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Welcome to the Crazy Wisdom podcast. I've got Paul Sztorc here, and he is the CEO at
LayerTwo Labs.

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Welcome to the show. Hey, thanks for having me. So there's a bunch of different
places we could

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go. Let's start with Zcash. What is the relationship between Bitcoin and Zcash?

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Well, currently, unfortunately, there's not enough of a relationship. So Zcash is a
variant of the

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blockchain design where the sender, the receiver, and the amounts are all hidden.
They're all not

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obvious. But in the Bitcoin blockchain, you can see at least the unique key pair,
the public key

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of the sender and the receiver, and you know how much was sent in a given
transaction. So it's not

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as private as people would have liked, and that's why Zcash was invented as an
alternative. One of

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the many projects that we work on at LayerTwo Labs is taking that same privacy
technology and

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putting it as an optional LayerTwo on Bitcoin so that you can move the coins from L1
to this L2,

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and over there, you have the same experience that users of the Zcash altcoin have.

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Very cool. So it's a LayerTwo. You're building LayerTwo as an easy mechanism for
transferring

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Bitcoin to Zcash? Did I get that right?

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Not quite. Zcash is like you have to separate the technology stack of Zcash and the
code

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from the altcoin. It's made its own project. Zcash is its own project, and they have
their own

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altcoin that's separate from the 21 million BTC. And we try to reuse a similar idea,
the ZK

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snark or this zero-knowledge cryptography, and we make it so that you can take your
Bitcoin and put

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it in a new zone, and in this new zone, it has the same attributes that the Zcash
altcoin would

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have with its software, but this is only with Bitcoin. So it's the same 21 million
Bitcoin,

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but the Zcash feature. Okay, got it. So this is not related. So it's more having to
do with ZK

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proofs. Yeah, it's more about bringing the features from altcoin to Bitcoin, but not

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bringing the altcoin. And so the idea is you have 21 million Bitcoin, but we'd have
whatever

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features you want. You have Ethereum, smart contracts, you have Zcash, privacy,
etc., etc.

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You could have different block sizes or different, you could write the blockchain in
a different

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language. So Bitcoin Core isn't C++, but you could just have, the L2 could be
whatever you like.

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So how does it work to have it? I have heard in the past, I haven't looked into it
very deeply,

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but I've heard that L2, layer twos on Bitcoin have been slow and haven't worked that
well.

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Is that accurate? What are some other, is Rootstock a layer two?

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Yes, but you're in good company if you're confused about Rootstock, because that's
what

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everyone is. And even I, sometimes I'm like, what are they doing over there? And
they did all this

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fundraising back in 2015. There's a huge amount of money and it's like, what, I
don't know what's

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exactly going on over there. And another reason is that we built our own, it was
kind of a little

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bit of a toy, but we basically forked Geth, the Ethereum full node, and we made it
into a Bitcoin

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L2 as a kind of demo. And we did that like in 20, maybe 2023. And this only took
like maybe

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a month or two. But that was supposed to be Ethereum, excuse me, that was supposed
to be

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Rootstock's project was Ethereum on Bitcoin. But then we were doing it in like two
months and

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it's been 10 years. So I don't know. No one knows. I mean, I like, the Rootstock
people are great.

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I love Sergio and Diego and they're very neat. But it is confusing. I don't mean to
criticize

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them, but I think that they definitely could do a better idea of saying, this is
what we want to

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make and here it is, because we've been working on it for 10 years. So I agree with
you that a lot of

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the L2s aren't good. And in fact, I created this company and I created all this work
because I

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looked around and I thought that all this is terrible and it could be much better.
So I think

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they are not very good. And unfortunately, I think it's a very difficult thing to
convey without

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someone running the software themselves and seeing for themselves like exactly what
happened.

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There's also another difficulty in explaining it, which is that there's like a lot
of people

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just lying out there to get more favorable attention or deals or whatever,

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or they want to launch something. So there's not a lot of incentive, to be honest.
And it's

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also just kind of confusing, like every technical thing. It's very easy to just
paper something over

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and say, oh, it works as a demo. It works on our website or something like that.

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It's very hard to actually prove something out in the battle-tested arena where it's
going to be

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attacked by maybe hackers or come under some kind of stress that would require
decentralization.

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So for something to be battle-tested is really, really hard and it's very easy for
imitators to

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steal the valor or however you might call it. So it's very hard to explain. And
unfortunately,

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I think it's going to be like .com or something where there's like tons of scams and
then at the

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end, there will be a few people left standing. I'm a little bit pessimistic on
explaining it

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to people, having tried to do this for 10 years, explain why these L2s aren't very
good,

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why they probably have no future, what we should do instead. And I've had some
success with that,

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but not enough to move the whole Bitcoin culture to where I think it should be.

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So I think it's going to take a little while. Yeah, well, and so what you said about
a bunch

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of scams and sort of like it all blowing up, I told some podcast guests in the past,

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I told them that that's going to happen, right? There's going to be a Great
Depression-like event

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for crypto. And they're like, that was 2022. That was FBF. That was like a crypto
winter,

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basically, where it all destroyed, right? FTX, yeah.

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Well, that was an example. Yeah, I think we definitely go through cycles of

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optimism and then unfair pessimism. But this is a common pattern also, which is
that, for example,

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so for example, with Theranos, there was this scam blood company that maybe people
are familiar

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with. But when that comes out, it's so-called sucks the air out of the room. In
other words,

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if you wanted to start a blood company at the time, it would not be possible because
everyone

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would say, well, how are you going to compete with Theranos? Theranos is this great,
great,

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great company. So when there's the delusional optimism, it's bad for all the good
ideas.

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And then when Theranos collapses, now how are you going to start a blood company
now? Because

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everyone's going to be very wary and skeptical. Most people are not, unfortunately,
it pains me

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to say this, I wish it weren't the case, but most people are very superficial and
they only see the

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cosmetic surface and they just think blood company bad or whatever. So this has
happened in Bitcoin,

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where the L2s of Lightning doesn't work very well. The other L2s are kind of not
real with the

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extent of talking about liquid or even like fetament. These are like cheating by
just

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masking multi-sig as L2. This has also happened in Ethereum, where it's just
multi-sig. A multi-sig

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where a bunch of strangers or even one person who has all the key, because you have
no idea how they

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do the multi-sig ceremony. One person can just take all the money immediately. So
this led to

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the so-called custodial L2s, which is again, that is just like kind of saying like a
dry ocean or

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something. But this is just a language game that people have played to keep the
grift going. And

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so it's going to be very difficult to untangle all the nonsense, but there you go.

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Yeah. Well, I mean, and that's just not within crypto as well. That's the

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strangest thing about the state of the world over the past few years is that

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I come from Silicon Valley and I come from a Silicon Valley. I was born and raised
there.

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And a lot of the people that I grew up with are really involved with that early wave

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and during that time, none of the, I mean, there was BS like Oracle, Oracle famous,

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maybe not so famously, but in 2001, Larry Ellison did what he's doing today, which
is basically

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making up numbers about how they're going to have $300 billion in contracts over the
next years with

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open AI. Sam Altman's also pretty good at that. So, you know, like there have been
hucksters before

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and I'm not calling Sam Altman a huckster, like Oracle that in 2001, he did actually
make up

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numbers. So like there are people who essentially oversell and then either

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deliver or under deliver, but it doesn't matter at that time because they've already
got the

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attention and all you really need to get is their attention. So that existed in the
Bay Area,

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but then it wasn't like fully into it. And then starting with the social media
companies,

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particularly Facebook, I mean, Facebook is just like the guy was buying VPNs to spy
on users.

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There's so many things that that guy has done that are clearly outside the bounds of
what

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Western culture promotes in its values and what Silicon Valley used to promote. And
so that

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created this whole giant narcissism bubble that just kept on going. And then crypto
came into it

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and crypto tied money to it. But there is a value, like there is a huge value in
Bitcoin. I think

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there's value in Ethereum. I think there's value in Chainlink. I like those
companies and this is

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not investment advice, but so there is something real to it. But the process you
mentioned,

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which is really real as well, and that leads to a sort of media technology question
because

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what created those in the 2010, from 2010 to 2020, you had all of a sudden social
media

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mixing with the TV. So the TV could broadcast to hundreds of million people and then
it mixed with

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social media so that hundreds of million people could be directed to these social
networks.

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The TV no longer works. A recent podcast guest heard what I just said here now and
was like,

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yeah, it's true. It is breaking down, but at least like one to two billion people,

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maybe a lot more than that, know that Donald Trump is president. So we don't all
have

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synchronous attention all at the same time, but we definitely are breaking down to
the sense that

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the TV can mediate that in such a reliable way that you could have a hundred million
people

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watching the Seinfeld episodes. So that long rant was basically to say that I think
what you're

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talking about is going away and that people are like, I think there's going to be a
lot of builders.

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There already are a lot of builders out there building these things and they'll get
the attention

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that they need when it comes. What do you think? Do you think I'm on to something
there?

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Do you disagree? I do think that eventually, I do think that on a long enough time
frame,

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the frauds are all found out. So maybe they drag a lot of good people down with them
or

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innocent victims. Also, I think that's also common, but I do think you can't really
get away with it

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forever. I do think that it's easy, like your example, before the election, it's
very difficult

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to tell who's going to win or even who's currently in the lead and everyone's got an
opinion. And

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then over time, it sort of becomes clearer. Even on election day, it could be a
photo finish.

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And then even a few days afterwards, it might not be totally clear, but then over
time,

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it becomes extremely clear and people just give up on anyone who tried to push a
conspiracy

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theory saying that that's actually Kamala in a wig or in a suit or something.

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They just give up on that. So that shifts out of the Overton window. So I think
that's true.

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I think we do want to do everything we can to bring the truth forward in time. We
don't

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want to stall progress. I think that would be

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sad because there would be needless suffering for no reason.

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Well, that gets into the take about the information age because everything we just

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talked about, we're in the information age now. The industrial age, while still
relevant,

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is sort of not as relevant as the information age. And I think that process is
basically going

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to reveal a lot of things because now anybody with the LLMs can go and find out
information.

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And whether it's true information is really interesting. Are you a believer in the

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Bitcoin sound money? When we have sound money, all of our political structures can
get better

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because we actually have something that is tied to truth in the sense of accounting,

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like a good accounting system where money is valuable again. Do you buy into that?

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I think it is an improvement. I don't think it's the end of the road at all.

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I do think it's a huge problem. No one has any explanation for the fiscal trajectory
of the

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federal government in the United States or really in all these other governments. So

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every federal government is just going to spend as much as they possibly can.

