Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Alex Morcos: Chaincode Labs and Why Bitcoin is Our One Shot at Creating Digital Gold

Episode Date: November 21, 2017

Chaincode Labs Founder Alex Morcos joined us to discuss his journey, the role of the company in Bitcoin’s development and the views that drive his work. Topics covered in this episode: Alex’s background in high frequency trading as a founder of Hudson River Trading How Alex first learned about Bitcoin The vision of Chaincode Labs Why Bitcoin represents our only chance of creating digital gold Why Bitcoin’s resistance to change is one of its core features Why the NYA & SegWit2x approach was misguided How getting consensus around a hard fork blocksize increase could work Why Alex is not excited about the efforts to use blockchains in banks Episode links: Chain Code Labs, Inc Twitter Alex Morcos Why Bitcoin doesn’t need a solution – Alex Morcos – Medium No2x: Centralized Services – Alex Morcos – Medium No2x: Full Nodes – Alex Morcos – Medium This episode is hosted by Brian Fabian Crain and Meher Roy. Show notes and listening options: epicenter.tv/210

This is Epicenter, Episode 210 with guest Alex Morcos. Welcome to Episandat show which talks about the startups, technologies and projects driving decentralization and the global blockchain revolution. My name is Brian and I'm Meher Roy. Today we have on our show Alex Morcos, who is the co-founder at ChainCode Labs. ChainCode Labs is a New York City-based research and development group that builds some of the infrastructure for Bitcoin and other cryptocurrency systems in general. Alex, welcome to the show. Thank you. It's good to be here. So before we begin talking about Bitcoin, tell us about how you got interested in Bitcoin in the first place.

Well, my background is high-frequency trading. I spent about a dozen years doing that. I co-founded a company called Hudson River Trading. And then in about 2011 or 12, I sort of reached the point where I was kind of ready to do something else. My job had kind of become management and I was interested in doing technical work and, you know, learning new stuff again. And one of my good friends, Ben Davenport, has sort of been active in the Bitcoin space for a long time. And he had introduced me to Bitcoin before that, but, you know, I kind of read the white

paper, thought I was interesting and then promptly forgotten about it. Well, I, uh, so I took, It took a year off from Hudson River Trading, and then I was out in California in the spring of 2013, and it was about a couple of weeks after the fork. And I visited Ben, and we were just sort of talking about what had happened with this fork and what it meant. And that was, like, kind of the first time for me that I really thought about all the things that come together in Bitcoin, all the different fields, the economic incentives and the governance structures and the, from the technology side, there's like the crypto and the P-to-P programming and the security and all of these things just, and we talked long into the night and it was fascinating to me.

And I think it's kind of like a common story that there's a time when you were kind of bitten by the bug. And that was it. For me, I knew I wanted to do to do Bitcoin after that. And maybe just briefly, so Hudson River Trading is, I think, a quite well-known company in that it was a company that was one of the pioneers of algorithmic trading. Can you tell us a little bit about that? Like, what was that, how did that come about, and what role has it played in financial markets?

Sure. Yeah, when I started in that space in 1989 at Tower Research Capital before Hudson-Reyer. of trading. And yeah, there was basically nobody doing automated trading. You know, there had been recently some market structure changes, which had allowed anybody direct access to the market, which was a big shift. I, you know, I think this is actually a very interesting example of regulators getting something right where they, by opening up competition to the market, they paved the way for it to become far, far more efficient. And so at that time, it was sort of coincidental that we were reaching the point where it would make sense for computers to automatically trade these things at the same time that the direct market access opened up.

So when we started, you know, we would go to a brokerage that was used to like servicing day traders, which was also big at the time. And we'd try to explain to them, no, no, we don't care what your GUI looks like. We don't care about any of that. we just want access to your API, to your backend. And that was like, you know, a foreign language to them. And, you know, finally we kind of would make inroads to the point where we would be able to set up these systems. And, you know, it was just very primitive at the time. And then 2002, I, along with four other guys, left and started Hudson River trading.

And again, even at that point, this space was still very small, and we were the tech guys in a financial field. There's sort of some similarities to Bitcoin there where, you know, we would, we didn't have the finance background or the Wall Street background. A lot of times we'd be in meetings and not even sort of understand the common language that people were speaking because we viewed all these things as computer science and math problems and didn't really have the. perspective of Wall Street. But it was fascinating. And we built HRT up. It was probably a little over 100 people by the time I left at the beginning of 2012. And when we started, it was kind of just one market.

We started with NASDAQ that was the easiest one to trade electronically on. But now HRT trades all kinds of products all over the world. So it's correct to say that HRT is like a hedge fund, right? Not really because it's a proprietary trading firm in that it doesn't take outside capital. It just trades the firm's own money. And with high frequency style trading,

you don't need a lot of capital to do it because you're sort of in and out of positions relatively quickly, so you can reuse the same capital. So one of the questions I'm getting from like what you're saying is, like, HRT was very young in like 19, say, let's say, 2000 or 2002. But like quantitative trading as a field has existed for a much longer time, I presume.

Right. Like, so we have firms like Renaissance Technologies that are like 30 years old. What is the difference between two and what did HRTA exactly pioneer? Well, I mean, there were a few firms. at the same time that HRT got started and Tower was starting to do it, that we're doing this automated trading. But I think that's the big difference. It's not just that you're using mathematical models to analyze the trading or computers to tell you what trades to do. The trades are happening in an automated fashion from the computers.

