{ "episodeId": "SLP481", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "kemal_of_galoy_money": { "name": "Kemal of Galoy Money", "role": "guest", "tag": "KEMAL" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 8.64, "text": "Hi, you're listening to Stefan Livera podcast, a show about Bitcoin and Austrian economics, brought to you by Swan Bitcoin. So now, I just recently got back from the Bitcoin twenty twenty-three conference in Miami. I had a great time, and for this episode, my guest is Kemal. He's known on Twitter as Pretty Flaco, and we're talking about a slightly controversial topic. It's this idea of whether there can be a bullish case for Bitcoin custodians. So we talk about all the trade-offs here, and we debate about various points, such as the remnant versus the big tent, or the simple idea of why not write down twelve words, and is it misselling Bitcoin, as well as concepts about the The different jurisdictions and regulation out there, and finally touching on the financial hierarchy of needs. This show is sponsored by CoinKite dot com, the maker of my favorite hardware device, which is the Coldcard. You can use this in a very reliable and easy way. Sometimes I talk to people and they are feeling confused or maybe they've got a Coldcard and they've never used it. Well, remember, you can just directly plug it in if you are a beginner. So that means get a USB-C cable, plug it into your computer, and use it easily with wallets like Specter Desktop or Sparrow If you're ready to advance up, you can use airgapping and/or multisig as part of your setup. So to order your cold card, go to coinkite dot com and use code livera for a discount there. Mempool dot space is the leading Bitcoin blockchain and mempool visualizer in the space. Mempool dot space shows you Bitcoin's comprehensive multi-layer ecosystem, and as you might have seen, as they announced at the conference, they have a new product coming, it's a transaction accelerator, but this is still in the works, so keep an eye out for that one. One. But in the meantime, for those of you who are spending on chain, mempool dot space is a great place to go and get your fee estimates from, and don't forget it's free and open source software. You can host it yourself, you can even install it with one click on some of the various Bitcoin full node distribution packages, and if you're with an enterprise, you can subscribe with mempool dot space for custom instances and increased API limits and various other features. Go and learn more at mempool dot space slash enterprise. And the lead sponsor of this show is Swan Bitcoin. Swan makes it easy for you to learn about Bitcoin and to buy Bitcoin. Now, if you are a US resident or taxpayer, Swan has a product, the Swan IRA. This is one of the best ways for US residents or taxpayers to hold Bitcoin in a tax advantaged way. It's real Bitcoin, it uses enterprise-grade custody, there is support for traditional and Roth IRAs, it has best-in-class service and an extremely easy onboarding. The team have done some work to make this a very, very slick sign-up, so you can go and see it for yourself. If you go to swan dot com slash IRA. And now onto the show with Kemal, aka Pretty Flecko. Kemal, welcome to the show!" }, { "speaker": "kemal_of_galoy_money", "time": "02:56", "start": 175.52, "text": "Hi Stephan, amazing to be here. A big long-term, long-time fan and listener of your podcast and, and your work." }, { "speaker": "stephan", "time": "03:03", "start": 182.84, "text": "Fantastic. Well, thank you. And, yeah, I thought it would be interesting to chat with you about some work you recently put out or an article you recently put out, as well as what you're doing with Galoy. and so, yeah, let's get a little bit into that. But maybe just a quick, quick intro. What do you do? You know, just thirty seconds. What do you do for Galoy and what are" }, { "speaker": "kemal_of_galoy_money", "time": "03:20", "start": 199.65, "text": "you doing And have been working on and researching and, yeah, trying to push forward Bitcoin adoption since the early days of Lightning, since 2017 and since 2021. I've joined Galoy and, and I'm the director of marketing there and doing research and, and stuff like that, anything to advance Bitcoin adoption really, that's what" }, { "speaker": "stephan", "time": "03:50", "start": 230.03, "text": "my daily work. Excellent. And so, yeah, listeners who may not be familiar, Galoy was the company who are behind- What used to be called Bitcoin Beach Wallet is now Blink Wallet, and so in El Salvador, a lot of people are using this wallet in terms of the features it has for Lightning, Lightning address, and stable Sats is also another well-known feature inside this wallet. And I think on the Galoy side, you would say it's, it's probably more accurate to say it's, it's like this idea of having the banking infrastructure, Bitcoin banking infrastructure that a company could adopt or even a, a community can adopt, right?" }, { "speaker": "kemal_of_galoy_money", "time": "04:25", "start": 264.94, "text": "Yeah, that's exactly right. So we're building- developing basically free and open source Bitcoin banking infrastructure, and, Blink is formerly known as the Bitcoin Beach Wallet, now called Blink, is basically one such Bitcoin bank that you can stand up on this open source stack, and that's what we do at Galoy." }, { "speaker": "stephan", "time": "04:45", "start": 284.87, "text": "Yeah. Oh, and what-- I guess one other upfront thing I should just disclose, I, as part of Bitcoin Adventures, am, you know, a small investor in Galoy, just for, for the sake of anyone listening to understand, you know, conflict of interest or- Etcetera. but, yeah, so let's get into the article you wrote, which is around this idea, and I guess you, you titled it, \"The Bullish Case for Bitcoin Custodians.\" And of course, this was rightly triggering for a lot of people because a lot of people in Bitcoin talk about this notion of being your own bank, of being financially sovereign. So how are you able to-- Why are you, why are you making this case for bit-- Bitcoin custodians?" }, { "speaker": "kemal_of_galoy_money", "time": "05:21", "start": 320.9, "text": "Yeah. So I think, one thing to understand is maybe where self what is it and what does it mean and, what kind of concept is it? And, it's fairly a novel concept, that's, been bestowed upon humanity with Satoshi's invention mostly. Before that, sure, there was self-custody of gold, a physical money, if you will, you can take possession of it without relying on a third party. but we know problem, problems with gold, obviously. But, in terms of, as like a digital- Still good that can be self-custodied. I think Bitcoin is like the first thing, and what it requires is that you keep a secret, right? And you protect it. And this is a very, very novel concept, that hasn't been out there before Bitcoin really. Like if you think around the stuff that you memorize and keep secret, what is there? Like maybe your bank PIN for your EC, for your card, right? But so it's a- Four-digit number that you type in when you want to withdraw money from an ATM, and