{ "episodeId": "SLP22", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "udi_wertheimer": { "name": "Udi Wertheimer", "role": "guest", "tag": "UDI" } }, "segments": [ { "speaker": "stephan", "time": "00:04", "start": 4.38, "text": "Welcome to the Stefan Livera podcast." }, { "speaker": "stephan", "time": "00:11", "start": 11.31, "text": "Hey guys, welcome to the show, and my guest today is Udi Wertheimer. Welcome, Udi." }, { "speaker": "udi_wertheimer", "time": "00:17", "start": 17.46, "text": "Hey, thanks so much for having me." }, { "speaker": "stephan", "time": "00:19", "start": 19.48, "text": "I've seen a lot of your stuff on Twitter and, guys, Udi is well known on Twitter as, as a, you know, Bitcoin developer, but also quite good at, debating against, let's say, what we might call the unnecessary token, tokenistas and the ICO scammers of the world. So I thought it would be, so, you know, I thought it would be good to get him on and talk about some of his experience. but yeah, let's start with a bit of your background in Bitcoin and what sort of projects have you been working on?" }, { "speaker": "udi_wertheimer", "time": "00:50", "start": 49.58, "text": "Yeah, sure. So, Well, I, I guess I, I first got into Bitcoin as a sort of a hobby in, I don't know, around 2013, 2014. and it's the, it's the usual story of, you know, hearing about Bitcoin, getting a lot of sleepless nights reading about it and going crazy about it. and at some point I think it was 2015." }, { "speaker": "udi_wertheimer", "time": "01:19", "start": 79.15, "text": "I joined Kolu, which is an Israeli company, that used to maintain, the colored coins protocol of, that, that what used on, on top of Bitcoin for sort of tokens back then. it, it was much less popular than ERC20 of Ethereum is today. But it was the same basic idea. I, I don't think we thought about it as a, as something for ICOs, but maybe for, I don't know, securities and, and, and tickets for shows and things like that. So we actually spent a lot of time pretty early on thinking of use cases of this stuff. And we're never too sure about them. I mean, we were getting less and less sure about them, I guess. but eventually, you know, Ethereum kicked off and, and had a lot of success with these ICOs." }, { "speaker": "udi_wertheimer", "time": "02:15", "start": 135.37, "text": "And, you know, after Kolu, I think I stayed there until to-- about a year ago. So, yeah, I wasn't there about until about a year ago. And from then on, I'm basically, you know, I'm trying to help and consult clients to work with Bitcoin and optimize for its, you know, internals, which are sometimes kind of a mystery for people. you know, you can see a lot of projects and, you know, businesses using Bitcoin in a way that's not essentially the most efficient. So, so there's definitely a lot of interesting stuff to talk about there. And also, you know, what's coming up in Bitcoin, right? What's- What's, what's next? Like obviously Lightning and privacy technologies and things like that. So that's what I've been doing mostly for the past year or so." }, { "speaker": "stephan", "time": "03:08", "start": 188.07, "text": "nice, nice. Okay, so let's start with some of the stuff around some of the, quote unquote, unnecessary, well, not really quote, but just unnecessary tokens. I think there has been a bit of a tendency for people to insert or interpose unnecessary tokens. One example recently, that there was a bit of, back- Back and forward in debate was around the BAT, the Brave browser and the, that, attention token. Do you wanna tell us a little bit about what happened in that particular exchange?" }, { "speaker": "udi_wertheimer", "time": "03:39", "start": 218.51, "text": "Yeah, so, first off, you know, I wanna say that Brave itself, the web browser, I think it's great. I, I even sometimes recommend it to people as, you know, as a, an easy way to get quickly set up with a browser that would block all the unwanted stuff. So as a browser, it's a pretty good product, it's not bad. and it started off as, you know, just this browser by a small seed funded company, and they had this idea that they're going to use Bitcoin to- Basically allow users pay publishers in exchange for not seeing ads. So you have a publisher like, New York Times, and they show you ads, and you don't wanna see them because they're tracking you or whatever. So instead, you just pay them. and You know, they tried that for a while and they, they had a lot of problems with that. Some of the problems were related to how, you know, Bitcoin payments are slow and they're not immediate and they're sometimes expensive. But I think that there's another part of the story, another problem that they had is a product use case problem, which is that most people didn't want to pay for websites. and it was, you know, it's the, the chicken and egg problem. It's a small browser, browser with, with a small user base, and it's difficult to, to convince publisher to- To get on board, they actually got very angry, in the beginning. They, there were a few big publishers who got together and made this message that they're very opposed to what Brave is trying to do," }, { "speaker": "udi_wertheimer", "time": "05:22", "start": 322.28, "text": "And on the other hand, you have users joining in and you tell them, you know, you should pay, but they have no one to pay to. So it's the classic chicken and egg problem. And I, I don't think they ever really hit the, the scaling ceiling of Bitcoin, right? So, so that's one thing. But then the ICO craze started and they had this idea that they're going to sell this token" }, { "speaker": "udi_wertheimer", "time": "05:51", "start": 351.08, "text": "and the idea with the token is, you know, you hear a lot of stories with tokens, but usually what it comes down to really is that Since I have my own tokens and I can, I essentially can print how many of them that I want, or I, you know, I printed a lot of them in the beginning, then now I can give them away. I don't care about them, I can just give them away. And one thing specifically that the brave founder Repeatedly says is that they couldn't use Bitcoin because if they, no one would give them bitcoins to give away, right? You wouldn't give them bitcoins so they could give their users, which is, you know, that's true, but They're, they're not, you know, they're not giving any real actual value, they're giving tokens that they basically made up. And an interesting thing about that is that actually, you know, people paid, I think, about thirty million dollars in ethers, which is another cryptocurrency, and, you know, they're not giving those ethers away either, right? Because they want them, because they- They have real value. So they're giving away this token that they made up. And it seems, you know, during a bubble, once while, while all the, all the coins go up in value, it seems like You're actually giving users something of value, but at, at times like this when the markets are very slow, and