TFTC: A Bitcoin Podcast - #136: Paul Sztorc

Episode Date: February 25, 2020

Join Marty as he sits down with Paul Sztorc, the man behind Drivechains and Bitcoin Hivemind, to discuss: - Proof of Work v. Proof of Stake - Bitcoin's fee market - How it may develop in the future - Is Bitcoin our only shot? - Drivechains - Why people don't like Drivechains - Why their concerns are valid + invalid - Bitcoin Hivemind - much more Follow Paul on Twitter Check out his blog Check out Drivechains Check out Bitcoin Hivemind Shoutout to this week's sponsors. Cash App. Start #stackingsats today. Use the promo code: "stackingsats" to receive $10 and contribute $10 to OWLS Lacrosse you download the app.

what up freaks it's your boy marty ben here to introduce this week's episode i had immense pleasure of sitting down with somebody whose blog post i've been reading for quite some time somebody i've been conversing with on twitter for quite some time somebody who is a unique thinker in the bitcoin space he definitely ruffles some feathers from time to time he's ruffled my feathers before including last week which was the impetus for me reaching out and hopping on the mic with him uh this week's episode of tales from the crypt i sit down with paul stork the creator of truthcoin.info uh which is a wealth of knowledge a bunch of hours long blog posts that i highly recommend you read been around for a while um paul and i dive into some of

them in this conversation we talk about uh the fee market uh the concept of drive change which his idea for applying merge mine side chain that he believes would help a fee market develop. That's a controversial topic because of the way miners could steal the coins, but we talk about all the scenarios and the disincentives for miners to do such a thing and the ways in which that could be prevented. On top of that, we talk about his hive mine project, which is the reason for the idea behind drive chains. He started with hive mine and worked backwards from there.

um we we went out of we talked for we didn't go at it we had a conversation for two and a half hours uh most of which uh paul was speaking which is which is fine by me um because again this is somebody i've been following for quite some time and i'm very fascinated by it by his ideas particularly around uh the cost of proof of stake versus proof of work and why proof of stake is probably not that advantageous in the long run or uh less costly than proof of work i hope you guys enjoy this episode a lot of topics covered um this episode of tales from the crypt is brought to you by the cash app you freaks already know all about them and if you don't let me tell you about them all right they're letting you do a bunch of things all right you sign up you can

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Woo! Owl's Lacrosse. Don't listen to that dirtbag, Owl. He's a scummy dude. Enjoy this episode. Take care. You've had a dynamic where money's become freer than free.

If you talk about a Fed just gone nuts, all the central banks going nuts. So it's all acting like safe haven. I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor. I mean, that's part of the bull case for Bitcoin. If you're not paying attention, you probably should be. What is up, freaks?

Welcome back to Tales from the Crypt. It's your boy Marty Bent here on a Friday afternoon. Very excited for this conversation. I think this is going to be a long one. If the pre-interview conversation is any indication, it is going to be a long and very interesting podcast. I'd like to introduce you freaks to Paul Stork, making his second appearance on the podcast. Yes, I remember that now. Yeah, second appearance. Yeah, I remember my line from the first one, things that you didn't even know you did once. Right? About Ethereum.

For you freaks that don't remember, the first appearance was the rabbit hole recap on the roof of the Bitcoin 2019 conference. Paul made a guest appearance to talk about proof of stake. And we have a lot to talk about. It's three months away. It's three months away. Ethereum, three months from now, they'll have it all worked out. Yeah. And everything will work perfectly.

And you just have to keep in mind that it's right around the corner any day now. It's coming. 2020 that's what they say um yeah it's gonna be quarter quarter three of 2020 quarter two of 2020 i heard january 3rd at one point like a few months ago but i keep pushing it back it is sad that we have no real way of communicating to people just how often they have said that it is like right around the corner they literally said that before ethereum had even like released in like 2015 or something they were like oh we'll do proof of stake like really yeah i believe the first um their first uh goal pre-launch for

proof of stake was like 18 months after launch if i recall correctly i've actually been keeping a thread uh since august 2017 yeah the twitter thread the twitter thread of like the uh and the steams 11 quote about that's the most beautiful it just it will just keep paying forever i mean that is the best way that is the best way of convincing of just and not convincing people it's not so much because they could eventually theoretically do it but it's hard to imagine a point of view having any less credibility than that one at this this particular point that is uh my magnum opus of a thread and actually it's a good segue yeah that's a wonderful thread it is it is really great it's a good one of the best one of the best threads on

on crypto twitter i think well you have one of the best you have one of the best blogs uh in all crypto i know it's very weird it's a very weird blog as i was telling you before it's a kind of like it's like a kind of art therapy or something where i have to just read about what people are talking about and then i'm like i don't really agree that i take notes and then i edit them into a blog and the blog posts will reach paid hundreds of pages of notes some of the posts are more than 100 pages long and they broke into sections of something and what about fraud proofs it's like 48 pages long and it's just like me dumping stuff out of my head because it's driving me crazy but people end up appreciating it which i like and people people like different parts of it it's it's

very interesting it's different people have quoted it at at points adam back quoted it a long time ago and also gavin andreessen and roger veer like all these different people will they can find something in it they like so i don't know i must be doing something right or wrong depending on how you how you think about any of that no i was telling you and then other posts other posts are like completely i never hear anyone talk about um some of them some of them have like a controversial element is proof of work proof of stake not people people love nothing is cheaper than proof of work i wrote one about asic boost that was like controversial and then some like no one really ever talks about let's uh let's touch on like proof of stake isn't cheaper and

isn't better than proof of work since we were talking about ethereum it's a like so my whole Yes. Yeah, I think it's important. Yes, continue. Yeah, I think it's funny that Ethereum has been trying so hard to transition to proof-of-stake when it seems to me to not be a valid consensus mechanism or a worthwhile consensus mechanism. And they are sort of digging this hole, trying to make this transition to this new consensus mechanism. And it may not even be worthwhile when they finally get there. So let's dissect that blog post in particular. Sure. Yeah, I think the deepest critique of Ethereum that one can make is that the community, it doesn't really have, the culture rewards like kind of these Hail Mary pass kind of very

optimistic sort of way of doing things that someone somewhere will invent something to fix this which is you know i admire the optimism and i mean that sincerely but it's also like you know you can't just say someone will invent something to solve this problem someone actually has to invent it at some point and the proof of stake there's a very long it came out in like 2010 you can read about this on bitcointalk.org if you go into the ancient archives of bitcointalk.org where every crypto idea was once posted at some point before being rediscovered um you can find it and people were very enthusiastic about it at first but then problems started to emerge and then eventually Andrew Polster wrote I think in 2012 something on proof of stake where he

argued that in practice because of stake grinding it just became proof of work and so it was ultimately pointless but people tried to get around that by then they they didn't really understand the substance of what Andrew Polster was saying. And they said, oh, stake grinding is the problem. So now we'll solve stake grinding and we'll do this slashing or we'll do these other things. And they were still like trying to solve proof of stake, even though it was, it had a lot of, you know, conceptual holes in it. And so what I set out to do is I set out to just say that since it's peer to peer and anyone can join or leave the network at any time, there's no privileged person in like a monopolized position, no matter what you do, these new blocks need to

be found or produced by someone. And so whatever that is, it will involve people doing effort to gain their chances. And so I tried to set out and say, look, even if you fix all these problems, you would still have this Andrew Polstra like regression thing. And then I laid out all these examples about how it was not only not only would it happen but it had already happened with in in um dan laramore's delegated proof of stake and then and then the locking up the idea of locking up the bonds in this so you could flash them later is that bit shares i wrote this big essay yeah uh yes that was the era of bit shares this is like late 2014 early 2015 And so, but then again, this, like, it's like, it doesn't really work. People who are in the, you know, people get very optimistic and they have wishful thinking, especially when money is concerned. This happens to Bitcoiners as well, happens to everyone.

I think definitely the biggest critique of Bitcoin ever is if you watch the Flat Earth documentary, and you just see these people, and they're just so optimistic. And then they say things like, how long do you think it will be until, you know, the Flat Earth theory is taught in schools or is, you know, and then they'll be like, yeah, anytime, it's just around the corner, we just need to just keep everyone just keep, you know, keep huddling the Flat Earth theory. and you're like oh no like this is what people can do but um but yeah the ethereum has this optimism and they willing to try this these these weird ideas it's extremely complex and it ultimately achieves basically nothing because ultimately you'll just waste a different resource it was proof of work waste you know a lot of quotation marks around the word waste silicon and electrical energy um even if proof of stake worked and there was no way of gaming it which is something that i think no one believes but even if it did you would have situations where lots of working capital was uh locked up and we could talk about that the money it's ironic

the ethereum has now evolved to the point where it has uh it's gone from being having absolutely nothing at all to having you know the nothing plus the dow which was a disaster right now it has these weird very thin it has like kind of a money market but the money market actually proves in a weird way that i was right all along about because now if you have eth you can kind of lend it out using these weird loans i mean at least you can for now maybe they will decide to pull the plug on all this because it's it's just like it's been having a rough couple of weeks yeah they They had one of their dApps, somebody executed a trade and basically stole a bunch of ETH from the decentralized financial app, right? Yes, they have this. I don't fully understand it. I have to warn everyone, but probably no one does.

But it's something like they have these areas where you can, for very short periods of time, loan ETH or loan other assets and trade them. those assets have market prices and some people are using those market prices as inputs for collateral so they're like mark to market type situation and so as i understand it it's possible to borrow a lot of stuff anything eth or whatever for a very short while you put up some collateral you can borrow you say i only need to borrow this for like a day and so i only need a small amounts worth of interest you know you borrow all this stuff and then you sell it or you buy it or you do something to manipulate a price and that causes this cascade of basically margin calls on other people and you can then bet on those and use that to your advantage and again i have to

stress that i don't really understand it but the point is that the they have an area where you can It's now possible to loan ETH and earn a return on your money, which is a lot like how the U.S. money markets work, and we have many of them. If you have a checking account or a savings account and you want to earn a higher interest rate, you can put your money in a money market mutual account. and notwithstanding 2008 financial crisis in which something very bizarre happened that i could explain and there was a weird kind of run on money market mutual funds because they were not fdic insured but there was no reason to think that it's a very long story but basically you can get a higher interest rate if you just want to say look i really don't need this cash but uh why don't you use it for something but um it's you know you see what i mean this is

like a checking savings it's like the next thing and then with if he with the proof of stake on ethereum you're supposed to be able to lock up money uh huge amounts of money much more than is spent on entire mining infrastructure uh and then you would um this money would be deleted if you didn't do the stake things properly, but so much money would be locked up that it would end up wasting just as much of society's resources as would if you just spent that money building a power plant that produced all the power used by all the proof-of-work miners. And in practice, I don't even think that any of this would work because proof-of-stake gives you an incentive to try various schemes like denial-of-service attacking people to make it look like they

aren't holding up their end and really just it's possible that they will eventually figure it out but it's also possible that all the serious people who would have reviewed it have stopped paying attention a long time ago and insist that is another problem that bit shares had which is that the design would keep changing and so you'd just be like when we don't come back when it stops changing yeah that's that's the thing that perplexes me the most is how people can still uh be confident that it's right around the corner when when the specs have changed and the timelines changed and uh there was casper the constant there's a bunch of different implementations that they're trying to go after at the same time it's all very confusing i don't

know if that's on purpose um but that's what i really liked about your blog post in particular as you point out like the whole the whole virtue signal of moving to proof of stake is because it's more energy efficient less capital intensive and better for the environment and you make a very compelling point that actually at the end of the day when you're locking up all the stake like you just said you'll be expending more energy than than is needed in a proof of work yeah it's not it is right it's not necessarily energy but it's something it's you have less capital available for funding projects so you so it means that economic growth would be slower and what's really better for the environment you know if we invent something like uh cold fusion or or just hot

