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Participants:

Adam B. Levine (ABL)Host

Andreas M. Antonopoulos (AA)Co-host

Dr. Stephanie Murphy (SM)Co-host

Manuel Aroz (MA) - Founder/Chief Developer

ProofOfExistence.com

Balaji S. Srinivasan (BSS)Silicon Valleys Ultimate Exit

(Intro MusicFade In)

ABL: Hi and welcome to episode 65 of Lets Talk Bitcoin, a twice

weekly show about the ideas, people and projects building the digital

economy and the future of money. Visit us at letstalkbitcoin.com for

our daily guest blog, all our past episodes, and of course, tippingaddresses. My name is Adam B. Levine and this episode is about

disruption. In a fiat world, everything is subject to change and thats

exactly what happened in Argentina one recent November night.

Andreas, Stephanie, and I talk cryptocurrency and corruption, black

markets and opportunity. Then, Coinpunk is a project founded in part

by a grant from the Bitcoin Foundation. Simply put, they allow Bitcoin

payments on mobile devices without needing a native application. As

we sometimes do, LTB is happy to share the first transaction ever

made using this important innovation. Later, Andreas is in Argentina

for the Latin American Bitcoin Conference. He caught up with Manuel

Aroz, the founder and chief developer of ProofOfExistence.com, the

blockchain notary service, to talk about fixing moments in time, how

Bitcoin 0.9 will change the game for meta-services using it and more.

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And finally, we step back from Bitcoin and look for a moment at the

larger world we live in. Bitcoin is disruptive financial tech that hasnt

yet been stopped because those who wish it ill cant find a head to

chop off or a body to drag into court. BSS has been thinking about

where all this is heading and its an idea worth hearing. We end

todays show with Silicon Valleys ultimate exit. So, capital controls?

I know somebody mentioned capital controls. Enjoy the show.

(Intro MusicFade Out)

AA: One of the things that weve discussed plenty on this show is the

idea that Bitcoin is far, far more important to the other six billion.

Those who are under-banked on banks living in oppressive regimes,

living in countries with hyper-inflation, living in countries where

burning your money is not as good as, is better than spending it, but is

not as good as burning goat s**t. In those particular countries, Bitcoin

is not just a fad. Its not just a new technology. Its potentially a life-

saver. Its an exit. Nowhere is this more true today than the country

of Argentina, where the Latin America Bitcoin Conference is going to

begin next weekend. I will be going there as well as a number of other

Bitcoin people. Its going to be a rather important show and just intime, the Argentinian government decided to throw yet another log on

the fire of Bitcoin and on the devaluation and inflationary destruction

of the Argentinian currency. If youve been paying attention there,

theyve suffered from hyperinflation for years and the government has

responded to this by turning the screws on currency controls and

trying to keep a panicked population locked-in on a sinking ship of

currency. The latest news is that theyve imposed a foreign currency

credit card transaction surcharge. Basically, they apply a tax of 20%already on any transactions where an Argentinian credit card is used

to purchase something outside of Argentina. Credit cards were one of

the few remaining ways to essentially exit the Argentinian money into

U.S. dollars or other currencies. As of this week, theyve raised that

from 20% to 35%.

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SM: Whooo!

AA: Again, punishing rates and really an indication of outright panic

by the Argentinian government. Theyre doing this at a time when

there is another option and that option is Bitcoin. Im very excited tobe visiting Argentina because I think it might be, not the first state to

adopt Bitcoin, but the first state whose population adopts Bitcoin

while the government stays stuck on a currency nobody wants to use.

Theyre already talking about splitting the currency into a foreign

version and a domestic version similar to what happens in Cuba where

there is one version of the currency for tourists, which is much

stronger and you can get essentially much better returns and there is

another version of the currency for internal use which is much, muchweaker. Theyre proposing doing that with their Argentinian money

but before they actually have a chance to do that, a big chunk of the

population is already using Bitcoin for exactly that purpose and that

adoption may accelerate. Keep in mind, Argentina has electricity.

They have internet. They have a literate and technologically-savvy

population. They have all of the prerequisites and preconditions to hit

that tipping point and do mass evacuation of currency. The only thing

thats stopping them are these broken currency controls that simply

cant stand in the way of Bitcoin. So, is Argentina going to be the next

tipping point?

SM: It seems obvious that it is. Youre right, Andreas, this is just

panic on the part on the government and people arentdumb, they can

see it. If theres a better option for them, theyre going to take that.

The question is, will the Argentinian government try to make it illegal

to buy Bitcoin, somehow, or to use Bitcoin.

