{ "episodeId": "SLP55", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "stephan_livera": { "name": "Stephan Livera", "role": "guest", "tag": "STEPHAN" } }, "segments": [ { "speaker": "stephan", "time": "00:08", "start": 8.25, "text": "Welcome to the Stefan Livera podcast focused on Bitcoin and Austrian economics. Learn the technology and economics of Bitcoin by listening to interviews with Bitcoin's best and brightest. Today my interview is with Shinobi, also known as Brian underscore Trollz on Twitter, definitely one of the characters of Bitcoin Twitter. You'll probably notice he's often fiery in his debate threads and arguments. But I think he has a worthwhile point of view to share. Hope you enjoy his commentary. Shinobi, I am a fan of some of your work on Twitter and Block Digest. I think you've got a real, talent for explaining things that are a bit more technical and some of the work you've done with your debating online as well, I think has been quite interesting. So it's a pleasure to welcome you to the show." }, { "speaker": "stephan_livera", "time": "00:52", "start": 52.18, "text": "It's a pleasure to be on here. thanks, man. You know, it's not really a usual thing for me to be going on other people's shows. Honestly, it feels kinda weird. Like there's, people a lot more, important or competent in the space you could be talking to." }, { "speaker": "stephan", "time": "01:11", "start": 70.55, "text": "no, I think, you know, I think you've got a good point, point of view to share. and so, yeah, look, I think you've, you've, you've, a lot of the stuff you've commented on has Kind of, it can be more, what's the word? It's kind of more, you can, you can get into some real debates online, and I, I think, the way you explain things and articulate things is quite nice. so, yeah, look, I think, maybe we can just start with a few things, on, Litecoin. I know you had some comments around that. so some people put out this narrative around Litecoin as being so-called cheaper for payments. how would you sort of think of that?" }, { "speaker": "stephan_livera", "time": "01:52", "start": 112.26, "text": "Well, I mean, like to be honest, like I was one of the people, I wouldn't say that I actually supported that narrative or was convinced it was gonna happen, but for a good while I was open to considering the possibility. But I mean, the, the more and more I started really thinking about it, it's like all of the, the arguments that I see made for it just kind of fell apart in my mind. And in terms of like not actually- holding up to logical criticism. And I mean, like the, the first one, I mean, really the, I think one of the most substantial ones is this argument that Litecoin is always going to be cheaper for payments. And, like Not to be an a-hole, but I think that the logic for that is really kind of grade school level. Because everywhere I've ever seen it argued is that effectively the blocks come in four times as fast, there's four times as much block space, so it'll always be four times cheaper at least. And like, that's absolutely not how economics works. Like there is a supply of something, and as long as the entire supply isn't gonna be eaten up, the, the, the price for that isn't really gonna be subjected to heavy bidding pressure. But let's say, let's assume that all of the other issues I have with this working are just magically not issues, and everything would work perfectly for Litecoin linking into Bitcoin and seamlessly paying between them, while There's always gonna be more demand for an equivalent good, that is for utilitarian purposes identical, if the price is cheaper. And so the demand will keep picking up for that alternative good, Litecoin, until it effectively reaches an equilibrium with Bitcoin's prices. So even though there's four times much, or as much block space, eventually if this narrative were to happen, those prices would be bid up until it would- was just as expensive as Bitcoin. And so really you're kind of looking at, it's pointless then, and whichever one of these networks is the superior store of value, the, the bigger network effect is going to just kill the other one. And I mean, ultimately, that kind of leaves Litecoin in one of two positions. Either accept that and it, in my opinion, would inevitably die and shrivel up, or go the B-cash route and at-attempt to artificially keep that fee pressure at bay forever, at which point you're effectively trying to atomic swap into something that's entirely centralized. And given that an atomic swap is only as secure as the weakest side of it, that's not really secure or sustainable." }, { "speaker": "stephan", "time": "04:49", "start": 288.72, "text": "Yeah, right. And the other component there is that you're still dealing with fees on both sides, on both blockchains, right? You're still paying a Bitcoin transaction fee and a Litecoin transaction fee, and the slippage that you might incur from translating from one asset into another." }, { "speaker": "stephan_livera", "time": "05:05", "start": 305.13, "text": "yeah, exactly. Like, I actually did a kind of dickish, Tweet in a kind of nasty tone or a tweet storm a while ago in a kind of nasty tone, where I broke down, a lot of my arguments against this narrative. And it's like, if you look at it one way, where supposedly everybody stores their value in Bitcoin but uses Litecoin to transact, well, if I pay a merchant and I swap over to Litecoin to do that, they have to swap back over to Bitcoin to store it. And so, like, really Where, where is the efficiency here? You're just adding another layer or series of middlemen that are gonna have more fees. So why, why do that instead of constructing a way to just keep with Bitcoin the whole way without exposing yourself to that slippage or the, the huge variance in prices?" }, { "speaker": "stephan", "time": "05:58", "start": 357.78, "text": "Precisely. And I think another really fascinating point that was made on a very seminal post on the Lightning Dev email list by pseudonymous developer Z-man. He essentially made this argument for Lightning Network as a single asset network, and essentially this was the post around HTLCs, hash time locked contracts as an American call option. So I think there might be potentially some maximalist, implications from that. Can you comment on that?" }, { "speaker": "stephan_livera", "time": "06:29", "start": 388.68, "text": "Yeah, I mean, pretty much the, the argument goes, if you have a lightning node that has liquidity on, let's use Bitcoin and Litecoin as the example here, there's nothing to stop me from just sending a payment on the Bitcoin side to myself on the Litecoin side and then just not releasing the, pre-image for the, the hash lock, unless Bit-- or Litecoin goes up in price versus Bitcoin, so I can just sit there And effectively do what's the, an American call option, which is pretty much, I buy the