{ "episodeId": "SLP569", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "spiral": { "name": "Spiral", "role": "guest", "tag": "SPIRAL" } }, "segments": [ { "speaker": "stephan", "time": "00:01", "start": 0.52, "text": "Hi, you're watching Stephan Livera podcast, brought to you by Swan Dot Com, the best place to buy Bitcoin. Today, we're talking about Bitcoin ossification and why Bitcoin shouldn't ossify. So rejoining me is Steve Lee, the lead over at Spiral, and, we are just doing a bit of a continuation from, a recent episode where we didn't get enough time to cover this topic. So what, what are we getting at here? There's a lot of people out there in the community who sometimes mention this idea of Bitcoin ossification, but there are various reasons This is not a good idea. And so in this episode, we're gonna get into why that is, and we're also going to talk about mining centralization, which is a little bit concerning, but it's important to have the conversation and, make sure people are aware. So here's my chat with Steve Lee." }, { "speaker": "stephan", "time": "00:57", "start": 57.01, "text": "Hi everyone, welcome back to Stephan Livera podcast brought to you by Swann dot com. Rejoining me today is Steve Lee, he's the lead of Spiral. Welcome back to the show, Steve. Thank" }, { "speaker": "spiral", "time": "01:06", "start": 66.44, "text": "you. It's been a week." }, { "speaker": "stephan", "time": "01:09", "start": 68.76, "text": "Yeah, I know. Well, so I guess context for the listeners, we were hoping to get to this, last episode, we didn't get enough time. We thought it would be quite topical and relevant for people to talk, to have that conversation about ossification, as well as, maybe some of the mining centralization chart as well. so, you know, this has been a big topic. There's been a lot of arguments back and forth, you know, should Bitcoin ossify? What does it, what does it even mean Maybe, do you wanna just start with a, you know, sort of a high level statement, like what even is ossification? Is it something we should be for it or against that?" }, { "speaker": "spiral", "time": "01:44", "start": 104.08, "text": "Yeah. thanks for having me on again, and, and that's a great place to start. it's, it's my-- I mean, I can both share my own personal views and my interpretation of what I think a lot of The Bitcoin community thinks, but it's a great conversation to have with the Bitcoin community. you know, I think ossification, if you take it literally It suggests no changes or progressing towards no, no changes, and I think, I think there's a, a pretty large segment of Bitcoiners who, at least long term, wanna see the, the core protocol literally ossify, like no changes at, at, at some point and, and be conservative towards that. And, but, but I think, I think the general sentiment would be more around conservatism. On changes. so I, I think that's what a, a lot of, folks mean. And then also, it, I think it can mean for, for some people, it means like a resistance to another segment of Bitcoiners who are eager To add new functionality, new features, and, you know, whether it be your, your favorite flavor of covenant proposal or a bunch of other, you know, you know, zk opcodes and, and lots of other features that are innovative and exciting and perhaps have great potential, but I think, I think everyone would agree in Bitcoin A cult-cultural difference between Bitcoin and, like, let's say Ethereum, is that, Eth-Ethereum was, and, and other blockchains in general are much more eager to, to make rapid changes more of a Silicon Valley vibe to, move fast, break things, which is great in many contexts, but not great for what we hope to be the world's, you know, global reserve currency, world money, in, in a strong foundation. Yeah." }, { "speaker": "stephan", "time": "03:40", "start": 219.65, "text": "and so let's try to make this clear as well and make this accessible for people, because I think there are different components related here, right? It's like, there's Bitcoin, there's layers that are above Bitcoin, but they still tie back to Bitcoin. There's also this element of Bitcoin core. This underlying software, like when you and I, we run our Bitcoin nodes, you know, many of us are running Bitcoin Core, and there are changes to that that aren't necessarily consensus changes, but there's still updates happening, right? So do you wanna just help disentangle some of these different pieces for people who are maybe not into the technicals as much, they may not have as much of an awareness of that? Can you just outline some of the different pieces there?" }, { "speaker": "spiral", "time": "04:24", "start": 264.25, "text": "Yeah, I'd be happy to. I do think I think it's my sense that common misconceptions in the Bitcoin community, one is that like a lot of people's exposure is Bitcoin Twitter or podcast things like that, and there's often a lot of chaos and drama in, in those environments. And people who don't-- most people in Bitcoin don't hang out in like the Bitcoin core IRC or follow Bitcoin core GitHub comments. or attend like the Bitcoin Core dev meetups and things like that. the cultural difference between those two is, is striking. Like, I, I have been exposed to all that, for six or seven years now. And the Bitcoin core project, Bitcoin core developers, culturally are, default conservative, not trying to dictate how, how Bitcoin, works. And, as AJ Towns recently posted, sort of \"team slow and steady,\" I think that, you know, Bitcoin Core isn't like one thing, there's a lot of different participants, but I think that's a reasonable generalization of people, the developers who work on Bitcoin Core. So that's one thing for everyone else in Bitcoin to keep in mind that, that it's not necessarily the circus show we sometimes see on Twitter. The, the second point I'd wanna make is that I think many people think Bitcoin Core project is the only open source Bitcoin project in Bitcoin, and, and it's not. There's many other open source projects, and there's many other important open source projects in Bitcoin beyond Bitcoin Core. It's true, Bitcoin Core is the most important, but there's others that are very important. one that I think we're gonna talk about in more detail, later in the show is Stratum v2, but that's a mining project protocol, so it's not part of Bitcoin Core. there's a l-little, little part of it that actually impacts Bitcoin Core, but most of it is a separate project, and it absolutely matters for security and decentralization of Bitcoin. So, yet when I say that there's other projects beyond Core that are important to Bitcoin, I mean projects that can absolutely materially change, security, decentralization, privacy, censorship resistance, these, these properties that are, near and dear for, for most Bitcoiners. Even within Bitcoin Core itself, there's a dramatic-- there's many different like modules, components within Bitcoin Core with Extremely different risk profiles and even importance profiles. So, for example, the one that I think everyone in Bitcoin's aware of is the consensus code, the actual rules to valid-- what's a valid transaction, what's a valid block, and what the whole network comes to consensus on, I think most people have a grasp of what that is Means what it is, and, and often when, when people talk about ossification and, there's, and there's a lot of drama around, around changing those rules, because those rules absolutely impact everyone on the network, and so that's, I think what often people think about. But Bitcoin Core also has a wallet. It also has a GUI for that wallet. I mean, there's both the command line interface and there's a, a RPC or like a programming API interface to it and a graphical user interface. That's technically part of the, the project and the repo, but, I mean, all of that could just disappear and it would, it would obviously People using that wallet would, would have to find the new wallet, but it doesn't change the, the network at all. So it's just, it's a very different value and risk profile to consensus code. Another component of Bitcoin Core is the peer-to-peer code And this, the peer-to-peer code is, is, is very critical and, absolutely needs a lot of review, auditing, attention, maintenance Because it is, it, it can be as critical as consensus in terms of the health of the network, avoiding denial of service attacks, avoiding un-unintended network splits and forks. so that's an example of non-consensus code that is risky and needs to really be-- we need to be mindful about making, making changes there, responsible and conservative. And, and related to that is policies in Bitcoin Core, which we actually talked about in the last show with, Matt Carallo around the great consensus cleanup, and we talked about standard transactions and non-standard tran-transactions, and this, it's not consensus, but it's a policy in Bitcoin Core and quite prevalent on the network. And it's largely in place there to protect the health of the network. But it's a great, it's a great example of also something that it's dangerous to just ossify and like not touch again, because the network, things Things can change. Like, for example, two years ago, no, I, I heard no one predicting the rise of like ordinals, inscriptions, runes, all the stuff that, that, that, all these new applications that, Currently require non-standard transactions. The, the, the Bitcoin Core standardness policy doesn't allow those applications to work, so they're now using proprietary APIs to get their transactions mined with miners, and it's really changing the dynamics on the network, which we'll talk about more in, later in this podcast, but It's important that, that developers and the whole community are ob- monitoring this, observing it. What are the changes? How does it change risks on the network? And perhaps Bitcoin Core should adapt its policy. Like a specific thing that I think merits more discussion is, should OP return the, you know, there's, there's certain restrictions on OP return in the pol- in the definition of standardness, maybe that should be relaxed so there's less- Need and desire to use these proprietary APIs to get transactions mined, mined versus just using the open source software and, and broadcasting on the network like most transactions are." }, { "speaker": "stephan", "time": "10:52", "start": 652.07, "text": "Yeah, as you said, and I think that echoes back to what, Matt Corallo was commenting about how an everyday miner should be able to make a competitive block, and if he can't, then we start, we might start to see a mining centralization problem where, as you were saying, if people are using these out of band APIs, that's as an example. To, to, you know, this kind of idea of private mempools, let's say, and so I guess in a related vein, sometimes you see people say things like, \"Oh, I'm just gonna run a really old version of Bitcoin Core.