{ "episodeId": "SLP151", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "obi": { "name": "Obi", "role": "guest", "tag": "OBI" } }, "segments": [ { "speaker": "stephan", "time": "00:08", "start": 8.23, "text": "Hi, you're listening to the Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today for episode one hundred and fifty-one, my guest is CEO and co-founder Obi of Coinfloor, recorded while I was in London for Advancing Bitcoin. This podcast is brought to you by Kraken, the place to buy, sell or trade Bitcoin. Kraken have a high quality platform that's got High trading volume and low fees, with no minimum or hidden fees. They offer twenty four seven, three sixty five support so you can easily get help if you need it. Kraken also have Kraken Pro mobile app delivering all the security and features you love about the Kraken exchange in a beautiful mobile first design for Bitcoin trading on the go. 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So I got to meet Obi at Advancing Bitcoin, and we were chatting a little bit about how Coinfloor recently went Bitcoin only, and we also spoke a little bit about proof of reserves and proof of solvency and his thoughts on educating users of the exchange and also supporting grassroots Bitcoin meetups. So here's the interview. Obi, welcome to the show. Thank you very much, Stefan. So Obi, you are the CEO of Coinfloor, one of, again, a long standing Bitcoin exchange, and, also we've, you know, just recently this week, we're, you know, you were a sponsor of Advancing Bitcoin, which we were just at recently. Let's start with you, what was it about Bitcoin that drew you into it? I think" }, { "speaker": "obi", "time": "03:21", "start": 200.68, "text": "so prior to Bitcoin, I'd had a dalliance with virtual currencies already. I was the-- I'm a geek, and I was a CTO for fifteen years, and I was the VP of engineering for a company called WeWorld, which you may not remember it, but at the time, there were things like Habbo Hotel, Club Penguin," }, { "speaker": "stephan", "time": "03:40", "start": 220.17, "text": "okay, yeah, these" }, { "speaker": "obi", "time": "03:41", "start": 220.79, "text": "really popular virtual worlds for teenagers or kids, and WeWorld was one of those. When I started, we had five million users. And then we finished up with thirty million. And for thirty million users, you have to create a virtual world, and a necessary part of that was some sort of economy. So we created a virtual currency called, inventively, We Points. And, people started using it, and within a few months, we became shocked because people were, you-- were working, creating, or doing stuff for hours a week, sometimes thirty, forty, fifty hours a week was a full time job for them to earn these Wee Points, which could only be used within Weeworld to buy, Justin Bieber t-shirts and, bits for their Wee House or their Wee Room, et cetera. And we would meet up regularly with the, founders of Club Penguin. Or have a hotel and all the others, and all of us had the same experience, and we were trying to understand why, and it became clear to us that value wasn't something that related to physical things. Value was something that was a mindset, and if you valued it and other people valued it, it was valuable. And that's why these virtual currencies, even though they were very, very limited and they were controlled and centralized, still had some value. So when a couple of years later, I came across in two thousand and eleven, Bitcoin, it made perfect sense because this was a virtual currency, but that could be used anywhere by anybody. It wasn't bounded by one particular website. So it was obvious that this was the currency for the internet, there was the money for the internet. and the millennial generation Generation and the Generation Z, et cetera, would inherently and instinctively understand this." }, { "speaker": "stephan", "time": "05:27", "start": 327.41, "text": "It's interesting you say that with this whole virtual currency world, because what typically would happen in some of these game worlds and so on, is someone finds a way to tie value back out into US dollar or, pound or Australian dollar or whatever, and so then some in-game item has an AUD equivalent or a pound equivalent, and then people try and tie back the value, even though it's, it's a game currency. Was that something you experienced?" }, { "speaker": "obi", "time": "05:54", "start": 353.71, "text": "This would happen all the time, and these secondary markets would exist, and in fact, you would see it, the, the interplay between gaming and real world was happening all the time. I mean, for Mount GoX was originally Magic the Gathering Online Exchange because it was a gaming card, a game, gaming card game called Magic the Gathering, and people wanted a way of having a secondary market for that, so we would see on eBay and- And Gumtree and various, various other sites, people trying to sell their, their articles from the WeWorld, and you saw it with others, but we would constantly try to limit it because, Because of the law, you know, if, if it, if it became clear that there was a very large secondary market, it would be a challenge for us to say that this was an in-game currency and so on. But it was always an ongoing challenge." }, { "speaker": "stephan", "time": "06:49", "start": 409.47, "text": "And then, so let's bring it to Bitcoin and Coinfloor. So can you tell us a little bit about how Coinfloor got started?" }, { "speaker": "obi", "time": "06:56", "start": 415.71, "text": "So, yeah, so in, back in, it was actually back in twenty twelve, twenty thirteen, there were various UK exchanges, but they were being hacked They were having various practices which weren't in line with what was, should be reasonably expected for, a customer of an exchange. So one exchange famously, the CTO open sourced the code to the exchange unilaterally, but accidentally also open sourced the private keys to the cryptocurrency, stores and It got hacked, funny enough. and so these, these are sort of examples of the practices that were going on. and it became clear that in twenty thirteen we should set up our own exchange, but Understanding that what we're effectively doing is setting up a crypto bank, and as such, it needed to have the rigor of a bank. So we started with three main concepts-- trust, reliability, and security. and unlike many others before, we took those really seriously, it seems obvious, and we from day one sort of kept those philosophies in mind in everything we've done." }, { "speaker": "stephan", "time": "08:17", "start": 496.51, "text": "What are some of the ways that you think exchanges can build that trust, with their customers and with the broader ecosystem, for want of a better word?" }, { "speaker": "obi", "time": "08:27", "start": 507.24, "text": "So there are many ways. one, when we started, it's now less of an issue, but, as an exchange, you have to first understand, the most important is who serves who. We are service providers, and as such, the customer is the actual service, service protagonist, so service, patron. And as such, the customer's the one who's in control. A problem that we have nowadays is a lot of exchanges, have forgotten that, and they think because they have a number of customers, they forget the fact that it's actually the customers who are still in control. And a lot, unfortunately, a lot of the customers misunderstand that as well. I'd like to- Dwell on that more, but let me go through what that means when you understand that the customer is actually the person who's, who's in charge. One really important thing is to be public. So we, at the time, there were a lot of exchanges where the founders weren't known. we were one of the first exchanges in the UK to be known, people could visit us if they, like you've just visited us today, obviously by appointment, and we, we, sometimes less frequently now of people walking in with bags of cash saying, \"Can you provide this?