Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Meinhard Benn: Dark Wallet, Bitcoins for MIT, Bitcoin’s Limitations and Mining

Episode Date: May 5, 2014

For episode 18, Meinhard Benn was on as our guest host, while Sebastien was enjoying a few days off. Meinhard is the lead software developer for Bitcoin Brothers, a Bitcoin mining startup based in Berlin. Topics covered in this episode: Dark Wallet: Features, privacy and is this good or bad for Bitcoin? Every MIT undergrad will receive $100 in BTC Can Bitcoin scale? Blocksize, bandwidth, etc. Bitcoin Brothers’ ambitious mining project Episode links: Dark Wallet Bitcoin Brothers MIT Bitcoin Club This episode is hosted by Brian Fabian Crain. Show notes and listening options: epicenter.tv/018

Welcome to Epicenter Bitcoin. We're at episode 18. Today's May 4th, 2014. My name is Brian Fabin Krain. I'm a Bitcoin entrepreneur in Berlin and the founder of Bitcoin Startups, Berlin Group. And this is the second time in the history of this podcast that we're recording a kind of live in person, not remotely. And I'm here with Mindhart Ben. I know, do you want to introduce yourself? Okay, sure. Yeah. So I'm an internet developer. since I can think since I'm 16 years old, which is now 20 years old, so you do the math. And recently I did more and more projects with Bitcoin, so I participated in a few hackathons and just some small hacks to do with Bitcoin.

And I now joined Bitcoin Brothers here in Berlin, and I'm the head of software development there. Cool. So I should also add, Sebastian, my usual co-host, he has his mother visiting. So unfortunately, he's not able to be able to be able to be able to. today, so it's just a two of us. And I will look forward to our topics today. And of course, we'll also dive into the Bitcoin Brothers thing, which is a very interesting project later in the show. So there's been a lot of news actually this week, and I think some super interesting

news that I look forward to diving in. The first one is kind of a small story, but it's definitely interesting to cover. So a lot of you probably will have heard about this, that in MIT, the MIT Bitcoin Club has raised $500,000 and they're going to do this experiment where they're going to give every MIT undergrad this fall $100 in Bitcoin. And of course that's interesting because I guess there will be the highest density of Bitcoin users in the world in MIT this fall, which I think it's going to be fascinating. What's what's your what's you on this project? I think it's great, definitely.

It's like a huge opportunity and also like there, a lot of software has been born, a lot of innovation comes from exactly there, and to just inject this amount of Bitcoin there is a pretty nice hack, actually. And I'm glad that it's done kind of bottom up. It's like it's just like the club of the university. It's not like the dean or like the official management of the university that does this. It's just really kind of like, you know, like a prank in a way. Probably without.

Well, probably without the authorization. I'm not quite sure about the exact story, but yeah, I think it's great, obviously. Well, I don't think they need authorization for something like this, right? But yeah, no, I totally agree. I think it's extremely interesting to see what comes out of that. And I think that's a main thing they've pointed out is that there are, I think I read it on Fred Wilson's blog, he was mentioning that. But there's this big divide between, you know, you learn about Bitcoin, read about Bitcoin, abstractly and then you own some Bitcoin.

You actually have a wallet. And there's a big gap there. And it really changes something. Yeah, you actually feel a debt that you should do something with it. You feel obliged. There's kind of this pressure, which is a nice pressure. I mean, you have some money to spend. So you do something with it.

So you definitely will look into it, I think. And it changes it from this abstract thing to something, you know, very concrete and immediate. And yeah, it will be powerful. And of course, it will be also very interesting to see if they manage to sign up a lot merchants I think that's the plan and of course there's now a strong argument for merchants there where you know it's it's something that you know every undergrad will be able to to use and I think they also talked about having some

easy way to top up so if people spend it then I don't know if they'll set up an ATM or something like that but yeah I'm extremely excited it's true yeah and the next project I want to talk about which is has been kind of in waiting for a while, it's dark wallet. And they've come out with their alpha version this week. And I've kind of looked at it, and tried it out a bit. And I think it's extremely interesting. They have a few really novel features.

And those are stealth addresses, a coin join. They also have this thing called pockets, which I don't quite understand what it is. I think it's a more UI-focused thing. they're doing. They're using HD wallets, which I guess a lot of wallets are using today, but for being a browser extension wallet, I don't know if any one of those, the other ones use it. And they also have multi-stick. So, I don't know, mine has you been following this project? Only just what was in the news in the recent days. But I know some of the players involved and it's definitely

an interesting constellation of people I mean it's like it's squatters like it's like real hackers like real kind of against the mainstream not against the mainstream but yeah very outspoken people in terms of anarchy and like regulation and

deregulation actually so it's nice to see a big project done by these people and yeah it will definitely create some disturbance I suppose yeah yeah no absolutely I guess there are a few things about this. I think one from the technology standpoint,

it's just interesting software. It's very novel what you're doing. And I'm really, also even UI-wise, I think it's, have you tried it out? I have to admit, I haven't. So it's nice. I'm waiting for the final versions. I think it's really, it looks really nice.

