Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Jonathan Levin: MtGox, Future of Bitcoin Exchanges, Xapo, Altcoin Inflation

Episode Date: March 17, 2014

On today’s show we have Jonathan Levin on as a guest host. He’s an economist at Oxford University and co-founder of Coinometrics. Topics covered in this episode: Our meetups in Berlin and Lille Jonathan’s thoughts on the vibrant London Bitcoin scene The latest updates on the MtGox story The future of Bitcoin exchanges Xapo’s $20m funding round Whether altcoins will inflate the money supply? This episode is hosted by Brian Fabian Crain and Sébastien Couture. Show notes and listening options: epicenter.tv/011

Hi there, today's March 17th, 2014, and this is Epicenter Bitcoin, episode 11. On today's show, we have Jonathan Levin on as a guest host. He's an economist at Oxford University and co-founder of Coinometrics. The topics we're covering our recent meetups in Berlin and Lille. We hear Jonathan Fawkes on the Vibe in London Bitcoin scene. The latest updates on the Mount Glock story, the future of Bitcoin exchanges, shoppers 20 million round of funding, and we ask the question whether old coins will inflate the money supply in the future.

If you like the work we're doing and you'd like to support the show, please go to epicenterbitpoint.com slash tips for our tipping address. Hello and welcome to Epicenter Bitcoin episode 11. My name is Sebastian Quichu. I am a Canadian-born user experience designer and development. based in Lead France and the founder of Bitcoin Talks Lead. And I'm Brian Fabian Crane. I'm a Berlin-based Bitcoin entrepreneur and also the founder of the Bitcoin Soutrevelling Group. And we're here with a special guest. Hi, my name's Jonathan Labine.

I'm an economist from the University of Oxford, co-founder of Coinometrics and convener of the Oxford Virtual Currency's Working Group. Thank you so much for joining us, Jonathan. pleasure yeah so this is something we've been wanting to do for a while we've done one episode like this previously with joan barby where we had a kind of guest host on to weigh in all the topics and now we're doing it again so we're very excited about that so jonathan where are you based

so currently i'm based in oxford um i'm here until until the summer and uh we'll we'll see what happens for next year. I'm thinking about a move to London or possibly the States. There's a couple of options, but nothing set in stone. And I go occasionally to the London meetups and I'm pretty involved in the Bitcoin London scene and just trying to really make a little bit of a cryptocurrency scene happen in Oxford. Feathercoin was started in Oxford and there's plenty of researchers that are active in areas to do with virtual currencies and we're trying to get them together and produce some interesting output and research on this quickly changing space. Awesome.

We were actually talking about this, I think it was last episode or the one before, wondering what the cryptocurrency Bitcoin scene is like in the UK and specifically in London. So in London it's really taking off. there's a couple of meetups there's a there's definitely a light coin meetup

there's Bitcoin meetup run very well with huge attendance so they have almost I think it might even be weekly events sometimes social

sometimes more with presentations and very well attended throughout I think the last one I went to was in a bar in in East London, and there must have been at least 300 people there.

Wow. There was really no room, and it was a big back room of a hoxton bar, full of enthusiastic cryptocurrency enthusiast, really. And so these meetups have a particular format, like with presentations, just people come and just talk about Bitcoin. So they've dabbled in various forms. formats. There's a bar in Hackney that accepts Bitcoin called the Penbury Tavern where people go and have a more social meetup. I think that happens once every two, three weeks. And that's no format, just totally relaxed. Then they have quarterly big events similar to the one in that Hoxton bar where they'll have like pretty celebrity, pretty big people from the Bitcoin scene, giving. sort of maybe five or six, like 15-minute talks about their company or about a specific

issue in Bitcoin. Jeremy Aller came to one the other week, Andreas Antonopoulos. And they really, it's all organized by, well, one of the co-organizers is Paul Gordon, who's really, if anyone needs to do anything with Bitcoin in London, I suggest you go to him and ask because he's really good at connecting people and organizing the whole scene that's good to know

I'll actually be in London in two weeks so I would like to do a few interviews perhaps for the podcast yeah you should definitely speak to Paul he's very agreeable and we'll definitely sort you out

okay that would be great yeah cool I've also I've seen the meetup group has like over thousand members on the on meetup.com so that's it's really it's very impressive and what about what about in your respective scenes what are you seeing so we so i want this meetup here every we do a meetup every two weeks and we do about between three and five talks and uh the meetup group has like 200 people now i started it in um uh october or november and

as far as the attendance goes we have between i would say at the moment between 30 and 70 people so it's it's going well too i think there's uh there's definitely a lot of interest although it doesn't sound quite as crazy as london with 300 people that's nuts i had no idea uh yeah so and and and i think the reason, part of the reason for that is London's a very good place for in terms of finance. So there's a lot of people from the financial sector who need to get their head around Bitcoin and sort of will come to a meet up and it's all located pretty close to the city. There's also, it's always in the more techy end of London. David Cameron likes to talk about the Silicon roundabout and the kind of Silicon Valley in the UK.

So all the meetups are very close to that as well. And there's, yeah, I think there's quite an active startup scene. They've just installed the first Bitcoin ATM near where a lot of these meetups happen. Yeah. I used to go to that place, actually. The Shoredish coffee house. Yeah. Yeah.

So I think it's really, it's really a, a vibrant scene. There's, yeah, we can talk, we can talk more about it through, through the topics, and I can see how some of these issues are going to impact in the UK moving forward. But it's pretty exciting to be here. Cool. Speaking of meetups, we also had our meetups this week. Brian, so you had a meetup on Thursday, right?

Yeah, that's right, yeah. Yeah, so it was good. It was a bit smaller than the last, well, before we had a, a really big meetup before the link conference. And so this was like kind of back to a late back style. And I gave a talk on kind of incentives in Bitcoin. We're actually going to talk about some aspects of that later in the show. So the basic idea is, you know, how does having a currency that's also a technology,

how does that affect incentives for people to get in? How does it affect incentives for people who start companies? So I think it's an interesting topic And I think I want to build on to that And do some more research To make a really solid talk Then we also had Mindhart Ben

And there was the reason that coin desk article about him He built kind of a mobile Bitcoin ATM With a card reader A credit card reader It was like a hackathon prototype But he was demonstrating that And it's really cool Is that?

Some 37 coin? No Yeah, that's right. Oh, okay. Yeah, we talked to him in Germany. And York Plitzer talked for a few minutes. He mainly talked about his experience dealing with the media. Because there's probably, I'm not 100% sure if that's true, but he may be the person who's been covered the most,

Bitcoin related, or one of the most. I think they actually kept track how often room 77 is been in the media. and I think he said something like 100 million times, you know, there's been views or TV reports or everything. So he constantly gets media requests, and he was talking about how that has changed and the kind of nature of the request and what reporters want to talk about.

So that was very interesting too. How was your meet-up? My meet-up was great. So it was the second meet-up. About 25 people came, so a bit more than last time. because last time we were about 15, 20 people. So definitely I'm realizing that there's a community of people here that are interested in cryptocurrencies.

They just needed an outlet or a place to meet. And in any case, in France, I think the Lille community is, I mean, Lid is the only place aside from Paris that has a meetup. So it was really good. We had three talks. so Victor Merz came from Paris so Victor is the founder of Bitcoinomi DotFR which is a blog that I sometimes contribute to and so he gave a talk

kind of giving the you know a picture of Bitcoin in France where things are what things look like now and where things are going in terms of you know startups different associations that are being created like the the French Bitcoin Association, for instance,

and also kind of showed us who are the main people involved in Bitcoin in France. He also talked about payment systems because he works for Paymium. And then we had another talk by a guy named Benoit Boutri. He's a head of IT at a bank, and he wants to get involved with helping merchants accept Bitcoin. So he gave a talk about the importance that merchants, will play in Bitcoin adoption. And then I gave a talk about Mount Gox to kind of try to put together all the elements,

all the information that we've learned in the past few weeks about Mark Carpalis and the apparent hacks and negligence on his part in terms of security. So that was really interesting in terms of research because there's just so much information out there that we're learning about this guy. But, I mean, information that was already available on the Internet, on his blog, Twitter, whatever, social media he's been active on in the last few years. It's just astonishing to me that none of this ever came out before. And a lot of people, a lot of people there, I mean, most people there didn't really know about any of it. I mean, some people at the meetup didn't even know that he was French to begin with.

