TFTC: A Bitcoin Podcast - #186: Alex Leishman & Andrew Benson

Episode Date: August 20, 2020

Join Marty and Matt as they sit down with Alex Leishman and Andrew Benson, co-founders of River Financial, to discuss: - Starting a company with your cousin - Expanding River to 30 states - River's foray into Hawaii - Hawaii's regulatory history with Bitcoin - Onboarding and educating high net worth individuals - Building out River's software stack - Thoughts on chain surveillance companies - Interacting with a banking system that isn't open 24/7/365 - much more Follow Alex on Twitter Follow Andrew on Twitter Check out River Financial Check out the article 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 the co-founders of Alexander Leishman. I guess his parents would be the co-founders of him. But Alex is a co-founder of River Financial along with Andrew Benson. We sat down to discuss the news today that they're going to be able to operate in Hawaii. And it wasn't just us three, Matt O'Dell joined us as well. we had a a far-ranging interesting conversation everything from uh the journey river has been on to the the uh regulatory red tape they've had to get through to the specifics of the regulatory

environment of hawaii uh bitcoin you guys will listen to it you're going to listen to it you're going to hear it when am i what am i telling you what's going to happen before you're about to listen to it it's not what you're here for i'm sorry i'm doing this to you it's just like a mental tick when i do these intros i just mentally think about what we talked about and and try to give you like a little hint what's going but you'll hear it you'll hear it anyway okay this episode of tales from the crypt is brought to you by good friends at the motherfucking cash app and as you can hear i just got a slack notification but let me tell you about the cash app before i get to this slack message all right the slack slack message can wait the cash app

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someone's blowing me up on slack the new glow-in-the-dark uh boost cards so you can use anywhere visa is accepted you connect your bank account to cash app you can even make the cash app your bank account they're giving out account number routing numbers so you can direct deposit your paychecks and use it as a bank account and they have these cool little debit cards you can personalize put a bitcoin logo uh saw a really cool one today going back to sats one bitcoin equals 100 million sats never forget that on top of this uh they have their cash app investing if you guys want to stack slivers of stonks you can do that if you're into the stonk market cash app is letting you buy as little as one dollar worth of your favorite stonk

uh cash app investing is a subsidiary at square remember sipc and as always oh look who's look who's flying in for this what's up dude what's up i haven't seen you since last week's rhr we got our friend al here uh he is an owl i don't know his name he hasn't he hasn't said it to me yet uh but when you download the app make sure you use the code stacking sats that's one word s-t-a-c-k-i-n-g-s-a-t-s you're gonna get ten dollars and ten dollars gonna go to our good friends at owls lacrosse good friend of my buddy here on the perch owls lacrosse join me join me download the cash app and enjoy this episode with andrew and alex i thoroughly enjoyed it

you've had a dynamic where money's become freer than free if you talk about a fed just gone nuts all 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 boom tales from the crypt it's marty bent here new intro uh we threw this episode together really quickly so thinking on the fly here uh sitting down we've got matt odell here yo yo we are joined by the co-founders cousin co-founders just found that out minutes ago

of uh river financial uh alex leishman has been on the podcast before and andrew benson who's a newbie welcome guys how are you doing well thanks for having us it's good to be back well it's good to have you back uh especially considering the uh the impetus for this episode which is the big news from river financial about your your foray into hawaii uh very excited to talk about that get an update on what's been going on what you guys have seen as an exchange throughout this year particularly um but first we have to hear andrew's story i didn't realize you were cousin co-founders number one andrew how the hell did you get working with your cousin to build a bitcoin exchange so alex got me into bitcoin back in 2013 and uh since then i've been following

it not professionally but my interest has always been at the intersection of you know finance and technology bitcoin's kind of the natural extension of that especially um because i'm a bit of a libertarian as well uh so it was just a natural fit and then when i moved out to the bay area about two years ago, linked up with Alex out here. And we started talking about something, you know, who I build in this space. And that's kind of how it got started. We've been both entrepreneurial in our own ways for years. And Alex brings the technical expertise and the hardcore Bitcoiner to the table. And I kind of help on the operational side and regulatory side the boring side the boring side if you will yeah what uh i'd say this company uh