There's no human trader in the flow. I think that's probably the big difference. I mean, just so if people aren't sort of familiar with what high-frequency trading does, you know, there's this history of there being middlemen in the market, either specialists or market makers that are there to kind of provide liquidity, basically to solve the time problem of if a buyer comes in the morning and the seller comes in the afternoon, like, how are they going to meet up and so forth? So you have these middlemen.

But it was a privileged position before these market structure changes happened. and there were only a few people allowed to do it, and so they could, you know, create quite a spread between the bid and the ask and make quite a bit of money. But once that got opened up where anybody could compete and be in that same position, then the market became much more efficient. That's when you saw, you know,

used to be maybe as much as 25 cents between the bid and the ask, and now it's a penny on many stocks. and the cost of trading, you know, it used to be commissions $50 or $100 to do a very small trade on a brokerage, and now you have these $8, no matter how much you trade, kind of trades on online brokerage. And all of that came about, in my opinion, because you had this increased competition,

which made the market's more efficient. So are there any things that you learned from that experience, of this changing market or the algorithmic trading, that, you know, are kind of like key lessons that you took away from there that you also find relevant now as you're looking at Bitcoin? Well, funnily, the sort of thing that stood out to me is the biggest similarity was the perception problem. People didn't understand what high frequency trading was.

There were all these fears of computers running amok and causing problems in the markets, or that they kind of didn't understand why these firms that were doing automated trading were making a lot of money and not understanding that the money is not coming from them. It's coming from instead the other firms that used to make much more money being the specialists and the market makers. And so there was like a wave of popular sentiment against what we were doing. And there was concern about regulators cracking down on it. And so we felt that it was necessary to kind of educate people. about what we did in particular in terms of legislators and regulators, just making them aware

of what we're doing. And I feel like that was an effort that went pretty well. But when I first started getting involved in Bitcoin, there was all this news about, you know, people are using it for dark drug markets or terrorists are going to use it and so forth and so on. And there was a risk that that sort of negative PR would outweigh the potential benefits. People wouldn't see the potential benefits of Bitcoin. And the Bitcoin Foundation, one of the good things they did is they had already sort of started this message of, no, you've got to think of Bitcoin as like the next internet. Sure, people can use the internet for nefarious purposes, but no one would argue we shouldn't have the internet because some people use it inappropriately sometimes. And we

should give time for Bitcoin to develop and see all the positive benefits it can bring. And I kind of felt like that was an important effort to help. And so I started doing that among the first things I did in the space, going down and talking to people in Washington. And that ended up resulting in a coin center. I worked with Balaji Eastern Vassan from A16Z, and we got Jerry Brito on board to run Coin Center. And I think they're doing a fantastic job carrying on that effort. And so ChainCode Lab, did that come out of this conversation you have in Davenport then?

They're saying, okay, I want to work on Bitcoin. And the best thing I can do is to start this company focused fully on Bitcoin development. Or what was the origin story of ChainCode Labs? Yeah, so that was March of 2013 that I kind of made the decision I wanted to do something in Bitcoin. It took about another year before we settled, by we, I mean, Suez Daftor, who is also one of my co-partners at Hudson River Trading, who had also left, also decided he was interested in Bitcoin. And the two of us started chain code. It took us about a year to get to that point. And we researched a lot of other ideas in the meantime. I think probably the one we focused on first was the idea of building an exchange.

We saw the exchanges that were kind of the second round of exchanges that had started in 2013, which were very Silicon Valley tech company based as opposed to kind of like the prior, you know, Mount Gox libertarian run by the seat of your pants style exchanges. And we felt that that still was kind of missing something, that there was like a exchange technology is really quite, quite, simple and a solved problem. And so they shouldn't be in some sense tech companies, but more financial services companies because the real problem was the regulatory issues.

You know, how do you properly get licensed and so forth and so on? And I think we still see some growing pains there. And you've seen some of the tech companies that have kind of successfully solved that. Like Coinbase sort of started by maybe saying, well, we're going to do this anyway and worry about the regulation later. and now they've gotten to the point where they've, I believe, solved the regulatory problems. But we thought, you know, we had sort of some expertise for this kind of thing, and maybe that was something we could do.

I'm so glad we did not do that. I mean, even though the exchange businesses have been very profitable, I think that would have been the mistake of going back to running a business and dealing with bureaucracy and red tape and regulation, which is kind of why I decided to move on from high frequency trading. I wanted to do tech work again. And so then that's, you know, we just kept coming back to that. Well, we want to kind of like sit in front of a computer and code ourselves and be

surrounded by other people working on interesting problems. And so that's how we sort of came up with the idea of chain code. Well, let's build something that could be like the Bell Labs of Bitcoin. So yeah, like what is the vision for chain code labs? What would you want to have achieved out of all of it? So originally, you know, we were sort of trying to straddle the line between doing this academic, nonprofit type research and development, and also believing that a lot of the sort of innovation in the space could happen from for-profit companies.

And maybe we should be supporting startups. And, you know, I did a lot of angel investing early on. and we kind of try to do both. And that was a little bit difficult for people to understand. They didn't quite get what the purpose of chain code was. So we still have kept a little bit of this idea of maybe people at chain code will spin off a for-profit company. If they have something they're really interested in doing. But that's not the chain code business model.

