{ "episodeId": "SLP367", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "pierre_rochard": { "name": "Pierre Rochard", "role": "guest", "tag": "PIERRE" } }, "segments": [ { "speaker": "stephan", "time": "00:08", "start": 8.45, "text": "Hi and welcome to Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today for episode three hundred and sixty-seven, my friend, the great Pierre Rochard of Kraken, re-joins me on the show, and we're talking about Lightning Network, all kinds of things related to this, especially Kraken have recently put in Lightning Network. We talk about the network just broadly, how it has- has grown and matured over time. We talk about payments reliability, the size of payments, the feasibility of average everyday users joining and operating a lightning node. is it just going to become only professionals or is it going to be feasible for anybody to do this? We also talk a little bit about day-to-day use of the lightning network, how many million people are on this thing, and we also talk a little bit about stablecoins and also the longer term Fee arguments around Bitcoin, so I think this is a really great chat. I enjoyed it, and I think you'll get a lot of useful insight out of it also. This show is brought to you by Swan Bitcoin, and I'm also working as part of the team with Swan Private. So with Swan Private, this is a special service for high net worth investors, as well as entities and businesses who wanna stack Sats with a one-on-one advisor, access to a Bitcoin expert who can coach and advise. Also, Swan- Private hosts some special events, like we recently hosted one as a side event, the Swan Private Dinner at Bitcoin twenty twenty-two in Miami, so there were a lot of people there, and in fact Pierre was there also, and it's just an opportunity for education and direct access, so you can pick up the phone and talk to a real person, an expert in the Bitcoin world who can coach you and guide you. So if you're interested in this kind of service and being able to stack with some guidance, go to swanprivate dot com. If you're into Bitcoin mining, check out brains dot com. That's brains with two i's. Brains are a Bitcoin company through and through. They have a range of products and education about Bitcoin mining. So they have Brains OS Plus. This is firmware that you can install on your ASIC machine and you can use it to auto-tune. This helps you optimize your miner performance so you get more hash rate for your electricity bill. Also on the Brains website, they have a blog where they have all kinds of useful and educational information about Bitcoin mining. mining. They also have a dashboard, which is an analytics dashboard showing all kinds of mining statistics. They've got mining profitability calculations and all kinds of useful information there. So on that website, it's brains dot com, it's brains with two eyes. Go and check it out. Lend at HodlHodl is a peer-to-peer Bitcoin-backed lending platform where you can anonymously borrow stablecoins against your Bitcoin. With Lend at HodlHodl, you no longer have to sell your Bitcoin to get some liquidity, you can borrow some stablecoins against them instead. You can put up some Bitcoin as collateral, these are over-collateralized loans, and you pay all the interest at the end. You also hold one key out of the three, so you also know that, that it's not being rehypothecated. So at Lend at HodlHod Between users, so you can think of it like a platform where you can go and post up your offer, or you can go there and accept somebody else's offer, depending on how much you want to borrow and the interest rate that you are willing to pay or receive if you're the lender. So go and check it out, that website is lend dot hoddlehoddle dot com. And now onto the show with Pierre. Pierre Rochard, welcome back to the show. Thanks for having me back. So, Pierre, obviously the big news, recently is Kraken has put in Lightning, and I'd love to chat a little bit about your experience with that and, you know, a-any insights you can share as well. So maybe you just start with a little bit about, the road to putting Lightning onto Kraken." }, { "speaker": "pierre_rochard", "time": "03:57", "start": 236.72, "text": "Yeah, absolutely. So let's just start from the beginning. In a, any large kind of organization like an exchange, you know, Kraken is now, thousands of employees, you know, there's lots to be done. And when we started, the Lightning project, well, really it started, four years ago was the first, code commit before I joined Kraken, but it kind of got mothballed for a little while, and, it started again in earnest about a year ago. And at that time, the markets, started pumping and, that caused, lots of need to scale systems at Kraken, but also scale the organization because when in a bull market, exchanges have to hire lots of folks. And so that's why people always say, you know, bear markets are for building, bull markets are for scaling, and, we're trying to do both at the same time because Lightning is strategically important And not only for Kraken, but also just for, the whole Bitcoin ecosystem and accelerating, the adoption of Bitcoin. So we did launch, three weeks ago now, and it has been an amazing experience. Everything is working excellently. We have lots of feedback in terms of next steps for improvements that, that we'll want to tackle, but so far it has been smooth sailing. Excellent. And from your point of view, why is- Is Lightning strategically important? So first of all, we have to start with the client and what the clients need. And there are two things that people complain about with regards to Bitcoin. One is that the transaction fees are very volatile. So sometimes transaction fees are pennies, sometimes it's like thirty dollars worth of, of, of Sats. And that's driven by the markets really of, when Bitcoin- Bitcoin is very volatile, people are trying to move Bitcoin around, whether it's between exchanges or hardware wallet to exchange or vice versa. And so last year, in the first bull run to sixty K, we did see transaction fees on Bitcoin spike up. Now, since then, transaction fees have actually been at historical lows because of multiple factors. The main one seems to be about SegWit adoption. So, we saw- Saw Blockchain dot com, finally adopt SegWit, and they are the largest non-custodial Bitcoin wallet, and so that has had a dramatic improvement in the efficiency of the Bitcoin system. And so blocks have not been, entirely full all the time, which allows transaction fees to trend towards, you know, one sat per vbyte. So, so that volatility impacts Kraken's clients because then when they're making a deposit, it's It's very hard to estimate what transaction fee you should use for your deposit, and then on the withdrawal, when transaction fees are high on the network, Kraken