you know we're like the yin and the yang you know it would it would fall apart without either of us you know andrew brings the the operational expertise in the rock solid um you know attention to detail and i bring the like the bitcoin mentality the kind of sometimes the pie in the sky visions that you know andrew has to reign in um and so it's you know it's a we're a really good combo yeah well andrew i'd like to dive into what your job entails because you guys have slowly had to piecemeal state by state uh your availability to users and so what's that process been like and i could easily segue into the process uh with hawaii which has been a a state that's very hard to to get a bitcoin focused business domiciled in absolutely so

at river i wear a lot of different hats but really the big task that i've had since we've started this company is expanding our availability um to get into all 50 states um right now we're at 30 we just announced hawaii today which is our 30th state um and we're really looking at regulatory strategy it touches on a bunch of different aspects of the business so it's quite ingrained to our banking relationships. It's ingrained into our information security and information technology programs and policies. It's ingrained to AML, privacy, a bunch of other things that you might expect, some of which you may not expect. So it's been a long time coming to get access to 30 states, and we still have a good bit left. I think we'll be at 40 by the end

of the year. And when we launched early last year, we launched with eight states. And, you know, we've been going the money transmitter licensing route. And, you know, working with regulators has actually been quite an interesting experience. And I've learned a lot from different folks in this space, as well as the regulators. It's been a very valuable experience. What are the banking relationships been like? Is something like Avanti a big deal for you guys particularly? I think what Avanti is doing is interesting. I think what Caitlin's building out in Wyoming

is great for the space. I do think the regulatory landscape is evolving quite quickly. And I'm sure you've seen the OCC announcement that OCC chartered banks can now custody cryptocurrency. And so I think that's really going to accelerate adoption.

But in some ways, I think Wyoming kind of built the framework for it and the proof of concept of that special purpose depository institution on our end specifically there's just not many banks that will work with cryptocurrency companies especially ones that are consumer facing like River Financial so there's probably four or five banks in the country it will work with us and you know we need that for ACH processing

wire processing moving money between exchanges in our our custody as well so most of that's on the US dollar side and even that has a lot of complications but we you know they the banks have even a higher standard than regulators often um so security as partnerships is is not a low left by any means no i mean it has been impressive though how how quickly you guys have expanded to 30 states i believe alex when we talked last year was below 10 yeah i think it was eight yeah so yeah i'm a long way and i think you know we'll be and most almost all states pretty soon new york is the final boss the final boss just leave new york for dead yeah i was listening to uh the recent episode of noted i forget the gentleman's

name was on justin something i believe he's a lawyer he's talking about like new york you can sort of get grandfathered into a bit license by uh with by another company that already has one It's sort of like the back road that people are taking to get it. There's a sandbox program that they're exploring. I don't think it's officially opened up yet. Last time I looked, and the details are a bit sparse right now, but they're looking into something to make it easier for companies to get access to New York by working with the company that already has a bit license, which is interesting, but it has its limitations

as well. Yeah. And it doesn't, you know, there's complications as well. one of the things we've had to spend a lot of time thinking about just in general from the beginning has been how do we align the technical strategy with the regulatory strategy? Because they have to go hand in hand. And kind of relying on another partner would have been difficult to do if we wanted to build out our own Bitcoin technology from scratch and really build it from the ground up. Let's dive into that, partnering your technical strategy with your regulatory

strategy is that in terms of custody and how quickly you can get bitcoin to customers or yeah so i mean i can speak a little to that so um you know part of our goal here is to build a vertically integrated bitcoin financial institution that's what we've done and we want to continue um to you build build what we think is is the future of bitcoin financial institutions and in order to do that we have to build it all ourselves but um like andrew said you know that required a lot of regulatory work the fast way to get to market is to rely on a third-party custodian uh you know like a bitco or prime trust or something something and just build an app on top of that um but if you rely on that and you rely on kind of the licenses of that custodian to to go to market there's a lot

