{ "episodeId": "SLP360", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "giacomo_zucco_bitcoin": { "name": "Giacomo Zucco Bitcoin", "role": "guest", "tag": "GIACOMO" } }, "segments": [ { "speaker": "stephan", "time": "00:08", "start": 8.41, "text": "Hi, you're listening to Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today we're talking about this idea of whether Bitcoin can be both hard money and dark money, and whether it should be or must be both of these things. Now, joining me on the show today to talk about this is my friend Giacomo Zucco. And so we talk about various concepts related to this. We talk about the community, the businesses, is there a risk of regulatory capture? We also discuss the use of whether people should consider using altcoins or atomic swapping or lightning or other means. Means of achieving privacy, and we also talk about some of these aspects around compliance bros and compliance as opposed to the free and open gray market world of Bitcoin, as well as why number go up is actually still important. This show is brought to you by Swan Bitcoin. I'm working at Swan, and with Swan, there's also a service called Swan Private. Now, we launched Swan Private because we talked to so many people that had issues Issues with the major exchanges. They were getting their accounts locked or customer service couldn't help them. Some people couldn't onboard their accounts, especially if they had an empty account, and many just wanted to talk to an actual human being who could answer their Bitcoin questions. With Swan Private, you are receiving a one-on-one Bitcoin advisory service. This is designed for high net worth investors or for entities, and this team is actually here to support you in your Bitcoin journey, whether that's expert guidance on choosing the right custody model or giving you exclusive access to A Swan Private webinar and monthly research report. These are some of the benefits that you can get by joining up with Swan Private. So if you're interested to buy Bitcoin with some guidance along the way, go to swanprivate dot com. And if you need some fiat liquidity and you need to use a collateralized loan, Lend at Hoddle Hoddle is a peer-to-peer Bitcoin backed lending platform, so you can lend or borrow stablecoins globally and anonymously. Now, the cool part is you can sign up really quickly and you can borrow stablecoins without any verification. You deal directly with other people, and you select the offer based on the term length and the interest rate that has been offered by the counterparty. Now, on the other hand, if you have stablecoins and you wanna earn An extra, well, this is one way to look at this. So you are essentially issuing out an over collateralized loan and you get the full interest paid out at the end. Now, with lend at, lend at hoddle hoddle, you are lending and borrowing stablecoins on your terms at your desired interest rates. So go and check it out. The website is lend dot hoddle hoddle dot com. Are you interested in getting started with Bitcoin mining? Compass Mining can help you. They are the world's first and largest online marketplace for Bitcoin mining. Hardware, hosting, and ASIC reselling. Compos is adding over two hundred and eighty megawatts worth of hosting capacity this year alone. They can help you get easily started. If you're in the US, you can order a mining machine to your home and mine from home, or you can use a hosted service where they are sending your machine to a vetted facility, and that can be done all around the world. And there are various facilities that you can select from, so you can go and select the mining machine. They've also got some that are new and some that are- second hand, so obviously there's a trade-off there, and sometimes those second-hand ones will be able to come online faster. So there's also lots of material there on the website if you need to learn about Bitcoin mining, they've got audio material and a newsletter, so you can go and sign up. That website is compassmining dot io. And now onto the show with Giacomo. Giacomo, welcome back to the show." }, { "speaker": "giacomo_zucco_bitcoin", "time": "03:48", "start": 228.49, "text": "Thank you for having me back. It's a pleasure. It's a long time." }, { "speaker": "stephan", "time": "03:53", "start": 232.71, "text": "Yeah, it's been a while since you were on my show, actually, but, I always, love seeing your perspective on Bitcoin, Twitter, and the articles you write and the talks you do, and, you did a great one recently at Unconfiscatable, which we might get into some of that also, because I think it's a very topical moment for many of us in the Bitcoin world where we're having this discussion about Bitcoin as a tool for privacy, but also this, you Money, and I think this is something you, you have spoken about this idea of Bitcoin being both hard money and dark money, and I guess that's probably a good spot to start. So maybe if you just wanna frame this for listeners, how would you define hard money and dark money? Why are both of those important?" }, { "speaker": "giacomo_zucco_bitcoin", "time": "04:37", "start": 276.7, "text": "So hard money is not a definition that, that, that stems from, from me, it's, it's, pretty standard at this point, is, is Bitcoin standard in a way because it was popularized by Safedian, among others. So hard money is basically the characteristic of supply inelasticity. When you have, more people, demanding some kind of very saleable good as, as a form of money for monetary function, the supply production will resist, will be inelastic, with respect to the demand. That's very important for money because if you use as money any other thing, you incur into this, money trap basically. you, you give, you have more demand for this good as money Money for monetary functions. So now you have more demand, so now there is more incentive for the producers to basically produce more, and now you will have a collapse of the price and it's not working as money anymore. So it's important to have this kind of, supply inelasticity. it's, it has been qualified better as a stock to flow ratio, which is separated from the stock to flow price prediction model. It's, I'm a little, I mean, at this point it's very important to separate the things, but- Price prediction is a very difficult endeavor, while, the analysis of pr- of stock to flow ratio as a fundamental measure of inelasticity of the supply and scarcity basically, it's very important. So hard money is very well qualified. It's a, it's a definition that overlaps a little bit with a previously famous definition of sound money, but, but, but there are a lot of, of better, I think it's more clear definition of what makes scarcity so important for the monetary fund function of Bitcoin or of everything else. Dark money, I will admit, is probably something that I'm trying to push more myself, is not very standard at this point within Bitcoin or outside Bitcoin, and I started to, push it in my, discovering Bitcoin series in, Bitcoin Magazine, and I think it, it fits very well because it's, it's a similar-sounding like, it's very short definition, it's not like fungibility or deniability, it's very like dark, it's very compact. And it, it also, basically makes you think to dark net markets, which are the clear, not the only case of application, but the most evident, clear, self-evident case of application of some form of money that can't be spied, censored easily, and that, that's basically free to use as you please without, consequences. but there's also a lot of other, like, if, if you, if you think about that, the, the idea of dark is used also outside the specific- Idea of secrecy, like, if you think about the intellectual dark net or intellectual dark web, where journalists are classifying people like, Peter Thorne or, or, or Wolfram in science, it's basically everybody who isn't in the official whitelist. So there is a whitelist of people, of people and stuff and ideas that you are allowed to follow, and then there is a dark side of it, which is basically everything which is below the whitelist, everything which isn't, which, without the light of the official sanction On it. So everything which is below that. And also there is like, the, the idea of going dark. So when you, when people need cash, physical cash or in this case, digital cash, they usually need cash because they want to go dark. So they want to, be able to spend without being pursued or, or, or harassed or confiscated or punished or, or everything else. So there is this level of, of, there is a lot. I think dark is a very good, I mean, for somebody it could be scary. They, they The whole idea of calling this stuff dark net is to make that scary. But at a certain point, just like maximalism, we could just take the, the, the negative connotation of the word and just ignore it and reappropriate the word in general. So explaining hard money is very simple, it's scarcity, it's supply elasticity. Explaining darkness is a little bit more complex. I will start probably from the definition of censorship resistant. We say that Bitcoin must be censorship resistant, but what is censorship? Basically, you can resist censorship in two ways basically. Either you can physically outpower the attacker. So somebody wants to censor you, wants to prevent you from spending your property as you please, and in order to, to resist the censorship, you just outpower the attacker physically. So, I come to you, no, Stephan, you can't spend that, and you are just bigger than me, and you just punch me, and, and it's over. You are censorship resistant. But the other kind of censorship resistant, which is more pertinent to Bitcoin, is- Admitting a physical inferiority, like I'm the US government, I come to you, you can't spend it, you can't punch me, not easily. I mean, if, if you are the Taliban, maybe you can try to fight for forty years, but that-- but it's not trivial as a consequence. So you, you, you have to resist, but you can't resist physically. So the, if you cannot use the physical force asymmetry, then use the information asymmetry in order to beat me, which is basically in Bitcoin, it's," }, { "speaker": "giacomo_zucco_bitcoin", "time": "09:48", "start": 588.23, "text": "At the level of the user, which is basically, first of all, the key, the private key secrecy. Since, I don't know your keys, I can't prevent you from spending because I can't spend those money away from your, from your wallet. So I can't stop you from spending because you know the key and I don't. So this is the first level of darkness of secrecy. The second level is if, if I don't even know that you do have that money because I can't easily track you, it's even harder to try to steal your money or to censor your Money or to confiscate it or to freeze it because I don't know how much you have and where you have it. So first the private key and second the fact that you have any money at all. But, this kind of darkness isn't just at the level of the user, but also at the level of, let's, let's call it system administrator. Like for example, in the case of eGold, even if users were pretty anonymous in a way, the system administrator wasn't anonymous, wasn't dark, was very clear because there was just two guys and they just had To arrest them and to shut down their server, and they knew where the server was and where the guys were, they just put some electronic ankle, they just had to jail them basically. In Bitcoin, you have this kind of darkness because first of all, you don't know who Satoshi Nakamoto, the creator of the system, is. The anonymity of Satoshi is very important because it's not an attack vector, while other, cryptocurrency creators or system creators, they may be an attack vector to the system in general. And second, even if- If you knew who Satoshi is, it's not important anymore because at this point, everybody's replaceable, everybody's disposable. If you shut down a miner, another miner can just plug the ASIC in. If you shut down an exchange, another will come. So you have made the system, you have made the system, censorship resistant because you don't know who do you have to hit in order to, to, to take the system down. So this idea of darkness, I think it's, it's a better characterization of censorship Resistant. We, we aren't resistant to censorship because we, we can outpower the attacker, but because we know things that the attacker doesn't know." }, { "speaker": "stephan", "time": "11:58", "start": 717.81, "text": "Yeah, good explanation there. So at a very superficial high level, you could think of dark money just being private money, right? That's maybe a very simple way to put it. But as you say, it-- there are levels to this, because if you are strong enough physically, you could just say, \"I know you know I have this money, but I'm stronger than you, so I'm just gonna do it anyway.