right to take possession of an asset, but not the obligation. And usually in conventional markets, how that's dealt with is effectively putting up a collateral. So if I buy a, a call option and I choose not to exercise it, I still forfeit that collateral as kind of a disincentive for this, this kind of strategy where I can just speculate free freely without any negative consequence until it goes my way. And so I really don't see, and again, you know, I'm, I definitely could be wrong here, but I personally don't see a way to actually solve this without Either centralizing payments made in this way, so, creating some kind of reputation system where you have to kind of identify yourself to make a payment through this, or some kind of centralizing factor where you're taking the hash lock and not having it in the receiver's control on the other side. Or introducing things like fees for just attempted Lightning payments, and that kind of breaks the, the, the notion and scalability of routing from what I see, because if I have to pay for every attempted, like, payment, even if it doesn't succeed, well, that's Eventually, I, I'm gonna run out of tries to make a payment that I can afford, and it's still cost me money if I can't make it at the end." }, { "speaker": "stephan", "time": "08:33", "start": 512.95, "text": "Yeah, I think it, it may potentially be a strike against this concept of being able to do atomic swaps, Bitcoin to Litecoin via Lightning Network, just because of the construction of the way it works." }, { "speaker": "stephan_livera", "time": "08:45", "start": 524.96, "text": "I mean, I, I think they can work in the, the realm of, in, in actual exchange. Like, I am- Specifically trading this asset for speculative purposes. I just don't see a way that they can work in the, the context of like making a seamless payment where I'm paying with Bitcoin and you're receiving in another currency. Like, I, I still think this can be useful for like an actual exchange type, construct, just not like a seamless decentralized payment across currencies." }, { "speaker": "stephan", "time": "09:19", "start": 559.33, "text": "Right, done in the centralized trusting the exchange way rather than the- The atomic swap mechanism done in the kind of trust-minimized way, let's call it. Okay, cool. I think another topic I was interested to get your thoughts on and discuss is confidential transactions. So obviously it can lead to much better privacy, being able to blind the amounts of the transactions. However, there is potentially the risk of silent inflation, which may reduce our level of comfort or assurance That Bitcoin has a twenty-one million cap. Now, there are trade-offs here between using Elgamal commitments and Pedersen commitments, and then there's also switch commitments. So can you just break that down a little bit for the listeners? Well, I mean," }, { "speaker": "stephan_livera", "time": "10:10", "start": 610.29, "text": "th-this is mostly gonna be me, Kind of just going over things I have been told by people like, Adam Back or other more experienced cryptographers in the space, so I just want to be clear here. Like I very well might wind up mis-speaking here, but from my understanding of all of this, the, the Algamel commitments are quantum-safe, so that would be something that could protect us from silent inflation attacks. But The issue is that they're much larger than the Pedersen commitments. And the, part of the, the kind of issue really I see with Elgamal versus Pedersen commitments, especially looking at things like bullet proofs, is I can, or you, you can condense, the commitments for a bullet proof. So let's say we all get together and like ten people make a CT Coinjoin. With bullet proofs, that can all be condensed into one commitment. It doesn't really grow that much for each participant in it. And so that kind of creates an economic incentive, to encourage the use of it. You know, you, you can wind up actually paying less using CT, even though, you know, one transaction with one commitment is, is bigger than a transaction without a commitment, like just, you know, one to one in terms of inputs and outputs. But that condensing of the commitments, it's a way to economically incentivize using it. But those Pedersen commitments aren't Quantum safe, so that puts the network at risk of silent inflation. And like there are some ideas in terms of trying to- Limit the ability that that could damage things. Like, for instance, I've, some people have gone over this idea of kind of an extension block that commits to how much of the Bitcoin supply is within CT outputs using Pedersen commitments, so that, let's say it's broken, everybody could move their coins out and it wouldn't allow more than the legitimate amount of coins locked up in CT to go to non-CT. The outputs, but my issue with that is, that creates kind of a disincentive to even use CT in the first place, because if somebody breaks something and we're using a mechanism like that, they're gonna know it, so they are going to break it and immediately start moving their coins out of CT, outputs into non-CT outputs, and so pretty much Yeah, it would stop the s-- the systemic destruction of the supply in the system. But if you had that happen, legitimate people with legitimate coins using CT would likely just wind up screwed. And like they would all lose their money." }, { "speaker": "stephan", "time": "13:12", "start": 791.85, "text": "Yeah, so it's not a safe way to go about it at this point, potentially. and then there is also this concept of switch commitments as well. So I, I haven't done a huge amount of reading into this, but my understanding is Tim Roughing came up with this idea of starting with one type of commitment and then switching to another. Yeah, that would" }, { "speaker": "stephan_livera", "time": "13:31", "start": 811.23, "text": "pretty much be starting with, Pedersen commitments and committing to, an Elgamal commitment. But I still have a problem with this idea, because I think it creates a huge social attack vector and a, a very non-zero risk of splitting the network, because Effectively, what the, the logic is, is we start using Pedersen commitments, and then when it becomes unsafe to use those, we would fork and invalidate the use of Pedersen commitments and require the use of Elgamal commitments. But, like, again, there's the, the whole- Economic incentive aspect of Elgamal or bigger, more expensive, to my knowledge right now, can't be condensed the way that Bulletproofs can. And I think that opens up a huge social attack vector, because how do you decide when it's not safe? That's pretty much a, a social coordination problem. And what happens when people start sounding the alarm? Like, how is that going to be perceived? Is that gonna be dismissed? As oh stop, fear mongering, you know, we don't have to worry about this for a while. How many people are going to latch onto that as a reason to not support it because they don't want to pay more in fees? I mean, it, it becomes a very sticky issue in my mind in terms of What happens, and do we wind up seeing a network split potentially when the, the, the first group of people start trying to sound the alarm to switch to the Algamal commitments?" }, { "speaker": "stephan", "time": "15:11", "start": 911.25, "text": "Right, and some people might disagree, and they might say, \"No, I think you're calling it too early. I still wanna have my Peterson cheaper commitments.