{ "episodeId": "SLP555", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "stephan_livera": { "name": "Stephan Livera", "role": "guest", "tag": "STEPHAN" }, "guest_2": { "name": "Guest 2", "role": "guest", "tag": "GUEST" }, "guest_3": { "name": "Guest 3", "role": "guest", "tag": "GUEST" }, "guest_4": { "name": "Guest 4", "role": "guest", "tag": "GUEST" }, "guest_5": { "name": "Guest 5", "role": "guest", "tag": "GUEST" }, "guest_6": { "name": "Guest 6", "role": "guest", "tag": "GUEST" } }, "segments": [ { "speaker": "stephan", "time": "00:00", "start": 0.5, "text": "Hi, you're watching Stephan Livera podcast, brought to you by swan dot com. So I just got back from Madeira. This is an autonomous zone off of Portugal, and there was a huge conference there, Bitcoin Atlantis 2024. So I had a great time there, and while I was there, I caught a few interviews, and so we're going to put those together into an episode for you. And so there's a range of speakers: Lynn Alden, James Lavish, Thomas Strolight, Peter Todd, Francis Pouliot, and Steven Roose. There will also" }, { "speaker": "stephan", "time": "00:30", "start": 30.1, "text": "Or various platforms, you should be able to click ahead and see the different interviews, and so that'll give you a nice range of perspectives there. So, with that, onto the interviews." }, { "speaker": "stephan", "time": "00:53", "start": 52.97, "text": "Hey guys, so we're back here at Bitcoin Atlantis. I'm here with Lynn Alden, great macro analyst, and obviously really into Bitcoin, and obviously doing, doing her part to help, educate people about Bitcoin. Now, Lynn, I know you did, you had a great meme recently, which was the, the classic mid curve meme, and on the, you know, the Grug brain side, The left curve and the right curve, the galaxy brain, were both Bitcoin, and the mid curve, the midwet, was macro. I'd love for you to, elaborate a bit. What are you, what are you getting" }, { "speaker": "stephan_livera", "time": "01:19", "start": 79.03, "text": "at here? Well, I say that as a macro person, it's, it's kind of the joke, but basically, every, everybody who's not holding Bitcoin over the past several years is underperfor-- is underperforming people that have been holding Bitcoin. And so there's all these really smart people that are like, \"If you do this" }, { "speaker": "stephan_livera", "time": "01:41", "start": 100.62, "text": "Grinding work, and then just literally people that just hold Bitcoin, and it just, it just goes up over the long arc of time faster than what they're doing. Yeah. And I think that people are overthinking Bitcoin in many ways, like that, that, that mid curve part where they're like, \"Oh, what about this? What about this? What about this?\" And it's like, the cool thing about Bitcoin is at the end of the day, there are people that like, \"Sound money, hard to confiscate, hard to resist it. Like, I, I wanna own some Get into all like the macro stuff about why Bitcoin is powerful, what it's solving, but people get caught up in the middle and they're still trying to do these, all these little arbitrage trades or just not looking into Bitcoin, and Bitcoin is just, it's a cleaner solution to a lot of things that they're already trying to do." }, { "speaker": "stephan", "time": "02:26", "start": 146.31, "text": "Yeah. And I mean, you're, you're right, because really so many people, for example, financial advisors will kind of all be talking about their typical sixty-forty stocks and bonds, or maybe they're someone who's really into" }, { "speaker": "stephan", "time": "02:40", "start": 160.48, "text": "Channels there are where they're talking about, oh, here's how you do, here's how you flip property, or here's how you get passive income. But then, as you were just saying, like you can just huddle Bitcoin, right? Yeah." }, { "speaker": "stephan_livera", "time": "02:49", "start": 169.27, "text": "And, and you know, I think, you know, a hundred percent allocation doesn't make sense for everyone, right? But, and, you know, I'm, I'm, I'm quite bullish on Bitcoin. I, I do hold other assets, but it's funny, the amount of time I spend on these other assets compared That having a Bitcoin slice in your portfolio just smoothes a lot of things out, and you can still put your time or energy or other resources in whatever you want, but it just makes it, makes it all easier. That's what good money should do. Yeah." }, { "speaker": "stephan", "time": "03:22", "start": 201.53, "text": "I'd love to turn a little bit to some of the conversations around reserve currencies, reserve assets, and, people are talking now about how the US dollar is sort of-- Are we going into a multipolar world? And another common theory people talk about is Brent Johnson, aka Santiago Capital's theory about the dollar Obviously, you, you know that very well. His basic idea is this idea that as people, you know, as the system has a sustained deleveraging event, we would basically see the dollar or DXY, the index, pump really hard before it's finally replaced by something else, whether that's Bitcoin or maybe, in his view, he thinks it might be gold. I'm curious your view. Do you agree or disagree or how would you explain it differently?" }, { "speaker": "stephan_livera", "time": "04:05", "start": 245.16, "text": "I, so I think there are, there are basically two things that are working at the same time. So one is the existing dollar network and all the debt that's denominated in dollars is reinforcing that network. That's all, that all represents in-- like inflexible demand for dollars, which to his point, you know, whenever there's a dollar shortage, people scramble for dollars, and/or they risk defaulting. And so there's a very strong bid for the base unit of account that most debt is denominated in, which is the dollar. and there are countries gradually trying to de-dollarize. They're holding less of their reserves in dollars, they're holding it either in more For, illiquid assets, maybe investments, for example, pr- like, infrastructure, commodity deposits, things like that. and that around the margin is happening. The hard part is it's very hard for these countries to, fully de-dollarize because let's say, for example, Russia and India wanna trade with each other and they wanna go around the dollars. Russia's selling oil to India, India's giving them a lot of rupees. Russia eventually accumulates a lot of rupees and they don't know what to do with all those rupees. So Capital markets, you can reinvest a lot into it. It's very liquid, it's, you know, very diverse, whereas a lot of other markets, they accumulate too much and then they, they have all these different bilateral trade agreements, they don't have the depth of capital markets. Even the euro, as a shared currency, doesn't really have a shared capital market. So they don't, they don't have shared debt markets or shared stock markets, and so it's actually there's, there's less liquidity, less depth of capital available there. So that's the network effect that's really hard" }, { "speaker": "stephan_livera", "time": "05:40", "start": 340.5, "text": "Yes, and it's going up against that dollar network. The other factor is now stablecoins, because even as at the top level, a lot of people are trying to de-dollarize, at the bottom level, that's not really the case yet. You'll see, you know, the central bank's trying to de-dollarize, and the black market for currency in that country is still heavily dollar based, and stablecoins are another tool to get them there, more easily than physical dollars. So I think that, that all is reinforcing the existing dollar effect." }, { "speaker": "stephan_livera", "time": "06:08", "start": 368.14, "text": "and so I, Whenever the dollar starts to rise, something breaks and it feeds back into US markets. And the, the main effect there is that because the US has run such structural trade deficits for so long, the rest of the world has reinvested those dollars into owning US assets. And so whenever there's a dollar shortage, those parts of the world start to sell their US assets, could be Treasuries, could be stocks, could be other things like that, they start to cause a liquidity problem, and that's what triggers the Fed to say, okay, stop, stop selling our stuff, we'll do swap lines We'll print more base layer money, and so the feedback loops are getting tighter and tighter and tighter as that imbalance keeps growing. And so I think that, yeah, during times of credit stress, you'll see a dollar spike. I'm less in the camp that you're gonna see a gigantic dollar spike, but I, but I am in the camp that it's gonna take a quite a while to displace the network effect that is the dollar, largely because of all that global debt that's, that's tied to it." }, { "speaker": "stephan", "time": "07:03", "start": 423.14, "text": "Interesting. Yeah, I think that's a great way to explain it. So I" }, { "speaker": "stephan", "time": "07:10", "start": 430.5, "text": "Say the Federal Reserve's balance sheet, what are the assets on there? And of course, the physical cash and coin, right? That's what we're talking about when we talk about base money or M zero. And so, Matthew McShinckus has some really interesting work on this where he's sort of saying, I think recently he was saying it's, Bitcoin is already number seven, and I think we might have just pipped six as well, just beaten the UK pound in terms of base money. Like if you compare Bitcoin versus gold versus all the others, it's already Say it's just a process of more people learning to save with Bitcoin, is that kind of the simple grug brain answer?" }, { "speaker": "stephan_livera", "time": "07:46", "start": 466.2, "text": "I think so. That, that, that's really the, you know, the, the, the wise left curve view is just more people huddle, right? I think that there's a natural center for people to wanna huddle. People, if you just come up to people in the street and would say, \"Would you like to, hold a currency that's growing at twenty percent supply per year, five percent supply per year, one percent supply you'd, you'd want the one that's not inflating away. and so I think, but it's a, it's a learning process. there's frictions, you know, there's, there's tax things, there's technical, things to learn about, there's a million cryptos grabbing their attention and JPEGs and things like that. So it takes time to filter through and find the signal. but I think, yeah, a-and over time, once someone kinda, once the light clicks and they, they figure it out, it's so and then they, they go try to tell their friends, and maybe it doesn't work the first time, but then when Bitcoin doesn't die it again, and it has another pump, and number go up, and all these kind of basic stuff, those people come to them and say, \"Hey, remember that Bitcoin thing? I actually wanna learn more.\" And so I think, yeah, over time, just the network effect builds. And, you know, my colleague Jeff Booth often says, \"As long as Bitcoin remains decentralized and secure, then X, Y, Z.\" Right? So it's" }, { "speaker": "stephan_livera", "time": "09:11", "start": 550.58, "text": "Energy and go up that, that ranking in terms of, of, competing with other base monies. And even when, even, even if it surpasses the US dollar and gold and base money, it still has a while to go because when you look at all of the global bond market tied to dollars and all the global M2 tied to dollars, that's still part of the overall network effect that represents demand. And so you're, you're, there's still numbers ahead, there's like another zero basically, ahead of it." }, { "speaker": "stephan", "time": "09:36", "start": 576.18, "text": "That's a really good, that's a really great point because What asset are people going to use? Because ultimately, there are businesses, there's a ton of businesses right now who still, who, you know, businesses or even high net worth individuals who keep some of their savings in US government debt in bonds. And so it's really about that process of them shifting out of that, and obviously, I think, you know, the ETFs and all this stuff, BlackRock and, you know, BlackRock organizing seminars to promote it as well. I'm curious, are you starting to see or hear of these conversations at higher levels yourself or in- In terms of like maybe the work, the advocacy work you're doing, are you starting to, to see and hear, you know, high level or high net worth people or large institutions get involved?" }, { "speaker": "stephan_livera", "time": "10:21", "start": 620.89, "text": "Yeah, I think we're certainly seeing that. my, my book was kind of written so that it's palatable to people, at that level. it kind of has them as some of, one of, one of, one of the target audiences, not, not the only target audience, but it's something that a CEO can give to his other CEO friends, for" }, { "speaker": "stephan_livera", "time": "10:40", "start": 640.5, "text": "One example, but even outside of my book, just the, the education that's spreading over time is working its way up, up to the system. And, you know, a key point is that or-- institutions are made of people, and, you know, for the past five plus