\" Right? Or as an example, you might say, okay, look, instead of all the gold of the world or a very high percentage of the gold of the world being stored in one vault in Fort Knox, instead of that, it's because it's so distributed all around the world or all, all amongst the country or in different places amongst different people for this large entity to go around and seize it, it's just physically just very difficult, similar to your US and, Taliban example, right? Because they're just all spread out and same kind of guerilla warfare, Vietnam sort of" }, { "speaker": "giacomo_zucco_bitcoin", "time": "12:48", "start": 768.21, "text": "Which is also, sorry to interrupt you, it's also an inf- an information problem. If you want to stop Taliban, if you want to conquer Afghanistan and go home by home, your problem is also an information problem. You don't know which one is a resistance and which one is just a civilian. It's asymmetric because you don't know the enemy could be everywhere. So it's still a problem of information and secrecy in a way." }, { "speaker": "stephan", "time": "13:08", "start": 788.43, "text": "Right, right. As, as you said, yeah, correct. And so then I think the challenge for- Bitcoin as an open source project to overall survive and go this way is this idea that it has to be both. Is there a fundamental trade-off between being one or being the other? And I think that's probably the interesting question. So what's your view on that? Is there a fundamental trade-off or is it not the case and actually for Bitcoin to survive both aspects, both ideas must be preserved?" }, { "speaker": "giacomo_zucco_bitcoin", "time": "13:38", "start": 817.57, "text": "So, i-i-it's both, meaning that, there, there are trade-offs. For example, the, the main- Trade-off is that when you-- we will discuss that a little bit more when we go into details, but when you optimize technology for hardness, for example, auditability of the supply, you, that there are smart ways to also have a good privacy and vice versa and the other way around, but usually you do have to choose some optimization. There, there are a little, a little bit in trade-off. A typical example is a typical problem in cryptography of- perfectly binding versus perfectly blinding. When you have this problem of obfuscating things, you have to choose if you want to make these things, easier to retrieve in case of confusion of bugs and stuff or easy to hide. And you do have to choose. But my point will be that, at a more general level, we have to have both because these are actually self-reinforcing characteristics in particular. Money can't be really dark if it's also not hard, and this is-- we will discuss that. But this is the point that I think many privacy coin pro- proponents don't understand. If you don't have hard money, people will not use. If you don't have the most saleable good, which also depends on its hardness, at least in the context of your use case, like your darknet markets or, or stuff, if, if your money's not the more hard, it will never be the more liquid, and if it's not the more liquid, so the, the more used, then your anonymity set will decrease. So the, the problem is that it's not just about the technology you use, it's also about how many people are using the same technology. If you have the perfect, the perfect anonymity, if you have a, a suit covering your face feature completely, but you're the only guy using that suit among a room of naked people, it's very easy to spot you because you're the only one using it. I can't see your face, but, but Stephan is the only one missing a-among these naked people. So I know it's him under the suit. So the- The problem is liquidity and, and, and on-set, and the on-set depends on liquidity, and it's, it's not easy to, to solve this and to work around just saying, okay, let's use Bitcoin as a very liquid store of value, and let's use something else as a dark medium of exchange, because every time you have to get out of your store of value and enter in the medium of exchange, that will be a liquidity, bottleneck, and that will also be a on-set bottleneck, and the other way around, when your merchant gets paid, you will have to exit A medium of exchange into the store of value long term, and there will be a anonymity and anonymity set bottleneck as well. Also, the other thing why, not hard money isn't, isn't usually not very good at being dark is also the, the, the thing about holding versus spending. If you hold, it's pretty easy to stay dark because you're not moving anything, you're ju- you're not just leaking any metadata about spending, you're just keeping your private keys secretly for twenty years. Very hard to spot you. If you have to spend continuously, so if your money's not hard, so you have to keep spending like, like an inflated, Venezuelan, government sheet coins, then you need to move around, you to, you need to leak a lot of metadata, you le- we leave traces on chain or off chain at network level, at chain level. So hodling is good for privacy, whilst keeping spending is bad for privacy. So a harder money that you can hold is easier, easier to hide. On the other way around, I would argue that, If your money is not dark, it can't be really hard, first of all, because, if it's not dark at the personal user level, so you can't easily hide that you have it or the, or your private key in, in, in this specific sense, then the, the, the more powerful attacker, which in this case is the government, might could be just, common bandits or, or, or others, they will come and if you can't hide the fact that you have it and where you have it and how much you have it," }, { "speaker": "giacomo_zucco_bitcoin", "time": "17:44", "start": 1063.72, "text": "The private keys. So if you don't have darkness, if you have complete loss of secrecy, then they can just take it and not making it, and making it not hard anymore. Like if, if it cannot inflate the supply, well, okay, they, they can just take you the same amount of the supply instead. So, another example is, if, for example, imagine that we, we have a Bitcoin that is, limited in supply, twenty-one millions and everything, but the government will enforce, KYC rules. So every time you ex- Set Bitcoin transaction, you need to have, KYC, white listing of the UTXOs that you use. In this case, if the question is, if the, the government was powerful enough to prevent you from running a Bitcoin node without those, additional restriction, which is basically a fork, if the government is, is, is able to prevent you from running original Bitcoin and is forcing you to running Bitcoin plus white listing, what is actually stopping the government from forcing you? To also run, a Bitcoin which is a hard fork and it's, for example, using some kind of inflated cap. So the people are thinking that privacy and the twenty-one million are completely separate things, and the government will just, sub-- some people, not all, but they imagine that the government will, basically, clamp down on privacy, but then once everything is not private, they will, they will just magically leave the twenty-one million thing go untouched. But I think this is- Fundamentally misguided because the government, for example, imagine the USA government, the government of the United States, they, they may want, they may like prohibition because it's control on people, so they may want to, to stop people from buying weed, sure, okay, maybe they want. But what is more important for the United States government, stopping people from buying weed or stopping savings of the nation, from escaping inflation tax? So the ninety, I, I, I will not know out quantified, but I would say that probably eighty, eighty to ninety percent of government spending isn't now funded by direct taxation, so coming to your home and taking your money, is funded by issuing debt and they're printing money to take your money out of cantillon effect to repay the, to monetize basically the debt. So the budget of the federal government of the United States is based on inflation. If you have money that will not be used to buy weed, but will be used To basically destroy ninety percent of the federal budget of the government by, by making savings of most people government resistant. La-- I mean, you have to assume that the effort that the government will put into monetary compliance will be orders of magnitude more of the effort about weed buying compliance. Nobody cares about weed, so it's a canary in the, in the mi-- in, in the mine. It's a litmus test. If you can't resist, a white listing to make it private, for- Buying weed, for sure, it can't resist an analog whitelist to make it easy to inflate. So that's, and the last argument, and then I stop because my answer are too long. the last, the last point is fungibility. in order to stay hard, the money has to have, not, not only hard to manipulate supply, but also a good demand. And if you break fungibility, so if people can't accept this kind of money without having to spend, unpredictable- Cost in order to know if it's the legit variant. So I, I come to your shop, I pay with cash, you take the cash and you give me the money, you don't care for anything else. I pay to your, to your shop, I come to your shop, I give you the money, and now you have to imagine what are the various regulators of various country, of various countries thinking about how many on-chain hopes I have to spend between a coinjoin and that, that's com- that's breaking down any kind of accept- acceptance of fungibility. Liquidity breakdown will reduce the liquidity of money because it will increase the cost of acceptance, the cost of receiving, in an unpredictable way because, maybe you are Giuliana Sangi, so I really have to look at maybe your money is coming from the cousin of the barber of Giuliana Sangi, and I have to know that. So that's basically breaking. So we need both. A dark money cannot not be hard, and hard money cannot not be dark." }, { "speaker": "stephan", "time": "22:12", "start": 1331.97, "text": "Yeah, interesting. And as- As you rightly point out, there is a reason the state demands control of