TFTC: A Bitcoin Podcast - #166: Karim Helmy

Episode Date: June 3, 2020

Join Marty as he sits down with Karim Helmy, data scientist at Coinmetrics, to discuss: - What's a nonce? - What we can learn from nonce distribution data - Mining hardware evolution - Getting into Bitcoin in 2017 - Bitcoin as black market money - Hash rate indices from Coinmetrics - Viability of DeFi - much more Follow Karim on Twitter Checkout the newsletter we discussed 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 when you download the app.

What's up freaks, it's your boy Marty here to introduce this episode of Tales from the Crypt. I had the immense pleasure of sitting down with Kareem Helmy from the CoinMetrics team. We dove into a newsletter that he wrote for CoinMetrics a couple weeks ago, diving into nonce data and how it can help us get a better understanding of the Bitcoin mining hardware lifecycle. and when new miners, new mining models are becoming more predominant within the network. Fascinating conversation. We talked about that.

The hash rate index that Coinmetrics is working on and then just shot the shit about Bitcoin and why Kareem's into this and learned a little bit more about him and his views on the space. I think you guys are really going to like this one. This episode of Tales from the Crypt is brought to you by our good friends at the Cash App.

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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 tales from the crypt excuse me a little hiccup there uh here on a rainy friday afternoon where i am very excited for this conversation this sort of came together pretty quickly uh the coin metrics team put out a newsletter earlier this week diving into uh the dynamics of uh the halving and its effect on mining and had some color on nonce data and how you can sort of derive the hardware trends in the mining world

via the nonce data that exists. I'm sitting down with the person who wrote the newsletter. I'd like to introduce you freaks to Kareem Helmy. Kareem, welcome to the podcast. Hey, Marty. Thanks for having me. I appreciate you coming on. Before we dive into the content of the letter and everything I just described. Why don't you tell us a little bit about yourself, how you came to be a data analyst for a data company focused on Bitcoin and other blockchains and what you were doing before and why you like to focus on the data side of things. Totally. So I studied, you know, data oriented, a data oriented subject. I studied stats and machine learning at Carnegie Mellon,

um just finished up in may of 2019 um and then kind of had gotten into crypto while i was there um through some internship that i did at the bank a co-worker was really into it and at first i thought it was really stupid frankly i was like what is this um it's just drug money uh and then i realized actually it's really cool it's drug money So yeah, from there I graduated, I freelanced for about a year. I've been working with Coinmetrics for about a year on a contract basis and then just came on full-time about two weeks ago now. Congratulations. Thank you. Yeah. So this article was a really fun one to write and did not really see it going the

direction that it went in. We kind of just went in with like an exploratory mindset and it was cool to see it come out the way it did. Yes. So let's dive into it. What was the mindset when you first went in and why did it sort of end up the way it did? Totally. So we wanted to build out a product to track miner behavior. So measuring the inflows and outflows from uh mining pools and kind of tracking uh those metrics in the process we found out that this is actually like really hard uh and that uh a lot of the products that claim to do this kind of make some wacky assumptions or don't actually provide full coverage uh so we figured that as like steps to productizing this we should put out some research you know get to really

understand the data um before we release it to clients uh along that path one of the things that uh coinmetrics had previously done um in a feature by antoine was um tracking looking at nonce distributions for different uh cryptocurrencies so one of the things that popped in my head was what if we segregated these nonce distributions by a mining pool and then from there it kind of just took on um a life of its own we started looking at uh which pools were mining blocks which nonces what can we use this data to do um and then we found out that it actually lines up pretty nicely uh the anomalies in the nonce distribution line up pretty nicely with uh the occurrence of um the dominance of at minor s7s and at minor s9s uh so we found that we could

yeah yeah so you have this bitcoin nonce distribution chart looks like uh it's just a bunch of blue dots on a on a graph and you can see particularly around 2016 that some of those uh some of the areas on this chart become less populated with these these nonces and so uh before we dive into what that means maybe let's describe what a nonce is and and define what it is and how it pertains to bitcoin totally so uh you know to mine bitcoin um miners solve this puzzle uh the way that the puzzle is structured is that they are looking for a value that makes the block header hash to below a certain threshold that's called the target um so that value is called a nonce uh in theory the nonce distribution

um of valid nonces that that make you hash to below that threshold so what's called golden nonces in theory they're randomly distributed so they should look a lot like static if you just plot them out um the really wild thing was that we found they don't do that and that's what the paper is about yeah so it seems a little bit non-random and so are we basically able to say from this apparent non-randomness that some miners are are simply uh leaving out certain nonces when they go to solve these hash functions exactly yeah um and we were able to attribute that to certain types of hardware um by lining up the timelines so what um yeah it's fascinating is this what so what does this mean for for bitcoin is it bad for bitcoin or does it just

mean that uh miners are highly incentivized to find efficiencies and this just so happens to be be one of those like what what advantage do miners get from from leaving out certain nonces on the onset of their solving of this puzzle it seems like an artifact that's relatively harmless um it definitely doesn't affect the network as a whole it's slightly inefficient for the miners who are doing it and it's probably a side effect of uh over optimization on these hardware uh devices um so you know like miners are uh today almost all mining on the network happens on these like super optimized asics um and and i mean these things are are really really like designed to be as efficient as possible so um if if they're leaving out these um these

regions that's you know like a a non-trivial um loss in efficiency that they're doing that um but it's it's likely a side effect of um bigger gains that they were pursuing yeah and so but and more recently it seems like the the nonsense are becoming more distributed so is this probably the m20s and s17s not over optimizing in that regard yeah that's that's what think it is. So, the two chips that we found that had this problem were the S7 and the S9, and they were both bitmain. So, it's interesting that the S17 has kind of phased this out as far as the M20S. We haven't really detected that in the previous hardware created by that manufacturer, so it's a little bit more expected. Yeah. That's interesting, right?