years, most of those big institutions have people working there that are bitcoiners, and they just don't have the critical mass to convince enough of their organization. But one thing is, and I keep stressing this point, most people in the world have not seen the Bitcoin logarithmic price chart. They've not seen the higher highs us have in the echo chamber. And so instead, what people see is the only the prices that they remember. So every time they look at the linear chart, if they even look at the linear chart at all, which still most people probably haven't, it always looks like it's in a bubble or a dead bubble, every single time. And when they see the twenty seventeen bubble and then the collapse, and then they see the twenty twenty bubble and then the collapse, if they see a third rise, it kind of wakes up. It's like, wait, this thing isn't dying. I keep, I" }, { "speaker": "stephan_livera", "time": "11:40", "start": 700.5, "text": "Resurrections, but when they've actually seen three resurrections, that's where I think a lot of things start to change, and especially those higher levels, they're seeing that, they're saying this asset's not going away, it's, it's getting to a macro scale as a trillion dollar market cap, the liquidity's there, there's, there's, you know, regulatory clarity for, 'cause that matters for institutions. I think you're seeing yet more and more normalization of it as an asset to hold, at least as a slice of a portfolio. Maybe they're not full You want to have a non-zero position in, and when you have hundreds of trillions of capital, it starts incrementally doing that. Every one percent is a Bitcoin market cap, like what it is now. So, yeah, I think that is slowly catching on." }, { "speaker": "stephan", "time": "12:23", "start": 743.49, "text": "Fantastic. Well, everyone, check out Lynn's work. I'm subscribed to her newsletter as well, so go and check it out. I'll put the links in description. Lynn, Lynn, thank you for joining me. Thank you. Okay, I'm here with James Lavish from the Bitcoin Opportunity Fund. We're" }, { "speaker": "stephan", "time": "12:41", "start": 760.74, "text": "Author of the Informationist, a great newsletter, so guys, check that out. so James, let's kind of get a bit of your take on where, where things are with, you know, US government debt. We've spoken a bit about this. I know it's one of our, you know, the hobby horse issues for you and just in general. so let's just, talk a little bit about that, issue. I mean, it looks like the government debt has gone from what, thirty-three trillion" }, { "speaker": "guest_2", "time": "13:03", "start": 783.48, "text": "to thirty-four trillion in a, in a, in billion dollars of debt to our, to the overall, you know, government debt every hundred days. That's a hundred billion. A hundred billion every day. Yeah. Sorry, the numbers are so big. Yeah. I've, I've, I've spoken too many times today. Yeah. Yeah. So a hundred billion dollars every, every hundred days. So, if you think about it, we, we're, the US collects about four point nine trillion dollars in taxes annually, and we're carrying over thirty-four trillion dollars of debt. And so we're- And now we're adding another hundred billion every hundred days. So this is like an individual, like a person who is making a hundred thousand dollars a year, is carrying five million dollars of debt, and is adding a hundred and forty thousand dollars to, of that every ninety days, every three months. It's just mental." }, { "speaker": "stephan", "time": "13:58", "start": 837.97, "text": "And no bank would give you that kind of credit if you were an individual, right?" }, { "speaker": "guest_2", "time": "14:01", "start": 840.91, "text": "No, no line of credit for that, that's right. So, and that's, and that's the issue. And, it's, it, it's unsustainable. Everybody knows it Even Jerome Powell admitted to it, on sixty Minutes just a few weeks ago, when asked, like, \"What about the debt? Are you worried about the debt?\" And he admitted, he said, \"Look, I don't work for the Treasury. I can't tell-- I mean, I work for the Treasury, I work for the government, I don't-- I can't tell them what to do.\" and so, and he said, \"But it is unsustainable. It's unsustainable.\"" }, { "speaker": "stephan", "time": "14:33", "start": 873.0, "text": "So, obviously this brings up the whole question like dollar milkshake theory and what comes You know, there's di- there's two different ways you could argue, right? Like you could go like, Brent Johnson, Santiago Capital will say, \"Look, the dollar is the least dirty shirt in the, you know, in the, yeah, in the laundry.\" but another view would just be like, \"Look, it's gonna go multipolar, and maybe people, there'll just be less people buying US government bonds altogether, and they'll just choose other assets.\" Now, of course, we would love them to choose Bitcoin, but, you know, Physical property or some other country's bonds or something else. I'm curious where, where do you stand on this?" }, { "speaker": "guest_2", "time": "15:16", "start": 915.8, "text": "Well, look, I mean, there's no-- it's no secret, again, that the government needs to issue a ton of debt. Because we operate in a perpetual deficit, we have to issue more debt to cover the old debt. So as debt matures, we have to issue new debt to pay that off. So everybody knows this, and we're borrowing more than we're making, so we have to issue more debt every year, another two to three trillion dollars Every year. And so it's no, it, it's no, it, you know, it's, it's no secret that there will be a wave, a massive wave, and eventually a tsunami of debt that comes at us. So if you're an investor and you hold long-term debt, the-- your issue is that it's not, it's not just that there's irregular inflation, it's that there-- we will hit periods and, and- Like Luke Roman talks about this, and I think Lynn Alden talks about this, but we, we, I expect us to hit periods of high inflation. We already have structural inflation, but we may get super high inflation for, you know, two, three, four years, and we're talking about twelve, fifteen, eighteen, twenty percent, not the two to three to five percent that they admit to, but real inflation that, that reaches these levels. So if you're a business and you've got cash on your balance sheet and you're all excited 'cause you're, you're making four 5% in a money market and, or in T-bills for, for a little while, that's all great, but when the real inflation rate jumps to 12, 15, 20%, that's a loss of, of 7, 10, 15% of purchasing power for you every year. And so what do you wanna do? You wanna hold an asset that stores that value, and that clear asset for us, at least, is, is Bitcoin, and it's, it's a, it's a clear store of value For, long periods of time." }, { "speaker": "stephan", "time": "17:13", "start": 1032.56, "text": "Yeah. So I think, really interesting point I've seen recently is, Matthew McInnis has been speaking about this idea of base money, right? And he spoke about recently how Bitcoin had just hit seventh i-in the base money sort of, if you, if you count just on base money, like central bank money or central bank reserves, and I believe even recently might have just pipped, the UK as well, so it would now be sixth counting gold. so gold at the top and then the others, and then, plays in this concept of base money, as contrasted with, you know, other ways of, you know, counting inflation. And let me, let me just put the point this way. So the way I've seen him pointed out is since 1969, the US base money has expanded at about nine percent per year, and since 2008, that number is actually closer to eleven percent per year. So obviously, as you were just saying, if you're a stock investor, if you're a bond investor, and you are, you know, not making more" }, { "speaker": "guest_2", "time": "18:10", "start": 1090.48, "text": "So, and if you go back to, I believe, 1971, it started at about seven percent per-- it's about seven percent per year, so it's clearly been going up, right? So, yeah, that's-- and that's, and that's your challenge. Your challenge is how do you keep up with that base in-- that, that inflation? The, the, the base money is, it's being devalued, and so it's being debased literally. And why are they doing that? They're doing that so they can pay" }, { "speaker": "guest_2", "time": "18:40", "start": 1120.5, "text": "Pound, and we saw it. So go, go back to the UK, last year, one year ago this fall, when they ran into the guilt crisis. What was going on there? The problem is there's so much debt in the system that the, that, and we've been running at zero percent interest rates for, for so long that the pension funds in the UK knew that they had these, these liabilities that were forward liabilities that they had to, that they have to cover. So when pensioners retire, they have to pay out a certain amount them, and they know they've got to pay out that amount. Well, how do they keep up with that inflation when you have zero interest rates? What they were doing is they were leveraging, they were, they were putting leverage on their, their, the safest trade that they could, which is, which is the gilt in the country. They, they would leverage those trades two to one, three to one, and then when, when the interest rates moved, it blew them up, and they had, they went insolvent. They literally were going insolvent until the UK stepped in. The, the Bank of England stepped in and rescued them. So," }, { "speaker": "stephan", "time": "19:44", "start": 1184.32, "text": "so on that topic, let's talk a little bit about some of these various programs, right? And I know you, you are, you detail some of these on your newsletter, things like BTFP and so on. Some of these, programs that, I think, to quote Lynn Alden, they sort of loosen for the government, but they tighten for the everyday private sector. So I'm curious your view, are they just gonna keep coming out with new programs and new programs, or they Likely possibilities," }, { "speaker": "guest_2", "time": "20:12", "start": 1212.0, "text": "super likely, i-- almost a certainty that, they have to. And so the, the, the Treasury needs to keep people, they need to keep companies and banks solvent, they need to have enough liquidity in the system to buy these Treasuries. There's no, there's no choice, they must. So, why-- they come up with the BTFP program so they have enough liquidity to keep going. What's gonna happen next? Well, you've got the reverse repo market, which started with- With over two trillion dollars, two and a half trillion dollars, of, of, capital in it, of, of money, and now it's been drawn all the way down to, somewhere between five and six hundred billion dollars. So that's all that's left. What are they-- What's happening is that, that is buying all those short-term T-bills because the money markets are in the reverse repo and they can buy T-bills instead, so at a little bit better rate. But that's about to expire, meaning it's about to be dried up. Once that Then the, then the Treasury has to turn to longer dated, Treasuries to start to take money out of the, the bank reserves, 'cause they can hold Treasuries. But once those bank reserves get down to two point five trillion, then it becomes a big red flag for the Fed, the Treasury, that they've got to have new programs to make sure that they shore up the liquidity, because you can't have a Treasury auction fail. You must keep them liquid. And so- What they do is that the first thing they're gonna do is when the reverse repo market is dried up, when the BTFP program, it, when that matures, expires, they're going-- what they've been doing is they've been, they've been talking about this new rule that's going to force banks to use the overnight window, the discount window. And traditionally, Stefan, that was, that had a negative connotation to it. If you use that window as a bank, it meant that you were, that you were illiquid and that you- You were running into problems. It would be like an individual using a super high rate credit card because they had no other choice. But they're making it a, a requirement for every single bank who wants to have access to that capital to use it at least once every year. So what are they doing? They're taking that negative stigma off it. They're, they're opening that up for and making it, a, a part of normal practice, which is there's nothing normal about it to have to borrow money from the government. Yeah." }, { "speaker": "stephan", "time": "22:39", "start": 1359.34, "text": "So, definitely, something to keep an eye on. let's turn a little bit to the Bitcoin world, in terms of, Bitcoin industry, Bitcoin, companies. Is, are there any in-interesting trends you're seeing, from that perspective? things that you, wanna highlight there?" }, { "speaker": "guest_2", "time": "22:55", "start": 1374.67, "text": "Oh, the, as we see Bitcoin, the ETFs take hold, and we're seeing about, half a billion dollars come into that, into those ETFs every single day. it, it's just reinforcing What's happening is it's forcing institutional investors to do the work and to understand