\" Now, there's, there's kind of back and forth here, right? The main criticism of that would be, \"Hang on, there's security updates in the new versions, and so you really, you wanna be very careful before you do that kind of thing.\" But maybe there's an element of like, sometimes in a new version" }, { "speaker": "stephan", "time": "11:41", "start": 701.12, "text": "You wanna let the really technical people kind of do the first thing to iron out the bugs and sort of get into, you know, update to that newest version once you're ready. so that's kind of another example where maybe people are coming from this sort of ossification view of, \"Oh, I'll just run an old version of Bitcoin Core, and, you know, because it's meant to be backwards compatible, right?\" what do you think?" }, { "speaker": "spiral", "time": "12:04", "start": 723.87, "text": "Yeah, I, I mean, I think being moderate on that makes sense. So I definitely don't think it's, prudent or healthy if everyone, if we had like auto upgrade, you know, the, the latest version twenty-six or whatever comes out of core and it just instantly upgrades the whole network, that, that's very dangerous and unhealthy and, not only should it not be automatic, but it shouldn't be encouraged that everyone immediately update, unless there's some grave catastrophic bug like, you know, a billion- You know, an inflation bug with a billion Bitcoin being created or something, but, but, so I think, and, and what we naturally see is that it takes, several years. I mean, I've seen several graphs in the past of like adoption of each version and, and it just sort of like nat-naturally and organically, nodes upgrade over time, but it takes several years for the latest, whatever, like the version that comes out right now, it would take several years to get to like fifty percent, then seventy-five percent, then ninety percent penetration, and that, that seems-- that actually seems great. I mean, I haven't looked at the latest metrics, but assuming they're the, they're the same as a few years ago, I think we're pretty healthy in that way. of, but a more radical view of like, I'm gonna, you know, run a super old version and Never update again? I don't think that's practical. I mean, it-- I mean, I, I think, I think there's some group that still runs like oh five three or something that was long before my time. I mean, that, that, that can be like a fun hobby. I mean, I think maybe Jameson Lopp or others have like tr-- tried to get like the old, you know, the oldest version of Bitcoin, on the network, and that, that's like a fun exercise, and I think it, it's like a nice proof point that shows how" }, { "speaker": "spiral", "time": "13:50", "start": 830.34, "text": "Work. That's, it's dangerous not only for the reasons you said of, security improvements within Bitcoin Core, but also there's just, all the tooling around the software changes over time. And, and, and the hard-- So like, for example, new CPUs are produced and- And often that requires software changes. So I recall when Apple introduced the M1 chip a few years ago, Bitcoin Core didn't compa-- you couldn't compile Bitcoin Core for it. So that actually Needed changes in, in Bitcoin Core. another change that I know that, Cory Fields recently has been working on, and, and a few other core devs, is just getting Bitcoin Core to work with like the latest C++ compiler, version twenty or something. So, you know, tools change over time, CPUs change, and if you take this literal definition of never changing the code, then like, it w- at the, at the same time, so I would guess most of the ossification crowd, if They, they're also like the hundred-year crowd, like we, meaning hundred plus years. Like Bitcoin is here for centuries, and, and, and I believe that too, and I think you, you do as well. so if you-- I mean, do we really think in a hundred years we're not going to change the software so it works on the latest CPUs or compilers, or we're gonna use hundred-year-old CPUs and compilers? I think that's crazy. So I think everyone would agree with that statement. So I think it's important to just tease out some nuances on that there are That need to be made practical ones like that. another category of changes that, I mean, one exam-- I'll, I'll just go through a few more examples of, of like with- Some are consensus and some are, are Bitcoin core, but changes that are either absolute must-haves or high, should absolutely be, discussed. So there's the year 2106 bug, in which, you know, which is tied back to like the Unix timestamp, and it's a 32-bit number, and it, it'll, Roll over that year. We, we literally have to fix that, like otherwise Bitcoin will fail in that year, and of course, we'll all be likely dead by that point, but, you know, if we care about this multi-century network, it needs to be fixed. So, w-we can't literally ossify, we have to hard fork to fix that bug. or maybe we find some innovation where we don't have to hard fork that, that we're not thinking of now, but, at the very least, it's important to fund developers to think about how to go about that. Then there's the great consensus cleanup. I don't, yeah, I'm not gonna like re-review it. We, we talked about it last week on, on, Your, on the last episode, so people that wanna learn more about that, but, but it's, you know, s- several known bugs in, in Bitcoin, in Bitcoin con- you know, consensus and Bitcoin script. Bugs or things that can lead to very bad, like denial of service attacks, the, the consequences of which, if those were actually, you know, activated or or, or exploited, would be, would be severe to catastrophic. So Yeah. And I'll, I'll just spell that out," }, { "speaker": "stephan", "time": "17:04", "start": 1024.41, "text": "just, just because we didn't, I, I'm not sure we sort of fully spelled that out. As an example, the time warp example that we spoke about, and you and yourself and Matt explained, that would allow, under certain conditions, miners to just mine out the rest of the blocks really quickly, and that could really screw a bunch of people over. Firstly, like, you know, are you, are you ready to just mine out the rest of the coins? And secondly, there's some users who might be using a kind" }, { "speaker": "stephan", "time": "17:32", "start": 1052.32, "text": "Some examples, I'm just spelling out the implication here for listeners who maybe don't grasp that implication." }, { "speaker": "spiral", "time": "17:39", "start": 1059.15, "text": "And, and, and then, I mean, so then a listener who just heard that might be like, \"Oh my God, why, why isn't this urgently being fixed?\" The, the counter to that is that at least s-some of, like the time warp attack that you just mentioned, Stefan, it needs to be executed over a period of weeks, and when it gets initiated, it'll be public information. So there is an opportunity for the, the rest of the network and people That part of Bitcoin to respond, and we would-- but I don't like the prospect of, of that fire drill, of coordinating everyone, all the exchanges, all the miners, all the businesses, all the developers, the, the, and the broader community to agree on like, okay, let's quickly get this code in, test it, every-- all the miners and nodes, update. It would be a crazy fire drill that probably we pull off in a two-week timeframe, but do we really wanna go there? Why not proactively fix it, right? So there's, there's changes like that that fall into the, the, like the bug fix or risk reduction or security improvement bucket that are consensus changes. now I definitely don't think we should just-- I mean, just because they, you know, I, I think they make a lot of sense and, maybe you do, we still shouldn't like- rush that process. We should calmly and, and, patiently, raise awareness and assess the trade-offs. But if, if it's pretty clear, if it's a pretty clear win, then like I have, I mean, I think that's a, a sound change. We should, like, we shouldn't take a literal ossification where we don't make that change. That's just another, another example. T, there's a whole other category of changes that are, that aren't consensus changes. Or, 'cause I, I was speaking with some, some friends of mine, who are, You know, they're, they're big believers in Bitcoin, they, they have, you know, large stacks, but they, they haven't, they're, they're not close to software development and, and, They weren't even aware that you could improve privacy or security or decentralization with non-consensus software changes. So I just like quickly rattle off to them like a dozen plus projects that absolutely do. So I'll mention a few on this show, just I think it's important that, again, people who aren't super close to the software might not have this information, and it's important knowledge to have. so there was a recent change that Peter Walle and a few others worked on in Bitcoin Core, BIP three 24, it added, yeah, it added, the V2," }, { "speaker": "stephan", "time": "20:19", "start": 1219.24, "text": "encryption. Yeah. V2 P2P protocol. I have an episode about that actually as well, but