convince people to go back, 41:44 then they're not exactly the same, but they don't – 41:50 like in some ways it's actually much better, the blind MIRG mining, 41:53 because you can only find one block. 41:56 No matter how low the fees are, you can only find one block every 10 minutes 42:00 or whatever the main chain block rate is. 42:03 So like in proof of work, you can have a surprise attack where someone has secretly built a chain 42:08 that is like 10 blocks ahead, and then they broadcast it all at once. 42:12 Whereas in blind MIRG mining, you can't do that. 42:15 So it's true that it's not exactly the same. 42:17 It's also like one other difference is that the ASICs, you have to actually buy ASICs 42:25 and invest in them, and there's some kind of like time horizon. 42:29 You can always rent ASICs, I suppose, which would make it kind of similar. 42:33 But ASICs are not as liquid as actual layer 1 BTC. 42:37 So that is a difference. 42:40 So they are different, but they're not really that different. 42:45 Anything that can happen in blind MIRG mining can mostly happen on the main chain also. 42:50 So it's true that someone could say I'm committed to – 42:54 I think part of it is what really vexes people is that they don't imagine the future of Bitcoin 43:02 without the block subsidy. 43:03 So this is really the difference between sidechains and other things 43:06 is that the sidechains don't have the block subsidy. 43:08 They only have the fees. 43:10 They probably have a small amount of fees at first. 43:12 But if you imagine a world where Bitcoin works like that, 43:15 you have a small amount of fees coming in each block. 43:19 Everything will be less stable in the same way. 43:23 But that's not necessarily – the way to fix that is for the sidechain to become very popular 43:30 and have lots of fees and be very useful to people. 43:33 So I admit that that's like an arduous task. 43:41 But that's the same task that Bitcoin faces. 43:45 So, yeah. 43:46 The sidechains that don't generate much fee revenue would have pretty horrible finality expectations. 43:54 But I'm also sure that people would kind of adopt to this. 43:58 So I have used the analogy that people, when they pick a chain, 44:03 a main chain or a sidechain, maybe a more popular sidechain with higher fees 44:07 or a less popular sidechain with lower fees, 44:09 they are basically trading their time against the fees that they pay 44:13 so they have to find some form of compromise that suits them. 44:20 And they probably want to be on the highest fee, highest aggregate fee chain that they can afford 44:28 because that will give them the best utility finality-wise. 44:32 And also – what did I want to say about this? 44:39 Yeah, so basically sidechains can technically choose to be somewhat parasitic with mainchain. 44:46 Aside from what Paul said, that reorgs can just sneak up on you. 44:54 Deep reorgs, long-range attacks can just sneak up on you with a sidechain. 44:59 You would see them coming, sort of. 45:01 But also, like I said, the way people perceive this is that the chain tip is getting stalled. 45:07 So the impatience to do economic activity and get your transaction through 45:12 would actually probably create a natural pressure and incentive to continue on the chain 45:18 for other miners and other sidechain block assemblers and other Bitcoin miners. 45:23 And so that's there with a sidechain that has some decent economic activity. 45:30 And this whole notion of infinite block space, big block sidechains 45:42 where people don't really pay high fees is kind of less realistic to me for this purpose, for this reason. 45:57 No, what I wanted to say is that sidechains can choose to be parasitic. 46:01 So they can actually say that they are not allowing, by consensus rules, reorgs of M deep and that or higher. 46:10 And this can actually make the bootstrapping of sidechains viable in some sense. 46:16 So Bitcoin mainchain can actually perceive this as parasitic 46:20 because they are actually forcing finality derived from the mainchain. 46:25 So at a certain depth, the sidechain could only be reorged if the mainchain is reorged. 46:31 And it can only be stalled, really, on the mainchain. 46:35 But this can help bootstrap economic activity on a sidechain where it can actually start carrying its own weight. 46:44 So obviously people are not going to be okay with a lightning network where you have to wait like a week 46:52 to open a channel and can start transacting on it. 46:58 That's complete nonsense. 47:00 But maybe people for lower fees will actually use a lightning network 47:05 where you have to wait several hours before you can start using a lightning channel. 47:10 But eventually people would want finality. 47:13 And the entire point of proof-of-work and Bitcoin security is that it does provide some finality assumptions for us. 47:22 Without that, it would be pretty much a pointless expenditure to use Bitcoin. 47:28 And so that's how I see kind of this relationship that I think actually sidechains would need to constrain their block space 47:40 to collect some serious fee revenue. 47:43 And that they would be somewhat parasitic but in a livable way with mainchain finality-wise. 47:54 I think we all agree that the sidechains will have constrained block space. 47:58 There's no such thing as a sidechain that's been proposed that would have infinite block space. 48:04 I think the right way to think about that question is that you can imagine a demand curve if you like econ. 48:12 And if there is a minimum fee rate, then there is a finite block. 48:17 Because you're basically picking a point on the demand curve if you're the miner. 48:22 You say either the minimum fee rate is really, really low and I pick up a lot of transactions. 48:27 But as you increase your minimum fee rate required, 48:30 if you're a miner and you say I don't allow any transactions in the block that have to pay at least this much of a fee. 48:37 The more you increase that number, the fewer transactions will meet that bar. 48:44 And so it's kind of like moving along the demand curve. 48:48 You could say I only take transactions that pay $100 and maybe there's only two of those. 48:55 Or you could say I'll take anything that pays $0.10 and there could be millions of those or there could be whatever. 49:00 But the block size is equal economically to the minimum fee rate. 49:05 Because it's just the demand curve just translates one to another. 49:09 So when people really think there's an infinite block space, they are literally saying the fee will basically be zero. 49:15 Which of course is irrational. No miner would ever do that. 49:19 They want to maximize that money in fact. 49:23 So the miners will actually be trying to maximize the area, the XY coordinate volume of that rectangle. 49:36 Some large brokers wrote a paper a few years back saying that there is sort of a natural equilibrium. 49:42 So if you include too many transactions, you have a risk of your block not making its way around the network. 49:49 So there's sort of like a naturally occurring block. 49:51 Yeah, but I don't think that was the case because it relied on orphan risk. 49:55 But luckily for them, that paper said that the cost of mining the block is proportional to its size. 50:06 But that was not true because of SPY mining and SPV mining. 50:09 But still there is a cost in the form of a non-linear effect. 50:18 Like if you drop the minimum fee rate, you may get more and more transactions. 50:22 But like I just mentioned, if you drop it to zero, then you get none. 50:25 So there's some kind of non-linear curve. 50:34 So they have some incentive to not make it completely unconstrained. 50:40 But that paper unfortunately did not address the actual concerns that the small blockers had, 50:47 which were about the cost of validating the network, the cost of running a full node, which people wanted to be low. 50:55 And that cost goes up with every transaction added. 50:57 But fortunately, sidechains do address this because with sidechains, 51:02 each new sidechain does not affect the cost of running a full node for every existing network. 51:09 You make a new network, and if you want people to run nodes over there, then they will. 51:19 So that does solve that problem because it sort of privatizes that. 51:22 You conjure up your own planet, and it has its own pollution laws or whatever. 51:32 I just wanted to agree also with Moon Settler that I had a similar thought. 51:37 I don't know about a consensus rule preventing reorgs seven deep, but that thought did occur to me. 51:44 But that kind of thing seems dicey. 51:46 But I had a lot of similar ideas on like the people on the network will not want that. 51:52 So at that point, there will be an uphill battle to do a deep reorg. 52:01 What Professor Warner was saying was that there would be like a really shallow split or something. 52:05 But see, the thing is the split is no one actually wants to play a dollar auction. 52:14 But yeah, I think an intriguing thing that would happen, though, 52:17 if there were a lot of sidechain reorgs and a lot of fee sniping, which is totally possible, 52:22 in which we should actually run the sidechain experiment just to learn more about this type of thing 52:28 because it's Bitcoin's ultimate fate as well. 52:31 So I think I anticipate at least one or two surprises of some kind, 52:40 even though I think the analogy is very tight. 52:42 Something interesting will happen. 52:44 But the thing is the worse it gets, like the worst Blind Merged Mining is, 52:49 it'll just mean that the ratio of what is paid on L1 to what is mined on L2 52:56 will just change in a corresponding way. 52:59 So let's say only half of the blocks that are actually blind merge mined 53:04 end up in the longest sidechain, whatever, longest active sidechain tip. 53:14 Like if you're mining sidechain blocks with Blind Merged Mining, 53:17 you're collecting fees on the sidechain, but half of your blocks get orphaned and reorged out. 53:22 Well, then eventually you're going to start to pay only 50% or 45% of the value of this on L1. 53:29 And this means that, again, it'll all kind of work itself out 53:33 because if this happens, then that means that people can make money now. 53:38 Someone out there can make a killing. 53:40 They can double their miner revenues from sidechains 53:43 if they can just figure out how to get the finality better. 53:50 And so then people just naturally set to work at whatever the problem was at fixing it. 53:56 And I definitely think there could be like sidechain rules, 54:01 or there could be even norms or something. 54:04 Like for the similar reason, like what Professor Warner was saying 54:09 about someone setting like a kind of a reputation, 54:15 there could be like people could each chip in. 54:18 If a lot of people chip in like $5, if the chain starts to reorg, 54:21 then something like that. 54:23 There's many, many things that are possible. 54:25 But I think the most straightforward thing would be that the miners themselves would say, 54:29 why are the L1, why are the bids so low? 54:32 Oh, it's because the finality is bad. 54:34 And the L1 miners can then temporarily take an interest in getting rid of the orphans. 54:42 And then after they do that, then people just kind of decide that it will always not have orphans, 54:49 and then the L1 fees, the BMM bids go back up. 54:57 So I definitely don't think it will be perfect. 55:01 I actually worry about this much more than any of like miners can steal or any other stuff. 55:07 But what I'm worried about is only the security budget being low. 55:11 If there actually is a huge amount of fees being paid, 55:15 that I'm very confident that everyone will be happy. 55:19 No one will really be like, you know, there won't be any shenanigans. 55:25 If there's lots of fees coming in 24-7, then people will like that, 55:30 or at least if that's anticipated, then there'll be happy customers, happy miners, happy everyone. 55:39 If there's only like, you know, $5 worth of transactions, if it's like liquid or something, 55:44 then I think it would be doomed. 55:50 Micah, could you share your thoughts on all of this? 55:56 Well, actually, Paul just basically argued claim two in the thing I just wrote, 56:00 is that if the Cyteam miners were being anti-competitive, the L1 miners would step in and try to fix that. 56:10 So I agree with that. 56:12 They would, exactly what he said, if blocks start getting orphaned, 56:17 then the value of a bid on a block goes down, so the fees would go down. 56:23 The L1 miners would try to fix that. 56:28 The one issue is that one of the strongest ways to establish finality, 56:34 which may or may not be against the norms and culture, is to become a dictator. 56:39 And that's one concern, is that some group of L1 miners could just come in and say, 56:46 hey, let's establish finality by just sort of pushing forward our version of a chain, 56:53 and anyone who fights it will get outbid, or just, you know, if you're part of our coalition, 56:59 you will just mine that block if you win the block. 57:05 Well, with consensus, it's actually better. 57:07 It's like driving on the left side of the road versus driving on the right side of the road. 57:11 People don't really care, but it needs to be like the same version for everyone. 57:16 So actually a dictator is not so bad. 57:18 But in mining, it's very hard to have a coalition because people can join or leave at any time, 57:24 and they can – maybe you have 51%, but then the 49% who are out, they can poach 5%. 57:33 They can offer them outrageously good terms because the 49% are currently getting zero, 57:38 so they poach the 5% from the 51%, and now they're the new 50-whatever, 54%. 57:47 So there's just – it's just really not that stable. 57:51 But again, I think there's no guarantee that any – there's no guarantee even that Bitcoin will work or whatever. 57:56 I think all this stuff is like conjectural, but it just doesn't seem like – 58:05 I certainly – like something – it's certainly worth – to me, it's obvious that it's worth trying. 58:11 Many things seem to be working out just fine. 58:15 And you need to – like for someone to say this obviously is broken and will never work, 58:21 that doesn't seem to be like what people are saying. 58:24 I think it's just – it's all about the fees. 58:26 If the fees are high, then everyone has an – this is why it's a good system 58:33 because it's powered by the end user, the end user getting something of value. 58:42 So it's all positive sum. 58:44 So the end user's transaction fees is like pouring fuel into the mechanism. 58:48 So it's – none of it is a zero-sum game or a negative-sum game. 58:52 None of it is really a dollar auction ever per se either 58:56 because as long as there's happy customers, it's positive sum. 59:02 The transaction fee – the users are happy. 59:04 They get the utility of having banking and smart contracts and whatever else, 59:10 and it's surplus to them, and the fees are all coming in. 59:16 As long as someone has an incentive to keep these fees coming in 59:20 and to keep them growing or keeping them from falling or whatever, 59:25 then you can imagine people cutting various deals 59:31 to protect that stream of profitability coming in. 59:37 So I think that's like the heart of the matter. 59:40 Yeah. 59:41 Well, I mean so you could imagine there was – I don't know. 59:44 Say some sidechain is generating, I don't know, 10% of revenue or something. 59:48 So it's non-trivial, and at some point someone starts to mess with it 59:52 and this starts to go down, L1 miners would be motivated to say, 59:57 how can we sort of establish a benevolent dictatorship over this chain 1:00:04 to make sure the blocks keep moving forward, to make sure people keep moving it. 1:00:08 And it could be just a couple 15% miners stepping in and saying, 1:00:13 we're going to outbid anybody who messes with what looks like 1:00:18 a really good, solid, canonical chain. 1:00:21 We're going to always mine the good, solid, canonical chain. 1:00:24 We're going to orphan anybody who attempts to write reorgs. 1:00:29 And then you get into this kind of like soft core like governance. 1:00:34 It's not governance over L1 really, but it's just kind of like you're doing a little bit 1:00:39 to nudge the sidechain in the right direction to make sure everybody behaves. 1:00:44 And this could be a little bit against – I mean some people might have problems with this 1:00:50 where the miners are kind of exercising a little bit of slightly heavy-handed authority. 1:00:56 I think we have seen something like this in the wild, by the way. 1:01:00 I'm not exactly sure I remember correctly, but isn't Bcash had something similar 1:01:07 like a opportunistic or outright robber capitalistic pool has tried to do some predatory mining practices 1:01:23 and basically like 4% or 5% of the hash rate switched over and just squashed it? 1:01:30 Sorry, could you repeat what you said? I cut out. 1:01:39 I said didn't we have something like this in the wild where I think on Bcash, 1:01:45 and I'm not 100% sure, but I think it was Sharpool that tried some predatory mining practices 1:01:54 or trolling kind of mining practices on not Bitcoin main chain, but on the forks, 1:02:01 one of the hard forks, and I think on Bcash. 1:02:04 And there was some 4% or 5% of the Bitcoin hash rate just switched over and squashed it. 1:02:13 Yeah, I don't remember exactly, but some weird stuff certainly happened in late 2017. 1:02:23 I think so, yeah. 1:02:25 Where there was like oscillating back and forth, the hash rate was... 1:02:30 And I don't remember people being upset about it. 1:02:34 Like most people were like I think happy that some of the miners choose to be benevolent 1:02:41 and just squashed the predatory pool. 1:02:46 I remember someone saying like system works as advertised. 1:02:49 I remember like a tweet or something about that. 1:02:52 But I don't remember the details, so maybe it was unrelated. 1:02:57 Should we take a step back and talk about Drivechain in general, 1:03:02 or should we stay on Blind Merged Mining specifically? 1:03:05 Do you think, Paul? Which one? 1:03:08 I don't know. I think it should be up to the audience, 1:03:11 whatever the audience wants to talk about, I'll talk about. 1:03:15 Great. 1:03:16 So if we have more questions from the speakers or comments 1:03:22 or other people want to speak. 1:03:27 And come on up and have a question or comment. 1:03:30 All right, welcome. 1:03:32 Bitcode, what's your question or comment? 1:03:42 In the meantime, Professor Warren, please continue with any questions or comments. 1:03:49 I would like to say maybe about the idea about coalition forming. 1:03:57 So this is pretty well studied in game theory. 1:04:00 There's all sorts of coalitional game theory, 1:04:02 and there is a lot of solution concepts which take into consideration the fact 1:04:08 that someone who switches to a new coalition 1:04:13 then has the danger of then switching to a new coalition after that 1:04:18 and this going around in the circuit forever. 1:04:22 That's right. 1:04:23 Yeah, so there's the stable set, there's the kernel, 1:04:27 there's the bargaining set, the nucleolus. 1:04:29 There's all sorts of solution concepts which are based on the idea 1:04:36 that an objection to a coalition is a violation of a coalition. 1:04:41 The idea that an objection to a coalition will be met to a counter-objection 1:04:46 to that objection. 1:04:47 So generally speaking, you have this, if someone forms a coalition, 1:04:50 an objection is going to be a different coalition 1:04:54 that will favor some members of the coalition 1:04:58 and kind of like prevent the original coalition 1:05:02 from being what would be like classically a Nash equilibrium. 1:05:05 So you're always going to have this situation 1:05:07 where somebody can reform the coalition, 1:05:09 it will be better for some people by splitting at 60-40 instead of 50-50 1:05:14 with different members. 1:05:17 But then these solution concepts have been analyzed. 1:05:21 Okay, if I make an objection, can someone else then come along 1:05:26 and make another objection 1:05:28 and sort of ruin whatever coalition I just came up with? 1:05:33 And if that's the case, 1:05:34 the original coalition is then considered somewhat stable 1:05:38 because anyone who's in that coalition will realize 1:05:42 that by kind of throwing this game into this non-ending circuit, 1:05:47 it becomes like a Markov chain 1:05:49 and you're dealing with like expected values. 1:05:51 You're actually losing a little bit of what you'd expect 1:05:54 by just staying in the original coalition. 1:05:57 So I do think these coalitions tend to be somewhat stable. 1:06:01 The classic game is going to be Odd Man Out 1:06:03 where you have say three players and they split a pot. 1:06:10 $100, three people get to split it. 1:06:12 They just have to decide any two vote. 1:06:16 The majority gets to split it. 1:06:18 So if two people look at each other and say, let's do it 50-50, 1:06:22 obviously you say, well, the third person is going to offer one of them 60% 1:06:27 and keep 40% and then once that happens, 1:06:29 then this is going to go around and around. 1:06:32 But in reality, two people that look at each other 1:06:35 and say, let's split this 50-50, 1:06:37 they're going to realize that once this game starts, 1:06:40 their odds go from 50-50. 1:06:43 They're not looking at the 60% they're being offered. 1:06:46 They're looking at the 33% that they're going to get 1:06:49 if this game just kind of goes around 1:06:52 and the eventual winner is kind of undetermined. 1:06:55 So their odds aren't going from – 1:06:57 or their expected value isn't going up to 60%. 1:06:59 It's going down. 1:07:00 So they're probably just going – 1:07:01 if they have an opportunity to take that 50%, 1:07:03 they're probably just going to take that 50%. 1:07:06 This is in the – I think it's called the stable set or the bargaining set. 1:07:11 There's a more – I think more unique and canonical solution in that 1:07:17 is they all look at each other and split it three ways right away. 1:07:23 Yes, divide a dollar game. 1:07:26 Yeah, I think the best solution concept 1:07:29 is the evolutionarily stable strategy for anything where you have – 1:07:33 it's continuous over time, 1:07:35 but where humans don't live forever and there's an interest rate. 1:07:39 I think that one is the best for Bitcoin mining. 1:07:43 And there's even – we even have a phrase for it. 1:07:46 We call it live by the fork, die by the fork, 1:07:49 which is like sure you could get a lot of great stuff 1:07:52 if you forked like for yourself or for other people, 1:07:54 but then someone forks you. 1:07:57 And, of course, this happened many times where there was like Litecoin 1:08:00 and it had a faster block time than Bitcoin, 1:08:02 but then there was like Feathercoin and then there was like Dustcoin. 1:08:05 And then there's Bitcoin Cash, but then there's Bitcoin SV, 1:08:08 which has an even larger block size. 1:08:10 So it does speak to the world of pain that people open up 1:08:16 when they try to deviate from the network effects of Bitcoin Core. 1:08:24 It doesn't seem to work out so far. 1:08:35 Bitcoin Code, please go ahead with your question or comment. 1:08:40 Hi, everyone. I hope you are doing well. 1:08:43 Thank you for having me here. 1:08:46 I have a question for Paul. 1:08:51 Paul, could you touch, please, a little bit more in detail 1:08:55 or kind of make clear what is the biggest pushback 1:09:01 or rejection regarding the Drivechain in the Bitcoin community? 1:09:07 And do you see something like something that is not related to the network 1:09:19 from their side, but is related towards the financial aspect? 1:09:26 And this is the first question. 1:09:29 And another one, I want to ask you with the Blind Merged Mining, 1:09:36 do you think that the mining will be more decentralized 1:09:42 and because there will be fees for the miners? 1:09:49 And do you think that with the time, 1:09:52 I know that the cash rate go up and the difficulty and stuff like that, 1:09:56 but even the technology innovates, 1:09:59 so more powerful miners could be on the market. 1:10:04 So do you think that even will be incentivized more miners to come 1:10:12 and mine blocks which are not big farms? 1:10:18 Well, I think the long run mining picture is just one of constant evolution 1:10:25 where I'm talking about the hashers. 1:10:28 The pool is a percentage thing. 1:10:31 So there's always going to be like whatever, like 10, 15, 20, 25 pools 1:10:36 that each only have a couple of percentage points. 1:10:40 That's just like a statistically optimal configuration. 1:10:44 And it's because of pools that we can have small miners anyway, 1:10:47 so pools are kind of a good thing. 1:10:51 And so the long run, so that's the pools, 1:10:56 and then the hashers themselves, 1:10:58 they will be chasing cheaper and cheaper energy. 1:11:01 They will be specialists, and it will be like any other thing. 1:11:07 If you're making the world's best toasters, 1:11:09 you're going to know everything about toasters. 1:11:11 You're going to know how to stop them from electrocuting people. 1:11:14 You're going to know how to stop them from tipping over or starting a fire. 1:11:18 And it's not as easy to make a toaster these days 1:11:22 than it was in whatever, the first toasters, 1:11:25 because when something starts off, it's general. 1:11:30 It's sort of hobbyist. 1:11:31 It's brand new. 1:11:32 But then the better you get at anything, farming, fishing, 1:11:38 eventually you become a master craftsman. 1:11:40 You start off as like a little apprentice. 1:11:44 But then the same with mining. 1:11:46 At the beginning, anyone could do it, just like anyone could build a house, 1:11:50 build a little hut. 1:11:53 But then as time goes on, it becomes more and more specialized. 1:12:00 So I think that's the fate of mining, 1:12:02 and I don't think it has anything to do with. 1:12:05 As long as Bitcoin still exists, that will still happen. 1:12:08 If Bitcoin fails, then that will all just get wiped away. 1:12:13 It will be like everything else in life, 1:12:15 where being an accountant today is more specialized 1:12:18 than being an accountant in the time of Medici. 1:12:23 So that's the long-run fate of mining, of hashing and pools. 1:12:31 And the first question, unfortunately, my phone glitched out. 1:12:34 I had to leave and rejoin, and I did not get it. 1:12:37 What are the major objections to Drivechain? 1:12:41 That was the first question he had. 1:12:43 Yeah, well, we get these two, and they're both not very good. 1:12:47 Miners can steal, which is true but very misleading 1:12:51 because miners can already steal from all kinds of things, 1:12:54 including mainchain Bitcoin and the Lightning Network. 1:12:58 It's true that they can steal if a bunch of stuff happens. 1:13:02 So that if is kind of a big deal. 1:13:05 Miners can steal if a bunch of stuff. 1:13:07 Miners can steal from everything, 1:13:09 or miners can just destroy the network, or they can do whatever. 1:13:12 Miners earn money from all the sidechains 1:13:16 in the form of transaction fees 1:13:18 and in the form of exchange rate appreciation. 1:13:22 And just in terms of just having a community that has creativity 1:13:25 and progress and is releasing new software 1:13:27 and has competition for users. 1:13:29 It won't be total nirvana, 1:13:31 but it'll be better than what we have now, 1:13:33 where it's just horrible to release any new software 1:13:38 or do anything new. 1:13:42 The second one is that it affects mining incentives. 