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And the model is not, I think it's a mistake to look at it like a household where
you earn a

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certain amount and then you have a credit card or whatever. That is a mistake. The
politicians

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spend the money and then the recipients get the money. And who pays for it are
taxpayers in the

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future. It's a completely different group. And then even the bondholders, we go into
debt,

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the bondholders get a bond, they get the risk-free asset that no one will ever
default on,

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they get a yield. Who pays the bondholders? Future taxpayers, people who might not
even

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be able to vote yet. And so that is not the right model. Milton Friedman had a great

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thought experiment where he said, imagine hypothetically there's like a magic

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rich uncle or something who dies and he has whatever it is in the bank, $30
trillion,

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and this is enough to pay down the national debt to zero and pay off everything and
bring us back

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to zero. His thought experiment is what would happen the next day? The politicians
would spend

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the full amount back. It would be like a graph down and then it would be like a
little thing,

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it would tap up and then it would go all the way back to the trend line down. It
would go all the

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way back. They would spend the $30 trillion on some excuse. And so the model is not
a household.

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The model is pushing the envelope and saying, we can get money out of this system
until something

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breaks. And it's going to break in a horrible way. Whether you had Bitcoin or not,
it will break.

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But if you had Bitcoin, it would probably break earlier because they'd need to
actually come up

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with Bitcoin to actually pay. You can't just keep going into debt and then have the
Fed

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service the debt with inflation. If there were laws, if this is the thing about
crypto that's

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so interesting, because if there were laws that tied Bitcoin to the treasury, if the
treasury

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had to account... I think the ideal Bitcoin scenario is that all the federal
workers,

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like people who work in the army and the post office or whatever, they would be paid
because

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Bitcoin has taken over. So now they know and in theory, they're running a full note
or they have

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a wallet that access full note, because that's what everyone does in theory. And so
now the

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federal government needs to obtain, in order to pay them, it needs to tax.
Interesting.

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And it can maybe pay them with IOUs and say, I'll pay you next year. But then those
IOUs are

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bonds and they can have, people could trade those. You know what I mean? So someone
could say,

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listen, I know that the federal government's saying I'm going to get $60,000 next
year,

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but I don't believe them. I'll sell you this 60,000 years, $60,000 payable to the
bearer

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or 6,000 BTC or whatever. And I'll sell you it for 30,000 or for 40,000. So there's
immediately

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a bond price and there's immediately market feedback for going into debt too much.

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So really interesting points. Are you worried at all about the derivatives,

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the fact that there are now treasury companies who entire stock strategy is to buy a
bunch of

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Bitcoin and then have their stock be worth more because the expected increase in
value?

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I agree with this and I don't know. But the thing is,

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I hated Snapchat when it comes to this. Just because I hate something doesn't mean
it's not

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good. We need the world, Silicon Valley, we need the optimists to get their say. But
yeah,

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I don't get this idea at all. So I have background in economics and in business and
other things.

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And so to me, it makes absolutely no sense whatsoever. I mean, the whole point of
the

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company is the company is supposed to have some kind of comparative advantage.

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It has to take these inputs and turn them into outputs that are worth reliably much
more to

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cover all the overhead and to give the investors a return on the capital employed
for the business.

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This is all like business school 101, finance 101 stuff. It's also finance 101 or
maybe 102

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or something. But you should not invest in a company that is going to buy Google
stock or

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something. You should just buy the Google stock. This is nothing against Google
specifically. I'm

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just saying you don't need an intermediary. You don't need a pointless middleman.
Middlemen are

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very good and middlemen make the world go round. But you don't want any pointless
middleman,

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really. Why am I buying Google? In other words, you don't want to buy a company that
says,

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we will buy copper. We will buy wheat. Just buy the wheat. What are they doing?

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And in this case, I think it's very disturbing because the companies could get
hacked. There

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could be a regulatory change. They could just be an inside job and someone could
steal the Bitcoin

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and say, we got hacked. And then this thing with the MNAV, this idea of the NAV. The
NAV is

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something like the company has a million dollars worth of Bitcoin. It's currently
worth a million.

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But then that would be the NAV equal to one. But like for many of these companies,
the

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stock, the company is worth somehow is trading at higher than the, so the company is
trading at

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2 million. It doesn't do anything, but it has $1 million worth of Bitcoin. But why
wouldn't

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the whole company be worth 1 million? So wouldn't you short the company and buy
Bitcoin? And this

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is exactly what people have pointed out. And this is what a couple of people did.
You can go back

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and read. I even tweeted about it. There was someone who had been long Bitcoin in
the real

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spot market, and then they shorted MicroStrategy. I can only assume that trade must
have done well,

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because that was like a few months ago. And even though Bitcoin has gone down a
little,

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I think MicroStrategy has gone down more. I'm not sure. Check, always check the
math,

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you know, for yourself. But there was a guy who famously said that he would do this.
And he said,

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this has nothing to do with Bitcoin. He says, I'm actually going long Bitcoin in the
trade.

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This is basic financial engineering also. This is, again, maybe not finance 101,

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but this is certainly derivatives 101, if you ever took such a class as I have.

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This is like we combine several different things to get whatever you want. So like
an example would

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be you're in an airplane and you hear someone from Boeing, and then they go to the
bathroom

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and take a phone call. And you can't tell what the call is about, but you know that

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they really worked up about something. Well, you could buy like call options out of
the money and

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put options so that the stock moves a lot in either direction, you make money. So
all this stuff is...

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So again, and there's even more to it than that. The treasury companies,

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like if you just buy Bitcoin yourself, you are kind of in the situation where

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no one knows that you own the coin. I mean, it does depend on your own government
situation,

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your tax jurisdiction you're in, and what kind of other information you have and how
you bought

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the coins. But there's a sense in which like... So for example, if you pay down
debt, it's like

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a tax-free, risk-free reward. So if you're in debt and you have credit card debt and
it's 10%,

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you're getting charged on the debt. If you pay that down, it's like you got an
immediate tax-free,

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risk-free 10% return. If you get an actual return in the real stock market, you have
to sell,

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you have to realize the gain, you have to pay capital gains tax, you have to report
all this.

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It's uncertain that you will... You don't know that you're going to get the 10%.

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So if you buy the Bitcoin yourself, it's kind of like you have a tax-free... The
upside is sort of

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tax-free because it's in cyberspace and it kind of depends. And you can
strategically

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manage the tax consequences of that purchase. Whereas if you buy it in the
corporation world,

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there's like now tons and tons and tons of maybe fees, taxes, who knows.

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And you don't know how that... So I don't understand at all why the Bitcoin treasury

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companies exist. But who knows? I want to go into the technical details of what
you're doing

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specifically with ZK Proofs because that stuff is interesting. It's not totally in
my wheelhouse yet

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and I want it to be. But before we go there, I want to talk about what about a
normal company

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like Tesla buying Bitcoin as a treasury, as their financial hedge against their
currencies and stuff

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like that. Do you think that makes sense? Any thoughts there? I do. I think it could
make sense.

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It does cut against what I said before where I said you shouldn't buy... What Tesla
should always

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do is what their owners kind of want them to do. And so you shouldn't invest in
Tesla if they're

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just going to buy Bitcoin. However, there could be a good reason, which is like if
you're worried

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about having legal trouble and being sued and having some random judge somewhere tie
up all

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of the assets of the company in cash. If you're worried about that, now you've got
some Bitcoin.

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So now they can't. And now you can hire lawyers and you can have the appeals process
go on and on

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forever. And so you may need it as a kind of like... It's kind of like having a
backup generator

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at your house. And so in that way, it might actually serve a legitimate business
purpose.

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And I think that it could make sense. That's really cool. The other thought that I
have for

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the treasury... Not the treasury companies, the normal companies who have products
and services

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that they order, that they provide outside of that, is that it's essentially like
any company

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at a certain size turns into a finance company. So if they have cash like Google or
all these

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other companies, they maintain large cash balances in order to have cash, not like
what you said,

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but to go and buy acquisition if they need to or prepare for the future. And so
there's...

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Cash, although many companies do, which is interesting, such as Apple. But there's
also

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the idea of the commercial paper market or even other money market type things where

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a company like Walmart may have no cash. This is a hypothetical example, but they
may have no...

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But then they need to make payroll. They could borrow money for like

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two or three days, a very short term loan. So you're right that the CFOs of these
companies

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will do financial magic to get away with whatever cash balance they choose is
something that they

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think will make them the most money. So some people have a lot of cash, others have
less.

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I think with Apple, I may be totally wrong about this and this information may be
outdated,

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but I think they have like tons of cash overseas and they don't want to bring it
back because it

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will pay taxes. So whatever the situation is, they will manage it in a way to...

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I think Apple is waiting for like a... They're just going to buy their time

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and wait for the right government to be elected to give them like a one-time

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exemption to move the money back. I heard something like that.

259
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Oh, interesting. I just recently heard about something. It's in relation to Uruguay,

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but Uruguay is only reacting to an international thing that I believe is probably
coming from the

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U.S. which is the U.S. is trying to get rid of the loopholes which I believe exist
in Ireland.

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And what you just mentioned is just like all these different places,

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like the whole international system is totally crazy.

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And so there's the U.S. government and the international order are attempting to
maintain a 15% corporate tax on all of the different companies in the world, which
is so crazy given what we're talking about, the TV dying and social media, it all
seems like everything is going to get decentralized, including human attention. And
it feels like all these sort of... It really feels at the moment like the, in my
personal opinion, that the forces of nature are trying to get rid of the loopholes.

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The forces of tyranny are winning. I actually think that they're losing. But it's
like when somebody starts to lose control, they get really crazy and they start to
do crazy things.

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If you want to talk about it, we can definitely talk about that. Or we can move into
the technical like ZK proofs. So if you wanted to respond to that, the last thing I
said, we can do that.

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I think there was a famous book, The Sovereign Individual, is that what it was
called? I think. And it was about like how the internet is going to change
everyone's relationship with their government and flip it around so that previously
you're a hostage and you can be farmed up for cash.

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But in the future, which is now the present, I suppose, you would be able to just
change countries on a whim and move your money on a whim. And so then they would
have to compete to retain it, be more like businesses. And the countries would have
to say, come here, we will offer you such and such.

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We'll offer you zero percent tax. We'll offer you these laws. And they thought that
that would be a good idea. And I think I agree basically with what the book had to
say.

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I think there's some nuance to it. I got to go back and read that book because I've
now heard it cited so many times. The thing about the United States, though, is I
think the large empires or former empires like China and Russia are going to clamp
down on their borders.

