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Hello, and welcome to Drivechain Talk Twitter Space. Today is April 17, 2023.

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Welcome, everyone. Hello, Michael, in the audience.

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I welcome you to come on up to the stage and chat if you'd like.

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Okay. Yes. Hello. How's it going? Good, good. Appreciate you inviting me up to speak. I'm

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pretty lucky. I'm down here in Puerto Rico, and I started the San Juan BitDevs a few months ago

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with a fellow Bitcoiner that works at Lightning Labs, and we had the privilege of having

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Austin Alexander, who I know, I don't know if he's a co-founder of LayerTwo Labs, and he was

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able to give a presentation on Drivechain to all of us, and it was by far one of my favorite meetups

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we've done to date. So, super interesting topic, and look forward to learning more.

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Cool. That's great. He is a co-founder of LayerTwo Labs,

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along with three other people, and Paul Sztorc included.

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Okay, yeah. He's a super cool dude. I know he lives down here in Puerto Rico as well,

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so it's really a privilege to get to hang out with them, and I look forward. I think you guys

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have a booth at the Bitcoin conference coming up, so look forward to seeing you guys there, too.

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Yeah, that's right. That's going to happen. I might be there, too. I'm Henry,

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one of the employees. Well, it's awesome you met Austin, and it's cool that he gave that

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presentation. Is there a video of it on YouTube, or is it just for people who are there live to

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see? No, so it's just for when people are there live to see. Yeah, we don't record.

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I wish we recorded, but I guess the nature of a BitDev meetup is it's a Socratic seminar,

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meaning it's free to kind of critique, and that way people can't, you know what I mean,

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be held to their views on certain things, I guess. So we choose not to record at this time,

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but I'd like to see it, but I just try to follow the template of BitDevs.

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Understood. Yeah, I was at a BitDevs in LA, and they also had the same approach,

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Socratic and not recorded, or foster open dialogue.

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It sounds like a good kind of environment for drivechain discussion, because

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it's a little bit controversial, and people don't want to be labeled as supporters or critics. They

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might just want to talk about it with the freedom of not being permanently, you know, quoted.

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How have you been in terms of drivechain learning lately? Have you gotten a chance to check out the

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Telegram group, or the website for drivechain, read the BIPs, things like that? Those are

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some of the ways people sometimes engage. Yeah, so I've taken some time to, so Austin gave me a

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little booklet that I think Paul used to give a presentation at the Atlanta TAB conference. It

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might have been last year, 2021, I'm not sure. So I've gone through that. I went through you guys's

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website. What really has led me down to the drivechain's route, and why, you know, I always

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say I'm not a technical programmer, because I'm mechanical engineering background. My girlfriend's

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a software engineer. She said I can't use that as an excuse anymore, because I have learned quite a

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bit about the technical aspects of Bitcoin and all that. But what led me, what I really like about

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the drivechain's groups and what you guys are looking to solve, I mean, it's really, you know,

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I'm a Bitcoin maxi at heart, but it's shifted my perspective on just, you're right, the need for

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permissionless innovation and how bad ideas can't necessarily affect my idea, or what I have going,

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right? And then you guys are really the only group, because I've been studying Bitcoin pretty

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hardcore since 2020, so we'll call it three years. And when people often ask me, you know, what's the

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And when people often ask me, you know, what's the, you know, what's the bearish case for it?

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It's hard to, it's hard to find that signal on what the bearish case for Bitcoin could be.

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And it wasn't until I found out about drivechains that like, yeah, I mean, you guys highlight some

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pretty obvious bearish signals that we should definitely be concerned and figuring out,

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you know, what we need to do going forward. And obviously drivechains provide a lot of

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solutions to that. And one of the big, one of the big indicators that Austin pointed out to me

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was, again, I know you touched on a lot of this last week or two weeks ago when you had the

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drivechains talk, but he had mentioned that, you know, if you think about it, Bitcoin, long before

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I was in it, was birthed kind of through the dark web. You know, like a lot of people that I know

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that got into Bitcoin got into it because of the dark web. And a lot of the dark websites don't

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really use Bitcoin anymore. And that's for obvious reason. So, you know, is that necessarily a

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bearish indicator? No, but I mean, that shows that there's a market for possibly a more privacy

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focused coin. If you want to call it a BitMonero on a drivechain, that would provide that solution.

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So it's just all really interesting. And I'm definitely looking forward to learning more

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about it, at least for this next year and for sure at the conference this year.

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Yeah. I put in the nest a tweet I saw today, which said that the number of Monero nodes has

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exceeded the number of Bitcoin nodes. There is a lot of use of privacy blockchains in the global

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private commerce market. It would be ideal if Bitcoin were the leader in that important

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part of the economy, the part where people want to be private, which is, of course, they're right.

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Maybe they're living in a jurisdiction where the government has a unethical,

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oppressive approach to people moving money around. And therefore, it's great for them to be liberated

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through technology. But it's notable if Bitcoin has a falling share of that market. So one of the

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goals of drivechain would be to have a privacy blockchain attached to Bitcoin.

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And it would be a sidechain. And all of the transaction fees would be paid to

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Bitcoin miners. And all of the value that arises for the token on the sidechain would

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accrue to Bitcoin. So as people are buying the sidechain token, it's pushing up the price of

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Bitcoin on layer one. And that's how that happens because of the two-way peg

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between the sidechain token and Bitcoin. So this is why Adam Back describes this as

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innovation maximalism and altcoin seniorage minimalism. So we're enabling more features

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for Bitcoiners without violating the $21 million hard cap.

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Does that sound like a description that resonates with you? Or do you see it differently?

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Everyone sees things a little bit differently. So I'm always curious to hear

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if my descriptions make sense. No, no, you're hitting the nail on the head.

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I'm really looking forward to this conversation just because I like when you go off on

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explaining stuff. I feel like you can make it easy for everybody to understand. So

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no, that definitely resonates. I did have a few questions, if you don't mind me asking one.

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Sure.

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So again, I, like everybody, heard about Bitcoin earlier on from my friends using the dark web.

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But I didn't get into it until March 2020, when I really started to invest large sums of capital

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and really became a hardcore Bitcoiner and knew everything about it. And obviously,

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one of the big upgrades that Bitcoin has seen over the years was Taproot.

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And I'm curious, because you guys are trying to implement drivechains,

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and I know if you Google what does it take to implement a change in Bitcoin, you have to get

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51% consensus. But one thing that the drivechains community has highlighted to me is, you know,

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there are perhaps possibly gatekeepers on large Bitcoin ideas and things like that.

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So in today's environment, what would it take to get something like drivechains implemented?

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And maybe as a reference, what did it look like getting Taproot implemented? Because again,

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that was before I was really involved. Was the sentiment the same?

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Were there people that were concerned? Was there a lot of criticism?

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Those are great questions. Personally, I was not deeply involved in Bitcoin at that time either.

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So it'd be great if we had Paul on here, or Austin, or Adam Back, or any one of the other,

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or Michael Tidwell, any one of the other people who supports drivechain and talks favorably about

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it often. I think that it'd be great to have one of them, one of those OG types, compare and contrast,

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you know, SegWit adoption, Taproot adoption, and then hypothetically, drivechain adoption.

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I think that the view within, you know, the drivechain intelligentsia is that in order to

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have drivechain adopted, one approach is to have a kind of mass uprising where ordinary Bitcoiners

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support it. Another approach is to have kind of more of a top-down kind of intellectual community

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adoption of it. And then that would lead to them, you know, all this sort of,

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quote unquote, like sheep following, like casual Bitcoiners who don't have like a strong view.

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I mean, in my understanding, the way history moves forward usually is that the latter occurs,

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where like the very influential kind of intellectually rich people with like a

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comprehensive understanding of Bitcoin, if they were to think that drivechain is good,

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then they would explain why. And then there would be like a simplified narrative that arises in the

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masses and they would support it. So to answer your question kind of concretely, I think, and

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again, this is Henry speaking from LayerTwo Labs, you know, this is not the view of the company.

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This is not necessarily the view of Paul Sztorc. But in my opinion, as far as I can tell, having

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read about four books on Bitcoin and like a million hours of podcasts and read the drivechain

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BIPs as well as the BIPs for all the other adopted and unadopted BIPs, I think that basically the

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answer to your question of how does drivechain get adopted is if we had, let's say, Greg Maxwell,

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Andrew Poelstra, Peter Weil, and Peter Todd. And, you know, if we had all of the

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like very well known OG, like Blockstream, thinkers, you know, others, like,

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if they were all to say that drivechain is great, we all like it, then probably the entire community

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would follow. Because the objections to drivechain are pretty complicated. And very few people,

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as a proportion of all Bitcoiners, understand them or know about them.

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So if the thought leaders, as it were, were to dispense with those objections and support

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drivechain, like Adam Back does, notably, then I think the, like, everyone would just say there's

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consensus, there's unanimity on this, let's do it. And that's how things happened with

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Taproot and SegWit. There was a sense that most people liked it. And, you know,

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consensus in Bitcoin isn't about 51%, but it's also not about 100%. It's somewhere in between.

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It's when there's like a sense that most people like it, and that the objections are mostly

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unfounded. That's when there's sort of forward movement.

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So I can't answer exactly on how precisely it would look different than Taproot.

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But I do think that those key thinkers I mentioned, these, like, PhDs at Blockstream who

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who have written or have objected to drivechain over the years,

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if they were to support it, then that would be very, very helpful. Like if we had like,

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you know, some essay come out from like Andrew Polstra saying that he has thought about it very

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carefully and has decided that drivechain is great. Like if that were to happen, it hasn't.

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But if that were to happen, that'd be very helpful. Because he's like a mathematician

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and cryptographer who opines on these kinds of things. But what would also be helpful is that

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people like you, like Bitcoiners around the world, who might not have like a million followers on

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Twitter, but nevertheless, at their local meetups, if they're getting interested in drivechain,

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that is helpful because to some extent, the thought leaders, they want to be cautious

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because Bitcoin has grown so much over the years. It's become such a public project

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that they don't want to be guilty of having made like a reckless decision that

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leads to a setback for the community. So they've become more conservative.

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And there's less of like a technological ambition, it seems, and more of a cautiousness.

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And, you know, some of these some of these influencers, they've adopted a mindset where

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it's actually fine for Bitcoin to remain simple and focused only on payments and let the other

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stuff like let Ethereum, these people might say, do the more experimental things. Now, of course,

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I'm not referring to the people I mentioned earlier, but for example, Eric Wall in his recent

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What Bitcoin Did interview expressed this view. I don't want to misstate it. He wasn't saying that

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I mean, he is on record in many tweets being supportive of drivechain. But he also in that

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interview expressed a view that it probably would never happen on Bitcoin. So some thinkers like

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that would say that, well, if that's the case, if we're not going to get more extensibility for

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Bitcoin, then the way to see that favorably is to say, well, Ethereum will be the place

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where interesting things happen. And Bitcoin will just be this valuable digital gold.

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But I believe that's not a totally coherent view, because in the very long run,

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if there are two blockchains and one of them has more extensibility, then in the very long run,

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probably the one with more extensibility could accrue a lot of value and then ossify its layer

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one. And then it would have all of the technological features and narratives that Bitcoin has,

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plus the higher degree of extensibility. So the drivechain program, the drivechain vision is to

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have a multitude of different blockchains built on Bitcoin in a manner that accrues value to

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Bitcoin's token and Bitcoin's block space. Even if a person isn't using any of the sidechains,

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that person would benefit because his Bitcoin would have higher value, meaning higher purchasing

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power. And when he does a transaction, that transaction will have greater transaction

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finality because of the higher transaction fee rate being collected from all of the sidechains.

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So drivechain is designed to strengthen Bitcoin's purchasing power in terms of the value of the

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token, as well as the value of Bitcoin's block space, meaning the transactions in total that are

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paid per unit of time. That is the purchasing power of the fees within a given amount of time.

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The higher that is, the better, because it means that Bitcoin would be more expensive

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to attack through a hostile mining attack, such as like a perpetual 51% hostile attack.

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Right now, it would cost a certain amount of money to attack Bitcoin's

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network as a hostile 51% miner. And over time, if the transaction fees were to remain low like

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they are now, then as a result of halvings of the coinbase, the cost of attack will fall.

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So right now, like over 90% of the value that miners receive on-chain is from the coinbase,

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and that's going to be cut in half in about a year from now, unless Bitcoin goes up in value.

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But expecting higher and higher price forever isn't a great plan.

