On The Brink with Castle Island - Obi Nwosu (Fedi) on Second-Party Custody with Fedimint (EP.344)

Episode Date: August 29, 2022

Obi Nwosu, CEO and Founder of Fedi joins the show to cover a new model for shared Bitcoin custody in Fedimint. In this episode:  Obi's experience with Coinfloor and how that informed his views on custody Why third party custody with Proof of Reserves isn't sufficient Why 'credible centralized' custody shouldn't be the default Why state level attacks on custodians are ramping up Obi's early prediction that Nigeria would be the heartland of Bitcoin adoption Why messaging apps are actually the most popular p2p exchanges worldwide The history and origins of Chaumian Mints How the enabling pieces of Fedimint all came together over time The relationship between federated custody and microfinance How Fedimint is analogous to Free Banking Does Fedimint satisfy Hal Finney's vision for Bitcoin banks? How Fedimint compares to first party custody How Obi expects regulators to react to Fedimint Learn more about Fedi and Fedimint.

Hello and welcome back to On the Brink. I'm Nick Carter. Today we're sitting down with Obinuosu, formerly the CEO of CoinFloor, which was the exchange doing the longest running proof reserve attestation. Obie is now the founder of Feddi, a company building on top of Fediment, designed to build collaborative custody tools for people to use Bitcoin safely and at scale. Fettie Mint draws on ideas from pre-Bitcoin dating back to David Chom. I've always thought that Chomian banks were an overlooked scaling technology for Bitcoin, and I'm very excited to see what Obie and the team do with Fetty. I think this could be the dawning of a new model of custody,

and hopefully the re-emergence of Chalmy and Banks on Bitcoin as an alternative scaling model. Let's dive right into it. bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy

with a new round of Concentive Easy. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Obi, welcome. It's good to see you again. How's it going? It's going very well.

Good to see you, matey. Last time we saw each other, we were in the fjords in Norway. Yeah, jumping into the ocean after the sauna. Yeah, it was. freezing cold water. It was very cold, yeah. I actually thought that my muscles would seize up and I would drown. I think if you spent more than more than, more than.

a few minutes there, you would lose the ability to swim. Yeah. I could do about a minute at a time, I think. But I suffer from something called Raynard's Syndrome. So my extremities, well, hands and, let's be clear, my hands and feet, those extremities get very, very cold very easily. So 30 seconds was me. I was in and out.

For example, I like skiing, but I could never do it because I'll do one. slope and then spend 30, 40 minutes in the apri ski and then one other slope is just not very enjoyable. Well, you've been busy since then. I don't know when it was exactly our little retreat. End of May. Yeah, wow. So it's been a couple months. You started a new company. Yep. And you're the talk of the town in Bitcoin land because it's not every day that sort of new ways to deal with Bitcoin come around. You know, you know, ways to deal with Bitcoin come around. know new custodial setup so now now we've second party custody originally we had first and third party now we're second party yeah i mean it's it's it's it's is unusual in the bitcoin space

i have a distinct impression that people start to over the next 18 months in other spaces um pay a lot more attention to it as well uh yeah isn't a it is a coincidence but it isn't that fete is a It's an anagram of defy. I'll leave it that. That's interesting. I was going to ask you about that. So let's zoom out. Let's rewind. So when we met first time, it's in New York in 2018, maybe was that it? We're on consensus. You remember that?

Oh, yeah. I think in person, yeah. Was it in a diner? Yeah, it was in a diner and it was raining a lot. Yeah. I think it was consensus 2018. It was consensus, yeah. I was extremely damp. That's what I remember. And you're running coin floor. And I think I wanted to talk because you had been doing proof of reserve for four years at that point. And I was very impressed by that. So, you know, to what extent did your experience with coin floor actually influence your thinking around Fetiment? I guess let's start there. So, first of all, it did have a great impact.

But so if we're talking about Coin Floor specifically, when I started the first page, the first notebook book, because I used to make copious notes in Coinfloor, had this, I still have it actually. It was a diagram of BTC and then this arrow pointing down to the Nigerian Naira because my sort of heritage is from Nigeria and then an arrow pointing back to BTC because for me it seemed obvious that this solved a lot of problems in countries like Nigeria but I knew most about Nigeria. I then went on with my co-founder's the former coin floor

and we had great aspirations of focusing on the UK first and then expanding but with mainly traditional finance investors and shareholders Nigeria's your second market from the UK in the city of London, Nigeria's your second market was just never going to happen you know it was going to be Europe maybe US but Nigeria, global self, we don't need that, not much money, and lots of risk. So in that sense, realizing that the things I was most interested in and the people I most wanted to help were never going to be helped by me staying in this sort of very much institutional Bitcoin

Central Limit Auder Book Exchange environment, eventually made me jump. find the opportunity. It was a great opportunity to sell. And I sold. And I committed to the beginning of this year, focusing on all Bitcoin, all empowering the global self, all with global impact all the time. So that's why everything I do is that from now on. And I'm thousands of times happier because of that. But beyond that, I dealt with a lot with regulators. I gave evidence in front of the Treasury Select Committee, which is the UK equivalent of Senate hearings, I guess, in the US, BBC Parliament and all the stuff. We gave advice to members of the intelligence services, to the police, to regulators, the Bank of England and everybody in between. we were always the head of the queue when it came to regulation, we were the first exchange regulated in Gibraltar. And we were dealing with basically every regulator in Europe and US. And I also saw the behavior of other high-brand, high-profile exchanges, Bitcoin and crypto exchanges.