Bitcoin, because you can't be an institution and not own any while your competitor does. it, it takes, it's a simple, a extremely simple analysis just to look at whether you own Bitcoin in, in your portfolio versus a sixty forty portfolio, and y- if you own just three percent, it magnifies your returns, to a level that you just can't ignore. So it's for- Forcing them to do the work, it's forcing them to understand it. What is that gonna do for us here? Well, we're very US centric, obviously, u-United States, in-investors, they think of Bitcoin as a store of value primarily. And so, but as they learn about this as a store of value, they're, they're-- they go down that rabbit hole, as you and I have done, and they see what the use case is for it around the world. With you-- when you have one point five billion people in the world who are un They recognize the fact that this decentralized protocol that can be on anybody's phone and it-- Bitcoin can actually be used as money, then that's where the new investment comes and these, these companies that are making all, all the, the lightning companies and the wallet companies and the, software companies on, on, individuals' phones, like these, this is, this is, these are big deals. And what we're seeing is that interest to inject capital into those projects, into that infrastructure and to- To build the ecosystem, and that's exactly what we're doing over at our fund." }, { "speaker": "stephan", "time": "24:42", "start": 1482.01, "text": "Great. Okay, well, yeah, let's leave it there. listeners, we'll put, James's links in the description. Check out the Informationist and the Bitcoin Opportunity Fund. Thank you, James." }, { "speaker": "guest_2", "time": "24:51", "start": 1490.95, "text": "Thank you so much, Stephane. See you next time." }, { "speaker": "stephan", "time": "24:53", "start": 1493.21, "text": "Back to the show in a moment. The lead sponsor of this show is Swan Bitcoin over at swan dot com. Using the website or the application on your smartphone, you can buy Bitcoin and you can also learn about Bitcoin" }, { "speaker": "stephan", "time": "25:09", "start": 1509.04, "text": "So notably, there is a Welcome to Bitcoin course over at swan dot com slash welcome. Now, when you're ready to buy Bitcoin, Swan makes it easy for you. You can either do an ACH transfer in, or you can do a wire transfer in, and then you can either do an instant buy, buy a lump sum amount of Bitcoin, or you can set up a recurring savings or Bitcoin purchase plan. And so this is a great way to get started with stacking Sats and meanwhile you're learning about Bitcoin, so that you are knowing a bit more about what you're buying. And you are ideally saving into. Now, Swan has a range of different service lines. There's also Swan Private for high net worth individuals or for companies or for people buying over a hundred thousand dollars worth of Bitcoin. Check out swanprivate dot com. So there's a range of different services. You can find out more over at swan dot com. This show is also brought to you by mempool dot space. Mempool dot space is the leading Bitcoin and blockchain visualizer. I use it all the time because I wanna keep an eye on what's happening in Bitcoin's mempool. With mempool dot space, you can use the mempool goggles and you can see what's going on in terms of what transactions are coming through in the mempool, whether that is RBF enabled or multi-sig or single signature. There's all kinds of different things that you can view and explore there. And of course, the headline feature of mempool dot space is" }, { "speaker": "stephan", "time": "26:27", "start": 1586.58, "text": "Transaction accelerator program. And so if you wanna get on the waitlist for that, go to mempool dot space slash accelerator. And now back to the show. Okay, we're back at Bitcoin Atlantis. I'm here with my friend Thomas Strolight. He is also the editor in chief over at Swan dot com. Thomas, let's get some of your reactions. yesterday Michael Saylor had a great talk here, talking about, Bitcoin is for everyone. Now some people would say, no, it's not for everybody, or maybe it's not for you just yet" }, { "speaker": "stephan", "time": "26:57", "start": 1616.54, "text": "Curious if you have any reactions on that." }, { "speaker": "guest_3", "time": "26:59", "start": 1618.51, "text": "Yeah, it's, it's always interesting for me to watch Michael Saylor's journey. His-- no one knows his personal journey, but the journey of what he's communicating to the public. And, and this was a much more spiritual, description than anything before. He's talked about what a great asset is, what a, what a great investment Bitcoin is, and he went in two dimensions that I hadn't really seen him go in before. One was in Bitcoin being for everyone as an investment, and he didn't just talk about come- Companies putting it on their balance sheet. He talked about families and, and families being able to preserve their values, their family businesses with Bitcoin. He talked about not-for-profits. He talked about lots of other things, but the, that family connection, that spiritual connection was there. And he didn't just talk about Bitcoin as a great investment for these things, he went into the spiritual component of Bitcoin, perhaps not as spiritual as some of my writings about Bitcoin, but he definitely talked about how people go through a spiritual journey of realizing how sound money changes them, and they eventually, they- They start from being a skeptic and eventually become an advocate. I, I would use the word zealot in some cases, but, he-- becoming advocates for Bitcoin. And, and the, the really nice way that he tied up the presentation in saying Bitcoin is for everyone, he really talked about how the more people who participate in Bitcoin and the more p-- people who advocate for Bitcoin, the more people become Bitcoiners, and that, and this is how Bitcoin becomes for everyone al-alternatively. So, yeah, I know there are people who say Bitcoin is, not for, is for But not necessarily for everyone. But in, in a long enough timeframe, I think Bitcoin will be for everyone. It'll just be so obvious and so nonsensical to not choose Bitcoin. But we're in that transition, and, and he rightly pointed out, educating other people and being patient with them and not telling them to, you know, not just insulting them and telling them to have fun staying poor is Is, is really the direction to go in? And, and again, there's just, there is so much momentum, and I felt, I felt a lot of hope again during his presentation, about where Bitcoin is headed, and, and, you know, it's not that we won't have our challenges, but w-we keep knocking down major milestone after major milestone, and the acceptance, you know, like Bitcoin is for Wall Street now. Bitcoin, Bitcoin." }, { "speaker": "stephan", "time": "29:12", "start": 1752.44, "text": "Wall Street loves it." }, { "speaker": "guest_3", "time": "29:13", "start": 1753.16, "text": "Yeah, mo- and most people who, who are long time OGs, or many of them, will have discovered Bitcoin at Occupy Wall Street, at an anti-Wall Street rally. So the fact that Wall Street's actually come around without the Occupy Wall Street movement, this to me is one of the most powerful things. Like, bit- like, like Occupy Wall Street, Bitcoin is a protest against everything that's wrong with the traditions of this world, except it's not a protest that goes to Wall Street and sits there and, and, you know, Get hosed away by the police. Bitcoin is a decentralized, distributed protest. I run a node in my house, you run one in yours, presumably. I'm not saying you do, but, you know, there's tens of thousands of people who are protesting by running a node, and we don't go to the government so that they can wash us away with a hose. They have to come to us if they want to, and, and they have to come to many of us in, in countries where they're not the government. So stopping this protest is, is practically impossible, and, and it Than carrying placards around, you're actually protesting with economic power. You're protesting by opting out of the system, and you're protesting without making it convenient for the government to wash you away. So it's, it's really remarkable how far we've come now that we're That Wall Street's occupying Bitcoin." }, { "speaker": "stephan", "time": "30:31", "start": 1830.51, "text": "one other topic I want to get into with you is around, and obviously this is relevant for both of us as people who are writing and speaking about Bitcoin, is analogies in Bitcoin, because there, and sometimes this is an area where people criticize Michael Saylor as well, but sometimes people say, \"Oh, you're using this analogy, and that's not correct, or that's not technically accurate.\" Yeah. but at the same time, it's, are the, how useful are those analogies? Even if they're not one hundred percent technically precise A training wheels for people, and obviously you write a lot of stuff around, around Bitcoin as well, and, I'm curious your thoughts on using analogies to get people over the line, let's say." }, { "speaker": "guest_3", "time": "31:08", "start": 1867.52, "text": "Yeah, I, I think, I mean, analogies are how we often learn about things. We, we say this is like that in this ways, and it's different than that in those ways. So that's the best, that's the best you can do, and in the digital realm, I think there have been many Bitcoin writers who, who pointed this out. In the digital Computer. So they're not real windows that you open and close, they don't keep the wind out, but, but they are, they are square, see-through lenses that you can move around. Again, you can't move around windows in your house, but the analogy works, right? And there's a trash bin on your desktop, and, and so we, we better interact with this digital world that is nothing but ones and zeros through analogies and through concretization of things, and that, and, and, and so these analogies can be very helpful, and they're especially helpful in, Of digital gold isn't, isn't far from perfect, but if you know a lot of things about gold, then you can apply many of those things to Bitcoin, just as one example. And I think these analogies keep getting reinvented and pushed forward more and more as we better understand what Bitcoin is." }, { "speaker": "stephan", "time": "32:13", "start": 1933.12, "text": "Yeah, that's a really interesting way to defend it, because, yeah, of course, like it's, maybe you could argue it's not literally energy or it's not literally digital gold, but is that helpful for somebody to at least get an idea? Get started, and I think that's what you were sort of getting at there as well. any other things, in terms of, stuff you're working on, any articles or things you're kind of excited about right now? Sure." }, { "speaker": "guest_3", "time": "32:37", "start": 1956.78, "text": "there's, there's nothing that's fundamentally new that's big. I'm al-- I'm always working on articles, nothing huge that's hit. I am, working on a-- with a guy named Bevan Waite, who goes by Bit Intelligence on, on YouTube, which is a video, video Most popular essay, and there's a film festival here tomorrow where we're brought, we're sharing a five minute clip of it, and we hope to release the full film before the halving, so it'll be something that we'll, we'll broadcast, I'm sure, on the Swan YouTube channel and, and get it, and get it going, and I'm doing a lot more. I find, I've been writing for a few years now. I wrote really prolifically in the early days, and a few things were really sticky and had powerful messages, and, and those messages haven't been distributed, they're so many new to, ev-ev- as widely as they could be, a-as widely as they beneficially could be. So I'm doing a lot more revisiting of, of some of the more powerful ideas that, that I've, that I've written about. So I've done a few podcasts here, and I've tried to focus on different of those Watched, Bitcoin as generational wealth, watch, watch that, if you haven't yet, read The Legendary Treasure of Satoshi Nakamoto, read that. And I have a whole collection of articles called Who Are the Bitcoiners, which includes articles like Rich or Poor Bitcoiners Have What Money Can't Buy, Don't Tell Me There Are No Heroes in Bitcoin, and Bitcoiners Aren't Toxic, They Have Integrity. And those, those, I think, are the biggest ideas that I've kind of shone a light on in my writing that, that is unique, To choose to be in Bitcoin and, and why if they're experiencing all of these spiritual experiences, these emotional experiences with Bitcoin, I've, I've written in detail about that." }, { "speaker": "stephan", "time": "34:24", "start": 2064.48, "text": "Great. Well, we'll put the links there in the description, but make sure to check out Torom's writings over at the Swan blog and of course, the Bitcoin is Generational Wealth. Torom, thank you for joining me." }, { "speaker": "guest_3", "time": "34:33", "start": 2073.14, "text": "Thanks, Stephan." }, { "speaker": "stephan", "time": "34:34", "start": 2074.36, "text": "Hey guys, we're here at Bitcoin Atlantis with Francis Pouliot. He's