Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Emin Gün Sirer, Garrick Hileman, Jeff Garzik, Jez San & Peter Todd: CoinSummit London – State of Bitcoin Keynote & “Will Bitcoin Last the Distance” Panel on Mining

Episode Date: July 24, 2014

CoinSummit London Conference Series – July 10 and 11, 2014 We start our coverage of CoinSummit with Garrick Hileman, CoinDesk contributor & Economic Historian at LSE, who delivers the opening ��State of Bitcoin” keynote, a data-driven assessment of how the Bitcoin Ecosystem is developing. The second part of the episode features a panel discussion called Will Bitcoin Last the Distance where Jeff Garzik, Bitcoin core developer, Prof. Emin Gün Sirer, Cornell University, Peter Todd, Bitcoin a core developer discuss the issue of mining centralization. This panel is moderated by Angel Investor Jez San. Episode links: CoinSummit CoinDesk State of Bitcoin 2014 “How to Disincentivize Large Bitcoin Mining Pools” by Emin Gün Sirer “It's Time For a Hard Bitcoin Fork” by Emin Gün Sirer “Jeff Garzik Announces Partnership to Launch Bitcoin Satellites into Space” on Coindesk This episode is hosted by Brian Fabian Crain and Sébastien Couture. Show notes and listening options: epicenter.tv/coinsummit-london-01

Welcome to Epicenter Bitcoin, the show which talks about the technologies, projects, and startups driving decentralization and the global cryptocurrency revolution. My name is Sebastian Couture. And I'm Brian Fabian Crane. On July 10th and 11th, we were in London for the Coin Summit Conference. This two-day event gathered approximately 250 investors, entrepreneurs, and developers to discuss some of the most important issues facing the Bitcoin and cryptocurrency ecosystem. We would like to thank Pami or Glenby and Golnar Hasnain for putting on such a great event. Thank you very much for inviting us as well. So we started a coverage of Coin Summit with Gerrick Heilman. He's a Coin desk contributor and an economic historian at the London School of Economics. And he delivers the opening state of Bitcoin keynote, which is a data-driven assessment of how the Bitcoin ecosystem is currently developing.

The second part of the episode features a panel discussion called Will Bitcoin Last the Distance, where Jeff Carr is a Bitcoin developer and Professor Amin Gounsir of Cornell University and Peter Todd discussed the issue of mining centralization. The panel was moderated by Angel Investor Chesson. Now I would like to welcome Garrick Heilman. Welcome Garrick.

So Garik is an economic historian. He's just finishing off his PhD, I think, at DLSC at the moment. And he's also a contributing writer at CoinDesk and he's the author of the State of Bitcoin Report, which you'll be presenting today. Over to you. Great. Thank you, Premier.

It's a pleasure to be here at my third Coin Summit. Boy, Bitcoin's come a long way in the last 12 months. So we're here to talk about the state of Bitcoin. So earlier this year, Coin Desk released its first state of Bitcoin, which has generated about 130,000 views on SlideShare. We were very happy with that. We released a quarterly update a few months ago. Now, this is our second quarter update, which we're releasing today.

It will be available for free down. online at CoinDest.com about 11 a.m. I believe. So the state of Bitcoin. First, I hope all of you just briefly know of CoinDest. It's the leading provider of news. Price information. Our Bitcoin price index is widely cited and information about Bitcoin. We have a global team of news personnel around the world. So here's the structure of the state of Bitcoin report. We're going to talk a little bit about price, the media landscape, the ecosystem and the ecosystem and DC investment landscape, commerce, what's happening with Bitcoin commerce, the technology side, and then regulation in the macroeconomic picture. We're just going to highlight a few slides from each of these sections today because we don't have time to go through the full report. I do encourage you to download it for free at coin dust.com later today. So first, price and valuation. So Professor Susan Athi at Stanford says there's been too much focus on Bitcoin's price. And what's interesting, if we look at...

at the top 10 stories that were read on CoinDest.com over the last quarter, at least four of them actually were price related. A fifth, the failed prediction of Marty Williams for a Bitcoin price implosion in Q2 is arguably also price related. So clearly there's quite a bit of interest in what's happening with Bitcoin's price action. And Q2 is a very good quarter for Bitcoin. Things started off a little sour. But actually Bitcoin's price is up 40% since the end of in the Q1. It's still about 16% below where it started the year at and hasn't hit its, reached its old time high again, but it's actually rebounded quite nicely in Q2 of 40%. And the low point seemed to have come, basically,

right around the 11th of April. There was a lot of rumors in China about possible exchanges getting shut down, banking licenses being revoked, and an official from the People's Bank of China came out on the 11th of April and said, you know, China's not going to be banning Bitcoin.

that appears to have kind of marked the bottom of the downward trend we were seeing. And then since we've seen a lot of positive commercial news, Apple Expedia, others, and of course the U.S. Marshals, possibly for the first time in history, made economic policy for the United States by selling Bitcoins. Usually they don't sell things that are illegal. So at the federal level, it looks like Bitcoin might be legalized. And we've seen the price respond positively since then. So one of the reasons we titled this, the state of Bitcoin report, rather than the state of cryptocurrencies,

is that we felt that Bitcoin was really the big enchilada, and that's really continued to be the case. At the start of the year, Bitcoin had about 80% of the total market cap of cryptocurrencies. There's some 200 or so cryptocurrencies out there. That's actually grown. Bitcoin's share of that has grown up to 93%. So even though the price has come down, its share of the cryptocurrency prize actually increased. And if you look at light coin, for example, light coin was about 18 times smaller than Bitcoin a few months ago.