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But maybe Russia wants people to move there probably because they now lack a lot of
people. So it might just be the United States. But I definitely noticed that the
United States seems to getting their border much stronger. And I guess they're
trying to attract with the $5 million visa program. But yeah, it's an interesting
question.

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It's a prediction of the book, The Sovereign Individual. It says there will be
various excuses to close the borders and keep the high value taxpayers in. And they
even say – they say there will be like a pandemic fearmongering and they say all
this stuff, fearmongering about immigration.

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It's a very long book but it does predict a lot of things. I'm not saying that that
was what happened. But it does speak to a certain number of things are tilted in the
direction of maintaining the old relationship between the taxpayer and the
government.

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And they'll want to lean on anything that is – that touches that legitimate or fake.
They'll just say, well, this is wishful thinking. They want a pandemic where we have
to close all the airports and no one can get out. I think Russia is in a demographic
collapse and they – I'm not sure anything can fix.

275
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They'll need lots of people to come in. Who's going to go in when you're
conscripting people and sending them in wars and things? I don't know. Who's going
to want to go over there? That's the issue with – of course, the dictatorship has
many advantages but it just has a few crucial disadvantages which is just like
people just take one look at that and they just think, well, it seems like a risk to
me so I just won't go there. And that ends up being worth a lot I think.

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So crazy. It's such an interesting time to be alive.

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So you can see the keys in Bitcoin and you can see the amount transferred in
Bitcoin. And then so you've got a zero-knowledge proof and the zero-knowledge proof
allows the same thing but it allows – or no, sorry. It allows – yeah, well, actually
it was probably a good time to hand it over to you. What does the ZK proof allow two
people to do?

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Well, in Zcash, first of all, everyone can reuse the same address because as I've
said, the transactions don't – they don't peg – each transaction is not pegged to
any address.

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So you just have one address. It's very long but it says whatever and then you can
just post it publicly and show all your friends. They can then send money to you but
no one will know that the money is coming to you or from them because you can reuse
the same address because the addresses are not connected to the transactions. So
that is a big difference.

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How does the transaction – how does the money get – or has value transact?

281
00:30:08,381 --> 00:30:21,381
Well, okay. I'm not – first of all, I'm not an expert on the actual ZK proof
technology and it's very arcane but I can explain a little bit about the type of way
that it works. It might work.

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00:30:22,381 --> 00:30:46,381
So there is an idea of – so the SNARK or the NA, like – well, let me give you an
example of like how it would be – so like there's one classic example where you're
on – there's like a cave that has like a circle and you want to get out and someone
like a monster or something follows you into there and you've got to go left or
right.

283
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If you go left and they meet you, then they'll eat you or something. But if you go
the other way, then you get out.

284
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And so the question is if you tested the person a million times and they got out
every time, then that would show that they know which way the monster is heading.

285
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The monster is headed left or right and you know – you evade them every time or what
have you.

286
00:31:15,381 --> 00:31:17,381
I probably butchered that but that's like a classic example.

287
00:31:18,381 --> 00:31:24,381
So that's sort of interactive in the sense of you have tested them over and over
again and you see they pass every time.

288
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So I don't know how and they – most critically, this is the zero knowledge part,
which is it's not justified.

289
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I'm not telling you how I get out of the cave every time.

290
00:31:35,381 --> 00:31:37,381
I'm not telling you how.

291
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But we all know that I can.

292
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So somehow I'm doing it.

293
00:31:43,381 --> 00:31:44,381
Interesting. OK.

294
00:31:44,381 --> 00:31:50,381
So that's a way of making the argument that I know something without anyone really
kind of explaining.

295
00:31:51,381 --> 00:31:53,381
It's just to have this repeated test.

296
00:31:54,381 --> 00:31:56,381
So that may shed some light on it.

297
00:31:57,381 --> 00:32:05,381
This has been described as moon math before and even when – what was that guy's
name?

298
00:32:06,381 --> 00:32:10,381
Zuko Wilcox, the creator of Zcatch.

299
00:32:10,381 --> 00:32:13,381
He first would give talks about this and he would say I have absolutely no idea how
any of this works.

300
00:32:14,381 --> 00:32:16,381
He had like math on the slides and he'd say no one knows how this works.

301
00:32:17,381 --> 00:32:18,381
This was like in 2015 or something.

302
00:32:19,381 --> 00:32:21,381
So I'm hesitant to try to explain how to render it.

303
00:32:22,381 --> 00:32:29,381
But the thing is there's a – because – partially because of Zcatch, there is a large
– and because of Ethereum.

304
00:32:30,381 --> 00:32:37,381
There's a large research community around this and they have built software
libraries and we have just taken the Zcatch one piece.

305
00:32:37,381 --> 00:32:42,381
There's a huge stack, but they have like a Zk-SNARK library now.

306
00:32:43,381 --> 00:32:45,381
And that's just open source online.

307
00:32:46,381 --> 00:32:52,381
So it is not – I don't know how fruitful it would be to try to explain.

308
00:32:53,381 --> 00:32:56,381
But we could continue to try or we could –

309
00:32:57,381 --> 00:32:58,381
No, no, no.

310
00:32:59,381 --> 00:33:02,381
I've got a specific question because I only asked that question because I wasn't
familiar with it.

311
00:33:02,381 --> 00:33:04,381
And that actually answered a lot of questions.

312
00:33:05,381 --> 00:33:12,381
Why it's been so hard for me to figure out Zk-proofs is because there's moon math
involved and I'm going to definitely steal that terminology.

313
00:33:13,381 --> 00:33:19,381
So what was that tiny piece that you got from all the Zk-proofs and attached to
Bitcoin?

314
00:33:20,381 --> 00:33:21,381
What's the relationship to Bitcoin?

315
00:33:22,381 --> 00:33:25,381
Well, OK, that's a different question.

316
00:33:25,381 --> 00:33:32,381
But they have – Zcatch has produced different like phases and they named them after
plants.

317
00:33:33,381 --> 00:33:36,381
Like one was like sapling and one was like sprout.

318
00:33:37,381 --> 00:33:38,381
One was like orchard.

319
00:33:39,381 --> 00:33:40,381
So there's like the latest version.

320
00:33:41,381 --> 00:33:51,381
Now to have the Zcatch altcoin function, they actually need this kind of like
turnstile thing where the money will leave the old zone and go into the new zone.

321
00:33:51,381 --> 00:33:54,381
And they made numerous improvements over the years.

322
00:33:55,381 --> 00:34:00,381
So for example, on the old Zcatch, you could not run the software on a phone.

323
00:34:01,381 --> 00:34:03,381
It was too resource intensive.

324
00:34:04,381 --> 00:34:05,381
Wow.

325
00:34:05,381 --> 00:34:07,381
And also you had to have a trusted setup with a few people.

326
00:34:08,381 --> 00:34:14,381
So if they all colluded, they could break the privacy.

327
00:34:15,381 --> 00:34:17,381
But you needed everyone to collude.

328
00:34:17,381 --> 00:34:25,381
So as long as one person like destroys – this was called a toxic – I think it was
called toxic waste or something like that was the nickname for it.

329
00:34:26,381 --> 00:34:27,381
Everyone had to like do this thing.

330
00:34:28,381 --> 00:34:34,381
Like a group of people did this and they had to delete what they had on their
computer.

331
00:34:35,381 --> 00:34:37,381
As long as at least one person did that, it would work.

332
00:34:38,381 --> 00:34:40,381
Now this was then upgraded to like something like 80 people.

333
00:34:40,381 --> 00:34:41,381
And then they have a new version.

334
00:34:42,381 --> 00:34:52,381
This is this thing called Halo 2, which did not require the trusted setup or at
least did something that was like so feasible that it's no longer a relevant issue.

335
00:34:53,381 --> 00:34:55,381
So this is all in their orchard crate.

336
00:34:56,381 --> 00:34:57,381
They have like a rust crate.

337
00:34:58,381 --> 00:34:59,381
I'm not sure how familiar you are with rust crates.

338
00:35:00,381 --> 00:35:01,381
But rust puts everything in these crates.

339
00:35:02,381 --> 00:35:03,381
And so they have a rust crate for that.

340
00:35:03,381 --> 00:35:13,381
Is that like a – what is it when you go – oh man, how could I forget?

341
00:35:14,381 --> 00:35:15,381
Docker. Is it like a Docker container for rust?

342
00:35:16,381 --> 00:35:17,381
Well, a little bit.

343
00:35:18,381 --> 00:35:20,381
Of course, it is kind of like a dependency in a way.

344
00:35:21,381 --> 00:35:27,381
And just merely the crate is not enough because it's not enough to have – that
doesn't equal like a wallet or a node or whatever.

345
00:35:28,381 --> 00:35:30,381
But this is like the crypto library that does the moon math.

346
00:35:31,381 --> 00:35:32,381
So it's like moon math in and out.

347
00:35:33,381 --> 00:35:34,381
So I took that part.

348
00:35:35,381 --> 00:35:40,381
Connecting things to Bitcoin is a different matter, which is my other area, which is
the sidechain or the Drivechain.

349
00:35:41,381 --> 00:35:42,381
It was Bitcoin 300.

350
00:35:43,381 --> 00:35:47,381
It's something I've been into for a long time about what is the right way if you
don't like what Bitcoin Core is doing.

351
00:35:48,381 --> 00:35:54,381
If you think the block time should be faster or the block size should be bigger or
that there should be smart contracts or something else.

352
00:35:54,381 --> 00:36:03,381
How do you have like a competing piece of software where you have real Bitcoin on
there and in a way that actually works?

353
00:36:04,381 --> 00:36:16,381
Where you have this infinite freedom, the open source kind of freedom, but you also
are not weighing everyone else down on Bitcoin Core with all of your weird ideas,
which may be terrible ideas.

354
00:36:16,381 --> 00:36:21,381
So that was an old concept that I became obsessed with in 2015.

355
00:36:22,381 --> 00:36:24,381
And that is what became the Drivechain idea.

356
00:36:25,381 --> 00:36:29,381
What is sometimes today called the sidechain, although that word has also been
abused.

357
00:36:30,381 --> 00:36:32,381
And now I think that word has basically no meaning.

358
00:36:33,381 --> 00:36:34,381
So it's a Drivechain.

359
00:36:35,381 --> 00:36:36,381
A Drivechain is what you're calling it.

360
00:36:38,381 --> 00:36:41,381
At LayerTwo Labs, we have like a few of these type of things.

361
00:36:42,381 --> 00:36:43,381
And that's really interesting.

362
00:36:43,381 --> 00:36:45,381
I haven't picked this up since, when was that?

