Odd Lots - Making Bitcoin A Currency People Use

Episode Date: January 14, 2019

Even at Bitcoin’s recent peak, there was very little active use of the cryptocurrency in normal commerce. On this week's episode, we speak with Bitcoin maximalist Pierre Rochard of Bitcoin Advisory on why he's still a believer in the currency, and the technological developments being done to make it useful for normal spending. See omnystudio.com/listener for privacy information.

Thanks for listening to OddLots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast, OddLotts on Amazon Music. Hello and welcome to another episode of the OddLot podcast. I'm Joe Wisenpall. And I'm Tracy Allaway. Tracy, here's something funny. I don't know why I'm laughing already. Sorry. No, we actually, we're kind of have a little bit of a theme going here because on Today's episode, we're going to be talking about the same thing we talked about last week.

Bitcoin and making and losing a lot of money off of Bitcoin? Yeah, pretty much. Pretty much exactly that. You know, it's funny, like a year and a half ago or a couple years ago, when Bitcoin and other cryptocurrencies were like surging to the moon all the time. I remember people complaining to us, they're like, oh, you should do more Bitcoin episodes because we actually didn't do very many in 2017. And now Bitcoin and others are, you know, in the toilet price-wise, the bubble's over. And now we have two in the row. So maybe we're contrarians or maybe our sense of timing is just completely off on what the market wants.

Maybe having done the podcast for two years almost at this point, we are simply running out of ideas. Yeah, it's just going to be Bitcoin episodes from here on out. But this time, I think, is going to be a little different. So last week we talked to a trader who rode the bubble all the way up, but then all the way down. And this time we're going to be talking to someone who's also still very active in it, but more on the development side. And some of the interesting technological innovations that are happening in the Bitcoin world, even amid the Bitcoin winter, so to speak. The Bitcoin winter. I like that. But the general theme is similar to the last episode in that we are talking to someone who still very much believes in the future of Bitcoin and who is in fact actively working to make Bitcoin work.

Is that right? Yeah, exactly. So another diehard Bitcoinser who's been with it a long time. And one of the things I want to explore on this one is, you know, people, even during the ups and downs, people are like, when are people actually going to use Bitcoin? When will people use it to spend? When will it become a medium of transaction? And that is something that our guest this week is working on directly in terms of building out the technologies and the layer on top of the sort of core Bitcoin blockchain to actually make it a useful currency for spending. So it should be an interesting conversation.

Great. I'm looking forward to it. All right. On that note, our guest this week is Pierre Rochard. He is at Bitcoin Advisory, which is a firm he launched to help investors do their due diligence when buying Bitcoin. And he is also involved in Bitcoin development. So Pierre, thank you very much for joining us. Thanks for having me on Joe and Tracy.

So before we get started, how long have you, you know, I follow you on Twitter. I have for a long time. You're one of a hardcore Bitcoin maximalist. You don't dabble in other cryptocurrencies. You've had a consistent pro-Bitcoin message for a very long time. You weren't just someone who got it in the party in 2017. So tell us a little bit about your history and background with Bitcoin. Sure.

So late 2012, I was wrapping up my master's degree in accounting at the University of Texas at Austin. Hook him. And at that point, I was hanging out with crazy libertarians as Michael Goldstein and Daniel Crawist. They're on Twitter as well. And we were debating fractional reserve banking, as libertarians do. And at the time, I was a gold bug sound money, 100% reserve banking type person. Hopefully we won't get into that debate today.

We can skip that one. Fast forward. And I, as part of our debate, Bitcoin came up. And I had heard about Bitcoin in the context of the Silk Road, but didn't really think much of it. But in this context, we were talking about Bitcoin's $21 million. Bitcoin's, it's monetary policy, quote, unquote. And that captivated my imagination, and I went down the rabbit hole at that point. So Joe described you as a Bitcoin maximilist, which means that you sort of don't believe in other cryptocurrencies or coins. What's the attraction

for Bitcoin? Is it a sort of first mover adoption advantage, or is it something about the underlying technology? What attracts you to it? Yeah. So at first, it was really, that I had, in high school, I'd been interested in Linux and open source free software. And when I opened up Bitcoin, I realized that this is in the same vein as that. And it really spoke to the authenticity of it, essentially, which was that the person who created this was a, not someone trying to get rich quick. They were actually trying to build a piece of software that would lead to a money and payment system that was decentralized. And that I found to, and that I found, be fascinating because that's kind of the only guarantee that we have for for for for

