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Hi everybody, thanks for joining. We're just waiting for our hosts and guests to arrive, at which point we will start the space. Thanks for your patience.

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Yo, what's up?

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How's it going? We're just waiting for our other guests to arrive, and then we'll kind of get into it. Here we go, Austin.

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Nice, there's Austin. I guess Nick and James are joining, maybe a few other people, so it should be a good convo.

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Shout out to LayerTwo Labs for hustling and getting some good speakers.

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Looks like we might be having some technical difficulties.

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Which is pretty standard for spaces, but I'm sure Austin will be back, I'm sure. Just waiting on Nick Hanson.

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No worries.

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Hey everyone, Brian Rudick from GSR joined. Thank you for having me.

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Hey Brian, good to hear from you again. How you been?

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Good, good. How are things?

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You know, deep in the content minds, just making podcasts, so nothing too different at the moment.

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Yeah, nice.

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ETH Denver's almost here, so it's going to be a good conference. There's lots of ordinals, and it's like a whole Bitcoin day now, adjacent to the conference, which is cool.

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Yeah, awesome.

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Hello everyone. Of course, my Twitter or X app crashed, so I had to restart everything and come back, but we can, I guess, wait a couple minutes, three or four minutes, let more people come in before we start the discussion, if that's okay with everyone.

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That's fine.

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Of course, we're still waiting for Nick. Oh, Nick's here now.

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So, I'm inviting Nick to speak.

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GM.

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GM, GM, GM.

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All right, wonderful.

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We need a drivechain to put Twitter spaces on, so it works.

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I remember very early on they had, this was like a 2013-era shitcoin that was quite interesting, but it was a Florin coin. Anybody remember Florin coin?

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This was supposed to be like, it had like a super big up-return space to, you could put out, you know, whatever, very long messages in the transactions, and then it had like a front-end built-in that was kind of like supposed to be like a Twitter alternative, and it did very well for a while.

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Nothing's new under the sun.

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Okay, are we waiting for Jamie, or are we just going to rip?

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I think he said he's coming. He's coming. He's going to be a few minutes late. So, yeah, why don't we start?

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Maybe we do like a 30-second intro, and then we can get on to the big news of this Department of Energy request, and maybe how we can discuss, like, maybe how Luxor and other mining companies, mining-related companies are viewing this, and what the strategies might be, and, you know, what this might bode for the future.

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If I could introduce myself, you know, I'm the co-founder of LayerTwo Labs. I've been a big Bitcoin Layer 2 enthusiast for many, many years, maybe almost a decade.

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You know, actually, this is a really interesting story. I think a lot of people don't know, but everybody should remember that Blockstream was founded as basically a Layer 2 company, and it was like the hottest narrative at the time for at least a few months was Bitcoin sidechains.

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So, this was like, you know, just, I think, just following Mt. Gox collapse, and when Blockstream, they raised, I think, $21 million, which at the time was by far the most money any company had ever raised in the industry.

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And I think before that, it was BitPay had raised like $9 million or something, and then Blockstream came out of nowhere, raised $21 million. It was a huge deal, and Reid Hoffman was like the leader, was like a, you know, one of the lead investors, and wrote a, wrote like an op-ed, why I invested in Blockstream.

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And it was basically like he was, he was spelling out the sidechain vision of the future, like Bitcoin L2 vision. This is, you know, literally, literally a decade ago now.

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And that day, the altcoin market, Bitcoin went up a bit, and all the altcoins crashed by 30%, 40%, at least. So, it is, it is, anyway, it's just something interesting to remember.

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But anyway, yeah, maybe, maybe, I guess we only have a few people in here. They probably all know who you are. But for posterity's sake, maybe you give a few seconds introduction, Nick, Will, Brian.

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Sweet. Yeah. My name's Nick Hanson, the CEO of Luxor. We are a Bitcoin mining pool. That's what we're known for, but we build all sorts of things. We build the software that goes on the devices called firmware, basically, kind of like jailbreaking your iPhone.

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We build financial products. We're also very interested in, right now, very interested in ordinals and kind of like the next layer of Bitcoin, whether that's building on the L1 or, you know, flexing all of the features and capabilities available on the L1.

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Or, you know, 2024 is the year of the L2. So, we're very interested in that and kind of figuring out what's going to happen in L2 land in 2024. There's been a few L2s in Bitcoin. None of them have ever, you know, for better or worse, none of them have ever really caught on.

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You know, I think they work generally quite well. But I think the reason they don't catch on right now is there isn't a super secure way to get your, you know, to get your Bitcoin over there or they're tokenized and, you know, it ends up you end up having to hold some like L2 token instead of and then give up your Bitcoin.

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So, anyway, there's a lot of people that are thinking about that this year. And I think that's going to be, this is going to be the year of the L2, you know, alongside, of course, just being a general bull market. On to you, Will.

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It's going to be the year of the L2 LARPs, is my opinion. Maybe there's a few ones that pop up that are good. But we'll get into that later in the program, I suppose. I'm Will. I'm just a podcaster. I run The Mining Pod. Find it on Coindesk or just follow me and you can find it. And I basically just talk to people like Nick and then try to do like essentially business intelligence or at least that's the way we're kind of building out the programming there.

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Love Bitcoin tech stuff. Was a tech reporter at Coindesk for a while and then did some other mining stuff. And now like really just watching like this narrative unfold. I watched a lot of like the Ethereum L2 stuff happen in 2019 and 2020 with some of the first roll ups and seeing them come to Bitcoin has made me happy. I still don't think we have a very good idea what this is going to look like.

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And I think there's more optimism than there is like, I don't know, grounded in reality what's actually going to happen. But we will get into that soon. Brian.

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Hey, thanks, Will. And thanks, everyone, for having me. I'm Brian Riddick. I, in a previous life, was a hedge fund analyst for Citadel, Ballyasney, a couple other long short funds where I managed to book a big stocks.