bearish, you can-- you're actually, when you're giving away free BAT tokens, what you're doing is you're taking money out of the secondary market. So you have traders trading BAT, and all of a sudden someone gets a load of free BAT coins, and they immediately unload that on, on the market, so the market pays the price. It doesn't come from anyone else, it comes from traders. Traders who are actively trading BAT, so pe- someone is paying for it, it's not free, they're just maybe not realizing they're paying for it. Maybe some of them, you know, figure that it makes sense to pay for it and that it's still a good deal, but it seems like it's no longer a very good deal, right? So economically, it doesn't make a lot of sense. And, and then there's the whole technical part, right? you know, they're saying if I use BAT, because it's on top of Ethereum, it's just more scalable and it's easier for us to use it. that's just not true. That's just Absolutely not true. you know, Ethereum has the same scaling problems as Bitcoin has, potentially much worse because of some choices they made. and, and you, you have the system where you're trying to use, you know, you're trying to use a web browser and you're affected by crypto kitties on Ethereum, it just doesn't make any sense. Why would you be affected by- Things like that, it, it has nothing to do with the app. So, so yeah. And when, and when you look how payments are made in something like Brave, and again, we're talking about Brave, but this is very common in many ICOs, right? So we, we, you, you look at how payments are actually done in, in, in something like Brave, and you see that users have no idea what they're holding, what they're doing. So basically, Brave is managing everything for them. They don't even hold private keys, I think. And Pay directly to their Uphold account. Uphold is this, sort of like an exchange where you give, you, you, you send your tokens over there and they give you like dollars or whatever, and they do it automatically. So So publishers, you know, they don't care about the token either, they want dollars. so why don't you just hold dollars for your customers and give it, give them dollars? Or, or if you can't hold dollars yourself because, you know, regulations or whatever, then, then let Uphold, this company, this third party, hold dollars for you and just do the whole thing with, with centralized dollars, why not? I mean, that's the way everyone's using it anyway. So, yeah, so that's why things like that seem like it's just a way to, Take money out of the secondary market. I'm not sure how, you know, I'm not sure if people at Rave and, and, and some other companies, you know, definitely understand that that's what they're doing, but, but it is what they're doing." }, { "speaker": "stephan", "time": "10:12", "start": 611.68, "text": "Yeah, I see. At the time, there was a bit of discussion that, oh, well, there's a need for international payments, and they, they were doing a bit of this kind of fancy zero knowledge of the customers, but- It, it just s- it strikes me that ultimately it's a centralized service and that they could just architect their solution in a more centralized way. And then look, the other thing is, let's say there are legitimate problems in terms of how you use a particular cryptocurrency, should a startup who runs into these problems, should they- You know, should they then go back to the planning table and build another solution?" }, { "speaker": "udi_wertheimer", "time": "10:50", "start": 650.37, "text": "yeah, so, you know, there, there are a few ways to handle that, right? if you're trying to use Bitcoin and you- You, you get to some problem, then you could say, \"Hey, why not, you know, find a solution for that? Why not go work on Lightning first and help the efforts there, and then, you know, then go on to doing your business?\" I can see why that's not very realistic for some businesses, and I think it's fine. I mean, some, some will see," }, { "speaker": "stephan", "time": "11:19", "start": 678.88, "text": "yeah." }, { "speaker": "udi_wertheimer", "time": "11:21", "start": 681.08, "text": "Yeah, you know, they, they may not have the expertise and skills or interest or, you know, whatever to do any of that. So, and, and that's, I think that's perfectly fine, but You, you know, you, you kind of have, when you look, and, and again, I, you know, we were saying brave, I don't wanna, I, I don't wanna come down too hard on brave because it's really What everyone does. but, but you see this product, they're, they're kind of describing this product to you, and then they make all the wrong or all the bad UX decisions for the users, right? They, they, they practically make it the worst experience it can be for their users. You have to go to this exchange and buy something, and you have to have write down your seed and why? I mean, are you building a product for them? Are you building a browser or, what, what are you doing? So If, if you're really building a product, if that's what you're trying to do, if you're, if you really believe that people should be paying publishers to, to not see advertisements or be compensated for, for, for seeing advertisements, so just do it, you know, do it in the best way possible for your customers, not in the best way possible to, to get a token started." }, { "speaker": "stephan", "time": "12:34", "start": 754.12, "text": "yeah, that's a fair point, yeah. Yeah, and I think I agree with you. It's a, it's not just brave. I mean, really, we're just Of this token, craze. Now, I think y-you've commented previously and c-contrasted with the tokens that are available in games such as Fortnite. So, do you wanna talk a little bit about that?" }, { "speaker": "udi_wertheimer", "time": "12:57", "start": 777.46, "text": "Yeah. So one thing I've spent some time looking at is, is this idea of what some people call tokenomics or crypto economics, Which, you know, it's, it seems to go, it seems to be about the idea that you can, encourage your users to take certain actions and do certain types of engagement if you have, you know, if you If you incentivize them with, with some sort of token. And it sounds like a good idea, again, it's-- there's a question of where the value actually comes from. If it's not actual real money, then why, why do these tokens? Why are they worth anything in the first place? And then we go back to how they're, kind of subsidized by the secondary market. But even if you ignore that, I think it's an interesting idea, right? You can get people to do what you want. And" }, { "speaker": "udi_wertheimer", "time": "13:58", "start": 837.75, "text": "Then I looked at, you know, this isn't really a new idea. You have this in sort of in-app virtual currencies and with which are mostly popular in games, and they've been popular in games for a long time, in mobile games, in, in social games like Zynga early on on Facebook, and then mobile games and Fortnite today. Fortnite is huge. I think they're Set to