ABL: Invariably, yes is the answer to that. Itsnot like its the first

time were seeing this movie, right? This has all happened before in

Argentina by itself, but in South America and in parts of Africa this is a

fairly common way that things go. I think the better question is, can

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Bitcoin help to break this cycle? Because, the only way you can get

away with doing things like this is if there is no other option. If Bitcoin

is an option and its available to everybody, regardless of what your

local government wants you to do. Does that mean that local

governments can no longer pull off maneuvers like this?

SM: I hope so. That would really go a long way to making the world

better for ordinary people.

AA: Were going to find out soon enough, because even if they try to

ban Bitcoin, this is an environment where the rule of law is weak as it

is in most countries where you have these kind(s) of extreme

measures. What that means is that there is just enough corruption

within the political class that even if something like that is illegal, the

people with money can bribe people to turn a blind eye to their use of

Bitcoin. What that will do is it will create the conditions necessary for

capital flight into Bitcoin. When capital flight does not involve a flight,

when it doesnt involve a suitcase full ofmoney crossing the border,

when it involves simply, the installation of an applicationthe balance

of power between people in currency and between people and nation-

state has shifted forever in the favor of people.

SM: But is it really that easy? If you live in Argentina, how do you buy

bitcoins?

AA: Thats the beautiful part about it, which is what you need there is

a compensating flow that balances things out and that compensating

flow is essentially remittances. What you do is you balance

remittances coming in from people outside Argentina who are sending

money home, and instead of sending U.S. dollars and converting intoArgentinian pesos, theyll send Bitcoin. You need local people willing

to buy Bitcoin. You balance remittances from war with capital flight

from inside the country and the nice thing about is you need to

balance it, perhaps, on a 1000:1 ratio; One rich person within doing

flight against a thousand migrants sending money home and

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immediately, you have a well-balanced flow. I dont think it will be

difficult to find buyers within Argentina and I dont think it will be

difficult to find Bitcoin sellers within Argentina if you kick in the

remittances flow.

ABL: The free market really does solve this problem pretty elegantly,

right? There are few exchanges operating in South America right now

and there are multiple countries that have currency controls in South

American. What youll see is that if you find these national exchanges,

they tend to have very very high fees and they also tend to do small

volume but the volume over time is growing. Those companies being

out there are like beacons to other companies that say, Man, theyre

making 15% on their transaction fees? Thats crazy! We can do thatfor 10% and make a huge profit! Again, this problem does solve itself

over time. The question is, Are we allowed to solve the problem or

are the solutions de-facto black market solutions because its illegal

to trade in the currency?

AA: When the currency is in this condition the only market is the

black market. Thats the important thing to remember. That what, to

us, seems alien and extreme and only under the worst possible

circumstances and frowned upon by law, in many other countries is

the norm. The black market is much more powerful in countries like

Argentina. So, think about people who have moved their money

outside Argentina yet still need toI dont knowbuy apartments, buy

cars, live in Argentina, spend money in Argentina; mostly rich people,

but hey, theyve already done the hard work of air-lifting their currency

out and they can use Bitcoin to bring it back in. I was reading a while

ago that some people were buying stock on the Argentinian stockmarket with pesos, that is also listed on the New York Stock

Exchange and then selling the stock in New York for dollars.

Essentially, using the stock market to do currency arbitrage and move

money out of the country. Any single avenue, any door left open is so,

so attractive to people trapped in a sinking currency that they will go

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to extreme lengths and measures in order to exit the sinking currency.

Theyll be willing to deal with uncertainty with risk, with exchange

rate risk, with legal risk, with bribing, with whatever they need to do to

save whatever value they have in their meager savings. People are

willing to do a lot more work to adopt Bitcoin in a country like that

than they are to adopt Bitcoin in a country like the U.S. I think thats

the main lesson of Bitcoin. Its all about the other six billion.

SM: I just looked on localbitcoins.es, which is the Spanish Local

Bitcoins - Spanish language version. I looked at the Comprarbitcoins

en Argentinaand in Buenos Aires theres several listings for local

sale, both for Argentinian pesos and for U.S. dollars. It looks like this

is already starting; what are we going to see happen next?

ABL: How are the rates?

SM: Well, I dont know becausewell, actually, this looks pretty good.

Somebody is selling bitcoins for $995 US, which is below market rate.

Thats like BTC-E rates, right now, currently. Somebodys selling for

$1113 US and some of these people have a lot of feedback so it looks

like theyve been getting some sales.