because the S9 was released by Bitmain and the designer wound up leaving Bitmain and going to What's Miner, creating MicroBT and designing the What's Miner M20 and M30Ss. And so, to me at least, as an observer who works for a mining company that uses M20Ss, it would be interesting to see if those white bands sort of return with the with the proliferation of that hardware particularly like was it

the designer the actual individual designer these chips that was responsible for this this non-random distribution yeah totally and already looking at the nonce distribution you can kind of see even today it doesn't fully look like static like it should so we're kind of trying to investigate is there any other anomalies that we can kind of leverage to track this hardware usage because it really does it is a useful metric to be able to keep an eye on yeah and yeah it'll be and that's another thing that always interests me thinking about mining especially mining into the future is do we get to a point we probably will due to physics get to a point where these these asics are commodified and how does that how

does that affect this distribution and is there sort of a leveling out of of hash rate and uh sort of more stable difficulty in the future um this is me just rambling random thoughts in my head do you do you uh have any thoughts on that particularly yeah totally i mean like the the dynamics um are really interesting i think it's it's as i'm sure you know um a notoriously secretive industry uh so kind of if you're an outsider there's there's not a ton you can you can see in into um but the s9 was really the undisputed king for a while and we've kind of seen the beginnings of that sort of commodification and it's going to be very interesting to see where it where it goes from here yeah that's uh as a miner at thinking five ten years out at that point opex is going to

be probably the the where all the advantages and the competition for mining are found like who can find the lowest energy and automate their processes as much as possible and is uh and it's fascinating that we're in this weird uh beginning stages of this of this network and of this this industry because there are like a lot of inefficiencies that these miners particularly point out and and uh can take advantage of if you design a trip correctly um and so another thing you guys are working on is like a hash rates index correct yeah what uh what's what's the i mean this is something that's become a more popular topic in recent months is the the need for hash rate futures and derivative products to help miners hedge would this be something that these products

could in or um could leverage basically to to help produce an index or something like that yeah exactly um so if you want to settle derivatives you need a really high quality uh data source right um and that's what we're looking to provide so we are an independent data provider we think that we can um give really the the best reference points uh for these contracts to settle against so how would you how would you go about creating this index what would the inputs be um what would you be looking at and and how would the final number be articulated or be found So hash rate isn't actually directly observable on Bitcoin. This is kind of one of the things that gets lost in translation a lot. You can only really tell hash rate from the frequency with

which blocks are being delivered and from the difficulty on the network. So we have our estimation techniques for this. They're relatively standard, but then we develop these hash rate indices on top of that uh and you know these are these are a relatively commoditized product but the uh important aspect that we're delivering is that you know we are um experts in the industry we're very used to providing these sort of data feeds and it integrates with our other products on top of that we have um a product that we're calling observed work which kind of leverages uh these hash rate estimates to be able to give something that's a little bit harder to gain uh if you're say a high frequency trader trading directly ahead of um the settlement

yes i keep going back and forth right because the the hash rate and difficulty futures particularly like how can they be gamed and who can game them more importantly it's becoming more apparent like who really has the leverage here the the asic producers the miners the mining pools um who would be like that's as somebody who may need to interact with these products in the future just trying to think of attack scenarios who do you think would be uh would benefit more from the inside information like mining pools that are able to leverage the liquidity of a hash rate future and potentially engage in a short and turn off some of their machines

or stop their pool or with the hardware manufacturer knowing the lead time for the delivery of the hardware, be able to play some games as well with that. You know, both. I would say that the pools probably have more consistent access because hardware delivery times are a little bit infrequent, but definitely if your clients are expecting hardware to come at

a certain date, and they're hedging accordingly, and you kind of stall on delivery, it's a reputational risk, and I'm not sure that the hardware manufacturers would necessarily take it, but it's definitely something they could do. I mean, if you want to do something that's a little bit less malicious, or less overtly malicious, what they could do is they could actually deliver the hardware early and cause the price to surge the hash rate to surge right that's and that's again going through these attack scenarios like the incentive especially like somebody was floating the idea that mining pools could could crash the price and and the hash rate if these ftx hash derivatives become liquid enough it doesn't make sense to me right like especially a pool

pools acting on behalf of the individual miners that point their hash towards it like it and bitcoin is their golden goose like would an upfront payoff that you're able to acquire from shorting in futures markets even be worth it um if you're going to kill the golden goose like is that short-term profit worth it in the long run i'm not sure um frankly i don't i don't think there's really a way to be sure but i think one interesting source of inspiration that we can look at is oil markets uh where you do actually have these oil companies trading futures um and you have it's one of those few markets really that exists where there's an overt cartel that controls it um so i don't know i'd be surprised if every time opec uh announces that they're they're cutting