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Bear markets will always happen. Bitcoin is volatile. So what we should do is try to get

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higher fees. And that's the security budget problem. But there's also a fascinating

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split among the drive-chainers.

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Some people think that drivechain will come about perhaps because of a security budget problem. People

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will want more fees, so they'll adopt merge mining rather than inflation. But others think that

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drivechain will be adopted because of the fees being too high. Imagine if ordinals, for example,

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if this NFT community were to move from Ethereum to Bitcoin, then, I mean, the ordinals are on

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Bitcoin, but I'm saying if the whole NFT market were to move on to Bitcoin, it would send the

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value of Bitcoin's block space higher because people would be constantly doing these transactions

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that use up a lot of space on the block space. And if they're buying or selling some NFT that

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has a high value, like some sort of bored ape or whatnot, then they might be willing to pay

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$100 per transaction and not really care. Because if it's a $15,000 image, then $100 to transact it

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is not that much. It's probably a lot cheaper than moving a painting around. So in the art

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market, people are used to paying a lot of fees to move things around. It's not like buying a stock.

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So we could see high fees permanently on Bitcoin, hypothetically. I don't expect that. I think that

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fees will be low forever, which I think is the Paul Sztorc view. But that view also allows for

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the fact that fees could go up and stay up. But that wouldn't have anything to do with

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the justification for Drivechain because the ultimate original justification had nothing to

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do with the fee market or the security budget. Drivechain was invented in 2015. The security

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budget idea was invented in 2018 by Jordan McKinney, who Paul cites at the very beginning

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of his 2019 essay called Security Budget in the Long Run. So just to land my little plane here,

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what I'm saying is that if fees stay low forever, that's the security budget problem and the

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solution is merged mining, not inflation. But if fees go up a lot, there's a different

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justification for Drivechain, which is that we need scaling, which is a familiar topic,

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right? Scaling Bitcoin. This has been talked about since like 2012. People have been talking

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about how do we scale Bitcoin. Meaning, it means a bunch of things, but one of them is

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how do we preserve the peer-to-peer nature of Bitcoin as it evolves from a network of

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thousands of people to hundreds of thousands and then finally to billions?

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If we have everyone using Coinbase and Wallet of Satoshi and other custodial facilities,

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then the problems that arose for gold would arise for Bitcoin. Gold, to use a phrase from Nick

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Carter, gold ended up in walled gardens, meaning banks that held most of the gold

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and ordinary people stopped interacting with gold in their day-to-day lives.

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I think that phrase day-to-day, that's from Von Mises. He explained that people stopped

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handling gold in their day-to-day lives and that was the beginning of the failure of gold as money

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and we ended up with just a completely fiat economy, fiat money economy. So we don't want

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the future of Bitcoin to be that everyone is using non-peer-to-peer facilities. We would

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rather the peer-to-peer sort of principles and technology and ethos of Bitcoin remain.

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And one way to do that is through drivechain. So everyone could use like a large block drive

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chain for their day-to-day cash with low fees. The same way you might keep a lot of your money

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in stocks, but then keep like a small portion in cash for your transactions. Similarly, in a

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Bitcoinized world, there could be people keep like most of their wealth in Bitcoin perhaps,

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and then some of their wealth in like the drivechain with the large blocks called Thunder.

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So the fees on the Thunder sidechain would be extremely low and the volume would be very high

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and the total amount of fees would be high because of the high volume.

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So if you have like a billion transactions a day, each of them paying one tenth of a penny,

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well, that's still a large amount of money. It's like millions of dollars

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per day because it's one billion times that small amount.

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And then everyone in the whole world would be using a peer-to-peer blockchain. It just

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wouldn't be as decentralized as layer one. But decentralization, as Paul Sztorc analogizes,

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is like a plane in the sky where there's first class seats, there's second class seats,

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there's basic economy, there's economy. So people have different willingness to pay

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for quality in terms of decentralization. Not everybody wants to pay for the first class seat

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with the champagne and the early boarding and early deplaning. It costs more, it's less

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efficient for them. Some people prefer economy. Similarly with money, we absolutely must have

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a layered money. And in fact, in Bitcoin, there's this book, Layered Money, which I haven't read,

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but I think it's by one of the investor gurus. And I don't know if it mentioned anything about

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sidechains or the need to actually have layers on Bitcoin, but it would be great if it did.

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One interesting thing to read in Bitcoin books is whether or not

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the index mentions anything about fees, security budget, 51% attacks,

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merged mining. Usually books don't mention this at all. For example, it doesn't come up in the

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block size wars by Jonathan Beer, anything about low fees being a problem. Of course,

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that was written back before that was a topic. But the few other books I've seen don't mention it at

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all. And then to his credit, Saifuddin Amous, in his book, The Bitcoin Standard, does have a very

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carefully, very thoughtfully written page or two at the very end in the appendix part about

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potential problems with Bitcoin. And he has a accurate, very conscious articulation of

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like the 51% attack idea. And he sort of understands it fully, I would say like 90%

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there, where he says, like, what if a party wanted to mine as a hostile miner? And then he says the

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kind of familiar thing of, like, this is what Pierre Richard said in that research paper on

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transaction fees from half a year ago, written under Riot, their website, where Amous and Richard,

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they understand the 51% attack problem to some extent. They say things like,

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what if the fees were low for a long time? What if it's not very expensive to attack?

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But then they lapse into the error of saying, well, who would want to do this? Why would they

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ever want to do that? Because if Bitcoin is used all over the world in the future,

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why would anyone want to destroy their own money or destroy the money system?

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The right way of thinking about it is that it might happen in the not too distant future

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that the federal government could decide it's in the national interests and in the environmental

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interests for the government to do a hostile mining operation on Bitcoin. And it would only

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cost them a few billion dollars. The government can afford that. The US federal government's

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annual military spending is 700 billion dollars, and it grows at 6% per year every year forever.

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So they have an astronomical budget. It wouldn't be too hard to

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seize or acquire covertly, commercially or build the equipment necessary to do this attack.

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They could even do it inefficiently, and it wouldn't be that expensive.

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They wouldn't have to do it that cleverly, perhaps. So I feel that these thinkers who

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are pro-Bitcoin, like Rashard and Amoos, they do a good job, at least much better than others,

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of acknowledging the possibility of a 51% perpetual hostile attack as distinct from a

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greedy mining attack. So like a greedy miner, that's what Satoshi talked about, double spending.

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But a hostile attacker is doing something different. They are reorging the chain for

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the purpose of making it impossible for others to transact. So they're censoring everyone forever.

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And people might say, well, why would anyone ever do that? Well,

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people go to war all the time against other countries, against other tribes.

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And it's entirely possible for that kind of phenomenon to arise in the monetary context

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within one jurisdiction or globally, where, for example, the US, like the global monetary hegemon,

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could decide to just try to take down Bitcoin for the benefit of everyone. Kind of like

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trying to vaccinate the whole society just to stamp out some disease.

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So the government could do all kinds of things. I think that the resistance from Bitcoiners would

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be much smaller than, say, the resistance that arose when they tried to have everyone get

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vaccinated. So it doesn't even require the consent of anybody. They could just do it tomorrow with a

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stroke of a pen. And then the people at the Pentagon or the NSA or Jason Lowery's hash

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force or whatever is needed, they would just get a bunch of ASICs up and running and begin to mine.

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And they would have to pay someone to write the software to reorg at every opportunity. So every

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time the attacker finds the nonce, they would have the heaviest chain and they would rewrite

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the chain that others had built. And they can employ all kinds of techniques to make it as

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potent as possible. They could mine and then they could pause at certain times.

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There's different strategies for hostile mining in theory, where the hostile miner isn't even

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mining all the time. All that's necessary is for there to be the expectation that the hostile

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miner would be there to reorg the chain. And that alone can disincentivize any honest miner

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from mining at all, because they'll be deprived of all of the rewards from mining.

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It's a very interesting subject. Basically, we want the fees to be high.

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And right now in the Bitcoin world, this is something that people just don't talk about that

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much, because in every society, the most important truths are those that you're not allowed to say.

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So within the Bitcoin culture, a great way to get excused from typical Twitter spaces is to say

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something like, is to come up on stage and talk to some, you know, influencer and say things like,

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what do you think about the fact that the fees are pretty low for Bitcoin?

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And we're like 12 or 13 years in and the fees are still low. It's like under a dollar some days

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recently to send a Bitcoin transaction. If it were $50, that would be something. But it's pretty low.

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And of course, in the altcoin communities, this is understood. If you were to talk to any

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Ethereum influencer like Justin Drake, Evan Van Ness, Vitalik Buterin,

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Justin Bonds, if you talk to any of these people and say, what do you think about the fact that

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Bitcoin has a transaction fee reliant economic security model? What are the implications of

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this? They will tell you that it is just a matter of time until that takes its toll on Bitcoin and

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until that takes its toll on Bitcoin and eventually the insufficiency of economic

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security would devalue the token in the future. So eventually, you know, when people always say

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hash rate follows price, that kind of silliness, you know, kind of astrology of finance.

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One variation on that, which is true, is that insufficient economic security,

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which is not a function of hash rate, but a function of fees, is going to bring down the

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price in the very long run unless something changes. So the ways that things can change

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would be, you know, ordinals and other interesting uses of the blockchain on Bitcoin accumulate a

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following and bring up the market price of the block space, or Bitcoin adopts...

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If there's a lot more merged mining, that can bring in a lot of fees.

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Just copy all of the altcoins that have high transaction fees, copy them all into Bitcoin

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sidechains, and then there's a ton of transaction fees. Right now, the total amount of fees paid

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across all of the blockchains is roughly 15 times more than the fees paid to Bitcoin's miners.

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And it used to be more like 10, and before that it was like 5, right? So this is getting worse

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and worse, where a larger amount of the fees paid on blockchains are paid outside of Bitcoin,

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paid to Ethereum and other blockchains. So all of these blockchains are competing with each other

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existentially. They're all competing for monetary premium, and more abstractly,

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they're competing for transaction fee revenue. And ultimately, if a blockchain has very little fee

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revenue, then it's going to have low security, low economic security. And therefore, in the very

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long run, we can say that the market right now is either anticipating that Bitcoin's fees will rise,

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or they're anticipating some kind of convenient solution will come along, or that the fees will

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rise naturally. So we'll have to wait and see. To me, it's a great drama. We don't know what's

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going to happen. There's an interesting drama ahead. Where will things go? Will the fees stay

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low, or will the fees go up a lot? Now, if they go up a lot, that'd be great. We don't have to talk

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about worrying about 51% of tax anymore. But instead, there's going to be an outcry among

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the plebs globally, because the cost to open a Lightning transaction will have risen. So

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how do we onboard the world if it costs $35 or $50 to do a single transaction on Bitcoin?

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What we would then need is economy class Bitcoin, which is large block sidechain Bitcoin.

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And that's Bitcoin for the world. Right? In other words, we can't really have the Citadel

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if we don't also have the kind of outer suburbs. Like, what would Manhattan be without all of the

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cities around Manhattan? In other words, we need lots of development outside the Bitcoin Citadel,

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outside Bitcoin Layer 1. We want all these other interesting, prosperous communities to crop up

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crop up, even though they won't have as much decentralization. And they might have other

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features which are trade-offs. They're going to have things that are cool, like the Zcash sidechain

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called Zside. It has, as Adam Back put into a great tweet, very cool R&D, like very cool research

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and development, super high privacy technology. But it's not stable and reliable and tested enough

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to be on Bitcoin mainchain. So the place to use it would be a sidechain in a partitioned venue

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where if it collapses or if there's a bug, that's okay. Only those who opted in get hurt.

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One of the worst coping

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mentalities I've ever heard is where people say, we don't need drivechains because there's altcoins.

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If anybody wants to do other stuff than Bitcoin, they can just use an altcoin. So why do we need

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drivechains? What those people fail to understand is that if Bitcoin doesn't do

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drivechain or something like it, then that legitimizes, it legitimizes the altcoins

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as a category. And it also, as Eric Wall says, gives walkover, meaning, which is like a term

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from soccer, I think, or cricket. So it opens the door to something growing and growing and growing

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outside of Bitcoin, which eventually could displace Bitcoin in terms of network effect.

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Network effect is a powerful force in economics, especially in money. In the market for money,

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everybody wants to use the money that everyone else is using. You don't want to have your own

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money that's unique to you, where no one recognizes it, you can't spend it, all the

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prices aren't quoted in it. That's not good. So something is going to become the world's money.