It's now 35 times smaller. So Bitcoin's really outpacing the number two cryptocurrency by a significant margin. So at the last Coin Summit March, one of the questions that came up was which type of fees could Bitcoin potentially displace? I believe he was on the Mark Andreessen panel. And Gil Lurie at Wedbush Securities, and I decided to go through and actually start delineating which fees Bitcoin can potentially impact.

Payment processing, title insurance, collections, a whole bunch of these. And if you look at the sections of the U.S. economy, this is just the U.S., that these fees and trust-based services touch, you're talking about a slice of the U.S. economy that is worth $3.4 trillion. About 21% of the U.S. economy

is potentially impacted by Bitcoin. So a huge, huge potential impact in terms of economic value. On the market capitalization slide, we've shown this slide before we've added in a few sectors, some of these trust-based sectors like the trust, east-growth sector, and its securities exchanges. And you're looking at, and again, this is primarily a North American view here, but you're looking at about $550 billion of publicly traded market cap that's potentially impacted by Bitcoin technology. Okay, so let's talk a little bit about the media landscape for Bitcoin.

So we're seeing mainstream media attention and interest in Bitcoin remain. You know, the Wall Street Journal, the New York Times, the Guardian and others are still really actively covering Bitcoin. So this is something that hasn't really fallen off the radar screen. You know, it's not like the media just shows up for Mount Cox and other kind of big events. They're actually still actively covering the sector. Wikipedia views are also another really interesting metric to look at. Bitcoin is the 89th most trafficked page on Wikipedia. There are about 900,000 views over the last 90 days.

And in the kind of public intellectual sphere, I've got three Harvard leading thinkers here. We're seeing somewhat of an evolution, I think, in the comments that are coming from, you know, some of the people who have the public microphone. So Ken Rogoff, former chief economist of the IMF, author of This Time is Different with Carmen Reinhardt. he was a little more bearish on Bitcoin's ability to become a currency.

But Larry Summers, who was very close to becoming the next Federal Reserve Chairman, my doctoral thesis advisor, Neil Ferguson, they're starting to look at Bitcoin more broadly from a technology perspective and seeing that this isn't just a currency. This is a very transformative technology that transcends simply a monetary analysis. So if we shift to the kind of Bitcoin ecosystem and venture capital environment, quarter one of 2014 was a very good quarter for Bitcoin, $57 million invested in startups. But actually Q2 is even better.

73 million has been invested. And that's not including the $20 million deal that was announced here early in Q3. So about a 28% increase over the first quarter. And that total is actually the old-time quantity of money invested in startups is actually $240 million if you factor in Zappalo's $20 million. deal, 150 of which has come here just in 2014 alone. So one of the slides in our last state of Bitcoin report that generated quite a bit of attention was this comparison we did between the early internet, 1995, is the earliest year we have investment data for venture capital investments in internet startups, and Bitcoin in 2014.

Mark Andreessen said that Bitcoin reminds them of the internet in 1993, so the comparison's not completely perfect in that regard. But if you actually annualize the current 2014 venture capital investment, and what we're projecting is $284 million to be invested in 2014, that's actually higher than the early stage financing investment that was made in 1995 internet companies. These numbers haven't been adjusted for inflation. We haven't done any adjustments for the difference in costs of starting a company

between now and then. But it's still, I think, a very interesting to comparison to show that the VCs are really walking the talk and putting their money where their mouth is in terms of backing Bitcoin companies to the degree they back the early Internet. There have actually been eight companies in total that have raised $10 million or more. Zappo is the leader with $40 million. Bit pay is not far behind with a little over $30 million. And a total of 22 startups that have at least $1 million in capital raised. And if your company has raised a million dollars or more, and you don't see your name up here, please get in touch.

We do want to keep track of the full universe of Bitcoin-backed startups. So now looking at the geographic spread here, North America is still a very dominant place for investment. 78% of old dollars are going to North American companies. But interestingly, Europe actually is past Asia in the last quarter. The Bitfury investment actually, I think, had a big, big, big part of that. And South America is now on the map for the first time. So we're starting to see kind of a broadening of Bitcoin investment out of North America and into other areas of the world.

If we look at individual countries, you know, the United States, not surprising, 77% of all dollars, 59% of the number of companies even are based in the U.S. But again, we're seeing new countries coming online, Mexico, Holland, Argentina, all got their first Bitcoin, or VC-backed Bitcoin company in Q2. So we're a broadening of the investment landscape. Now, last year at Coin Summit, I asked on the panel, where is the future home of Bitcoin going to be? Where is kind of the center? And if you look at Silicon Valley versus the rest of the world, you can see the Silicon Valley is taking 48% of the dollars, and about a third of the companies are actually based there. So Silicon Valley is still a very dominant, I think, place for Bitcoin,

but it's not 75% or, you know, the whole story by any means. So this is how we view the Bitcoin industry in terms of different sectors. We think there are really six distinct sectors in the Bitcoin economy. You have pure play companies like your wallets, your exchanges, your payment processors, and those companies, I think, don't need much explanation. Mining includes both mining manufacturers and also cloud mining. The two categories that do need a little more explanation are financial services, and then the one we have in the center They're called Universal, which we'll talk about in depth and a little more in just a moment. Financial services, Bitcoin companies include everything from ATM manufacturers to gift cards,

to analytics and news firms like CoinDesk. Universal companies are the ones actually that are doing a bunch of these different things. They're a wallet, they're a payment processor, they may be deploying ATMs. We'll again talk about them more in just a second. Universal companies are commanding the most VC investment. 25% of the dollars are going to them. But they've slipped a bit. Wallets, payment processors, mining, and financial services

all saw significant investment in Q2. The only categories that actually didn't see significant investment in Q2 were universals and the exchanges. But the pie is starting to become more evenly distributed across these six categories. Now, this category universal, we have companies like coin plug, Circle Coinbase in here. Again, these are companies that are looking to do more than one aspect of kind of the Bitcoin value chain.