fusion now someone is building something in europe where it's like regular hot fusion but in there's some kind of chamber where it's but the point is you know with with fusion energy you can use there's like uh some isotope in seawater that could power the earth for like three thousand times longer than the expected life of the universe or something so more than enough energy for all of uh mankind for until the sun you know explodes in five billion years or so and that would be unbelievably cheap and then you could have all these things coming from cheap energy whatever the cheap energy source is if it's this fusion idea or something else you could have a you know vertical indoor farming and all this other stuff so what's really better for the

environment uh to invent that technology like one year earlier than you otherwise would or you know and not and don't do the proof of work mining but have this technology be delayed a year or do proof of work mining but have this technology be invented a year earlier or two years earlier or whatever um so even on the criterion of environmentalism it it's not clear that proof of stake is any better but even if you just say if you just count up the waste in pure dollar terms then it really can't be the same because the waste is equal to the block reward so the block reward uh should probably have led with this for anyone who has no idea what we're even talking about and where this is even going but that original yeah i was like a total nobody

and then i wrote this post and adam back quoted in a bitcoin talk and then um people started to read my blog where i write about how the block reward every bitcoin block has a certain amount right now 12.5 bitcoin plus the fees and those new blocks you know they're worth a certain amount of of money even in u.s dollar terms you just multiply by the exchange rate and their worth whatever it is so right now you take ten thousand dollars and 12.5 plus one and for fees you have 13.5 btc and then you have 135 thousand dollars so it's like 135 thousand dollars it's like a briefcase full of cash that has 135 thousand dollars of cash in it and you're auctioning it off that's really what the blockchain is like it's saying whoever finds the next block gets this

cash and then you have all these people fighting over how to get it and they're basically bidding it up and what do you think the final bid price is going to be of course it's going to be like you know 134 dollars 99 it's going to be like bid up right up to what that um that number is and that That is why it doesn't make any difference if you swap it from proof of work or proof of stake or really proof of anything else. Bram Cohen came very close, excuse me, he said if we had a proof of space and time, because you had this, he had this idea where you would use all this unused hard drive space. So he built this way of tapping hard drive space that wasn't used to try to do blockchain consensus, which is extremely interesting.

But the way it works is by making unused hard drive space valuable and then immediately wasting all of that value. so if that were successful all it would mean is something like david vorick's project the cm project which is like a a very interesting project where you can sell your unused hard drive space all that would mean is that his project would probably be successful and would probably create value and then that value would be the value that proof of space and time would destroy so it would still be equally um wasteful because you are just auctioning off this briefcase full of cash yeah so you you're referring to chia particularly brancombe's uh yes okay yeah so yeah so you're just basically getting at the fact that the cost of production is very close to the

value of this briefcase yeah this ended up being summarized as this mc equals mr argument marginal cost equals marginal revenue which is something that is taught to like economics undergraduates or high school students like very early on um which is just that the blocks have this worth and so it wouldn't make any sense if you if the if you could earn a ton of money by making these blocks and and it was cheap to do so that situation doesn't make sense you sell the blocks for ten thousand dollars each and they cost a hundred dollars to produce you know why more people would want to get in on that scheme you just easily make a lot of money so those people will come in and they will do whatever it is you are doing

and then some and that is where all the waste will start to leak leak out yes that's another thing that that post you get to it'll be like an equal if there is uh a moment of disequilibrium that waste will get spread out and filled in in some places somewhere yeah it doesn't yeah well it's like with proof of work where it doesn't you don't know if it's some of it is electricity but you know that's actually not that's not all of it of course you have to make the chips people have to run there's labor involved in areas you know the air circulation and all this other stuff you know they you have to maintain the chips you have to cool the chips so mining is not just electricity it's a lot of things

so all these things there's no guarantee that they'll take just one form as i mentioned proof of stake if you have to there's kind of a theory where you put up working capital and but you would also need to follow the rules of the blockchain system and you need to produce blocks when you're told otherwise you lose your stake so people who's to say that people won't build elaborate systems for uh denial of service attacking you and stopping you from doing that because remember it's a huge amount of money are at stake uh in no pun intended but these you have a lot of money that's being earned because it's 13.5 every 10 minutes bitcoin if you say 12.5 plus one in fees and you say that ethereum would be

comparable so then it's ten thousand dollars for bitcoin that's 135 000 we're talking like 100 200 000 per 10 minutes so there's 144 blocks a day so now we're two orders of magnitude higher already so we're talking like 20 30 million dollars a day is what you can earn if you're the only miner so in proof of work you want to mine really efficiently put everyone else out business you get the 20 30 million for yourself and proof of stake you if you can shove you can find a way to shove people off it's 20 30 million dollars a day in revenue for you so who you know what is it per year 365 days in a year you know two more orders of magnitude if not more so we're talking unbelievable amounts of money you know yeah you would be there would be professional

people like figuring out exactly how to take other people off the network or exactly how to manipulate the randomness used to assign who finds blocks. This is what I think people don't understand. Similar thing with, I mean, I don't know the status of Eamon Goodsire's avalanche thing, but he said something like it would be a proof of work competitor. And some people, he was in a conversation I was in and we were talking about it. and you know i was like what about simple attacks or whatever and he you know he said that i at the

time and i don't this was a six or eight months ago he was like well we have this this part closed source because we don't want people stealing it right and i kind of laughed too that was my reaction i was like okay well it's a non-starter okay maybe so right it is kind of a non-starter and uh you know maybe he'll publish it and then we can or has published it and i didn't notice and we can look at it more but what i was trying to give everyone in that conversation the impression is that this is a huge amount of money it's theoretically just let's give it the benefit of the doubt and we'll say avalanche replaces ethereum and bitcoin and everything it's and the U.S. dollar and it's in this position where you have just the rewards that come in

to distribute the coins or to process the fees will just give everything the benefit of the doubt and will just say that all that's outrageously successful. Well, now you have the situation where, you know, even with today's numbers, it's, you know, millions of dollars per day, $10, $20 million, $30 million per day. And if the price of Bitcoin goes up by 20 or 30%, then it's 20 or 30% more than that. Obviously, if it goes down, it's less. But a lot of people in mining believe in Bitcoin, and they are sort of half speculating that it has potential and that if they do a good job mining, it will continue to go up. They can get more of a return. So this is huge amount of money, you know, billions of dollars per year. And the proof of stake is that

is a kind of theory that just people running people just volunteer run software on their computer. And then it will just be this happy equilibrium, where no one will try to seize more of this gigantic pie for themselves. I just, you know, some people be easier to Now, it'll be like mining, where some people go out of business first. The least efficient miners will go out of business first. There will be some new thing that will evolve around proof of stake that will involve people spending basically the $2 billion that they earn. It'll be just like auctioning the briefcase. So this is the point I've tried to convey.

And I'm sorry, we did actually go on quite a bit of a tangent. But you mentioned earlier that it's funny in the, and I don't remember if this was before you hit record, but people come in on the blog. And I actually, Vitalik and Jay Kwan on the Nothing is Cheaper than Proof of Work, I thought that I had convinced them. It seemed, if you read the comments, that they ended up agreeing or they even said something like, well, of course, we've always believed that kind of line. I think Vitalik may have said something like that. jay kwan eventually was like oh do you think you can help us solve this problem which is like a different response but those are the big people pushing proof of stake and then that was like 2015 and then i saw them in i remember i saw them in consensus may 2016 and i was like in new york

city and i was like why are you guys still doing proof of stake because i thought that you were convinced by what i had to say and then they were like well we i think actually vlad zampier said It's something like, yeah, but we're going to just keep working on it because we think we can improve it. Yeah, dude's insufferable. I shrugged and was shrugging and kind of saying, okay. And I was like, oh. Well, how much?

I was like, okay, well, that's kind of funny. All right, great. Well, good luck with that. So how much is the probabilistic nature of SHA-256 proof-of-work mining? Is that sort of the differentiator there, the probabilistic nature of that? Yeah, well, yeah, what's nice about SHA-256 and mining is that, yeah, it's very hard to inject randomness into something, but the hash function is already random on its interval. So that takes care of that.

But the really cool thing about proof of work is that all of the work done by everyone, all the waste is actually measurable in the form of the low hashes. And it's very imperfect. It is not perfect at all. But you have some measurement of it. And since the hashes are in the linked list, this Haber-Stornetta thing, where each block has the hash of the previous block, the work accumulates. So it's quite ingenious. you know satoshi obviously was quite a genius and he worked this out uh and so even though they're all equally wasteful oftentimes see here's the thing if you prove a mistake and then people denial of service attack someone and then someone says look i was denial of service attacked you have no way of knowing if they really were or not you just have their evidence which you don't know how to interpret you don't know the context maybe

they denial of service attack themselves maybe they unplug the router you know i don't know maybe they are just maybe they have no idea what they're talking about and they're just crazy you know they could be schizophrenic they could you have no idea so you have no idea what's going on but with proof of work you really do know um you do know all the headers and their hashes and they are all very low so all the work is piled into one easily measurable thing which is which is ingenious um and it's great and it's a really clever thing about the way it's all set up is that it's very all the work is done on the headers which are these very short little 80 byte things that you know they're i think it's like 4.7 megabytes per year to get an entire year of

bitcoin headers so it's like a photograph or something you can easily get all the headers and check and check the work on them if you so all the like you know 99 of the effort of constructing the block can be checked with you know you know 0.01 of the the effort let's see that's it so it's very ingeniously all set up with proof of stake again it's not clear that's the case because again the design keeps changing but you have to have these you know it's funny that talking about this we i almost wanted to have um who is it that i think eric wall was he posted signs but it's terrible if it was someone else but someone posted a thing where they said that actually thought it was um there there was still a difference in the type

of waste and we were going to debate it on some podcasts but i forgot about it i want to be surprised it was there but that would have been nice i could have um had my notes for that we could have uh come on here and done it if this is such an old issue though i think for most people are just like so tired of hearing about it yeah i was almost tired of talking about it because people are like it's going on for so long they it's it is i i think it is an insult to people's intelligence that they keep saying that it's i mean i know that software is like this i feel the exact same way you know whenever anyone produces a piece of software they're always like well it's almost done it's almost done and that takes you know like 37 years later they you

know this is the first release there's even that joke about if you if you wait until it's the first release is perfect then you waited too long and things like that um so i realized i understand that it takes a long time but there does seem to be a total like it just seemed to be like an insulting character yeah i agree and i think people in ethereum like this the other thing ethereum is it's it's doing like some kind of clever mind games where it's like pretending that it's not a bitcoin competitor until it is and then you know there's no way that that stuff where they get up on sorry like dress up and cut i lost you at um we're still recording i lost you at uh they do funny stuff like dancing on stage oh there you go yeah they do like so why are they

why do they do that you know like is it because they're crazy i don't know i don't think so you know i think they i think they know that they have to appear like unthreatening to bitcoin until like the opportune moment i think it's like a yeah it's i think they do it on purpose a lot of the things they do have they're like it's almost like so dumb that you can't you have to be worried that oh what's going on there's some some scheme some scheme i mean it's always seemed very schemey to me at least uh i remember going to a consensus meet up here in new york in the summer of 2017 and they were like basically begging people companies startups that are well-established already to launch icos and just felt like you're really going to tell people to

launch blockchains for their companies and obviously that a lot of people went down that path we had the ico boom and bust and that's no longer narratives or no longer convincing people to launch icos on ethereum now it's defy um but one thing is i know but one thing you said like the thing that really irks me is and what i'm really happy you said about bitcoin and proof work particularly is that proof of work's imperfect shot 256 is imperfect and that's something that bitcoiners and bitcoin as a project is up front was like hey it's not perfect but it works and it seems like with what they're trying to do with proof of stake is create a perfect system which i just heuristically think is is impossible yeah i think that's true um well yeah