Bitcoin maintaining its properties it has to remain decentralized. If it becomes centralized then all bets are off and it'll either get shut down or it'll change its properties in terms of its monetary policy or censoring people or whatever it is. And I I'm deeply skeptical that other cryptocurrencies that are being promoted will be able to maintain their their properties and be remain decentralized. So let's explore that a little bit further. We talk about maintaining their properties. So you mentioned the fact that there will only ever be 21 million Bitcoin.

Now, theoretically, that could change. The code could change. But what you say is that it's pretty unlikely given the origin and the community. But that other coins, where there may be a specific founder who faces political pressure or ideological pressure, those properties could change over time. And so in your view, the Bitcoin maximalist view is Bitcoin has the best chance of essentially staying what it is forever. Right. And you hit the nail on the head when you said the code can be changed because the code can be changed. And lots of people have changed the code and either released it as their own version of Bitcoin, you know, giving it a different name or an altcoin or creating new code from scratch. But ultimately, you have to have other people run that code and run it on.

their computer and consider that code to be Bitcoin. And that is the biggest challenge, is persuading others to run your code. And the code is, you know, it's called a node, a Bitcoin node. And this node is going to communicate with this peer-to-peer network. And essentially, the lower the cost of running a node, the more likely it is that people will run one and thus make it decentralized. So let's talk about the current price lump in Bitcoin. What actually has accounted for that fall? And you're talking about this idea of replicating the code and the Bitcoin forks. Do you think that played into it at all? Honestly, I don't. There's people who have been creating knockoffs of Bitcoin for years now. I think that what accounts for the fall is that the price went up a lot. And it went from the bull, sorry, the previous bear market bottomed out at about $200. And from there, it rocketed up to $20,000 in a period of 18 months or a little bit longer than that.

But essentially, you can't have a price go straight up like that and not expect a severe correction. It was not at $20,000 long enough for me to get used to it. So $4,000 still feels very rich. but there's differing views on that. All right. Let's talk about one of the biggest criticisms of Bitcoin. And it's something you're working and others are working on to address is they say, okay, obviously it's a mode of speculation and people like to trade it.

But no one actually uses it. And if they do want to use it for a typical purpose, it's very difficult. It's cumbersome. It's slow. It takes a long time to confirm that a transaction has even. gone forth. If the network is busy, then fees can be very high, which places many everyday purchases completely out of reach. That existing payment systems do very well for most of the things we want to buy. You, so are all the, first of all these criticisms in your view, fair? Absolutely. And in response

to those criticisms, there's, they're in a kind of a bifurcation. On the one hand, If there's, there's a lot of binkliners who entirely concede those criticisms and say Bitcoin's a store of value. And so it's, it's more like holding gold, right? So you're not transacting in gold day to day, you know, shaving off scraps of gold to pay for your coffee. It's a store of value. And so I think that, and that's essentially a narrative because I don't think that it matches up to the whole reality. It's certainly a part of the reality, which is that there are. are a lot of people who hold Bitcoin in the same way that they would hold gold. And they're not

actually even remotely interested in finding out whether it's easy to transact in or not. They just understand that they are able to receive Bitcoin and send Bitcoin to an exchange. And then the speculation certainly exists. And it is a big part of the market as well of essentially momentum traders seeing it going up or down. Now, there's a growing sense. that there's a group of individuals who want to transact with Bitcoin. And part of it is people who they see the price go up to X and they want to essentially cash out. And you can cash out by going to an exchange or it might be more convenient for you to cash out when you're, for example, using an e-commerce website and you're buying something

and they have the option to pay with Bitcoin. So you say, well, I already have too many Bitcoin. let's lighten up my bags here and I'll use that option. So that's kind of on the demand side for making payments. On the other side, you have merchants that maybe they want to be accumulating Bitcoin. And accumulating Bitcoin by accepting it in the course of commerce is it has more privacy and possibly a lower cost than going on to an exchange and buying it. So that's happening. On top of that, we have this phenomenon of existing payment processors censoring individuals based on either political reasons or they're just derisking, right? And because they're complying with KYCAML regulations and they don't want to be on the wrong side of the regulators.