1:13:46 And having debated people over this topic for years, 1:13:52 what they literally mean is that total miner revenues will go up. 1:14:00 That's their worst-case scenario. 1:14:02 But to me, it's obvious that that is a good thing. 1:14:05 Yeah, why they say that is a bad thing? I mean, we saw with the Ordinos. Ordinos was a very good example where the mining reward was 6.25, but actually with the fees, that was a short period of time. 1:14:24 But with the fees accumulated, they got, I don't know, the reward jumped to whatever it was. I'm guessing now 11, 12, 13 Bitcoin, you know, plus the block reward. 1:14:44 Yeah, I think it's a small slice of the type of thing that miners could be collecting fee revenues from all kinds of other things that have been just sort of discouraged in Bitcoin out of a desire to keep Bitcoin focused on being digital gold. 1:15:03 But I think this is a mistake. I think Bitcoin should be useful. It's like if someone had an idea where gold could cure cancer or gold could be used to teleport across the universe, that would be good for gold. 1:15:19 It would still be digital gold, but if gold also cures cancer, and it can be used in teeth, and it can be used in electronics, and it can be used to teleport across the universe, and it turns out that gold is a super intelligent AI or something, that's good for gold. 1:15:35 So we don't want gold to become, you know, we don't want Bitcoin to lose its good properties, but that is a completely different question from whether or not willing users should be paying for things. 1:15:52 The ordinals is a perfect example of like people finding an alternative use for block space. All of that should be encouraged, not discouraged. All that's good for gold. It's good for an investment in gold. If you own gold, this is good for your investment to learn that gold cures cancer. 1:16:12 I mean that's – I would think that would be very clear, but it's not because there's a widespread fear that if people start using the gold network a certain way, it may not be used the original way, and people fear change, I guess. I don't know. 1:16:29 But thanks to the – as long as you run a node, then the properties can't change. What you really want, if you are worried about change, you want to be pro-ossification and just don't change your L1 node. 1:16:41 Yeah, I agree with you, and I think that you are doing kind of the most right thing for Bitcoin because you are kind of following all this, you know, from the beginning, what Satoshi said, and like in Bitcoin, Satoshi vision and everything else. 1:17:05 So for me, I'm doing so much research, and I'm, you know, from the beginning in Bitcoin, and that's why I support, you know, and follow you and support Drivechains. 1:17:18 I read all your blogs, and, you know, you have a very long time in doing this, and I'm very surprised that, you know, like technology like this or innovation, what you are trying to enable, it's getting so pushed back or, you know, a big kind of rejection from the community. 1:17:40 I mean, not all of them, but I don't know. I look and I'm looking through the, you know, like mostly Twitter because, you know, the Bitcoiners and the communities for Bitcoin, I think that some of the people, they don't really understand Bitcoin in details. 1:18:06 And what Bitcoin can do for everything. 1:18:10 And I think the Drivechains are the right way to move forward because I don't like, even I think you agree with federated ways of L2s or what's happening now. 1:18:25 We have even companies trying to do a separate chain, which is they call is L2 with no relation relationship to the or connection to the Bitcoin blockchain. 1:18:40 And they rub the Bitcoin, they use kind of an alternative ways like a lightning channels and stuff like that, bridges to the VM and stuff like that, which, you know, it's kind of misrepresented. 1:18:58 And this is one part that, you know, I think we all need to come together and also, you know, share and educate people for the real values and what exactly is Bitcoin blockchain. 1:19:15 Because here I'm for the blockchain. 1:19:19 I'm not for the BTC or the price or anything else. 1:19:23 I'm for the technology here. 1:19:26 Well, a big quote, if I'd like to point something out. 1:19:31 Sorry, I haven't been speaking much today. 1:19:34 I've been losing my voice. 1:19:37 But just the fact that you're hearing these critics recently on Twitter in such a major way is, I think, a perfect example of or perfectly highlights that actually as being opposed to by the community. 1:19:58 Drivechain is actually kind of becoming aware. 1:20:01 The community is becoming aware of Drivechain and the trajectory is actually looking extremely healthy. 1:20:07 There's many, many, many, many proposals and solutions and all sorts of stuff. 1:20:14 All sorts of stuff people want to add to Bitcoin and to the various blockchains that none of us here, despite being, you know, 24, seven many years I've even heard of. 1:20:25 And we're not hearing anything about the criticism to those because they're not relevant and they're not on the trajectory of actually of actually winning or or actually being merged anytime soon. 1:20:40 But but 300 is and that's why you've seen such a massive explosion in the rate of discussion of 300, because this is actually one stage of the consensus process. 1:20:57 And I think now I'm seeing it's it's it's it's inevitable. 1:21:02 It will be merged in, you know, at least in the modern timeline of Bitcoin and in relative short order. 1:21:11 Well said. We have a lot of exciting developments in this space. 1:21:15 Currently, LayerTwo Labs has retained Luke Dash, Jr., legendary Bitcoin core developer to rebase the Drivechain code. 1:21:27 And submit a pull request to have it. 1:21:31 Also, can I point out while I have a little bit of voice here for a minute? 1:21:37 One thing you said is that you're not worried about or focused on the price. 1:21:42 I actually think that no offense to you, but I think that this is kind of not really the ideal way to think about it. 1:21:52 The price is by far the most important data point in Bitcoin. 1:21:59 If you're looking to measure its relative success or failure at the current moment or at any moment in the past or the future, the price is the most important thing. 1:22:11 If we want it, no matter what you're looking for from Bitcoin, if you're a revolutionary or if you just want to get wealthy, if you want to disintermediate the central banks, the price is everything. 1:22:27 The price is a proxy for the security. 1:22:33 The price is a proxy for the adoption. 1:22:36 Now there is a chance that we end up with Bitcoin having a massive valuation but completely failing to live up to any semblance of its revolutionary potential and the like. 1:22:55 Maybe that is possible, but there's absolutely no possibility that Bitcoin has a meaningful impact in disintermediating the current financial system or whatever your ideology points you to believing is a success from that perspective and maintain a small price. 1:23:22 That is almost certainly not going to happen if Bitcoin remains at the price level today. 1:23:29 No, I wanted to say for me the price is not important. 1:23:35 For me, Bitcoin is priceless. 1:23:36 So for me, one Bitcoin is one Bitcoin. 1:23:39 I don't calculate in dollars or fiat. 1:23:42 So as soon as we stay in the fiat conversion, we'll always be on a confused path. 1:23:54 Well, that is very true, but before the mass mind shift to Bitcoin being the standard, the relative purchasing power equivalent is going to have to be much higher than whatever it is today. 1:24:12 I think like $30,000 today. 1:24:14 And this is actually one of the reasons why I'm one of the most important reasons why I've been so supportive of Drivechains for so many years, because I just see it as a as a complemental technology. 1:24:29 I think it's probably the best thing we can do if you're looking for Bitcoin to all time high. 1:24:36 If you want to get into the next phase shift, the next epoch, jump Bitcoin up an order of magnitude or two. 1:24:45 Merge with 300, you know, and we can put a little straw in the pockets of all these shit coins and more so in the pocket, suck some of the value out from these fiat monstrosities and pump Bitcoin's price. 1:25:03 And then all of us can be even wealthier. 1:25:06 And none of those things are competing. 1:25:08 Those things are all riding the same wave. 1:25:15 Well said. 1:25:18 Yeah, Drivechain has enormous potential to accrue value to Bitcoin because the native token on the sidechains is a synthetic Bitcoin. 1:25:30 And the only way to move units of value of Bitcoin onto the sidechain is by locking up Bitcoin in the hashrate escrow. 1:25:40 So as Adam Back has described in tweets, Drivechain is innovation without altcoin seniorage. 1:25:49 The people who think it's going to bring shit coins to Bitcoin have it exactly backwards. 1:25:54 It it promotes the use of Bitcoin's monetary policy. 1:26:00 On block chains other than Bitcoin's main chain. 1:26:04 It promotes sidechains which use Bitcoin's monetary policy and miners, but the technology of an altcoin. 1:26:14 So it drives value accrual into Bitcoin. 1:26:19 By increasing the number of users who are participating in Bitcoin's monetary policy. 1:26:24 Everyone should understand that it's it has enormous implications for Bitcoin's price. 1:26:29 Potentially, if the Drivechain sidechains are very popular, then that would bring a lot of value accrual to Bitcoin. 1:26:39 People who never opted into any Drivechain sidechain would still experience the benefit of the higher purchasing power of Bitcoin on Bitcoin. 1:26:51 On main chain as well as the higher miner revenue and this higher security from the higher miner revenue on the main chain. 1:27:02 So the main chain main chain would be more valuable and successful and stronger. 1:27:08 Even if a person never chooses to use the sidechain, that person would benefit on the main chain from the existence of those sidechains. 1:27:17 It's extremely important for the survival of Bitcoin. 1:27:30 Professor Warren, what do you think about that narrative that demand for the sidechains, if they're successful, drives value accrual to Bitcoin because the sidechains use Bitcoin's monetary policy? 1:27:45 Do you follow exactly what I'm claiming there? 1:27:51 Sort of. Yeah. I mean, it's not clear how independent the fee rates and the value is. 1:28:00 So, I mean, the goal here is just to drive up the fees. 1:28:04 But not exactly. 1:28:07 What I'm saying is that the way that we let's just take as for example, a large block Bitcoin sidechain we call Funder. 1:28:15 This has been coded up and exists publicly on GitHub. 1:28:18 This would be a peer to peer Bitcoin sidechain that uses Drivechain. 1:28:23 And it would enable Bitcoin users to transact a unit of value of Bitcoin with much lower fees because of the larger blocks on the sidechain. 1:28:33 What I'm claiming right now is that because the only way to put units of value on the sidechain is to move Bitcoin into the hashrate escrow of that sidechain. 1:28:45 We can say that if Funder is very successful, then that means that Bitcoin's value will be much higher than it otherwise would have been. 1:28:59 Because of the two way peg, economically, demand for tokens on the sidechain is demand for Bitcoin. 1:29:08 Because let's just say $100 billion worth of demand exists for the sidechain token. 1:29:17 Well, that means Bitcoin's price must have gone up in order to move units from the main chain over onto the sidechain. 1:29:25 Do you see what I mean there? 1:29:27 Oh, sure. Sure. 1:29:31 You know, widen the tent for value storage or whatever you use it for. 1:29:37 Sure. Yeah. 1:29:38 Yeah. So what I'm claiming here is that in the discussions on Drivechain, we're not simply talking about the possibility of higher economic security on main chain because of merged mining revenues flowing to main chain miners. 1:29:50 We're talking about, in addition, main chain token holders, even if they never opted into any sidechain, receive the benefit of a higher value for their Bitcoin. 1:30:02 This is already true in the case of the federated sidechains that exist like Rootstock and Liquid. 1:30:08 They are small, but we can say categorically that all of the synthetic Bitcoin existing on those sidechains has increased Bitcoin's price. 1:30:19 And if those sidechains were a thousand times larger in terms of demand, then Bitcoin will have benefited in this way in terms of higher value per Bitcoin. 1:30:30 It's not just about fees. 1:30:33 It's also about the value of Bitcoin going up as its network expands by bringing in more users who want the features only available on the sidechains. 1:30:43 So this whole discussion about Drivechain isn't just about higher miner revenue. 1:30:47 It's about a larger network of Bitcoin users using all of the different features only available on Bitcoin sidechains instead of going to altcoins for those features. 1:31:00 Yeah, and increasing miner fee revenue doesn't mean just raising the fees for people. 1:31:08 You can have lower individual transaction fees on a Thunder sidechain. 1:31:13 And if there's a ton of transaction activity there, or maybe a lightning network built on top of that, eventually those fees make their way back to the main chain. 1:31:22 And it might be that a million people are paying way less fees than they even do right now. 1:31:27 But in total, that's going to provide more security budget to the Bitcoin miners. 1:31:33 It's not that we want to make the fees higher for individual people's transactions. 1:31:42 For anyone new to our spaces, it's worth mentioning Cryptax is one of the co-authors of the Drivechain BIPs. 1:31:52 So, Professor Warren, what I was trying to express there is this view that Drivechain is not just about fixing the security budget problem, which is the possibility of persistently low fees in the future, making main chain insecure. 1:32:18 It's not just about boosting miner revenue through merged mining. 1:32:22 It's about so much more than that. 1:32:26 It's about making Bitcoin's entire network of users much larger by enabling more innovation and experimentation on other blockchains that are connected to Bitcoin in a manner that is more peer to peer because there's no federated multisig involved. 1:32:46 So there's no socially selected parties who control Bitcoin in a sidechain that's using Drivechain technology. 1:32:54 Instead, the miners, which are part of Bitcoin's peer to peer set of roles, are involved in the security. 1:33:03 So it's more peer to peer and it's multi chain instead of monolithic Bitcoin. 1:33:16 Yeah, I agree that that is one of the goals. Yes. 1:33:30 Well, it's been really cool to read your tweets over the months recently. 1:33:34 You are very attuned to important questions that are not so commonly raised within Bitcoin discourse, questions around how a fee reliant future would look. 1:33:47 There are a lot of good academic papers on that topic. 1:33:51 If we only have fees and no subsidy, then the miner revenue will have a different texture. 1:33:57 It'll be more higher variance of total value per block coming to the miners, which increases the kinds of strategic mining that miners can do. 1:34:10 So a lot of the objections to Drivechain are a kind of contemplation on strategic mining. 1:34:22 So it's kind of up your alley. 1:34:24 Right. Yeah. So that's what I mean. 1:34:27 That's what I've tried to, I guess, present in a few things I've written up is that it seems like it offers a few more opportunities to play around with strategic mining or to play around with, I don't know, soft governance or play around with some of the things which are really hard at this moment to do on L1. 1:34:45 Like it's really hard to do anything weird. 1:34:49 Like we're pretty far away from selfish mining or undercutting, at least at this point in time on L1. 1:34:55 But if you introduce some of these Drivechains, you might have a way in which miners can kind of like mess around with this stuff. 1:35:05 Just to get their hands dirty. 1:35:07 Yeah, but I think the best responses to these concerns is to point out that Bitcoin's future is necessarily one of transaction fee reliance. 1:35:16 And the future, if it's limited and narrow, if we pursue a kind of purity in Bitcoin, puritanism to use Jameson Lopp's word. 1:35:26 If we aim for this simple Bitcoin where the only thing people ever do is save units and then spend units and nothing more sophisticated and experimental is involved and there's no other blockchains that are linked to Bitcoin that the miners are making money from. 1:35:42 In other words, if all experimentation and innovation occurs on altcoins and one of those altcoins eventually achieves a Drivechain like design, that threatens Bitcoin's primacy. 1:35:53 Its primacy wouldn't endure. 1:35:55 It would be irrelevant and small like gold is today. 1:36:00 And therefore the social aims of Bitcoinization would have not been achieved on Bitcoin. 1:36:07 So like either we have an expansive program where we try to have all of blockchain activity on Bitcoin and bring the entire crypto community onto Bitcoin. 1:36:18 Or we aim for something narrow and limited that's economically insignificant. 1:36:24 I mean, that's not the only outcome that can happen, right? 1:36:36 So the interesting thing about all this is that even if we don't do anything that altcoins currently do. 1:36:50 If we could go for stuff like global commerce, global international commerce and settlement. 1:36:58 If Bitcoin would at least be suitable for that use case somehow, magically. 1:37:06 Because it's fucking not. I'm sorry. 1:37:08 So if Bitcoin could actually handle that use case that would probably be hundreds of thousands of times more valuable than all of this altcoin nonsense. 1:37:17 Yeah, I agree with that. 1:37:26 That's important to keep in mind that it's not really like when I say creativity with sidechains. 1:37:32 It's both creativity in terms of doing weird stuff like doing like SIA or zk-SNARKs or prediction markets. 1:37:42 But it's also just different creative takes on how to actually do Bitcoin the best. 1:37:52 Of which the block size debate is a perfect example of just like reasonable people really disagreeing about what to do. 1:38:03 And they really both seemed very earnest. 1:38:05 This Roger Ver kind of group and the Greg Maxwell group. 1:38:13 And why not? We should always just have both, you know. 1:38:18 We really shouldn't have had to like turn it into become political and toxic because it has become like a kind of little... 1:38:24 There is a horrible fallout from that, right? 1:38:27 So I'm pretty sure I see signs of, you know, I don't want to bogatize the experience of veterans. 1:38:36 But I see some parallels to, you know, general PTSD behavior and how people approach this subject still to this day. 1:38:46 And it has been like five years or maybe we could say six. 1:38:51 And it seems like that somehow the means, the community and everything is still stuck in certain patterns that don't really make sense for peacetime Bitcoin. 1:39:08 But now it's actually like where people still just think it's like naive large blockerism, 1:39:16 even though it takes incredible pains to not be an L1 block size increase and to prevent 1:39:23 all future L1 block size increases. But people still just think, well, if it gives the large 1:39:27 blockers what they want, it must be bad. 1:39:30 Yeah, but I mean, just the attitude towards changes, right? If you follow the discussion 1:39:37 about any, you know, change to Bitcoin, you can expect to see people jump in and start, 1:39:48 you know, just mindless opposition and virtual signaling, right? That actually makes sense 1:39:55 in a situation where Bitcoin is really under attack, like under attack from a group with 1:40:02 a large amount of money that tries to push for like a POS, proof of stake fork or whatever, 1:40:08 an ESG Bitcoin fork or whatever. And so in a situation like that, this type of behavior 1:40:17 might make sense. But I don't think it makes sense currently. And I don't think it makes 1:40:23 sense when, you know, technically, other people actually know that Bitcoin right now 1:40:28 is in a weird position where it can't really scale to the level of adoption that most Bitcoiners 1:40:36 are awaiting. You know, it can't really handle people holding their own keys at that scale. 1:40:44 Even Adam Beck has mentioned the same number that I arrived to, about 100 million people is 1:40:51 how much we could probably stretch the current technology of Bitcoin to accommodate in some way. 1:41:01 And, you know, how do we actually give a utility for like a billion people or more 1:41:11 is completely, you know, a territory where nobody has real ideas in the current set of rules. 1:41:18 And so a lot of people understand that something needs to be changed, but even discussing this need 1:41:25 or even just voicing, you know, any sense of urgency that maybe we should not take like 1:41:31 another decade with this, because, you know, if the world is really, you know, going to turn and 1:41:38 there is going to be some adoption pressure, then it all will naturally drive people towards custody. 1:41:45 And that has its own set of risks. And so this behavior, however, is still, you know, still 1:41:55 kind of neurotic and showing signs of PTSD that emerges in all this. And like, I don't know how to 1:42:06 heal the community from this, because it seems to be something that gets imprinted on the newer and 1:42:12 newer generations. So they come into this, they like it because it sounds good to them. 1:42:19 They adopt these patterns and amplify it, you know. So it's really weird. 1:42:26 All right. Very wise words. 1:42:40 I think like it won't even be fixed until there is sidechains, because then 1:42:47 people will be able to just do whatever they want. And this is assuming that sidechains work, which 1:42:53 of course they may not. Yeah, we would probably want people to be able to disagree, right? 1:42:59 So leave people beside each other in disagreement. Consensus is key. Exactly. Consensus is very bad. 1:43:07 It's very good when you're designing eCash software, but it's very bad in humans. Consensus 1:43:13 is like you're living in North Korea or something. Something has gone really wrong. In a real society, 1:43:18 there's constant disagreement over how to make progress. And that can include like what types 1:43:26 of evangelism to do, like a Roger Ver type, like go on CNBC, go around to different stages. 1:43:33 Or it could be something else, like a Brian Armstrong, like a Coinbase type, or it could be 1:43:37 every other, any other type. Building a new thing, building open timestamps, like a Peter Todd type. 1:43:42 So, but there should really always be disagreement. And if there's no disagreement, then it means the 1:43:48 community is stuck, I think. Yeah. And we basically are assuming a lot of things, 1:43:55 like we are assuming a lot of things about future user behavior, future human behavior, 1:44:00 future miner behavior, future business behavior. We are assuming things about how this will play 1:44:05 out on the political spectrum, globally, how politics will shift, how the financial system 1:44:15 will do things. We are making these huge, huge assumptions. And basically, we have very little 1:44:25 certainty about any of this. And we are not trying enough different things, I believe. So, 1:44:35 I see that there is a very little focus on the Lightning Network, 1:44:40 as is basically, and the only like minor improvements on the way the Lightning Network 1:44:46 works and making it more robust and efficient, which is a very good thing, if you can do that. 1:44:52 But of course, a lot of the major improvements to the Lightning Network would require soft 1:44:58 forks as well. Yeah, yeah, right. That's a different story. But the point is, it's a very 1:45:03 narrow focus. And I'm pretty sure we should be trying like at least four or five or six major 1:45:10 directions and a lot of smaller stuff, because we really don't know what will work and how the 1:45:18 world will turn out. And these things take time, like could be a decade before something gains 1:45:27 like real economic adoption before people become really comfortable with it to use on a global 1:45:33 scale. So, let's see. Anyone else have any other questions or comments? 1:45:52 Have you ever spoken about CoinNews or done any promotion of it? 1:46:01 I'm not really, but it's a great idea. It's very cool. It's just as there's a spot in the, 1:46:07 it's not really a soft fork, it's just a cosmetic node upgrade. And there's a part of the node 1:46:11 where people can publish news and it's sorted first by category, and then by fee rate. And so 1:46:20 if you want, you don't have to spend if you spend, we're gonna spend $4,000 to 1:46:25 inscribe an ordinal that just says, you know, Nick Carter is the coolest, 1:46:29 dot JPEG. You don't have to actually bid up the whole block for that. You can just 1:46:34 take one of the CoinNews slots, and the slots can all just be totally customizable. 1:46:41 The categories that is, they can be like, I like US Weekly, you know, Japan Weekly, because 1:46:49 people don't want each other's news. Japanese people can't read English, English people can't 1:46:53 read Japanese. But yeah, I think this is a perfectly good example of a way for miners to 1:46:59 earn revenue using the blockchain. And it's also a great way of showing people that Bitcoin is 1:47:05 actually for can be used for something. It can actually do something like if you're an Alex 1:47:11 Jones type, or whatever your thing, you're worried about COVID. This is an uncensorable medium, 1:47:17 and you will get the word out if you if people adopt this scheme. So yeah, I think it's pretty 1:47:22 harmless. And it's pretty cool. We put it in DriveNet. And it's very neat. We're gonna have 1:47:27 a new release very soon. So that one will be easier to use. Maybe it's worthwhile to make a 1:47:36 explanation post or something that just focuses exclusively on CoinNews. 1:47:42 Yeah, probably should. 1:47:46 When you say that Bitcoin can be used for something, 1:47:49 do is what we really mean that currently Bitcoin is being used mainly for saving and payments. 1:47:57 And the toxic maxis, 1:48:00 money and non banking use. So this is like, again, gold is good as gold. But gold is also 1:48:05 good at electronics, it's in teeth, and it would be further, it would be even better if it could 1:48:10 be used to cure cancer, or to do something else teleport. I'm saying, it used other than it's 1:48:18 used as an accounting ledger. Because what's the actual use of the thing itself? 1:48:26 Yes. So at the heart of the toxic maxi vision for Bitcoin, they think that the only thing that's 1:48:34 really good about blockchain is payments, saving and payments, banking, right? So self custody 1:48:41 banking, you know, cash, that's the only application of blockchain. 1:48:46 Well, I mean, I think maybe you could steel man that a bit and say that maybe not the only thing, 1:48:53 but that that use case or the value of that use case so far exceeds any and maybe all others 1:48:59 combined, that any discussion or focus on all others combined is, you know, not just a way of 1:49:10 waste of time at best or an attack at worst. Right? 1:49:16 Good enough. I mean, they lived through 2016, when we had like, business blockchain nonsense. 