this this is this is something that's been said a lot about bitcoin that it a lot of people had really almost everyone had hard time understanding it because it's just this crazy scheme and previous stuff was kind of it was like where you needed to break a hash function or a signature or something in order to break it so it had like perfect privacy and perfect everything but it had a server to mitigate double spends but other than that it was perfect and then bitcoin came along and it's this really weird other thing and it is very different and it's this weird kind of Hayekian thing where it's kind of like

trial and trial and error and yeah it's kind of like yeah it is very sly but yeah I know what you're referring to yeah I think Hayek was right about that

he was a very good he knew culture I think he knew that culture evolved slowly due to all these little decisions that people made and that if it reaches if people's opinions reach like an equilibrium you can't get out of it he needed you needed a new he knew you needed a new subversive thing that the minority could use as it slowly became more popular and but see that's the same slyness

that i'm talking about when you see people in costumes on ethereum stage and you're just like what is you know is this are we being like you know who is who's scamming who here because this is just so absurd that it almost can't be right uh it almost can't be legit so that's the only thing that has me worried about ethereum is how crazy it is are you that worried about it well i think that money has very strong network effects and i think that the differences between you know i think if you had to group like the yen the u.s dollar ethereum and bitcoin into groups you know you would have ethereum and bitcoin in one group and then all the fiat currencies in another group so i think the differences between crypto and fiat are much

more profound than even the differences between bitcoin and ethereum so i do think that if ethereum became more popular um it would uh be on a sort of a path to success but fortunately for anyone who uh dislikes ethereum it doesn't really seem to actually be if you look at like google trends and things uh almost everyone who's like everyone has heard of ethereum has heard of bitcoin but it doesn't go the other way around and stuff like that but i do think theoretically possible i mean i mean think about this one way of putting it is to say is to add reformulate the question and say is it the case that no matter what mistakes the btc community makes it will inevitably triumph and i think the answer to that question is that it

that it is possible to make a mistake that causes btc to fail i don't think that its success is completely inevitable i haven't even though it's btc's game to lose yeah but i've been saying this for a while now uh wouldn't the failure of bitcoin erode confidence in the whole uh idea of a cryptocurrency right it was i do think it would yes i've said similar things but i think those someone clever could come up with the way i mean one thing is a hard fork of bitcoin uh if if the victor you know project the project that triumphed over btc um you know if it was a hard fork and shared the utxo set most of the people you know it takes a long time for most people to split their coins it was very interesting i liked watching you could watch i think it was

forks that network maybe i think that monitor was that jamie yeah or i think jameson lap of me or someone i should really not say because i can't never i can never remember whose name is associated with what i'm terrible i was forgetting that and giving credit to the wrong people but that you could watch the extent to which the utxos were the same because bch split off from btc at august 2017 and then at that moment the utxos that was 100 percent replay protection they yeah they intentionally did add replay protection i think they so they the transaction this is what makes it even more interesting which is that the transaction replay protection was on by default so if you made any transaction at all even if you just sent btc to yourself

um it would split it would count the chains as split so if you had 10 btc you had the utxo that had 10 coins in it at the time of the fork you'd end up with 10 one that had 10 btc and one that 10 bch and then if you just spent one of the if you spent like 0.01 btc you spend that somewhere and then you have 0.01 going to that destination and then 0.99 going back to U.S. change, it looked as though you split the full 10. Interesting. And so it greatly overestimated the amount of splitting

just looking at this UTXO divergence. So the UTXO divergence was just one way of looking at how much could, in the most extreme case, how many how separated have the communities gotten and for a very long time it was less than much less than 50 it was you know mostly it was the same it was the same owners and the same people even though there was very loud disagreement online of course it was mostly mostly the same people who are btc people and bch people uh judging by that criterion of did you own any And that also misestimated various other things. So some people were on record, I believe Eric Voorhees, although again, I'm getting all my names mixed up, so I can't remember who has said whatever. But I think Eric Voorhees said that he sold and then re-bought and then sold or something. At various times, he said that he owned different amounts of BCH or something publicly.

and the point is not to you know critique or appraise or whatever any of those decisions but the point is just that that makes it look as though it's more split than it really is because if he intentionally moves the coins around and then unmoves them so that his accounting position is that he owns he's back to owning similar portions of btc and bch now he's back to being equal but in the meantime he split a bunch of utxos so it looks as though they diverged even though they did not so the real communities the bottom line is the real communities were more similar than even that metric suggested which it suggested that they were very similar and so to your point about would a failure btc um like uh make imperil all the other projects

you could have one way of getting you could have different ways of getting around that one of them be to have this hard fork succeed and then you could say well almost everyone almost every single person who was in btc is in this project it's only a few people who intentionally split their coins in a speculative sense or who didn't hear about it in time or something so i think that that's one way but there are i think there are other ways there are other ways you could just say you could have some pretext or an excuse you could say this new project has something that btc could not have because of some reason that it could be a false reason or a true reason but you could just you just need a story that says well i took what was great from bitcoin and then

i changed x so i think it's still possible to get around that story where you just say that you just have to attribute btc's failure to something else or you have to say that this new thing while it's not bitcoin it is uh it was so overwhelmingly overlapped with bitcoin that you know 95 of the coins and 99 of the users came along and it just then you can call it bitcoin 2.0 or whatever and you can just say that it was a rough transition but it was basically the same so i think it's possible to get around that although i do think that that is an element of it i think i think it's not the case that btc is totally immune to errors like completely you know if there's no error that btc can make that will lead to its death i think that it's

naive definitely it's possible no i think it's definitely possible to commit suicide with btc it's important to be up front with that too right and actually that's sort of the reason why we're talking right now is the uh the thread i wrote about jevons paradox and utxos and potential development of the fee market that could be one of the ways bitcoin dies if uh people are uh ardent about having a hard 21 million supply cap and a fee market doesn't develop maybe that's the case we have a hard fork where uh that adds uh tail emissions um and that is the the successor yes I'm really, I'm quite proud of the fact that it never even occurred to me when I wrote that piece to write about adding inflation. That's the thing that people always, they run to.

And it didn't even occur to me and it doesn't appear anywhere in the piece. So if you want a piece complaining about long run security that does not have anything in it about violating the 21 million coin limit, even though probably people should at least talk about it. I mean, every idea you should talk about because every idea could be a good idea. But, yeah, I wrote this piece, Security Budget in the Long Run. And that is what we were talking about on Twitter. And it has a great – it's a very interesting piece. It does a lot of – it had a lot of, like, interesting – people interpret it in very different ways. I mean, one way is that you have these – I think it was misinterpreted a lot of ways.

one was that you have these people who think that proof of work is very wasteful still and they complain about how much energy proof of work wastes and this piece goes right up to those people and just kind of slaps them in the face is that you were not we need to waste way more than we currently are and there's nowhere near enough and so those people are just i think just completely stunned most big corners are not in that group but anyone who was would just have no idea what to say they'd be like speechless but another thing is that people have been trained to respond to any complaint about fees um in a certain way they're trained to say that lightning will bring them down or that channel factories will bring the fees down

and that is the opposite of what the piece is saying the piece is saying that fees will be too low and so this puts people who have been jumping into that line of response it throws them into a kind of uh they're like the opposite of the point there can i push back on the lightning thing a bit yes so lightning when i think of like i think we do need higher fees at the base level if we do want to keep the $21 million supply cap and entice miners to keep mining the chain. But when people say Lightning will bring lower fees, is it lower fees on Lightning?

So when they're transacting on the Lightning network on the second layer, fees will be lower, but not necessarily saying the creation of the HTLC would be the fee creating that. Yeah, you're completely right. I say that in the piece. I say like the immediate effect is to reduce demand for the block space. But the long term effect is to make it easier for people to tolerate high layer one fees because they would do most of their transacting on the lightning network. And so then they would be able to, so yeah, you're completely 100% right about that. But it's just a lot of the people responding to the post on Twitter or whatever, people are just kind of used to thinking about the fee conversation that way.

And this is the opposite of how the fee conversation normally goes. I'm saying that the fees are too low. And there's another issue is, of course, that the word fee is used in two completely different senses, which is annoying. It's used as a price and as a revenue. um so like you know you have a very interesting point uh yeah walmart has low prices but it has high revenue because it makes a lot of sales but uh steinway and sons you buy a hundred and seventy five thousand dollar piano uh that the price is very high but i don't know if their revenue i

would guess their revenue is much lower than walmart's by by quite a bit so fees are one since used the price and i try to only use fee rate in the piece when i talk about that but i mentioned this explicitly but yeah what i'm talking about in the piece is revenues being too low the amount of money we pay miners is too low and not necessarily in making no mess is not necessarily making any comment about the the price although of course price times quantity sold equals revenue so but they are totally different units so there's one is the satoshi per byte fee rate whereas i prefer to i prefer to price it in dollars because it makes a lot more sense that way but it's like dollars per transaction is really a better way to think about it is that

viable in the long term though what if we go to a closed loop bitcoin economy i think it still is because you just say that there are people in people in the economics profession there's like ways to deal with that because of all the these problems with how do you compare money supply with different countries that have different currencies forex so there's this idea of purchasing power parity and you can like you see you can say something like it's possible to construct a statement that goes something like you know the the money supply the euros money supply increased from whatever 10 trillion to 20 trillion and then you just say u.s dollar purchasing power parity or you say some other thing so you can convert them all into comparable units so that people can

understand what's going on even though of course the euro money supply isn't in u.s dollars it's it's in euros so but it's still possible to compare them all and it's what's important to keep in mind is that when the there's a difference between the block subsidy and the fees they're very different the block subsidy pays you 12.5 or whatever it is right now no matter what the exchange rate is no matter how high it climbs so the exchange rate climbs to um i don't know it doesn't matter anything a hundred thousand dollars per bitcoin then it's 10 times higher than ten thousand dollars per bitcoin but the block subsidy does not change still 12.5 so you see then the security budget went up by 10 because now mining is way more profitable than it was before you can

buy more stuff you have a greater claim you've got greater purchasing power you can get more stuff you can get more houses and get more shoes you can get more whatever lumber restaurant food you know you can get you can get more stuff but with fees it's really not like that when you pay even the miners earn fees it's because someone else paid and so you cannot just say the exchange rate goes up and then people willingly at the exact same time become you know the price of bitcoin goes up by 10 it doesn't mean that you become 10 times more willing to pay process a payment in bitcoin relative to visa or cash or something else it doesn't change any of the relative the relative factors of the payment um world so uh it actually i think it the fact that

it is priced in satoshi's per byte is actually misleading it's one of the things that i tried to fight against in the post because it has to be in satoshi's per byte because of course the software doesn't know the exchange rate without getting it from somewhere some exchange who's to say that exchange is run well or who's to say anything else so the software doesn't know how to price it in dollars per transaction because the transactions can take any number of bytes and it doesn't know what the exchange rate is anyway it doesn't even know if you are you if you're an american you know when you download bitcoin core you could be living in europe or you could be living in japan obviously you know you could build user-friendly software that tries

to do these things but fundamentally the fees change as a result of people's willingness to use the payment network the layer one payment network and so they're driven by that and they if the exchange rate goes up by 10x then people won't suddenly want to pay 10x more for that they'll they'll reprice it so that it's always it's the same dollar amount that they were paying before so if there's a hyper bitcoinization world it's true that there won't literally be any wouldn't literally be any dollars in that hypothetical scenario but there would still be some unit of purchasing power that it's comparable you could price it in hamburgers or something instead you just find something that costs about as much as what a bitcoin transaction is now and

that would be what it would really be it would be something like do i want to give up one hamburger to use the layer one bitcoin at the current fees you know or at some rate so i think it really is priced in dollars per transaction and i think the security budget really is in in dollars and again that's not to say that it's literally in dollars uh in fact that's it's a way of trying to get around the fact that all these exchange rates exist and they keep changing. So just put it in one unit. People don't understand.