ABL: Well, Im sure its going to be a rapidly growing market over the

next couple of months, specifically, the next couple of years. I just

talked with a guy who started up a podcast in Portuguese and I believe

its the first Bitcoin podcast in the Portuguese language. I think that

really, all of the non-English language areas are a little behind the

Western world in terms of where we are, thinking about Bitcoin, but

theyre not far behind and theyre catching up really fast.

AA: The motivations are clearly aligned in a much stronger way than

they are here. I predict that 2014 will be the year of Bitcoin in the

peripherae, if you like. Its not going to be in the developed world. Its

going to be playing out massively as a tsunami of capital flight in the

developing world. Thats where were going to see most action in

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Bitcoin. The center of gravity has shifted. The hotspots are going to

be (the) Middle-East, Southeast Asia, and Latin America. Thats really

exciting I think, for Bitcoin. It opens a whole new level of possibility

even for those of us who are here, in the U.S. It means great things as

weve seen with the price increase because of China.

(MusicFade-In/OutCoinpunk Promo - Start)

Kyle DrakeHi, this is Kyle Drake. Im working on Coinpunk and were

Allentown, PA and this is the Allentown, PA subway that accepted

Bitcoin. Were going to demonstrate for the first time ever a pure

website based QR-code scanning Bitcoin wallet. Coinpunk actually

can do a QR code-scan now without even having a native application

installed. I think that this the first time that anyone has ever done a

QR-code port based point of sale transaction for Bitcoin with just a

web browser and no native applications installed. Apples been

banning Bitcoin applications so its kind of, a huge problem in the

community. We're going to solve that problem right now.

(P2P transaction discussion beginningbuyer instructed on how to

initiate the transaction by Kyle (seller). Transaction is then completed

via QR code Bitcoin payment. The transaction is successful although

the verbal dialogue is recorded poorly.)

(MusicFade-In/OutCoinpunk PromoEnd)

AA: Hi, everyone. Andreas Antonopoulos here. Im in Buenos Aires,

Argentina getting ready for the Latin American Bitcoin Conference. As

part of my visit here, Im meeting much of the Bitcoin community, but I

have a special guest, someone whos been very influential in exploringthe other layers of protocols that can be installed on top of Bitcoin,

the types of application that come after a currency. My guest here

today is Manuel Aroz, who is the founder and chief developer for

ProofOfExistence.com and Proof of Existence is a notarization service

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that allows you to digitally sign data and prove their existence.

Manuel, tell me a bit about how you got involved with Bitcoin.

MA: Well, I heard about it in 2010, three months before the crash, the

first $30 crash, if Im correct.

AA: Okay. Yes.

MA: At first I was interested in the technology aspect. I was studying

at the universitythe distributed systems and cryptography course

and I was just learning that the distributed time-stamping problem was

impossible to solve and the next day, I read about Bitcoin and how

they solved it. They created an economic system which is

decentralized, so I was really impressed by that. I started mining alittle bit with my GPU, which was at the time, enough to mine. After

that, I started investing some money, some savings. In 2013, I started

to get involved in the development aspect. I started to read code from

other projects and I decided I wanted to try and develop something

myself. Thats when I created Proof of Existence. At first, the idea for

Proof of Existence came first unlinked to Bitcoin. I wanted to make a

web service where you could certify a document in a centralized way.

That meant that people had to trust my servers and my authority to

certify the document. But, as I was reading about Bitcoin every day,

suddenly, the connection came to me and I said, Why dont we certify

this document with the blockchain? which requires no trust.

AA: Mmm-hmm.

MA: I thought that would be difficult, (that) the technical aspect

would be difficult but it proved really simple. I discovered that the

programming aspect for Bitcoin is really, really simple.

AA: Yes.

MA: I created the whole site in less than a week, in my spare time. I

created a technical experiment and it got some good reception at first,

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but over the last two weeks, someone posted it on ? news and it went

somewhat viral on Twitter. Its now grown a bit more and many people

are becoming interested in it.

AA: Lets just quickly describe what Proof of Existence is. Theproblem youre solving is the problem of attestation, digital attestation

of digital notarization. In a traditional sense, if you want to prove that

someone has a document, like a deed to a house or a stock certificate

or has created a new idea, for example, like a patent or a copyright.

They want to prove that this idea existed at a specific point in time.

Today, the way you do that is you go to a public notary, in most

countries, and they will basically sign and stamp on that piece of

paper and put it in a public register which is like a paper version of ablockchain, but its distributed. If somebody wanted to confirm that,

they would have to go back to that notary and get a letter that proves

in the register they had your information. You solve this by essentially

fingerprinting or getting a hash of any document. You can put any

data stream in this?