\" and we say, \"Uh, no. can we take your details?\" And they, they say no and disappear generally. But still, we allow people to see us, to be comfortable that we really exist, and we're, we're there, and we are, we are, willing to answer questions. Secondly, it's important to be part of the community. we regularly go to events. We, we sponsored Advancing Bitcoin, and these are grassroots events. Sponsors, not the big flashy events, but it's the, it's-- we like to sponsor the grassroots events. I often go to events, not just in London, because Bitcoin is for everybody. there are some great events up in Manchester and so on that I, I try to go to every year. And the third is to find if there are mechanisms to reduce the amount that people have to trust you, given that you're a centralized exchange, and I still think that for now centralized exchanges are still an essential part of the, of the, of the journey, to Bitcoin, to the, to this Bitcoin future that we're moving towards. If there are tools that you can employ to reduce the amount of trust that people have to have in you, you should use those tools. so chief amongst them is something called, and it has many names, but there's proof of solvency, proof of custody, et cetera. One of the biggest concerns that people have with an exchanges Has the exchange been hacked or are they misusing my money?" }, { "speaker": "stephan", "time": "11:16", "start": 675.78, "text": "Gotcha. And I guess historical context for listeners who might be a little bit newer, one of the big concerns in the space is if an exchange has been hacked And then are they gonna try to go fractional to try and basically cover up that they've been hacked? And so historically with Mount Gox, those of you who are a little newer might not be familiar with the story, but essentially that's one of the risk factors. And so those of us in Bitcoin, we're very concerned with Bitcoin businesses and exchanges being full reserve, right? Having all the bitcoins that they say they do, right? And so, can you tell us a little bit about your proof? Proof of, so on your blog it's called the Provable Solvency Report. So tell us a little bit about that." }, { "speaker": "obi", "time": "12:02", "start": 721.62, "text": "And it goes under many names, we're probably gonna recall it Proof of Custody, but we might, we're trying to think of simpler ways to get across the point. But, effectively what happens is on a monthly basis, we- Take all of the crypto, Bitcoin that we're holding for our customers, create a transaction on the, on the Bitcoin blockchain, so we basically send ourselves the money, so people can see the amount of, Bitcoin that we are holding, 'cause it's, and it's stored, it's, it's memorialized and stored on the blockchain. But it's possible with Bitcoin, using a, something called a smart contract, 'cause Bitcoin does support a smart- contracting functionality to add a piece of extra data to that transaction. The OpReturn. It's the, it's called the OpReturn, but this is basically a tag with extra data, and that extra data links To a report of the amount of balances that we should be holding for customers. And that report, again, we store online, and it's timestamped as well, so you can see the amount we stored, each balance we stored for every person. Each balance is encrypted in such a way whereby, whereby only the owner of that balance can decrypt their own balance and confirm that it is, because we wanna maintain their privacy. But what this gives you in combination is two things. One, at a point in time we're showing how much money we should have, and also how much money, how much Bitcoin we should have and how much Bitcoin we actually have. Now, if you're solvent, the amount of Bitcoin, Bitcoin you actually have should be more than the amount that you should have. And so that's the first thing that you can see, that if you add up all the lines that are in this report It should be less than the amount that we were sending on the, on the Bitcoin blockchain at the time. But the second thing you have is that any single customer can separately check their line, so we can be held to account by all of our customers in this, in this decentralized way. Now, because we don't know who is going to check that line, and they can check it throughout history, so someone could go back five years, six years, and, and nearly six years now, and perform that same check. If anyone finds a line is doesn't meet, fit what they thought their balance was at that time, they have evidence, they can show it to the world and show that at some point in time we weren't solvent when we were saying we were. And our, and our trust be gone." }, { "speaker": "stephan", "time": "14:42", "start": 881.78, "text": "Let's talk through a little bit of the process, like what that customer would do if they want to verify. So let's say I'm a customer, I go and I, I look on your blog and I see, okay, here's the Coinfloor Provable Solvency Report. I download some of the information, like I download the report itself, and then- I basically, there's certain things here that I could check. So for example, you can check the SHA two fifty-six sum of the overall report, and then I would also check maybe my balance. So let's say I'm holding, you know, a small amount on the exchange, maybe like zero point one Bitcoin, and then I would get a certain identifier, and basically I'm matching my identifier versus my balance in that report." }, { "speaker": "obi", "time": "15:25", "start": 924.7, "text": "So high level, first of all, again, a given customer, most customers have a good idea of the- Their balance and their balances don't change too frequently, so they'll have a good gut feel, of what their balance should have been at any given time. If they're traders, it might change more frequently. they can go on our site As is the case for most exchanges, and they can see their current balance, and they can also download their balances and changes in their balance, and deposits, withdrawals, or trades. From the beginning of their experience with using Coinfloor to the current time, so they can download that and that can be put into a spreadsheet, for example, to see. So, but even beyond that, they should have their own gut feel of what their balance should be as well to make sure that there isn't anything weird. So they start with that, then they see the provable solvency or the proof of custody report, and they will do two things. They will first, download the actual report. And it will be line, each line will be a, have a balance attached to it, and they will also, be able to, see the timestamp, i.e. it's a, a line at the top that basically says when this report was made to the second. They'll then look at the transaction on the blockchain and see that, that, that transaction was sent with, with linking with the operator, linking to, linking it to the report." }, { "speaker": "stephan", "time": "16:56", "start": 1016.2, "text": "Right. And that will also show the overall balance. So for example, on your blog it says, \"Okay, as at, you know, this day or this time, Coinfloor holds a total of, you know, three thousand eight hundred and fifteen, you know, bitcoins.