And so I'm going to show you briefly. So, you know, it's, it's, well it looks really well designed and of course so let's let's briefly talk about these features because I think there are two two core features here when it comes to their goal and their goal of course is privacy so the those features are coin join and the self-adders thing now coin join works like this with coin join you base it's a protocol on how to combine inputs from different users who want to make a payment around the same time into one transaction and then that

transaction will have to output for both people. So to give an example, let's say mine heart wants to buy drugs online. Obviously, that's what I do. Obviously. Whereas I want to buy TV on overstock, something like that. And now if you both use dark wallet, then let's say they do cost the same amount. And we both use Dark Wallet, then both four inputs would be put into one transactions, and there would be two outputs.

Now, even if, let's say, the NSA knows that one address is associated with a drug dealer and one with overstock, they won't know anymore whether I bought the drugs or he bought the drugs. And now, of course, if you multiply that and you have this going on a lot, it makes blockchain analysis and tracing money flows extremely difficult or much much more difficult than they are today. Right, but that's

I think one of the point, one of the criticism it makes difficult but not impossible. I mean there's some still like a certain chance that this can be traced or at least like summarized or with data mining and kind of overlaying other data it can probably be traced like IP data

or so on. But it's definitely a good step in the right direction and to have this in the client itself is also amazing I mean, these things exist as external services. Blockchain has a coin joint service. But to have it now, I think it should be free, right? Yeah, it's free. Yeah, totally.

It's great. So what you're also going to do with coin join is that it kind of runs in the background. So when you're not using your wallet, then it will still be kind of shuffling money around. You're certainly right. It's not a perfect thing. So, for example, I did it, actually. you know, I took some money for multi-bit. I sent it to the dark wallet thing

and then I sent it back in two different payments. And now my original address was still associated in the end, you know. So that link was still there. But it was also linked to a bunch of other people now. Yeah, that's what I mean. And that just makes it confusing. Do you use TestNet or real bitcoins? I used real bitcoins.

Oh, wow. I used like, you know, one-milly Bitcoin or something. So if it had been lost, it would not have been... Yeah, just because they strongly advise against using real bitcoins, but yeah, sure. I mean, it all depends on the amount, right? If you do this small amount, then I wouldn't want to put in, yeah, that's a substantial amount. And then the other thing is self-advers. Did you understand self-adverses?

Not fully you have to admit, but it's another step in the same direction of, like, having anonymous payments, I assume. Yeah, I've talked to a bunch of people and nobody's been actually. able to explain stuff addresses properly. And I've read about it. I've read the conversation. I sort of understand it, but not fully. I think the basic idea is that you have this self address. And then I give you my self-address, Mindhart.

And you can use that to generate an address to pay me. And then I can retrieve funds from that address. But somehow it's not going to be on blockchain or info, for example. example. So I'm honestly not quite clear on that point in how that's going to affect privacy. But let's talk about you think this is a good idea? Stead addresses or in general like the dark moment. Yeah, as I said in the beginning, I mean, oh okay, I didn't say it's a good or a bad thing. It's it might push the Bitcoin economy

ecosystem a bit more into the anarchism corner, which personally I think is a good thing. But in terms of economy and how the rest of the economy connects to it, it can be problematic, I think. And it can also be easily targeted as another freeway for money laundry or like, you know, all these. Yeah. That you don't want to have public. I mean, Cody Wilson, so one of the guys, there's two guys, right, Amiataki and Cody Wilson,

who are kind of the proponents, the main guys on this. And the Army Turkey, I think, is very well-known Bitcoin developer. Cody Wilson is mostly well-known for his 3-D printed gun. So he developed his gun. You can print on your own 3-D printer, and he's sort of open-source to give it out in the world. I'm not super excited about that project, I must say. Well, they say, like, freedom is dangerous.

So that's kind of, you know, like, so be careful with it. I kind of like that statement, but yeah, I mean, it will not make it easier in terms of mainstream adoption, I think. I mean, Cody Wilson, even he explicitly said that dark wallet is a money laundering software. So now, I mean, I feel kind of two things on this, right? So I think privacy is very important and I think Bitcoin obviously hasn't solved this and this may solve it to some extent. This may help a lot.

And if we think of the future, one way to attack Bitcoin, I think would be, of course, through, if there's a lack of anonymity, you know, if it really is very transparent, you know, for example, people could figure out your salary, you know, this can be all this kind of mining of the blockchain data that's used for all kinds of purposes. I think that could be a threat for Bitcoin. So I think in that sense, this could be very valuable and actually strength from Bitcoin. Okay. But and also and one one important thing, right? So we had last year this idea for coin validation. So the idea that, do you remember that? I don't know.