make, about two billion dollars by the end of the year, which is in about a year, right? So That's huge, huge, and they're doing all of that by selling their in-game currency. Now, they call it, I think, V-Bucks. So these V-Bucks, they're not, you know, obviously they're not tokens, they're not tradable in any way. You can't trans- you can't transfer them to any other player. Once you have them, you can only use them to buy virtual items in the game. so they're strictly, you know, they're strictly for buying stuff in the game and, and actually, you-- they're not even, you know, you can't even, You, you can't get any way to improve in your game by buying these items, they're just cosmetic. So there's this whole culture in Fortnite around, people buying cool items and just looking cool in the game, right? so you have these You know, you have these currencies and people don't buy them because they think that they'll go up in value. They obviously won't, and they, they don't invest in them and they don't particularly care about them either. They care about the product that they're getting with spending this money. But Epic Games, which is the developer of Fortnite, they have this- Nice, you know, nice feature where they can, since it's basically just virtual items, they can give some of them away for free for certain actions. So, you know, lately they had this thing where they wanted to have all users enabled two-factor authentication. So they said, \"Look, go ahead, enable two, two FA, and you'll get some free items.\" And that's like, w-when you think about it like this, this is very straight- Forward and very obvious, right? It's, it's, you know, you have this company, they do stuff, they sell it, and sometimes they give it for free to incentivize other stuff. That's very simple. for some reason, reason in the blockchain space, it's like this very profound, very, you know, very interesting thought experience, thought experiment where you can incentivize things with cryptocurrencies, and suddenly it's, you know, it's very new. and that's what they call crypto- Economics, which is, you know, I, I, I, I, I think that this comparison between, you know, this is something that the gaming industry has been doing very well for years, and something that the cryptocurrency industry is doing, actually not very well, right? It's not actually working too, too, too, too, too well, and, and you have to ask why, and I think the reason why is that the, the, you know, the gaming industry is building a real product there. They're really scratching an itch for their, for their gamers, for their customer base. the, the customers don't care about the currency, they care about buying stuff. while in the cryptocurrency area, people really only care about the, the, the, the, the currency or the token or whatever we call it. That's the only reason they're there. So, you know, they, they, they're not really getting any service out of it. They're just trying to- Have it appreciating value. So that's a very big difference, and obviously it doesn't work in bear markets. It only works during, during, you know, during times of exponential growth, and we all know we can't have exponential growth forever. That's, you know, that should be very obvious. So the whole model doesn't, just doesn't work." }, { "speaker": "stephan", "time": "18:01", "start": 1081.42, "text": "Yeah, great, great comments. I like the, I like the explanation around that, and it, it's almo-- it's one way to say it is basically that these are just unnecessary app tokens. And, you know, and I like the way you contrast, you know, the Fortnite example, where people don't care, they're not-- it's not that these people are holding the private key for V Bucks, they're not trying to trade V Bucks, they are literally just using it to buy in-game products, and that's, that's that. You know, now another area that I've seen, you, you'd be very, a, a good observation, I think it's very true, is that, you know, altcoiners are very good at calling out other altcoiners. And so one example you gave, yeah, which is, yeah, which is true. And you look at, say, Ripple, you look at the CEO of Ripple, Brad Garlinghouse, he was commenting saying, \"Oh, look, look, some of these other projects, there's not a lot of successfully deployed solving a Defining for a clearly defined person, what do you think about those comments?" }, { "speaker": "udi_wertheimer", "time": "19:05", "start": 1144.56, "text": "Yeah, so, so yeah, that's something, It's interesting, you know, since I started kind of speaking out about things like altcoins and shitcoins, I, I've actually had a lot of people, you know, kind of come to me privately and just say, you know, a lot of times it's people that are involved in some projects and, they, they kind of, you know, it's always the same thing, they always say something like, \"Look, I- you're right, the, the industry doesn't look very well, and there are a lot of projects that are doing, you know, obviously scammy stuff and obviously, just things that don't make sense, but, you know, not everyone is like that, you know, some, some of us are, are really trying to, to do, to do good. and, you know, they, they usually then start trash talking about each other. You sometimes have like a few conversations open with people unknowingly trashing the other. And, and it's, it's, it's really, you know, it's really interesting first, yeah. I, I think that, you know, the, I, I, I don't think, you know, when people say we're trying to do good, I don't think this is about morals, right? This is a free market and people can do whatever they want, as long as it's legal. I, I'm not sure how much of what people are doing is legal, but as long as it's legal, they, they can do whatever they want. So, it's not about morals to me, I think that a lot of people come with good intentions, and I also think that's one interesting thing is that you have, you know, this industry has like a few, a few handfuls of, of, businesses that What they do is they, they kind of run ICOs for you. So they look for companies that are maybe in bad shape or maybe young entre- entrepreneurs are starting their first company, and they come to them with this idea of, \"Let's start a token,\" and they say, \"Look, we'll, we'll take care of everything. You'll pay us like a million two dollars, and we'll, we'll take care of everything for you. We'll do the white paper, we'll do the community management, we'll build the website for you, we'll do everything.