On The Brink with Castle Island - Paul Sztorc (Drivechain) on Bitcoin Security Budget and the Importance Merge Mining (EP.280)

Episode Date: January 31, 2022

Veteran Bitcoin commentator and inventor of Drivechains Paul Sztorc joins the show to talk Bitcoin's sustainability and the role of merged mined side chains. In this episode:  Why Paul is the 'Steely Dan' of Bitcoin Revisiting 'Measuring decentralization' Revisiting Paul's argument on Proof of Stake being veiled PoW Why you should roll your own statistics Concentration of power in miners and mining pools Is PoW worthless if it isn't challenged? How Bitcoin energy FUD is based on neo-malthusianism The Julian Simon / Paul Ehrlich wager Why none of our resources are finite How climate change diplomacy is neo-colonial Why and when innovation happens Why Paul is a critic of Bitcoin development culture Paul's critique of Stock to Flow Why Bitcoin culture is static Why Bitcoin needs more satire Bitcoin fees are 80-100x less than those of Ethereum Why BTC fees are not sustainably high Why Bitcoin fees and security budget need to grow over time Can you just wait for more confirmations if security spend declines Are fees destined to be effectively 0 through the creation of more blockspace? The history of Drivechains /BIP300 Does merge mining make it more expensive to run a node?  Do we know how to upgrade Bitcoin Core today? The relevance of sidechains and merge mining to Bitcoin today Was Satoshi into altcoins? Would more sidechain development have inhibited the growth of Ethereum? Does BIP300 solve the problem of the Bitcoin security budget? Why you can't reduce blockspace to increase security budget?  Update on Drivechains Content mentioned in this episode:  Truthcoin, Security Budget in the Long Run Truthcoin, Security Budget II, Low Fees, and Merged Mining Truthcoin, Measuring Decentralization Truthcoin, Nothing is Cheaper than Proof of Work  All about Drivechains/ Bip300/301 Sponsor notes: Fireblocks is an enterprise-grade platform delivering a secure infrastructure for moving, storing, and issuing digital assets. Learn more at fireblocks.com

Hello and welcome back to On the Brink. I'm Nick Carter. This episode is brought to you by Fireblocks, more about them later in the episode. Today I'm sitting down with Paul Stortz, one of the most anticipated episodes we've ever done on this show. I've received countless requests for it. Here it is, and it doesn't disappoint. So for those of you don't know, Paul Stortz is one of the most prolific and long-running thinkers in the Bitcoin space. I think I became aware of his work in 2014. and some of his old posts have held up really, really well. We actually discussed that in the episode. Paul is quietly very influential in the Bitcoin space,

certainly to me, specifically, I've learned a lot from him. He's also something of a critic of sort of Bitcoin development culture and prevailing ideas among Bitcoiners. He's certainly not afraid to tread a different path, and that's what I really like about him. So in this episode specifically, we talk about his drive chain project, which has code that's deployed, and his BIPs 300 and 301, the idea of drive chains is to facilitate blind merged mining

so that Bitcoin block space can become more useful and abundant while providing more fees to the miners. Paul has a very definite point of view on this and certainly expresses concern over Bitcoin's security budget and the trajectory of that. And this is, of course, one of the most pitched debates in the Bitcoin community, although I think people are oftentimes afraid to make their feelings known on this. Paul certainly isn't and has a very clear perspective on the matter. This is a highly informative episode. If you're not familiar with Paul's work, please read it. It's incredibly good. And even his posts from 2014-15 are very prescient, hold up very, very well. I'm including them in the show notes. Listen to the episode, give his work a read. Let's dive into it.

Brought down by 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 into Britain's ailing economy with a new round of quantitative easing.

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. So I'm here with Paul Stewart's. Just learned the correct pronunciation. I got that wrong. I had that wrong for seven years. Well, you know, that's a common thing to get.

I get all kinds of things. I remember in high school, you'd get everything. And then my friends would know how to pronounce it, so the teachers would say some random thing. And then they would all just, we would all just go along with it. Well, welcome to the studio, aka in my apartment. This is actually the first podcast I've recorded here. Oh, it's a cool apartment.

I'll tell you that. Thank you. I'm going to keep that in the show. So everybody knows. So you used to live in Miami because I remember. It's true. It's so very recently. Yeah.

And now you are no longer in Miami. Yeah, I'll be back though. I mean, I planned on to do, I'm planned on doing like a 51% of the time year type of a thing. I just haven't gotten around to kind of coming back. But I know I think it's great here. And I think that if you're considering moving somewhere, this is a pretty good, this is a pretty good choice. It's just easier to live here. Great weather.

Great taxes. You know, rent is affordable. Yeah, places are nice. People are having fun. I do like it. I mean, you're going the opposite direction. Everybody's coming and you've left. But we can forgive you for that.

All right. So you're actually the most requested guest for this podcast. Do you know that? No. Yeah. So you're, because, you know, I've read your work many times and obviously side of it. Oh, thanks.

And I often refer to you as the Steely Dan of Bitcoin. Oh, my God. Does this make sense to you? I mean, I know Steely Dan is, but I'm waiting for it to click into places to what you mean by that. Actually, I think it was Tour de Meester that first described, and so I sold that from Tor. So basically, not to be too much of a sycophant here,

but so Steely Dan is beloved by musicians. So like by other musicians. That's the angle. So I'm like the expert's expert or something. Exactly. Oh, that's so nice of you to say. Yeah,

I try to only write about things that I think, see, what bothers me is I don't want to write something that's just like something that everyone else will say. I think that's horrible. But that's like what gets, you know, that's like what gets a lot of attention.

You know, if you just reiterate what, tell the audience what they want to hear, you just go up there and you say, taxation is theft or whatever or like a lightning network is, defy on bitcoin or some play the phrase like that play the hits right

exactly just go up there and play don't stop believing and the audience will love it you know there's something to be said for that but if they're not here don't stop believing at your concert where are they going to hear it so you take a different tack I mean I just thinking back you measuring decentralization post it was very influential

to me I still talk about it proof of work versus proof of stake where you describe proof of work I don't know if that was the exact expression you used But it was compelling to me. I think it was right. So actually, that's what we're going to start. That held up really well. Yeah.

So that was going to be my question. Okay. What's the question? Are you satisfied with how your work has aged from 2014? Yeah, great question. Seven years now. Yeah, it's a long time. I think measuring decentralization is one where sort of part of that was about the,

there was obviously the scaling debate. And then I kind of wanted to make it possible for both of the, the two different sides to make some kind of progress in the conversation. And what was really weird about that is both sides sort of endorsed it, but they also sort of like ignored it or something, I want to say, because that was supposed to be kind of like maybe a gift to the small blocker side and say, you have now this measurable thing that you can say that increasing the block size will make it just harder to run a full node. And that's what the whole frame should be.

It should just be, makes it harder to run a full node. what are you going to do like um and so that was supposed but they were just kind of like uh you know everyone just kind of what it was already so dogmatic at that point that they were just like those people are evil and that really kind of didn't make it kind of didn't really succeed in in helping either the two kind of combatants uh but it was weird because the audience liked it and i think that one held up like super super well i think that is the right thing to do is if you I say, if you can't measure something, it like doesn't exist, I think. So if people were talking about all this stuff and they were saying, oh, if we increase the boxes, it will harm the

decentralization a bit. But it was just this abstract concept and that it, and it, like, it made it impossible to have a conversation or even really to think about what was happening. And I thought that was so annoying. Because it was like these people were just talking, it's like people talk about justice or something. And it's just like so annoying. And it's like, if you had something, it literally comes down to a number. And so I thought that one was really, really great. I think the sort of nothing is cheaper than proof of work about proof of stake just being proof of work.

That, I think that also held up really, really, really well. In particular, I at the time convinced most people, like, you know, I convinced, I remember convincing like J-Quann and like Vlad Samfier like in the comments section that they, like, I brought them around to that point of view. But then they kind of kept on, they kept on, like, working on proof of a state. Right. You didn't cure them. I went to consensus in New York City and I saw Vlad Zamfier.

And I came up to him and I was like, don't you, people were talking to him. I was talking to him. And I was like, yeah, but didn't you agree with me in my article? And he said, yes. And I was like, so why are you still working on? Why are you still working on proof of his sake at all? And he kind of like had no answer to that. that. It's very kind of silly. Why does the alchemist stop trying to make gold? Right, exactly.

