Let'sTalkBitcoin Transcription - Episode 09 - Bitcoin 2013 Kickoff!

8/13/2019 Let'sTalkBitcoin Transcription - Episode 09 - Bitcoin 2013 Kickoff!

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Participants:

Adam B. Levine (A.B.L.)Host

Andreas M. Antonopolous (A.A.)Co-host

Stephany Murphy (S.M.)Co-host

A.B.L. : Coming up on todays show, Lets Talk Bitcoincomes to you as

recorded live from Friday, May 17 in the hours before the conference

kickoff. Todays release kicks off our Bitcoin 2013 San Jose

extravaganza with new shows and lots of interviews being released

every weekday. This episode finds the host sitting down for the first

time ever in the same room with extensive discussion of the new ideas

and innovative approaches proposed and suggested at the GigaOM

meetup which took place on Thursday the 16that the San Jose Tech

Museum. Stay tuned for my interview with Erik Voorhees, the man who

gave himself to bitcoin and a really nice guy. Thatll be out tomorrow,

May 22 with more to follow. There are big things in store for Lets Talk

Bitcoin, so enjoy the show.

A.B.L.: Hi, and welcome to a special episode of Lets Talk Bitcoin.

Today, we are reporting to you from Stephanies hotel room, actually

at the Marriott at the Bitcoin Conference 2013 in San Jose, California.

S.M.: Wooohooo! Were all in the same room. This is amazing.

A.B.L.: Yeah, absolutely.

A.A.: Never happened before.

A.B.L.: As usual, I am joined by Stephanie Murphy,

S.M.: Hello!

A.B.L.: and Andreas Antonopolous.

A.A.: Hello.


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A.B.L.: And, uh, we just met for the first time about, uh, I guess it was

last night, yesterday. This is the first time weve been in a room pretty

much without more people outnumbering us than the three of us. This

is an incredible experience and I feel incredibly blessed to be here for

this. This is likethe metaphor that keeps getting used is this is the

Internet in 1992 or 1989, depending on who you want to talk to

A.A.: Yup.

A.B.L.: but that is totally whats happening. Last night we attended the

GigaOM community meetup, basically. And about half the people there

were planning on going to the conference today. And, my God, it was

packed

S.M.: Yes, standing room only for 400 people, easily. They really know

how to throw a party, too. It was very professional, met a lot of really

interesting people there and they had a series of talks setup for us. We

heard from Mike Kern, Google engineer, that was really interesting to

hear his thoughts on bitcoin.

A.B.L.: I didnt know that he was a Google engineer. Id been watching

my friend for quite some time now and kind of saying, ok well, some ofthat stuff is good, some of that stuff is bad. But I had no idea he was

affiliated with Google. Thats very interesting.

A.A.: You know, this is his 20% project

A.B.L.: Interesting.

A.A.: It kind of shows the level of innovation you can get when you let

people just focus on things that they are excited about. And Mikes

really excited about Bitcoin and it shows. Thats another thing we got

from all the speakers yesterday, I think, was palpable excitement from

the speakers and the audience and just this incredible groundshaking

ideas, history making ideas. I heard things Id never thought about,

never heard of, about bitcoin. I think Ive said this before, my mind is


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being blown for 9 months, well, its accelerating. And its from

Buttercoin talking about unique and innovative uses of bitcoin and

automated payment systems. Such as, for example, Google self-driving

cars paying tiny fees to overtake other cars on the freeway.

Essentially making an HOV lane that is cost-based. I dont know if its

a good idea, but its a really weird and interesting idea.

A.B.L.: And its something thats possible because you have the ability

to transact these incredibly small values. When I heard that idea I

always Ok, so this is like taking the toll road and sort of superimposing

this, like social payment system where theres a value exchange

between people who want to go fast versus people who want to go

slow. Maybe you just dont care. Suddenly, driving in your car is being

subsidized by the people who do care a lot. I mean, thats an incredible

idea thats only possible with something like this.

A.A.: People dont think about the fact that todays HOV lanes are

really indirect. The people who can afford to use the HOV lanes for

whatever reason or some of the permit based lanes that exist in other

states. Essentially, that money goes back into a big highway fund and

who knows it ever ends up improving the road. But in this

environment, its exactly that. The people who are driving slower

would literally perhaps not pay gas for that particular trip because its

being subsidized. And that was just one of say twenty groundbreaking

history-making ideas about I heard yesterday at the conference.

Another one was Mike kern talking about bitcoin enabling autonomous

agents to have their own bank accounts and operate as autonomous

agents. Essentially, were talking about artificial intelligence or

autonomous agents that are used to make decision making on theinternet that have their own bank account and use micropayments to

advance a specific goal. If you take that idea a bit further you have the

possibility of processes competing in an eco-niche online. And if a

process is not successful in raising funds in its wallet it cant afford its


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hosting, so it goes offline. And thats really an incredible idea once you

grasp the implications it has. Every two minutes, mind blown, again.

A.B.L.: Yeah.

A.A.: And this is happening again and again and bitcoin bots is

happening in slow motion in the forums and it just got condensed in a

couple of hours yesterday and I cant wait for tomorrow, the

conference.

A.B.L.: Yeah. So many button up shirts, so many pairs of glasses. My

god, it was the nerdiest room Ive ever seen and Ive been covering

games journals since 2005. It was a very diverse crowd. One of the

other things that was really exciting was there were a lot of people atthe meetup who were new to bitcoin, who were not necessarily

attending the conference, were there to learn about it. I spoke with

one gentleman from Japan who was incredibly excited and wanted to

know what bitcoin was and the free money was. I think he must have

stumbled into the meetup or something like that and was just so

caught up in it. The other thing of course was people wanting to get

involved with the project. There was that engineer who stood up

S.M.: Oh, he asked a question, yeah, Im a doer not a donator, what can

I do to contribute and got an answer from this whole panel.

A.B.L.: Yep.