yeah." }, { "speaker": "spiral", "time": "20:23", "start": 1223.3, "text": "Yeah, and it, and it sets the stage for authentication as well. Or, so again, I, I bet a lot of, most people in Bitcoin probably don't even know, like my, my Bitcoin node, your Bitcoin node, if they're connected, like, there's no, there's no encryption with that, and there's no way right now to authenticate that I Connected to your, your, your node. things that seem to be- And it's all in" }, { "speaker": "stephan", "time": "20:46", "start": 1245.58, "text": "the clear, yeah. And I believe that was just merged in v, zero, twen- version twenty-seven. So it's the newest Bitcoin Core actually has that in there. So, I've been playing around with that, but yeah, go on. I think it's the" }, { "speaker": "spiral", "time": "20:56", "start": 1255.55, "text": "latest. I think the code went in, last fall, but then the latest one, it flipped to on by default. And so like a lot of these changes, again, Bitcoin" }, { "speaker": "spiral", "time": "21:11", "start": 1271.38, "text": "Quick shout out for if someone wants to, an opportunity with that change is, introduce traffic shaping with the Bitcoin Core software so that it's not easily detectable By an ISP or a middleman that you are running the Bitcoin software, 'cause right now they can, I mean, prior to, to the changes we just mentioned, it's super easy 'cause it's all, all the information's in the clear, so it's like trivial and almost costs nothing to de-detect that. It's a little bit more costly and hard now, but you can still detect the shape of the internet traffic, such as you know when blocks are mined. And, I mean, anyone knows when a block was mined and is likely going to be relayed, so you can look for that shape of data going to, coming, coming to or, or from a node. So a great project for a developer would be to implement some traffic shaping code that, that hides that, and Spiral would be happy to, to fund that. So, quick plug on, on a, a Spiral grant that we'd love to fund if there's a developer that wants to work on that. but, you know Once again, that's a, a change that's not, consensus change. but just because it's not a consensus change doesn't mean we shouldn't evaluate risk. you know, sh- making that type of change absolutely introduces some risk to Bitcoin, so it, it needs to be su- su- you know, high quality engineering, thoughtful, responsible, and, and a lot of eyeballs on it. but it's, it's a, it, it's a clear win for, for security and, and, and privacy. I mentioned Str Well, that's another example. there's also tons of, or like Silent Payments is another project that has, pretty good energy right now and momentum from a few developers. It's a change, it, it requires changes to the Bitcoin Core software. it improves, it improves privacy. And, and, and, and, and like maybe some folks in Bitcoin don't care about privacy as much, like maybe a, a segment of investors just cares about number go up. and, you know, basically just getting rich and, and, or, or protecting their wealth. nothing wrong with that, but they should be aware of why privacy and censorship resistant matters. you know, privacy helps with censorship resistance, and censorship resistance helps avoid asset Freezing." }, { "speaker": "stephan", "time": "23:45", "start": 1425.01, "text": "and or even miner censorship, while we're at it, right?" }, { "speaker": "spiral", "time": "23:48", "start": 1427.69, "text": "Yeah. Well, that's, I mean, we're gonna talk about that in a little bit, I think, we'll" }, { "speaker": "stephan", "time": "23:50", "start": 1430.26, "text": "get to that as well. But for, so if" }, { "speaker": "spiral", "time": "23:52", "start": 1432.28, "text": "we're in a, if we're in a world like if we don't, like, Bitcoin isn't Perfect. or some, some people joke that like Satoshi came back from, you know, f- like future traveler and like already knows how it all plays out and c-crafted something that has the perfect game theory and dynamics. Maybe? Like, we don't know. I don't know. Maybe that's true. But in the- The, but, you know, the chances that that's not true, I, I don't think we should rely on that. I think we should actually evaluate what we know for, as facts in, about the, the software, our evaluation and analysis of how the game theory and economics and incentives work out, we need to constantly be assessing that because again, those dynamics change over time, and And, and so, it, like, my, a concern I'd-- So we'll talk about minor centralization pressures in, in a bit on this show, but as it relates to software changes and developer funding, I, you know, if we wind up in a world where there is centralization from miners, they can censor, and ultimately, you could have one entity or actor, say, the United States government, who can choose which transactions get confirmed and which don't, and thus effectively freezing the assets of those that are on the naughty list. That sounds a lot like the current financial system, and, you know, the key reason that Bitcoin Bitcoin exists and how it's differentiated, and I think even if all you care about is number goes up and the what's going to maximize the price of Bitcoin, which again is a fine goal, That, that, that you should absolutely care about this, because if Bitcoin's been captured by a government and it's not a credible money for the world, it's not a credible competitor to like, 'cause, 'cause then if it's not very differentiated from the US dollar, then I would argue the probability of Bitcoin becoming like, used for global trade Dramatically decreases. So even if you are only care-- caring about this for a number goes up, you should care about censorship resistance and privacy properties of Bitcoin. And thus, Bitcoin's not-- the current software, the current system isn't perfect. We need to keep monitoring it. There are ample opportunities to improve it, so, and, and most of those opportunities are actually not consensus code. they do have inherent risk though, so we just need to be responsible about those changes." }, { "speaker": "stephan", "time": "26:28", "start": 1587.84, "text": "Yeah. So a couple things I wanna get into, so- Let's say some of the listeners who aren't as technical, maybe they, you know, let's say they're, you know, they are either not developers or in IT and, and maybe they've heard various ideas on podcasts, maybe even on my own, right? They may have heard, let's say, an episode with Michael Saylor, talking about Bitcoin as this, it's this bedrock of New York City, of Manhattan, right? And not a criticism of Michael, I think he does a great job. I think it's one of those things where maybe when people hear an analogy Sort of reason based off that analogy without sort of digging further deeper to understand, okay, the analogy is kind of like a training wheels, right? It's there to sort of help someone learn, but it doesn't necessarily explain, you know, neater gritty how the rubber meets the road aspect of it. And so I can imagine there are listeners out there who may have heard various ideas like, \"Oh, I thought Bitcoin needs to not change.\" What, what, what's the answer then? Like, what would you tell those people?" }, { "speaker": "spiral", "time": "27:29", "start": 1648.9, "text": "Yeah, so I, I, recently listened to that December episode, with you, with you and Michael, and, I thought it was a great episode. I, I, I tend-- I mean, his views and what he talked about generally overlap with, with my own. I mean, I, I pretty much, agree with almost everything s-- he, he said there a-around, conservatism on changes that Bitcoin's generally working well, so like, don't, don't fix what's not broken. Generally agree with that. I do feel like there's a lot of nuance, which I just spent, you know, ten, fifteen minutes talking about and could, you know, keep going on about, but they're, they're, they're, I-if, if, someone's takeaway from that or someone's view that's in Bitcoin is that we should literally not change the software, Bitcoin's perfect and it's not broken, I think that's very incorrect. There's con- I mean, I already, I already provided like factual, objective, concrete examples that-- and there's I mean, there's one-some that are just not, not debatable, like the year 2106 bug, that's not debatable. There's others that, you know, we can certainly debate, like the great consensus cleanup changes. I mean, the, the, the, bugs or, or threats are objective and factual. The probability of those being realized and the importance of fixing them now versus later, that can be debated. That's a re- you know, that's a reasonable debate and discussion. and, but then the, the, the hundreds of other things that can be done and are being done to improve security, decentralization, sort of the granite under Manhattan. the-- I mean, there's literally dozens, probably hundreds of concrete projects that improve all that. So, so you can also objectively critique Bitcoin and where it is currently failing at some of these measures. And everything's relative, right? I mean, Bitcoin is by far stronger than any other blockchain, along a number of dimensions. it, you know, anything to do with like the granite underneath Manhattan. Bitcoin, I mean, as Michael Saylor says, there is no second best. I mean, Bitcoin has an enormous lead. That's why, that's a big reason we're all excited about it, and it's a big reason that has a trillion dollars of value in it. but that doesn't mean it's not perfect. I mean, in some ways, it's like the United States, or like I'm American, right? So, like, I'm proud of my country. I think we have the best country, love the Constitution, I think it's an incredible institution. Is, is it perfect? Absolutely not. Tons of, tons of, ways to improve. So I think with Bitcoin, there's, it's, it's the best That we have, it does really well, generally not broken, but many ways to improve. And, and, and also to my point earlier too, the landscape changes too. So even if hypothetically it were perfect right now, which it's not, but if it were, that doesn't mean it's always going to be perfect, because the environment around it changes." }, { "speaker": "stephan", "time": "30:37", "start": 1837.16, "text": "Back to the show in a moment. Swan dot com is the leading place to buy Bitcoin, and the Swan team has a mission to onboard millions of people. Into Bitcoin. Now the team have been working really hard to update the Swan Bitcoin app, which you can find on the Apple App Store or the Google Play Store. 