increases its withdrawal fee, to, you know, avoid running a loss, and, we need to build kind of a, a dynamic system there. But, historically it hasn't been dynamic, it's a static fee, so that, that causes friction as well. With regards to the other problem is the speed. So So different exchanges ask for different numbers of confirmations for, deposits. Kraken's currently at, four confirmations. We just saw Coinbase lower theirs to two confirmations, so that's something that we're taking a fresh look at. And really though, even if you get to two confirmations, it still doesn't address the fundamental issue, which is that clients are now used to having things be instant. The fiat system rails in Europe with SEPA is instant In the UK with FPS, it's instant. In the US, Zelle or, you know, cards, Apple Pay, these things are instant now. And so it, it raises the question of, if Bitcoin is so far in the future, if it's so technologically advanced, why does it take half an hour to settle? It should be instant. And so the best technology to address those complaints from clients is Lightning, because Lightning, not only does it- It deliver cheap and instant payments. It's also like Bitcoin, open. So it's open source, it's an open network, it's permissionless, and it is backed by the Bitcoin blockchain, right? It uses Bitcoin smart contract features like time locks and multisig to be secure, while delivering on, dramatic UX improvements for clients." }, { "speaker": "stephan", "time": "08:53", "start": 533.0, "text": "And with some of the criticisms that people have leveled against Against Bitcoin saying, \"Oh, look, it's too slow and so on.\" A lot of people just simply haven't been aware of Lightning Network. Now, of course, you and I and maybe, the, the hardcore Bitcoin people all know about Lightning, but I think it's that the average person out there who may have vaguely heard about Bitcoin but not really, they don't really know a lot about Bitcoin, they don't know about Lightning, and so from their point of view, \"Oh, see, Bitcoin is too slow.\" And maybe part of that is that Lightning hasn't become ubiquitous enough Enough yet. What do you think? Do you think it's because of that?" }, { "speaker": "pierre_rochard", "time": "09:29", "start": 569.42, "text": "I think it's because of that, and the other one is that people don't know the solution to their problem, right? And so at the end of the 19th century, if you had asked people what, what they want in terms of transportation, they would say more horses, right? they, they wouldn't say, \"Oh, I need an internal combustion engine on a car, and we need to build roads.\" So I think that the- Technologists, the early adopters, the hobbyists, they're the ones whose responsibility it is and whose role it is to build products that can scale and can go mainstream so that, you know, people who aren't as familiar with the underlying technology can benefit from it. And so now you can get into a car and you can turn it on and you don't have to know how cylinders work and, you know, how brake pads function. So it's very user friendly. It just takes a lot of- Engineering actually to, to get there, it's not just about education, although education is very important, and you do a great job with your podcast." }, { "speaker": "stephan", "time": "10:37", "start": 636.95, "text": "Well, thank you for that. with the ubiquitous aspect of it, I think it's also that we are starting to see more and more services plug in to the Lightning Network colloquially speaking, right? Kraken have recently put it in, Cash App have recently put it in, Robinhood have announced that they will do Lightning, there's probably at least another two or three like, big Lightning announcements That I'm missing just off the top of my head, and actually what comes to mind is the recent Arkeen research report, and I actually caught your name there as well, I believe they consulted with you on that, and they, they wrote out a statistic, and now I'm not sure exactly how they ca-- they calculated this number, but, they said that approximately eighty million people have access to the Lightning Network today. Do you believe that number? And what do you think?" }, { "speaker": "pierre_rochard", "time": "11:21", "start": 680.6, "text": "Yeah, I don't know how they calculated that number, but it's certainly the case, and this is what Was a motivating factor for me personally in terms of wanting Kraken to have Lightning is that services like Kraken have millions of clients, and so in terms of getting Lightning into the hands of as many people as quickly as possible, this is a, a really great, low-hanging fruit. Now, obviously, I do want to see a future where everyone is non-custodial, everyone's running their own node, and that's kind of the long-term adoption. Of it that I foresee. In terms of short and medium term, we have to have on and off ramps, bridges to help folks become acquainted with this new technology, and eventually it's kind of like with the automobile, when cars first came out, very few people had cars, right? It was just the super wealthy, or perhaps you could rent a car, but now everyone has two or three cars in their driveway. so, in terms of ownership, I think that- That's gonna be the same process where fast forward ten, fifty years, everyone will be running a node and just like a car, they won't really know how it works under the hood, but it will be in their living room or whatever it is. So in the meantime, you can think of something like an exchange adopting Lightning as mass transportation, right? As, okay, this is the locomotive before, the car, and it works great because people get from point A to point B, but obviously- As people want more freedom in how they, go about making their payments and saving their money, we'll see an increase in non-custodial. Now, the other part that I think is important to highlight is that you, you should really, keep as little Bitcoin as you can on a service, so that you essentially have your savings account on your own keys, and there's lots of, different ways of going about that, and then your- Checking account, if you don't wanna run your own lightning wallet, you could use a custodial lightning service like Krakens or like many others out there, and just to have your walking around money essentially if you're going to the coffee shop to buy your coffee." }, { "speaker": "stephan", "time": "13:43", "start": 823.07, "text": "Excellent. And the other part of making lightning more ubiquitous, accessible, I think, is partly around reliability and how big are the payments that we can make on the lightning network. Now, of course- Of course, I'm sure you're aware, obviously you were around in the early days of Lightning. It used to be that you could very easily route small amounts, but as you started