A.A.: Yes, absolutely. Doers are very much needed in this

environment. So I have one little complaint but it was a bit balanced.

And the one complaint I had is that like many early environments in

technology, the room was a sausage-fest. And you know exactly whatIm talking about.

S.M.: I was going to say that too.

A.A.: Women were underrepresented. But, on the other hand, hearing

this constant refrain of this is the internet of 1992. Well, it was


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absolutely diverse by comparison because when I was on the internet

in 1992 it was 250,000 academics. There wasnt a woman in sight in

my computer science department, I can tell you that, or anyone near

on it.

S.M.: There mightve been someone pretending to be a woman.

A.A.: Possibly, yes, Id say in fact, many of them. But its a much more

diverse environment. I hope it gets better, but in a way its already

better than some of the other technology environments.

S.M.: Yeah, thank you for bring that up. I noticed that too, because Im

a woman in the bitcoin community, and I sometimes notice that when I

go into a room

A.A.: I can vouch that shes not pretending to be a woman.

S.M.: Oh my, have you seen something that I havent showed you?

A.A.: Everybody just hears your voice, who knows nowadays right, with

all that software.

S.M.: Well, I was looking for you guys last night because we had never

met each other just had seen pictures of each other online since we

started working on this project and I couldnt find you. Theres this sea

of men and Adam and I were emailing each other during the

presentations and I said, It might bea little easier for you to pick me

out of the crowd. Why dont you just look for the person with the purple

skirt.

A.B.L.: Well, I was looking around for wavy hair. We had identified

three of four possible candidates.

A.A.: On the other hand if you look at the crowd yesterday, what

surprised me was the gender diversity wasnt great quite yet. But the

ethnic diversity was tremendous.

A.B.L.: Tremendous.


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A.A.: That is a real point that people need to realize. Bitcoin is not the

developed nations currency.Its going to succeed in America last. Its

going to succeed everywhere else where they dont have a world

reserve currency that is somewhat stable or maintains the illusion of

being stable. And that was represented in the crowd. I think the first

three or four questions were all from people from the Indian

subcontinent, who were interested in applying it. They had some very

interesting and provocative questions about how you apply

microtransactions. Heres the funny thing, when we talk about

microtransactions, were talking about dollars, when theyre talking

about microtransactions, theyre talking about about Rupees, i.e.,

tenths of a penny. Thats a very different perspective. You could see

the panel freeze, because they didnt have an answer for how you

make an efficient transaction in less than a hundred Rupees.

A.B.L.: He was fairly combative too. He asked three or four follow-up

questions afterwards and really pressed them on the answers.

S.M.: They had to clarify what is two hundred Rupees.

A.A.: They lacked a perspective of the developed world and thats

where bitcoin succeeds first. Because if its hard to do a dollar

transaction with a debit card, its impossible to a Rupee transaction

with a credit card, right? They have much more relative utility or much

more marginal utility for the currency in microtransactions. So when

people decide to set a certain fee level, they should not be thinking in

dollars. They should try to figure out what the cost of a cup of coffee is

in the slums of Bangalore and then figure out what kind of

microtransaction that is.

A.B.L.: One of the other really common nationalities that we saw there

was

S.M.: Argentina?

A.B.L.: the Argentinians.


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S.M.: There was a panel at one point where there were two people who

were CEOs of major companies

A.B.L.: It was the finance panel, yeah.

S.M.: ..that were from Argentina. And they were talking about what its

like to buy property there. You have to go and meet with a notary, I

think.

A.A.: Yes, for the escrow service as we do in the US, but with a

suitcase of money.

A.B.L.: With a suitcase of cash.

S.M.: And the fees are incredible for that, I mean, just a huge amount

of fees and so there was one person, I cant remember

A.A.: Buencas Conceras.

S.M.: Yes, he was saying his friend wanted to buy an apartment in

Argentina.

A.A.: Buenos Aires, for about a million and a half dollars because by

the way, just because the currencys in the hole doesnt mean theapartments not bloody expensive.

S.M.: Thats right. In Argentina too, they have currency controls, I

think. The actual market exchange rate for their currency is different

than the official exchange rate, so that complicates things even

further.

A.A.: And nobody keeps their money in the country, because if you

keep it in the country, the government steals it from you.

S.M.: Yeah, exactly. How wonderful would bitcoin in a situation like

that. Buencas Conceras was saying that his friend wanted to buy an

apartment and asked him to do something where he would hold the

escrow, what did he exactly ask the friend?


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A.A.: He wanted to front him the Argentinian money versus essentially,

an IOU in dollars back in their Amerikan bank accounts because in

these situation both seller and buyer both have their money outside

the country usually in a bank account in the US. Essentially, all they

need to do is create the necessary IOUs temporarily in Argentinian

money, or bitcoin.

S.M.: Yeah, exactly. He said he wanted nothing to do with that

transaction.

A.A.. Smart.

S.M.: But if it were done it bitcoin, it would probably so much easier

and the fees would be less so it would cost everybody who wasinvolved way less money.

A.A.: Yeah, and I loved the conclusion of that story where he said in

the end of that I had this image of the actual transaction that went

through which was two over-50 year olds, completely tech-un-savvy

people exchanging QR codes in a room with a notary. This actually

happened in Argentina. Argentina is a perfect example of where

bitcoin gets adopted first because people in Argentina have beensuffering a financial and currency crisis in slow motion for 20 years. A

lot of countries are like that. We tend to assume that currencies

operate like they do in Western nations and were the small, temporary

exception. The vast world knows what a black market is because they

have to use it on a daily basis.

S.M.: What the about the concept of being able to attach your ID to a

wallet voluntarily that Mike Kern was talking about, building on top of

the existing bitcoin infrastructure, that was really interesting to me.

He was really careful, I thought, to stress, if you want to, so that

basically the pseudonymous nature of bitcoin could still be used to

anyones advantage who wants to but there could be more


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infrastructure or software that interfaces with the bitcoin network,

where you could potentially identify yourself if you want to.