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And now back to the show. Right. And I think another key point to touch here is that it requires work to To maintain support, right? Like as you said, the Mac M1 example, but even the fact that Bitcoin Core needs to be packaged across PC, you know, Mac, Linux, each new version, there's release and, you know, controls around that. All of these things, there's bugs that need to be fixed, there's changes, and then some other, you know, some other bug that might introduce some other bug that needs to be reviewed. So I think the, I think- It's cl- it should be clear to, you know, for listeners that we do need responsible testing, maintaining, securing, improvement, and so- Maybe, you know, the term \"ossify\" is really probably not the appropriate one. That's where I think AJ's, let's say, AJ's framing of slow and steady is probably a more accurate way to put it, I would say." }, { "speaker": "spiral", "time": "33:36", "start": 2016.46, "text": "Yeah, I, I agree. So I would encourage everyone listening, if you sort of, if ossification resonates with you, like I understand why, but maybe go read AJ Town's \"Slow and Steady\" post, and that'll be in the, it'll be, it'll be in the show notes for listeners and see if that resonates with you, and maybe that's a better framing of, of the, the view, and then, and, and I, I think, I think it's a view that Ninety plus percent of Bitcoiners can, can rally behind it, actually is, is what they, what they think is right. What they really" }, { "speaker": "stephan", "time": "34:06", "start": 2046.11, "text": "meant all along, right? Yeah. and just one other," }, { "speaker": "spiral", "time": "34:08", "start": 2048.39, "text": "you're gone? Oh, just a couple more qu- real quick. I, I, I did chat briefly with, with Michael Saylor this weekend, about the-- and, I mean, he, he is a supporter of responsible software changes. So, I think hopefully no one had the conclusion from that episode that- He, he, he doesn't recognize that, so I, I think that's important to know. and, and I just wanted to give one more example, and something that probably most listeners have maybe never heard of before, but it act-- it, it, it, it matters for everyone, and that's this notion of reproducible builds. It's a-- it's something that's general to software, it's particularly important to Bitcoin because we're protecting money, but if anyone followed, recent attacks in the open- source space, I think it was X Z backdoor, yeah. Backdoor, and, and like throughout his, even in cryptocurrency, p- there'll be attackers who change software in a project that is entirely unrelated to your wallet or, or Bitcoin software, but your wallet or Bitcoin software depends on that library or depends on a library that depends on that library. There's some kind of dependency chain, and that's the attack. So you attack some project Where there's, less eyeballs and less scrutiny and less advert-adversarial mindset, and it ultimately can attack people who have Bitcoin wallets. That's a, it's a real threat. It's actually been realized m-many times in, in, in wallets. So we, we absolutely want to improve the security around that, and one way to do that Is that when you install, your wallet binary, you, you wanna be able to compare that, y- if you, a reproducible build is it like, Stephan, you could take the source code for the wallet or Bitcoin Core or whatever project, compile it yourself. I can compile it independently and we, we get the exact same binary and can match it and see that it's the same, so that when you install a binary on your device or your computer, you can make sure That it is, it comes from the source code that's published. Now, that doesn't mean it's automatically secure. The code could still have, backdoors, it could have bugs, it could have malware, but, you know, if that code's been audited and reviewed, you at least know that that's actually the code that produced the binary you're running. So that's a really important, tool. It, Bitcoin Core has used a reproducible build tool called Gideon from very early days. Devrandom created it, I think, in like twenty- eleven or twelve or very early in Bitcoin, in Bitcoin software history, but, but even that segment of software tooling has improved over time, and you, you wanna- Even if Bitcoin Core is using that tool for reproducible build for Bitcoin Core, it still doesn't mean that the Linux OS you're running on, the compiler, that those are secure. Like what if the C compiler has a backdoor?" }, { "speaker": "stephan", "time": "37:13", "start": 2232.65, "text": "Yeah. So I know Corey Fields is looking into some of this, yeah. Sorry? I know Corey Fields was looking into some of this as part of his research, and" }, { "speaker": "spiral", "time": "37:21", "start": 2240.76, "text": "Carl Dang, worked on it, and then Spiral, like, there's a successor to Carl's work and, and, and Spiral's, help, helping from that, but, It, y- there's some really exciting, developments just within the reproducible build community where ultimately you can get things down to like a, a three hundred byte, a very small program, and from that program you can bootstrap the OS, the compiler. And then the project you care about. And so you actually only need to audit and be confident, like humans only need to audit and be confident in this very small program that's practical for humans to wrap their mind around and, and assess for backdoors, and then from that you can build the rest of the software. I personally find that mind-blowing, but the point for the broader, audience is that it's just another example of where, there are security threats and we need to keep improving the software and the tooling and make changes. is, to decrease those risks. Yeah." }, { "speaker": "stephan", "time": "38:22", "start": 2302.34, "text": "one other comment, some people comment, for example, Steve Barber has commented on this idea. Now, I, I presume you're gonna disagree, but let's, I wanna hear your disagreement. His argument is something like, \"Oh, I don't want- Paid Bitcoin core devs, they should be doing it as a hobby because in his view, you know, the money's gonna change them somehow. what would you- Say to that." }, { "speaker": "spiral", "time": "38:49", "start": 2328.65, "text": "Yeah, well, I mean, I think the sentiment is, I mean, I've seen that from quite a few people. It's a, it's a reasonable sentiment in the sense that people are worried about, like, I mean, some people, I remember when, when Block created Square Crypto, now Spiral, the, the group that I lead, there were definitely some folks, who, We're, we're critical that, you know, Jack Dorsey was gonna like try to take over Bitcoin and, you know, through Spiral, through our work, it would be influenced by either him or the commercial products at Block that we'd be sort of doing their, their bidding. yeah, I think four and a half years in, we sort of- Proven, proven that we're good actors in the, in the ecosystem. But there's that, but it's a legit-- I mean, I told people at the time, like I didn't get mad at people with that criticism, I said, \"Keep it up, keep us on our toes.\" Like, we, we don't-- we wanna be good actors, so it's good. I think it's healthy that Bitcoiners are monitoring that and making sure that we are good actors and acting in the best interest of Bitcoin and not just one company. n-now with the ETFs, like that focus is now on BlackRock. Like, if BlackRock funds Bitcoin developers, they're gonna tell them what to do, they're gonna tell them to change the code and do whatever's best for BlackRock or the government or, or, or what have you. again. Reasonable sentiment, reasonable concern. It's good that we talk about it. I think it's overblown though. I-- so I definitely hold the position, and obviously I'm biased. I mean, I run a development organization. I strongly believe in software development for the reasons we've already talked about in the show. and, and I, and I think they deserve to get paid. I mean, I mean, a response to-- I mean, people saying they shouldn't, they shouldn't get paid, well, I mean, like, Stefan, are you gonna do your job" }, { "speaker": "stephan", "time": "40:40", "start": 2440.24, "text": "Yeah, and I'm with you. I, I, I disagree with Steve personally, but, I just wanted to hear your answer, yeah? Yeah, yeah." }, { "speaker": "spiral", "time": "40:45", "start": 2445.3, "text": "And, and like, like let's say there literally was no, we just like wave a magic wand and no one gets paid, there would definitely be volunteer developers for Bitcoin because out of all the, all the, o-- you know, open source projects and cryptocurrency projects, like I think Bitcoin has the most passionate group, mission-driven group of developers who, who, who feel a sense of responsibility and, and just, Energy around it that they would do it voluntarily, and there's past history suggests that people will volunteer their time. but is that enough engineering effort to protect Bitcoin and improve it along all the, the lines that we've already talked about in the show? I think it would be horribly insufficient. and thus, I'm a huge proponent of developer funding. and so, yeah, so another message I'd have for, for everyone Is that like, we, we should be supporting devs, we should be supporting more and more orgs, and I'm, I'm happy with that growth. Like when Spiral was created, there was no HRF, there was no Brink, there was no OpenSats. So there's been, there's no BTrust, there's been like, a