to get to larger amounts, there were problems. And then later there were things like AMP, Atomic Multi-Path Payment, or multi- or MPP, Multi-Path Payment, and various other ideas to increase the, the size of the payment and the reliability of making payments on the Lightning Network. So if you were to look at the Lightning Network today, at least as you see it, what kinds of payment sizes are you That people can reliably get through and successfully get that payment through." }, { "speaker": "pierre_rochard", "time": "14:31", "start": 871.3, "text": "Yeah, so we, we really thought about, what maximums we should set for deposits and withdrawals, keeping in mind two factors. One, the success rate, as you mentioned, that the success rate goes down as you get into larger payments, but the second is that we didn't want one client draining all of our outbound or draining all of our inbound, in one go. So we set it to ten million cents, which, you know, would, would roughly be four thousand dollars. It's, it changes every second, right? and, and, and we've had people make deposits and withdrawals of that amount. So that might indicate that we should, raise it going forward, and, and it's something that we're exploring. So the success rate really depends on how well connected the destination is, and we do have very large channels. Open with other, nodes on the network. So it just, it, it really is a case by case, and sometimes small payments fail to route because the person doesn't have any inbound or doesn't have any outbound. And it's certainly, we're, we're keeping track of the failure rate on the withdrawals. so far we're at approximately a ninety percent success rate, which exceeded my expectations. I thought going into it that it would be more Challenging than that, but really speaks to how great the, engineering team has, has, done in terms of connecting the node to the network. I think that we can improve it. I, I think that we could get to ninety-nine percent and then ninety-nine point nine percent as we watch what the traffic is, open better channels, and then also help educate clients about, okay, here's what you need to do in order to have a successful withdrawal." }, { "speaker": "stephan", "time": "16:22", "start": 982.3, "text": "Right, because part of making Lightning that ubiquitous payment network Is giving people that seamless experience, because right now today, if people go to the coffee shop and they wanna tap their card or tap their phone or whatever, they have a very high expectation, and probably rightly so, about the reliability of that payment going through. And, you know, in today's Lightning world, if, if it only happens, well, nine out of ten times that it goes successfully through, then it's kind of like, might be understandably an issue for people from a retail payments, success point of view." }, { "speaker": "pierre_rochard", "time": "16:53", "start": 1013.16, "text": "Now, think, think about also how, how- How big your retail payments are generally, right? So I, I wish I was making four thousand dollar, retail payments all the time, but, the reality is that I think my maximum, you know, is usually like two hundred dollars, right? and that's really, if I'm going on a shopping spree at Home Depot, to, to do some, gardening or maybe I'm buying some mulch or something like that. But generally, you know, your coffee's gonna be five dollars, and so the- Those are very reliable, assuming you have some minimum amount of, channels open capacity. But, I've been using Breeze and Phoenix on mobile and trying it out all the time and as many opportunities as I get, and it's, yeah, it's, it's, it's been very reliable. And when I think about when I use cards, how many times do I, insert my card and it has like some error about reading it? And, you know, it's not a hundred percent, right? So success rate On, on, on cards even. But yeah, I, I think that the, the channel management will improve not only because of protocol improvements like multipath or, automation like autopilot, but I also think that there's gonna be new constructs. And so we saw the coinpool white paper come out, you know, people talking about multi-party channels where you can bring liquidity together and avoid the kind of this fragmentation of liquidity across the network. So I think that There's just gonna be lots of great protocol improvements that are going to make it easier and easier to have a highly reliable experience on Lightning. In the short term, I do think that being a custodial centralized Lightning node is an advantage here, that, we are really well connected to the Lightning network and, you know, for folks who want to have a reliable experience, using a service like Kraken is today easier than running your own- And lightning node and creating a l-reliable experience there. I don't think that'll be the case forever, but just thinking about the short term, I think that it's a valuable service." }, { "speaker": "stephan", "time": "19:06", "start": 1145.95, "text": "Yeah, that's a totally fair point, and I think other people have probably seen similar, and I, I've probably, I've seen similar as well, just in my travels and discussions with people that, let's say, if you're using a wallet with a very well-known or well-connected provider, let's say people are using Wallet of Satoshi, or even if they're using Phoenix as Then let's say their home node that maybe doesn't have the best channel set up, and because of that, they're not maybe-- so it's that same thing where they can get small payments through, you know, five, ten bucks, fine, but as soon as you start to get to larger amounts, maybe they, they might have issues if they're trying to do it on their home node without good channel setup. Whereas, let's say Kraken, with a good lightning setup and a good channel setup, you can more reliably get those payments through. So maybe that's, one way that Around Lightning and where it's going, because is it, is it going to be this kind of professional and large routing nodes only aspect, or do you think that, let's say, the pleb node or the retail node can at least be reasonably competitive or at least in the ballpark from a reliability point of view, and maybe even from a profitability point of view?" }, { "speaker": "pierre_rochard", "time": "20:19", "start": 1218.88, "text": "Yeah, so we're, we're four years into the Lightning mainnet, and I think that at this point going forward It's going to be a, a scaled up fractal, a zoomed out fractal of where we are today. So there's going to-- today there's, there's tens of thousands of lightning nodes. They run the gamut in terms of how big their capacity is, how many channels there are, you know, obviously from one channel to thousands of channels. And so I think that, that's going to continue to be the pattern. And, there's