A.A.: Right.

A.B.L.: The verifiable nature of bitcoin is what the important part is.

Its about ownership and so if you can guarantee that you own, then it

doesnt really matter if its pseudonymous or using your real name, the

point is that its accurate. You just have to make that association

functionally. So, yeah, I mean, since we started talking about the

bitcoin ID project that Joe Casio is working on, there have been

several other projects that are basically in this same vein that have

sort of started popping up. Clearly, this is an idea thats getting

traction and clearly its something where, you know, we were talking

with a potential sponsor of the show who is a DNS guy and, my god, it

was blowing his mind. He was like, wow, we need to attach this to

emails because it would functionally eliminate the spam problem by

making it so if somebody doesnt have any sort of reputation

associated with that particular address that theyre claiming as their

identity, then Ill just never see the email. If someone wants to get it to

me, they can send .01 bitcoins to me and Ill be able to tell that its not

spam because even that small amount of relative value is still much

more than someones going to send out with spam.

A.A.: What were seeing at the moment is essentially the reflection of

the fact that a lot of things we take for granted in traditional

currencies are several different principles mashed together through

necessity or constraints in the underlying currency. What do I mean by

that? In most security systems you have trust, you have attestation,

the ability to prove you own something and then you have identity. We

dont think of these as separate things because usually, in order to

make it practical, all three mash together. You know who I am, you

know what I own, and therefore, you can trust me. You cant know that

you can trust without knowing who I am. You cant know that I own


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something without knowing who I am. Weve, by necessity, brought

these three together. The analogy I like to think of is, as the internet

broke apart those concepts before if you were a publisher, you were

someone who had access to information, you were someone who had

access to writers and then you were someone who had a megaphone

or printing press and bought ink by the barrel to express that opinion.

You could not separate the concept of journalist from access to the

printing press, access to the halls of power, and a rational voice. Now,

you can. Anyone that has a printing press who weve actually

separated those and now we can focus on what really matters, which

is a rational voice and a smart idea and you can get the other things

for free. With currencies, weve mashed together trust, identity and

attestation, we dont need to. With bitcoinyou can prove you own

something without telling anyone who you are and so gradually were

pulling apart these concepts and were ablee to focus on how we

make the most efficient transaction on each one of these. If you want

to prove just trust, and build reputation, you can do it without identity.

If you want to show your identity without showing any of your bank

details, you can do that. This is really opening up and revealing things

that were put together for no reason other than the constraints.

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A.B.L.: One of the other themes thats been coming up on both sides of

the issue is that location matters.


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A.A.: Quite honestly, in most of the world, regulation is a matter of

whether and how much you can bribe different officials to regulate you

or to be compliant. All of this checking boxes and filling forms is alien

because there is no process like that. Its not a problem, you can be

much more loosey-goosey with your transaction and thats perfectly

fine because nuance and gray areas are how the economies work.

Here, we have all of this black-and-white, we try to believe that its

actually rule of law when, of course, obviously, its an illusion. Its a

trap, its a terrible trap. Unless you can bring the big guns to the court

to fight for your due process, regulation is just a way of killing small

business.

S.M.: Yeah, I actually have to say I was really disappointed with theamount of people who were on the panel last night, who seemed to be

cheering regulation, saying its not only inevitable but its good and itll

be great.

A.A.: Well, of course it is, for them. They represent the big business

that can afford to make regulation an ally, not an enemy.

S.M.: I dont think of those people that were there last night as

representing, really, like, big business.

A.A.: Big enough.

A.B.L.: Yeah, I mean, big is relative when you look at it. Weve been

talking with exchanges. Kraken, I think is what its called and

Tradehill, theyre both US based exchanges based out of California

which is, of course, an insane environment to base any sort of

business out of.

S.M.: Uhh, yeah.

A.B.L.: But theyre whole focus, they look at Mt. Gox and say, these

people have done the regulatory side wrong.

A.A.: Yes.


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A.B.L.: Whether or not that be true, it makes it their focus to get the

regulatory side right. So when I talk with Jarod from Tradehill, his

whole focus is on over-compliance, in taking the letter of the law, then

following the spirit of the law, and then going to like, 20% beyond

that

S.M.: In hopes that theyll leave him alone.

A.B.L.: Exactly.

A.A.: Its not that theyll leave him alone, its that when they do attack

him, and they will, he will be beyond reproach and hell be able to drag

it out in court for decades before they can shut him down. Whereas, if

you go out and sign a piece of paper from Wells Fargo that says youre

not a money transmission business, you then get shutdown by the

Department of Homeland Security and Treasury, which is what

happened to Mt. Gox. I mean, this is really a matter of not even doing

the basics to protect yourself, literally opening yourself up to be a

victim.

A.B.L.: Well, again, in the conversation with Erik I brought that up

because I was like, how could they be doing this, how can they makesuch basic mistakes. His point was that, yes, there were basic

mistakes, but they were such small errors. This paper was signed

three years ago at the time that it was done. The rules have changed,

the regulatory environment has changed during that time. Its one of

those things where if the government goes looking for reasons to mess

with you, chances are pretty good theyre going to find them if just

because the rules are constantly changing and you dont even know

what all the rules are anyway.

A.A.: Yeah, but I would also say, is it a surprise that the government is

going after this? No. Is it a surprise that the rules have changed? No.

Have a lot of things changed in the last three years? Yes. What hasnt

changed? Mt. Gox didnt change their bank account for three years.


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They had three years to get this right and so I do not attribute to

malice what can be explained by incompetence and this particular

case, it really is a matter of incompetence, technical incompetence

and regulatory incompetence. Peter Vessenes covered this well. Hes

obviously biased because hes suing Mt. Gox at the moment.

A.B.L.: Yeah, which is a little funny because he didnt disclose it at the

time. I was like, so wheres the disclosure that youve got a thing

going with them.

A.A.: I dont think he really needed to disclose it, at least to the four

hundred people who were in that room. They were all chuckling about

it.