production um you know long oil futures right before it you know at least someone on the team um it's just it's just too much money on the line frankly and the opec unannounced difficulty adjustment could come in any time all right i mean we found that out the hard way uh a couple months ago russia comes so that we're not cutting production saudis get pissed off they're like all right we're gonna ramp it up and try to bleed you dry and the american shale industry dry too in this future market that's yeah i'm a believer that these future markets aren't going to kill bitcoin or disrupt the incentives because like you just mentioned they exist in other markets too and they do provide uh miners with the ability to hedge and maybe fund future expansion right

especially like if you get like a hash forwards contract where you sell hash up front for cash it allows you to expand your operations um yeah i mean i definitely think that there's um there's trade-offs, right? But I don't consider them too, too problematic. The biggest concern on my end is that you do really want miners to have high capital expenditures if you're, you know, from the perspective of securing the network, because you want them to have a vested stake in the success of the network and operating expenditures just don't really do that. The ability to hedge kind of changes that dynamic a little bit uh but it's you know it's it's where the world's headed and like it or not the genie's out of the bottle yeah yeah no i completely agree i think um

proof of work specifically proof of work mining is is the future our thesis at great american mining is that it's uh it's actually going to create crazy efficiencies across energy markets Even though people think Bitcoin mining boils the oceans, it's actually going to help the environment, at least we believe in many ways. Do you have any thoughts on POW being sustainable into the future? Do you think about proof of stake networks or anything like that a lot too? Yeah, I mean, I've thought about both. I'm a fan of proof of work, personally. I think the environmental concerns are concerning, but not a big deal.

Like it's given that so much of Bitcoin, its energy consumption is localized towards, you know, excess places with very inexpensive excess energy that would basically just get thrown out anyway, or, you know, like you mentioned with great American mining flared. so given that's the case i don't think it's too too concerning but obviously if we live in a world where you can consume energy or not consume energy you'd rather just not for any given thing so it's not really bitcoin specific but i don't think i don't think we have any reason to fully buy into the fact that proof of stake has the same guarantees as proof of work today yeah no i agree i think paul stork has made some good uh good points that proof of stake may not

even be less costly or less environmentally friendly than in proof of work due to the capital needed to to acquire the stake within the network and stake it um it's interesting it's uh we'll see if ethereum can transition to 2.0 i'm not as confident as as some people are um i think i think they're gonna have some trouble doing that but um we have tezos and other blockchains to see if that can um work in the wild but again i'm very skeptical of proof of stake i think proof of work uh like you mentioned the capital expenditure needed to be deployed uh to get the hardware and actually make the protect the network creates much better incentives yeah it's i mean it's even like

even proof of work coins that have CPU mineable algorithms kind of suffer from this problem, right? Or even those that do require specialized hardware, but just there's enough of it available on rental marketplaces like NiceHash. They do experience these types of attacks. So as a result, I mean, liquidity is usually your friend, but in this case, liquidity is not your friend and you want this to be an illiquid asset yeah yeah fascinating so what uh you're on the data side of bitcoin like do you think bitcoin's an imperative technology for for the world right now you thought hey it was stupid drug money there's like oh yeah stupid drug money you need it um um are you uh are you a believer in the the freedom enabling

properties that bitcoin presents or do you believe do you believe they exist yeah that's that's exactly how i feel about it um i think it's it's one of those things where like its ability to function on a marketplace like silk road is testament to its core value proposition which is that it is censorship resistant money um like if if we wanted to test out censorship resistant money we wouldn't you know do it on the most uncontroversial thing possible we would do it on the most controversial thing possible so um when you see these markets using it that's that's just proof of bitcoin working so yeah it seems like you're about to get another big test uh with iran coming out the iranian government coming out and say that

they're going to support bitcoin mining industries specifically it's absolutely bonkers yeah right yeah but i mean those same properties like do hold in cases where free speech is needed so like the human rights foundation takes donations in bitcoin um i know like wikileaks is largely funded through that uh it's it's really crucial right like like we need to protect censored activities um and sometimes that's speech sometimes that's drugs sometimes it's you know like going outside so uh yeah no it's got a it may um may disturb people that helps the drug dealers and the iranian government or entrepreneurs within iran that are being incentivized by the iranian government but it also helps the refugees the people in venezuela trying to accept and send

money um between their family members and and it is this weird mental block that people have that if it helps one type of user we should shut it all down but it's really a bad way to look at like should we stop everybody from drinking water i mean maybe no i completely agree with you like it's there's this conflation of uh legality and morality that I think happens in a lot of people's minds um and I think honestly like I'm not condoning anyone breaking the law here if this does come up in court or anything like that but uh I think they seem relatively uncorrelated in my mind um there are plenty of immoral things that are perfectly

legal and plenty of super illegal things like free speech in a lot of countries that just are immoral imperative yeah I mean we're we're seeing a play out right now in China and Hong Kong the chinese just announced that their what was it a national security act that they're grandfathering hong kong into like without even having them vote about it in the legislator it's fucking crazy times right now we're gonna see a bifurcation in the world between the countries that protect free speech and liberty and those that don't and actually here in america it's it's i don't like the way the trend's going like uh i think bitcoin's imperative specifically here in america because we actually are not going down the right path right now in terms of uh of liberty