money, and there's actually a very great, essay by Hans-Hermann Hoppe talking about why the state demands control of money. And as you rightly say, if Bitcoin were to get captured to that point, then the supply cap may get manipulated, or it may be manipulated upwards by some kind of, politician who wants to promise the world in terms of spending and so on. So that's probably an example where- There, there is an argument there that you actually need both longer term. Now, I think the counterpoint and probably what people might be thinking is, well, there is a challenge in terms of Bitcoin today because many of the people entering the Bitcoin ecosystem are doing that through a KYC entry point, through a know your, you know, through a, an exchange or a broker or some kind of service where they have to provide government documentation and there is a list now of, you know, people, that could be- Requested by the government or it could be hacked by a third party. And so this is a difficult thing because we're all in this ecosystem and we're trying to advance Bitcoin, but at the same time there's this, you know, government regulation which many of us don't like, would prefer didn't exist, but For certain businesses above a certain size and scale, they have to operate, they have to play in that white market space. So how do you think about that balance there of businesses who are in the KYC white market world as opposed to the peer-to-peer world?" }, { "speaker": "giacomo_zucco_bitcoin", "time": "23:48", "start": 1427.76, "text": "So I think there will always be, a, a trade-off between conveni- convenience and censorship resistance. So if you want maximum convenience, just use fiat, as long as you can. eventually you won't be able to- So when you have centralization, you have efficiency, you have, convenience, everything is easy, everything is, is cheap, everything is fast, until it's not because you're a Russian, because you're a tracker, because, because you don't fit anymore the fragile political, white listing. So everything is convenient until it's not. In, if you go on the decentralized, part of the, of, of extreme of the specter, it's the opposite. Everything is so inconvenient. Everything It's slow, expensive, inefficient. Like buying Bitcoin without KYC, sh- but, I mean, you can use Azteco, you have to move, you have to find a shop, move around, take some cash. If you have money in the bank, you have to withdraw the money first, and banks aren't happy to let you withdraw the money. Then you have to go there, but you have limits in your Azteco voucher, so you have to buy more in the-- or the ATMs is the same, or how the load is the same, and BQ is the same" }, { "speaker": "giacomo_zucco_bitcoin", "time": "25:01", "start": 1500.95, "text": "You may prefer to go where it's convenient until you can, but the main thing we, we should be actually aware of is that the problem is that eventually you, you won't be able to anymore, because the point of this censorship is that it keeps growing and excluding. The more the government is becoming bankrupt, the more it will try to implement stuff like negative interest rates, and the more they will want to implement negative, interest rates, the more they will try to stop you from going outside the system, and so they will basically censor you. You, if you go out of the system, so they will find new way to confiscate censor, and they did it already with, with, this is another good example of hard money that was not dark enough. Gold, physical gold, before Roosevelt confiscated it from the American people, in a Western democracy, so not, not in, not in North Korea, in a, in a recent, historically recent Western democracy, the president of the United States confiscated gold from people. Gold was hard, but it's mo- It wasn't dark enough because it wasn't hidden in, in private homes, but just in this very easy to spot, third parties. And so the point is, we have, we have to know the end goal. The end goal is that at equilibrium, this money will be either censored or confiscated. So the convenience that we are, we, we are basically getting now, it is at expenses of the absolute lack of convenience that we will have when we will be confiscated or taxed or punished. Also, as you said We are thinking about the government because in geopolitical, in, in geopolitically stressful times like now, like in the thirties, there may be something like Roosevelt confiscating the gold of, of, of the American people, sure, like, like Hitler did in Germany or, or basically elsewhere. But as you said, it's not just about the government, it's also about personal security against random bandits, for example. People were scared, rightly so, about the leak in the, in the, ledger. Customer list because, that these, these people, they, they basically acquired this list of people buying a ledger device. Now they knew that you had this name and, and, and shipping address, and you had a ledger, so now they could try to either attack you or blackmail you or, or do phishing attacks on you and stuff like that. And this worked because now they had a list of, high conversion rate victims for their attack. Same goes with BlockFi and more recent leaks. Eventually, when you put your personal financial- Social data into something, this will leak eventually, and it will be, it will be used to attack you in a more targeted way. And the KYC, lists are the most dangerous of all because compared, like you compare, ledger, ledger, shipping, shipping list, where you just have your name, maybe your company name, plus your shipping address, not, not necessarily your home address, and the fact that you own a ledger, so somebody could assume that you may have some level of Bitcoin. Compared that where a KYC list when they have exactly your legal name with your valid documents, your residency, where a proof of residency that you have to, to give the exchange, and where they have the exact amount of all the coins you buy and exact address of withdrawal and on the on-chain movement of these addresses after the withdrawal. So you can't even say, okay, I sold it, I've lost it. no, I can, I can look on chain and I see what you have done. So KYC lists are extremely dangerous. Because also they aren't keep, they aren't kept inside the exchange. They are sent by the exchange to several government agency around the world. So you have literally thousands of people accessing, accessing this list. So the probability of leaking is eventually, strong. and that's a danger for you, for you and your Robert one. So in order to answer to your question, I think that nowadays we cannot fight the, the fact that KYC staff is easier for privileged first world People that aren't yet censored than the alternatives. The alternatives are hard and slow. What we have to explain is that that suffering you're going through now by avoiding this KYC trap is not just for the sake of suffering, it is because the first way will eventually increase the amount of harm you will receive probably when the, the situation will go, will go in certain direction, and the probit, the situation will go in a, like idyllic, utopian opposite. Interaction are very, very low. I don't want to say they're zero, but the probability that we will see less censorship, less taxation, less confiscation, and less, random banditism are very, very low." }, { "speaker": "stephan", "time": "29:44", "start": 1783.82, "text": "And so the situation around privacy in Bitcoin, there are challenges, let's, I think it's fair to say. And so I'm curious your view as well, as we look back on the Bitcoin industry, yeah. So do you see it like the right tools need to be built or is it a- Is it a matter of the way that the businesses in Bitcoin have gone, that have been too much, you know, around KYC, or is it around the community, that the community should be more anti-KYC in your view? Like, how would you-- Are there things that the community should have done, or is it more just that the ongoing encroachment of government and KYC was just always baked into the cake from the beginning?" }, { "speaker": "giacomo_zucco_bitcoin", "time": "30:25", "start": 1825.1, "text": "So I think that one of the main issues about this technology is, I would say two of the main issues. They are issues that we should discuss and analyze and maybe mitigate, but I don't think there, there is, there is any obvious way around. The first issue is that the, the digital realm, the, the internet, digital, the digitally, the identity online, digital anonymous identity or pseudonymous identity, they create a lot of space for freedom because, the- The, the attacker, we are not physically in front of the attacker, so the tr- the asymmetry is limited. So the internet was a force for freedom in the, like, you know, the, the Arab Springs or the black markets or everywhere, or even just people, like spreading the content of some, laptop on Twitter right now, even if, if it's forbidden. So it's, it's a way to, to counteract censorship, but it's also a, a, a technological stack that will leak information everywhere. So when you're using- Using the internet, you have more power than when you have to physically move and pay your provider, with physical gold or stuff or physical cash. You, you have more power. You can easily buy your secret medicine or medical certificate across the world, so you're, you're basically entering a more powerful markets with more exchanges, but at the price of leaking more. Bitcoin lives on the internet and the Lightning Network lives on the internet, and everything we do will have no trivial possibility to leak information. So privacy on the internet is in general hard. If we go around with physical gold, that's intrinsically easier to stay private, but the, it's even, it's way, way less powerful. So I'm not suggesting to just stop using the internet and, and just withdraw from the global market. You don't get more freedom if you just stay, I mean, yeah, you have the freedom to stay in your own local prison without weapons, food, and, and, and any kind of medical support Or, of course, that you're more private, you're darker if you stay in your coffin, but you're not powerful. You're not, you're not, leveraging the, the, the, the pow- the, the, the darkness that you get. So, Bitcoin needs to stay on the internet, and the internet sucks for privacy. We have to accept this, explain this to people, know that you can make many mistakes, and eventually you will make mistake. There is no perfect privacy, no perfect darkness. You just have to-- It's, it Accordingly, then just to think your privacy is perfect because it's, it's most likely isn't. Then, more specifically in the, in the, in Bitcoin, we have another additional problem. Bitcoin is as hard for privacy as any other internet system, plus we also have the specific Bitcoin problem of the global consensus. So the great inven-invention by Satoshi Nakamoto, the time chain or blockchain, it solves the, the double spending problem, in the centralized way at the settlement layer But it basically makes so that every other node of the system will have to register all the information forever. So, if, if I give you a gold nugget, you, you keep it and other gold owner, they don't care. If I give you a Bitcoin on chain, there are other ways, but if I give you a Bitcoin in the first layer of Bitcoin, then every other Bitcoin user forever will have to download and verify that information, which basically creates a paradox that We may solve in two