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Right now, we have 180 different fiat monies, and most transactions are in US dollars. But the dollar

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has problems. It's ripe for disruption. There's been decades and decades of debasement.

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So in Paul Sztorc's view, as I understand it from reading his articles, there are only two

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crypto projects that are serious about becoming the world's money. It's Bitcoin and Ethereum.

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Those are the two ones that are really trying to accomplish that. And Ethereum doesn't talk

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about things quite like that way. They talk about it like we're the world computer. But in the long

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run, they're probably going to try to ossify the main chain and get those monetary narratives

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of scarcity, and stability, and ossification. Those are the narratives. Those are the

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crypto economic features and means that give rise to monetary premium accrual to that main chain

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token.

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So there's like a race. There's a great drama. Who will get there? Who will become the world's money?

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As Paul says, there is a $100 trillion prize in the future for the project that is correctly

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designed. So the drivechain view is that Bitcoin is the best, but it needs drivechain or something

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like it. It needs more extensibility. There has to be a way for people to build new features for

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Bitcoiners that are peer-to-peer and that enable Bitcoin to internalize the value of that innovation.

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And that's what drivechain does. It allows someone to build on Bitcoin

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in a way that brings value to Bitcoin.

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So it would be great if drivechain had been adopted back in 2015. Now it's seven years in

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and, or eight years in, and the code is more ready than ever. The thinkers have had more

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time than ever to think it over. There are more supporters than ever before.

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So we're getting closer and closer to kind of vindication and acknowledgement,

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I think. Whether we're on track, whether we have a pace of adoption and success, which is

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sufficient is debatable, but there has been an uptick. Now, of course, Eric Wall on WhatBitcoin

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did, did in fact say that drivechain is dead. So he did say that. However,

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I think there's different ways to look at it.

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History sometimes happens very quickly. There could be like a sea change. There could be a sea

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change where a bunch of the believing thinkers sort of announced together or not far apart that

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they support it. We could see something like that. There are different catalysts that could arise

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that could lead to that kind of development. For example, if the flippening were to get a lot

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closer, then like if Ethereum were at a market cap of 75% of Bitcoin, which it's never been before,

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but if it were to rise that high, I think that would be, that would be important.

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Ethereum has been for the last five years, I think, a very good example of that.

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Ethereum has been for the last five years fluctuating in a range of approximately half

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of Bitcoin's market cap. But if it were to get to the top of that range and then get to like a new

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high where now it's like 85%, 90% Bitcoin's value, I think that the intensity of attention on

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projects like drivechain would be much higher because as long as Bitcoin is number one by

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market cap, as long as that's the case, the high priests of Bitcoin, these influencers and OGs,

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venerated people like Greg Maxwell, for example, they enjoy, I would say, the status of having been

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the architects of the project and the stewards of it during its success. But if all of a sudden

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Bitcoin were to be about to lose its market cap crown, like let's say in a year from now,

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you know, all of a sudden Ethereum is like 80% of Bitcoin's value, then probably such people

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would think much more closely about the possibility that drivechain could be a great answer

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to that development. It could be a path for Bitcoin to achieve a lot of

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attention and excitement and value from a new development that opens the door to all kinds of

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interesting projects and growth. So I think that in this little monologue, I've talked about how

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low fees forever, the security budget problem, that's one potential impetus or catalyst for

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drive chainization of Bitcoin. Another is high fees. If we get very high fees for a long time,

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like a multi-month period, a three-month period, where the lowest transaction fee is 20 bucks,

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that could lead to calls for drivechain to scale Bitcoin by enabling lightning on

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peer-to-peer sidechains instead of main chain. And then aside from fees, the market cap flippening

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topic, that is another potential force for drive chainization, the desire to have something

389
00:44:39,565 --> 00:44:46,204
exciting, new, and high-tech come to Bitcoin. So drivechain could deliver that

390
00:44:47,405 --> 00:44:54,525
and help prevent the flippening. But the very best justification for drivechain

391
00:44:55,565 --> 00:45:05,484
is one that Mike Tidwell expressed in a tweet, which was that he hopes that Bitcoin community

392
00:45:05,484 --> 00:45:12,845
adopts drivechain not to compete with altcoins, but instead to express their love of innovation.

393
00:45:17,645 --> 00:45:25,965
So even if there were no altcoins, it would be better for the Bitcoin community to have drive

394
00:45:25,965 --> 00:45:35,484
chain so that Bitcoin can be a platform for valuable, innovative technologies

395
00:45:37,884 --> 00:45:42,685
rather than not do that. So the world would benefit greatly from peer-to-peer oracles,

396
00:45:43,245 --> 00:45:50,685
from large blocks, from a privacy sidechain. The world would benefit from those things

397
00:45:50,685 --> 00:45:54,204
regardless of whether or not those are developed on altcoins.

398
00:45:54,924 --> 00:45:59,245
Regardless of whether they're developed on altcoins, we still want them to be Bitcoin side

399
00:45:59,245 --> 00:46:11,004
chains. Bitcoin alone, as it is today, is not enough. About one half of all of the value of blockchain

400
00:46:13,164 --> 00:46:19,245
is the potential features and innovations that would arise on sidechains. And if Bitcoin doesn't

401
00:46:19,245 --> 00:46:27,245
build them, then other blockchains will. And eventually, possibly, the total value on another

402
00:46:27,245 --> 00:46:35,324
blockchain could surpass Bitcoin's. And then that blockchain could ossify its layer one,

403
00:46:35,324 --> 00:46:41,805
and then it would have the narratives of layer one digital gold plus the highly extensible

404
00:46:42,685 --> 00:46:51,324
feature set of sidechains or some other scaling and development technology.

405
00:46:51,324 --> 00:47:11,965
Anyone in the audience is welcome to come on up and vibe with me. If you'd like, ask a question,

406
00:47:12,764 --> 00:47:21,004
express a criticism. Don't be shy. Come on up and

407
00:47:21,965 --> 00:47:27,164
chat about drivechain. That's why we're here. Drivechain talk every Monday and Thursday.

408
00:47:27,164 --> 00:47:36,444
Don't miss it. We also have a drivechain talk telegram group. 700 people are in there

409
00:47:37,484 --> 00:47:43,565
talking about drivechain constantly. It's exciting. All the cool kids are interested in

410
00:47:43,565 --> 00:47:57,405
drivechain. If you're interested in knowing who supports drivechain, you can go to a little list

411
00:47:57,405 --> 00:48:06,125
that I made, which is at drivechain.info forward slash friends. Again, that's drivechain.info

412
00:48:06,845 --> 00:48:18,604
forward slash friends, F-R-I-E-N-D-S. And if you go there, you will see a spreadsheet I made

413
00:48:18,604 --> 00:48:29,725
that has the quotes from over 60 different supporters of drivechain, including the famous

414
00:48:29,725 --> 00:48:38,285
creator of Nostr, Fiatjaf, who is probably the most vociferous drivechain supporter on Twitter

415
00:48:38,285 --> 00:48:46,444
ever. Emphatically in favor of it. He has written, drivechain is our only hope. That's one of his

416
00:48:46,444 --> 00:48:56,045
tweets. So I agree. Welcome back to the stage, Michael. What's up? Yeah, so I did have a quick

417
00:48:56,045 --> 00:49:01,405
question or hoping you can elaborate on it. So it's on the topic of drivechains that it might

418
00:49:02,525 --> 00:49:10,605
be a little off topic. I noticed that, you know, whenever somebody brings up drivechains, like

419
00:49:10,605 --> 00:49:15,165
sure, there's going to be a lot of criticism as it's not implemented on the main net. It's only

420
00:49:15,165 --> 00:49:22,684
on test net. But it sounds like lately there has been a lot of criticisms about lightning network

421
00:49:22,684 --> 00:49:28,444
that seem to get brushed under the rug. And I was just curious, you're obviously very well

422
00:49:28,444 --> 00:49:34,204
educated on the drivechain stuff. And I don't know if any of the criticisms of lightning network has

423
00:49:34,204 --> 00:49:37,725
or if you've heard of these criticisms. I'm just wondering if you could

424
00:49:38,364 --> 00:49:42,204
touch base on that or you heard anything in regards to that.

425
00:49:45,485 --> 00:49:52,045
There is a great post on the limitations of lightning on Paul Sztorc's blog, which is

426
00:49:52,045 --> 00:50:01,564
truthcoin.info. That's truthcoin.info. It's called the fundamental limitations of lightning.

427
00:50:03,004 --> 00:50:09,645
And I don't have it in front of me, but he reviews there how it would be very difficult for

428
00:50:10,444 --> 00:50:17,884
even using favorable assumptions lightning to serve the needs of humanity for peer to peer cash

429
00:50:18,444 --> 00:50:28,925
in the near future. So the drivechain review on lightning generally, like what did pro drive

430
00:50:28,925 --> 00:50:35,564
chain thinkers think of lightning? The answer, as I understand, is that lightning is cool.

431
00:50:36,684 --> 00:50:44,845
However, bitcoiners as a community are better off when they have even more choices. Instead of just

432
00:50:44,845 --> 00:50:50,845
lightning as the solution for building on bitcoin and enabling cheap, fast transactions

433
00:50:51,405 --> 00:50:56,925
of smaller amounts, it would be good for bitcoiners to have sidechains with big blocks,

434
00:50:57,884 --> 00:51:06,525
one gigabyte blocks on a sidechain called thunder. And there are also some potential synergies

435
00:51:06,525 --> 00:51:13,244
between the large block sidechains and the lightning system. So you could have lightning

436
00:51:13,244 --> 00:51:18,684
on a drivechain. There could even be a sidechain developed. You know, when we say drive

437
00:51:18,684 --> 00:51:23,725
chain, we mean a sidechain using BF300 and BF301. There could be one that is designed

438
00:51:23,725 --> 00:51:27,564
specifically to facilitate lightning. So there's all kinds of interesting combinations.

439
00:51:29,804 --> 00:51:34,204
A lot of developers are working on lightning, and it's those people who will benefit greatly

440
00:51:34,204 --> 00:51:41,564
from drivechain because they'll be able to build their ideas for bitcoin on sidechains

441
00:51:41,564 --> 00:51:47,884
without having to seek consensus from the bitcoin community. It's much easier to build

442
00:51:47,884 --> 00:51:54,764
a new sidechain. Everyone who uses it is opting in, and everyone who uses it is paying fees to

443
00:51:54,764 --> 00:52:01,405
bitcoin layer one. So it's economically harmonious. The worst thing is for people who are building on

444
00:52:01,405 --> 00:52:10,045
bitcoin to give up and leave and then go build an altcoin. Now, of course, if one is a scientist,

445
00:52:10,045 --> 00:52:19,324
one is neutral as to which blockchain a certain technology is on. So the people who really

446
00:52:19,324 --> 00:52:25,804
benefit the most from drivechain are people who are bitcoin only. That bitcoin only crowd,

447
00:52:25,804 --> 00:52:35,244
that toxic maxi crowd, that is exactly the set of people who benefit the most from drivechain.

448
00:52:35,244 --> 00:52:42,925
For example, if someone decides, let's say they decide after reading some Jimmy Song blog post

449
00:52:42,925 --> 00:52:46,605
that they're only going to hold bitcoin and everything else is terrible and immoral.

450
00:52:48,045 --> 00:52:55,244
So this person is 100% invested in bitcoin only. It's exactly that kind of person who benefits from

451
00:52:55,244 --> 00:53:03,884
drivechain the most. Because if a lot of development happens on Ethereum and developers

452
00:53:03,884 --> 00:53:09,645
are leaving bitcoin because of the lack of extensibility, then in the very long run,

453
00:53:10,364 --> 00:53:14,925
that could lead to the network effect and value accrual to bitcoin being much lower.

454
00:53:16,605 --> 00:53:21,244
Hello and welcome to the stage, Wayne. Thanks for joining.

455
00:53:28,364 --> 00:53:31,645
Hello, Wayne, are you there? I can't hear you.

456
00:53:31,645 --> 00:53:35,485
I think it still shows him as a listener. At least it does on my screen.

457
00:53:37,884 --> 00:53:39,324
It says he's a speaker for mine.

458
00:53:41,965 --> 00:53:43,884
Wayne, can you give a thumbs up if you can hear us?

459
00:53:45,725 --> 00:53:48,444
We can't hear you. Maybe there's some problem.