the founder, CEO of Bull Bitcoin, just gave a talk. if you wouldn't mind, just give a, you know, a few high-level ideas on what your focus is. Obviously, you're really trying to do non-custodial, right? Do, do you wanna just spell out, just a, a little bit on that?" }, { "speaker": "guest_4", "time": "34:53", "start": 2092.62, "text": "Yeah. So the main point that I was trying to convey in my talk is that I've been trying to, build a non-custodial Lightning network wallet I want people to be able to immediately, download the wallet, open it up, and be able to receive a hundred bucks worth of lightning, without requiring any sort of custodian. And I've been working on this for about a year, tried to integrate, I, I worked on LDK, I worked on the Breeze SDK, and I came to the conclusion that the LSP model where you're getting an LSP to open a channel with you, that's how you as a end mobile, a mobile end user are gonna- Going to get inbound liquidity, it just doesn't work. The economics aren't there, there is a systematic problem or issue with Lightning, which is the way that the network has been designed, and no matter how much UX improvement or app improvement we, we, we, we, we build on it, that problem is still there. So I was ultimately not able to create the product that I wanted to build, self-co-- self-custodially, and it's not for lack of trying." }, { "speaker": "stephan", "time": "35:59", "start": 2159.3, "text": "Yeah. And as you were pointing out, it's not just an app Incentive thing that even if, you pre-buy the liquidity, as you pointed out, that you, if you had like a million users with, you know, ex-ex amount of money, the, the, the LSPs are gonna have to ha-have like a lock up a billion dollars worth of Bitcoin, which is, you know, just crazy level of money. and so then you were sort of talking about, you know, acceptable zones for, you know, trade-off, let's say, and, some may view this as like a sliding in the, Sig and potentially fedi federated Charmian mints if they're distributed, right? That was kind of the idea you're getting at. I'm curious if your thought on this is like, you would you be open to like soft forks, you know, as we were talking about, you know, off-camera earlier, would that be something interesting to you or is it more like, no, we've got to, you know, find other things before going to that?" }, { "speaker": "guest_4", "time": "36:58", "start": 2218.42, "text": "It's a good question. I just, I just assume that soft forks won't happen, just The conservative fallback, right? So I'm gonna, I'm, I, I have a product, I have clients like at the moment, I can't count on a future potential soft fork, so I have to find solutions that already exist, and that's part of the reason why, I'm a, you know, I'm a, a user and believer in the liquid network, it's because it does exist right now and it's usable at the moment. But I am not aware of any even soft fork proposal that, that solved this, this, this, this issue with lightning," }, { "speaker": "guest_4", "time": "37:34", "start": 2254.08, "text": "But as far as I know, there, there's no, there's no, there's no solution to the, to, to the economic incentive problem of, of lightning liquidity. there, there might be, I don't know, you're pro- you're probably, 'cause you, you interview" }, { "speaker": "stephan", "time": "37:46", "start": 2266.11, "text": "a bunch of people. As a quick example, I mean, I'm not saying I'm shilling for this, but as an example, Ark has no inbound liquidity problem because the ASP. Now, you're pushing the liquidity onto the ASPs, but that could be potentially something where the ASP deals" }, { "speaker": "guest_4", "time": "38:04", "start": 2284.06, "text": "Don't know Ark more than having read a little bit about it when it came out, you're, you're still gonna have to lock up massive amounts of liquidity, right? At the ASP level. Yeah, at the ASP level. And, sure, that's always gonna be possible, but how much is it gonna cost?" }, { "speaker": "stephan", "time": "38:17", "start": 2296.73, "text": "Yeah, yeah, that's a fair point. so then, i-if, you know, as, as you said, you're kind of dealing in the world today and you need, you need answers now," }, { "speaker": "stephan", "time": "38:30", "start": 2309.88, "text": "and so I guess that, that Liquid will also hit a level, a limit too. And so, do you have an answer there? Is it just raise the liquid block size or what?" }, { "speaker": "guest_4", "time": "38:41", "start": 2321.33, "text": "Yeah, so, so li-liquid is very centralized and it's, it's, it's not a decentralized blockchain by, by any stretch of the imagination. It's, it's orders of magnitude more decentralized than, than like wallets of Satoshi, but it's also orders of magnitude less decentralized than, than Bitcoin. So, Liquid has a, a block size limit. If, Liquid becomes so popular that, they're starting These are starting to rise on Liquid. We will just raise the block size on Liquid. I don't see any reason why the Federation wouldn't do that. the Federation currently doesn't make any money, right? It's been running for seven years, it doesn't make any money, none of the functionaries make any money. the, the fees that are collected by Liquid are barely enough to cover the network, the Bitcoin network fees when the Federation is doing payouts. So what that shows me is that, there are people who are willing to, to, to bear costs to running a Without needing a financial incentive. Like, for example, what is the incentive of Bull Bitcoin to build on Liquid and to promote the Liquid network? I'm not collecting any fees from it, is because I need, I need something to exist for, for, for, for me to transact with my users. So I'm, I'm sure a lot of the Liquid functionaries are, are in the same boat where they want Liquid to exist, period, and they're willing to, to, to pay for that to happen. So, it's not, it's not like if It's like we want the fees in Bitcoin to rise so that there is a financial, financial incentive for the miners, whereas in Liquid, I don't think there's a financial incentive for the functionaries with, with the fees. So we can raise the block size, you know, Liquid has dropped the fees. The Liquid Federation has decided to bring the minimum to zero point one sat per byte instead of one sat per byte. The Liquid Federation also very recently decided to, put like a eight x fee discount on confidential transactions. So, and these are, these are decisions that- That are being made by a very small amount of custodians, and so yeah, we'll just raise the block size. Yeah." }, { "speaker": "stephan", "time": "40:41", "start": 2440.65, "text": "So I guess the main criticism I, I could think of is that people would just say, \"Look, you can't scale a blockchain with another blockchain. It's just gonna hit limits, \"and, you know, you're relying on somebody to sort of-- Because you gotta think about sustainability, right? Like, are these businesses just going to keep funding it, right? Like, is all the functionaries, are all the functionaries, are they profitable in Running the Liquid Federation even with a raised block size." }, { "speaker": "guest_4", "time": "41:07", "start": 2466.97, "text": "No, that's, that's a very good point. So, when you're looking at how to evaluate these custodians, one of the criterias that I was talking about in my talk is like long-term sustainability, right? So For" }, { "speaker": "stephan_livera", "time": "41:20", "start": 2479.74, "text": "basically," }, { "speaker": "guest_4", "time": "41:21", "start": 2480.88, "text": "people always talk about nation states, and I also like to point out that Bi- Bitcoin still exists, Bitcoin works perfectly fine. I don't think we need to scale the, the fir- the big, the first Bitcoin layer. It's just gonna be expensive, right? So, fees are gonna be like, I don't know, fifty to a hundred bucks, two hundred bucks, over the next, decade. So at least, at least for the foreseeable future in my business, I'll always be able to fall back on the main chain, and that I don't see why you can't scale a form of payments using Bitcoin as a unit of account with a centralized blockchain. The main risk to Liquid, I, I, I think you nailed it, it's a disinterest of the Liquid Federation. So for example, everybody knows that Liquid is, powered by Blockstream. Blockstream doesn't control Liquid, but Blockstream acts as a IT support company for, you know, they're, they're paying for all the development of most of this. I mean, both Bitcoin is also paying for its own kind of like Liquid library But when we talk, we talk about like the functionary software or the, all of the core infrastructure like the HSMs that the liquid federation members, functionaries are using, that's, that's all finance and, and, and, and supported by Blockstream. If Blockstream was to go away from one day to the next, like, you know, they're all hit by a comet or something, the liquid federation would still work, definitely for a while, but at some point, it might degrade because someone would have to step in." }, { "speaker": "guest_4", "time": "42:50", "start": 2569.86, "text": "expensive. so is there a, an incentive for the functionaries? I mean, as I mentioned before, like the incentive is that there is a payment mechanism. I think the incentive for a liquid functionary is like, I need some kind of custodial bearer asset for my user, but I don't want to be a full custodian of this, right? So this is, this is definitely like the whole Bitcoin idea, like I, I need some kind of custody compromise, but I don't wanna be the one who's the custodian, and Liquid just fits the- Bill, I'm not sure if FETI has the same scalability issues as, as Liquid. I think from, from a technical perspective, FETI is probably a lot more scalable because it, it doesn't have a blockchain, and as far as I know, like the mint, the mint doesn't really do much other than, you know, mint, but it has the same, you know, kind of governance and incentive issues, right? So let's say that a bunch of Bitcoin companies decide to do a three or five FETI-MINT federation, and I mean, how are they gonna be making money actually? Are they gonna be charging transaction fees within the mint? Are they gonna be gateways and charging fees to convert mint coins to Lightning? I mean, there's presumably an open, an open market and a very low barrier to entry, so their fees are probably gonna trend very low. I, I don't, I don't think it's gonna, it's gonna be financially viable. But these companies probably have the same philosophy as Bitcoin, where they want their end user to be able to use some kind of e-cash token, so they're gonna be This, just, just because they wanted to exist. Yeah." }, { "speaker": "stephan", "time": "44:23", "start": 2663.26, "text": "So yeah, I mean, it's a fair point. Maybe it's like you, you treat it like a loss leader, like you just pay to keep that thing running so that your users have a way out. I think these are very fair points, but, yeah, I guess, we'll, we'll have to just see. But, thanks for joining us. listeners, check out, Francis's work over at Bull Bitcoin and, yeah, thanks for joining" }, { "speaker": "guest_4", "time": "44:42", "start": 2682.37, "text": "me" }, { "speaker": "guest_4", "time": "44:50", "start": 2689.9, "text": "Aqua Wallet. So what, what, Sampson and Jen three have done, this is a really good example of what I'm talking about, which is the user is holding a custodial bearer asset, LBTC, and every time they're making a, a, a Lightning Network payment, it's a swap in and swap out, yeah, it's a swap in and swap out using the Bolt API. Bolt Bitcoin has actually been working on this for quite a while. We, built a Bolt Thrust library, which is, I believe, going to be kind Dart bindings for Liquid Network, web, wallets. I've heard other people that are, that are working on the same kind of technology. so, you know, if you are a Rust developer or Dart developer, we have like four open source projects that work, we're working on right now, so we're looking for contributors. And otherwise, if you're interested in contributing, I would definitely recommend, checking out Fedimint. Fedimint. One of the reasons why Fedimint is interesting is that they do have a lot of funding, It's not, it's not a project that's likely to just go, go away. So, Liquid and Fetty Mints, if you're trying to, you know, do Bitcoin payments, I would check those out." }, { "speaker": "stephan", "time": "45:58", "start": 2757.8, "text": "Yeah. Okay. I guess one other question, just while we're here, if you, if the idea is like, use Fetty Mints, I mean, do you, are you concerned about the rugging, right? Like, do you think that there'll be Fetty Mints where people just get rugged?" }, { "speaker": "guest_4", "time": "46:09", "start": 2768.8, "text": "Absolutely. That's, so a lot of people I've been talking to have accepted that self custody for small amounts isn't gonna be possible. Pure self custody. This isn't a controversial topic, at least like in the private conversations I'm having with people who like know, know their shit, you know, people who are running exchanges, running