The chain code business model is to have no business model. We're just, you know, in effect, a nonprofit where we're going to do research. We started by saying, okay, well, what's the best way to do this? Well, we'll start by working on Bitcoin Core. We'll learn the code base and then we'll, you know, go from there. And we just liked doing that so much. That's what we've spent most of our time doing. We have four employees now.

And, you know, we do a little bit of other stuff. We'd like to do more. We'd like to work on things like lightning. We'd like to work on some of the sort of cutting edge. research in the space, but for the most part, to date, we've spent our time contributing to the Bitcoin Core open source project. And do you guys also do this hacker residency program. Can you share a bit about that?

Yeah, I mean, that kind of comes back to the idea that we want people to work at chain code to work on what they're interested in. Actually, it was before we even quite hired him, but Matt Corallo, you know, We were trying to, like, see what we could do with him and what was he interested in working on. And he had this idea that he really wanted to kind of, like, help introduce new developers to Bitcoin and teach them kind of how to think about the space and teach them the Bitcoin Core codebase if they wanted to, you know, become contributors. And so he ran the first hacker residency in, I think, September of last year. and one of the guys that attended that was John Newberry,

who we then hired to work at ChainCode afterwards. So that was one very successful outcome of the residency. And then he has sort of carried on the torch, and he wants to sort of, it was his idea to sort of do this new residency this year, or I guess it'll be next year. And this one will sort of be even bigger. It'll have two parts. There's like a two-week section that's sort of focused on the design philosophies and security implications and so forth,

and then a more practical two weeks of learning the code base and that kind of stuff. And we're hopefully get a few more than four people this time. Well, we've had a lot of good applications already, so I'm sure we will. So it's been what? It's been three years since change code was founded. And so what has chain code worked on in these three years? And according to what are the achievements of the company? Well, you know, a lot of what we do is just sort of work on whatever projects need to be done in Bitcoin core.

And the biggest thing that always needs to be done is kind of review and testing of, of other people's work. So that's where we spend most of our time. Some of the big projects people at ChainCode have done. Suas contributed one of the big sections of test framework, and John has taken over really improving that. I wrote all the fee estimation code. We did the pruning implementation that was based off someone else's work that they had started.

I mean, there's just a few things like that, had tended to be projects that we've spearheaded. And now, of course, that we have Matt on board. Matt's a workhorse. He does tons of stuff. I mean, we've worked on lots of things over the years, just kind of wherever there is something interesting to work on in the project. Yeah, I mean, I remember actually I was in San Francisco, I think,

last, so towards the end of last year, about a year ago. and I had met up with Alex Fowler. And he was telling me, oh, actually, now most of the Bitcoin development, it's not Blockstreams, chain code lab, those guys. I think I'd heard of you guys, like, vaguely, but I wasn't really fully aware of, yeah, kind of the role you guys had taken on.

Yeah, I mean, I think that's an interesting point. That's true now. I think we have, you know, now that we're six people, like, were like a really big portion of the commits. And that's unfortunate because I'd like to have more, I mean, we would be happy to sort of fund even more people to work on Bitcoin Core than we have. But I don't think that's probably good to have any more concentration at one place.

So I kind of, I think that's something that still needs to be improved, is to like what the model is for funding development and there are advantages to having a few people in one place as opposed to just everybody being remote, but it shouldn't just be one place, it should be several places that are kind of like centers of, in addition to kind of individual developers from various companies. So I think we've made a lot of progress.

I mean, we've seen more and more some of the industry companies funding a developer to work on Bitcoin Core. We had a meetup this past September in San Francisco, and there were two dozen really active regular contributors to Bitcoin Core, which is compared to a couple of years ago three times as many or something, which I think is great. But we're still finding our way as to what the right way to keep that sustained in the future is.

So talking about Bitcoin, you know, if you look at a higher level, more high level perspective. So when you got excited about Bitcoin interest in Bitcoin, what did you see as some of the, you know, core characteristics that you felt, okay, this is really essential about Bitcoin. This is amazing. It shouldn't be changed. And maybe what are some of the other things that you feel, okay, those are things where Bitcoin can change, evolve, but it will still be that kind of Bitcoin that I'm excited about. You know, struck me about Bitcoin was this idea. that it's your money and that nobody else controls it. And that applies in sort of two ways, that no one can stop you from spending it or paying to anybody you want or so forth.

There's like freedom of financial transaction. People commonly call that censorship resistance. And then there's the control of the money itself, like the supply and the inflation rate and that kind of thing. And I think from the standpoint of having a major store value in the world that isn't a government-controlled currency where these central banks can, like, you know,

if they want to fund some major thing, they can cause massive inflation, which is kind of just a hidden tax. I thought that was very appealing to me. In the same way that sort of gold has that property, but Bitcoin has it in a much more efficient way. You don't have to worry about chipping off a chunk of gold to move it around. So those sort of two properties give what I call financial sovereignty to individuals. And I think that's a necessary shift in the balance of power from where we've come in the recent decades,

where there's too much power for the state and sort of like big banks and so forth to control financial transactions. So that's what interests me most about Bitcoin. So then the properties that are important for that, I think, are, you know, everybody says you can't just say decentralization because what does that even mean? But I think what it means is that there's no pressure points that, you know, the fewer pressure points or the lack of a few pressure points where you could exert control is important. So that can apply in a lot of different ways.