A.B.L.: I guess thats true.

A.A.: He made some very good points which is that running an

exchange is not about just building a trade and order matching engine.

You need an exchange stack. You need a regulatory stack. You need a

compliance stack. You need a finance stack. You need a cash flow

stack and, in fact, an anti-money laundering stack and several other

things. Hes absolutely right, the question is, why would thesecompanies go into business without having those things checked out. I

can understand why youd do it three years ago, but have you not been

paying attention?

A.B.L.: And another thing thats happened is weve seen kind of a

consolidation, almost, where money has started into some of the

companies that were already big. Bitpay just received two million

dollars in venture. You didnt know this?

A.A.: I did not know this. When did this happen?

A.B.L.: This happened two days ago.

S.M.: Yeah.


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A.A.: Oh, fantastic.

A.B.L.: Oh, yeah, this happened two days ago, yeah, two days ago and

in addition to that they hired Jeff Garzik, I believe?

A.A.: Yes, hes now working for them but interestingly enough theyre

going to donate most of his time to continue to promote the core

development area.

A.B.L.: I was wondering about that, yeah.

A.A.: Thats what they said in the announcement. They said hes being

hired by Bitpay and he will be turning all of his work into the open

source. Lets be honest, I think its important to really praise all of the

early companies in bitcoin.

A.B.L.: Right.

A.A.: Not only for the services they offer directly to customers. As bad

as they are and as crashy as they are at times, were all pioneers in

this. But more importantly, almost all of the businesses in bitcoin, the

early ones, have contributed back to the community. Code, intellectual

property and various other areas of support, funding other businesses,funding developers, and then open sourcing all of that stuff. Its really

important, especially at this early stage.

S.M.: They did get into it because they were excited. They were just

people who were excited about bitcoin and they said, look, I need to

do something thats going to build infrastructure for this. I can see

why they contributed back.

A.A.: Yeah, and the word amateur is a double-edged sword. It meanssomeone who loves the profession and does it out of love. It also

means someone who is not a professional. Unfortunately, that brings a

lot of enthusiaS.M. early on and eventually it leads to some problems

of scalability and maturity.


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S.M.: Well, I think thats one reason that were now seeing so many

people who are saying sort of, like, yeah, we need regulation, its good.

I think with this influx of VC money theyre getting a lot of pressure.

You have to be professional and part of being professional is to play

the game and follow all the rules. That means you have to, at least

when you talk publicly, you have to advocate for all of this regulation

and stuff. Im sure its pressure. Another thing that came up last night

was the idea of a bubble. Somebody, I forget who it was, but

somebody on the panel said that they thought the biggest threat to

bitcoin right now is a bubble.

A.A.: Whoever said it, everyone agreed including the audience. So, I

think that was a very elegant point.

S.M.: But what if were already in a bubble? I mean, theres so much

venture capital coming into bitcoin based companies. I mean, you

went to this meetup the other day, Andreas, you talked about it on the

show, maybe a week ago, but you talked about it on the show and you

said there were VCs all over this.

A.A.: I know I noticed two, maybe three investors who were looking for

stuff and weve seen this again at the show. The room where we had

the GigaOM, you could tell, well, actually, the easiest way to tell is

look around and see whos wearing the pinstripesuit in a sea of blue

jeans and t-shirts, there are the VCs and whos got the beard and the

pony tail, there are the coders.

S.M.: (Laughing)

A.A.: Ok, Im being a bit facetious here, but yeah, you could definitely

see the bankers from a mile away and there were plenty of them.

Heres the issue, a bubble is only a bubble when it bursts.

A.B.L.: Right.


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A.A.: And its only a bubble when it can no longer sustain being

inflated. Lets be real, this is a 1.6 billion dollar incredibly useful

transactional currency. The internet bubble at its height was a 1.2

trillion dollar bubble. Can we go and inflate a lot more without it

bursting? Yes. What we need is less panic, I think.

A.B.L.: Right.

A.A.: Because what we saw with the $260 was a premature burst of a

bubble that really has a long way to go until it is a viable economy that

reflects the utility of bitcoin.

A.B.L.: Right.

A.A.: There are fundamentals, here. This is a damn useful currency.

Far more fundamentals than the pants shop site that had 700,000

eyeballs and got a valuation of 7 billion dollars during the internet

bubble. Theres some there there.

A.B.L.: Its about monetization too. That was the ultimately the

problem with most of the internet bubble. Yeah, they had the eyeballs

but there was no monetization. Well, with bitcoin, thats the whole

thing, the whole thing is a monetization.

A.A.: Yes, I love the fact that bitcoin comes pre-monetized.

A.B.L.: Right, exactly. You know, that has good elements but it also

has bad elements. Were talking about how with bitcoin, for the first

time, if you steal something online, you no longer need to worry about

how to monetize your theft. Its not like youre stealing credit card

numbers and then have to sell them at pennies on the dollar. In fact,

youre getting complete face value. Its like, the internet suddenly has

all of these banks. Wherever there are wallet services, wherever there

is value being stored, suddenly, there is a bank that is screaming, Rob

me, rob me, rob me!


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A.A.: Right. Why do you rob the banks? Because thats where the

money is. You made a very good point just now, I think, which is

important to understand which is that its not a matter of the flexibility

to transfer. Its whenever there is theft online the fencing component

means a discount.

A.B.L.: A huge discount.

A.A.: A huge discount. The more specific the item is, the more of a

discount. Thats why the predominant approach to protecting the

crown jewels is actually misguided on the internet for corporations

because the crown jewels are hardest to fence. Whereas, youre HR

data and social security numbers are very easy to fence, have the

lowest discount of them all. Well, now, bitcoin will be the easiest. In

fact, its easier than digital money as held in banks or credit cards.

Right now, the most fenceable thing on the internet is credit card

numbers. Well, bitcoin is it.

A.B.L.: Bitcoin is it.