MA: Yeah, any digital file.

AA: Any digital file. And you create a fingerprint. What type of

fingerprint is that? How many bits?

MA: Its SHA-256.

AA: SHA-256, ok. So, youve basically got a 256-bit signature and

then, how do you insert that into the blockchain?

MA: I had read thatI didnt invent the technique myselfI had read

that other people had embedded data in the blockchain so I started toresearch on that. There is two main methods or at least, at that time,

the most common methods wereone was the data fragment for new

mined blocks which the miners control.

AA: So this is the coin base that goes into the first transaction?

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MA: Yeah. That was out of my reach because I was not a big miner at

the moment. The other method is to embed the data inside a Bitcoin

address and send the transaction to that address so that this

transaction gets stored in the distributed ledger for Bitcoin, which is

the blockchain. In that way, you have a distributed means of storing

that data. The basic idea is you replace the public key associated

with a Bitcoin address with arbitrary data which, in fact, renders the

address useless because

AA: There is no private key corresponding to it.

MA: Yeah, exactly.

AA: Okay, this is what in Bitcoin-speak, is an un-spendable output, atransaction that you send money to, and that money disappears

because it cannot be redeemed as an input into another transaction.

MA: Yeah, exactly.

AA: Or more bluntly speaking, people call this dust because

theoretically, the purpose of the blockchain is to transfer value not

data.

MA: Yeah.

AA: Right. I bristle when I hear that description because to me,

Bitcoin is a protocol and currency is just the first application. Im

really excited to see other applications. The basic problem being

described that Satoshi solves which is achieving distributed

consensus without a trusted third-party has so many more applications

than currency and theres no reason to bootstrap a new blockchain

every time you want to build a new application. Its much easier to

have the security of five Peta-hashes of mining behind you.

MA: Yeah.

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AA: Did you get that kind of criticism? Did people tell you (that) what

youre doing is a waste of time, its bad dust, that youre using the

blockchain wrong?

MA: Yes, I still get a lot of emails saying, Stop spamming theblockchain, from the Bitcoin core developers. Not personal emails

but when people discuss the service on the forums, the general

reactionthey dont seem to like it.

AA: Were talking about a tiny amount of data there, right? SHA-256

is what, 40 bytes of data?

MA: Yeah, its 32 (bytes) I think.

AA: 32. So, its a tiny amount of data. Youre basically using up two

addresses, two outputs.

MA: Two others.

AA: Do you do that in a single transaction or two transactions?

MA: Single transaction.

AA: Single transaction, one input, two outputs.

MA: Yes.

AA: And you actually spent some Bitcoin doing this?

MA: Yeah.

AA: Whats the minimum amount you spend for one of these?

MA: Im not sure because I changed it, but I think its a Satoshi or just

above the dust threshold.

AA: Oh, 5,432 Satoshis, right, yeah, or something like that.

MA: Right.

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AA: It uses a small amount of Bitcoin. This Bitcoin is forever lost and

certainly, thats an argument for not doing it exactly this way. You

mentioned to me recently there are better ways of doing it now.

MA: Yeah.

AA: So do you want to talk a bit about those?

MA: Yeah. Many people have suggested better ways to store data in

the blockchain. Using this method, the clients, they can prune these

transactions because they dont needto store these outputs in the

UTXO, which is the Unspent Transaction-Outputs, which is a pretty

scarce resource for the network.

AA: When transactions are put into the blockchain, each transaction

creates an output that in the future could potentially be used as an

input in a future transaction. It can be spent. Each client, in order to

be able to figure out what can be spent to create transactions, has to

keep a database in memory, usually, of all the outputs that are in the

blockchain currently, that have not yet been spent. That includes all

of the money that Satoshi mined, a ton of dust from other services that

create un-spendable output. The key issue here is not whether its un-spendable, but whether its provably un-spendable because if you dont

know if its un-spendable you have to keep it around forever, but if you

can prove that its un-spendable, then you can just discard it. The only

purpose of it is for archival purposes, right, so it can stay in the

blockchain.

MA: Yeah.

AA: OP-return is an operant inside the transaction scripting languageso for our audience, within each transaction, even the simple transfer

of value for, say, Alice pays Bob for a cup of coffee, is actually a tiny

script in a FORTH-like language, that is evaluated by a state machine

and that allows the Satoshi client and all Bitcoin clients to be very

flexible in the types of transactions they can process. Up to now, with

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your solution and all the other solutions for embedding data, you had

to abuse that system.

MA: Yes.

AA: You had to use it in a way that it wasnt intended. With OP-

return, you can simply say, This is a data value that has no spendable

use, so you can then prune it. Is that correct?