\" There, there's a lot of different ways people could argue and disagree, and it may be-- I, I suppose, as, as I understand you, then, you're essentially arguing and saying that we- are better off not going down that pathway at this point in time, given the technology we have." }, { "speaker": "stephan_livera", "time": "15:35", "start": 935.11, "text": "I mean, if, if I were to support any form of confidential transactions myself, I would want to just go straight to Elgamal commitments, like go to the thing that is as sound and secure as possible and not try to play these, these games of, you know, pushing things off or getting temporary savings as long as we can. Given the potential risks I see coming along with that type of strategy." }, { "speaker": "stephan", "time": "16:05", "start": 964.71, "text": "Right. And in order to actually get Elgamal commitments, it may just not be feasible just given the size of the blocks and what that would do to the centralization or the decentralization of being able to run a full node." }, { "speaker": "stephan_livera", "time": "16:20", "start": 979.94, "text": "Well, I mean, I don't think it would necessarily have to. I know a lot of people want, if, if we were to do something like that to increase the block size to kind of count- After that, but I would personally not support something like that. So effectively using, Elgamal commitments would pretty much be-- I, I think it would, it would take more resources to validate things, but it would just be the same size blocks. and then less actual transaction throughput possible with that if things were done the way I would hope they would be." }, { "speaker": "stephan", "time": "16:54", "start": 1013.56, "text": "Right. And I mean, it may potentially be that if there's enough people who use, say, Lightning, that maybe the amount of block space required In some theoretical sense, could, could come down, and maybe then people would be okay, comfortable to use Elgamal commitments, but maybe not now, but at some point in the future." }, { "speaker": "stephan_livera", "time": "17:14", "start": 1033.67, "text": "potentially. I mean, like Honestly, from my perspective, I, I would rather just leave CT out of the main chain and try to get as, as many privacy and fungibility improvements without it, and really see where that leaves us standing before a push to just kind of try and shoehorn this into the chain, given like that it, it pretty much comes down to the fundamentals of the actual cryptography involved and that it's, it's just a really big gray area. In my opinion, in terms of the downsides that could come along with it." }, { "speaker": "stephan", "time": "17:51", "start": 1070.94, "text": "Oh, agreed. Yeah, I think, I pretty much agree with you on this. but I suppose just to, sort of play the devil's advocate role. What about the argument that, say, when you wanna use Wasabi wallet, the fact that confidential transactions might help in terms of, improving the privacy that somebody gets by doing a coinjoin compared to right now where, you know, there are certain problems and the, the, there's a use of equal inputs, for example?" }, { "speaker": "stephan_livera", "time": "18:21", "start": 1100.61, "text": "Yeah, I mean, it would-- That's pretty much the, the main, benefit, of CT, in my mind, is, it's the fact that you don't see the amount Amounts, like you still have discrete outputs that you can identify as an individual output, but that, that solves most of the coordination problems with coinjoins in terms of amounts, because they're all just outputs now, you don't have to have the same amounts, and it would also help with things like identifying change outputs or just, you know, it, it would, it, it doesn't completely get rid of the ability to distinguish individual outputs, it just destroys Use most of the statistical assumptions that chain analysis uses to identify, transactional patterns in them." }, { "speaker": "stephan", "time": "19:08", "start": 1147.54, "text": "Fantastic. Yeah, I like the way you articulated that. And I think while we're on this whole topic of block sizes as well, so obviously on Twitter there's been a little bit of a I'd call it a slight push towards smaller blocks, but that may not, not necessarily be the best thing for Bitcoin right now. But in your view, what's, what's driving this push?" }, { "speaker": "stephan_livera", "time": "19:29", "start": 1169.47, "text": "Honestly, in my opinion, It's really just thinking ahead to the future. I mean, if, if we're-- like, if we took, Luke Junior's figures right now, over the last year, we've seen The node count, including non-publicly reachable nodes, go from a hundred thousand nodes down to like fifty-five thousand now. And so that is kind of a short-term, statistical analysis of things. Although there are other potential explanations, just like, coinciding with the, the market moving to the, the high in December twenty-seventeen and down, and so on. But really, I think the, the biggest The reason for this is just open access to validation, because looking at the, the figures of bandwidth and, bandwidth improvements and, Moore's law regarding CPU improvements, I mean, it's somewhere around You know, like 17% improvement year over year on the low end, and with bandwidth it can be as much as 50 in, you know, well-developed areas. But, you know, with decisions like this, I think the important thing is to always look at the low end. And looking at that seventeen percent improvement in less developed parts of the world, based on Luke's projections, I, I don't have the exact years, I, I tried looking, back for them in a, a Slack conversation I was having with him, but the, the logs roll over and delete things, but it was pretty much the, the resources required and the, the difficulty in doing the initial block download is going to continue getting worse and worse until the end of the twenty twenty And it's not going to, in terms of assuming that these bandwidth improvements on the low end and Moore's Law continue, which they very well could wind up not keeping up with these projections, or, you know, something could happen with trade relations with China and just screw up the, the market dynamics that are driving tech improvements. Like, we, we don't know. But assuming things go well and this growth