They're really trying to, I think, take advantage of two key features of financial services. One is efficiency, the ability to have your customer relationship for your exchange, your wallet, all in one place. And also trust. I trust you to store my Bitcoins. I'm also going to trust you to do my payment processing. I'm going to trust your ATM. Coinplug is a good example of this. They're deploying ATM, as I mentioned, as well as doing processes.

and providing a wallet. And we think, you know, this very well could be an important trend or development in Bitcoin. So we think a lot of companies will start pursuing the universal model or merge into universals or risk fading away. Trust is a very important element, I think, in financial services. And having that trusted brand, along with the efficiency, is something that I think customers are going to want. So looking at Bitcoin Commerce, some really important things happen in Q2 in terms of building services and apps that will enable trust and make Bitcoin easier to use.

Circle, of course, launched an insured wallet. Insurance is a product that I think consumers have come to expect in other financial services, and it's, I think, a very positive thing for Bitcoin to see that. I think that will give a lot of consumers comfort as they experiment with Bitcoin for the first time. Zappo's debit card was derided in some circles. It's kind of a step back here. Bitcoin is supposed to be old digital. Why do we need some kind of physical card? But again, this is something that consumers are used to using,

and it's a bridge to maybe going completely digital. And I think that's a positive thing in terms of consumer adoption. And then I mentioned Bit Reserve. They've done something, I think, that's not just radical for Bitcoin, but potentially transformative across the corporate world, as well as organizations all over the world. And that's a transparent balance sheet. So this would be a balance sheet basically

that you can audit in real time to know what kind of reserves, what kind of assets that reserve is holding. Are they in treasuries? Are they in something else more exotic? Think about the banking system in 2008 where all we could see is at the end of the quarter when they've done some nice housekeeping

what the balance sheets look like. This is a complete game changer, I think, if they can pull it off. So think about a world in which balance sheets are actually auditable in real time. So for the first time, Coin Desk is going to be making some forecasts in our state of Bitcoin report. We didn't want to just be kind of like capturing kind of what had happened. We wanted to also be looking ahead. And here we have our forecasts for the number of wallets we're expecting to be in existence by the end of 2014.

There's a little bit over 5 million wallets right now currently in existence. We're expecting by the end of the year to be about 8 million wallets. And then on the merchant side, you know, these names have already been mentioned, DISH, you know, $14 billion company, which is now accepting Bitcoin, Expedia, New Egg. We think there's at least 63,000 merchants based on Coinbases and BitPays numbers that are currently accepting Bitcoin. However, we did a random sample of the CoinMap data, CoinMaps a site that actually has a map of different Bitcoin companies. And it looks like about half of the companies on CoinMap are actually self-profit. So this number could be significantly understated.

It could be well in excess of maybe 100,000 merchants that are actually accepting Bitcoin right now. And in terms of our merchant processing, our merchant accepting a forecast here, we're expecting about 100,000 merchants by the end of the year based on the bitpaying coin-based numbers and trends to be accepting Bitcoin. At coindes.com, we're also tracking the ATM deployment.

So this is a map of where Bitcoin ATMs are located. These are just coming on and ramping up. There's about 103 roughly around the world today. So briefly talk about some of the Bitcoin technology. So the number of GitHub updated repositories has been growing quite nicely. Chris Dixon, I think, wrote about this recently, the incredible power of having this very large developer base out there that's interested in building applications for Bitcoin.

that's a huge, huge positive for Bitcoin's prospects. Right now there's about 340 apps in the Apple App Store that are Bitcoin-related, and about 250 in the Android store. So we're already seeing pretty large development work being done. So shifting to regulation in macro, our last section, the regulation story, I think, for Bitcoin is tempered a bit. I think things have slowed down a bit. We're still seeing some setbacks.

Bolivia recently banned Bitcoin that joined Iceland and Vietnam, as I think the three countries have actually outlawed Bitcoin. Not surprising in the case of Bolivia, they've been a serial kind of currency debaser. California, on the other hand, like New York State and other states in the U.S., has actually taken a more proactive and positive voyage to which actually legalize Bitcoin. But the regulatory picture continues to be a bit mixed.

I think the big thing was that China seems to have stabilized, in April, and that's been, I think, a real positive story for Bitcoin. And I think on the whole regulation is trending positively for Bitcoin. This slide I've titled, kind of keeping Mount Gawks in perspective, a lot of media attention was paid to the $500 million or so dollars that were lost at Mount Gauks. But if you look at some of these stories coming out of the traditional financial services system, you know, B&P Paribaz, $9 billion fine.

Just yesterday, I think Citibank agreed to a 7 billion. settlement, J.P. Morgan earlier this year, 13 billion. I mean, that's 30 billion right there between those three companies. And the list just goes on and on in terms of like market manipulation and other fraud and malfeasance in the traditional financial services system. So, you know, Gox and some of the other problems that Bitcoin has had, I think, is a real small drop in the bucket compared to what's going on with the big boys. At the same time, also, people always talk about, aren't you concerned that ISIS is using Bitcoin for illicit transactions? I mean, Bitcoin really pales as a medium for, you know, illegal activity compared to some of these other markets and cash, for example.