In particular, that essay was really about like, even if you could get proof of stake to work, which itself is, it was always going to be this huge challenge. And as you can see, they constantly push it back, the Marty Bent thread or whatever. They constantly fail to get it to work. But the point of that article was like, even if you got it to work, it would be useless. it wouldn't like it wouldn't like achieve a good a positive outcome in terms of this whole waste thing so yeah so I have a lot of thoughts about that still to this day but yeah I don't know I think I think those two are

pretty good so I feel like we could do an episode on frankly either one of those maybe we're going to do a series or something you told me that you like to do four hour episodes yeah I know it ends up happening a lot so okay measuring the centralization do you remember Ballaget's Renovasson's blog post on that. Yeah, it was horrible, wasn't it? No offense to him. But it was like, that was the one where he, I want to make sure I'm remembering it right. Yeah. He had like, where he had like six metrics. Yeah. And then he sort of like took some, some bizarre, like, aggregation of them or something. What was it like, what did he even do? He called it the

Nakamoto coefficient. Um, it was something like, I was shocked that. He took the genie of a bunch of different metrics. Yeah. Um, I didn't like it either. I like Balagie, actually, a lot. He's been on the show. But, uh, I thought that was a. yes yeah exactly yes no and i you know very arbitrary i think he's uh i think he's like um i kind have like sort of a love hate relationship i think he gets a lot of really important things right and then sometimes i just have no idea what he's talking about you know but that's an example because why you know that's an example of exactly the kind of writing that i don't like or type of analysis that i don't like where he like seemed to draw on first of all he made the

mistake, common mistake about when you have the data, you just use the data. So he had data on those things. And he's like, I can, and that's similar with the genie coefficient. He was like, this thing exists in the world. And we can take out a calculator and use it. So all the best statistics, and I used to be a statistician professionally, and all the best statistics are ones that actually you just invent for the purpose of solving your process. problem. So you never want to roll your own crypto, but I think that all the great statistics are, because you need to have like an idea of what you're doing first. Right. And then people say, oh, we're going to use like linear regression or whatever. We're going to use correlation or something. And they just got, you know, they saw someone else do that and they are just, this is the steely damn thing is coming back. But the, it's like, I think that was, that was an example of just chaos because he picked those things. Many of them had no real relation to anything. And there was no actual, there was no thought behind it. Right.

And I critique that specifically in my post about the number of nodes, one guy who could be, you know, J.P. Morgan or whatever. One person could just spin up like 10 million nodes on Monday. And then on Tuesday they could shut half of them off. And then your metric is going to be like whipsawing, but nothing actually happened. So it's like, isn't that an enormous disqualifier for that? So I kind of hated that. I thought it was... But luckily, for me, a lot of other people also hated it. It was influential.

Yeah, I called the pie chart theory of decentralization. Because they always put up that thing. They get the pie chart. I think BitShare really pioneered that. He was Dan Larimer was into that. He loved the pie charts. And then his big thing was he was going to take the log base two of it or something. Like, that was supposed to be a big improvement or something.

When you, the marketing for these proof of stake chains would be like, we have 21 validators and Bitcoin only has like three. Yeah, they say that's horrible. Yeah, because that's a lot of people say that. Yeah, I'm sorry, I don't know what to tell you in the audience of you. If you're still saying that today, I mean, what can we say to cure them of that? Like the relationship between the miner who has invested in normally, like possibly millions of dollars, but at least they have, hardware that cannot be used or anything else. And then the pool,

and they can switch pools on a dime. And they can very easily monitor the pool for doing anything that they do themselves. They do switch pools, by the way. They are very disallowed to the pools. Yeah. As they should.

So whether or which pool they're at is completely a formality, ladies and gentlemen. It has very little, whether there with one pool or another pool makes note all the pools, mostly do the exact same thing. It's very easy to, if a pool did the wrong thing,

they would be kicked out of the system. So hopefully, if you listen to this podcast, stop saying that. Yeah, so I, my view on Provis-Aic is that, like, basically it can be made to work. Like, there are ProVistake blockchins in the wild that have been run, like, Tazos has been going for a couple years.

I mean, EOS has been running. I just think of them as standard like financial institutions where which have shareholder governance basically. That's how I think about them. And so I don't think of them as particularly transformative. I think of them as a resumption of like the prior system basically. If A is do you agree with that and then B like do you think the market is just doesn't care enough? That's a very good question. I think I certainly think approval.

of work is more like an industrial process and proof of stake is more like this sort of weird legal type brand thing that like relies a lot on your which domain names you have registered um and i definitely am sort of surprised that the number of proof of state coins that work and just didn't burst completely into flames uh i was a little surprised by that but i do think it is a byproduct of people first of all the underdog has an advantage because everyone wants to work together to take over the top spot and then they'll turn on each other but not until then well actually if you paid attention they totally have been turning on each other this year I bet well yeah well that was like the Ethereum like the finance smart chain uh so onna exactly it's just

yeah it's like a Russian dolls of like see that's the thing is that's your second question is very important because I think the idea of proof of work is that it is a kind of this like shield defense system. I think maybe even you were saying that or something. I don't remember who was saying it, but it was like it's like having a big wall around your city, but then if no one tries to invade, it makes it look like

the wall is pointless. There's a waste. And obviously that's not the way people make decisions about whether or not they should build walls, which is because they shouldn't because the wall could be a deterrent. But yeah, I do wonder, it's possible

to tell a weird story where you say Bitcoin needed to have proof of work so that it would survive. Because the whole point of Bitcoin's design is to, as it was a reaction to, like, Liberty Reserve and these other things. So there was just one server. And it was not only very cheap, but it was just very straightforward. It just shut the entire thing off. So you had, like, Liberty Dollar, Liberty Reserve, right?

Digit Cash. Egold, too. Egold. Exactly. So that was, that was like the big reason to switch to proof of work. This proof of work says that every node can be a server now. You don't need, no one needs to have any particular, like a trump card on what the truth is. So that was the whole design problem of Bitcoin.

And then they opened the door to like just cryptocurrency or just having the idea of having private keys that control little UTXOs or a little whatever you want to call it. in the other coins that don't have UTXO model. But they kind of open that door up and then, you know, then maybe it's like the government can't tell the difference or no, the public can't really tell the difference. And so as a result, they just, you know, how can they close down only some and not others? So then it is possible that maybe you needed to have proof of work to open the tip of the spear. And then afterwards, proof of work is a complete waste of time.

time. That's a shocking thought, but I think that it is possible. So proof of work was a dynamite that blew open the Overton window. Exactly. Yes. Corpus stay crawled through. That's a very good way. Yeah, that's sort of searching for the idea that it would just like, you know, Lyft and Uber were like technically illegal for a long time, but they're just, so it ended up being so popular that in practice, it just, yeah, in general, I think people, whatever the sort of law is or whatever the formal rules are is not as important as what is in people's brains. And like a culture of a place

makes an enormous difference. Yeah. And so proof of work maybe changed the culture. But then you wonder, like, is it a, is it not even, is it pointless? And then you get with stuff like, you know, like Binet smart chain or whatever, you're kind of like,

people are taking that to the absolute edge where they say. But that's one of the reasons why, among other things, I advocate that a less decentralized, scalability side chain because I just think you have to be able to win in either world in the world where it's not going to matter how decentralized the coin is well then you can take advantage of the side chain and then in a world where that it does matter then all of the descent all of the centralized projects will will be killed out so another great analogy is like a kind of bacteria or something

like you put in if you put in antibiotics then it really helps to be an antibiotic resistant bacteria but if you don't then you just need to be whatever bacteria is like spreading the fastest or whatever so all that whatever you i'm not familiar with how they achieve that bacterial resistance but it must come with some trade-off right otherwise every bacteria would be so um on the waste question this is the you know congress has going to have a hearing on whether uh this is great i'm actually you know there's a chance that i'm there and i'll just tell them read paul stuart's essays guys come on he wrote it in 2015. We've had time to read it.

So proof of stake is if it consumes societal resources, if it consumes capital and it mobilizes it, that means capital can't be used for other stuff. And that other stuff could be like building nuclear power plants. Is that like a reasonable argument to push back at this like, oh, perforker is wasting energy kind of thing? Well, I think, I'm not sure how persuasive it will be because it's sort of abstract.

Even what I was saying about the fact that you have folded up capital, and so then fewer projects to build a better future can be taken advantage of in the proof of stake world. Even that was like, that was me trying to go to like an absolute like limit. I think in practice there will be even more other forms of proof of stake. Like the proof of stake waste will take on even other forms like just like, people trying to denial of service attack the other stakers or people go back in time and they get old keys that people don't own now, but they did in the past. And then they try to rewrite the chain from there, which is computationally, basically free.

They just have to then get whatever the strategy is for beating the like whatever. They have to get the exchanges like off the network. But then you can, that's possible. You can do that with like denial of service or just whatever. whatever it is, you can put the network in some kind of dilemma. So I think the waste is mostly, as I try to get into the piece, like fundamentally, the driver of the waste is just the fact that the blocks have a certain amount of value. And they're just, the block is just worth $10 million. So people are just going to be fighting over the block.

And they're going to fight. You could design something that's really, really perfect. I mean, I think you probably can't. But the point is, in proof of work, they're bidding with energy up to the $10 million amount. And with proof of stake, they'll just be bidding with whatever else they think will increase their chances. So it's the fact that the coin is worth so much that drives the waste. It has nothing to do with whether or not it's proof of stake or proof of work or anything else. But again, I don't think it'll be persuasive at all.