keeps up with these projections, it will not get back to the relative difficulty of the IBD now until like late 2040. And so I think the, at, at least my, my opinion on the logic here is trying to take that curve which is gonna hit a peak and take a while to get back to now and bring it down So that the less developed parts of the world will have the, the ability and the resources to access and validate things sooner." }, { "speaker": "stephan", "time": "22:16", "start": 1335.88, "text": "Right. And I, I guess one thing to consider there is many enthusiasts in the community like to do the whole Raspberry Node, right? They like to-- There's the Raspberry Blitz and the Raspberry Bolt, for example. And Do you believe there might be some kind of concern that maybe in five, ten years' time, could it be that you wouldn't be able to run a full node off one of those kind of low-power devices?" }, { "speaker": "stephan_livera", "time": "22:45", "start": 1365.1, "text": "Yeah, I do think that's a very real concern, but on, on that note, at least in the developed parts of the world, I don't think that's necessarily an issue because I think by the time that starts becoming a problem, there will be more- More powerful devices of an equivalent price point that, that would be able to handle that. I mean, there's, there's already a lot of Raspberry Pi alternatives that are only like twenty or thirty dollars more with a lot more computational power to them." }, { "speaker": "stephan", "time": "23:15", "start": 1395.09, "text": "Right, right. And I think another key point here is to consider that it's not just the block size itself, but also maintaining the UTXO set. Could you comment a little bit on that? Yeah," }, { "speaker": "stephan_livera", "time": "23:27", "start": 1407.14, "text": "I think You know, a lot of people obsess over the block size as kind of the, the key variable in the scalability of the system, and like that could not be more wrong or off point in my opinion. It's, it's the actual UTXO set, the collection of unspent outputs at the tip of the chain, and that has no direct size limitation. Like it, it only indirectly is throttled by the block size in the sense that you can only update or add to that UTXO set so much in each given block And ultimately, like you have to have that UTXO set to validate a block. Like you have to go through every single transaction in a block and make sure that each input is validly included in the UTXO set. And so it's, it's literally impossible to validate a block without having a valid copy of the UTXO set. And like this is really my big concern. With talking about block size increases, is you're, you're talking about, like for each increase of the block size, you're talking about potential exponential increases in the rate at which that UTXO set can grow. And one of the hard realities I think that a lot of people have to accept here is that it's not viable in the long term. for every individual person on this planet to have their own UTXO in the UTXO side, like I don't think that that is, an actual possibility without some huge Like new solutions develop, like that's just not practical." }, { "speaker": "stephan", "time": "25:12", "start": 1512.33, "text": "Right, and I, I suppose you're kind of im-implying a little bit around channel factories then. Yeah," }, { "speaker": "stephan_livera", "time": "25:19", "start": 1518.65, "text": "I mean, like one of the biggest potentials, for channel factories, I think, is, you know, the ability to do something like a cold storage pool. Where you could effectively, like, have like up to like a hundred or something people put all of their money into one output, and then just have like pre-signed splice out transactions so that you could just pull your money out and put it somewhere else. And I mean, if, like, this is being exclusively used for cold storage, I mean, people could just let money sit in something like that for quite a long time and still have like a web of- Splice outs that could be used if other people aren't available or cooperating in pulling their own money" }, { "speaker": "stephan", "time": "26:06", "start": 1565.88, "text": "out. fascinating. Yeah. And I think part of what's driving some of this concern around the UTXO set is also the incentive to either further fragment the UTXO set versus to condense that UTXO set. Can you just explain a little bit around that for the listeners?" }, { "speaker": "stephan_livera", "time": "26:24", "start": 1584.06, "text": "Yeah, I think, you know, a lot of people kind of forget this after The twenty seventeen and twenty eighteen with, you know, all of the, the nonsense surrounding the New York Agreement, the, the UASF, and then Bcash afterwards, is part of the whole rationale for how SegWit was structured in terms of the witness discount, where you pay less in, in fees for the actual signature data, was to correct that kind of misincentive, like, you pay fees on the network based on the actual data size of a transaction So if you take ten transaction inputs and try to condense those into one output versus take one input and, and kind of fragment those into like four or five outputs, you're paying more For condensing outputs than you are for fragmenting them. And that kind of is an economic incentive to encourage always creating more UTXOs instead of condensing. And while SegWit doesn't completely- Like make those even costs, it, it brought down the disparity a lot, and I, like, that was a, a big part of the, the design rationale for how SegWit was implemented." }, { "speaker": "stephan", "time": "27:42", "start": 1661.74, "text": "Right, and I suppose I'll just explain for the listeners who maybe aren't as, aware on this. Essentially, one of the key drivers of the size of the transaction is the number of UTXOs that go into that transaction, and then obviously the larger that transaction is in terms of kilobytes, that takes up more, obviously, satoshis that you have to pay as a fee. So I think what you're getting at there Is to s- help explain that if somebody were to take ten different UTXOs and consolidate them, in some sense, they would be paying a bigger cost to spend those ten UTXOs, but in doing so, they are helping condense the UTXO set, therefore helping reduce that tragedy of the commons problem into the overarching Bitcoin blockchain that everyone has to maintain. Yeah," }, { "speaker": "stephan_livera", "time": "28:30", "start": 1710.26, "text": "exactly. And, you know, given, the fact that the input is where the signature is And the signature can be up to like sixty, you know, or more percent of a transaction size, like that is, like the biggest part of a transaction, and so that's a huge disparity before the, the SegWit witness discount was introduced." }, { "speaker": "stephan", "time": "28:52", "start": 1732.4, "text": "Fantastic. And I suppose the other thing to talk about