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It was some of those banks that are unfortunately no longer here that were the fiat on off ramps that kind of got me interested in crypto and went down the Bitcoin rabbit hole pretty quickly. Became a true believer that it'll happen slowly, but this is where everything is going.

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So I moved over, joined GSR about three years ago, where I head and lead their research effort, also help out with our effort related to Bitcoin miners. We are essentially trying to get them to adopt best financial practices from more traditional commodity producers.

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One of our co-founders basically did this at Goldman and led and created the hedging strategy for countries like Mexico and companies like ExxonMobil. And we think that there's huge benefits for miners like going concern protection, improved economic expansion and actually multiple accretion. So their market cap should move up.

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But I cover all of crypto, so I will probably be less knowledgeable on mining than my esteemed co-founder.

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Brian, can you, because GSR is a pretty big, definitely very relevant company in the industry, but it's maybe not the most publicly facing or well known. So can you give us a few seconds on what GSR is and what they do and how they're expanding?

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Yeah, of course. Yeah. So we were founded in 2013 by two Goldman Sachs commodity derivatives experts. We consider ourselves to have the best of both worlds. So we've been doing this for 11 years. So we're quite crypto native. But we've also tried to port in best practices from TradFi. We try to do things the right way. So we try to adhere to where regulations are going. We won't wash trade.

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We're a founding member of I think the largest SRO. Our bread and butter is really market making. So we sit on exchanges like Coinbase and Binance and we quote bids and asks and we try and capture that spread in between. And if you think about it, liquidity is really the lifeblood of the tech because it's basically what makes it work because tokens are obviously so important to protocols that have issued them. So it really positions us well into the center of the crypto ecosystem.

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Yeah, we are also a big OTC derivatives player. We have one of the largest altcoin derivatives books out there and we're a principal non-agent so we can do a lot of bespoke things. So we did the first APO option for a PE firm that was working basically invested in a mining company.

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So average price options better match like a Bitcoin miners production and are much better hedged than just a simple put option. And then we also have a big venture investing arm. We've invested over 150 million of the firm's capital and over I think probably 200 different projects now.

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So we're one of the most active investors and fortunate to be in a good position with deal flow with a lot of folks wanting us on the cap table given that we're a strategic investor.

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Very cool. Very good.

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200 folks spread across the world.

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Very nice. I'm sure that's doing well and hopefully now in the year of the L2 LARP bull market it'll do even better.

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We can get into the subject at hand, but I'm sure anyone who's been listening this far might be interested in hearing Will's thesis on the L2 LARP before we forget about it and get off in the weeds on this Department of Energy stuff.

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Will, maybe you want to give us your thesis on, I don't know, is people's eyes bigger than their stomachs or something like that?

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This could be taken as a pro-drivechains rant, but it's more just like an anti-LARP rant.

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There's definitely discussion around how to name an L2 and what an L2 is, and we could kind of go on that forever. It goes down a lot of different rabbit holes and at some point I'd get lost.

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I think the most important thing to note, though, is no one has really come up with a very good way of building an L2 on top of Bitcoin besides Lightning to date.

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And everything else more or less takes some sort of change to Bitcoin, whether that be changing OP_RETURN or just adding a new BIP or something else like that.

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So there's so many constraints. The inscriptions narrative kind of blasted open these doors and said, hey, now we can do NFTs on Bitcoin.

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And I think a lot of people took that as now we can do anything on Bitcoin, but that's just not the case.

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So even Casey Rodarmor, who came up with inscriptions, yes, he came up with inscriptions and he's working on runes.

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It's like an OP_RETURN token, though, and we've had those before.

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So the question with all these other protocols is, are they going to work just because inscriptions are a thing now and people want to play on Bitcoin again?

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It doesn't seem like there's been any actual tech changes that enable a true L2 besides Lightning.

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Now, I do think with inscriptions, you could get some sort of token built into it.

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We've probably seen that with BRC20, but that's not an L2.

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An L2 is supposed to increase scalability of Bitcoin, and we don't really have that.

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And even rollups, they're not a scalability increase.

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They're a throughput increase.

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You need additional hardware outside of a Bitcoin node to have a rollup-centric roadmap work.

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And so it's not really technically a true L2 in that sense, more like a blockchain on top of a blockchain.

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So I think just kind of going back to Nick's point when he was talking, we've seen these tokens pop up before.

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This isn't new stuff.

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It's just new because of what inscriptions did.

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And now the question is, are these things going to stick?

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I don't think they really stick without some sort of technical change, like Book 301, maybe enshrining some sort of rollup scheme, maybe OP_CAT, I don't know.

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I think the tweet above is a very good summary of it, right?

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None of the L2 schemes out there have the security that we want.

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A lot of it just comes back to what we have with WBTC.

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It's like a multi-sig.

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Maybe that's useful, and maybe that's the way things go in the future because we don't have the consensus to change Bitcoin.

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I think all the other things right now are mostly LARPs. The last thing I'll say, hand it over to Nick,

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maybe, is there's a lot of chatter about BitVM enabling rollups. I think Nick Carter had a tweet

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go viral about that yesterday. But it does seem like it's a while off. And I feel like for every

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10 people who say they understand BitVM, there's 10 liars. So let's probably wait to figure out

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what's happening.

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For the audience and for me, can you define what is an L2? Because you said it's not a scaling

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solution, it's a throughput solution, and it has a side blockchain. What would you consider,

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or what is your definition for an L2? I kind of have a very broad definition of L2,

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and it seems like yours is maybe a bit more narrow. It'd be great to kind of hear how you view that.

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Yeah, I think my definition of it is an L2 is a system that doesn't have any additional hardware

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requirements to run. So you'd have a Bitcoin node that can interact with another system and still

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understand what's happening on the L2. Now, some rollup people might disagree with that.