If mining is too centralized or if developers have too much control or if it's, you know, people, it's too cumbersome to run a full node and people don't do it themselves and there's only like, you know, people tend to use like third-party services to use their Bitcoins. All those things would sort of erode these fundamentally important properties. So as for what, you know, particular technical properties of Bitcoin achieve that, you know, one of the most important ones is the inability of anybody to control the governance of it. So that's not really a technical property, but like the point is it doesn't kind of matter.

what the technical property is, as long as nobody's able to change it without consent of Bitcoin users and holders and community. Yeah, I think that's a very interesting point. Yeah, so maybe let's speak about that now. Because I think that is a topic that has been, you know, so burning, right, in the last time. And I think there are two perspectives. Say one is the one users mentioned, right? it's a great thing that Bitcoin is so hard to change because it gives people this kind of certainty.

Okay, Bitcoin tomorrow is still the kind of Bitcoin that, you know, I think it is today, right? And of course, that's very valuable if you think about a digital gold thing, right? Because gold endures, gold lasts, right? Gold today is the same kind of thing. Basically, that gold was 10,000 years ago. And of course, if Bitcoin is digital gold, well, it being like very hard to change is a good thing. And then I think the other perspective as well, but, you know, Bitcoin needs to evolve. Technology changes very fast.

It's not like gold, right? And it has to evolve and adapt and grow and scale. And if it doesn't change, well, it will be left behind, right? It will become increasingly hard to use. And we see that as well, right? We see the enormously high transaction fees that have basically made many use cases that used to be impossible, impossible. And when I got into Bitcoin in 2013, around the same time you did, the way Bitcoin was sort of sold to people. It was sold in a way that isn't actually possible to use anymore today, right?

You would say, okay, it's actually possible to, you know, send money anywhere in the world kind of like instantly and for free or, you know, almost free. And of course, that was a little bit false advertisement even then. But it was kind of true. And now it's not anymore, right? Or the aspect of using Bitcoin as a better payment system, which again, I mean, was it? It had its benefits as a payment system back then, even though there weren't many places you could use it. It was still kind of use experience. It was pretty good, actually.

And now it's, again, something that for payments doesn't, or there's very few cases where it makes sense for payment. at least at this point, maybe we'll change again. So how do you think about this kind of conflict between Bitcoin wanting to stay the same or needing to stay the same, but at the same time, Bitcoin needing to evolve and keep up? Yeah, I mean, I think you described it in a way that I often think about it, that one way to look at the sort of recent division is that one camp is looking at Bitcoin as technology and one point is looking at it as money. and depending on which view you take,

you have certain priorities on where we should focus improving things and what we should focus on protecting. So, I mean, I think it's clear that Bitcoin is both technology and money or store value. So it's more about which do you prioritize first and in my view, if you lose the properties that can make it a good store of value, you can't ever regain those.

Now, yeah, there is a danger that maybe there's some magical window for people thinking Bitcoin is good to use for all kinds of payment technology and whatever, and if we don't build that stuff fast enough, then the opportunity to be gone forever. but I don't really believe that. I feel like it's kind of unfortunate that we don't have more time to build this technology where you can have cheap, easy, instant payments.

But one thing you said is right. I mean, that was kind of false advertising even at the time. Even a fees or low and every transaction makes it in the first block, people were thinking about payments as, oh, I received the unconfirmed. transaction, that's my payment. That was never a good way to look at a Bitcoin payment.

Regardless of anybody changing or not changing the system, it would be nice if we did have technology that work like that. And I think we need to spend a lot of effort trying to build that. I don't know. Is that answer your question? Or did I? Yeah, no, I think it does. But maybe we've governance. So do you think we think we've got. So do you think what would have, if we talk now about a block size increase, do you think the implications of that are like there could never be a block size increase? Because that is something that's like too big of a change and that would threaten that store value property.

Or do you think, or what would have to be the process where you say like, okay, now it is okay to do to make that change because there's kind of sufficient sufficient, sufficient or like the sole value property would not be threatened. Like what would have to be true for that? So, I mean, my personal view is to be better if we do have block size increases. There's a pretty good argument to be made that they're necessary sooner rather than later, at least to some degree, because we don't have these other technologies yet. On the other hand, I think if you had big enough blocks that they could,

kind of weren't full now, then you would never develop all these other technologies, and that would be a big mistake. So it's possible that we're kind of in a sweet spot now where you do have this incentive to work on other technologies because blocks are kind of getting crowded, but they're not so crowded that fees go through the roof. I mean, I know we've seen some really high fees recently, but we've also lost half or more of the hash power to another chain. I think when we've got all the hash power fees are kind of under control-ish. And to some extent we have this nice graduated scaling going on right now with Segwit adoption, whereas as more transaction supply happens, there will be more incentive for people to adopt Segwit and, you know, fees will kind of

find the right balance. But that's going to run out at some point. You know, I think we need to be sort of pursuing both avenues. We need to be sort of pursuing both avenues. We need to be thinking about how could we get to the point where we have an additional capacity increase, maybe via hard fork, and also how can we build these other layer solutions on top, and how can we incentivize people to work on those? But to me, like, no matter how important I thought a block size increase would be, the cost of sort of forcing it through against significant opposition would weigh outweigh any benefit. So I might like to have one.

I might like to have one soon, but only if we can get consensus around it. And I just don't know. I mean, I don't know any more than you do, whether that's going to be possible or not. Right. I mean, I always kind of felt that there was this weird position many people had, which was like, okay, yeah, block size increase would be good. but I'm against it because some other people are against it. And then you have this weird sort of equilibrium.