\" And then, and," }, { "speaker": "obi", "time": "17:10", "start": 1029.61, "text": "so they will see their balance and then they click on the link to the, a blockchain explorer. If they wanted to, because the Bitcoin blockchain is decentralized, they could, if they, if they were, they could be running their own version of the blockchain, they didn't trust an online explorer and check the balance as well. so they would see that the balance we said matches the balance at that point, s-matches the balance on the blockchain, which is being verified by, verified by thou-s-thousands of machines around the world, thousand nodes around the world. So they have confidence that, that was our balance at that time. They can then see the links to this report and a timestamp, so they can have confidence there that we are saying that this is, these, this is what we believe were the balances for customers at that time. And now They now have to verify that we're not lying there or we're not telling the truth, and what they can do is, there's a series of instructions we give them, but fundamentally, it involves taking information that only we and they, and, and the customer shares, fr- that they can get when they log on and they can, they can see, but it's certain, private information that is shared between the two of us. And they can use that, following these instructions, to effectively search through the, report, find the line that relates to them, and they will be able to be decrypted, and they can-- they'll be the only line that will be able to be decrypted, the line that relates to them. They will therefore, will know that that's the line that they-- the balance related to that line is the one that should be their balance. They will look at the balance, check the balance that they, they believe that they should have had and from their reports they should have had, and they should match. If they don't match, then there's a problem, and it should match to the, to the Satoshi." }, { "speaker": "stephan", "time": "18:52", "start": 1132.23, "text": "And, as you mentioned earlier, one of the important factors is you don't know who could check you, so it could be any of your, you know, your thousands and thousands of customers, any one of them could check it, and so that-- At" }, { "speaker": "obi", "time": "19:02", "start": 1142.31, "text": "any time as well. They could, if someone was a customer Today they could decide to check their, their report from five years ago, 'cause they, we download all the balances throughout time, you can see what the balance should have been on that date, and they, they could have not bothered for five years, and now they checked and realized actually when you started, you weren't solvent. And, and so we are, we have to, so knowing that this isn't just something that we check and never have to forget again, then never have to think about again. That forces us forever more, our reputation becomes more and more important over time. So, so we have to think about way up in terms of all the way through for perpetuity, this is an important thing for us, and we need to maintain it." }, { "speaker": "stephan", "time": "19:46", "start": 1185.55, "text": "That's an impressive feature. I, do wanna call out a couple things. So, there, and I'm sure, you know, we can talk about those as well, that, This relates to the bitcoins with the exchange, and now some of the, like some of the recent commentary, and I think what we've seen over the years is kind of occasional flare-ups in interest in this idea of proof of solvency, proof of reserves, proof of custody, depending on different terminology. one concept I've heard is this idea of, well, you can sort of verify the reserves, like the bitcoins held, but that company or bitcoin exchange might have other liabilities that are, you know, unrelated. And so I guess this is one- One piece of the puzzle, right? And this is an important part of the puzzle, but I've heard of other approaches where maybe an auditor, like a traditional auditor, would come in and just spot check or test that, okay, the liabilities are what they say they are. So let's say, for example, you know, three thousand eight hundred bitcoins also are held, you know, by Coinfloor, but also what are the liabilities and have they, you know, make sure they haven't been promised elsewhere as well." }, { "speaker": "obi", "time": "20:50", "start": 1250.25, "text": "Yeah, and, and, There are more things that can be done, however, the-- there are various challenges with that. One, auditors have historically been uncomfortable with auditing ex-exchanges, cryptocurrency exchanges. That is starting to change now, so for example, we had a, a subsidiary in Gibraltar, and it was after multiple conversations between the Gibraltar and authorities, the regulatory authorities and the auditors, that they agreed to audit- It's, our, our Gibraltar subsidiary. So, 'cause it was possible to be done there, we, we did it there. However, that being said, we have to remember, the environment that was in place when Bitcoin came into being. This was the, credit, crash of around two thousand and eight, two thousand, seven, two thousand and eight, and a big part of the problem there was that people relied on auditors to, who were still trusted third parties to verify, the, The books of some of the banks at the time, and it turned out that because of various incentives, these were large, you know, various incentives, it turned out that they hadn't actually, done their job properly. So ultimately, if you want to be able to verify something fully, you wanna have mechanisms to verify it yourself. Separately, the other big point is The something not being perfect isn't a reason to do nothing at all. Sure, absolutely. And that's the probably the most important thing. As, People's balances, and as exchanges' balances get bigger and bigger and bigger, it's more and more important to prove that they're not, they haven't been hacked, to prove that they aren't trading their customers' money, on other exchanges, so behaving like quasi-traditional banks effectively without the necessary regulatory approvals and oversight. And there's less and less an excuse for them not to do this. and the discipline of doing this every month Reminds us on a monthly basis why we're here, reminds us that we are serving our customers. We are service providers, the clues in the name. We provide the service, and it keeps us humble. And that's also an incredibly important thing. And then finally, because we are doing these transactions on the blockchain and, and it's large amounts, it becomes harder and harder for, I-- we would imagine, because we don't do it, but we would imagine if you were trying to do something like moving capital in and out, for example, it would become, it would leave bigger, a bigger and bigger footprint