going to be large, you know, supernodes that have- Have a lot of Bitcoin on them that might represent exchanges or might represent people who are high net worth individuals who are plebs at heart, right? That they are, they, they wanna be on the Lightning Network, they wanna be learning, they're, they're hobbyists, but they don't necessarily have a service like, an exchange is offering, and, everything in between. So I think, that's the beauty of being decentralized and of being permissionless, that anybody can do it, small or big. And And what, what I hope is that we don't see the network become too having casts or something like that, where, in order to connect to the big nodes, you yourself have to be a big node. I think that, and this is, has been kind of a, a philosophy I've been driving at Kraken is that we, we do want anyone to be able to connect to our node, you know, w-within reason, right? So we have a million Sats minimum for channel openings, just because of the resource constraint on CPU and RAM and, and disk and all of this. But then other than that, we, we want folks to be able to connect to our, our node. It might be for, for business reasons, right, that it actually makes a lot of business sense that if we want people to be clients to, to LoveCraken and to be sticky, right, that they don't switch to a different exchange or to a different service. they, they open a channel with us, and they feel some loyalty towards us. so I think that it has tremendous user value in that regard, but also that, that helps the node be better connected, and we want to have a healthy ecosystem of peers, that are routing payments for us and really, you know, making sure that the, success rate continues to be very high." }, { "speaker": "stephan", "time": "22:52", "start": 1372.12, "text": "Yeah, and that definitely makes sense for anyone who is also a, a Kraken customer, and they want You want to be able to do deposits and withdrawals, obviously having a direct channel with your exchange partner is, it makes a lot of sense, right?" }, { "speaker": "pierre_rochard", "time": "23:04", "start": 1383.68, "text": "So, yeah, I think this is really important point because if you have a channel open directly with Kraken, your deposits are free. We're working on making the withdrawals free as well. currently it's, there's a fixed, one thousand satoshis, which is just due to how the system, you know, Krak-Kraken is one of the oldest, exchanges. You know, been around, started in two thousand eleven, and so there's code that, that we need to update so that we can get below one thousand satoshis, in terms of the withdrawal fee. But, you know, that's, if, if anyone's familiar with Tecta, you'll, you'll understand the, the pain there. And the other part of it, though, it's not just about the, the fees, it's also about the speed. You literally can't be faster in terms of speed than having a direct channel open with a peer. So If Bitcoin network had, let's say, one second block intervals instead of ten minute block intervals, a channel would still be faster because the channel, you just communicate with your peer, directly, whereas with the Bitcoin network, you're always having to broadcast to the whole network, the transaction propagates across all the nodes and then makes it into a miner's mempool or a mining pool's mempool, that's a mouthful. And, then, gets included into a block, and that's always going to be slower than having a direct Lightning channel. And so, even for blockchains that advertise having faster settlement times, they'll never be faster than a Lightning channel, because, i-i-let's take kind of the reductio ad absurdum, or, you know, what, what the best case scenario would be, would be that you have your Lightning node on the same computer as somebody else's Lightning node, and they have a channel open with each other And it would take a fraction of a second, and that, you know, there, you can't get faster than that. So I do think that there is an advantage to having channels open directly with peers that you know you're gonna be, sending payments to and from. But, you know, let's not overstate it either, because it's important to keep in mind that Lightning is a routed protocol, and so we, we also do wanna be aware that, being a routed protocol allows for greater capital efficiency and, Greater freedom for, where you send your money." }, { "speaker": "stephan", "time": "25:30", "start": 1529.64, "text": "Back to the show in a moment. Compass Mining is the world's first and largest online marketplace for Bitcoin mining hardware, hosting, and ASIC reselling. They've got a marketplace so you can make it easy to purchase or to sell your Bitcoin mining machines and even do things like sell an older machine and upgrade to a new, newer machine. This is an easy way to get started or to increase your investment into- Bitcoin mining, they also are coming out with payment plans, so you can make a smaller upfront payment and then of course, pay interest and an ongoing monthly payment as an easy way to get started with your Bitcoin mining adventure. So go to compassmining dot io and sign up there. Are you sitting on some coins that you are unsure about security-wise? Unchained Capital can help if you wanna get set up with multi-signature, they have collaborative custody where you hold two keys in different locations and Unchained Hold that third key. So with Unchained, you can bring two hardware wallets to the website and set up there for free, or you can use the concierge onboarding program where you can pay upfront, they'll ship you some hardware wallets, they'll do a call with you, they'll teach you how to do it, even if you've never held your own private keys before, and you are removing single points of failure in there, so that might help you sleep better at night. So if you wanna sign up, go to the website, it's Unchained dot com, select the concierge And finally, my favorite Bitcoin hardware wallet, the Coldcard, is created by CoinKite. You can go to coinkite dot com and see all the documentation there. You can find all kinds of guides and, of course, various products. The Coldcard is a calculator-sized device. You can use it to store your Bitcoin private keys, you can use it to sign Bitcoin transaction messages, and you can easily airgap this device by using a micro SD card. And the new version, the Mark IV, is coming soon. It's got NFC support, it's got multiple secure elements. It's got all kinds of new features. So if you haven't looked into the cold card yet, make sure you go and check out their guides. They've got all sorts of levels and ways of explaining it from beginner to intermediate to advanced. So go to coinkite dot com and get yours there. Now back to the show with Pierre. Yeah. And it also is important to consider the kinds of