you keep that private, right? But if you lose it, is your money gone? No, you can go to the bank and they'll just reset it, after they, they verified your identity. So it's a very, very novel concept, and I think, like self-custody is a fantastic property, a unique property, and Bitcoiners cherish it for, for right, for all the right reasons, and it's, and, and really- like emphasize its importance. And the bullish case for Bitcoin custodians obviously is a play on Vijay's, bullish case for Bitcoin, that was a very great read at that time that, opened up a lot of minds to understanding Bitcoin better, especially explaining how money evolves over, in the course of humanity and in, and also in the course of its own life cycle, from a collectible to- A store of value to a medium of exchange and to a unit of account, ultimately. And, so it changed, it opened up a lot of, yeah, new perspectives and better understanding of Bitcoin. And, yeah, like he broke it down really well in his article, and, I, I actually like wanted to do that same for a taboo topic, which it is, like, Basically saying that Bitcoin can be used custodially and that it's actually good for Bitcoin adoption is something that is a taboo topic, basically. And, Yeah. So it may be a little bit triggering, but, what we're really doing is, we're proposing a framework to, yeah, like think about custodians and how-- because I think like custodians will be existing in a Bitcoin future, and we should have an honest discussion about how what these should look like. And, and, and w-- and, and that will require basically, yeah, breaking up that taboo, of not talking about, custodial Bitcoin and, and, yeah. approaching this with a level head and a sound view." }, { "speaker": "stephan", "time": "08:38", "start": 518.28, "text": "So of course, like most people, I have this initial negative reaction to this idea of, you know, trying to tr- like trying to advocate or anyone trying to push this idea that people should trust custodians, but at the same time, to your, to what you're saying, I, I think it's fair to point out that we know today that Bitcoin, as it is today, even with Lightning, will not self-custodially scale to eight billion people. So that necessitates either, you know, not everyone's gonna This Bitcoin, or a lot of people will be using custodians. Now, of course, there may be future scaling technology that comes, things like anyPriveOut and maybe some of the covenant, CTV and some ideas like this, but where we are today, that, that's what it is. And so I guess it does necessitate some discussion about what custodians are, are at least less bad than others, but I think it's also important to think about this idea of premature optimization. I think that- That's maybe something that's worth talking about also, because as an example, even today, many people can just be onboarded with the likes of, let's say, Phoenix or Breeze or some of these non-custodial hybrid model Lightning wallets. So what would you say to that? Would you say that that's not feasible for certain people in the developing countries, or, you know, for whatever reason, that people need certain features that aren't available in those kinds of wallets?" }, { "speaker": "kemal_of_galoy_money", "time": "10:01", "start": 601.24, "text": "So first off, I, I think I'm a big fan of Phoenix And the work they're doing, same goes for Breeze, and I, I have much love for everyone who's working on making self-custody m-easier, all the developers that, that are out, out there, and, I appreciate their work, I truly do, and it's really necessary for the future that we're building for. as far as usability or is like a self-custodial Lightning wallet suitable for someone in the global south, for example? I mean, it's-- I mean, you mentioned, before I go into that, like you mentioned, like the technical limitations in Lightning, yes, that's one side of it. I, I'm hopeful that there will be solutions to it. You mentioned some like APO and CTV, w-we saw like some great proposals, recently coming out like ARC, and that are very optimistic, about self-custodial fu-future. Now, when it comes to self-custody, like we said in the beginning, like it's not just the technical limitations, it's also like the- limitations on the human side. It's a novel concept, and no matter how well it scales on the technical side, people will be required to keep a secret, no matter what, like this isn't going to go away if you want to have self custody, and, and, and that's entirely a novel concept. So w-with those things, let's dive into like maybe a little bit the self-custodial Lightning wallets, that I'm a big fan of. And yeah, I mean, they work great, like a lot of the management of a Lightning node is Tracked it away, and it works fairly well. o-channels are opened on the fly. However, if you think about like high mempool times, it still requires channels to be opened, they incur a fee, and, maybe to you and me, like financially privileged people, that might not seem like a lot, but, it, it, it might be for-- it might be prohibitive for people, who are living on less money. So I, I think this- This goes, yeah. So that, that aspect is there as well. And, I don't know, maybe is it related? Like maybe I just read recently that I'm a big tenter, like some, some say that Bitcoin should be accessible and usable for everyone instead of just, those people that have the technical knowledge, the understanding of what self-custody is and what, why they need it, and the necessary change to pay the fees, like versus the- The remnant theory, right? like if you don't get it, if you can't do it, well, tough luck for you, you're gonna not be my citadel and you're gonna be, I don't know, working for me for, yeah, like a slave maybe. So I, I don't subscribe to that vision at all. I, I think, I, yeah, I have a hard time sympathizing with these people that think like that, and, and the reason is because I've seen what Bitcoin can do for a person, like on Human development level and how it affects their outlook on the future, like the ability to save in a hard money and to transact with it, like really It catalyzes human development in a, in a very beautiful way, and I'm, I'm, I'm a big tenter for absolutely selfish reasons, like big tenter saying that, that everyone should be able to use Bitcoin and, and have access to it and transact with it and saving it, because ultimately it will benefit me, if, like, if people, if my, if the people that I'm living in a society with, which I'm, which there won't be a way around that unless I lock myself out, I will be better off my children I will be better off if the people around me aren't driven by consumerism, low time, high time preference, and chronically short on money trying to, yeah, make a living and, and survive. like I'm here in Turkey and I'm seeing like the effects of inflation on people and on the societal mind and how it changes people and how morals erode and people are more likely to scam and to steal and just because- And I, I attribute that to chronic inflation and, and being stolen from and, and, and I think, like, a beautiful future awaits