huge growth in the number of entities that are funding developers, and each of those entities, and of course, there's like Chaincode and ones that have been around much longer than, than, Spiral. but what's great about each entity is everyone has their own recipe and sort of take on who to fund, which projects are important, how to fund them, structure of funding, and that diversity I think is super valuable. anytime someone's creating a new org and wants to fund stuff, they often will reach out to me and others who run such orgs just to get advice. I'm always happy to give advice. sort of say what works for us, what our philosophy is, but I, I never think they should just like copy everything we do. Like, cop-- you know, copy the elements you like from Spiral and copy the elements you like from Chaincode and Brink, and that divers-- there's strength in that diversity of, of funding. But yeah, strong, strong, strong proponent of, of developer funding, and I think if you look at the orgs that are funding, the ones I just mentioned, Brink, OpenSat, Spiral, Chaincode, All of these orgs are funding developers who are taking a responsible approach to software. they're being adversarial minded, they're, they're being patient with their changes. we're ensuring that there's a lot of code review and, and, and a lot of eyeballs on the changes to, to reduce the risk of these changes. And you'll also see that sometimes the circus and chaos on Twitter where people are wanting their favorite features Sure to be added to consensus rules of, of Bitcoin, and maybe they're arguing for soft forks, and, and maybe like, you know, and sort of like beating their chest about a soft fork war that's not coming from the developers funded by these organizations. So Funding these organizations, like history has shown and the evidence is, doesn't lead to circus shows on Twitter. It's, it's actually just generally speaking, quiet developers, who are just working away. Sometimes you'll get like Matt and me and a few other vocal developers coming on your show and talking about issues, but like we're not Clamoring for, for crazy changes. yeah. The, the second, but, and just one more point to-- I mean, in terms of the concern about the black rock or Block or whomever, some, or some powerful, wealthy person or whatever, changing Bitcoin Yes, Block or, or BlackRock could pay developers to write any code that they dictate that they want. but it's-- that, that doesn't mean that it just automatically gets into Bitcoin Core and everyone starts running that software. I mean, we, we saw that years ago, in like twenty sixteen, twenty seventeen, that era, like, Coinbase and other companies funded other versions of Bitcoin that increased the block size and changed other rules, and they funded developers to create that, and they created that software, but to the rest of the, us- Adopt it? No. So, I just, I-- There's so many layers of, resistance to changes that if like BlackRock added KYC to the protocol" }, { "speaker": "spiral", "time": "45:06", "start": 2705.94, "text": "like, h-how, how does, or if they paid, meaning, if they paid developers to, to write that code, how is that actually gonna get into Bitcoin? And," }, { "speaker": "spiral", "time": "45:17", "start": 2717.13, "text": "you know, it's, it's not as simple as just paying developers to write the code. It's much more complex than that. Although the topic we're gonna get to, miner centralization, I'll paint a scenario where this actually could happen." }, { "speaker": "stephan", "time": "45:28", "start": 2727.9, "text": "Yeah. Alright, let's talk about this scenario. Yeah, one more question before we get to the miner, centralization. Just for people trying to assess some of these different ideas, right? Maybe if you could offer a comment on how to assess the, the risk of a change, right? As I understand, there are different pr Lines of code, right? Now, it's not a be all and all, but if something is less lines of code, it's easier to review. Or another example might be, is it touching a high risk area of, you know, the protocol? d- is there an implication of some other, you know, maybe the direct implication isn't there, but there's some second or third or order effect. Do you have any- Advice or any tips on how to assess the risk of a particular change?" }, { "speaker": "spiral", "time": "46:10", "start": 2770.14, "text": "I-- Well, I think you already pointed out a couple, a couple of the best ones. lines of code is a decent proxy. It's certainly not-- but it's, I mean, no one should treat it as like definitive. Like, for example- Changing the block size from one megabyte to one gigabyte would have dramatic impact on the network in the future of Bitcoin, and it's one line of code, it's like, you know, a character. So, it's not the be all and end all metric, but, but it is-- I mean, it's, it's absolutely true. If, if you go in and change like five thousand lines of code in, certain files in Bitcoin Core, that is super risky and dangerous and would take, you know, a long, long, long time to review and assess And stuff. So that's a good proxy. and like, and the other thing that, that you mentioned, which sort of summarizes what I said before, like which, which project, which component of which project is being changed? like for example, the LDK project, which Spiral works on, if we make a change there, like bad things could happen. To projects running LDK and the Lightning wallets, but, it doesn't impact the underlying network." }, { "speaker": "stephan", "time": "47:21", "start": 2840.9, "text": "Bitcoin network," }, { "speaker": "spiral", "time": "47:22", "start": 2841.62, "text": "yeah. Yeah. Just like in, like, y-y-you know, pick your favorite wallet or whatever, if, or even like in Ethereum and like MetaMask has had vulnerabilities, and I think Trust Wallet had, you know, had a vulnerability, so, which was quite severe. I mean, peo- like, they, those aren't popular wallets, and, and, people had money stolen from them, but it didn't risk the underlying network. So yeah, I, I think what you mentioned are-- And then, I mean, I guess the third thing is just, you know, oh, you know, follow developers, on, on Twitter or Noster or, or listen to the podcast, whatever you're- You know, favorite medium is, but, you know, select a handful of developers that have maybe a diverse set of views and, and, that's another input too. I mean, try, you know, try to pick developers who have been around a long time Tend to be more of the slow and steady, responsible approach. If, if that's been their consistent philosophy and they've demonstrated that over three, five, seven, ten years, I tend to trust that viewpoint way more than like, \"I just-- It's a costly signal. It's hard to show up, right? I just showed up and learned about Bitcoin. I'm gonna, I'm here to fix it.\" You know, that means-- That's one of my favorite memes. Yeah. So if it's a brand new dev, even if they're like brilliant and an incredible entrepreneur I'm gonna discount that view on fixing Bitcoin." }, { "speaker": "stephan", "time": "48:44", "start": 2924.17, "text": "Back to the show in a moment. CoinKite dot com are my favorite providers of Bitcoin hardware security products. Now, when it comes to securing our Bitcoin, as we say, it's not your keys, not your coins, and you need to learn to use some of these different tools to help create your private keys offline and then keep your private keys offline. And that's where some of these devices, like the Coldcard Mark IV or the new Coldcard Q device, can come in and help you because they can help you create your private keys Offline, you write down your twelve or twenty-four word seed, and that helps you interact with the Bitcoin network in a self-sovereign way. And so you can use these devices easily with software such as Sparrow Wallet or Electrum or Specter or Nunchuk as a few examples. Now, the really cool part is that you're keeping the private keys offline because you're signing in an offline way. So if you're a beginner, yes, you can just directly plug it to the computer, but you can use these devices also in an air-gapped Apps mode. So for example, the micro SD card, which is available on the Mark IV, or you can also use micro SD cards on the Coldcard Q, and the Coldcard Q also has an extra way, which is this QR code, so you can scan, and read it back that way, and do your transactions also in that fashion. So there's a range of different features and ways that you can improve your security, but you can just start basic with a single signature hardware wallet, and then later think about, okay, do I wanna do a passphrase? Do I XOR, do I want to use multi-signature? So these are all some of the things that are available to you. The Coldcard and CoinKite team are always innovating and putting out new products. They have a range of different products, so for example, the TapSigner is a cheaper device for those people who want a specific, different kind of UX that's also there. They also have the seed plate, which is a way for you to backup your seed words in a metal product. So there's all kinds of products there. Go to coinkite dot com to get yours Vera for a discount over at coinkite dot com. And now back to the show. Yeah. Okay. Great. Well, let's move on to the, the other big topic for, for today, which is around mining centralization. Now, I guess I'll just offer a quick intro here. The gist, as I understand it, is that, it's kind of been discovered that there are a bunch of mining pools that are kind of proxying their hash to another mining pool, and part of the, i- we could argue that this is a bad incentive driven by fPPS, which is a, a, a type of payout mechanism that requires, you know, it ha- it has certain centralizing effects, and, you know, in that way, has arguably driven a central- realization in Bitcoin mining. so do, do you wanna just, you know, offer an intro, kind of overview here?" }, { "speaker": "spiral", "time": "51:36", "start": 3096.22, "text": "Yeah, I thought