yeah we've talked about this topic a few times but i think you've done even much more research into it so maybe if we compared to where we talked last week what's what's kind of the main things you've learned since then or that's come out well i guess the main thing that came out this week and what kind of uh alerted the bitcoin community a little bit but it we have to kind of take it with a grain of salt is that apparently, so that the Mount Gox has apparently been hacked once or several times, so this is something we've talked about. And apparently some hackers have been able to gain access and extract all of the customers' information. So their email addresses, personal information, any personal information that they would have been put into the site,

but also their passports. And so this week... And I guess what would be interesting too is if they have trading balances and they would know how many Bitcoin people have. Right, so the training balances also. Now, so mind you, this was posted on PacePin, so somebody on PacePin posted this

and then posted it on Reddit essentially saying we have all of the information of the customer's information. We've already sold 20% of that information to clients, and I'm using air quotes, but by clients we mean organized criminals. And we're getting ready to sell the rest of it. Now, if you would like to have your name removed from your information removed from it, you can send us your email address, so they had published an email address. So they're saying you can send us your email address, and we will verify whether or not

that address was already sold, so in that 20%. And if it hasn't, then we will reply to you, and you can send us 0.25 Bitcoin to have it removed from, well, no, you can send a 0.25 Bitcoin to have it removed, but not, so the process of elimination that they're using doesn't certify that your data is actually in that other 80%, right? They're just telling you whether that your name was in the 20% that they already sent. Well, if they're on it, I mean, who knows, right? Maybe they already sold it, but they're still. going to charge you or they will charge you and they still sell it. It's like, I mean,

I, I, I can, anybody including myself or any of you could have just went on also on paste bin and posted this completely, you know, fabricated post, right? So nobody knows if this is true. I guess the question is for people who, people like myself, who had an account at Mount Cox but didn't, I didn't, I didn't, I never used them. The thing is, I don't remember if I sent them my passport or not, you know, I don't remember. remember if I verified or not with them. So I was a little kind of uneasy about that when I learned about it, but then I, you know, reading the Reddit posts afterwards, the people responding to this, basically saying that, well, this was most likely fake or made up. Yeah. Is there, is there any,

I mean, I haven't been looking at this that closely, but have there been any information actually revealed to prove that they are holding some of these accounts or is it just the paste-bin post? So apparently there has been, I haven't seen any actually but I've

read about people having said that their information had been revealed and sort of they had apparently revealed some information to prove that they did have in fact some client data but

and then another thing was wasn't that they posted some files that they said there was the Mount Cox code I think and then there was actually Bitcoin sealing malware in that yeah

I saw that yeah I was very close I mean when when these things appear on Reddit you sort of automatically start clicking through and then I was thinking about it I was like, you know what?

If I had all of that data, if I had the real stuff, I probably would not be posting it on Reddit. And then I realized that actually there's, it's not 100% sure that that is, that that's true data anyway. So they were saying that it shows that Mount Gox is actually solvent

and Mark is holding off the coins and stealing it and all this stuff. And I think that, I mean, from my perspective, the evidence is just completely unconclusive. So there's, I mean, that snapshot could have been taken at any moment, and it could have been what Mount Cox believed was true and actually wasn't true. You know, there's various different plays that could have explained that. So just one little interesting bit of information about this. Maybe a coincidence, maybe not.

So Mark Garpellas had a blog. His blog was blog.mog.magicaltops.net. He's been posting on there since 2006, originally in French, but then later on he started posting in English. He hadn't written anything on his blog for at least a year or two. And so in 2010, he wrote an article about how he was, so he's basically explaining how he would like to write an SSH protocol in PHP. So Mark Carpellis notoriously known for having rewritten the Bitcoin wallet implementation on Mount

Cox in Ph.B apparently wanted to try to write SSH in PHP, which, I mean, it's just blatantly stupid if you're thinking about it from just a security standpoint. Like, I'm not a security expert by any means, but I do know. know that PHP is not made for this kind of thing. PHP is made for making websites. And rewriting SSH. Right. Okay.

So he posted this article where he explains how he would do it, and people obviously commented. And in the comments, there's one guy who says that, he says, congratulations, you've made the least secure implementation ever, what about these vulnerabilities that you'd be exposing yourself to? And so this commenter, his name is Nanashi. And then Mark responds to him, basically just discarding his remarks. And so the interesting coincidence is that the guy, the person who posted this on this information about people's personal data on a paceman was also

nicknamed Nanashi. So is there a link there? Is that the same person that was tipped off in 2010 about this potential vulnerability? And I guess the question is, I mean, this doesn't prove that Mount Cox did have a PhP SSH implementation, but it certainly does hint at the complete lack of professionalism in terms of security at Mount Cox. And the arrogance of Mark Carpels to think that he's some sort of job. genius programmer and that he can

rewrite SSH and PHP and from what I've read and the picture that I was able to kind of paint of this guy and his character and his personality is that I think that he's somebody who's extremely arrogant

for one and has complete kind of arrogant and narcissistic if you read this blog I mean yeah and that he might actually think that this is a good idea and try to pull it off and have it blow up in his face.

Yeah, and completely overestimates his technical skills. Of course, yeah. Yeah. So one, I mean, just to, the thing that's interested me most about this Mountcock story is the news this week that came out that the bank, the Japanese bank, Mizoohoo. I don't know how to pronounce that properly. I hope I pronounced it okay. It has also been kind of folded into the complaint in the U.S., the legal complaint against Mount Gox.

And just wondering what we think about that relationship and what that means not just for Mount Gox and the people who own Bitcoins on Mount Gox, but for exchanges more generally. Yeah, I said that. I mean, you sent it to me and I saw in the suit against the bank, they said, you know, the bank was profiting from fraud and so basically complicit in Mount Vox's fraud. I don't know anything about the legal side, you know, whether this is any chance,

whether them suing in the U.S. versus Japan makes sense. So I don't know anything about that. but I can certainly I guess one thing that follows from that is that one thing that explains as well a bit is the hesitation a lot of banks feel towards working with Bitcoin businesses

because something they don't quite understand anything like oh what kind of liabilities can bring get us to us yeah I mean I think it has I think it has I saw Jeff Garzik on Twitter yesterday kind of sighing

with being quite annoyed that this bank had been sort of brought into this case. But I think we've sort of seen for a long time the hesitancy of banks to back Bitcoin businesses. And I mean, this is a case where actually to get a full banking license and to have that kind of support, maybe there does need to be regulation and sort of liability placed. on the exchanges. So I think there's the lessons learned out of Gox obviously come from a security perspective mainly for the other exchanges, but also in terms of managing banking relationships and ensuring that the exchange takes liability where it needs to avoid this kind of mess that

mangrove is in. I mean, I don't know about the regulatory situation in Japan from what? But I understand Mount Gogh wasn't really regulated there in any way. But if you look, for example, at Germany, but I think at other countries too, operating a Bitcoin exchange is a financial service, so you do have to get regulated. And when you do that, I think the way that usually works is you work with a bank. And then the bank, of course, basically provides their license for you. And there will be some kind of contracts.

And that means there may even be an integration into the earner. internal auditing system off the bank. So they will be tightly integrated and they will certainly be liable. Yeah, interesting. So that would be like the Fidel bank in Germany. Exactly, yeah, exactly. I think that works like that there. But maybe it was different for Mount Gogh's because they didn't have to get regulated.

So perhaps they only had a bank account. Right, right. So this would be, yeah, the, the, model the Fidel and who banks for the Fido Cracken and yeah Tracken

yeah those two that's right those two yeah so they they must have they sort of have like a much more integrated approach

with the bank and therefore it's more it's more likely that there won't be a complete mess if anything goes wrong right

no this would not have happened yeah no there's no way this this magnitude I don't think there's any way this could have happened in such a constellation. Yeah, I agree. So the thing that this kind of brings me onto is the separation of exchanges from holding funds. So in normal markets,

in like the stock exchange and other asset markets, you have essentially an exchange which does the matching of trades. And then you have competition amongst people who fund account on the exchange and there's different levels and competition introduced at all of the at each phase so you don't have single point of failure and you have competition to encourage higher quality services for consumers and one thing that immediately springs to mind for me is well that should be that that might be the next phase of of Bitcoin exchanges What do you guys think about that? So how does that work really for the stock market?