So I think, again, that's something that gets blown way out of proportion in the media. So something we don't have in the state of Bitcoin report, but I just wanted to give you kind of a first look at, which will be coming out here very shortly, is what I'm calling my Bitcoin Market Opportunity Index. So we all like to think that countries like Argentina and China are really fertile. ground for Bitcoin for a variety of reasons. But I haven't seen any analysis done, which actually goes through in a quantitative fashion and actually ranks countries based on things like, you know, what kind of technology capacity is the country have? What kind of smartphone adoption? What percentage of online commerce is taking place? What about financial repression, inflation, restrictions on capital controls? We're also looking at other socioeconomic factors,

GDP growth, whether there's an entrepreneurial culture or tech hub, what type of financial crisis have they had recently, if any. Was it a currency crisis? Was it a banking crisis, which may not have as a positive impact on Bitcoin adoption? So in a few days, I'll be releasing a ranking of countries based on their, kind of the market opportunity for Bitcoin based on these variables. So just to wrap up, there's, I think, some 60 slides in the State of Bitcoin report. And we know that's a lot of information to go through. We've got a summary with the highlights right at the front of the report for you. And we've also, we're adding this dashboard as well so you can get a quick snapshot of how

Bitcoin's performing over time. This is what we think are the key Bitcoin adoption metrics. And you can see that, you know, wallets, for example, are up 7X over last 12 months. We'll probably add a column, I think, for quarter over quarter as well. But this and the summary are right up front in the state of Bitcoin report, which you can download for free at coin.com. And I thank you very much for your time. Look forward to a great conference. Thanks.

OK, good morning. It seems some of us are missing in action. I take it the parties must have been good. So welcome back to day two of Coin Summit. So we're going to start with a panel that I think is very important. And we're going to be discussing the future of Bitcoin. So, first of all, a few words about jazz, our moderator.

So jazz is one of the best known and most accomplished tech entrepreneurs here in the UK. He took two companies public. He started much more than two companies. His last company, PKR.com, is one of the largest online poker, multiplayer poker companies in the world, very successful company. jazz also has been invested and involved in the Bitcoin space in a very deep way for a couple years now. He's an investor in many companies in the Bitcoin space. He knows Bitcoin mining extremely well.

And Jazz also has a very strong product and technical background in general. So I think there couldn't have been a better person to moderate this panel. So just a few words about his fellow panelists. So, Professor Serer is a professor at Cornell.

And he's the author of Hacking Distributed, which is a very widely read blog in the Bitcoin space. And he's, him and his colleagues at Cornell have written a number of papers, particularly about some of the vulnerabilities in the Bitcoin network.

And it'll be great to hear more about that today. Peter Todd probably doesn't need too much of an introduction in this community. So he's one of the core developers. You know, one of the guys who's, you know, has been in the Bitcoin space pretty much right from the beginning. And Jeff Garzik, also one of the core developers, again, doesn't need too much of an introduction. And he's, you know, one of the guys who's been developing right from the beginning. So, welcome to our panel.

Welcome, guys. Big round of applause. Good morning. I know it was pretty tough to get here this early. So thank you all to our fantastic panel. We've been brainstorming some cool and topical questions. And we're going to start with the one that we've heard a lot about in the press, which is the 51% problem.

And what about it? Is it a problem? Do we need to worry about it? Yes. And feel free to elaborate. It is definitely a problem. problem, it is once you reach 50%, you tend to be a single point of failure. And that's pretty much true in many systems, but especially in a consensus or distributed system.

In particular, you can reverse transactions. You can create a double spending attack if you're a malicious actor. But also, there is the counter incentives in that once you perpetuate some of those attacks, then the Bitcoin community presumably would become aware and want to address that in a direct, or rather direct sort of way. So yes, short answer, it is a problem. So let me add something to this. And Jeff mentioned the attacks that are possible with the 51% minor. But it's also quite, the problem with 51% isn't so much that somebody will achieve 51% and then attack the network. 51% is a problem for the perception of Bitcoin

as a decentralized system. The moment you have a miner that has achieved a monopoly, then the ability to distinguish Bitcoin from any other single-issue currency gets lost. So we suddenly lose the ability to bring new people in. We suddenly lose the value proposition that Bitcoin offers. The thing that actually attracted all of us to this space was decentralization.

So even if a 51% is on their best behavior, Even if there are no attacks against the system, even if there are no double spends, 51% is actually a net loss for the community at large. So it is something that I feel very strongly that we should take measures against. So what can we do about it? And is there a short term and a long-term fix? We haven't heard from Peter yet, so. Well, I think in the short term, there's a lot of education to be done,

not of the community, but really of the people who are, say, mining at G-Hastod. I.O. to make sure they better understand what their incentives are. Because if you have a long-term viewpoint on Bitcoin, you should not be part of g-hash.I.O. right now. You should be part of a smaller pool. And then beyond that, well, then I think it's a very clear indication that we need to go fix the protocol.

And there's a whole host of technical solutions, and it will take time to kind of evaluate them, better understand them, try them out on test networks and so on. But long-term, that's probably going to be what we'll see happen. And GUN has a proposal for a technical solution as well, which will need to be evaluated. Yeah, indeed. Itai Ayal and I have come up with a solution called Two-Face Proof-Work that actually is very nice in the sense that it accommodates the current mining rings,

the current mining infrastructure as it exists, but allows us to actually push back. And I wouldn't say that it's anywhere near ready. We need to still get some experience with it. But it's very nice to have those kinds of technical solutions in our back pocket, as we discuss with, say, a 51%er and say, look, guys, you're actually hurting the community and there are technical measures we can take in the medium to long term to actually push back against 51%ers. And so we're actually in an okay position when it comes to this, that we have some technical solutions that we could deploy if we wanted to.