And those two things, by the end of, already it was starting after four years when I met you, but by the end of eight years, it was very clear that we needed another option other than regulated exchanges. Right. And we needed it to use it in Americanism. We needed it stat. So that was another thing. It was, they were not something that I felt comfortable most people holding their money in regulated exchanges, knowing what I knew about. the majority of them. Yeah, it's interesting. You kind of went through this real journey running

coin floor and, you know, trying to create the most credible centralized model possible. You did those proof reserve attestations for years and years. But despite that, your thinking landed on, we need a different model here that's not as custodial. It's not the pure you know, third party custody. Yeah, I guess you said it yourself. What's not obvious and what's uncommon knowledge is that I don't want to go as far as to say it's an oxymoron, but credible centralized is the problem. It's really hard to be credible and also centralized. And I do think some manage. I do think some manage. I do think some manage. but you're fighting against a lot of enforces and incentives to make you follow the path of the dark side.

Yeah, I mean, it's a timely, we're having this conversation at a really critical moment when, you know, we kind of expected this would happen, but now with the rise of proof of stake, with the theorem making that switch, you have exchanges being deputized to basically engage in protocol level censorship at the behest of the state. You know, it's the most aggressive time of state level attack on blockchains I think we've ever seen in the sort of 13 year history of this industry. Yeah. And I mean, I've had views around this. I ultimately think that there is a significant risk that that will continue to get more and more severe. So if you're not, and the way to counteract that, well, the way that will appear is two things. It will appear in the form of misinformation and it will appear in a form of extreme regulation. Because you're attacking an idea and the only way you can attack, you can't attack an idea of a nuclear missile or a gun,

you have to attack it with misinformation and regulation. And you only have to look around to see that both of those things are increasing in an ever, ever more. rapid rate. So the other thing is just from a personal ring of Soroman or ring of Soroman like effect having that much power, the ability to know what every one of your customers is doing and the ability to stop and start transactions and and holding onto very, very large amounts of money leads is a is a is a is a massive. set of temptations. And even if you start as, you know, the heart of a hobbit, you know, over time,

you're going to, you're going to, you know, it's going to turn it, you're going to become Gollum. And I could feel that happening to me. I like to think a very strong ethics. And the way to solve that is to do a quick side step and move on to something where you you limit your ability to act in a bad, in a bad, socially bad way. Yeah, that's a fun analogy. I think in this analogy of Frodo, who, you know, is pretty resistant ultimately to the power

of the ring. Or maybe Tom Bombadillo, and he's not in the movies in the books. He's, he's un worried by the ring. Or we can take it forward to a sort of Star Wars metaphors. and contrary to popular belief, I don't think I'd be Obi-1-Kanobi. I'd be more likely Mace Windy. Visually, I look like Mace Windy.

I like Mace. But I mean, structurally at this age, in Bitcoin terms, I'm more like Yoda, because I'm the oldest person in the team. So you thought Nigeria would be the sort of heartland of Bitcoin adoption. That turned out to be completely true, basically. basically i mean it's maybe the number one per capita bitcoin place in the world a hundred percent it would be the part of the world that um i thought had the most opportunity for growth

has been seeing that and it's been because because for a long time not many people are paying attention a few organizations like you know the pacts falls and bit refills have paid attention and now you're seeing more and more regional players in Nigeria, specifically. You've got people like Bitnob and so on. But it's all happened over the last few years without my involvement. And I would have loved to be,

other than saying it's going to happen and writing some blog posts, predicting it happening. I have to be part of that. But it's going to be, that is something I will, definitely be rapidly remedying over the coming years. Yeah, you have plenty of time to rectify that. And, you know, the crazy thing is that it's happening in the backdrop of a hostile central bank, which has banned centralized exchange

fiat relationships to the existing banking sector, right? Yes, but I find that, I get excited about that because Bitcoin is designed to be money that can work in a hostile environment. If it cannot work, if your business cannot work in that environment, then it will ultimately fail because you're competing against some of the most powerful forces in any industry, in any jurisdiction. And so you have to be bulletproof. The technology needs to be bulletproof, the platform or the blockchain that you rely upon needs to be bulletproof. And your business needs to be bulletproof.