wallets, running non-custodial wallets as well. the question is, what is the custodial model gonna look like? And some people that I know, they're advocating for a kind of free banking model where you're gonna have a hundred thousand- thousand eCash single order mints where people are uncle gimming for their friends and families, and I think this is gonna lead to an incredible amount of ripples, right? so and the kind of theory of free banking is like, well, after so many people keep getting rucked by their mint, there's gonna be some kind of like mint rating agency, and, you know, there's gonna be free market competition, and there's gonna be exchange rates between different mints based on how reliable and secure they are. I mean, I, I don't think this is a really good outcome Strong, maybe not just one like Liquid Federation, but having like a small amount of very, very well-run federations. Okay, another point on this. I'm, I'm very involved in the Bitcoin Jungle Project. The Bitcoin Jungle Project is a nonprofit, so I, I don't have like an official title there, but I'm, I'm part of it, right? So I have some insight about what it takes to run, a custodian. Bitcoin dongle is essentially Uncle Jiming for, for all its users in Costa Rica. You need to have one individual because it's, it's a lightning node, right? So regardless of whether you have a multisig for like the cold storage funds of that custodian, if you're, if you're using lightning, like the funds are, the funds are on a server, you know what I mean? So, so, and the server is accessible by one person. Okay. So you need to find one individual which is extremely skilled, like proficient, because you can screw up with lightning and lose everyone's That is honest, that is, not incentivized to rug, for example, someone that's independently wealthy or someone that, you know, isn't tempted, someone that's like, has a, has time, is committed to the long term, has a sense of morality. It's like, it's not easy to find someone who's like skilled and not incentivized and, a good person. that's what it takes to be an, an uncle gym, at a level of more than like your friends and family, and this is like really Hard. People are underestimating how hard it is to run a custodian. not only am I afraid of custodians rugging people, and, and also, you know, people think about like, oh, we're gonna get tribal elders and like village mayors like custodying the funds, and because they're incentivized, they're not incentivized not to rug because people know where they live and that kind of stuff. I'm like, no, man, people, people will screw their neighbor over. Like that's, I don't know, like, they not screwing over their neighbor if they have, if they have the opportunity, especially if they have a plausible deniability that they just like accidentally lost the funds. I'm also worried about accidental ruckpulping, like it's really easy to like lose a backup, like we, we, we know this, right? You can run a lightning node and lose your backup. It's not easy. there's also like hacker honeypots, there's government censorship. so if you wanna avoid government censorship and like six one o two events, you need to have anonymous custod" }, { "speaker": "guest_4", "time": "49:31", "start": 2970.93, "text": "by the government, but also he can rug everybody that he's custodians for and he's not getting caught. so it's, it's not, it's not easy, right? so I, I, I'm, I'm more of a believer in very strong, well-maintained, well-run federation. So running a single custodian is hard, running the federation is also very hard. So, so Blockstream is not only financing like the software development of this, but there's a lot of like internal governance of, I was on the liquid oversight committee for years, which" }, { "speaker": "guest_4", "time": "50:01", "start": 3000.71, "text": "functionaries and developers and kind of give my, my opinion on, on how things should evolve. And I have some insight and there's a lot of effort that's being put into developing these kind of like bylaws, I would call them. for example, what happens if a functionary decides to quit? Which is another problem with custodians, like you can't quit, right?" }, { "speaker": "stephan", "time": "50:19", "start": 3018.74, "text": "I guess there's like this diner fed idea, you can swap out the functionary, that kind of thing. Similar, maybe with Fedimint, you can roll the guardian over or something?" }, { "speaker": "guest_4", "time": "50:26", "start": 3025.58, "text": "Yeah, so" }, { "speaker": "guest_4", "time": "50:31", "start": 3030.71, "text": "Possible, but then you need to have, okay, so the other federation members needs to choose someone else to replace that. How are they gonna choose it? How are they communi- gonna communicate? Is it a vote? Is it a, is it a majority? What kind of majority are we talking about here? So these are like things that are, are, are very, very tricky to pull off. So although I, I, I think like Uncle Jiming is good, but this isn't something that, this isn't something that a group of friends are gonna be able to pull off for like their" }, { "speaker": "stephan", "time": "51:01", "start": 3060.79, "text": "Let's, let's see what people figure out. So thanks for joining me, Francis. My pleasure. Back to the show in a moment. CoinKite dot com, make the best Bitcoin security hardware. They've been in the game for a long time, and they are leaders in the Bitcoin security industry. So the cold card is a great device. I use it as part of various setups. It's ultra secure, it's very reliable, and, and crucially, you don't have to phone home to set it up. You can just plug it into the wall, or you can plug" }, { "speaker": "stephan", "time": "51:31", "start": 3090.81, "text": "I, I create a new Bitcoin wallet without having to phone home. So that's a really cool feature. I really appreciate that, and it has a range of different features that come with the Coldcard. You can use Juris pins, BrickMe pins, you can use multi-signature, you can use single signature, you can use SeedX or, there's just a range of options that you can learn about and use, all as part of your Bitcoin security setup. So if you want to get your Coldcard, try it out with Sparrow Wallet or Specter Desktop or Electrum, and get yours Over at coinkite dot com using code LIVERA for a discount. And now back to the show. Hi guys, we're back at Bitcoin Atlantis. I'm here with Stephan Roose. He is, was previously at Blockstream. You might have seen him on, the previous episode we did together. So, yeah, we're just gonna have a bit of a chat. let's talk a little bit about, let's start with sort of some of your views around the broader sort of layer two, space. so a lot of people rely on obviously Lightning gives you this, you could argue state chains maybe is in that category, but, but it's sort of, you, you may be a bit, bit debatable. Obviously, I think Ark would fit in this category as well, and I know you're working on Ark as well. So do you want to just talk a little bit about, just sort of high level where you see Layer Two's going?" }, { "speaker": "guest_5", "time": "52:51", "start": 3171.02, "text": "Yeah. So the unilateral exit, I mean, I think by now everyone agrees that a real layer two is a layer two that gives you a unilateral way to get your money back on the chain without needing participation from, any third party. But the way you get your money back is always like relying on mempool, relying on the on-chain, dynamics. And since Lightning got there, like the mempool policy became a really crucial part of the infrastructure of Bitcoin, because before that, people just send their transaction in the mempool and eventually it will, it will, get confirmed. But if you have like different transactions being dependent on each other and then people competing to get competing transactions in, mempool policy becomes really important, and mempool policy is actually crucial for the security of- Things like, like Lightning, state chain, state chains probably lesser so, even though I don't know how they are currently implementing state chains, but for Ark, it's, it's, it's the same. Like in, in, in Ark, if you would have a competing unilateral exit with someone trying to cheat you, you also rely a lot on like mempool policy and fee structures. And on the other hand, you also have the cost of going back on chain, right? If you have a lightning channel and you have transactions or HLCs that have really small amounts, but to get that amount uncheated from you is, is gonna cost you more than the amount. How much do you actually own at HLC? And with, with Ark, it actually is multi-multiples of that worse, where if you're Your entire VTXO exit strategy can rely on a series of like maybe up to ten, eleven transactions on chain, and if they each cost you five or ten dollars, you're-- Yeah. Do you really own the money if you can't get it back for less money than what it is?" }, { "speaker": "stephan", "time": "54:29", "start": 3269.19, "text": "At like an economical level, I guess what you're-- Yes. What we're saying, right? And there's a lot of technical complexity, right? There, there are some people like, like John Cavalo, as an example, would argue maybe Lightning is the maximum complexity that we should be working Maybe a bit more complex. but yeah, I, I, I, I presume you do, right? but anyway, I, I, I would also like to chat with you a bit about MEV, so this concept of miner extractable value. Obviously, it is a problem in, over in Shikoinland, in ETH, and there are people who have a concern about, as an example, things like drive chain or other ideas or potentially OpCat with C-C-S, Czech Sig from Stack could potentially enable a drive chain and therefore, you know, MEV as well. Some people view it as like maybe MEV is inevitable, but let's at least not, encourage it. I guess maybe that's the way they would frame it. How would you frame it? Is it a problem for Bitcoin or, you know, how are you thinking about that?" }, { "speaker": "guest_5", "time": "55:27", "start": 3326.79, "text": "Yeah, I think first of all, if you look at Ethereum, like that's where M-MV is really big and where it's like a really big problem, and where it comes from kind of as a, as a research space. Ethereum is very different from Bitcoin. Like in Ethereum, you, you make your transaction, and your transaction is basically like a function call or something, you say, \"I wanna do this,\" but you don't know the state at which this function is gonna be executed. So depending on the actual state of, of your transaction, the outcome of the transaction can be wildly different And that, and that means that someone who has the ability to reorder different transactions and make them like actually execute on a different state by changing the state maybe from underneath what the spender was trying to do with this transaction, you can, you can have wildly different outcomes and you can actually like extract value by people trading and wanting to do certain trades, but then not actually doing the trades they wanna do. And Bitcoin is vastly different from that, because in Bitcoin, there isn't a state like the state is your UTXO you're spending, and you actually commit to the, to the UTXO you're spending" }, { "speaker": "guest_5", "time": "56:26", "start": 3386.37, "text": "Transaction is no longer valid. So you cannot have this like, even if your transaction is executed on a different state, it's still valid, but it has a different effect. In Bitcoin, that's not possible. It does change when you have things like APO, because if you have APO, you no longer commit to the state, the previous state of the smart contract, quote unquote, and then MEV starts to become a possibility. But I think it's still like vastly on a lower scale than Ethereum, because we don't have these like whole large state things. But if you're gonna have For example, with MATS, Worklight, all the, all, all the things they're trying to store some state in, in like contracts, and then you can have more complex contracts with state, and then different transactions can actually hook into different states without knowing the state. I think, I think when we're building covenants, we will find ways to commit to the previous state so that we can avoid most of the MEV," }, { "speaker": "guest_5", "time": "57:19", "start": 3439.26, "text": "I think it's also possible we can, we can eventually end up with contracts where we can have MEV. But personally, I, I feel like the, the imminent fear people have from it is a bit o-overstated because just the model of Bitcoin is so vastly different than, than the part of Ethereum that actually makes MEV the problem. I see." }, { "speaker": "stephan", "time": "57:40", "start": 3459.55, "text": "And as I understand, part of it is because Ethereum has what, what, you know, they try to have as these decentralized markets, and because of that, there's also- This incentive to try to front run, and that's where this MEV part comes in, because if you are the, now I'm probably gonna get the terminology wrong, but like they, they have like block producer and, you know, block validator