ways, and one way is what I call-- I'm, I'm not sure my definitions are very standard, but I don't care, I like them, I think, I think they are clear. One, one way is privacy by obfuscation. So we keep sending this information to everybody forever, but we obfuscate this information with more information. For example, instead of a clear signature, we put some blinded Chaumian signature. Instead of, of one input and one output, we, we put ten inputs and ten outputs. Puts in a coin join, so we are, we are, we are using more space in order to add more information, which is a decoy information, and it's giving us a little bit more privacy and deniability. Or, or we do a lot of on-chain hops. So instead of paying this exchange directly, I pretend to pay somebody for ten times, and then I pay the, the exchange, and I get the deniability. So all these, these techniques are fine, but they, they basically fight against the problem, the incentive problem of the global consensus. Everybody keeps having, all the information just obfuscated with, confidential transaction and bulletproof range proofs or ring signature and stuff or zk-snarks, for example. You're just adding more stuff to obfuscate your stuff. The other opposite, strategy is privacy by omission, which is let's not, not use this global consensus until it's, it's necessary to use it. So, for example, Lightning, which right now isn't great for privacy, if- So everybody's interested about lighting and privacy, I gave a speech about that in, in Istanbul a few weeks ago, which I think it's, it's pretty much like giving a broad picture of, of the problem. But in theory, lighting goes in the same direction of the incentives, like you don't have to put everything, for everybody else to see. You are, you are retaining the information, not obfuscating the information. And this is something that we may discuss also about Monero and Monero trade-off, or Zcash and stuff like that. So there is There is a specific problem in global consensus, and then there is a problem of mostly users not caring enough for a long time. Right now, so, we, we may translate this as, as it's the fault of the governments because the governments weren't evil enough soon enough, so people thought that they may actually get away with, with free economic interaction, with, with free, with, inflation-resistant saving and with censorship-resistant, money. markets without the government doing anything for a long time. So they get, they got lazy for many years. They were thinking about, nice UX and, and stuff like that, but weren't not, they weren't really caring for privacy. Most Bitcoin wallet, not, not core to be, to be fair, but most non-core Bitcoin wallets, they were, connecting with other people's node asking for all the UTXO in Clearnet, so giving basically your IP, which is basically one phone co-phone call away from your legal name, to Another random server and m-m-many wallets still do that basically without the full node. And also, they reuse the address. So people were basically posting an address on a blog post. I, I was doing that as well in two thousand and thirteen. This is my address for donation on my blog post linked to my name, reused for, for one hundred times, which is terrible. And many tools were actually Or, r-only right now, Bitcoin wallets are starting to really play with CoinJoin and PayJoin and CoinSwap and stuff. But it was possible, like Gregory Maxwell analyzed CoinJoin since 2013, and only now we are really seeing, w-within all the dramas, like Wasabi drama and everything, we are actually seeing a real interest by the users. So technological problems first, user apathy that was driven by the lack of a tax, short term at- Attacks, there, there are only long term attack. There was a very good speech by Peter Todd in Milan in two thousand, I think, eighteen, and he made this, this metaphor, the danger of fire versus the danger of mercury. Or basically, fire is great because when you touch it, you immediately suffer and you withdraw your hand. Mercury is shiny and nice, and you keep playing for, for, for two years, and then eventually, well, two years isn't, isn't a lot, for months, and then you get poisoning and you die, and you cannot stop it. The, the government approach to our privacy was mercury, not fire. They're not hitting people immediately in two thousand nine, two thousand ten. They are slowly, slowly, slowly increasing censorship, incre-increasing, surveillance. So technological challenges, user's apathy, and the third is exchanges. Exchanges are a problem because exchanges are a fiat business that need a bank account. So they are, they really, exchanges, the cen-- typical centralized exchanges, in order to survive, they need to beg The government and the fiat banking system. They, they, they exist only out of mercy, and complacence of, of these centralized entities. So while a business without a central, a, a bank account may actually become pretty much resistance to regulatory pressure, now we, we, we, I mentioned Wasabi, and right now this, the, the company behind Wasabi coordination, Zik, Zikasnext, they actually self-censored, imposing themselves Some level of censorship on the, on the users, which was not legally required, but this is a typical dynamic of, you know, VC funded companies where the legal team is, gets scared and they will start to scare everybody else. But in theory, a, a, a, a, an entity like ZK Snacks, but could also exist as a pure anonymous, Tor service. So it, it's, it's resistant. The specific company basically was, was destroyed by this, by this self-censorship. But And other company as centralized as that could actually survive. Not so with the exchanges, because exchanges, centralized exchanges, typical custodial exchanges, they need a bank account, and you can never have a bank acc-account without, bending your knee completely to regulation. And so they started not only to accept, regulation, but also to, the, the most exchanges, they were more proactive about censoring people than the government themselves, even when the governments weren't actually understanding Bitcoin. At all. Most exchanges were basically self-imposing stricter KYC rules, even stricter than, than, than requested, because they were so scared to get put out of business by a bank account closing. Imagine this, you have a normal bank You withdraw all cash from, from the, from the ATM. They spy you within the bank, of course, because they know everything. But once you withdraw the, the cash, they don't pay for a private investigator to follow you in, in your car to see where do you spend the cash. They don't do that. They aren't forced to do that because it's expensive. Bitcoin exchanges, when you withdraw the Bitcoin to your address, they will hire people, private investigators, to follow you outside of the system in public internet, just like a private- But just like a PI following you in the street after the KYC interaction, and exchanges are paying for that because they are terrorized by, they want to appear as such good boys that, that, that they go beyond, and actually exchanges are the one preventing people from not reusing addresses. Most exchanges, when you withdraw, they will force you or, or push you to reuse the address, and they will, they will say we-- some of them will freeze your account or flag your account if they see that you're using- Using, best, best security practices like coinjoin or payjoin and stuff like that. So exchanges are a problem. I, it's not that single exchange people are evil. In some case, yes, like Coinbase, but not always. Sometimes they are good guys, but they are just forced by incentives to, to be even more realist than the king. I, I don't know if, if this is a saying in English too, but in Italy we say you're more royalist than the king himself. I don't know if there is an analogous." }, { "speaker": "stephan", "time": "41:58", "start": 2517.71, "text": "Back to the show in a moment. Have you thought about securing your own keys with a cold card? The Coldcard is my favorite Bitcoin hardware wallet, and you can get it at coinkite dot com. Now, it has all sorts of features that you can use in various different configurations. You can use it as part of a single signature setup, or you can use it as part of a multi-signature setup, and there are other features around securing your coins. So, for example, you can use a passphrase, you can enable or disable that, you can also use seed export, which is a pl Storing secrets in two or more parts, and each part just behaves like, like the original secret. So there's all sorts of options and ways to learn about using Coldcard, they've got doc-documentation on their site, and there's even quick start video guides as well. So if you're interested, go to coincard dot com, order your gear there, and don't forget they've also got other material like the metal backup to actually stamp in for your twenty four words. So that's coincard dot com. And if you want to remove single points of failure in your setup, Unchained Capital can help here. They have collaborative custody, so you can bring two hardware wallets and Unchained will be the third key and the third, the co-owner in this model for you. The other way to do this is if you need some assistance, they've got a concierge onboarding program. So go there, sign up on the website, they'll ship you some hardware wallets, they'll do a call with you, they'll provide some ongoing support also, and this is an easy way to get started with a thousand dollars in your vault to get you started. Now, this is an easy way to remove single points of failure. Don't leave your coins on the exchange or with a custodian, pull them out and hold them with your own private keys and do this the self-sovereign way. So that website is Unchained dot com and use code Livera for a discount. And lastly, Brains. Brains are a Bitcoin mining company through and through, and they are, they are real innovators in this industry. They offer Brains OS Plus, this is aftermarket or custom firmware that you can To optimize your miner performance and get more hash rate for your electricity bill, so go to brains dot com, that's brains with two i's, and you can see which models are supported. They are rolling out support for new models over time. They are also the operators of Slush Pool, so Slush Pool is the first Bitcoin mining pool, and they are also driving forward adoption of Stratum v2, which is the next generation Bitcoin mining protocol. So there are all sorts of benefits there in terms of coordination between miners and mining pools, as well as Helping assist in the decentralization of Bitcoin's mining network. So Stratum v2 is a great one to check out. Go to the website, it's brains dot com, that's brains with two eyes. And now back to the show. Yeah, I get what you're saying, and a-as this brings up this whole concept of what's called compliance bros. And so this comes in, in some of the discussion as well, and also mentioned in your recent talk. So listeners, I will include Giacomo's talk link in, the show notes for this episode. I, I highly recommend you guys check it out. and just for listeners, the kind of the high level summary was essentially that there are these different camps or, you know, groups, subgroups within the Bitcoin world, and there is Which is, let's call it derogatorily named the compliance bros, and because they are the ones who are trying to proactively go to the government regulators and say, \"Oh, yes, look, mister regulator, I'm stopping the crime, I'm doing chain surveillance on my customers, so, you know, please don't ban me, please don't stop my banking relationships, right?