I'd talk about Three types of centralization concerns within mining. And, I mean, before I get into that, just, like, again, most people in Bitcoin, I think, know that decentralization is really important, but it's not just like one metric or one thing. It's not like there's one thing to measure and we're either good or bad. It's not that at all. There's actually like dozens, if not hundreds, of, aspects of Bitcoin overall that, that face centralization pressure. And that constantly changes over time, and we need to keep monitoring that and assessing that, and it's also hard to quantify. Within mining itself, there are a number of centralization pressure points, and, yeah, I'm gonna name three and we'll dive into each of those. So, one is just the chips themselves, the ASIC chips. There's only two primary vendors right now, Bitmain and MicroBT that make the chips, they're both in China, so that's like really bad centralization risk in terms of only two vendors, and they're both from the same country, in a country with a history of like, you know, sort of out of, out of left field, at least to the rest of the world, like banning things or, or curbing things or whatever. So that's a risk to the Bitcoin network." }, { "speaker": "spiral", "time": "52:58", "start": 3177.99, "text": "a second is, is," }, { "speaker": "spiral", "time": "53:02", "start": 3181.71, "text": "block template production or, or transaction selection, like who's actually selecting the transaction for each block? And centralization risk around that. And then the third is around the payout pools. You mentioned FPPS, so that's a, a third area, where there's centralization pressure. So let's, let's go for the first one. I mean, the, the, the first one I just wanted to, to create a little bit of awareness, but, Block just announced that they're going, that they're going to start, taping out and producing the, three-nanome-- a three-nanometer Bitcoin mining chip. So it's Two and a half years ago or so, or going on three years, it's one I've been excited about the, the whole time that Block's been working on that project because of this inherent risk. There's just not much competition in the ASIC chip business, and just, there, there's a whole host of reasons why it's great to have new entrants. I think Block is very credible, Block has a hardware production, history, Block understands how to, how to, to make hardware. even, even has, and, even p-prior to getting into Bitcoin, Block had ASIC design experts at the company for, for their payment terminals. and of course, Block is very Bitcoin forward, it's a very Bitcoin forward company and isn't gonna get scared of any kind of like downturn, like during the, the last bear market, like the company didn't get cold feet on its, on its ASIC project, like Intel actually canceled their project, we end, like, we Block ended up buying the Intel ASICs. From them. and so, I'm just really excited about that, the, the progress of that project. It's still not real though, still. It, it's, and, and, and there still isn't like," }, { "speaker": "spiral", "time": "54:53", "start": 3293.42, "text": "You know, the, the chips haven't been produced yet, so we'll, we'll see what the performance is like, but hopefully the performance is competitive so that there's a new entrant that can actually, compete with, with, with Bitmain, and that will help with that risk. But otherwise, I mean, everyone should know that's, that's a high, high barrier to entry business. It costs a lot of money to hire smart engineers to design the chip, and then it costs a lot of money at foundries to tape out and produce chips, even before you get to the point of paying for the money to, to, to actually make-manufacture the chips for sale. So it's a multi-year process and a lot of money. So e-even if Block's successful, that's a big win for Bitcoin, but, you know, then we go from two to three companies and, i-it's hard for other entrants as well, but as Bitcoiners, we should, we should hope and encourage that there's other competitors that come into the, the fray as well. The second centralization," }, { "speaker": "spiral", "time": "55:56", "start": 3356.45, "text": "pressure point to be discussed is around block template producers or transaction selectors. So I think a lot of people already know how it works today, which is there's mining pools and there's miners. So most miners use a mining pool, and their motivation to do that, it's almost like an insurance provider in the sense that, they want a smoother payout for their, for their hash hash rate, and especially if you're a, a very small, hash rate miner, it could take you months or years to even mine a, mine a block. So, you know, no one wants to spend a lot of money on equipment and energy, to mine, and you literally have to wait years to ever receive any revenue. That's not a very good, very good business. So miners leverage mining pools, who then collect a lot larger hash rate percentage and then are able to, to win blocks more regularly, like on a daily basis, and then pay miners. So that's how it's worked for many, many years now." }, { "speaker": "spiral", "time": "57:03", "start": 3422.54, "text": "the-- but as part of that process, they're using the Stratum protocol, let's call it Stratum V1, 'cause it's the first version of the Stratum protocol from ten year-- ten years, ago. And Who selects the transactions in this protocol? It's the pools. So there, there might be thousands of miners right, right now around the globe, so pretty healthy distribution and decentralization of miners, but there's only a handful of pools. I didn't look, you know, o- it only takes like I mean, if you look at public stats by brands of pools like Antpool and Foundry and F2Pool, it only takes like two or three to go over fifty percent. And, you know, the top ten, I don't know what the percentage is, but it's gotta be something like ninety-five percent or something. So it's very concentrated at the pool level, and they're the only entities that get to select transactions. And then Recent information that you alluded to, there's a few people in the space. 0xB10C is one, developer in the space who, who Spiral and others have, have, have funded, does really great work at creating Tools to monitor the, the network and monitor mining. he's done analysis that shows that it's even worse than what I just said, that some of the mining pools Like, like mining pools are already very concentrated, but some of the mining pools aren't even actually doing the transaction selection. They are just a, a front end, they're, they're like a white label to, to Antpool. So, and there, there, there's concrete evidence on the blockchain to show that, I think it's, Poole and and Brains and a few others, we could, we could pop up the tweet, the whole list, but s-several are all utilizing Antpool for their transaction selection. So it's just it, it, it's a risk. right now, Antpool and Foundry have, the lion's share of control over selecting which transactions go into each block. Now Something that I think Bitcoiners have relied on as an argument and counterpoint in the past is it's easy for, miners or, or in this case, pools to switch away if anything nefarious happens. And that's still, that's still true. To, to an extent, but it, it still, it still seems like a very unhealthy and, and alarming environment. I don't know to what extent there's contracts made between pools and miners or pools and pools, like the pools that are whitelisted, like, you, you-- but if they have long-term con- legal contracts. That is going to be resistance to any kind of like quick change. So if there is the beginning of censoring, at At a, a large pool like, like Antpool, what will be the dynamics of the other pools that are leveraging Antpool? Will they immediately switch or will they do a business, you know, risk value calculation and decide to let it go for a while or let it go forever? And same with miners, who are largely, I think, bottom line driven, like, \"What's gonna make me the most money?\" And maybe less so Bitcoin ethos. So what will be their Real time calculation. How much are they thinking about the future value of Bitcoin if we lose some of these properties? 'Cause I, I suspect if we, you know, if they're-- if we found ourselves in a situation where the OFAC list like the, the US government's naughty list, if that was being centered on Bitcoin, I don't think we'd see the price of Bitcoin instantly drop eighty percent or something. I think you'd have a few of us, like us, talking about it in podcasts, and we'd be raising alarms and saying it's, awful. but it would take-- I think it would probably take years before People to understand the actual consequences of that, and it sort of strikes at the heart of the inherent value of Bitcoin, and thus it shouldn't be priced as high. So, so if it takes the, you know, if it, if it does take many, many, many years, a miner, I worry that a miner, might not switch because they're gonna be more short-term minded." }, { "speaker": "stephan", "time": "01:01:47", "start": 3707.02, "text": "Yeah. And, while we're here, I know historically there were some examples where, I believe it was Marepool in a twenty twenty-one, around there, where they were saying, \"Oh, we're doing OFAC compliant blocks,\" the community was sort of going against them and criticizing them, and they stopped that, to their credit. Yeah. and there was an earlier example, with GHash, I believe it was twenty thirteen or twenty fourteen, where they got over forty percent of the hash rate and, was kind of going towards fifty percent, and there A lot of the miners pointed away from them and they death spiraled after that. so I guess there is some precedent, for this kind of behavior, but it is, as you said, it is a bit concerning and we wanna ob-obviously, Push in the direction of getting it more decentralized, as you said, things like having Stratum v2 so that, you know, individual miners can select transactions as opposed to everything