or something, and the idea is that if you kind of have insight into this block and the next block, maybe you can do something to kind of give yourself more of it and front run the actual guy trying to do the trade on the supposedly decentralized exchange, right? That's kind of the idea. And I guess what, to what you're saying," }, { "speaker": "stephan", "time": "58:19", "start": 3498.8, "text": "In this way of having like such a large liquidity pool on Bitcoin, although you could argue that also exists on like Liquid, like the Fuji" }, { "speaker": "guest_5", "time": "58:26", "start": 3506.04, "text": "Money guys, right? Yeah. So on Liquid, you have like a, like a, what's it called, automated market maker, things called, Matrix or something? Yeah. So the Matrix guys, they built an automated market maker, BitMatrix, yeah, BitMatrix, using, the covenants constructions that we have on Liquid. So you could argue that MVT could arise there, even though, even when you have covenants, you, you-- with Bitcoin, you still can always, commit to the last transaction. Practically, it might mean you might have to like make a whole bunch of transactions because every time some other trader makes a trade, you need to like-- You need to respond, yeah. Like a lightning justice. Yeah, no, not, not respond, but it's like, if you wanna be the next trade in, you need another previous trade, so you need to like make a whole bunch of different, transactions where you're always the next trade. But then at least you always have the certainty like, I'm committing to this price and I will get this price, while in Ethereum," }, { "speaker": "stephan", "time": "59:21", "start": 3561.14, "text": "yeah," }, { "speaker": "guest_5", "time": "59:22", "start": 3561.66, "text": "yeah. So" }, { "speaker": "stephan", "time": "59:22", "start": 3561.92, "text": "then, but then, I guess that is the question, right? So if certain soft forks are enabled that enable this kind of MEV, like, do you think that's a legitimate concern? Like, you know, should people be wary of that? Of like, what exactly are we turning on here?" }, { "speaker": "guest_5", "time": "59:38", "start": 3577.58, "text": "you always opt into an application, right? It's true to say with MUV that if other people opt into applications that might enable MUV, you give an incentive to the miners to behave irrationally or, or badly. Yeah, you centralize, and it might also give you a disadvantage. But I think if we can provide tools for people to create tools that, like applications that don't have MEV, like I think personally, many of the Ethereum applications that have MEV could be made a bit more advanced to like reduce a lot of the MEV. And I think if we just provide in our framework, make it easier to write your applications in an MEV-like resistant way somehow, that That we can actually like," }, { "speaker": "stephan", "time": "01:00:21", "start": 3621.91, "text": "yeah," }, { "speaker": "guest_5", "time": "01:00:22", "start": 3622.43, "text": "like that, that most developers will not make their app vulnerable to MUV if, if it's easier to like make it MUV-proof. Yeah. I mean, yeah, of course it, it can happen, it can happen, and if it happens and it like becomes a really big thing and suddenly MUV is like a problem, sure. Yeah. but" }, { "speaker": "stephan", "time": "01:00:40", "start": 3640.06, "text": "I-- Okay. So as an example, as I understand, certain types of soft forks, like a CTV, as an example, where you, where you sort of have to precompute out the possibilities or the exit, the exit pathways, let's say, or as I understand, TX hash in the basic format and not kind of an, expanded version of TX hash, you You're sort of restricting those pathways so that, again, you're sort of trying to stop the possibility of MEV, right? So I guess, that might be one way people will choose to go, but I think there'll be, let's say, a lot of people who are saying, \"Let's focus on what we can do now before we sort of have to do soft fork stuff. Like maybe there's low-hanging fruit, maybe there's more we can do to get Lightning improved.\"" }, { "speaker": "guest_5", "time": "01:01:22", "start": 3682.73, "text": "Well, one thing I wanna add on MEV, sorry to go back to the topic MEV sucks for the user, right? Because it's literally miners extracting value from other users, from like the other participants in the network. So if you can make your application to not have MEV or to not allow for MEV or to be like more protected from MEV, users are gonna want that. So like, if it's easier to make your application MEV protected, users want those applications. So like then, I don't think it's, it's gonna be a risk as long as like you make it possible and easy to MEV proof your applications." }, { "speaker": "stephan", "time": "01:01:55", "start": 3715.13, "text": "so in your framing, Proofing, as opposed to, yeah, but I guess the main concern people would have is maybe like unintended consequences, right? And the same, obviously, the spam, the ordinals and all this, to be clear, BRC twenty and stamps, I think that's maybe what people are worried about. Like, if you turn something on, is someone later down the line gonna find a way to sort of do something that is, put it this way, a negative externality, right? Like, so the users didn't choose it, but they're now kind of stuck with" }, { "speaker": "guest_5", "time": "01:02:24", "start": 3744.6, "text": "Yeah, I mean, that's always a risk, right? That's gonna be a risk with everything. There's, there's also like negative externalities that we already have today, but we didn't find out yet. I mean, any change has, like, many changes have repercussions in many different areas, and we might not foresee them all. I think that's why in Bitcoin we're very, like, conservative. We, we, we propose changes, we reason about them for a long time, we try out some applications, we try out like what we can do with this, and people have come" }, { "speaker": "guest_5", "time": "01:02:53", "start": 3773.44, "text": "So constrained that like it's not gonna open doors for MIV, it's not gonna like have m-m-uh, unforeseen risks, because it's been around for almost what, five years, four years, like, and people have been thinking about it, there's been, there's been a whole lot of use cases, laid out. There's even a test net for like already two, two years or something, running with CTV. I think CTV specifically, we're gonna be really safe if we're gonna like look at things like simplicity, maybe TX hash, maybe up TX, maybe like really more broad stuff. Yeah. We have to like go back to the like, okay, what can we do with this that isn't like something that we want? Then we need like the really adversarial thinkers, the out-of-the-box thinkers to like, okay, try and break this, like, please try and extract value using the tools that we have. But I think CTV is definitely not in that category." }, { "speaker": "stephan", "time": "01:03:43", "start": 3823.01, "text": "Okay. Yeah, that's Give us the latest there, as I understand, it is obviously a more complex environment, and, you know, it's gonna take some work to build it out and make it safe for people. can you just give us kind of a broad, you know, few minutes on where Ark is at and where you think the progress can be made?" }, { "speaker": "guest_5", "time": "01:04:03", "start": 3843.82, "text": "Sorry, I had to swallow, but I don't have water. Oh, good. I think like on the panel yesterday, Peter Tao was saying something like ARC is really complicated, but I think he was talking about Lightning on ARC, right? But because I think ARC as a protocol is so much easier than Lightning. It's like not peer-to-peer, it's not like- Like with Lightning, you interface with your peers, but that peer is interfacing with another peer, and like you have to, like, have-- You have to think about liquidity across the route. Yeah, you have to like look at all this routing, like a lot of unknowns in the, in the, in the protocol that you always have to like think about, and the peer-to-peer also makes for like feature nego-negotiation. What if like his peers don't have the features that I have in my peer? And Ark is client-server, like there's one coordinator and then a whole bunch" }, { "speaker": "guest_5", "time": "01:04:51", "start": 3891.1, "text": "Itself is so much easier because you have one coordinator doing all the heavy lifting, doing like all the constructing, the transactions, combining all the payments together, and then the, the edges, the users only validate that what the ASP did is, is legit, and they have some emergency code for if the ASP does bad stuff, then they can like react. But other than that, they don't have that much, crazy things to do, like- Yeah. Like with Lightning, like there's, there's a whole lot of like random externalities. Yeah. Okay." }, { "speaker": "stephan", "time": "01:05:20", "start": 3920.28, "text": "Let me just, We've, we've gone through a lot there, so let me just try to, let me try and put it in simple terms, you tell me if I've got it correct. So the idea with ARC is you have a VTXO, like if you're just a regular user, you might have your ARC app, as an example, and you have an ASP, an ARC service provider, instead of like an LSP, like, lightning service provider, you have these VTXOs, they give you the possibility, as we said, of unilateral exit, but obviously the optimistic case is you stay off" }, { "speaker": "stephan", "time": "01:05:51", "start": 3951.06, "text": "And they kind of give you this VTXO that you have the unilateral ability to exit out if you need to, and so we trade around with these VTXOs and, and I guess as Barak says, you can kind of onboard people without having to think about inbound liquidity and all of these other aspects because the ASP, you're offloading those concerns to the ASP, but there's maybe some additional complexity at the scripting, I guess, beca- and this is where ideally something like CTV would, enable this and, also arguably help enable other- L2 concepts on top of Bitcoin. fair summary?" }, { "speaker": "guest_5", "time": "01:06:24", "start": 3984.88, "text": "Yeah, yeah, that's a good summary. it's worth to note that there, we can, we can build ARC and we have built a proof of concept of ARC without any soft forks needed, so it's, it, it's based on music. It has a bunch more inter-in-interactions between the people participating in the rounds, but you can, you can do ARC. ARC is basically based on pre-made transactions, alright? And as we know, with Lightning, we also have pre-made transactions, and we, we like All that CTV does is remove the need for signing for pre-signed transactions, and then they can actually become pre-made or pre-committed transactions. And then any person can just pre-calculate all these transactions and like put them on the chain instead of having to create them and then have a bunch of people like also sign them, right? So you just have to talk with well-versed people, and you can do it all by yourself. So that's why CTV is obviously gonna be like really useful for Ark, but We can build something that I think is fairly useful and like, definitely also like, revolutionary and new, without needing CTV for now." }, { "speaker": "stephan", "time": "01:07:25", "start": 4045.7, "text": "Gotcha. Interesting. Okay. So, yeah, because that was another question that people were having is, would it need CTV to happen on mainnet or otherwise people are gonna have to use, Liquid and do it as a ARC on Liquid? So, what, what's, what's, what are you, what are you guys thinking in terms of doing it on Liquid versus going for a mainnet deployment, let's say?" }, { "speaker": "guest_5", "time": "01:07:46", "start": 4066.28, "text": "Very early stages. We actually have a proof of concept in both, scenarios. So we have a proof of concept on Liquid that is using the covenants that Liquid has, and that interestingly, like you can build an arc with any of the Liquid assets because Liquid has assets natively, so you could do a Tether arc, you could do a UGC arc, Bitcoin arc, obviously. And then we have another proof of concept on, on mainnet. I mean, it's running on SigNet, but, it doesn't use any of the SigNet Thinking about which way we want to go, which one of the two versions we wanna focus on, that's, that's gonna be for the next few months. Gotcha." }, { "speaker": "stephan", "time": "01:08:23", "start": 4103.24, "text": "Okay. Well, great. Thanks for the update. that's-- This is Steven Roose, and I'll, I'll put, Steven's links in the description. Thanks, Steven. Cool, thank you. Alright, here we are. I'm here with Peter Todd. We're gonna talk a little bit about a bunch of things, but," }, { "speaker": "stephan", "time": "01:08:38", "start": 4118.43, "text": "let's, let's just start with," }, { "speaker": "guest_6", "time": "01:08:46", "start": 4126.76, "text": "Well, it's a couple things at once, but the initial start of it was some people who thought it was kind of silly that Bitcoin Core still limited op-return size, the number of op-return outputs in transactions, according to the standardness rules. And Christopher Allen was the first person who thought this kind of silly and paid me to do a pull request to go and try to change this Bitcoin Core. Of course, sure enough, I was rejected. So some other people then paid me yet more money, you know, to do a few more hours work work to go in create a fork of Bitcoin Core that A would remove those restrictions from the standard issuance rules and B would peer to other Leper relay nodes in a way that works is Leper relay nodes advertise a service bit and in the Bitcoin peer-to-peer network, service bits kind of say, \"Well, what services do you offer?