\" And look, into-- I guess to steelman that a little bit, right? Obviously I'm not defending that, but there's a steelman here, which is that Government regulations sometimes aren't clear, and so sometimes they have to, they sort of exploit that gray. They're playing with the gray. They're saying, \"Look, you, you bank, you must do KYC and you must do AML and you must do a risk assessment, and look, cash is very high risk. What are you doing to mitigate that risk, mister ex-- mister bank?\" And in this case, in the Bitcoin exchanges, they're, they're sort of in that kind of, \"Oh, we don't want them to ban us, we need And there's a little bit of a, let's call it regulatory capture play going on here, because these chain surveillance companies obviously want to have themselves put in and have the regime back them in that way, and say the regime will, will then come out and mandate that all the other exchanges must do chain surveillance. Now currently that's not the case, it's not a mandated requirement, but this is, I guess, sort of where the conversation is going now because of the conversations about Bitcoin, you know, growing up or maturing and so on. and that obviously causes some tension in the community because there are those who say, \"No, Bitcoin needs to be dark money, right?\" And so, do you see it like compliance bros are able to kill Bitcoin? Is that sort of what you're getting at, or are you saying that essentially that this is something that has to be pushed back on?" }, { "speaker": "giacomo_zucco_bitcoin", "time": "46:53", "start": 2812.72, "text": "Yeah, the, the, the latter. I don't think they have the, if, if they have the power to kill Bitcoin, Bitcoin is doomed anyway. So there is a, it's better to know before than later. So if Compliance Bros can kill Bitcoin, they should and please do it immediately so that we know that Bitcoin is, is failed as an experiment, because if, if, because by definition, if that's all it takes to kill Bitcoin. I think the problem is that they can't kill Bitcoin, but they can get some Bitcoiners killed in a, at least in a financial way. Get people, spied upon, censored, confiscated, and, not the system itself. The system is very resilient, but single people aren't resilient, and, we have seen that with, like, the, the trackers, the t-trackers protest or others. You, you have the, the, the- Bitcoin is decentralized, but single Bitcoiners aren't, and that's maybe the problem. To be fair, I appreciate your still mentioning because it's true. Like for, myself, yeah, also, I, I remember. So in Bitcoin, privacy is the strange things because it's all or nothing. Either Bitcoin is completely private because of pseudonyms used in the transactions aren't connected with the legal names, so there is total privacy, or it's completely unprivate because the- At least at the base layer, once you connect the NIMs with the people, the NIMs are so connected among them that you can basically leak everything, you can spy on the past and future private financial data of everybody. So you have total privacy or complete lack of privacy and personal security as well, because you can have kidnappers or, or, or, or blackmailers on any kind of stuff. So this kind of stuff, of course, Bitcoin can work if it's completely private, but it can't work if, if it's- It's completely non-private because of these things we, we said about dark money. So I think the money where you can't protect yourself, there's no point to that against fiat, because if, if you don't have the secrecy to protect you from your physically more powers, powerful adversarial, then what's the point of the cypherpunk strategy at all? So you, you have this kind of, of problem. At the beginning, the regulators weren't really understanding anything about Bitcoin. So, there was a temptation, and I felt this temptation myself, and I- And they fall for it to actually, ride the total traceability, narrative in order to reassure the regulator and delay the attack. So the point was, okay, we can use Bitcoin privately, but Bitcoin is also in a way totally traceable. So let's insist on this second part, which is not really a lie, it's a, it's a, it's a white lie omission. So let's insist about this. And so we created, I, I did it in Italy when I had the Narcocry group. This kind of means that Bitcoin is completely- So well, you can't commit crime with Bitcoin. Of course, if you can't commit crimes with Bitcoin, Bitcoin sucks as money, because i-it's like selling shoes, and you say, okay, you can never rob banks with these shoes. You, you're basically sh-selling very, very shitty shoes. I mean, they don't work if you can't use them to run from a, from a ba-from a bank robber. So Bitcoin can be used for crimes, for sure, as long as it works. But, we promoted the other way around in order to, to make the regulator sleep a little bit more and to buy time. I mean, please don't, don't attack us. Let-- so in the meantime, we build stuff, we build, privacy instruments, we build, power, we build, we, we build, wealth as well, and we, and we buy time. The problem with this approach is that at the same time, while you, you basically gaslight the regulator, which is fine, you're gaslighting the attacker is fine, you also get gaslight eventually future users. So you They, they think that nobody will ever come at them Bitcoin because, you know, it's totally traceable, I'm fine, so nobody will confiscate you. Wrong. If, if we want to teach you, honestly, we have to teach you history about Roswell confiscation. If, if the monetary impact of Bitcoin is what it may be if it works, they will try to attack you because the federal budget of the United States of America will be destroyed because the c-cantillon tax will not be there anymore. So, Then the other problem is people will receive, not expert people will receive the notion that Bitcoin is, is basically bad for privacy because they're not stupid, maybe they're not expert, but they read, Bitcoin is totally traceable. They know that they need financial privacy because financial privacy is important for personal security, and they will just dismiss Bitcoin. Maybe they will go into some kind of privacy shitcoin, maybe they will just, stay outside of the, of the global internet market because they think that there, there's no option, maybe they will, so they will self-censor. Answer, because they will think that Bitcoin can't be used privately, why it can, with a lot of challenges and, and attention, but it can. More than, for, of course, more than credit cards, Bitcoin is, is very bad for privacy compared to physical gold, but more powerful because it's on the internet. If you compare it with other stuff on the internet, like credit cards or PayPal or Euro and banking, Bitcoin privacy is great, it's not bad, it's great. It's just that it's not as good as, as physical cash or physical gold. Because it's on the internet, because there's global consensus. So the, the, the idea of the, an exchange that will promote traceability in order to gaslight the regulator, I think it's fine short term, if it's just a strategy to buy time in order to strengthen the, the privacy of the users. If it's a long term strategy and you end up gaslighting the users instead of the regulators, that's very, very bad." }, { "speaker": "stephan", "time": "52:35", "start": 3154.87, "text": "Yeah. So as you rightly point out, I think it is important that people have the right expectation That they don't believe that, oh, just because I'm using Bitcoin, I'm private. Well, yeah. No, you need to take some additional steps. You might need to use CoinJoin, you might need to use various techniques to actually remain private. You might need to use Tor, and obviously some wallets have this built in, so, you know, Specter or Samurai Wallet or some other ones, might have that built in so that you can do that. And so- Well," }, { "speaker": "giacomo_zucco_bitcoin", "time": "53:01", "start": 3180.53, "text": "sorry, Stephan, same, if not worse, with the so-called privacy coins. This is may- Monero, for example, isn't really that it can't be used in some kind of secure setup in order to improve privacy. My main issue is that the narrative is coming up as Bitcoin is the private, just as Monero, you're fine, while, while usually for a series of reason, you may end up with less privacy doing that if you do that in a trivial way. So, it's, it's true for Bitcoin, it's true for everything else. You don't have privacy just because you buy some privacy QLAE. You really need to understand the threat model and to" }, { "speaker": "stephan", "time": "53:40", "start": 3219.81, "text": "Right, right. And on that point, I think it might be interesting, thought, just to get your thoughts here, because as you, you know, calling back to what we were saying earlier, you might still need to exchange in and out. So again, I, I don't use Monero, I'm not shilling Monero, but just hypothetically exploring that idea of if you were to use Bitcoin as your overall store of value, but then periodically swap in and out of Monero, that still necessitates using swapping kinds of services. And okay, fine, even, again, there Swap services or even, even abstracting away from Monero, I mean, could that be done with, say, LBTC on Liquid, right? And could there be some kind of coin join using Liquid and confidential assets? How are you viewing this idea of having automated atomic swapping, whether it's in the case of using Monero or in the case of using, say, Liquid BTC? How are you seeing that as a potential if someone was, was to steal money and say, \"Oh, what if you use Bitcoin as your store of value and Monero or LBTC as your privacy coin?