us if we can make Bitcoin available to everyone. And, yeah. So, yeah, I, I think I, I, that was a little bit of a tangent going from self-custodial Lightning wallets, in the global south, but, I think it's still not there, in UX-wise, fee-wise, it takes a little bit of time until the light- The Lightning wallet, is ready to receive payments, to send payments, a channel must be opened, a fee is incurred, and, most importantly, a secret must be kept, in, in a, in a secure manner." }, { "speaker": "stephan", "time": "14:56", "start": 895.5, "text": "Yeah. Okay. So, I mean, there's a few things to go into there, a few points to extract or go further into. So in terms of Today, right, as we, you know, we're recording this, twenty-fourth of May, twenty twenty-three, as I check mempool dot space right now, the high priority fee, fifty sats per vbyte, it's about, in fiat terms, about a dollar eighty-seven to open a channel, let's say. Right? I mean, that's obviously at today's levels, of course, things will change in the future, and we did recently have this recent big bump because of all the ordinals, nonsense, but nevertheless, they are valid transactions, and" }, { "speaker": "stephan", "time": "15:33", "start": 933.27, "text": "and so I guess I think it's important to untangle a few parts or, you know, disentangle a few things here. One, I think there's maybe the, the feature parity aspect. So let's say Blink Wallet can provide users a Lightning address, and they can automatically do stable sets right in the wallet, whereas today with the likes of Phoenix or Breeze, or I should mention, Blixt as well, they don't have that feature unfortunately. But I know, that there is work being done on this idea of trying to have asynchronous payments, but it Of stuff lands or at least is mainstream. So there is that feature parity component and then also the, the fee component as we spoke about. So today, like we said, the next block fee is about a dollar eighty-seven. And, I mean, I guess that part isn't, maybe it's not necessarily a, a, a total hurdle because at the same time, remember, part of the case people make about Bitcoin is, \"Oh, look, you're otherwise going to be going to Western Union and paying, you know, twenty dollars on a hundred dollar fee.\" Well, okay, what's the eighty-seven to get a channel, right? So you could sort of see, okay, maybe if it's just getting a channel or a, an occasional channel operation, and it still saves this person, hypothetically, this person in the developing country, more than they would have been paying otherwise with Western Union, there's that. but I think maybe the difficult, the most difficult part is sort of the human scaling and learning aspect, right? Because With, for example, with Phoenix, you have to write down twelve words, and you have to keep those twelve words safe, because if somebody gets those twelve words, boom, they're gonna take your coins. I know Breeze actually does an auto cloud syncing backup, so that's maybe something that would be useful. So, you know, maybe some of that can be automated, at least for smaller amounts. Of course, for large amounts, you know, you don't do cloud backups for your coin, for your keys, obviously. But here we're do- we're dealing with day-to-day" }, { "speaker": "stephan", "time": "17:28", "start": 1048.1, "text": "Question to you would be, and, and this is probably the question a lot of people in the community are probably thinking, is they're saying, \"Well, Kemal, why don't you just tell people write down twelve words? What's wrong with writing down twelve words as part of your Bitcoin seed when you, when you do Phoenix as an example?\"" }, { "speaker": "kemal_of_galoy_money", "time": "17:42", "start": 1061.76, "text": "Yeah, I mean, writing, writing down twelve words is, is great, anybody who's literate can do it, or should be able to do it, but you would think so. but I, I would argue that you, in order to write down twelve words, you need to have that intrinsic motivation to do that. And, w-w-what does that, what does that mean? Like, why are you even writing down twelve words? Like, why don't you just trust somebody, right? Like, this is what has been done for- For decades, as long as I personally can think of, I got my first bank account when I was five years old, and, that bank has been working for me, and that's what I was raised with, and, and I don't know it any other way or knew it any other way until I found Bitcoin. But why should I do that? And even when I started to learn about Bitcoin, I didn't know you could self-custody it. I didn't know there was a twenty-one million limit in twenty fifteen when I first found it because I was looking for a digital That I could transact with ac-across borders. And but, but just that, for me, what I wanted it to be, which provided utility to me, which basically created interest and the intrinsic motivation to look further into this thing that provides utility to me, and then I started to learn, okay, wow, that it's actually scarce, and if adoption grows, like, it might actually be a good idea to hold a little bit of this and not just use it for transacting, but rather saving in it and, and self-custodying it because, yeah, a government might turn rogue, or a bank might not like what I'm doing and they might take away my money and just shut me out from what I need to survive and pay my bills, which is like an operational security, security aspect. But all of that takes time to understand and to learn. It's quite a lot, like not everyone is aware of sixty-one o-two Two in the world. It's like for us, it's second nature, or like, yeah, all of the evolution of money, just the need of self-custody and the advantages of it, but we're seeing like u-utility nevertheless that Bitcoin provides, even if you're not aware of these things, and, I think that's, that's important to acknowledge these, properties that Bitcoin has and that can, that, that it can provide Instantly to people, without them being aware of the excellent properties that Bitcoin can deliver on top, like, for example, Bitcoin held with a custodian is obviously not trustless, it's not unconfiscatable, it's not permissionless, it's not censorship resistant, it's not inflation resistant. Yeah, I mean, it could be, with, with the right technology, it's not pseudonymous. But however, yeah, despite these, this downgrade in Bitcoin's like systematically important properties, custodial Bitcoin still has significant benefits over traditional finance with fiat money, which is by the way, just like, like, it, it, it is also ruggedable and not permi-- and not, not permissionless, so it's not, and, it's not, it's on par basically, custodial Bitcoin, on that end is on par as As, as bad as fi- fiat, so it's not, a worsening of the situation, but it does offer a couple of advantages over traditional finance. So it, first of all, I'd like to mention it has the option to withdraw to self custody, right? Like, y-you can start custodial and, and as you progress and learn and understand it better, you can send your self-custodial Bitcoin to a self-custody wallet and, and protect it. It is interoperable