on the blockchain. So, it, it would, it would, if you were trying to do it, so you'd be spending most of your month figuring out how to, Apparent on the blockchain as opposed to running your business, so it would keep you honest as well." }, { "speaker": "stephan", "time": "23:54", "start": 1433.89, "text": "Gotcha. Yeah, and that's a good point as well, because, that is another theoretical kind of challenge with some of these things. When you read some of these papers, I think one of the well-known ones is this one called Provisions, I think it's from twenty fifteen, which I'm sure you've probably seen. but, e-even in that paper, they list out some potential, pitfalls here. So this concept of control versus ownership or collusion between" }, { "speaker": "stephan", "time": "24:19", "start": 1458.64, "text": "And coordinate to try and help each other pass the, the audit and so on. But I think the fact that each customer has their own individual balance helps there, because it would be much harder to try and fake that kind of number." }, { "speaker": "obi", "time": "24:32", "start": 1472.47, "text": "It would be, it would be, I mean, i-it's one of these things, it's, it's possible, but the incentives, the game theory of it are, you're, you're talking about colluding with your competitors who could shop you to the authorities and your customers and And cause you to, and, and therefore get rid of a competitor and take the market share. So, i-it's, and if only one of them is honest, they can basically shop everybody else and take the entire market share. So, yes, they're theoretically possible, but, oh, we're, we're very comfortable, sure, that, that this, this, keeps us honest and, and, keeps us focused on our customers, philosophically and mentally, and morally, and, and we're, we're still sort of surprised that not more exchanges are doing it. At the beginning, when we, when we-- this was all in the sort of shadow of the Mount Gox, affair Most exchanges at the time, in fact, I think there was a joint, statement made by Coin, by a number of exchanges, I, I probably won't wanna name them, but, but, a number of major exchanges, and, a couple of them tried a few times. I think more recently one of them has started again, I think, but the majority of them didn't, proceed with that, that promise. And you have to ask yourself At some point, why?" }, { "speaker": "stephan", "time": "26:06", "start": 1566.11, "text": "Yeah, and I think it's interesting because people have shifted that, if, if you will, the appetite for proof of reserves or some form of proof has waxed and waned, right? So there are times where people are like, \"Really? Yeah, we want this, we want this now,\" and then other times where it seems like people don't really care, right? And so it's a bit of a, it's a bit of a weird thing for, it must be a weird thing for you to sort of have been around for a few years and And go." }, { "speaker": "obi", "time": "26:35", "start": 1594.68, "text": "And I, I think that's because of educational miseducation really. When new people enter the market, they have to go through a process, and that process is the same for everybody, and, I'm not sure it can be accelerated. And it's only when you get into the space for a while, you realize that, okay, or you see an exchange being hacked, and that tends to be, a, a point where people start thinking, \"Oh, what can we do about these things?\" or, for example- We enter a bear market and you see a, a significant jump up in exchanges being hacked, but the question is, were they hacked or were they trading on other people's exchanges, trying to make an extra, amount of profit, traded badly in a, in a bear market and then claimed they were hacked? You know, w-again, you can never know, with proof of solvency that could, that could help. so it's, it's one of these things, but as the balances that are being stored on exchanges- is, continue to increase in value, I believe that you're gonna see calls for this, increase. And another reason you're gonna see calls for increases is because we're gonna, organizations like us are gonna make more and more of a stink about it, because, historically we're an exchange focused on institutional and sophisticated investors and traders, but The majority of the market in terms of, of feet on the ground are consumers, and we were expecting over the last few years to see this become more common in the space, and it hasn't. And, basically we've come to the view that enough is enough. We have to sort of get into that space and educate people as to why it's important. I think the sophisticated, market understands this, and there's no reason why the consumer market, can't be made to understand why this is an important factor when deciding on an exchange." }, { "speaker": "stephan", "time": "28:34", "start": 1714.11, "text": "Yeah, that, that's a good point. I think from my perspective, I've just always been trying to push people towards self custody, right? So I've always been saying, \"Hey,\" a-and as, you know, as Keys, not your coins, that's always the way. A" }, { "speaker": "obi", "time": "28:47", "start": 1726.88, "text": "hundred percent agreed. I mean, so again, if I, for my mind, again, I think sometimes people try to make it overcomplicated and, to use an Americanism, don't get it twisted. we are part of a journey. The, the journey is a very simple journey, and the, and the first thing is you have to educate customers correctly, 'cause the majority of customers don't want volatility. don't want to speculate, don't want to trade, they just want to, to have a position in this, in, in a s-a- safer s-position in the crypto space, a safer, simpler way as possible. so you have to educate them, you have to give them very simple tools to, to buy in a, in a very, safe way. and as, as they get educated, at a certain point, they will be comfortable with custodialing themselves. And at that point- If that's what they're comfortable with, they should custody themselves. but also being realistic, it's important to understand that you need training wheels before you can go off and start doing wheelies on your bike, you know? And no matter how skilled you are in one skill, it doesn't necessarily translate to another. If you're an experienced, surgeon, doesn't mean that you're gonna be an expert on Bitcoin. And day one, the training wheels are Working with an exchange, understanding the basics of Bitcoin, and then when you're comfortable with that, then understanding self custody. But getting someone to understand self custody right at the beginning can be very frightening to someone, when they start. But ultimately, I understand that majority of people- Should be at some point be comfortable enough custodying them themselves." }, { "speaker": "stephan", "time": "30:34", "start": 1833.62, "text": "The other cool thing, that I've noticed recently with Coinfloor is there was recently the Bitcoin only announcement. So can you tell us a little bit about that?" }, { "speaker": "obi", "time": "30:42", "start": 1842.07, "text": "Yeah, so," }, { "speaker": "obi", "time": "30:45", "start": 1845.19, "text": "We were obviously we started back in 2013, so we were Bitcoin only from the beginning, and we were around and quite significantly involved with the, Hold Bitcoin, Bitcoin Cash event, a number of years ago when we had