460
00:53:52,124 --> 00:53:59,324
But basically, Michael, the whole lightning project, it's awesome, but we definitely need

461
00:53:59,324 --> 00:54:05,725
more. I think that there was a feeling in the bitcoin community years ago that lightning would

462
00:54:05,725 --> 00:54:12,444
provide unlimited, massive, unimaginable benefit in every way and that we wouldn't have to do any

463
00:54:12,444 --> 00:54:20,045
more soft forks. And instead, at this time, I think it's appropriate to contemplate how

464
00:54:20,045 --> 00:54:25,244
drivechain as a complement to lightning could be the final change, maybe.

465
00:54:25,804 --> 00:54:30,444
Because it would enable a lot of extensibility. Basically, you could have a whole separate

466
00:54:30,444 --> 00:54:36,124
blockchain, a number of them, you could have 200, you know, drivechains out there, each with its

467
00:54:36,124 --> 00:54:44,204
own features and user base, and they're all paying fees to bitcoin miners. So it's a very powerful

468
00:54:44,204 --> 00:54:49,085
synergistic system, very different in nature than lightning. But both are cool.

469
00:54:49,085 --> 00:54:55,965
Hey, can I ask a question and just make a comment? Yeah, please. Hey, everybody. For those

470
00:54:55,965 --> 00:55:01,645
of you who don't know me, my name is Wayne. I'm an investor in LayerTwo Labs, a long time friend of

471
00:55:01,645 --> 00:55:09,884
Paul Sztorc. And for several years, I financed the development of a drivechain. So, you know,

472
00:55:09,884 --> 00:55:14,045
I listen to these calls all the time. I've been listening to these calls for a long time. I've

473
00:55:14,045 --> 00:55:22,764
been listening to these calls on occasion when I get a chance to. And there's always a lot of

474
00:55:22,764 --> 00:55:32,605
talks about the broad benefits of drivechain to the bitcoin ecosystem, to this audience, that

475
00:55:32,605 --> 00:55:42,684
audience. And it's a little bit frustrating for me, because in my mind, my philosophy is all you

476
00:55:42,684 --> 00:55:48,285
have to do is just build one useful thing with drivechain. It's kind of like a good analogy

477
00:55:48,285 --> 00:55:53,485
might be the invention of bricks. You know, let's say that you invented bricks and you went around

478
00:55:53,485 --> 00:55:58,525
the world telling people about all the great things that you could do with bricks. You could

479
00:55:58,525 --> 00:56:02,684
build different kinds of buildings than you could with wood. It was better for insulation. It was

480
00:56:02,684 --> 00:56:09,085
better for the environment. It was better for all of these other purposes. But the best thing you

481
00:56:09,085 --> 00:56:14,605
could do to get people to understand how to use bricks is to build something with bricks that's

482
00:56:14,605 --> 00:56:18,925
better than something that was built with wood and to make it easy for people to get bricks.

483
00:56:19,645 --> 00:56:25,804
And I just wish that a lot of the energy that's being put into all these generic conversations

484
00:56:25,804 --> 00:56:30,444
about let's build this or the event if it's that or there's all these multiple things you could do

485
00:56:30,444 --> 00:56:36,925
is just build one useful thing and get it out there into the world and see if you can't get

486
00:56:36,925 --> 00:56:43,564
other people to start using it and other people to start saying, hey, that thing's useful. I can

487
00:56:43,564 --> 00:56:49,244
use it to build something else that looks kind of like this. It's my two cents. Hey, Wayne, can you

488
00:56:49,244 --> 00:56:58,925
hear me okay? Yeah, well said. Go ahead. Thanks. Hey, Wayne, thanks for funding the development

489
00:56:58,925 --> 00:57:02,525
in the beginning. And it's cool to see BIP300 getting more attention. At least that's how it

490
00:57:02,525 --> 00:57:09,004
seems to me. So for context, I'm just someone who holds a bit of Bitcoin as like a diversification

491
00:57:09,004 --> 00:57:13,004
strategy. I'm not so involved in the technical developments, although I'm seeing some of what's

492
00:57:13,004 --> 00:57:19,884
happening these days with Lightning Network and BIP300. So long story long, what are sort of the

493
00:57:21,805 --> 00:57:27,645
the big apps that you see coming? It might be too early to tell. And then for Michael, what are some

494
00:57:27,645 --> 00:57:31,724
of the criticisms that you've heard of Lightning Network? What's the argument against it? You said

495
00:57:31,724 --> 00:57:34,844
I've heard people say, what are people saying? So Wayne, if you wouldn't mind answering first,

496
00:57:34,844 --> 00:57:40,844
and maybe Michael, if he's still listening. Sure. Those are really good questions. It's

497
00:57:40,844 --> 00:57:44,525
like if somebody asks for you just to build something, well, what are the good things to build?

498
00:57:46,764 --> 00:57:53,244
To be honest, I'm not 100% sure. If we had a big block sidechain, that is something that people

499
00:57:53,244 --> 00:57:59,244
talk about frequently. I'm not sure what people would use that for. If you had a BitAsset side

500
00:57:59,244 --> 00:58:04,764
chain, which has been talked about a lot, you might get people issuing NFTs or other sorts of

501
00:58:04,764 --> 00:58:12,764
assets on the chain. But most assets in the real world have a high regulatory component to them.

502
00:58:12,764 --> 00:58:19,405
Like, you know, real estate is heavily regulated. Obviously, any type of stable coins, stock,

503
00:58:19,964 --> 00:58:25,805
bond, otherwise investment contract is heavily regulated. So it's not clear to what degree a

504
00:58:25,805 --> 00:58:35,884
BitAsset sidechain would make things be different and advantageous over other methods

505
00:58:35,884 --> 00:58:43,244
of regulatory arbitrage. One thing that has proven extremely useful on other platforms of

506
00:58:43,244 --> 00:58:49,084
all different types are DEXs, decentralized exchanges, ways to trade things. If somebody

507
00:58:49,084 --> 00:58:54,445
could figure out a way to build a DEX on a sidechain or some sort of derivatives exchange on a

508
00:58:54,445 --> 00:59:01,805
Bitcoin sidechain, I think that might be useful. It's, you know, it is a bit of a chicken and the

509
00:59:01,805 --> 00:59:13,165
egg sort of situation here. But it's kind of like inventing a web server. You know, web servers are

510
00:59:13,165 --> 00:59:20,285
useful for all sorts of things. And at first, it wasn't entirely clear what web servers were

511
00:59:20,285 --> 00:59:27,325
useful for besides, you know, cat JPEGs and, you know, publishing your own personal home page.

512
00:59:27,325 --> 00:59:34,285
But eventually we figured out some applications. And e-commerce was a big vertical initially.

513
00:59:34,285 --> 00:59:38,844
And I think that if, you know, because people wanted to sell things online, they wanted to be

514
00:59:38,844 --> 00:59:45,325
able to reach a broader audience. And to, you know, to whatever degree you can find an application

515
00:59:45,325 --> 00:59:50,445
like that and make a bet on building that application and get it out there.

516
00:59:51,554 --> 01:00:04,194
I would say that would be advantageous for Drivechain, but just building, simply building the platform and extolling all the virtues of the platform just in my mind may not be enough.

517
01:00:07,113 --> 01:00:07,613
Thanks, Wayne.

518
01:00:13,994 --> 01:00:18,994
Michael, if you're still there, I was asking you what criticisms that you've heard people talk about in regards to Lightning Network?

519
01:00:21,034 --> 01:00:25,353
Yeah, so I just it's came up on a couple of podcasts that I've listened to.

520
01:00:25,513 --> 01:00:37,794
And then I think what I was getting at more than anything was just the fact that I know one of the main criticisms of Drivechains is it allows miners to steal funds.

521
01:00:39,353 --> 01:00:44,114
But isn't it true that that same argument can be made to the Lightning Network?

522
01:00:44,434 --> 01:00:50,513
But for whatever reason, that kind of gets brushed under the rug.

523
01:00:50,954 --> 01:00:53,153
And again, that might be something more for Henry.

524
01:00:53,153 --> 01:00:56,833
I'm probably not the person to ask, but that's kind of what I was getting at.

525
01:00:57,554 --> 01:01:02,714
Your biggest concern or like the biggest proxy concern in which you've heard voiced is something about the security of users' funds.

526
01:01:02,714 --> 01:01:04,513
Is that right? I could summarize that.

527
01:01:04,513 --> 01:01:20,833
There's a theoretical argument against Drivechain, which is not elaborated completely because it applies to Lightning.

528
01:01:21,674 --> 01:01:22,433
Is there a paper?

529
01:01:24,954 --> 01:01:33,193
Yeah, if you DM me here, I will remember to send you written resources regarding this.

530
01:01:34,193 --> 01:01:36,073
OK, yeah, I'll message you, but no stress.

531
01:01:36,274 --> 01:01:36,634
Thanks.

532
01:01:38,034 --> 01:02:00,753
More broadly, without respect to Lightning in particular, the argument about Drivechain being susceptible to theft, it involves some incomplete reasoning, I think, as Paul has written in his blog posts and in the Drivechain FAQ, which is available at drivechain.info.

533
01:02:00,753 --> 01:02:03,434
And then you click on FAQ in the links.

534
01:02:04,994 --> 01:02:15,514
So he explains in that FAQ that one of the reasons people think Drivechain might not work is that the miners could steal from the hashrate escrow.

535
01:02:16,514 --> 01:02:36,634
But this way of thinking needs to be carefully unpackaged and explored, because it is actually the case that under certain assumptions, like the same kind of theft can occur or a similar kind of theft can occur on the main chain without any Drivechain usage.

536
01:02:37,193 --> 01:02:46,554
For example, if so, first of all, when a Drivechain is being stolen from, it involves 51% of all the hashrate.

537
01:02:46,833 --> 01:02:48,233
So it's not just some miners.

538
01:02:48,274 --> 01:03:03,953
It would have to be over half of the entire hashrate is being deployed, and it has to be deployed for months at a time, continuously, at least three months and as much as six months.

539
01:03:04,953 --> 01:03:08,074
And it has to be done in a way that's overt.

540
01:03:08,233 --> 01:03:09,714
So it's not a secret attack.

541
01:03:10,714 --> 01:03:28,154
Instead, it's something which is announced from the very beginning publicly, because that's the way Drivechain is designed, is that if a malfeasant mining operation were to commence to steal from the hashrate escrow, it would be public immediately when it begins.

542
01:03:29,154 --> 01:03:34,074
Some things in life can be done in private, but stealing from a hashrate escrow is not one of them.

543
01:03:35,233 --> 01:03:38,914
So as the process is moving along, it's known that this is happening.

544
01:03:39,714 --> 01:03:54,274
So this is why Fiatjaf has correctly written in his essay on Drivechain about the fact that if Drivechain isn't a viable security model, then neither is Bitcoin mainchain.

545
01:03:54,274 --> 01:04:07,274
Because if the miners can steal from the hashrate escrow, and this is something which happens, in fact, if Drivechain is adopted, if that happens, in fact, then that'll show that Drivechain doesn't work.

546
01:04:07,274 --> 01:04:28,833
But also, in Fiatjaf's view, this is the creator of Nostr, it would have shown to him that Bitcoin itself is unstable, because over half of the Bitcoin miners, if there are thefts by them, over half of the Bitcoin miners are acting in a way that is malfeasant rather than incentive-compatible.

547
01:04:29,833 --> 01:04:36,833
So is it the same vulnerability that exists on the main? It's the 50% plus one vulnerability? Is that it?

548
01:04:37,833 --> 01:04:45,833
Yeah. So 51% of Bitcoin's hashrate can be deployed in a manner which is destructive to all of Bitcoin.

549
01:04:45,833 --> 01:04:51,833
And stealing from a sidechain involves over half of Bitcoin's hashrate as well.

550
01:04:52,833 --> 01:05:12,833
So what we're saying here, what I'm trying to advance, is the understanding that the critics of Drivechain point to miner theft, but they usually fail to articulate that such a theft involves over half of Bitcoin's hashrate necessarily.

551
01:05:13,833 --> 01:05:37,833
And that it doesn't make sense to say, well, Drivechain is insecure because over half of Bitcoin's hashrate can steal from the hashrate escrow, but then not at the same time admit and acknowledge that if over half of Bitcoin's hashrate is going to act malfeasantly, then Bitcoin itself is unsustainable or unstable.

552
01:05:38,833 --> 01:05:45,833
Because if over half of Bitcoin's hashrate is deployed in a way that's harmful to Bitcoin, Bitcoin will stop working.