with other Bitcoin wallets Wallets, whether custodial or self-custodial, it's easier to open an account below certain transaction limits than with a traditional bank. It has a lot lower transaction fees and it works around, like around the day, around the clock, even on weekends, it's borderless, instant settlement. So these are advantages over other digital payment method alternatives that are out there like legacy finance, that, like Mobile Money, for example. example that's used in Mpesa, like Mpesa in Africa, and, yeah, stablecoins, I did mention that, yeah. So there are some benefits, but again, like it requires like understanding, self-custody, I think. just imitating someone else, a best practice or a tutorial, will not cut it in my opinion. Like, I think there must be understanding of what you're doing, and- And you need to do it consciously. Like, that also ties like in a broader, picture, like the revolution won't happen accidentally as a byproduct of following a tutorial or a best practice. I think it must be a conscious opt-out of the broken system and opt-in, into the working system. And for that to happen, it needs to be a conscious decision, and that requires understanding of what you're doing." }, { "speaker": "stephan", "time": "23:08", "start": 1388.3, "text": "I see, yeah. And so I'm sort of torn in a way because I- I think like we were saying before about remnant versus big tent and, you know, the aspect of people needing to get to a certain level of understanding before they take their own self custody and ideally run their own Bitcoin node and do all of these things that we talk about that we'd like people to do so that they can be self-sovereign. I think where I probably land is that, yes, I ac- I, I accept that some people have to start in a custodial environment and then later we try to push them or encourage them to adopt self custody and- To do all of these things, and I think the, the pushback that I can see and I can hear, and I can see from people saying out there, is that, is there a potential of misselling something, of, of misselling Bitcoin here, right? This idea that, oh, people are out here selling Bitcoin as though it's free to money, but actually you're putting people on a custodian, and then they can get, they could be KYC, KYC, you know, exit, you know, they could be K, shotgun KYC, they could be blocked" }, { "speaker": "stephan", "time": "24:11", "start": 1451.4, "text": "Money out, withdrawn, they could be asked, \"Oh, hey, show me an invoice for what, what are you spending for?\" Right? We're seeing this now in the UK, in, in the fiat banking world, or in other countries around the world, when people go to do large fiat transactions, that bank is often having a compliance department who, again, because of AML and FATF and all this other stuff, they then ask them all these questions about, \"Hey, wh-where are you sending to? Where's the invoice for that? Where'd you, where's your source of Which case for custodians is that are you pushing people into a scenario where just in the future there's gonna be more regulation and, more action on even Bitcoin custodians?" }, { "speaker": "kemal_of_galoy_money", "time": "24:53", "start": 1492.63, "text": "Yeah, I mean, very valid criticism. Custodians are reliant on a, on a sensible jurisdiction that they can operate in properly, that doesn't have enso-enforcement by law, but that might necessitate like something like shotgun KYC where people are cut off from the access to their funds only in ex- Exchange for, providing like intrusive documentation and, that some people can't even provide, right? Like there are undocumented refugees around the world, they might have a, account with a custodian and, and suddenly they're locked out, which is basically a confiscation, and they will never be able, maybe, to provide that documentation. So, so yeah, i-it does rely on a jurisdiction that does have regulatory clarity, ideally is Bitcoin friendly, and it's a precondition, like, like- Like custodians are a centralized entity that are subject to regulations. They have a, like, we have to comply, like, with, with, with a-any, any subpoenas that would come our way. So, yes, so that is definitely a valid criticism and a precondition, a prerequisite for all of this, that there are sensible jurisdictions. However, I think we have sensible jurisdictions Jurisdictions out there, I think jurisdictions are incentivized to be sensible about this. They have, in the end, also the best interest of their citizens in their mind, or they should have. And there aren't-- not every politician or regulator is like completely evil. They are, they also need to be elected or re-elected, and, and they do profit from making the lives of their, citizens better. so we see that in El Salvador, for example, they call call themselves Bitcoin country, they have adopted Bitcoin as legal tender, and, they are trying to make it, a great place for Bitcoin companies to set up shop and have their headquarters, and we've been seeing that, just recently with a couple of announcements of Bitcoin companies moving away from hostile jurisdictions to friendly jurisdictions where they can actually provide services that are more in line and more sensible and less intrusive. Again, of course, there is a-- on the other- On the other hand, certain forces, that are also being applied on El Salvador and the regulators there, they can't do whatever they want either. they have-- there are like intergovernmental organizations like the Financial Action Task Force or just the dependency on the Federal Reserve because they're using the dollar and they don't want to be shut out of the US dollar system, and also the correspondent banks that they don't-- that they don't want to be cut off from, and so- They have to walk a thin line there and, between providing financial inclusion with Bitcoin to their citizens in a non-intrusive manner, while on the other hand, yeah, not being cut off themselves, from the legacy financial system, globally. And I think they're doing a great job. Stacey Herbert is doing a fantastic job there with the Bitcoin Office, like they've even before Nayib Bukele passed the Bitcoin law, now they've basically made it clear that Bitcoin is- Money and, and everything else security and, and further regulations that give basically Bitcoin companies the, the room to operate, within certain boundaries. And the boundaries that means, yeah, lower KYC requirements. For example, with Blink, you can just sign up with a phone number and, and even if you lose your device and stuff like that, that's really practical, and but that is all, that comes with transaction limits, right? so, there's still and- Anti-money laundering, like regulations that a regulated entity needs to comply with in order to operate, and, and therefore, not all the great properties of Bitcoin, right, can be offered with a custodian. Like if you use Bitcoin custodially, a lot of the magic wears off, but there's still a lot of magic left, and, and yeah, there's a thin line to be walked there." }, { "speaker": "stephan", "time": "29:06", "start": 1746.24, "text": "I see, yeah. And