The problem with that is if you are not tested, then you don't build your business in a way which is actually bulletproof. And now if you go to countries, like Nigeria or if you see organizations like Binance, whatever you think about Binance, because pretty much everyone has tried to attack them continually, they've got this sort of multi-headed cut off one head, another two form, where are they base? No one knows. They're everywhere and nowhere. They're the Kaiser-Sosay of like, you know, of crypto exchanges. They have an internal peer-to-peer network to get into and out of the system. So that makes them stronger.

And ultimately, if you cannot stop something, then you have to negotiate with it. And you've come to some sort of reasonable set of regulation. We saw it before with BitTorrent and music. You know, there were multiple attempts to stop it. They realized it couldn't be stopped. So instead, let's instead of having a, box sets of VHS videos which were like eye-wortingly expensive, you would have thousands of videos for a few dollars a month and that was acceptable and therefore people paid.

You know, and that's what we need. We need the existence of a truly bulletproof alternative. It may not ever be as practical as a centralized alternative, but if it doesn't exist, you're in a world of pay. Yeah, it's interesting in the case of Nigeria how P2P marketplace usage, whether it's Paxful, local bitcoins or Binance P2P, which I think is the number one now, has become so incorporated into the standard flow in terms of getting access to crypto assets, you know, which in some sense is like inoculates the population against capture because now they have so much experience. using these tools which are inherently resistant. Whereas in other jurisdictions, you know, centralized exchanges have always existed. And nobody has that experience.

Well, I would say that Binance, Paxfall, local Bitcoins, Bitnob, all these people, they all have those. But they're not the number one, two or three, decentralized exchanges by far. The number one, two and three, decentralized exchanges worldwide, and four are WhatsApp, telegram, signal, chat. This is where the vast majority of volume goes. And it dwarfs the volumes that you see on these platforms. And that's just informal, informal trades in and out?

Yeah. I mean, so in coin floor, because we saw when we started, we were basically the only Bitcoin exchange in the UK. There was a previous one where the CTO had decided to open source the code, but he included open sourcing the passwords to access the servers. So they got hacked. But other than that, we were the first Bitcoin exchange in the UK. And when we started, our main competition was local Bitcoin,

was basically local Bitcoin. volume. We eventually took over because it's just a simpler experience, but we became the number one exchange for local Bitcoin brokers to use to hedge. And partly Coinbase tried to enter the market, but they banned local Bitcoin brokers, which gave us the monopoly on this market. Fast forward a couple of years. We also, So we decided to build our own, based on the feedback from all of these sort of expert users or Peer-to-B exchanges, our own Peer-to-B exchange. So we had for two or three years a Peer-to-B exchange called Coinflon markets.

And because of internal wrangling around what we would prioritize, do we want to focus on consumers or institutions? And in the end, institutions run out and we delivered this, we created this, physically delivers Bitcoin Futures Exchange. which was called CoinForex. It became CoinFlex, but that's a whole segue, interesting segue. But by the end, we were fast approaching becoming the number one peer-to-peer exchange as well.

And it was very profitable for our users based on our learnings. But one thing we learned above all is that brokers go to these platforms. They do one or two trades, the good ones, the ones who turn to business, and then get those people to come off those platforms and deal with them directly because it's simpler, it's more intuitive to the user than most people know how to use a messaging app. And they... The peer-to-peer brokers. The peer-to-peer brokers do. So they use these sites as business acquisition.

And they also means that they don't have to deal with all the competition of people coming in, undercutting them. and the user gets a more direct experience. So whatever you see, this is one of the big challenges of these Piersbus exchange. There's this massive churn where a customer comes on and then immediately goes off after two to three transactions. So all you're seeing is the tip of new users.

The vast majority of these years and years going offline. So the biggest decentralized exchanges in the world are WhatsApp, Telegram signal. So it's like you take an Uber a couple of times and then you just get the Uber driver's number and then you use them as a private taxi service. Exactly. Although I think there are structural reasons

why it might make sense just because what Uber figured out, if you're dealing with normal sort of mini-cap companies, you'd probably do that. But with Uber, because of the convenience of just saying they've turned the drivers into commodities. Yeah, they made them fungible. Because a long time ago, I looked at setting up a competitor to Uber, but I was pre-coin4, obviously.

So we looked into it. But that's the difference. But with this, I don't want to make the analogy, actually, but you effectively, you found your dealer, the person who, and once you're comfortable with them and you're comfortable with the risk. just stick with that. Yeah, because the product is a commodity. It's just the experience. What's important to you is the experience, how responsive they are, how polite they are, how consistent they are, and you don't want to build up that trust each time. So I've asked you one of one question that I wanted to ask you, which is kind of funny. I've like 20 written down. We didn't even, we didn't get to fetiment yet. So, you know,

tell me a little bit about the history of Chalmy and Mints. You know, I guess it's right there in the name with David Chom, but for our listeners, just give us a brief introduction. I'll do my best. So in, so the idea behind Chowmy and Mints was, it was originally put forward in 1983. So it's, next year it's going to be 40 years old. So it's, this is not, this is not.