1:49:22 And so those people have picked up the talking points from that. And I was like leading the 1:49:29 charge in 2016. And earlier, and I was saying the blockchain is mostly not useful for these other 1:49:33 things. But as always, a sufficiently dumb person can ruin even the greatest talking point. 1:49:43 And that's all it is, is a talking point about. And if you don't have the intelligence behind it, 1:49:49 then it's, but it's, but this is good enough for most people to think that, 1:49:54 because then otherwise, they're going to be doing like healthcare on the blockchain and 1:49:58 other stuff. So that's, that's the history. That's the historical trajectory of this industry 1:50:02 that it went through a long period of like, IBM blockchain. And it was all just, 1:50:07 no offense to them. These were some of the most cringe, like, just humiliating. 1:50:14 And knowing that knowing how cringe and like, like just non reality based they were 1:50:20 appreciate that. Looking back, we're talking hundreds and hundreds of millions of dollars 1:50:27 squandered in, in VC money and money with some of these legacy firms. And I remember I was in 1:50:35 San Francisco when they had the I don't know if it was IBM, but one of these big companies, 1:50:42 JP Morgan, somebody had a blockchain for healthcare conference, and the city was 1:50:48 completely packed. All the hotel rooms were sold out. And I can only imagine how many of 1:50:56 things like that repeated. R3 was funded to the tune of what half a billion dollars. 1:51:03 Huge amounts of money. And they hired Mike Kern, they even hired Peter Todd, 1:51:07 sort of indirectly. It's very funny. Remember Corda? Where are they now? You know, 1:51:14 that'd be fun. That'd be a fun game to play. Paul, do you think in long run equilibrium, 1:51:20 the value of Bitcoin sidechains could be more than the value on the main chain? 1:51:26 But that type of question is like, what are you actually driving at with that question? Because 1:51:31 you could again, you have payments sidechain. And then the question is, 1:51:35 if magic and compared to a counterfactual world where sidechains were not possible. 1:51:41 That means that also the case that all, all the assets that are on the sidechain are like, 1:51:47 technically, on the main chain also, or even primarily, as they are escrowed in the main 1:51:55 chain and the catalyzing the value for the assets and the sidechains comes from the main chain. 1:52:02 I guess what I mean is that the Drivechain vision is a vision that there is valuable 1:52:09 alternative blockchain design, and it would be good to have Bitcoin able to internalize that 1:52:15 value. So if there's a good technology in Monero or Zcash, then we should have a sidechain for 1:52:21 that so that Bitcoin can absorb all of the potential demand for that technology, 1:52:27 instead of having those users go to a different blockchain 1:52:30 that doesn't participate in Bitcoin's monetary policy and miners the way that a sidechain does. 1:52:42 I think the way I would phrase it is that 1:52:45 if you're going to bet against innovation and creativity, I think that is a big risk. 1:52:52 So if you're, there was a time before Michael Saylor even heard about Bitcoin, 1:52:59 and he didn't even know what was coming. It's like the beginning of a West Side Story or Romeo 1:53:04 and Juliet or something. They don't even know that their life is about to improve enormously. 1:53:09 And so since that happened, it means that that can certainly happen again. There could always 1:53:15 be something new where you're like, oh, I thought my life was great before, but now it just got 1:53:21 a hundred times better. And so if you bet against creativity and innovation, especially, 1:53:27 you know, human beings, we are pros at creativity and innovation, and now we've had, 1:53:33 we have the internet, it's possible, it's very easy to write software now, 1:53:37 we have like IDEs, there's lots of information available on YouTube for people to learn. 1:53:42 Kids are even not even going to school, they go to school from home. 1:53:46 So someone, a homeschooled child who's 12, who's tinkering with his computer and watching 1:53:53 Bitcoin YouTube videos all day, Ethereum YouTube videos all day, will be a killer, you know. 1:53:59 In the future, you won't even have to, you'll only have to vaguely describe the parameters 1:54:04 you're looking for, and an AI will code it up for you. 1:54:10 So it's very easy to imagine, like, and especially if you think about how few people really understand 1:54:17 Bitcoin from where I'm standing, it seems like very few people do. Those are the only people 1:54:21 who can really improve it at all. And like, so the way I'm looking at it, we humans have done about 1:54:30 0% of all the things that can be invented. We're looking at, it rounds down to the nearest, 1:54:35 even if you go out 20 or 30 decimal places, we're rounding down to 0.0000% because even though we've 1:54:43 invented fire and we've invented electricity, we just, to me, I think we're at 0%. So I say that's 1:54:52 something to think about when you say something like, is Bitcoin Core version 25, the absolute 1:55:00 optimum thing ever built at all? I think the answer to that question is no, and it's not a matter of 1:55:07 if, it's a matter of when the better idea comes along. And so I think it's only fair to say, 1:55:16 it's only fair to say, here is the process by which you can try the new idea without 1:55:24 screwing up Bitcoin. And I think that basically, we know that new ideas are often misunderstood, 1:55:35 because by definition, a new idea is something that no one else has thought of yet. So there 1:55:39 must be a reason why they didn't think of it yet. And so it's just the fate of a new idea 1:55:44 that people rejected at first. So what we should do is lower the cost as much as we can 1:55:51 for an unpopular idea to be tried with Bitcoin. But we currently do the exact opposite of that, 1:55:56 we say, it must be, the idea must have consensus. Even the dumbest person on Twitter, 1:56:03 with the worst ideas and is the laziest and has the worst, in bad faith, maybe bought off, 1:56:10 maybe have sinister motives, maybe a sadist, may just be really, really confused, 1:56:16 may just be not very bright. We say every single person has to agree before a CTV can be done 1:56:22 or something. So that would be my first, I have a lot to say about that, but that's my first 1:56:28 instinct is the bet against innovation is basically shooting yourself in the head, 1:56:33 because you don't, by definition, you don't know what innovation is coming up. 1:56:38 So it's your betting, it's a bet that you're just certain to lose, because all you're saying is, 1:56:44 I haven't thought of every innovation that will come up with yet, but everyone, 1:56:47 but that's all, that's always the case. So there's always a losing bet. 1:56:53 So it's kind of like a mentality which excessively venerates the invention of Bitcoin 1:57:02 to a degree where there's an assumption, incorrectly, that no improvement will be 1:57:10 needed or would be possible to make Bitcoin even much better. 1:57:15 Plenty of people say that about Bitcoin, they're like, why do we have Bitcoin? 1:57:19 The existing dollar is already digital, you know, that's like the Paul Krugman thing. So that's, 1:57:24 you know, plenty of people, I personally have said that about, I said that about, you know, 1:57:32 Twitter and Snapchat when they came out. I was like, what's the point of this? This is pointless, 1:57:36 but it shouldn't be up to me. As an end user, I just delay adoption until I get it, I get the 1:57:42 point, and then I become an adopter. But it's very wrong, it's immoral to stop other people from 1:57:49 trying those out, other people who see the potential. It's a very bad thing to do, 1:57:53 it's barbaric, and it's against the spirit of not only liberalism and, you know, the web. 1:58:01 Of course, all of us have that same story. I mean, not all of us, but many, many people 1:58:07 have the story about, oh, I heard of Bitcoin at this time, or somebody introduced me to it, 1:58:12 or somebody gave me or tried to give me Bitcoin, and I lost it, or I didn't get it, or 1:58:19 what have you. So the example Paul's speaking to, I think many, many people can 1:58:27 empathize with it in their own life. 1:58:33 Go ahead with your question or comment, Bitcode. Thanks for being here. 1:58:37 Thank you. Thank you. I love, Paul, what you're saying and totally agree with you. 1:58:44 Yeah, this is the one thing why I'm here, and I'm with other people. As a team, 1:58:51 we are trying to do something on Bitcoin from a data perspective. But 1:58:59 I see also a kind of a paradox where we say, oh, others are kind of suppressing the innovation. 1:59:09 They don't like Bitcoin and stuff like that. But when you see even within the Bitcoin, 1:59:14 you have suppression of innovation, which, you know, and by the way, what we are trying to do, 1:59:21 I think that if the Drivechain comes, we'll be enabled on the Bitcoin blockchain. 1:59:28 It will be much easier for us to innovate. And, you know, many, many other things that can be done 1:59:38 on top of Bitcoin with platform like Drivechains. It's incredible. For me, I always say, 1:59:45 and I always will say, the mass adoption will not come through the token or coin or stuff like that. 1:59:52 The mass adoption will come when the most of the world will use the Bitcoin blockchain or 2:00:01 platform that enables close relationship to the Bitcoin blockchain, because it's the most 2:00:07 decentralized and has the highest security through that. And in many, many things like 2:00:17 healthcare records or, you know, companies can use through different means. And, you know, 2:00:25 it's when widely is used, then you have that network, the hyper Bitcoinization or, 2:00:35 you know, the network, the big, big network effect. 2:00:37 All right. We've been going for two hours here. 2:00:50 This is Drivechain Spaces. We meet once a week, every Friday at 1 p.m. Eastern to talk about 2:00:58 Bitcoin Improvement Proposal 300 and 301. Thank you, everyone who has joined today to talk. 2:01:05 Let's keep on going with open mic questions and comments. 2:01:10 Moon Settler, what's on your mind these days regarding Drivechain in general? 2:01:15 What technical substantive concerns would you like to share if you're interested? 2:01:25 No, I'm actually just happy with, you know, that the conversation seems to have progressed from the 2:01:34 old trenches a little bit. I kind of predicted that the whole thing will eventually, you know, 2:01:43 culminate in this MEV debate. So, things seems to be moving forward. People are beginning to, 2:02:00 you know, make long form critiques and discussions and are starting to formalize 2:02:08 their statements. I think that's great. Like, that's something I really wanted to see happen. 2:02:17 So, I guess I just want to see how it goes. 2:02:22 Well said. 2:02:32 Like, really, I want to say it here. A lot of people are here. Drivechain needs long form 2:02:40 critiques, I believe. More long form critiques, more well thought out, more substantialized 2:02:47 arguments against it, I believe. So, everyone feel free to contribute if you can. 2:02:55 Yeah, absolutely. So, today, Professor Warren of the Department of Mathematics 2:03:01 at the University of Oregon was here earlier speaking with us very well. He published today 2:03:08 a Medium article that we put in the nest. It's still up there in the nest. If you just scroll 2:03:13 through the tweets there, you can find it easily, his tweet, and read his article. It's not his 2:03:18 first. And LayerTwo Labs, in order to generate more critical study of Drivechain, has paid 2:03:29 Peter Todd, legendary OG Bitcoiner, to write a long form blog post on his blog 2:03:37 about Drivechain, setting forth his critiques and concerns. 2:03:43 Yep, he hasn't done it yet. So, it's all crickets so far, but we will see. 2:03:52 Yeah, I'm sure when he's ready, he'll publish in the coming days or weeks, probably. And 2:04:00 after he's published it, he will do a two-hour discussion with Paul on the Stefan Levera podcast. 2:04:08 So, we're excited to have this long form article by Peter Todd, followed by a long form discussion, so we can thoroughly understand his views, and that'll be great. 2:04:23 It's interesting that Peter Todd is an advocate for inflation on Bitcoin. 2:04:28 Not all of the Drivechain critics are publicly in favor of inflation the way Peter Todd is, or maybe some of them don't realize that they're for inflation. 2:04:43 They haven't yet worked through the issues. But it's great that Peter is clear about that. 2:04:49 He takes the controversial view, being pro-inflation, but even though it's a controversial view, he has it. So, that's good that he's clear on that. 2:05:09 Well, we could keep on going with open mic questions and comments, if anyone has any. 2:05:19 If you have a question or a comment, come on up. 2:05:28 I can throw in a slightly unrelated question for Paul, if he wants to entertain it. 2:05:36 So, I just wanted to ask if you have read this Bitcredit proposal and what do you think about it? 2:05:44 I can summarize in a few sentences what I understand about it, if you like. 2:05:50 What is it called? 2:05:52 Bitcredit. 2:05:54 Oh, Bitcredit. Yeah, I don't think I know what it is. 2:05:59 So, basically, the idea is that Bitcoin is M0 money and we need an M1 currency. 2:06:10 And basically, they are trying to resurrect the 500-year-old fields of exchange mechanism that was used to enable global trade, even in times where currency scarcity, availability and cost to settle was high. 2:06:35 And basically, they are trying to cryptographically implement the fields of exchange protocol. 2:06:43 And this would be basically, you could say, a fixed lifespan Bitcoin IOUs, Bitcoin denominated IOUs that can be traded. 2:06:55 But they would have a specific lifespan where they have to be settled. 2:07:01 And this means that, in theory, currency would be created as the economic activity. 2:07:09 Is this Daniel's idea from Miami? 2:07:12 I don't know whose idea it is really. 2:07:18 Oh, I think I do. Well, I know that version. 2:07:21 And I think that's a good idea that we should try. 2:07:23 I think my understanding of that idea is that you prove you own a UTXO and then you join a list, like a credit agency or something, and you say, I'm giving this Bitcoin to you. 2:07:38 Yeah, no. The Bitcoin idea is actually, it's not one UTXO that just changes hands of chain, because that would still limit the amount of money available to actual on-chain Bitcoin. 2:07:54 This idea is more like you have real economic goods and services that you negotiate the price of in Bitcoin. 2:08:02 And you basically create this currency without having Bitcoin, because you are actually doing some production or anything like that. 2:08:11 And you are going to have the Bitcoin when you sell your audit value product. 2:08:15 But you are actually buying something real, something tangible, something that exists. 2:08:21 So the whole thing is supposedly tied into the real economic activity and the real demand for currency. 2:08:27 So it wants to be able to inflate the amount of money supply as demand for the currency gets presented. 2:08:34 But it supposedly will naturally contract back. 2:08:39 So unlike the current fiat system, where money just keeps getting printed and printed, and even if you have contraction, it never really contracts back to what it was before, somehow, magically. 2:08:50 In this case, it would be tied to real goods and services, in theory, again. 2:08:55 And money would be created as needed, as people have a need to have money, but they don't actually yet have it, because they are not getting paid yet. 2:09:05 And so in two or three months, these things would be settled. 2:09:09 And you have a chain, and everyone in the chain of these bills of exchange is liable for paying it. 2:09:15 So the more signatures you have, basically, the more people you can sue, if push comes to shove. 2:09:22 And they would have special nodes called Wildcats that countersign, so people can feel more safe. 2:09:31 These people would deal with the legal hassle of non-performing, non-paying, or I don't know how you say it. 2:09:44 The point is, they would, in theory, handle this thing in court. 2:09:48 If it needs to be, they have the money, they have the holdings, kind of like protobanks. 2:09:56 They can fork out these bills, so that the end user does not have to deal with this hassle. 2:10:05 And they have some ideas about, for the end users, they would not actually use these non-fungible bills of exchange. 2:10:14 They would get something like eCash, or a payment channel, or something like that issued on it, and the end user could use that. 2:10:23 People could get paid, so a company could hand the bills of exchange, conditionally, endorsed. 2:10:32 I think when you sign on the back of the bill, it was called endorsement, and you could add conditional endorsements. 2:10:39 So you could say to a Wildcat bank that, listen, here is the 0.1 BTC bills of exchange. 2:10:47 It was issued by this, they signed it, and I would like you to give me eCash. 2:10:54 And if I can't return this eCash to you in two months, or whatever, then you have this conditional endorsement, 2:11:05 that in that case, this bill of exchange can be used by you to demand the BTC from the other parties, and settle that way. 2:11:19 So you can basically create currency that is not really custodial, because it's credit. 2:11:24 And people can use this credit money, very high-velocity credit money, in their everyday life, without ever touching Bitcoin mainchain. 2:11:34 And basically, the whole thing is, sadly, dependent on the legal system to at least tolerate this. 2:11:46 To tolerate private, peer-to-peer contracts between individuals. 2:11:49 Of course, the enforcement is never peer-to-peer with the state, but the legal system recognizes contracts between peers. 2:11:57 And in this sense, it is peer-to-peer. 2:11:59 So the legal system has to tolerate this, or assist in the enforcement. 2:12:04 But in theory, the parties would badly resort to that. 2:12:09 And supposedly, these bills of exchange systems worked perfectly great back in the gold era. 2:12:16 So I'm not sure if you recognize what I'm saying from that. 2:12:21 Yeah, it's pretty difficult to follow actually, but it reminds me a lot. 2:12:25 I mean, one thing is, I don't understand, just because it's linked to goods and services, the money supply could still expand all the time. 2:12:33 I think it sort of reminds me of old Ripple. 2:12:36 I think in general, we should try, I'm very pluralist, so I think we should try everything. 2:12:42 We should try lots of different things. 2:12:45 And I think everything has probably some niche where it would survive and thrive. 2:12:51 And I think that... 2:12:53 Yes, I think the main idea behind this proposal is that you want money supply that is more elastic to real economic activity. 2:13:02 Or you get all the deflationary horror stories and the periods where gold was money and gold was scarce. 2:13:11 And people had to somehow deal with that, that simply money was scarce. 2:13:16 I mean, there is only 21 million bitcoins supposedly that will ever exist. 2:13:21 And we know that 21 million will never be available, practically speaking. 2:13:25 So the entire world would have to run on, I don't know, 10 million bitcoins that is constantly getting tied up and stuff. 2:13:35 It's just hard to imagine how it would... 2:13:38 For me, it was very hard to imagine how would Bitcoin function in a hyper-Bitcoinized world with on-chain settlement like this. 2:13:48 When we see how currency and credit hungry the world is. 2:13:53 So if we are looking at the fiat system, we are seeing that even though dollars are almost freely printed, 2:13:59 like instant amounts of dollars are printed, everyone is bitching about this. 2:14:04 The world is so hungry for dollars that it's probably never enough. 2:14:09 And that's a bit scary. 2:14:11 So if people take this perspective and think about how scarce Bitcoin is and how immovable, immutable the supply is. 2:14:19 Without something like this that adds some elasticity to it. 2:14:24 But the big question I guess that everyone would have is what makes this system return? 2:14:30 What makes this system contract when the economic activity declines? 2:14:35 It should naturally contract. 2:14:37 And the idea with this is that every bill of exchange would have a limited lifespan. 2:14:43 And people would need to issue new ones. 2:14:45 So far the economic activity keeps going, growing, people can issue new ones. 2:14:49 But eventually it has to contract. 2:14:51 That's the idea. 2:14:52 I'm not sure how this is actually enforced and how sure one can be of the reality of the goods and services. 2:15:02 These are different topics because these are not rules that you can enforce on a blockchain. 2:15:07 I think that's clear. 2:15:09 So as you said, I think we should look at a lot of things and try a lot of things. 2:15:15 And this is something currently very interesting to me. 2:15:17 And I was just wondering that how could sidechains be used to make this also less hanging in the air? 2:15:30 I don't know how to say it, but basically this proposal naturally would not necessarily have a centralized ledger, 2:15:40 which is very good for scaling purposes. 2:15:42 But also it makes the fungibility, the interchangeability, the transactability of these bills more questionable. 2:15:51 So I don't know. 2:15:59 That was very interesting. 2:16:01 Thank you for sharing. 2:16:03 Yeah, I don't know. 2:16:05 It seems pretty weird. 2:16:07 I don't think I understand it enough. 2:16:09 I can maybe help out a little bit. 2:16:12 At the heart of objections to Bitcoin from some people in the Austrian school, 2:16:20 there is a concern that because of Bitcoin's fixed supply chain, 2:16:25 there is no price responsive supply changes. 2:16:31 And therefore Bitcoin is less likely in the view of these people to monetize than gold. 2:16:39 Because gold has price responsive supply, meaning demand responsive supply. 2:16:46 When there's a higher price for gold, there's a higher demand for gold. 2:16:50 When there's a higher price for gold, then the issuance rate increases and this lowers the long term volatility of the purchasing power of a unit of gold. 2:17:04 With Bitcoin, because of difficulty adjustment and supply cap, there is no demand responsive supply. 2:17:12 Supply is fixed. 2:17:13 And therefore the volatility of Bitcoin is higher than it would have been if Satoshi had implemented some kind of demand responsive supply mechanism. 2:17:25 However, demand for Bitcoin is also based on the fact that because of its fixed supply, the return to holding is higher than it would be if supply were demand responsive. 2:17:37 So there's a question in the view of the Austrian thinkers like Lawrence White at George Mason University. 2:17:43 They wonder which is a better money, gold or Bitcoin. 2:17:46 On the one hand, gold has this smooth return because of the demand responsive supply. 2:17:54 On the other hand, there's always more of gold. 2:17:56 And therefore the return from holding it a long time is lower than the return that would be achieved if there was a fixed supply. 2:18:04 So maybe that's what Bitcredit is aimed at doing is trying to smooth the volatility of Bitcoin's purchasing power to make it more likely to be monetized. 2:18:18 That's one of the aims that it tries to do. 2:18:23 And the other, as I understand it, is that really to bridge the gap between real world economic actors today in the world. 2:18:33 What makes the world go around and what makes production happen is that people have access to currency before they actually would get it. 2:18:42 So this seems to be a crucial piece that is required for the world to function and for value to be added in production. 2:18:54 And this can form an entire chain of these value adds. 2:18:58 And that's the other thing that this proposal, I believe, tries to address. 2:19:04 But I wanted to... I forgot the other thing I wanted to add. 2:19:13 Moon, what you described in this protocol is exactly how the current financial system works. 2:19:20 Credit and debt. 2:19:22 The big difference is that you have now central banks that basically can issue currency at will and it never ever contracts back. 2:19:33 I mean, we can see it. 2:19:34 And people that do this money printing, everybody knows the meme about the Cantillon effect. 2:19:42 The closer you are to the money printer, the more you benefit from it. 2:19:47 So this is a much more peer-to-peer system. 2:19:50 You don't have a central bank. 2:19:51 Basically, companies, corporations, reputable corporations that do business, issue basically their currency that they are undersigning, that they will make good on these notes. 2:20:05 And as they trade it around, the others who are also signing, that they will make good on these notes, are also staking their reputation and putting themselves out to legal exposure. 2:20:18 So at its core, it's basically trying to undo how central banks basically attacked money and the world, so to speak. 2:20:30 So how they captured the entire thing. 2:20:32 This proposal, as I understand, tries to undo the very first step. 2:20:36 And that is why it's very interesting and a bit different. 2:20:41 But I also have a lot of questions about it, mind you. 2:20:43 I'm not saying this is set to work. 2:20:48 Yeah, there's so many questions. 2:20:52 Because the credit and debt is mostly around the world, not every single financial system in every country. 2:21:04 But that's how the current financial system works. 2:21:08 I would be very skeptical on something like that. 2:21:14 Someone said that actually credit and IOUs predate commodity money. 2:21:20 So everyone seems to think that commodity money was first used and credit is somewhat of a creation. 2:21:28 But others argue it's actually no. 2:21:30 Actually, IOUs, favors, mental ledgers of favors all predate commodity money, actually. 2:21:40 And commodity money was a technological invention that allowed civilization to scale beyond the Dunbar number. 2:21:46 I don't know if I pronounced it the Dunbar number. 2:21:49 So it was a scaling technology, actually, so that we can make our civilization larger. 2:21:55 And the other thing I wanted to say. 2:21:59 So I too was pretty clueless about this whole thing, I'm going to admit. 2:22:05 And I too had used credit as a nasty word. 2:22:09 So we have a tendency for this in Bitcoin. 2:22:13 I believe that we say everything is shit because of credit. 2:22:17 And the thing that made me realize that this may not actually be so, 2:22:25 was when I basically accidentally realized that you can make eCash non-custodial if you turn it around. 2:22:34 So you basically can emulate the credit card use case very privately. 2:22:40 So we all know credit cards are horrible because they create a perverse game theory. 2:22:49 For the places that accept it will raise the prices and work it inside them. 2:22:55 Basically, people that try to use cash are going to pay most, but eventually everyone will pay. 2:23:00 The credit card company, or Amazon, right? 2:23:03 Just to function. 2:23:05 And they created this whole thing that basically captured the world. 2:23:07 And you have no privacy, like zero privacy and all sorts of Orwellian bullshit can come out of this with further regulation. 2:23:17 It's not true that we need CBDC as a technological invention to restrict your spending and travels and whatever. 