363
00:36:46,381 --> 00:36:48,381
It was in 2018 when there was a block size war.

364
00:36:49,381 --> 00:36:50,381
When was the block size war?

365
00:36:51,381 --> 00:36:56,381
Well, I would say it kind of ended around 2017, although arguably continued for
another year as Bitcoin Cash.

366
00:36:57,381 --> 00:37:07,381
August 1st was the launch of Bitcoin Cash and then November of 2017 was the
abandonment of SegWit2x, which caused the split.

367
00:37:08,381 --> 00:37:12,381
And then you could arguably say that they kind of still fought it out for another
year.

368
00:37:13,381 --> 00:37:14,381
Got it.

369
00:37:15,381 --> 00:37:26,381
But Bitcoin Cash never really overtook BTC in terms of recognizability, adoption,
whatever.

370
00:37:27,381 --> 00:37:36,381
So that would be – that's the short version is that that was the finally being
ousted and going into like altcoin kind of status.

371
00:37:36,381 --> 00:37:48,381
Really, the block size war raged from maybe at least – I mean, definitely in 2015,
it got very big with Mike Hearn and Bitcoin XT and the scaling Bitcoin conferences.

372
00:37:49,381 --> 00:37:51,381
It's kind of always in the background a little bit.

373
00:37:52,381 --> 00:37:56,381
Well, let's talk about that because you're essentially – you want to create a
Drivechain.

374
00:37:57,381 --> 00:38:05,381
And this Drivechain will allow people to essentially transact with privacy off of
Bitcoin, which is really interesting.

375
00:38:06,381 --> 00:38:09,381
Can you talk more about that, how the privacy will work?

376
00:38:10,381 --> 00:38:13,381
I have one, this Zcash related L2.

377
00:38:14,381 --> 00:38:15,381
It's sometimes called Zside.

378
00:38:16,381 --> 00:38:17,381
Zside, OK, cool.

379
00:38:18,381 --> 00:38:19,381
It's a sidechain.

380
00:38:20,381 --> 00:38:22,381
But then I have a separate one called – you can just keep doing this all day.

381
00:38:23,381 --> 00:38:26,381
And I have a separate one that I call Thunder as a kind of lightning joke.

382
00:38:27,381 --> 00:38:34,381
And that one, if you had – I have like a plan to have like 14 geographically
distributed.

383
00:38:35,381 --> 00:38:40,381
So you have like one for like North America, one for like Western Europe, one for
like Southeast Asia.

384
00:38:41,381 --> 00:38:48,381
And if you had like 14 of these, you could have – with the software we currently
have, it would be able to process every transaction on earth.

385
00:38:48,381 --> 00:39:02,381
And I recently had like a contest to improve the performance and try – test 960
megabyte blocks and see how to improve the performance, which was – I think it was a
big success.

386
00:39:03,381 --> 00:39:12,381
And anyone can go online now and look at the – we had like the benchmark script used
to test the software and it will generate – it takes like an hour.

387
00:39:12,381 --> 00:39:26,381
But it will generate a huge number of transactions as if it will like kind of load
this huge buffer of transactions as if there were trillions of transactions per
year, roughly 9 trillion transactions per year at a certain rate.

388
00:39:27,381 --> 00:39:33,381
And then it will connect like 10 blocks of that and it will time with the stopwatch
and you can see how long that takes.

389
00:39:34,381 --> 00:39:36,381
And it does – it takes – it's reasonably fast.

390
00:39:37,381 --> 00:39:39,381
It's only a few minutes or so.

391
00:39:39,381 --> 00:39:42,381
So actually it's – and it's 10-minute blocks.

392
00:39:43,381 --> 00:39:45,381
So as long as it's less than 10 minutes, then you're in business.

393
00:39:46,381 --> 00:39:49,381
And this is like on normal – pretty normal hardware.

394
00:39:50,381 --> 00:39:52,381
This is just on like the GitHub runner thing.

395
00:39:53,381 --> 00:39:55,381
So that's my plan to scale Bitcoin.

396
00:39:56,381 --> 00:40:05,381
And we again are testing it at planetary scale right now, which is something that I
really don't think anyone has done or even would even dream of trying to do.

397
00:40:05,381 --> 00:40:14,381
With Lightning, they realize – at least by now on a subconscious level, they realize
that you can't onboard people to Lightning without an L1 transaction.

398
00:40:15,381 --> 00:40:17,381
So it's a complete dead end for scaling.

399
00:40:18,381 --> 00:40:19,381
But everyone is just dancing around this.

400
00:40:20,381 --> 00:40:28,381
So I got to go into that one because that – somebody tried to send me a Lightning
thing and it did not work.

401
00:40:29,381 --> 00:40:31,381
And it sounds – it seems like it's dead.

402
00:40:31,381 --> 00:40:32,381
It's custodial.

403
00:40:33,381 --> 00:40:34,381
It doesn't use Bitcoin network or the Lightning network.

404
00:40:35,381 --> 00:40:36,381
It's just an – it's like an app that updates.

405
00:40:37,381 --> 00:40:38,381
You have a third party.

406
00:40:39,381 --> 00:40:40,381
On their app and it's all fake.

407
00:40:41,381 --> 00:40:42,381
And that's all travesty.

408
00:40:43,381 --> 00:40:45,381
So can you go into that specific thing that you mentioned?

409
00:40:46,381 --> 00:40:47,381
I mean there's a bunch of things I want to go back to.

410
00:40:48,381 --> 00:40:49,381
One is the 960 megabyte block.

411
00:40:50,381 --> 00:40:57,381
But before we go into that, I want to go into Lightning, which is why is – why is
Lightning failing basically?

412
00:40:58,381 --> 00:41:01,381
Well, it's like a good attempt.

413
00:41:02,381 --> 00:41:06,381
But part – it has just fundamentally is incapable of doing the job.

414
00:41:07,381 --> 00:41:17,381
So Lightning was this idea that was just like six degrees of separation like Kevin
Bacon type idea where if you want to pay someone, maybe you don't know them
personally.

415
00:41:18,381 --> 00:41:20,381
But you probably know someone who knows someone that they know or something.

416
00:41:21,381 --> 00:41:22,381
You build this route.

417
00:41:22,381 --> 00:41:31,381
So the idea is we'd already have all these channels open with people and that we
could reuse on L2 with the channels we would send – not on L1.

418
00:41:32,381 --> 00:41:35,381
And on L2, we would be able to have a path and we would be able to send them.

419
00:41:36,381 --> 00:41:39,381
So the problem is opening a channel requires one L1 transaction.

420
00:41:40,381 --> 00:41:41,381
And so there's not enough space for that even.

421
00:41:42,381 --> 00:41:50,381
Even in a hypothetical world where we all only need one transaction ever in our
lives on Bitcoin L1, there's not enough space.

422
00:41:50,381 --> 00:41:55,381
It would take like something like six or seven years to onboard everyone, which is
too long.

423
00:41:56,381 --> 00:41:57,381
But the bigger issue –

424
00:41:58,381 --> 00:41:59,381
So the block size?

425
00:42:00,381 --> 00:42:01,381
Yeah, the channels don't last that long.

426
00:42:02,381 --> 00:42:05,381
You have to refresh them because of liquidity issues and of course people need more
than one channel.

427
00:42:06,381 --> 00:42:15,381
And in fact, when Lightning works now, it often uses this thing called the submarine
swap, which again, these are all fancy terms for just saying that Lightning is
broken but without admitting that out loud.

428
00:42:15,381 --> 00:42:22,381
So the submarine swap is a one L1 transaction made by one of the two parties to
reset the liquidity.

429
00:42:23,381 --> 00:42:27,381
So it's like you use Lightning but they use one L1 transaction is required each
time.

430
00:42:28,381 --> 00:42:29,381
So the Lightning part is kind of superfluous.

431
00:42:30,381 --> 00:42:33,381
So the block size war was lost basically.

432
00:42:34,381 --> 00:42:35,381
That's what you're trying to say.

433
00:42:36,381 --> 00:42:42,381
I actually was a small blocker and I still am and I'm in favor of shrinking block
size because we can have the L2 that has the unlimited block size.

434
00:42:42,381 --> 00:42:45,381
So I always thought it doesn't matter what the L1 block size can be very small.

435
00:42:46,381 --> 00:42:56,381
But the issue is that the L1 – well, the block size war led to a situation where the
large blockers said we need to increase the block size.

436
00:42:57,381 --> 00:43:05,381
They lost and this discredited them and it discredited anything related to like
block size or blockchain design.

437
00:43:06,381 --> 00:43:11,381
And it discredited – also the miners took their side so it discredited anything
related to like mining or collecting L1 transaction fees.

438
00:43:12,381 --> 00:43:14,381
So this was like a 10-year setback I think.

439
00:43:15,381 --> 00:43:22,381
And then meanwhile the people who won, their answer to what are we going to do
because the block size does not scale Bitcoin.

440
00:43:23,381 --> 00:43:24,381
The L1 blocks are too small.

441
00:43:25,381 --> 00:43:26,381
So what do we do?

442
00:43:27,381 --> 00:43:30,381
Their answer was we'll scale in layers and specifically we'll scale with the
Lightning network.

443
00:43:31,381 --> 00:43:38,381
So this led everyone to put all of their attention on Lightning which has been a
huge – Lightning is basically the Theranos of Bitcoin unfortunately.

444
00:43:39,381 --> 00:43:44,381
But it has distracted everyone and it has pulled everyone away from what they should
have been doing the whole time.

445
00:43:45,381 --> 00:43:46,381
But now people are realizing that.

446
00:43:47,381 --> 00:43:49,381
But now there's been like two 10-year setbacks.

447
00:43:50,381 --> 00:43:53,381
Now people are starting to come back.

448
00:43:54,381 --> 00:43:55,381
It's so interesting.

449
00:43:56,381 --> 00:43:57,381
Only a few people too.

450
00:43:58,381 --> 00:44:02,381
But this started this like Bitcoin Season 2 and like the push for Covenants and like
ARK and stuff like that.

451
00:44:03,381 --> 00:44:09,381
These are people – again, this is all just a way of admitting that Lightning doesn't
work without saying that out loud.

452
00:44:10,381 --> 00:44:12,381
You get invited to the right parties.

453
00:44:13,381 --> 00:44:14,381
It's very common.

454
00:44:15,381 --> 00:44:16,381
And Bitcoin is a bit of a religion.

455
00:44:17,381 --> 00:44:18,381
I'm just a supporter of that religion.

456
00:44:19,381 --> 00:44:20,381
So it is very common.

457
00:44:21,381 --> 00:44:22,381
And they call it Covenant 2 which is really funny.