So you have the exchange which, like you said, matches buyers and sellers, but then you have different levels of services under that, which deals with the actual holding of funds and such? Yeah. So like you have, say, for example, I'm trying to trade in the stock exchange, while I'll have an account with a bank that I choose out of all the banks that can be, I think they call them, what do they call them, either primary accounts on the exchange,

but basically they're going to input trades into the exchange on my behalf. But I don't rely on the exchange to have funding, and the bank net settles with other banks who are on the exchange. I see. So if I'm buying, if I'm buying shares, then I'm buying shares from another bank and there'll be like a net settlement that will happen between the banks and I'll have, I'll have shares to my name. But it's not the, it's not having everything under one roof,

in which case, you know, there's huge risk of failure and embezzlement and lots of things that we don't want. I think this is really interesting. I've never thought about this, but my kind of first response to that is that the reason probably why you have that is also because of the complexity of our financial system on your selling stocks and who's the custodian of the stock, how do you deal with dividends, all those things, the voting rights. This is such a complex mess, whereas Bitcoin is so simple. I find it very hard to imagine how that will work with Bitcoin. Yeah, I agree with you, Brian, where I think that a lot of people, I think, from the kind of more traditional, so just as a disclaimer, I'm not an economist,

and I know very little about financial systems, so this is where I'm kind of out to the side from both of you who studied economics. Yeah, so the financial system is. extremely complicated, as you say, and Bitcoin is something that's very simple. And I don't think that we need to go towards a model where things are complicated and complex. And so what you're saying, Jonathan, where you have different levels of service providers, to me that just sounds like more fees and more tax on the Bitcoin user and somebody who just wants to buy Bitcoin from an exchange.

I mean, I would think that where this is going, and there's definitely evidence for that. For example, we interviewed Tom Ars Blumer and he's working on, I mean, I think he's built an exchange that uses multi-signature addresses. So in that case, I don't know exactly how it works, but in that case, the exchange basically cannot steal your money. and I know also in the recent hackathon we had here one guy built a project which was basically a decentralized cross-currency exchange that also had with multi-signature addresses and that's kind of semi-trustless

so I guess you could get robbed but you would need to have the exchange being corrupt and the other party being corrupt just the exchange is not enough So I think it's probably more going towards that, like leveraging multi-signature to make it secure. Yeah, so you need to find someone that you essentially you trust to hold that other signatory power. But the problem with that is, yeah, you can have collusion between the exchange and that third signature. True, but that's a lot more difficult.

Yeah, no, true. 100%. The only issue also is then, well, are we moving to a situation where funds in and out go slower? I mean, there's lots of trade-offs that kind of become, yeah, that you expose when you start, when you start upping this security. So I agree that like the single exchange where everything's underline. one roof and you've got a yeah, and you've got a trade engine, you've got

a really secure way of storing the bitcoins on the exchange. That's like an ideal scenario because you don't have any of these frictions. When you start introducing multi-sig, well, then you've got a problem where I'm not going to be able to take out bitcoins very easily.

Yeah. Well, no, hold on, because I sign it and then the exchange signs it and I get my coins. Is that? That's how works, right? I'm honestly not exactly sure how it's being implemented there. So I don't know. But I think it's a good topic to read about and come back to.

I know they are doing. So the first one is called Bitcoin Bullion. So this is actually a gold backed of Bitcoin Bullions. And this is built on the technology that was, Oh. That was developed by Thomas Bloomer, and he's a bits of proof guy. And so that's, I think, a gold Bitcoin exchange, and the gold is with some third-party custodian, so that, of course, you rely on the trust.

But I think for the Bitcoin side, Bitcoin balance is on there. They use multi-sig, and the idea there is that the exchange can't steal it. But I don't know about the exact implementation. But yeah, we should read about this and come back to it. I just want to add something. So, of course, we need to have systems and processes in place and transparency and accountability to the exchanges so that this sort of thing doesn't happen again. But most people, I think, who are in the Bitcoin community,

and this is not to say that this would protect us, most people who work in the Bitcoin community and have exchanges and businesses around Bitcoin are honest people. There's a, there's one thing that we have to remember is that Mark Carpalis was a dishonest guy who had been involved in payment fraud before, who had been involved in very shady deals. just a toxic person is how I'd like to describe him in the Bitcoin community. So remove that, and then I think you have people that are honest. And of course, we need to have this kind of transparency and trust systems and multistigensure and what have you. But let's just kind of remember that this guy couldn't be trusted.

We shouldn't have trusted him, and all the signs were pointed to that. anybody who would have read his blog before all of this would have said, whoa, I'm not putting my money in this company. Now, just I wanted to talk about, because we spoke about regulation, I want to get your idea on this, Jonathan. So I don't think that exchange, that we need to add many layers of regulation for exchanges.

I think that there are some things that need to be done in terms of regulation. But I think that the Bitcoin ecosystem is capable of self-regulating because it's based on the principle of transparency. I mean, the Bitcoin protocol itself is based on the principle of transparency and openness. And if Bitcoin exchanges hold themselves to a level of transparency and accountability about their processes and how things are handled in the back end of their business, I think that at some point we'll be able to even perhaps have some sort of a label, right? So a label of trust where these are the commandment,

that exchanges have to live by, and these are the ideals and principles, and these are the security implementations that they'll have to put in. These are the commandments. This is the label that defines an exchange as being trustworthy and safe and where we can keep our money.

And so that authority would then give that label to the exchange or to exchanges or Bitcoin companies that abide by those rules. What do you think about that kind of scenario? Yeah, I mean, from the security perspective, standards are definitely the way to go and there shouldn't be any heavy sort of regulation, like draconian regulation on the security front.

I do think, though, and so the trust, worthiness of exchanges, I think, will continue to be largely down to the individual. But the, I mean, from the beginning, we've got to understand, the way that I think about Bitcoin is that the transactions are irreversible. Possession is everything. So when stuff goes wrong, stuff goes really wrong, because you can't, you can't, you can't claw back any claims that go

missing. So the consumer protection for individuals is really important to get right. Now, the security of the exchange is not something that's going to get regulated. There probably will be I mean,

yeah, I mean, I don't know exactly what's going to happen, but I think the exchanges should be responsible for their coins and liable for their coins. So if they're going to store coins, then I think the model of having like insured storage, like elliptic or like this startup, the Swedish Zappo, that receive funding, I think that that's a pretty interesting solution for exchanges because it's just, you know, people don't make good decisions. We saw it with Mount Gox. There's not enough information out there to make a really solid decision about this. the security procedures of Mount Gox. There were plenty of people,

Eric Wohy's, who is built, coinapal, had coins in Mount Gox, and, you know, that, I mean, he says now that I should never have had coins in there.

Well, actually, I mean, there's a lot, there's a lot of people less technical than him that are getting involved in Bitcoin, and they should be protected.

So I think standards is really important, and that's something that will be there. I think the liability issue might also play a role here. Further to that, I mean, I think there will be some AML KYC type regulation that will need to be had on the blockchain. And I think one kind of... On the blockchain? What do you mean with that? Sorry, basically that parts of the...

I think that some of the coins, the funding of... accounts with Bitcoin in the regulated economies will probably, they will have to do sort of AML on the blockchain where they're going to start looking at where the coins have come from. You mean as in if someone wants to deposit coins in an exchange, they have to do KYC first, creating accounts and in the passport, etc. Is that what you mean? Or do you mean they have to prove the origin of the coin?

So, yeah, I mean, I'm not sure exactly how this looks going forward. But, I mean, I would have thought that, I mean, the KYC is obvious. The AML procedure where we're going to start talking about money laundering, well, that's going to have to have, there's going to have to be some intricate Bitcoin knowledge sort of employed. here because I mean we don't we don't want a situation where lots of what we would

say for example we can all we can all say that the people that hacked if Mount Grox was hacked and the coins was stolen then can we say that we don't really want those coins to be spent by those people and we can say that

and then now I know like I mean I know the ethos of of Bitcoin but the point is that when you're running a legitimate business you can't have those coins go through and I'm not saying anyone knows where they are

but there will have to be some procedures in place to try and understand the origin of coins I think that's very problematic though I'm certainly see where you're coming from and it is true that it's worrying if you think about it

that some hackers stole 750,000 bitcoins. And you think of like, let's say Bitcoin really lifts up to the potential that we see, and they are going to be worth, I don't know, $100,000 at one point or something like that. And then a bunch of criminals, you know, assuming that a bunch of criminals have these enormous amount of wealth, that's very worrying. I agree. But the problem, of course, is if you start looking at the, origin of a coin is that the fungibility is threatened. And I think that's extremely dangerous.