2:23:25 So I think the current technological stack is more than capable of it. 2:23:30 All it needs is regulation. 2:23:32 But that's a tangent. 2:23:34 What I wanted to say is that when I realized that actually if you issue eCash as credit and it does not actually represent anything. 2:23:42 It's not an IOU. That's the funny thing about credit. 2:23:45 It's not an IOU. It's a line of credit, literally. 2:23:48 When you spend it, you start to owe the issuer. 2:23:52 But if you can present it in whole, the balance that you agreed on, your line of credit can be presented at the end of whatever settlement period, like every month, 15. 2:24:03 But if you present it without any amount missing, then you don't owe him anything. 2:24:09 Basically, it gives unprecedented privacy to Bitcoiners in their daily spending. 2:24:16 And it is not a raggable relationship. 2:24:20 Like with FediMints, if anyone really thinks that FediMints are somehow not raggable, I mean... 2:24:27 So anyhow, I stopped using credit as a dirty word. 2:24:31 That's what I wanted to say. 2:24:33 I dug into a little bit deeper and I pretty quickly landed on this big credit idea, which is by the way like a hundred steps further than I got on my own. 2:24:43 But I was more open-minded at that point because I already figured it out on my own that credit can actually be a very powerful tool for privacy and freedom. 2:24:53 But of course, we know this is not perfect and not a hundred percent compatible with the blockchain world, where we want kind of everything verifiable and enforced without the legal system. 2:25:07 So that's a big difference here, I believe, that somehow if you involve credit, you start working the fabric of society and the legal system to a degree. 2:25:19 Because of course you can do secure credit on Bitcoin, you can basically create... 2:25:26 If you think about it, it's an extremely flexible and private lightning channel. 2:25:30 You create an escrow, it's still not as trustless as lightning basically, but you can make it very trust-minimized and reputation-based. 2:25:39 And all the stuff that you want to do with services and whatnot in a 9-cap world, it would involve reputation and some level of trust, by the way. 2:25:47 So blockchain is really special. 2:25:50 And so what I wanted to say, you can do secure credit and you can emulate this 9-cap paradise on Bitcoin with very, very private credit. 2:26:00 But the thing is that this does not scale. 2:26:02 So we are coming back to the point where we are facing the limitations of on-chain Bitcoin is just keep us from extorting these things properly. 2:26:17 Because they keep forcing us back into trusted relationships and also relationships where you are basically beholden to the legal system. 2:26:28 And that always comes with a price, always seems to come with a price, like exchanges, custodians. 2:26:33 And I don't think I have to iterate this very long. 2:26:37 Everyone knows what I'm talking about. 2:26:38 So when politicians feel like they got the upper hand to set the terms and conditions of how you can interact with people who want to provide you liquidity or whatever, UTXO, guardianship service, they tend to abuse this. 2:26:55 So this is where this world is going. 2:26:56 Right. We agree that it would be very bad for Bitcoin to scale primarily in a custodial manner. 2:27:09 And we also agree that credit is not a bad thing. 2:27:15 Credit, when it arises between voluntary parties, is mutually beneficial. 2:27:26 Right. 2:27:28 Welcome to the stage, Alex. It's always great to have you here. 2:27:32 Go ahead with your questions and comments. 2:27:35 I heard about… 2:27:37 Thank you. 2:27:39 Thank you, guys. 2:27:41 A few weeks ago, it's kind of an inverted, not rug pullable system. 2:27:49 So can you speak to whether or not changes to the Bitcoin would be required to enable Bitcredit? 2:27:57 And how does it compare to your dark pool protocol? 2:28:00 Is it related at all? 2:28:02 I'm sorry, what pool? 2:28:06 Dark pool, right? Like, is it related to a dark pool? 2:28:09 Ah, dark pool. Yeah. So, not really. 2:28:13 Basically, what I was talking about is just the idea that instead of you using debit eCash, 2:28:23 like when you actually deposit with a mint some amount of SOTS, your own chain on Lightning, 2:28:29 instead the mint can issue you a line of credit in the form of eCash. 2:28:35 And it basically is not actually an IOU. 2:28:38 So this is just a line of credit. 2:28:40 When you spend it, then you start to owe the mint. 2:28:43 You have to settle after a certain period. 2:28:45 And this creates the possibility for very private, very, very, very high-velocity money. 2:28:52 So really something that is suitable for daily payments, like buying ice cream and coffee. 2:28:57 And what I said is not ruggable, because basically what will the mint rug? 2:29:04 Your line of credit? Seriously? 2:29:06 That's his business. 2:29:08 He's collecting fees on providing you this line of credit. 2:29:12 The SECU's version is different. 2:29:15 I understand, but is it basically a version of the FedE-Mint protocol where instead of moving SOTS around, FedE-Mint acts like a credit card issuer where the FedE-Mint will settle Lightning payments while you will incur more and more debt with the FedE-Mint? Is that the idea or is it different from FedE-Mint? 2:29:35 It doesn't actually have to be a federation at that point. Because like I said, the things that you are trusting them with are very, very limited. 2:29:47 What's the model for them to interoperate with the rest of the Lightning and each other? And what is the business model for issuers? 2:29:55 Right now, you could start Cashew. Cashew is simpler than FedE-Mint. You could just start a Cashew mint and you could just print eCash out of nothing and give it to me. 2:30:12 And we agree on that, that I will present to you like 45 days from now, we could give it in writing, that I will present to you the exact amount that you gave me or I will pay 5% fine on the difference, whether it's plus or minus. 2:30:29 So I may have more eCash or less eCash somewhat, but I pay 5% on the difference to you. And that's how we will keep this rolling. And if I don't, then either I have some collateral because we don't have a KEC relationship or you are actually a financial provider. 2:30:48 That is fine with me, you know, showing my ID or whatever and getting into a legal contract and then forcing it into a legal system. That is an alternative. That's the unsecured version. But you still won't know anything about my spending. 2:31:02 So, you know, my actual spending, even though if you have a KEC relationship, it's almost like I have an account with you, but it's really just a line of credit. There is no account in eCash, thank God. 2:31:14 So basically everything I do with this eCash system is exactly the same as it works right now. The only difference is that you actually have to have that liquidity, right? 2:31:26 So I'm not giving you the money that I will spend from your mint. You are actually providing the liquidity and you are going to, of course, charge fees on that, especially if I roll a deficit. 2:31:38 So if I roll a deficit over to Nexmon, then you are really going to make your money on that, just like with, you know, credit cards. It's exactly the same thing as with credit cards. 2:31:48 But the financial privacy, the permissionless nature, so we know the story about the Canadian truckers. You can't Canadian trucker someone. I mean, you can remove their line of credit, they will go to somewhere else. 2:32:00 You can't actually hold their money hostage in this system. So I think it's, of course, it not solves every problem. So it does not solve the saving use case. I'm talking about extreme high-versatility money. 2:32:13 And you can actually do take this entire thing and place it on top of Bitcredit. So instead of, you know, Layer 1 Bitcoin, you could actually make this entire thing like M1 Bitcredit based eCash. 2:32:30 And so the scalability just really, really blows up with this idea that we, to a certain extent, embrace credit with, you know, caveats to the whole thing. 2:32:47 And what I wanted to say about all this. So the point is someone has to run a lightning node and someone has to have funds in a lightning channel, you know. And when you spend this credit, it actually becomes real. It becomes real Bitcoin. 2:33:06 People have asked me what stops the mint to issue more credit than it has, you know, nothing and it's not interesting. The line of credit is not an IOU. It's completely different when you are using the BitBase eCash. I don't know if that answers your question. 2:33:22 Yes, I think it does. But I just I'm thinking more on the practical side. So let's say, for example, you have an investor who wants to participate in the Bitcoin payment space, right? Today they can create a lightning service provider. Maybe they can become an ASP for ARK. 2:33:41 But what you're talking about sounds like any existing lightning service provider or any future ASP for ARK can just add this service to their wallet and say, you can just get this credit stats, you know, and use us as a credit card too. In other words, pay now, like spend now, pay later. The same premise as credit cards have, right? Which is pay now and spend later. 2:34:03 Yes, and you could actually, I believe, do it in a way. If you have ARK, I could actually take like a 1 million sat VTXO and I could probably sign it over conditionally, sign a transaction that will transfer it to an escrow contract where it can be arbitrated. You know, like we have trusted, reputable oracle services through 4acres services. 2:34:30 I don't want to get into a lot of technical details, but basically we can prove out publicly who is cheated if someone tries to cheat. So it's a funny thing about eCash systems that they are very private, but you can actually prove a lot of things. If someone is bullshitting, you can prove that in challenge response sessions. If someone stops responding, then he's the bad guy. So that's good. 2:34:55 Could you see something like, sorry, could you see something like reputations being established on top of Nostr keys? So for example, rather than these mints asking for your ID or... 2:35:09 Yeah, for the arbitrators. 2:35:12 In other words, to make onboarding easier, you just show up with your Nostr key and you say, look, this is my identity. This is my Nostr public, you know, and pub, right? 2:35:23 No, that's not important. Listen, so if you have, again, if you have this conditional signed transaction to a certain arbitration contract and you both bring your own trusted, reputable oracle that you agree on. 2:35:40 So you both bring a trusted, reputable oracle you agree on, you enter into a three or four contract. This is a transaction that puts it into that output. 2:35:53 And basically, this does not need to happen. What I'm trying to say is, if you have oracle, then you can keep this, you know, the same way of chain as you keep anything else of chain. 2:36:04 So what you do is that you basically sign a transaction with the mint that could be used to transfer this one million Satoshi UTXO to an arbitration contract. 2:36:18 And the mint will give you the one million Satoshi eCash, basically. And if you get this one million Satoshi eCash and you spend it, then you actually have to return it to the mint at the end of the period or he will use your transaction to send it to the arbitration contract. 2:36:43 And then you will be tried and judged. And unless you can prove that you actually do have the eCash and you are presenting it to the mint and it's there and he can prove that you already spend that with him. 2:36:56 So, like I said, fraud proofs are very complicated. I don't want to go into the technical details, but it's figured out. So you can do fraud proof sessions, you can do this arbitration. 2:37:05 But the main point is you can keep the whole thing of chain. So you can actually have a relationship with the mint or the ESP where you don't trust each other. You don't even know each other. 2:37:16 But you both have to bring a trusted, reputable arbitrator and you both have to agree on that. That is how this credit line is created. 2:37:25 So the amount of scaling and privacy and velocity that you can get out of this is absolutely mind boggling. And these things can be really supercharging each other. 2:37:44 But we know that with these covenant based UTXO sharing schemes, you still kind of have a problem with block space available to people to some extent. So you still are largely optimistic about all of this. 2:38:02 And this is my main motivation why I'm interested in sidechains. Because especially for low value virtual UTXOs, I believe sidechains could be a viable alternative instead of mainchain. 2:38:16 Because it's much more plausible that you can actually unilaterally settle if someone is trying to cheat on you and you can actually enforce your property right in an economically viable way on a sidechain. 2:38:29 And again, these are the low value UTXOs. So you don't have to do it with your savings or your main savings account or whatever. 2:38:36 So this entire thing, I believe people are just starting to scratch the surface of what you can do with these things if you combine them. 2:38:46 Like combining sidechains and ORC and eCash, credit eCash. And how self-sovereign, how permissionless and how private and how high velocity this whole thing can get. 2:38:58 Moonsettler, if I understand you correctly, when these credit sets are issued by the mint to the user, the user cannot... 2:39:05 Like why are we even talking about the user having their own presence on-chain or off-chain? In other words, aren't these things... 2:39:14 You don't have to. I'm talking about the situation where the mint and the user does not have a KEC trusted relationship. 2:39:23 So the mint has to trust you. If you KEC and have a legal contract with them, then he has to trust you. 2:39:29 If you, however, just want anonymously a line of credit, then there has to be some mechanism that replaces the legal system. 2:39:36 And I believe Bitcoin at its core is a mechanism that replaces or supersedes the legal system truly for these settlements that we do on-chain and are enforceable on-chain. 2:39:46 I think that's the entire point of Bitcoin really. So, yes, you can revert back to the legal system, but if you want a little bit more out of it, 2:39:54 or you have some... for some reason don't want to have a KEC relationship, then it is still theoretically possible to get a secured line of credit. 2:40:03 But then the other party has to have some... to enforce its property rights on-chain. That's unavoidable in that case. 2:40:13 And we have a serious problem with scaling that. So if you put these escrow contracts, if you put them in... 2:40:20 Again, we are talking about credit cards, the use case. So most people have a little bit more life savings than what they have on the roughly monthly spending budget would be in credit card amount. 2:40:34 So what you spend in a month roughly. And basically you are getting your paycheck, you are replenishing, you are paying and maybe you are rolling over a surplus or deficit here or there, 2:40:45 but basically you are having a stable balance and you have a savings account and checking account or whatever. 2:40:53 And so basically right now currently we can't really scale the secured credit use case to billions of people. 2:40:59 That's not realistic. It's much more robust than Lightning. Lightning channels are much more fragile, much more likely to get closed on you if you go a bit inactive or not respond or respond wrongly or whatever. 2:41:13 Lightning channels have basically no privacy to your channel peers. They are very fragile and finicky and this is basically... 2:41:29 I can't hear him anymore. 2:41:36 I can't hear him either. 2:41:37 That's weird. His dots are still moving but I can't hear him. Probably Twitter's fault. I mean X's fault. He seems to have crunched. 2:41:48 Actually, I really like Amun's idea but the problem is that most people will not want to... Oh, there you go. He's back. 2:41:55 I'm saying most people will probably be afraid to borrow in Satoshi's just because Bitcoin tends to spike up a lot and you don't want debt in a monetizing commodity. 2:42:08 But I can totally see how this could onboard a hundred million people. Imagine the following scenario. 2:42:14 There is like 50 million people who've downloaded Strike app around the world in all these like 60 different countries. 2:42:20 And what you have in Strike is you have two services provided. One is you have ability to buy and sell Bitcoin for like a good with a small spread. 2:42:30 And the second one, there's a built-in stable coin which Strike doesn't talk about but basically they're competing with Tether because those US dollar balances inside Strike is their own stable coin. 2:42:41 But that stable coin is not traded in DeFi against other stable coins. But nevertheless, when people withdraw money from their American bank account and send it around the world, there's no interest being paid on that currency. 2:42:54 While Strike is earning 5% on short-term treasury bonds. So these are the two services they provide. 2:43:02 And I can see how they can easily provide a credit service where you can borrow in maybe Sats or USD and they will issue credit because you already have a relationship with them. 2:43:14 So those hundred million African villagers can just spend now and pay off their microcredit at the end of the month. 2:43:20 They don't need to have high caps. They could have like $20 or $50 caps but they could be actually this would be replacing the last vestiges of banking that they would need outside Bitcoin if there was a credit like service provided by the same Strike app which already has onboarded them. 2:43:39 They can just stay off-chain forever. They don't even need to know what's going on. 2:43:42 You can see there is a Sats balance in their account, there is a USD balance and there is a credit balance which could be denominated in either dollars or Sats. 2:43:52 Yeah, I'm not sure how long you heard me because I crashed. Not sure what you heard last from me or if there was a question in the meantime. I'll just go on silent. I have been talking but then I just crashed. 2:44:06 Moon, could you share this if it's any link or website? I don't know if you are trying to do this or somebody else. Could you share the link for the website or if they have some kind of where we can find information about this protocol? 2:44:25 Alright, I will try to share something. So, this is just really a proposal on how you issue eCash differently to achieve a different relationship, a fundamentally different relationship with the Mint. 2:44:43 Because we really like eCash for the privacy, we really like eCash for its velocity, for its flexibility, that it's Lightning interconnected and you can basically pay anyone. 2:44:54 And they don't even able to glean anything about your holdings in theory or ideally whatsoever, not even as much as with Lightning if you pay over Lightning. 2:45:05 So, there are many, many, many advantages of this. And what I was mainly focusing on really is this cypherpunk idea that maybe you don't have to rely on a legal system, that we can a bit move into a more algorist, cypherpunk, anarcho-capitalist direction. 2:45:28 Where you rather use secure credit. But like I said, that has scalability issues. But my paper is mainly focused on that. So, I'm going to try to put that in the nest while you guys talk. 2:45:40 But I want to say that if you are interested in eCash in general, and like I said, almost all of the code base would be unchanged. So, you can just use Cashew or anything. 2:45:51 Basically, the way the eCash gets issued is the only difference. The way you spend it, you receive it or whatever is not different. It works exactly the same. 2:46:03 What it means, what the eCash token means is what's different. And Cashew is also towards with the custodial eCash, with the debit eCash, if you want. It also moves towards a system where you would have a new key set. 2:46:18 So, you would issue new money each month and people would swap in their money. Basically, this is related to the proof of reserves and liabilities scheme that we came up for eCash. 2:46:32 Because everyone thought about eCash as custodians, mainly, in the past. And it really was just an idea that hit me that you could actually remove this custody aspect and turn it around. 2:46:48 And, of course, a lot of things have went into this. So, the whole concept that the ARK service provider would front your liquidity for you, it would be a liquidity provider for you if you want to transact or want to do anything, stuff like that. 2:47:02 And we know that ARK has, some people imagine it, we have horrible liquidity requirements, like 2, 3, 4 times what the people hold in ARK service provider. It's really dependent on the velocity of the money. 2:47:18 Now, with eCash, credit eCash, it's actually not dependent on the velocity of money in the sense that eCash can change hands a thousand times within the mint and that's not a problem for the mint whatsoever. It doesn't need more liquidity for that. 2:47:34 The mint needs liquidity when you are paying a merchant over the Lightning network, like Lightning is very good for this point of sale terminal use case. It's really perfect for that and it has been probably the prime direction in development. 2:47:50 So, when you are paying a merchant, it becomes a real liability from you towards the mint and basically, so to speak, the Bitcoin becomes a suspended, the whole thing becomes real and that is created as you spend this eCash token. 2:48:14 And like I said, it's really the meaning of the eCash token that I changed. It's not a huge technological innovation. The eCash mint works exactly the same. How you issue the eCash and how you are rolling over these eCash notes to new eCash notes, new months eCash notes is what's different with credit eCash really. 2:48:35 I will share the link to the credit eCash gist I brought up. 2:48:46 Very interesting. 2:48:54 I have to go, but feel free to hang out without me, of course. 2:49:01 Thank you, Paul. 2:49:04 See everyone later. 2:49:06 Thank you. 2:49:07 Thanks for stopping by. 2:49:09 Thank you, Paul. 2:49:11 Moon Settler, the topic of credit is important in history because gold needed to scale and scaling gold with credit, meaning paper gold, was one of the major ways that gold monetized. 2:49:29 As Alex mentioned earlier, there is an important question related to credit and Bitcoin, which is that if Bitcoin remains volatile, if the purchasing power of Bitcoin remains volatile, then that would reduce the use of credit that is denominated in Bitcoin. 2:49:52 Because unlike gold, which has demand responsive supply, Bitcoin's supply is fixed and is not demand responsive. 2:50:04 Therefore, to the extent that monetization requires the proliferation of credit, Bitcoin will not monetize because the use of Bitcoin in credit would be dangerous for those parties who are short Bitcoin. 2:50:25 Yes. 2:50:27 You have to have income. 2:50:29 One more thing. 2:50:30 To me personally, the simple solution for Bitcoinization is Thunder, a large block sidechain with extremely low fees because it has large blocks. 2:50:40 And why do we have to talk about credit and credit protocols? 2:50:44 Why not just aim for more people using Thunder to scale Bitcoin? 2:50:50 Henry, there is a problem with Thunder because I think a lot of confusion comes from the fact that people commingle the notion of collateral and the notion of currency and they just use this notion of money and monetization. 2:51:10 But I think it's very useful to separate the idea of collateral from the idea of currency. 2:51:15 And the idea of credit as a third thing where currency is just the credit from the central bank that everybody accepts. 2:51:24 My point is that people would rather not borrow Bitcoin simply because their debt can spike in value. 2:51:32 But it doesn't mean that people will collateralize Bitcoin and then use it as collateral to gain liquidity in the currency that is devalued. 2:51:42 Everybody wants to do this. 2:51:44 Sorry about the noise. 2:51:46 Everybody wants to do this use case where you lock up Bitcoin in a protocol and you issue a stable coin that you later convert into a US dollar. 2:51:56 And you spend it because in that use case, this is like the best of all worlds. 2:52:01 Basically, there is no taxable event in that case, number one. 2:52:04 Number two, your liability is an inflated currency like the US dollar. 2:52:09 While your assets are in a rising asset like Bitcoin. 2:52:14 So basically, it's like you have three advantages. 2:52:17 You do not get rid of your Bitcoin if you continue to benefit from its rise. 2:52:22 So everybody wants that use case. 2:52:25 I would like to give a different approach, by the way, if you allow me. 2:52:32 Please. 2:52:33 So the main concern is cost, cost of settlement, the velocity of money and basically privacy. 2:52:46 So these are in my mind the main challenges that keep Bitcoin from being used as money, as a medium of exchange. 2:52:55 This whole thing about Bitcoin's volatility, it either is going to improve or not going to improve. 2:53:00 We can try various things. 2:53:02 We can wait for it to improve on its own. 2:53:05 We don't know. 2:53:07 You can have incoming Bitcoin. 2:53:09 If you have incoming Bitcoin, you are very calm about taking out credit. 2:53:13 If you have Bitcoin savings, you might also. 2:53:16 It's no different from spending your Bitcoin if you have the Bitcoin when you take out credit. 2:53:23 And again, in case of secure credit, you literally have the Bitcoin. 2:53:26 So either you have Bitcoin savings that are not as private. 2:53:32 You cannot move them as private. 2:53:34 You know, on-chain Bitcoin is extremely traceable. 2:53:37 We kind of know this. 2:53:39 And it is expensive. 2:53:41 So what we are trying to do is limit the on-chain movement, limit the on-chain settlement as much as possible. 2:53:46 Maybe I'm only going to do like one on-chain transaction a decade or something like that when I really have to. 2:53:53 And your question why I wouldn't just use a blockchain is kind of related to that. 2:54:01 So you are not getting the same things out of a blockchain as you get. 2:54:05 You are getting different things and very important. 2:54:07 Out of blockchains. And that is why I kind of think for the highest velocity of money, for everyday spending, where you want the most privacy, I think eCash is excellent. 2:54:19 And if we can make it un-ruggable, then it's even more excellent, obviously. And Lightning gives us this interconnection, this glue that can tie together an entire global ecosystem, you know, not based on trust. 2:54:33 And maybe therefore, you know, more permissionless and more free than the current financial system. 2:54:41 And that is how all this ties together in my head. 2:54:44 And like I said, a sidechain like Tunder can actually give a billion people the chance to hold their own keys to an escrow. 2:54:55 So we know that we could actually onboard a billion people to a relationship that is less scarce than holding Satoshi-denominated brownie points on a custodial Lightning wallet, like a lot of Satoshi or Chiu or whatever. 2:55:18 So, like, we don't know what those things worth. People can be shown anything like that. 2:55:25 That is like the absolute worst. And you also don't have privacy, right? 