the, the first major fork of, of Bitcoin. And at that point, because a number of our customers effectively- were cussing with us, we decided to list Bitcoin Cash." }, { "speaker": "obi", "time": "31:20", "start": 1880.29, "text": "around that time, Ethereum was starting to become more popular, and we were devising our own sort of criteria for deciding whether to list a currency or, or not, and it came from this sort of nebulous sort of feeling to we started to sort of, Get it to be more concrete as to what were the actual aspects of a cryptocurrency, because again, multiple cryptocurrencies were just starting to boom at that point. but after about-- we were probably one of the last exchanges to list Ethereum because we weren't comfortable it, it re-reached our, our sort of very objective criteria. but in the beginning of twenty nineteen, I think it was the fifth of, of January twenty nineteen, we- We decided to list, Ethereum as well, because we felt it just crept up to the level where it, it, it fit the criteria to be able to be listed. And to be clear, Bitcoin also, is also just above that level of the criteria, because it's, it's a very high bar, because objectively it should be a high bar. This is a high risk space, so you should have a high bar. and the criteria, are simple. One is that the currency should be value driven. So Ethereum sort of, it's, excluded itself for many, for a number of years because, there was a big mantra that the Ethereum wasn't about its value, it was actually more about, decentralized computing And then in late twenty eighteen, there was this sort of move to, Ethereum is money type move, and it's like, okay, fine, you've now sort of got it that it needs to be value-driven, 'cause guess what, we're in exchange, so we, we're trying to, translate from one valuable, asset to another. And if you don't believe it's valuable, shouldn't do that. The second one is, was community support. Ethereum has strong community support. The third was, Regulatory clarity, because we're a fiat to crypto exchange, and, as such, we have to, we knew and now actually regulation has come in, it's an absolute requirement, have to sort of pay heed to what regulators are gonna be comfortable with, otherwise we won't be able to service our jo-um, service our customers. And finally, is technical maturity. And that's the maturity of the teams working on the system, the maturity of the technology itself, and the maturity of the people underpinning, supporting it, miners, stakeholders, whoever it may be. Now, Halfway through last year, in twenty nineteen, the Ethereum, developers or some of the main Ethereum developers, basically all came out saying that Ethereum one wasn't gonna scale, it wasn't, wasn't good enough. Some claim that they knew this all along, and the solution was Ethereum 2. Now, Ethereum 2 isn't a soft fork or hard fork of Ethereum, it is, it's a completely new blockchain, so it is a new currency. Now, it could be renamed to Inethereum and people could transfer through airdrops or whatever mechanisms, value from one to the other, but it's a different, cryptocurrency, a different technology, and it, it isn't even out yet. And The estimates are that it's gonna take between some, several months to a few years to fully, transition over to it. And then there's a number of unknown technologies in that But at this point in time, we can't list Ethereum 2, 'cause it doesn't exist to list. however, if the, developers, the core developers of Ethereum say, explicitly that Ethereum 1 isn't good enough and we've replaced it with Ethereum 2, then we, as an exchange, cannot in all consciousness, in all conscience, look ourselves in the mirror and say that Ethereum is acceptable to offer to our customers. It's just been, because we've just been told that it's not good enough. And so it became clear at that point that we needed to delist Ethereum. Now, if Ethereum 2 comes out and it launches and all of the new technology and, improvements that it has in place makes sense and work, and, and it's been running for a year or two reliably, so we have, 'cause, 'cause it needs to be re- for no- to know it's working, we have to see it running for a while, then we'll consider listing it again. but Timelines, that's a good few years away." }, { "speaker": "stephan", "time": "36:04", "start": 2163.73, "text": "Right. So, y- I guess your stance right now is you're Bitcoin only, but you won't necessarily be Bitcoin only in a few years time if, if the right scenario plays out. Yeah," }, { "speaker": "obi", "time": "36:12", "start": 2171.94, "text": "I mean, Correct. We wouldn't be, if the right scenario plays out, we wouldn't be. We're, we're being very objective in terms of our, our criteria. However, when you take those criteria objectively, Bitcoin just about meets those criteria. It has very strong community support. It is c-- regulatory, clarity is clear. value driven, it definitely is. But the hardest one, one of the hardest ones to achieve, the technical maturity, it's, it's m- Sure enough, but there's still, and we were at Vancing Bitcoin and, a conference, for example, just, just last week, it's still, there's still a lot to do to continue to improve, for example, areas around fungibility and so on. I think the solution to scalability, conceptually makes a lot of sense to me as being a technologist working in layers. That's how you scale almost every to other technology system, not just in the, the digital world, but in the physical world as well. You build infrastructure and then Piping and then you build the bricks and then finally you start decorating the, the walls. You don't start off with decorating the paint, you know? you work in layers. So conceptually it makes sense, but there's still a lot of work to be done there. But I think that it's- Good enough for now to list, and as long as that mindset is maintained, it'll still be good enough to list. If it, if it wasn't good enough to list, then we have to shut up shop. Alright, and then you won't have any business, right? Because, be-because there'll be nothing in all consciousness that we could list. Now, Ethereum seemed to have just met the standard in the beginning of January with the decision, of, of mid of last year, it's now nowhere near the standard because it's excluded itself and everything else. At this point in time, if we're being objective, is nowhere near. So although in theory, and I think anybody, unless I'm, s-just a religious fanatic, I should always be open to other ideas. In theory, I could list something else. In practice, no, nothing is anywhere, anywhere near being good enough at this point in time, and- A-and you just look at those objective criteria, you would know that's the case. And I'm sure all other exchanges, I would like to see a set of objective criteria which is taken from the viewpoint of their customers, which don't lead to that-- doesn't lead to that same conclusion." }, { "speaker": "stephan", "time": "38:38", "start": 2318.3, "text": "I can see that it's a challenging space because- While I am, you know, I'm Bitcoin only, I don't, I've never like bothered with any of the, of the shitcoins. I think there is a, it, it, I, I appreciate, you know, if you're running a business in the space, you have to have revenue, and how do you survive in a bear market? I can understand where there