So my hope is actually more that people will develop anonymity tools, whether it's like coin join or a dark wallet or maybe things that come afterwards that will make this impossible. Because I think it's very threatening. It's a big danger if people start doing this. Of course, any country can come in and say, like, you know, we're not. going to let these people spend their coins because we're not in agreeance with their political views or what have you know we can get into that kind of scenario i mean then you can start saying like oh but no they they came from wiki leaks or like it's or yeah i completely agree that it's very

worrying but i think from the practical point of view of if i'm sitting there as a financial regulator and i'm applying certain rules to banks and i'm saying that you need to verify sources of, you need to know about sources of funds for these types of transactions. I see them enforcing some sort of law. I mean, once they get their head around how Bitcoin works, which is going to take a while. But like I see them having these kind of qualms. And I'm saying, yeah, I agree that coin join is very well, is important to protect

user privacy and stuff like that. But you could see a situation where. there will be an attempt to... Yeah, I agree. No, I do agree. I think these attempts will come, and it's certainly a debate that we'll come back to. I think we actually talked about it once before,

you know, when there was this coin taint idea by this American... What was it called again? The taint analysis stuff. No, they wanted to, like, white-label coins and anyway, but, you know, people have had that idea, and I agree. I think it's a debate we'll have, and people will try things like that. I mean, I think it's a debate for, I mean, it's one of, I think it's one of the trickiest,

one of the trickiest questions facing Bitcoin, if it goes legitimate in terms of, in the eyes of regulation. So, I mean, obviously these issues don't even apply. if Bitcoin, say, is a political project that tries to subvert these powers and continues to, like, protect users who don't want to be oppressed by the government, then, you know, like, this isn't an issue. But when it comes to, like, trying to integrate itself into the existing financial system, then it's got to answer these tough questions, which are, well, should a coin mixing service be allowed? I mean, you know, that's going to come along. And some players are going to say, well, yeah, let's ban, let's ban coin mixing, which makes everything completely.

I mean, my thinking on this point is actually that if Bitcoin is to be a very successful payment system, et cetera, you know, replaced the credit card on that kind of level, then what's really crucial is transaction costs. And when you start doing these things, the transaction costs, it gets so much more complicated. I don't think the transaction costs can stay that low. If we go in directions like that,

so I think the only way, actually, for Bitcoin to be a really, really powerful payment system, a system of moving value around is if you do not have to care where the coin came from. And for that, we do need fungibility. For that, I think the only way to do that is because people will try to track it or do certain things like white listing or red listing. So I think the only way to do that is if you actually build tools that mess this analysis up completely. That's my thinking of this.

But yeah, I think it's an interesting area and one that's going to be a lot of debate will be centered around it in the next years. I agree. I tend to think that we need to have as little layers of regulation and control. I mean, obviously there's consumer protection questions that arise and that need to be dealt with. But, you know, I was talking to a merchant here yesterday and trying to explain to her the advantage of Bitcoin. And for her, you know, 1% transaction fee on a credit card or a bank card transaction transaction is, is high, 1%. So as soon as we start getting into, you know, talking about like half a percent of the transaction fee or even less,

like it loses all of its interesting aspects for merchants. And, you know, they're the ones that are going to be making adoption move forward, right? But I don't think that's true in general. Like in general, 1% is extremely low for credit card fees. I was also in the, I know you mentioned this before, so I guess there's exceptions and there's quite a range. But there was a, and we'll come back to this briefly as well, but there was this report by Goldman Sachs this week. And they actually did an analysis of, you know, all the, all the payments, all the transactions are made and the transaction costs and the average transaction costs. and it is something like 2.7%.

So, you know, there, if you talk about half a percent, that is very significant. I think it's actually, I think I remember it was 2.7% on average for retail and like 3% online, if I remember correct, but in that ballpark at least. I mean, Brian, you make a good point about the, about the, about, about, the numbers. And I agree that transaction costs need to be very, very low in order to ensure Bitcoin's viability as a payment, as a medium of exchange, really. The way that I see, I see that going in, it's a completely different method, though, from credit cards. Because the way that you have to think about it is that credit cards, you pull information. So you give someone all

your data and then it's a pool request from the merchant acquirer that pulls the funds into the merchant's account. Now, Bitcoin's a push system. So I, the owner of the coins, sign a transaction to give it to the merchant. Now, that's a completely different model of payment to what we usually see in the payment space. So that's a, I think the competition that Bitcoin faces is not just on a fee basis, but on literally like the mechanism by which the payment is made. So there's a couple of new systems that are doing more push type payments in Europe. And it will be interesting to see what fee structure they use.

But also just that, that's the kind of thing. that's going to compete because if you think about it, credit cards are a way for people to spend money they don't have in that moment. That is that's what credit's all about. It's about giving someone the ability to spend money when they don't have it on.

Well, it's both, right? I mean, it's a lending thing and it's a payment system. Right, right, exactly. But the point is that... And by credit cards, we also include debit cards, right? So it's not only a credit system. Yeah, but what I'm saying is that like the credit system, just I don't, I don't see it directly competing with Bitcoin because you can't replace,

you can't replace credit cards with Bitcoin because. No, that's completely true. The lending function, no one's done with Bitcoin and maybe someone will try, but that's, that's completely different. I agree. I mean, it's only on the payment system side that Bitcoin competes. Yeah, exactly. But in that way, I mean, it's not, yeah, in that way, you have to.

to think about it competing with debit cards. Like, credit cards for me is just like a non, it's a red herring to compare the two. It's apples and pairs because like, if I'm a credit card company, I need to assess your credit wordliness. Now, if I'm going to set up a Bitcoin credit company, I'm going to have to do the same thing.

Because you don't, by definition, you don't have those funds in your account to pay the bill. Yeah, no, I think, I think, when I talk about using Bitcoin, This merchant, for instance, I was talking about a while ago. I'm talking about debit cards. Depend cards, yeah. Which, I mean, depending on the country, like, I don't know how it is in the UK, but in France,

I have a debit card, but it's a visa debit card, right? So it's still using the visa back end. I know that's not the case. The visa payment out where, that's right. It's not necessarily the case in the U.S. or Canada, but in a lot of countries where chip cards have been implemented as the standard, Visa and MasterCard, are the issuer of the card, right? Yeah, but the thing is that visa charged differently for credit and debit.

You have to know that. So, like, in the UK, a debit card transaction, even on the visa network, costs about 16p. So it's very cheap to pay with, to pay with debit. Now, Bitcoin has to actually go in between, and also not any in between, but like, it is better the debit because of like the the settlements and it is a push still debit is somewhat of a pool is it's a half halfway house between a push and a pool but the the the the the Bitcoin is a new like method of payment and I don't know whether it's actually going to be long term be able to compete on price with with with some of these with some of the debit type systems The credit systems is a different program.

Yeah, that's something that's kind of interesting because, I mean, here in France, credit cards are virtually non-existent. So in France, I mean, I'm from Canada. I had three credit cards when I was 20. So I know that kind of system based on credit and where you need a credit card to be able to make online purchases and such. In France, credit cards, like, unless you get an American Express card, which are very expensive to get your hands on and are used mostly for travel. expenses and such by people who work for large companies. Credit cards don't exist. So you have a debit card with your bank, but that debit card is essentially a visa that you can use to make

online transactions or purchase in stores. There's a chip on it. But so those, I guess what I'm meant to say by that is that, you know, different markets or different countries will have different ways of going about it. Yeah. One kind of thing to just sort of throw out there is that this is something that I think a lot about. But there's a huge disparity across the world between different countries, as you say, in not only like the holding of debit and credit, but also just like the overall cost of the payment system varies so much between countries. I'll give you an example. So the The cost, the social cost of a payment system, of the retail payment system in, I think it's, in Norway, is like, North point, well, it differs between debit credit and stuff like that, but like it's like 1% of GDP. So there's huge ability for us to, like, reduce that burden on society. and I think Bitcoin gives us a really interesting solution to that problem. Now, it has to be said that some elements of the payment system like debit cards

and in some cases cash are quite efficient means of payment. And it's about finding the exact position for a Bitcoin type technology or Bitcoin itself to really disrupt this. but I don't see it as like it's definitely not a one silver for me at least it's not a silver bullet at this point that's it