This is not sort of Johnny Come Lately. This is really mature stuff. Where David Chalm came up with this idea called Blinded Signatures, and that's at the heart of this idea, where you can provide some information. You don't know what the information is. Someone can, the recipient can effectively stamp it. And so to prove that they've offered it,

this or they've authorized this information and then give it back to you but without knowing what they stamped without knowing what they did and you can then receive it you can then unblind that information and you have that information but with proof that some some trusted third party has has stamped it so that seems pretty cool but if you have the protocol that was later named the Chaomian e-cash protocol because he came up this idea for e-cash let's take this concept you're in a you're going to a fairground or an amusement arcade and inside the amusement arcades there's loads of games but you use tokens to play the games and what happened is you'll go to the kiosk at the front you give them your cash and they give you these tokens and imagine they have a machine that actually creates just

melts and creates these tokens for you and you take them and play the games. If you find friends have run out of tokens, you can give them some of your tokens. Or you can take some from others. Within the confines of this amusement arcade, the person at the front has no idea of who's playing what or so on. It's a bearer instrument within as long as people are willing to accept those tokens. And those barrier instruments, those IOUs, which you can then take, you can take back to the kiosk and say, look, I've got these many tokens. I've won some, I borrowed some, I gave some away, I've got this much left, and they can give you your cash back. And they put the cash

into a safe. So that concept is the concept of how the David Chalm's e-cash system worked. And it has a couple of parts. It needs to have some sort of. of safe to hold the actual cash. Because in that time, he was thinking about Fiat cash, because it's the only cash you to think about. The person doing all this is effectively a bank or a trusted, a third party. And then the machine to basically print off these tokens

and also destroy and shred them at the end if they're returned, that's the mint, because it's minting these tokens. Now, when you add blinded signatures, that's the equivalent of putting the shutters over the windows of the kiosk. So all that people could do is hand in cash and then they can receive in replacement the tokens or hand in tokens and receiving the placement cash. And the third scenario is they can hand in tokens with a note saying, can you give me change effectively and receive the change? So if they hand in five, $10 tokens, they can receive. $51 tokens if they so wish.

And so conceptually, the blinded signatures gives you the criminal of putting shutters over the kiosk. And everything else is simple programming. But you can just theorize that you have in that scenario theoretically perfect privacy because you don't know how many people are in the place. You don't know. There's no account system because each token is a bare instrument. You don't need accounts. You don't know how many people.

It could be the same person each time. It could be different people. And also people can send them and pass them around to each other without ever involving you. So it's a very simple idea that provides theoretically near perfect privacy. There are certain edge cases. You can do timing attacks, which you can always do. But it's incredibly private using very mature, simple cryptography,

which is why I always like to describe it as catnip to cryptographers. Because for years, people wanted to say, look, this is an amazing system. And David Chalm, actually in 1989, launched a company called DigiCash, which used this system. And he, you know, being a technologist, and first, as technologists do, he ran it for a while. It did quite well, but it ultimately didn't succeed and was shut down. Well, he succeeded for nine, eight, nine years. So longer than coin floor, so it did okay. But eventually it got shut down for various reasons.

I think partly the increasing regulatory overhead became more of a challenge, especially considering that he originally conceived of e-cash as a way to deal with, a concern he had around the increasing loss of privacy that he was predicting with an ever more digital world. And so that was what was later dubbed Chalmian e-cash. And sometimes referred to as Chalmian mince, if you're referring to the minting pod. It had two big concerns and flaws. One was that the bank was one single bank,

the person behind the kiosk holding the cash and also processing the mint. And even if you could, in theory, have multiple banks, ultimately the cash also, you can only have one person holding the cash. There was no way to get a $10 note and have five or six people holding a $10 note. So even in 2002, and people keep coming back to this idea of Chalmy and Mints again and throughout the following four decades. For example, in 2002, there was a proposal put forward

where they thought that you could have multiple banks working in concerts such that a majority of them could sign so you could decentralize the bank. But then the money would still be split up between the banks because you cannot have multiple banks holding the money. And then 2008, a slash... 2009 came along and Bitcoin came out. And so for the first time, you could have, or shortly after that, when multi-sig was added,

PaterScript hash, you could have multiple people holding money. And that wasn't possible before Bitcoin. And that was key. So now the money could actually be held with multiple people. So, okay, that's interesting. So you've got incredible, simple, mature privacy. And you've got the ability. to have multiple people holding money

and money that many people value. And then fast forward again and a few years ago, Blockstream came up with the idea of liquid and side chains and they needed a way to hold the Bitcoin on behalf of multiple people in this automated version. And they came up with, well, they popularized an idea which they called federations,

which is a way of effectively taking a process that would normally be implemented and executed by one person, but purposefully, whereas normally you want to make things that require multiple machines, require only one, this way you purposefully split it up across multiple different servers, and they can interactively work on processing that particular functional service. A similar concept is multi-party computation, for example. but it's slightly technically different. Why it's technically different, it would be best to ask Eric Sirion on that.