that you can't do for example we can offer lightning network support right we're always we would always move as slow as these custodians move and as we know none of these custodians are bitcoin only right so they're all bogged down by this engineering debt of supporting you know thousands of different cryptocurrencies so none of them are actually like pushing the cutting edge forward on the bitcoin side of things right so you know uh if you know if taproot comes out right these custodians are probably going to be a year or two behind supporting that way longer than that yeah way longer than that right um you know even just like native multi-sig uh native segway you know multi-sig stuff um things like that you know these custodians are there's always a big lag

because their focus just is not on pushing Bitcoin forward and so you know we would not be able to build the quality of institution that we wanted to build um you know if we relied on third parties so that that was our thinking um and yeah so i mean it's really as simple as that right you kind of have to do everything yourself if you want to do it right from a technical perspective the hard way but probably the most worthwhile way at the end of the day when all is said and done absolutely and it's that concentrate off you have of you know getting to market the fastest way versus positioning yourself best for the long run um and you know just in general we take a long-term approach to things so just because we you know looked at things and said okay

based on we want to build we can only launch to eight states that really didn't discourage us we just decided you know we'll put in an effort ourselves get all the licenses that we need to get and uh just you know build slowly because you know we're working toward building the right thing which has been missing in this space yeah your your lightning demos the lightning implementation is very sleek thanks yeah we have a lot of cool stuff we're working on uh behind the scenes beta testing we got some uh cool so uh some so you know because we built out our bitcoin stuff we actually have our this wallet service on the back end um and this is uh you know kind of what we think is kind of like the best enterprise bitcoin wallet out there in the sense that

you know it talks to bitcoin core to get all the blockchain data but then after that you know we have uh this flexible code base that allows us to do all sorts of stuff with bitcoin wallets So, you know, the version one was, you know, our Bitcoin wallets are holding, you know, funds for our customers, right? But, you know, Phil, our lead Bitcoin engineer, and I were sitting around, I think we were eating ice cream one day or something. And Phil goes, you know, why does our Bitcoin wallet only need to watch the Bitcoins that we hold, right? Why can't it watch Bitcoins we don't custody? And so we realized, you know, with the flexible code base we wrote, we could build this, we could build basically watch-only wallets for our clients and allow them to register their hardware wallets, register the wallets they control and see all those coins in River when they log into River. And then on top of that, we could let them buy on River or transfer those coins to their own custody, but keep all the tax information, all the accounting stuff that they need. And then from there, there's all sorts of stuff, all sorts of stuff we could do. So we're kind of now, you know, because of all this cool info we've built, we can be this, you know, reporting layer on top of coins they trust us to custody and coins they custody themselves. And we have a lot of cool things we're thinking about launching there.

That's pretty huge because the base level assumption is when you move coins off an exchange is that you're spending them, correct? From regularity's perspective, so they know that you have a wallet connected. Well, I mean, the IRS is, you know, it's on you to report what the IRS deems as a realized event. You know, if you're transferring it to your own custody, and Andrew, you can correct me if there's anything I get wrong here, but it's not technically a taxable event. But one of the challenges is, like, you lose all the information associated with those coins when you transfer them out, right, to your own custody. If you're spending those coins, that is a taxable event, right? I think what Marty's referring to is on Coinbase, if you export your tax documents, Coinbase puts it on their tax document that they export to you as a sell. That's what it is.

Which is just confusing. It's confusing to everyone. I think the reason they do that is because when you're sending Bitcoin, the exchange doesn't know. They can't prove that, you know, this is going to buy something or if you're just going to withdraw to self-custody. And they have to report this. They have to report something on the 1099-K forms. And they can only report what they know, which is that this Bitcoin is no longer being held in that person's name at that same financial institution. So that is one of the UI challenges. A lot of people, I think, would be confused on adding something to a withdrawal flow, whether you're sending it to yourself or using it to buy. And that has tax implications down the line.