so when it comes to jurisdictions, of course, I'm bullish on El Salvador. I think it's great that they're adopting Bitcoin, but there aren't a lot of other countries going to that level yet. Does that pose a risk then if there's not enough comp-competition with other countries that are also very pro-Bitcoin? Like, I think, I, I would say the UAE, where I am, is relatively pro, you know, now they're kind of quote, pro, quote-unquote crypto, not that I'm a fan of the term crypto, but Any other jurisdictions that are reasonable or at least trying to walk that thin line rather than just going right over to the over-regulation side?" }, { "speaker": "kemal_of_galoy_money", "time": "29:45", "start": 1785.37, "text": "Yeah, I mean, we're seeing some developments there. So in many places, Bitcoin isn't regulated yet. I think El Salvador is one of the first. the UAE and Dubai, have just earlier this year, I think, passed some extensive regulation and provide regulatory clarity, which is really important for companies and custodians to- operate in, in a predictable and reliable way and, and basically determine what services they can offer. I think, a-and I'm not an expert on this topic, but I suppose because, it's a very intransparent, world, the world of banking and licenses, and it's evolving and new. So, I, I heard good things about Hong Kong and Singapore. Switzerland has been obviously doing in, on that regard a lot and- with sensible regulations, sometimes not so sensible." }, { "speaker": "stephan", "time": "30:39", "start": 1838.8, "text": "Although I've heard, I heard Singapore is not, is a bit of a no-go nowadays, because I heard the FTX stuff like got, well, also because in Singapore, what I heard is that, Temasek, which is a Singaporean, I think it's a wealth fund or a Singaporean, government fund, had invested in some of these. And so then because of that, it was just a massive, like, they, they had to do like a big public apology because they were investing in, you But I've heard Hong Kong is trying to reopen a little bit, so I think maybe Hong Kong, we're trying to open back up a little bit more. it could be that, you know, the optics of what went on the last few years is bad, now they're trying to sort of open back up a little bit. But, yeah. Also Switzerland has, I mean, there's a lot of shitcoin stuff there over as well, but nevertheless, you know, there are, there are projects and things there as well, like Lugano, Plan B, of course, Bit Doing a, a little, partnership there as well. So hopefully there are at least a few jurisdictions, but we need more, don't we? Otherwise, the risk is that more AML, more FATF, more sanctions compliance comes down the line and everybody gets shepherded into a CBDC system, which is obviously the problem. Oh yeah," }, { "speaker": "kemal_of_galoy_money", "time": "31:55", "start": 1915.47, "text": "so I mean, yes, more would be great. ideally everyone has sensible reg-regulations. you mentioned CBDCs, yes. So maybe that's also like a- An, an, an angle to keep in mind, like I've been recently seeing adverts for CBDCs, preparing the public for the benefits of CBDCs, and I've noticed that the language that they use, like, was very similar to the language that we use in terms of describing the benefits of using a CBDC, and there were even like surprising properties that they mentioned, like I, I, that I thought wouldn't be possible at all, like borderless, interoperable, and So and instant payments around the clock and all the con-- all the beneficial stuff that provides instant utility and that might sway the opinion of the general public to actually adopting this new form of digital payment method, for their day-to-day transactions. we know that cash is disappearing and probably like it's inevitable that it disappears at this point, so we are steering towards a future where there will be digital transactions domi- Dominating, and what is our, what are the options then? Like, obviously, like we see CBDCs as our adversary, and we need to provide an alternative to it with Bitcoin. And, I think there is an opportunity there right now. I think Lightning is at a place where it can-- it actually works for day-to-day payments for merchants, for, for a circular Bitcoin economy that is entirely like banking on Bitcoin, if you will, and, and paying merchants and suppliers and like all the good stuff that's-- that has tremendous benefits in terms of also not having to interface with the- With the fiat legacy banking system where all the, KYC stuff actually happens. And, and so the on and the off ramps are really the choke point, as we've already seen. like, and, and they're going after that with recent operations. so on and off ramps not having to interface with fiat and banking is, like, like, a great, great future if we don't, if we manage to get there. And in order to get there, we need more on and off ramps. programs, and, and circular economies, because, there I, I think like it would be very beneficial also from other angles like privacy and, and avoiding, surveillance dystopia, if we could manage that. And we argue that the quickest way to get there and beat CBDCs in that race is basically with custodial, bit-- with Bitcoin cust-- with custodial Lightning. Yeah. we can see that it's Is instant onboarding, you can instantly receive and send payments, it's very reliable and it provides all of the utility already, plus an op-opportunity to upgrade to achieve more benefits right now, that can already like improve the lives of a lot of people, provide utility to them, and hence incite curiosity and interest to learn more about it, before CBDCs are rolled out, so basically advocating for a- Fatta compli in places where, yeah, in cash-based economies in, in the global South maybe, where CBDC projects aren't as, as far progressed, where banking, where, where there's a lot of unbanked people that don't, that, where even custodial Bitcoin provides immediate benefits." }, { "speaker": "stephan", "time": "35:38", "start": 2137.51, "text": "I see. So, yeah, this comes into the whole race versus the war concept, which, you know, Corey, CEO and founder of Swan, has spoken about and written about. And so I can see something to that point, I think that's there, but there is also the Downsides that we really have to think about also, because for some people, just pushing or advocating for any kind of custodian is sort of seen as, \"Oh, that's beyond the line, that's beyond the pale, you know, that's just too much or it's a bridge too far for them.