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I mean, Lightning is not an L2. You have to run LND if you want to be able to run Lightning.

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That's a fair point. Let me rewind a little bit then. I think from a rollup standpoint,

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that is an L2 in the sense that you have increased throughput, you have a lot of the same

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trust assumptions that you have on an L1 with a rollup, and that's definitely an additional benefit.

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But yeah, no, I concede what you're saying there, because that's actually a very fair point,

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so it's probably wrong for me to state that. Yeah, I like the point that you made, though,

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that it's not like almost every... When you talk about the L2s that exist, let's say,

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outside of Lightning, they're not technically scaling. They're more like horizontal scaling

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solutions, where you're basically just... It allows you to add more blockchains to the main

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blockchain. There's an RSK blockchain, or a Rootstock blockchain. There's a Stacks blockchain

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that has some commitments to the base chain, being Bitcoin. But ultimately, they run their own thing,

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and Bitcoin doesn't know about them. More or less, it doesn't really know about them.

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Rootstock is merge-mined. I guess Stacks is also kind of merge-mined.

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They're effectively checking in their state, more or less, with every block that gets mined

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that's merged. I think some of the rollups, they're thinking about doing that as a separate

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transaction that goes into the Bitcoin blockchain somewhere. Yeah, I don't have a very firm

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definition of what an L2 is right now. Yeah, I know. I think your hardware thing was correct.

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That was wrong of me. I think the larger point I want to make is the trust assumptions.

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Like this tweet Light makes, you want to be able to exit your L2 back into the main chain in a

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trustless fashion. That means the L1 needs to have some knowledge of what's happening on the L2.

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Maybe it's not super burdensome for the L1. I think that would be the best-case scenario,

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where Bitcoin doesn't need to keep track of all this, but in the case that you need to get off

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of an L2 because there's malicious behavior on that L2, then you're able to exit if that'd be

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the case. Getting that trust assumption is the really hard part. The one example is WBTC.

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Yeah, I think that you're exactly right. Sorry, I got interrupted there. Someone just walked into

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this room. The trust assumption is the biggest deal there. How do you exit is probably the

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biggest thing for me, understanding how an L2 works. If it's a multi-sig at the end of the day,

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like WBTC, then that's not an L2. If it's a secondary system that allows you to interact

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decentralized fashion, that would be an L2 to me.

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I think that's exactly right. In the context of Ethereum, what they're basically doing with

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their roll-up-centric roadmap is- Maybe zooming out a bit then,

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I know you're not a clairvoyant, but how do you think we might look back on this era or this

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narrative cycle in four years? Do you think that it will have all been a LARP and we'll be

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right back where we were in terms of Bitcoin scaling and expressiveness on and on? Will it

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at the end of the day have the effect of counterparty or something? Or do you think

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that we might end up with something serious at the end of the day?

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Something that's actually impactful and accomplishes the goals of increasing scaling,

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increasing expressiveness on Bitcoin, et cetera.

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I think Brian was saying something in between there, so I'll go to him first and maybe answer

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Austin's. Oh yeah. All I was going to say is I think that you're hitting it exactly on the head

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in terms of defining an L2. In the context of Ethereum, Metallic a couple of years ago put out

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the roll-up-centric roadmap. Ethereum was obviously created in 2014, went live in 2015,

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and so it generally is obviously a much slower blockchain than some of the new

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smart contract blockchains. What they're basically doing is they created this layer

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two landscape where they're pushing out innovation and compute to the L2s, the layer twos, and then

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what they're doing is the compute happens off-chain and then these L2s can actually prove

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that back to Ethereum mainnet, whether through a fraud proof, which is what an optimistic roll-up

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is, where there's basically you assume that the state transition was valid, unless somebody issues

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a challenge over a certain period of time, like seven days, or via a validity proof. These are

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zero knowledge proofs, so you basically enforce that that state transition function or the state

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diff was valid via mathematics. The important thing about this, as this is what you were

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touching on Will, is each layer twos are all about inheriting a lot of the security guarantees

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of the underlying base layer, so Ethereum mainnet itself, and one of the important things is having

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what's called an escape hatch, and all these L2s are basically either have them or in process of

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building them in, you can go to l2beat.com to see it, but basically you as a user, if something

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happens and like the L2 sequencer stops working, you could essentially force your assets back to

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mainnet, so you're not basically subject to being reliant on that actual L2.

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Yeah, definitely. To Austin's question, I think we need something for Bitcoin to really get there,

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BitDM does seem pretty cool, but I won't pretend to know exactly what's happening with that, and

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again, I think if you meet someone who says they do, then they're wrong. Chainway, I'm speaking

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with them at ETH Denver, so that should be an interesting show. I don't even know how to begin

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to prepare for it, because it's just so complex, and I'm not a programmer, but it does seem like

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they've sort of started cracking away on like how BitDM works to be able to enable a rollup,

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so that's promising, but most of the other ideas out there, like the Tapper Wizards or

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whoever else is interested in OP_CAT, because it gives you like a little more functionality,

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which is nice. So yeah, Austin, I think like you just need something else, like you need BIP300,

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301, or you need OP_CAT, or maybe BitDM like really works out or something else.

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Might have lost Austin, man. I keep seeing his mic on, but not going. We can go to the

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other topic, though, unless there's more thoughts on L1, L2 debate. I feel like we kind of squared

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that. Talk about the EIA thing. Nick, did you guys get anything eluxer for this? Like I assume not,

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but I also feel like the government's kind of stupid and would send something like this to a

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pool. They didn't send one to us, but they sent one to Foundry, so yeah. But Foundry also does,

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like, they do a lot of hosting, so maybe it makes sense.