users, right? Because if you are, as an example, let's say you are a stacker and you're not really spending, well then in that case maybe lightning isn't the Sense, right? Because then it's kind of, you might not really be stacking on Lightning, right? But if you are regularly spending and receiving, now it starts to make a lot more sense, right? Because then you might be receiving some SATs, let's say you're a merchant, you're receiving some SATs, and then you're sending some to Kraken because you wanna sell some for fiat, because you've gotta pay some bills, that kind of thing. Now it does actually make sense to really be using Lightning. But let's say you're just a, a DCA stacker and" }, { "speaker": "pierre_rochard", "time": "28:26", "start": 1706.32, "text": "Might be, for example, if you're DCA-ing and you're doing, let's say, ten euros a day is kind of what the DCA pace you wanna have in, in Europe with SEPA, you could instantly send those ten euros to Kraken for free, then you convert it into Bitcoin and you could withdraw it to your Lightning node and you could all, do all of that instantly and, you know, be DCA-ing on the daily. So I, I do think that even in, in that situation, i- there's an advantage. And then When your inbound capacity is, depleted, then you could close that channel and, you know, sweep it to cold storage." }, { "speaker": "stephan", "time": "29:07", "start": 1747.33, "text": "interesting. Yeah, right. So, and in that example, you would have, let's say, a bunch or even just one big inbound channel, and you just have to periodically close it down and-- But then you, then the challenge then is you gotta have to, you're gonna have to get inbound liquidity again. So, as long as you're comfortable doing that, then, yeah, certainly. I also- I wanted to ask, I've noticed you've become a big Lightning reply guy, Pierre. You get in under everyone else's, mentions being" }, { "speaker": "pierre_rochard", "time": "29:36", "start": 1775.97, "text": "like," }, { "speaker": "stephan", "time": "29:36", "start": 1776.07, "text": "\"Hey," }, { "speaker": "pierre_rochard", "time": "29:37", "start": 1776.55, "text": "when Lightning?\" Yeah, so, you know, this is really important for network effects, because the more people there are on the network, the more valuable the network is. and so in terms of accelerating adoption, I think it's really important that services are aware that there is demand for Lightning. And services that, you know, don't have Bitcoiners working for them, they might not be aware that, they might not, understand Lightning. They might, you know, think that it's still too small. And, that's where I think that it's really important to, to be loud on social media and to, you know, highlight the value proposition of Lightning, that it's instant and cheap payments, and that, also- Services should have Lightning. So yeah, I think that promoting it on social media is really important." }, { "speaker": "stephan", "time": "30:33", "start": 1832.6, "text": "Excellent. And another point, so obviously I'm with you on Lightning, I am myself a promoter of Lightning, but I think there's some areas where we, we might give ourselves some pause, right? So as an example, there are some merchants who put out stats on how many people are using Lightning. So as an example, there's, you know, coin cards, and so they have, you know, vouchers and things like this. And so as an example, out of all the, you No percentages and things. They, they've got, so their recent numbers, I think for March twenty twenty-two, what, so we're recording this nineteenth of April twenty twenty-two. And so as an example, they said forty-five percent of their payments were Bitcoin on chain, and only one point eight percent of their payments were with the Lightning Network, and the rest were, you know, stablecoins and, and like shitcoins basically. But I'm curious your view there. Is that, what's the reason for that? Do you believe it's just that not enough people have" }, { "speaker": "stephan", "time": "31:26", "start": 1886.36, "text": "The current, let's say, voucher providers." }, { "speaker": "pierre_rochard", "time": "31:30", "start": 1890.44, "text": "Yeah, so the, I don't think it's a tax implication because that's the same whether you do on-chain or via Lightning. I think that it really is about, you know, lendiness, right? So Bitcoin has thirteen years of, building up network effects with on-chain addresses, building up people's comfort and, certainty about how Bitcoin works. So, Lightning has been around for a much shorter period of time, four years, and if we were to rewind and say, \"Okay, Lightning is where Bitcoin was in two thousand thirteen, \" right? And so nine years later, you know, it'll be where Bitcoin is today. So I think that both on-chain usage and Lightning usage are going to continue to grow. I think that Lightning usage is gonna grow more quickly Quickly, than on chain, but because on chain has such a big head start, that it's going to continue to dominate. And i-in that context, right, for that, service provider, I think that the different service providers are gonna have different experiences. So it'll depend on basic things like marketing, right? So are you effective at marketing towards people who, you know, would use the service with Lightning? Then there's also the amounts. So if your service is for larger amounts, then it might be tilted towards on-chain. If it's a service that's really focused on that micropayments use case, where, you know, you might be gaming and you earn five cents worth of Bitcoin for each action or whatever it is, then it would end up being tilted towards Lightning. But that's, that's gonna be highly variable. And then also, it-- how old is your service, right? So if, if your service has been around for a while, like Kraken, Kraken has lots of people- People making on-chain deposits and withdrawals, and they have been for, for years, whereas a, a new exchange like, LN Markets, for example, they're built natively on Lightning, and so they're gonna have, you know, a very different client base that is much more, Lightning focused than Kraken's is. So I think there's a lot of variables that go into that, but it really boils down to the network effects. And I like looking at the history of plastic cards, right? Credit and debit cards. They- They started in the fifties and the sixties, and it took half a century for them to build up the network effects to become dominant. So I think that obviously Lightning will be faster than that, but at the same time, we have to lower our time preference and look at it as a long-term project rather than some kind of, overnight success, that, that, you know, will happen instantly tomorrow." }, { "speaker": "stephan", "time": "34:24", "start": 2064.1, "text": "I think you made a lot of