553
01:05:46,833 --> 01:05:48,833
This is something that the Drivechain critics acknowledge.

554
01:05:49,833 --> 01:06:07,833
Like if you look at Shinobi's article from October of 2022, half a year ago, the article on American miner concentration and how the percentage of hashrate globally is increasing in America as a proportion of total hashrate.

555
01:06:08,833 --> 01:06:10,833
He has this great sentence I like to quote.

556
01:06:13,833 --> 01:06:14,833
I'll just find it now.

557
01:06:16,833 --> 01:06:18,833
Just to kind of assist what Fuzzy Bear is saying.

558
01:06:22,833 --> 01:06:24,833
So here's the sentence.

559
01:06:24,833 --> 01:06:28,833
I just found it from his article on October 27th in Bitcoin Magazine.

560
01:06:29,833 --> 01:06:31,833
Here's the sentence in the second paragraph.

561
01:06:31,833 --> 01:06:32,833
This is by Shinobi.

562
01:06:33,833 --> 01:06:47,833
From day one, it has been very clearly delineated that a majority, 51 percent or more, of the Bitcoin hashrate can act maliciously in a way that severely degrades or entirely breaks the security of the whole system.

563
01:06:48,833 --> 01:06:51,833
And then he lists a bunch of ways they can attack it.

564
01:06:51,833 --> 01:06:53,833
Oh, here's the answer to your question.

565
01:06:56,833 --> 01:06:57,833
I forget who asked the question.

566
01:06:58,833 --> 01:07:09,833
But regarding Lightning, he writes, they, referring to the 51 percent hashrate attacker, they could selectively refuse to process Lightning channel closures properly.

567
01:07:09,833 --> 01:07:12,833
They could prevent peg ins and peg outs from sidechains.

568
01:07:12,833 --> 01:07:21,833
They can entirely break the censorship resistance of the system and undermine the security of the base layer and any secondary layer.

569
01:07:21,833 --> 01:07:37,833
So what's going on here is an acknowledgment that if we assume that we can't trust the majority of Bitcoin's hashrate to act in a way that's compatible with the functioning of Bitcoin, then we can't trust Bitcoin to work.

570
01:07:38,833 --> 01:07:51,833
But that acknowledgment, that truth isn't seemingly contemplated by the critics of drivechain when they say that drivechain relies on the miners.

571
01:07:51,833 --> 01:07:53,833
Well, so does Bitcoin.

572
01:07:53,833 --> 01:07:54,833
That's the whole point.

573
01:07:54,833 --> 01:07:55,833
So does Lightning.

574
01:07:55,833 --> 01:07:56,833
Yeah, I see.

575
01:07:56,833 --> 01:07:57,833
It's a kind of double think, right?

576
01:07:57,833 --> 01:07:58,833
Right.

577
01:07:58,833 --> 01:08:07,833
It's like on the one hand, oh, we can't trust the miners because in the block size war, we think that they were doing up where they're pushing for larger blocks and mining empty blocks.

578
01:08:07,833 --> 01:08:10,833
And like, we can't trust the miners.

579
01:08:10,833 --> 01:08:14,833
So that's the problem with drivechain is it puts a lot of trust in miners.

580
01:08:14,833 --> 01:08:17,833
Well, like I have news for you.

581
01:08:17,833 --> 01:08:19,833
Bitcoin involves trusting miners.

582
01:08:20,833 --> 01:08:42,834
If you don't trust 51% of the hashrate to behave correctly, then you shouldn't be in Bitcoin because as Shinobi articulates in that paragraph, Bitcoin requires the incentive compatible behavior of 51% of Bitcoin's hashrate.

583
01:08:43,834 --> 01:08:46,834
So when you explain it this way, it's obvious.

584
01:08:46,834 --> 01:08:50,834
And I don't understand how proponents can, in good faith, argue this publicly.

585
01:08:50,834 --> 01:08:52,834
So is it ignorance or is it malfeasance?

586
01:08:52,834 --> 01:08:55,834
You mean the proponents or the opponents?

587
01:08:55,834 --> 01:08:57,834
Did I say proponents?

588
01:08:57,834 --> 01:08:58,834
The proponents.

589
01:08:58,834 --> 01:09:02,834
No, the proponents of like this weakness, vulnerability.

590
01:09:02,834 --> 01:09:03,834
Yeah.

591
01:09:03,834 --> 01:09:07,834
So there are different criticisms of drivechain.

592
01:09:07,834 --> 01:09:15,834
And the one that came up in this conversation that we're having right now, most recently, is the one that the miners might steal from the hashrate escrow.

593
01:09:15,834 --> 01:09:21,834
But that actually isn't the allegation that Shinobi makes.

594
01:09:21,834 --> 01:09:25,834
You see, he usually doesn't make that one.

595
01:09:25,834 --> 01:09:30,834
He might say that they're insecure, but usually he argues the opposite.

596
01:09:30,834 --> 01:09:54,834
So he's kind of like all over the map and sort of like wishy washy, in my opinion, like not interested in having a long form, unemotional, detailed, respectful, scientifically oriented, truth based, careful analytical discussion about this, which is why he explicitly declined to have a debate with Paul Sztorc about it.

597
01:09:55,834 --> 01:10:00,834
He said that, oh, Paul will do all kinds of tricky reasoning and try to fool me in the audience.

598
01:10:00,834 --> 01:10:10,834
That's what he wrote essentially in his tweet, which was in response to my, Henry, like my invitation to him, which was very respectful to debate these things.

599
01:10:11,834 --> 01:10:20,834
But based on my listening to him and reading his stuff, he doesn't usually allege that the hashrate escrow will be stolen from.

600
01:10:20,834 --> 01:10:30,834
Instead, what he alleges, in my understanding, based on his writings, he alleges that that drivechains will become large.

601
01:10:30,834 --> 01:10:57,834
He thinks they'll get big, that a lot of people will use them, they'll get big, they'll be successful, but that their success will have an effect on the mining market, namely that the Bitcoin miners will will have an increase in their concentration, meaning there'll be fewer small miners and there'll be more large miners.

602
01:10:57,834 --> 01:11:10,834
And that if there's only large miners in Bitcoin, then there's less miner decentralization, there's more miner concentration and that he thinks that's a bad thing.

603
01:11:10,834 --> 01:11:17,834
So he wants to keep Bitcoin, like Peter Todd would say, like as simple as possible for the miner incentives.

604
01:11:17,834 --> 01:11:39,834
How would increased profits or like higher revenues tend to centralize the ownership of the mining power?

605
01:11:39,834 --> 01:11:49,834
Because if you look at YouTube, right, as an example, it's if anything, it's diversified the amount of content that exists as the revenue increases, because you give more bandwidth for everyone to kind of compete.

606
01:11:49,834 --> 01:12:01,834
So I'm not exactly sure. Is it like state actors that are antithetical to Bitcoin that want to corrupt it and are willing to spend arbitrary amounts of money to destroy all of its value? Or who are these people getting together, I guess?

607
01:12:01,834 --> 01:12:06,834
I mean, you're not proposing this if you have to steel man it, right?

608
01:12:06,834 --> 01:12:22,834
Yeah, I think they're wrong. But what they think is that merged mining is not good. So their criticism of Bitcoin, like the Shinobi Peter Todd criticism, as I understand it, is a criticism of merged mining.

609
01:12:22,834 --> 01:12:41,834
They don't actually dislike drivechain per se. They dislike the fact that it involves merged mining, which is already existing on Bitcoin and has since 2010 when Satoshi invented it.

610
01:12:41,834 --> 01:13:02,834
So they don't like what Satoshi invented. And he talked about it explicitly. And he said it was good. And they disagree. So they think Satoshi is wrong. And that merged mining isn't good. And there shouldn't be multiple blockchains that the miners are all receiving fees from.

611
01:13:02,834 --> 01:13:31,834
And they think that that will lead to... This is the answer to your question. They think that the miners will get a little bit more money if they run the sidechain node. So even though blind merged mining, which is Paul Sztorc's invention that allows miners to receive fees without running the sidechain node, even though that will exist with drivechain, Peter Todd and Shinobi point to the fact that there will be a profit motive for miners who can afford it.

612
01:13:32,834 --> 01:13:49,834
They can afford to spin up the nodes of the sidechains to do that. That there'll be a profit motive that they'll think, OK, if I get a laptop and I run the node for the Thunder sidechain, maybe I'll make 1% more revenue per year.

613
01:13:50,834 --> 01:13:58,834
I see. It raises the floor on who's able to compete, basically. So only people who can pay can play. OK. That's how the centralization happens.

614
01:13:58,834 --> 01:14:19,834
Only people who can afford to run some sidechain nodes will make the extra profit from their mining. Now, a lot of miners are already using pools. So if you have hashing equipment like an ASIC like I have, but you're not running your own node, instead you use brains or slush pool.

615
01:14:20,834 --> 01:14:35,834
So that is the pool layer. That's the layer at which the running of the sidechain nodes is necessary to get this extra profit in theory, where we're assuming that the critics are right, that there'll be more profit that comes from running the nodes.

616
01:14:35,834 --> 01:14:54,834
So the pool will run it. The pool is making millions of dollars a year by taking a small fee from the revenue of the mining. So it wouldn't be hard for them to do it. But these critics would say, well, we don't want to have miners in general having any more power in the Bitcoin ecosystem.

617
01:14:54,834 --> 01:15:16,834
And we don't want there to be more large miners. So therefore, we shouldn't do drivechain. But now Peter Todd, who's against drivechain, is in favor of inflation. He's openly in favor of Bitcoin doing an inflation fork. And I have the tweet, it's not hard to find, where he says, I support an inflation fork.

618
01:15:16,834 --> 01:15:29,834
He tweeted that one time. He usually tweets things like, I would support it if the community wants it, but I don't think it's likely. But one time he just came out and said, I support it. So it's fair to say he supports it. He hasn't deleted the tweet.

619
01:15:29,834 --> 01:15:53,834
And he also has tweeted that he thinks Bitcoin would more likely die than ever adopt inflation. So he's like cynical and kind of edgelording about inflation being a good idea, but then also saying that he doesn't think people will ever want it. Maybe he'll be eventually vindicated and the whole community will just decide to do inflation. I think that'd be terrible.

620
01:15:53,834 --> 01:16:09,834
It's much better to preserve the monetary policy and to develop Bitcoin's extensibility and fee market through merged mining. I mean, that's the Satoshi view. And it's not right because Satoshi liked it. It's right just because it's right.

621
01:16:09,834 --> 01:16:38,834
So the critics think that there'll be less decentralization in mining if the miners have to run these nodes to make extra profit. So the place in their reasoning where they're wrong is that those same people who criticize the possibility of more concentration in mining because of merged mining,

622
01:16:38,834 --> 01:16:54,834
being more popular, those same people don't criticize the other thousand ways that mining is undergoing concentration and specialization.

623
01:16:54,834 --> 01:17:18,834
So right now, large miners, not small miners, can negotiate with a power company to get a special arrangement where they get cheaper electricity as long as they operate only at certain times. Large miners, not small miners, can afford to build a giant hashing factory in Norway because it's right next to where the oil comes out of the ocean.

624
01:17:18,834 --> 01:17:37,834
So large miners, not small miners, can build a hashing facility in some place where there's falling water or there's a volcano for geothermal. So large miners have all kinds of methods to make themselves more competitive.

625
01:17:38,834 --> 01:17:56,834
And the critics of drivechain who think that drivechain will cause more centralization of miners, they don't criticize any of the things that miners are doing. And also it is inevitable and inexorable part of the free market economy that specialization occurs.

626
01:17:56,834 --> 01:18:18,834
As an industry matures, some people specialize and they become very good at doing something and creating value doing it. And they push out all of the hobbyists. There are fewer people selling lemonade on the streets of America because McDonald's sells lemonade.

627
01:18:19,834 --> 01:18:39,834
So McDonald's figured out people want lemonade and they make it by the billions of gallons a year and they sell it in their stores. So there's one big player in the lemonade market in America, which is McDonald's. That's where you get your lemonade when you're driving around. You don't stop at some little kid's stand and buy it from the kid.

628
01:18:40,834 --> 01:18:56,834
So McDonald's put the kids out of business. Is that the end of the world? No, that's just capitalism. Similarly, Bitcoin involves just trusting that the majority of the hash rate isn't going to be deployed maliciously.