\" And they raise And, you know, you, you, you, you really didn't want to do something that you believe in, right? As an entrepreneur, definitely the, the younger ones and, you know, the less experienced ones really want to do something meaningful. It's not that they're bad people, and they tried to raise funds from, from, you know, from, from VCs or whatever and didn't go very well, or, you know, or, or just ICOs are more attractive. I can, I can sympathize with that. And And then you're kind of stuck with this vision that someone else wrote down for your investors, and you have no idea how to do it, and many times you physically can't do it. So So yeah, so that's, that's a problem. I don't know if it's, you know, being a bad person per se, it's just, it's just not very professional and it's not very responsible. So" }, { "speaker": "udi_wertheimer", "time": "22:11", "start": 1331.48, "text": "so that's a very common story in ICOs. And but even the bigger ones like, you know, for example, for this example it's Ripple and, and others, you basically, you know, you, you, you build this notion of what you're doing, and I think Ripple is, is, you know, they're, they're very, They're, they're in the, the space for a long time, right? So they probably share this, this view of looking at other coins from, you know, from another sort of, sort of another place than others look at them. So," }, { "speaker": "udi_wertheimer", "time": "22:43", "start": 1362.66, "text": "I, you know, I, I can see the, the, the, the train of thought there, but It's, you know, they're all so similar in their shortcomings, right? It's almost always the same thing. It's, no one's actually using it, we, we don't know how people will use it. Mostly what you're doing is just promoting to, looking for new users and promoting to them, not users, new investors, sorry, and promoting to them, and that's it. So Yeah, it's actually everyone is pretty much doing the same." }, { "speaker": "stephan", "time": "23:17", "start": 1397.37, "text": "Yeah, it's a good point you raise that really it's a lot of these people have just taken the path of least resistance. So they want investors, they want funds, they want to raise money, and they might have been denied on the traditional route, and then they, you know For one reason or another, got pushed or, you know, went into, went down that path of doing an ICO and raising funds in that way. So the next thing, and it's related to Ripple and other, you know, some of these more what we might call enterprise blockchain, There are, s-there's a dis- there's a distinction there because these are obviously, they tend to be more like a federated permissioned ledger as opposed to Bitcoin's open permissionless ledger, How do you sort of talk and think about the way a, a company that, say, wanted to use a blockchain, you know, this whole blockchain technology, how? Should they do such a thing?" }, { "speaker": "udi_wertheimer", "time": "24:20", "start": 1459.95, "text": "Right. So the, the first question should be why? Why do you wanna use blockchain? And I, I know that's not exactly what you're asking, but, but it has to be asked because, you know It's people, people who, especially people who don't have a lot of experience with this, and, and okay, let's be frank, no one has a lot of experience with blockchains, or very few people have a lot of experience with blockchains, but even people who, who have very little ex-uh, experience with blockchains, they, they usually think of it as, as things that it's not, like, you know, it's very fast or it's very, scalable or it's easy to use, things that, that, you know- You know, blockchains are pretty much the opposite of that. And so you, you have to ask why. People who use-- I think most of the, you know, developers that I consider, you know, serious developers, they, they don't like developing for blockchains very much. It's a pain. It's not, you know, it's not fun. you sometimes get to work on challenging problems, which is very satisfying, but the-- it's not, you know, it's not a very fun process. There are a lot of problems involved. So you should want not to do it if you can, right? Developers are expensive. If you're gonna build a blockchain, project, you're gonna pay a lot of money for developers, a lot. So or you could get like traditional developers, you know, work on traditional systems, and you're gonna pay them a lot too, but, but you're gonna pay a much more market based price. So You know, you, you have to ask why you're doing it, and the answer is almost always, you know, for, for generating hype. That's almost always the answer, if, if you're being true to yourself. But, you know, let's, let's, let's say you have this, I don't know, let's say you have this Use case that you really believe in like security tokens, right? which, you know, I'm not sure about, but that's another thing. So let's say you wanna do security tokens and you think that, it will work better for, for your partners if you can say the word blockchain, right? Because they'll get excited. So What do you do? yeah, I think it's, it's almost always better to use some sort of a federated solution, again, because you're just going to want to do the simplest thing you can do. You wanna be as simple as you can be. With Bitcoin, we kind of have this system that is, you know, kind of involved in the moving parts it has, and the economics and game theory of it. And we do that because we want something very specific. We want money that we can transfer in a way that can't be censored and can't be changed. So we don't want the monetary supply to be changed. And it's not that, you know, it's not guaranteed by the tech, it's guaranteed by the, the community and the social aspect. aspect of Bitcoin and the tech is there to help us to enforce the social rules that we decided on. So Bitcoin is the, the, the, you know, the Bitcoin, infrastructure is there to Sort of automate the coordination process between all of the, all of the community members of Bitcoin. The community members have to agree that we're only have, we're only gonna have twenty-one million bitcoins, that the code can take care of that, it can check it for us, but it can't enforce it forever. The, the community has to enforce it. So, so, so Bitcoin helps in, in automating this, instead of having every person checking every transaction manually, the Bitcoin software automates this process for us. In something like security tokens or some other centralized thing that you want to, to use a blockchain for, you, you don't care about these social rules because you're gonna have governments enforcing these rules. You don't need to have, all of the inefficiencies, that this coordination, this automatic coordination generates. You, you want something a lot simpler. Maybe you don't have to have everyone checking everything and you don't have to verify every- thing, maybe, you know, maybe there are some steps that some people can take to make things easier. and so federated blockchains make a lot of sense for, for things like that. I think that, you know, centralized databases make more sense, but let's, let's say that federated blockchains do make sense for this. So, You know, you pick like one part of the federation will be some regulator and another one will be the company issuing the stocks and another one will be, I don't know, a few exchanges, whatever. You have to pick them very deliberately, but you can pick them somehow. And then, you know, they can take care