Because those exchange rate fluctuations confuse what's really going on. So there's a difference. The block subsidy, the 12.5, does. We do get that hits for full force no matter how high the exchange rate climbs. But the fees do not. So how does this problem alleviate in the long run,

do you think? well i you know i post about how the layer twos need to absorb more transactions and then they settled layer one um and one of the things that is problematic about the piece is that it does touch on this block size limit question because at the end i say well hypothetically what if you had the huge block chain then and you charge and it was like a visa chain and it processes as many transactions as visa processes and it charges a similar amount then you would actually have much much more and this inevitably causes it to intersect with the block size debate which people already have made up their

minds about one way or another and so it's very difficult for me because I have a third i have a very different point of view that's very different from both the mainstream small blocker point of view and large blocker point of view but i bring up that you can have merged mine side chain which is a large block side chain that um where it does not require anyone's full node to do any more work which i think is the major complaint that small blockers have about large blocks that it requires a hard fork and that it increased the cost of running a node so you can avoid both of those this optional sidechain extension block and at the same time it would have to settle the way blind merge mining

which is something that I developed the way that works the miners the main chain Bitcoin charge 256 miners end up getting all the revenues from all the side chains uh there's like a two-step thing but they end up with all the money so so that is i but i don't i'm not trying to say that's the only way i mean i i point out i list lightning network and merge mine side chains as two um ways but i do say that lightning will probably be i i'm not sure exactly how Lightning will be used in the real world. I'm certain that it will have a lot of uses, but I'm not sure that really the whole scaling Bitcoin to worldwide adoption is the Lightning use case. The people who invented the Lightning Network never claimed that it would

be like that. They said that it would allow a lot of transactions, but they know, of course, that to onboard people you need a layer one transaction and whenever you need to edit your lightning channel you need another layer one transaction even if you want to do these loop out submarine swaps things those you still need some layer one transaction somewhere else and um even uh like jack mallers who's done probably the most for like the user-friendly lightning experience he kind of transformed it into this thing where people are paying if i understood him correctly and i perhaps i did not but i tried to i think his uh scheme is something like the merchant wants bitcoin and so he's really the payment processor he's like the point of sale

terminal people pay him in fiat through his app with like a debit card and then he pays the merchant with lightning so he's so even in that that case that is uh it's very user-friendly but it isn't like using lightning like uh you know it's where most people envision it for like the full the full circuit of the economic transaction it's still like half fiat that's no critique really i'm just you know i think that was probably it's probably lightning is this you You know, I also worry, like, is Bitcoin really hard to use for people already? Lightning, you need to be online to receive money. You need to interact to receive money.

Whenever you either spend or receive money, you have to sign a new message with your private key. So you have to do a lot of work. It's possible that all these things will be... Abstracted. fixed but but uh the side chain doesn't have a lot of those properties you can onboard people without layer one and you do not have to be online to receive money and so it's obviously a big song and dance whether or not people believe that side chains are viable uh i'm kind of kicking that conversation out which is perhaps a little unfair but i did want to end it on an

optimistic note because i do not believe contrary to a lot of a lot of people did think that i was saying the end is near and we should all give up. First of all, we have a very long time to figure it out because the block subsidy doesn't have for a long time. Although I think, let's see, I printed it out somewhere. In the beginning, I talk about how big it is right now. Even if you include the block subsidy, the 12.5, and what did I do?

I printed it out, what was it, last year? 2.6 billion? Yeah, 2018. So in 2018, $2.6 billion per year. That's for the entire year. That's all the money that we pay to miners. That's all the money that miners spend by that long conversation we had before,

the marginal cost equals marginal revenue. It's all the money that we pay to miners, and it's all the money that the miners spend fighting amongst themselves to see who will produce the blocks and spend on SHA-256. So it's also the amount that any attacker has to spend to buy, theoretically, 100% of the hash rate or do something very similar to that.

So that's the only 2.6 billion per year really isn't, it's an awful lot of money, but it's not that much. I mean, I don't know what Calvin Ayers' net worth is, but I think it's more than that. So if you wanted to spend more, I think he has more than, doesn't he have three or so billion dollars? I don't know.

I have no idea what I'm talking about, people, but he's a billionaire of some kind. I don't know how much money Roger Ver has. I don't know how much money. I mean, we know that, what is it, Michael Bloomberg running for president. Now everyone knows that he has whatever, 60 something billion dollars. So, you know, that's for the entire year. And that's with the security budget included. So I think this is another problem with the piece, a problem with how effective it is, that a lot of people have this mindset that finally I have Bitcoin. This is this immovable object,

this anchor of absolute truth in my life, and I can build my whole life on this foundation, and no one can mess with your stuff, and the Bitcoin user not affected meme, that's one of my favorite memes of all time. Now we can't even do it anymore because it seems like after segway 2x and stuff people seems like people are constantly being affected by things and constantly needing to do various things um but uh i think this challenges

that this says well it just tangibly costs some amount of dollars to to to mess with bitcoin and potentially shut it off but i wanted to say i liked so when i ended the piece with this whole what if we had visa uh transaction fees i wanted to kind of end it in a way that said we could amp this number way up if we could do something like that and there are many other things as well that we have um there are a lot of other layer twos i like ruben samson's state chains i'm not sure that they i don't actually quite remember um i think with those see some of these have the property that they do not pay the fees to miners so ln you you can tolerate a higher layer one fee and with state chains if you need a layer one you don't need it as often so you can pay more you can

pay a higher layer one fee but um the fees that are paid when you do your lightning fees which are lower those go to the lightning node operators who front working capital so they don't go to miners so that's fine but it's good for them but it's not good for the miners or the security budget on which the foundation depends so yeah there's kind of a lot of stuff in this little piece uh but it was very fun to write and i think yeah i think it was a mistake and then and then you were saying online like you know you were like oh this is like just all those people are complaining at it that's just fud and those people don't know what they're talking about but there are a lot of people do take this point of view that I expressed uh including people like

Rusty Russell in particular who's like a big huge lightning guy huge block stream guy um I think he's got quite a resume in fact and the reputation he's super nice guy and then he wrote he wrote that thing about like people should worry about it so it was that in particular where I was like reading your tweet and I was like oh I have to push back on this a little bit because um there are a lot of people who do worry about this um who do think about it and i think it is a case where you know i if i had to guess i would say that probably even though i you know i pointed a lot of this stuff out in writing a lot and people have have taken it however they however they like but i wrote some things i write about you know one of the things i wrote things i wrote about

is that how satoshi was the one who put the one megabyte block size limit in place because people write about how satoshi's vision was unlimited block size but in july 2010 he was the one who put the limit noticing the potential for spam attacks so so well yes then you can read and talk about which justifications he felt comfortable writing on the forum post and and to what extent you believe any of them, which is, those are very difficult questions to answer. But yeah, it seems as though his original vision really was for it to be processing lots of payments. And he really didn't, he really was not concerned about the block size getting very large. And then At some point, he sort of had a crisis of confidence about that.

He put this limit in, and even though he could have coded it to expire or he could have coded it to – he could have put it in permanently and then coded it to expire later, like right before leaving, he didn't. And that's not to say that either of those – either the large blocker or small blocker point of view is right or justified by satoshi or that satoshi was right or that satoshi never makes any mistakes or any of that but um it seems as though that's kind of what he thought and so when the one megabyte limit was put in place it was thought that other things is a point that hal finney makes other people make that and peter todd made this

in a funny video he made in 2013, the Keep Bitcoin Free video, which I think is great. It's a really charming little video, but it's also a cool piece of like Bitcoin history. And so you can look it up on, it's like two minutes long and it's like got a funny little xylophone

and like cartoons and stuff. It's great. It's, and so they're saying like, we could have other stuff on top and people would only use this to settle and there would be layers. And one of the, all that, this is related to the point that I was trying to make earlier, which is that BTC could make an error and destroy itself.

And one error would just be if no suitable payment scheme ever materializes. But again, probably at that point, someone would just hard fork again and do the go run with the block size strategy after at that point and some so you know it's still then you'd have the btc utxos they would have to compete with these bch bsv utxos but they'd probably still do very well because i think that the money supply is excuse me the network effects are so important to the viability of money um that you know even if you if you hard forked btc to large block size today would probably still do better than the you know i feel i feel bad saying this i feel bad for the bch bsv people often uh but you know if it if btc hard

forked to larger block size it would probably do better than uh just as a network effect uh just just as like if you just you did if you did a slightly different way where you announced it months in advance and there was a lot of discussion and it was like there really is no other way we tried all these other things but of course we you know we have barely scratched the surface of trying yeah a lot of other things obviously one thing that i think is kind of silly is the you know lightning gets ridiculous amounts of praise and and attention i think a lot of it is deserved but i think people are really like just thinking on it there people are just thinking they're just thinking lightning equals good and then they have decided not to think much more past that and so as

a result why do we we never hear about like what happened to ruben sompson's state chains idea like we don't hear about it i think it's really good idea too uh you know it's really weird because you need fixed size utxos that's a really weird quirk but other than that it's better than a federated chain in literally like every possible way it's exactly what that is except except much better and they with state change just trading private keys really at the end of the day right the his blind state chains you have they have the servers have no idea what they're signing at all they have no idea if it's even a bitcoin message or anything um they it's very difficult they have to collude with it's very difficult for them to steal your money they they almost

never end up with it they just have to they can like reset it to the very first state um so it's it's much more secure much more private um they don't know they don't necessarily know how much money is even in this system it does require uh my understanding is it requires hard hard requirement for snore and some other things but so you can't currently do it well so but uh yeah i think that's a good idea but why do you think people are apprehensive to try things like uh blind merge sidechains uh oh yeah blind yeah blind merge mind sidechains well um there are you know i do keep like an faq and there are yeah uh one i have a peer reviews on drivechain.info i have a peer review section but i replaced it with a

new one because i feel like you could boil it down to these two objections the big one is that with uh merge mine side chains the there's this complaint about miners being able to steal the side chain funds um which is technically true but very misleading because it's you know it's like uh one analogy i give is that it's like it's like it's like someone asking does the free market allow entrepreneurs to go bankrupt because it does but that's kind of the whole point you know the whole point is that the threat of bankruptcy is what enforces quality um and so the uh the it's you have to induce in some way of of of needing of keeping the junk software out of the system and that i you know it's kind of frustrating because when i wrote the post in november 2015

i knew that people would have this misunderstanding about it and so i wrote a large section about it back then and if i read it now it really holds up very well because it's just it is all the stuff that everyone this line that the miners can steal line that people complain a lot of people think that oh if miners can steal then that means there's there's 100 bitcoin in it and then the very next block the my why wouldn't the miners just take that money and give it to themselves immediately and am i assuming that the miners are altruistic the answer is absolutely not i'm assuming in fact relying on the miners to be as self-interested as possible as possible so in their self-interest they wouldn't steal because it would

well first of all it's much more difficult to steal than i think people really appreciate they have to the miners have to work together on a given withdrawal they converge on a withdrawal over three to six months so it they can't just like withdraw the next block they have to announce this thing and then wait a very long time, with it hanging in the air the whole time, like very visibly to everyone, that the withdrawal that they are trying to ram through does not match what is reported by a sidechain full nodes, the full nodes of a given sidechain. So that's, you know, that's kind of one of the points. I think a more important point to make, though, is that if we wanted to change drive chain,

which is my side chains idea that we're talking about, is if we wanted to change it so that it would be impossible for miners to steal funds, that would be extremely easy. That would be like one line of code or something, or even zero lines of code because it could be just redrawing the definition of Bitcoin to include all the side chains.