Um, I just wanted to, like you mentioned earlier, uh, you built, you built slow. You want to have a strong foundation, uh, and with the negative being that you weren't first to market necessarily, but the end result seems to be that going forward, you're going to be first to market on a lot of things. Like I, I, I'm really this, this whole lightning integration you have is way ahead of the curve of everyone except for maybe Jack Maulers and Strike, who just came out of the gate. I mean, I don't think there's another U.S. exchange that offers any kind of lightning. And the non-custodial idea would be huge to me.

Like, I think as a user, well, not a River user yet, unfortunately, because it isn't in New York, the idea that you could auto-stack and go straight to a new address every time i think would be an absolute game changer from a user perspective totally i mean and on top of that um you know we're going to be rolling out a mobile app too and you know one of the the things that kind of that kind of stinks like if you have your bitcoin and cold storage is you don't really have easy visibility to it into it you know when the price changes um and you know if you've registered your cold wallet with river right you can still see all those coins in one place you can still see the value you can still see your full stack

right you know a lot of people they always forget exactly how many bitcoin they have and they'll occasionally go back to like check and add up in a spreadsheet you know in all their different wallets and this just makes it a little easier to kind of just open your app and see like oh wow like yeah that's right that's right i have that many you know um so i think that'll also be pretty cool to people and it's really the first step of bridging the ux gap between custodial solutions and non-custodial solutions um and kind of giving people access to to non-custodial functionality at their fingertips um which you know is something that's largely missing right now yeah again yeah i mean these functionalities are proving that going going taking the long road is is working out

and so and so i mean let's get to the topic of today's episode which is your work in hawaii get into hawaii i think we should go over the history of bitcoin in hawaii uh 2016 was a pivotal year uh they made some weird regulations and you guys have been working closely with with a regulatory institution that sounds too much like defi um in the dfi to to make it so hawaiians are able to purchase bitcoin via river what's that journey been like what were the conversations like and um how how did this sand you mentioned a sandbox in new york earlier it's technically this um this situation with with hawaii is also sandbox yes it's a little bit of a different sandbox so i guess going back let's you know rewind the clock here and go back to 2016 and

talk about what happened then um because i think what is going on today is uh you know it's really relevant to kind of unpack what happened then. So back in 2016, the state legislature had changed the law, essentially stating that if you were holding assets, digital assets or Bitcoin, on behalf of a Hawaiian consumer, you have to have that fully collateralized with dollars. And if you think about that for a second, right, let's say somebody buys one Bitcoin. Yesterday, Today it was $12,000. Today it's $11,700. Tomorrow it could be $20,000. Who knows? Throughout that whole time, the custodian would have to keep $1 in reserve in Fiat for that Bitcoin. And when the price fluctuates, so does their mandate as well. And if you just think about

the economics, you know, on an exchange who charges maybe half a percent, 1%, 2%, whatever, it is very, very, very capital inefficient to hold Bitcoin for consumers. So basically everybody pulled out of the state of Hawaii. I do know that there have been some companies that have decided to say, screw it, we're going to keep operating legally, but all the main legitimate ones have largely pulled out. And so it's been kind of a black hole in the space since then. And so fast forwarding, you know, a little bit after that, the banking commissioner for Hawaii, she didn't really like this mandate that the legislator put down. So she proposed multiple changes. I think every year for the last three years, she's proposed

a new piece of legislation that would effectively change that mandate to kind of bring it in line with the other 49 states. And they've rejected it all three times. So she used her regulatory power and executive power essentially to create a regulatory sandbox where she would supervise a handful of companies that have good reputations and that intend to be fully compliant with Hawaii laws, basically issuing a no action letter so that a license would not be required in the state. therefore this specific mandate would not be applicable and so she did that

and this is this is one of those cases where I think you know a regulator has sewed up to do the right thing to kind of you know make it easier to do business in the state and you know I think she should be applied for that and so you know we applied to the program and today we go live in Hawaii which we're excited about smart regulation never thought i'd see the day um that that 2016 law doesn't make any sense one of the the purchaser of the bitcoin assumed the price risk too like the price volatility it just seems one would think but as you as you know that you know regulators and legislators have very different ways of understanding of this this space um and uh i don't know if it

was purposefully misunderstanding it or they just really didn't understand it i don't know but um it's a very impractical law that they put on the books it was it was basically a ban in fact it was a ban yeah because no one's gonna do that if the price runs up you just get completely fucked as a business no one would ever do that yeah i think the federal reserve would probably be the only institution that could potentially comply with that law Well, was Cash App complying with it? Because they've been able to sell Bitcoin, right? In Hawaii?