458
00:44:23,381 --> 00:44:28,381
Yeah, it's kind of pretentious and like aloof weird term that is not very
accessible.

459
00:44:29,381 --> 00:44:31,381
It's not just like where are the Anglo-Saxon words?

460
00:44:32,381 --> 00:44:35,381
Like backhoe or whatever, wifebeater.

461
00:44:36,381 --> 00:44:38,381
Where are the clear words that just say what you mean?

462
00:44:39,381 --> 00:44:40,381
They're nowhere to be found.

463
00:44:41,381 --> 00:44:44,381
But this is the problem with Lightning also is that it's very technical.

464
00:44:45,381 --> 00:44:46,381
You can get the VCs.

465
00:44:47,381 --> 00:44:50,381
If you pronounce the right words, the VCs have no idea what's going on.

466
00:44:51,381 --> 00:44:52,381
So they will just invest.

467
00:44:53,381 --> 00:44:55,381
And so that's why it is – unfortunately, yeah.

468
00:44:56,381 --> 00:44:58,381
That's part of why it's a setback because it's self-reinforcing.

469
00:44:59,381 --> 00:45:00,381
Yeah, no.

470
00:45:01,381 --> 00:45:05,381
It's so strange and it's absurd and it's funny like a lot of things are now.

471
00:45:06,381 --> 00:45:11,381
But you're optimistic because you're building this thing that is going to change.

472
00:45:12,381 --> 00:45:18,381
It's quite hard to be pessimistic when first of all, Bitcoin has done like 100,000x
ROI.

473
00:45:19,381 --> 00:45:21,381
So Bitcoin has succeeded enormously.

474
00:45:22,381 --> 00:45:23,381
Everyone hated it.

475
00:45:24,381 --> 00:45:26,381
All the years I've known about Bitcoin, everyone was hating it.

476
00:45:26,381 --> 00:45:27,381
It was awkward to talk about.

477
00:45:28,381 --> 00:45:32,381
You couldn't even talk about it with like your friends and family because it was
just so stigmatizing.

478
00:45:33,381 --> 00:45:35,381
And you seemed like you were getting scammed the whole time.

479
00:45:36,381 --> 00:45:37,381
But yet it prevailed and crushed everyone.

480
00:45:38,381 --> 00:45:40,381
It became a voting block issue.

481
00:45:41,381 --> 00:45:45,381
It made everyone wealthy and powerful and interesting.

482
00:45:46,381 --> 00:45:50,381
And the other thing is I had the Drivechain idea back in 2015.

483
00:45:50,381 --> 00:45:55,381
So the whole time I've known that it's possible to make Bitcoin scale to the whole
planet.

484
00:45:56,381 --> 00:46:02,381
And it's possible to have Bitcoin transactions that do the same smart contracts at
the same EVM as Ethereum.

485
00:46:03,381 --> 00:46:04,381
And it's the same privacy as Zcash.

486
00:46:05,381 --> 00:46:06,381
So I always knew that that was possible in theory.

487
00:46:07,381 --> 00:46:08,381
Because of the block size.

488
00:46:09,381 --> 00:46:15,381
And then eventually like in late 2022, I started this company because I just was
tired of waiting for this to happen.

489
00:46:16,381 --> 00:46:17,381
So I was like, I'll just have to do it myself.

490
00:46:17,381 --> 00:46:21,381
It's still a lot of what I have to say is misunderstood by a lot of people.

491
00:46:22,381 --> 00:46:27,381
So but what is the – because you said you were a small block size.

492
00:46:28,381 --> 00:46:29,381
What is the –

493
00:46:30,381 --> 00:46:31,381
Right, I'm on L1.

494
00:46:32,381 --> 00:46:33,381
But then 960 is L2.

495
00:46:34,381 --> 00:46:37,381
So this ignores the night and day difference between L1 and L2, which is the
all-important night and day difference.

496
00:46:38,381 --> 00:46:39,381
The L2s are optional.

497
00:46:40,381 --> 00:46:45,381
If they fail for any reason, if they get attacked, if they have a bug and they
crash,

498
00:46:45,381 --> 00:46:50,381
if the government says running the L2 software will get you shot in the head and
killed, it doesn't matter.

499
00:46:51,381 --> 00:46:53,381
That can just fail or it can just even be on pause.

500
00:46:54,381 --> 00:46:55,381
It can just be – we can just bide our time.

501
00:46:56,381 --> 00:46:57,381
It's like the Mott and Bailey type thing.

502
00:46:58,381 --> 00:47:00,381
If that fails for any reason, it doesn't make any difference.

503
00:47:01,381 --> 00:47:10,381
The L1, if the L1 is mandatory for everyone to run in order for the miners to get
paid, in order for the blocks to flow, in order for proof of work to happen, the L1
is mandatory for everyone.

504
00:47:10,381 --> 00:47:19,381
And really if you think about it, the way I have structured it, it's like the L1 is
mandatory and then if you want to run the L2, you need the L1 plus the L2.

505
00:47:20,381 --> 00:47:23,381
So every L2 node needs the L1 node, but the reverse is not the case.

506
00:47:24,381 --> 00:47:26,381
So what we're saying is it's kind of like a la carte.

507
00:47:27,381 --> 00:47:33,381
How much do you want everyone to have to pay in terms of the cost of running the
full nodes?

508
00:47:34,381 --> 00:47:35,381
So does that make sense?

509
00:47:35,381 --> 00:47:42,381
So you can see why at first you want the first pass to be as low as possible because
you don't want to exclude anyone from the first zone.

510
00:47:43,381 --> 00:47:49,381
Then when you want to staple more stuff on, you can grow it to whatever you think is
the right size.

511
00:47:50,381 --> 00:47:55,381
And then maybe there will only be a few nodes, but it won't matter because you're
pushing the envelope.

512
00:47:56,381 --> 00:47:59,381
This is explicitly we've switched from something that everyone must do.

513
00:48:00,381 --> 00:48:01,381
It's kind of like a pacemaker.

514
00:48:02,381 --> 00:48:03,381
You don't want it to be very adventurous.

515
00:48:04,381 --> 00:48:05,381
You want it to be very simple.

516
00:48:06,381 --> 00:48:07,381
You want it to be very reliable.

517
00:48:08,381 --> 00:48:11,381
You don't want the pacemaker to have Bluetooth or something, right?

518
00:48:12,381 --> 00:48:15,381
But the L2s are a completely different thing.

519
00:48:16,381 --> 00:48:17,381
They're optional.

520
00:48:18,381 --> 00:48:19,381
So now we have them of all shapes and sizes.

521
00:48:20,381 --> 00:48:23,381
So we have the Zcache one, we have Thunder, we have a few more.

522
00:48:24,381 --> 00:48:25,381
Oh, got it.

523
00:48:26,381 --> 00:48:31,381
So you're making multiple L2s because you're just thinking about it from an adoption
standpoint.

524
00:48:31,381 --> 00:48:32,381
If it gets adopted.

525
00:48:37,381 --> 00:48:40,381
An L2, let me explain what I think an L2 is.

526
00:48:41,381 --> 00:48:42,381
And then you can help me figure it out.

527
00:48:43,381 --> 00:48:45,381
An L2 is basically something.

528
00:48:46,381 --> 00:48:49,381
So you got an L1 that is computing blocks.

529
00:48:50,381 --> 00:48:55,381
The miners use their computation power to basically do a cryptographic puzzle.

530
00:48:56,381 --> 00:48:58,381
And then they get rewarded with that cryptographic puzzle.

531
00:48:58,381 --> 00:49:01,381
And that's to mine one Bitcoin block.

532
00:49:02,381 --> 00:49:07,381
The L2, what is the relationship between that and the L1?

533
00:49:08,381 --> 00:49:09,381
The L2 and the L1 in that scenario?

534
00:49:10,381 --> 00:49:13,381
Well, I think we have to sort nodes from miners.

535
00:49:14,381 --> 00:49:21,381
The nodes are doing the CPU work of assembling the transactions into a block.

536
00:49:22,381 --> 00:49:24,381
And checking each block, storing each block on your computer.

537
00:49:25,381 --> 00:49:27,381
So this is the so-called data availability problem.

538
00:49:29,381 --> 00:49:31,381
So the blockchain is stored by the nodes.

539
00:49:32,381 --> 00:49:38,381
And the miners, it's actually the miners are their own kind of similar to the L2, L1
relationship.

540
00:49:39,381 --> 00:49:42,381
You need to run a node in order to mine or you need to talk to one.

541
00:49:43,381 --> 00:49:46,381
You need to have someone, someone out there has to give you information if you're a
miner.

542
00:49:47,381 --> 00:49:49,381
The miner is like a customer of the node.

543
00:49:50,381 --> 00:49:52,381
It's a little bit backwards than the way a lot of people think about it.

544
00:49:52,381 --> 00:49:58,381
So if you're mining, you either need a node yourself or you need someone's node
somewhere.

545
00:49:59,381 --> 00:50:00,381
You need to let them borrow it.

546
00:50:01,381 --> 00:50:02,381
Got it, got it.

547
00:50:03,381 --> 00:50:03,973
Everyone who gets paid.

548
00:50:03,973 --> 00:50:30,973
If you run a store and you accept Bitcoin, or if you're a laborer, and your boss
pays you in Bitcoin, the node is what tells you whether or not you have been paid.
There are various hacks and, and cheats and things. But that's really the purpose of
the node. This is another thing that very, very few people understand. This is the
part of the whole knots versus core controversy is based on misunderstanding this as
well, which is what's the point of the node. The point of the node is to validate
incoming transactions.

549
00:50:30,973 --> 00:50:44,973
So if you, if you aren't, if you don't own a store and you're selling stuff for
Bitcoin, or you're not a, you don't own like a graphic design consultancy, and
you're being paid in Bitcoin, then the node isn't doing that much for you.

550
00:50:44,973 --> 00:50:57,973
You could maybe say it's archiving the blockchain. But we don't really need that as
much as people think so. Whereas if you're something like Coinbase, or you're Kraken
or whatever, people are sending you Bitcoin all the time.

551
00:50:58,973 --> 00:51:16,973
So their node is really important. Not only do they run one node, but they run
multiple old, they're probably running Bitcoin 0.12 and 13 and 14. They run them
all. And if anything weird happens, they have like a giant button that they press
that probably halts the whole, this is how I assume it works.

552
00:51:16,973 --> 00:51:39,973
But I've talked to people in the industry. And I know that it does work or something
like that. So those people are critically relying on the nodes. And then other
people just kind of think, well, I'm running my node to this, they think this is
like some kind of American Idol text to you want to win situation, which it is not.
But that's fine. Also that people are, I'm glad I'm happy that people are excited
about something or whatever.