A.A.: Weve seen that in also not just in terms of stealing bitcoin but

also in terms of surreptitiously generating bitcoin by sticking a miningengine in a game.

A.B.L.: Right.

A.A.: Im sure that if you look at the botnets out there, a lot of them are

mining bitcoin now. And theyre huge, theyre 5-10 million machines.

A.B.L.: So, it sort of begs the question, do we think that thats the

future of mining? Do we think that these large autonomous networks

that are essentially controlled by a couple individuals, you know what

I mean? It doesnt really matter if youre talking about a mining pool

that has people voluntarily putting in and then essentially just going on

auto-pilot or if youre talking about, ultimately, these botnets.

Functionally, they serve the same purpose. Theyre large groups of


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relatively low-powered computers that are pooling all of their power

together so they can achieve this goal, be it for good or for evil.

A.A.: Yeah, I think thats absolutely the end result. In fact, Im looking

forward to the day that both my fridge, my microwave and my car aremining while Im sleeping. It follows the same pattern of evolution of

the internet where you end up with smaller and smaller and smaller

devices becoming intelligent and connected. And that means

intelligent, connected and capable of mining. So, yes, your light

switch will be mining. Yes, your car will be mining. Tiny amounts, but

it all adds up because theres 7 billion people on the planet but theres

going to be more individual assets that are intelligent that can mine on

behalf of those people. Its the ultimate decentralization, I think. So, in

that Google car we were talking about before thats paying fees in

order to overtake the other cars is also mining as its driving.

A.B.L.: (Laughing)

S.M.: (Laughing) Wild.

A.A.: Why not? I mean, we talk about electricity generation with

hybrid-electric cars, why not mining too? Pretty much anything thathas computational capability can mine in its idle power. In fact, I

would consider it that any device that you build, if its not completely

idle and energy-saving, should immediately be switching its time to

mining. Why not?

A.B.L.: Why not?

A.A.: That should be the energy saver version. Youre either doing

productive work, mining or turned off.

A.B.L.: Yeah.

S.M.: I like it.


20/34

A.B.L.: I like that, too. I think that again, you know, as we get further

into this home automation thing, then thats totally plausible. Already

with technology that we have now its going to be a year or two ,

maybe.

A.A.: But the best part about that, if you do start instituting or seeing

mining on that scale of distribution, then the mining naturally flows to

the areas of lowest cost of electricity, which also tend to be the most

environmentally friendly forms of electricity.

A.B.L.: Right.

A.A.: It creates an automatic flow into areas where you save energy.

S.M.: That goes back to the idea, some people complain that the

process of bitcoin mining, the bitcoin network, is wasting energy. It

is not energy efficient. Actually, no, its performing an incredibly useful

function. Its creating a payment network for the entire world.

A.B.L.: Yes.

A.A.: And its not just mining, right? People think that the electricity

that is spent mining is just to mint new coins, but its not. Its also tosecure all of the transactions that go into it.

S.M.: No, those are an auxiliary for doing the creation of the network.

A.A.: Exactly, the creation of the network is the real function. So, if

you wanted to compare mining to a real world payment network youd

have to add all of the cost of armored trucks, all of the cost of printing

money all around the world, the metals that go into coins, the

electricity into all the payment networks.

S.M.: The opportunitys lost because you cant do transactions

everywhere in the world.

A.A.: The fraud prevention networks, the security systems for not

getting your social security card stolen and all of the other stuff. The


21/34

thing is we externalize a lot of these costs and we hide them as part of

doing business. Most of the payment networks consider anything up

to 10% in fraud loss as part of doing business.

A.B.L.: Right.

A.A.: How much of that is accounted for when yourecomparing to the

electricity costs of mining?

(INTERLUDE)

S.M.: Just to get back to the subject of theft for a moment because we

were talking about it, recently. There was something that came up on

the panel last night. They were saying that there have been a number

of high-profile hacks where a lot of bitcoins have been stolen but

havent been moved. They were moved some address or whatever and

then they havent been moved. And somebody, I think it was the guy

from Buttercoin

A.A.: Yes, that was Bennett.

S.M.: Bennett, yeah, he brought up the idea that of maybe there could

be at some point, there could be kind of a pool of bitcoins that areclean, that have never been used for illicit purposes and you could

spend those if you wanted somebody to know that the bitcoins youre

spending are legit. Theres this other strata of bitcoins that may have

been involved in fraud or stolen or used.

A.A.: And are tainted.

S.M.: Yeah, so-called tainted bitcoins.

A.A.: Yes.

S.M.: The question came up of why have these bitcoins that have been

stolen in these high-profile thefts not been moved? They havent

cashed out. Is it because the crooks are afraid of getting caught by

the exchanges themselves or is it because theyre just basically


22/34

holding them because they think theyre going to be more valuable in

the future. Nobody knows.

A.B.L.: With this problem, I think that the solution is again to look at

banking. What do they do in bank robberies? You talk about an inkbomb, where essentially cashier

A.A.: Laying low for a while, right?

A.B.L.: No, no, no, but I mean, what do the banks actually do to

actually stop this?

A.A.: Oh, they taint the money.

A.B.L.: Exactly, they taint the money. And so thats the solution, you

just have it registered. Its not like its hard to tell if a coin is stolen.

Somebody reports, hey, all these coins were stolen. If they use them

themselves, theres no reason to do that, because youre saying, oh,

well, these coins I still have are tainted and I dont want anyone to be

able to use them. So theres no incentive to do that. So long as you

have that private key from the transaction before, it just seems like

that registry is something thats going to have to be built and if it does

then it really disincentivizes stealing anything because if somebody

reports it you cant use them. Of course, neither can the person who

reported it, but that doesnt matter anymore.