and and freedom of speech specifically i i completely agree with you like corona has just been a massive mask off moment for all of the would-be dictators of the world um we're seeing it in hungary we're seeing it you know to a certain extent here and it's it's a concerning trend yeah i mean what do you think about the apple's latest update are you gonna are you gonna update to their their latest ios um i think i missed that one i've been kind of uh in the lab a little bit can you catch me up on that they have a latest iphone ios um has it embedded at the protocol level like contract contact tracing um so they're gonna allow apps to to use apple's api to to build contract contact tracing um functionalities to alert you if you've been

around somebody has corona i'm sure this will not be abused by anybody um and it is uh no i go back and forth i mean i don't i think it's terrible but it's already here it seems that uh coronavirus is being used as an opportunity for these would-be dictators and authoritarians to basically create an excuse to be more blatant with the tracking and and the surveillance of the u.s citizens yeah i mean i completely agree with you it's not even um in my mind it's not even the concern of tracking like you're already being tracked all the time always uh it's the normalization of it uh i think if you look at like all those new york times articles that uh you know use cell phone data you see how granular of a perception anybody can like anybody who

has an app on your phone already has but it's kind of in a way nice that people don't really know about this because once you start making it normal and and then like accepting it you're you're you're really like normalizing them to this thing that is severely unnatural which is the ability of the government an app developer your cell carrier to track you all the time always yeah and it happened after 9-11 like the tsa i hate the tsa personally i think uh i always feel violated when i have to put my hands up in that stupid scanner especially after it's been proven that it really doesn't do anything um and that got normalized pretty quickly after 9-11 it's still here to this day and all these measures are apparently temporary this is only

temporary for the coronavirus but it's it'll be interesting to see what what happens what is it may 22nd uh apple released that that update i think two days ago so may 20th 2020 it'll be interesting to see uh what they're doing with this stuff and may 20th 2030 um what happens to it it's scary man like i say it a lot on this podcast we have two paths we can go down we either get the chinese surveillance state exported to the west and it seems like people in our intelligence agencies would love that which is scary to think or we build a world where we build distributed systems where you really hold your data and have agency over that data whether it be bitcoin or the pictures that you hold on your server and stuff like that and

it's weird to think that maybe we fucked up the internet in its first iteration and uh uh have made some pretty critical design flaws uh in terms of having our data siloed on these servers owned by large corporations and governments yeah another rant here no it's definitely rough and uh i think part of the most upsetting factor of it is that all of these problems are solvable like there's nothing fundamental stopping us from having people storing uh you know their photos locally um memory is really really cheap now but uh we were just not the first ones to the punch and the ux is significantly worse and and convenience trumps everything so yeah that's why bitcoin makes me more optimistic too i think bitcoin is going to be a hardware

revolution as much as it is a software revolution like running my own node and interacting with my node has really empowered me and actually helped me see a vision forward where all right it's a little rough around the edges right now using like noddle or my node software to connect um apps that that bitcoin leverages but once you do and you have it up and running it's pretty cool to think that hey this little box in my living room is holding all this data and i control it it's not going through amazon it's not going through google they can't see it it's running through Tor. The vision's there. It's just whether or not the will will be behind it. Yeah. No, it's crazy. It's all here though. All the fundamental problems have been solved. And

obviously you're not going to run all your payments through Bitcoin today on the base layer. That just doesn't make sense. But if you're ever doing something where you think you have plausible reason to believe that you're going to be censored or otherwise is um like affected by financial intermediaries do it you know it's it's there right and i saw you uh getting a little discussion with hasu yesterday about scaling like what do you what do you think about the state of bitcoin as a network and uh especially at the protocol level and second layers and scaling how do you see this playing out moving forward um i generally buy into to the vision of Bitcoin banks.

I think that having this settable, so just sorry to backtrack a little bit. The idea behind Bitcoin banks is that you have these private entities that run nodes, process transactions, do all of these normal things, but they're backed by proofs of reserves and they are actually like audited, provably solvent, you know, the whole shebang.

And they settle transactions on Bitcoin's base layer, as do individuals if they choose to. So having this globally available settlement network really does open up a lot of doors. And it's not just a nicety. It gives you the option of financial disintermediation, even if that option is a little bit more expensive or a lot more expensive. no i completely agree and i i'm a believer of the bitcoin bank model too and a lot of people like oh you're changing the narrative it's supposed to be digital cash but that's why i was typing i was pulling up the the hal finney post on bitcoin talk.org um he posted this on december 30th 2010 um so this idea and it's satoshi and uh other cypherpunks early on

when bitcoin first launch really pointed out that if you want this to scale you need to do it in layers or you're going to have to have some intermediaries um uh like doing transactions on their own servers or something behind the scenes and settling every once in a while um yeah and as long as you can run a full node and verify that the transactions you want to receive if you want to receive them are are valid i think i think we're all we're all gucci just having the about the ability to do that is is the imperative yeah it's a it's a game changer um and i also you know i i like l2 stuff too i think it's it's very interesting um so lightning has you know been on my mind even as it's kind of faded from um from the dominant narrative a little bit over the last