And then your full node would be responsible for every sidechain, all the sidechain code. And it would be more like Ethereum where people could run all this code and you'd be responsible for all of it. And the validation costs would just grow and grow and grow forever. And that's why it's bad.

And we need a way for your full node to ignore what other people are doing and other sidechains. So that's really the heart and soul of sidechains is your sovereignty as a user it's really it's really trying to prevent funds from being stolen in in a sense of creeping this other uh code in or stuff like these hard fork campaigns like segway 2x see if you had side chains there wouldn't be any need for segway 2x people just make a side chain that had large blocks they'd go off on their own system in this ideal in this

ideal world i'm pitching they just go off and be opt-in right and then they would they would never need to hard fork the entire network so you'd stay people could stay in their small block world but the people who wanted to go to large block world they would go over there and then you just have two separate worlds that interacted and they share 21 21 million coins but otherwise they don't care as much about what each other do now um you know how is the case see it if with altcoins we already have that situation but with sidechains you need to have it be the case that they share 21 million coins so if some people acquire the sidechain coins they and they want mainchain coins they need to be able to get them back if they go brian armstrong gives them 20 btc

or it would really be something like if Brian Armstrong gives them 20 you know drive to dash BTC or something you know a side chain in the second drive chain slot or something it would be slightly different the same way that liquid has LBTC

you get that but it would be very much like BTC because like LBTC it has to trade at par with main chain Bitcoin you have to be able to redeem these 20 bitcoin that you got from brian armstrong because he loves large blocks so much or roger veer

they give you you know they give you 40 bitcoin you want to be able to say okay you know thanks but no thanks i want 40 on you know the luke jr tiny tiniest blockchain in the world 350k whatever blockchain so you have to be able to exchange them one at a one-to-one rate and how can you do that uh is the big question of side chains and one easy way is just to make it so that you actually check you check every side chain's rules and all their software but that just that just cheats and just staples it just you basically got a hard fork you know that's basically just hard fork into a larger block size just in a sneaky way so you can't have that so what you need is some way of uh what would bitcoin core the main chain full nodes need

is some way of figuring out whether or not these withdrawals are real um that doesn't involve caring about anything else that the side chain might do because you don't care yeah and well yeah the way it works is this spv proof that this is like a much older thing satoshi invented it and then blockstream wrote a paper about it in october 2014 which is that it's easy to only check the work as we were explaining earlier the headers have all the work the headers are just 80 bytes that's four megabytes per year very very easy to check and that was through all the effort was placed yeah so it's very very unlikely that someone would go through all that effort to create blocks that were invalid although it's certainly possible nothing stops it

from being possible and it has occasionally happened by accident it happened in july 2015 i think around the fourth of july there was something funny happened where someone actually minor created an invalid block that had the same proof of work that had valid proof of work by accident on main chain and BTC. So it does occasionally happen. And it could happen, and that is why running full nodes is important, because you need some negative feedback loop to prevent that from taking everything off the rails.

So the point is that the way to check the withdrawals is with some SPV proof. And the SPV proof that I use is I just say every time a main chain block is found that counts as an SPV proof. So this is a little complicated because what I had to do when I invented DriveChain was acknowledge a lot of the previous work but also undo parts of it that I didn't like.

So if someone is coming at it fresh, they will not be able to really understand what I'm talking about because I would introduce things and then I would say why I don't do them and that would be confusing for people. But I guess the best way of explaining it, I have this funny little train metaphor, but there's like a train going from new york to los angeles and the train everyone's withdrawals in this individual withdrawals in the side chain they're like passengers on this train

the train leaves once every three months passengers get on the train and then everyone can watch as it very slowly in full view of everyone this one little 32 byte hash withdrawal moves slowly from new york to la and um there's many other details about it as well but basically what i'm suggesting is that the miners would not want to allow and there's a big difference between just miners not thinking about it and miners thinking about it because they don't think about it they have pretext to say it was a mistake or that someone snuck something by but if it's very slow and they can only do one at a time then they are endorsing it they're in fact endorsing it it cannot if there's no way it can go three months on this long journey without all

the miners consciously saying that they have no problem with this hash so this hash is conjectured and then if it if miners have a problem with it they could stop the train or even send it backwards and after six six months the train just you know so how would they do that would they would they just reorg or no that's that would not work at all if they reorg then it would affect it would be affecting the main chain which is the whole design criterion is that someone should in fact as a soft fork you should be able to not even upgrade your software to any code that had drive chain in it at all and and it should all everything should still work for you right so you shouldn't even have to notice this so we reorgs would be people noticing it and that's

no good so but there is a inside that i have this little game where each with these withdrawals show up side chains have there's you know it's kind of hard to explain to a wide audience because i don't know what background knowledge they already have but drive chain kind of makes 256 slots it says that you could have 256 side chains if you wanted them and then you turn one on there's has there's some hash commitments to the software so that people can at least know if they someone says if brian armstrong says this is funny because this is happening now this is the live by the fork die by the fork problem if roger veer says this is bch but then omri should say says this is this other thing is bch how do you know which piece of software really was the side chain so

they kind of have that at the very beginning you get to hash the tarball and the github latest commit and you can those are all optional but highly highly recommended because uh there's no real way to enforce software as bitcoin core has no idea what you you know are doing with your sidechain, but highly recommended that you do those things. And then people deposit money into it. It all rolls into this output. This Bitcoin, the money goes into this box. And then if you want to withdraw, the sidechain will assemble a transaction that pays out all these people. So if you have 17 different people that want to withdraw, the sidechain software that we wrote, it will automatically figure out what to do. It'll say, select this box and pay out these

17 people. Here's the transaction that does that, and here's the hash of that, or a hash, 32 bytes that correspond to that. Those 32 bytes can then be proposed. Anyone can do this at any time. They propose these 32 bytes, and those 32 bytes will stick around for six months, and then they expire and go away but when they're proposed miners can there's a little score and there's a score and if the score goes up they can move the score up by one each block or keep it the same if they do nothing or even move it down they can upvote it or downvote it once per block and if the score climbs up to 13,150 which is three months then you can three months worth of blocks three months worth of main chain btc blocks you can then if that once it's in that state

you can include that withdrawal transaction that pays the 17 people okay so there's delayed gratification built into it it's extremely delayed yes and this is yeah this is why adam bank often calls it the slow return he used to basically the first person even before me to identify that that was, even though I designed it, he was like, this is what really makes it different and sort of what makes it work, which I think is correct. Now, within each sidechain group, there's 256 slots. So if you propose two withdrawals from a given sidechain at the same time, only one of them can move up and score. The others automatically move down. So it's extremely rate limited not only can it doesn't take three months but you can only do one

withdrawal per three months so it's very very slow and so this is to address the this question of well how do i know the miners won't steal the money well it's very difficult for anyone to get any money out let alone the miners um and uh but the other angle is that it's very difficult it's kind of i have a prison metaphor and some slides that i use where there's like these gates you know these transparent gates with chains and you have to go through 13 000 gates to get out of the prison you know because some people have to get out the employees the lawyers they have to let people in and out of the prison but you know they have buzzers and things you know when the door opens there's a buzzer and you walk through the next gate and you can't just waltz out but it

but it nonetheless is possible to leave certain people have to be able to leave the prison eventually unless you're sentenced to life you know the time is up and you have to get out but the prisons are the side chains and they they generate money for they generate money for the miners they have transaction fees and they should amp the exchange rate because a token that can do anything could do anything it's more useful should be worth more yeah it should be worth more so by attacking a popular side chain it should decrease uh actually miners revenues maybe not by enough but perhaps um it's you see this is what actually depends i have a meme on drivechain.info i have memes i think they're some some of them are made by other people some of them are made by me i made

one of them one of them that i call skimming the vital few i'm looking at them right now and yeah Do you see this one where there's one with like a little bell curve and it's called skimming the vital few and most side chain designs will be terrible. And so the design criterion of drive chain is that only a few will actually be viable enough. It's like most businesses of all the theoretically possible businesses in the world, most would fail, you know, but we, in the real world, we interact with only the ones that succeed.

So certainly it's important for people to understand that they're taking a big risk at first but if the side chain does become popular or if it just has some theoretical justification for existing like for example a Z cash side chain that people just used to like launder their toxic sludge coins that they know already that someone someone knows that they own these UTXOs so they're doomed they can't their privacy is already lost what can they do they can't you know they can try to send them to themselves you know they may seem like blacklisted coins you send them to a zcash sidechain and then now what is people going to do when they come back

no one will know what happened where they were going you know what happened to them it's while they were in the zcash sidechain so if a sidechain has some theoretical reason for existing you see there's a problem with zcash there's a problem with a lot of the crypto is that it allows inflation but drive chain does the accounting for the 21 million coins that's one of the few things that is checked across all the uh all the chains in fact it must because there is no way it could they could be valid bitcoin transactions if you could pay 10 bitcoin into some mysterious script and then get 15 back out every other node would reject that so um so there is no possibility of inflation with uh in the broader system someone could easily make

a mistake on a sidechain where they accidentally created inflation, that would lead immediately to the death of that sidechain because everyone would run. There'd basically be a bank run and people would withdraw their money. But you see, then what would happen? The developers or whoever and the promoters, they would be blamed for that, which is very healthy because then someone would make a new sidechain or all the existing sidechains that did a better job would get more credit for doing it the right way so it's a very healthy anti-fragile thing yeah well so that's the that's the idea and many of these you know i don't think i think it's you know the ethereum concept that whatever how bad whatever bad your code is will will support it 100 that

has that definitely has pros that is you know that has advantages but of course then you have something like the dow and then they did have to hard fork the whole thing or reorg the whole state transition so it has it's pretty big disadvantages as well state transition um yeah right here stage right yeah yeah you have to use some euphemism so the with drive chain what you you want is the miners can steal because that what that means is that it's so it's not your problem that's it's like you know sorry for your loss that's that's what bitcoin kind of means to me really is that some other people tried some weird thing it didn't work out tied off they lost their money but miners can't steal any money that's not deposited into a drive chain that's

completely unchanged for every so the way it is now it's if you're just if you just like using layer one you have really no basis for complaining about what other people do if other people are allowed this i asked this question to a lot of smart people including peter weill and uh andrew palstra and i because we're we talk about these types of things from time to time and i remember i asked him in amsterdam i was like well you know you think that people should be allowed to sell their btc for u.s dollar right you know yes and you think that people should be allowed to sell there btc for you know litecoin or ethereum or some other dumb project and of course the answer is yes because it's your money it's your sovereign money if you want to sell it and buy something

else with it you know that must be allowed but all i'm saying with drive change you should be allowed to spend it to a weird script and uh so but apparently that is that is people just That is the main sticking point for people. They really think, because miners can steal, it's just three words. And so there's actually a pact with nuance. It's easy. You could easily change it so that miners couldn't steal,

but that would be a mistake. It would be a more horrific mistake. You'd be sacrificing latency and the ability to download a full node. Yeah, it would turn everyone's weird pet project into a mandatory hard fork of Bitcoin. That's a nightmare. And especially if you don't like large blocks, we're way past that. Now you not only have to download everyone's block data, but you have to perform whatever weird computations they think you should perform. And the other angle is that it's not actually very easy for anyone to get money out of the system because you can only do it four times a year.