For short time, like everybody was talking about it. And then after two weeks it was gone again. Like proof of steak? No, no. So these were some guys in New York and they had this idea. They announced a startup. I don't know if they actually were working on it. anything but as a concept the idea was that you would have a service where you can link your

real identity to bitcoin addresses so that then for example uh let's say walmart starts accepting bitcoin payments they say we're only going to accept payments if you've linked it to your identity and you can do it through the service it's not this one name is it that's something else no check out coin validation okay i don't know if they i don't know if they actually do anything etc but as a concept it's there and the idea was uh the idea was of course to you know be more compliant and to sort of the way they looked at it was you know bitcoin is this great piece of software but it has this problem it can be used for nefarious things you know let's solve this so you know well but on that i mean so so is like cash you know cash can be useful for like all good purposes

and it can also be used for very bad purposes. And it is used a lot. I mean, like dollar or euros are the biggest tools for arms trade and drugs trade. Sure. That's not really a valid argument for me against a currency or like a payment method. Yeah, I know. I agree with you. I think my, the worry there that some people had and I share that was like let's say they were successful with that.

Then you might have an issue that a Bitcoin is no longer AB. Bitcoin because if it had been associated with certain things, maybe you couldn't use it pay at some places. So you might have this, the fungibility of Bitcoin. You know, like now you don't care, you get a Bitcoin, there's a Bitcoin. It's like banknotes. 50 years is 50 years. You don't care where it came from.

But if something like this was successful, maybe that's not the case anymore. And that will make it much more complicated. So you see the kind of network neutrality endangered by this. So people could filter or run it through a kind of a ranking. How clean is this Bitcoin and then they would reject it or not? Or maybe there would be segregation, you know, like some some bitcoins you could use and then some associated. I don't know. But if you had something like coin join, that's not going to work because every Bitcoin is going to be, you know, it's going to be tainted in a sense.

Sure. But I should ask, I saw this on the 2Bid Idiot. Some people know him, he has a blog, and sometimes I check it out. So he was writing something interesting. Because for me, when I first read about this and I've been thinking about it, like this kind of is the first thing that comes to mind. It's like this could be a really soft privacy issue, and it could really help make Bitcoin more fungible, so fungible as in one Bitcoin is one Bitcoin.

It doesn't matter where it came from. But then what he was saying, so let's say this is going to be successful and Bitcoin really is going to become the currency of choice. You know, another set world and maybe much bigger for all kinds of things. That could be a huge issue for Bitcoin. Well, I don't know. I didn't fully agree. but so well because they those are the guys are working on something else too like dark market yeah you heard about that no tell me what so dark market is essentially silk road or something like

say croat but decentralized so the idea is that you know uh so growth still had centralized etc um dark market won't and then you could use it to sell your cupcakes or machine guns or you know whatever and I think with reputation and things like that too now let's say that became big you may have this problem association you know then maybe when Amazon when it comes time that become becomes bigger and Amazon is like do we accept Bitcoin they're going to be like well it does have this major use for illegal purposes maybe not maybe we don't want that well they already kind of stated that they won't accept Bitcoin in the near future and they're looking into

alternatives. So, but but then if Bitcoin does become successful, you know, two years and line, that's basically also what they said. So we're kind of waiting.

It's too early. Yeah. It's not time yet for us. What I see here, it has big disruptive potential, like these new extensions that really go against

like joining the current economies because that's what they do. And they just really try to build now parallel, like a complete new system on the green field and whereas other people or other projects are trying to

actively link like fiat currency and Bitcoin and kind of have to deal with all the I don't know the downsides of that which is regulation or you know the interfaces you have to interface with banks I mean that's the biggest problem in China now that they cannot really trade because they have to just interface with banks

and the banks are like state controlled or at least controlled by small entities And so in that sense, to decentralize further all the marketplaces and kind of keep it that way and kind of fight this regulation might actually be a key to more innovation, as you say, and also more security. Yeah, but the issue is then going to be what will be the consequences for the people who are trying to establish businesses that interface with, you know, for example, if you talk about something like Coinbase, I think it's a great service, you know, very valuable. and you can directly buy, you know, link your bank account directly like Bitcoin's. But they need, of course, a banking partner, et cetera, et cetera. So it feels like, you know, if, of course we're not there yet, but let's say it did happen and this becomes a big thing,

like a Silk Road, a future Silk Road that's much, much bigger. And Bitcoin becomes actually the currency of choice for all those things, tax evasion you know weapons trade all those things the question is whether it would undermine all those things the question is what sorry whether it would undermine all the

startups doing other things I think that's the intention that's the proclaimed intention of these projects right that is true yeah they do actually want that so that would be great for them yeah I'm not sure I mean the thing is if people start using it more more, like, for whatever reason.