great points there. I, the other question I would ask you there is, how important do you think the standards around this are? So for example, you might have seen with, Cash App's recent Lightning announcement, they, they mentioned that they are going with BIP twenty-one as an example. Now, BIP twenty-one actually has been around for a while, but I think you get the point here. So as an example, if you're using BTC Pay Server and you're making a payment right now, that user is often having to manually flip between using a" }, { "speaker": "stephan", "time": "34:54", "start": 2093.7, "text": "Technology or standards or ways of making it easier for people to just default to Lightning for, especially for smaller amounts?" }, { "speaker": "pierre_rochard", "time": "35:01", "start": 2101.3, "text": "Yeah, absolutely. So I think Cash App's, announcement, with regards to Bib twenty-one was really interesting because, while on-chain Bib twenty-one has been around for a while, there's a push to add an optional Lightning invoice to the Bib twenty-one standard, and I think that that's- We're taking a really close look at it because I think that it, it, it actually will, you know, improve the UX a lot. And before, there was kind of the inverse where a Lightning invoice would have a fallback address embedded inside of it, which meant that you had to decode the Lightning invoice, which meant that a, let's call it a legacy wallet, you know, a, on-chain wallet, on-chain only" }, { "speaker": "stephan", "time": "35:47", "start": 2147.41, "text": "wallet, yeah." }, { "speaker": "pierre_rochard", "time": "35:48", "start": 2148.23, "text": "Yeah. wouldn't be able to read it. Whereas the Bib21 approach flips it on its head of saying Hey, let's add the invoice as an optional parameter, and if the wallet doesn't support it, then it would just, it would just ignore it and just use the on-chain address. So I think that it's a great approach. I, you know, working with the, design team, I got cranking here to, to see how we can, revamp our UX, to, adopt it as well. And, very grateful for, for Cash App's leadership on this. You know, we're, we're learning from them." }, { "speaker": "pierre_rochard", "time": "36:24", "start": 2183.96, "text": "And, you know, building on an open network. The other aspect that I think is really important in terms of usability is LNURL and Bolt twelve. So those are protocols that we're also taking a really close look at to see how we can get rid of copy-pasting, invoices or requests and, move towards having, if you have your non-custodial Lightning mobile wallet on your phone, that you could pair Share it with your Kraken account and then seamlessly deposit and withdraw from Kraken without having to, you know, go on the website and click around or anything like that. so I think that the usability of Lightning is already pretty good, but I think it, it could get a lot better to where we have more of a Venmo-style experience and mainstream consumers, really don't blink an eye at using Lightning." }, { "speaker": "stephan", "time": "37:21", "start": 2241.06, "text": "Yeah, that's a good way of putting it, because there are these different technologies, but maybe it's the right combination of them and the right implementation, and also thinking about the security, right? So as you said, there's LNURL, there's things like Lightning addresses, which potentially could offer people a similar kind of, \"Hey, Venmo me this or Cash App me this,\" sort of experience. but at the same time, there is a security aspect too, right? Because we've seen this before with malicious, let's say, address replacement malware. So as an example Places it with the hacker's address, and then unbeknownst to the exchange or unbeknownst to the individual, they are unfortunately paying to the wrong person. And so this is like a, obviously, you can see where this kind of thing could get hijacked if, let's say, a hacker manipulates the LNURL in some way or the web server that's required for that, right?" }, { "speaker": "pierre_rochard", "time": "38:10", "start": 2289.85, "text": "Yeah, absolutely. So, security is always the number one priority at Kraken, so, any changes we make will be, you know, closely reviewed through that" }, { "speaker": "stephan", "time": "38:20", "start": 2299.9, "text": "lens. I also wanted to chat a little bit about stablecoins. Now, I know, for most of us who, you know, are Bitcoin believers, Bitcoin, believe that Bitcoin is going to be the money of the world. I think there's different camps here, right? Some camps are like, \"No, like, why even bother with stablecoins? Just hold Bitcoin.\" And then there are others who are saying, \"Well, what about those people in other countries where maybe we have to check the financial privilege?\" Let's say an Alex Gladstein or someone else might say, \"There are There's a demand for them to have stable coins because maybe they're living closer to that hand-to-mouth level where they-- maybe they can't save or they can't bear the volatility of Bitcoin. But I've also seen different commentary from you where, maybe sometimes it seems like you're almost-- you believe they're almost like an attack on Bitcoin's liquidity. So I'm curious, where are you on the-- on the stable coins?" }, { "speaker": "pierre_rochard", "time": "39:09", "start": 2349.05, "text": "Oh, well, I definitely don't think they're an attack on, on Bitcoin's liquidity. I think that they enhance Bitcoin's liquidity," }, { "speaker": "pierre_rochard", "time": "39:21", "start": 2360.76, "text": "are more permissionless than other forms of fiat, but they are at the end of the day, still fiat. And so I think that it's a mistake to, to promote stablecoins because they aren't so stable, right? so if somebody is living hand to mouth and their stablecoin goes down ten percent in value, I don't see why that's different than Bitcoin going down ten percent in value. So they-- so they have the downside, but they don't have any of the upside, right, of Bitcoin. going up in value because of its, decentralized scarcity. So I think that it's also, the, the people who see kind of this concern of volatility, I do think that the volatility is an argument for saving more money. Now, you might say, okay, well, that's easy for, for me to promote in, in the first world where I do have, you know, disposable income that I can save. But I, I do think it's a form of financial privilege also to say that poor people can't save. I think that's categorically false. The history of humanity is of poor people saving so that they can become middle class and then upper class, right? Everyone starts out with zero. That's kind of the state of nature, and it's only by saving that you can, you know, get up the ladder. And so the people who are hurt the most by in- Inflation are the people who