of everything, and if something goes wrong, you can have a regulator stepping in and say, you know, seeing the entire history and saying, \"Look,\" Fix this and, and that's fine, and everyone will accept that because they have to. So that's a very different thing from something like Bitcoin, so that's why I think people should adapt when- When doing things like that." }, { "speaker": "stephan", "time": "29:37", "start": 1776.93, "text": "yeah, that's a great explanation of the increased inefficiencies that can come with blockchain and really the real reason why the-- blockchains are specifically used. Now, related to what you were saying, there has-- there was a shift in the language as well over the last few years. I recall when these things first came out in maybe 2014 or so, there was a lot of the term \"blockchain technology,\" but then what's happened- Happen is some of the companies have almost agreed, admitted, they admitted and they've changed and they said, okay, actually, what we're doing is something closer to distributed ledger technology. Or, and I think you, you might have commented earlier on the difference between, say, Corda And Ethereum, with Corda being more like a distributed trust-minimized database. So can you just elaborate a little on that difference?" }, { "speaker": "udi_wertheimer", "time": "30:30", "start": 1829.78, "text": "Yeah, sure. So actually, Corda is an interesting story, I think, because, well, first of all, there's a lot of animosity in the Bitcoin, community, towards Corda because of Some political statements, involved in the earlier years, you know, Mike Kearn, which is a, the I say infamous Bitcoin developer, you know, declared that Bitcoin is dead and went on to work for Korda and was kind of part of their PR machine. So there's like some bad blood there, That being said, if you're, if looking at the technology itself, I think that, Corda's technology is, in my eyes, superior to a lot of the other, other, you know, private blockchain stuff that we're hearing about. what's different there is that first, it's not a blockchain, there are no blocks in Corda. They realize that, you know, since you're gonna have some permission actors that you're gonna have to trust in a way, then you can go ahead, go ahead and, and forget about the whole notion of blocks, which are basically used to combat, the, you know, the networking delay. It takes time for things to, to, to propagate through the network, so, you know, people-- So if it's blocks, it's just gonna be easier to, to tag them. If Bitcoin didn't have blocks and just had transactions thrown around and, and each transaction would have to have its own proof of work, then, you know, you'd have to have like a, a much faster, propagation rate. You'd have to have, instead of a block every ten minutes, you'd have to have a, a transaction every second or every sub-second, and that's just not-- that doesn't work very well in, in a, you know, distributed network. But in Corda, you don't have to have transactions propagate to everyone, they try to only propagate them to people who care about them, and that's some Simplifies a lot. So it's basically instead of one chain of blocks, it's a lot of small chains of transactions where people only see the change they need, and that's just, a better architecture. It's a better, you know, for something like that, when you don't have, you don't care about if what everyone else is doing, it's just a better architecture. Couldn't work for Bitcoin, but it's, it's fine for what they're doing." }, { "speaker": "stephan", "time": "32:53", "start": 1972.51, "text": "Yeah, I like that explanation. And I think you, it, there's that distinction there between the quarter, you know, system and Ethereum, which may bloat. Do you wanna talk a little bit about blockchain bloat?" }, { "speaker": "udi_wertheimer", "time": "33:06", "start": 1985.96, "text": "yeah, sure. So it's, of course, it's not a problem specific to Ethereum, it's a very big problem with Bitcoin too, but I think that Ethereum kind of doesn't try to optimize the, the or minimize the bloat as Bitcoin does. so basically, you know, the, the basic idea is that, the basic problem is that you want to have everyone know everything in those systems. You need everyone involved to know what everyone else is doing at all, at any time. And The reason you have to do that is because you have to know, you know, if-- when you get a Bitcoin transaction or an Ethereum transaction, you need to know that the person sending it to you can send it to you, you know, that he actually has them. And in order to know that he actually owns them, you need to go back and see who sent it to this guy, you know, and you have to go back Basically to the beginning of, you know, all coins. And at some point you get to where this coin was mined, and you can think, okay, so that's enough, I can stop here. But actually not, because in order to know that the coin that was mined is valid, you know, that it was legally mined, you have to see that no other coins were mined in that block, right? You have to, you know, let's say, I, I-- So you have to look at the whole entire block and see that no other coins were mined, because if they were, then This miner is cheating, and you don't have to do it just for that one block, you have to do it for all blocks. You have to see that no more, you know, no more bitcoins are being mined in any blocks. So you, you basically, and, and, you know, there are other things you have to validate, and you, you basically Have to validate everything that happens everywhere all the time, just to know that a Bitcoin transaction you get is valid. And actually, it's the only thing you care about. When people, when we say that people should run full nodes for themselves, the reason isn't to, you know, support the network and propagate data or whatever. It's just so that you can be sure that when you're receiving a Bitcoin transaction, it's a legit valid transaction. If you're just asking like, a centralized wallet service or a block explorer or whatever. If, if the, the transaction is valid, then you're trusting them. And then, you know, what, what did we do? You know, what we, what did we gain by doing all that if you eventually have to trust someone? So if, if you're just getting a small transaction once in a while, maybe that's fine for you, maybe that's a risk you're willing to take. definitely if you're a large business processing a lot of incoming transactions, you have to be sure that you're really, you know, that the real transaction that you're receiving, otherwise," }, { "speaker": "udi_wertheimer", "time": "35:46", "start": 2145.91, "text": "API that you're using could try to manipulate you into accepting unreal bitcoins. So, so that's why we have to do this. And unfortunately, it means that the blockchains aren't very scalable because as you add more people and as they transact more, it's just very hard to keep up doing this. And if, you know, you might end up in a