when we're talking about, you know, running nodes, what are your thoughts around plug-and-play nodes changing the game? So, for example, Casa has one, Nodle has one, Lightning in a Box, Samurai Dojo are coming out with one. What are your thoughts there?" }, { "speaker": "stephan_livera", "time": "29:09", "start": 1749.37, "text": "I think that it's, it's a nice thing to have for the, the really non-technical users, you know, like your, your parents, your, your grandparents, like people who You know, to be a little extreme in the example, can't even figure out how to program the clock on the VCR." }, { "speaker": "stephan", "time": "29:27", "start": 1767.39, "text": "Right, right. And the other component is also just right now with Lightning, so we don't have Neutrino, which is BIP one fifty-seven and one fifty-eight in place. So for people to actually properly participate in Lightning mainnet, typically they have to run a full node as well. So do you believe that will help change the game in terms of encouraging more full node use, or do you think that- That perhaps the, with Neutrino coming out on mainnet, that people will opt for the Neutrino option rather than running a full node supporting their, their Lightning behavior." }, { "speaker": "stephan_livera", "time": "30:02", "start": 1802.23, "text": "I think honestly it'll probably lead to less people using, full nodes, and in the end of the day, I mean, like most of the, the rationale for Neutrino was, was mostly just a privacy improvement against bloom filters, which is the mechanism that SPV wallets, used to use Or most still do, true SPV wallets, anyways, ones that query random nodes to get your balances, which are a lot easier to actually kind of break the The assumptions that keep your balances private and identify which coins are yours, whereas Nutri-- like, 'cause it's pretty much the bloom filters, you Have the, the filters, and send them to the, the node, but you include a bunch of, pretty much dummy requests that are gonna connect to coins that aren't yours. Whereas Neutrino, you're getting filters from a node. And actually looking through on your local side to grab a whole block that you think has things relevant to you. So you're not giving a full node anything they can really use to identify your coins except, you know, the potential that the blocks you're querying have your coins in them, and that's a pretty big set. It's usually, you know, like two or three thousand transactions per block." }, { "speaker": "stephan", "time": "31:30", "start": 1890.31, "text": "right. okay. And I think the other thing, just one more- We're talking about block size and block weight. The other thing is there is only a limited, capacity in terms of developer time and work. Is it really worth pushing for smaller blocks at this point in time versus pushing for things like Schnorr, Taproot, Groth10?" }, { "speaker": "stephan_livera", "time": "31:51", "start": 1910.76, "text": "Well, I mean, honestly, like, I very much would like to see smaller blocks, but I am not about to go run out and start encouraging software deployment if it's clear that there isn't consensus on something. And I mean, it's, even as somebody who wants to see it happen, it's pretty clear right now that there isn't consensus on doing that. But, you know, as far as developer attention, I really don't think it's It's that much of a, an attention diversion if we were to do this. Like a, a block size decrease isn't, you know, it doesn't really involve, you know, checking new cryptographic constructions or mathematical research to encourage the soundness of something. It's just deploying software that would restrict the block size more. So I, if there were consensus, I really don't think it would be That much of a significant brain drain away from other developments coming down the pipeline." }, { "speaker": "stephan", "time": "32:48", "start": 1968.27, "text": "okay, fair enough, fair enough. Do you have any thoughts around other benefits that you are keen to see coming out of Schnorr, Taproot, Graphroot, and potentially around aggregation of signatures?" }, { "speaker": "stephan_livera", "time": "33:00", "start": 1980.16, "text": "Oh yeah, I, I am really excited to see those just because of the, the fungibility improvements. I mean, you know, with Schnorr Like you, you're not gonna be able to tell opening and closing of a lightning channel as long as it happens cooperatively. Like you won't be able to tell that coins being spent were part of a multisig address. With Taproot, like you can, you know, Taproot and Graffroot, you can hide all of the other conditions to the point where if you don't have to resort to them because of, you know, people not cooperating, then it's, it's just a normal transaction. And like that's all, or that's what like the, the fungibility is all about, making everything look the same. And, you know, GraphRoot especially, I am really excited about because that allows people to shoehorn in new spending conditions without actually moving coins to a new UTXO. So I mean, like GraphRoot, I am especially interested in seeing because I see a lot of potential there for solutions to a lot of problems in terms of coin ownership and, you know, people's estates. Like we could see a lot of the, the problems in terms of giving, you know, coins to your inheritance or, you know, like pretty much every problem that exists right now in terms of leaving your coins to somebody else if something happens to you, I think GraphRoot can really help build a lot of new interesting constructs for that without requiring you to like actively keep Moving your coins to lock them to a new script." }, { "speaker": "stephan", "time": "34:45", "start": 2084.53, "text": "Right. And I think what you're getting at there is that when you spend UTXOs, you can place a certain encumbrance upon them and With Taproot and Graffroot and so on, you can start using more advanced forms of an encumbrance. Is that kind of what you're getting at there as well?" }, { "speaker": "stephan_livera", "time": "35:03", "start": 2103.35, "text": "Well, yeah, both of them allow you to get more advanced, but the, the key differentiation between Taproot is like it's, a Taproot, script tree is kind of set in stone So like with Taproot, if you wanted to change it, you would have to move to a new UTXO with a new script tree with different spending paths. But with Graffroot, like the whole, difference is instead of a, a Merkle tree committing to the different paths, Graffroot is just the keys that the UTXO is at signing A new script, and then you keep that, and you can spend those coins now as long as you have the signature proving that the, the key that it's encumbered to, signed this new script. So with Grafteroot, you can literally like, I can have coins that have been sitting there for like two years, and I can just get all the keys that it's locked