yeah that's very interesting I think it's there are some ways of thinking there that I haven't I tend to be very convinced by Bitcoin and I tend to not see credit card companies or those existing payment networks

as much of a competition at all but perhaps that's wrong. But let's move on to the next topic because we have a few more things to cover and we're already quite a bit in. So perhaps we can very briefly talk about the VC round. SAPO, I think that's how you pronounce it. They're a San Francisco-based company

and they're building a web wallet that also has a kind of an insured component to it. So the way they think about it is a split between, let's say, a checking account and a savings account. So the savings account would be insured and it's some sort of cold storage thing. Judging from the website, it's in a forest. But they don't officially disclose it. Well, no, yeah, they have come out and said that some, of the storages are in like mountainous caves I think exactly yeah there is like snowy trees on there so I don't know if somebody will be able to figure out according to the constellation of the

tree where it is I think it's geographically dispersed as well yes yeah it is I was reading about it earlier and it is geographically dispersed yeah yeah yeah perhaps several forests but it's it's it's what's interesting here because we've talked about this before, but there's a competitor in the UK named Elliptic that's doing essentially the exact same thing. And this XAPO company claims that they do this for 0.12%. So the cold storage, that's the fee you pay every year for the insurance. And of course, that's very cheap. And then you compare that to Elliptic where it's 2% yearly, which is not that cheap. So that's interesting. There was some debate about whether that's actually true.

On Reddit, some people claim that they are in, they know the company, they know people who worked there and they said that the insurance coverage is actually not covering all the assets, although the company then came back and says it does, so we don't know. But yeah, it's an interesting, it's an interesting story and I think it's a valuable service. But what are your thoughts on this? I think that Elliptic and Zappo try to target a very different clientele. I think Elliptic vault is geared mostly towards large companies with large Bitcoin holdings or individuals with large Bitcoin holdings, whereas Zappo seems to be much more consumer-oriented.

They have a wallet. I don't know if that's true because Zappo, supposedly they've been operating for two years already, and they already have, which seems kind of crazy in Bitcoin Times, no two years, and they are storing large amounts of funds for institutional investors, hedge funds, etc.

So at least from what I've read, is that service was actually built for professional investors, and now they're kind of adding, adding this consumer layer on top. But it's true. Because where elliptic really will continue focusing on that kind of higher-end clientele, Zappo is trying to get into the consumer market and try to sensibilize people as to, what are some of the best practices for storing Bitcoin.

And this comes back to the problem that we've been talking about so much, as people being able to store their bitcoins in a place that's safe and where they can trust that that money will be there when they need it and at a price that's reasonable, right? Yeah, I think this is very interesting and it does a lot to try to promote the use of Bitcoin among consumers and kind of gives them a tool where they can do that. And what's interesting, too, I wanted to point out, they've got a web wallet, which is really cool. But it takes about 20 seconds to create.

So for iPhone users, I think this is a good wallet solution for a day-to-day wallet. Yeah, I haven't actually used it myself, but I've heard that it's a really nice wallet. Yeah, it's super easy to use. Yeah, design is very nice. One thing, I mean, just as a point of interest about the setup of these companies, is that the company ensures the vault as a whole. So it's not the individual holdings of, like they don't set up a separate insurance policy

for each individual holding of Bitcoin. The company itself is insured for its whole vault. let's assume that it is insured for its whole bulk. And that means that there's some diversification risk here for the insurer because if someone manages to get in, if Zappo has managed or Elliptic for that matter has managed to somehow separate these keys of individual users, you might be able to get some sort of diversification risk.

If you can prove that a hack would not take the whole cold wallet out of... What would you mean by diversification risk? So the point is that when someone insures something, if there's a like a single risk, so if they kept all the cold storage on one piece of paper in a vault somewhere, if that's gone... If that's gone, then the whole thing's gone, right? you've got a single risk.

If they manage to like sort of separate lots of, lots of these things across different locations where a single, a single hack would not take all of the cold wallet, then there's, you know, you've got a little bit of diversification on the insurer side and you might be able to get a slightly better deal. Yeah, okay.

So that's a good thing then. Yeah, it's a good thing, yeah. But I'm not sure, I'm not sure exactly how that works. I'm friendly with the guys who run elliptic and they I mean they're very very sorry they all have PhDs from Cambridge in computer science and maths

and whereas yeah and they they've they're looking at lots of they're 2% offering at the moment is very very competitive from their point of view I personally find it expensive you know

I was, because I'm working on these investment workshops, so one area that I was thinking a lot about is security. So what do you tell people, like, so people who are not familiar investing Bitcoin, where do you put your bitcoins? And because obviously telling them, well, you know, set up, separate up system with Linux and then install Army, et cetera, I think this is just beyond the technical capabilities for most people. but then I personally feel 2% is just pretty hefty.

I think that's, uh, it's, it's sort of, uh, but I guess it depends, right? I mean, if they get stolen, then, uh, if that's alternative, of course, 2% is very attractive. But I think it's also something that's going to come down, no, because it just scales amazingly. The cost is probably going to be pretty much flat. I mean, insurance, of course, scale. with the with the amount of holdings.

But still, I mean, I presume this is going to come down dramatically. Also, when insurance companies are better able to assess the risk, maybe they have like practices that they tell these companies to implement, that they're very sure that they're secure.

Yeah, I mean, yeah, I completely, I completely agree. I think from what I've heard, and I don't know how true this is, but I think much of the 2% cost is actually the insurance cost. Yeah. And that is, and yeah, that's something that does scale with the size of the holding. And maybe Exapos got a different business model. Maybe Elliptic makes their money on kind of, you know, some margins.

That's a good point. I was actually I was actually reading in the Reddit response that they have some sort of Bitcoin reserve that I think are funds that actually in possession of the Zappos or Xappo which would then be used to cover

I guess potential losses. Of course if they have something like that then it might help them to get an insurance just for the excess and that might be much, much cheap. paper. I think it's an interesting space that we should continue watching.

I agree, yeah. I'm going to use it, maybe not to put all of my Bitcoin and hold things, but I think I'm going to use it for a little while and see how easy this to use the vault. One thing that I like about it, not to keep comparing it to elliptic, is that when you get to elliptic, you've got an elliptic vault application form

where you've got to fill in all your personal details, secretive questions, submit an act. application, which then will get the verifying. Whereas XAPO really seems to be quite simple. I mean, you've got your vault address, and then if you want to retrieve your balance, there's certain security steps that you have to go through. And I guess from a user experience designer's point of view, this service is really, I think, geared towards ease of use and potentially just regular people, regular consumers that want to buy

and hold some Bitcoin, maybe a few thousand dollars worth or something like that, at a price that's reasonable. Now, I guess the question is, are they trustworthy? Are they really insured? You know, there's this Reddit post that claims that they don't have any insurance. But then some people kind of came back on that and said that, in fact, some people that supposedly work, for example. So I'm actually speaking on a panel with Wednesday.

Wednesdays at Coin Summit. So I'm going to ask him some of those questions. Excellent. Yeah. Okay. Would you come back and give us a recap after you come back from Coin Summit? Sure. Yeah, sure. I'd be happy to. That'd be awesome.

Well, let's say, do we want to do some update on the Satoshi Doran Satoshi story? Yeah. It kind of feeds into a little bit of what we were talking about earlier with Coin joins, right? like the I was sitting for a completely different reason sifting through some of the early the early blocks on the blockchain looking at

I was particularly interested in well were people consolidating coins into a single address because I've done some I've done some work in the past on the distribution of coins

and the sort of concentration of coins in particular addresses. So I was interested to see, well, what was the behavior in the beginning of the blockchain? And I sort of stumbled upon an address that I saw, which was used on the 16th of January 2009, which was only 13 days after the beginning of the blockchain. And I saw that the last payment that it made was to the Dorian Nakamoto Fund, started by Andreas. So I started thinking, well, and then I looked at the coins that were spent, that were used in the 16th of January transaction, and they were mined on the 13th, so 10 days after the beginning of Bitcoin. And I thought at that time, I thought there were only two people on the blockchain. I thought there was Hal Finney and Satoshi.