few months um but it's cool yeah i use lightning every day yeah i love lightning yeah as soon as i mean i receive i receive lightning payments every day and uh i downloaded juggernaut earlier this week i've been using that uh bitcoin bounty hunters which is a video game uh bitcoin bounty hunters.com i put up an ad with lightning earlier this week for tftc and you just put a thumbnail of of our podcast image and you just fund the ad in the video game with lightning and it works flawlessly sick it's uh yeah a lot of people poopoo lightning there's a lot of misconceptions like oh there's more there's more bitcoin and rap btc uh than the lightning network and people are like oh look at the volume of uh bitcoin on lightning is decreasing rapidly but uh again

going back to the hardware a lot of these out-of-the-box node operators are uh natively running lightning through tor and nodes through tor so you don't see those channels uh on the charts that they're using and i think there's a lot more lightning usage than people actually realize and things like screed log contracts coming out in the future if we get snore and taproot and stuff like that are are infinitely fascinating from a smart contract perspective yeah snore and taproot are awesome um and yeah to your point like i i think it's not i'm not gonna i'm not gonna you know diss any products here but like wbtc to me is not a particularly interesting product just because it is custodied um so it's interesting

insofar as seeing bitcoin banks get built out but it's not a layer two technology by any stretch of the imagination really it's it's just a liability that's represented on ethereum for assets custody by bitco i thought it was defy that's i think that's tvtc which i understand a little bit less but we'll see man yeah they had a rough week shit and uh yeah when they messed up they didn't have compatible scripts or something like that they paid a pub key hash or something It was not compatible with the solidity code. Yeah, something like that. I was not following that too closely. But yeah, it's crazy. And we've gone a lot, I've been thinking about this today, just happy pizza day,

but we have gone a pretty long way from paying 10,000 Bitcoin for a pizza. So So I'm very interested to see kind of where the base layer versus L2 development goes from here. Yeah. It's always frustrating to see how impatient people are. I need to know. I'm with it.

I need to be like this now. I'm with it. I'm impatient. I get it. But yeah, it's unfortunate. It's a work in progress and it can be painfully slow, but it's important to remember that work in progress and i'm not done yet so what are you most impatient about like what uh you mentioned layer two and lightning but what else like what particular use cases or or utility

do you think is is necessary and necessary in a quick amount of time um you know like this isn't really an answer to that uh i think the bitcoin etf thing kind of uh showed us how slow financialization in general is going to be um i don't think we're going to get a u.s based etf for a very long time i don't even know if we want one uh necessarily um yeah like why would you buy an etf when you just buy utxo in the cash app that's always perplexed me it's it's like nice to be able to to use your same um account that you use for everything else right like like if i if i have a an account at say schwab um it would be really nice to be able to buy um a us-based etf just with the same thing i don't have to transfer money to some shady crypto

exchange um and keep in mind if i'm like you know a relatively conservative boomer here coinbase is a shady crypto exchange so uh it's it's not even yeah but why why are we catering to boomers they're are going to die soon let's think about gen z they got they got the cash man we need to i don't know like it's it's one of those things where i think it's being able to use this asset and and and gaining i hate this phrase but getting closer to mass adoption um is something that that matters to a certain extent it's the biggest threat to bitcoin in my mind it isn't a hostile nation it's not game theoretic attacks it's it's just sheer apathy yeah yeah it's uh i'm right there with you brother that's that that saying has been said many times on this podcast that's

my biggest worry is pure apathy people just don't give a fuck or realize that they should give a fuck and that's what with this lockdown stuff it's giving me a little bit more hope that hopefully people won't be as apathetic moving forward hopefully more people are questioning why the fed can print money out of thin air and why it has unlimited cash and they're starting to ask why they're why they even pay taxes yeah and the whole hypocrisy of of the elite class is being laid yeah um one of the things i have been more impatient uh about has been waiting for the volatility to come back um i i i love the volatility man it's it's just fun watching the number go up and then down and then up again like um and i think it's it's a big thing that

drew a lot of people to bitcoin and i think it's like popular as a pessimistic narrative it's it's too volatile to be useful but i would counter that it's really like given how early it is the volatility is is on team good yeah i need to get i need to get in better shape before the volatility comes back i always get like my heart like in december 2017 it was like there was some moments where it's like holy shit man what the fuck is going on like i was working at barstool and it was pure mania like people running around the office that's all they could focus on that like if we do have a similar type bull market to an order of magnitude higher price i can't even imagine what like the global attention and like how much twitter talk there's going to be about

all this stuff it's it's absolutely ludicrous like it's um i kind of i got like uh into the space um in the summer of 2017 uh so right before this just this massive pump um and i actually sat it out because i was like this is this is just money for degenerates right now like i i like this thing i think it's interesting there's no way i'm buying at any of these prices and then it just kept going up and well so so let's dive let's dive into that let's pull that thread a little like what was it like coming in then uh what like obviously the ico boom was you're in the thick of it and so did that was it hard to sort of get your bearings on on the signal through the noise and what was worth paying attention to at this oh yeah and i was i was

completely um off course and i think i've taken like the long and winding road to focusing mostly on bitcoin um just even like yeah it's it's it's taken me a while um to kind of find my bearings uh and you know i'm still working on it like it's it's still i'm still learning um i know a little bit about mining but then like yesterday i ended up on someone's twitter feed and our twitter page um i saw they were talking about like the glue that they're used to glue mining the hardware together and i was like wow i know literally nothing about mining mining is such a mind i mean i'm in it and i'm still learning learning more and more every day so it's really cool it's it's just it's it's uh it's one of those things where um