553
00:51:40,973 --> 00:51:59,973
So the node, to review what I was talking about, the miners need a node, in part
because the miners are getting paid by their pool or they find a block and the block
is going to pay them three Bitcoin or it used to be 50 Bitcoin. So obviously in the
past, if you were mining, you wanted the node because you wanted to see if you hit
the block or not, which is the only real way to know.

554
00:51:59,973 --> 00:52:16,973
So these are all people have money coming in. And so the nodes do this part. The
miners are just grinding SHA-256. They grind this SHA-256d, double SHA-256. And they
try to get the hash of the blocks header to be very, very low.

555
00:52:16,973 --> 00:52:38,973
Because the hash is a giant integer. And so they say it has to start with a certain
number of leading zeros. That's like a computer science term, because what they're
thinking of is the memory of the computer, which is ones and zeros. So they're
thinking of those zeros, they're thinking 0, 0, 0, 0, 0. But a regular person would
just say each block header, basically, the hash is basically a number. It's a huge
number.

556
00:52:39,973 --> 00:53:01,973
But it's a number chosen between 0 and like 2 to the 256. Which is basically, I
think I used to be able to do this a little bit better. But I think it's something
like 16 to the 64th. Is that right? It's 2 to the 256. You can change it around,
maybe off by one or two. But that 10 to the 80th is the number of atoms in the
universe.

557
00:53:02,973 --> 00:53:19,973
So if you see 1664, of course, it's not, but I'm just saying like, this is like the
biggest number. You know, it's like really, really big. So you're picking a big
number and the difficulty adjustment is saying it's only valid if it is in a very
narrow set.

558
00:53:20,973 --> 00:53:42,973
So if the first bit starts, you think about the first bit is 0 or 1. If you say we
only want the numbers in the first half, we're going 0 to 2 to the 256, the max. If
you say you've got to make it halfway, at least, that's like saying we'll give up
half the hashes and the number has to start with at least one zero.

559
00:53:43,973 --> 00:53:46,973
There's this thing called Indianness, but I don't want to confuse.

560
00:53:46,973 --> 00:53:47,973
Indianness?

561
00:53:48,973 --> 00:53:59,973
You have this huge timeline or this huge space, and half of them are in the top
half. That's the first zero. And then 25% of them start with two zeros in a way.

562
00:54:00,973 --> 00:54:18,973
So when people say this about solving the puzzle, and must start with a certain
number of zeros, they mean the more and more zeros eventually in the top eighth, top
164th, and in fact, we've really crunched it way down, where it's a tiny, tiny, tiny
percentage, because there's 256 numbers that could either be 0 or 1.

563
00:54:19,973 --> 00:54:37,973
And so for you to even get to something like 16, or I mean, I think 2 to the 10th is
like 1024 or something, so you're already throwing away 99.9% of the blocks, even
when you're just starting with 10 zeros.

564
00:54:37,973 --> 00:54:40,973
But now at this point, we're starting with huge amounts.

565
00:54:40,973 --> 00:54:44,973
So that's what the miners do. I don't know if that was too weird.

566
00:54:44,973 --> 00:54:57,973
No, no, no. This is all interesting, because the way I learn is I get an abstract
concept, and then that abstract concept, the more I go into it, the more I realize
that it doesn't accurately reflect reality.

567
00:54:57,973 --> 00:55:03,973
And so that number that you were describing, that really long number, I got that
that's the puzzle.

568
00:55:03,973 --> 00:55:05,973
That is the hash effect.

569
00:55:05,973 --> 00:55:10,973
So when you go on a block explorer and you click on a block, that's what that is.

570
00:55:10,973 --> 00:55:24,973
You can go on right now and look, and you'll see not only does it start with zeros
in the sense of the bits in the computer's memory, but when you have eight of those
in a row, it ends up being a zero when they put it in hex anyway.

571
00:55:24,973 --> 00:55:32,973
So you'll see it actually, the real one has lots of real zeros that it starts with
also, because it just has so many zeros.

572
00:55:33,973 --> 00:55:34,973
And the miners are competing.

573
00:55:34,973 --> 00:55:47,973
I may have a double or triple check. It depends on how, because people do the hex,
they do two hex characters, and that's 256. So it's actually two zeros, but I don't
want to like, this is not the type of thing you should just say glibly on a podcast.

574
00:55:47,973 --> 00:55:58,973
Everyone can look up like exact details of it all, but what I'm saying is the, when
you look at the block, it will print it out in hex, it will not print it out in
binary, like a big string of ones and zeros.

575
00:55:58,973 --> 00:55:59,973
Got it.

576
00:56:00,973 --> 00:56:11,973
That's why I remember that joke from Silicon Valley, the show, and like the first
episode where he does his multiplication tables in hex, he says like five times F.

577
00:56:11,973 --> 00:56:26,973
And he says it's like it's 75 or something, he just makes the, he just made that up,
but the point is, there's, hex is like counting to 16 and if you count to 16 twice
you get to 256, and so two zeros and I don't know, this is probably boring people at
this point.

578
00:56:27,973 --> 00:56:31,973
The joke, look up the joke of what's, I think it's what's five times F is the joke.

579
00:56:31,973 --> 00:56:32,973
So.

580
00:56:32,973 --> 00:56:35,973
He just made that up, Ehrlich Bachman, the cowboy actor.

581
00:56:35,973 --> 00:56:36,973
So.

582
00:56:36,973 --> 00:56:37,973
But it's funny anyway.

583
00:56:37,973 --> 00:56:43,973
So what are the miners competing to do in that thing that you just said?

584
00:56:43,973 --> 00:56:49,973
They are, what they do is they have a, the block is changing all the time, first of
all, because new transactions are coming in.

585
00:56:49,973 --> 00:56:50,973
Yeah.

586
00:56:50,973 --> 00:56:51,973
The transactions change the Merkle tree.

587
00:56:51,973 --> 00:56:52,973
Yeah.

588
00:56:52,973 --> 00:56:55,973
Okay, Merkle tree, I got to go study that.

589
00:56:55,973 --> 00:56:56,973
I'm sorry.

590
00:56:56,973 --> 00:57:00,973
No, no, I was just saying I got to, can you hear me now?

591
00:57:00,973 --> 00:57:01,973
Yes.

592
00:57:01,973 --> 00:57:03,973
Yeah, I was just saying I got to study the Merkle tree.

593
00:57:03,973 --> 00:57:04,973
So can you go back to that part where.

594
00:57:04,973 --> 00:57:08,973
Your audio did like something weird, I think maybe like hit the microphone or
something.

595
00:57:08,973 --> 00:57:10,973
So it just sounded weird to me for a second.

596
00:57:10,973 --> 00:57:11,973
Okay.

597
00:57:11,973 --> 00:57:14,973
So the one thing is that what is a Bitcoin block?

598
00:57:14,973 --> 00:57:22,973
And it's actually made of this thing called the header, which is only 80 bytes,
which is very small, which is extremely small.

599
00:57:22,973 --> 00:57:25,973
It's the header plus the vector of transactions.

600
00:57:25,973 --> 00:57:32,973
So it's very important to separate these two things to have a proper understanding
of what the miner does.

601
00:57:33,973 --> 00:57:45,973
And so the vector of transactions is hashed to this Merkle tree, which the result is
just this tiny little 32 byte thing, which is 64 characters long.

602
00:57:45,973 --> 00:57:48,973
And this goes into the header.

603
00:57:48,973 --> 00:57:57,973
The header only contains a very small number of things, four bytes for the version,
the hash of the previous block, the hash of the Merkle root.

604
00:57:57,973 --> 00:58:00,973
And you can see how this is laying it out in space.

605
00:58:00,973 --> 00:58:03,973
So like you have header, header, header, block 1, 2, 3, 4, 5.

606
00:58:03,973 --> 00:58:10,973
Then beneath the block, theoretically, you have like the vector of transactions and
you have like the Merkle tree, which is like a triangle.

607
00:58:10,973 --> 00:58:20,973
And so it's a version, previous block, hash Merkle roots, the timestamp, and this
thing called the nonce.

608
00:58:21,973 --> 00:58:24,973
And these are the only things in the header.

609
00:58:24,973 --> 00:58:34,973
And every time a single byte or even a single bit of the header changes, the hash of
the block will change.

610
00:58:34,973 --> 00:58:37,973
And that's the thing that has to be beneath the zeros.

611
00:58:37,973 --> 00:58:39,973
So I don't know. Maybe this will help.

612
00:58:39,973 --> 00:58:42,973
But you can imagine a bunch of hashes.

613
00:58:42,973 --> 00:58:45,973
You know, like what a hash is when I'm talking about a 32 byte hash.

614
00:58:46,973 --> 00:58:50,973
Imagine hash of block 1, 2, 3, 4, 5 just arrayed in a big line.

615
00:58:50,973 --> 00:58:53,973
Then beneath that, there's 32 byte hash.

616
00:58:53,973 --> 00:58:57,973
Beneath that would be like a little box, 80 bytes.

617
00:58:57,973 --> 00:58:58,973
And it contains all this stuff.

618
00:58:58,973 --> 00:59:01,973
One of the things it contains is the hash of the previous block.

619
00:59:01,973 --> 00:59:07,973
So it'll be, if you looked with your eyes diagonally, you would see the same little
thing.

620
00:59:07,973 --> 00:59:16,973
And then beneath each of those tiny little boxes, there's like a huge box that has
like a huge list of all the transactions that were in that block.

621
00:59:16,973 --> 00:59:19,973
So this is like a review 101.

622
00:59:19,973 --> 00:59:27,973
I'm like, well, maybe it's not 101, but I'm just saying this is funny because this
is older stuff.

623
00:59:27,973 --> 00:59:30,973
If I could still remember it all, but I think I can.

624
00:59:30,973 --> 00:59:36,973
And so the hash you want to be a very low number, low integer.

625
00:59:36,973 --> 00:59:40,973
The miners will scramble the nonce.

626
00:59:40,973 --> 00:59:43,973
They take the block and they increment the nonce.

627
00:59:43,973 --> 00:59:44,973
Nonce is even named.

628
00:59:44,973 --> 00:59:48,973
There's a number that is used only once, and that is the origin of its name.

629
00:59:48,973 --> 00:59:53,973
In fact, so when they do that, it switches the hash to something else.

630
00:59:53,973 --> 00:59:58,973
So they're kind of shuffling the deck each time to get a new card.