\"" }, { "speaker": "giacomo_zucco_bitcoin", "time": "54:38", "start": 3278.41, "text": "Well, The automatic atomic swaps, they help security, so they do help, it's better to have an atomic swap tool compared to, to some kind of custodial, exchange, sure. But it doesn't really help privacy. In a way, it makes it even worse because in order to atomic swap, you need a public order book of bid and ask, especially if the two things that you are exchanging aren't at the same price, then you will need liquidity, so you will need somebody able to, to give you money in exchange of Bitcoin. And they will We will have to publicly signal this kind of availability in some kind of public book, and you will have to signal the opposite, and then you will have to match in a way having the necessity to do that in a decentralized, open, automatic, trustless way will actually increase the, the, exposure of the order book, and the order book by definition will have a limited amount of liquidity. So that will be an ununset bottleneck because, yeah, now you know that you are passing through this market, and so you know that whoever is the seller, he can't Not be everybody in Monero, it can only be somebody, and then you have of course the network, privacy where you have to, to send somewhere this kind of pricing, which is the same for some coinjoin implementation, for example, I use, I use JoinMarket. In JoinMarket, you have to publish, on IRC your, your bid and ask in a way. How is that different from, for example, Liquid? It's slightly better, not completely better, it's still problematic. Like if nobody, for example, one of the reason I, I really didn or promoted or suggested Liquid as a privacy tool for a long time, is, is likely getting better now, but it would be dishonest to say just use Liquid and, and you're set. Is that nobody was using Liquid up to a certain point, in time, and very, very few transactions. So even if you have confidential transactions there, if nobody's using that, the anonymity set that you're getting from Liquid is very low. But why is better than Atomic Swap with Monero, for example? For two reasons. The first is The peg out requires an order book, so you have this liquidity problem. The peg in doesn't. When you peg in liquid, there isn't an exchange, you don't have to-- there isn't a liquidity bottleneck. Every Satoshi can become a liquid Satoshi automatically without passing through a liquidity bottleneck, so a non-anonymous bottleneck. You, you just have a set, and now you have your liquid set. The other way around isn't, but at least you have one half of the swapping that will preserve Of the anonymity set instead of reducing it in a, in a bottleneck due to the order book. the second point is that when you don't have a price difference and a slippage, when you don't have trading, but you just have swapping, usually the liquidity is, is easier to, to pro- to, to declare provide. So an order book where you have a lot of people just, saying that they are, they are, they are randomly swapping, liquid for liquid Bitcoin and, and, and over. If there is not a strong financial premium for each, you don't have slippage and usually the matching is simpler and you have more liquidity because you don't have just the people that wants to trade, you have the people who want-- I mean, you, I just need a small fixed premium in order to, I can put all my bitcoins, of course I won't do it because it would be a hot, hot storage, but I could put all my bitcoin there just accepting, a swap to Bitcoin Liquid and then back, provided that I just put a small fixed premium On both. So I don't care. While I will not put all my wealth in a, a Monero swap proposal because there are economic considerations. So a side chain is a little bit better for privacy than a swap across chains. And what is even better, way better than liquid, but it's still a swap, is actually Lightning. it has to be perfected in many, many ways, but right now, if I open a Lightning channel with some Bitcoin and then I do a- Some money in swap out, I will do a coin swap, not be-between Bitcoin and Monero, but between Bitcoin and Bitcoin with way better, level of privacy than, than Atomic Swap with Monero, because with Monero, you need an order book of Monero people selling me with some price and some amount. With Atomic Swap, you still need, with some money swap, you need a market, which in this case, for example, it's BOLTS, if you do that with, with Electrum or with Phoenix, but this market is It's, it, no, there's no, basically there's, there's no slippage, so it's way more efficient. It's way harder to follow, to, to restrict the anonymity set using that. So swapping Bitcoin is fine, but the best thing is to swap Bitcoin for Bitcoin. i-ideally, you want to swap Bitcoin for on-chain Bitcoin with some tool like CoinSwap by Chris Belcher, which is not perfected yet and needs more work. Unless ideally you swap for Lightning, which requires some level of market premium Because, because liquidity and routability aren't always the same, but still, it's, it's an example of DeFi basically, it's a decentralized finance where you, where you will find a counterpart. And then, the, the, the other, third best will be swapping to a Bitcoin side chain where at least the begin is, i-it doesn't reduce your anonymity set and you don't have slippage. And the fourth best will be swapping to, for example, Monero and back. And then you have to consider all the consideration about how much- How much liquidity there is on Monero and how much anonset? In Monero, your anonset is basically every previous user of Monero is, a part of your anonymity set in Monero when you're in, but even that is not much compared to the, to the volume that's going on in Bitcoin. I would say it's comparable. The whole, anonymity set of Monero, well, of course, the calculating the anonymity set depends on a threat model, specifically of what your attacker are looking for, but In general, the amount of people using Monero is so, and the volume are so low that even all the limited set of Monero can actually be trivially compared with some huge joint market, coin joint rounds, for example. Minus, of course, the amount correlation problem that you don't have in Monero or in Liquid, and you do have in Bitcoin on chain. So it's, the, the, I think the takeaway is it's complicated. Yeah, no, I agree with you. So if somebody says, \"Huh,\" because at the same time, if somebody You can't be private with Bitcoin, it's lying. If somebody says you can be perfectly private forever without effort with this other thing, he's lying." }, { "speaker": "stephan", "time": "01:01:17", "start": 3677.34, "text": "Right. Yeah. And, I mean, there's other considerations there as well. So as an example, even in the Bitcoin world, there are other fingerprints or heuristics that could be applied, so they could say, okay, what's the script type? What's the n lock time? What's the sequence number or some of these other things that could then narrow down the Bitcoin anonymity set, where if you compare that versus, say, Monero And then the other point that's interesting as well is that could it be that these things later themselves become the surveillance mechanism? So, giving an example, in the early days of Electrum, there were, you know, people just using Electrum wallet and the Electrum servers, and then later it's kind of figured out, oh, the chain surveillance firms figured out, hey, let's just be the Electrum servers for people and use that to surveil. In the same way, could there be surveillance put on at those swap over points, the atomic swap over points, potentially even maybe not inside the- Monero world, but let's say when you're trying to swap back out of Monero back into Bitcoin, could there be surveillance levered, leverage at those points? And then that's also another consideration potentially also." }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:02:21", "start": 3741.72, "text": "Absolutely. If you now do what I said, in order to swap your coins, you have to know that if you're, let's say, let's assume, let's give you an ex-ex-eristic scenario, use Electrum to create a, a channel, and then you swap out using Bolts. If, the Bolts, market is full of a sibill attack in liquid- so, so if, if, the, the, the Bolts market is compromised and is basically matching your request of swap out with a lot of," }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:02:52", "start": 3772.1, "text": "then, they, they know half of your trade. They, they have to collude with your trampoline node, which may be Electrum itself or, or a Sync or other. If they collude with trampoline nodes, now they can deanonymize you. It's still pretty good, I would say, especially compared to nothing, but there is an attack and, and, and threat model in, in that as well. There is one big advantage though between, what you can do on chain and what you can do, doing this kind of swaps. The advantage is that Attacker can spy you forever. So on chain historic, this stays there forever, you don't have to spend money outside computation in order to, to make your guessing and connection. If you want to attack Bitcoin on a lightning level or swap level or la-lightning routing level or Monero versus Bitcoin swap market, you need to put money, you need to put your money where your, where your spy eye, where, where your nose is. So if you want to sniff somebody, you need to pay. So like, assume that the, the government of the United States want to basically compromise ninety percent of the, lightning channels, they have to buy Bitcoin and put a lot of Bitcoin there, increasing the price. So it's bad because they're attacking us, but there isn't, there is no free lunch at least in attacking, while, chain analysis can be done completely passively, which is a little bit easier. It's, it's unfairly easy for them. So let's, let's make it harder." }, { "speaker": "stephan", "time": "01:04:18", "start": 3858.65, "text": "Unfairly cheap right now, let's make it harder One other area I was keen to chat about, and you touched on this before, is this idea of creating a soft fork, like maybe unintentionally, right? But I think that's an important question as we're considering this whole trade-off, and there's the different, groups within Bitcoin, and you could arguably, let's say, there's kind of compliance bro number go up aspect, and that, that's the criticism is, see, you compliance bros don't care about the ethos of Bitcoin, you just want number go up, you don't care about regulation as long as it and the privacy gang, you know, the, the never KYC gang, right? And I, I'm, I'm not, I don't, I have anything against non-KYC acquisition of coins, but I think just in that interest of talking about what exactly would that soft fork look like, how would that conflict play out, if- Let's say, governments tried to mandate certain whitelists or blacklists, and I think what I'm getting to here is how feasible is that really? Because at the same time, there could be different countries who have different ideas of what should be sanctioned. and even today, even in the fiat banking world, the US government has their sanctions on various Russian, you know, oligarchs, as they say, but then also the Russian government has their sanctions on President Biden and Gen Saki and some of these other people. And so how realistic even is that idea in your mind?" }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:05:40", "start": 3940.55, "text": "So I think that, collusion, strict collusion among, third governments is a very rare phenomenon, but it's a more and more common phenomenon. The, the present crisis with Russia and Ukraine is actually a tragic, of course, crisis for, for everybody, i's, i's horrible, but it's a good example in this regard because now you have, Blocks of, not completely symmetric, but quite powerful adversaries, and you have, also neutral blocks like now you have Russia, you have China, you have, you, the US, the NATO, and everybody's, is trying to censor everybody else in a very uncoordinated way, in adversarial way. There, there are a few different blocks, and that's actually an example of, of, of censorship that can be, if, if not, it does hurt people, of course. Now you are a Russian, pacifist in With a Ukrainian, wife in the US and now your, your property is confiscated, so it's terrible. But at least there is no a single source of, censorship. There's not a single whitelist, so i's, i's not easy to, for example, support Bitcoin following, Russia sanctions, because there's Russia which, which will do the other way around and China won't follow and stuff like that. another example which is more scary though will be, for example, the global war- War on terror, where, Putin and Bush were allied in order to sanction very, very few, of course, I mean, terrorists are bad, but if you break down the money using terrorists as an excuse, it's, it, it's even worse because now people can't even use it to protect themselves from terrorists. Another example is COVID actually, like, the, the COVID restriction, that was an example where, I mean, Trump was putting just, the same amount