are carrying, twenty dollar bills around, and they don't have a bank account where they could earn zero and a half percent. they, they don't have, a mutual fund where they could earn six percent. It really is the people at the-- if you look at their balance sheet, their balance sheet is a hundred percent in fiat, that's being eaten away by inflation because they don't own any real estate, they're renting. And yes, they are living paycheck to paycheck, but I also think that without inflation, if they had instead even the hope of deflation, that that would help them get out of paycheck to paycheck, where, they, you know, would be able to save some money and squirrel it away, and start stacking, stacking sats. And that's really the only way that they can get out of the cycle of living paycheck to paycheck. So I think- Fiat actually encourages people to live paycheck to paycheck, and, and stablecoins do as well, and it's kind of backwards to think that, oh, because they live paycheck to paycheck, they need fiat. Like my view is, no, it's because they only have fiat, they live paycheck to paycheck. That's the causal mechanism, whereas if they had a sound money, then they can get out of that cycle, and that's the history of economic development. So the, that approach. So, the- It's also the case that there are lots of people outside of the first world who you would call middle class, right? it's not like, being middle class or being a business owner is an exclusive thing that is only available to the United States and Europe. And I think that, that reveals a lack of traveling on behalf of these people, where they think that every foreign country is mud huts, right? They've never been to- A city with skyscrapers outside of the first world. They exist. There, there's lots of cities in Africa that have skyscrapers. There's lots of cities in, Central America, in South America that have skyscrapers. It's not like, an exclusive thing to, you know, LA and, Washington, D.C. or, New York, right? so I think that there's kind of a weird, you know, people saying check your financial privilege, but also not really checking their own- Known, right? There's, there's some-- I, I'm not accusing Alex specifically of this, but others who, who would kind of caricature foreign countries, in that way and think that, oh, these people can never afford Bitcoin. Bitcoin is only for us, in the first world, and, you know, they, they need stable coins because they can't-- So what I do think is the case is that there needs to be more education, there needs to be more localization, so translating, Content into local languages so that folks can learn about Bitcoin, in their local language and understand its properties and understand what Bitcoin is backed by, which is this decentralized network of nodes, why Bitcoin is sound money and why it is a better idea to save for the future in Bitcoin than to save, for the future in stablecoins." }, { "speaker": "stephan", "time": "44:16", "start": 2656.14, "text": "Fantastic. And I think the other point I'd love to get your reaction on as well is I think- I think some of the whole stablecoin craze that's out there, part of it is actually driven by this whole search for yield, right? There's people out there who want this and that stablecoin because they want yield, and it's, it's almost like a very fiat kind of chasing for yield aspect. So, I'm curious your reaction to that concern. Do, do you agree with that or do you think it's a different thing?" }, { "speaker": "pierre_rochard", "time": "44:41", "start": 2681.05, "text": "yeah, no, I think you're, you're onto something there. I think yield is, very much a fiat" }, { "speaker": "pierre_rochard", "time": "44:51", "start": 2691.42, "text": "nominal returns, they don't look at real returns, and so they'll earn six percent on their stables, and then, inflation's like thirty percent, and so their real returns are highly negative, but they are, very risk averse, and so to them, earning a negative twenty-four percent real return on stables is better than earning You know, negative two percent on Bitcoin because it went down a little bit over the year. so, the, the, it's just, it's just fiat brain. I don't think it's, it's based on economic fundamentals. And they're just gonna have to learn the hard way, right? And I think that a lot of people are gonna look at interest rates and yields and, they're gonna learn the hard way, whereas the people who look at total real risk-adjusted return, they, you know, are all in on Bitcoin." }, { "speaker": "stephan", "time": "45:50", "start": 2750.5, "text": "Yeah. It's, it's really once you take into account inflation and risk in a holistic way and have an understanding of saving, then that's where you come to that More monetary view about Bitcoin and stop this sort of fiat yield chasing behavior, because really if you do zoom out, it is still true that, you know, Bitcoin's return over years is like, it's like eighty percent plus per year. I mean, it's, it's just insane, right? So, I think that, that is an important point for people to really bear in mind there. I also wanted to ask you about some of the stuff around long-term fee arguments, right? Now, this comes up, you know, we see it come up every few years, we see, and By some altcoin who maybe has an axe to grind. I'm curious what your thoughts are on the best kinds of responses to this argument, the best ways to think through this whole long-term fee and long-term security of Bitcoin, you know, because, I guess, let me just kind of set the scene. I think part of it is this argument of, \"Oh, see, because the block subsidy of Bitcoin is declining over time, you Bitcoin people are relying on number go up, and that's not good enough.\" And you need, you know, they, they may make an argument for some kind of tail emission, right? This idea that after twenty-one forty that there should be more emission of coins or sats, and so, and so there are people saying, \"Oh, see, the big, the big Bitcoin people, you're just denying or you're not really addressing this issue,\" whereas I, the, you know, then they typically have an altcoin to shill, saying, \"No, see, you need tail emission.