2:55:28 So that is what we are trying to improve on. 2:55:32 And we are trying to give people the maximum amount of privacy and self-severity and we actually want to make Bitcoin as capable as a payment settlement system as possible. 2:55:44 Of course, it's absolutely plausible that people will issue these in other denominations. 2:55:50 So you can actually do eCash in USD. 2:55:53 As someone mentioned, you can do it in any altcoin. 2:55:56 That's not actually a technical problem. 2:55:59 But we kind of want to do with Bitcoin, of course, is make Bitcoin the money, the money of the Internet and maybe the money of the world. 2:56:06 And it all ties together. 2:56:10 But like I said, you either have a legal settlement and a KC relationship, at least on your line of credit, or you are going to need a way to settle, a medium to settle, a way to hold your own keys. 2:56:22 And that's either main chain, which we expect to be in very high demand and very expensive, or it has to be a sidechain. 2:56:29 Yes. 2:56:33 Monsadler, I just have an objection to this idea that Bitcoin can be the money of the Internet. 2:56:38 I don't have an objection in principle. 2:56:39 All I'm saying is that it has to become a reserve asset first. 2:56:44 Right. So because, you know, it could become actually the money of the Internet 10, 20, 30 years down the road. 2:56:50 But it can never become that unless it moves from this, you know, volatile, sterile store of value that it is today to actually a reserve asset. 2:56:59 And what makes a reserve asset different than simply a store of value is the fact that it's widely accepted collateral. 2:57:06 Like gold is not widely accepted collateral, but gold is a store of value. 2:57:11 Right. So Bitcoin has to move from gold like store of value to being a reserve asset. 2:57:17 And this is the first step that's necessary to make in order to get to that future that you're talking about. 2:57:22 But in order to make this first step, actually, eCash and velocity of money, it's not it's not relevant yet. 2:57:30 Right. What is relevant is whether or not Bitcoin can be collateral, widely accepted collateral, similar to how the U.S. 2:57:37 Treasury bonds are collateral, because you can never have that, you know, money of the world situation until you first become, you know, a 2:57:46 widely accepted collateral. 2:57:48 It's interesting because if you look at the current landscape of development for the for the, you know, the wallets and the user 2:57:58 experience, then everybody seems to be focusing really on that, that you can actually buy a banana or a coffee. 2:58:07 Well, yes, but they use table coins for that, right? 2:58:09 Like people in the global south don't want to have, they want to have, you know, Tether is basically, Tether displays Bitcoin as a unit of 2:58:18 account on exchanges for a reason, right? 2:58:21 Bitcoin used to be the unit of accounts. 2:58:23 Everything was denominated in Satoshi's. 2:58:24 Now, basically everything on the global crypto exchanges is denominated in Tether. 2:58:28 And there's a reason for that, because it's a more convenient unit of account. 2:58:33 Yeah, but you are also going to see some of the same fiction introduced on these table coins that we have on the fiat system, right? 2:58:43 No, no, I mean, I know, I know they are fiat, right? 2:58:46 There could be decentralized table coins. 2:58:49 That's a separate issue. 2:58:50 All I'm saying is that Bitcoin has to evolve one step at a time and you cannot get to the global money or Internet money until Bitcoin 2:58:58 becomes competitive to use treasury bonds as collateral. 2:59:02 Yeah, but there is a paradox here, right? 2:59:05 There is a paradox here, because on the other hand, it does not become a medium of exchange. 2:59:10 It does not get its valuation decoupled from the traditional financial system and the actors like J.P. 2:59:19 Morgan and BlackRock. 2:59:21 If it does not escape that range, then it's very likely it's going to share the fate of gold. 2:59:28 Well, it is. 2:59:30 The outcome of gold is the default right now. 2:59:32 Like, this is what a lot of people don't understand. 2:59:35 And this is my nightmare scenario, is that Bitcoin is a captured system currently. 2:59:40 Well, yeah, it becomes like an exotic store of value asset like art or gold, but it's not used as collateral anywhere. 2:59:47 And that would be a terrible outcome because all the early whales will still enjoy one million dollar Bitcoin, but Bitcoin will fix nothing. 2:59:55 Now, what I'm saying is that in order to escape that fate, you have to have Bitcoin as something that's competitive with the U.S. 3:00:04 treasury bonds as collateral. 3:00:05 And there's a peculiar mystery about the treasury bonds that everybody observed, but very few people can explain, which is why is it 15 years since 2008 you had negative interest rates? 3:00:16 Like who in their right mind is holding U.S. 3:00:19 treasury bonds that are yielding below inflation? 3:00:21 And why is this happening for 15 years? 3:00:23 Why is the market still liquid? 3:00:25 Why are people still holding these things that are losing money in nominal terms? 3:00:28 And there is actually one reasonable explanation to that, which explains everything that's relevant for Bitcoin. 3:00:34 And the explanation is this. 3:00:36 Nobody holds treasury bonds for long term yield. 3:00:39 Banks have to have treasury bonds because they leverage them 10x. 3:00:43 So even though if the treasury bond is yielding 2% and inflation is 8%, when you put on the leverage of 10x or 20x on top of it, it no longer matters. 3:00:51 But it's the only asset that can be used for collateral to create a lot of leverage derivative positions and so on and so forth. 3:00:59 Therefore, the asset is overpriced relative to, you know, it's losing money in inflation terms, but only for those people who simply hold it, but not for 95% of inventory that's used to create a lot of leverage. 3:01:11 So Bitcoin has to be competitive in that market in order to escape the sterile store of value dead end where it fixes nothing. 3:01:18 It has to basically outcompete treasury bonds. 3:01:21 But of course, the collateral use case requires the volatility also to go down, because if 75% and 90% drops are in the game, or I don't know how to say it, so they are possible, 3:01:40 then you would have to greatly overcollateralize on a very scarce asset. 3:01:45 And that will never work, right? 3:01:47 But even though there may be a lower bound on volatility, because Bitcoin has a hard cap on supply, so it doesn't have this quality of gold, it still hasn't found that low of its volatility. 3:02:01 So in other words, Bitcoin with $2 or $5 trillion market cap will have lower volatility than it has now. 3:02:07 It will probably approach gold's volatility, but it will never be, you know, as volatility will go somewhere, but there's still a long way to go to that point. 3:02:17 So Bitcoin hasn't manifested its lowest possible volatility yet. 3:02:21 So there is still, you know, it's still usable as collateral in the future when volatility will decline. 3:02:27 The volatility of Bitcoin can be reduced, according to some theorists, by fractional reserve banking or credit that is not 100% reserved on some peer-to-peer protocol. 3:02:44 So an example of this is, there's a little bit of noise. 3:02:50 I'll just mute everyone for the moment. 3:02:54 Now I've unmuted. 3:02:55 So the way this works is that the entrepreneurs and capitalists who want to engage in lending, they predict that the economy will grow and the demand, they predict that the demand for cash will grow and they engage in lending. 3:03:12 And this increases the total supply of money, the broad money supply, which is the base money plus the credit money. 3:03:20 And thereby they reduce the purchasing power of Bitcoin through their lending activity, through their monetary issuance that results from their fractional reserve lending. 3:03:34 And then if they're profitable, they would correctly anticipate contractions in the business cycle and they would restrict the supply of money by making less loans when they predict that the borrowers won't be able to repay due to the contraction. 3:03:51 So this is the theory that the so-called liquidity preference Austrians hold, and they disagree with the Rothbardians. 3:03:59 The Rothbardians say fractional reserve banking is bad and is a threat to the stability of the monetary system and society. 3:04:08 The liquidity preference Austrian school thinkers, they say that fractional reserve banking creates endogenous stability in the financial sector by regulating the supply of money in a way that creates value. 3:04:23 It produces elasticity in otherwise inelastic commodity money, right? 3:04:27 Like, which is what the reason I mean, if you get beyond the conspiracy theories of the Federal Reserve, the actual reason why it was created and it's not all evil conspiracy is simply because that before it was created, you had these runs on banks where basically there was not enough elasticity of gold as money. 3:04:44 And gold tends to pool with the largest, most credit, credit worthy holders during times of panics, and that would exacerbate the panics because there would be no credit available anywhere in the system, which would just create runs on banks. 3:04:59 Right. So when the Federal Reserve was created, it was partly to increase elasticity of money through issuance of credit on top of gold, so-called fractional reserve, which, you know, laser eyed people hate as the root of all evil or whatever. 3:05:11 But the point is that imagine the situation where in order for Bitcoin to become collateral competitive with the treasuries, right, it actually needs to be collateral for something. 3:05:23 Right. Like, what is it that you do with this collateral? 3:05:26 And, you know, in my mind, the premier use case is to replace tether and strike and, you know, 200 billion dollars worth of stable coins with stable coins collateralized by Bitcoin in a decentralized way, because that's what the world actually wants. 3:05:40 Right. The world wants stable coins, but they don't want stable coins issued by this Mickey Mouse tether outfit. 3:05:48 They want stable coins with the same characteristics as Bitcoin has, uncensorability, you know, et cetera, et cetera, et cetera. 3:05:54 And that's possible. Right. 3:05:55 So that would be the actual use of the collateral. 3:05:57 I'm so sad that you did not come earlier, because we were talking about another alternative to all this, the Bitcredit proposal, which would basically be an alternative to fractional reserve central banking, a more decentralized system, where basically it's just the bills of exchange system modernized and digitized on a cryptocurrency level. 3:06:25 Cryptographic basis is what it tries to be. 3:06:29 And it would give us elasticity and reduce the volatility and help us price Bitcoin with real goods and services. 3:06:36 So yes, yes. 3:06:39 Go ahead. Sorry. 3:06:40 So deals made for the real economic activity, real goods and services would naturally help us price Bitcoin better and more accurately, but also not create this absolute scarcity scenario that an M0 Bitcoin without any credit or any currency on top of it would create. 3:07:03 We could expect huge volatility. 3:07:06 People would need Bitcoin before they have the Bitcoin and the whole thing with rehypothecation and all the jazz that it would require to function would be a very unstable system probably. 3:07:20 I'm in that camp that thinks fractional reserve banking and rehypothecation creates a bad system overall. 3:07:28 And this is an alternative, you know. 3:07:31 It's not bad. 3:07:32 There's a let me just make one quick point. 3:07:34 There is a very big difference between central banking and competitive free banking. 3:07:41 So central banking is what's central banking is what's bad. 3:07:44 And and competitive free banking is consumer oriented and good and ethical and productive. 3:07:52 So the problem when Satoshi said Satoshi made two sentences on this topic, and unfortunately, the first sentence was that central banks are bad. 3:08:04 They inflate the money and debase it. 3:08:07 But then the next sentence was the Rothbardian one. 3:08:12 After the sentence against central banking, Satoshi gave a sentence which was against banks in general. 3:08:19 And that was unfortunate because that set in motion in the Bitcoin community what we have today, which is what Moon Settler what you just said, which is that fractional reserve rehypothecation is an evil scourge. 3:08:32 It's it's part of the free market that people will lend things to other people. 3:08:36 There's nothing inherently wrong with competitive free banking or with maturity transformation. 3:08:42 Right. The banks do have a function of maturity transformation on credit allocation. 3:08:46 Right. Because if there is no banks, where will you borrow for a term to lend money to somebody who needs to do it? 3:08:54 Also, I have a radical idea that you guys may not agree with, but I still want to float it again. 3:08:59 My idea is that the fiat system based on central banks actually ended in 1970, wasn't the end of the gold standard. 3:09:07 It was actually the end of the fiat system. 3:09:09 And what we've been living in since then is actually very similar to the free banking. 3:09:14 It's just called euro dollar system. 3:09:15 Right. So even though the central banks do exist at the margins, they no longer perform the functions that they were designed to perform, namely 3:09:23 issue controlling money supply and interest rates. 3:09:25 What the only function left for the Fed and other central banks is to mop up the create the crisis. 3:09:30 They're basically janitors that show up whenever there is a financial panic or a credit crisis. 3:09:37 Right. And they and they just create confidence in the system by making announcements and issuing credit. 3:09:42 But they actually no longer see or control the money supply or interest rates. 3:09:48 This is so we are much closer to the free banking system that most people realize. 3:09:52 Well, they can't control the money supply. 3:09:55 Right. But it's also a system not based on sound collateral. 3:09:58 Right. Like the classical free banking system had sound collateral gold, which is the system what we have today has unsound collateral, which is treasury bonds. 3:10:06 Right. Or you have corporate bonds. 3:10:08 But basically, regardless, you have counterparty risk in the collateral that didn't exist when the gold was collateral. 3:10:14 And before I've been telling you before, Bitcoin is understand that they no longer have the boogeyman of the central bank. 3:10:20 And the money printing actually does not matter. 3:10:22 Just to give you an approximate scenario, like, you know, there was big news that the Fed printed three trillion dollars during COVID. 3:10:31 There's an estimate that during the same year, the euro dollar system actually has a credit supply that exceeds a hundred trillion dollars. 3:10:39 Right. So the fact that the Fed created three trillion dollars, people forget that the Fed does not print money and inject it into the economy. 3:10:47 What happens is that the Fed creates reserves and removes collateral from the economy. 3:10:52 So just just because the Fed created three trillion dollars in reserves does not mean that actually amount of unsequestered money in the system has increased because the Fed just bought, you know, treasury bonds and removed them from the system. 3:11:07 So it's not even necessarily an injection of new money into the system, because if you think about it, treasury bonds are more money like than the reserves. 3:11:15 Right. Because they're more usable as collateral. 3:11:17 So to make a long story short, I think we don't live in a fiat system. 3:11:21 I think the central banks are irrelevant. 3:11:23 They're basically all just LARPing. 3:11:25 And with Bitcoin, the Bitcoin's actual competition is a euro dollars issued by offshore banks or European banks. 3:11:33 This is the actual competition. 3:11:35 And in that system, they use multiple flavors of collateral. 3:11:38 Of course, the top one being U.S. 3:11:40 treasury bonds. But they also use, you know, German bonds and French bonds, et cetera, et cetera. 3:11:45 This is the place where Bitcoin needs to compete against. 3:11:48 It does not compete against central banks. 3:11:51 That was very interesting. 3:12:03 I think we we've all like heard, you know, a lot of conversation about euro dollars before. 3:12:09 It's interesting. It's all correct. 3:12:12 Everything you said is correct. 3:12:13 But I would still emphasize just to bring the conversation down to earth. 3:12:18 There is a world of difference between a central bank, which enjoys a government enforced monopoly on, you know, legal tender creation versus competitive free banking, which is a free market phenomenon. 3:12:33 And that gold and Bitcoin are competitive free market phenomena. 3:12:38 The central bank with its paper money is not. 3:12:42 And so, you know what I mean? 3:12:45 I agree with you. But what I'm saying is that the euro dollar system is decentralized. 3:12:49 However, it's not free of counterparty risk, right? 3:12:52 Because any any bank in London, you know, Chase, Chase Manhattan Bank, whatever Chase Morgan Chase, JP Morgan Chase Bank has hundreds of subsidiaries, many of which are simply offshore in the city of London or Cayman Islands. 3:13:08 These banks issue their own dollars that are outside of the jurisdiction of the U.S. 3:13:13 Yes, we all agree. 3:13:14 We all agree. I think. 3:13:15 But my point is that it's marginal, right? 3:13:18 The impact of the of the Fed is very marginal compared to the 100 trillion plus in the total credit issuance in the euro dollar system. 3:13:25 Right. Yeah, very, very marginal. 3:13:28 Another interesting way of thinking about it is from the perspective of foreigners. 3:13:32 Like if you're in France and I'm in Germany, neither one of us has direct access to the money printer at the Fed in America. 3:13:40 And so worse than that, neither one of us wants that access because you don't want U.S. 3:13:45 authorities to be able to seize your funds. 3:13:48 Right. What I'm saying is that the dollar for non-Americans is kind of like gold in that it's something which they cannot directly issue. 3:13:57 So the point here is that this is the magic of the euro dollar system is that they can. 3:14:05 Well, yes, I agree. The broad money supply is increased when any bank anywhere in the world lends on a fractional reserve basis U.S. 3:14:13 dollar denominated lending. 3:14:15 So that's how exactly. 3:14:16 And all they need and all they need to do that is to have collateral in a Treasury bond or in euro or in real estate, whatever it is. 3:14:25 Any bank offshore that's completely outside of U.S. 3:14:27 jurisdictions has the capability to issue U.S. 3:14:30 dollars. And by the way, those U.S. 3:14:32 dollars are no worse than the U.S. 3:14:33 dollars issued by Bank of America in New York. 3:14:35 I have a question for Moon Settler since he's here and talking about Bitcredit, which is so interesting. 3:14:42 Is the Bitcredit protocol fractional reserve or is it inherently full reserve? 3:14:47 Like my understanding of Lightning is that Lightning is inherently full reserve. 3:14:52 If you're if you're like, so Lightning is M0, M0 technology, absolutely. 3:14:57 And ARK is M0 technology as well. 3:15:00 Is Bitcredit also, you know, 100 percent reserve like Lightning and ARK or not? 3:15:06 No, Bitcredit is M1 technology. 3:15:10 So it's not it's not actually closely related in its operation to to main chain Bitcoin, except in settlement. 3:15:21 So as I understand, when these bills of exchanges come to maturity, you have to. 3:15:27 So the entire system is defined in such a way that you have to actually settle in real Bitcoin. 3:15:33 Someone has to settle because obviously you can sell your near maturity bills of exchange that maybe you bought at a discount when it was far away from maturity. 3:15:44 And you actually are fine with that because you don't want to on-chain Bitcoin because on-chain Bitcoin is costly, you know, to hold and handle and transact. 3:15:52 You don't actually want it. 3:15:54 So you can actually trade your bills with someone. 3:15:57 Someone has long maturity. 3:16:00 You have short maturity. 3:16:01 You actually want to stay in the Bitcredit system. 3:16:04 He wants real Bitcoin. 3:16:05 So you just put it and maybe you make a little bit on it or whatever or you get what you want. 3:16:12 The point is, it is M1 money technology. 3:16:14 It is currency. 3:16:16 It's not actually reserved by Bitcoin. 3:16:19 I think they are very prickly about any insinuation that Bitcoin can be used as reserve. 3:16:26 There are there are many people that think it cannot be used because of its scarcity properties and because of its hard money properties. 3:16:35 A lot of people seem to think, and I wanted to ask you guys what you think about this, because a lot of people think that rehypothecation and any play pretend that reserves in Bitcoin can only end in disaster. 3:16:48 A lot of people hold this. 3:16:50 Yeah, this is this is just false because Bitcoin is converging with gold and volatility. 3:16:56 And, you know, two weeks from now or one week from now, the BRICS will announce gold back reserve currency, which will basically combine hard M0 reserves, which is gold, with modern on-chain technology for the currency for the M1 tokens to circulate worldwide. 3:17:13 Right. Like this is sort of the best of both worlds where you'll have velocity of money from on-chain issued trading currency, which is redeemable for gold on demand. 3:17:22 Right. And that will be actually much better product as a trading currency than the U.S. dollar is today, because, you know, as we've seen, U.S. dollar can be trivially, you know, seized, frozen, whatever. 3:17:33 Right. Whereas that currency, if it's implemented right, it would be redeemable for gold on demand, while at the same time, uncensorable on blockchains. 3:17:43 And, you know, Bitcoin is completely centralized. 3:17:46 That redemption is completely centralized, but it's no more centralized than the U.S. dollar. 3:17:51 Right. It's like it doesn't need to compete with Bitcoin. 3:17:54 And of course, it's centralized. 3:17:56 Redemption will be centralized. 3:17:57 But the point is that it will be enforced. 3:17:59 You know, it's a better trade off for these countries that are sanctioned by the U.S. 3:18:03 Russia, China, India, whatever. 3:18:05 Right. It's a better it's another trading channel for them. 3:18:08 They're not abandoning the existing system, but they're creating an option to survive. 3:18:12 Yes. Swift sanctions. 3:18:14 Right. So the question is, you are saying. 3:18:17 I was just going to say, like one question you asked Moon Seller just now is, will the rehypothecation always end in disaster? 3:18:29 So are Toxic Maxis right to say that credit and rehypothecation are inherently unstable and unproductive? 3:18:37 So one thing we can say about Bitcoin is that because of its fixed supply, the volatility of its purchasing power will converge on the volatility of the stock indices. 3:18:53 So Bitcoin, this is kind of what Alex was just saying. 3:18:56 Bitcoin will never be less volatile in its purchasing power than gold. 3:19:03 Because gold has price responsive, sorry, demand responsive supply. 3:19:07 It has elastic supply like gold does. 3:19:11 But if the growth rate of the economy, like let's imagine Bitcoin is money, let's just imagine today, hypothetically, everyone is holding Bitcoin and spending Bitcoin and earning Bitcoin only. 3:19:22 So Bitcoin has become hypothetically the world's money. 3:19:26 What would the volatility of Bitcoin of Bitcoin's purchasing power be? 3:19:31 It would be the volatility of the growth rate of the economy, which is uncertain. 3:19:37 It would be S&P 500, basically. 3:19:38 Exactly. 3:19:39 It would be exactly the same as S&P 500. 3:19:41 Exactly. 3:19:42 So Bitcoin would be as volatile as the stock market. 3:19:45 It would not be as volatile as gold was, which was a lower volatility because gold has that elastic supply. 3:19:56 And the question is, will people want to ever lend something as volatile as the stocks? 3:20:04 Maybe not. 3:20:05 People may want to lend it, but the borrowers will not want to borrow it because that would be madness to borrow in an asset that keeps going up. 3:20:13 Right. You want to borrow in an asset whose value is declining like the US dollars, but you don't want to borrow in Bitcoin. 3:20:20 Right. 3:20:20 No, it's not. I would say that's an error that people never want to borrow in something which is going up in value because this is written in human action by Von Mises very clearly. 3:20:32 Well, I mean, I agree with you on short term. 3:20:34 Right. Like when you're doing a flash loan, you can borrow, you know, 100 million dollars worth of Ether on Aave and one transaction later you can repay the debt because you've already done your arbitrage trade through five protocols. 3:20:45 Right. So technically that's borrowing, too. 3:20:48 So if a money is always strengthening and purchasing power, if a money is always strengthening and purchasing power, people can borrow it or lend it. 3:21:00 And the expected change in the purchasing power will be imputed into the interest rate. 3:21:08 So every interest rate has exactly three components, time preference, credit risk, and the third one, which is what I'm talking about, which is the what we call the price premium or the expected change in the purchasing power of the money. 3:21:24 Today, people lend dollars and borrow in dollars, even though they're constantly losing purchasing power. 3:21:32 So what people do is they predict how much loss of purchasing power will occur and they charge a higher interest rate. 3:21:39 So this secures, it protects the lender from the fall in the purchasing power of the dollar because they're charging a higher interest rate. 3:21:48 Similarly, if Bitcoin becomes money, people will charge a lower interest rate because they expect the purchasing power of Bitcoin to increase. 3:21:58 So there can be lending and borrowing when money is always strengthening and purchasing power. 3:22:05 Yeah, there can be and there will be. 3:22:07 And I can give you like today's example is not like what you said is not entirely correct, simply because the way lending works for mortgages, let's say, is that the banks can borrow in the wholesale market at 3 percent, then give you the mortgage at 5 percent. 3:22:20 And when you sign that mortgage, they can unload it into a secondary market, into mortgage-backed securities three days later. 3:22:27 So that way they basically have zero risk on the whole operation. 3:22:31 Even if inflation is 10 percent, it's a still profitable operation for them to lend you at 5. 3:22:37 And the reason why these mortgage-backed securities could be trading at low yields is precisely what I said before, which is that you can use them for 10x, 20x, 50x or 100x leverage to do complicated financial operations. 3:22:50 Their function as collateral obviates any need for them to recoup, you know, yields higher than inflation. 3:22:57 Right. Like if you can get treasury bonds at 3 percent, but you can do a 10x, you know, leverage operation on them, then essentially you're earning a risk free 30 percent. 3:23:07 The fact that inflation is 10 percent doesn't matter to you. 3:23:09 Right. Because you're still making 20 percent if you hold them to maturity. 