MA: Yeah.

AA: So, this is a major development. Essentially, OP-return, which

was a very deliberate move I think to create this capability. This

makes it possible for all kinds of other protocols to be embedded on

top. Ive described it as similar to port 80, where you can then shove a

ton of other protocols through it like with HTTP. Would you agree?

Can you see possibilities for future protocols?

MA: Yeah. In fact, theres quite a few projects working and adding a

protocol layer over Bitcoin. For example, the Mastercoin projectIve

actually contributed some code in that project in that first month and

we had the same problemwanting to embed data in the blockchain

and some people didnt like it. This was one of the reactions from the

development team, Okay, people are going to use the blockchain for

other uses other than a monetary system. So, lets support that from

the protocol in a way that it doesnt hurt the monetary system.

AA: A more efficient way of doing it.

MA: Yeah.

AA: Now, this still creates a bigger blockchain but that wasnt themain problem because the blockchain isnt growing very fast when

youre adding 32 bytes. The problem was the memory footprint of the

transactionbecause you can never get rid of that. You can never

summarize it. You can never prove it. With Proof of Existence, the

main use is obviously to prove a piece of data existed at a specific

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point in timeI know Ive used it for the safe paper wallet project and

one of the main uses for me was to decode signing, so that people

could verify that the code they were downloading from safe paper

wallet was secure and was the exact same code I had uploaded. The

big danger is that a hacker could come in, replace it with a code that

has, for example, a compromised random-number generator, and

suddenly, their paper wallets are no longer secure. Traditionally,

websites would do this by having the downloadable file and the MD5 or

SHA on the same page and that doesnt work. The reason it doesnt

work is because if youre a hacker and youve replaced the file, you

can replace the SHA, too. I know some people had previously

suggested, oh, lets go back and Google cache or a way-back machine

and confirm it was like that before, but with this youve 5 Peta-hashes

of mining power guaranteeing it so, for code signing, Proof of

Existence is absolutely amazing. I can think of a couple of other

immediate applications, patents being one of them. Trademark

application for proof of use and perhaps, copyright if youre writing

something that you want to prove existence, but I can imagine there

are a lot of others. What strange applications or interesting

applications have you seen of your service?

MA: Well, I was contacted this week by an Australian guy who told

me he had uploaded his whole genome, his DNAnot uploaded, sorry,

he uploaded the hash to the blockchain. Essentially, he proved (that)

he himself existed at a certain time in a fully anonymous and

distributed way.

AA: Wow. That is fascinating. DNA fragment, fingerprinted and then,

embedded in the blockchain, proving that this person existed at thisparticular moment in time. That is truly an incredible application and

certainly not one that Satoshi wouldve imagined, necessarily.

Although, it is exactly the kind of thing that a distributed ledger of

asset tracking with consensus validation is perfect for.

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MA: Yeah.

AA: I have no idea how he would use this or what value it would have

but its definitely very interesting.

MA: Yeah.

AA: What other occupations have you seen? Anything else like that?

MA: Yeah, theres also the idea to certify communications between

parties which are involved in any sort of agreement so you can prove

that the other party didnt answer because if you both agree that

youre going to upload any communication and certify it with the

blockchain, then you can prove that certain communications talked at

a given moment in time.

AA: You can do it like registered mail, perhaps, or service of process

when you want to serve legal papers to someone and prove that you

sent it by sending it through the blockchain. That is fascinating.

MA: Exactly.

AA: These are all examples of the basic science that Satoshi solved

which, for laypeople, the idea is that if you have two parties trying to

communicate across an insecure medium, or two or more parties,

them being able to achieve consensus when other people can

intercept, delete or corrupt their messages. That problem is called the

Byzantine Generals problem. Its a problem that was first described in

1975, I believe, by a distributed computing scientist and when Satoshi

first published his paper, the immediate response was well, that could

never work because that would be a solution to the Byzantine

Generals problem. (It) turns out its working. We dont know if its the

perfect solution but it is certainly an optimized solution and seems to

be working. So, thank you very much both for talking to us but also for

developing the kinds of applications that really show the future of

Bitcoin, the protocol, above and beyond Bitcoin, the currency. I hope

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to hear more during this conference. Manuel Aroz, thank you so

much for joining us.

MA: Okay, thank you, Andreas, it was really nice to meet you in

person.

AA: Thank you.

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BSS: I can talk about Y Combinator, I guess you all know about that.