But it's a similar concept. Multiple people work on this. And it requires you can choose a quorum of them will need to agree before that process continues. And literally after that, within my understanding from Eric, within a few months, I believe it was at a Hacker's Congress from a few years ago,

a number of prominent or very prominent by their very nature, but very accomplished and skilled hacker, white hat hackers and cryptographers came together and just started discussing. I don't know the exact, but I'm going to paint this image in a bar, you know, somewhere in Prague or a pub, saying, okay, now we've got... Chalmy and Mint, we've got money that can be held by multiple people, and we've got a way to effectively federate the bank, part, the Mint part. Maybe we can make a federated Chalmian Mint using Bitcoin. And there were two or three different projects that went off in parallel. We mentioned them on the FeddyMint.org website. One was Skrit and one was Feddy Mint. And Eric

Syrian, my now co-founder for Feddi, was the one who worked on Feddy Mint. And they all started, but Eric dug his heels in and kept going on it and kept going on it. And didn't stop. Block streams observed what he was doing and decided, I think it's about nearly two years ago now, to sponsor him. Because I can see, okay, it's a really novel use of the Federation, the Federation technology using Liquid. And, you know, they're also interested in clearly in Bitcoin. and privacy. So they sponsored it from there. And he continued on. And then last year in Paraly

police, Hackers Congress, Prague, I was in the sort of last months of selling coin floor. I was looking for ways of getting people off exchanges stat, as I said. I had some ideas. I had ideas around using Nokia phones because I still think you're in a hardware idea and they pre-existed Bitcoin they are incredibly cheap maybe you can make these super cheap and they're everywhere

so you don't have the sort of logistics issues because they're already everywhere used as door stops now but they could be very simple hardware wallets and they don't you can physically disconnect the Wi-Fi as well

in those other devices he gave me a lot of very polite reasons why it wouldn't work and I appreciated that and then I asked him about what he was working on and he explained he's working on this thing he called Fedi Mint which is a portmanteau

of Fedi Federated Chamium Mintz and in his mind it was this really cool privacy technology but when he was telling me about it and I was starting to question I realized this was much more than that this is actually a new paradigm in custody

is this a this could become a protocol for custody. We have a protocol for the storage of value, which is Bitcoin. We have a protocol for the transfer of value, which is lightning. But what we don't have is a protocol for the custody of Bitcoin. And as a result, we either try to store it with a first party, I call it do it yourself custody, or i.e. ourselves, figure it all out. And that is the best form of custody if you can do it. And if you can do it correctly, but it is challenging for various reasons. Or we give it all to a third party and leave it for them to sort out,

which is third party custody. And generally, if you're giving money to a stranger, you need regulation or they tend to run off of your money. This is a different option where communities can come together, elect by themselves, whatever mechanisms they currently use to make decisions within their community. they choose elect the most trustworthy, honorable people, their knights, their Fed-I knights, effectively. And those people will work on behalf or will provide a service on behalf of the rest of the community to cuss their Bitcoin.

And that was an interesting form. And the more I looked at it and the more I talked to the people, the more I realize it actually solved many problems in the Bitcoin space, in the lightning scalability space. and beyond. Wow, those are quite the digest. I like how you lay out the constituent historical pieces that came together to make this a reality. I'm just surprised it took so long for the Bitcoin community to sort of arrive at this idea. Well, it took about three or four months after all the parts were available.

And that's what's interesting. You couldn't have made it until you had fed. The last point was federations, because you had to be able to, federate the money that couldn't have happened before Bitcoin and you have to be able to federate the mint as well and that couldn't have been done before either one of the idea of federations which is does what it needs to do and is and it therefore is much simpler and a lower risk technical solution but the other option potentially could be something like secure multi-party computation but out of the two federations is much

cleaner, simpler, and therefore it's easier to reason about is a lower risk option to go with. And so that seems to be, again, when you're dealing with custody, you want to take the dumbest, simplest, simplest approach if you can that's easiest to reason about and that's the lowest attack surface. But within that being, once that was sort of proposed as something in the form of liquid, it only took a few months for three different people to these sites to work on it. But then it took time to develop. But they were working, Eric was working round the clock, you know, from that point on. So when I've heard about this, I think from you probably, it made me think of microfinance,

you know, the idea of having community banking where the community is collectively responsible for the individual loans and they're guaranteed by effectively community collateral. You know, if one person defaults, then actually the remainder of the folks in that, you know, village are responsible. And so that's the social pressure that causes the defaults to be less likely. Was that part of your thinking at all when you're envisioning this? No, initially, as I said, I wanted a solution to get people off exchanges because I don't think you can have hyper-bitconization or a world where potentially everybody's using Bitcoin,

if 90% of people are storing it on a centralized platform. And the centralizing forces for running exchange are immense. So we already see that Binance on many days there's more trade volume than every other exchange combined. Before that it was Mount Gox. This is where it will always go to. Because liquidity begets liquidity. So we needed an alternative. And the trust dynamic of Fedomint was also actually not a bug, but it was a feature. Because it prevents, it access this sort of the weak nuclear force versus the strong nuclear force.