So is there a short-term fix? Can we do something tomorrow to get us out of the problem? Well, the pool can do something tomorrow. We, as a collective community, can't really do anything immediately tomorrow. But I also like to point out that, you know, there are technical solutions, there are education, but there's also just simple free market. And free market competition and the interest of the Bitcoin community and mining pools really incentivizes people to look at the 51% issue and say, okay, I'm going to switch pools. So in terms of market leadership, I like to point out that pools rapidly, change market leadership.

We've hit 51% multiple times before G-Hash. And each time, if you observe the mining pools over periods of months and then years, you see market leadership just rapidly recycles.

It's not just one player. It's one player, and then it's a second player, and then it's a third player. And so you really have a very, very dynamic competitive system. Let's just summarize. In the long term, we'll have a technical fix and we'll evaluate all of them. But in the short term, we need the community to be more careful about where they mine

and to spread their mining about. And we also need the mining pools to take more responsibility for their actions. Absolutely. Okay, great. So now, a slightly more controversial one even. So mining is the cost of securing the network. And currently, mining is 140 petahash approximately. which today is about 140 megawatts of power.

But the cost of mining is related to the cost of Bitcoin and the block reward. So when Bitcoin price gets higher, are we going to spend many megawatts or even gigawatts one day on our mining? And is that reasonable? Yes. Yes, absolutely. We have to secure our network. But I think it's only a valid comparison

if you compare what it takes to secure a traditional currency, both in terms of multimillion dollar printers, inks to secure the physical currency, the costs of the data centers. And remember, Bitcoin is not just currency, it's a payment network. And so you have to consider the cost of securing a comparative payment network on top of securing the currency. So, you know, for the U.S. dollar, you have Secret Service agents, Treasury agents, you have data centers, and you have multi-million dollar printers,

inks, et cetera. All of that has to be factored into the comparative equation. And so if you consider all of that, there's a great deal of energy wasted in securing the US dollar. And, you know, that big number can be a little misleading because in the future, and we're already beginning to see it as well, we'll be seeing things like people using Bitcoin mining equipment to go heat their houses, you know. Yeah, and make use of all this extra heat, as well as, curiously enough, put Bitcoin mining equipment in more decentralized ways because renewable energy is very cheap, except for the fact they have to get it from the middle of nowhere to cities.

Of course, with Bitcoin mining equipment, people are already beginning to put the Bitcoin mining equipment where the energy is generated, which kind of changes economics, and it's not as simple saying, oh, yeah, this must be generated by dirty coal. Yeah, there's a lot of Bitcoin mining now in Iceland where they have almost free energy with geothermal and very cold ambient temperature, so cooling is free as well. And that's one of the business ideas I love to toss off is a mining water heater. Yeah, I don't use that phrase in England. It means something different.

Great, okay. So what's happening with the Bitcoin core development? Where's it going? What are the issues? Well, basically Bitcoin Core I'll just give sort of a general overview. Coming from the Linux kernel open source space, I try to draw a lot of analogies from that. Bitcoin is an open source project, and the Bitcoin protocol itself changes to that are modeled after the IETF RFC process. It's called a BIP or Bitcoin Improvement Proposal.

And so if you're going to change the protocol, then you'll follow a standard process where you'd create an implementation, write up a draft specification. then you'd engage the community in that regard. In terms specifically of Bitcoin development, there's no entrance exam, there's no qualification. All you have to do is show up and start contributing. Now, if you show up and start contributing at a sort of either low knowledge or low quality level, then you'll take a longer time to build trust with the existing programmers

and the existing community. But if you show up, and this, this happens both in the Linux kernel and in Bitcoin, you show up, you know your stuff, you're a genius, your changes are perfect, then they'll be instantly accepted. But we have a problem, Peter, though. You two are cool developers, but there's not enough cool developers, are there? I think that's an education issue.

I think it's just a number of people who really understand the protocol is extremely small. And... That's a problem. Yeah, it is a problem. And it's not a problem that you go fixed by, you know, creating a group negotiating access to core protocols, probably fixed by teaching people. Yeah, that has to happen naturally and organically, I think.

But one nice thing that's happening outside the development community and the research community that I can speak to is there are a lot of academics now actually taking a more critical look at Bitcoin who are excited about Bitcoin, who are excited about the opportunities of the project. It's a cryptographer's dream, isn't it, to like study Bitcoin? It is, indeed. It's suddenly put cryptography front,

you know, front, square and center. And so that's really exciting. And there are a lot of young bright minds who actually are very excited. So I think there's good organic growth in that. But also, I mean, BitPay has effectively paid for you to be full-time core development. But there are a few other companies that are doing the same thing. So we need to encourage that. Absolutely.

We need not only education, but other Bitcoin companies need to not get into the mode of thinking where if they want something, they come to the core developers. That's not how open source works. If you want something done, you need to hire the developers to do it, and your developers will then become your interface into the Bitcoin community. Because right now we have so few core developers that it's simply not scalable to add task upon task. You need to scale horizontally and add more developers. So a lot of businesses are...

just floating, just starting in the community, and they need to learn that, you know, either you need to hire some developers yourself, or there are, for example, the Bitcoin Foundation does fund three core developers right now as well. And so contributing to the Bitcoin Foundation also contributes to core development. Every company should, particularly every company that's raised finance, should have in their business plan to at least, you know, contribute a core developer, not just poach a core developer from another company, but actually create a new core developer. Absolutely. And also it's important to note

that development isn't just a single sort of stage of a process. It's really a pipeline. You need research and development. So I think we saw with the selfish mining discovery that indeed there are some issues that are higher than we need to write some code, that somebody needs to think about, well, what are the dynamics of this distributed system, what do we need to anticipate ahead?