Those people are just want to, they've got their story that they want to sell. And they're going to go for that. I'm not sure what to do at this point about the whole the energy fud type people, you know? Well, it's all tied into this sort of Malthusian idea that just consuming energy is a sin. Yeah, I think, yeah, that's a good point. I think the real thing is to just try to retake the offensive. There was a book called The Ultimate Resource that you may be familiar with. I don't remember.

I think the guy's name was, what was it, Paul Simon? He took the other side of the Ehrlich bet. You know, I knew or no, Paul Ehrlich. Oh, really? He's a family friend. Oh, yeah. I mean, I'm sorry to hear that. No, it's okay. Look, I disagree with the man. So that's the point is. The guy who won the bet wrote a book, the ultimate resource, and he argues that, and I think correctly. And the book is like that none of our resources are meaningfully finite.

Yeah, because everything got more deflationary. We got better at pulling. And constantly, we get better at it. And each of the things that we do now requires fewer resources. It's another great book, The Beginning of Infinity by David Deutsch, who is still, alive. Those are two books that just they just take this view that there's no like the right thing to do is to do more with less. Yeah. It's not we don't have to all just like stop and enjoying our style, stop enjoying our energy, stop enjoying our whatever. And you know, the incredible thing is to bring up that early 1970s alarmism about resources is absolutely correct because what happened was, so Paul Eller wrote this book, The Population Bomb, this is for the benefit of our listeners.

And basically the idea was like the global South is going to starve because we don't have enough food. We're not good enough of making food. Then we like discovered high yield GMO rice strains and like, you know, basically we figured out how to feed like 15 billion people if we wanted. And all of his predictions were wrong about starvation. But you know what happened? in the meantime was like driven by these academics western like international financial institutions and actually the policy establishment made it a cornerstone of their foreign policy to encourage like effectively eugenics in the third world this is the part that people don't know i don't know this so this this is a crazy story so the u.s at the highest levels stupid population bomb made it so they

this book infected everyone's brains and then they were like okay we need to convince india to stop making so many people right now and so then there were these massive sterilization campaigns in india india or gandhi actually was she won all these prizes and all of this sterilization was connected to um aid dispersed by like the world bank and stuff it was a giant nightmare it was incredible but i'm not surprised though because here's the thing is when like when people start to go wrong like you know what i mean like to get an argument right, every part of it has to be correct. And if you flip one thing is multiplied by negative one or whatever, and the whole argument, you just become a crazy person. But, but yeah, that's too bad.

And it's like something like six million people in India was sterilized due to this. And then who knows about like that makes me think about the China's one child policy or something? Completely related. And that's a demographic disaster now on the other side. Yes. The, the, to just because this is so important that every single person alive needs to understand. this. There's this naive view and then there's the correct view. The naive view is that you just take all the resources that we know that we have now, like in some Excel sheet or something, and then the current rate of usage, and then you just multiply, you just say, well, run out. We're going to run out in that. Because it sounds incredible for someone to come onto a podcast

and say none of our resources are finite in any meaningful. Like, that sounds crazy if you think about it, because that's outside of most people's experience. Someone has, you know, if you have, you go to the store and you buy four bananas or something, you know, you think, oh, it's only a matter of time before these bananas run out. And then, but this is a very naive view is to just say this, okay, this is the oil we know about and we use X amount, you know, per person per year and then just multiply. Like that, that's not actually how anything works in practice. And what the real view is that what humans do every day is many of them, not, you know,

some just go to work and do what they're told but many of them they look around for a problem to solve and they look for the most important problem they don't solve the least the the tenth most important problem to them or the you know the 40 millionth most important they look at what is the most important problem today they solve that problem and that's why all the big problems get a lot of attention they get solved and so you know the things do not things things i've been getting better on an extremely continuous way for the last, basically forever, but especially over the last, like, 300 years or so. Things have been constantly getting better. And I have one more thing that I have to add, which is the reason people adopt the naive view is because the real, the correct view, it relies on people creating knowledge.

So it's sure we don't know today how the people in 2050 are going to get their energy. And so you could say, well, maybe we'll just stop inventing, you know, new energy technology. But you could also say maybe we'll invent the best energy technology ever, and people will be laughing at this conversation. You know, the point is you have no idea either way. And we've been inventing things ever since we got here on this planet. So there's plenty of room for more inventions. And it's this idea that you don't have the knowledge. But if we don't have the knowledge of 2050, if we did, we would, you know, we would just switch all that energy today.

So, but yeah, I hope that, this is a sad thing. I think that is, you're right, though. I think that that's fundamentally the proof of work conversation is mostly actually trapped in that completely different thing. It's not actually a conversation between blockchain engineers about consensus. Of course not. And, I mean, you know, you could have the same conversation about gold. You know, gold extraction uses probably more energy than Bitcoin. And it can't be cleaned up because you're using diesel trucks and stuff.

like that to get to all that. It's a type of argument that no one else makes like how much energy is the NFL used like no one we don't do this with any other thing where we say all of the energy that used to make Q-tips. Well we're cursed because it's easy to tally it up for Bitcoin. I think that's the reason. It's the same thing with the data is there so they just say well. And Bitcoin's news and not a lot of people use it. So they there. I was, you know, I was I was on a run this morning. I was looking at the cruise ships out there. And I was thinking myself, Well, what percentage of the Earth's population has been on a cruise ship? You know, probably not that, probably not a big percent.

But these things are belching, like, sulfur into the oceans, like, disgusting filth, basically killing the manatees and the dolphins. Yeah, but then it's the other thing, it's like rich American, sort of, like, Americans go on a cruise ship. So it's like skiing versus boxing or something. There's all these, like. Well, yeah, I guess the thing is, like, your New Yorker columnists that are, like, criticizing Bitcoin's energy, They're probably not on cruise ships either, frankly. Well, you may be right. They may be trapped in the air like self-hatred spiral or whatever.

But here's connecting the thread. And I know people get mad when I do this from this like eugenic campaign from the 70s, which was very much colonial. And it was like the West basically saying to the rest of the world, don't use their resources, don't have kids. It's the same thing with the energy. If you listen to the Glasgow, what was it, the Glasgow? go cop to or whatever. Did you pay attention to this thing?

I actually, I didn't. Well, it was the most exciting development in, you know, energy concern, trolling, environmentalist, you know. I think maybe, you know, heard some of it on Twitter. So basically, you know, all the delegates globally get together. And then the wealthy nations complain that the poor nations are like industrializing, basically. And so this one was a disaster.

That was the outcome because India, again, didn't commit to, you know, some language that would have them reducing their emissions by a certain amount because India, rightfully so, likes air conditioning. And they're like toilets and things. They have a lot of things they need to build. Electricity and they like industrialization and sort of like being able to buy things and not dying and things like that. And so they're interested in that. And so the Western nations were completely distraught by this because, you know, that means that India is going to, you know, see more and more energy and that was a terrible thing.

Yeah. I want to say the title, the ultimate resource, the title is about how humans are actually better. The more humans, the better. And especially the more humans, the more innovation. Because each person can think of ideas. And the idea is spread very easily and freely. So more people is better.

It's better for everything. I think the counterpoint I would have to that is that there's like certain geographical, like, places and certain periods of time. There's a short-term thing. Innovation is like very, very concentrated. Oh, yeah, there's certainly golden ages. Well, yes, it's not only the, it's not sufficient. You can't average innovation over time.

There was, of course, many, you know, there were more people, ancient Athens, you know, had in like a golden age, but there were more people living in India in 400 BC or whatever. So why didn't they have the golden age? So it's the, well, you, both books get into that. It's because policy plays a big role too. It's like, does the culture just reward conformists or does it reward? or does it reward, which for innovation, you just need ideas that are, excuse me, ideas that are in conflict with each other and ideas that compete so that the best

ideas rise to the top. That's really all it takes, just Darwinian evolution of ideas. And often, you know, because of a government policy or because of culture, people decide to keep their new ideas to themselves. They feel embarrassed. They don't want to say what they really think. Well, that doesn't make me optimistic that America. is going to be a center of innovation right now given the... Don't you think America are relative to many.

Well, it's, you know, it depends on. But we don't want... People can set a good example. Like when Elon Musk lands the rockets like right side up, but you can think all kinds of things about Elon Musk, but stuff like that is genuinely sort of inspiring to people. They look at that and they think, I didn't think that was even possible.