\" And I think there's some points that do need to be considered. So for example, if people advocate custodial lightning, are they creating more fractional reserve risk? Right? We saw what happened with FTX and the paper Bitcoin that they had. Could a similar thing happen if people are being That all custodial Bitcoin and custodial Lightning is quote unquote okay." }, { "speaker": "kemal_of_galoy_money", "time": "36:23", "start": 2182.88, "text": "Yeah, absolutely. I mean, custodians, if you use Bitcoin custodially, there is a-- you, you don't know if you have Bitcoin, right? You're trusting the custodian. you only know if that you have Bitcoin if you run your node and verify yourself. So yeah, advocating custodial usage, does have that risk of more fractional reserve. I think- But again, I, I must say like this isn't a disimprovement over what the ke-status quo, right? E-everything is f-fictitious reserve in, in, in the status quo. So there is, we're, we're already living in that world, and I think there is a way forward for, with this transparent and open technology, Bitcoin, and with cryptography, there are concepts out there, that are still being- worked on and this like, like proof of reserves and liabilities and solvency, and that can, that can provide some assurances, in terms of auditability and, and mitigation of these risks, and Bitcoin companies and custodians should embrace that opportunity of providing maximum transparency where they can and, and develop these features and integrate them to avoid exactly like, like a- Proo- like a seal of approval or transparency, like just go out there and provide that. If, if there's no shady business, just be open about yourself and what you're doing and how you're doing it. And so, yeah, you can be audited. I mean, being open source is part of that. I think of course, like if a custodian runs on open source software, you're still trusting their integrity, and you're also trusting their competency. but if a custodian- Is, so if a custodian is closed source, you're trusting their integrity and their competency. If, if it's open source, you're still trusting their integrity, but you can actually verify their competency, with the code that they wrote and, and what they're doing, if like they might be good-intentioned but just really bad at programming or something and, and lose your funds accidentally, like you, there is no way to verify in a closed-source custodian, on that end. So I think, yeah, those two elements are, I think, crucial going forward to have custodians accountable and, and, and auditable as much as possible, but there will always be some trust, necessary. and I think that trust can be leveraged, For, for good, for advancing Bitcoin and, and progressing users, educating them. I think custodians are also like the best place to educate yourself about Bitcoin. they, they have unique infrastructure and opportunities there. I mean, Swan Bitcoin is doing a great job there as well. Like, I know there's a custodian behind the back where you can hold, like, the Bitcoin that you stack and until you are ready to get there, and, and then, yeah. People are being nudged up, into, to upgrade, to level up into self-custodial Bitcoin, and this is the, the vision that, that we have, that, that there's a duty and an opportunity for banks and custodians to provide that. And actually, I've just recently seen a presentation by the Volks Eisen, Volksbank Greif Eisenbank Bayern Mitte in Germany, which is a very small regional bank, that have started to look into Bitcoin and educate About Bitcoin, their customers, in Germany, and their rationale is basically what they said, I, I found that really cool. They said, \"We have to educate our customers what this new technology is. If we don't do it, they will get scammed or make mistakes.\" and they are providing like one-to-one education, they're educating about self-custody and hardware wallets because they think they are the experts to educate the, the right people, who have that duty. And, and yeah, we have that, infrastructure already established, around the world with banks, and, and many banks are looking into it, and it's, it would be beneficial if they did that like in a proper way and, with the best intent for their customers and, and progress them, yeah, up the Satoshi's hierarchy of needs, as we like to call it." }, { "speaker": "stephan", "time": "40:59", "start": 2458.62, "text": "So yeah, there's a few things there. Let's dig into the hierarchy of needs thing that you, you walk through or the financial hierarchy of needs. do you wanna just talk a little bit on that?" }, { "speaker": "kemal_of_galoy_money", "time": "41:09", "start": 2469.08, "text": "Yeah, absolutely. So while writing this, article, we were thinking a lot about like, why are people using-- Why are they not just using self-custodial wallets? Like, why are they not just writing down twelve words? It's not so hard, right? why are they attracted to custodians and, and don't care about certain properties as much as we care? And we've been talking a lot about people in, yeah, global south, can- Countries, we like with Blink, we're trying to create the best wallet for bottom-up Bitcoin adoption, and, so naturally, we're talking with people in Peru, in South Africa, in Nigeria, in Kenya, in El Salvador, and we're trying to understand like what is it that's holding you back from holding Bitcoin or using Bitcoin, and, and what we discovered is basically That, the, the personal, finance development is driven by the needs intensity at a given time, and it's different for everyone, for all the people, for every, for every person it's individual, but generally we can see that it's very similar to Maslow's hierarchy of needs that has been postulated some eighty years ago, which is a motivational theory in psychology comprised Rising, five tier model of human needs, and that's often depicted as, hierarchical levels within a pyramid, and, from the bottom of the hierarchy upwards, there are certain needs like physiological needs, like you need to have food and clothing and shelter, and, and then on the one up, you have like safety, you ha-- you want to have job security, for example, one level i-h-up is like love and belonging and, and, and friendship, for example, and then esteem for yourself and what you're doing, and, and on top is basically this actualization of yourself, the self-actualization. And, and this is a, a concept where the needs down, lower down, like having something to eat and a shelter to, to sleep in, that are lower down in the hierarchy, they must be satisfied before individuals can attend to the needs that are above Above. And, and this is what we als-also observed, like with the psychology behind, like which properties are interesting to people actually, that Bitcoin offers. And, and we basically transferred that model to, to Bitcoin and the journey in Bitcoin and, and broke it down into different properties and, and basically applied it, one to one, so on the bottom of Satoshi's hierarchy Hierarchy of needs, as we call it, is like you have to have money to survive and, and, and freedom to exist day to day. if you don't have that, you won't be caring about, as much about your ability to transact, or only if you have that covered, you will be caring about your ability to transact, so the freedom of transaction in a digital world, for example, and all the great properties, That we cherish about Bitcoin, they, they come later. For example, like value to store, is it auditable, is it inflation resistant? like I won't care about those stuff if Bitcoin isn't accessible to me because I don't have documentation to-- or, or I can't, I haven't yet understood the need for self custody. if, so people care, a-about