And I looked through Hal Finney's stuff, and he said that he wasn't active in 2010, and yet, this wallet had been used in 2010. So I started getting the kind of affirmative bias that we all have and I said, well, maybe this is Satoshi signing a transaction to reveal that he's not actually Dorian. And it was like a really nice thing that I could trace where traced all the way back to 2009. Now, the address actually does belong to Dustin Trammell, who's a security he was actually in Israel, and he's been accused multiple times of being Satoshi or sort of confused with Satoshi in terms of owning the coins that people think are Satoshians. So that was him who donated?

Yeah, so he donated. So I'm actually like really grateful that he was very generous with his donation. How much he donate? He donated 0.25. Okay, cool. Which I mean, that's a nice on money. and so he essentially what this reveals is that

this guy I know the history of all of his past transactions on the blockchain right and the I was able to identify okay so I didn't get the name right but I was able to link the transaction the donation to Dorian with a with a transaction back in 2009 and the thing that this raises for me is well, yeah, the ability to do that means that user privacy, even for the most advanced people, is something that should be looked at.

I mean, why should I know that this guy, Dustin Tramel, donated to the Dorian fund, unless he was making some sort of public statement, which maybe this is. So it just kind of raised, although I got the end story wrong, it kind of reinforced in my mind the need to think quite carefully about user privacy in the blockchain. Yeah, it's an important topic. I agree. So I've left the article up there on our website with the correction that it's not Satoci's coins, but just to show people that this type of analysis is possible.

And I also left it up there so that Dustin Trammell, hopefully someday he'll be exonerated. of these type of articles coming out. So I left a trail for other researchers because I'm not the first person to fall into thinking that he's the owner, Satoshi's the owner of one of his addresses. So is this part of your research, researching, doing blockchain analysis? Yeah, so we're starting to do that at Quenometrics.

We've got a new site being built at the moment that we're going to push out, that will contain lots of blockchain analysis. That's what I'm working on mostly at the moment when I'm working on quantometric stuff is thinking about what useful information is not being put out there at the moment on these block explorers. And I think there's, I mean,

I think there's a lot more that can be done. I mean, I think that the first sort of evolution of Block Explorers was really great and it's useful to be able to go and check transactions. But in terms of presenting data and presenting information, I think there's a lot that can be improved.

So at Coinometrics, we're sort of dedicated to putting out the best cutting edge metrics and stats so that people can, you know, I think right now the Block Explorers are also they're very techie. You've got to be familiar with the blockchain

and understand what going on. And I think the blockchain is actually really important for the next generation of users and even for like journalists and for people who are trying to get an understanding of what's going on in Bitcoin. And we're sort of building tools so that people don't have to, don't have to go through the minutia of all the transactions and sort of present graphs and visual representations of the blockchain. Cool. Cool. I just

donated to Satoshi's a fun there if you guys If you guys Also donate I still haven't done it But yeah I want to

He's gotten quite a lot No Yeah he's got 44 Bitcoin so far 44 So how much is that It's $20,000

Yeah A bit more Yeah Okay There is another topic We want to cover And it's kind of a Big topic

So perhaps We'll try we'll try to do a good job of covering this complex topic in a reasonable time. This week there was a report by Goldman Sachs about Bitcoin. Now, I highly recommend people read it. It's critical, but it's also intelligent and informative. It's 25 pages long, and I guess it's also a sign that the banks are really taking Bitcoin serious now.

And it has interviews and submissions by, about 10 different people. And two people mentioned a similar thing, which was they brought up the question whether Bitcoin, how defensible Bitcoin is against alt coins. And I was asked, I gave a talk on Tuesday and I was asked the same thing. It's like, so because we often talk that Bitcoin is limited

and the inflation rate is limited it will only ever be 21 million. Now, what's going to happen if Bitcoin is going to become extremely successful, vitally used? We generally assume that the Bitcoin price will be much, much higher, and people talk of $100,000 or things like that. But, of course, the question is, what happens, what's the effect of that influx of old coins?

Can that cause a type of inflation rate for Bitcoin? or could it at least perhaps a lesson that effect that a new adoption has on Bitcoin? And I guess on the one hand, I guess there's kind of two sides. On the one hand, you have the ease with which you can create new currents, and you have their usability. And of course, you can kind of leverage the Bitcoin network and use the same things, because a lot of the tools that are being developed, whether they use a Bitcoin or on Dogecoin or something, it doesn't make much of a difference.

And on the other hand, you have the network effect. So you ask like how much of an advantage is there to be one. So I'm curious what your thoughts are on this question? Yeah, I mean, it's a great question. It's something that I think I thought about first sort of a year ago and then left it and sort of concentrated on some other aspects that I was thinking about. And yeah, I think it's really important to reassess this at this point. And the thinking of mine goes a little bit as follows.

So the effect that we're talking about where the money supply kind of increases with these alt coins is only the case if there's substitutability between the different coins. So at the moment, I would say that the security of the Bitcoin network and the applications being built mean that there's not great substitution between Bitcoin and like coin from a use case. I think there's definitely been an increase in the amount of diversity of holdings of alt coins. I think if you surveyed, well, I actually know. one of my friends did it. He ran two surveys, one February 2014, one 2013, and there's much greater diversity of holdings in 2014 than 2013. People are really holding lots of different altcoins. But they, I mean, still for me, you know, the, the introduction of Dodgecoin would

not have had an impact on the Bitcoin press. At least that's what I think. And the reason why I think that's the case today, is that Bitcoin doesn't behave like a normal currency today. Now, if everything starts to behave more like a currency and take into account the real, like, supply of the underlying currency, then we might see the effects that we're talking about if they are, if there is also substitutability between them. Yeah. So my thoughts on this, I agree with you, largely, but my thoughts is like, where is this going in the future? It's true, right at the moment, it's not really a substitution. You have some light coins. Here in Berlin, there's a lot of things you can do with Bitcoin, a lot of places to go, things to buy light coin. That's not the case. I don't think there's a single place. So I agree at the moment. It's not really a substitution. Valid substitution. But just kind of touching on this, this week, I think it illustrates this point. This week, it company called Pock.io in the UK, they made some announcement that they accept eight different cryptocurrencies, so Bitcoin, Lightcoin, Dogecoin, and God knows what. And they're selling

gift cards like gift, so you can buy a Starbucks gift cards, for example. And I think the interesting point here is because most merchants will accept Bitcoin through payment processes. For the payment processes, if the old coins are traded on an exchange, it's trivial to say you can accept, you can pay with any old coin. And, you know, we'll trade it for the merchant, we'll trade it into Bitcoin and he gets Bitcoin at a marginal fee or into dollars, euros, et cetera, how BitPay does it today. And I think I heard once that Coinbase hasn't integrated. greated light coin, for example, also because of usability things, because they think it's confusing.

When people now have different currencies, I guess it's hard to make a wallet like that, and then they have new users, they don't know which one should I buy. But I don't know if that's going to hold. And I think in the future, I could imagine that it won't really matter. Do you pay with Bitcoin, light coin, those coins, any of them are fine. So do you see it as like, Like, I mean, possibly this is quite a nice way to look at it. And something that I've thought about is that there's kind of a market for cryptocurrency and you've got to look at the overall market cap or supply of all of these coins. Yeah, but that can fluctuate from one day to the next.

So tomorrow, you know, another dose coin comes out and that market cap can fluctuate quite rapidly, right? Yeah, of course. Now, I think it gets slightly even more complex when the, like, because of the mining situation, because you can mine all these different, well, if you've got like script, then you can mine any script coin, flick of a switch. So, you know, there's, they are very tightly bound, all these. all these old currents. Yeah, no, that's true.

I don't have the answer to this. I think it's an interesting question, but it's one that was brought up, for example, maybe I'll just read a part of this quote. So this is from Eric Posner. He's a very well-known legal law professor at the University of Chicago,

and it was in the Goldman report. And so other virtual currencies are flooding the market. If these other currencies act as competitors, then we're stuck with just as much volatility in exchange rate risk at home as we currently have to deal with in transacting abroad. If there's no limit to the supply, it would be very difficult for the currencies to maintain their value and very little reason for people to hold them, given that they could easily become worthless. I also disagree with those who believe that Bitcoin will prevail as the first mover because

of network effects. Network effects will not be strong. because exchanges can handle multiple currencies. I guess we've kind of, you know, we've covered that. But I guess a key thing here will be really the question of how much of a network effect is there. And how much will there be a fluid, kind of a fluid environment where you can just go from one to the other, you can pay with any, which would, of course, really lessen the strength of the Bitcoin position. I would just want to add one thing here, and it's something that not a lot of people think about. The network effect, I think the network effect in Bitcoin is huge.