Like, they just see it's more practical and it's less controlled, like, just a broad and, like, a mainstream that's slowly growing over the years, then it might actually change politics and might change the companies and the view of the companies. For example, if you look at torrenting, like, they start to,

I mean, they try to fight it as much as they can, like Pirate Bay was down all the time, people were arrested, but still after like 10 years, they didn't kill it. It's still there and it's a great tool. It's very up-to-date and it's working. And millions of are using it. But what also has happened is that a lot of kind of streaming offers came into the market that offers streaming for an affordable price. Like if you look at Spotify or like the Amazon

streaming services. So this is kind of the answer that they said, okay, people really want something either free or very cheap. So we respond to that by giving them that. So then they have less incentive of using the illegal services because we just make the legal version much cheaper and much more accessible. So maybe something similar could happen with with currencies. as well, that you provide, like, kind of an alternative, like, which is very strong, and this inspires the market to kind of react to that and give a more user-friendly service or, like, cheaper service or less-control. You mean that's good, that would happen?

You mean, as in the euro becomes more? I don't know. It's just like, I'm just making an analogy to, like, you know, the information word, as it has happened in the last 20 years, what the internet has changed and how, Yeah, disruptive technologies have changed the existing technologies as well. Yeah, I know. Yeah, I guess we'll see where this goes. It's just I was at first, I think what's interesting, at first I was like,

there's always a positive side to this and the negative side. At least the positive side, if you do value in financial privacy, then I think fungibility of Bitcoin, which is also an issue, there are obviously positive sides to this. But then you can also ask, are there negative sides and how strong will it be? I think especially if you there's also been obviously that idea of the killer app

Bitcoin's killer app you know there's always been to talk about it like what's it going to be what's going to be the first app that's really huge and that you know you can't do otherwise and that's going to drive adoption to a big way hasn't happened yet we don't know what it would be

is it going to be remittances is it going to be I don't know it's just payments as opposed you know instead of credit cards or is it going to be something else. And in that blog post it, to be the idiot, it's like, well, maybe that's going to be, you know, the black market. And maybe it is.

Maybe it's not wrong. And if that was the case, maybe that would, by association, prevent other things from breaking through. I think it's plausible with Mario. I don't know. Well, we'll see. But, yeah, I think that's also where maybe alternative cryptocurrency is. could come in the alt coins where they could be like kind of a more regulated one or more

let's say legally accepted one and then there could be like kind of the dirty ones i don't know this is one possible scenario where like the ecosystem of the whole alt coins could play out in favor of different groups do you think you could do you think you could prevent something like this though what exactly well i mean let's look at this like this dark wall thing i mean you could just clone that and do a light coin version or something, right? There's no, nothing stopping you. I don't know if one could build an old coin

that prevented something like this, and then I don't know if someone did do that, if it wasn't then completely broken because it's not decentralized anymore, or it's... Well, technically it would be possible, but yeah, the question is it doesn't make sense. Yeah. I wouldn't say it makes sense at the moment.

But yeah. So one thing you wanted to talk about Let's close this topic for the time being And I think we can come back to it when we see more Maybe also how this dark market plays out And it will be interesting to see how Dark Wallet works When it's kind of out of alpha

So right now it's not recommended You use real Bitcoins But if you want check it out This dark wallet dot is Although I did use real bitcoins Just small amounts but you wanted to touch on the topic it's kind of the limitations of Bitcoin

can you maybe introduce a bit what do you find important about this and what this is about yeah sure so often like Bitcoin is dismissed by like I don't know like people that run bigger networks or commercial networks for transactions that it's too limited and it cannot scale to really be like the choice for the world or for many, many people or millions of people.

So, I mean, there are certain things that I would like to kind of demystify as well, like just to mention them and kind of see what the reality says about that. So, I mean, there's the transaction volume, which is always criticized. At the moment, we have about seven transactions per second that the Bitcoin network can transport, which is very small compared to other networks. I mean, PayPal has around 50 transactions per second, according to the Bitcoin Wiki. A visa has an average of around 2,000 transactions per second. And in peak times, around the holidays, it's about 10,000 or more.

So those are very different numbers to what Bitcoin can do at the moment. Well, the reason for the seven transaction per second limit is just simply not to blow the blockchain while the technology is young and it's still growing and it wouldn't make sense to build huge infrastructure just to transport these transactions. I mean, the seven transactions are really sufficient at the moment. They are not really a bottleneck in most applications. Yeah, the average is less than one at the moment. Exactly.