Let me introduce myself briefly while things are loading here. My

name is Balaji Srinivasan. Theres actually twelve people with mysame first and last name in the Bay area alone. In fact, I randomly ran

into another one of them at Stanford and founded a genomics company

with them. I go by my full initials BSS and I am a Stanford lifer. I got

my B.S., M.S., & Ph.D. at Stanford and in 2006 started teaching

computer science and statistics there. I left Stanford in early 2008,

scandalizing the department to found a genomics company which has

become very successful. Our names Counsyl and we test about 3% of

all births in the United States. I also taught a MOOC at

startup.stanford.edu that has become quite successful but Im going to

talk about something fairly different today. Can we go? Yes? Ok.

Alrightwhat Im going to talk about today is something Im calling

Silicon Valleys Ultimate Exit. So, as motivation here, its a bit topical,

is the USA the Microsoft of nations? We can take this sort of thing and

we can expand it - code-base is 230 years old, written in an

obfuscated language - system was shut down for two weeks straight -

systematic FUD on security issues - fairly ruthless treatment of key

suppliers - generally favors its rich enterprise customers but we still

have to buy it. If we think about Microsoft itself, theres a great quote

from Bill Gates in 1998 - what displaced Microsoft, what did he fear, it

wasnt Oracle or anybody like that, what he feared were some guys in

a garage, who happened to be ultimately Larry and Sergey back in

1998. The thing about what Larry and Sergey did is - theres no way

they could have reformed Microsoft from the inside. At that time,

Microsoft already had 26,000 employees, joining its numbers as 26,000

and 26,001 and trying to push for 20% time or free lunches - they

probably wouldnt have gone too far. So, what they had to do was

start their own company. They had to exit and with success in that

alternative, then Microsoft would imitate them. This is actually

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related to a fundamental concept in political science, the concept of

voice versus exit. A company or a country is in decline, you can try

voice, or you can try exit. Voice is basically changing the system from

within, whereas exit is leaving to create a new system, a new startup,

or to join a competitor sometimes. Loyalty can modulate this.

Sometimes thats patriotism, which is voluntary, and sometimes its

lock-in, which are involuntary barriers to exit. We can think about this

in the context of various examples and start to get a feel for this. So,

voice in the context of open-source would be a patch, exit would be a

fork. Voice in the context of a customer would be a complaint form,

whereas exit would be taking your business elsewhere. Voice in the

context of a company, thats a turnaround plan. Exit is leaving to

found a startup. Voice in the context of a country is voting, while exit

is emigration. So, if there are those two images on the left is the

Norman Rockwell painting on voice - on the right is actually my dad in

the center, and thats a grass hut on the right-hand side, so he grew up

on a dirt floor in India, and left, because India was an economic basket

case and theres no way that he could have voted to change things

within his lifetime, so he left. It turns out that, while we talk a lot

about voice in the context of the US and talk about democracy. Thats

very important, but you know, were not just a nation of immigrants,

were a nation of emigrants. Were shaped by both voice and exit,

starting with the Puritans, you know, they fled religious persecution.

The American Revolutionaries which, you know, left Englands orbit.

Then, we started moving west, leaving the East Coast bureaucracy to

go to the Western nations. Later, late 1800s, Ellis Island, people

leaving pogroms, and in the twentieth century fleeing Nazism and

Communism. Sometimes, people didnt just come here for a better life.They came here to save their life. Thats, you know, the airlifting at

the end of Saigon. Its not just the US thats shaped by exit. Silicon

Valley itself is also shaped by exit. You can date it back to the

founding of Fairchild Semiconductor with the Traitorous-Eight, the

founding of Fairchild the fact that non-competes are not enforceable

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in California, and the fact that DC funds disruption, not just

turnaround. The concept of forking in open source, if you think about

the back button, that is, in some ways, the cheapest way to exit

something and of course the concept of the startup itself. That right

there, if you guys havent seen, is one of Y Combinators first ads.

Larry and Sergey wont respect you in the morning. So, the concept

here is that exit is actually an extremely important force in

complement to voice and its something that gives voice its strength.