it's a trojan horse for learning like about monetary economics and energy consumption and all of that but it's also just interesting and i can't wait to learn more yeah so what what sort of helped you on your on your winding path how how what helped you find your bearings um people literature yeah i read a lot uh i don't i'm not a big fan of books uh personally i think they're uh not to this books but they're too long for me uh but i'm just always on uh wikipedia i'm always reading uh that's an absolute beast um Um, yeah, I, uh, I, I'm always, I'm always reading and I think like over time you kind of, um, start to understand a little bit, um, and just got to hope that you don't get

pulled into the wrong rabbit hole because that, that's a huge waste of time. Um, but, uh, I, I still definitely have days where I'm like, wow, this whole Bitcoin thing might be a scam, but, um, but they're, they're getting fewer and farther between. so what are the thoughts that lead to this or what leads you to those thoughts um i don't know i'll see someone say like like something really dumb that's like in favor of bitcoin and i'm like god damn this is the these are the people on like who support this really like am i on the am i on the wrong side here right now it is it is it is hard uh sometimes there i mean that's also it's the double-edged sword of bitcoin right i think anybody can use it and

it is there's no marketing team yeah all right it's uh it has been interesting to watch uh so i've been around since like i've been lurking and paying attention since like late 2013 uh very intently so it's like jesus christ i'm a seven years that's crazy man and um the comparison to the 2014 2015 2016 bear market so this bear market has been very interesting to watch play out because back then it was it was still mainly like on twitter twitter has been my main uh medium for consuming content and oh same i just mainline it about bitcoin yeah and twitter back in 2015 2016 was still all like altcoin traders and a few

bitcoin devs but it was just basically all coin traders saying crypto is dead and it's never coming back and the there was like a lack of consult not consolidation but effort to make the messaging better and compared to post 2017 since then i feel like the the amount of quality information education has been created in that time frame has been a world like it's night and day compared to the last bear market so with that in mind i'm very interested to see uh what that base layer of like knowledge that's been built out sort of does for for the next run and it's one like talking about volatility on the other side of a bull market if we're going into one and it becomes very volatile do we have as severe crash severe crash as we had in the past

are we going to see another 80 drop after the next peak i'm not so sure i don't know yeah i don't know i'd say probably but um that's just kind of my my gut feeling is that things pump and then and then dump you know the slower the build up the slower the crash uh so really if you want to build something sustainable what you want is like sustained long-term growth not um not pumps but if you're in it for the roller coaster ride which i personally like then you want you want both so our highs are on average higher than they were right like before before 2017 um 2018 so yeah it i mean from a price perspective at least which i think is just one consideration like you mentioned the the knowledge um and i would even venture just like

the other infrastructure that's around has gotten so much better um but but even just from a price perspective like this this run-up and even the ensuing crash were were good so i can live with it you know yeah i mean the on-ramps are better the data providers like queen metrics are better people can make more educated decisions on entering this stuff and uh again the education is better it seems like people being able to operate nodes is better the ux around that ux around multi-sig is better the ux around hardware wallets is better and my favorite chart to look at is like the the price lows of each year um that's that's always a better indicator in my opinion what have you seen there um that's not one that i've dug into

too much you just have higher sick that's that's what you want to see yeah i think this year and last year I've had no last year or it was last year's low and below before that were very similar but um so last year's low was what like 3,500 yeah around there this year this year well 30 3,800 a wick down to March 12th um so it's a little yeah and I mean it's funny that you mentioned that because like derivatives were just not nearly as big of a thing um you know way back when and and and like what ftx is a year old um and it's it's kind of crazy watching that build up um that's that's that is actually game-changing infrastructure i love ftx's mentality just fuck it we're gonna create any market yeah it's sick u.s presidential election markets let's do

yeah and um and they were the first big one to to roll out a hash rate derivatives so i think that's like i'm i'm loving that honestly yeah that'll be interesting to see like who because bitmax unregulated outside of the sales um they they really led the way for uh price derivatives futures um and leverage trading up to this point obviously we have the cme now and more institutional players here but uh it seems that these unregulated sort of pirate chip companies really lead the way. And I've been having conversations with more regulated entities trying to bring these hash rate futures to market. And it will be interesting to see if FTX just beats them to the punch and paves the way for how to do this correctly. And

it'll be actually fascinating if retail investors provide the liquidity for miners to hedge their equipment bets instead of huge family offices and stuff like that. Yeah, it'll be interesting. I mean, this whole industry feels a lot like gambling a lot of the time, but it's cool. It's also like, yeah, you have these pirate ship companies that kind of show that like it is possible to function outside of regulated markets.

And they also have their whole share of horror stories, like every exchange hack and all of that, and exit scams and all that, but it's cool. I think it's a very unique industry and I love just watching it grow. Now, I got into a debate the other the other night in a Telegram chat, like somebody saying like Bitcoin needs Wall Street and needs like regulation to succeed. It's like, no, it doesn't succeed if it needs that. Like you said, it's got to be that black market money.

It's got to be able to succeed with pirate ship companies creating products and and tools for for Bitcoiners to leverage without any. Yeah, and this is probably when I should add that like none of this is the views of my employer. I think your employer's pretty based. Yeah, they're pretty cool, but I should probably mention that at least once. Kareem is on here as an individual. Yeah, exactly. So yeah, I think it's awesome. It's a unique industry.