So, like, this is no limitation. I mean, let's say Bitcoin exchanges, they run their own transaction system internally, which then links back to the blockchain after the transaction has been settled. But, yeah, so they work around, yeah, around this limit already. So that's not really a problem. Then we also have kind of concerns about the bandwidth that a lot of transactions could need. So there have been calculations that around 2,000 transactions per second would only amount for around 8 megabit per second,

which a lot of people have already at home, like down and upstream, and every data center has like hundreds of this available in bandwidth. So that also is not really a limit and also like in the next. next years, this will grow. And this might be a problem. But that grows pretty slowly, no bandwidth. It's, yeah, it does. But if you, and I will speak later about that, have only a few super nodes that do, that do handle all the transactions and that really are full nodes to the Bitcoin network,

which is then located in data centers. That should be absolutely sufficient. Okay. And, well, this could be a problem in, like, let's see, emerging markets that don't have the bandwidth infrastructure. it's Africa or places in Asia. But at current rates, there's absolutely no problem yet. And as soon as it comes to these kind of transaction rates,

there will be also financial incentive for people to build these infrastructures. And another problem is kind of the blockchain size, which is currently around 17 gigabytes. That's quite a lot, especially if you download it at first. But if you think, about it that it contains all transactions that have ever been done, then it's actually not so much. I mean, this is really just also the key feature that the full ledger is just present on each node. And yeah, it will grow further.

But with the current block size of one megabyte, it will be around 125 gigabytes in 2016, which also... That's assuming what kind of growth, though? The growth that we have at the moment, which is limited to the number of transactions that can be done. So unless these limits are lifted, like let's say a two megabyte block, two megabyte size or 10 megabyte, it will stay with the size. Okay, but I presume if we, you know, if you really do see mainstream adoption, then we would have, because right now the usage is still tiny as a payment system. Sure. But if it did grow, you know, like the visa size. it's not very likely that we'll do that overnight.

I mean, it will be a slow growth with some peaks, but also the pass has shown that it's a slow growth and infrastructure can grow with it. That's generally what I always say with this topic, that infrastructure will grow, and also the protocol will be adjusted as soon as it hits limits, and it doesn't really hit the limits at the moment. So, yeah, other ideas are like pruning of the block.

chain that the nodes in operation are only looking at a certain amount of the blockchain which has the unspent transactions and all these spent transactions are just cut off. At the moment this would be like just a few hundred megabytes which you can keep in RAM and you can do all the verifications very easily. So that's another way to kind of limit resource demands. So essentially the your conclusion is that scalability is not an issue? Not at current growth rates, no. And as I say, like, apart from some spikes, there will be like a predictable growth, more or less.

I mean, it will not happen overnight. And then there will be sufficient time to adjust limits and also build hardware. What about when we see use cases for Bitcoin that maybe current payment systems don't have? So, you know, there's stock or, you know, for example, you pay for your Wi-Fi data amount with Bitcoin or... Yeah, this will, of course, yeah, produce a huge growth, maybe more than expected. But, yeah, I mean, I would be very surprised if this really would kill the network in terms of performance. I mean, at current usage, which is maybe like 10% of what it can do, or less without even raising limits and installing additional hardware and having super notes running

that are optimized for like speedy transaction for verification. Well, that's great to hear. But let me ask so one concern that people have with the idea where you mentioned supernodes. So here I guess what you're talking about is that I mean I have a Bitcoin QT on my computer because I have armory and you need it and I have the full blockchain which is actually huge for me because I have MacBook Air

which doesn't have a lot of hard disk but then in the future I wouldn't be able to do this anymore so you'd have supermod nodes and then you also have a centralization is that an issue I don't think there will be a need for super notes so quickly and until then also

hardware grows I mean like hardest always get cheaper and like yeah so in terms of storage of the blockchain and the full storage will not be such a big problem in the near future

but the pruned blockchain for example uses much less and you could use a system that will implement this kind of pruning and in terms of neutrality of the of the super nodes

I mean yeah you will have to have a certain trust in the node yes and there can be a ranking of nodes and untrusted notes can be marked and this has happened with torrents as well that if you had like malicious torrent hosts and with militias I meant kind of observed by authorities or by certain interest groups they were just marked and then they kind of were not used anymore or like so the community will always think of ways to kind of crowdsource this control there will always be a kind of a community control and that's a very strong thing

about the Bitcoin community and Bitcoin network. That it's very much a community project, not so much a centralized entity that can easily be manipulated. Yeah, that's very interesting. So you also put side chains in the thing. Do you think that's going to be relevant? So we've talked about side chains before,

which is basically the idea that you have kind of old coins, but where you could move your bitcoins into that and move it back and forth. Do you think that could have? have relevance in the scalability context? Not directly, but if you want to use the Bitcoin blockchain for other things like storing data or like distribution data, which can be a use case for a certain verification, then this will help.