\" You know, one service example being, \"Well, I offer the service of giving you old archival blocks,\" you know, that's a node network. Other ones, you know, the service of like, say Right? Well, Libra Relay offers a service of less restrictive mempool rules, and each Libra Relay node connects to four other Libra Relay nodes, and thus transactions can go, yeah, broadcast around." }, { "speaker": "stephan", "time": "01:10:02", "start": 4202.33, "text": "So let's just quickly explain one thing. So, just to make sure people can follow along, there's this difference between policy and consensus, right? So the-- So think of it like this, Bitcoin Core will relay transactions that it sees within its policy But that is distinct from what is consensus valid. So as an example, there are certain transaction types, as, you're getting at, Peter, that are valid at the consensus level, but not valid at the default policy level, let's say, right? So do you wanna explain that? Yeah." }, { "speaker": "guest_6", "time": "01:10:31", "start": 4231.37, "text": "Well, so I think the, the defendable reason why you would have policy limits is mainly around upgrades. So as an example, when Bitcoin version, you know, whatever zero came out, transaction ver-- the transaction version Version number was set to one. Alright, transaction version one. And we went and did a soft fork that, among other things, created transaction version two that redefined how the end sequence field worked to, long story short, let you do things important to Lightning. Well, policy of Bitcoin Core prior to that soft fork was that while transaction version numbers are allowed to be anything in valid blocks, 'cause they didn't have any meaning associated with them, we wouldn't relay transactions with versions greater than one, because we don't know what they do. All right? Maybe there's an upgrade. Well, sure enough, there is an upgrade, and now transaction version two is fairly common. And the important thing is that if you were a Bitcoin Core node doing mining, you would continue to create Create valid blocks because you wouldn't accept these new transactions that you don't know what they are into your mempool and thus into your blocks." }, { "speaker": "stephan", "time": "01:11:37", "start": 4297.86, "text": "Yeah. So, so just a quick one on that. So people might have the concern, and might be a legitimate concern, that there are certain types of specially crafted transactions that could crash your node or, you know, something like that. So do you wanna just explain a bit around that? Is it like, I guess the question is, is there not a valid reason for that? Maybe because you don't want this kind of DDoS-ing or this kind of" }, { "speaker": "guest_6", "time": "01:12:00", "start": 4320.63, "text": "There's a technical reason why transaction policy limits exist. so there are, with version one scripting, right, the script system that Bitcoin was originally released with, that scripting system has a bunch of flaws in it. And long story short is you can go create transactions that, well, they won't actually crash your node, they will take a very long time to validate. And again, if you're a miner and you accept these into your mempool and thus into your blocks, you could create a block that could take minutes to validate. Now, I could go on for thirty minutes with the game theory of this, but long story short, for a lot of miners, that means your block isn't gonna propagate fast enough to get built on, and you just lost a lot of money. Right. It's very uncompetitive. Yes, extremely uncompetitive. You don't want those transactions in your blocks. Frankly, at some point, we should do soft fork to go fix these edge cases." }, { "speaker": "stephan", "time": "01:12:45", "start": 4365.72, "text": "Right. And just on that, is that, is that an example there would be Matt Correia's great consensus soft fork cleanup or something in" }, { "speaker": "guest_6", "time": "01:12:53", "start": 4373.94, "text": "that It hasn't been high on the priority list, 'cause when you get down to it, in most cases, this is just people shooting themselves in the foot, right? It's not actually an attack against other miners, outside of certain cases with Game Three and all that. Again, that's like thirty minutes talk, but, you know, the long story short is most of these rules exist for a reason. However, the offer turn limit isn't one of those rules. There is no technical reason why offer turns should be limited. It's just a piece of data. Now you can make sort of Economic, social, spam, whatever arguments, but that's not a technical concern. A Bitcoin transaction with a thousand operations validates just fine, it relays just fine, it-- there is no impact directly at a technical level. Thus, Libra Relay removed that rule. And the funny thing about this is, you know, for all this discussion we've had about spam on the blockchain and so on, my, you know, my view on this has been the response to it is worse than the problem. Okay. You know, all of our like social media drama, all of the, you know, people trying to go and like block this stuff, et cetera, et cetera, all of this is just so much more harmful than just ignoring it and allowing fees to go handle the problem. If people want to do transactions, they have to go pay fees for it. Simple as that. So I created, you know, one of the reason why I was willing to create Libra Relay was because I figured, look The op-return thing is obviously silly, Bitcoin Core shouldn't do that. It's only, you know, there's one or two other things which could Libra Relay could do, but for most part, it's only like silly bit of paternalism. But by releasing Libra Relay, what I'm doing is I'm telling Bitcoin Core Don't go and add yet more silly restrictions because it's just gonna get routed around," }, { "speaker": "stephan", "time": "01:14:44", "start": 4484.62, "text": "right? So, so let's just talk about that for a second. Like, I can imagine, obviously, I won't be able to fully represent the view 'cause I don't understand it as well, but let's say you were talking to Luke Dasher or someone like that or Bitcoin mechanic, they might say to you, \"Well, look, we can filter some of this spam with, bare multisig equals zero or, the, the, some of the discussion around data carrier size" }, { "speaker": "guest_6", "time": "01:15:09", "start": 4509.26, "text": "Well, the fact is, what they are trying to do, go do, is from a technical point of view, censorship, and it's very easy to render on censorship 'cause data is easy to spread and hard to cipher. And Libra Relay is an example of this. It is so easy for people to just bypass mempool filtering by sending transactions directly to miners or using something like Libra Relay. And the problem we have is the sending transactions directly to miners version of this can be really harmful 'cause it means big miners can make more money than small ones. You know? But I don't mean like more money in general, I mean more money per unit hash." }, { "speaker": "stephan", "time": "01:15:42", "start": 4542.08, "text": "Okay. So this is like a mining centralization concern, it's basically the kind of the argument you're making." }, { "speaker": "guest_6", "time": "01:15:47", "start": 4547.84, "text": "that's, that's exactly it. And, you know, I don't wanna, like, I don't wanna fear monger here. At the moment, this isn't a very big concern, but the time to stop the silliness is now. You know, to not go further down this path of creating yet more problems. And, and, you know, this is a funny thing I think this discussion we can also have, but from filtering point of view, it doesn't do very much. It's more like a demo to say, \"Hey, filtering this stuff is out, out of silly. Look, Libra Relay actually works. You can actually broadcast.\" Transactions with more than one operator and a really big operator, and it will get mined. Okay." }, { "speaker": "stephan", "time": "01:16:27", "start": 4587.27, "text": "But let's, let's just cover one other area, because for the sake of, you know, still manning the filter, the filter raw view. Okay. So let's say the filter raw is thinking, \"Look, I understand it's not gonna filter out all the spam, but if we can at least reduce the spam and sort of keep the purpose of Bitcoin being about monetary transactions as opposed to, arbitrary file storage, what would you say to that" }, { "speaker": "guest_6", "time": "01:16:50", "start": 4610.3, "text": "view?\" Well, my response is They're not in a position where they can even make, you know, meaningfully change this at all. It's not like they can even stop a little bit of it. The fact is, the people who want to go use Bitcoin for these purposes, it is so easy for them to route around filtering nodes that it's just not worth having the discussion. Like Yes, maybe you could make a better argument if the filters actually worked, but they don't. They just create noise, they create problems, and I just don't think Bitcoin Core should waste effort on this kind of nonsense. It's just not worth the dev time looking at these patches to filter yet another version of stuff. Okay." }, { "speaker": "stephan", "time": "01:17:28", "start": 4648.39, "text": "Alright, well, we'll leave that there. Let's talk a little bit about this other topic you mentioned earlier, which is around, RBFR, Re- replaced by fee relay, 'cause I'm a bit confused. Replaced by fee, replaced by fee rate. Oh, right. Okay. Yes. Sorry, can you explain that?" }, { "speaker": "guest_6", "time": "01:17:41", "start": 4661.78, "text": "Okay. So Completely unrelated filtering, basically. s-things like Lightning, where multiple parties at once are authoring a transaction Have a problem called transaction pinning. And basically, you know, you can imagine a Lightning channel where you need to go on chain, you have a commitment transaction, and you want that commitment transaction get mined, 'cause, you know, there's certain-- there's time window when it really needs get mined. And I'll, I'm gonna intentionally oversimplify it, so, you know, bear with me here if you actually know how this works, but roughly speaking, if you and I have that channel, I could try to go screw you over by preventing you Your commitment transaction from getting mined." }, { "speaker": "stephan", "time": "01:18:25", "start": 4705.44, "text": "Yeah, I guess you could like pin my transaction to the bottom of the mempool, such that I have to pay this uneconomical amount to kind of get my money back." }, { "speaker": "guest_6", "time": "01:18:31", "start": 4711.65, "text": "And, you know, when you get down to, of course, the way we kind of think it works is obviously if you wanna get the transaction mined faster, you pay a higher fee. Alright? That's, that's how you would expect. It might be a fairly high fee, but at least you can do this in a reasonable amount of money. But with transaction pinning, it allows That either directly conflicts with the one you need to get mined or maybe, spend one of the outputs. But long story short is, well, they may be very big, they may pay, pay a very high fee in total, the fee rate is very small. So if the fee rate is very small, well, when will this transaction get mined? I mean, maybe never. Like it might be a fee rate so small that, that fee rate just isn't ever high enough to get mined. So while I put up a bunch of money in fee, the transaction doesn't get mined and you eventually Now, replaced by fee rate says basically, \"Well, why don't we look at the fee rate of transactions when we decide whether we replace one with the other?