So I find it hard to see how that blocks as increase could then happen, you know, because there's no real process to get to like consensus or agreement, right? You can't even measure it properly. So as long as people are loud enough and protest enough. Well, but, you know, I don't think we should fall into the mistake of saying that, come on, we've been trying to do this for two or three years. hasn't worked, how are we going to get consent now? That's not true. When we started trying to have these hard fork proposals, they were for 20 megabytes, 20 times increases, not doubling.

And, you know, finally, only this year do we have a proposal that was just for doubling, but it was still on a very aggressive time frame within six months. And it still was, we're doing this whether you like it or not, we're not going to try and build consent for it. So we haven't really seen anybody try to do this in what I would call the right way, where you have a conservative proposal with a long time to roll it out and, you know, adopt people to adopt the new technology, and that's conditioned on building consent. I think people are much more likely to consent to something if they're asked and are told, you know what, if we don't get consent for this, we're not going to keep pushing it.

I mean, you can't say, well, if you guys don't consent for this, then we'll have no choice to push a different one through because you can kind of stop doing that. And that's what we've been doing for two years now. And I think one of the things a few of us have been saying is that is making it harder. Because instead, you're conditioning people to get their defenses up, to say, no, we have to preserve this inviolate nature of Bitcoin where you can't change it against our will. So, I mean, I actually think that now is not the time to talk about block size increases. We just, I mean, the fork is still scheduled for like two days from now or three days from now, right? I mean, we haven't even gotten to when it was supposed to happen yet. So we need to let, like, emotions cool down a little bit.

We need to let people sort of hopefully come to the conclusion that no one is going to try XT number five or whatever, you know, the next. push through a hard fork is. And I think if that happens, then maybe, maybe the community become more willing to talk about a voluntary

block size increase. But I don't know. This is just my opinion. What do I know? How would you do a voluntary block size increase? Would you make it say it only activates if there's like 80% support for minors?

Or how would you make sure I think it's more of a social problem than a technical activation parameter problem. I think you have to put a proposal out there and you have to leave it out there and you have to wait and see if it gets support. And I think people have to individually come to the conclusion of, okay, well, this might not be exactly what I want, but it's good enough for me or I'm willing to consent to it or I guess I'm willing to go along with it. everybody else does. But that kind of process doesn't happen if people feel like, you know, there's a clock ticking or that they're not given a choice because it's going to happen anyway and we just kind of hope you come along with it. I mean, I don't know. Nobody knows how this

should work, right? Like Bitcoin governance is an entirely new kind of thing. But I think there's a few of us that have been saying that this is the way that we should try to do things like this for a long time. And that way has worked for non-contentious changes, right? Maybe it's a bit different for something that's got a bit of history to it now. It's got some baggage. But it's certainly worth trying. We shouldn't all give up and be like, we're never going to get a hard fork because it hasn't worked before. No one's even tried to do it right. Okay. Yeah, I mean, I think one of the problems with this is probably that there's so much toxicity and hostility has been created that I don't think people believe that this is possible.

And maybe you're right, maybe it just takes somebody who has a lot of political ability, right? is kind of a good diplomat and has, you know, sort of neutral and untarnished and balanced position. I think you're going back down the road of like there should be a leader that people follow into thinking this is a good idea or something. I don't think that's right. I think, you know, we just need a kind of little time of peace and time of like not fighting over this. and maybe we have somewhere over in the corner a proposal written down on the piece of paper. Maybe a few people keep coming down, coming back to it and looking at it again, and maybe this wouldn't be so bad.

And, well, this doesn't happen for a couple more years anyway. Like, maybe I could get on board with it by then. And maybe six months later or a year later, there's a different thing. But not if somebody's constantly like, oh, come on, guys, we got to do it. This is our last chance if we don't do it this time. No, that's just not the right way to get people to do something. I mean, that's just my opinion. So in my view, what Bitcoin has shown and as well as this problem has shown,

and I think a similar problem we have seen in Ethereum with the Dow Hard Fork is the problem of not having governance in the protocol itself, right? Because I think if people actually could vote, like, let's. say with their bitcoins and say, okay, I am in favor of this. I don't think it would be so controversial. I don't think we would have had these like years of controversy. Now, of course, it's very hard to do this in Bitcoin now because that in itself would be a gigantic change. It would be controversial and the parameters in there. But I do think it shows very clearly the massive advantage protocols will have that, you know, are building this and will have this in the

future. Do you see that the same way? Yeah, I mean, I feel like that's an interesting idea because it kind of helps solve the problem of how do you actually measure this support, which right now is difficult to do. I mean, you know, look a month ago. You had one set of people arguing they have overwhelming support and the other set of people arguing they have overwhelming support. Like, how can there be so clear, so such a lack of clear evidence that you could have. people arguing overwhelming support on opposite sides. And if you had more sort of hard evidence measurements like that, that could be beneficial, but it just doesn't seem really practical to me.

You know, who's going to drag their keys out of cold storage to vote on some proposal they don't really care about or something? I don't know. So maybe you would only get the 5% that really opposed it vote and the 5% that really wanted it vote and it would look like 50-50. What would that mean to you? I don't know. You don't know what the other 90% think. But I don't know that we have to answer that question right now.