And these are not easy issues, and it really takes a research pipeline, then followed by a development pipeline. Absolutely. And to steal something that Peter Todd said a couple days ago in response to something I said in Twitter, we often compare Bitcoin to medical device software or avionic software because it's to such a level that it simply can't fail. But Bitcoin is a binary equation in that it's either worth zero or non-zero. You know, maybe that's self-evident, but if you think about the reverse of if there's a break, then it'll quickly go to zero. So it's a very, very high-level software that just has to work, but it also is under-researched. And so it's a dilemma in software development because when we need to advance the protocol, advance the community, we really are breaking new. ground.

And we need both research and development to get us where we need to go. But Bitcoin itself has a value, so it's its own prize to be studied and to find security issues. Yeah. And you know, also put out a positive note, which is to point out that the core Bitcoin development, it doesn't necessarily, you don't necessarily expect to change that much. It's not unlike, say, TCPIP. On the other hand, there's this whole ecosystem around it, which I didn't make the analogy of the web,

where we do see a lot of very innovative, very fast work. And companies in the space who do things like experiment with multisig, they're pushing Bitcoin forward, even if they may not be directly working on this so-called Bitcoin core software. And they deserve, I think, a lot of credit for that. So that's a great segue. So let's talk about multi-sig for a moment. How important is it? And is it the next generation of wallets that will make people feel safer?

And is that, are we sold? Are we done with safety? It's absolutely necessary. It's been in the Bitcoin protocol since day one. So that gives you an idea of how long it's taken to develop an actual secure wallet. I like to make, not an analogy, but Bitcoin is really pushing the bounds of computer security stop, period, end of sentence. The computer security community has never before been called upon to secure a single digital file whose theft may result in millions of dollars of value being transferred. You've had secure software before, you've had encrypted software before, but never is a file sitting on your computer been worth so much.

So it demands a whole new level of security. Multi-Sig is just the first step in that process. You want to do that come in? Yeah, so I like to call Bitcoin the Universal Bounty Program. So in the old days when you found a bug in some kind of an operating system or some kind of a platform, you'd have to prove to the platform operators that indeed this is a real serious bug, I could break into your system, they would push back on you, they'd be like, you don't really have a demonstrated exploit, we're not going to recognize your bug and so forth.

And this was a given, you know, this was back and forth. And it really just sort of wore everybody down. But with the invention of Bitcoin, now any hacker, as soon as he finds a zero-day vulnerability, gets to collect rewards. And this at once is both very infuriating because you suddenly have these news reports of, oh, my God, my bitcoins are gone, somebody swept through and took them all off.

But really, these people are doing in some perverse way service to the community in identifying the flaws. And there really is a big issue, though, which is the platforms that we use to secure Bitcoins, both on the server side and on the client side, are typically not worthy of holding assets of such great value. And we really need to take really great measures. As we saw with Mount Gox.

Yeah. So Mount Gox is a separate issue. So Mount Cox, it's not really clear what happened. But there are many other exchanges that failed, and there are a lot of exchanges that failed due to poor server construction. Similarly, there are a lot of stories of people who lost their bitcoins due to errors or flaws in the client-side software.

So we really need to improve the state of computer security at all levels. So Peter, if wallets that have multi-sig built-in become the norm, then what about the services that provide value-added multi-sig? What happens to them? Do you need them? I think you still need them. In fact, I'd say it becomes more interesting to use them. Because for instance, if I go make the promise that I will help keep your Bitcoin secure, and you will also have another part of a multi-sig wallet,

it's really both of us are authorizing the transaction to happen. So if my business is to, say, run security service where I'm vetting, what's going on, I'm doing the auditing, and you're a company, really we've set up this arrangement where we're both participating, keep your coin secure, yet you can easily get into that arrangement because I can't run with your money either. And some of them have insurance policies as well, which is a nice belt and braces kind of breaks. And it's a very interesting problem for regulators as well, because with multisig, who actually controls those funds? If it's three organizations holding three keys, who legally owns those funds?

And so you can't really write legislation that says, you know, these bitcoins are this certain legal category because it might be partially owned. and partially controlled. So let's move on to confirmation time. So in e-commerce, we need fast confirmations. We need to know that a transaction has happened. You need to be able to leave the store, or they need to let you leave the store, knowing that they've been paid for something,

or with an ATM, when you make a withdrawal, you need to know that you've shown your Bitcoin QR code or whatever, you need to be able to withdraw the cash. So sometimes these take a long time. What's being done to help them? being done to help that? Well, my personal pet project is payment channels. And payment channels are a smart contract technology.

It's a two of two multi-sig technology, whereby you agree with a server to lock in some funds. Once the funds are locked in on the blockchain, you can securely and rapidly revise a transaction in a trustless way, such that if the server departs the server departs, the the client receives their full refund, and this is guaranteed by the Bitcoin Protocol. If the client departs, then the server or the merchant still has the funds up to the point where the client departed. So it's functionally an automatic settlement type mechanism. However, it can be rapidly revised.