situation where a very small amount of people can afford to, to validate everything. And so in order to be sure that the transaction you're getting Is real, you have to trust someone else basically, and that's a very bad outcome. right now it's not the, the case, you know, right now we luckily can run Bitcoin nodes on Raspberry Pis, right? So that's great. yeah. You can't run, yeah, you can't do that with Ethereum unfortunately, and it's, and it's getting worse there too. So that's, that's, you know, that's what The entire block size debate and things like that, that's, that's what it's about. it also has some implications for miners, it's basically the same thing, if, if, you know, if you need to have like very strong hardware and very good connectivity in order to, you know, in order to be part of the network, then it, it naturally means that bigger miners have an advantage because, you know, they, they gotta get all the data from within their, you know, their area and they have stronger, stronger hardware because they can afford it. And I, I'm not talking about mining hardware, but, but just CPU for processing the, the Bitcoin chain. And then, you know, larger ones can get a cut out, smaller ones can get cut out, which further centralizes things." }, { "speaker": "stephan", "time": "37:23", "start": 2242.93, "text": "Yeah, right. Yeah, that's a good explanation. Okay. yeah, I like that. And I think what we can do now is change over to talking more about what you're working on these days with Bitcoin and, you know, even with Lightning as well. so- Maybe tell us about, what's some cool tech or software that you've recently used in relation to Lightning?" }, { "speaker": "udi_wertheimer", "time": "37:44", "start": 2264.42, "text": "Sure. So, with Lightning, you know, first of all, Lightning is super exciting, and it's, it's also, it's really fun to see how development really caught pace in the last year or so, basically since SegWit got activated, things got started moving much, much faster, and it's really great to see that. so, you know, We're at the stage where basically people are still trying to, you know, install their own Lightning node on their own machines or Raspberry Pis or whatever, and fund it with some money and, and be part of this network and check out how routing works and check out the different Lightning implementations, which is, you know, it's fun experimentation. we also have like, we have a lot of wallets recently, there are a lot of people working on, you know, Android wallets, iOS wallets desktop wallets, all of them have like their own kind of unique properties. Some of them are for more advanced users, some of them are for, you know, for really begi-- for absolute beginners. The, there's this one that, Lightning Labs just released a few days ago an update to their own desktop app for Lightning, which, yeah, I tried it out, it's really, really good. It's, it's like designed for, for newcomers Basically, maybe even people who don't know much about Bitcoin itself, and it just works really well, you know, you, you, you, you start it up, you have a very quick explanation on, on typing, you know, on, on writing down your recovery phrase, and then You just, you know, you're being told, \"Look, deposit some bitcoins in here, \"and basically you wait for confirmations and you're done. You can start using it. You don't have to worry about channels, you don't have to know what channels are or know they exist. You don't know, you don't need to know anything. You get this very simple app, very good-looking app that you just say, \"You know, you, you send, \"and, and you're done. It's very easy. It's, you know, it's a great experience. Terrible experience for users. So no, this is how experience should look like, and it's really shaping up well. It's still only on testnet, but it's, it's really shaping up well. so that's, you know, that's on that part. For me personally," }, { "speaker": "udi_wertheimer", "time": "40:16", "start": 2416.42, "text": "I, oh, and, and also before, before I talk about me personally, we also have, you know, those cool apps, that people affectionately call, Labs, Lightning Apps, that Just, you know, just do cool stuff like the, the Satoshi's Place thing where you can send some money to, to place a pixel on a map and people are drawing things all over it and it's, a lot of fun. and, you know, people come up with those crazy cool ideas and- They had this, recurring hackathon in Berlin, from Fulmo. I think you interviewed them, a few, yeah, Jeff," }, { "speaker": "stephan", "time": "40:55", "start": 2454.96, "text": "Jeff, Gallus from Fulmo, Lightning." }, { "speaker": "udi_wertheimer", "time": "40:58", "start": 2457.56, "text": "Yeah. Yeah. So they're working on like, you know, people attending these hackathons are, are working like on really fun, cool stuff. So that's, you know, it's really a lot of fun. for me personally, I- I'm slightly less interested in the payment, use case because, yeah, I don't know, I, I have the theory that, you know, it's great that we have a way to do payments, but I'm not, I don't think it's gonna be very popular that people pay with Bitcoin in the, let's say, next two to three years at least. if I'm being, being optimistic actually. So, you know, it's just, yeah, for, you know, for, for people like me and you, sure, we're gonna do it because it's fun and, and it's interesting. But, you know, for most people, they're, they're gonna keep using their credit cards for the foreseeable future. So, that's, you know, that's at least the way I think about it, so I'm, I- and I know it's controversial, right? But I'm, I'm more interested in other things you maybe can do with Lightning, so, One interesting thing is that this is, I think, our first real implementation of payment channels at all. So payment channels is an idea that's quite old. you know, Satoshi talked about it early on, and then a few people suggested some schemes for doing payment channels on Bitcoin Talk, and I think it was implemented around twenty fourteen, if I'm not mistaken, in Bitcoin J, which was a Java Bitcoin library. it turned out to be broken later weren't, you know, it wasn't perfectly secure, but, you know, this is about the first time we have a real serious, way to do payment channels at all, and it turns out that payment channels are just a more efficient way To move money in Bitcoin for any purpose, not just, you know, payments in a store. it just kind of solidifies a lot of best practices of how you would use Bitcoin, right? So, you know, if, if, if we're thinking about something like a store, which again isn't not necessarily the, the best example, but if we're thinking about something like a store, it would probably make sense to, for you, if you go in every morning to buy some coffee, it would probably eventually It really makes sense for you to say, \"Oh, you know, to the store owner, look, I'm, I'm gonna send you like, I don't know, twenty bucks worth of Bitcoin now, and, you know, and I'm gonna get some, you'll, you'll, you'll let me buy some coffees for the next few days without paying you, because it's just more efficient, and it's gonna be easier for both of us.