In particular, it protects minority rights. In the upper left corner, for

example, you imagine two countries. Country 1 is following policy A

and country 2 is following policy B. Some minority is potentially

interested in following policy B, but policy A is very stridently

promulgated by the majority. However, theres some other country,

maybe a smaller country, maybe another country, thats actually quite

into B, and so that person leaves. Theyre not necessarily super into

B, but they think it might be interesting, thus B question-mark. What

happens is that all the other guys in A see that people are actually

leaving. They really care about this particular policy so much that

they actually left. It could be a feature where people are leaving for a

competitor. It could be a bug that you havent fixed so people fork the

project and take it somewhere else - what happens is that exit

amplifies voice. Its a crucial additional feature for democracy is to

reduce the barrier to exit, to make democratic voice more powerful,

more successful. A voice gains much more attention when people are

leaving in droves. I would bet that exit is a reason why half of this

audience is alive. Many of us have our ancestors who came from

China, Vietnam, Korea, Iran, places where theres war or famine,

economic basket cases. Exit is something that I believe we need topreserve, and exit is what this talk is about. So, exit is really a meta-

concept. Its about alternatives. Its a meta-concept that subsumes

competition, forking, founding, and physical emigration. It means

giving people tools to reduce influence of bad policies on their lives

without getting involved in politics, the tools to peacefully opt-out. If

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you combine those three things, this concept of the US is the

Microsoft of nations, the quote from Gates, and Hirschmans treatise,

you get this concept of Silicon Valleys Ultimate Exit. Basically, I

believe that the ability to reduce the importance of decisions made in

D.C. in particular without lobbying or sloganeering is going to be

extremely important over the next ten years. You might ask, Why?

What does this have to do with anything? So, the reason why is that

today, its Silicon Valley versus what I call the paper belt. Theres four

cities that used to run the United States in the postwar era, Boston

with higher-ed, New York City with Madison Avenue, books, Wall

Street, and newspapers. Los Angeles with movies, music, Hollywood,

and of course, D.C., with laws and regulations formally running it. I

call them the paper belt, after the rust belt of yore. In the last twenty

years, a new competitor to the paper belt arose out of nowhere,

Silicon Valley. By accident, were putting a horse head in all of their

beds. We are becoming stronger than all of them combined. To get a

sense of this - Silicon Valley is reinventing every industry in these

cities. That X up there is supposed to be a screenplay for the paper of

LA, and LA is going to iTunes, BitTorrent, Netflix, Spotify, Youtube -

that was really the first on the hit list, starting in 1999 with Napster.

New York right alongside - AdWords, Twitter, Blogger, Facebook,

Kindle, Aereo. Were going after newspapers. Were going after

Madison Avenue. Were going after book publishing. Were going after

television. Aereo figured out how to put a solid-state antenna in a

server farm so you dont have to pay any TV fees for all of their

recording. Recently, Boston was next in the gunsights - Khan

Academy, Coursera, Udacity and most interestingly, DC. By DC, Im

using it as a metonym for government regulation in general, becauseits not just DC. It includes local and state governments. Uber,

AirBnB, Stripe, Square, and the big one, Bitcoin are all things that

threaten DCs power. It is not necessarily clear that the US

government can ban something that it wants to ban anymore. The

cause of this is something I call the paper jam. The backlash is

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beginning. More jobs predicted for machines, not people. Job

automation is a future unemployment crisis looming. Imprisoned by

innovation as tech wealth explodes, you know, Silicon Valley, poverty

spikesthey are basically going to try to blame the economy on

Silicon Valley, and saying that it is iPhone and Google that done did it,

not the bailouts and bankruptcies and the bombings. This is

something which we need to identify as false and we need to actively

repudiate. We must respond via voice. The obvious counterargument

is that the Valley reduces prices. The top is a little small, but thats a

famous graph - consumption spreads faster today. That shows the

absolute exponential rise of technologies over the last century.

Anything that is initially just the province of the 1%, whether it be

computers or cell phones, quickly becomes the province of the 5% and

the 10%, that MVP that barely works that someone is willing to pay

thousands and thousands of dollars for allows you to fix the bugs, to

get economies of scale, to bring it to the 10% and then the 20% and

the 50% and the middle class and the 99 percent. Thats how we got

cell phones from a toy for Wall Street to something thats helping the

poorest of the poor all over the world. Technology is about reducing

prices. The bottom curve there is Moores Law. By contrast, the paper

belt raises them. Theres the tuition bubble and the mortgage bubble

and the medical care bubble and too many bubbles to name. The

argument that the Valley is a problem is incoherent, but its not going

to be sufficient to respond via voice. We can make this argument, but

the ultimate counter-argument is actually exit. Not necessarily

physical exit, but exit in a variety of different forms. What theyre

basically saying is - rule by DC means people are going back to work

and the emerging meme is that rule by us is rule by terminators whoare going to take all the jobs. Whereas, we can say, and we can

argue, DCs rule is more like an overrun building in Detroit, and down

right there is actually, like a Google data center, right? So, we can go

back and forth verbally, but ultimately, this is about counter-factuals.