to and sign a new script and give it to you, and then you can spend them, the, those same coins that haven't moved with that new script" }, { "speaker": "stephan", "time": "36:09", "start": 2168.63, "text": "Right. So it helps, it's a clever construction in that it enables less use of the blockchain. It enables, yes, less, you know, movements in terms of UTXOs." }, { "speaker": "stephan_livera", "time": "36:19", "start": 2178.71, "text": "Exactly." }, { "speaker": "stephan", "time": "36:20", "start": 2180.25, "text": "Fantastic. Okay. do you have any other thoughts on kind of different approaches to scaling and the, you know, the trade-offs that we will face?" }, { "speaker": "stephan_livera", "time": "36:29", "start": 2189.03, "text": "I mean, honestly, like one of my biggest- I guess disappointments in this space is the lack of interest in improving custodial solutions, because, I mean It's just a cold hard reality, unless you want to just keep increasing the block size, which will damage the decentralization of the underlying network, put the sustainability of the long-term fee market more and more into question. We're going to have to make last-mile trade-offs. To, actually transact, on, on the kind of volume that you do with, you know, normal retail use of something. And, like, I don't really have a problem in and of itself with custodial solutions. It's the fact that nobody seems interested in engineering them in a way that preserves as much of those core properties of Bitcoin as you can. Like, keeping users' privacy. Making it as difficult as possible for that custodian to pick out individual transactions and censor them based on who's involved with them. And, you know, I, I re- I recently kinda got into a huge shit fit about this, this \"Tipping Me\" project on Twitter. And, like, I, I'm really kinda pissed off about it. Because, you know, you have people building custodial lightning solutions like this, and nobody seems to be interested in looking at building Chaumian eCash servers, which is literally something that predates Bitcoin by almost thirty years. Which is a custodial solution where at, at a big scale, it's pretty much impossible for the custodian to pick out and censor individual transactions. It's, it's almost impossible for the custodian to identify who is paying who. Like it's a custodial solution that, that maintains that censorship resistance and that privacy. And it really pisses me off that people are like willing to take the, the legal and the regulatory risks in building these custodial things that they can tie everything going on to individual users, but no one's willing to take that exact same risk to build something that gives people censorship resistance or gives people privacy." }, { "speaker": "stephan", "time": "38:54", "start": 2333.89, "text": "Interesting, yeah. Look, I, I, to be honest, I, I, I don't know as much about, Charmian, iCash servers. I'll have to go and do a bit more reading on that. but w- on the topic of, Lightning Network custodial wallets and so on. Do you have a thought on whether it's sort of, it's okay for people to do it so long as they leave it a small amount there and that they are sweeping it out into their own, say, into their own node where they hold the keys, et cetera?" }, { "speaker": "stephan_livera", "time": "39:22", "start": 2361.9, "text": "I mean, people are gonna do what they're gonna do, but like I don't like custodial solutions that don't try to maintain some degree of privacy for their users. And I mean, like there, it is perfectly possible to build custodial projects that do do so. But everybody I see doing these things just keeps taking these shortcuts that, frankly, destroy their user's privacy. So it's like, you know, my, my issue isn't with just them being a custodial thing It's how they're going about building that custodial thing and the consequences it has for people's privacy." }, { "speaker": "stephan", "time": "40:01", "start": 2400.66, "text": "Right, okay, yeah, look, honestly, I, it's, it's an area I'm not as, Not as knowledgeable about, I'll have to go and, read a little bit more into that. okay, and one more topic I was keen to discuss with you, I know you've got a lot of thoughts on this, is around side chains. So let's talk a little bit about where sidechains are useful and where they might make sense, and scenarios where they maybe they don't make sense or they are insecure. Can you tell us a little bit about that?" }, { "speaker": "stephan_livera", "time": "40:31", "start": 2431.46, "text": "I mean, most of my problems with side chains are people trying to involve miners with them. I think that that inherently damages the network as a whole. And Now let's see, how, how should I go about? I think I'd like, we'll, we'll start off with like the notion of a, a drive chain, like, Paul Storz has been pushing. And frankly, I think that, like, there's two main ways that this kind of damages Bitcoin as a whole. And the, the first is like he is constantly claiming that the blind merge mining construct Just magically gets rid of all mining centralization, consequences, and I, I think that's frankly bullshit. Like, what, what the, the construct is, is pretty much you have a node that isn't mining itself, that produces a block for a side chain. And then gives it to a miner and pays the miner most of those fees for the miner to commit to it and make it a valid block, and only keeps a small portion. Of those mining rewards for itself. But the, the, the thing with mining is, like, i-it's going to keep drawing new miners online So long as there's a profit margin. And every time more miners come on, it raises everybody's operating costs. So eventually you get to a point where the, the profit margin for miners will Tend to be razor-thin. And you eventually get to a point where that small amount of fees that these drivechain nodes are keeping for themselves A miner can just run that drive chain node themselves and keep that extra bit of fees, and it, it might be a very thin margin, but now that miner is more competitive than other miners, and they can bring more online, which raises everybody's operating costs, and you eventually get to a point where Like you have to run these drive chain nodes yourself as a, a mining operation, or you're not gonna be competitive. And so really, like, if- From everything I see, like this, this blind merge mining doesn't actually solve the, the mining centralization aspects of merge mine side chains, it just delays them. Until Bitcoin has grown to such a huge size and stabilized and become a big important part of the, the global economy, and then they kick in full force." }, { "speaker": "stephan", "time": "43:16", "start": 2595.96, "text": "Right. So it's essentially like kicking the can down the road. Can you tell us a little bit around how-- Is the problem here that it causes a centralization of the