3:23:13 This is how the financial system works. 3:23:15 Nobody cares that for 15 years you had negative yields on treasury bonds or mortgage-backed securities. 3:23:21 People underestimate the fact that it's simple to think of somebody actually holding these securities for the yield for the long term. 3:23:28 But 95 percent of them are not held for the long term. 3:23:33 They're traded in and out. 3:23:34 They're used as collateral to do sophisticated futures contracts with 100x collateral, etc., etc., etc. 3:23:41 So their yield is irrelevant relative to inflation. 3:23:46 So what does this tell us about the technological paths Bitcoin should take? 3:23:55 Like if you if you actually want to to reinforce the Bitcoin's usage in the world as collateral and like this, you know, live-seal settlement. 3:24:11 So in other words, your scenario of people using Bitcoin as high velocity money is possible 30, 50 years down the road. 3:24:19 And I agree with Saylor on this because I agree that major fiats will remain. 3:24:24 Right. But it can never get there until it gets to be competitive collateral. 3:24:28 And the one thing that currently is missing in Bitcoin in order to make a competitive collateral is what's not missing, unfortunately, in Ethereum, which is ability to lock up and liquidate that collateral 3:24:41 without using trust minimized protocols. 3:24:44 Right. Bitcoin does not have that, unfortunately. 3:24:46 Right. So the demand for Bitcoin as collateral is already large enough where like 300,000 Bitcoin were wrapped up into this custodial WBTC. 3:24:55 But what's missing is the ability to say, you know, liquidate my Bitcoin if I don't pay out, pay back the debt to a smart contract. 3:25:04 This is the missing part. 3:25:05 Right. If you had that, essentially, you can think of it as because if you have that, you have like Ethereum, like smart contracts. 3:25:11 So you can get there many different ways. 3:25:14 You can get it through Drivechains, roll ups, witness encryption or whatever. 3:25:18 But the point is that until you have the same ability for BTC that Ethereum has, you will Ethereum is actually superior collateral, even though it's more volatile. 3:25:29 Can we talk? 3:25:31 Yes. If you guys are willing, before we wrap up, once we're done with this topic and please continue with this topic, could we have a brief discussion on. 3:25:41 On restaking and whether it could be a threat to Bitcoin's. 3:25:48 It is absolutely a threat to Bitcoin because it's the most advanced development in Ethereum that many people don't understand yet. 3:25:54 But restaking is essentially a rehypothecation of your staked Ether, right? 3:25:59 So this is the ability for you to take on more risk while staking your Ether, because currently like you can stake Ether and have risk free 4 percent yield from staking it. 3:26:09 What restaking allows you to do is to take the same Ether and sign up to five more protocols, each one of which pays another 4, 5, 8 percent. 3:26:17 But this additional yield comes with additional risk of you getting your Ethereum slashed should the node that you run for those protocols misbehave and not comply with the protocol. 3:26:29 So can you tell me, like it seems to me like when I read descriptions of restaking and Eigen layer, it seems to me a lot like Drivechain. 3:26:39 In your view, how is it similar and how is it different? 3:26:42 Because on the one hand, let's say I want to stake, I can earn more if I'm staking on many blockchains. 3:26:48 Similarly, in Bitcoin mining, if I'm a miner, it's better if I get fees from many blockchains. 3:26:54 So why is my simplistic understanding of restaking as merged mining in a proof of stake context, why is that not so simple? 3:27:04 Because what's missing in merged mining or blind mining is the ability for you to be punished for not complying with the protocol. 3:27:12 Like there's nothing but upside in merged mining for Bitcoin miners. 3:27:16 While with restaking, if you stake your Ether on Ethereum, then you're just running this, you know, their consensus chain, right? 3:27:26 Not the execution chain, but their consensus layer. 3:27:29 And all you're doing is you're signing blocks for the consensus. 3:27:32 This is the default case, which is considered risk free. 3:27:34 In other words, that's the yield that you get with no, well, there is some risk of you being slashed, for example, if your validator is not online and not signing blocks. 3:27:43 So it's the ability of the system to punish you by slashing your value, which creates this perfect tradeoff where you can enable reuse of collateral to secure multiple networks. 3:27:56 And you have this network effect, right, where you can have an Oracle network, you can have a data availability layer. 3:28:03 You can have, you know, completely different blockchains secured by the same Ethereum. 3:28:08 Exactly. Exactly. 3:28:09 That's why it sounds to me like Drivechain. 3:28:11 It sounds true, but what's missing from Drivechains is the punishment mechanism, because miners only see the upside in blind merged mining, but they don't get punished if the Drivechain is behaved. 3:28:23 I wish they would see it. 3:28:26 Almost none of them see it yet. 3:28:28 Alex, sorry, this topic. 3:28:33 So I'm not sure if you read the proposal. 3:28:36 I'm not sure who made it, but basically I can sum it up. 3:28:41 It's a staking mechanism for Bitcoin, a very, very primitive staking mechanism, because Bitcoin is very limited, right? 3:28:51 Stake chains, right? 3:28:52 You're talking about stake chains? 3:28:53 I think, yeah, stake chains. 3:28:55 Yeah. What do you think about that? 3:28:57 So I'm very familiar with stake chains. 3:28:59 Stake chains is a good idea for creating chains that it's kind of an incomplete sidechain proposal. 3:29:08 In other words, you can secure a sidechain with staked Bitcoin, and because Bitcoin is absolute digital scarcity, it's not, it doesn't suffer from problems of proof of stake, because ultimately security is guaranteed by immutability of the Bitcoin chain itself. 3:29:22 So it kind of has advantages of proof of stake, but at the same time, it doesn't suffer from the disadvantages of long-term attacks and so forth. 3:29:31 But it's not an end product that's desirable, because there is no coin on the stake chain, right? 3:29:37 Like, so for example, what is it that you would be actually doing on the sidechain? 3:29:42 As long as you don't have a two-way bridge, you know, that you can allow, that sets can move to and from it, that sidechain has very limited uses, right? 3:29:51 Because what you want is you want that sidechain to have smart contracts or do something that Bitcoin doesn't do. 3:29:57 And as long as you cannot move the stats to and from it trustlessly, you cannot use that sidechain, for example, for trust-minimized collateral, right? 3:30:05 Yeah, and what if you bind this with a hash rate as well? 3:30:09 Because you said the problem with bind-mesh mining is you do not have this mechanism. 3:30:14 Stake chains seem to have the two-way peg mechanism, actually. 3:30:18 Well, they have punishment for non-compliance with the stake chain protocol. 3:30:23 But if we brought this up in the context of restaking, I think restaking is like rehypothecation in the traditional financial system. 3:30:32 It's a very powerful and very attractive thing, because it enables people to choose the level of risk they want for their reward. 3:30:41 Because right now, if you hold ETH, you basically can stake it or not. 3:30:45 If you don't stake it, you're just holding and monetizing, like increasing in value decentralized coin, more or less. 3:30:50 If you stake it, you assume some risk, because like your validator can get slashed. 3:30:55 So there is a bit of a slashing risk. 3:30:57 But in exchange, you get higher yield. 3:30:59 What restaking enables people to do is they can say, well, wait a second. 3:31:03 So we have $100 billion worth of ETH already staked on Ethereum. 3:31:07 Why can't we all tap into this pool of $100 billion worth of trust and give an opt-in option for people who are already staking their ETH to secure additional protocols by running additional nodes? 3:31:21 And there is a huge network effect there, right? 3:31:26 Because instead of resulting in your own – yeah. 3:31:29 Sorry, I didn't – please continue. 3:31:33 I was just saying that instead of – imagine what it would take to launch a blockchain or an Oracle protocol or any kind of system today. 3:31:41 You basically have to bootstrap your whole economy from scratch where you have to have a coin, its own validators, et cetera, et cetera. 3:31:48 It's very difficult to do. 3:31:50 Whereas instead now, you can launch a system that does terabits per second worth of data availability, let's say, or an Oracle network. 3:32:00 But instead of having its own coin, you just give an option to Ethereum stakers to say, listen, download my node from my network and run it. 3:32:08 And if you believe my code to do what it says it will do and if your node actually operates 24-7 as it should, you're going to get extra 10% of yield on your ETH. 3:32:17 So that becomes very attractive, right? 3:32:20 This works exactly the same with stake chains. 3:32:24 So one stake can be used as many chains as you want because you actually just basically have a mechanism where you are enforcing the uniqueness of signatures, single-use signatures for a blockhead on the subject. 3:32:44 Yeah, but you cannot run two stake chains using this, right? 3:32:47 Why not? 3:32:48 Because a single Bitcoin locked up to secure a single stake chain cannot be used again because it uses a mechanism of non-leakable nonsense, right? 3:32:59 Yes, but those can be different for every chain. 3:33:02 So that's not the problem. 3:33:03 You can sign for the same blockhead for the same chain twice, but you can have different nonsense for different chains and I don't see the problem. 3:33:15 I think you're right. 3:33:16 I was wrong about this a minute ago. 3:33:18 But I think the real problem is that the script is so limited that you actually cannot structure a contract to be flexible enough in order for somebody to say, look, I want to stake. 3:33:28 I want to enter the system and exit the system and the stake chains has particular limitations. 3:33:35 Whereas this restaked system in Ethereum, there's absolutely zero technical limitations on what this other system looks like, right? 3:33:43 It could be a blockchain. 3:33:45 It could be a centralized. 3:33:46 Whatever the hell it is, it has no connection to Ethereum itself. 3:33:51 It doesn't depend on the Ethereum blocks or Ethereum keys. 3:33:54 There's like zero dependency there, right? 3:33:56 There's only a smart contract on Ethereum that basically says if you join the smart contract, you will get additional yield or your subscribed Ether will get slashed if your node misbehaves. 3:34:08 Is it correct to think that this restaking could drive movement among blockchains to converge on Ethereum? 3:34:20 There's already been announcements in Ethereum that some layer one blockchains like Celo, for example, recently announced that it's abandoning its blockchain and it's going to migrate to become a layer two on Ethereum. 3:34:33 Yeah, that's what I'm worried about. 3:34:36 There's something different. 3:34:37 There's something even more significant going on because you now have this thing called shared sequencing going on, right? 3:34:46 So every roll up until recently would try to run its own centralized sequencer. 3:34:50 But now they have a shared sequencer. 3:34:52 The system is called Espresso, I think, where instead of every roll up running its own sequencer, there's a single sequencing network which is using restaking on Ethereum that allows any pair of roll ups to atomically execute transactions in such a way that the transaction executes on both roll ups or not at all using a single Ethereum transaction for settlement. 3:35:15 So you now can have arbitrage between roll ups and the whole thing is enabled by a blockchain called Espresso, which itself is just a restaking node on Ethereum. 3:35:28 So it no longer bothers to launch its own blockchain. 3:35:32 Eigen layer itself is launching a data availability layer that is for comparison. 3:35:38 Ethereum has 30 kilobits per second bandwidth to its own data availability layer up and down. 3:35:45 They're launching a 10 megabit per second bandwidth to the data availability layer that will have billions of dollars worth of Ether securing it. 3:35:53 And therefore, as long as Ethereum exists, you will have data storage guaranteed to be available at one hundredth the price of Ethereum block space. 3:36:03 Do you think that is there going to be a Eigen layer token or not? 3:36:10 There is going to be an Eigen layer token, but it's a protocol equity token similar to how CRV or Aave has a protocol equity token. 3:36:19 Are those strictly necessary? Are those necessary? Or why can't they just design it like Drivechain where there's no token? 3:36:26 This token is not a shitcoin in the sense of it's not trying to be currency. 3:36:30 And this is back to laser eye called declaring everything a shitcoin, which is a mistake. 3:36:35 If you look at what CRV token is or Aave token is, those are crypto equity tokens. 3:36:40 They're not trying to be currencies. They're basically tokens which accrue value through fees charged by the protocol. 3:36:48 So Eigen layer is not in the business of charity. They will provide this Eigen layer stuff. 3:36:53 But in exchange, they will collect some kind of small commission on the yield, on the additional yield that you're collecting. 3:37:00 This small commission will accrue to the protocol token as crypto equity. 3:37:04 Right. So think of it as an income stream to Apple shares. 3:37:07 You know, Apple has income. Apple shares, therefore, have value. 3:37:10 So you'll have the same kind of protocol equity token in Eigen layer. 3:37:15 But it's not trying to be store of value. It's not trying to be collateral. 3:37:18 It's not trying to be anything. It's simply crypto equity. 3:37:21 It's a stock in a company that happens to be a smart contract and has no employees. 3:37:27 Alex, may I ask you a question? Because you mentioned CRV. 3:37:31 Can you tell me what are the risks or risk management? 3:37:45 Do you go on that path and you check all this? 3:37:50 Because the recent events, what's happened is that even particularly specifically for CRV, the most of the supplies is held by one person. 3:38:04 Most of the supply of this crypto equity, like imagine if somebody held, you know, 50 percent of Apple stock. 3:38:10 Right. And imagine if this somebody put all of their holdings as collateral and borrowed stable coins against them. 3:38:17 So now you have a problem where these protocols that lend them stable coins are looking at mass liquidation because his CRV token is going down. 3:38:25 Because there were hacks and the hacker wants to unload the CRV tokens. Right. 3:38:28 So the CRV tokens were hacked. The hacker will dump the CRV tokens. 3:38:32 That will cause forced liquidation of CRV as collateral, which might cause bad debt and protocol crashes and other protocols that allow CRV to be the collateral. 3:38:44 It was a mistake for these protocols to allow this kind of crypto equity token as collateral in the first place. Right. 3:38:52 Why would you allow a Mickey Mouse company, which consists of a smart contract and issues its token that accrues value from the fees? 3:39:00 Why would you allow that as collateral that you can borrow Bitcoin, Ethereum or stable coins against to begin with? 3:39:06 The reason why they allowed that is because they are all whales holding CRV. 3:39:10 The people running these protocols basically did a sweetheart deal with themselves where they allowed the CRV token as collateral, even though it's too volatile to be collateral. 3:39:19 And now they're basically looking at like obvious looking at, you know, hundreds of millions of dollars of bad debt in the protocol where CRV might go down low enough where it needs to be liquidated. 3:39:31 But there will be no buyers to repay the debt, so they might end up with negative protocol value. 3:39:38 Yeah, it's a huge problem in DeFi at the moment. I mean, it's not at the moment, but if something happens. 3:39:44 The problem with this is not really DeFi, this is Dino, decentralized in name only, because any DeFi protocol that has governance is not decentralized. 3:39:53 I don't give a fuck what they call it, but pardon my French, but I'm saying any protocol where you have voting parameters is not decentralized. 3:40:00 Any protocol where you can have an upgrade to the protocol code is not decentralized. 3:40:05 Now, these are not the only kinds of DeFi protocols. There are truly decentralized DeFi protocols out there, right? 3:40:11 There are protocols which have zero governance and zero upgradability. Those are the only legitimate DeFi protocols from my perspective. 3:40:17 And, you know, there's good examples of those as well. 3:40:20 So what does this all mean for Bitcoin and how we could, you know, move forward? What do you think? 3:40:26 I think what Bitcoin is missing is like there is this complete myopic misunderstanding of it having to become collateral first. 3:40:34 And if people really understood that the one thing that will keep Bitcoin from becoming captured by BlackRock and becoming another fine art or another gold 3:40:42 is to actually enable what people want to use it for, which is the same thing that people use Ethereum for, 3:40:49 which is a volatile but decentralized and trust minimized collateral on top of which you can do a million different operations. 3:40:57 You can issue stable coins, you can issue futures, you can issue insurance contracts. 3:41:02 There's a million uses for collateral and Bitcoin, unfortunately, treats collateral as a dirty word. 3:41:08 Back to the same, you know, hybrid hypothecation, fractional reserve banking, whatever. 3:41:13 But this is what the Eurodollar, this is what modern finance is. It's basically collateral with 100x leverage on top. 3:41:20 So basically we are trying to take over the world by pissing on the world or something? 3:41:26 Well, you're trying to take over the world by doing something that's not what the modern finance cares about, which is payments are a solved problem. 3:41:35 Like from my perspective, you know, Visa or PayPal or whatever, they can do incredible velocity of money. 3:41:41 And the fact that it's custodial doesn't even matter because it's your petty cash, it's not your savings, right? 3:41:47 Like what matters is that those people, you know, institutions want collateral, whereas plebs in third world want stable coins that cannot be robbed from them. 3:41:56 And Bitcoin doesn't care about either one. And this is the problem, right? 3:42:00 Bitcoin is trying to produce high velocity private payments, but who cares that your bank knows about your $1,000, you know, petty cash balance that you buy stuff on the Internet? 3:42:10 Unless you buy drugs online. In that case, go ahead and use your Wasabi wallet or something or use Monero. 3:42:16 But it's not a use case that the world actually cares about. 3:42:20 The financial system, the institutions care about collateral and the plebs care about stable coins that cannot be robbed. 3:42:26 Alex, I think what you said, I disagree because it's not the case that who cares the bank. 3:42:34 Even I don't care what they say, but the thing is that nobody can censor you from transacting. 3:42:42 There is a huge amount of friction in the traditional finance and banking world and it's a huge pain in the ass and the financial pyramid is seemingly increasing. 3:42:56 But what's actually solving that issue of friction, it's not Bitcoin, it's Tether, right? Tether is the real competition, not dollars. 3:43:06 But Tether is a company that they can just sit on if they want like a medium base. 3:43:12 Create a version of Tether that cannot be robbed, right? Create a decentralized dollar backed by Bitcoin as collateral like LUSD, right? 3:43:19 If LUSD became as big as Tether, the Tether would go away. 3:43:24 Didn't it just end in disaster every time someone tried it? 3:43:28 No, no, it only ended in disaster if you try algorithmic coins, right? 3:43:35 I'm not talking about algorithmic coins, I'm talking about collateralized coins where the collateral itself is decentralized. 3:43:42 Those models are known to work perfectly. There is no de-pegging of LUSD and there can never be de-pegging of LUSD. 3:43:49 If you want an example of what the world actually wants, look at LUSD liquidity. 3:43:53 The only reason why it's not become huge yet is because there's liquidity network effects for Tether and USDC and others, right? 3:44:00 And DAI, right? But they actually, the world doesn't know it yet. 3:44:04 But if the world had LUSD as a mass adopted coin, this is what the plebs want. 3:44:10 Now, it wouldn't be helpful for Bitcoin, but Bitcoin wouldn't compete with this until 30 years from now. 3:44:15 What Bitcoin needs to do is to give institutions what they want, which is they crave collateral that has no counterparty risk. 3:44:22 Right now, in the world, there's only one asset that does it. You know what it is? Unfortunately, Ethereum. 3:44:28 Ethereum is the only asset in the world where you can use it as collateral with no counterparty risk and you can do fancy operations on top of it. 3:44:35 Bitcoin does not solve that case. And that's why it's not interesting to institutions. 3:44:42 EURUSD system wants Bitcoin to be like Ethereum. 3:44:46 Alex, there is another perspective of what you're saying, and I want to ask you, what do you think about what the Drivechains try to do and how the mechanism with depositing and escrow holdings, how you view this mechanism? 3:45:16 Because I want to say that you're saying Ethereum, but Ethereum is way behind the other blockchains, which they already are in the future with what you're saying already. 3:45:29 I disagree. I disagree. I mean, Ethereum has killed off all of its Ethereum killers. 3:45:35 No, no, no. 3:45:36 Ethereum is becoming stronger. Let's not argue about Ethereum, but who cares, right? 3:45:42 My point is that Drivechains are, I will take Drivechains because at least even though it's not a perfectly secure trust minimized setup, it's better than having nothing right now, right? 3:45:55 At least if Drivechains appear and somebody does a successful Drivechain, you will have the ability to collateralize Bitcoin on this Drivechain and do advanced operations. 3:46:04 It sounds like the network effect is already so hugely tilted from what you described to us so far. It sounds like kind of like too late, no? 3:46:14 It may be too late. I agree with you. I'm still hopeful that it's not simply because Bitcoin still has more liquidity than Ethereum. 3:46:22 So even though Ethereum has huge network effects, but the total market cap of Bitcoin is still above Ethereum, so there's still a chance. 3:46:29 When it will become too late is if Ethereum flippens or lappens Bitcoin. In other words, not just 1x, but 2, 3, 4x Bitcoin. 3:46:36 At that point, the game will be over because at that point, even if you enable perfectly secure sidechains or roll ups on Bitcoin, it will be too late to catch. 3:46:48 Like the only advantage remaining to Ethereum will be the fact that it's higher volatility than Bitcoin. 3:46:53 But once its market cap is above Bitcoin and stays above Bitcoin, I think its volatility will equal or go lower than Bitcoin as well. 3:47:00 Exactly. 3:47:01 So that will be game over. So you basically have between now and the flippening to do something. 3:47:06 Exactly. Drivechain now. If we wait to the flippening to wise up and understand what's going on, it's going to be over probably. 3:47:15 The biggest problem with opponents of Drivechain is that they decide for other people. 3:47:19 If you don't like Drivechain, do not deposit your coins there, but do not prevent people who want to use Drivechain from doing it. 3:47:26 And truth be told, Drivechains do not really need a soft fork. They could have a minor activated soft fork that is either announced or unannounced. 3:47:35 Oh, that's a huge conundrum. 3:47:38 Well, but at the end of the day, it's that or Bitcoin becomes an exotic store of value and becomes like art or gold and fixes nothing. 3:47:46 So do you think miners care about that? Do they have business plans that span through the next cycle or something like that? 3:47:57 They actually do care what happens? 3:48:00 I think miners are not endangered enough to care about it right now. 3:48:05 At the conference in Miami, I asked them, I went to the different mining companies and asked their employees if they're interested in the possibility of higher fee revenue from sidechains. 3:48:15 At this moment, I don't think most of the miners understand this and they're just hoping for numbers to go up. That way the subsidy pays them for the next few years. 3:48:25 That's all they're thinking about as far as I can tell. 3:48:29 The one miner that has written favorably about merged mining is Brains. Brains put out a blog post in the past about merged mining Rootstock and how they like doing that to promote Rootstock and to collect the fees from that chain. 3:48:43 Yeah, Rootstock I think even now has 50% of the hash rate, right? 3:48:47 That's the least favorite way to do this, by the way. 3:48:50 Yeah, because it's no real peg. But Rootstock had like 80% of the hash rate at some point. Maybe it's got 50% right now. 3:48:58 It's currently about half of Bitcoin's hash rate is merged mining Rootstock. 3:49:03 It just shows you that because they have zero downside from doing it, just some technical, you know, they just have to run another piece of software. 3:49:10 They will do it. And with blind merged mining, they got to do absolutely nothing except they have to orphan the blocks that try to withdraw early, right? 3:49:21 Which is the way they would enforce this miner activated soft fork. 3:49:25 I don't even think they have to. They don't have to orphan blocks. No. If you are talking about VIPS 300, they just downvote them. 3:49:34 They just what? 3:49:36 They just downvote them basically or upvote another competing proposal. They don't have to be organic. 3:49:43 No, the problem is that downvoting is not sufficient because if somebody tries to create an early withdrawal from that address, that withdrawal is invalid. 3:49:54 So the block containing that. 3:49:56 Yeah, I understand now what you are saying. So breaking the consensus rules. 3:50:03 Yeah, so the only thing that miners need to do to enable blockchain is basically to get together into a cartel and say, look, we will not build on top any block that does an early withdrawal or does a withdrawal without the majority vote after three to six months. 3:50:16 I guarantee you there would be a second civil war if they tried that. Like that is the one path that I understand that what you are saying that it would technically be enough. 3:50:29 But imagine if they are doing this without announcing this though. Imagine that occasionally you see an orphan block and you don't know why. 3:50:39 But who would use the Drivechains then if they don't announce it and they don't commit? Who would be stupid enough to put money in that? 3:50:47 Well, you would still see that coin based transaction, right? You would still see these like deposits and withdrawals going on. 3:50:53 It's just that I'm saying that they wouldn't aggravate the laser eye faction by saying, hey, we're getting into this conspiracy of miners, right? 