were exchanges that had to kind of go and do this stuff, but for me, I think the dividing line would really have been where there was kind of a, you know, deceptive behavior, like I think probably" }, { "speaker": "stephan", "time": "39:12", "start": 2351.52, "text": "They, they like ninja launched B-Cash and then, and then there was all this like drama around not being able to sell B-Cash, and it was just, you know, to me it just, it was like, okay, fine, I get that, you know, fine, for your business, you have to like have the shitcoins that people wanna go gamble on, but don't like sell people like false promises and lies about it or like shill them, you know, to all your, you know, the retail people who don't necessarily understand what they're buying, right? They just Why this shit coin, right?" }, { "speaker": "obi", "time": "39:43", "start": 2382.82, "text": "So, yeah, I won't speak about a specific company or other, but I think in general, when you look at the level of adoption, support, et cetera, Bitcoin is, is ridiculously far ahead of everything else. So one thing I find egregious is when, on someone's homepage, you have almost equal billing to Bitcoin, to a coin which is doing a hundred, a thousandth of the volume, has, has a tiny fraction of the support, and they're sort of, they're displayed with equal measure. I think that's very disingenuous and incredibly confusing to customers. one common concern for people in the space is they will explain Bitcoin why it's really, disruptive. They may have a view of even Ethereum maybe, although as I say, I think it doesn't meet the, meet the, the bit, the Bitcoin standard. However, they then go to a, an exchange after, their, their friend then goes to an exchange and comes back the following day and they said, \"Well, did you, how did it go? 'Cause it was really great. Thanks for the advice. but I didn't buy that Bitcoin stuff. I bought this other thing that looks like Bitcoin, maybe a similar name, or I bought this other coin 'cause it was only three p or ten p and so on.\" and it was-- and the reason why was because they went to a site And that site, effectively, of, I was told by a, a friend of mine, a UX expert called Celine Jin, who's, works for, Blockstream, about dark patterns. And, and they employed these dark patterns, which are basically, ways of misdirecting people towards something else, than what they need-- what they should be, going towards. So it's basically underhanded techniques in terms of, for example, visual prioritization Or you click on one button, they mention you're coming in for this reason, maybe Bitcoin, for example. So we, maybe a site set up to say that we all love Bitcoin, but when you actually go into it, it's actually a site educating people about multiple cryptocurrencies, some, a name that might come to mind is like nakamoto dot com, for example. these are dark patterns, and, and they are, and, and, and we don't like that. So one of the things that we're going to be, we, is what we're called no BS education, because we, we wanna basically be very straight talking, we wanna basically be very open to customers and tell them how things work, and if you tell people the truth of how things work, it's actually incredibly simple, and if it sounds complicated That's where you have to start worrying." }, { "speaker": "stephan", "time": "42:30", "start": 2549.63, "text": "One other point I wanted to touch on, and so again, like, as I mentioned, I'm Bitcoin only, I, I don't, you know, but I, I have heard an argument where it's sort of like, \"Oh, you shouldn't list or delist things based on like popularity, it should be done on technical, you know, merit.\" And so from that argument, that like theoretically, some exchanges should even list, you know, like BSV or whatever, and that, you know, you should like let the market, you know argument in favor, again, I'm kind of steel manning here 'cause I don't necessarily agree with this, but the, the view might be something like, \"Oh, hey, well, look, if a lot of exchanges delist BSV, then it might be actually easier for it to get pumped up because now nobody can short it and nobody can easily sell it because there's less exchanges that you can even do that on.\" But the caveat there would be it's on very low volume. Yeah. What, what's your view there on that idea of technical reasons for delisting?" }, { "speaker": "obi", "time": "43:22", "start": 2602.46, "text": "So I think So you should give choice. There's, it's a choice argument as well. But, let's take the technical reasons. One, we-- it's, it's actually, you, objective criteria. As I say, we have four objective criteria. If they don't sound sensible for a fiat-to-crypto exchange, I'd like to-- I'd love to have the debate as to why they don't sound sensible. and they're very simple. It should be technically mature. It should actually be value-driven, i.e. it should be something where the founders believe its value is important It should have strong community support, because you, because the community underpins the currency, and finally, it, finally, it should have regulatory clarity, so there shouldn't be some question marks, was this an ICO, was this, an unregistered equity or something like that, these things you don't want to offer to your customers. If you take those four into account, nothing meets the Bitcoin standards, and Bitcoin just about gets there, and nothing else is anywhere near close. So by that argument, you shouldn't list anything else. then there's the, \"Yes, but, you know, you're cheating. you should just give free choice and so on.\" If you had a child, and, would you just give them a free choice of, \"Yo, there's, there's your, garage and there's all these like chainsaws and so on, just go play, free choice,\" or \"Go wherever you want, any person, stranger comes up to you and walk off with anybody,\" a-and It, it's, it's just ridiculous on its face that argument. Now, if you, once they, you've sort of had a chance to sort of give them their training wheels, educate them to a certain level so they understand the risks and so on, by all means, give them-- they can then decide to do what they want to do, experiment with, a new altcoin, for whatever reason they want to experiment, understanding that it is an experiment and highly likely to fail, like most experiments. that's completely fine, but just to sort of offer them all this choice with no context when they're just enter-starting their Bitcoin journey is, is just plainly irresponsible, and you wouldn't never do it in any other environment. I mean, I couldn't swim until six months ago, and, I started to learn to swim for, for reasons. and now I can, I regularly, every weekend, swim one mile, using the breaststroke, and I'm pretty good. Actually. but just last weekend, I tried to switch over to the front court, and I was still back to being like floundering beginner because skills don't translate, and just because people are incredibly experienced, they could be captain of industry When it switches to something like cryptocurrencies, which are completely new, they're back to being a child, and whether they realize it or whether you realize it or not, that is the reality, and you have to therefore take that, have that mindset and, educate them until they're ready to make these more complex and nuanced