So they're cutting people off even though they don't have, you know, the person has not done anything wrong. And it's across the ideological spectrum, right, because we have. have people who are running marijuana shops in Colorado, and that's probably more Democrat, you know, left-leaning. And then on the other side, you have people saying politically incorrect things on the Internet and getting shut down, and that's generally more on the right. So I think that across the ideological spectrum, our politics has gotten so polarized that corporations get dragged into it and they get lobbied to kick people off their platforms. and that opens up an opportunity for using Bitcoin in actual transactions.

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into it from the very beginning to make transactions easier. Because it's not like people didn't see this idea of database sprawl or, you know, a really long ledger sort of pinging back and forth and really bulking up transaction times coming, right? That's correct. And Satoshi Nakamoto had a, he had included a feature that wanted to be lightning, but he didn't have it fully thought through. And so his first iteration on essentially, and let's get into this, right, which is that Bitcoin is a global broadcast system where you are having all of the nodes agree on the ledger. And that imposes a huge amount of cost on the nodes where essentially it's a negative externality. Every transaction is adding data to the ledger that everyone has to verify. So that doesn't scale very well.

it's essentially what the result is that fewer and fewer people run nodes and then it becomes centralized. So we needed a system that allowed us to send payments without globally broadcasting. And that's so Satoshi had had this in mind, but the way he implemented it just didn't work. Before we get further, I just want to sort of make sure people understand this concept of global broadcasting and why it's so cumbersome. because we blockchain technology. You often hear people say, oh, it's really efficient and it's going to reduce all these costs. But it's inherently, at least in this version,

very inefficient, in the sense of you imagine I was sending you a text message or an email. I think people could imagine a system in which the only way I could do that is to then send a copy of that email to everyone who has ever gotten an email ever so they can all see it. We can all see why that's just insanely inefficient. It happens to be necessary for the decentralization purposes that there's no centralized database.

We all have to agree on the emails we've sent. But as a system that just accumulating data, extraordinary negative externalities. Exactly. And thankfully, there's an opportunity here to solve that problem with a paper that was released back in 2014, describing what's called the Lightning Network today. And the Lightning Network essentially says, okay, let's use this global broadcast system as a system of last resort, essentially, as a Supreme Court. And when you're doing business, you don't take your contract to court every time that you are relying on that contract. You only take it when there's a dispute to the court.

And that's otherwise it would be a completely unmanageable. judicial system. So that's the idea behind lightning is that you only go on-chain when there's a dispute about the state of your what's called a lightning channel. And this lightning channel, you open it up by doing an on-chain transaction. And once it's open, now you can send value back and forth and you can be routing value around without having to trust your counterparties. And while maintaining a lot of the same properties of Bitcoin, there are tradeoffs, but we can get into that. Well, so what are the tradeoffs exactly?

And, you know, if I could be cynical about it, it sounds like you're sort of creating an additional layer on top of a system that has at various times already been criticized for being sort of unwieldy in various ways. Yeah, absolutely. So the main tradeoff today is that you have to keep your bitcoins online. And there's been a lot of user education about not keeping your bitcoins online and putting them into what's called cold storage, right, which is either a hardware wallet. There are a few popular ones, including a treasor and ledger, or just printing it out on a piece

of paper, writing down your mnemonic seed, and putting it into a bank safe deposit box, which is also a little ironic. But so with Lightning, you're asking users to keep their funds on their computer or on their phone. And really, there, it's just about managing risks. So think of it as a checking account. You wouldn't put your entire fortune on it. It's just a way of being able to have some walking around money. Now, in terms of the complexity from the user's perspective, that's a fair criticism.