They counteract each other. So that's how I started. However, it wasn't long before many people, especially people I talked to in West Africa and Global South, pointed out the similarities to microfinance and how this could be used. And because of the fact that the Federation effectively can run any code in this federated manner, in fact, the whole system's built on modules. So one module that the Federation runs is a multi-sig Bitcoin wallet, which holds the money. Another module that it runs collaboratively is the interface to processing lightning transactions.

Another one is the Chammy and Mint. But they're all modules already, but anyone can add additional modules. So you could have something which could, basically it's a full, and churing complete processing, server processing environment. So you don't have to learn any new fancy code. You just write normal Rust code, create a module, implement the right interfaces, and it can do anything you want it to do. you could very easily, anyone who knows to write Rust could add a module which would replicate

a feature like that, for example. So if you saw a world where there were hundreds of thousands of federations, effectively, if you were going to analogize it to outside the Bitcoin space, each federation could be its own blockchain, but without the unnecessary overhead of a blockchain, that instead of buggy intra-exchange, intra-blockchain bridges, you just use the lightning network or you sit on the Bitcoin network instead. And then effectively you've got this multi-sharded, or you can think of as blockchains or roll-ups, whatever. You have these multi-sharded environment with hundreds of thousands of shards

that can join and remove whenever you want, and they all can pick and choose the functionality that makes sense from them, and the governance model that makes sense for their community. And also, for example, as a user, because you have one lingua franca in the form of Bitcoin, you can transfer value between them for pennies using the Lightning Network. That is a scalable, that's a scalable global scale infrastructure for DFI in my mind. Yeah, that's kind of, it's a funny, like, interesting paradox almost to get a socially scalable

sort of banking system built on top of Bitcoin. You have to take the constituent unit down as small as possible. It kind of reminds me of free banking. The analogy I would draw would be a network of independent free banks that are all using Bitcoin standard as opposed to the gold standard, which is what they did under free banking. Each of them issuing notes based on species gold deposits, with those notes being interoperable, mutually accepted between the different banks. And there were periods of time in history when those systems were totally unregulated, but also totally stable.

Yeah, I mean, I think that the free banking example has been mentioned to be many times. And the other one that I'm constantly reminded of, again, is that this. apes almost exactly how Finney's prediction for the Bitcoin space that will ultimately have these we don't want to call them banks but the Feddiment is

conceptually similar settled on the Bitcoin network and that's the case you settle on the Bitcoin network and use the Lightning Network for payments the Bitcoin network is a settlement layer but the people who are doing the set the way this is architected quite interestingly is that

the people who are doing the settlement aren't the FedEx themselves or users but they are a number of lightning service providers. Because a Feddiment can connect to a Lightning Service provider without having to trust the Lightning Service provider. Therefore, and without having to lock up balance with the Lightning Service provider. Therefore, we can connect to multiple.

And whoever offers the best price, we can use. A Federation can use. It also means you're more reliable in terms of your experience. because if One Lightning service providers channels are exhausted, you can instantly fail over to someone else because you're not locking up capital on the Federation side. So therefore, you can introduce the concept of load balancing,

which is essential to the modern web to make the experience. You have getting to sort of five-nines uptime. You can only do that when you can load balance, which is a very trivial, which is a conceptually trivial thing to do for a federation. So in terms of the practical reality of using a system like this, comparing it to first or third party custody, you know,

how would you say Fedomans outperforms, I guess especially relative to just first party DIY custody? Well, first of all, from a pure security point of view, if you perform first party custody and you do it correctly, then that is the gold standard, or the Bitcoin standard.

You can't get better than that. There is a challenge that most people don't do it correctly. And the hard bit of first-party custody is not storing your information on a hardware wallet or so on. The hard bit is how to safely deal with the 24-word backup. And if you look at it, I mean, the absolute best, if you're just sort of solving for security, the absolute best is to never provide, never give the information about the 24s to any second or third party.