\" So that's-- but that's, you know, that's not very secure and requires trust, right? it's Not doing a transaction for every little thing. And it's, in a bigger scale, it's right for a lot of other things. So if you have like two exchanges who regularly transfer money between each other to, to settle some differences, then it makes a lot of change, a lot, a lot of sense to use payment channel for that. In some cases, there, there are things to consider regarding hot wallet security versus cold wallet security, but in some cases it makes a lot of sense. And definitely, you know, if you're a trader who is using an exchange very frequently, and, you know, on the one hand you wanna take, you know, take advantage of some market opportunities, and on the other hand you don't trust the exchange with your money, then a payment channel would make a lot of sense. You can just open a payment channel with your exchange and move money back and forth instantly when you need, when you need It can be at the exchange side and when you need to use it, and when you don't need to use it on the exchange, you can keep it on your side safely. So that's like the kind of things that, that, that you can do with payment channels to just make everything Much simpler and more efficient, that's, you know, how you would like things to work. And actually, if we go back like ancient history, then, you know, things like Mount Goats actually had the system. I think they called it, I don't remember how they called it. They had the system where you could, You could sign up as a partner sort of, and, and Mountgux would tell you about a transaction. Look, we're, we're sending you a transaction now, and it's gonna be registered on chain, but you don't have to wait for confirmation because we're telling you it's legit, and we're telling you that we're not gonna double, double spend it, and you can trust us. Now, trusting Mountgux wasn't a very good idea, but, but for other-- But, but assuming you have this, this party you trust, then this is, you know, a You know you trust this person, then you don't really have to, to wait for confirmation. So," }, { "speaker": "udi_wertheimer", "time": "45:44", "start": 2744.27, "text": "but you do have to trust someone for that, and we don't want to trust people. So, so Lightning kind of solidifies this concept in a way that you don't have to trust the counterparty, which is just, you know, it's just useful for so many things. so things that I've been playing around with, you know, I'm, I'm not necessarily ready to share everything about them yet, but the, the, the general concept is, Or just in and of themselves, like this cool tool that we can do a lot with, and, yeah, it could be useful for things that are not just payments, definitely, you know, things like, Paying in exchanges, things like, you know, getting maybe, I don't know, maybe," }, { "speaker": "udi_wertheimer", "time": "46:30", "start": 2790.28, "text": "yeah, let's say exchanges for now." }, { "speaker": "stephan", "time": "46:33", "start": 2792.72, "text": "Yeah, okay. Well, I think one example that it gets brought up nowadays is something like Liquid. So you got Lightning Network for the small transactions, and then Liquid as that sort of federated side chain amongst the idea being that, you know, large exchanges and trading desks can move the Bitcoin around very quickly in that. So when you were talking about payment channels, were you thinking payment channels for small amounts or for large amounts? So," }, { "speaker": "udi_wertheimer", "time": "46:59", "start": 2819.46, "text": "you know, for the, for the foreseeable close future, it's, you know, for the short term, it should definitely be smaller amounts because, you know, the, the entire technology stack is still new and there're definitely bugs in there, so you shouldn't be risking a lot of money. going forward, it really depends on the use case, depends on the infrastructure you put in place. I think it could be feasible to use, you know, higher- amounts of, of money in there. Once we're talking like, you know, payment channels do have limitations, right? So let's say you are the best trader in the world and you just sent some money in a payment channel to BitMEX and opened a one hundred x position and, you know, you start, you start with one bitcoin and five minutes later you have five thousand bitcoins, right? So, so you're gonna have a problem, the payment channel can't send you the money back. So, you know, if you- Through a, a high volume trader that, or whatever other use case where there are, you know, big, differences between what's coming in, coming out" }, { "speaker": "udi_wertheimer", "time": "48:11", "start": 2891.49, "text": "then maybe payment channels aren't the best way to do that. And, and definitely, you know, yeah, payment channels are, are better for small scale thing because, you, you kind of have this Closed channel that has to, to always rebalance if, if, if things change too much. for large networks, a sidechain makes a lot of sense, or a federated sidechain makes a lot of sense because y-y-it's easier to balance things off. so yeah," }, { "speaker": "stephan", "time": "48:41", "start": 2921.27, "text": "yeah. And then in terms of tech that's coming down the line, is there anything that's really exciting for you?" }, { "speaker": "udi_wertheimer", "time": "48:49", "start": 2929.27, "text": "you know, so the first, probably the first thing is, is, is the Schnorr signatures, right? it's still kind of a ways off. I, I think sometimes people get the idea that they might get it like, we might get it like this year or next year, and I'm not very optimistic about that. but it's, it's- It's definitely gonna open a lot of doors because, you, you can do a lot of stuff once you use Snor. First, you can get like immediate, privacy benefits because You, you don't have to separate types of transactions as much as you have today. So for example, in, in most cases, a, a single signature transaction can s-look the same like, a multi-signature transaction, so you already, you know, you increase your anonymity set there. But also there, you know, further, further out, there are other cool stuff you can do like aggregating, signatures together in a block, for example, or, you could, you know, there are talks about things like Taproot and so on that maybe are even a little further out, but it also help a lot both with scale and with privacy because that's just another set of transactions you can make look the same. So, yeah, I, I think the most interesting things to me are privacy and fungibility related. not so much scalability. The scalability was the buzzword of a few, maybe a year ago, but I, I don't think it's as interesting because scalability can be improved by using best practices. That, you know, there are a