And then they see that it actually happens. And then they're like, wow, you know, maybe my weird idea for a new hit comedy show about whatever. silly things about my houseplants and my apartment is going to be great or something, you know. So, you know, like they kind of, you know, it goes in big waves. I agree. There's a wave of optimism, novelty. So we want, you have to do your part. It's like a zombie thing. You have to do your part to stay out of the evil team and join the good team because you convert people back over. People are converting each other back and forth. It's way easier to be an innovator and a society of

innovators. So, I mean, you know, leaving aside the sort of Miami boosterism, like, what, what, what parts of the U.S. would you say have like a pocket of sort of actual intellectual innovation right now? Well, that's a good question. I mean, I'm not sure. First of all, like, I've only been so many places around the world, right, that I've experienced firsthand. I would say maybe even give up on geography and just say, like, the internet is better because the internet, you know, connects everyone. And without the internet. You know, internet, the Bitcoin community would have had a very, very, very hard time. Imagine if there's no like Bitcoin talk, if there was no Reddit, if there was no

telegram, you know, if there was no Twitter. We rely on Bitcoin people. Us poor Bitcoin people are addicted to Twitter, but it also, it helps everyone. You can just talk to anyone. But yeah, certainly Austin and Miami are doing very well, relatively speaking. So actually, okay, so narrowing the question to the internet. So you're actually a big, you're kind of a critic of Bitcoin. development culture, I would say.

Yes. You know, that's actually one of my questions. That's the important thing is that we should always push for better ideas. So, so, but this is what I wanted to ask because in one sense, you know, Bitcoin Twitter is fun. But in other ways, Bitcoin Twitter is like a terrible place where people believe like crazy stuff like stock to flow. So there's like many tragedies on Twitter.

I mean, there's an anti-intellectualism on there, not, you know, to claim that I'm intellectual or anything, but certainly there's a strain of anti-intellectualism. is exactly as I said, but the culture can become static, where people can say things like Bitcoin is perfect the way it is, and its success is preordained. All we have to do is nothing, and Bitcoin will take over, and everyone will be so grateful to be paying $2,000 transaction fees, and then we'll have the Citadel and blah, blah, blah, blah. So we don't have to do anything to achieve that. Maybe you're like our Neo-Volterre. You know, you ever, did you read Condit? So like, you know, you need to write the great satire and explain how that Bitcoin Leibnizianism is like, you know, have the character of Pangloss.

Yeah, I think that's a good idea. I have actually thought about that idea with satire. I mean, like John Seth wrote that allegory with Christian or whatever. That was great. Finding Bitcoin Mountain, oh, it's like a very obscure, but it was like, you know, I think I read that a long time ago. Yeah, all the great characters, Blythe Bluder in, inventories. of the credit default swap master of ether or whatever and there's like this the fork in the road and it's like the difficult path of learning and it's like i do you know what i did read that i didn't know

john set wrote it because it was just it was just like a text that it was written by blockchain jesus okay and i didn't frankly i was too new to these ideas i didn't understand what the allegories yeah no it's if you have no if you haven't if you don't understand that it's an allegory and that it's like Yeah. What is it like Christian Pilgrim's Progress or whatever it is? If you don't understand that it's a big, it would just make no sense. It's making no sense. Why did someone invest all this time? We need maybe yourself, maybe like we can convince Josh Cincinnati to do it. There should be a satire. Yeah, I think that actually would help a lot. There's a lot of material. When your business is scaling up and your portfolio is growing, you don't want to waste precious time on manual crypto treasury management or settlement. Fireblocks can handle. that for you with smart custody solutions for your crypto business along with industry leading security technology whether you're starting a new fund or expanding operations fireblocks offers scalable solutions for companies of any size from day-to-day crypto transactions to the most advanced

defy strategies fireblocks is here to give you a competitive edge they'll take care of the back end so you can focus on the big picture visit on the brink dot link slash fireblocks to learn more all right so stock to flow have to talk about it. I know I'm going to quote you. You said, it's so dumb, it was so dumb that even critiquing it would have been too humiliating, like critiquing flat earth or something. Yes. Yeah. No, I completely, I completely believe that. When I first came out, I kind of thought it was just a harmless, like, you know, like we had the Bitcoin wizard, like R slash Bitcoin join us, and it was like an MS paint and it looked ridiculous, you know? I love that. I love that. It was like, we don't care, but we secretly do care. You know, it was like, it was like a mess, and it was like,

like a kind of it was just like a meme thing but I thought this was just like a thing that you could just say like I couldn't believe that people actually thought that I mean what happened to supply and demand what happened to efficient markets hypothesis what happened to the fact that like bitcoin cash is the same stock to flow ratio like what if you could you could fork Bitcoin and trivially alter the stock part but the fork would have no value because they have no demand like Every part of it made no sense at all. Yeah. I mean, but they have answers for all these points.

Like there's a secret, there's something special about Bitcoin, which is why Stock DeFloid doesn't work for altcoins. That's what they would always say. Yeah, but then that special thing has to be in the model somewhere. That special thing is called demand. That's like an extra variable that's in there. Bitcoin. I mean, it's like it broke a number of statistical rules as well.

They probably are so obscure that no one will care about, but you're not supposed to like, there's this big thing in the, goes back to Fisher and these other things about when you fit parameters to the data, you're biased towards whatever data you have and you can't just like, you could easily, you could trivially like the caring about R squared in a naive sense of just like it's really accurate if the higher squared is high,

but that's that's not true. The idea even that the idea even that the accuracy of the model, the idea even that the the models predictive power or how well the data fits the idea that that is more important than the model structure being right

even that is false because as I point out a lot Ptolemy had this astronomical model that involved all these epi circles circles of circles and it was all nonsense none of it was correct but the predictions

were perfect because it was this overfit model that had degrees of freedom. And then when they proposed that planets go around the sun in a circle, the model was less accurate since they were like really ellipses and things and there was like the gravity from Jupiter or sometimes biases the, you know, some of the other planets orbits and things in these weird cycles. So often the model become less accurate when it becomes, well, it become the prediction, you know, the numerical predictions can get worse, but the model itself will be more right. But I feel like this critique is actually too sophisticated. Right. That's what I mean. Exactly. It's like, what can you say? If you start to talk about

auto correlation and, you know, like exactly, it completely violates the regression, assumptions of normality of residuals and like no one knows anything about it. Yeah. The real thing is that It's prices. We already had models of prices. Supply and demand. You know, like the idea that the official markets hypothesis. And then what happened to the Austrian view that like the Hayek, you know, the Hayek misis view that they would represent signals of information or something. That would be constantly changing over time. Yeah.

Like that was just torpedoed like all of these really solid things. And so I don't know. But again, almost when you critique it, it almost gives it too much attention because they're more. fuel. Yeah, you're almost giving it validity if you're reacting to it with these obstrues econometric terms and you know, which basically nobody understands. And really the answer is just that this model's incredibly stupid and shouldn't exist. But yeah, so that Stockdefo officially debunked real statistician says, you know, I just, I don't understand. Why don't people, you know, there was nothing wrong with supply and demand,

you know, everyone. That was good enough. That's a real. But it wasn't reducible to a single, you know, formula. Also, and then the wishful thinking, we're all going to get rich. And we just, we just have to do again. We just have to do nothing. Okay. So we haven't even talked about the thing I wanted to talk about, which is basically the security budget and how it's insufficient, allegedly. So, all right, I'm going to give you some numbers right now.

Right now it's about $15 billion annualized. Does that seem sufficient? Is that too much? Is that too little? Well, you include the block subsidy? Right. So, I mean, the block subsidy, as we all know, is on a trajectory towards zero. It's vanishing. It takes a while. But it does, when you get cut in half every four years, I mean, being cut in half is very significant.

And then the price has to be going up. I don't remember exactly what it is, but something like 17% annually on average or something. The price has to go up by two every four years. Yeah. Yeah. to offset that. And the problem with that is eventually Bitcoin will just be worth, well, I know that this is, you know, obviously this is a good problem to have, but eventually Bitcoin will just be worth all of the money, you know, in the world. And then it cannot easily double in value relative to the stuff, you know, it cannot easily

double in value for the next four years. So like eight years after that, the block subsidy is going down again. So the block subsidy is not a reliable, you know, know it's not like a sustainable thing to rely on we have the fees have to go up so the fees i also pulled the numbers um they are very low frankly so that's the most of the thrust of the article is about the the fees do not they're not on this magical upward trend no in fact zero most of the time sometimes during bubbles they rise but then they go back down to there so we're going to link your articles they do a better job summarizing this but um so right now they're around 250 million

which is sort of seems like a lot but then again you're trying to safeguard a network which is worth almost a trillion dollars yeah i mean if it's 250 million a year then was it per month like something like whatever like 20 something a million a month and then like per for like a week that's we're chopping it down to like five million it's like so to 51% attack the network for like three days it's going to cost you like whatever like one two million dollars yeah well assuming you can sort of get the ASICs and stuff. But yeah, so on Ethereum, here's the weird thing. Ethereum is $16 billion a year in fees.