You can have four billion of these per second in theory. And they're all digitally signed, and they can be published on the blockchain. just one example of a technique that provides instant secure transactions and you don't have to wait for a confirmation time. There are other techniques out in the field that are exploring similar trains of thought. But whenever someone says that Bitcoin is too slow because of the confirmation time, then they're not, they're just looking at the lowest layer. They're looking at IP of TCPIP, Whereas Bitcoin is many layers of an onion, and you have to look at how you can build trustless systems

on top of the Bitcoin protocol such that they achieve your goals. Very good. So what other exciting things are happening in Bitcoin Core in the next year? That's start with Peter. I mean, me personally, I go work for a bunch of groups that are trying to go build financial instruments on top of Bitcoin. And I think we're going to see a lot of explorations. in that space, you're going to see a lot of things like people experimenting with issuances of stocks,

of bonds. You may have heard of the term colored coins is a very early example list, and that's being explored. You've also got embedded consensus systems like your master coin, your counterparty, that are really in some ways changing the Bitcoin protocol, but for a narrow group of users. So you can have one small group of users that care about a set of rules. They can choose to follow those rules, and the rest of the Bitcoin community doesn't have to care what they're doing. And then they can accept rules that, for instance, may allow stock trading, may allow distributed

markets, may allow me, you guys are finance people, you can think of a ton of finance instruments I'm not familiar with, but it remains to see how valuable this stuff really is in the real world. I think some of it certainly will be, some of it won't be, and, you know, we'll have a whole space of exploration. Yeah, we'll certainly see value-added services built on the block. The blockchain allows us to bootstrap trust, and that's going to be an enormous enabler for a lot of services. And in general, there are a lot of people who are in the alt-coin space who I think they have a legitimate desire in that the term that I use is Appcoin.

If you have an application and you want to have some tokens, etc., a cryptocurrency can be an excellent choice. But the current altcoins, that's the alternative currencies that are built on Bitcoin code base, like Lightcoin, etc., they are wildly insecure. I'll be blunt. And also, I mean, less and less significant. I mean, in terms of market cap, Bitcoin is, you know. Well, just to finish the point is that app coins are a valid use case, but altcoins are a poor implementation of. that use case. So what we're going to see in the future is side chains or tree chains, and that is a technology that allows you to bootstrap on Bitcoin's network strength, while at the same

time having a totally separate chain, a totally separate currency, or even outside the currency space, a totally separate distributed database. And an example of that is Namecoin, which attempts to create sort of a decentralized DNS. And Namecoin has its own problems, but But as an analogy that works is Bitcoin is fundamentally a database technology at the end of the day. And currency is just one application that runs on that consensus database technology. So once you have other app coins which bootstrap on Bitcoin's network strength and side chains and tree chains are two proposals that do that, then you'll see a different explosion of altcoins in the future

typically running on the Bitcoin protocol and the Bitcoin blockchain. So that's another exciting development in the future. How do features get decided for Bitcoin Core and who's in charge? And who decides these features? We're all in charge. Yeah, but in the real world, you can't all be in charge.

I think what's interesting about it is that technologies like side chains and tree chains, a lot of what's driven the ideas behind them is this notion that it would be better off if we didn't have to ask for me. mission. And with embedded consensus systems like MasterCoin and Counterparty as well as your colored coins, they're designed under the assumption that Bitcoin core protocol won't change. Therefore, we should go work within that protocol to come up with something new. And I think

there's been a lot of success with people building on top of Bitcoin without making the assumption that all the stuff they do has to change Bitcoin itself. And that's been, I think, a very, very successful process. Whereas the proposals that assume that we're going to change what Bitcoin is, they kind of tend to just sit there on mailing lists because it takes so much time to get that consensus. It's not impossible, it does happen. We have made a few changes to Bitcoin, P2SH with multi-sig as an example, but it's slow and it's not the way I personally would do things. And I think going forward we're going to look for ways to make permissionless development more easy to accomplish. So we do not have to continue changing the core Bitcoin protocol.

So one last question before we open it up to the floor. Well, one quick addendum, if you don't mind. I would point out that the Bitcoin Protocol was built to be extensible. Satoshi, at many levels, put in extensibility into the Bitcoin Protocol. You can add new script op codes. You can, you know, X the transaction malleability issue. There was the notion that you could piggyback some more data on to transactions. There were several other avenues of extensibility that are built.

into Bitcoin. And so the Bitcoin protocol itself is not just frozen in time. It moves slower than most people in the community would probably like, but you have to be conservative with $8 billion worth of value. So what if you get to a place in the world where you have no internet, then how would you get the blockchain? I mean, how would you... Well, what a wonderful question. One of my pet projects is putting Bitcoin in space. So I am currently contracted with deep space industries. We're designing CubeSats, which will process the blockchain. Once we get the CubeSats up into space, of course you need some governmental approval at launch time and frequency, et cetera.

But once they're up in the space, there's no off switch. And so if you need remote access to Bitcoin, you would have the full blockchain. That's not a simplified payment verification. You have full trustless verification. And also, even if you're in the Western world and well connected to the internet, et cetera, if you're civil attacked, you have a local attack, that's an excellent resilient backup mechanism as you can download from satellite down to Earth. And that's trustless.