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Yeah, I was wondering if they would just do it because they just are dumb and they're doing this

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first place because they're dumb. But yeah, we definitely haven't received anything. We haven't

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received anything as far as I know. I only get our mail delivered once a week. It's supposed to

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come today, so maybe it's in there, but otherwise, no, we haven't seen it, so.

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Give us an update. That'd be a good tweet. We get a lot of likes.

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Yeah, definitely. Give the people what they want.

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Yeah, I guess maybe, Brian or Nick, if you guys want to do an overview of what happened with that.

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I guess it's been about a week or so since that happened, and people are still getting these

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letters in the mail. I'm not sure if it's because of COVID or something, but I guess it's because

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or so since that happened, and people are still getting these letters in the mail.

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Yeah, I mean, they basically sent out, so the EIA sent out a survey, and it was a compulsory

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survey for miners to submit a bunch of information about their mining facility, basically what

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their power, like what grid they're using, what their grid mix is, how much power they use,

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what their hash rate is, what the geolocation of their mining farms are, that sort of thing.

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So it's very, in my opinion, very intrusive. Any other industry would tell them to kick rocks,

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but I guess we're kind of the new thing, so they're definitely going after us for that.

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And yeah, it's definitely an interesting, it's wild to kind of, if you zoom out and look at,

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just say there's any industry, it's not like Ford has to submit all of this stuff to the EIA about

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where they build their cars, and how much energy they consume building the cars, and the types of

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cars that they produce in every facility, that sort of thing. It's all kind of proprietary

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information, and it's very, in my opinion, would be, I would probably consider it unconstitutional,

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because you're effectively doing more of an unwarranted search. I don't know. We'll see

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where this goes. I'm pretty certain that this will end up getting challenged in court, and I think

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that it'll probably end up winning. But interested to hear if anybody else has thoughts on that. I

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mean, it is, in my opinion, quite damaging to the industry in the mid to long term.

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If you guys don't mind, I'll just jump in real quick. Austin's having some technical difficulties,

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so he's going to leave and rejoin, and I believe that James McCavity will be joining any moment

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now, and I'm sure that he'll have some awesome stuff to say about this.

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Yeah, I would bet that he got one. So he probably has more info on that than I even would. I've

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only heard, I guess I'm getting what you would call secondary information, getting information

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from people that got them. They do intend to challenge. They do intend to, but unfortunately,

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it sounds like since they were only given 10 days to comply, there's not enough time to really

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challenge. So they pretty much have to comply for the first request. The EIA was asking for you to

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submit that information on the last Friday of every month, and so the first one only gave them

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a little bit of time to actually collect the data and submit it. And I imagine that for the March

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report, they will have enough time to have kind of circled the wagons

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and made a legal case as to why they don't need to do that.

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Yeah, I think the 10 day notice was pretty crazy. The biggest red flag I heard about this

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was the idea that maybe they were targeting certain Bitcoin miners they knew were green or not.

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They kind of sway public opinion. And then also it's a political year, obviously,

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is the presidential election coming up. So that's a big issue. And I wonder how,

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if you're inside the agency, how you're thinking about this. I mean, the EIA has a lot of awesome

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data. I use it and go through it every once in a while. And so it is super helpful to understand

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it. The downside here, though, is it's way too much exposure for private companies. As a private

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company in the US, you should not have to give all this detailed granular information about what

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you're doing. Businesses should be able to have some privacy, especially if they're not public

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companies. And so that seems like classic overreach. And I'm wondering inside the agency,

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how they're thinking about this. It does seem targeted. I wonder what the nominal EIA

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bureaucrat is thinking about this. If they just think it's like day to day business or if they're

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like kind of on board with this sort of thing. I suppose they're pretty much on board with this

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because a lot of people in that world just do not like Bitcoin mining. But maybe that's too

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tinfoil hat. I saw Robert or Roberto jump up on stage. I guess I want to chime in while he

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gets situated. The request apparently did specifically mention Senator Warren asking

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for this data and it would have been initiated by her.

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Incredible. I see Jamie is now here. If he can jump up on stage.

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Jamie, it's good timing because we're talking about EIA. We want to get

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Cormen's input. If you guys got one of these letters and how you guys are thinking about it

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or what kind of information you can give out. If you know of any lawsuits that are out there,

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that'd be interesting to know about. Let's sort of stop this.

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How are we doing?

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Sup, sup.

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We talking Lizzie?

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Lizzie.

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Oh, Lizzie. Quite an emergency. Number go up. Number go up emergency. They forgot to

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look at hash rate and take the halving into account. It's been pretty much all hands on deck

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discussing this for the last few weeks. What's interesting is we did not receive the EIA

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letter. We were under the impression that everybody was going to get it, but we did not

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get it. A number of our colleagues in the industry did get it and there are many responses underway,

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as you can imagine, from letters, PR, legal related action. People are definitely very

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concerned about it. I've done quite a bit of research. Happy to answer any questions or I

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could just start rambling on whatever you guys want. I love a good ramble. I'm down for that.

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Yeah, I mean, for starters, it's an emergency request based on the fact that Bitcoin has

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gone up in value, which is ridiculous. And if you look at the September 6th

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emergency event in ERCOT, or you look at the January, I think it was January 12th through 15th

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emergency events in ERCOT, same thing as usual. Bitcoin miners are almost universally not

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contributing to these peaks that are causing strains on electricity grids. So to say that

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this is an emergency betrays that the EIA or Elizabeth Warren or whomever is behind this

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has very little understanding of actually how these users of power are interacting with power

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grids. So on its premise, it's kind of a bunk emergency. There's been a bunch of legal pushback

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on that, that this is not an actual emergency and it's just a fulfillment of a political agenda.