of restriction than, than Putin, literally. Enforced, vaccination proof and lockdowns. So, okay, you had some contrarians, specifically like Sweden, Belarus, and most of Africa, and but, but there was a strong global coordination, and, you have something similar in, in drug, drug prohibition. So there are some, the geopolitical crises among strong blocs are an example where coordination among governments is difficult, but there are many example of rhetorics. I think about Like global warming, if you want to, to censor or confiscate Bitcoin for global warming, you have the government of the Taliban officially subscribing to the, global warming, warming emergency measures. So you have the Taliban, actually concerned about, CO2. So I think it's not realistic to have a global whitelisting effort like right now in the banking system, you can't pay, without strong KYC everywhere, including- Including former, tax havens in the Caribbean, they're, they're all, they were all blacklisted by the United States, and in order to, this blacklisting was so hurtful that they all had to comply eventually. Panama, Dubai, everybody, well, Du-Dubai is still, still keeping it, but everybody eventually is capitulating. So you don't have this, this, this idea of geographic arbitrage and jurisdictional arbitrage where you just pick your government that are all enforcing different stuff. It was great in the nineties, it was great At the beginning of the thousands, but now it's falling down because there is a hegemonic power which is getting trans-transnational. In a way, this recent war with Russia is weakening this global coordination, but I, I don't think it's going to, to stand for very long. Like China and the United States are very much aligned to the same objective, which is preventing their own people from, exporting capital and from escaping inflation. And I think that the- See and Biden will agree that they-- we need more control to avoid people to, to use their money freely. They would completely agree. So the, the idea of coordination will i-is not so realistic. Of course, you make a very good point because, the only way that KYC can be, globally enforced is in such a coordination, because, if you, if you have a local whitelist or blacklist, that's basically that's just like saying nobody can use Bitcoin that way. So you, you have the, the, the KYC Bitcoin without the global white listing would be so cryptal that nobody will actually be able to use it, because when you receive free Bitcoin, because you don't care, you receive Bitcoin, you, you give your service, and that's all. When you receive Bitcoin and you want to stay compliant, now you have to, to wonder which whitelist I'm going to follow and in which combination and which jurisdiction is going to hurt me eventually. You, you basically can't accept that money, because you don't know, how that money may be tainted The only way you can actually impose that kind of whitelisting is if the whitelisting is automatic and consistent. So you basically connect with the, with the, global task force anti-money laundering, global task force database, and they tell you, the UTxO you cannot accept, and, and that's basically how you do. And that basically becomes, strictly speaking, a Bitcoin soft fork, because in that case, because the Bitcoin protocol tells you that you have to accept a transaction which is With, if the block is right and the, the block size is right and the difficulty is right and the signatures are right and the script is right and the witness, so that's the consensus of Bitcoin. If it's okay, you accept it. If you, if you sway from this consensus and you impose, impose additional rule, you are creating a, a, a soft fork in your node. And if you, if these additional rules are querying a database by the financial, crime task force, then you are basically switching to a completely centralized form of money. And my, and my hypothesis would be that eventually the value of this centralized shitcoin will, will gravitate towards zero. Be- why? Because this, the thing you will be able to do with that, from spending to saving, will be the same things you are allowed to do with fiat money on PayPal. If PayPal allows you that, then at least Bitcoin will allow you that. But then we just use PayPal because it's-- there is more network effect and it's, it's technically easier to use because it's centralized. And having a dis-cent, all this decentralized system, just in order to ask the, the, the global financial crime task force which UTXO I can accept, well, just, close the mining down and leave the, the task force to tell you about the double spending as well. I mean, they're, they're already censoring your, your UTXO set with the white listing, so just ask them to censor double spending as well and throw away the mining. So there is really no point in regulated Bitcoin. All the design of Bitcoin and- And all the sacrifices and the trade-offs that Bitcoin has to make as a design makes sense only because you don't have to ask somebody to tell you which payments are good or not, and you only have to relate with your, with your counterparty, local counterparty. So, I think that eventually the, that this kind of regulated Bitcoin will be worthless." }, { "speaker": "stephan", "time": "01:12:52", "start": 4372.76, "text": "Right. And I think another challenge point would be coming up with a coherent definition, because even now, yes, there are some Bitcoin addresses on an OFAC sanction. Names list, right? So this is like a US government entity saying these sanctioned Bitcoin addresses. But at the same time, as most people understand, in Bitcoin you can trivially create new addresses, and as you were saying earlier, could this person just trivially insert some hops, and then, okay, then if the rule is, oh, no, it can't be within two hops, then can people just start doing three hops, or can people start using other techniques like CoinJoin or Lightning swapping in and out or whatever to evade that or basically circumvent this kind of control? So I think i-in that It's not clear to me how they would come up with a coherent definition there, unless they were to go with a white listing approach of this idea of, oh, you may not transact with us unless you're already on our KYC white listing, in which case we come back to that same problem that you were saying of the soft fork. You're basically creating a soft fork of Bitcoin, and at that point, you might end up forking off and having a, a minority chain." }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:13:54", "start": 4434.26, "text": "That's a, that's a great point. So blacklisting doesn't work with Bitcoin basically, that's the point Definition. there was recently we mentioned the Wasabi crisis, so the coordinator, is now censoring. And so I was in the chat and basically I said, \"This is very bad because you will have to hire, a chain analysis company to tell you which one you have to censor.\" And some of the guys, very good faith is a good guy, but he answered, \"No, no, no, we're not doing that. We are just, there will just be a specific list of UTXOs and we will just censor that That's, that's great. So if you, if you are banned, you just make one transaction, one input, one output, and now you're not in the UTxO set anymore, and you're free to transact. Well, not really. We will have to apply some level of heuristic. And so, okay, which, which level? If it's an arbitrary level of heuristic, the regulator can still tell you that you're not applying good heuristics, and the heuristics are just as arbitrary as anybody else. So either you, you marry the official, politically approved heur" }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:15:01", "start": 4501.91, "text": "Still not, going to avoid sanctions or fines or whatever you're scared about. So you have to hire a channelized company. And then Nopara seventy-three, Adam, the, the founder, basically, he, he just said that, I mean, he's, he's not really putting much lipstick on this, this, dramatic pig. He said, we will have to hire a chain-anal company because they, they do have to. And another example would be like Coinbase or, like Binance Singapore. They They censor you if you use, CoinJoin. Of course, you may use CoinJoin in a way that they don't even know about with easily with, with some tools, but assuming that they can trivially see that you're using CoinJoin, okay, if I re- if I receive money and, I, I don't use CoinJoin, I just get po-paid for my service and then, then I put it on Coinbase or, or Binance Singapore, but somebody paying the guy paying the guy that pay me was using CoinJoin. Are you going to, to freeze me or not? Because if yes, then basically it's trivial to make every kind of clients of Coinbase or Binance Singapore going out. We, we may actually drive finally Coinbase and Binance Singapore out of business because every, everything is eventually connected with somebody, with something that may be a coinjoin, also because every more than two input, more than two output may be a coinjoin of some sort. So, if they go to ad infinitum Every coin is dirty already. We don't even have to, to, to make an effort. If they go one step, of course, okay, I, I, you don't want to join, I just want to one step and then I pay to you. So they have to choose, and what they're doing right now, they're choosing arbitrary numbers, like most Chinese company, they are saying seven, if you co- if you find something seven steps, then, we will signal it to you, otherwise we, we will, we will not alert you. So if" }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:17:01", "start": 4621.99, "text": "Eight and you're fine. if they go to nine, you go to ten. the problem is that there is no, no coherent definition. Another example is, now you have, there was a very good funny story when the Marathon miners, they said that it was the first block, that was, F- as an compliant, yeah. Yeah. So okay, they, they had the Coinbase, and some people, some funny Bitcoiners started to donate from CoinJoin transaction to this, to this, Coinbase address. And now they could-- I mean, sure, they could say this is a dust attack because they don't need much, so we'll just, exclude trivially the dust attack, sure. But then we increase the dust level anymore, where do you stop? If you, if you exclude everything, I mean, of course you are-- the more you go, the more we have to pay to taint you, but or to escape the taint. But there is no consistent definition. The only way that they have, just like you say, is to basically create a, a- Static or dynamic, but, like, coherent and deterministic whitelist. And the deterministic whitelist is a soft fork in the Bitcoin protocol, s- forking your node into a useless shitcoin." }, { "speaker": "stephan", "time": "01:18:18", "start": 4698.36, "text": "Right, and so, yeah, I'm, I'm with you there, I follow you there, and so again, that might then drive it another level where it becomes more about, \"Oh, see, we just need to KYC every participant,\" and this comes into the whole conversation around travel rule, AOPP, etcetera, because it's kind of like trying to go the other way of saying, \"No, we don't like cash, we don't like this idea that we can't trace every step of the way, so let's try to fit this round peg in the Things like talking about, quote unquote, unhosted or hosted wallets or unhosted wallets, you know, this idea that self-sovereignty is a bad thing and so on. so I, I guess that's potentially where