decisions." }, { "speaker": "stephan", "time": "46:32", "start": 2791.98, "text": "Yeah, great, great perspective. what's-- and I think it flows on nicely into this idea of what's needed for mass market. What does the mass market need in terms of, you know, Bitcoin? So" }, { "speaker": "obi", "time": "46:44", "start": 2804.18, "text": "So, I actually tweeted about this the other day, but, the first thing we need is patience. I mean, sometimes in the Bitcoin space we call it, a low time preference. and that's the most important thing we need. this story has been played out throughout any new major disruptive technology, going back to the automobile, but more, relevant, more recently, the computer, the, the micro- The microcomputer, the internet, and now cryptocurrency. Step one is you have to educate someone about, a crypto cur- about Bitcoin, about, to the point where they understand its value and therefore they want to own it and they own it. that's the most important step Once you've figured out that step one, then you go into step two, which is get as many people to get past step one to the point where you hit critical mass. Now, what I don't know is when is critical mass? It could be at ten percent of people in a given jurisdiction or country or, or the world. It could be twenty, it could be fifty, but there'll be some point, and it'll be a point where, if you're a merchant or if you're someone who's- If you look at your friends, some significant percentage of them will own Bitcoin and want to own more of it. similar with mobile phones, you got to a point where it wasn't this sort of weird sort of exception A, a number of your friends started having it, and that's when you hit critical mass. and step three, at critical mass, you now have a circular economy, because if I want to buy something with Bitcoin I don't need to transfer my fiat into Bitcoin because I already have Bitcoin, and then the merchant doesn't need to convert their Bitcoin back to fiat because they always want to keep a percentage of their holdings in Bitcoin and increase that percentage. So they're-- and then at that point, if you don't need to have the friction of converting from fiat to Bitcoin or Bitcoin to fiat Then Bitcoin becomes an incredibly powerful mechanism for transfer, but if you need to have that friction to convert, whether it's even if it's in a simplified way, linking your bank account and so on, you're always going to be, saddled by this extra s-set of inconvenience. So trying to get to the point where it's used as this global payment system now, before critical mass, is premature. So therefore, once you understand that the fundamental technology will handle the being used as a payment system with, second layers like Lightning Network on top of it, of course. All we need to do is make sure we get people through step one. So we need to get as many people understanding the value proposition of Bitcoin and owning Bitcoin and understanding that this is a form of effectively digital Prime real estate." }, { "speaker": "stephan", "time": "49:50", "start": 2989.79, "text": "I love that framing because it's, it's very difficult in today's world because people might say, \"Oh, hey, I own this property,\" but then really, do you? Because, you know, you pay property tax on it, the regulations on it, there's all these other claims, if you will, whereas we think of Bitcoin as a loodial money, right? It's, it's a title on which there is no higher claim. You are the true owner as long as you hold the keys." }, { "speaker": "obi", "time": "50:13", "start": 3012.85, "text": "Yeah, it's a, it's a digital, Technically term, but a digital bearer asset. And you, it's, it's okay, so people argue with, real estate, you also have the ability for it to actually, to provide you security and, a roof over your head, but What's happened over the last X hundred years plus, I, has been that we've sort of conflated two purposes in one asset. and normally it's, especially from an engineering background, engineer-engineering discipline, you try to separate concerns so you have one thing to do one job and you don't try to overload it by doing two different things. So, so property should be a roof over your head, protection from the elements, et cetera. but you, ideally, you want to use some other asset that's optimized for being a store of value, and does that job perfectly, better than anything else. historically with gold, that our money was our store of asset. but then the movement to fiat has meant that we've now moved to predominantly the, the currency of the day is inflationary in nature, it loses value, so you're incentivized to spend it, not to hold it. Because it loses its value. So we have to find other, instead of the obvious thing, the money, the most liquid assets in, in, in any given domain or, or jurisdiction being your store of value, it has to be something else, and it, and it had to be stocks, shares, real estate, and that leads to inevitably those prices being pumped up. So only a tiny fraction of the value of your real estate is actually the usage value, and the majority is the money value. With Bitcoin, we are able to make effectively the best of, of fiat currency, 'cause they are all digital nowadays in nature, but combine that with the digital bearer asset properties that we had with gold, and therefore offering a better money, a money for the internet." }, { "speaker": "stephan", "time": "52:22", "start": 3141.57, "text": "One other topic I was keen to discuss with you is around privacy and regulatory clarity, right? So I think this is something that we're starting to see a little bit more of and- And we're, we're starting to see a little bit of a focus on this. We have seen some exchanges who were maybe not comfortable listing, you know, Monero or Zcash or things like that. we are starting to see, Advancement in technology around coin joining and Bitcoin, what's your view there? Do you, do you see it like current regulators and, political authorities around the world are What's their perception of Bitcoin and privacy?" }, { "speaker": "obi", "time": "53:03", "start": 3182.98, "text": "so I think, and privacy and, and fungibility and so on, I think they understand the the need for fungibility in a currency, no one wants to, on their watch, have a scenario where someone goes off and buys a, this mythical cup of coffee and then, gets mugged down the road because- The, the relatives of the merchant can figure out that they have, you know, five hundred Bitcoin or whatever. that's not a great outcome, and that's the risk with a lack of fungibility. So that's understood at one point, but they also have their concerns around, avoiding, money laundering and counter-terrorist financing, however big those are, in reality, that is, that is the stated, concern of theirs. And so there is a re- a, a worry that these things are in conflict with each other. I'm not sure they always are in conflict with each other, but, again, like with everything else, it requires education, but not just education of, of our customers and consumers, but education of regulators. So for the last six years, pretty much, we've had conversations with- regulators, with, with, the, authorities in terms of police, governments, et cetera, in the UK and abroad, to just educate them as to the state of cryptocurrency, the reality of, of