And I think that there's a lot of energy within the Lightning community into having a very seamless user experience so that you don't even know that you're on Lightning. It's all abstracted away. So it feels like you're on Venmo or on Square Cash app. Does that exist currently or is that what you're working on essentially? Like I know that the Bitcoin core software is probably unrealistic for most people to down. download and run on their computers, is the software to run lightning so that I could theoretically one day go into a Starbucks and pull up my phone and scan a QR code and make a payment for a $2 coffee and would instantly take it out of some Bitcoin wallet that I have? Is that going to be

easier and less cumbersome? Yes, we have a very clear path to that. And it's just a matter of executing on it. So at this point in time, you do need to be running a Bitcoin. node that then connects that you're lightning, so you're running two nodes, a Bitcoin node and a lightning node. And that's the software I've been writing to help with that. And the software I have called the node launcher works on desktop and laptops. And essentially the main drawback there is that you have to download 200 gigabytes of data. You don't necessarily have to store it, but you've got to download it.

And here in New York City, that's fine because we have fiber and everyone has a good internet connection. But once you get into rural parts, even in America, that's just not even an option. They can't download 200 gigabytes. Thankfully, we have an innovation that has been worked on for a long time now that's going to be out this year. It's called Neutrino. And Neutrino allows you to not have to download the entire 200 gigabytes, and it will make it so that you can use Lightning on your mobile wallet without using a Bitcoin node. say. So I have a sort of existential question, which is let's assume that you figure out a way, you know, that this way of transacting in Bitcoin is more efficient. It is easier for people to use.

Does that end up solving the speculative problem, which we've seen for Bitcoin? And by that, I mean, you know, a reluctance of people to use it in day-to-day transactions because they think that the price is going to shoot up to the moon at some point. And there's a specific example that I have in mind, which is, of course, the infamous pizza day, you know, like, I think it was eight or nine years ago or something when we had one guy who paid for pizza using a bunch of bitcoins that, you know, a year ago would have been worth millions of dollars. And it's kind of funny, but people also sort of made fun of him about it and said, oh, I can't believe you did that and you wasted so much money. How do you overcome that problem?

So I think Lightning is going to make that problem worse because ultimately people's anticipation or their projection of where the Bitcoin price is going is based on the technology and the fundamentals that are going to be driving the adoption that would cause the price to go to that level. And so if we, with Lightning, if we demonstrate that it's going to be a very efficient system that's going to attract a lot of adoption, then we can expect the price to go up even more than it otherwise would. So I think that it makes the problem worse in that regard. And really, I think that the solution is just going to be time.

And what I've seen is that people who have owned bitcoins for a while, they are essentially overexposed to Bitcoin, and they're always looking for ways to spend Bitcoin. So I think that we'll see essentially the people who bought it $20,000 in 2017, they might be in the hoddle mindset for another decade. But people who bought it $500 or at $1,000, they might be thinking about how to buy a hard drive online to. And the other aspect of it is that people who,

even who are buying it today, they want to experiment. They are fascinated by the technology, and they're very bullish on the price, but they're also interested in educating themselves and improving their understanding of Bitcoin. And I have a lot of people who are very new to Bitcoin who want to learn more about lightning because they just find the idea of a decentralized payment system to be fascinating. So I think that you'll have people who both are hoddling Bitcoin and also transacting in it in an experimental way. But on some level, and I think it's kind of implicit in what you're saying, and when you describe the people who use it now, using Bitcoin as a means of

transacting, even if it were really smooth, it's still a sort of kind of a medium of exchange of last resort. In other words, if all you're doing is going to Starbucks and buying a coffee, even if it were incredibly simple, you know, just scanning your phone across a thing. And it's still like there's not much reason to do it for a transaction like that, even in the most simplistic scenario. No, there isn't. You could make arguments about privacy, for example. You know, do you want Visa knowing that you go to Starbucks every day? I think that most people don't care about that at all.

And yeah, that's exactly right. It is a, I think that the most underrated aspect of Bitcoin is optionality, right? And owning a little bit of Bitcoin and having a little bit on your phone gives you an extra option. And it's that's kind of a form of insurance from a payment system perspective. I want to go back to something you just said about, you say people who are getting into Bitcoin now. it feels like obviously interest in Bitcoin is significantly less than it was a year ago. I think it's safe to say. But in your world of people who are super into the technology and hacking away at lightning

and building this out, do you still see growth in that community? Yes, to my surprise, I do. I host a podcast to the noted Bitcoin podcast. And I joked that we're not getting any new listeners. And then on Twitter the next day, I got a DM of, hey, I'm a new listener, so keep it up. So there's definitely, there's new developers and new users coming in all the time. And I'm still accumulating followers on Twitter to my surprise. But I think that there's a sense, you know, we just had Bitcoin's 10th birthday.