\" So in your view, Pierre, what" }, { "speaker": "pierre_rochard", "time": "47:31", "start": 2850.92, "text": "I, I think the best way to think about it is to not think about it. and so, I, because basically the arguments end up being that, for example, oh, what if there's a non-economic attacker like the government and they have infinite resources, and so they can fifty-one percent attack the network, and that means that, we need to have more inflation so that, we're increasing the cost of attacking the network, which is a completely illogical- logical conclusion, because the premise was that they have an infinite amount of resources. So there's no amount of inflation that would actually protect the network. the network is vulnerable today, it was vulnerable when Satoshi started it, and so, there's not the, the solution they're proposing doesn't actually solve the problem that they're posing. Now, is the problem that they're posing a real one that we should be concerned about? I, I would put it in the same category of what happens to Bitcoin If Earth collides with the Sun, right? Checkmate, coiners. Bitcoin doesn't fix this, and therefore, like, it's just, you know, it's, it's kind of these, absurd arguments that are reliant on external factors. And in my mind, if you're, if the premise of your scenario relies on external actors, and isn't just a within the system kind of scenario, then it- If, if I bring up the response of, \"Well, Bitcoiners will find a way to stop the attacker outside the system, whether it's with a hard fork or, with any kind of-- I don't, you know, who knows what, what we would come up with? Bitcoin's open source, we can come up with all sorts of different solutions.\" Then that's not good enough for them. They're like, \"Oh, well, no, the, the solution has to be within the system.\" It's like, \"Well, you've already violated that premise because the attacker is" }, { "speaker": "pierre_rochard", "time": "49:31", "start": 2971.06, "text": "Why can't the solution be outside the system? And furthermore, you know, they say, you know, we'd say, okay, well, who's the attacker, right? Concretely, who are you talking about? Because Bitcoin's not being attacked right now. He said, no, hypothetically, imagine. So if, if we're getting into hypothetical attacks, then I think that, hypothetical solutions, and if, if they don't have to think of how the attack specifically works, then I don't see why we have to think of why the solution specifically works, right? very much one, that is, it's done by people who are really bored, rather than any kind of tangible problem that, we should grapple with." }, { "speaker": "stephan", "time": "50:12", "start": 3012.35, "text": "And as I understand the way you're seeing it, it's, it's more like the block subsidy is actually just more like, and, and mining is about distribution as opposed to security. Correct. I think that's something you, have-- That's, that's something you're, that's an idea you're putting forward." }, { "speaker": "pierre_rochard", "time": "50:27", "start": 3027.44, "text": "Yeah, absolutely. And that it is good for- transaction fees to be low and that Bitcoin is anti-fragile. So if your transaction is being censored, you can bid up your transaction fee in the mempool until a miner defects and includes the transaction. And so I think that if transaction fees are low, that means that there are no censors and that the scaling technology is keeping up with demand, and both of those things are good. If transaction fees are high, it means that either the scaling technology isn't keeping up, which has been been in the, the case in the past, or that there are active sensors, which has never been the case. So I think that, you know, transaction fees being low is good for Bitcoin. It's not a view that I held in the past, it's certainly been an evolution in my thinking as I think more deeply about, the, the challenges facing Bitcoin. But I, I find that, the concern trolling of it, it's actually not even just altcoiners who concern troll about it or no coiners who do. I also see bitcoiners Saying, \"Oh, you know, we need to have high transaction fees because in two thousand and seventeen they rationalized the high transaction fees of being about security rather than accepting that they were just temporary and due to a lack of adequate scaling technology.\" and so then, the argument kind of just morphed into, to that, and now that's still being, you know, argued about." }, { "speaker": "stephan", "time": "51:57", "start": 3117.34, "text": "Yeah, yeah. And a, a, another area I'm curious to get your thoughts as well around things like DeFi and obviously there's Bitcoin DLCs. I'm curious as to whether you see those things as kind of necessary for Bitcoin or whether it's kind of like extra credit for Bitcoin. And that's probably the, the, the last question." }, { "speaker": "pierre_rochard", "time": "52:19", "start": 3138.64, "text": "Yeah, I think it's extra credit, but I, I do find it really interesting. It even post hyperbitcoinization, we will need derivatives markets and derivatives, whether it's options or futures, whether it's on stocks or on, cattle futures, they are really important, risk management tools that people will need before hyperbitcoinization, during and after. And if we can, create them in a trust-minimized manner That's non-custodial and that has tremendous level of assurances about reliability and security, then that is strictly superior to the status quo. so I think that DLCS and oracles are really exciting. I think that, that we're still very early there, but, you know, eventually we'll, we'll start seeing lots more use cases and that, I hope that they will replace, centralized, derivatives." }, { "speaker": "stephan", "time": "53:17", "start": 3196.94, "text": "Fantastic. Well, Pierre. I know you've got to run, so, thank you, thank you for joining me. I always enjoy chatting with you, and, of course, where can listeners find you online? I'll, I'll put this in the show notes also." }, { "speaker": "pierre_rochard", "time": "53:27", "start": 3206.85, "text": "Yeah, absolutely. find me on Twitter at pierre underscore rochard." }, { "speaker": "stephan", "time": "53:31", "start": 3210.98, "text": "Excellent." }, { "speaker": "pierre_rochard", "time": "53:31", "start": 3211.32, "text": "Thanks, Pierre. Thanks. Bye." }, { "speaker": "stephan", "time": "53:34", "start": 3214.06, "text": "I hope you enjoyed that episode with Pierre. I remain bullish on Lightning, and I think it's really cool that we're seeing all these services enabling Lightning for millions of users, and so everyone's just slowly over time being onboarded to the Lightning network, just on some upcoming conferences and events. So I'll be over in Prague this weekend for LibertyCon. Later in the year, there is Bitblock Boom, so this one is late August, basically the last week of August, it's over in Austin. It's one of the The hardcore Bitcoiner conferences in the US, I'm going to be a speaker, of course, so I'm looking forward to seeing you out there. Any listeners who are keen to meet up, give me a message. the website for that one is Bitblockboom. And then straight after that, pretty much the first week of September, there's Baltic Honey Badger over in Riga, Latvia. So this is basically the hardcore European Bitcoin conference. So I'm also going to be a speaker there, and the website for that one is BalticHoneyBadger dot com. and of course" } ] }