Although the side chains are quite, yeah, the side chains are quite, let's say, undeveloped project they are they are announced and the final announcement will be only mid-May of what they really want to do with it but at the moment it kind of lacks certain features that people would want yeah well let's a very important topic maybe let's talk about let's talk about let's fortunately after all like transaction fees i because i guess that's also one of the questions when you talk about scalability, you know, because one is in terms of how many transactions can you accommodate, but the other question is how much do you have to charge, how much do miners have to charge in order to, you know, make money on their investment,

et cetera. And is that going to increase too? Is that going to decrease? Do you have some views on that? Well, just a small reality check. I mean, like mining doesn't live from transaction costs. That's just a very small... Not now, but it will, right? But so at the moment, miners don't really look at the transaction fees too much. I mean, they have the compensation of the blocks they generate and the reward.

But in future, yes, it will become important. The bigger kind of your mining pool is, the more kind of this is a factor for you, to look into. And the more you will start playing with, and also the more transactions that will be on the network, then this will become an economy in itself, I assume. So I think it would be very much speculation now to kind of predict where this will go and if transactions will be higher than they are now or lower or will fluctuate or if people can promise a certain transaction or not.

that's all really not really formed here. These markets don't really exist at the moment. Okay, so you don't have a particular view on because I'm also asking, right, you guys, so maybe let's kind of take this as a set you to talk about Big Home Brothers because you're working on a big mining project and I guess those questions are going to become extremely important. When you think about mining, you think about

what's the business of mining going to look like, what incentives are they going to exist for miners, you know, because those can make a big difference whether it makes, for example, sense to mine as part of a big pool or a small pool or all those things. Sure. I mean, they will always have to be mining, that's for sure, because that's what transports transactions and that's what keeps the network alive. So that's definitely a future investment.

I mean, you will always want to mine. And of course, the sweet side of it is that you, you, get rewarded for mining these blocks and that's just very well thought out that you always have an incentive to keep the network alive because you will get money from the rewards as soon as the rewards run out which will gradually take place over the next years I mean in 2016 it will be half of the bitcoins that you get now and then transaction fees will be more important and also if you scale big and if you install a mine that has

several peter hasheshes, this also amounts to considerable amount of bitcoins. The transaction fees. So in our business model, we mention this, that this will become a business in the future, that we will have,

we can offer big merchants if, let's say Amazon or other big online retailers, like bulk transactions. We say, okay, we can give you these transactions for a certain price, like a lower price than the default price. And this might be a possible product to sell, apart from the just cloud mining services that we are currently planning to offer.

So let's come back to this point, but maybe just briefly give a bit of background on, so the company is called Bitcoin Broder's. Right. And it's a big mining project. Yeah, that's right. It was started by two brothers actually, like Mark and Mike Veller. Mark has been famous on TV, even as the Bitcoin millionaire. He was an early investor.

I was quite lucky and said to himself, okay, I want to do something really cool now. I want to be part of this and I want to build something great. So what can I do? I know electronics, I know chips and all that. I mean, I can build mining hardware. I want to do this. And he has also very good contacts in the industry. In Berlin, there's like a chip developer that,

on his behalf developed this chip, which has a lot of advantages compared to other chips on the market. And really, yeah, kind of what came out of this was really like a very, very competitive product, which is the core of the business that Bitcoin Brothers is about to start. So, yeah, this very efficient and fast chip, which is a 20 nanometer chip, which is kind of one of the few in the markets. I mean, there are non... So is K and C minor also? Yeah, they announced a tape out.

So they announced the production of these chips. And they will be, or they would be the first in the market with this. So it's a very, very up-to-date technology, which, yeah, the advantages are in a very energy-efficient computation. So electricity costs are low. Cooling needs are not so high and so on. So, yeah, the smaller the nanometer size, the better, the more efficient the chips are. The cheaper they are also to run.

But what is different with Bitcoin miners, Bitcoin Brothers, is that we build hardware that's really scalable. So it's built for data centers. So we fill like whole racks, like let's say one of our clusters will have around 100 racks and have computation power of around 3.38 peter hash. So that's huge. And that's like a few percent of the blockchain, of the current network right there, just one rack.

And then how many? Not one rack, but one cluster. One cluster racks. That's built from 100 racks. And so how many? Sorry, 100 cabinets. I mean, which have several wrecks. And so how many are you planning to build?

Well, the minimum viable product would be one cluster, which has 3.38 peter hash. But if we find an investor that sees the great advantage of our technology and that invests more, like in the initial step, we can build also more. The thing is we are not limited to hardware limits as usually mining operations are. So they have to wait for K&C to come out with their new chip or for other companies. and then there's a shortage. The market is very crowded and miners that people that want to buy new hardware miners. So delivery of hardware is always a problem. But by producing our own exclusive hardware, we don't plan to sell the hardware just at this point. So we will just use them for our own operation. We have a huge advantage towards the market.