miners?" }, { "speaker": "stephan_livera", "time": "43:25", "start": 2604.7, "text": "Yeah, because in order to mine, like, you have to be able to validate blocks to propose them. Otherwise, your rewards are invalid. And so if a miner wants to try and get that, add little extra bit of fees that a drive chain node is keeping for themselves, they have to validate and construct all those blocks themselves. So the validation costs continue going up. And, you know, I think it's like two hundred and fifty-six drive chains that can be spun up, given the way that the, the whole blind merge mine construct is set up right now. Well, even if- It's only like something the same size as blocks right now that adds up. And there's no reason it has to be the same size as a block now on the main network. They can be way bigger. In fact, I would tend to think they would likely be way bigger, because part of the whole rationale is kind of like more block space, being able to stuff more stuff in a chain and, air quote, not worry about mining centralization." }, { "speaker": "stephan", "time": "44:31", "start": 2671.41, "text": "Right, and I think, to help me understand this here, is it essentially that drive chains and side chains could potentially, so-qu- so-called, suck away the fees from the main chain?" }, { "speaker": "stephan_livera", "time": "44:45", "start": 2685.16, "text": "Yeah, that, that's also another aspect. If, if drive chains are deployed, they could, you know, be a lot bigger with a lot less fee pressure. And, you know, if, if like you spin up a drive chain and that starts being full, it starts- It's being subjected to fee pressure, we'll then, we'll go spin up another one, and another one. And so not only does it create this dynamic of mining centralization in the long term, it creates this dynamic where it's going to start Being like a relief valve to fee pressure on the main chain. And so, like, it, it, it's just, it starts to destabilize the whole mining ecosystem. And, you know, to, to be, clear on this one point, like, it's all good and dandy that, like- Doesn't matter how big the block size is, like I can still run mining equipment somewhere, but if I have to go to you and use your node to make, you know, blocks that I'm gonna be mining for Then it's still centralizing the transaction selection aspect of it, and that's really what's most important. Like it doesn't matter if all of the hardware ownership is super decentralized, if the, the nodes that they have to go to to actually get blocks to mine for are very centralized and can start colluding or excluding transactions, then it starts to undermine the whole promise of censorship resistance." }, { "speaker": "stephan", "time": "46:16", "start": 2775.79, "text": "I think also the point around helping a fee market develop, right? So obviously, as we all know, in say, ten years' time, the amount of block reward will be much, much less, and there is a need then, or the argument has been put forward that there needs to be a fee market, and if these drive chains and side chains can potentially suck away the fees, then that might also be another point against them." }, { "speaker": "stephan_livera", "time": "46:40", "start": 2799.75, "text": "Yeah. I mean, you know, it's- The, the way I look at second layers is they should be structured in a way that still require coordinating through the main chain, otherwise they start to undermine that, that fee revenue at that core layer, and then that starts destabilizing the whole system." }, { "speaker": "stephan", "time": "47:00", "start": 2819.82, "text": "Fantastic, yeah, it's a really, quite a technical subject, and you really have to sort of think clearly through these points. So thank you for that. another area I was interested to get your thoughts on, and this- This comes more to the more trusted and federated model, so an example is obviously Liquid by Blockstream. In what scenarios does that make more sense than, say, the, the, these kind of other sidechains that we're talking about, just now? Well," }, { "speaker": "stephan_livera", "time": "47:27", "start": 2847.24, "text": "pretty much anywhere that you are already trusting a third party. I mean, like Liquid's whole design rationale is for quicker movement between different third parties, and I mean, like to really- Drive to the core of the semantics, Liquid is really just a, a fancy, multisig smart contract, where the Liquid blockchain is kind of the operations of the smart contract, and the validators are the oracles ensuring that it's You know, functioning properly with how it interacts with the main chain. And so obviously, like, you know, something like Liquid, I don't think is ever gonna be a way to have like general purpose censorship resistant transactions for general use. It's a brilliant construct when it comes to taking an interaction with a third party and distributing it more. So that instead of just trusting a single third party, you have kind of a quorum of them that are all aligned in a way where they're incentivized to keep themselves in check. And so it's, it's kind of a, a lot less likely that that third party can be coerced or collude to do something malicious." }, { "speaker": "stephan", "time": "48:47", "start": 2927.01, "text": "How about now in terms of more ethical approaches to altcoins? So some of the discussion, and this comes up around, you know, should people start an altcoin if they've got this new technology that they want to test out? What is a more ethical way that these things can be tested, potentially using sidechains?" }, { "speaker": "stephan_livera", "time": "49:07", "start": 2947.34, "text": "Well, I mean, it's Like really, people are going to start altcoins, and it's like that, it's, it's the incentive is just too strong to try and make your own money that you can benefit from by being in on the ground floor. But, you know, personally, I think that Using like a, a, a bounty on something else, like a side chain, a test network, so on, it, it would be Effectively the same kind of thing, and I actually think superior in a lot of ways, because like if you deploy a live network and expect like if there are vulnerabilities, somebody's gonna take advantage of them and steal money and, and go try to trade that off into something else or profit from it, like you, you can almost guarantee That the, the places they can go to trade that to other coins or cash that out, they're going to sit there and go, \"No, we're gonna try to stop this.