low fees in the beginning, they care about intuitive UX, that they can use it, the instant payment Like convenience, that it's great that it's borderless, like people understand that immediately, oh wow, my relatives from United States can send me some money and I can use it here, and, and that it's interoperable, with, with many wallets. Like these are instant utilities that are, that can be provided and that, that Bitcoin provides and that people care about in the beginning. And once they have that covered, they start to-- they might start to, and, and to think about, okay, now I- I actually have money to store or value to store, as we call it, now. Now I have savings in a way, right? And it's really important to understand at that point, like a lot of people don't have savings, even in the United States, like sixty-eight percent of the population doesn't have disposable income. This means the money they earn, it suffices to cover the costs of the month, and at the end, they might be running short on money and, and, and it runs Noodles, okay? And, until they get their next paycheck, so they don't have value to store. Now, how can you expect someone who has no value to store to care about protecting that nonexistent value by learning self-custody? Like, it's not gonna happen, in an intrinsic motivational, way. Like, they will care about it once they have assets to store, and, and that requires, basically the ability to transact And economize, in a digital world, with low fees and, close to no cost. So, this is basically where it's building on. And, and we basically build upon that, the, the fourth layer of that pyramid is then the immunity to betrayal of trust, right? So now we're getting into, into that area where us, where the properties lie that we Bitcoiners care so much about, because we already have like transactions covered But we have storing and savings covered. Now we don't want to be betrayed, we don't want to be stolen from, we, we cherish the self-custody option, right? We, we use it and we run our node, we also verify it, like the verifiability of Bitcoin becomes important, that it's permissionless becomes important, that I don't have to ask anybody to transact with my own money, that it's seizure-resistant, immutable, and, and finally, in this, in the- The top level layer of the pyramid, the actualization of self-sovereignty as a bitcoiner, is basically having to have no trust at all, employed in all of my doings, like the, like trustlessness aspect of Bitcoin really shines. And, and finally, I would say it's the subversive element that Bitcoin has, that it can subvert the existing fiat system that we want to get rid of, and, and that is pro-- like this- It has like a little bit of an anarchist or anti-government thing, and, and people in the beginning of their journey like they don't want a-any part of that, like they probably love their government, they think it's there to help them and, and, and stuff like that, and, and, it requires a lot of learning to get to that, to that part. So, and this is basically our exploration of these psychological needs and motivations and which properties- are relevant to people and their personal needs, at which point?" }, { "speaker": "stephan", "time": "48:36", "start": 2916.19, "text": "I say, yeah. A-and when it comes to custodians, I guess there's also an element where, to some extent, there's a trust in that custodian to advance self-custody, because some custodians may encourage people to stay on the platform, right? So for example, obviously the F- you know, we keep coming back to this, to this example, but with FTX, people were keeping their salary and their net worth and life savings On FTX, which is also what made it so bad when it went down, for the people who weren't taking heed of the not your keys, not your coins lesson. So then, how, how do we assess custodians on that in the future? And I, I know you also have a section in this article where you compare custodians and say, \"Well, this is a good custodian, this is a bad custodian.\" How do you, distinguish between a good and a bad custodian?" }, { "speaker": "kemal_of_galoy_money", "time": "49:25", "start": 2964.72, "text": "Yeah, I mean, like if we, if we think about all" }, { "speaker": "kemal_of_galoy_money", "time": "49:31", "start": 2971.11, "text": "The paper bitcoins and the incentivization to deposit funds with interest that is promised, I mean, those are red flags, absolutely. so yeah, I mean, there's probably a little, a lot more, but we tried to put in a like a basic list, a ca-- Bitcoin custodian checklist of what to, what a user or a bitcoiner can look for to evaluate whether this could be a recommendable custodian to someone Who isn't ready yet to self-custody but wants to use Bitcoin. So there's easy, obvious things that you can check, with a custodian like, are they Bitcoin only? Is the first one. Like, a, a custodian, like, cus-developing custodian technology, and, and software is already quite demanding and you need to stay on top of a lot of things to make it work and keep it secure. If some, if a team is delving into shitcoins And, and trying to support and integrate a plethora of tokens, then there will be less attention on keeping o-on, on, on the security, that needs to be employed. So, just avoiding custodians that integrate anything else but shitcoins, or, or token, or have tokenomics and stuff like that, like is a good way, good, good starting point. we already mentioned and talked about like Open source, it's important, like in, like you with, when the, when the code is open source, you still have to trust the integrity of the custodian that he doesn't ragpull you, but at least you don't have to tr- trusted, their competency. You can verify your code, and if you can't do that, others will do so. They will look into it, they will harden it, like more, more eyes on the code base, and, and then suddenly all bugs become shallow, and, and so And that's, that's something to look out for, obviously on that point. Like, I, I must mention, like, we are building free and open source software, and, and it's for that reason, but, but it's a good sign. obviously Segwit and Lightning integration ties into the first point of focusing on Bitcoin and staying on top of your game on developments of what's going on, providing the best and most efficient technologies for your users to transact, and if, if you see, like, when you generate an on-chain You get one starting with a one, like a legacy address. Okay, what are you guys even doing here? Okay, like this is, not the state of the art, of where the technology is, and, and you're, you're making your customers pay a lot more in fees, and, so that's a red flag as well. Obviously, education, we mentioned it, is really important. Swan does a great job in that, we're trying to do a good job in that, by providing in-app education in, in Blink. we have the earn section where we incentivize learning, people can learn about what is money, what is Bitcoin, and, and in, and we'll soon upgrade it to twenty eleventh, twenty more lessons, that are followed by a quiz, and if they, if the customer or