You should not be storing it in a bank vault because that's a regulated third party, you know, for example, and they could technically, or with a lawyer, because it's a regulated third party. They all, if asked by their local government to provide information,

they will have to, you know, bring out the trampoline and start jumping. then also you would if you want pure first party you wouldn't store it with a second party either. So no storing it with your wife or children or friends and so on. Unless they're not aware that you're storing with them, of course. But then that's not second party custody. That's just you finding a hiding place. The other thing that you should do as well,

if you go through the guides on how to correctly deal with the backing up of a 24 words. And this is beyond Bitcoin. This is for any block cryptocurrency. You should not store it in one place because you want redundancy. You should store it in multiple places. And also you should not store it where if in one place, having the same thing copied to three or four places is not is actually worse because you're now storing the whole thing in three places. What you really want to do is you want to break it up into parts such that, let's say, any three or four parts can be used to reconstitute it.

Again, people make mistakes when they do that as well. They do that in a non-cryptographically secure manner. So what you really should do is set up, for example, a multi-signature address. That's great. Or you use some sort of threshold signature scheme, for example, Shemir's secret sharing scheme and break if you break one key up into parts. if you do all of that and you put those parts into place that no one else knows then that's that's good quality um first party custody if you do want to if you care if you're concerned

about things like in the event of your death your your your your children getting some of your bitcoin you don't want to donate your bitcoin to the greater good through through deflation then you have to tell a third part, a third or second party as well. And then at which point your custody is no longer actually first party custody. It's actually whatever you've done in terms of the backing up of the 24 words. But when you use Fediment with a click of a button in terms of the back of your 24 words, it can instantly be federated, fresh, um, increasingly. split it to multiple parts, shards using Shemir's secret sharing scheme and shared with

the guardians who are likely to be some of the most trustworthy people within your community. Before it's being shared with them, it's encrypted with a secret salt, also known as a pepper. So we can generate a password for you because most people are really bad at creating passwords and it's just an unnecessary headache. And then we encrypt it with that password. and share it with a click of a button. And all you then need to do is take this password and store it in your email, send it to friends and family,

because it's much less, the security requirement for that is far lower than the security requirement for the 24 words. And to recover it, if someone were to take that password and send it to the guardians, they would also have to convince the guardians who know you that they are you.

So therefore, you only need to secure it away from the guardians, but not anyone else. So you can send it to your friends in a WhatsApp. You can send it to a G drive and Gmail. Versus if it was your password, you're sending to Gmail. That's a different thing, because if that's decrypted, they have all your money. But we can do that with one button and then open up a share dialogue to share. Because we have instantly available a set of trusted second parties for you to use to store the backup on.

You mentioned earlier that you'd spent a lot of your time talking to regulators. From a regulatory perspective, what do you expect the reaction to be to Fetiment? Is this something that they should be embracing? I mean, maybe it'll be case by case, but what do you expect there? Hi, it comes to mind, but I won't go into it. But my view is that we've designed the system from the beginning to be a way to help communities custody their Bitcoin safely. It does provide privacy, but again, our focus from the privacy point of view, is to protect

members of the community from other members of the community, because you don't want your neighbour to know how much you're earning. And I think that's recognized everywhere that it's not a good idea for your next-door neighbor or friends or family, and sometimes it could put you in danger if the people people closest to you have awareness of that. So financial privacy in that context is very important. And that's what we focus in from the privacy point of view. But beyond that, the system is designed to be aware where my period of time as the CEO of Coinflow made me aware of the different exemptions within the regulatory system, especially in the in the West. And so we've tried to

design it in a way to fit within those exemptions. Obviously, people's mileage may vary and they should always, if they're concerned, seek advice locally. And regulation is also jurisdiction dependent. It's case dependent. There are many, many variables. So you cannot give a carp lunch answer to that question. But one, operating a, if you're a guardian operating a federation,

not operating in Federation, but one of the Guardians who is acting as part of a Federation, the process of operating in is very much an unattended operation. So you, just like Bitcoin Core or some other blockchains, you download the software, you click run and it's runs by yourself. that's often cited as an indication of this not being a regulated activity if you're not taking any any sort of action on an ongoing basis to manage it other than keeping it fed and watered with electricity and internet another is that the recommended setup would have no one guardian having the ability to take action by themselves so no one has individual agency so there is no one who has a

majority or of of keys so for example let's say you had 10 guardians and they needed six to sign that means no one no two no three or even four could act together or even five in fact in that scenario could act together to form a transaction so definitely not one and again if you look at some of the guidance from FinCEN, for example, that would be an indication. They always say these are indications, it's case by case, of being exempt. And then one that I personally strongly suggest and recommend, it's open source, so people can obviously use, do whatever they want, but is to focus on providing it for friends, family, or people that you've had a pre-existing,

evidence of wanting to support and help as opposed to wanting to profit from and not seek to make money from it. So just do not have a profit motive. Again, in many locations, this is a very strong exemption and it goes beyond Bitcoin. It's a general exemption in all financial services. If it wasn't an exemption, then holding money in a piggy bank on behalf of your kid would require you to. to be a regular as a custodian or going to the corner shop and your friend giving you money to buy something would require you to be regular as a payment into you or even just telling people to buy Bitcoin would require you to be regulated as a financial advisor.