629
01:18:56,834 --> 01:19:18,834
Satoshi wrote this in the very first paragraph of the white paper on page one, that as long as a majority of the hash rate is acting honestly, the system works. So this has been known from the get go. And Satoshi invented merge mining and it's been around for a decade. We've had merge mining constantly for a whole decade. There's never been a problem.

630
01:19:18,834 --> 01:19:35,834
And yet these people who don't like drivechain, they say, well, it's all about the miners and the miners. They're already a problem. And then what if they get even worse? And there's just there aren't enough home miners. Instead, it's only big miners. Well, that's how Bitcoin works.

631
01:19:35,834 --> 01:19:47,834
Satoshi wrote long ago that in the future, there will be server farms and specialists and not everyone will be generating new coins. He explicitly wrote that back in like 2010 on the forum.

632
01:19:50,648 --> 01:19:54,648
All of the concerns against drivechain are.

633
01:19:56,128 --> 01:20:09,928
Our concerns, which is fully understood and elaborated, are shown to be incoherent, like, oh, you can't trust the miners, well, then you shouldn't be using Bitcoin because Bitcoin involves trusting the miners and oh, you don't want the miners to specialize.

634
01:20:09,928 --> 01:20:15,447
Well, then you shouldn't be doing capitalism because they're going to specialize and eventually the home miners won't work.

635
01:20:15,728 --> 01:20:21,808
All of the people who think that they're going to be Bitcoin miners and toaster ovens, they don't really know what they're talking about.

636
01:20:22,728 --> 01:20:30,407
Those economic ideas and memes come from people who don't understand how network effects work and specialization works.

637
01:20:30,767 --> 01:20:36,808
The miners of the future will be large industrial players in different parts of the world that have cheap energy.

638
01:20:37,247 --> 01:20:40,328
It's not going to be you at home with your toaster oven.

639
01:20:40,528 --> 01:20:44,888
And whenever you're not toasting a bagel, you're instead Bitcoin mining with the toaster oven.

640
01:20:45,087 --> 01:20:46,087
It's not how things work.

641
01:20:49,648 --> 01:21:02,088
Instead, there's economies of scale and specialization, the same is true for Ethereum validation, there's going to be a few big players in Ethereum validation, they have centralizing forces just like Bitcoin mining.

642
01:21:03,088 --> 01:21:09,887
That's one of the great insights of the whole Paul Sztorc oeuvre is he was the leading thinker.

643
01:21:10,927 --> 01:21:21,527
More than anyone else alive, I think, on the subject of the crypto economics of proof of stake and how proof of stake consumes as much value as proof of work.

644
01:21:22,527 --> 01:21:39,287
Except that the value consumed in proof of stake takes the form of consumed liquidity, whereas the value of that's consumed in proof of work takes the form of consumed energy and the consumption of liquidity is a complex topic that's abstract.

645
01:21:39,287 --> 01:21:53,768
So people don't often understand this, but Vitalik understood it, and he modified his own articulation of the justifications for proof of stake after Paul wrote Paul's essay in 2015 titled Nothing is cheaper than proof of work.

646
01:21:54,648 --> 01:22:01,368
The proof of stake people thought they're going to have a more efficient system because they figured, OK, if we don't burn all of this electricity.

647
01:22:02,808 --> 01:22:04,767
Then we'll save a lot of money.

648
01:22:05,368 --> 01:22:06,368
We'll save a lot of money.

649
01:22:06,888 --> 01:22:21,687
What they didn't realize is that when you stake your capital over a period of time, instead of investing it in something else at that time, you are going to be consuming your liquidity and liquidity has value.

650
01:22:22,608 --> 01:22:34,047
To understand this tangibly, just imagine if all of your money were locked up in a very high yield bearing arrangement for 10 years, you might find that to be unfavorable because you wouldn't be able to eat.

651
01:22:34,808 --> 01:22:40,808
Right. So you don't want to lock up all of your money, even at a 30 percent annualized return rate for 10 years.

652
01:22:40,808 --> 01:22:42,287
If it's all of your money, how will you eat?

653
01:22:42,927 --> 01:22:44,327
So people want liquidity.

654
01:22:44,847 --> 01:22:45,728
They don't want to have.

655
01:22:46,968 --> 01:23:04,728
Yield always, sometimes they want liquidity, so in proof of stake, there is a lot of people staking all their capital, not all their capital, but a lot of society's capital in securing the payment system when that capital could have been deployed to other investment projects.

656
01:23:05,687 --> 01:23:14,687
How do you run the two simulations in one where there's a state based model, a work based model to come up with the fact that on balance, they're pretty much the same.

657
01:23:14,687 --> 01:23:18,648
How do you start to account for the cost of liquidity?

658
01:23:18,648 --> 01:23:21,528
The way that you do that is no problem.

659
01:23:21,528 --> 01:23:28,567
The way that you run the experiment is you run a theoretical analysis in your head of the two.

660
01:23:28,968 --> 01:23:37,327
That's the only way to do economic reasoning, because you can't run like a test and then go back in time and do it differently.

661
01:23:37,327 --> 01:23:42,327
Every moment in economics and society is like a unique constellation of a billion variables.

662
01:23:42,648 --> 01:23:47,927
So the way that we understand and apprehend economic truths is by thought experiments.

663
01:23:48,088 --> 01:23:58,008
And that's the only way you can abstractly distill the causal relationships between the variables, holding everything else equal.

664
01:23:58,008 --> 01:23:59,248
You change one variable.

665
01:23:59,248 --> 01:24:19,968
So we say in our minds that if we imagine a Bitcoinized society where there's using proof of work, Bitcoin, and then we imagine separately an alternative universe where it's the exact same world as the first one, except the Bitcoin is using proof of stake.

666
01:24:20,887 --> 01:24:30,607
So what we're doing in our mind right now is we're imagining two otherwise identical systems, the only difference being one uses proof of work and the other uses proof of stake.

667
01:24:30,727 --> 01:24:33,047
So they have the same value for their token.

668
01:24:33,607 --> 01:24:35,248
They have the same transaction fees.

669
01:24:35,248 --> 01:24:36,167
They have the same people.

670
01:24:36,408 --> 01:24:39,327
Everything is the same except one uses proof of stake.

671
01:24:39,568 --> 01:24:40,607
One uses proof of work.

672
01:24:40,607 --> 01:24:41,808
They have the same block time.

673
01:24:42,088 --> 01:24:44,088
They have the same block reward.

674
01:24:45,088 --> 01:24:50,648
So right now, it's around six Bitcoin every 10 minutes.

675
01:24:51,568 --> 01:24:55,767
Imagine if the way you get that Bitcoin is you burn electricity.

676
01:24:57,887 --> 01:25:04,887
You consume electricity, if you consume a lot of it, then you get a large portion of that block reward statistically.

677
01:25:04,927 --> 01:25:07,288
So let's say you're 10% of the Bitcoin mining market.

678
01:25:07,288 --> 01:25:11,408
You have a big Bitcoin mining machine building full of Bitcoin miners.

679
01:25:11,968 --> 01:25:13,767
Let's say you have 10% of the hash rate.

680
01:25:13,767 --> 01:25:19,887
Hypothetically, that means about one-tenth of the time you're going to win the block reward.

681
01:25:19,887 --> 01:25:28,607
So statistically, you're receiving about one-tenth of that block reward value over time.

682
01:25:29,288 --> 01:25:37,167
Now, if you're one-tenth of the validators, then you would get one-tenth of that reward stream as well.

683
01:25:38,007 --> 01:25:44,288
So how do you receive a part of that reward stream?

684
01:25:44,288 --> 01:25:46,368
Well, in proof of work, you consume electricity.

685
01:25:46,368 --> 01:25:50,848
In proof of stake, you consume liquidity by staking.

686
01:25:52,288 --> 01:25:55,088
So there's work being done in both systems.

687
01:25:55,288 --> 01:25:58,968
Proof of stake, in Paul's view, is obfuscated proof of work.

688
01:25:59,648 --> 01:26:03,167
So there's still work being done, but it's obfuscated.

689
01:26:03,167 --> 01:26:04,007
It's abstracted.

690
01:26:04,007 --> 01:26:05,528
There's no energy being burned.

691
01:26:05,568 --> 01:26:06,767
There's no hashing happening.

692
01:26:06,808 --> 01:26:16,528
Instead, you commit capital for a period of time, and in return, you receive the reward, the block reward, which is part fees, part issuance.

693
01:26:18,887 --> 01:26:20,047
So it makes sense to me.

694
01:26:20,528 --> 01:26:29,047
I'm struggling to make the gap where it's like, I have 10% of the power over the network, so I receive 10% of the reward.

695
01:26:29,727 --> 01:26:50,327
Yet in the stake-based model, it's unclear to me that the economy, generally, if it was operated completely on Bitcoin, in both the stake and the work-based model, would perform the exact same or have the same success rate or would come to the same inventions at the same amount of time or there'd be the same amount of investment.

696
01:26:50,568 --> 01:26:57,727
It's not clear to me that all other things being equal besides stake versus work-based model, you'd have the same economic outcome generally.

697
01:26:58,447 --> 01:27:00,007
So how do you reach that?

698
01:27:00,007 --> 01:27:08,447
Because right now, people do commit their capital to get interest on accounts, and energy does really cost something.

699
01:27:08,447 --> 01:27:15,207
So it's not clear to me that it is net the same when there's a real cost on one side and a cost people are already paying on the other side.

700
01:27:15,487 --> 01:27:33,327
So the key insight that Paul had in his essay in 2015, Nothing is Cheaper than Proof of Stake, as well as in his 2017 response to Vitalik's response, and that is titled on Paul's blog as Proof of Stake is Still Pointless.

701
01:27:33,327 --> 01:28:03,288
So in those two essays, what he's getting at there is the following insight that the value of the energy and other inputs in mining that are consumed by miners to receive their income, which is the on-chain income, plus any off-chain income, the value received by Proof of Work participants is the same amount of value as would be received by Proof of Stake.

702
01:28:04,327 --> 01:28:05,327
Participants.

703
01:28:05,327 --> 01:28:19,327
So the amount of resources that are brought, that are consumed in the Proof of Work process is equal to the amount of resources that are consumed in the Proof of Stake process.

704
01:28:19,327 --> 01:28:20,327
I see.

705
01:28:20,327 --> 01:28:21,327
I see.

706
01:28:24,574 --> 01:28:29,474
equivalent systems, know that marginal cost equals marginal revenue.

707
01:28:29,614 --> 01:28:34,954
In other words, miners are going to consume more and more resources to win more and

708
01:28:34,954 --> 01:28:35,314
more

709
01:28:35,504 --> 01:28:41,264
of a percent of the revenue up until the point where their consumption of resources

710
01:28:41,264 --> 01:28:44,184
is equal to the revenue they're getting.

711
01:28:45,044 --> 01:28:46,284
So it's kind of like if you have a restaurant

712
01:28:51,327 --> 01:28:52,327
And rent more space.

713
01:28:52,327 --> 01:28:53,327
I can serve more people.

714
01:28:53,327 --> 01:28:54,327
OK, I'll do that.

715
01:28:54,327 --> 01:28:55,327
I'll hire more servers.

716
01:28:55,327 --> 01:28:57,327
I'll rent more space, have a larger restaurant.

717
01:28:57,327 --> 01:29:03,327
And then you realize that you're not making as much money as you used to because there aren't enough customers.

718
01:29:03,327 --> 01:29:04,327
You overbuilt.

719
01:29:04,327 --> 01:29:05,327
Now you downsize.

720
01:29:05,327 --> 01:29:06,327
So miners are doing that.

721
01:29:06,327 --> 01:29:08,327
Stakers doing the same thing, too.

722
01:29:09,327 --> 01:29:28,327
And what Proof of Stake people at first made the mistake of doing, and this is why Paul wrote his essay, is they thought that Proof of Stake, you know, people will get the block reward, but there'll be no value consumed by society to receive that reward.

723
01:29:28,327 --> 01:29:32,327
When the staking participants are getting their reward, they're not doing anything.

724
01:29:32,327 --> 01:29:33,327
But they are.

725
01:29:33,327 --> 01:29:38,327
What they're doing is they're wasting their own liquidity or consuming their own liquidity.

726
01:29:38,327 --> 01:29:47,327
In the same way that Bitcoin miners are consuming electricity and the value of machines, stakers are consuming their liquidity.

727
01:29:47,327 --> 01:29:50,327
And it is possible to specialize in that.

728
01:29:50,327 --> 01:29:59,327
And in the far future, most of the staking will be done by professionals in the same way that Bitcoin miners specialize in hashing.