So we can just tape out new chips, build new racks, build new miners. as we go along and we will always be obviously the first one that get the deliveries. And we can plan with this very well and we can predict very well when we will have which peter hash in operation. So you will be much more cheaper and more efficient than for example K&C minor? In the data center use, yes, because our hardware is absolutely optimized for data center. And we have Thomas in our team, which is a data center. hardware expert and he built a data center in the US as well. And I believe he talked to him already.

Yeah. And so from that side we are covered and that was all of this in our mind like scalability, like how far can we scale how fast. So that's really a big focus. And yes, in terms of operational costs, there are a few numbers which are still moving at the moment a little bit. but I can say we can undercut any commercial mining competition by at least half in our operational costs. Part of that is also that we plan to build our mine in Iceland,

which has very kind of an abundance of cheap electricity and which is also green at the same time. It's like geothermal power, so it's basically CO2 neutral. And that's another big thing, which is personally interesting for me because I come from an environmental activist background. And the CO2 output connected to Bitcoin was always kind of a bit of, let's say, black spot for me in the whole cryptocurrency world. And actually to be able to provide a service that is green and also very fast at the same time and very energy efficient and reliable. Yeah, made it really a kind of great project. for me that combines many of my interests to get into. So what's a time schedule?

When are you planning to go live with the first cluster? Yeah, we have a production time of around, let's see. Well, we plan currently to be live in October this year, which is still a few months down the road. But, yeah, what has to happen before are several steps. I mean, you have to do the tape out of the chip. And, yeah, I mean, chip production has become much faster, but still Bitcoin technology, Bitcoin chip production is on the edge of what's actually possible. Because time is such a big factor.

Like every day, every week, or even every month means millions in this business, like that you could lose if you are slower. So this is really revolutionized chip development and chip production. So with this very fast schedule, we'll be live in October. So we have seed investment from Mark, from the actual founders. And currently we're looking for an investment for the actual big production of the mine. So we have the proof of concept. Okay, it's working. But to do the next step, we need powerful partners that are also well connected in the industry.

Yeah. And so that's occupying our time at the moment that we have talks to investors and venture capital firms and so on. it's a very ambitious project of course i mean as a company that's not yet on the market to acquire a few million euros to actually make that happen but yeah we have good talks and get good feedback so far so yeah it's looking good in the moment yeah i mean i have to say so i you know i know all the guys i know pretty much all the guys involved and there was in the beginning when i heard it was like oh this sounds very ambitious but you know the more i've gotten to know them and the more i've I regret the business plan to yourself.

I'm quite optimistic about it. And it's certainly, in terms of the scale and ambition, it's an enormous project. So it would be very interesting what comes out of that. And I kind of want to use that to circle back to the point you made about this, the idea of, you know, for example, Amazon, let's assume it's two years down the line and they are using Bitcoin, accepting Bitcoin payments. and they get, I don't know, a few, I don't know, a thousand, 500 payments per second, I don't know what it would be, but a big amount.

Sure. Can you explain why would they want to do some kind of deal where they say we give our transactions all to you, but we get a cheaper price, or how would that work? Yeah, that's kind of the, the idea at the moment, I mean, time will be a big factor for them and also cost. I mean, they want to have their transactions accepted or at least pre-accepted very quickly. What's pre-accepted mean?

Well, that's kind of a pretty, let's say, new concept. I mean, the idea is that the Bitcoin network will, I mean, the protocol will have certain limitations. And these limitations are there to kind of make transactions secure. and we can't just say, okay, instead of 10 minutes a block, we cannot say one minute just to speed up transactions. That's not going to happen because then this one minute is in terms of proof of work is worth a tenth of 10 minutes. So that's not going to happen.

So we can possibly sell a certain promise to these companies to say, okay, we will include your transaction in our block as soon as we see it straight away at this and this price. So this is kind of a bundle. we could sell. Wait, wait, wait. So, it's pause here. So you would say Amazon, you include, but then what if you don't mind the next block?

Then that promise is worthless, no? Well, depending on the participation of the global hash rate, the hashwood that we have on the network, we can give a promise of a certain percent. So in big scale, this will be valuable to the company. So let's say you had 30 percent of all the hatching power. Right. And then Amazon would say, You know, we got this payment now and they send it to you and then you can say, okay, we can 30% we're going to mind the next block and then it's going to be in the block. Yeah, absolutely.

So that would be one way. So in big scale, this will make sense. But at the same time, this market doesn't exist yet. But we want to be on the forefront of exploring these kind of things. That's the idea that we will, we want to go beyond just plain mining. And yeah, think about these things already now and also maybe be part of writing white papers and so on about this. It seems like that one issue that would bring up is the issue of neutrality, you know, because then a payment from Amazon would not be the same anymore to Amazon as a payment for me to you or something else, right? Because I'm not a big, you know, I wouldn't be a big party.