being done at the pool level. I know, obviously, Brains are big supporters of that. I know, Ocean is a supporter of that or they, they intend to support that soon. And Demand Mining Pool is a new one as well. They, they support Stratum v2. but, the payout pools one, maybe is like another distinct. Yeah. Aspect, isn't it?" }, { "speaker": "spiral", "time": "01:03:03", "start": 3783.27, "text": "Yeah. So I'll get to that in a second. I, I just said, I mean, so it is good that there's some precedent to like pressure leading to change, like with Marathon three years ago. And I think they also had a leadership change. I think Fred Teal took, took the CEO position around that time. And I, I frankly was shocked they reversed the decision, so good, good on them though. So like we should give them kudos for, for fixing that. but that-- I don't think that's-- So it's good to know that's happened a couple times. I don't think it's in any way proof that it's, like, a guarantee in the future that it will always work, no? Think about all the things that-- that, again, the environment changes around us. So, Like four, three, four years ago, the majority of hash rate was in China. Well, now the majority of hash rate is in the United States, and there's many wins for that. I mean, like that's a big win to like reduce the concentration in China. but we also don't want concentration in any, any country, including the United States. So, I mean, United States has like good legal system and a lot of benefits to being in the US. however, US also has the strongest financial regulatory bodies, and- Is like the military superpower, and I mean, the, the, you know, so, so there's, there's, there's risk in having too much hash rate, be it miners and or pools in the US. Also, the pool, the, the, the, the miners in the US, there's many public miners. So the percentage of global hash rate that is public miners, largely US or North, like in Canada as well. has grown substantially the past three or four years. That creates different dy-ma-dynamics. Now you have like quarterly earnings and you have shareholders and they put pressure on you, and you're just more, i-there's reasons to be more risk-averse Which will lead into the discussion around, FPP, FPPS as well. But so there's just, and also like the, the, the, I mean, obviously the halving, I mean, we know the halving's coming, but when the halving actually occurs, it substantially changes the dynamics because, it, it changes the percentage of the overall revenue that's fees, even if fees stay fixed, right? If you cut the subsidy in half, the percentage of overall revenue in, in fees goes up. And with the introduction of ordinals inscriptions and runes and things like that, BRC20, we've seen a dramatic increase in fees. You know, we can debate how sustainable that is, will that be the case in six months or two years from now? We don't really know, but factually, it's definitely changed the dynamics right now and so there's just a lot of environmental changes that I'd say that we can't rest on our laurels that it's kind of worked out a couple times in the past. I think it's, it's dangerous to be in that position today. It's just dangerous that we don't wanna- New York Agreement situation again, where you can put a few people in a room who can, who have aligned incentives maybe to change Bitcoin, that's, that's dangerous. And I, I guess my-- and I really hope this is like an exaggeration and a low probability, but I just, it would just be scary if like- Some of the, people pushing for like OP_CAT or some kind of covenant change 'cause it boosts their business, huddles with like a couple pools and they change, they change the software they're running to enable that and it would create, it would create chaos, like forks and stuff, but if that hash rate is over seventy percent, if you just meet with two people And get over seventy percent hash rate, all of a-- that, that fork would win relatively quickly. And everyone else, i-it's, you can't really undo a software change. So," }, { "speaker": "spiral", "time": "01:06:59", "start": 4019.31, "text": "we, we as a broader community need to be talking about this centralization for sure and these issues and be vocal to, to prevent that from happening, So I, I just wanted to, to mention that. Yeah. but yeah, let's," }, { "speaker": "stephan", "time": "01:07:15", "start": 4035.99, "text": "yeah. So we should get into the payment, pools, the payout, I guess, mechanisms with the FPPS and PPLNS and Tides and these different-- Yeah. So there's" }, { "speaker": "spiral", "time": "01:07:25", "start": 4045.98, "text": "just that, the, the, the one-on-one on payment pool payouts, there's really two high-level flavors, and it's who accepts the financial risk. Is it the miners or the pools? And What is the financial risk? Well, there's a luck factor to, to find the next block. you know, over a long enough period of time, you're gonna find blocks at the rate that, the percentage of time that your hash rate represents for the network, but in any given period of time, like an hour, a day, or even a week, there's a substantial luck factor, even as a pool. And so one, payout mechanism called PPLNS will-- is, is where the miners accept the financial risk because they're only paid by the pool when the pool actually finds a block. so, so the pool doesn't take financial risk, the miners do. it turns out that PPLNS is the best for decentralization and sort of the, the best for all important Bitcoin properties, but- Unfortunately, I would, I would guess it's like one percent at most of overall hash rate. It's not popular, and it's not popular for the obvious reason that Miners don't like that risk, and miners have options with pools, where it's not that expensive to, is, effectively pay insurance to smooth out those payments. and I think Foundry for a number of years charged zero fees and offered FPPS, you know, so Foundry both took the risk and offered zero fees. So as a miner, that's a pretty simple calculation. If I'm not gonna be penalized at all fi-financially, and you give me smooth payouts, that's Pretty attractive. whereas, FPPS is where the pools take the risk. So it's co- it's, full, full pay per share. Full means both it's the subsidy that they're paying out and fees. And so like it's typically done where they'll look, a, a pool will look at the last twenty-four hours of blocks that were mined, add up all the fees And then use that as the basis for, you know, wh-whatever, proportion of hash rate you, you were providing the pool, you get paid not only in your proportion for the subsidy, but also the, the transaction fee." }, { "speaker": "stephan", "time": "01:09:59", "start": 4199.28, "text": "But it's kind of like averaging out the fees over time. Yeah. And there's a little bit of a, a centralizing factor there because the big pools can deal with that more, right?" }, { "speaker": "spiral", "time": "01:10:07", "start": 4207.89, "text": "Yeah. So, ex-exactly. So in this case, so FPPS is probably Probably something like eighty-five percent of the global hash rate on, on, on that order, that the remaining-- So I said like something like one percent for PPLNS, something like eighty-five percent for FPPS. The other, mechanism is via BTC uses, PPS plus And, I think most of the hash rate uses that mechanism, and they have typically something like thirteen or fourteen percent hash rate. PPS Plus is, is kind of a Split between the two previously mentioned ones. It's where the pool takes the risk for the subsidy, but the miners take the risk for the, the fee payouts. So it splits the difference between those two." }, { "speaker": "spiral", "time": "01:11:03", "start": 4263.12, "text": "but for, for FPPS, there's also variations too. So I just mentioned that you, you-- it's common to look at the past twenty-four hours, add up the fees, and then pay out based on that. but sometimes they'll, they'll throw out the top three, the outliers, the top three or the bottom three blocks from the past day. So there's, so it's a, it's an estimation, and, there's a number of factors that both give pools upside that miners aren't getting with FPBS, and there's a number of factors that are in going to increase the risk, financial risk to pools using FPBS over time so for example, if they do toss out the top three and bottom three, blocks from the past day when looking at fees" }, { "speaker": "spiral", "time": "01:11:58", "start": 4318.05, "text": "I believe the top three with fees are going to be much higher than the average than the bottom three. So they're actually skimming some profits off the top that they're not sharing with miners. So that's one example. And, and I think there's a, a, a few other examples as well. But the financial risk that's increasing over time is as, as time goes on, the percentage of overall revenue is going to increase for the fee portion Versus the subsidy. And as the fee portion increases, that increases the financial risk you take as a pool with FPPS, because you are guaranteeing a payout to miners. Every time-- certain time period, say every day, and you may or may not win, you know, your fair share of the blocks in that day." }, { "speaker": "stephan", "time": "01:12:52", "start": 4372.76, "text": "Yeah." }, { "speaker": "spiral", "time": "01:12:53", "start": 4373.4, "text": "But with the block subsidy, it's a-- when you do, when you do win blocks, it's a fixed amount of-- It's predictable. It's predictable. But with the fees, it's unpredictable and it's volatile. So if in that loose" }, { "speaker": "stephan", "time": "01:13:06", "start": 4386.63, "text": "analogy is like, you're, it's like you're writing checks that you're expecting to get made whole later. And the bigger, you know, the more un- you know, the more that variable component is, you kind of need enough buffer to stay alive. And this is where maybe there's a centralizing effect. And" }, { "speaker": "spiral", "time": "01:13:20", "start": 4400.95, "text": "exactly. And right. So the-- so