lot of low-hanging fruit we didn't get to yet. but with privacy, I think, you know, I, I see privacy as the, sort of the next big threat to Bitcoin personally, that's the way I see it. And, and I'm not sure it's entirely about privacy. Privacy itself is important, right? If, if, if you, you know, someone sends me a small payment, they don't want me to know what their salary is, right? You're exposing too much information when you're sending payments, but even if you don't have any specific thing to hide, right? But, But it's not just privacy, it's also the idea of fungibility, and the, the two usually goes to g-go together. So the, the problem is that you can say that there are types of coins, you know, you can say the, the, the type of coins that went through a dark market once, and there's a type of coins that went through, unregulated exchanges once, and there's a type of coin that went through gambling, websites, and, and you can kind of have different prices for them because maybe, you know, maybe regulators wouldn't allow you to, to use coins that are, that, that were used to gambling ones, or maybe you would be required to prove that you didn't use them for gambling. So this can create like Differing prices for different coins. And, and by the way, this isn't entirely theoretical, people already pay today more for, for freshly minted coins, right? So you, you can reach out to a mining pool and you can pay them like, I don't know, five percent, ten percent more to get a fresh coin that was just mined, specifically because it has no history. And some people value that. They say maybe in the future it would be worth it to have a coin that was never, you know, never moved. Never used anywhere. so, so there's already some price discrepancy, and as, you know, I think that as regulators learn more about how Bitcoin works, we're gonna see this more and more in, in various areas. So I think We, we should be doing what we can to get fungibility back into Bitcoin, as fast as we can. Otherwise, this must-- that might become a real problem." }, { "speaker": "stephan", "time": "52:54", "start": 3173.63, "text": "yeah, yeah, that's a fair point. And, and I think the other thing that comes up with that is around the confidence that people will have in the twenty-one million You know, cap, you know, because it's, it's important to also maintain that. So I can un- I can see where there might be a potential battle coming actually, because, you know, for example, with something like confidential transactions There might, it might, you know, people in the community might sense that that is raising the risk of silent inflation beyond the twenty-one million. And then it will be an interesting kind of battle there, because there'll be some people on the side who really, really wanna be sure that there's no more than twenty-one million, and then there'll be other people who want more fungibility. What do you think?" }, { "speaker": "udi_wertheimer", "time": "53:42", "start": 3222.42, "text": "Yeah, I think that this is something, I think Jimmy Song recently talked about it, had a video up about this. and, so first of all, sure, I think that one of the things that the Bitcoin community cares about the most is to enforce the twenty-one million cap that's like- One of the first things people will tell you that, that is, the, the basic, the basis of what Bitcoin is. So, so yeah, that's definitely very important, and the, there could be a problem when, when you're hiding the values, if you have transactions that can hide the values, like with confidential transactions, for example, then this might become a problem. there's, There's this term called, perfect binding, versus something else that's called perfect hide, perfectly hiding. So what it means is that You can have this mathematical scheme or this cryptographic scheme where, which is perfectly binding, which means that no matter, you know, as long as you, as long as the, the, the As long as there are no bugs in the code, right? Then the way the math works enforces, no matter what, that there are no, there never more coins than there should be. That's perfectly binding. and the other option is perfectly hiding, which means that no matter what happens, even if, you know, ECC, elliptic, elliptic curve cryptography breaks, you know, if someone finds an optimization and breaks ECC, then even in that case, the transactions remain hidden, right? You can never say To someone, hey, you transferred like five bitcoins here because no one can know ever, no matter what happens to the math. So you kind of have to choose, do you want perfectly binding and then the, the privacy could be risked if ECC is hacked or, or, or, you know if a solution of, an efficient solution is fine to SEC. So this, this is one option. The other option is you always hide but not always bind. And I think that the, the proposals right now are Have the property they're perfectly hiding and not perfectly binding, but we could have other proposals that do it the other way. So basically, you know, if, if you're afraid or concerned that, the math could be kind of, you know, someone could find, an efficient solution to, to ECC curves, so you, you know, you can, you can be sure that the, the amount of bitcoins wouldn't, wouldn't be over twenty-one million, but you might- Lose your privacy, and I think that for Bitcoin specifically, it's probably the better trade-off, probably, I, I assume that's what the community would prefer. I don't think we have any proposals like that right now, but That's, you know, it's not impossible, I think." }, { "speaker": "stephan", "time": "56:39", "start": 3398.97, "text": "Yeah, no, that's a, that's, thanks for explaining that. It's a good, way to put it. Okay. well, I think we're getting pretty much to the end of the hour. Do you have any last thoughts, or, or how about, anything you want the listeners to come and find you at or projects that you're working on, anything like that?" }, { "speaker": "udi_wertheimer", "time": "56:58", "start": 3418.22, "text": "yeah, so Best way to find me or reach out is, is on Twitter. I, I won't try to, it's, it's Udi Wertheimer, right? But I won't try to spell it. Hopefully you'll have it on your- Nah, that's okay. I'll" }, { "speaker": "stephan", "time": "57:13", "start": 3432.95, "text": "put a link, I'll put a link to that guys. Yeah, yeah, so" }, { "speaker": "udi_wertheimer", "time": "57:15", "start": 3435.39, "text": "that's the best way to reach out. And yeah, I hope you, you, you will hear soon about some projects, hopefully." }, { "speaker": "stephan", "time": "57:21", "start": 3441.36, "text": "Excellent. Alright. Well, thanks very much, Udi. With Udi, I particularly enjoyed the discussion around unnecessary tokens and crypto economics. As usual, guys, if you enjoy the podcast, I'd really appreciate a good review on iTunes or whatever podcast platform you're listening on. And otherwise, that's it from me. Thanks for listening. Speak to you guys next time." } ] }