But because you're not seeking profit and you're doing it with you're doing some of a pre-existing relationship, it would suggest that you're not running it by way of business and therefore you would be exempt. Now, if you choose to charge money for it, then you can make some configuration changes and do that. But, you know, you would want to get advice in your given jurisdiction at that stage. And even if you do all of these, you're still, if you have a concern, you should seek advice. But everything we're doing, having operated a regulated exchange, a regulated financial service, I would strongly suggest that if you can operate in a manner of seeking advice that doesn't require you to be regulated,

you would probably want to do that if you've never had to operate or run a regulated institution. You know, it's funny, as you mentioned earlier in the episode, that this, you know, you expect that there's a defy angle here, and that's maybe part of the longer term play. But it occurs to me that this, the default model here is defy. I mean, it's a decentralized network. of sort of shared custodial institutions. So as far as I'm concerned, that's defy already. Yeah, I mean, Bitcoin is defy. True defy.

Lightning is decentralizing a payment. We're decentralizing custody. So what do financial institutions do? And beyond that, it is also an educational piece, which we have three key parts of our strategy. Feddie is, Feddyman is this incredible technology. Feddy is free things. I call it code, coaching and collaboration.

And it's one third, one third, one third. And I think that strategy is probably, I started fundraising and from the idea from when I got back from Oslo. So I didn't start to the 1st of June and we raised the round by the 7th of June, which happened to be my birthday. And that was after raising the target twice and also after a bank holiday weekend with the Queen's birthday during a bank holiday weekend with the Queen's 50 years years in rain. And I think the reason why is it wasn't just a tech company.

It was we had this plan for rapid global scale. And so code is based on the foundations of Fettiment, which is incredibly powerful and excessive. exciting technology, plus a what will be a beautiful human-centered design using concepts out of IDO and so on human-centered design, mobile wallet. It's incredibly simple lightning wallet from the user's point of view. But also coaching. So we're going to be educating people both within the app, because I don't think people do enough to educate people within the app about not just how to use the app, but what Bitcoin is about

and how to manage your money in a way that is safe for you. And so we slowly upskill people. And when it makes sense, if their balance is got above a certain amount, we would then suggest that maybe you should think about going to first party custody now because you have an amount that makes sense for that. Because we are trying to turn them into better Bitcoiners and people who are better able to manage their finances, decentralized. their risk, et cetera, but also on the ground coaching, so especially across the areas in the

global South West, where your money goes further, we will be looking to set up mass education processes. And this is what really prompted it was we have the ability to partner with some of the most prolific human rights defenders, activists, freedom, NGOs and so on, which, you met as well and we're working with a number of these to roll out mass training programs, some of them tens of thousands, some more. In one case we're talking about a program of one million people in one go, but it will take several months to prepare for that. But we're able to do these mass rollouts and we have people on the ground who will be educating people so they won't be just given the app and figure it out. They will then be shown how to use it,

how to protect themselves from people trying to scam them, because these are the much bigger concerns than theoretical, technical attack factors, how to then use it to more cheaply, more effectively perform their day-to-day task that they actually care about. So, for example, how do I get money from my friends and family in the diaspora and use to buy stuff or pay for rent and so on? We won't just give them the app, but we can then show them how to do it in combination of other apps.

Or how do I increase the quality to my life by earning money and show them how they can earn money using this app providing service? Because we've got this incredible technology, by the way. We think it's going to be the next big thing we're going to call it work to earn. It's this amazing idea where you work and you earn money for it. So we're going to introduce that and show people how they can use the app to do that. And then finally, it's collaborations. As I hinted, you can't do it all from. just the app. So we're going to collaborate with a lot of people providing services in the

Bitcoin space, but just make it really easy from the app to just point people towards those services, show people to how to use them both within the app and in person on the ground so that they have a full service. You don't have to solve it all in one app, but education can bring it all together. So yeah, that is a solution. It's one third, one third, one third of my time on those three, of our time. as a company on those free things. Well, this is very exciting, OB. It's not every day that an idea like this comes along in Bitcoin, but you've always been on the vanguard of these new ideas,

you know, whether it's proof of reserves or now this. So very exciting to see from our end, looking forward to tracking your progress. I think we'll leave it there for now. I look forward to checking back in with you once this is ubiquitous, especially in emerging markets in the global south. But yeah, really enjoyed the conversation. So thanks for being with us today.

Thank you very much, matey. I guess just to say if anybody's interested in following this, they should check out feddymin.org if you want to hear about Fedimint or we're FediF-E-D-I-X-Y-Z. Check out either of those. If you want to listen to my ramblings, I'm on Twitter as OB-O-B-I. That's a great handle. I was just marveling at that one.

Yeah. We'll put the links in the show notes. Obi, thank you. I'll see you soon. No worries. See ya.