A.A.: Well, I think its important to explain a few of the underlying

concepts here for some of the listeners who dont necessarily

understand how this works. The blockchain doesnt hold bitcoin. It

holds the transaction that exchange bitcoin. We talk about bitcoin

being a pseudonymous or a pseudonymous network. Essentially, theindividuals who are attached to addresses are difficult to track

because you dont know who has which address and how many

addresses they have. Great. That doesnt mean the bitcoins

themselves are pseudonymous or untrackable. In fact, the exact

opposite, the bitcoins that traverse through the network are trackable


23/34

from the moment of genesis all the way until they are spent and spent

and respent and forever. Every single bitcoin has a unique moment of

genesis, a serial number, and it follows the transactions all the way

through. Not the bitcoin itself, but as it moved from transaction to

transaction you can essentially create this trail that leads back to the

origin.

S.M.: Thats why, wasnt there somebody a while back who was trying

to collect all the bitcoins from the first fifty blocks or something like

that?

A.A.: Yes, indeed, yeah, and you can. Now, the bitcoins themselves

S.M.: If you could find them. I bet a lot of those are in like, oh, I lostmy password after I encrypted my wallet, theyre gone forever.

A.A.: We can track bitcoin from generation throughout and so the idea

here is that as soon as you have a registry, you could essentially

declare bitcoin as stolen. Heres the thing, you dont need everyone to

stop accepting that bitcoin. To Adams point earlier, the big appeal of

bitcoin is that the discount rate on fencing is low. Well, as soon as

you take 80% of the markets and they agree to stop accepting thatbitcoin, immediately, the discount on fencing will go through the roof.

Suddenly, your bitcoin are only worth 20% of face value, if theyre

tainted. Because you can only spend them say, on, I dont know, Silk

Road or

A.B.L.: Right places where it doesnt matter if theyre stolen, the

market wouldve accepted them anyways.

A.A.: Completely illicit things, like buying banking stock or drugs orsomething really ridiculously illegal like that.

S.M.: I guess its the sort of the same thing for cash, right?

A.A.: Yeah.


24/34

S.M.: There are some places that are going to accept cash from

anywhere, no questions asked. Other places, if you walk in with a lot

of cash they may have some questions, they may want to verify your

ID, get some details on you or whatever.

A.B.L.: If you walk in with cash covered with blue ink

A.A.: Yes, exactly. If its purple fluorescent cash andit looks like its

been through a couple of wash cycles, yeah, its not going to be easy

to give that to anyone. So, yeah, that function would work very well

for bitcoin and it was another one of those great insights that evening.

A.B.L.: So do we think that theres a potential for that to be used for

evil? You talk about registries for bitcoin and, suddenly, youre into

this whole thing where youve got centralized registries. Ultimately,

this could just be a new type of transaction thats made essentially on

behalf of the coins at the time theyre stolen.

A.A.: So, its a consensus network. So, as with the internet, its a

double-edged sword. The internet could be the greatest liberator in

the world or the worst totalitarian dystopia weve ever experienced.

Bitcoin could also do both of those things. Its a neutral currency andcould be manipulated. Heres what I think would happen. If you did

have trackability of bitcoin on that scale, people would really, really

invest in bitcoin remixers. If those remixers then take tainted coins,

then as long as you had clean coins, you could remix them into

anonymity very easily.

A.B.L.: Right.

A.A.: But you would not be able to mix your tainted coins. Again, itsjust a matter of getting a suitable number of remixers to do that and

you lose the face value of the bitcoin thats stolen.

S.M.: Those exist already by the way. Have you guys ever seen sites

like bitcoinlaundry and, I think theres one called zero coin.


25/34

A.A.: Yes, they accept any coin so if they stop taking tainted coin, they

could essentially achieve the purpose of preventing stolen money

being re-circulated while still allowing/avoiding essentially

surveillance or mass surveillance of the form where every bitcoin is

tracked. By the way, if you dont think that thats already happening,

since I can do at home with my PC on the eight gigabyte blockchain, I

can tell you that every single bitcoin that is ever spent in every

transaction is cross-correlated and tracked in great detail somewhere

in a big data center in Utah by the National Storage Agency.

A.B.L.: One of the people at the meetup that we just got finished with

before coming to do this recording, talking with him, hes a derivatives

market maker, essentially. Thats what he was saying is that if hewas in the CIA, this would absolutely be the thing that he would track

because right now if you want look at every single transaction that

happens in a given currency you need all kinds of court orders and its

basically impossible.

A.A.: You dont need any court orders anymore. Not since the Patriot

Act, you could look at the banking records without any court order

whatsoever.

S.M.: Yeah, thats true.

A.B.L.: That is true.

A.A.: But, this is much more trackable, its very transparent.

A.B.L.: That transparency goes both ways.

A.A.: Look, the Utah data center has one trillion terabytes of storage,

A.B.L.: OK.

A.A.: And thats been verified by a couple of independent whistle -

blowers. Dont worry, every single email, every single website, every

single phone call,


26/34

S.M.: Text message.

A.A.: Every single bitcoin is on there.

S.M.: Yeah, but I mean, to a certain extent, who cares?

A.B.L.: Yeah.

S.M.: What are they going to do about it?

A.A.: Well, what are they going to do about it? Exactly, thats the issue.

For me, I like to keep a very public address for my bitcoin and use it to

do very above-board tracking. You see, thats the flipside of this, and

we talked about this in the context of not-for-profits, is that by having

a public ledger you can also generate accountability. So, eventually,

government corrupts this and they start using bitcoin, and guess

what? We can track them too.

A.B.L.: Right.

S.M.: Right.

A.A.: The counterpart to surveillance is sousveillance, a French word

that means, watching from below. We are getting closer and closerto a sousveillance society, just as theyre getting closer and closer to

a surveillance society. Who watches the watchers? The watched.

A.B.L.: Everybody.

A.A.: Everybody, exactly, exactly. And then you can have some

consensus about really what is an unacceptable and evil transaction.

S.M.: I would say purchasing bombs for dropping on brown people

overseas is an unacceptable use of bitcoin.

A.A.: Yes, and I think a lot of people would agree with you.

S.M.: And US dollars.