And there's a growing sense that, like, this isn't going away. And this is here to stay. And it'll at least be here for another decade. So there's a surprising amount of continued interest in it, even at the depths of what people see as a bare market, even though I still feel like we're in a bull market. So what would it take for you as a Bitcoin believer, Bitcoin maximalist, in fact, what would it take for you to sort of lose faith in Bitcoin and change your mind? Yeah, I think that if Bitcoin became centralized enough to the point where people were making changes to it,

that I thought were unwise. And that that almost happened in 2017. We almost had a hard fork that I thought was misguided. And if that hard fork had succeeded, then I would have likely lost faith in Bitcoin. Thankfully, it did, it failed miserably. So that was a moment of Victoria's joy. But that's not a guarantee that it won't happen in the future. So there's that aspect of it. And then from the price perspective, I think that I would question my understanding of what is driving

adoption. If the price got down to, you know, below $1,000 for an endless period of time, you know, for a couple years or something, then I would question if the adoption drivers that I had analyzed had disappeared or I was under, you know, a

euphoric haze. Well, we'll come back and have you back on the podcast if Bitcoin is state does stay for under a thousand dollars for a while and we'll see if you've reassessed your euphoric hayes. Pierre Rochard, thank you very much for joining us. Thanks for having me on. Thanks, Pierre.

That was great. Tracy, I really like that conversation and you know what I thought was my favorite part was actually the analogy between contracts and the court system. I'd never really thought about that before that all businesses, all transactions have some sort of contract. And there is the implicit backing of the court system saying, yes, this is who's on the right and wrong side of the contract. But if we had to actually have the courts adjudicate every contract, it would never work. And I thought that was a really interesting analogy that makes a lot of sense in this context that I just never thought about before.

Yeah, I really like that one too. But I guess my, the one question I have having listened to that conversation is there's so much effort being put into Bitcoin and other crypto-related projects, either to roll them out in terms of adoption or to make transaction easier. And sometimes I just wonder why, right? Like, why? Why put all this time and energy and money into a project to create a decentralized form of money? And, you know, Pierre sort of touched on the libertarian arguments there.

And then I start wondering, well, you know, if Bitcoin did actually take off, is there not a point at which governments do actually revolt against it and crack down anyway? Anyway, those are my thoughts. Shower thoughts on crypto. Yeah. On the flip side, I do think it's very interesting that I think when a lot of people and I would say certainly the media and speculators and Wall Street in particular have sort of given up on Bitton. Bitcoin or lost interest, and you certainly don't hear very much about institutions wanting to buy in anymore these days, that there is this community that continues to grind away at the core project of building out the technology and making it more usable and making it more decentralized. And I think that is sort of very, I don't mean, not bullish in the price sense, but bullish in the longevity of the project sense, that regardless of the price swing,

they're just the people who are still building it out. Yeah, absolutely. I mean, this is basically what we've been talking about for two episodes now. There are very dedicated crypto believers, and there's a very dedicated crypto community. And you and I both remember at this point, I think twice now, 2011 and 2013, we did have a big run-up in the Bitcoin price on a relative scale and a big drop. And each time we had a bunch of people saying, oh, this was the end of it. This is the end. it's going to die. And yet it continues on. And people still really, really have faith in it.

Yeah. And to your question about like, well, what happens when there is the real government crackdown and they really get aggressive about trying to stamp it out? In theory, the technological work that's being done now to make it more robust and more decentralized and more able for people to run their own nodes will make that eventual crackdown even harder to execute. Yeah. Joe, do you have Bitcoins that you can use to buy me pizza? Would you use them to buy pizza? Why would you want to have pizza? But there's got to be something better to buy than pizza, right? That's true. That's very true. When I'm in New York next. Okay. All right. Well, this has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Allaway.

And I'm Joe Wisenthal. You can follow me on Twitter at the stalwart. And you should follow our guest on Twitter, Pierre Rochard. He's at Pierre underscore Rochard. And you should follow our producer on Twitter. Tofor Forges. He's at Forges T as well as the Bloomberg head of podcast, Francesca Levy, at Francesca Today. Thanks for listening.

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