I think that we've had a referendum with 2X. we had basically the market in a bunch of different ways. You know, we had these public meetups. We had sort of online, you know, Reddit and Twitter and all kinds of social media sentiment. We had the futures market. We had like the evidence from people running full nodes. You had this referendum that came down pretty clearly on the No2X side, so clearly that they called off the fork, which I think was the right decision. might have been even a little bit more clear

if you'd had the fork and it had decided in the market, but I think maybe it wasn't worth the damage it would have caused to everybody. So what is that referendum for? I think it's for two things. One is that we should be conservative about block size increases, that like airing on the side of small blocks

is a good idea for preserving these sort of decentralization properties and working on scaling off chain. That's not saying no block size increases, just saying be conservative about it. And the second thing is that you need consent for changes. So that's an important precedent in both aspects. But neither one of those preclude a block-sized hard fork. You just need consent for it and needs to be conservative.

I think that's entirely possible. That could still happen. But, you know, I think if there's people screaming for the rooftops, we have to do it right now. That's not learning the lesson. So today, I think what we are seeing is that many Bitcoin companies that have built businesses, right, on the premise of Bitcoin being able to support many users on-chain or, you know, maybe off-chain too, right?

But the off-chain, as you pointed out, isn't here yet. And so I think they are struggling tremendously, right? and also feel like they have no voice in this process or that core developers basically don't care about them. Do you think that's a correct assessment? Did you see this problem? And what do you think some of the effects of that could be? Okay, yeah.

So I guess I got quite a few issues of that. First of all, I don't think it's whether core developers care about their problem or not that matters. I mean, first of all, I think core developers do care what these businesses think. But that's not really relevant. What's relevant is whether the community at large feels like the needs of these businesses should be like the driving force behind change. And, oh, well, these businesses feel like they'd do better if we had this change, we should consent to it. It's not core developers that didn't let this 2X4 happen.

It's the wider community. And I think what core developers have been good at is reading that sentiment from the community, reading that this cypherpunk libertarian sort of backbone of Bitcoin is where a lot of the real support comes from, and that's kind of the culture that people want to keep building. So I'd also question whether or not it's true that these businesses are doing poorly. I mean, yeah, they've got problems because the underlying problem. protocol that they're building it on isn't just plug-in play and every transaction you want to dump on there is is cheap and easy but for the most part a lot of these businesses are doing

pretty well now i mean we've all seen the numbers of how many new sign-ups coinbase gets you know we've we've seen the valuations that some of these exchanges are getting um so so maybe they're like a little panicked because they've got tech problems to deal with but we're building this on a brand new, not only a brand new technology, but a brand new field of research that didn't even exist 10 years ago. So, okay, it's okay to have tech problems. It's okay to feel like you don't know exactly how your business is going to work three or four years from now because you haven't built the tech to do it. And maybe it'll be different things for different businesses. But I don't kind of feel like the sky is falling in right now. I think there's, the other thing,

you didn't mention this, but the other thing that people say is, oh, well, Bitcoin's going to lose to Bitcoin cash or Bitcoin's going to lose to Ethereum. I mean, so first of all, I think if what you're trying to build is financial sovereignty, then why do you care if it's Bitcoin that does it or something else? So I think it's kind of a mistake to say, oh, well, these other things are going to do it better, and so they're going to win. Now, I don't think that's very likely to happen. I think that there's reasons that we haven't done the kinds of things that Ethereum and Bitcoin Cash have because we don't think that's the right path to building financial sovereignty. But it's not a competition. I mean, we're all trying to build the same thing.

Who cares whether it's, you know, it doesn't bother me that other people like Ethereum. The only negative is if it kind of doesn't work, And then people sort of say, oh, this whole space is a scam because, look, we put $30 billion into Ethereum and then there's a bug that made it all disappear like cryptocurrencies are garbage. Well, okay, that's bad and that's a risk. And I kind of wish there would be a little less hype and mania for all of them. But, you know, sometimes I think businesses sort of think of it as a threat. Well, we're going to switch to Bitcoin Cash or we're going to switch to Ethereum because we can't build our business on business. Bitcoin anymore. I don't view that as a threat. I feel like it would be really sad and a mistake

if they're not working on building layer two solutions because I think you're going to need those, period, no matter what, at some point, and we might as well start building them, but I don't think there's competition between coins. So Alex, one interesting question we was thinking about is, we use this term network effects when it comes to Bitcoin. And we love to say that Bitcoin has the most network effects. It's a game of network effects. Question is like, what do you think concretely is Bitcoin's network effect? Do you have a way of understanding how strong these are or how weak these might be?

I think that's a good question. I don't know that I have a lot of answers to it. I mean, I think that fundamentally as a money, you know, anything like Bitcoin gets its value by shared belief. So what exactly is that shared belief in and what's the culture around that shared belief? like, you know, and that that gets to the point of how do you make changes and what should be the focus for how we evolve it and those kind of things. But I've actually been surprised that there hasn't been more interest from, you know, anthropologists and so forth in sort of studying this aspect of what Bitcoin and other

cryptocurrencies have produced because this is kind of like a pretty unique thing where There's like this new type of money that is being created and what exactly is giving it value. And maybe it's still too small to really have attracted the attention of people. But I think that's really interesting question. One thing that I think is unique to Bitcoin amongst all these cryptocurrencies is that, is there's this issue of digital scarcity. And gold is scarce because there's only so much gold. But a copy of Bitcoin is no different than Bitcoin itself,

Bitcoin Cash or Lightcoin or et cetera, et cetera, et cetera. So I kind of think that without a extremely compelling reason, it's kind of impossible for any of those things to long-term become the store of value. because if they did, then why wouldn't they just as easily be replaced by the next thing? Which kind of means there is no digital scarcity. You know, there's possibly an exception there if there's something that has fundamentally different characteristics. Like, let's say, for instance, we never get to the point where we can add proper privacy and fungibility technology to Bitcoin.