And the reason that, I mean, everyone knows about telling all your friends to buy Bitcoin because that means the price goes up. But the more significant thing for me is a kind of more lock-in effect where once the early adopters of Bitcoin had their holdings and saw the value of their coins go up, they then became kind of an angel investor class where they were able to pay for lots of developer time to develop tools and apps for the Bitcoin ecosystem. and this kind of like internal thing is self-perpetuating where more people join and the price of Bitcoin goes up, the large holders are now can pay for more developer time

to develop more apps to to sort of make this ecosystem great and that's a, we've never seen that type of innovation model before and I think that that's been a huge strength of Bitcoin. That's interesting. I completely agree. That's actually

what I was talking about at the talk on Thursday. That's exactly the point. And I absolutely agree. I also think you bring up an important point, which is that the early adopters, they will have an interest in this not happening. They will have an interest in Bitcoin maintaining its dominant positions. But if we, so I agree for them.

And of course, they have a lot of influence. You have a company now and you ask like, well, do I want to integrate all these alt coins? well if you're a strong bitcoin holder then you're interest in that may be limited but the point is if we talk about bitcoin scaling from what is now perhaps a few hundred thousand really active users to a few hundred million then all these new people coming in they don't have the same vested interest in bitcoin 100%. And this is this gets to like the real key point. point here is that this is about the politics of Bitcoin. So the early adopters have a certain

set of incentives that are not even that well understood in terms of like the broader public. And then you've got these new adopters who also have incentives that might stand against, exactly as you say, against the existing Bitcoin holders. And you, you know, there's, there's lots of tradeoffs that are going to happen here. And it's, for me, it's not that clear that firstly people understand these trade-offs. And secondly, yeah, I think you've got kind of opposing interest there where, well,

why am I going to have to buy expensive bitcoins off a guy who's been holding them since 2009 when I could buy Dodge coin and sit on that? You know? Yeah, exactly.

And use it to transact. And then you know, then we're into kind of really interesting territory. And I think this is something you see. This is something if you read forums, Facebook posts on Bitcoin groups, et cetera, a lot of people who come new, that's exactly the way they think. They're like, well, Bitcoin is too expensive. It's over, et cetera. So, you know, that's for those people. I'm now, I'm much more invested in those coin or some other coin.

That's like where I'm going to sort of go with. And I think we are seeing that those dynamics. I want to ask something. So what you just said, Brian, that's supposing that people that get into cryptocurrencies are betting on the fact that the cryptocurrency's price will go up, right? Because if you're just buying Bitcoin to be able to use it as a payment system, then it really doesn't matter what the price of Bitcoin is, right, as long as you're buying enough to be able to be able to whatever you're using it for. From a very, like, practical point of view, you're right. But the point is that, you know, like, we're social beings and it's political that I have to pay someone who sat on Bitcoins for four years. I'm giving him a huge reward for doing that. Do you see what I mean?

I'm sure. Yeah. That's a, let's say that's like a political aspect of this project is that it's not a Ponzi scheme. It's not a Ponzi scheme. I don't think it is upon the scheme. But I am by joining it, making a decision that I place value on the fact that this guy or girl has held Bitcoin since 2009. Yeah, exactly. And if you think of what's going to happen, if Bitcoin gets adopted widely,

we will see huge distributions of wealth. And Bitcoin is extremely unequally distributed. So the question is also if people, if there's kind of a neutral decision, do I need to buy some cryptocurrency because I want to buy this thing over there, for example. But I can use any cryptocurrency because they have a payment process that can trade it and the merchant doesn't care. So now you do exactly have that kind of political aspect to the decision, which is you are determining as well, the nature of that redistribution, where does it go by choosing which cryptocurrency to invest in or the purchase? And I think Bitcoin may have a problem there

because it's so unequally distributed. I have a question. Something I've been thinking about it. I want to get you guys' opinion on this because it's so much more well-versed in economics than I am. So what happens when the Bitcoin price goes up and you have these people who become incredibly rich, okay,

because they hold something that has a lot of value. Like rich beyond, let's say Bitcoin goes to $1,000, what, like $4,000, 5,000, or even $10,000 a coin, right? And so these people that hold hundreds and thousands of coin become extremely rich. What happens then to this, what effect does that have on just the regular economy? What does that do for just the price of bread, for instance? Does that have any effect on macroeconomics at all? I don't know if I'm being clear or not.

No, no, no. You're being totally clear, and it's a really good question. I mean, I'll tell you, let me give you a slight bit of background on this, is that when I, at Oxford, when I speak to professors, a lot of them say to me it doesn't have any macroeconomic significance at this point. and yeah you're right that once once you start getting a huge say the market kept goes up and like there's huge amounts of this currency in the world well you know that that is going to have an impact it would it would technically raise prices now

yeah but if you think about this in some way I think it becomes kind of clear so let's say we have a few thousand people in London that have a substantial amount of Bitcoin. Or in Berlin, for example. Let's say we have a thousand people in Berlin. Now, if those become extremely valuable, what are they going to do? I think one thing they'll probably do would be buy apartments, no? Well, first they're going to go to space. Yeah, they're going to fly the space with Richard Branson and then they'll buy an apartment or things like that. So I I mean, if you look at something like real estate prices, I could absolutely see that having a certain effect,

just like you've had in Silicon Valley. I think things like the IPO of Facebook did have an effect on real estate prices. So basically what you're saying is places where the Bitcoin ecosystem is very vibrant might be some of the more expensive cities to buy real estate later? Yeah, so here it kind of relates back. it kind of relates back to what we were saying earlier,

where, like, actually this is, you can think about it as a transfer of wealth into those zones because the point is that when someone's buying, say someone buys Bitcoin in South Africa and the price of Bitcoin goes up and there's like lots of South African money going into propping the price of Bitcoin up, then if someone's holding a lot of Bitcoin in Berlin,

you've just had a transfer of value to that person from outside the economy, basically. And now they've got a higher ability to spend. And it's going to raise prices in Berlin. So you've got interesting dynamics where you can have transfers of wealth around the world based on the Bitcoin price. Now, this is assuming that it becomes very substantial.

But it's interesting dynamics to think about. Yeah, I think it's going to be extremely fascinating to watch this. I guess no one really has the answer because it's just something we haven't seen. So even the question of how do you think about this question is not clear? I guess it would be quite similar to thinking about like asset prices. Asset prices in certain regions where there's large concentration of holding of certain assets that have gone up in value. like London house prices reacting to stock market booms and stuff like that I think I agree I think if you if you look at some things like what you were asking Sebastian what's the

effect on prices then I think that works well right so we can we can use the analogy of a stock market boom or or perhaps I think the IPO is it perhaps even more because the IPO is a small group that benefit and I think it's going to be like that with Bitcoin too right um But then if we, well, you mentioned, for example, if you take in the global account, for example, then that's something we haven't seen. And there will be a lot of other aspects that, too, they're just normal. But I think your IPO example is perfect because who's funding that Facebook IPO? It doesn't come from San Francisco. The money that's transferred into San Francisco to fund that housing boom comes from all over the world.

That's true, yeah. Yeah, it's people pump up. money basically into San Francisco and that's what makes the house price go. So I think, yeah, it's quite a, I think I really like your, really like your analogy there. Cool. Jonathan, what's that? Tell us about some of the things you're working on. Yeah, so, I mean, the, we've spoken a little bit about coinometrics.

Just to say, it's a, we're still in the early stages. is we're growing out our team a little bit at the moment. And so if there are any developers listening out on the podcast, do get in touch through our support ticket on our website or through Twitter. We're looking to link up with people who are interested in presenting clear statistics and metrics to measure the Bitcoin and other alt coins coming. Can you just explain what Coinometrics is? So Coinometrics is a website that was started

in, oh gosh, October 2013 by Scott Johnson, who's a Cornell MBA JD. And we started working together from about the first week that the site went up. And we are just trying to put things into context, present metrics, how we should be measuring what's going on in the Bitcoin economy. because a lot of the charts and data that you see out there are just data dumps from the blockchain or price data that's just been sort of quoted and charted. And what we wanted to do is kind of add another layer of analysis and say, well, usually when we think about the economy, there has to be some work, some analytical tools that we employ to really get at what's, well, what are the trends, what's important?

not just how like presenting data per se. So we started creating a couple of metrics. We've got a volatility metric where we look at how the price is evolving over time. We've got this map that we've just put out where we show what current, what percentage of global trade is denominated in those different currencies. We created a metric about price dispersion between the different exchanges that's gone completely broken since Mount Gox. flew up.