Do you think that could be a problem? Well, neutrality is already given up as soon as you try. your money with Amazon. You say, okay, I'm sending it there, so you already choose. So in that sense... That's just the regular transaction in a sense, right? I send it to another address. But then, because my address, my payment will go to the Amazon address, would be treated differently. It would be treated differently within our cluster, yeah. Yeah. And within our mining pool.

Yeah, I mean, we can possibly give our users the option to opt out if they don't like this breach of neutrality. by just letting them choose their own mining pool or not participating in this maybe extra income that they cut generally from this. But I think this is still a bit further down the road. And we also have to see what kind of projects develop before us, before actually a market of this emerges. And I think it's just very exciting to really have the ability

to offer these services because we sit on so much hashing power. We can't think about this. I mean, as an individual miner cannot do this. Big pools can certainly do this, but they are not doing it at the moment. Yeah, because I guess there's no need for it right now. No market. Yeah, I think that would be very interesting to see where that goes. I guess another thing that kind of relates to this, that, you know, people often think about this,

how big of a role will off chain transactions play. So, you know, for example, if I sell something on Coinbase, et cetera, you know, they're not going to do a transaction on the blockchain. It's all going to be or on exchange. If you trade on exchange, then they won't make blockchain transactions, but they'll have their internal accounting, et cetera. And only once you do withdrawal, it's on the blockchain.

And I guess that is also a question, right, if you're going to have big. If I can interrupt that, but the consequence of this we see with Mount Cox, I mean, if too much of that happens, that all poses a risk. It's dangerous, yes.

To increase the limits, within the blockchain protocol, or the Bitcoin protocol can probably, hopefully prevent that. So like if this could handle all the off-chain transactions also, that would really make the network also safer.

Yeah, no, absolutely. So are you guys looking for are you looking for investors? Are you looking for something else to kind of make this process? project reality. I guess you'll be selling mining contracts at some point too then. Yeah, that's the idea. We do not want to pre-sell like many other companies did and they kind of had, let's say, bad experiences with this. Some big companies in the mining space

facing legal battles at the moment because they pre-sold and delivered late. So we don't want to do the same mistake. So we're actually looking for, let's say, conventional investors, not, I mean, we will not take from our clients up front. We are looking for investment partners that help us building this company, kind of, let's say, to a point where we can say, okay, with certainty, we will deliver or we have already connected so and so many terra hash, whatever you want. Yeah, no, I think of the history of pre-orders, pre-sales, that's a good idea.

I guess it's interesting too. you can look at it from both ways obviously there's been a lot of fraud or certainly at least promises made that weren't kept but what's also interesting there was recently

a Coin desk report again was like the state of Bitcoin where they look at what's been going on etc and there's been basically no VC investments in the mining space but at the same time or almost none at the same time

the overall money invested in that space has been huge, or huge at least in comparison to other areas in Bitcoin. And I guess that was possible because of pre-orders. So it is interesting how that was kind of possible, even though for the people involved, it probably wasn't a pleasant experience. Yeah, it's tempting. It's a form of crowdsourcing, of course.

But, yeah, we personally just decided against it. The possibility would be there, maybe also through like an IPO of some sort. We're certainly exploring these things and like learning about them and talking to people. But yeah, we can't say, I mean, we are ruling out anything yet. But currently we're contacting venture capital companies. No, I think that makes sense. I would not recommend that.

Also, I'm quite skeptical of these IPOs, these like on- regulated chaotic IPOs where people make promises that nobody checks at all. Yeah, one could argue that

these IPOs endable kind of business models where also the ownership is distributed you know, I mean, and not just centralized, let's say. I mean, if we have one big capital partner, then it would be sort of centralized. I mean, like the business would be

owned by us and this venture capital partner, which is a small group of people. But these IPOs, that companies even start operating after an IPO, in a way, it's hands out the shares to many people. I mean, there are like big mining projects that work exactly like this. I'm not too sure how successful they are, but in terms of decentralization, I kind of like the idea. I'm not sure if it's a viable way to go at this point. But, yeah, I think it's positive.

I totally agree. I think the idea on principle is brilliant. And I think it's super powerful to take something that's very bureaucratic and difficult to do now, you know, selling shares of a company, very regulated, you know, allowed to offer shares, just anyone. But, you know, there are all kinds of rules surrounding it. And to take that and say, you know, we're going to make this very easy. And just you can kind of buy it in a decentralized way.

I think that's very powerful. I think the problem is just that people make these offers and there is nobody, the whole reputation verification stuff is not there. So I think that makes it very right for fraud. Yeah, it's a two-sided blade for sure. Yeah. Well, cool. Thanks so much for joining us today.

Yeah, thank you for inviting me. Yeah. So just briefly again, if you want to if you want to subscribe to our newsletter, you can do that at epistandibicon.com slash newsletter. You can also follow us on Twitter and we're EpiC and you can like us on Facebook too. And thanks so much and I look forward to being back next week.