It takes forever at most. If they fight and they start moving this train forward and back, it could take six months or never because it expires after six months. So you could have multiple attempts to get a train from New York to L.A. that all fail. And at which point no one's money is – everyone's money is still safe. It's all protected by their respective full nodes. So if there's dissent, it just maintains the status quo, which I think is great. usually this leads people to believe that isn't that such a dumb idea money will never come back from the side chain no who would ever deposit the side chain and how would i ever get my money back

so why would i do any of this this is a dumb idea but that's very easy to fix um in fact we already did it it was the origin of uh andreas breckin's project sideshift.ai which now is like a shapeshift competitor but he just you know it was originally i was sort of explaining this little idea to him and he kind of coded it up in like a weekend or something but then the idea is that you'd have someone like you don't need a shapeshift or whatever but for user friendliness reasons people would probably do something like that you could do um you could do it completely with crypto and with atomic swaps and things but you'd have on the side chain people would they would basically sell they'd go to something like shapeshift and instead of selling at a complete one-to-one ratio

they'd sell for like 99 cents on the dollar or something they'd say i don't want to wait three months i have brian armstrong gave me 20 btc all right 20 large block btc but i want a original main chain btc i don't want i don't believe in drive chain and i don't believe in large blocks and i don't believe in whatever blah blah blah so you'd say okay so i tell you okay well look here's what you can do you can put your money on this train and hope for the best it might get there in three months and the or you can go to you know sideship.ai or whatever or shapeshift.io or whatever and someone will buy them for you you know basically immediately they'd be earning

time value of money because they're they're taking this to be very competitive taking that risk you see anyone can do this anyone right exactly anyone with mainchain btc could do this they take they assemble everyone's transactions in a big pile and they may own many UTXOs they may own like 20,000 UTXOs of various shapes and sizes on the sidechain but when they withdraw they're just gonna withdraw the sum presumably to themselves so when it comes back on the main chain it's actually already shrunk everyone all the entire activity of the three months from all these people into just one transaction it's kind of crazy they say this andreas brecken or whoever

it is they have all these things they paid 99 cents on the dollar then they watch they care very much that this train thing works as advertised but most people would not really need to care no well and i think this actually really highlights the thread that i wrote that we that brought us here right is like we want these utxos to have more utility uh because then we'll drive fees up on the main chain it seems like at least the way you're explaining it these side chains would do that and yes the side chains all pay i mean it's possible it's theoretically possible to have this is like the goal of side chains is to let people try all of their crazy ideas because it's like a friedrich hayek thing try whatever idea you want something will work right people were

skeptical of bitcoin when it first came out blah blah blah but it would be terrible if you weren't allowed to try this or that who knows you know society is built on crazy people trying crazy things so you could there's a lot of flexibility you could make a side chain that has proof of stake you could make a side chain that has a different proof of work all of it would be very weird and possibly a waste of time because the main chain miners, 51% of main chain miners can always, in all circumstances, filter out any message that they don't like. They just have to not mine on any block that has that message and that's all they need to do. So that's already given. So I don't know why you would involve more people. It's like more people because ultimately

when you try to move back to the main chain you have to get through this first group so i find that so even though the many designs are possible i tweaked uh there was originally of course merge mining which was invented by satoshi for namecoin and i tweaked it a little bit to take advantage of the fact that in my in side chains and we're in drive chain at any rate in order to run a full node of any side chain you must run a full node of all the parent any parent chains so if you have btc is the ultimate parent and then if you have a side chain of that you need to run its full node and the bitcoin full node and then you could have a side chain of a side chain in which case you would need to run three full nodes to really understand what's

going on so it goes in one direction it's you can ignore everything but in another direction everything is mandatory so in the downstream and that's exactly how lightning works as well you know you need to run your lightning node but lightning now doesn't work unless you have the bitcoin full node so did satoshi bring up merge mining because name coin was shot 256 too and he just didn't want them stealing hash power he yes um that was in the original bitcoin talk thread as i remember it that was a major consideration that people complained about the hash power being split he said actually we don't need to split the hash power we can pile it all uh they can all share hash power it's funny in that thread he also said that piling everything into one chain won't scale

which is one of his big see you can line up all these different quotes about was satoshi a large blocker a small blocker which is very fun pastime but uh yeah satoshi actually invented the phrase side chain with a space in that thread also so there's a lot of weird trivia going on in that that name coin thread which is very interesting because it shows just how open and and people are very excited about uh name coin and i i i'm also excited by it i think it has potential for especially bitcoin has a kind of affinity with the dark net and and it's annoying to type these onion addresses and i think somehow it could it could work you know the way dns works um it costs a lot of money to buy domains you have to renew them

yeah it's it was it's that's a really good read for anyone who wants to read about it because you can read about people's attempts to redesign a second chain that's not bitcoin and they invent all this cool stuff including merge mining collectively in the thread and then they debate it and it's a very interesting debate if you're interested in that if you're interested in stuff like uh proof of work versus proof of stake this is i think this is much better than that you know it's much higher quality of discussion you know because a lot of that stuff ended up being very quickly turned into a real project name coin it was successfully merged mine i mean it still is and it occasionally has the hilarious property that in fact it's

happening again i had a tweet about this one of my favorite tweets ever where i was from jeremy rand who's the one of the basically the chief name coin guy he's an awesome guy he's a super nice guy he's very smart and um he found out that he watches name quite very carefully and after the split the bch btc august 2017 split because of the way name coins merged mining works it um pools were configured to do it this is fascinating um and the pools were also configured to switch between btc and bch based on the fact that the profitability changed because the difficulty resets as we have talked to death a lot about already difficulty resets to erase all the profits so even though btc had a much higher price bch came out with a low difficulty and a low price

but then its price currently quickly went up and uh and then so it became relatively more profitable and so it was switching back and forth the pools kept merge mining um and because it didn't matter if they were mining on btc or bch it ended up being the case that the hash rate on namecoin was higher than both btc and bch which had the hilarious property because you had all those people who were saying that that that was also around the time when the the meme of the most hash rate determines what which bitcoin is the real bitcoin or whatever that meme and the most hash rate in in a kind of who cares how it was calculated way like the hash rate of what of what the bitcoin headers how do you know that it's a bitcoin header so this view

was always wrong it didn't make any sense but it became temporarily absurd completely because it would have claimed that name coin was actually because it's being merged mind on both something that literally no one believes it would have the highest hash rate um and it hacked this has been happening again actually because of or i think this just happened uh jeremy just pinged me on on reddit to tell me that it's happening again because this happens when because so it's very funny because even though namecoin the the block rewards were only ever worth like five dollars or something some microscopic amount of money uh and this is there was a time when bitcoin's block rewards were worth like five thousand dollars total because it was like 25 bitcoin it was like

25.1 bitcoin times some small number and it was like five thousand dollars per block whereas today of course it's like 135 thousand dollars per block or something but there was a time when it was like 5 000 for btc and then five plus five dollars for a name coin there was this tiniest amount of money possible and uh yet it um yet it was still like 56 of the network uh participated in this mining but anyway that was a bit of a tangent all i'm saying is i tweaked a little bit to try and take advantage of the fact this setup and what i took advantage of and enables the miners to be paid see because when you get blind merge mining you get paid in name coin you get five dollars worth of name coin that you have to sell

but with blind merge mining you get paid on layer one actually so you don't have to worry about you have to worry even less about what the sidechain is doing and in fact believe it or not it's possible to blind merge mine with regular merge mining you had to run a name coin node so that you would know how to assemble the blocks and collect the transaction fees and make sure the blocks were valid. With blind merge mining, hence the name, you do not actually need to look at sidechain blocks at all. You can sell that risk to someone else who is running a sidechain full node, which is all the people who are using it already. See, the blind merge mining is kind of clever because everyone who's using the sidechain is already running a full node for free just to

use it so i exploit that fact and i say okay everyone running a sidechain node who wants to participate in this weird scheme if you have mainchain btc so you have to run you have to be a sidechain user and you have to have mainchain btc but remember everyone who's using my scheme unlike namecoin everyone who uses a sidechain is also a user of the mainchain so everyone has to have maintained btc to even deposit it to the side chain in the first place so yes it's possible they deposit 100 of their btc to the side chain but many people will have most of their btc on the main chain and just some in the side chain the same way you have some in your checking account and some in your lightning you don't put all of the btc and when you say like on the side chain

is that like locked up in some correct i mean that is in the box just like you deposited to this special script so of course it's basically still in the main chain sort of but it's in this state where it can only be removed very slowly um and uh and so it's basically frozen in place and then at that once it's frozen in place the sidechain credits you over there and the sidechain starts with zero btc and it ends with zero btc so it doesn't have its own block reward which is a little scary but ultimately bitcoin will have that fate so we should try to learn about it sooner rather than later and so anyway with blind merge mining what you do is you have someone alice has sidechain node and they have some mainchain btc they assemble a sidechain

block that pays themselves the seven bitcoin and fees and then they pay 6.99 over on the mainchain separately they say to the miner they say i'll pay you 6.99 if you include this exact hash giving me this block this sidechain block over here and the miners just say okay because they get 6.99 for one transaction but of course to stop various gaming there's all these rules so they can only take it there's 20 remember there's 256 sidechain slots in drive chain so they um they can only take one of those per block per slot so of course they can only find one side chain block per main chain block hopefully that's not too confusing but you see the point is you can't have someone bid 6.99 and someone else bid 6.8 and then have the miners to take

both of them include both the side change the drive change setup would have to compete to get their transactions in a block yeah everyone who's running exactly all the people who want to do this on the side chain if they want you know they'll start bidding it up so they start collecting the transactions into blocks if there are many and they pay themselves now they're paying themselves half a bitcoin 0.6 bitcoin 0.7 bitcoin 0.8 and then they keep increasing their bid as well because they know the miner is only going to take one and they'll only take the highest one and then the other ones become discarded they're like yeah they could try get an x block um yeah so if this this is actually a good thing i think this is another thing that's

misunderstood if the side chain node is very difficult to run it actually lets people compensates people for running it actually because they they can make the delta a little bigger um so if the if the it's no cost to the main chain miners but it's a shift of who pays so it's quite neat idea because let's say that the sidechain blocks always pay 7 Bitcoin in fees, even though that doesn't make any sense, but we'll just say hypothetically

they do. And we'll say that the sidechain node is so difficult to run. It's like this ESPN 4K broadcast sports thing and it costs millions and billions of dollars to run a year. So it costs basically one Bitcoin or half

a Bitcoin every 10 minutes to run it has a lot of operating costs so instead of paying instead of bidding up when you when you're earning seven instead of bidding up to 6.99 you can just bid up to 6.49 okay and then you can just say i'm breaking even and then the miner can say they can say well hey wait a minute i'm getting less than i got before but there really aren't because what they could do is run the node themselves and then they'd have to pay they have to pay the 0.5 and so they would earn seven but they'd have to pay 0.5 and they'd be back where they were starting they can of course also run the node in spv mode sidechain node and spv node and be truly blind and depraved

not caring at all about what goes in these blocks if they're valid or not they are at that point they're likely to find invalid sidechain blocks which means that they will not get paid the side chain fees so then they'd be so there's actually kind of a lot of cool little equilibrium like feedback stuff that's kind of neat how do we so how do we get this stuff live like um why is nobody well you know i've been focused on just making it all and basically cryptx does all the work he's a a developer friend who has contributed to several bitcoin core releases he really does all the c++ and i've just been focusing on making it better and i get invited to talk about it from time to time if i'd like to talk about it with other

people but i think the important thing we have a couple test nets so if you go to drivechain.info you can find the github and you can find those releases and there's like a little guide on how to create turn it on and create a side chain send money to it and get it back and then in test mode i've changed it it's not three months that would be impossible to test changes like uh we make it like 140 blocks and then the difficulty is faster so it's like only like a few hours otherwise it would be completely impossible to ever test but yeah still uh we've been i think we've basically finished uh i hate to say that because it's cursed right around the corner but we've been we've been yeah exactly we've been debugging but i'm instead gonna say that instead of being right

around the corner it sort of is kind of done we have to put out this release because our version does not obviously we only put out the releases after we've buried all the buried all the bodies far away and no one can see all the mistakes um but yeah we have to put our new release and it looks pretty good and of course the you know the thing is consensus is very important in the btc community so one thing that many people have complimented me on is that they're like well you know uh especially adam back brings this up from time to time he's like well you know paul never tried to like ram this through uh like sego 2x style or whatever he's just like slowly working on it so is it is a soft fork necessary to make this happen yeah it is there's a soft work that

is required to enforce the rules about the the three-month withdrawal and to enforce the rules the the fill or kill rules for the blind bridge mining i have a bip and you know it took a while to get the bip numbers but it's actually a good thing because when i reread earlier drafts of the they're terrible and they're like horribly long and eventually i made it much shorter so finally earlier um a few months ago we got bib numbers 300 and 301 so 300 is called for hash rate escrows which is like the drive chain the 256 slots and then blind merge mining is 301 so that took a little while but that was a good thing because we you know just made a couple tweaks to the design that all things considered were pretty minor but they did change the way the

pips had to be written and my writing of the bips i think was atrocious on the first two or three drafts and i you know i made a mistake in the bips where i tried to like explain and justify everything our blip bips oh yeah it was it was terrible and i was like that's not what people want out of the bit they just want this is what the bytes are and this is what they do and here's a list of the functions and then and a VIP. They're much shorter. They're actually very

readable now. You can find them. If you go to drivetrain.info, I packed everything onto the front page, so you can find the VIPs. The front page on drivetrain.info is packed with links. And memes. I don't think it's that long. Yeah, there are some memes. There are some great memes.