3:51:01 They could just quietly announce a year later that we've been doing billions of dollars worth of deposits and withdrawals to these sidechains. 3:51:10 Can you give me some idea why Stacks is doing merge mining in such a despicable way and why they are burning coins in the worst way possible? 3:51:23 Basically, from my point of view, Stacks is doing the merge mining and burning coins the worst possible way. If you really want to harm Bitcoin, this is how you do it. 3:51:34 Well, I mean, because their marketing wants to tell you that you can earn Bitcoin by staking Stacks, right? 3:51:40 They're creating a marketing story for why you should hold STX. That's all there is to it. 3:51:45 They are not merge mining per se. It's not technically merge mining. 3:51:49 No, it's not merge mining. It's basically like staking of STX, right? 3:51:53 The miners have to run their software, right? Integrated into their mining operation, which is basically like classical merge mining. 3:52:00 Stacks miners. Bitcoin miners, they don't care about. But Stacks miners, yes. 3:52:05 But I heard miners actually run this software and they can actually… 3:52:13 They can rug pull Stacks by doing certain… For miners, it's an additional risk-free source of revenue. For Bitcoin miners, it's because they can either rug pull or run Stacks software because they have privileged position of building blocks 3:52:28 and they don't really need to pay for transaction fees and stuff. 3:52:31 So for them, it's like it's a little trickle of additional revenue with zero risk, which is why I leave it on the table. 3:52:37 It's kind of like the same story as RSK, basically. 3:52:41 Alex, what is your long-term expectation on Stacks if we assume Drivechain never comes to Bitcoin? 3:52:47 It's irrelevant. I think it's not going anywhere. It's just another shit coin that's not even worthy of discussion, basically, from my perspective. 3:52:55 Like the whole ecosystem, the whole Stacks project. 3:52:58 Yeah, it's a ghost town. I mean, it's all just a LARP, basically. There's no ecosystem there. 3:53:07 That seems to be the story of Bitcoin sidechains, support sidechains at the moment. 3:53:13 Well, because Bitcoin sidechains do not exist, right? Like Liquid is not technically a sidechain relative to the original sidechain paper. It's like a multi-state custodial thing. 3:53:22 Alex, would you agree that in order to be a true sidechain, the sidechain must be peer-to-peer? 3:53:29 Would you agree that that is the right sort of categorical description? 3:53:34 I would agree with that, but I'm telling you that in the long run, that's necessary but insufficient because they tried all these variants in the Ethereum world. 3:53:42 And what they settled on to scale Ethereum is rollups for a good reason, because rollups allow you to pull security, whereas in Drivechains, every Drivechain has to be big and secure enough on its own. 3:53:56 And it cannot benefit from double spend resistance of Bitcoin, and it cannot double benefit from immutability of Bitcoin, right? 3:54:05 So basically, in the long run, yes, it's necessary for the sidechain to be peer-to-peer, but it's just not sufficient. 3:54:12 Unless you have this one super popular Drivechain that actually has billions of dollars worth of security because it's running collateral and smart contracts and everything else. 3:54:22 Yes, it would be viable, that kind of Drivechain, but it still would not pull its security with Bitcoin, which is a bummer, I guess. 3:54:33 So, do you think it's actually a viable combination to combine BIP300 and with multi-chain, stake-chain type of stuff for security? 3:54:45 Because it seems to solve the real problem on the sidechain side. 3:54:49 No, it doesn't, because the sidechain that uses stake-chain has its own security, you know, walled garden. 3:54:56 It doesn't really benefit from Bitcoin security in the sense that, yes, it does fix long-range attacks, but in order to mutate the tip of that stake-chain, you only need to outspend whoever's staking to secure that chain. 3:55:09 Whereas rollups simply get the entire security of Ethereum for free, right? 3:55:14 You cannot beat that. This is like safety in numbers. 3:55:17 The more rollups that exist on Ethereum, the more secure Ethereum is and the more secure every rollup is. 3:55:23 Now, rollups have one downside, which is that they consume block space on Ethereum, right? 3:55:27 Which is what Drivechains would not do. They would have their own block space. 3:55:31 But this consumption of block space actually creates the fee pressure that's necessary anyways, right? 3:55:38 And by escalating the price of the M0 block space, it actually indirectly creates demand for M1, M2 and M3 block space by this kind of waterfall where once the M0 becomes expensive enough, everybody's forced to M1 or L2, L3 and so forth. 3:55:56 So this is kind of a reinforcing thing too, that the fact that they're not perfectly scalable because they consume the block space is actually an advantage because it forces uneconomical uses to join the L2s and L3s, right? 3:56:10 Which reinforces their use and security, right? 3:56:13 So rollups on one hand are not scalable a billion times like Drivechains would be, but the tradeoff of would you rather have a secure rollup that is maximum 100x scalable relative to Bitcoin itself if you're just doing payments is still worth it, I think. 3:56:31 So if I understand correctly, you would think Drivechains would be more suitable for certain utility type things where the block space is actually the whole point, sort of? 3:56:46 Yeah, if you need something like trillions, like terabytes worth of block space, then Drivechain is better than a rollup, right? 3:56:57 Because rollups have to share block space with L1, right? 3:57:03 So if you have a use case where you want to put all the images of the world on a blockchain, then a rollup is not appropriate, but a Drivechain is. 3:57:11 And the fact that the security might be sufficient for you to store your data, even though it doesn't benefit from L1 security, is probably okay for that kind of rollup, right? 3:57:26 Where you're just backing up data, for example. 3:57:28 Alex, what are your expectations in terms of the possibility of Bitcoin doing rollups or Drivechains in the future? 3:57:37 What do you practically expect? 3:57:40 Practically, I expect a failure. In other words, I expect Bitcoin not to do this unless there is a real apocalypse and a pleb uprising. 3:57:50 Like I said in the past, you need a real crisis in order to get the laser eye cult to wake up and smell what's going on. 3:57:57 Because a real crisis is that you need basically sticky high fees on Bitcoin in order to destroy the laser eye cult gatekeeping on any changes to Bitcoin. 3:58:07 This is the only way. This is exactly what works in Ethereum. 3:58:10 But it's interesting that you, and we've talked about this before, it's always so interesting to hear your thoughts. 3:58:17 You expect that there could be a feepocalypse and you're referring to the possibility of persistently high fees. 3:58:24 But as you know, the drivechainers expect persistently low fees. 3:58:29 Yeah, I disagree with that. 3:58:32 Isn't there a cart before the horse problem? 3:58:37 Where we're talking about development on Bitcoin and demand accruing, demand building up on the block space. 3:58:44 But how will there be that demand when the development must come first? 3:58:48 No, I know, but there's enough development right now. 3:58:51 For example, there's one feature missing in Ordinals right now that would increase the demand for block space by 100x. 3:58:59 And the feature is the hierarchical nested Ordinals, right? 3:59:04 Because Ordinals are not hierarchically nestable right now. 3:59:07 You cannot create an Ordinal that represents you as an identity and then have a file system below you where you have folders and other Ordinals below you. 3:59:15 But once they add this feature to Ordinals, expect all these websites to appear to say, 3:59:20 Upload all your baby photos and different folders to Bitcoin forever and ever and your family will keep it. 3:59:25 Pay only like $59 today. 3:59:28 Or pay $200 to upload 10 megabytes of various encrypted data into Bitcoin. 3:59:35 But until they have this ability to structure information, that's not a viable use case. 3:59:40 But you don't need to change Bitcoin to get that. 3:59:42 What you need is you need to basically to hurry up and merge a couple of pull requests for Ordinals to enable nested Ordinals. 3:59:49 And I believe that will create sufficient block space demand. 3:59:52 What do you think about people, Bitcoiners basically just moving towards U3XO and ZeroSync model for most of them, 4:00:06 basically killing this Freerider replication narrative and just killing the whole Ordinals inscription thing? 4:00:18 I don't think it's going to happen simply because miners will always run nodes where you can download fast blocks, 4:00:25 even if there was a mass movement to U3XO, etc. 4:00:29 This is not a data availability problem. 4:00:31 This is a data archiving problem. 4:00:33 And the question is, what is the incentive for somebody to archive the blockchain? 4:00:38 There is no answer for that in Bitcoin or Ethereum for that matter. 4:00:42 But if the miners start to charge fees for serving this data, then it basically becomes worse than cloud. 4:00:50 Yes, but if that archival data is not available, you just broke Bitcoin's security model, 4:00:57 because the security model says that you have to download the blocks for the whole history. 4:01:01 Well, not with ZeroSync, right? 4:01:03 Not with ZeroSync, you don't have to. 4:01:06 Yes, but what I'm saying is that if ZeroSync exists as an option, it's not part of Bitcoin consensus, right? 4:01:13 You can use it as an option, but Bitcoin consensus requires that you sync to the tip of the chain with at least one honest peer, right? 4:01:20 So somebody needs to give you all the blocks historically, and this somebody must not be Chinese Communist Party. 4:01:27 That must be somebody who's actually giving you the real version of history, going back all the way to block zero. 4:01:33 I don't think there's any danger of archival becoming charged for or unavailable, 4:01:40 because even in Ethereum, there's still hundreds of nodes that are provided for free as a community service, 4:01:45 and I think that will always remain the case in Bitcoin. 4:01:47 I'm not worried about that. 4:01:49 What I'm worried about is literally, I'm not even worried, I'm resigning myself to this. 4:01:54 I know that there will be no drive-chain soft fork, which is why I'm advocating for miner activation there. 4:02:00 I know that there will be no action taken until there is a real crisis. 4:02:04 But in order for the real crisis to occur, you need either flippening or Fipocalypse or both. 4:02:10 And there's no other outcome that will actually, you know, begging for a soft fork. 4:02:17 The flippening scenario basically means we are too late, 4:02:21 because we will just start to build out an ecosystem that tries to compete with something that is already big enough to overtake Bitcoin. 4:02:30 Exactly, so we're not too late right now, because the market cap is still 2X of Ethereum. 4:02:36 But if the flippening sticks, not just one time and then unflippens, but if the flippening sticks, 4:02:42 in other words, if the market cap of Ethereum goes above and stays above, that's very important, 4:02:47 then you've already lost the network effect game, with one exception. 4:02:53 There may be some uses for like central banks that don't want to hold Ether, 4:02:58 because it's a cult and, you know, Vitalik and others can do a hard fork, 4:03:01 but they would hold collateralized form of Bitcoin on a smart contract chain. 4:03:07 So there is still a use case where if Bitcoin actually enabled roll-ups or enabled witness encryption or whatever, 4:03:15 you could have very conservative institutional demand for that form of collateral, 4:03:20 simply because it's completely ossified, right? 4:03:23 While Ethereum will not be ossified for another 10 years. 4:03:26 So actually, it's not too late to fight Ethereum until Ethereum itself ossifies. 4:03:31 So maybe flippening is not sufficient, but flippening followed by ossification, that would be the... 4:03:37 And this whole thing that you said is basically predicated on the proof-of-work meme, basically, in some sense wins. 4:03:47 Like, I think it kind of assumes that the ESG narrative somehow flips. 4:03:57 It's already flipped, right? It's already flipped. 4:03:59 Some of the verses, and it sticks. Like, we don't know if this is sticky. 4:04:04 No, we don't. But we do know this, that Ethereum is not a credible reserve asset until it ossifies. 4:04:11 So maybe I was too premature to say that flippening is not enough, even lappening is not enough. 4:04:18 But lappening or flippening followed by ossification of Ethereum, which by the way, 4:04:22 Ethereum is organically ossifying right now because its velocity of change is decreasing every year, 4:04:28 simply because there's so many stakeholders that they can't agree on changes anymore easily, right? 4:04:33 So even small tweaks now take a year. 4:04:35 So like by 2030, Ethereum can naturally ossify. 4:04:38 If by that time it has flippened and it has ossified credibly, then there is basically zero use case left for Bitcoin. 4:04:46 Like, there's no use case where Bitcoin is superior to Ethereum. 4:04:50 There is still a possibility that Proof-of-Stake somehow, the specific way they did Proof-of-Stake somehow backfires on them, right? 4:04:58 So Proof-of-Work can come out by sheer stubbornness and resistance to change in a certain... 4:05:05 I agree with you that Proof-of-Stake may be captured by central banks printing fiat to buy Ether, whereas Proof-of-Work cannot be captured that way. 4:05:12 That part is true, but there's also the other flip side to that, is that Proof-of-Stake enables restaking and rehypothecation. 4:05:19 While Proof-of-Work in theory does not. 4:05:22 So in a sense, it's like it's a more attractive financial system that you can build on top of Proof-of-Stake simply because you can pick the level of yield commensurate with the level of risk that you want to take. 4:05:34 Whereas in Proof-of-Work, you just burn electricity. 4:05:36 If it costs you less than the Bitcoin you get, that's all you can do. 4:05:39 It's like a primitive financial system. 4:05:41 Proof-of-Stake, you can have restaking, right? 4:05:43 So you can say, I want a 50% yield with a lot more risk or I want 3% yield with zero risk. 4:05:49 What do you think about this meme that people are pushing real hard right now that Bitcoin would be basically an integral part of scaling power for the world, for human civilization? 4:06:04 I mean, right now it's a fucking joke, like 0.1% or something like that of the global energy consumption. 4:06:12 But if it becomes like a significant part of energy needs in the future… 4:06:17 Well, there is that effect where Bitcoin makes stranded energy sources viable, which is true, but it's negligible at this point, right? 4:06:27 But if Bitcoin becomes 10% or 20% of electricity production in the world, then it becomes relevant. 4:06:33 Can Bitcoin become 10% or 20%? 4:06:35 Yes, possibly. 4:06:37 It's possible. 4:06:39 But this has to happen in time, right? 4:06:42 So there is a time window where this can happen at all. 4:06:46 If we assume that this competition with Ethereum is going to play out, I don't know, in the next 10-20 years? 4:06:55 I think it's going to play out in the next 3 years, 3-5 years is when it's decided. 4:07:01 Because, I mean, Ethereum either flippens Bitcoin in the next 5 years or probably will never flippen it. 4:07:06 But you also have a scenario where Bitcoin becomes 10% or 20% of energy use in the world but fixes nothing else. 4:07:13 Because it's still a 20 trillion market cap like gold, but plebs don't use it, only institutions and wells use it. 4:07:20 And it doesn't have any effect on inflation, money printing or wars. 4:07:26 Bitcoin can still fix nothing by just becoming digital gold and at the same time it can have 10% or 20% of electricity usage in the world. 4:07:33 Alex, it's so interesting to have you here. 4:07:37 When I hear you speak, I sense that a lot of your ideas are harmonious with Paul's. 4:07:43 The one thing that you and he disagree on the most, in my view, is that you don't share his thoughts on the need to shrink the main chain block size of Bitcoin. 4:07:55 So, while you completely agree with him, it seems, on the value of ossification as a crypto-economic benefit. 4:08:04 In terms of, like, if a protocol is ossified, that's a valuable feature of that protocol because there's conservatism and stability and network effect that isn't disrupted through change and internal disagreement. 4:08:18 But you don't seem to think that. See, he has this philosophy that the small blocks enable an error correction. 4:08:25 Like, it's an error correcting mechanism whenever one can validate and observe what's going on. 4:08:31 And he thinks that eventually Ethereum will try to ossify it. 4:08:36 Small blocks are a relative notion, right? 4:08:38 In the world of Ordinals, where you have 200 gigabytes of total blockchain space per year, and there is, like, luxury Ordinals that want to stuff one terabyte worth of data into Bitcoin blockchain, Bitcoin already has tiny blocks. 4:08:52 It's a relative notion. What does it mean to have a small block? 4:08:55 It's only relative to the demand. 4:08:58 So, the fact that I'm saying… 4:09:01 I guess you would say, like, you want to have people with a smartphone conveniently validating layer… 4:09:08 Yeah, but that's already going to be possible simply because the existing four megabyte block limit, if your smartphone today doesn't do it, then your smartphone three or five years from now will do it trivially without having to shrink the Bitcoin blockchain, right? Like, who cares? 4:09:22 People thought that. People thought that, but then it turns out that the block space is a little bit too high. 4:09:29 But you don't need to do that, right? You can do ZK proof. Like, why do you need to download and verify the whole chain when you can do the Qtrix or ZK proof of history, right? 4:09:37 Your phone can literally do ZK proof, like ZK coin, you know, like Linux… 4:09:43 ZeroSync is basically that… Sorry, I did not explain. I thought you were familiar with it. So, ZeroSync is basically a ZK proof of the whole Bitcoin blockchain validation to a point, and it will prove a UTXO forest route to a certain block height that it has been calculated validly. 4:10:05 That's what it proves. So, basically, it gives you a sync point that is as trustless as the ZK proof itself, basically. It's fairly costly to provide, but as I understand, the ZK proofs can form a Merkle tree and can be aggregated, so people can actually distribute this burden of building these proofs to a lot of nodes and then can aggregate, and this aggregation work can be distributed as well. 4:10:33 So, we could get these periodic checkpoints that four nodes could sync up to with minimal effort and minimal cost, and then can run a full UTXO node more than if you take it offline for a month, then it can maybe find a new sync point. So, that's exactly what it is about, what I told about. 4:10:53 Right, so that could be done on the phone right now. That could be done on the phone today, basically, right? Any phone can do ZK proof of block Bitcoin today. 4:11:02 Manu, you've been waiting so patiently for so long. Why don't you chime in with your question or comment, please? 4:11:10 Yes, I've been listening for a long time. It's a pleasure to be here. I just wanted to, because I was not listening all the time, but Alex, I wanted to understand, because you are talking about a change, but your position about Rustock, RSK, because you've been talking about sterile coins and many things that already exist in Rustock, but I haven't listened. 4:11:38 I didn't listen to you to talk about Rustock and what your position is. 4:11:44 I mean, Rustock is a good idea, but it doesn't work in practice because it has no liquidity and the stable coins like the sovereign dollar or whatever, whatever exists on Rustock are basically dinos. 4:11:55 They're decentralized in name only because they have governance and they have upgradability. So they're not credible DeFi stable coins in my world. It's basically just another form of kind of tether because you can be pulled by the dev team, you can be upgraded by the dev team, you know, everything can happen. 4:12:12 So even if they had, unfortunately, even if they had really decentralized stable coins on Rustock, they would not be usable because Rustock has no liquidity to trade them because the primary use case of a stable coin is for you to mint the stable coin, but then sell it immediately for dollars. 4:12:28 Because you don't want to actually hold that stable coin unless it's tether, which has actually payment use case around the world where people hold a little bit of it sometimes. 4:12:37 Every other stable coin is only a conduit to the fiat system. And Rustock simply has no liquidity for you to exit your stable coin without huge slippage. 4:12:47 So if you want to borrow $100 worth of stable coin, you can still exit. But the moment you borrow $10,000 or more, you have this huge slippage to exit it because there's no liquidity in the pools. 4:12:57 It's a ghost system, unfortunately, because Rustock is just another L1 that fell victim to Ethereum's network at the end of the day. There's no use case to use Rustock instead of Ethereum from my perspective. 4:13:08 I think they try to boycott it. That's the word. 4:13:12 Unfortunately, they pretend like they have a decentralized stable coin. They call it sovereign dollar. But in reality, the moment you ask them a question, can you upgrade your public sector? Can you do governance? 4:13:26 They will talk about it. But in reality, there's just a multisig where they can rob the whole thing from you. 4:13:33 I'm not interested in dev teams pretending like they create a DeFi protocol, where in reality, they just hold all your money in a multisig. 4:13:41 While I hold a totally positive view on Liquid and Rustock, I think that drive-chainers are very eager to see peer-to-peer blockchains attached to Bitcoin, not ones that involve a socially selected set of people controlling the value. 4:13:56 I mean, Liquid is basically like Coinbase. It's not even a sidechain. It's a centralized custodian. That's all it is. 4:14:04 Brayton, thank you for coming on stage. I just want to give maybe our last speaker a chance to ask a question. Brayton, before we wrap up, maybe in the next 10 minutes, because we've been going for like five hours now. Brayton, what's your honest question? 4:14:20 Yeah, I just wanted to note that Celo, before it pivoted to L2, implemented Plumo, which was a zk-sync protocol, essentially, to be able to verify that your state had never violated consensus rules. 4:14:32 So it's something that is in implementation today, and being able to sync from Genesys is an incredibly powerful property. 4:14:39 In the future, I don't think all rollouts will necessarily have it. Big block scenarios will almost certainly have this form of syncing through yet more optimistic methods or syncing through zero-knowledge proofs. 4:14:52 Once we see zero-knowledge proofs become far more reliable and far more widely adopted, it could definitely change how we treat consensus in general, I think. 4:15:00 Well said. 4:15:02 Yeah, I agree. You have L1s that are voluntarily disbanding and becoming rollups on Ethereum right now. This is something that Bitcoiners are unaware of, but this just shows you the power of Ethereum's security network effect, right? 4:15:18 Why in the world would you build your own chain with trivial security when you can just benefit from Ethereum's security, period? 4:15:27 Alex, I guess as we're aiming to wrap up now, it's been four and a half hours. I just want to say it was really great to have you and Moon Settler and others discuss all of these ideas today. 4:15:36 Just to kind of aim towards wrapping up, I would mention that this is a weekly Twitter space. You and Moon Settler and everyone is welcome to come back next week on Friday, where we'll have our next weekly drive-chain-focused discussion. 4:15:52 But in closing, Alex, why don't you please, if you'd like to, describe the relationship between an ossified Layer 1 and a highly extensible multitude of blockchains built on top of it? 4:16:05 And how Bitcoin and Ethereum might be aiming towards that end state of an ossified Layer 1 with a multitude of blockchains built on top for extensibility and innovation and experimentation. How do you see that playing out? 4:16:27 Well, we have to define ossification first. So I don't think ossification is something that can be decided by the community or decreed. And this is the biggest mistake when discussing ossification. 4:16:38 Ossification only happens to widely successful protocols like TCPIP or SMTP. And only after they've been adopted and used for many, many years, maybe decades. And it's not an explicit decision of the community, developers or anybody else. 4:16:54 It's just an outcome of the inertia of the protocol where the changes to the protocol become impossible even if everybody wants them. Essentially, examples of that is SMTP. You could theoretically add digital signatures or some other anti-spamming measures to the mail protocol, but the protocol is ossified. 4:17:13 So nobody can ever touch it, even though 100% of people in the protocol would want to do it. So there's two outcomes. Either your protocol becomes big and successful enough where ossification becomes a possibility, or else it's not even worth discussing. 4:17:27 But if Ethereum and Bitcoin do become big and successful enough, they will naturally ossify. But it will never be a bunch of gatekeepers at the core saying, or the podcasting priests in Bitcoin saying, let's ossify Bitcoin. 4:17:42 All the chanting about ossification are completely beside the point. Nobody had to chant about ossifying SMTP or TCPIP. And I just want to say, guys, that this group is nice, but ultimately we're all in this peer support group because we all see that Bitcoin is in trouble because it's unable to do what its users want it to do. 4:18:03 And there's this whole kind of laser-eyed cult resistance to any possible change of Bitcoin because they assume that Bitcoin is already perfect and it needs to do nothing in order to survive and thrive. And I disagree with that because we've seen the rise of Ethereum. It cannot be dismissed as a scam anymore, as a mother of all scams if you listen to Saifedean. 4:18:24 We've seen the rise of stablecoins. These things appear because Bitcoin fails to provide things that people actually want. And if, God forbid, we get into a territory where there's a flippening followed by ossification, that essentially removes the last distinguishing characteristic of Bitcoin. 4:18:41 Because Bitcoin is a very stable protocol, although not ossified yet, and it still has the largest amount of liquidity in the world. If those two things go to Ethereum, then it's game over. And then you're in the world where proof of stake is won and proof of work is irrelevant. 4:18:58 And you will have whales. The rich will become richer in a proof of stake world, unfortunately. That's not true in proof of work world. But in the world where Ethereum wins, the rich will become richer and the poor will become poorer. That's unfortunately, but this is like a peer support group for people victimized by a laser-eyed cult, basically. 