They have aircraft carriers. We dont. We dont actually want to fight

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them. (It) wouldnt be smart. We want to show what a society run by

Silicon Valley would look like without actually affecting anyone who

still believes the paper belt is actually good. Thats where exit comes

in. What do I mean by this? What do I mean by Silicon Valleys

ultimate exit? It basically means, build an opt-in society, ultimately

outside the US, run by technology. This is actually where the Valley

is going. This is where were going over the next ten years. Thats

where mobile is going. Its not about a location-based app. Its about

making location completely irrelevant. Larry Page, for example, wants

to set aside a part of the world for unregulated experimentation.

Thats carefully phrased. Hes not saying, Take away the laws in the

US. If you like your country, you can keep it. (Its the) same with

Marc Andreessen. The world is going to see an explosion of countries

in the years ahead. Doubled, tripled, quadrupled countries. Since the

end of the Cold War, weve just been seeing them burst up in all kinds

of places and some of the best will have lessons for all the rest.

Singapores health care system is an example to the rest of the world.

Estonia actually has digital parking meters and all kinds of things. We

can copy those things without necessarily taking the risk. Let them

take the risk and then, we can copy them. It amplifies voice. So,

importantly, you dont have to fight a war to start a new company. You

dont have to kill the former CEO in a duel. So, a very important meta-

concept is to create peaceful ways to exit and start new countries.

You know, two of the founders of Paypal - Peter Thiel is into

seasteading. Elon Musk wants to build a Mars colony. You can

scale it back, too. Even on Hacker News, just recently, within the

realm of someone on startup #1 or startup #2, these guys just went

and bought a private island. Its random. Its in the middle of Canada.Its freezing cold. Theres sticks over there. It doesnt exactly look

like Oahu. But, the best part is this, the people who think this is weird,

the people who sneer at the frontier, who hate technology - they wont

follow you out there. Thats the thing about exit is you can take as

much or as little of it as you want. You dont have to actually go and

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get your own island. You can do the equivalent of dual-booting or tele-

commuting. You can opt-out to whatever level that you prefer. Simply,

going onto Reddit rather than watching television is a way of opting

out. There is this entire digital world up here which we can jack our

brains into and we can opt-out. The paper belt may stop us from

leaving and thats actually what I think of as one of the most important

things over the next ten years, is to use technology, especially mobile,

to reduce the barriers to exit. With it, we can build a world run by

software. Heressome examples. 3-D printing will turn regulation into

DRM. Itll be impossible to ban physical objects, from medical devices

to drones to cars. You can 3-D print all these things and there are

entire three-letter regulatory agencies that are just devoted to banning

goods. With Bitcoin, capital controls become packet filtering. Its

impossible to do bail-ins if everyones on Bitcoin, to seize money as

they did in Cyprus or in Poland. With Quantified-Self, medicine is going

to become mobile and youll be able to measure yourself. With

Telepresence, your immigration policy is going to turn into your

firewall. Double robotics is just the start. Any bots, these robots that

you can control remotely, moving around like a Doomvideo game,

soon theyll behumanoid on their side and theyre going to get pretty

good, so you can be anywhere in the world with a humanoid robot

walking around on your side and without paying a plane ticket.

Drones, warfare is going to become software. Laws are going to

become code. Management via robotics is going to become

automation and property rights are going to become a network effect

if you know about Bitcoin smart property. Technological details, these

are topics for the next MOOC. You can sign up at

coursera.org/coursestartup. Itll be better the third time around. But,thats what I think. If you want to think big, if you want to think about

things that are next, build technologies as minimal or as maximal as

you want for what the next society looks like. It could be something as

simple as allowing middle-class people to make tax shelters. Apps

that allow people to travel and relocate better because its a huge pain

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to move from city to city. Anything you can think of that reduces the

barrier to exit that produces lock-in. If we work together we might be

able to build something like this. Thanks.

(Applause)

(Outro MusicStart)

ABL: Thanks for listening to episode #65 of Lets Talk Bitcoin. 35%

Is Nothing to Sneeze At was producedand edited by Adam B. Levine

and featured Stephanie Murphy, Andreas M. Antonopoulos, and Adam

B. Levine. Coinpunk Firstwas presented courtesy of Kyle Drake with

editing for content by Adam B. Levine. Proof of Existence was

produced by Andreas M. Antonopoulos, edited by Adam B. Levine and

featured Andreas M. Antonopoulos and Manuel Aroz. Silicon Valleys

UItimate Exit was played courtesy of Y Combinator Talks. Music was

provided by Jared Rubens. Questions or comments? Email

[email protected]. Have a good one.

(Outro MusicFade-to-Cut)

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