I like the one that is like the piano versus the synthesizer. it's like it can do a piano sound or it can do other sounds and i was like oh there you go it's a meme someone else had that idea then i have what i think i some of them i've edited it over the years some of them were mike in space weirdo memes yeah i like the galaxy brain meme yeah i like that one too yeah that's the miners can steal reaction meme i try valiantly to get people to avoid thinking about that um i want to end it on a couple things uh one of the

applications of drive chain that you're working on to the hive mind and then yes that's what's interesting i hate to interrupt but it's it's just such a weird i have a very weird story in bitcoin and my interest in drive chain really has nothing to do with drive chain at all i want to use it for so this specific other thing which i kind of think is a good sign because we have an overabundance of projects that are like solutions looking for a problem i think in the wider crypto world you know people like over blockchain health care and i've even been invited many times in over the years in various contexts you would go and someone would want to meet with you and they'd say how can we use blockchain to improve whatever i had somebody

ask me how they could improve a paper company today i was like yeah don't do it yeah and so but you see this is a style of solving problems that is very strange isn't it normally and i think most people don't notice it and i think it's really worth pointing out because i think it will improve your life a lot if you get on the right track with this which is that knowledge is about problems it doesn't like go the other way you know you have you start with the problem first And then you say, what will solve this? Then you invent some new thing. Or you take an old thing, a new application of an old thing. You say, oh, my garage door doesn't work. Okay, maybe I need a screwdriver. Maybe I need, I don't know, a multimeter. I don't know. You don't know what you need. Maybe you need to check the breakers, you know. but you start with the problem first and then you look for the solution but you don't say like how do we use screwdrivers to fix garage doors like you don't know that you need a screwdriver yet

maybe it won't help at all you know maybe it will but the point is it's a weird way of uh but this is a thing that people are determined to do and that's one of the things that kind of keeps me motivated for drive change i have this other project which is extremely uh it's very high risk and very high reward and it has very ambitious and insane and it's weird because i've drawn on lots of different experts in various completely different areas and i've combined it into this very weird thing um but i believe in it a lot and i have this is the bitcoin hive mind idea this is a bitcoin hive mind.com and i have that 20 minute video which I hope you were able to watch because I was able to sort of pack the point of the project.

Yeah, it was your presentation at Archipelago last summer? Yeah, at Archipelago. That was really good. And so, yeah, let's just focus on that. You explained Hivemind in the context of U.S. elections. Yeah, it's funny because Hivemind is yet another thing where it creates this general purpose thing. But again, I intend to only use it or mainly use it in service of this, of exploring this concept of futarchy. It's not limited to elections, but I thought that would be wonderful for an archipelago.

And I think that's probably the biggest value extraction. But there's many situations where we face these problems. elections is one but you know we also elect board members for corporations so it's the same process of just shareholders vote but the shareholders have no idea who any of these people are if you've ever owned a company i used to own u.s steel because after the financial crisis it was like one dollar a share or something insane and it's it was like its price to earnings multiple was like one or some absurdly low amount. So I bought some U.S. Steel.

And even if you own one millionth of a percent, they send you this stuff in the mail where you're asked to vote for the board of directors with your microscopic vote amount. And you have no idea who these people are. And almost everyone just throws this straight into the trash

because it's a waste of time to figure out. With voting on elections is a similar thing. So anyway, to get back to your question, There was this website called InTrade a long time ago, and it closed down in 2012. But InTrade was a place where you could bet on election results. And elections are one of those things where people's IQ points collapse because they, you know, people get, it's partially by design. The politicians are pros at manipulating people and getting people to think that they are trustworthy and that their rivals are the devil incarnate and that everyone is conspiring against them and have to move quickly to protect their freedoms or their family or their rights or whatever it is. It's always very lofty.

It's never anything specific. You know, it's always vague. Save the children. but and yeah right uh the children with a capital t and a capital c um or the people or the corporations right is never you know they'll never say like this corporation underpaid their taxes by exactly whatever 13.8 million dollars or it's never anything like that it's vague but the point is these people are pros of manipulating everyone's brain and you have a very small ability to affect the outcome when you vote and you have uh no incentive to do research

as a result and so the you leave this we're ended up we end up with the situation where no one is happy with what happens everyone hates the congressional approval ratings are low and then you have i brought up the simpsons characters that the mayor quimby and the police chief wiggum who are you know those are like usually elected musicians but everyone's just like you know the reason that that's those jokes are funny is because everyone kind of you know everyone kind of knows that actually mayor quimby is not too far off of what they kind of suspect their own mayor is doing but they're just kind of like whatever look the other way and and so the future i'm not sure like in what order is best i would i think the video is a good way

because I like wrote this sort of script for a target audience of people that uh but maybe it's easier if I just answer any questions you or you should frame it because you just watched it or something and maybe you know what people would be interested in. Hivemind is a project for peer-to-peer oracle so it's just it's just it's itself this weird econ statistics project for figuring out what happened in the real world and that has you know i don't want to say endorsements but i have some quotes on the front page from people like andrew paul straw and even peter todd um about whether or not it's sort of viable they sort of think it is and that's the best i can do in a short podcast you know otherwise i mean the white paper for truth coin that was the original

the origin of the name truth coin and that that is a very long paper that involves a lot of explaining as to why i think that that will work but in addition to the oracle the oracle is deciding what whether or not certain events happen there's markets for betting on whether or not those things happen in various combinations with each other produces this true so peer-to-peer oracle and event derivative marketplace is like the whole thing and then some of the derivatives you can make are about election betting which are um like we have we have these already and i post the election betting odds.com i tweet about it a lot because i find it so interesting um you can bet on who you think will win various things but what i want to do is go beyond winning and say

if someone wins what are we what outcomes are likely yeah take place and which and so then we just vote for whoever has the better numbers and that's like the whole thing yes so let's very brief nutshell but probably you can frame it probably a lot better than well i think your your poor audience i think the a good idea would be to hone in on the one slide where what you just described where post-election you had the results where um the country be more profitable um less people would die yes yeah i think that is a good slide you're right um yeah so i and i had before that i had like the menu i was trying to like make a joke like it's like you you're going on you're buying breakfast and you have a menu and you can buy an omelet or whatever

you have some idea of what you're going to get and how much it's going to cost but then you walk into the voting booth and a lot of these you know i've had many people admit to me because i talk about it. I've been talking about this for a long time. And I say, yeah, some people do. They vote for president, but then they didn't really remember. They forgot about that. They have to vote on all these other positions, alderman and all this other nonsense, right? So people have admitted to me that they do like zigzags or they do whose name they like, you know, like they don't have any idea. They do vote completely on party lines or they just leave it blank. So the real one, the real sad things are the, that Congress is actually much more important. Most people can't

name their representative or their senator and those are the people who make the rules and they're very important and the turnout for those are low so you have a situation where people don't they walk in to vote and they don't really even know what they're they don't really know what they're doing they remember some vague images and things and so the core idea is that they can look up and find very reliable information that's very very difficult to manipulate I would say almost impossible, which is a tall order, but the information is of the following form. As you say, you basically have a two-party system. You could just subtract, but if you had more than two parties, you'd have columns, Republican, Democrat, Libertarian, whatever,

Green, Labor, blah, blah, blah. But in a two-party system, you would probably want to do is just subtract and just see the net. But you'd have these columns and then the rows would be various metrics and they'd say like if you vote for the republican candidate this is how much money the government is going to spend like per person so whatever you know twenty six thousand dollars per year or whatever it is and this is how much this is what gdp will be this is what how much how much money everyone will earn in the in the entire uh in the united states over the next few years or over the next, you know, over the next four years or the next six years if it's a senator or the next whatever. And then this is how much the value of the land will appreciate. This is what the

unemployment rate will be. This is what, how many people will die in all various ways, you know, plague, war, whatever, mental health. So you can just look at the numbers and you can just say, well, this group has a better number than another group. And if enough people start to do that, then the politicians will have to compete on those numbers and um and there's a long precedent for this the medium is the message so to speak the united states was built in a world where everything was done by the newspaper and i can get into that there's a lot of interesting history with that but then eventually you had radio and fdr and then it's well known that the invention of television changed a lot with the election of Richard Nixon and Ronald Reagan and then it's well known that

Ron Paul and Barack Obama were getting out the vote via internet in 2008 and now it's unavoidably known that Donald Trump with his use of Twitter like like changed the game yet again so the game there's a long precedent of changing the game with a different medium of getting your message out to to voters and so this is a kind of it's kind of aiming at that and um so yeah and these rows can be anything anything that's measurable post-talk and they don't settle the cool thing is they don't settle until after the presidency's over this is where my question is how are those numbers determined are people putting skin in the game of course yes absolutely so yeah so i open i kind of put that at the beginning of the slide and i say

well here's the end result then and this will all be these numbers will all be accurate and they won't be able to we won't be able to manipulate them and then of course the question is well that just kind of passes the buck to the explanation where those numbers come from where they come from are these conditional bets so someone is making a bet that you have to understand a little bit about conditional probability and about how asset prices work just a little bit. But basically, if you bet on a coin flip, then you should be at most willing for the heads share, you should be willing to pay about 50 cents on the dollar. And for the tail share, you should pay 50 cents on the dollar. And if you bet on a dice roll, you should pay

about one-sixth of a dollar on the dollar and so forth so the prices co-vary with the likelihood but what i do is you you you build this kind of grid and you have these joint events which is very easy to do it's annoying because this project tries to move the needle forward in a lot of different ways at once but ignoring other questions of liquidity and how the oracle handles all this which is actually very easy to do but i'm going to avoid explaining it because we haven't even gotten there yet if we ever get there but this is all written down and you can check all this stuff out on the site if you if you are interested and i hope you are but the grid is you make these different events and then you say the asset only pays if they both happen

so you have what's called in statistics the joint probability and from the joint probability you say this pays if it's a heads and you roll a two on the dice. So make a grid that's like six units in one direction and heads and tails two units in another direction. You have 12 squares and then each have something like a 12th. And if you take from this grid, you can get everything you had before and more. You can get what you had before by just summing up along a dimension. So you add up six twelfths you get the halves for heads and tails and if you add column wise or however the other way is you can get one sixth for the dice and so you have everything you had before but um in a dice and uh coin are independent so they're just diffused there's just these numbers