It's got a lot more people who are used to dealing with a lot of uncertainty. I think a big part of that is, is being used to this volatility. And another big part of it is just the inherent randomness of, of, of dealing with something so new. So. Right. It's fucking technology. Straight up, straight up. You don't even, you don't even know what we're doing with it. Like I posted this, this picture in that conversation,

I was referencing like the beginning of 2001, 2001 a space odyssey when the monkeys are just looking at that huge slab rock yeah it's whack um but that's like talking about scaling too like yes i do believe in bitcoin banks and i think that is advantageous but i also think we severely discount uh potential innovations that can be made in and around the protocol moving forward the cottage industries for getting uh transactions including blocks and efficiencies at the software and hardware level um i think a lot of people when they think about scaling sort of pigeonhole themselves into the current state of the network and are very imaginative about like externalities that'll that'll help push

the success forward in the future yeah and i think this is gonna where i'm gonna give like a massive shout out to just join market um it is like one of the coolest i don't even know how to describe it things in existence because it's a it's it's not a company it's an exchange but it's you know like it's its own thing and join market what it lets you do is it it really democratizes privacy it lets you coin join um and get paid to coin join if you have low time preference um and i think it's going to be really cool watching stuff like that get built out for for scaling that kind of exists outside of these regulated institutions and is you know like it is a protocol but it is not a core protocol development yeah and i'm i can't wait

to see fidelity bonds become more popular and see how people utilize them and that really strengthens the incentive that of that it's going to be dope yeah it's going to be it's going to be awesome um and proof of reserves like proof of reserves is is awesome i can hear eric voskul yelling right now is it possible is it possible i hope it's possible i think it's possible like i think the problems come in when you have like the liabilities part um so um having clearly the auditor is the weak point in proof of reserves uh schemes so let's let's flesh this out proof of reason let's totally explain it like i'm five um i want proof of reserves i think anybody any bitcoiner should want them and that's the big question right now is it possible

um yeah so just kind of backtracking a little bit proof of reserves uh let you prove that you're holding um the assets that you claim to hold and that your reserves uh in the progressive proof of solvency let you prove that um the assets that you're claiming to hold actually exceed the liabilities that you owe to say your customers um so the on-chain part of the proof of reserves is fundamentally definitely possible the proof of liabilities is where you're exposing yourself to this need for an auditor who's a financial auditor, not an on-chain auditor. Financial auditors lie all the time. This is just a fact. Arthur Anderson. Yeah. So there's your problem, right? And this isn't something that I think you can fundamentally

protocol around. This is just a problem with corruption. Yeah, it's human error. um but generally we tend to trust auditors also right like like you don't you just you kind of rely on that as as a thing of fact and reputation systems are at play here and uh and every large company gets audited and we kind of just rely on that so i think proof of reserves are not a silver bullet but to the extent that they are definitely possible they also definitely help i would agree i would agree there and we're seeing this play out with like multi-sig products like unchains loan product if you want to use bitcoin as collateral for us dollar loan you put it in a multi-sig that you have a key in and you can always audit that they're not using you're not

lending your bitcoin out or something like that to somebody else so that's i guess that would be a small form of proof of reserve just multi-sig that you uh can watch yeah during the duration of a loan or something. Yeah, I would totally count that. Yeah, it gets a little bit more complicated when you have liabilities that aren't just... So proof of reserves are most typically discussed in the context of exchanges. And it gets a little bit more complicated when you add additional liabilities that aren't just to customers. So an exchange could, say, borrow a ton of bitcoin from a lending desk uh pay in fiat and uh deposit that bitcoin into their addresses temporarily and um you know do the proof of reserves audit but have this thing

this loan kind of off the books um and then just send it back to the lending desk uh having conducted the audit but they never actually had that bitcoin like they never uh philosophically owned it they owed it to someone else um yeah but regularity largely addresses that so if you just have like if you do this weekly or monthly or i don't know how often um you make it a lot harder to pull that off and that's really what this is all about yes that's a big knock right is for the reserves you get hypothetically just send coin to an address right before you need to do the audit and be like here it's here and then just give it back or something like that and so that's like it's time like that's why i imagine like something like a time lock for a certain amount

of reserves not extended time lock in the months or years but like like weeks and days like you just said would make some sense yeah that would that would make sense especially if the exchange has like um or other custodian has cash flows um you kind of expect them not just to be solvent today you expect them to be solved in next week too uh so time locks could definitely help there yeah it's fascinating this uh this new financial system is being built out that's the thing that pissed me off about that conversation he was like bitcoin is part of wall street now it's like wall street leverages bitcoin and there are products but it is still a system bereft of of the control that the regulators have yeah um i think a lot of

of bitcoiners underestimate the degree to which the ecosystem is going to change once wall street comes in but uh i definitely think we can continue to exist with or without them for ever for a very long time at least you think it's gonna be drastic yeah i think like my kind of this is a bit of a tin hat theory here but uh a tinfoil hat theory but i think we're gonna start to see a lot of walled gardens uh within bitcoin um where you have this highly kyc like you know kind of the equivalent of like diamond markets or gold this is blood diamond free bitcoin um it was mined by an affiliate of um nasdaq or something like that and this is these hundred bitcoins are the ones that the banks keep circling between themselves forever