Then you can imagine that Bitcoin ends up not really working as money and you need something like Zcash or Manero or something that does have those technologies in there. I mean, that seems like a possibility to me, but it seems more likely that you'll sort of shoehorn those concepts into Bitcoin at some point in a way that makes it as much as it needs it. So as we saw with like with the block size debate, there is ultimately it's a, it's, it's, it's a conflict of vision at some level. Like what should, what should this technology do in the end?

So apart from the block side, like forgetting, forgetting the block sizes as an important issue for the time being. There's a separate sort of issue in my mind, which is now we have these lists. of 800 alternatives to Bitcoin. And some of them are going to pioneer new things. Some of them are pioneering new things, like smart contracts, link signatures, based privacy in Monero, ZKisnak, base privacy in Zcash.

And some of these features might be such that in principle, Bitcoin might want to incorporate them. So how do you decide? yourself and then how does the community decide at large which one of these feet which of what subset of these other features might be worth incorporating into bitcoin i mean that's a really good question i i think that to this point bitcoin has taken the approach that we should again be conservative on changes we shouldn't put in sort of technology that that you know zk starks is pretty cutting edge technology. I don't think that's anywhere near the point where anybody would ever consider

we should put that in Bitcoin. I think it's kind of more of a path-dependent thing where you sort of take baby steps and what's the next baby step that makes sense from where you are. And we see like a lot of proposals for maybe potential future Bitcoin improvements. You know, There's been a lot of talk of snorch signatures as a potential next step, which I think there's like a slight variation called BLS signatures, which seems to be more appropriate for the Bitcoin use case that people have been talking about for a while. And then with that, you can do things like signature aggregation and public key aggregation. And so some of those things may improve privacy.

Some of them improve capacity. One of the great advantages that Segwit gave us was a like a sort of better way to roll in improvements like this. I think this idea that most improvement should be opt-in in Bitcoin is pretty powerful. So you don't want to use Segwit. You don't have to. You don't want to use these new signature types. You probably won't have to. But I think the idea just kind of has to be out there.

It has to circulate for a while. And then you kind of have to get the sense that the community wants to do it. And that's just a time-consuming process. You know, one of the things that bothers me a little bit about what happened with the New York Agreement is people kept saying, well, look, I mean, nothing was happening with Segway. It wasn't activating. like we were just stuck. Segwood had been, you know, available for activation for, I don't know, maybe nine months. And just nine months, it's not an eternity.

It's like if it had taken a couple of years to build up support for that, to build up consensus to do it, and I think we were pretty close, then I think that's okay. I think that that should be our model for making changes. And I think a lot of core developers were kind of like okay with that. They'd sort of resign themselves. Well, that kind of sucks that we spent all this work doing Segway. And now we're not really sure if or when it'll get activated. But it's not going to stop us from moving forward with other things.

I mean, it kind of is delaying these types of improvements you want to build on Segwit. But that's okay. So I think that should be the approach for all of this stuff. You know, like the whole marathon, not a sprint. idea? Yeah, no, that makes sense. Now, speaking about layer two, right? So you mentioned this how, you know, this is the key thing, right? It absolutely needed at this point for Bitcoin to be useful for many things, even the store values, right? At some point, at some transaction fee level, that gets damaged as well. Maybe we're not quite there yet, but not so far away.

Now, first of all, what do you think of lightning? What timeline do you expect? And do you think, like, what kind of use cases will really be good for? Because one of the issues I see with lightning, for example, is, well, if it costs you $20 or $30 or $50 to open a channel, $50 to close it, many of these use cases that people used to speak about for lightning, they actually, they don't make, they aren't really feasible anymore either. So what do you see?

as the role lightning can play, the timeline, and maybe what other layer two technologies do you think are really needed and promising? Well, yeah, let me just sort of like talk about that second part. First, I think that sometimes people make the mistake of just saying, okay, well, lightning is the layer two solution. And I definitely wouldn't look at it that way to the extent that Bitcoin is an experiment and we're still learning how it works. Lightning is like an alpha experiment. out, like we have no idea how this might work or if it has any chance of working. And I think it'll be great that we're getting close to being able to start finding that out.

So it is important. I think that we not view that as the one all one end all be all solution for layer two. And we should work on other models. And I think there's a lot of different other models that, you know, there might be one model that works for exchanges to settle amongst themselves. And another model that works for payment. processors and etc. So, you know, I don't know that there's going to be a one-size-fits-all solution.