A.A.: Right, exactly.


27/34

(Interlude/Message)

A.B.L.: Lets Talk Bitcoin has some exciting things coming up on the

horizon. But, we cant share details with you just yet. To all the

listeners, new and old, thank you very much for helping prove that realjournalism. still has a place in this crazy world we inhabit. Your

emails, donations, help and support have led to where are now, on the

verge of something very powerful. Of course, the show is nothing

without an audience and while we appreciate your donations very

much, the most important thing is to share the show with friends and

family who should, but arent, going to be educating themselves on the

future of money. If youre new bitcoin and would like to learn more,

please visit LetsTalkBitcoin.com/learn to be directed to the BitcoinEducation Project, a free series of lectures and classes about many of

the aspects of bitcoin and the surrounding topics, created and curated

by Charles Hoskinson. I highly recommend this educational resource.

Were also actively recruiting both on and off-air talent for this and

other shows. If youre interested, please contact

[email protected]

(End Interlude/Message)

A.B.L.: So, one of the concepts that weve been kicking around is the

idea of Peg coin.

A.A.: Peg to dollar?

A.B.L.: Yeah, peg to dollar. You cant call it dollar coin. I know, I know.

A.A.: Lets talk about it, because I can tell you exactly how thats

going to get screwed beyond belief.

S.M.: Yes!

A.B.L.: Heres the pitch. The pitch is that, the problem with bitcoin is

that its difficult to move into and out of, from cryptocurrency to

legacy currency. So, what if you created an Altcoin chain that instead
mailto:[email protected]:[email protected]:[email protected]


28/34

of trying to fix something about bitcoin, instead, broke all the things

that bitcoin fixes and essentially pegs itself to the same issuance as

US dollar. So, it does a couple of things. One, it means that vendors

can accept it without having to change their prices because,

functionally, its a one-to-one comparison. It also means that

S.M.: Payments can be sent anywhere?

A.B.L.: Yeah, payments can be sent anywhere and so it gives that sort

of relative stability to

S.M.: And its irreversible.

A.B.L.: And its irreversible, so you still have a lot of those things and

most importantly, you can play between the two currencies. You can

easily move, because its very easy if you want to buy litecoins with

bitcoins, thats a super-duper easy transaction. It doesnt require any

sort of fenced- in regulations, doesnt require any sort of disclosures,

its just crypto-to-crypto. Why not make a functionally dollar crypto?

You cant call it that because if you call it dollar, immediately, it

attracts the ire of the Secret Service. If you had like, a peg coin that

was attached to that then you could play it both ways. If you areuncomfortable with the volatility of the market, you move to the peg.

Youre potentially losing out or gaining depending on whats

happening.

S.M.: A couple of thoughts about that. One, a peg really requires a

central authority to enforce it.

A.B.L.: But theres already one. Theres already a central authority,

A.A.: Fed Reserve.

A.B.L.: The Federal Reserve, so you just peg it to their revolving

reports or you peg it to


29/34

S.M.: But, how are you going to make sure theok, so, basically, so I

understand

A.A.: This has been done before. Lets look at the history lesson

before we try to figure out whether its possible or not. Lets look atexactly how this scenario played out, because its played out several

times the past several years. Sweden tried to it, Argentina tried to do

it and at some point the British Pound Sterling tried to do it. It terms

of keeping their relative volatility against the US dollar stable. And

what happened, the famous phrase that comes from a hedge fund. Uh,

I dont remember who it was, whether it was George Soros or Warren

Buffett or somebody like that who said, Last person out, turn off the

lights, because they arbitrage that national currency into death.

S.M.: Mmm-Hmm.

A.A.: If you try to peg a smaller economy to a bigger economy the

volatility will whiplash the smaller economy to shreds. Every single

shift in volatility becomes an opportunity for arbitrage and the stronger

you try to peg it, the more money you have to put in on the buy side in

order to stop the sell side people from unpegging it. And what

happens is, essentially, you create this beautiful market of free money

because youre trying to evade reality, and the reality is that the

twelve trillion dollar economy thats the US wont budge because its

twelve trillion dollars large, and youre trying not to budge but you

dont have the twelve trilliondollars behind you. And guess what,

someones going to make a lot of money on that. And its happened

again and again and again. Anytime someones tried to peg a currency

to any currency or any standard, in fact, the gold fiasco of an inability

to grow beyond the gold standard was an attempt to peg all the

currencies to something stable and ignore the fact that they had

inherent volatility. And, what happens? You arbitrage the hell beyond

gold and currencies or you arbitrage the hell between dollars and

pegs. You can do it and it will fail miserably.


30/34

A.B.L.: Ok, but let me challenge on that because yeah, youre right

with other currencies where you have that sort of latency. But, with a

cryptocurrency its all about the algorithms. You build it so that it just

keeps up, I mean, isnt that the thing?

A.A.: Yeah, you could do that but there would still be a discrepancy

between that and other cryptocurrencies.

A.B.L.: So, its the size.

A.A.: Heres the problem, you could trade from that peg currency into

any other cryptocurrency instantly but you could not trade from that

peg currency into dollars instantly. That would create a massive

imbalance that would give you arbitrage opportunity of peg coinagainst bitcoin and youd make a ton of bitcoin, shorting peg coin. And

sure, it would be remain pegged until nobobys trading it because they

no longer believe that that peg value is what people will pay for it.

S.M.: But isnt kind ofthis whole thing could be kind of irrelevant

because there have been people before who have talked about using

bitcoins properties as a payment network, independent of the

exchange rate between bitcoins and dollars. So, like, its a way tosend and receive payments. Its not necessarily a commodityand sort

of decoupling those two things. And that works if you can get

between bitcoins and dollars fast enough.

A.A.: You have to get in and out fast enough.

S.M.: Yes.

A.A.: Interested, but in and out fast enough, yeah.