We're fixing it in the new sites and the old site's not fixed yet. You're building a new site? Yeah, so we're integrating a lot more blockchain data. So we've got a new logo, a whole new look, and we're hoping to launch in the next week or so.

So yeah, it's a little bit frustrating going back to your current website and seeing things that don't work and saying well it would be better if we could fix all of that but it's not worth our while because we're pushing out this new update so are you guys

I mean you obviously know of zero block and their recent acquisition of what is it RTBTC yeah yeah so how does cornometrics how is cornometrics going to compete

with that is that what you're that kind of service that you're looking to build with kind of premium API access with the premium data for traders and things like that? Yeah, so I mean, that's one way that we're moving in that direction. I think the zero block is really centered around that app and really about traders and about providing good info for traders. We're more interested in providing more general information for also journalists and business. businesses. So trying to get at what the economic activity is on the blockchain will give businesses a better idea of

what they should be doing and what their competitors are up to and stuff like that. So we're more about providing more general information, not just trade-based information. And the model kind of starts to evolve where we're also developing some metrics where we measure fragilities on the Bitcoin network. So at the moment I'm working on a selfish mining detection metric where we look at the number of blocks that have come out in close succession and sort of plotting.

That's interesting. And essentially stuff like that, which we're continuing to work on, will be valuable to the community. And I mean, some of it will make available for free. And then when I start doing this full time, well, someone's going to pay the bill. So we're going to think about how to monetize some of that. And I think providing premium services where, yeah, premium API, where businesses can really take a close look at what's going on in the blockchain

is something that we're going to compete in. I think that's really interesting because to have that kind of a premium model where this data is, the data is, to be accessed and can kind of provide valuable information for journalists and other people that are interested in Bitcoin and then to monetize it with premium data I think is kind of the way to go because you're in any case you're doing the community of service and you're doing Bitcoin service by having that data available for everyone. Yeah, and I think like some sort of like delayed information on the site versus the

freemium model is something that we definitely look at. At this point, I mean, it's really about making sure that we get our kind of IP, right, so about how we develop metrics that are not just like data dumps, but how we really go about constructing rigorous analysis. And that's what I'm most focused on is how do I stand up and say that this is what is, this is, this is the volatility of Bitcoin or this is, is our dispersion measure correct and is it producing value for people? And we're really driven by an ambition to be the best in that. And I think there's a, there's a huge void in the ecosystem for good, good data that's being looked after and presented well. Absolutely, yeah.

Yeah, I agree. I mean, I think your volatility is something I actually look at quite frequently because I think it's the only decent volatility chart I've seen. Yeah, so I'm actually redesigning it at the moment. We're going to move to a rolling 30-day window where... Instead of a linear regression. Well, the linear regression, yeah, I don't like that at all. Yeah, I agree.

There's a lot of information lost there. Yeah. I mean, if you look at the R squared on that stuff, I mean, it's shocking. Anyway, but the also the thing is that in volatility metrics, you also want to have when the price jumps, say, 40% in the day, that should extend over a longer period than it does in our measure at the moment. At the moment we're taking a 30-day volatility where we're comparing the return

that you would have got in a 30-day period. We're kind of trying to measure daily volatility but sort of averaged over a longer stretch. And that will be on the new site. Okay, cool. And yeah, I mean, there's so much work that needs to be done on this. And I'm very excited to be speaking at Coin Summit.

to present some of these data points. And if you look in the news center, I write articles as well. And to provide really some objectivity into what sometimes what I feel is a bit of a shallow discussion. I think some of these conferences I look at and the level of stats and stuff being quoted is just not. not good enough. And we're trying to step in. That's great. Can you tell us about your talk with coins on it? So the talk is titled Bitcoin of Flash in the Pan. So I'm speaking with the founder of Zappo Wences Koceris and Susan Athi, who's a professor at Stanford. And we're really going to, I think this is going to be

centered around some of the fragilities of Bitcoin. Some of the, maybe even some of the issues that we've discussed today. Scalability issues. I think this alt-coin story is something that I'm going to work on for the talk. And, I mean, obviously

Wences is a real his Twitter handle is a Bitcoin fanboy. I like to come at Bitcoin in with a skeptical eye with some more analysis in data. So I'm going to sort of quiz him and see what he thinks of some of the stats and what's going on in terms of scalability. And I'm sure Susan Athi has been at some of the Senate hearings and weighing in very

heavily with her knowledge of payment systems. and she sees a I mean we all see a big potential for the technology but I'm sure she'll she'll weigh in with some of the some of her experiences from the from the regulation standpoint so I'm very excited for that panel it's on the it's on the 26th so day two of the conference and we yeah it's the first session of the day so um and i'm i'm very excited to hear what what and meet a lot of the a lot of the big names from

the space i think i don't think i've seen a lineup that's as good as coin summit um i know it's amazing you have like mark and dreason and uh all the the CEOs of the major companies and it's yeah it's a it would be a fantastic a conference to go to i agree yeah uh charlie lee the found of Lightcoin, Zach Harvey from Lamassou. Yeah, there's tons of really, really great speakers. I'm going out for 10 days, so I'm going to have plenty of time to see. When are you heading out? On Wednesday.

Oh, okay, already. Okay. So I've never been to the valley, so I thought I'd spend some time there. Yeah, yeah, that's it. I hope you have a great trip to the U.S. It's in San Francisco, right? Yeah, it's in San Francisco. And maybe when you come back, you can come back on the show

and tell us about your experience. Yeah, the only, there's two kind of final plugs that I'd like to make. Sure, go ahead. One is academic research. There's a lot of computer science research being done on Bitcoin and similar types of cryptography. and systems that is being, that's going out there that's really cool and people should go and check it out. There's a, I think in April there's a financial cryptography academic conference happening in Barbados that I really wanted to go to that I'm not going to.

But there's a lot of good work being done. More needs to be done, especially on the economic side and on the, the more social political perspectives. Because I think that this is a really fantastic piece of technology that can be harnessed for a lot of good in the world. And I think that it's really about getting some of these researchers to think clearly about the issues that we've thought about today and to put out coherent arguments, thoughts, provocations

to send this debate forward. So I'm the convener of the Oxford Virtual Currency, working group. We have like sort of monthly seminars about all different issues in Bitcoin, governance, structures, incentives, mining, intro sessions

and everything, some of the legal aspects as well. So we're bringing together geographers, lawyers, psychologists, just different types of sociologists even, to think about some of these very complicated issues.

And I we'd like to just plug it as if anyone is in Oxford and wants to sort of get involved or or wants to collaborate on any academic research, I'm happy to do so. And at a moment my research is sort of focused on some of the basic incentives of mining, particularly when the block reward halves. So trying to think about how the network would fund itself. in the future. That's very interesting. Perhaps we'll try to talk about that at some other point as well.

Yeah. Not something to get into right now. Yeah. I mean, that's too big of a topic. Sure. No, I'm, what I find interesting is that, yeah, like, we're going to see a lot of academic research being done in this field. Because for the time being, I mean, we're talking about businesses, we're talking about

investments and things like that. But, you know, the academic perspective. has to be put forward, I think. It's interesting because I met a guy just at my meetup this week, a political science major, and I saw him taking notes in the corner, and I went to see him afterwards. I said, are you a journalist?

He says, no, I'm a student. I'm doing my master's thesis on Bitcoin. So I just came to take some notes. So I think it's really interesting what you're doing. Yeah. Well, thanks so much for coming on. I think it was a great show. and it was lots of fun to talk about all these issues.

Yeah, thank you so much for coming on, and hopefully we'll be able to have you on again soon. Yeah, it's my pleasure. So thank you very much for downloading and for listening to the show. We want to thank all our listeners. And also, what we'd like is for you to give us feedback. We'd said this before, and if you could go to iTunes or SoundCloud or wherever,

You download the podcast and give us feedback on the show, give us ratings. That really helps on iTunes. In fact, if you could rate the show, that would be very much appreciated. You can also find us on Twitter at Epicenter BTC, where we tweet regularly. Yeah, and if you want to subscribe to our newsletter, we send out every Friday. Newslet is just about the news and developments in the Bitcoin world.

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