That said, I think lightning is really promising, and I'm sort of really interested to see how it plays out. You know, I think it'll take some time. It'll take some time to see how people adopt it. It's going to take some time to see if it has as light of touch on the regulatory side as everybody's kind of hoping it will. you mentioned the cost to open and close channels. I mean, it's not clear to me yet whether that... I mean, I think certainly if it becomes really successful, then yeah, that'll eventually become a problem

unless we have more on-chain capacity. But maybe that's okay if you open one $10 channel and then that's all you never need open ever, ever. These are just questions that we're going to have to find out the answer to in practice. Okay, well, I think we were sort of getting to the end here, but in Bitcoin development, or maybe if you talk specifically about chain code labs, are there some things, projects that you guys are working on today that, like, you know,

really excite you and that you think could have a big impact on Bitcoin down the line? Well, I mean, you know, I kind of, now that we do have Segwit, I'm kind of in, interested to spend more time myself thinking about these sort of next generation ideas that aren't ready for implementation in Bitcoin and may or may not ever get implemented. I haven't done that yet. I've sort of been very much focused on sort of the nuts and bolts of working on the implementation, you know, 99% of the work of which is not having anything to do with consensus changes, but just, you know, efficiency improvements or so forth. I think there's a lot of a lot more to be done there.

You know, some of the places that I've been spending my time is kind of like working on the wallet. You know, I think that's a never-ending goal of improving wallet functionality for users. So Alex,

the previous few years have brought sort of this movement to apply blockchain technology to different parts of finance like inside banks as part of exchanges as part of supply chains etc now as somebody who has a background in like the particular part of finance which is like trading what do you think of the space in general

yeah so i don't really understand it um i mean i think that there was initially this hype around blockchain as like this open source technology and people felt like they'd seen what had happened with Linux and they were worried that this was going to come and replace everything they do in a proprietary way with an open source thing and they wanted to not fall behind the curve on that I think that probably doesn't make sense like you know there's like a couple of joke slides or tweets or something on the internet where like you have like one of those flow diagrams. Do I need a blockchain? No. I think that's basically right. But that's not to be said that there's not a lot of opportunity. I think there is out-of-date infrastructure, both in financial

back office and many other areas. And there are technologies that are incorporated in Bitcoin and blockchain that could be very beneficial there. You know, one of the things I worked on for my master thesis was called SEDC Simple Distributed Security Infrastructure, I think, which is like basically a chain of certificates to give, you know, authorities and so forth. But that kind of, so that was 20 years ago and technology was already old then. A lot of that hasn't kind of really made. into the mainstream world?

Why do we have passwords instead of digitally signing to get into websites? And why have we not more widely implemented commitments and distributed databases and for these sort of shared ledger type situations? so maybe the blockchain hype is a vehicle for these other technologies that blockchain incorporates to get into these areas.

And I think that's fine and that'll be good and beneficial for everybody. I just seems weird to call it blockchain. I also think it's just, you know, one saw this technological potential there. And it's like all of the political, regulatory organizational risks was sort of like abstracted away. And of course, if one kind of takes this into account

they're still there, then the switching costs become so enormous for so many parties involved that even though you can kind of interior imagine, okay, blockchain makes this much better, then in practice it looks completely different. Yeah, I mean, the thing is, like, all these use cases don't have the need for the, the trustless nature of Bitcoin. That's the innovation of Bitcoin, is that, you know, anybody can contribute to this distributed database. It's like, you know, there's an open membership, there's no trusted,

parties, and almost every other use case, there's some party that already has trust. So there's way more efficient solutions than having a blockchain with proof of work. And of course, we see that most of these proprietary blockchain things don't have proof of work. It wouldn't make sense for them to. So it's kind of, all right, you know, if you want to organize your data into a blockchain, that's fine. I don't know why you had to wait for Bitcoin to come along to do that. What about Ethereum? Maybe what's your sort of very brief take on Ethereum?

You know, I kind of share the view that Ethereum is trying to do too much and it's being too ambitious and it's hard enough to just kind of build money, let alone a universal computing platform. That said, I'm really glad that they're doing Ethereum. I think it's great to learn about, like I said before, this is a new field. And I think we need to like try tons of different. ideas. And maybe we don't know now what'll work and what wouldn't work. And it would be a shame if we kind of felt like, oh, no, everything had to be funneled through this one project and this one coin. So, you know, I'm a big supporter of people working on many, many different projects, and it's great if they do that and maybe most of them will fail, and that's also great. I think we should be

careful thinking of these things as good investments, and that worries me a little bit. There's a lot of hype around that, especially the ICO craze, is kind of insane. But I guess that comes with any hype. So maybe one final question. So let's say this blockchain or Bitcoin thing in particular, you know, it really succeeds fully and in a massive way. What kind of world do you think will create 20 years from now? I mean, I really like the analogy to the internet where, you know,

the internet sort of, and I think we're still learning what world the internet is going to create and it comes with some not so nice parts and some good parts, but like you no longer have this central control over information where there's like three or four networks that will tell you what the news is. You can go to Twitter and find news faster than any of them could get it to you, and you can find a whole spectrum of viewpoints, not just the ones that are that are mainstream. So I think having financial, you know, the ability to do financial transactions also have that kind of freedom is going to be really beneficial to the world. You know, I kind of not a big believer in centralized power, but exactly what that looks like. I don't think we know yet.

It's more of a like first principles thing. Cool. Well, Alex, thanks so much for coming on. It was a pleasure talking with you. kind of hearing from from your perspective and somebody who's very deeply involved in bitcoin and bitcoin core so thanks so much for sharing sharing your view with us yeah happy to be here thank you yeah and thanks much of course to listen for once again tuning in we are going to be back one week from now for next episode and in the meantime if you want to support the show you can do so

by leaving us in iTunes view or do a tip in ether or bitcoin so thanks much and we look forward to being back Thank you.