\" Like there's a lot of gray area kind of Leaving that open to be interpreted as a criminal act, whereas just collecting a, a bounty that was legally set up for breaking something, not used for financial use, is like there's no gray area there. Like you didn't do anything illegal, like this was specifically set up for this purpose, you can collect this money and not have to worry about those potential legal issues." }, { "speaker": "stephan", "time": "50:34", "start": 3034.46, "text": "Right, so it's kind of like the equivalent of doing white hat hacking as opposed to black hat hacking, so. Yeah. And, you mentioned also this idea of using a proof of burn mechanism. So would the idea be that if somebody wants to test out a new form of technology, they would proof-- prove that they have burned a small amount of Bitcoin to it-- to get coins on the other side of that side chain? Yeah," }, { "speaker": "stephan_livera", "time": "50:58", "start": 3057.96, "text": "I mean, I, I wouldn't say I'm fond of that, but I think it's more ethical than just creating a new shitcoin from scratch and trying to pump it up, because you actually have an opportunity cost. You have to give something up that already has real value to gain something in this new construction, as opposed to just like this thing just popped up is, is worth almost nothing and you can just try to collect as much of it as possible to profit by dumping it on the head of the next person to come along." }, { "speaker": "stephan", "time": "51:31", "start": 3090.9, "text": "yeah, yeah. No, I think that makes a lot of sense to me. and I suppose then to summarize the thoughts on sort of some of these side chains and drive chains, it's that there are certain models where you're okay with trusting certain parties. So obviously, if I'm a large OTC trader, I have to trust the exchange, so I'm okay with that model of trusting two-thirds, that two-thirds of, say, the functionaries within Liquid will not cheat me. but obviously, going into that with open eyes, I know I know the risks that I'm taking, and, you know, I think that's a trade-off that can make sense, but in the other example of, say, the more kind of open side chain that still has mining, that's an example where it doesn't really ma-necessarily make sense. Would that be sort of a, a fair summary of what you're putting forward there? Yeah," }, { "speaker": "stephan_livera", "time": "52:18", "start": 3138.44, "text": "and I mean, you know, one more thing I kind of have a big issue with in terms of Paul's claims is he very regularly claims regarding drive chains that We can just do this and only miners have to actually enforce these drag chain rules and then it's safe, or as safe as it can be. And that is objectively false, because the, the entire restriction as far as miners pulling money out of a side chain is a consensus rule, like that delay is a consensus rule. And so if miners are the only ones enforcing that and none of the rest of the network or the economy or businesses Then 51% of the miners can just instantly steal all the coins in the drive chain. Like there is no delay, there, there is no restriction because none of the other nodes are enforcing that. The miners can just steal that money, and all of the other nodes in the network will instantly recognize that is valid. They won't be stopped by a delay because only the other miners are enforcing it. And once you have a majority of miners willing to steal, they can just do it because none of the other parts of the network are gonna recognize any kind of delay there." }, { "speaker": "stephan", "time": "53:35", "start": 3215.04, "text": "Right. And they won't stop them just because of the construction of it, right? So whereas if fifty-one percent of the miners wanted to- To steal your coins, they couldn't do that because they can't, they can't get past the encumbrance that your private key, places on that UTXO. Whereas in the drive chain model, they can steal the coins." }, { "speaker": "stephan_livera", "time": "53:54", "start": 3234.23, "text": "Exactly. And so like for drive chains to have any of the security of the delay, as far as withdrawals, the whole economy would have to be enforcing those rules, not just miners. Otherwise, there practically is no delay." }, { "speaker": "stephan", "time": "54:09", "start": 3249.24, "text": "Fantastic. Yeah, look, this has been a- A very, educational, discussion. we're kinda getting close to the end of the time allocated, so Shinobi, just if you've got any closing thoughts, and also obviously tell the listeners where they can find you and find Block Digest." }, { "speaker": "stephan_livera", "time": "54:26", "start": 3266.23, "text": "Yeah, I mean, really, you know, just a closing thought, is I think one of the most important things about being in this space now, this early, is trying to think things through yourself. Like I see way too much in this ecosystem of people just kind of latching on to big names in the space and just blindly regurgitating, you know, whatever kind of claims they make about things, and like people shouldn't be doing that in a space like this. You should be thinking things through for yourself, even if that takes a while. Like, you know, I spent months before I actually supported SegWit. I spent more than a year actually looking through Lightning Network and, you know, thinking about that before I became convinced that that was a concept that could work and is worthwhile. Like these, these new projects and these, these kind of claims about how the system works that people throw out, you shouldn't just blindly accept them, you should be thinking them through yourself. Otherwise, we're just devolving towards that same kind of centralized system led by a closed group that we're all trying to get away from. I mean, it's, you know, it's if we're not gonna try and do that, then what's the point of all of this?" }, { "speaker": "stephan", "time": "55:46", "start": 3346.15, "text": "Yeah, look, I think they're, they're good comments. I think, w- people should, pay attention to that and, really try to learn a little bit more about these different concepts, that you've, helped articulate today. So, look, I think" }, { "speaker": "stephan", "time": "56:02", "start": 3361.6, "text": "Thanks very much for coming on." }, { "speaker": "stephan_livera", "time": "56:04", "start": 3363.8, "text": "And, you know, if you guys actually care to hear me rant about more things, me, a friend Janine and Rick do a bi-weekly show on YouTube called Block Digest. you can just find that searching on YouTube. And if you- For some reason wandering into my Twitter feed, be prepared for a very abrasive attitude." }, { "speaker": "stephan", "time": "56:28", "start": 3387.5, "text": "look, Bitcoin has its characters. Alright, listeners, I will make sure to put the links for, Shinobi's Twitter and also Block Digest in the links. Thanks again for coming on." }, { "speaker": "stephan_livera", "time": "56:37", "start": 3397.33, "text": "thanks for having me, Stephan. It was pretty fun." }, { "speaker": "stephan", "time": "56:40", "start": 3399.95, "text": "So there you go. Let me know what you thought of that. Show notes on my website, stephanelivera dot com. My DMs are open on Twitter. My handle is at stephanelivera. Remember to" } ] }