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It's also in violation of a bunch of other laws. The reason why it's so alarming is because

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while the EIA does collect information about resources, which would be generators, batteries,

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things of that nature, they've never collected information individually about a certain

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industrial category of load. So it definitely feels like it would be setting the stage for

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the imposition of that excise tax, the electricity-based excise tax, or some other

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kind of punitive tax that Warren tried to get included in Biden's 2023 budget,

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eventually that was thrown out. But yeah, that's kind of the backstory of the initial reaction.

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What do you think about an industry group lobbying against this? Is that even effective

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at this point or is it kind of too late with that 10-day notice? Because I'm surprised I haven't

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seen anything from a few of the different groups out there. There's a bunch, obviously, in D.C.

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and then I guess for BitcoinMiner specifically, there's TBC, stuff like that. Maybe I've just

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missed it. Yeah, I mean, obviously, everything that's happening is intended to be confidential.

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But broadly, there are a number of industry groups who are organizing challenges,

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they're organizing responses, legal challenges, etc., that would be designed to counteract

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the short deadline that is being imposed here in legal terms. An injunction

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is what you would ask for, where you say, hey, wait a minute, I actually need a legal notice

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here that stops somebody from doing something until we can figure out if it's legal or if

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something is illegal. So there's a bunch of stuff going on. It's happening all over the country.

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I think within the next week, it will be public knowledge. But right now, a lot of the details

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are still being worked out. It's still confidential and for obvious reasons, can't really talk about

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the details.

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So we have our own super shadowy super coders working behind the scenes. That's good. Makes sense, though.

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Yeah, I don't have a ton of further... Go ahead, James.

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Maybe not. I don't have a ton of further questions on it right now. I'm wondering if anyone in the audience does.

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The fine is obviously pretty substantial. It's like $10,000 per day for not giving this information out.

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I wonder if anyone's going to skirt the line or how that can kind of go through.

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Brian or Nick, have you guys heard anything more about it from your guys' purview? I guess, Brian, we haven't thrown the ball over to you yet.

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Yeah, I haven't. Yeah, candidly, not super close in the weeds on this one.

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Fair. Maybe we should just go back to yelling at each other for L2s. We can do that for a little bit.

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Yeah, the EIA stuff is not... It's interesting and it's bad for the industry, but it's not as exciting when the number is going up and everybody wants to talk about JPEGs and tokens.

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Should we just talk about JPEG and tokens, then?

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I mean, we can. We certainly can. Isn't that what L2s do? Give us more JPEGs, more tokens? Open up the casino to different... Give us some different games at the casino?

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Nick, what do you think is the most promising Bitcoin layer 2?

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Babylon? It's the only one I can really point to as being relatively innovative. Babylon. They would also say that they're not a layer 2.

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They're really only focused on Bitcoin as the staking element, basically using the value of Bitcoin to validate and stake other chains. That's what they're trying to do.

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If you're talking about a true layer 2 scaling solution for Bitcoin, Botanix is doing spider chain, peg in, peg out, while I think pegging in and pegging out is not perfectly ideal.

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Like we mentioned, I think kind of the purity test for whether something is a true L2 or not is whether you can issue a single on-chain...

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You yourself can issue a single on-chain Bitcoin transaction and exit the L2. I think that's one of the mechanisms. That's something that won't exist and I don't believe can exist in the current form or without force to Bitcoin.

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But Botanix has this really cool spider chain concept where you have a rotating multi-sig for the pegging in and pegging out. So it's not a deterministic federated peg in system similar to what Rootstock is now.

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Rootstock has a set of peg notary of people that are authorized to issue the RBTC, which is the layer 2 Bitcoin. It's obviously quite a distributed list group of signers, but ultimately it is federated.

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Stacks is purely federated. So yeah, those are two that come to mind and I'm interested in. I know they talked about Citrea with BitVM, but I'm having a hard time understanding BitVM. And then there's certainly a lot of grift going on.

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I mean, it's going to be a 90-10, maybe 95-5 type of situation where 95% of the stuff that we see is going to be. But at the end of the day, one of these is going to become what I think is kind of transformative for Bitcoin. So I got to be on top of it.

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I think that as we progress into this post-having future where most likely transaction fees are going to become even more important, I think L2s now are really starting to become really important. Lightning is really on display here. And I think that we need to have some sort of solution on the horizon to kind of take the place of that.

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Are you on a treadmill?

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No, I just walked up some stairs though, and I'm very out of shape.

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I got a question for you. So if none of these Bitcoin, none of the Bitcoin that exists on these chains, on these sovereign, non-sovereign Layer 2s, right, where there's no way to permissionlessly peg in and out native Bitcoin and settle that back to the main chain.

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Why don't we just put this on to existing Layer 1s or Layer 2s where there's already liquidity?

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Like, why go through the process of bootstrapping all the liquidity again to Stacks, Spiderchain, BitBM, you know, all these other layers when something like Ethereum or any of the Ethereum Layer 2s or Solana or, you know, any of this other new blockchain stuff that's coming out.

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Why don't you just create a federation that pegs Bitcoin out into those blockchains that already have 100 times more liquidity than these other ecosystems?

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Yeah, I mean, and that's, you know, I don't know why, like, I don't know why WBTC was unable to gather more traction.

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You know, I think they only got like $5 billion worth of WBTC.

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If what was on, you know, if what was in the promised land of ETH for, like, yield and all the stuff that, you know, degens wanted to do, if that was actually over there, you would have expected a lot more bridged Bitcoin.

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But I think the, in my mind, there's a couple reasons why.

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One of them is, A, Bitcoiners don't want to do that.

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Maybe culturally, it's just, you know, Bitcoiners don't want to do that.

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B, trusting a centralized entity to do the pegging in is definitely scary.

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You know, what happens if, I think it's BitGo that does WBTC, you know, what happens if they lose their keys or whatever?

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That's pretty bad.

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But yeah, you know, it's a super valid question.

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Why do you need another?

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Why do you need another layer if it's all going to be non-sovereign anyway?