Yeah, the one site that I, when I presented at Bitcoin 2021, I pulled the numbers from whatever crypto fees, that info or whatever it was. Yeah. That's, that's a sad, for this year, that's been. Because there's individual smart contracts on Ethereum that are higher than all the Bitcoin fees. Well, it's just shocking to see, to watch the trend over this year. I mean, was that your graph?

You had the greatest graph. I don't know if it was you, but I think it was, I think Austin gave it to me from you or something. The graph of Ethereum's fees versus Bitcoin's fees on the log scale. Oh, yeah, that's right. It's a shocking. Ethereum's a steady march upward and now it's 80 times. It's a diagonal line.

And most importantly, the line starts at like 0.001 and it ends at like 50x or something. More, more? So it has crossed the crucial 1.0 horizontal. And not only has it crossed, but it's just blown way past it. And that, you know, that's a, I think that's a sad thing because I try to focus, you know, my background is in economics. And Adam Smith, you know, he has this famous line about the conspiracy against the public, which is about guilds and things. Because Adam Smith hated, he was a critic of the government and terrible mercantilist policy. but he also knew that the merchants and producers were not to be trusted as well and he started

sort of i'm not sure who started it for you know in historical sense but the idea that you have to care about the the customer and the consumer customer is always right and this idea of the fees is you know it shows that these are these have users who pay money um and they so obviously the customer is being made happy in in some way that's certainly not the only criterion or whatever but I do worry that you know we want to keep the focus on what is best for the user you know like what would like Stallman say or something like that you know anyone people from the open source movement or the cypherpunk movement or whatever it's like the software has to empower the

user so they should give the user what they want and there should not be, you know, the user's supposed to be sovereign. So, all right, so we have this fee quandary, let's call it. They're either pretty high or effectively zero. And they're only high when there's like these big price bubbles. So that's what really concerns me is you have these people. They've been like investing like a couple weekends. They read everything by Nick Carter or whatever.

They're getting ready to like become a bitcoiner. So they've already invested an enormous amount of time. So when push comes to shove and the price is going up, they say, well, I'll just pay $50 or whatever. But then when they sober up weeks later or whatever, they kind of have more strategies about maybe they're not going to use on chain as much. They keep the money on the exchange or they switch from Bitcoin to, you know, cheaper block space on other alt coins or something. So this really concerns me the fact that what tricks people into thinking that the fees are going. up is just these, just these unrepresentative bubble periods. Yeah. So, all right. So here's something. So I want to talk about this wait for more

confirmations, a fallacy. I don't know if you call it a fallacy, but we can call it that. But firstly, I think that this year liquidity has been very portable across blockchains. Thanks to certain things like, you know, people primarily actually use stable coins to transact these days as opposed to like your native crypto assets and your stable coins are very busy straddling like dozens of different blockchains and so it's relatively easy to go across chains now so like if you look at tether like it started on omni and then it went to ethereum and then it went to tron and now you can use tether on other blockchains too if you look at us dc i think it's on half a dozen blockchains like the liquidity is straddling blockchains.

Does that accelerate the death of this idea that like liquidity is sticky on a blockchain? Is that evidence of like users having absolutely no allegiance to like a specific blockchain? Well, one thing I try to make really clear in the piece to the extent that I think I have like a few graphics about it or whatever is that the there's two different. economic goods like the coin is very different from the Bitcoin layer one transactions and they have a different price you know there's only 21 million coins but every 10 minutes there's a new on average there's a new block space that can accommodate layer one transactions the Bitcoin layer one transactions are not like Lightning Network transaction or something so those that's a yet a third category of thing so people often try to make the the argument about like oh Bitcoin is

really special people will pay. Well, a lot of that's true. They'll pay for the coin, but they won't necessarily pay for space in Bitcoin's blockchain. In fact, even when I was recent to the article, I found the Satoshi said almost word for word that exact sentence or something. He said, people may not want to shell out for the expensive space in Bitcoin's chain. In a thread where he invents merge mining, he casually adopts this view that there will be many different blockchains with different fee rates and that the fee rates would drive people away from the more expensive small block decentralized chain. And so I was shocked to kind of... We have to dig that up. That's some prime Satoshi exegesis. And he just kind of just, he's very,

very nonchalant about that. He just sort of assumes like he takes it for granted. But today, that would be a heretical view that blocks based on anything other than the one, um, Well, heretical among like a small crowd of Bitcoiners, but they're the minority. Yeah, we do have a problem where I think there is a loud minority on Twitter that unfortunately has a large influence on the culture. But what can you do? But anyway, this is your actual question. Oh, yeah, of course. It's like, do users have allegiance to a blockchain?

Yeah, I think that, you know, if they did, we would not be seeing, we would see more differences of fees on everything. But what we see really is that when the fees go up, new entrepreneurs just create more blockchains. Yeah. So they, they, they, it's a very much the same marginal cost equals marginal revenue argument from the proof of work article where they just, the marginal cost of making new blocks base that is apparently good enough substitute is like basically zero because they can always make some new chain with its own blocks. And so it's hard for the equilibrium price, you know, not to be. zero because the supply curve is just right because you can create a button in block space and even worse if you throw all your your um your um your decentralization requirements out the window you can create a ton of block space and the people who are trade who are transacting are not you know

holding or a huddling so so they may not be you know they may want to make some transaction through some some kind of crypto system and they may they may want to end up with Bitcoin or they may want to end up with you know US dollars in a bank account and so since their final destination is not the coin like all the dark net people the dark net markets have you know they have switched to Monaro a lot many of them except I see like the Pirate Bay accepts Bitcoin Cash or whatever they had like Bitcoin Cash LOL or whatever but then they had it so and then people have light coin if you if you don't want to hold the coin and you only want to do the

transacting part and this is where I worry that people ignore what I said before about the coin and the Bitcoin layer one transaction are very different things. So the coin is insulated from competition because it has unique network effects. People want to coordinate on one money. They do not want there to be all these different monies around. That's Metcalf's law, blah, blah, blah. All that applies to the coin, but it does not necessarily apply to the Bitcoin layer one transactions, which are a completely different thing.

And I think that if people really cared about one versus the other, you would see the prices be very, very different. But just how can it be the case now that my question to people who believe that is how can it be the case now that Bitcoin fees are like zero, like like coin fees are also zero, whatever it is? You know, everything has this kind of natural zero resting place that everything returns to. So it does so and and even with the theorem fees are very material, but people are upset about the fees, you know, like it actually comes up in Congress. And when they do, they, what happens? Someone makes a new thing. Yeah, they move to other block chains. Smart chain, salana, whatever. They make the new whatever it is, polka dot or something. Yeah. That inspires people to take advantage of that situation. So does that kind of suggest that actually fees are, especially as we have these like, mononodal blockchains that like create tons of block space fees are just destined to be zero across the board

that's that's kind of what i think may be the case because one thing that is that think about this is you know maybe you like bitcoin core and you like decentralization someone can just copy and paste bitcoin core make you know bitcoin core two or whatever beta charlie echo or whatever they can just keep making these and then that's even more decentralized because because it has a smaller, it has no historical blockchain. Could you even have a smaller block size as far as anyone cares? Because you just keep copying and pasting them.

So what features, you know, the only feature that the Bitcoin Core original would have is that it's the only thing that can move BTC, which of course that is significant. But again, it's not significant for anyone using it to transact. anyone using it to transact, they won't be holding BTC at the end of the day. They hold whatever else it is they want it. And so that, I think, poses a challenge. The other thing is to say, like, everyone prefers one money, therefore BTC has an advantage. That's what they call circular reasoning, because BTC is on top right now.

It has the network effect right now. But that's one of those things that's only true until it's not, right? This is something else is the biggest. all of that advantage that you you banked for your argument now all of that become multiplied by negative one becomes a disadvantage and your argument is now completely toast because it was 100% reliant on something that's switched from being true to being false so I think this I think this problem is worth thinking about a little more I don't think a lot of people just don't think about this problem for some reason well I think crypto people had this view that people would

willingly use native crypto assets like volatile native crypto assets like volatile native crypto assets and I sound like an economist at the Kato Institute or something saying this, but like they, you know, crypto people thought that people would do payments or like use crypto assets as a medium of exchange. And like basically that didn't materialize in my opinion. Like it sort of did. You have like a niche little economies and stuff. But like really, if you want to use a blockchain based asset for a, you know, contract with a non-zero duration or you want to do your remittances or you roundtrip.

You basically probably want to use a stable coin, frankly. And if you just look empirically, like there's $150 billion of stable coins and their, you know, whatever, velocity is very high. So that appears to be like the preferred transactional medium on blockchains. And so it already seems like this network effect thing is like, well, yeah, it's the dollar. The dollar is the thing that people want to use on blockchains. If you're a network effect maximalist, then you're really screwed because the U.S. dollar obviously, you know, it's hard for Bitcoin to replace the U.S. dollar in that, you know, because the network effect is enormous. I think it's also, it's a conceit, like it's very easy for someone to just have their own little pet theory and they think, well, the world's going to work out like this and I'm going to get super rich along the way.