it could lead down, but then I think that also points to the importance in an ideological sense of having a circular economy, of having just- Peer-to-peer merchants, peer-to-peer traders and users of the ecosystem. So I'm not anti-peer-to-peer in any way. I actually think it's an ecosystem that has to be built up, because then that's what's credibly making this whole soft fork idea bad, because then there'll be all these people who are just not even in that system to begin with. They just never were a part of that world, because they just, they were just transacting outside that world." }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:19:33", "start": 4773.86, "text": "Yeah, there are challenges to this idea of circular economy. It's a great idea, and it will help with censorship resistance And fighting this kind of, trivial attack, surfaces like, exchanges are the tr- the most trivial attack surface for Bitcoin, used right now. you can, you can go around these attack surfaces with, circular economy. The, I'm not deluding myself, about the fact that it will be hard because if a new kind of good is going to be used as money, it will have this kind of monetization phase in which the demand will go up because you will have basically the monetary demand" }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:20:21", "start": 4821.35, "text": "Adding up. Like gold had a, a at least not, not everywhere. So you, you start from a very low, consume value and all the value that is added up, all the demand that is added up is an exchange demand, is basically a monetary demand, not, not a consume demand, not a direct consume-- consumption, sorry, consumption demand. So, you have this, this violent dynamic of monetization, which is basically creating a num-number go up situation. The number go up situation will basically make so that first- First, most people that wants to, to save their wealth, they will have to move their wealth from the current most widespread monetary tool, which is fiat, and in particular US dollars, in globally, they will have to move it from there to Bitcoin. So some level of non-circular movement, we cannot imagine, Bitcoin succeeding in becoming inflation resistant without people from or censorship resistant, without people from escaping From inflation and from censorship into Bitcoin. If they do that, they will have to escape from the place they are now, which is mostly, fiat. Of course, everybody has a reserve of, goods and services that we provide for work, so we can earn Bitcoin, sure. But most of the wealth that will escape inflation and will escape censorship is that the, the, the pr- the current work will trivialize Bitcoin earning, but the stored work, the stored- Time of generations and family, families and companies, it will not be, it, it will be in fiat, and so you need an uncirculated somewhere. So there will never be, there will always be tension because there will always be this interface that will be easy to attack. And once you are, it's like escaping from a prison, right? You are in the prison, you can say that outside the prison you are fine, finally. And if you, if you stay aside, you are fine, sure. But first you have to escape, you And the prison wall will always be an attack surface for the guards to shoot you down, because that's the point, and you have to go there. And we cannot say just circular economy, just like everybody's already-- We can't imagine ourse-- ourselves outside the prison already. We have to cross the very, very censorship-prone wall, which is the, the fiat versus, Bitcoin exchange. Then again When you're out, people can hold or spend directly. both are fine for privacy, but holding is even better for privacy. So if you have a, a privacy, a censorship problem, a confiscation problem, and you also know that the number is going up, I understand that the, the idea of spending for the sake of spending, I mean, you spend Bitcoin when you have a strong reason, which is basically when you can't spend fiat. But if you want to escape fiat and Bitcoin's number is going up and moving Bitcoin Bitcoin is making you more subject to censorship and confiscation, so first you spend fiat, it's nature. So when you are out of fiat, then you will start imagining how to spend Bitcoin, and even there, you will probably have a lower time preference than most people outside Bitcoin. If you spend all fiat and you go Bitcoin only, probably you will, to put it like, Pierre Rochard would, you will buy way, way fewer chairs than, than, than fiat people, because your time pref- Difference will probably be lo- be lower." }, { "speaker": "stephan", "time": "01:24:06", "start": 5046.13, "text": "Right. And, I think while a lot of what we've been talking about is about the importance of privacy, I think, even calling back to your talk as well, there is an importance of number go up, right? And I, I think amongst some of the privacy circles, right, the never KYC gang, I think they tend to look down on this idea of number go up. They say, \"Oh, see, you just want number go up, but it's like, that's bad because, you know, you don't" }, { "speaker": "stephan", "time": "01:24:33", "start": 5073.33, "text": "To respect and appreciate that a lot of people don't have access to a store of value, and is it wrong to want to store your value? And the other point I think that is probably underappreciated by a lot of the privacy set, the privacy focused people, is that they say, \"Oh, look, as long as Bitcoin's got a price, any price, well, then you can just use it.\" But I think the, let's call it number go up, if you will, number go up camp response is, \"No, actually, the higher the price of Bitcoin, the better Of, again, it's a long term thing, but in my view, it eventually contributes to that idea that it's taking away governments' cheap debt funding. Now, it's not happening tomorrow, but I, I see that as a long term impact of the number go up aspect of it. And so this comes back to, I guess, this sort of fundamental trade-off, but there are people in, in the center, as your talk, alluded to, that see value in both camps." }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:25:26", "start": 5126.89, "text": "Absolutely, but that's the whole point of my, of my talk. My talk actually had three Overlaps. So if you want, if you want to watch it, Stefan will put it in the description. It's more complicated, but because there is not just pri-privacies versus, number go up, but there's also the idea of basically disruptive technology and, you know, the Silicon Valley kind of startup thinking, which is another part which is part of the debate. But I think that the hot debate right now is between, a number go up people with laser eyes and a \"Hold the Zlogan\" and the no KYC Bitcoin, hardcore cipher punks inspired people. And I think that we need both. just like, like I said at the beginning, you need dark and hard money, because if the money is not hard, it's, it's not dark. Also the other way around, but also this way, what you, you gave, I mean, I gave a few example of why at the beginning of our conversation, but you just now added a very good other reason. I, I didn't think about this. I, I should add it in the next time." }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:26:34", "start": 5194.21, "text": "number go up does defend the government because the action of de-anonymize you, following you, spying you, surveilling you, and forcing you into compliance, it's an expensive action. the governments don't, can't enforce KYC's, whitelisting, confiscation without money to pay enshmen to enforce that. They have to put you in prison if you don't do something, and they need to pay somebody to shoot at you if you don't go to prison. So that's expensive and, If we, of course, it's not an immediate thing, it's a very long term secondary effect, but if you do defund the government via number go up, you do defund also, the enforcement action against your privacy. Of course, this will be the last things that the government will cut. First, the government will tack-- will cut everything else, and the last thing they will cut will be IRS and Fed, wages and, and, and police, and especially financial police taking money from people. That's the most important kind of police they have. But But eventually, the less budget the government has, the less enforcement and the less surveillance they can do. Of course, technology makes surveillance cheaper, but, but technology makes also number go up possible, w-which will make, surveillance budget smaller and smaller. They can-- they will print in order to attack Bitcoin, but the more they print, the less valuable the, the, the, the, the wages for, the, the, the money they give to Chainalysis company will become, more More and more inflated, and that's very good." }, { "speaker": "stephan", "time": "01:28:06", "start": 5286.43, "text": "Yeah, that's right. And I think it, it is a tough one to speak about because there's all these different nuances and aspects of it, and it also comes down to how likely you believe people will resist, right? Because another argument that I see people making is this idea that, look, look at COVID, how many people just caved into that? Now, I think you could potentially counter that and say, well, look, think about how many people had an incentive, right? Because how many people are either working for the government or get Or they are part of the colloquially the Zoom class who didn't feel the cost of all these lockdowns and the hysteria that the world has been going through for the last two years. And so I do still believe that long term enough people would have an interest to defend their own value of Bitcoin rather than let it get, eroded and destroyed and such. They wouldn't just sort of cave in. But that's, that's the question, I think. But that's probably a good spot to finish up, Giacomo, if you had any closing thoughts for the listeners. And of course, I'll put your links in the show notes, but where can people find you as well?" }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:29:07", "start": 5347.45, "text": "Yeah, there is a website, giacomozucco dot com, that was very, very mistreated up till recently, but now a friend is, helping me to put all the videos online, so it's getting better. And, if you, if you don't, mind, I will actually leave the, the link to the Las Vegas talk, which is about this, Bitcoin subculture thing that we discussed a lot. But also," }, { "speaker": "giacomo_zucco_bitcoin", "time": "01:29:33", "start": 5373.33, "text": "Just before that was my Istanbul talk that I think was, can be useful for this regard. So, well, now that I said it live, you, you can't really not put it in the description, so I'm forcing you basically. Of course, it's going in there. Thank you." }, { "speaker": "stephan", "time": "01:29:46", "start": 5386.42, "text": "Fantastic. Well, thank you again, Giacomo, it was a really fascinating conversation. Same, speak soon. I hope you found that discussion an interesting one. I think privacy has just been on the mind recently, and so there have been some recent episodes, such as my episode with Lily and this one, and I've got some upcoming ones also, so keep an eye out for those, and don't, don't forget to take part in the discussion on Twitter afterwards. You can find me online at Stephan Livera, and of course, the website for this is stephanlivera dot com slash three six o, and you'll get the show notes there. Thanks for listening, and I" } ] }