4:19:20 How do you reconcile that view about rich becoming richer with the fact that proof of stake imposes a cost on stakers in the form of liquidity that is spent? 4:19:33 Well, basically, the poor cannot afford to stake because they have a much higher liquidity preference. And therefore, they cannot afford to keep up with inflation. So only the rich have savings. And therefore, the rich get richer simply because it takes money to make money. 4:19:49 No, it's not accurate. It's not correct, strictly speaking, to say that money begets money. Because those who are staking, just like those who are mining, are burning value. In mining, they're consuming value in the form of energy consumption primarily. In staking, they're consuming value in the form of liquidity consumption primarily. 4:20:13 Right. No, no. But imagine the long-term Bitcoin. No, no. I agree with you that there's a value exchange there. But all I'm saying is that imagine that no new non-negligible issuance occurs in Bitcoin. Like we're in 10 years from now and there's basically issuances become negligible. 4:20:29 And because there's no new issuance, there is a transfer of money through fees to the miners for doing the mining. But your stake in Bitcoin is safe as long as you hold it in cold storage. That's not the case in Ethereum. Because even though Ethereum's issuance will be falling because of the burn, there will be people getting richer by staking versus people who are not staking. 4:20:55 Right. I'm not the best exponent of this idea for why staking has… 4:21:00 Are you getting richer? 4:21:01 Right. But there's a good couple of blog posts that you can find where it does show that… 4:21:06 I'll read them. But I suspect all of those posts harbor the same error that I just described, which is a… 4:21:12 No, no, no. They do acknowledge that there is a liquidity cost, right? Like locking up a stake is something that you pay a price for. 4:21:20 Alex, the key insight I'm pushing right now is that as Paul laid out in the blog post, nothing is cheaper than proof of work. In 2015, he argued that proof of stake and proof of work are economically symmetrical because the value consumed, whether it's in the form of energy or in the form of liquidity, is symmetrical if we assume otherwise equivalent systems. 4:21:45 I agree with that blog post. It was a brilliant blog post. The one thing he didn't consider at the time, which has now become apparent, is that nothing is as rehypothecatable as stake using restaking. So in proof of work, you pay once, nothing is cheaper, but you cannot reuse what you pay. Whereas in proof of stake, you reuse your stake. 4:22:07 The merged mining reuses the work and achieves a higher return for the miner. 4:22:15 But think of it this way. Why would you do merged mining if you can do security and just give up security without needing to get to settle for 5% of security available on a Drivechain? Why would any real Drivechain with real usage settle for a small fraction of Bitcoin security? 4:22:35 The only use case for that is if you can organize a Drivechain that becomes so popular because it has terabytes of block space that it doesn't need security because people just upload their cat videos there or something like that. 4:22:47 People don't care about security much. Otherwise, they should be using, you know what I'm saying? In theory, Drivechain mining is good practice. It's hard to see a serious Drivechain becoming usable and secure enough. 4:23:03 There is a question about whether the bootstrapping would be feasible. And that's why Drivechain is a hypothesis about the potential value of peer-to-peer sidechains on Bitcoin. No one knows with certainty the future. 4:23:16 The only thing I was nitpicking with you about today, since I agree with almost everything you've said today, is just that it seemed to be that you were saying something that was in conflict with the notion that proof of stake is economically symmetrical to proof of work, which it is. 4:23:31 But it's not. Because of restaking, it's not. It is indeed not cheaper than proof of work, and I agree with that part, but it is more usable because of restaking. 4:23:41 And also, it's not symmetrical in the scenario where, let's say, misbehaving happens. So the punishment for misbehaving is not at all symmetrical. 4:23:54 Right, because it's exactly quantifiable slashing going on versus unquantifiable sunk cost punishment for the miner. 4:24:03 Yes, some opportunity cost, but it's unquantifiable. 4:24:07 Exactly, and the fact that it is quantifiable allows you to build advanced protocols. 4:24:10 By the way, I suggest that everybody go out and read the Eigen layer white paper, because this is a big conceptual breakthrough that's sort of the hottest thing on Ethereum, and it is relevant to the other crypto economic systems. 4:24:24 The whole idea of restaking and why it's so powerful, because just like we're seeing aggregation of L1s to become L2s to share the security, there's even a bigger case for sharing the stake. 4:24:35 Because the network effects of reusing the stake are going to be much more powerful, and they're just like complete no-brainer for anybody who wants to create their own system. 4:24:45 They no longer need to get their whole economic system with a blockchain off the ground. All they can do is simply say, hey, Ethereum stakers, download these 10,000 nodes, and they'll give you extra yield. 4:24:58 The stupidest thing in the world was probably when people tried to launch 10,000 proof-of-work chains. 4:25:05 Yes, exactly. 4:25:07 That was a horrible idea. 4:25:09 The second stupidest thing is to launch 10,000 proof-of-stake chains, because there's not enough validation stake, it's hard to get that network effect off the ground, but you no longer need to. 4:25:20 The best case for this is going to be, by the way, that these things are launching next month or something. 4:25:26 One will be the eigenlayer zone data availability layer launching in a few weeks, and the other one is this Espresso shared sequencer for all the roll-ups, which not only makes roll-ups decentralized because their sequencer is no longer centralized, 4:25:40 but it allows atomic settlement between roll-ups that either happens on both ends or doesn't happen at all, which enables arbitrage and reuse of Ether and all the assets join the same pool. 4:25:52 This is incredibly powerful. 4:25:54 It just creates additional network effect that is completely unthinkable in any other system, Cardano or Stellana or Bitcoin. 4:26:03 May I ask another question? Alex, do you expect that the privacy blockchain users will eventually migrate to Bitcoin or Ethereum, and why? 4:26:16 I think they will just stay on Monero for a while, because I use Monero when I need to use Monero, if you know what I mean. 4:26:23 That's basically a narrow use case that Monero does well, and it already has network effect, so it's hard to dislodge. 4:26:31 But the purchasing power of Monero fluctuates and the security of that chain… 4:26:37 But that's irrelevant because nobody ever holds a single dollar worth of Monero. Whenever I use Monero, I send some Bitcoin, which converts to Monero and then gets paid to the address that I'm sending on the fly. I never spend one second holding Monero, so it's irrelevant to me. 4:26:52 Well, it's not… 4:26:54 Nobody ever holds Monero, right? Volatility doesn't matter. It's just pure medium of exchange. 4:26:58 I know, but medium of exchange does involve holding. 4:27:03 No, because it's not priced in goods that are sold for Monero in dark markets are never priced in Monero. They're always priced in euros and dollars. So the value of Monero relative to these fiats is irrelevant. 4:27:15 It's just like today you're sending this many tiny Moneros and tomorrow you're sending two or three hundred times more Moneros, it makes no freaking difference. Nobody holds it, you know what I mean? 4:27:27 Okay. 4:27:29 It's hard to dislodge that network effect. So even like your Zcash scenario, it seems like it's a perfect Drivechain made in heaven. It will have a hard time convincing dark markets to actually adopt it. 4:27:42 Right. That's true. 4:27:44 Because there's that network effect of Monero and go ahead and change a hundred dark markets and all their software to support another coin. It's not an easy task. 4:27:54 Maybe you could say that Monero is ossified already. Like the dark market ecosystem is frozen on using Monero. That's the end of it. 4:28:03 Maybe, yeah. I was just wondering about… 4:28:05 There is another use case there. There is another use case where institutions don't want to leak their activities in the financial system. 4:28:12 And unfortunately today on Ethereum with all this DeFi, they essentially operate with open books and they hate that idea. So there is a use case for encrypted Ethereum. 4:28:22 So you can have a use case where some kind of chain, be it a Drivechain of Bitcoin or roll-up of Bitcoin, does everything that Ethereum does but in a completely encrypted way where nobody can see your activities on all these protocols. 4:28:36 And institutional privacy is important, right? Nobody does that yet. 4:28:40 No, that exists. Alex, that exists already. 4:28:44 Well, there is like a roll-up. I think it's called Aztec on Ethereum that tries to do that. 4:28:48 No, no, no. It's a different blockchain that has that functionality. 4:28:55 But again, it's not enough to have that functionality. That chain must have liquidity in order to be usable. It's like RSK. 4:29:04 The fact that you can use some kind of sidechain of Bitcoin doesn't make it usable because you will have 5 or 10% slippage when you try to exit $100,000 stablecoin position into fiat. 4:29:16 No, but what you're saying about the privacy and their customizable blockchains that they can do whatever they like. They can set how they want. 4:29:27 I guess what I'm saying is that the market doesn't want other chains. It wants to have privacy added to Ethereum because it's the only liquid and cost-effective chain for liquidity of institutional stablecoin issuance and trading and everything else. 4:29:41 Liquidity is where it's at. And you cannot take away composability and liquidity modes that Ethereum has. Composability is just the ability to use multiple protocols as jigsaw puzzles into a single picture, which is absent on other chains, even the ones that are copying EVM. 4:29:57 They cannot claim credibly to have all the same protocols available for cross-calling that Ethereum does. That's the composability mode. And then there is the liquidity mode that even though it costs you one penny to transact on Avalanche, you will have 5% slippage trading stablecoins on Avalanche. 4:30:17 And you will have one tenth percent slippage on Ethereum. So the fact that Ethereum trade costs $20 allows you to save hundreds or thousands of dollars on less slippage. That's why those other L1 chains are not viable, basically. 4:30:32 So what do you think, Alex, on the whole client-side validation, RGB prime? 4:30:44 I think RGB prime is not viable. It's not viable for the same reason that RSK is not viable. Namely, it has no trust-minimized peg and it also lacks liquidity. So unfortunately, until there is a peg and there is some liquidity, it's not really a viable system. 4:31:01 I mean, it would primarily be like tokens. So I'm not even sure if Bitcoin would necessarily be a big part of it. 4:31:15 But would you want to have NFTs or stablecoins on RGB when nobody else has NFTs or stablecoins on RGB? 4:31:23 I see the network effect stuff. 4:31:26 This is not something that technologists really appreciate or care about, but this network effect of liquidity. You only want to go to a bazaar where there are other people trading. You don't want to go to some bazaar in the desert. 4:31:40 I think all of this just assumes that Ethereum somehow foodguns itself with proof-of-stake and proof-of-work somehow comes out as the savior. 4:31:51 Unfortunately, it's like a weak rationalization that LaserEyes have. They would always tell you, oh, proof-of-stake is fundamentally flawed because it can be captured by the government. 4:32:02 And therefore, Ethereum will just become a big tech. I can tell you right now, I'm making the following prediction. 4:32:07 If in this bull market, Ethereum flippens Bitcoin, all the LaserEye podcasters that are basically the priests of the LaserEye cult, they will sell the following narrative to explain it. 4:32:19 They will say, well, Ethereum is just a big tech like Google. So who cares if Apple or Google has $3 trillion market cap? It's not even money. It's nothing. It's just like a big tech platform. 4:32:29 That will be their narrative to justify why Ethereum is flippant. 4:32:34 I have no doubt in my mind that justifications would be plentiful. 4:32:41 These are all co-ops, basically. 4:32:44 Let's assume that Ethereum really does food gun itself somehow. In that world, you can't imagine that client-side validation can take care of more private, less exposed tradings of securities and other tokens. 4:33:07 Yeah, you could see RGB becoming kind of a backbone of a hidden Eurodollar system 2.0. 4:33:14 But in order for it to happen, it needs to have sort of a minimum critical mass. 4:33:19 I can see banks doing RGB transactions with each other because that's the only way they can guarantee that there is no historical record. 4:33:27 But again, it's a chicken and egg problem. In order for RGB to get there, it has to become big enough. 4:33:32 Maybe it can become big enough. 4:33:34 Like, for example, if it had a two-way peg based on witness encryption or something like that, then it could, in theory, have trust-minimized double-pegging of Bitcoin in and out. 4:33:44 Then probably it could develop into a stablecoin. 4:33:47 Like Tether would issue a stablecoin there. 4:33:49 Then all of a sudden, Societe Generale would issue a stablecoin there. 4:33:53 All of a sudden, you could get to that critical mass. 4:33:55 But you could have some region of the Eurodollar 2.0 system sitting on top of RGB. 4:34:00 You could. 4:34:01 So basically, we either have some really trustless two-way peg mechanism, or basically the whole Ethereum ecosystem somehow has to magically fail. That's like the two scenarios. 4:34:13 Well, we know at least one trustless two-way peg mechanism, right? Rollups. Like, everybody knows that by now. 4:34:20 Now, there are some people who object to rollups for this reason or that reason, because you can do bike-shedding forever of the verifier for the proof. So you can say, oh, whatever. 4:34:32 But then there's another one. Maybe witness encryption is another possibility. But the point is that it's not like quantum gravity. 4:34:42 Quantum gravity is not a solved problem in science. Trustless two-way peg has been solved. It's just that LaserEyes refused to adopt what used to be considered the holy grail for Bitcoin, because they keep chanting ossify, ossify, ossify, right? 4:34:57 May I ask a quick question, Alex? 4:34:59 The rollup topic is very complex, and it's hard for people like me, a lawyer, not a technologist like you, to understand it. It seems to me that Drivechain is a much more lower tech and conservative technology than rollups. Is that a fair statement? 4:35:17 Yeah, it is a fair statement. 4:35:19 It's like Drivechain is like a locomotive train, and a rollup is like a spaceship. It's more high tech. Okay, so if we were to do rollups on Bitcoin, it's like 10 years from now. Is that right? 4:35:34 No, I would disagree with that. I would say that 10 years ago, you could have said 10 years from now. But guess what? 10 years ago at the San Jose first Bitcoin conference, the people who developed ZK proofs showed up and they said, let's scale Bitcoin with ZK proofs. 4:35:49 And everybody was just like, dude, you're talking some moon math. Go away. We don't want to mess with this thing right now. 4:35:56 So they went away, and now Ethereum is scaling on top of rollups, right? So it's not a risky technology anymore. It is more complex than Drivechains. I agree with you that Drivechains are a no brainer as far as risk reward. They should have been activated five years ago. And if they're not activated soon, then maybe the window will close altogether. And it's absolutely no brainer to activate Drivechains, right? 4:36:17 Right. Yes. Agreed. Let's do it. Do it, people. 4:36:22 We're waiting for Moon Settler to come around. He's still making up his mind, which I respect completely. 4:36:29 Well, I mean, if you're uncertain about Drivechains, my answer is don't deposit your funds there. But live and let live. Let other people use it. Don't claim that it's a bad thing or a good thing for Bitcoin. There's never any bad thing or good thing. Nobody forces you to deposit your own funds into a Drivechain deposit address, right? 4:36:49 Yeah. And with rollups, right, so you basically, in a way, you would have to do something with the block space limitations, no? 4:37:09 Not necessarily. I mean, it's not necessarily because they're not infinitely scalable. That part is true. But they would create permanently high fees that would actually, ironically, proliferate other rollups and proliferate level three. There would be rollups of rollups. 4:37:27 So essentially, it would essentially create enough of a crisis for Bitcoin to do what Ethereum has been forced to do, despite not wanting to do, right? Because Ethereum had a crisis of $500, $300 fees and the plebs being unable to move their ETH. And because of that crisis, they have figured out rollups. It's just that Bitcoin hasn't been in a crisis mode like that for a long time since the Civil War. 4:37:52 But the data availability problem does not really work that way. So you can't just pack rollups into rollups and hand wave away that particular problem, right? 4:38:03 It's true, but you could have a rollup whose only task is to provide terabytes of data availability, right? So rather than doing rollups of rollups, you could have a rollup, which basically provides terabytes and terabytes of data availability while confirming a few kilobytes worth of data on Bitcoin. 4:38:25 But that means someone would have to run the nodes for that. They would need to be somehow compensated. 4:38:34 Yeah, those people would be the rollup miners, right? Yeah, that's true. But rollups have miners, right? These sequencers or whatever. They have nodes, basically. There has to be economic incentives there. 4:38:50 If you want to be crazy, if you want to be adventurous, you could imagine a Bitcoin data availability layer that uses restaking on Ethereum. There is no reason not to do that. 4:39:04 But again, it's not going to be as data available as Bitcoin itself. In the Bitcoin rollups.org report, there is a 100x best case scenario if the rollups adopt account-based scaling and 3x scenario if it's a UTXO scaling. 4:39:23 But at the end of the day, 100x or 3x is not going to be enough to onboard billions of plebs. But onboarding billions of plebs is something we can leave to Visa and PayPal and Strike for 20 years from now. 4:39:35 I just want to survive the chasm of transitioning from a sterile store of value. Right now, the default outcome is that Bitcoin becomes our best case scenario or gold. 4:39:46 And not jumping across that chasm to become a real reserve asset as a usable collateral in the Euro-dollar system. That's the main danger in my mind. 4:39:57 Because without it, you will never become money of the Internet. You will never become plebs, high-velocity Bitcoin credits. 4:40:06 Bitcoin was actually money of the Internet before the problems with its privacy became glaringly obvious. 4:40:18 So now you have Monero and now you have stablecoins. 4:40:20 Yeah, but Bitcoin technically, especially with these technologies, Lightning Network will have a bigger network effect than Monero, especially in real-life payments and have better finality and better final settlement speeds and it is generally more scalable. 4:40:39 But it's only cross-institutional. Do you really care that a thousand institutions will interconnect using Lightning instead of Swift? Do you really care about that? 4:40:49 Will it be used by tens of millions of merchants around the world or will it only be... I mean, even if a hundred million merchants use Lightning, that doesn't mean that they actually run their Lightning accounts. 4:40:59 They will just sign up with Swift. 4:41:01 Yes, the main point with Lightning is that you have network effect and interoperability. 4:41:09 Basically, the end-user wallets, if they support Lightning, they support the entire world. 4:41:15 Basically, that's the idea that you can go to El Salvador from Germany and just use your Lightning wallet and buy stuff there. 4:41:22 That is the whole Bitcoin, Cypherpunk, Bitcoin Moxie idea for the next few years. 4:41:34 Is there competition to that? For example, can you use Lightning inside Minecraft a hundred times per minute every time you grab an object and you get paid for stuff inside? Can you use Lightning for that? Maybe. 4:41:46 No, I don't think so. I don't think so and I don't think it should be forced. 4:41:53 Like Lightning as end-user wallet, I think it's not going to work out. This is my feeling. 4:42:00 It's cross-institutional. 4:42:02 But it has the potential to actually collect wallets that solve the privacy and end-user scaling issue, connect to the merchants and institutions as you said. 4:42:16 So there is a potential there that this whole thing can actually take off and have a network effect. 4:42:25 But I think people take it as inevitable, like a lot of Bitcoiners take it as inevitable and I think that's a huge stretch. 4:42:36 Exactly, because first of all, Lightning has been around for six years now, since 2017 and its total value locked in the public Lightning is $170 million. 4:42:46 It's not exactly taking off and the longer it doesn't take off, the worse it looks like. 4:42:52 But I got even worse news, like Strike is no longer a Lightning company, it's a stablecoin company. 4:42:57 They thought that their business model would be sitting and collecting 10 basis points from all the merchants. 4:43:03 They realized it's not working, so they became a Tether competitor by issuing fiat inside their Strike app. 4:43:09 This is their Tether company, they no longer care about Lightning as much. 4:43:14 It's going to be interesting, I believe, when even central banks decide to be a Tether competitor, because why not? 4:43:23 There are a lot of advantages for a country to actually do the exact same thing as Tether does. 4:43:29 The simplest thing for the US government to do to disable Tether and every other possible competitor is not to do anything, 4:43:36 but simply to permit JPMorgan Chase and other too big to fail banks to issue stablecoins. 4:43:42 Because those banks are already branches of the Fed, de facto, but the Fed is incapable of managing the technical infrastructure. 4:43:48 If they just allow JPMorgan to issue a stablecoin on multiple blockchains, it's basically game over for Tether. 4:43:56 I mean, there's still some network effect there, it will survive for a while. 4:43:59 But why would you hold Tether when you can hold a stablecoin issued by essentially the Fed, but indirectly through a too big to fail bank? 4:44:07 I would hold that any time before I would hold Tether. 4:44:11 My theory is also that actually reducing friction is in the interest of central banks, 4:44:19 if it allows them to export their inflation by creating international demand for their currency, 4:44:25 which they couldn't do practically before this whole technology stack becoming widespread. 4:44:32 They couldn't practically export their inflation, even if a foreign country's population actually preferred their currency. 4:44:40 The local government could very easily control this situation. 4:44:45 The Indian government can do a lot to control the population, what currency they can use in their daily lives and whatnot. 4:44:54 But I think with CBDCs, internet-native CBDCs, this can change hugely, 4:45:01 and suddenly it can become like a competition between central banks to decrease friction. 4:45:06 It's like all the central banks enter the same octagon and fight to the death using mixed martial arts. 4:45:12 And the stakes are quite high, especially for a smaller state if they can sort of win this or get ahead of this, 4:45:21 because they provide like a hundred times less friction than the United States government, 4:45:26 and they are still like a state and a central bank, and they have their dollar reserves and whatnot. 4:45:32 So if they can provide this, they can get comparatively a lot more advantage than the US, 4:45:40 that actually did this with the USD, right? 4:45:43 So they actually exported a lot of their inflation, and they like to do that. 4:45:48 But they also introduce a lot of friction and a lot of restrictions that the world doesn't seem to like. 4:45:53 But you know, there's something that's even better than Fedcoin. 4:45:56 Assuming the same level of liquidity, the one thing that would be better than Fedcoin to hold, 4:46:01 and I would actually feel better hiding at the top of the food market in that kind of stablecoin, 4:46:06 is something like LUSD, right? 4:46:08 Because it's not a coin that can be rock-pulled or frozen or censored, right? 4:46:13 Whereas Fedcoin would still be censorable, etc. 4:46:18 So assuming the same level of liquidity, of course, that may not be possible, 4:46:22 because once the Fed, you know, like once JP Morgan Chase starts issuing, 4:46:26 they will have liquidity, but there's no decentralized stablecoins, 4:46:29 and they'll not necessarily have liquidity. 4:46:31 That would be even better. 4:46:36 We are hearing very badly. 4:46:38 I think you are… 4:46:40 Sorry, I get some wind noise going on. 4:46:43 Well, gentlemen, we're almost at five hours now in this space. 4:46:49 It's been a great conversation. 4:46:50 Do you think we should continue or maybe wrap up for next week? 4:46:55 Yeah, maybe we should wrap up. 4:46:58 I mean, there are so much to talk about, but it's really just too much, I believe. 4:47:04 We lost almost everyone. 4:47:06 I encourage everyone to follow the speakers on stage, Alex Kravitz and Moon Settler, 4:47:12 both of whom have spoken here in the past at the weekly drive-chain Twitter spaces of LayerTwo Labs. 4:47:18 This has been yet another one of our weekly spaces. 4:47:22 We discussed drive-chain, which is Bitcoin Improvement Proposal 300 and 301. 4:47:27 These are recorded spaces for the public benefit to understand 4:47:32 this incredibly powerful potential soft fork upgrade for Bitcoin, 4:47:37 eight years in the making. 4:47:39 Thank you, everyone who listens live and speaks, 4:47:42 as well as those who listen on demand later. 4:47:44 You can learn more about drive-chain at LayerTwoLabs.com. 4:47:49 You can also go to drive-chain.info. 4:47:52 You can download the drive-chain testnet software and run it. 4:47:57 And you can read the many articles and essays, 4:48:01 such as the essay by Nostr creator Fiat Joffe in favor of drive-chain, 4:48:07 as well as Bitcoin and Nostr focused developer Supertestnet, 4:48:11 who has written in favor of drive-chain. 4:48:14 And we'll see you all next week. 4:48:18 Thank you so much for those who've spoken and listened. 4:48:21 Have a great weekend and continue to study these ideas. 4:48:26 Thanks again, Alex, for being here and Moon Settler and others. 4:48:30 I really appreciate it. Bye-bye.