And it's like, you know, okay, but does it bother you at all that? you know anyone can do that right you know we have to this this graph of the fees you know is uh i think this is presents it calls out for explanation you know that you think like why are they why are they why are the bitcoin fee rates like so low today this should be according to the people who say this is on a steady upward trend they should be the highest ever every single day it shocked me honestly i'll admit that so all right so before we get to the solution um this wait for more confirmations idea. So a lot of people say, well, it doesn't matter, you know, the security budget is too low.

We can just wait for more confirmations. Why is that false? Yeah, I was surprised. Nick Sable said this in particular, and I was surprised to hear that because, yeah, I don't agree with that. To me, the security budget is that's equal to how much money we pay the miners. So that's all the money we pay to the miners. And so therefore, if you're a minor, if you're 100% of the miners or all the miners as a group, that's all of your revenue. That's all of your income.

So that's all the money because of the way the difficulty adjustment works, but that's going to be like all of your costs. But your costs can't possibly be more than that. So that's the best case scenario. That's all the best case scenario is the entire security budget is translated to like hash rate security or something. That's like best case scenario because you can't if you're paying your gardener, you know, $100 to, you know, do landscaping on your house. He can't, it can't cost him $105, you know. So that's all that we need. So that number is how much the miners spend.

And how much if the miners spend, the proof of work, you know, it is a totally, there's no identity. It's a dispassionate metric. It's this industrial number. So it's just like, you know, measuring voltage or something. So anything that the miners do to defend the network, someone else could do to attack the network. And so to me, the security budget is just the cost of, you know, attacking the network. Now, why isn't it, you know, would more confirmations help?

Well, the I use security budget as like this dollars per month thing. So it's like a rate. To me, it has to be a rate Because that's just how it's just how it is in the real world It's not like a certain amount of money We pay it and then the miners hash and then the miners never hash again or something Like that's just not what it is So it's this ongoing rate

And yeah, whoever pays the rate has the longest chain You know, they have the most proof of work And that's what the software will use And if you want the software to do something else You have you open up your you open up your flank to like a million other arguments about why do you know that that will work why didn't you know you know won't that be worse and blah blah blah so just ignoring that for the moment whoever pays the security budget that is what it costs to basically have the most proof of work and basically 51%

bitcoin permanently for as long as you're going to pay the rate so you can just if you're willing to pay whatever it is like a million dollars per day or whatever which is like what it is now, then for as long as you are paying that, you're in control. And so what difference does it make? How many kind? They're not going to get any. The people on the real chain will never get any confirmations on the longest chain. So it won't make any difference. And then the other problem is if the number is really low, then forget just having one person, 51% attack the network like once or something. Like if this number is really low, Like imagine if it costs 10 cents.

Like the people who say this, like the people who aren't worried about the security budget, at which there are some. Some people just reject this idea. But my question of them is, would it bother you if it costs like 10 cents to rewrite the blockchain for like all of last year or something? Like would that really just be completely zen about that? You wouldn't be worried about that at all. If the number is too low, people can easily attack the network like seven or eight times at once, like 100 times over or something. And then the whole proof of work part that is a core element of the design, the proof of work part just sort of stops doing anything.

It has no effect. So that's just over. It's just the end of proof of work. Which, you know, if you've got some other great idea, then that's, maybe you wouldn't be worried about that. But, you know, I think that's like, that's the idea. That's the, you know, if you have a Bitcoin investment thesis or whatever, this is like a core part of what you're buying. So I find that kind of surprising. I wonder what those people would really say to that 10 cents to rewrite the blockchain for last year.

If they would really not bother them at all. So your point about this, you can't wait for more confirmations. Because it's a rate. It's because like you're, if someone is presumed to have an advantage and is an attacker, their advantage isn't necessarily decaying, right? Yeah, they have an advantage. They'll be every block they will find the block before you. Yeah.

So. And then people try to say, well, we'll notice that it's an attack and then we will with our magic uh in magic coordination hours we will flag that one as the bad one and then we have the magic bit you know zero or one we have the magic oracle bit and we'll know that this one is bad uh you know even if you could do that first of all it doesn't make any difference because they just restart the attack at the the the tip of whatever it is that you blessed with your magic powers yeah they can just keep attacking over and over again forever. So you have to keep using this magical power over and over again. And that's

really the whole point with the problem with the argument is it just passes the buck to how are you doing this this magic thing that is not the most proof of work rule. Yeah. So you've introduced a new rule and it's a parallel rule. That is the new consensus. Yeah. So then it's like if you have that then great that we look well everyone in the world including me looks forward to hearing more about how that works. Well then we didn't need proof of work in the first place at all. Yeah. It's the Proof-stake people are the same thing. Well, you know, actually what we're going to do is identify the bad people and actually we're going to slash them and we're going to take away.

That doesn't worry. I have to say a lot of, that's commonly believed, but I think that's dead. There's no, that's completely wrong. That's ludicrous. The attacker will go back. They will have, they'll go back to a time in history in the proof of stake chain where they control all the keys. They can easily do this in many ways by maybe buying the coin and then selling it or going

to people who used to own the coin and getting their keys that they no longer use. and which have no value to the present day owners. And when they rewrite the chain, they will control everything that's in it, including any evidence of any slashing or, and when they're in control of the chain, they can censor anything from it they like. So you won't be able to just broadcast your little thing

that says that you're going to slash. They will be controlling whether or not that thing makes it into the blockchain. So that's, I think that idea is substantially easier said than done. I think they won't be able to do that, in fact. They might come up with some kind of crazy convoluted way to maybe do it sometimes or something. But it's just also, I think it's just naive to build into your consensus mechanism and notion that there is some way to determine, like, intent in a blockchain context and, like, morality and things like that.

Like, this person is malicious and this person is good. You know, like, what if a large exchange or custodian gets slashed? then they'll just lobby the developers to be like don't slash use to list the other blockchain history you know so the thing is very it's very I think you know I mean we've all got our views but of course the proof of work what makes it so great is it's a simple rule

that everyone can calculate and it does not involve these ideas of morality that require enormous amounts of context and things basically people need to read their Zabo Unless he is talking about this this yeah, I don't know why he jumped on that quickly, but that was like very quickly before he got like banned from Twitter or whatever or whatever Has he banned? I think he like quit or something. I think what's possible is he made a couple, you know, made a couple tweets on some

sensitive topics, let's just say, I think. And then what they sometimes do is they say if you don't delete this tweet, you won't. I think it's become a little stubborn in those particular political views. so he's probably, he's even a little curmudgeonly. They want you to do your, uh, your struggle session. They want you to put on like the duns cap. So he's probably like I'm not doing that. That's my guess.

I don't know. They want you to basically be like the Chinese peasant or whatever and where you're, your placard saying like, I've sent, you know, I repent, like I'm sorry. But yeah, it does not, the number of confirmations does not matter. They're paying more than you per month. No amount of confirmations you, you will never have any in the longest chain of any. you have zero. And then the worst thing is, of course,

if the attack is overwhelming in its success, that's a big if. But if the attacker really can pay the security and is willing and able to pay, then all the honest miners will be earning nothing. So they will eventually, you know, become discouraged. And then that will be disaster

because the security budget will then plummet and it will be very easy to keep the attack going. Although they'll always need to be willing and able to pay the, the larger number to be a deterrent, but they won't actually have to pay it. They'll just need to be willing and able to pay it, and that that would be horrible. So we haven't really actually talked about BIP 300. And while I feel like BIP 300 is too narrow, because you have like a sort of a cluster of ideas. And you were telling me you first presented this in 2015. Is that right?

I had this idea drive chain, which is just an idea in 2015, November. And then over time, it has actually become to make it into just easier to understand and for code reasons i split it into two bibs pip 300 and bib 3101 but 5500 is basically this sidechains idea that hash rate escrows this spivv proof um code idea and the 3001 is blind merge mining so i thought it'd be easier for people to read it makes the bibs a lot shorter um so you can you can can read if you're into reading about bips like the actual bips are of course in the the luke dash junior controlled bib repository in the little table so you can read those and they each is only half as long because i split them into two and um what's your sort of current

attitude in terms of the process of including well yeah this is a thing where they're determined to um you just look at the frequency has been decreased of like soft fork upgrades but just also of like any kind of major release of any kind is very it's become very rare it's become literally like four or five years in between soft forks whereas in the past there were very many in 2015 they were like there were like three the three like the same month of scaling two or something like they did have been done before and they were like five that year or something like that um There used to be many more.