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Why do you need to bootstrap a whole new ecosystem when you could just peg into other ecosystems?

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I don't have the answer.

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The best argument that I've heard is you probably want to avoid a federated solution if one of the key tenants of crypto and blockchain is trustlessness.

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So if that's the case, there's a trillion in market cap for Bitcoin and it's just kind of sitting there being unproductive.

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So if you could build a trustless layer two compute solution, then you can essentially not only inherit like Bitcoin's best in class security, but you could also make that trillion dollar market cap much more productive.

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No, no, no, no debate there.

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But all of these, there is not a sovereign peg.

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There is not a trustless peg.

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There's no way to move Bitcoin out of Bitcoin layer one and into any of these ecosystems.

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I mean, it's technically it's not possible to do it right now, from what I understand, based on the current.

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Yeah.

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So it's, I agree with you.

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I think it's one of the biggest opportunities in Bitcoin, in the entire Bitcoin ecosystem is creating a trustless peg.

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But right now, the software does not even allow for that to happen.

328
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Yes, and I think that's as far as I can tell, I believe that's true.

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They are trying to tell me that BitVM does make that possible.

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I'm not sure if I buy it.

331
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Hmm.

332
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I think that's technically impossible.

333
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So your suspicion seems spot on.

334
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The BitVM telegram channel is a wild, scary place.

335
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So I stopped interacting with it.

336
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Yeah, I'm not going over there.

337
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It's a good place to get intellectually bullied by Bitcoin nerds that are much, much deeper into it than any of us.

338
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So I hope they do figure something out because it would be kind of sick.

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Chainway is obviously building on top of it.

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And then SuperTestNet and him went back and forth on that, I think last week on this same show, which I didn't get a chance to listen to.

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I want to go back and listen to it.

342
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I don't know if L2, do you have a summary of what happened last week with that BitVM chat?

343
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Sure, I can offer that.

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I think it kind of depends whose perspective you are coming from.

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But as far as the crux of the space, which was, is Citria a scam?

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The answer, according to SuperTestNet, who was the one who kind of lobbied that claim to begin with, he said no.

347
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And he walked it back and he apologized.

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And then there was some discussion about whether or not anything that they had was actually substantial.

349
00:47:37,926 --> 00:47:42,926
But probably better to leave that up to people to decide based on their own listen.

350
00:47:46,926 --> 00:47:47,926
Gotcha.

351
00:47:47,926 --> 00:47:52,926
Robin seems like, you know, pretty brilliant.

352
00:47:53,926 --> 00:48:00,926
He made Zerocink, which allows you to use like a ZK logic or something like that to verify Bitcoin a little quicker.

353
00:48:00,926 --> 00:48:04,926
And I think you can use that right now if you go like Zerocink.com or .org or something like that.

354
00:48:05,926 --> 00:48:11,926
And you can just like verify the entire Bitcoin blockchain history through a zero knowledge proof.

355
00:48:11,926 --> 00:48:17,926
And it just kind of computes it really quickly, which is pretty cool in terms of like being able to like have more people run nodes.

356
00:48:18,926 --> 00:48:23,926
I don't know if it just kind of goes around like having like client logic or not.

357
00:48:24,926 --> 00:48:27,926
But I think like his earlier work is pretty promising.

358
00:48:29,926 --> 00:48:32,926
But yeah, I don't have much to say on BitVM because it's pretty far out there.

359
00:48:32,926 --> 00:48:35,926
Though I'd love to see some sort of like trustless peg in, peg out go.

360
00:48:36,926 --> 00:48:42,926
Nick, do you have any thoughts on like track and karma and all these like new things popping up?

361
00:48:43,926 --> 00:48:44,926
No.

362
00:48:46,926 --> 00:48:47,926
I don't either.

363
00:48:47,926 --> 00:48:49,926
But I want someone to tell me what to buy.

364
00:48:50,926 --> 00:48:51,926
I will say that.

365
00:48:51,926 --> 00:48:55,926
There's like legitimate shit coining on Bitcoin right now and I'm quite lost on like...

366
00:48:56,926 --> 00:49:01,926
I understood like DRC20 is enough to go find stuff, but it's getting past me.

367
00:49:03,926 --> 00:49:04,926
I don't know.

368
00:49:11,926 --> 00:49:12,926
I don't know.

369
00:49:13,926 --> 00:49:17,926
Well, there's a huge market opportunity that no one's talking about right now.

370
00:49:19,926 --> 00:49:24,926
Probably one of the most exciting opportunities that we'll see in the next decade.

371
00:49:25,926 --> 00:49:26,926
Which is...

372
00:49:26,926 --> 00:49:27,926
Don't you dare say it.

373
00:49:28,926 --> 00:49:30,926
To make the first Bitcoin native dog coin.

374
00:49:33,926 --> 00:49:34,926
Boo.

375
00:49:36,926 --> 00:49:38,926
I thought you were going to talk about zero knowledge.

376
00:49:39,926 --> 00:49:40,926
Zero knowledge proving.

377
00:49:41,926 --> 00:49:43,926
Do you have a hot take on zero knowledge proving?

378
00:49:44,926 --> 00:49:45,926
No.

379
00:49:46,926 --> 00:49:47,926
Do you have a cold take on it?

380
00:49:48,926 --> 00:49:49,926
He has no takes.

381
00:49:50,926 --> 00:49:51,926
Dude, it makes...

382
00:49:52,926 --> 00:49:53,926
Right now, it's...

383
00:49:55,926 --> 00:49:56,926
It's a really weird...

384
00:49:57,926 --> 00:49:59,926
It's like the bid ask is so wide.

385
00:50:00,926 --> 00:50:05,926
But once the trade actually starts executing, I think there's going to be a massive amount of volume.

386
00:50:06,926 --> 00:50:07,926
That's the way I would describe it.