S.M.: Right. I think bitpay does a decent job with that. If there were a

lot more people who wanted to use that service in that way perhaps, it

may overload it but then there would be more opportunities for people

to just fill the same niche. Perhaps, just bitcoin, we dont need a

pegged coin, we can just use bitcoin itself for that purpose.


31/34

A.A.: I think the volatility problems of bitcoin are twofold. One is the

lack of sufficient volume and liquidity in the market to just buffer

volatility. If you have a Titanic sized economy, it doesnt turn on a

dime. Thats a bad thing but its also a good thing because it provides

stability. The other reason is because of the deflationary nature,

people go in these cycles of hoard, panic, hoard, panic and that

creates volatility. We can solve the first one by adding more liquidity

and volume. Were not sure, at least Im not sure that we can solve

the second one yet. That may lead to all the coins doing a bit better if

they can solve the deflationary issue, a bit better. But, as long as

theres friction between Fiat and cryptocurrencies, that friction will

generate volatility and if you try to pretend that doesnt exist, youre

going to pay for that and someones going to make a lot of money

making you pay for that.

S.M.: The first speaker last night was the CEO of Expensify, I cant

remember his name. Do you guys remember?

A.B.L.: David

S.M.: Yeah, David

A.B.L.: I cant recall his last name.

S.M.: Ok, yeah, well, maybe well find out later. He was kind of

introducing the whole panel thing and he said theres a bunch of

characters involved in bitcoin. First, theres these crypto-anarchists

who kind of want to liberate the world and then theres these idealists

and then theres the currency speculators and we put them last of all.

Theyre the worst of anybody that everybody hates the most. I thought

that was kind of interesting.

A.A.: Yeah. Currency speculators, at least in the naked currency

speculation and the institutionalized version of that are necessary.

Unfortunately, no one likes the animal that picks on the corpses of

other animals. We dont like vultures and we dont like hyenas. As


32/34

necessary as they are, we dont like maggots. Yeah, theyre maggots.

Theyre necessary, but theyre still maggots.

S.M.: (Laughter) Right.

A.B.L.: We had a meetup at Gordon Biersch today at noon and it was

supposed to go noon to two. We showed up, Crystal and I, my wife,

showed up wondering if anyone was going to be there. Wed gotten

about twenty RSVPs and it was really a lot of fun. There were

S.M.: Yeah, it rocked. I had so much fun, I talked to almost everybody

there. There were a couple of people I wanted to talk to but I didnt

quite catch them. The conversations were fascinating just

discovering that I had a lot in common with people who came there,got so many compliments on the show. I guess those were the people

who like our show because they were coming to meet up with us, but

it felt great to know that people were listening and that they wanted

to hang out with us. I had a lot of fun.

A.B.L.: Absolutely, I mean, beyond that for me, the thing was that I like

to surround myself with people who are smarter than me and my god,

the conversations that youre able to have at something like this, itsgreat. The level that were talking at is something, you know, like, I

have to go on the internet to get this. It was a lot of fun and

A.A.: Much faster and you get the feedback right away, you know.

Absolutely, you dont want to be the smartest person in the room.

Being smart is also a bit of a vector, right. So, even if the other person

was as smart, they were smart at a different angle.

A.B.L.: Right, yeah.

S.M.: Mmm-hmm.

A.A.: And so that really created some tremendous opportunities for

getting new ideas in a completely different field from the one youre

thinking about. I have to tell you guys, the first LetsTalkBitoin


33/34

meetup we did today was about a quarter of the size of the meetup I

went to a couple of weeks ago. I think you now know why Im so

excited about these things. And, so, what I hope is that this is not just

the first of LetsTalkBitcoin meetups but the first of many. Lets keep

doing this.

A.B.L.: Yeah, absolutely. Were going to have to transition thatgroup

from a San Jose 2013 group just to a generic that can kind of be

wherever.

A.A.: Yup. And Im going to be organizing some more San Jose

meetups as well in the next few weeks.

S.M.: Cool, Ill have to fly in from New Hampshire.

A.B.L.: (Laughter)

S.M.: Get my private jet, vroom-vroom.

A.B.L.: Yeah, vroom-vroom. Alright, well, we have a speakers dinner in

about six minutes it looks like, so weregoing to wrap it up. Once

again, thanks for tuning in to this special episode of LetsTalkBitcoin.

S.M.: Yeah, well have more reporting from the conference, too.

A.B.L.: Oh my god, yeah, youve been recording everybody at the

meetup. You did two or three interviews.

S.M.: I did a couple of interviews.

A.B.L.: Yeah.

S.M.: Yeah, and I know you have been too, Adam.

A.B.L.: Ah, yeah.

S.M.: Well be giving you the content.

A.B.L.: Yeah, theres no shortage of content to be had here. Great,

well, until next time, I am Adam.


34/34

S.M.: Im Stephanie.

A.A.: Im Andreas, this is LetsTalkBitcoin.

Stephanie: Woo-hoo!

(Outro Music)

A.B.L.: Thanks for tuning in to episode nine of LetsTalkBitcoin,

whether you liked, loved or hated the show we want to hear what you

think. Please, send all listener feedback, comments or questions to

[email protected] youre like me and just cant get enough

information and perspective on bitcoin, check out our daily newspaper

at thedailybitcoin.com, where youll find the best news presenting

articles and arguments from all sides of the issue. Thanks to Andreas

M. Antonopolous and Dr. Stephanie Murphy for providing content for

this show. Music for this episode was provided by Jared Rubens. You

can find links to the songs we use and the open-source artists who

make them at letstalkbitcoin.com/music. Check back tomorrow for

the first of many bonus content releases. Were kicking things off with

my interview with Erik Voorhees, the man who gave himself to bitcoin

and moved to Panama to facilitate that goal. We talk the future, thepast and more. I really enjoyed our talk and I think you will, too. Stay

tuned.

(Outro Music)
mailto:[email protected]:[email protected]:[email protected]

Let'sTalkBitcoin Transcription - Episode 09 - Bitcoin 2013 Kickoff!

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