There used to be more upgrades. But now, which is partially a good thing, you know, the protocol has ossified to some extent. But also there's this kind of very bureaucratic, slow consensus building process. And if you can't, it's a good thing. You want to be able to demonstrate that, you know, nothing that you add to Bitcoin in terms of code or whatever. that should never affect any of the people who aren't using it, which is great, although that rule was broken for Segwit since it was a mandatory block size increase. But the point is that that is the criterion, but not only do you have to meet the criterion,

which is great, but you have to have some kind of, like, overwhelming ability to persuade everyone that you really have met the criterion. And plenty of people will just, like, you know, they're really busy with what they're doing, and they'll just not, you know, just like sort of not, not look into whatever, whatever argument you make that this will not affect people who aren't using the software. I've even, you've even said things like you can have different version of Bitcoin Core that doesn't have any BIP 300 code in it at all. And, you know, that version will work just the same as the, you know,

you won't be able to use sidechings on that version, but it will work just the same. But people are kind of like, you know, it takes. effort for everyone to understand every argument. So you look at Jeremy Rubin is suffering through this right now. His thing is a very simple repurposing of one of the op codes, which has been done many times before. If you don't, if your transaction doesn't use this op code, it will never trigger any of his code or whatever. But still, this has led to this long, long, long conversation about you know who affects what and then who thinks what and why it becomes really anyone can just comment and so the process has become very very very slow i'm not sure i actually know how to you know what

what the you know strategy is for actually succeeding anymore uh it may it may even be the case that it may just like not even be possible a lot of people and for taproot they were like i'll code tapirut but they were like, but I don't want to have anything to do with the activation. They just intentionally like fell on the sword or whatever with that. And they were just like, this is like, because it was so traumatic. The, all this scaling war and Segwit and all that other stuff was. It's been so long.

You'd think that sort of our PTSD would be, you know, we'd like go to therapy and sort of like fix that. You would think that or that we would, you know, this is a crazy idea. you would think that maybe you would think that we would like come up with a solution to make it easier to like have the process more formal or have something about procedure you know like we figured that out with the law like that's why the law has all these these silly things arraignment trial jury selection we figured out that it's a big mess if you don't have like a plan that was what that was sort of um there's so much bellyaking over top group but we eventually did settle on a method of sorts. I think it was the first time we did it in this sort of specific

way. I don't know exactly. It was like some people have a problem with the way. I mean I, I, you know, I didn't, but you know, like Luke Dash Jr. had some kind of problem with, you know, how it was done or whatever. I mean, so it's tough. It's difficult. I think it is hard to get things. Yeah, yeah, it's a very, it's very bureaucratic. And I do. The whole point of side chains is that you could let the, one of the points is that you could let layer one ossify safely and still take advantage of everyone's creative screwball ideas. So if the protocol is going to ossify, it would have been really, really nice to ossify with BIP 300 in it or something that does, what BIP 300 does. That would be great because then the ossification is no longer a liability because the idea of becoming obsolete. is, that is a, you know, that would be horrible for the network if there was something that,

again, the users, that you have to focus on the users and the customers. It's a very common thing to have contempt for the user and to insist that, you know, that maybe the developers are, the technical people are the philosopher kings and they should rule over everyone, but I do not accept that view. I think the user is ultimately going to get what they want. If you don't give the user what they want, then you're going to become, a problem for the user and people are just very smart they're very good at solving their problems eventually you know maybe not the next day but they will eventually get what they want and if they want

stupid you know like we had like all kinds of remember we had counterparty we had colored coins we had ummmy we had all this like nft style stuff yeah and uh you know if the people just want crypto kds or whatever and they they're willing to pay and they're willing to invest their their time and energy in that and, you know, and it doesn't bring any harm to the people around them, then that's the direction society is going to go. And same for anything. They want, like, more privacy. You know, like Manara, there's a dark net market that went Manara only.

And then they made so much money that they closed down, I think, without exit scamming. Yeah, I think I saw that. That was like the, that was like a first almost. It's like they just peacefully exited. They're like, you know, we're actually not going to exit scam. I was like wow this is so awesome very very rare it's like they sort of like did it they met their goal and they're done

but this kind of really makes it look like exactly right like then they did that and do and they by being Manara only they had a plan and they they planned they wanted the privacy feature and they succeeded and they met their goal like they retired or whatever and probably live in Miami now probably saw them on my run this morning

so yeah that'd be great yeah it's like as not So, okay, but so blind merge mining, is there an instance of it in Bitcoin today or something similar? It, you could easily do it. What BIP 301 does is it makes blind merge mining not require any trust between someone running the side chain full node and the layer 1 shot 256 hashers that we think of as miners today. So the idea of blind merge mining, you could do it without Bip 319. 101 today very easily in fact because people have could have a relationship with a pool or something they could just have like a pay as you go like he's like if you had a relate like if you

leave someone a bushel of oranges at a certain pier and then you come back and they pay you and you just do this every day you wouldn't really but the bif 301 makes it atomic when you you get the cash at the exact same moment you you leave the oranges or whatever so um there is no example. I mean, anyone could be doing it is my point without BIP 301. Bip 301, we have TestNet software that uses it. So the software exists. The software works. You can check it out at drivechine. info if you want. But I don't think anyone has deployed it, except for me. I don't know. I don't know that. If you have, let me know because I don't know anything about that. But there has been a lot of regular merge mining.

in Bitcoin since I think 2010, 2011. Right, right. And that's also a Satoshi an idea for- He invented that idea to help out name coin. This is another thing that is very different. Satoshi is like the co-inventor of the first alt-coin or whatever. So this is very like bizarre, we've come a very long way.

I think, you know, even Satoshi would not be allowed to appear at like a Bitcoin conference. You know, if you only saw his reference, resume because his resume would include like inventing like a ship coin so he would be like barred you know because people enforce like I don't want to particularly name I mean you probably know the conferences I'm thinking of but the conference is to have a policy sometimes a formal policy where the organizers of the conference have said on recorded YouTube videos or whatever they say if anyone has anything to do with any alt coins especially God forbid they created it

you know, helped create an alt-coin, they would not be allowed to, but then that would, you know, that would, by that criterion, narrowly applied, they would have to prevent him from, you know, speaking at the conference. So that's like, I don't know what to make of that. I mean, that's, this is the thing that people don't realize that, um, the plan is, the problem of altcoins is, you don't want anyone it dilutes the message you know we had in the past we had this message like Bitcoin versus the banks

and alt coins wreck the message and they make it like confusing and every alt coin is kind of like as Gavin Andreessen said long ago kind of a sneaky way of getting around the 21 million coin limit but the problem of the to solve the problem of altcoins

is not to just go around and try to suppress people's creativity and people's interests and desires and things. The problem was the solution, which is like part of what Satoshi was doing when he invented merge mining in 2010, the solution is to try and come up with something that, you know, where you get all the benefits of having the alt-coin, but you don't have this dilution of, you know, this inflation tax and you don't have this dilution of the message like to the point where people today, they've heard of Bitcoin, they heard a Bitcoin last,

week and they heard of Solana last week and they're completely different between the two and they have no idea what the differences are you want to have just and this the genesis of all that thought was in 2013 the this the two-way peg or in 2014 became the side chain and that was supposed to be just this big solution and that's what I and many other people thought would be the solution to the problem of all coins is that just take all of the if you have Z-Cam or Monaro or name coin or whatever it is whatever it is that people are interested in NFTs, Turing complete, smart contracts. You would just like I remember Rootstock that was super old.

That was like 2015 that they were announced or something and they were like we're just going to copy Ethereum and put it on Bitcoin. Well, it's operational now Rootstock, right? Yeah, but they haven't quite succeeded in their mission to like, you know what I mean? like how much activity is there on Ethereum versus rootstock, you know? Well, that's because I think people, like, if you just like look out there in the world, like all the potential, you know, users of a blockchain, it's just a lot of people don't care about using Ethereum on Bitcoin.