387
00:50:08,926 --> 00:50:09,926
The bid ask on what?

388
00:50:10,926 --> 00:50:11,926
On the amount...

389
00:50:12,926 --> 00:50:19,926
The amount of demand that I think exists for zero knowledge proving is astronomically high.

390
00:50:20,926 --> 00:50:22,926
But people don't even know that they have that demand right now.

391
00:50:23,926 --> 00:50:25,926
And the reason for it is because the potential...

392
00:50:26,926 --> 00:50:36,926
The amount of proving that you can actually do is so minuscule based on what the needs of the computation actually are.

393
00:50:37,926 --> 00:50:47,926
Basically, once you're able to demonstrate a real performance operation of zero knowledge proving, it becomes insanely unpopular.

394
00:50:48,926 --> 00:50:49,926
And so...

395
00:50:50,926 --> 00:50:53,926
But I think that the chasm there is quite large between the two sides.

396
00:50:54,926 --> 00:50:56,926
And so, it's going to be really hard to bridge that.

397
00:50:57,926 --> 00:50:58,926
How do you fund...

398
00:50:59,926 --> 00:51:00,926
It's a huge venture bet.

399
00:51:01,926 --> 00:51:11,926
How do you fund a business to go build the necessary tools to make that zero knowledge proving compute actually work when the demand doesn't even know...

400
00:51:12,926 --> 00:51:13,926
Doesn't it work on a GPU?

401
00:51:13,926 --> 00:51:14,926
Can't you prove...

402
00:51:15,926 --> 00:51:17,926
Do a zero knowledge proof on a GPU?

403
00:51:19,926 --> 00:51:20,926
You can, but it's really slow.

404
00:51:21,926 --> 00:51:22,926
So, here's a tangible example.

405
00:51:23,926 --> 00:51:28,926
I talked with somebody that's doing a zero knowledge proof project and they were benchmarking GPUs.

406
00:51:29,926 --> 00:51:32,926
The proof that they wanted to do was a million cycles.

407
00:51:33,926 --> 00:51:35,926
I don't really know what a cycle is, but it's a million...

408
00:51:37,926 --> 00:51:38,926
Sorry, a billion cycles.

409
00:51:39,926 --> 00:51:42,926
That took them 190 minutes with an eight GPU server.

410
00:51:43,926 --> 00:51:44,926
Which cost $20.

411
00:51:45,926 --> 00:51:46,926
They think that most likely...

412
00:51:47,926 --> 00:51:48,926
What cost $20?

413
00:51:49,926 --> 00:51:50,926
The electricity cost?

414
00:51:51,926 --> 00:51:52,926
Sorry, no, the server cost.

415
00:51:53,926 --> 00:51:54,926
It was basically like they rented that server from AWS.

416
00:51:55,926 --> 00:51:56,926
They rented it.

417
00:51:57,926 --> 00:51:58,926
Yeah, but those rental costs are super high.

418
00:51:59,926 --> 00:52:00,926
Yeah, but I'm just giving you tangible numbers here.

419
00:52:01,926 --> 00:52:04,926
It took 190 minutes to do a billion cycles.

420
00:52:05,926 --> 00:52:12,926
Citria, what Will was talking about, doing BitVM, they want to do 40 billion cycles.

421
00:52:13,926 --> 00:52:15,926
And so, think about the amount of compute for that.

422
00:52:16,926 --> 00:52:22,926
And basically, that's the amount of compute that you need to add every block to your zero knowledge chain.

423
00:52:23,926 --> 00:52:31,926
It's not really a chain per se, but to mutate the state for every transition in your ecosystem,

424
00:52:32,926 --> 00:52:33,926
you need to be able to do that proving.

425
00:52:34,926 --> 00:52:43,926
So, 40 billion times, or let's say 40 times 20, starts to get pretty expensive if you're trying to do an L2.

426
00:52:44,926 --> 00:52:46,926
This is just the roll-up computation.

427
00:52:47,926 --> 00:52:48,926
Correct.

428
00:52:49,926 --> 00:52:55,926
And every GPU that is attempting to complete the roll-up computation, are they racing each other?

429
00:52:56,926 --> 00:52:57,926
Yeah, so that's a great question.

430
00:52:58,926 --> 00:53:02,926
And these ecosystems don't really have that sorted out right now.

431
00:53:02,926 --> 00:53:06,926
The monetization of zero knowledge is not really well-formed.

432
00:53:07,926 --> 00:53:14,926
Like, on the left-hand side of the spectrum, you have the computers willing to compute.

433
00:53:15,926 --> 00:53:22,926
On the right-hand side, you have users of a chain that would like to use some zero knowledge chain that is trustless, etc.

434
00:53:23,926 --> 00:53:30,926
The flow of funds from the usage of that to the computers that are actually doing the compute is not well-defined.

435
00:53:30,926 --> 00:53:34,926
Because it isn't actually proof-of-work, per se.

436
00:53:35,926 --> 00:53:43,926
These are actually useful computations where proof-of-work is necessarily expended energy that's useless.

437
00:53:44,926 --> 00:53:47,926
It has to be necessarily wasteful energy.

438
00:53:48,926 --> 00:53:51,926
In this case, they are actually useful.

439
00:53:52,926 --> 00:53:53,926
Right.

440
00:53:57,926 --> 00:54:07,926
While you don't need to trust the output of the prover, you need to trust the prover to actually do the proving.

441
00:54:08,926 --> 00:54:12,926
Because you want them to do the proving in real time.

442
00:54:13,926 --> 00:54:17,926
You don't want to broadcast a job to a bunch of folks and have them all start on it.

443
00:54:17,926 --> 00:54:20,926
And then they're competing against each other for the proof.

444
00:54:21,926 --> 00:54:24,926
I think. It's hard to say right now.