The satellites using the same Bitcoin D algorithms to evaluate every block. So even if the ground stations that are sending the blocks up to the satellites are malicious, the Bitcoin algorithm itself guarantees that that's not going to be an issue. And, you know, I think I can kind of generalize where you're going with the satellite, say what's really strong about Bitcoin is it's just a piece of data with an algorithm. and your ability to be secure is in part dependent on how easily you can get that data and if you have more connections to different computers and so on

you are more secure because you're less able to be censored from what the true Bitcoin blockchain is and that's a very powerful statement and it really leverages what the internet is good at which is distributing data. It's definitely censorship-resistant but moving beyond satellite and generalizing a bit it's useful to Bitcoin to find different avenues

to distribute the blockchain and distribute blockheaders. I egged Peter here on months ago to post block headers to Twitter as an example of an alternate distributive mechanism. It blocks me after a month. Then you had a comment on Jeff's? Yeah, so I really respect Jeff's effort to get to the moon and to do that first by going to outer space.

and it's a wonderful, laudable effort. I do think, though, that we really have some issues on the ground here. Oh, no question, no question. So both on the service side and on the client side, I think my worries really reside with security, computer security. So it's great to get the data on the blockchain and so forth, but if your processing engine is compromised, you're dead. And that's really the number one issue that I see coming up ahead. Thank you. So let's see if there's any questions from the audience.

We have one in the front row. Do we need to get a microphone to them or just over here front row? Hello, my name is Olivier Yanceus. And I recently did like a $100,000 bounty to replace the Bitcoin Foundation. I don't know if you heard about that. Because I think it really lacked transparency and was sort of no longer representing the community properly.

So the winner was my career with Lighthouse. And one of the main things I want to have accomplish is sort of like the couple the developers from the foundation. So you're not depending on them for your wages. So I was wondering if you guys are willing to use this platform in the future to have crowdfunding happen and be crowdfunded by the community. So the community can actually choose like which features they want to have implemented. Well, if you want to choose what features to have implemented, it's just hard to developers to write them.

I'll point out zero cash, which is one of the projects I'm working on. We're planning on using Lighthouse to go raise funds in the future, and we're really looking forward to that. And Lighthouse is in particular a fantastic platform. It makes use of a feature in the Bitcoin Protocol, whereby you can collectively build a transaction among many, many people, and it's a binary decision.

It's not valid on the Bitcoin network until the transaction is fully funded. So if I need to raise a thousand bitcoins and he contributes a Bitcoin, he contributes to Bitcoin, it's not valid until that thousand is reached. And so that addresses, in part, the free rider problem or who goes first problem in economics. Thanks. Any other questions? There's one over here. Hello, I'm Denison.

On the subject of education, is there any work being done to maybe do something like a master's degree in Bitcoin or would you leave to work in a university setting where you just simply teach the next generation of people who are going to be working in Bitcoin? Most definitely. I can speak to that. I think there's so much interest for cryptocurrencies among the young students, among the 18 to 22 crowd, that I know what we're doing at Cornell and I can speak to that. Our operating systems class where students learn how to program and write systems code actually covers Bitcoin. Our master's classes typically have a lecture or two on crypto applications with specific application to Bitcoin.

So we're certainly covering the topic. So a master's program in Bitcoin is a little too much, but there are master's thesis being written, looking at different aspects of blockchain analysis, for example. And there are even some PhD Theses coming out of different institutions. The UC system has a couple of people who've actually looked very closely at blockchain analysis. So it's certainly making its way, and it's coming, and it's happening organically. We're certainly educating the next set of people who want to learn about cryptocurrencies. Yeah, I think that's an excellent way to put it.

It's happening organically. You see computer science departments in many universities that I'm familiar with are just sort of scrambling to catch up with this technology, but they will eventually have distributed consensus in most major computer science programs. But one thing I find interesting, and I hope that universities pursue is that Bitcoin is really a fusion of computer science, game theory, economics, et cetera. And computer scientists don't typically graduate with economics you know, on their on their brain. And economists don't typically have much background in

computer science. And so I can see economics departments growing a, you know, a dual major or some sort of cross-pollination between the two because cross-pollination exists in the real world. Most certainly. So mechanism design is a topic that marries both distributed systems with economics and game theory. So that's a topic that has received a lot of academic attention already. And there are a lot of programs that are actually looking at this. And game theory courses most certainly touch upon aspects of distributed system design, incentive-compatible distributed system design. And also go point out for developers, there is developer documentation. Very good documentation recently was written up on Bitcoin.org,

and that was a great effort to see happen. And in general, an invitation to anyone listening is I have an open email policy, J Garzik at BitPay.com. If you have an incredibly complex Bitcoin question, you're more than welcome to email us or email the list or join the pound Bitcoin IRC and we're more than happy to answer questions

and mentor people into the space. We're desperate to get more developers. We want a thousand X developers of what we have now. Next question, there was one over here. Yeah, you mentioned side chains. I'm just interested to know, does that contribute positively to the network, or does it add some unnecessary weight?

I just wanted if you could speak about that a little bit more. Well, that's a bit of a subjective question, I think. I don't really want to form an opinion on that question. it's really a matter of the community, and are they paying transaction fees? Are they following the protocol? You know, the rules are really technical rather than subjective. I think side chains or whatever solution approximates that are very important

because they allow us to shed some load off the Bitcoin blockchain, which is useful for efficiency. But is it good? That's a religious question. These things kind of come down analysis of the incentives behind in sort of the technical incentive compatibility and then what it does for minor profitability. So there is very heated debate within the Bitcoin community about it. Although to answer kind of the really broad question, regardless whether you're doing an embedded

consensus system, a side chain or tree chain system, you're all contributing towards the same 51% attack security of Bitcoin, which is different from an alt-coin where you're doing something entirely separate. Okay, I'd like to thank our panel. Ghosn, Peter, Jeff, and I'm Jay. Thanks so much for listening to our coverage of Coin Summit. If you enjoy this episode, please support us with you donation. It really helps us traveling to conferences and produce high-quality content for you.

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