They're just fine using Ethereum. Yeah. They don't have any ideological hangout. But that would never have happened. Like, you know, before 2016, remember before 2016, um, Ethereum was like, you know, was like, whatever, like 4% of Bitcoin or something. It was like this very, very small thing. And then so this was when the genesis was a side chain idea happened,

Ethereum was like this tiny, tiny, tiny little thing. And it wasn't until 2016 when Ethereum kind of like a hundred extant value or something and became like worth like a third of what Bitcoin was worth or something. And it was like all this drama in Bitcoin about the scaling war, the block size war, knowing people like the future. uncertain it was like stress it was like miserable yeah it was tough so okay so does bp 300 slash 301 solve this problem of our weak security budget well i think it i think it would i mean i don't know what else would um because the issue is merch mining for the purposes of the

security budget is like the unlimited block size increase right it lets you collect all the fees from other blockchains, all of them without limit, without any inconvenience really to you. And that's regular merge mining, does that. So just regular merge mining, I think, could solve this security, but even without 301. 301 just makes it very, very easy because 301 lets regular miners merge mine everything that's 301, like, compliant or whatever, without even doing anything, like, without running any full nodes of side chain or alt coin so you can have a 301 merge mind a blind merge mind altcoin and it could have all these fees and what happens is the the fees are paid to

someone over there some user over there who happens to also have Bitcoin and they make a transaction on Bitcoin to the miners they like that kind of just a sacrificial transaction they pay like whatever it is like the the let's say that the side chain has like $700 worth of transaction fees and they would pay on layer one they pay with BTC is $699 to the miners and then exchange the miners like include some little code that mines the block so they get $700 in the in the world of the the other chain and the miners just they just see that they just got $699 in exchange for including a transaction basically for including data in the blockchain chain. And so as far as they're concerned, this is just a weird transaction that pays them

$700. There's one transaction that pays them all the sum, the amount that is the sum of all the fees of the other block. So that's just, they're not doing anything they don't already normally do, which is just include all the transactions in the block that pay them the most money. Right. So 301 just makes it so they, they don't have to think about anything at all or do anything. And they just get paid in layer one. So 301, I think. is you know it makes it a lot it makes life a lot easier whereas with regular merge mining they have to actually run the the software of the of the weirder um alt coin like uh or layer two or whatever you want to call like they have to run name coin and then like name coin will like make a namecoin block that

also is a bitcoin block that when you hash the bitcoin part is a low really low hash or something like that So you're beholden to like this weird, the weird new experimental software. And as a minor, like minors we know are like pretty lazy and don't update their software. You know, you said, who wants to, I mean, who even wants to upgrade their normal computer? Like the thing pops up and they're like, oh, a bunch of people did work for you. But you're like, I never, whoever wants to update their computer at all. Who wants to update their phone, you know, who wants to update anything? So the miners especially, like, they're making an enormous amount of money like per second.

You know, they have it all charted out. They can't. What's funny is that the name coin software, merge mining, they would get like $5, like, per block. And then the Bitcoin block was like $5,000. And they would still, like, half the network 50% would merge mine. And sometimes the name coin software would crash. And like, they would like, you know, the whole farm, mining farm would like go down as

like their software reset or whatever. And yeah, yeah. I think even once or twice there's just so much voltage that if it doesn't go into the ASICs like it literally like transformers like a burst into flames and explode or something like I'm not 100% sure that that ever that's that really happened and it's not just a story that someone told me might be a story yeah um all right so one thing I forgot to ask you before about security budget the okay so I think we probably differ on this um why can't you just contract the block size and target a certain amount of revenue by doing the OPEC thing and car probably do because the

The problem with that is, so this is like, you know, the fee rate is like the price. And then the fees, the thing that I'm focused on is like the revenue. So it's price times quantity. It's this area of this square in economic or this rectangle and economics of the price times quantity. And yes, if you reduce the quantity, let's say you cut the quantity, you know, to a tenth. You cut it by an order of magnitude. And instead of being, right now it's four megabytes. you cut it to 400 kilobytes.

You would then, immediately, your problem becomes 10 times harder. So if the price doesn't change, which of course you and I agree that it would, but I'm just saying step by step, the first thing that you did is you just made the entire problem 10 times worse. So you have to hope that the fees go from whatever they were

to something that's 10 times higher just to get back to where you started. Well, you need convexity, right? Yes. Or I don't know if that's the right shape of the curve. I always get them confused, you know, actually, it's funny. I think you do, I think convexity is right there. You need the price to go up by more than you reduce the quantity of block space, right?

Right. So you need the price to go, the delta on the price, the whatever, the multiplier of the price, to go up by a factor of more than 10. More than 10. In that example. So you just don't believe that would happen. Well, you know, first of all, now yeah I the problem is the logic I outline in the piece is that you when the price is

really really high the idea of focusing on the high P that creates you know that means that each transaction is expensive you know just straightforward but that means that whenever anything is expensive we just talked about the whole Simon Erlik thing too. Whenever something's expensive, it's a problem for the user. So the tune of however expensive it is. And, you know, most things have just, you know, as we were talking about before, they just get cheaper over time. And, you know, a lot of things today on the internet are just free. And so I would imagine, like, it would be tough to hit these levels you would need to hit. I mean, think about what you would need to hit to replace. If you wanted fees to replace the

block subsidy today, the math on what is required to hit that is like, you know, you know, We're talking like $200 per transaction. We're talking like, you know, and if you're cutting it, it depends what you cut it by. You know, we're talking like numbers that people would find genuinely inconvenient. You know, if you're going to cut it by 10, you have to go 10 times higher than that just to get back to where you started, let alone to make it increase. So I'm not sure that I think there is really kind of like a limit. Like that I think that maybe there's a, because again, we're talking long run, 24-7, 3-7.7. 65 fees. So right now it's like 2,000 transactions per block. And we're talking like the,

what's the average price going to be in the long run future, you know, that are people really going to pay $50 every time, $2,000 a, you know, 2,000 times every 10 minutes at 3 a.m. You know, at like whatever. Like is this, this is the future like forever? And then the other problem is our adversaries J.P. Morgan, whatever, whoever you want to name the crazy people in the Russian government or the Chinese government

or the U.S. government or whatever you want to. Whoever in the name is the people who may not have their interests completely aligned with Bitcoin, whoever they are. Their profitability is going to be growing at a geometric rate. I calculated most of

the, I calculated a lot of figures in the article. Most of them like, you know, the, I had like the U.S. military budget, like visas, operating profits. I had all this things. Most of those things just happen to be growing by like around 6% per year, just kind of, just like a back of the envelope calculation. Like for all of the historical data that was like available. So they're just going to be growing all the time.

So now $50 fees, you know, are people going to pay that in 2075 or something? And then it needs to get, needs to be going up and up and up and up over time. And in the real world, you know, you have things like, what about there was a time before Venmo, right? There was a time before light coin. There was a time before Bitcoin Cash. You know, there was a time before Solana competing on keeping the fees down. So I think it's tough. I think it's tough to rely on the high P.

I think that's the high price. I think that is, I think you're really putting yourself at a big risk. you do that. And so I think it's better to just say that the prices will probably always be low and you have to make it up on volume, as they say. What people don't understand is that because it's a, it's a violation of the block size limit as far as mining revenues are concerned. But it is not at all. I can say this is the author of the measuring decentralization post or whatever. It has nothing to do with how expensive it is for you to run your full node and fully validate the blockchain. It has nothing to do with that at all. And that is the missing piece that people get. They think that

merge mining makes it more expensive for them to run a node or something. It does not. The blind merge mining definitely does not because even the miners don't need to run. It's possible the whole system to be running without people knowing what altcoin or side chain nodes are even being used to create these fees in the first place. It's always possible. the year blockchain will reorg or that miners will decide to do something crazy, but that has nothing to do with the presence or absence of merge mining. And in fact, if there is no merge mining, I really worry that the security budget will be very low.

And that problem is, you know, 100,000 times more important than the fact that you may not like the fact that some miners have a side hustle where they earn money or something. Right. Or the fact that some miners would have the side hustle and some won't. And then some miners will go out of business. And so we should shed a tear over the fact that those miners can't buy as many Christmas presents with their kids. It's like, you know, mining is this is an evolutionary process. And it is, we want it to be very simple. Whoever does, whoever does the most hashing is the winner.

They provide the most security per Bitcoin, you know, layer one block or whatever. And that's what we want. Okay, I think we have to leave it there. We basically covered everything I wanted to talk about. What would you instruct our dear listeners in order to, like, you know, subsequent instructions? Where would you send them? Well, I think the security budget is a really good window into, like, my brain and, like, how I do things. And, again, like, it is just a giant list of things where I disagree with what most Bitcoiners believe.

and I try to say like why that is and I think that one is a big tour of all of my like heretical thoughts so I think if you go into that you'll find there's just so much in there especially when you make it down to the bottom all this stuff about the history of blind merge mining and like people's attitudes to it and things

have lots of links and stuff in there so I think I would like you know if you like if you like to any of that you you might like the article that you put a lot of effort into writing it and I think that's a good idea of like what kind of stuff that I'm up to and then you can look

you can just go that's like on my blog and you can just click the latest post of the archaic button and then you can see other stuff there that you might want to read if you're interested in the BIP 300 or 301 you would go to drivechain that info and hopefully

the best thing is to download the software because don't listen to, you know, you can make up your own mind, just download the software and use it and then you'll know more about BIP 300 than anyone out, anyone who hasn't. You have to trust yourself, your own experiences. You're a smart person. You'll figure it out. I believe in you. We have a real software that you can download, and I would do that.

That's the only best way to understand. So I will link to all these things. certainly recommend that will you have two two security budget posts I think right yeah I wrote the first one I thought it was quite good and then there was a lot of like pushback from it so I was like oh then I had to write the second one but yes read read the whole corpus of the truth coin dot info read the archives it's probably the number one thing I recommend to people if they can handle the iconoclasm therein but yes it's I'm going to put it all together Paul Thank you for coming on the show.

It's been three years almost, maybe two years of doing this show. Never had John, so thanks. Oh, hey, thanks for having.