631
00:59:59,973 --> 01:00:06,973
From like it maybe said like Ace of Spades is like the lowest or something and like
whatever King of Diamonds is the highest.

632
01:00:06,973 --> 01:00:08,973
I'm just making this up.

633
01:00:08,973 --> 01:00:13,973
But if you named it one through 52, they're kind of shuffling the deck and drawing
the card.

634
01:00:13,973 --> 01:00:20,973
And if they don't hit, if they don't get close enough to the top, then it's not a
valid block.

635
01:00:20,973 --> 01:00:29,973
And so they're hoping to get very, very close, except instead of going from 0 to 52,
it's 0 to 256.

636
01:00:29,973 --> 01:00:31,973
That's enormous numbers.

637
01:00:31,973 --> 01:00:35,973
It's a fathomably large deck that is absolutely gargantuan.

638
01:00:35,973 --> 01:00:36,973
And that's what they do it millions of times.

639
01:00:36,973 --> 01:00:44,973
Now, in practice, they don't have to increment the nonce so often, although they do,
because the timestamp is also changing every second.

640
01:00:45,973 --> 01:00:50,973
And the Merkle tree is also changing as new transactions show up in the mempool and
are broadcast on the network.

641
01:00:50,973 --> 01:00:52,973
So actually everything is changing.

642
01:00:52,973 --> 01:00:53,973
All those things are changing.

643
01:00:53,973 --> 01:00:58,973
And in fact, in the Coinbase, the miners scramble this thing called the extra nonce,
and they do all kinds of other stuff, too.

644
01:00:58,973 --> 01:01:00,973
They also scramble the version bytes.

645
01:01:00,973 --> 01:01:05,973
They scramble everything to try to go as fast as possible.

646
01:01:05,973 --> 01:01:23,973
But this is just a different – this is completely different from the node thing
where they are using the CPU to basically make a trivial change to the block that
has nothing to do with the transactions in it and then SHA-256 again.

647
01:01:23,973 --> 01:01:26,973
So that is what all these ASICs and whatever are doing.

648
01:01:26,973 --> 01:01:28,973
They are doing that.

649
01:01:28,973 --> 01:01:36,973
They are doing a completely different thing, which is not really that complicated,
but they have to do it as many times as they possibly can as quickly as possible and
as cheaply as possible.

650
01:01:36,973 --> 01:01:38,973
And so that's what they are doing.

651
01:01:38,973 --> 01:01:40,973
That's what they're getting rewarded for?

652
01:01:40,973 --> 01:01:46,973
If they hit – when they change the block, eventually – the hash will change every
time, remember.

653
01:01:46,973 --> 01:01:52,973
So eventually, not anytime soon, but if they try – think about it like this way.

654
01:01:52,973 --> 01:01:57,973
If they try one hash a second, then the hash just sort of is what it is.

655
01:01:57,973 --> 01:02:10,973
But if they try two hashes a second, if they can make the block, calculate the hash,
then shift the block and calculate it again, probably one of those hashes will start
with a 1 and the other will start with a 0.

656
01:02:10,973 --> 01:02:15,973
Not necessarily really, but then imagine you can do four hashes at once.

657
01:02:15,973 --> 01:02:17,973
They're all random.

658
01:02:17,973 --> 01:02:19,973
The hashes are random and unpredictable.

659
01:02:20,973 --> 01:02:31,973
So if you can do four at once, probably you've got one that starts with 1, 1,
probably one that starts with 0, 1, probably one that starts with 1, 0, and then you
probably have one that starts with 0, 0.

660
01:02:31,973 --> 01:02:33,973
Now, of course, I'm just making this up.

661
01:02:33,973 --> 01:02:36,973
This is not like totally to be relied upon.

662
01:02:37,973 --> 01:02:47,973
But the point is if you do it more and more and more and more, eventually, you can
guarantee that within the first second you'll have one that starts with five or six
zeros.

663
01:02:47,973 --> 01:02:56,973
But then the goal is to do it so many times that you eventually – before any of the
other miners, you find one that has enough zeros to count.

664
01:02:56,973 --> 01:03:00,973
So they're all trying to cheat, but it's a virtuous cycle.

665
01:03:00,973 --> 01:03:02,973
Is that what I heard basically?

666
01:03:02,973 --> 01:03:03,973
It's like a race.

667
01:03:03,973 --> 01:03:05,973
It's like a 400-meter dash.

668
01:03:05,973 --> 01:03:06,973
Okay.

669
01:03:06,973 --> 01:03:08,973
So the faster you run, you're more likely to win.

670
01:03:08,973 --> 01:03:12,973
That's not quite the same because it's not – the 400-meter dash is like a
deterministic physics.

671
01:03:12,973 --> 01:03:14,973
Yeah, interesting.

672
01:03:14,973 --> 01:03:21,973
These things are – this is what's called memorylessness property in statistics.

673
01:03:21,973 --> 01:03:23,973
So the hash does not know.

674
01:03:23,973 --> 01:03:26,973
You can have two examples.

675
01:03:26,973 --> 01:03:30,973
So imagine trying to crack a safe, and the safe has just a dial.

676
01:03:30,973 --> 01:03:32,973
And if you get the dial right, the safe opens.

677
01:03:33,973 --> 01:03:35,973
It is numbered one through 1,000.

678
01:03:35,973 --> 01:03:38,973
You try one, and then it doesn't work.

679
01:03:38,973 --> 01:03:39,973
You pull the lever.

680
01:03:39,973 --> 01:03:40,973
You try number two.

681
01:03:40,973 --> 01:03:41,973
It doesn't work.

682
01:03:41,973 --> 01:03:42,973
Try number three.

683
01:03:42,973 --> 01:03:51,973
On average, it should take you about 500 tries because 500 is where you've crossed
the point of having tried half of the – you've tried one out of every two.

684
01:03:51,973 --> 01:03:52,973
Got it.

685
01:03:52,973 --> 01:03:54,973
On average, it should take you 500 tries.

686
01:03:54,973 --> 01:03:56,973
That is not how Bitcoin mining works at all.

687
01:03:56,973 --> 01:03:58,973
It works a different way.

688
01:03:58,973 --> 01:04:05,973
You have to imagine that there's a long hallway with an infinite number of safes
that are all identical.

689
01:04:05,973 --> 01:04:07,973
They're all set to random values.

690
01:04:07,973 --> 01:04:08,973
You don't know which they are.

691
01:04:08,973 --> 01:04:14,973
And you go up, and you spin the dial randomly, and then you pull – it lands on 37 or
something.

692
01:04:14,973 --> 01:04:20,973
You pull the lever, and if that doesn't work, you walk to the next safe, and then
you try again.

693
01:04:20,973 --> 01:04:22,973
That is what Bitcoin mining is like.

694
01:04:22,973 --> 01:04:26,973
So every single spin is the same.

695
01:04:26,973 --> 01:04:37,973
But if you can run down and you can just pull as many levers as you can, spin all
the dials, and pull the levers, you're likely to open – to finally hit and open one
of the safes.

696
01:04:37,973 --> 01:04:43,973
In this case, by the way, it should take you about 1,000 tries because you never
make any – you don't make any progress.

697
01:04:43,973 --> 01:04:46,973
So you're stuck at one out of 1,000 permanently.

698
01:04:47,973 --> 01:04:58,973
So you can see after – and the other thing is when you spin the first – in the
previous example where you only have one safe, the first try is one in 1,000.

699
01:04:58,973 --> 01:05:01,973
But immediately, your odds start to improve.

700
01:05:01,973 --> 01:05:06,973
And in fact, once you get to the 500th spin, it's more like one in 500.

701
01:05:06,973 --> 01:05:10,973
By the time you get down to the last two numbers, it's a 50-50.

702
01:05:10,973 --> 01:05:12,973
It's either going to be 9, 9, 8 or 9, 9, 9.

703
01:05:12,973 --> 01:05:14,973
Maybe you don't know which one it is.

704
01:05:14,973 --> 01:05:18,973
At some point, you might feel your luck is so bad, you might skip 9, 9, 8 and try 9,
9, 9.

705
01:05:18,973 --> 01:05:22,973
You might feel like an idiot for starting at zero or starting at one.

706
01:05:22,973 --> 01:05:25,973
But the point is now there's only two that it can be.

707
01:05:25,973 --> 01:05:28,973
So it's actually down to 50-50 at that point.

708
01:05:28,973 --> 01:05:36,973
And in fact, if you tried them all and there's only one left, then it's a 100%
chance, of course, that that one will be the one that opens the safe.

709
01:05:36,973 --> 01:05:42,973
This does not happen in the Bitcoin mining example, the memorylessness example where
you're walking down the hallway.

710
01:05:42,973 --> 01:05:45,973
No matter what, it's always a new thing.

711
01:05:45,973 --> 01:05:51,973
Even if you just had five that were seven in a row, the next one could be seven or
it could not.

712
01:05:51,973 --> 01:05:52,973
You have no way of knowing.

713
01:05:52,973 --> 01:05:55,973
So it's always one in 1,000.

714
01:05:55,973 --> 01:06:01,973
Okay, so and then for the last five minutes or so, what is the – and you have an
appointment afterwards, I think, as well.

715
01:06:01,973 --> 01:06:03,973
And if you have to go, let me know.

716
01:06:03,973 --> 01:06:10,973
But what is the – how do the L2s fit into that, what you just described?

717
01:06:11,973 --> 01:06:12,973
That's important.

718
01:06:12,973 --> 01:06:13,973
So we separate nodes and miners.

719
01:06:13,973 --> 01:06:15,973
So we did like a long digression about miners.

720
01:06:15,973 --> 01:06:23,973
But the nodes are what process every transaction and store every transaction and
serve it back whenever you ask.

721
01:06:23,973 --> 01:06:31,973
So when a new person wants to sync a node, it's kind of like BitTorrent where they
download every season of Game of Thrones or something and someone is uploading.

722
01:06:31,973 --> 01:06:39,973
So this part is crucial because if no one does – if no one mines, then maybe there
won't be any block until someone starts mining again.

723
01:06:39,973 --> 01:06:46,973
But if no one provides the blockchain data, then no one knows if anything is a
double spend or not, or no one knows.

724
01:06:46,973 --> 01:06:48,973
This is the whole point of Satoshi's design.

725
01:06:48,973 --> 01:06:50,973
So no one can spend any money without the blockchain history.

726
01:06:50,973 --> 01:06:52,973
No one knows who has the coins.

727
01:06:52,973 --> 01:07:00,973
So for each – so the block size debate was kind of about this, which was like what
are we – what's the rule?

728
01:07:00,973 --> 01:07:02,973
Like how much are we all obligated?