the user answers the question correctly, they are rewarded with a Satoshi onto their balance, and, and all of that is basically open and, with the credit Commons license, so inviting e-everyone to have a look at that and, and, and, and support that and also adopt it for their, for the, for themselves, to, to really do that, to be responsible about being a custodian and, and re-further the, the good principles. And finally, we talked about that as well, like f- look out for like, if, if the custodian is like in the United States, there's a high chance or in the Un- or in the United Kingdom or anywhere Where there's like stories of that we've heard where, yeah, shotgun KYC is, is, is one danger to, to look out for. like, is it, does it provide regulatory clarity? Is it one of the jurisdictions that are known to, to be Bitcoin friendly, maybe? Like, that's also something that should be kept in mind. We just recently saw with, Paxful, how they had to freeze customer funds. Even, and just because their compliance department had to comply with, US regulations, that were bestowed upon them on short notice, and even if users didn't do anything wrong, they're cut off from their funds, and God knows if they'll, if they'll get them. So those are a couple of things to watch out, probably more, but we tried to make a easy handy list for that as well. Yeah," }, { "speaker": "stephan", "time": "54:26", "start": 3265.94, "text": "interesting. And so I think at the end of the day, there are these competing, Interests and priorities, like on one side, getting people to self-custody, but on the other side, as you, as you're trying to point out here, this idea that, some custodians are less bad than others, let's say, and that, there is some element of a race against, you know, the war here concept of, you know, trying to get Bitcoin adoption Before CBDCs, and w- you know, there's already a war on cash, as most people are aware. We should fight that war on cash, we should use cash. Obviously, like, I, I'll try to use Bitcoin and Lightning first priority, and then, you know, try to use cash and then fiat options generally, unless it's, you know, not otherwise feasible. So I think those are a few things, but at the end of the day, probably the main criticisms I can sort of see of this idea would generally be The idea around, you know, is there a, is there a quote-unquote misselling of Bitcoin? is there a fractional reserve risk, right? Because maybe not every custodian will be able to do proof of reserves. Maybe not every custodian will do that, and so then all these people are kind of getting- Pushed into fractional reserve platforms potentially. So I think that's probably the main criticism, but I think the, I guess for me, the moral of the story or the lesson for me is more just to understand that we can more minutely look at different custodians and compare them and say, \"Well, okay, at least this one is less bad than that other one, right? Like it's better. I would rather people use Blink than, let's say, FTX or Celsius or something like that, right? Like that's kind of-- if that's kind of a guideline, at least if To self-custody, then that's a good indicator. so I think that's probably where I sort of land on, on this overall. But of course, for me personally, if I'm talking to somebody, I'm gonna try to get them into self-custody as the first step, but I also acknowledge there's probably a selection bias. The kinds of people I'm talking to are more- Probably going to be higher up on the financial hierarchy, let's say, and more capable to do that. so I guess those are a few, I guess, closing thoughts. Do you have any final thoughts you wanna mention before we wrap up?" }, { "speaker": "kemal_of_galoy_money", "time": "56:36", "start": 3395.94, "text": "Yeah, I mean, Thanks, for the, for the great conversation, Stefan. I think like we have a couple of problems going forward, with regulations and intrusive things like KYC and dangers, and I think really like working that thin line and accelerating adoption and, and creating these on and off ramps where people holding self-custodial Bitcoin can spend Bitcoin without providing any, documentation or answering any questions like, \"Where's your money from?\" Etcetera. I, I think like by creating these, on and off ramps, and, and with on ramps, I also mean like making, like, for example, merchants, Bitcoin vendors, right, in these circular economies, just really exchanging cash for Bitcoin as long as that option still exists and, and buying it over the counter, KYC free. I think this is the future that we're trying to build for, bottom up, not top down, with the tools, like walking, walking that thin line and trying to be responsive Responsible and, yeah, support us on, on this mission. I, I'd say, like, I think there's a lot of places to get involved in, and, and support that vision if you, if you subscribe to it. not so much if you're, if you're a Bitcoin remnant, I believe, you won't probably care. but if you're not, then, I think like, have a look, at our Telegram group. we have a com- chat on Telegram communities, where we are discussing, all of the challenges, with, yeah, within Bitcoin circular economies, onboarding people, progressing them, what's the right approach, what works, what doesn't, and, yeah, of course, we are also doing a conference in El Salvador, the Adopting Bitcoin Conference, where a lot of these people meet that are working on this, both on Lightning, on the developer side, as well as on the community building side and the, and the bottom-up adoption side, There's been quite a wave of communities around the world that have basically, yeah, started from this, inspired by what's happened in Bitcoin Beach, and it's difficult to, catch up. shout out to my colleague Andrew, who is nevertheless trying to, catch up on all of these excellent developments that I celebrate, and that are, yeah, bringing us a c-step closer to making that Bitcoin future a reality, and, and, yeah. So check those out. Adopting Bitcoin is going to happen in November, seven to nine. Stefan, you've been there, I hope, we'll have you back again in November. it's happening this year from November seven to ninth. You can find all information on adoptingbitcoin dot org. We're also looking for speakers, there's a call for speakers out there, and yeah, no shit coins, but if you want to contribute to this discussion, whether on the development side or in the economic side, if you have like privacy workshops To do, show us that's how s-easy self-custodial is and why it's important. If you wanna talk about that, like trying really to bring the community together there to advance, Bitcoin adoption." }, { "speaker": "stephan", "time": "59:50", "start": 3589.68, "text": "Fantastic. Well, yeah, I, I have attended the last two years adopting Bitcoin, not a hundred percent sure about this year, I'd like to, but we'll see a few things in the air there. but, otherwise, thanks for joining me, Kemal. Thanks, Stefan. Get the show notes over at stephanelivera dot com and share this episode if you found it thought provoking. Thanks, and I'll see you in the citadels." } ] }