uh and all the other bitcoin trades at a significant uh discount to this like clean bitcoin uh i think that's possible i would ideally like to not see that trade at a discount or a premium um i think your your dirty plea bitcoin would probably trade at a discount to to like yeah like uh highly kyc that the bankers are willing to to gamble on right yeah see i fuck man because again i've been having conversations with mining pools too sort of once it's like white label mining pool where it's like hey you're you're mining to this pool with people that are regulated and kyc and i really don't like that concept permission i feel that's an attack vector i i completely agree with you but it's it's one possible universe right um

i i think and and i think like wall street coming in is going to be a headache and people don't seem to to fully get that yeah cream this is why we need to fight to get bitcoin labeled as free speech on capitol hill yeah solves all these problems totally totally um but hey i mean mean we'll all buy it's just in the process i think so i want the freedom i don't want the money will be nice but fuck man yeah i don't want all this control and again all this kyc am all as we talk about this on this podcast a lot there do more fucking harm than good we found that out this week with blockfi like we have a bunch of bitcoiners whose physical addresses are on the dark net market right now yeah i mean i think one of the cool things about bitcoin is

it lets you transact with other people with them knowing as close to the exact minimum possible about you as possible right um yeah we had an example of that too and those coins moved from from uh the coinbase of that block from february 2009 everybody's like it was like oh it's a bummer we can see who this is it's like well do you know who it is like everybody's just guessing no it's insane like i'll go into like buy coffee or something and they get my name my credit card number which they can use to spend my money um and literally everything else about me you know um and bitcoin kind of lets you not do that that's that's kind of cool so uh it's it's unfortunate that through kyc inter-regulation um that's kind of been

largely compromised for for the trading use case at least yeah talking about like the u.s wanting to bring the chinese surveillance state here like it it seems more like like these draconian laws man they do more harm than good these people want to control you they hate us yeah it's it's pretty uncool um i uh i i'm not i'm not super with it and like the unfortunate part is it's completely um it applies to everyone on earth basically right like like uh the u.s government pressured more or less every single country's banks to accept um like surveillance from from american law enforcement um so there really isn't any hiding from it and and you know they're the big guys with the guns so they're they're gonna

um you know you kind of just got to do what they say but but it's unfortunate that they're saying stuff that we don't really like cream what kind of mentality is that we're supposed to be americans supposed to be land of freedom i am i am like anyone who's talked to me i love this country so much but but it's this this like world police thing is just really not what it's it's thoroughly un-american in my mind our whole country is built on the concept of leaving other people alone so i agree i agree yeah we just we policed the world so much venezuela just had to to fucking ship nine jets worth of gold to iran because they couldn't send them a a wire transfer not that i agree with the governments of venezuela or iran but it is

i don't like the regimes at all but they have trickle-down effects where it affects the individual citizens within these countries and they tend to be good people i imagine Yeah, I mean, I think like, yeah, that kind of goes without saying, like, we're, we're talking about how we don't like tyranny here. It doesn't, it doesn't make sense that we'd be pro these two countries that are some of the most oppressive regimes in the world. But, but yeah, it's like, it makes it hard to do normal stuff if you're just a normal person. And that sucks. yeah bitcoin for the common man by the common man buy some stats stack some stats today um yeah i've got i've got to get going here soon it's been a fascinating conversation what um is there anything you guys are doing at coin metrics outside the hash rate index and um you're researching to mining hardware and nonce data that you want to yeah um if you need data at all, just hit us up. We have some of the highest quality network data and

market data available, cover a ton of assets, a ton of metrics on top of those, and it's highly reliable. So, if you're an exchange miner, lending desk, whatever, we're your guys, you know? and a couple more things where can we find out more about you and tell me more about your fascination with deadpan humor and comedy totally um i am at kareem help me on twitter h-e-l-p-m-e uh not how i usually spell my last name uh and i just like dumb jokes man and i like like convincing people that the dumb jokes i like playing the line between i'm joking and i'm serious uh i don't like changing my facial expression too much it bothers everyone around

me to no end but uh get get my kicks from it so so who's your who's your favorite who's your favorite comedian my favorite comedian i can't i can't really choose um but i i it's it's not a not really a comedian in the traditional sense but i've been watching a lot of parks and recs recently uh just while i've been in quarantine and it's been it's funny it's a good show so yeah yeah it's been a quarantine show for me as well yeah um love that love that ron swanson energy honestly if you're talking about johnny america like i want to make sure you understood me when i said all the eggs and bacon i mean all the eggs i watched that episode two nights ago

one of the uh one of the most base characters on network tv to ever exist what a beast yeah well kareem it's been fascinating to get to know you a little bit that was just a dry run first interaction outside of dms i was very happy uh we made it happen thank you for uh the research you're doing at uh coin metrics what you guys are doing at coin metrics i think You guys have incredible data and incredible product and a dedication to Bitcoin that is needed and keep crushing it. Thanks, man. Thanks so much for having me on.

This is my first podcast appearance. Yeah, it's been great. Yeah, I hope it wasn't too torturous for you. No, you're chilling. We're chilling. All right. Enjoy the rest of your day, man. Take care.

Peace and love, freaks. Take care.