729
01:29:59,327 --> 01:30:00,327
Hashing is difficult.

730
01:30:00,327 --> 01:30:12,327
Staking is the same way in that there'll be specialization, there'll be large players, there'll be centralizing forces to the same extent that there already is in Bitcoin mining.

731
01:30:13,327 --> 01:30:15,327
And you asked, what are the effects?

732
01:30:15,327 --> 01:30:27,327
Like if we have two otherwise equivalent systems, you know, in our mind, one is the world using Bitcoin with Proof of Work and the other is the world using Bitcoin with Proof of Stake.

733
01:30:27,327 --> 01:30:37,327
The main difference is that in one of those worlds, a lot of energy is consumed in order to secure the payment system.

734
01:30:37,327 --> 01:30:42,327
And in the other world, that energy is not consumed, it's available.

735
01:30:42,327 --> 01:30:53,327
But a lot of society's capital, the liquidity on that capital is being consumed by securing the payment system.

736
01:30:53,327 --> 01:30:54,327
So which is better?

737
01:30:54,327 --> 01:31:06,327
Having a lower growth rate in society economically because of a lower rate of investment in projects because a ton of society's capital is being staked to secure the payment system.

738
01:31:06,327 --> 01:31:12,327
But then there's more energy available for other projects because the energy isn't being consumed.

739
01:31:13,327 --> 01:31:21,327
Like the main insight is that the two systems are roughly the same in terms of the value that's being consumed per unit of time.

740
01:31:21,327 --> 01:31:23,327
But the value takes different forms.

741
01:31:23,327 --> 01:31:29,327
Either society is burning up a lot of its electricity or society is burning up a lot of its liquidity.

742
01:31:29,327 --> 01:31:49,327
So I rarely hear anyone express it this way, but I feel this is the right way to talk about it, that the choice between Proof of Stake and Proof of Work is economically a choice between having society consume value in the form of electricity or consume value in the form of liquidity.

743
01:31:49,327 --> 01:31:59,327
And the effects of that decision are that electricity prices are probably higher if we do Proof of Work, but there's more capital available for investing in projects.

744
01:31:59,327 --> 01:32:05,327
Or we do Proof of Stake, where a lot of society's capital is devoted to securing the payment system.

745
01:32:05,327 --> 01:32:13,327
So there's less capital available for investing in projects, but there's more energy available for other things.

746
01:32:13,327 --> 01:32:26,327
Now, the Proof of Work proponents would argue that, of course, Bitcoin mining has a synergistic potential with respect to the energy grid and renewable resources.

747
01:32:26,327 --> 01:32:31,327
And there's other kind of interesting effects from Bitcoin mining and Proof of Work.

748
01:32:31,327 --> 01:32:36,327
The Proof of Stake proponents would say this is more abstract.

749
01:32:36,327 --> 01:32:38,327
It's more environmental.

750
01:32:38,327 --> 01:32:46,327
There may be advantages with respect to anonymity, right, because it's more abstract.

751
01:32:46,327 --> 01:32:55,327
So it can be more digital and more secret, right, because you don't leave like a heat trail, a heat signature.

752
01:32:55,327 --> 01:32:58,327
Like Bitcoin mining uses up a certain amount of heat.

753
01:32:58,327 --> 01:33:01,327
It actually rather develops heat, I'm saying.

754
01:33:01,327 --> 01:33:03,327
And staking doesn't.

755
01:33:03,327 --> 01:33:08,327
So staking might be more abstract and covert, potentially.

756
01:33:08,327 --> 01:33:12,327
Now, one of the disadvantages of staking is it's much more complicated.

757
01:33:12,327 --> 01:33:18,327
So Justin Drake of the Ethereum Foundation has said it's 20 times more complicated than Proof of Work.

758
01:33:18,327 --> 01:33:21,327
So Proof of Stake is 20 times more complicated.

759
01:33:21,327 --> 01:33:23,327
So that's a disadvantage.

760
01:33:23,327 --> 01:33:36,327
So, of course, Bitcoiners enjoy the privilege of having a less complicated system as the consensus algorithm for their layer one.

761
01:33:36,327 --> 01:33:39,327
So it's favorable to have less complication.

762
01:33:39,327 --> 01:33:42,327
It's more time tested.

763
01:33:42,327 --> 01:33:46,327
So those are all the advantages and disadvantages.

764
01:33:46,327 --> 01:33:50,327
The most important insight is to realize that Proof of Stake is not free.

765
01:33:50,327 --> 01:33:57,327
Some very smart people thought, well, if we get rid of the Bitcoin miners and do Proof of Stake, then we're going to save a lot of cost.

766
01:33:57,327 --> 01:34:05,327
What they don't understand is that if people are locking up capital for any amount of time, then during that time they have less liquidity.

767
01:34:05,327 --> 01:34:08,327
And liquidity has value to people.

768
01:34:08,327 --> 01:34:12,327
One of the things people value economically is their own liquidity.

769
01:34:12,327 --> 01:34:25,327
That's why everyone maintains a cash balance in their personal finances rather than invest that balance entirely in higher yielding, less liquid investments.

770
01:34:25,327 --> 01:34:30,327
Like you don't put all of your money into gold bars or houses or stock to keep some in cash.

771
01:34:30,327 --> 01:34:37,327
And that way you're liquid in case you have unexpected expenses in the future.

772
01:34:37,327 --> 01:34:39,327
Thanks, that was really clear.

773
01:34:40,327 --> 01:34:48,327
If there are benefits and disadvantages that might roughly equal out all things considered, then what's for me to prefer one over the other?

774
01:34:48,327 --> 01:34:50,327
Consider staking and proof of work.

775
01:34:50,327 --> 01:34:54,327
I know it's an old conversation, but I still want to go through it if there's time.

776
01:34:54,327 --> 01:34:56,327
And if anyone else wants to jump in again, I guess.

777
01:34:56,327 --> 01:34:57,327
Sure.

778
01:34:57,327 --> 01:34:59,327
All are welcome to join the stage.

779
01:34:59,327 --> 01:35:06,327
We're now past 11 o'clock Pacific, so usually we wrap up around this time unless there's like a vibrant conversation, which this is.

780
01:35:06,327 --> 01:35:10,327
But I would just say that what I just said was sort of like the major tradeoffs.

781
01:35:10,327 --> 01:35:24,327
Like if you're trying to decide which is cooler, Bitcoin's proof of work or Ethereum's proof of stake, the major sort of basic differences I would point out is Bitcoin's is more time tested.

782
01:35:24,327 --> 01:35:27,327
Ethereum proof of stake is still a thing under development.

783
01:35:27,327 --> 01:35:32,327
They just introduced withdrawals from staking days ago.

784
01:35:33,327 --> 01:35:36,327
So Ethereum is less tested, less proven.

785
01:35:36,327 --> 01:35:39,327
Bitcoin's is also much simpler.

786
01:35:39,327 --> 01:35:43,327
So it's both more time tested and it's simpler.

787
01:35:43,327 --> 01:35:47,327
So the likelihood that it has a fundamental catastrophic problem is lower.

788
01:35:47,327 --> 01:35:54,327
Of course, Ethereum's community is more willing to do hard forks to fix problems and rapidly adjust.

789
01:35:54,327 --> 01:36:01,327
So they kind of have like a like a pattern going up, just move fast and break things.

790
01:36:01,327 --> 01:36:03,327
Bitcoin's more conservative now.

791
01:36:03,327 --> 01:36:12,327
But the major tradeoffs to your question are if you do proof of work, then society is going to be securing its payment system by consuming electricity primarily.

792
01:36:13,327 --> 01:36:25,327
And if you do proof of stake, then the economic value of the payment of the all the costs to secure the payment system doesn't change in terms of the amount of value.

793
01:36:25,327 --> 01:36:31,327
But the form that the value takes is that you consume liquidity instead of consuming electricity.

794
01:36:32,327 --> 01:36:34,327
So which would you rather have like.

795
01:36:35,327 --> 01:36:38,327
In your hometown, like less investment in.

796
01:36:39,327 --> 01:36:40,327
New businesses.

797
01:36:41,327 --> 01:36:42,327
But cheaper electricity.

798
01:36:43,327 --> 01:36:49,327
Or would you rather have more expensive electricity, but also more capital available for investing in businesses?

799
01:36:49,327 --> 01:36:52,327
So which way should we secure the payment system?

800
01:36:52,327 --> 01:36:54,327
It's almost like if you're going to eat food.

801
01:36:55,328 --> 01:36:56,328
Would you rather eat.

802
01:36:58,328 --> 01:37:03,328
You know, cows and lambs, or would you rather eat plants?

803
01:37:03,328 --> 01:37:05,328
Some people prefer vegetarianism.

804
01:37:05,328 --> 01:37:06,328
Some prefer eating meat.

805
01:37:08,328 --> 01:37:10,328
So your question is like, which is better?

806
01:37:10,328 --> 01:37:14,328
Well, each camp has its reasons for preferring what it prefers.

807
01:37:14,328 --> 01:37:17,328
The vegetarians think it's ethical and healthy.

808
01:37:17,328 --> 01:37:23,328
And the carnivorous think that their approaches is perfectly ethical and healthy.

809
01:37:24,328 --> 01:37:26,328
So there's like an open debate on this.

810
01:37:26,328 --> 01:37:29,328
I would say the whole crypto community right now is split.

811
01:37:29,328 --> 01:37:34,328
You've got Bitcoin, the market cap leader, digital gold with proof of work.

812
01:37:35,328 --> 01:37:43,328
And you've got pretty much every other project going all in on the proof of stake thing because it's environmental.

813
01:37:43,328 --> 01:37:51,328
And there is an enormously strong movement in our generation towards environmentalism, which is a concept that's not at all new.

814
01:37:51,328 --> 01:37:54,328
You can see it in the ancient Greek literature.

815
01:37:55,328 --> 01:38:08,328
You know, if you read like the scribblings of Pythagoras and Herodotus, there are various like philosophers who were interested in just eating plants.

816
01:38:08,328 --> 01:38:10,328
And these debates are age old.

817
01:38:10,328 --> 01:38:21,328
Probably the debate on proof of work versus proof of stake will be with us for maybe a decade more until it's pretty clear what everyone prefers.

818
01:38:22,328 --> 01:38:26,328
I think if we have drivechain, it'll strengthen the proof of work movement.

819
01:38:26,328 --> 01:38:31,328
And all of the good altcoin technology can be cloned into drivechains.

820
01:38:32,328 --> 01:38:35,328
And, you know, we'll have a big privacy community on the drivechain.

821
01:38:35,328 --> 01:38:39,328
We'll have the big block community on a drivechain.

822
01:38:40,328 --> 01:38:44,328
The entire Ethereum technology can be cloned into a drivechain.

823
01:38:44,328 --> 01:38:45,328
And that's already existing.

824
01:38:46,328 --> 01:38:51,328
In the drivechain testnet, they have the Ethereum sidechain already running.

825
01:38:51,328 --> 01:38:54,328
So we'll see what happens.

826
01:38:54,328 --> 01:38:56,328
Who will win proof of work, proof of stake?

827
01:38:56,328 --> 01:38:57,328
It's fascinating.

828
01:38:57,328 --> 01:39:03,328
But my main point there was that Paul Sztorc's essays were very important in the history of these ideas.

829
01:39:03,328 --> 01:39:06,328
So I encourage anyone who's interested to go read his blog.

830
01:39:06,328 --> 01:39:08,328
It's very difficult reading.

831
01:39:08,328 --> 01:39:12,328
These are like Ph.D. level essays on crypto economics.

832
01:39:13,328 --> 01:39:16,328
So it's at truthcoin.info.

833
01:39:16,328 --> 01:39:21,328
And there's lots of interesting ones, not just about proof of stake and proof of work.

834
01:39:21,328 --> 01:39:29,328
But also, you know, in some of the blog posts, he'll introduce a new idea, like the large block sidechain.

835
01:39:29,328 --> 01:39:32,328
So there's a good post on Thunder sidechain.

836
01:39:32,328 --> 01:39:34,328
And there's other ones as well.

837
01:39:34,328 --> 01:39:36,328
Zcash sidechain.

838
01:39:36,328 --> 01:39:39,328
And, you know, interesting ideas.

839
01:39:39,328 --> 01:39:45,328
He has a post on gradually activated replay protection, imposed mutual exclusivity.

840
01:39:45,328 --> 01:39:49,328
All kinds of interesting ideas out there that he's invented.