its level of fungibility at this point in time. but as, Bitcoin becomes more fungible, 'cause that, that is the stated objective, w-it will be an interesting to see See how, that interplays with regulators. At this point in time, Bitcoin is definitely considered, a currency which Can be traded and is, and has got a tick by regulators, at least in the UK and Europe. I, I, I think it's gonna be a very interesting space, but my gut feel is that as an exchange, we have a, a number of, mechanisms to, not play the ball, but play the man, effectively, or the woman. In that we can look at the s- the source of funds, the destination funds on the fiat side of things. so even without the ability to, monitor transactions on the blockchain, if that becomes more and more difficult over time, you will still be able to see patterns of behavior which seem, Uncomfortable, et cetera, and, and be able to sort of analyze more, in more detail if you need to." }, { "speaker": "stephan", "time": "56:06", "start": 3366.17, "text": "Gotcha. Yeah. And I guess just context for the listeners, there's-- so again, as much as we all dislike this regulation, if you want to run a legal compliant business, there's all this AML and money laundering laws and so on, and some of these laws will require, a business to do things like, you know, screening of a name or do things like checking- against certain money laundering typologies or certain kinds of behaviors and so on. And so that's, that's where some of it, that is obviously, as much as I, as I hate AML and KYC, I accept that, you know, it exists and, you know, people have to run a business and have to stay out of jail if we want this thing to work, right? So that's one thing. I was also keen to discuss, you mentioned earlier around grassroots and meetups, right? So obviously we can talk about advancing Bitcoin and how this thing grows and develops further. I, Financing Bitcoin, do you wanna just tell us a little bit about your thoughts on that, conference and, your, your involvement?" }, { "speaker": "obi", "time": "57:05", "start": 3424.51, "text": "Yeah, and, I think, we, we need to do more. there are a lot of big flashy events, which have a lot of funding from- People who have raised money on various ICOs and so on. But if I look at the history of, of crypto and Bitcoin in, at least in the UK, there are a number of events which, have been set up by people who just believe in, in the technology and its potential, who actually aren't in it just to make money, but they're in it to change the world. They, they see Bitcoin as As a fundamental technology that can potentially change or reduce the gap between the privileged and the, and, and the underprivileged and the overlooked, as an incredibly transformational technology, and they are using their spare time and their own money to progress, progress matters, and they often find that they get no interest from large organizations to fund because it doesn't meet their strategic objectives, because their strategic objectives are purely monetary. on our side, w-examples of these are, of course, advancing Bitcoin, great team, Leon, working hard to, to bring an amazing group of people together But there are also things like CoinScrum, which is the longest, I believe, the longest running meetup, crypto meetup in the world, and they've had some very seminal meetups, including, you know, the, the Fateful Meetup where Mike Cernan, suggested that, we need a benevolent dictator. That was at a CoinScrum event and so on. And then there are ones up, CoinFest in Manchester and so on, and many other of these sort of, grassroots- Some meetups, we," }, { "speaker": "obi", "time": "59:02", "start": 3542.48, "text": "I patron, pa-patronize them, I go to those, I, I, I know the, organizers, and I think they're amazing events. I think we and other exchanges should do more to support these as well, because Bitcoin is a grassroots phenomena. It's, it's" }, { "speaker": "stephan", "time": "59:37", "start": 3576.73, "text": "veris, coming years that people can have a place to go and learn about Bitcoin and, and to have, I think, differing levels as well, right? One that's more of like a general one and perhaps one that's a little bit more techie, developer focused, and I can actually learn more about the actual technicals. So for example, Michael Fuchs in runs London Bitcoin Devs here, and that's also a great meetup. So yeah, look, I think that's about, that's about a good spot to end it. Did you wanna just close out with any," }, { "speaker": "obi", "time": "01:00:15", "start": 3615.03, "text": "Yeah, well, first of all, where they can find us, it's very easily, it's, coinfloor dot co dot uk. but the closing thought is that, you know, twenty twenty is gonna be an incredibly exciting time. We're starting a new decade. Bitcoin in this decade is going to go through a lot of transformations. One of the biggest, I think, this year is, I think there's gonna be a mindset, mind shift, set shift, and, that is that although people will still talk about, other altcoins and so on, I think it's gonna- Mentally, people are gonna realize that Bitcoin is way ahead of everybody else, and, although the game isn't over, from a time point of view, from a mental point of view, w-it will be. So it's like one of those points in the match where You could still be at two-all and you've still got thirty minutes left to play the, the game of soccer or football, but everybody knows that this team has the momentum and they're gonna win. And that's, I think, at the end of twenty twenty, where we're going to be. The, the momentum is with Bitcoin, the architectural approach they're taking makes sense, and so at least for the foreseeable future, I, I, I'm incredibly excited and Coinfloor and, and I hope other exchanges, will do what it takes to give clear, no nonsense, no BS education to, all of the new people entering the market because this-- yes, we need to make money and, and that's, that's, you know, I'm a Nigerian by background, so I, you know, I seem, it's in my blood to make money, but more importantly, we are blessed with the- ability to be part of a transformative phase in, in terms of technology and, and, mankind's relationship to money. And so given that opportunity and given that ability, we should take advantage of it, and we shouldn't just abuse it, and we should just do everything possible to make it happen in, in the, in the most efficient manner possible." }, { "speaker": "stephan", "time": "01:02:36", "start": 3756.64, "text": "Fantastic, look, that was a great way to summarize it. Thanks for joining me, Obi. Thank you," }, { "speaker": "obi", "time": "01:02:41", "start": 3761.8, "text": "Stefan." }, { "speaker": "stephan", "time": "01:02:42", "start": 3762.4, "text": "Hope you enjoyed the episode. Just a shout out for my Patreon supporters. Thanks, guys, for supporting the show. Those of you who enjoy the show and wanna support me, go to patreon.com/stefanlivera. You can sign up there, and if you're a paying supporter, you get the episodes early and ad-free, and there's also a private key-based chat group for the supporters where you can get some- Insider info on upcoming episodes. So thanks, guys. Find the show notes and transcript at stephanlivera dot com slash one fifty one for this episode, and I'll see you in the citadels." } ] }