that are just the same in every cell but if the events are related the numbers will clump up on a line in the in the and some kind of diagonal line through this grid like it because it'll be saying that although some you know maybe something's not likely maybe the good economy isn't likely and electing whoever it is take your pick you know andrew yang is is unlikely they could both be unlikely but maybe there's only a five percent chance that the economy will be good maybe every single one of those five percentage points out of the total hundred that occupy the grid maybe all of those are in the andrew yang gets elected grid and that takes them out of the other grids and so then this forces this line to appear and if you know maybe you know if people

just google joint probability and marginal probability and conditional probability you'll see that it's extremely simple math to just get these numbers out of this grid. Now, of course, where are these numbers coming from? People are trading. They're betting. Someone is betting. I think that,

because this is infinitely regressing even further because it's like, sure, I have to say this is clumping on a line, but where's the clumping? Where's the line coming from? Well, people will be able to bet. They'd be able to say, i want to pay five cents for this contract it pays me money if andrew yang is not elected

or if andrew yang is elected and the economy does well in fact the only way i lose money is if andrew yang is elected and the economy does poorly that's the only way you lose so You can buy that and then people are buying and selling all these things. So it's a contract that pays you no matter what, before the election or before the primary or before anything, you're betting on these things. They won't settle until long after the election is over and the presidency is over because you need to check. because there's a very complicated timeline here they don't settle until the far future but you can buy and sell them today and so they should have different prices and so you can buy pay something that pays you in it pays you more money in every scenario except the one where your guy is elected and does a bad job and so the theory here is that because people are putting money down,

putting skin in the game, if you will, you're going to get better information. Yeah, you should get the best information because if anyone has any information at all, they should be willing to trade in this or partner with some rich person who will invest on their behalf. And again, out of this grid,

you can get everything you had before. You get the likelihood that the economy does well and you get the likelihood of everyone getting elected. Those would be the heads and tails and the dice. in this so a lot of people already only want to bet on one of those two things so this is actually kind of combining three completely different things into one thing um which is clever there's this other thing i have to i could say about market scoring rules and liquidity where it's actually much much better than you could ever imagine being possible not still not great but

uh the whole interesting conversation in itself but yeah you think about it these these assets will all have different price so this is the andrew yang does well for the economy asset and then you have the bernie sanders does well for the economy donald trump does well for the economy asset they all have prices and what they can't all be a tie for 100 you know someone's got to have the best price yeah no and that's only if you have this one criteria that's only on one criterion really some people would be different some people would be better than on different things than others some people might have you know i don't know some people might be more likely to get us into a war so they might be more likely to spend a lot of the government's money

and have more deaths or something but they might be better for i don't know income or whatever unemployment who knows there could be all these different dimensions so it wouldn't be it still would be, when you go in to vote, you'd still have a little thinking to do, but you wouldn't need to understand this complicated world that we live in to a great extent. This idea is that what happens is that my sort of political theory is that it actually does mostly work the way it's designed, which is that the democracy represents the consent of the governed. But it's that the governed are just too busy to look into this economy is so complicated these days. And People know that they don't have – they have no rational reason to put in a lot of research effort, and the politicians are professional liars who are confusing them at every turn and turning them against their family and whatever.

So they are building these weird cults because they're professionals. You can't win unless you're like a cult leader. So it's impossible for people to – so the governed – the population is – they're doing their best. to decide what they want, but what they want is poorly thought out. So what I'm just trying to say is bring them super high quality, the best quality information. If anyone disagrees with any of these prices and they're right, they can make money. You see, you only, this thing, you still make money if you're in the counterfactual case where you say that Andrew Yang will be great and he isn't chosen by either the primary or the general election you're still making money

so now you're hope you're kind of hoping you're like whatever whatever you know whatever happens and to lose the money right um let's not even focus in on like the granular any more like granular details how does this work like how do you envision this changing the world obviously we just focused on elections there but beyond elections of course the yeah it's not limited to elections and you know it's not really limited to u.s it's it's really any policy where um you'd want it's it works best when you have really measurable criteria for success so really the best place is actually the stock market because you have the the best criterion is the market cap of the corporation yeah with this uh with the stock market uh act

like it would today you basically say yeah i think well i think everything you we have a lot of i think we have actually a lot of corruption and with uh ceos and i think most ceos are great and they do a good job but i think this is a game that every ceo plays firms are not really as efficient as economics textbook um would imply uh they do lots of clever little things to avoid blame and entrench themselves, which I think partially makes some sense because you want the CEO to be in there for the long haul. You want someone like Elon Musk, maybe, who really believes in the vision. But many times, these CEOs are paid a ton of money and they elect their friends and the board is their friend. And they not only pay themselves tons of money, wasting

that money but they don't run the company very well and with this you could just say you have one single market should we fire the ceo against the stock price and then people would be able to bet well if you fired the ceo and replaced him with the number two person then the stock price would go up and then you make money if they ignore you or if they follow your advice and you're right and if they follow your advice and fire the ceo and the stock price goes down then you lose a ton of money but you only lose money if you're wrong which is desirable i mean that's the way it should work and uh you know i think corporations just think about how innovative a corporation can be when it has a good leader which good is obviously with a lot of you know quotation marks

and qualifiers and things around but if you have basically someone who has united people around a vision and people are no longer infighting and they are committed to one vision that i think is a good place to start um you have like steve jobs and you have like elon musk something like that yes sure and that makes a big difference think about how big the iphone changed everyone no one there was no app store there were no apps there was no like touchscreen phone before the iphone you know so yeah you're there were no tablets before the ipad and you know elon musk when he he lands those rockets you know like like landing a pencil on an eraser so cool to me it's so cool and then you're just like electric cars america will never

do it and then he just he just did it you know he just like somehow you just do these things and i think every company could be so contentious though i know yeah it's crazy no and that's that's fascinating like but yeah i think there's obviously so much some people have done estimates i have this link somewhere because i like this so much i have like the prediction market propaganda folder but i don't remember where i put it but it's um but there's someone did a study you can look this up of like various um projects the government could do and their hypothetical return on investment so it was kind of tongue-in-cheek because it was done by it was done by like brookings or something some like econ style place but relatively mainstream but

in framing it as return on investment they were being kind of clever about it they're like because they're like they know that's not the real stated goal of the government is to like make all this money or whatever but they were there were some things on there like global free trade unrestricted movement of labor and capital like open borders and stuff where like the return on investment is like 15 million percent or like some absurd number and there's all these other these other like there's tons of stuff that the government could do policies that would be a little different um changing why is our tax system so bad it's like the worst tax system in the universe it's why you know adam smith had land value taxes and it's so stressful hundreds of years ago and

we still don't do we still don't do them no it's you know this weird bureaucracy instead weird bureaucracy that makes it very hard to do your taxes yeah a lot of one major function of the tax system is to punish and reward certain groups of people it's not really even to this is not the most efficient way of raising money some of it's just absurd the payroll tax makes no sense it's a tax on employing people it's a tax on being poor it's a tax on it doesn't it's just like nothing about it makes any sense it's like universal agreement that it should be just deleted and the corporate the idea of the corporate income tax is also a lie there's no evidence that most corporations don't even pay

it even if when they do they just take their money away from either the customers through higher prices or through their employees it's like there's many tax things where there's wide agreement across all many experts across the political spectrum that certain things should just you should just delete them and just not even replace them with anything because they they do such a bad job um but yeah we we have all these weird things so yeah it would be nice to um make the tax structure more efficient uh interesting it's been a fascinating conversation i have one last question to ask you because i always been fascinated because you have the economics background and

it seems like the computer science design background at least engineering design with drive chain and stuff like that like what interests you about bitcoin more like the economic side of it or the technical side of it oh that's a good question um yeah it's funny uh there's it should that kind of could be a it's weird i have a lot of mainstream economics training and yet i'm like in the bitcoin world which is very funny ultimately i do think that um a lot of the disputes in economics all these these schools um you know whether or not whatever austrian economics or neoclassical economics or whatever is right about any i think most of that doesn't really even matter because we have a kind of

scheme where your cash is being inflation taxed away. And so there's no reason not to look for an alternative. And you have a payment system where, I mean, Silk Road is a big eye opener where it's like you can't use credit cards for that. So the payment system actually is a subset of what is politically feasible, and election betting is banned in the United States. It's heavily restricted by the CFTC, so this is my favorite website, InTrade, but you had to go, you had to wire money to this company in Ireland to use InTrade, and even though it was a company in Ireland, still you would get harassed if you did anything with it. Even CNBC would do stories about it in the united states it's not even a u.s company and it would still get harassed

so i'm kind of interested in uh it just by being interested in election betting i kind of became sort of more interested in in bitcoin but yeah i don't know the i think definitely the for me i'm more interested in the economics um of bitcoin than the computer science a lot of it a lot of even though i knew some computer science a lot of the cryptography and stuff i did not know at all i had to learn when i was learning bitcoin i was like amazed that i kind of always knew like that there were hash functions because if you'd ever used a bit torrent or something you kind of but i kind of didn't really realize what they could do before and now they seem like or opposed to bitcoin they seem way more impressive so a lot of that stuff i didn't know when i was still getting

into bitcoin really what did it for me was the silk road article as someone who never really used silk road ever but um just seeing that you could have people you know you had people who are like drug addicts and they could somehow get all this stuff to work you know and they were like the early adopters on the cutting edge and then i was like holy crap there must be something really interesting going on here and there was and it was more interesting than i could have ever imagined at the time yeah well thank you for getting interested in this and sharing your crazy thoughts uh on your blog on drivechain.info uh bitcoin hive mind.info or dot com dot com but they all link to each other i have like a lot of different girls and then you can

see on the sidebar i have them all linked so if you go astray you can find your way back pretty easily um no this has been paul it's always a pleasure uh conversing with you on twitter uh and uh in person is there any like parting notes that you want to get out there i don't know i don't know i don't think so i mean i have all the stuff on on drivechain.info and on bitcoinhighway.com can you get the video and there's uh can people help you review the bips or anything like that definitely yes i think uh well i think uh if you want to know exactly what's going on and you don't like you're like some weird podcast explanation you're like i just want to know exactly what is going on the bips i think they actually do a

decent job i'm telling you what what what is technically exactly happening and then we have releases so you could download them and play with them and we have we even have we have guis because cryptex is great with qt so we have everything has buttons that you can click and stuff it's kind of uh i dare say it's not to do all this from the terminal to use yeah you don't need to well there's rpc call commands for i think everything at this point so you can do either well freaks if you haven't gone and checked out uh paul's blog yet go read it it's going to take you some time to get through but uh it's really helped me understand uh a lot of these concepts particularly pertaining to consensus networks proof of stake versus proof of work um those are

that's one of my favorite blog posts on any subject in bitcoin um thank you so much yeah again it is uh it is be warned that it is writing therapy for paul when you open it it's me dumping these thoughts out of my head so i don't have to think about them anymore pushing them into your head so be on the actual post go into the comments of the post too because there's some some of them are great yeah some of them

are really funny the proof of work for proof of stake one is funny where Vitalik and Vlad and Jaquan are like in there and then I thought they you know we talked about it already but sometimes the comments are really something Paul thank you

for all that you do I'm very interested to see uh drive chain and hopefully in the future uh the hive mind progress um yeah yeah they're i mean they're both pretty polished off i mean even hive mind if you go on the site you can see we have charts and things we have screenshots you know so it's kind of not i'm kind of proud of the fact that i don't uh i try not to talk about things while they're still vaporware so you can actually go and you can just take a look just look at some screenshots at least yeah some beautiful screenshots big fan of screenshots that's what uh half the bent is usually screenshots yeah um paul thank you so much for having me that's all we got this week freaks peace and love