this, this is leading to pool, smaller pools. Recognizing this risk and just outsourcing their hash rate to another pool, and we have evidence of this happening, with, with Antpool. And so it's concerning. People need to be, a-w, aware of this. it's concerning not only because it's hap-happening, but like, like what are the game theory and economic incentives to fix this in the, in the future? And I, I certainly don't have the answers, but it's a discussion we should be having within Bitcoin, like what, and it, and it, and it ultimately gets back to like, is the system gonna just automatically work itself out? maybe. or does it- require software changes or social pressure changes or some other dynamic. I, I don't know the right answer. I, I think it's clear though that, that We know percentage of miner revenue that comes from fees will increase over time, like f-for, for, for sure. I mean, the only way that that's not true is if both go-- both the subsidy and fees go to zero and the Bitcoin's a failed project. So assuming Bitcoin isn't a failed project, we know the fee percentage goes up. We also know that the fee percentage going up increases financial risk for pools using FPPS. So that might lead to centralization, but even if there's only one or two pools offering FPPS, they, they still face financial risk. They've, they've reduced it 'cause they're big. But they face financial risk, and so one dynamic could be they go bankrupt at some point, and it just sort of-- they, they blow up, and we have to re-s-- we, we, meaning the mining industry restart. And maybe the mining industry would learn its lesson and realize that" }, { "speaker": "stephan", "time": "01:15:15", "start": 4515.7, "text": "doing a PPLNS style, PPLNS style is some other way, yeah." }, { "speaker": "spiral", "time": "01:15:21", "start": 4521.66, "text": "but hopefully we avoid that. Hopefully we are, we, we talk about this more as a community and especially with miners. But even if you're not a miner, there's a lot of people listening that might own- Shares of public mining stocks. And if you do, and you care about this, and you learn about it, and become passionate and want to see change, why don't you ask at a shareholders meeting or ask your, the company you own equity in, these questions? Why haven't they adopted Stratum v2 yet? Why aren't they using PPLNS? and I think the, the financial profile of-- I mean It's clearly FPPS has defeated PPLNS to date. you know, I just said something like eighty-five percent hash rate is FPPS and something like one percent is, is PPLNS. But that doesn't mean it can't change in the future. And I think, many of the dynamics we just discussed will change the financial, incentives for miners over, over time such that PPLNS will become more attractive. So, You know, one thing people can do is ask the mining companies they've invested in, how, you know, what's their latest calculation on that, what's their projections, projections in the future." }, { "speaker": "spiral", "time": "01:16:41", "start": 4601.26, "text": "with, with respect to that, and hopefully we see a shift to PPLNS. And I do know that, like, there are new pools starting, being created, like Demand, has, has, started, they offer PPLNS, and they, they don't offer FPBS. I'm actually not sure what Ocean does, but I, you know, I certainly-" }, { "speaker": "stephan", "time": "01:17:00", "start": 4620.88, "text": "I think the system is called Tides, and I think it's something similar to PPLNS." }, { "speaker": "spiral", "time": "01:17:05", "start": 4625.58, "text": "Yeah. I, I mean, certainly the, the ethos behind, you know, Luke Would want to strongly resist centralization pressure. So hopefully there's also a new influx of, of pools too, but ultimately it's gonna be decided by miners. Like, miners need to want this and it needs to make sense to them as a business, and if so, then they'll choose pools that accommodate that." }, { "speaker": "stephan", "time": "01:17:32", "start": 4652.9, "text": "Right. Yeah. So maybe, yeah, a combination of things. Miners may choose to point their hash rate to PPLNS, SV2 pools, and as you said, investors in the big public mining companies, may start applying pressure at that level, to, improve the situation there. One, one thing I don't think we pointed" }, { "speaker": "spiral", "time": "01:17:53", "start": 4673.94, "text": "out, I mean, i-is that, what was revealed recently by some folks analyzing blockchain data is that, that there's a single custodian that controls forty-seven percent of mined Bitcoin. And, so Antpool and I think F2Pool, use the same custodian, and they collectively have almost half the hash rate. So, in case you're not aware, or if the audience is not aware, when, when a, a block is mined, the, the Bitcoin reward isn't immediately spendable. It takes, I think it's a hundred blocks before it's spendable. So that, that Bitcoin is custodied and can't be accessed for at least a hundred blocks, and almost half the Bitcoin mined today sits in one custodian's, offerings. And I don't-- It's rumored to be, Kobo, which- Which is, the, the co-founder of F2Pool created Kobo a number of years ago. I know nothing about the company, so, you know, I don't know, like, like, you know, its risk profile, But it, it, it, regardless, having one custodian, is, you know, i-is, is a threat." }, { "speaker": "stephan", "time": "01:19:12", "start": 4752.55, "text": "Yeah. Also a concern, yeah. And, yeah, I have heard this Kerber rumor as well, But, yeah, I don't really know a lot more than that, so, yeah, let's, let's see, what happens there, but, yeah, I think, that's, Yeah, I think that's probably all, that's probably all we've got to say on that. so, yeah, I guess any, any, final thoughts on, on the episode? I mean, we've spoken about ossification, we've spoken about this mining centralization, concern. where do we leave it?" }, { "speaker": "spiral", "time": "01:19:46", "start": 4786.42, "text": "maybe one, one or two more points, and another dynamic happening right now because of inscriptions and ordinals and runes and things like that, is this, Development of transaction accelerators. And these have been around for over a decade, I think we maybe talked about in the last episode, but they, you know, like Marathon just introduced Slipstream, and I believe I saw, you know, and Mem, MemPool dot space has one, and I think I read where AntPool has one as well. So they're, they're, they're popping up. They, I mean, they're, they're serving, they're serving a need, again, the, they're ser-- you know, non-standard transactions that can't be broadcasted on the network go to these proprietary services, but they are-- they do introduce, new dynamics and new risks because if any of them become Too powerful where like a sizable percentage of the overall fees are funneling through one company's transaction accelerator, that's yet another, Another, centralization risk, and it's tied into what we just talked about, because like if Antpool is almost half the hash rate and they have their own proprietary transaction selector, if, if you're wanting your transactions mined, you're, you're You're gonna be able to go to the big one, yeah. To, to, to use there. So, so that, that is, also, also a risk. and, and one thing that miners and other pools need to be mindful of too is, There, there's, there's, there's a risk where if I'm a pool and I have, I can pay myself in Bitcoin. So I mine a block I insert transactions that are my own transactions where I'm paying, both the inputs and outputs are Bitcoin that I control, and I pay super fat fees. With those transactions. that can impact the FPPS payout for all other pools, for the reasons I talked about earlier. And so you, you know, if you want to negatively impact your competitors, you can do that, and you've sort of always been able to do that. I don't know exactly How much it's happened, if at all, in the past? I don't know what the dynamics are going into the future, but it's something as an FPPS pool you need to be mindful of. So again, it feeds into both this cen-centralization risk, 'cause if you're a small FPPS pool, you're gonna be more vulnerable to that. but even if it centralizes around one or two big ones, they also are threatened by that. There's also share withholding attacks, where miners Might be doing hashing, but then intentionally not share that with the pool, so it reduces the pool's chance of actually finding a block. But the miner still gets paid. So there's just a number of financial risks to FPPS that seem to ultimately lead to doom and bankruptcy for that model. The, I guess the biggest concern for Bitcoiners is like, how long does that take? And in that intervening time, if there's only like one or two companies that control all that hash rate, that seems-- that, you know, then all kinds of negative things can occur." }, { "speaker": "stephan", "time": "01:23:13", "start": 4993.82, "text": "Yeah. Well, I ha- it's, yeah, not, not, not nice to hear, but, perhaps a conversation that people need to hear. and, I think- It, it's gonna, you know, it's gonna take some work in the ecosystem for people to, put, to sort of refocus back on, decentralizing, mining, a little further. Yeah. So, yeah, I guess, let's, leave it there. so yeah, as we s- as we said, we're talking about the ossification stuff, you know, why maybe slow and steady is more, a-appropriate as a term to think about, the reasons why updates and security things still need to be done. and yeah, it's talking about, Stratum v2 and some of the different, mining pool payouts. so yeah, let's leave it there and, Steve, thanks for, thanks for joining me." }, { "speaker": "spiral", "time": "01:24:13", "start": 5053.45, "text": "Thanks for having me on. Have a good day." }, { "speaker": "stephan", "time": "01:24:15", "start": 5055.85, "text": "I hope you enjoyed the chart. Make sure to share this episode and press like and give us a thumbs up if you enjoyed this episode. Thanks, and I'll see you in the citadels." } ] }