841
01:39:49,328 --> 01:39:52,328
They're all in that blog for the world to read.

842
01:39:53,328 --> 01:39:54,328
Thanks.

843
01:39:54,328 --> 01:39:55,328
Yeah, I've seen Paul's blog.

844
01:39:55,328 --> 01:39:59,328
It reminds me of like Paul Hanson's blog or Slate Star's blog.

845
01:39:59,328 --> 01:40:01,328
They've got similar flavors.

846
01:40:01,328 --> 01:40:03,328
I appreciate you explaining all this.

847
01:40:03,328 --> 01:40:05,328
I just have a couple more questions, if I can sneak them in.

848
01:40:05,328 --> 01:40:07,328
I know I passed time.

849
01:40:08,328 --> 01:40:09,328
Please do.

850
01:40:09,328 --> 01:40:10,328
Please ask your questions.

851
01:40:10,328 --> 01:40:11,328
I'm happy to.

852
01:40:11,328 --> 01:40:12,328
Thanks.

853
01:40:12,328 --> 01:40:14,328
I was hoping you could define merged mining for me.

854
01:40:14,328 --> 01:40:17,328
And I was hoping you could define hashrate.

855
01:40:17,328 --> 01:40:20,328
I think you said hashrate escrow or hash escrow.

856
01:40:20,328 --> 01:40:22,328
If you could define both those things, I'd appreciate it.

857
01:40:22,328 --> 01:40:23,328
Sure.

858
01:40:23,328 --> 01:40:28,328
So I can do that in a very simple way because I'm not a developer.

859
01:40:28,328 --> 01:40:30,328
I'm not a software engineer.

860
01:40:30,328 --> 01:40:33,328
And I didn't participate in creating these ideas.

861
01:40:33,328 --> 01:40:38,328
So what I can do for people is present drivechain in pretty elementary terms

862
01:40:38,328 --> 01:40:42,328
because I'm a lawyer by trade and a philosophy major.

863
01:40:42,328 --> 01:40:45,328
So I can give you the simple version, kind of the Cliff Notes version.

864
01:40:45,328 --> 01:40:51,328
But where you should really go for the best answers is to read the drivechain BIPs on GitHub

865
01:40:51,328 --> 01:40:59,328
where Bitcoin Core has posted the BIPs, I believe.

866
01:40:59,328 --> 01:41:02,328
Or they're on the GitHub for Bitcoin.

867
01:41:02,328 --> 01:41:07,328
You can see the entire text of the BIPs and read all about them.

868
01:41:07,328 --> 01:41:09,328
So that's where these things are defined.

869
01:41:09,328 --> 01:41:15,328
That's where the official definitions are for hashrate escrow and blind merged mining,

870
01:41:15,328 --> 01:41:20,328
which are the two inventions of the drivechain authors.

871
01:41:20,328 --> 01:41:26,328
So hashrate escrow is the technology that is at the center of BIP300,

872
01:41:26,328 --> 01:41:28,328
which is the more important of the two BIPs.

873
01:41:28,328 --> 01:41:34,328
The second one is blind merged mining, which is at the center of BIP301,

874
01:41:34,328 --> 01:41:37,328
which is like the secondary part of drivechain.

875
01:41:37,328 --> 01:41:40,328
So drivechain refers to those two BIPs.

876
01:41:40,328 --> 01:41:44,328
And hashrate escrow is the main event in 300.

877
01:41:44,328 --> 01:41:48,328
And blind merged mining is the main event in BIP301.

878
01:41:49,328 --> 01:41:56,328
And what they are is basically hashrate escrow is the trustless two-way peg for the sidechain.

879
01:41:56,328 --> 01:41:59,328
So you send your Bitcoin into this address.

880
01:41:59,328 --> 01:42:03,328
Your Bitcoin stays there and you receive the token on the sidechain.

881
01:42:03,328 --> 01:42:05,328
And then you trade with it.

882
01:42:05,328 --> 01:42:11,328
And if you get more sidechain token, which is redeemable for Bitcoin,

883
01:42:11,328 --> 01:42:16,328
then you could peg out when you're done, you know, days or months or hours or years later.

884
01:42:16,328 --> 01:42:19,328
You can peg out of the sidechain, get back to layer one Bitcoin.

885
01:42:19,328 --> 01:42:25,328
That's the holy grail of Bitcoin development, this trustless peg out from a sidechain.

886
01:42:25,328 --> 01:42:28,328
So the hashrate.

887
01:42:28,328 --> 01:42:30,328
Thank you.

888
01:42:30,328 --> 01:42:33,328
Sure. So the hashrate escrow is the two-way peg.

889
01:42:33,328 --> 01:42:44,328
And it's called hashrate escrow because it's an account that uses the Bitcoin miners to keep track of, you know, the peg out,

890
01:42:44,328 --> 01:42:54,328
like when it should occur. And you basically are trusting those like the 51 percent of Bitcoin's hashrate to properly conduct that activity.

891
01:42:54,328 --> 01:43:02,328
And then the blind merged mining just means merged mining where the Bitcoin miners don't have to run the node of the sidechain

892
01:43:02,328 --> 01:43:08,328
and they can still receive the transaction fees from the sidechain.

893
01:43:08,328 --> 01:43:13,328
So it's blind, meaning you don't have to have the node and merged mining.

894
01:43:13,328 --> 01:43:19,328
That's Satoshi's invention from August of 2010, over a decade ago.

895
01:43:19,328 --> 01:43:25,328
So merged mining means you have two blockchains. One is the parent and one is the child.

896
01:43:25,328 --> 01:43:30,328
Or you can use the vocabulary of one is the layer one and the other is the layer two.

897
01:43:30,328 --> 01:43:37,328
So the base layer, the main chain, Bitcoin layer one, that's where the miners are.

898
01:43:37,328 --> 01:43:42,328
And then the sidechain uses the same miners as a layer one.

899
01:43:42,328 --> 01:43:45,328
So that's the layer two being merged mined with layer one.

900
01:43:45,328 --> 01:43:51,328
So you have two different blockchains and they're both using the same set of miners.

901
01:43:51,328 --> 01:43:54,328
So that's what merged mining is about, like Litecoin and Dogecoin.

902
01:43:54,328 --> 01:44:01,328
They use merged mining where Dogecoin is the child chain and Litecoin is the parent chain.

903
01:44:01,328 --> 01:44:10,328
So Drivechain aspires to have every blockchain in the world merged mine with Bitcoin, which, by the way, is exactly what Satoshi wrote in 2010.

904
01:44:10,328 --> 01:44:20,328
He wrote that he believed every network in the world would share CPU power with Bitcoin, increasing total strength.

905
01:44:20,328 --> 01:44:22,328
That's his phrase, increasing total strength.

906
01:44:22,328 --> 01:44:28,328
He was explicitly saying how merged mining would solve the security budget problem there,

907
01:44:28,328 --> 01:44:36,328
because what he's saying there is we get more fees from every blockchain and that would make Bitcoin's fees very high,

908
01:44:36,328 --> 01:44:40,328
enabling Bitcoin to be stronger, harder to attack.

909
01:44:40,328 --> 01:44:42,328
The two ideas work hand in hand.

910
01:44:42,328 --> 01:44:48,328
So the Drivechain designers, as I understand it, they would like to see both of these BIPs adopted at the same time.

911
01:44:48,328 --> 01:44:56,328
They split them into two different BIPs just to make it possible for the Bitcoin community to consider them in isolation.

912
01:44:56,328 --> 01:44:58,328
But they really do work together very well.

913
01:44:58,328 --> 01:45:04,328
And the goal is to have them both adopted together.

914
01:45:04,328 --> 01:45:10,328
What's the economic incentive for me as a miner to run the sidechain if I can receive the benefits without actually running the software?

915
01:45:10,328 --> 01:45:12,328
And it's going to cost more to run more software.

916
01:45:12,328 --> 01:45:22,328
Well, as I described earlier, the critics of Drivechain like to talk about the fact that the miners would have an incentive to run the sidechain node,

917
01:45:22,328 --> 01:45:28,328
even though they can receive the fees as a blind merged mining miner.

918
01:45:28,328 --> 01:45:32,328
If they run the node, then they could do like MEV.

919
01:45:32,328 --> 01:45:48,328
They could try to on occasion get more value out of the fees by maybe reordering transactions and doing other kinds of things that occasionally happen in blockchain,

920
01:45:48,328 --> 01:45:52,328
where the miners do some trick and they get a little bit more money.

921
01:45:52,328 --> 01:46:00,328
Like suppose we have a bet on a sidechain and I bet you that something will happen,

922
01:46:00,328 --> 01:46:06,328
and we're betting on whether or not it'll happen before a certain block on the sidechain.

923
01:46:06,328 --> 01:46:16,328
Well, the miner could engage in kind of like a conflicted transaction where he reorders the blocks and that delays the event.

924
01:46:16,328 --> 01:46:24,328
And therefore he won the bet, but he was also changing who won the bet by delaying the event.

925
01:46:24,328 --> 01:46:30,328
So there's a possibility that miners can engage in selfish mining or strategic mining or fork withholding.

926
01:46:30,328 --> 01:46:44,328
There's all kinds of complicated stuff that can happen in mining where the miners can get a little bit more money by actively engaging in activity that an ordinary miner wouldn't.

927
01:46:44,328 --> 01:46:52,328
So the critics of drivechain, some of them are very interested in how this MEV is happening in Ethereum a lot.

928
01:46:52,328 --> 01:47:04,328
Because when you have a highly expressive blockchain with all kinds of sophisticated smart contracts, the amount of this malfeasant MEV-like behavior increases.

929
01:47:04,328 --> 01:47:08,328
And some people don't like that because it's a centralizing force.

930
01:47:09,328 --> 01:47:18,328
So there is that slight incentive, especially when you have smart contracting sidechains like the Ethereum sidechain.

931
01:47:18,328 --> 01:47:24,328
People might want to run that node to get that MEV, get extra fees or extra revenue from that.

932
01:47:24,328 --> 01:47:34,328
But that's not really a problem because the only people who would suffer from that would be the users of the sidechain would have their transactions delayed or reordered.

933
01:47:35,328 --> 01:47:38,328
And if you didn't opt into using that sidechain, then you don't suffer.

934
01:47:43,328 --> 01:47:47,328
Sorry, I just had some people come over, but I heard 80% of it. I trailed off in the last couple of minutes.

935
01:47:47,328 --> 01:47:50,328
I really appreciate that explanation. That was amazing.

936
01:47:50,328 --> 01:47:54,328
One last thing I wanted to say was that I tried to DM you, but it looks impossible.

937
01:47:54,328 --> 01:47:57,328
So did you just mean tweet at you or did you mean DM?

938
01:48:00,328 --> 01:48:01,328
Get the papers.

939
01:48:01,328 --> 01:48:04,328
Are the DMs not here open? Maybe I need to open mine.

940
01:48:04,328 --> 01:48:08,328
Oh, inside spaces? I don't know. I never used this before.

941
01:48:08,328 --> 01:48:11,328
I gave you a follow, so I'll send you a message now.

942
01:48:12,328 --> 01:48:15,328
All right. Thanks for doing that. There we go. I got you.

943
01:48:15,328 --> 01:48:17,328
Hey, thanks for your time. I really appreciate it.

944
01:48:17,328 --> 01:48:18,328
Thanks for your question.

945
01:48:18,328 --> 01:48:19,328
Hogging all the space.

946
01:48:19,328 --> 01:48:20,328
No, it was great.

947
01:48:20,328 --> 01:48:21,328
Yeah, definitely.

948
01:48:22,328 --> 01:48:25,328
Well, this has been Drivechain Twitter Spaces. We meet every Monday and Thursday.

949
01:48:26,328 --> 01:48:29,328
I hope you found today's monologue thrilling.

950
01:48:30,328 --> 01:48:39,328
And I'll catch you all on Thursday where we can dig into the exciting world of peer-to-peer sidechains on Bitcoin.

951
01:48:39,328 --> 01:48:41,328
Get ready. It's coming.

952
01:48:41,328 --> 01:48:47,328
The most exciting thing in the history of the world could be just moments away.

953
01:48:47,328 --> 01:48:55,328
DriveChainization of Bitcoin, Blind Merge Mining, Hashrate Escrow, Thunder, BitAssets, Zside.

954
01:48:56,328 --> 01:48:58,328
It's coming. Get ready.

955
01:48:59,328 --> 01:49:01,328
See you all on Thursday.