729
01:07:02,973 --> 01:07:05,973
It's like you're kind of doing – you and a bunch of friends are going to go on a
trip.

730
01:07:05,973 --> 01:07:08,973
Like is it going to be – are we going to like Tahiti or something?

731
01:07:08,973 --> 01:07:10,973
Is it going to be – is it going to cost a fortune?

732
01:07:10,973 --> 01:07:15,973
But in which case the trip might be better, but everyone is going to have to pay
more money.

733
01:07:15,973 --> 01:07:23,973
Or are we just going to go to the local bar, in which case it's much easier.

734
01:07:23,973 --> 01:07:26,973
It's going to cost less, but it might not be as special.

735
01:07:26,973 --> 01:07:30,973
So the block size is kind of like what are we all – it's a collective issue.

736
01:07:30,973 --> 01:07:32,973
Like what are we all in for?

737
01:07:32,973 --> 01:07:40,973
The L2s, as I've said, the way the L2s work is it's sort of saying all of us are
agreed to go in for more stuff.

738
01:07:40,973 --> 01:07:47,973
We're saying we're going to go to the bar and then some of us, a small subset of us
are going to go to Tahiti

739
01:07:47,973 --> 01:07:49,973
or we're going to go to Disney World or whatever.

740
01:07:49,973 --> 01:07:52,973
Take your pick as to what a great vacation is.

741
01:07:52,973 --> 01:07:54,973
But that's the point.

742
01:07:55,973 --> 01:08:05,973
The question is – this makes it very easy to transact on L1 and send the coins from
L1 to L2 and transact on L2.

743
01:08:05,973 --> 01:08:09,973
But what it does not make easy is having the coins come back from L2 to L1.

744
01:08:09,973 --> 01:08:11,973
The question is how do we do that?

745
01:08:11,973 --> 01:08:16,973
That is the big sticking problem because remember some of the people are only on L1

746
01:08:16,973 --> 01:08:20,973
and they have no idea what happened on L2 and they don't want to know.

747
01:08:21,973 --> 01:08:26,973
Even if we force them to know, that would be bad because that's just forcing them to
go to Tahiti and they didn't want to go.

748
01:08:26,973 --> 01:08:30,973
So the question is what do we do about that?

749
01:08:30,973 --> 01:08:40,973
What I do is I bundle all of the withdrawal – the entire activity on the L2
including the withdrawal transactions over a period of months.

750
01:08:40,973 --> 01:08:47,973
The entirety of the outstanding activity, I bundle that into one transaction that
has one hash.

751
01:08:47,973 --> 01:08:53,973
And then I basically have the miners on L1 slowly, very slowly approve this hash.

752
01:08:53,973 --> 01:08:56,973
This is deliberately extremely slow for security reasons.

753
01:08:56,973 --> 01:08:58,973
It requires everyone to lie.

754
01:08:58,973 --> 01:09:10,973
It's a little bit like the cave thing, the ZK in a way, where it requires that if
you want to misstate anything that happened on the L2 ever,

755
01:09:10,973 --> 01:09:13,973
the whole trajectory and the withdrawal period.

756
01:09:14,973 --> 01:09:22,973
The hash will be different, and the miners will have to basically knowingly endorse
hash A does not equal what it should.

757
01:09:22,973 --> 01:09:26,973
It should be hash A equals hash A. It will equal something else that's completely
different.

758
01:09:26,973 --> 01:09:32,973
The point of that is to make it so that the miners are the ones who can basically
slowly approve the withdrawal.

759
01:09:32,973 --> 01:09:41,973
And the reason why this works is because of something else that was invented by
Satoshi in 2010 called merge mining.

760
01:09:42,973 --> 01:09:47,973
Where the L1 miners can collect fees from other blockchain networks for free.

761
01:09:47,973 --> 01:09:54,973
So they get all this cash for free, and we're doing essentially zero additional
work.

762
01:09:54,973 --> 01:09:57,973
It's so little that it might as well be zero.

763
01:09:57,973 --> 01:10:00,973
And this is more CPU work.

764
01:10:00,973 --> 01:10:01,973
This is not any of the hash.

765
01:10:01,973 --> 01:10:04,973
It's kind of like they open all the safes at once.

766
01:10:04,973 --> 01:10:07,973
Not only is there a long row of safes.

767
01:10:08,973 --> 01:10:12,973
So you may be familiar with a Namecoin, which was merge mined with Bitcoin ever
since 2011.

768
01:10:12,973 --> 01:10:16,973
And you may also be familiar with Dogecoin and Litecoin are merge mined.

769
01:10:19,973 --> 01:10:24,973
What you actually do under the hood is you actually run Namecoin software, and you
find a Namecoin block.

770
01:10:24,973 --> 01:10:28,973
But the Namecoin block is built so that part of it is a Bitcoin block.

771
01:10:28,973 --> 01:10:31,973
So you always find a Namecoin and a Bitcoin block at once.

772
01:10:31,973 --> 01:10:33,973
And you can do this to an unlimited degree.

773
01:10:33,973 --> 01:10:37,973
You can actually find blocks on all the L2s at once, like 5, 6, 7.

774
01:10:37,973 --> 01:10:44,973
And so the logic of this system is this, which is that miners will make a ton of
money from this system.

775
01:10:44,973 --> 01:10:49,973
A huge, like an enormous amount of money in revenue from this in return for doing
very little work.

776
01:10:49,973 --> 01:10:53,973
So they would not want to kill the goose that lays the golden egg.

777
01:10:53,973 --> 01:10:55,973
And that's why it would work.

778
01:10:55,973 --> 01:11:04,973
Another leg of the logic behind why this is the way it is, is that even if it's very
slow, the withdrawal coming back.

779
01:11:04,973 --> 01:11:06,973
First of all, the deposits are instant.

780
01:11:06,973 --> 01:11:09,973
But second of all, there's like a secondary market.

781
01:11:09,973 --> 01:11:14,973
So you can imagine an example where there's like a casino, and the casino you can
win.

782
01:11:14,973 --> 01:11:16,973
Some people – the casino is like the L2.

783
01:11:16,973 --> 01:11:21,973
And you can win and lose your money in different ways here at this casino.

784
01:11:22,973 --> 01:11:27,973
But then when you want to cash the chips out, that's like the withdrawal from the L2
back to the L1.

785
01:11:27,973 --> 01:11:32,973
And in my version, it's very, very, very slow and very secure.

786
01:11:32,973 --> 01:11:40,973
And so you go to like the counter and you've got your chips, and it's going to take
you maybe months to get the chips cashed out, which is like going back to L1.

787
01:11:40,973 --> 01:11:54,973
However, the reason why this is not a problem is because a secondary market will
develop where there's like a bunch of people in front of the exchange counter at the
casino.

788
01:11:54,973 --> 01:11:57,973
Like a bunch of people who are just like, listen, I will pay 99.

789
01:11:57,973 --> 01:11:59,973
I'll give you today.

790
01:11:59,973 --> 01:12:02,973
Immediately, I'll pay you 99 cents on the dollar.

791
01:12:02,973 --> 01:12:04,973
I'll buy you out, and then I'll walk.

792
01:12:04,973 --> 01:12:06,973
These people get like a little yield.

793
01:12:06,973 --> 01:12:08,973
They'll walk the coins slowly.

794
01:12:09,973 --> 01:12:13,973
And yield in Bitcoin or yield in the layer 2?

795
01:12:13,973 --> 01:12:15,973
Well, they would technically buy the L2 coin.

796
01:12:15,973 --> 01:12:21,973
So like let's say I had 100 coin on the L2, 100 Bitcoin on the L2.

797
01:12:21,973 --> 01:12:23,973
I swap it.

798
01:12:23,973 --> 01:12:25,973
I don't want to wait.

799
01:12:25,973 --> 01:12:33,973
So I go to the person who gives me 99 BTC on L1, and they take my L2 coin.

800
01:12:33,973 --> 01:12:37,973
Now, they're collecting all the L2 coins they have in a huge pile.

801
01:12:37,973 --> 01:12:40,973
Like whatever, like 100,000 L2 coin.

802
01:12:40,973 --> 01:12:47,973
When they walk it across slowly, it will be deleted from the L2, and then they'll
get 100,000 L1.

803
01:12:47,973 --> 01:12:56,973
So it's allowing equal exchange from the people who do participate in the L2 with
the L1, eventual.

804
01:12:56,973 --> 01:12:57,973
Right.

805
01:12:57,973 --> 01:13:04,973
What BIP300 actually does is it keeps track of all the coins that have been sent
from the L1 to the L2,

806
01:13:04,973 --> 01:13:08,973
and then it pays them to their new owners eventually after a very slow process.

807
01:13:08,973 --> 01:13:10,973
Okay.

808
01:13:10,973 --> 01:13:18,973
Well, I think I have reached my limit of understanding abstract concepts for today.

809
01:13:18,973 --> 01:13:25,973
But I would love to do another one in about three to six to nine months to
understand all the other stuff

810
01:13:25,973 --> 01:13:30,973
because I feel like with the same level of complexity of just following what
happened with Bitcoin,

811
01:13:30,973 --> 01:13:34,973
there's a lot of things we can cover, and I have a lot of questions about all those
other things.

812
01:13:34,973 --> 01:13:36,973
So I would love to do another one.

813
01:13:36,973 --> 01:13:38,973
Unless there's something else you want to share.

814
01:13:38,973 --> 01:13:44,973
On LayerTwoLabs.com slash download, you can download the software and play around with
it.

815
01:13:44,973 --> 01:13:45,973
There's play money.

816
01:13:45,973 --> 01:13:51,973
We have like a signet, and we are also testing with more realistic tests.

817
01:13:52,973 --> 01:13:55,973
It makes it much more look like the real Bitcoin network.

818
01:13:55,973 --> 01:13:59,973
So this is probably a different way to learn.

819
01:13:59,973 --> 01:14:03,973
You can try out the privacy sidechain and the Thunder sidechain.

820
01:14:03,973 --> 01:14:07,973
So, yeah, if you go to LayerTwoLabs.com slash download, you can try it out.

821
01:14:07,973 --> 01:14:11,973
It just says play money, so you won't lose any real Bitcoin or whatever like that.

822
01:14:11,973 --> 01:14:15,973
You can just try our test network and see the software for yourself,

823
01:14:15,973 --> 01:14:19,973
which is probably a better way to learn certain things.

824
01:14:21,973 --> 01:14:23,973
Cool. I'm going to try it.

825
01:14:23,973 --> 01:14:25,973
Thank you so much.

826
01:14:25,973 --> 01:14:26,973
Thank you.