\" So with replaced by fee rate, well, I can broadcast this really low fee rate transaction that's really big, you can outbid it with a higher fee rate transaction, which is more desirable to miners 'cause they'll be able to mine it immediately rather than like wait, you know, six months if forever." }, { "speaker": "stephan", "time": "01:19:49", "start": 4789.77, "text": "Okay. one other point that I'm, maybe I'm not fully understanding yet, but, is this sort of like a competing idea to like V3 transactions and, this idea of, as I understand it, as Gloria explained it to me, it's like you, you sort of restrain-- it's like an opt-in type of transaction that, let's say, restricts You know, parent, it's like one parent, one child, and certain rules that are like an alternative way, i-i-in, let's say, her or their view to, stop pinning, let's say, or stop some but not all pinning vectors. Yeah." }, { "speaker": "guest_6", "time": "01:20:22", "start": 4822.69, "text": "So w- And again, I'll, I'll have to oversimplify a little, but basically what V3 transactions is it said, well, why don't we add a new set of sort of mempool filtering rules which expands the validity of like what will allow into mempool a little bit by saying version three transactions are now allowed in the mempool, but the rules we assign to them are very restrictive. They say, well, they can only be respent in certain ways. Now, it's consensus valid to spend them in all kinds of ways, but the V3 transactions tries to Create a system where the ways that you do certain types of transaction pinning, but not others, just can't be done in mempool standardness. And my response to basically the whole line of argument is, the fact is we've seen that v3 transactions are kind of weak. They don't really solve this problem fully. There's a lot of cases where they just don't solve it at all, and one example being, HTLC transactions, they just- You know, it just isn't targeted at that problem, and it's still a problem. And, or is replaced by fee rate, it looks at perspective of miners' incentives, it says, \"Well, how do we align what miners want to happen and what the transaction contracting system wants to happen?\" You know? Well, fortunately they are aligned. Miners want to mine high fee rate transactions. If we allow high fee rate transactions to broadcast around the network and enter into miners' mempools and enter into their blocks, this solves the problem naturally. We just need to find a way of implementing this, and fortunately with, with Libra Relay, because I have this sort of New set of Bitcoin nodes, new set of like Bitcoin Core version that relays these transactions, I can experiment with new rules. So Libra Relay does enable, replaced by Fee Rate, a particular simple version of this, where if the Fee Rate is double, or if, if the Fee Rate of the replacement is double the highest Fee Rate of the transactions it replaces, it is allowed in. Now, there are certain cases where, you know, maybe that isn't quite incentive optimal. I mean, maybe, you know, someone sent a, you know, hundred sat per byte transaction that's also really big and With 200 sat, that's smaller. You know, in that case, yeah, you might-- the miner might actually be earning less money. But implementing all that stuff is quite challenging for a bunch of technical reasons, and those sort of edge cases, which is so rare, is perfectly fine to experiment with something simple at first, see how it works, see what kind of replace-by-fee rate replacements happen, and go from there. And that's, you know, that's my strategy. Now, there are more complex versions of this idea, which I think future changes in Bitcoin Core won't Things like quickly query, well, what is the top, say, one megabyte worth of mempool, right? What, what transactions will get into the next block at the, you know, at this moment? And you can modify the replace-by-fare rate rules to take into that kind of economics. But as a simple prototype to get something out the door, Libra Relay has a nice simple way to do it, and the beauty of the sort of two X rule is If you double fee rate every time, sort of like, you know, you, you know, the sort of the standard of the chess thing, right? The grain of, you know, grain of rice on the first chess, and you double it each time. Well, doubling each time gets big really quickly. So the number of possible replacements that could happen, and thus the amount of bandwidth used, is always reasonably limited." }, { "speaker": "stephan", "time": "01:23:38", "start": 5018.99, "text": "Quick question, and now I'm not sure if I'm fully understanding all the intricacies of this, 'cause I'm just learning it now, but, as an example," }, { "speaker": "stephan", "time": "01:23:50", "start": 5030.22, "text": "Inputs on that transaction. Does that, or are, are you saying it's double in total?" }, { "speaker": "guest_6", "time": "01:23:56", "start": 5036.4, "text": "Well, so the fee rate thing, it's saying the fee rate has to be double each time. Now, in your example where, you know, you're trying to close a channel with ton of HLCs pending In that example, for me to go pin it, I would just have to go broadcast basically an even bigger transaction, and I could still pin that. But the main thing is that while that transaction, you know, while your lightning close may be expensive 'cause all these eight shield sees pending, at least with replaced by fee rate, it's not outrageously more expensive to outbid, right? Like you might be bidding, say, you know, ten sats per vbyte, right? Like say if that's optimal. I could go and pin it with one sat per byte transaction that's still, you know, a hundred times bigger. You would have to go pay a much bigger, much more money, like sort of the, the full hundred times, if you will, to replace it under current replaced by fee rules. With replaced by fee rates, you just have to pay whatever the minimum amount, minimum ratio to get over that threshold. And with the very simple version I've done, it'd be, it's, you know, two x, so you might pay twenty sat per byte." }, { "speaker": "stephan", "time": "01:24:59", "start": 5099.66, "text": "Okay, so I guess your argument" }, { "speaker": "guest_6", "time": "01:25:03", "start": 5103.58, "text": "Yeah, well, and I should say, and I should point out, I mean, the two X thing, that's just a number I picked just to be, have a very safe default. I think a reasonable real production default would be like, say, you know, one point two five. So you might pay twenty-five percent more than you wanted, or maybe ten percent more or something. but, you know, for the, for the prototype, just to be safe, I picked a higher number, 'cause that directly controls how much money does an attacker spend to broadcast data on the" }, { "speaker": "stephan", "time": "01:25:27", "start": 5127.24, "text": "network. And some of these ideas, you know, people talking about soft fork ideas, but I guess, you know, there's a lot of debate on that and whether that's even necessary at this stage. I'm curious where you sort of land on any of these ideas. Is that unnecessary or, you know, or is it more like have a chat about them and sort of talk about what, what, what trade-offs we want?" }, { "speaker": "guest_6", "time": "01:25:50", "start": 5150.08, "text": "Yeah, I, y-y-you know, I think one of the issues that we have in terms of getting new soft forks in, is there's such Example. For the things people advocate it being good for, well, there's a whole bunch of other possible ways to go do stuff that have pluses and minuses. And, you know, without even trying to go talk about the specific pluses and minuses, it has been hard to come to some kind of consensus over, do we really need this? Is it actually good enough for use cases? Now, if we go back, backwards a bit, I mean, I myself, I proposed, soft fork that is now in Bitcoin, check lock time verify. What I proposed We knew at the time it would definitely be used for payment channels, and indeed, Lightning channels do use Check Lock Time Verify. it didn't happen quite the way we foresaw, but it was pretty close, and we guessed right. This is important, basically all Bitcoin users are gonna need it. I mean, you know, frankly, I look, I look around at this conference, and you've probably got, was it four thousand, five thousand people buying, you know, their coffees with Lightning? Every single one of those people is ultimately using Check Lock Time Verify. And, you know, People who actually use Bitcoin, it wouldn't be surprising if like fifty percent of them had made use of this feature at some point because of the use of Lightning. Does OpVault have that same kind of argument? I mean, how many people actually need that niche like vault thing in a particular way? And, you know, the arguments become a lot harder to make. And this is, I," }, { "speaker": "stephan", "time": "01:27:22", "start": 5242.49, "text": "you know, this is challenging. On this point, let's just talk about that, because with CTV, I guess the CTV proponent could, proponent could argue, look, a lot of people- People kind of keep butting back into using something like CTV. There's even TX hash, which could argue-- which could be argued is like an extension of that idea that, maybe they would argue we need this CTV primitive somewhere somehow. What do you think about that?" }, { "speaker": "guest_6", "time": "01:27:44", "start": 5264.61, "text": "Well, if, if that was a good argument, it would be much easier to go show examples of people actually using this in prototypes, as well as in production in sort of simulated CTV, and we haven't really seen it that much. And the nuance is of exactly like what's the right trade-off There's haven't, hasn't been much consensus. Also, sort of, sort of more technical issue, CTV invites child pays for parent constructions, where you pay the fees by having a separate transaction, and of course, having two transactions rather than one is inefficient Which would be okay if that was all it was, but the real problem is that if I've, if I have a protocol that requires two transactions, but one of them is purely to pay fees, I can save money by just giving the first transaction directly to a miner at a band." }, { "speaker": "stephan", "time": "01:28:33", "start": 5313.58, "text": "Right. So coming back to mining centralization arguments here." }, { "speaker": "guest_6", "time": "01:28:36", "start": 5316.0, "text": "Exactly. Yeah, out-of-band payments are very scary because they have the potential to make mining extremely centralized if Constructs that need this catch on, and we did see this as fees went up, a lot of lightning channel closes actually wound up happening through a band payments. I mean, I personally made a couple of them, you know, in part 'cause of course my job is to experiment with everything, but so I went through and, hey, I, I have this use case. Yeah. Does it work? Well, it does. And as that becomes easier, it becomes harder and harder for more decentralized miners to go make a profit." }, { "speaker": "stephan", "time": "01:29:06", "start": 5346.86, "text": "Interesting. But I guess that, perhaps that could also be balanced by people" }, { "speaker": "stephan", "time": "01:29:13", "start": 5353.26, "text": "And the idea is that you, for example, with Lightning, that you don't need to do a justice transaction, that you, you know, you're trying to build for, you know, the idea is, that there's a happy path where there's less on-chain interaction, and so the idea is that you would, you would use the unhappy path less. It's kind of the-- I guess that would be a steel man, right?" }, { "speaker": "guest_6", "time": "01:29:32", "start": 5372.46, "text": "Well, that's the idea, but there are a lot of Lightning for-- Lightning first closes out there. Yeah, that's just the reality of this For bad actors to go and trigger the stuff deliberately to earn money. It also, it, it ta- you know, it speaks to what are, what are the limits of Lightning? 'Cause, you know, when you get down to how many people can use Lightning, those limits are really driven by How many forced closes can you do in one block? You know, what, how quickly can we get people's money back if something doesn't work out? And relying on constructs which are twice as big as necessary means that your ultimate capacity in these situations is half as much. You know, that's just not good engineering. And un- unfortunately, you know, child pays for parents is an easy way to do things, but I think as Lightning implementations progress, I, I certainly hope that will go away so that we get more scale out of" }, { "speaker": "stephan", "time": "01:30:25", "start": 5425.83, "text": "Lightning. as I understand, there's maybe a related debate around, if fees are inlined or it's kind of like using anchor outputs as an approach. I, I think that's kind of a related debate, isn't it? Yes," }, { "speaker": "guest_6", "time": "01:30:36", "start": 5436.26, "text": "yes. And I mean, I, I should say it is basically the same debate, 'cause anchor outputs are an example child pays for parent, you know, an, an example like the idea behind V3 is basically, well You would tend to go use purely anchor outputs, and your V3 transaction would be the first one, and then because of the V3 rules, it would be safe to spend that transaction's anchor output and then add the fees there. But of course, now you're, now you're designing a design where, in a lot of cases, you basically use twice as much block space when you could have used a lot less, but paid for a band mining." }, { "speaker": "stephan", "time": "01:31:12", "start": 5472.79, "text": "Interesting. Okay, well, yeah, we've gone, we've gone through a lot of stuff here, but- really appreciate you sharing your insights. guys, make sure you follow Peter and, check him out. I'll put all the links in the, you know, in the description below. Thanks, Peter. Thanks for having me on. I hope you enjoyed the show. Make sure to check out the show notes at stephanlivera dot com. I have a newsletter now as well at stephanlivera dot substack dot com. That's it for me, and I'll see you in the citadels." } ] }