445
00:54:28,926 --> 00:54:29,926
I see what you're saying.

446
00:54:30,926 --> 00:54:38,926
What you're saying is that, unlike SHA-256, where you're just doing an arbitrary computation and then there's a luck-based element,

447
00:54:39,926 --> 00:54:42,926
this is actually—the computation is what is expensive.

448
00:54:42,926 --> 00:54:46,926
And it's not just about doing it over and over again as many times as possible.

449
00:54:47,926 --> 00:54:55,926
Doing the computation through one sequence is computationally expensive from a resource perspective and a CapEx perspective.

450
00:54:56,926 --> 00:54:57,926
Is that right?

451
00:54:58,926 --> 00:55:06,926
Right. In SHA-256 and the proof-of-work algorithm that Satoshi designed, we are necessarily expending that effort.

452
00:55:07,926 --> 00:55:11,926
We're doing what's called proof-of-work by submitting the hash at the end of the day that solves the block.

453
00:55:12,926 --> 00:55:17,926
We have demonstrated that we've done, on average, some number of hashes and discarded them.

454
00:55:18,926 --> 00:55:23,926
Because we have economic interest in the underlying chain, and then the chain compensates you back for that.

455
00:55:24,926 --> 00:55:35,926
That's the fundamental principle of how Satoshi got around the Byzantine fault—introduced Byzantine fault tolerance.

456
00:55:39,926 --> 00:55:40,926
Yeah, that makes sense.

457
00:55:40,926 --> 00:55:41,926
I'm sure they'll figure it out.

458
00:55:42,926 --> 00:55:45,926
I just wonder if it's all going to be worth it.

459
00:55:46,926 --> 00:55:53,926
It seems like if somebody figured out a way to just trustlessly peg Bitcoin out into other ecosystems,

460
00:55:54,926 --> 00:56:03,926
even with zero-knowledge computation, it's a relatively new technical discipline from a cryptographic perspective, is it not?

461
00:56:04,926 --> 00:56:05,926
Yeah, as far as I know.

462
00:56:06,926 --> 00:56:23,926
I think the ball started rolling with Zcash, Zucco, and the ECC brought cryptography and cryptographic proving forward by a decade or more through Zcash.

463
00:56:24,926 --> 00:56:37,926
Basically, any sort of zero-knowledge innovation comes off of the heels of the improvements that they made there.

464
00:56:38,926 --> 00:56:42,926
But it does seem like we may have stalled a little bit since they are not as involved.

465
00:56:43,926 --> 00:56:44,926
I'm not sure. It's hard to say.

466
00:56:45,926 --> 00:56:46,926
Yeah.

467
00:56:47,926 --> 00:56:52,926
Well, there's definitely going to be a lot of tokens made, and a lot of people are going to make money.

468
00:56:53,926 --> 00:56:54,926
Yeah.

469
00:56:55,926 --> 00:56:59,926
And if you happen to have some skill in this very obscure part of computer science—

470
00:57:00,926 --> 00:57:01,926
Make a dog token.

471
00:57:02,926 --> 00:57:03,926
You're going to make $500 million.

472
00:57:04,926 --> 00:57:05,926
I think you just make a dog token.

473
00:57:06,926 --> 00:57:07,926
Honestly?

474
00:57:07,926 --> 00:57:14,926
After all this effort to mine Bitcoin, to fly to Texas all the time, make a dog token. Cash out.

475
00:57:15,926 --> 00:57:16,926
Why not both?

476
00:57:17,926 --> 00:57:18,926
Why not both?

477
00:57:19,926 --> 00:57:25,926
Why not do something that you consider meaningful at the same time as you do something that's almost completely nihilistic?

478
00:57:28,926 --> 00:57:31,926
Bitcoin mining being nihilistic? Agreed.

479
00:57:32,926 --> 00:57:33,926
Agreed.

480
00:57:33,926 --> 00:57:34,926
The EIA agrees with you, too.

481
00:57:35,926 --> 00:57:39,926
Just being arbitrary, just out there arbitrarily guessing numbers in the middle of the desert.

482
00:57:40,926 --> 00:57:47,926
But to be fair, if that's arbitrary, then generating electricity that nobody needs is probably also arbitrary.

483
00:57:50,926 --> 00:57:51,926
The world needs more dog tokens.

484
00:57:52,926 --> 00:57:58,926
Okay, we can probably wrap it up there, unless anyone else has some thoughts they want to spew on the timeline.

485
00:57:59,926 --> 00:58:02,926
Nick, Jamie, Brian, thanks for joining.

486
00:58:03,926 --> 00:58:05,926
I think Austin dipped a while ago. His mic died.

487
00:58:06,926 --> 00:58:07,926
Great job, Nick.

488
00:58:08,926 --> 00:58:09,926
Nick is so fucking smart.

489
00:58:10,926 --> 00:58:12,926
Nick is the smartest guy ever.

490
00:58:14,926 --> 00:58:21,926
He wants to be here, but we weren't able to figure out what was going on, and as you guys probably know, we have a lot of problems with spaces.

491
00:58:24,926 --> 00:58:25,926
All good.

492
00:58:26,926 --> 00:58:27,926
We got Nick's brilliance.

493
00:58:29,926 --> 00:58:32,926
Nick is so smart. You're the man, Nick. Keep fighting the good fight, brother.

494
00:58:33,926 --> 00:58:34,926
All right, guys. Thank you.

495
00:58:35,926 --> 00:58:36,926
Take care.

496
00:58:37,926 --> 00:58:38,926
Thanks, guys.

497
00:58:41,926 --> 00:58:49,926
All right, everybody. Thanks for joining. Maybe in a couple weeks or more, we'll have more to say about the EIA debacle.

498
00:58:50,926 --> 00:58:53,926
Thanks for joining, and we'll see you all next week.