I think in late 2018, they switched. They might have, like, live under some other regulatory regime because of their bank charter. I don't know. Andrew, do you mind? Some institutions like banks can basically say that specific state laws are not applicable to them, but some can do that, some can't.

It's kind of tricky. Yeah. Yeah. It's so messy. So the sandbox is around for three years, correct? Two years. Two years. So it ends, I believe, at the end of 2022. So a little bit over two years. And so what is the state legislator and the regulators, what are they looking for within these two years? What do you guys have to prove to them before the end of 2022?

too yeah great question so we have quarterly reporting requirements um and basically this is just for them to keep a pulse on how the the program is going um getting an understanding of the utilization of it by hawaiian consumers uh seeing what kind of volume what kind of revenue what it really does for the state so there's gonna be a lot of financial reporting that we provide um to the state and none of it's about specific users um or anything like that would violate our user's privacy. But it's mainly just kind of keeping an eye on how many people are using this in the state of Hawaii. And I think this is going to be helpful for the DFI to go back to the legislature with some hard data and show the people of Hawaii want this kind of

capability to be able to buy Bitcoin or conduct these kind of activities. And so I think it's really just a data gathering program so that they can make a case, a strong case to the to put a permanent regulatory framework in place. Do you think the Hawaiians are going to show up? I think so. We already saw them starting to show up today already. Yes, really? But even before today, we've had people reaching out saying,

hey, I'm in Hawaii, coming to this river, you know, and we're like, you know, soon, TM. Two weeks. Finally, yeah. Well, congrats. This is huge. I mean, it's a shame that people in Hawaii have had very few, if any, options to to purchase Bitcoin up to this point.

Yeah, Coinbase pulled out in Hawaii years ago, you know, when this law went into place. I think they were there really early on before it like any regulation had really set in. And they just pulled out, you know, years ago when when Hawaii came down with this with this law. So, yeah, finally, finally, markets are opening up again. Yeah. So state number 30, we were at eight last year.

and so i'm trying to figure out how to frame this question because obviously you guys would have growth as you're as you're adding more states to the available customer base uh but what have you guys been seeing obviously attention around bitcoin has been growing this year price has been rising as well we have institutional investors talking about throwing money at it what are you guys seeing in terms of purchases user data the signups the whole the whole nine yards yes so you know we're seeing growth across the board obviously part of it's because we're expanding geographically part of it because the markets are uh really increasing activity um i mean so some of the trends that i personally find interesting and andrew can i'm sure add a lot of

color to this is um we're seeing a lot of individual you know big money come in um so people you know signing up forever wiring us you know watch chunks of money and you know just just buying a bunch of bitcoin for the first time usually and you know the whole institutional story um and meme is is interesting because you know and the way i always break this down is bitcoin is really about the individual it's always an individual story it's always a story about the individual first every pretty much every institutional purchase of bitcoin is the result of an individual in that institution buying bitcoin for themselves first so what we're going to see before we see these it's like like the micro strategy purchase of bitcoin right that

ceo had bought bitcoin before he had his company by bitcoin right and so really you need business leaders these high net worth individuals to individually be coming in and buying bitcoin for themselves and making that jump before we see any sort of like you know large corporate movement to acquire bitcoin and and that's that's what we're seeing you know we're seeing these high net worth individuals coming in kind of finally and a lot of it's because it kind of we have finally given them a place where they feel comfortable with where they can talk to somebody on the phone right they can call us up they're like i've been wanting to buy bitcoin for years but like i go to these websites and like i can't even reach anybody like i'm not gonna send them

like you know two million dollars right um well so i'm i i was gonna say that's like something i wanted to bring up is the we focus on customer service you guys send a personalized package with a handwritten letter it's a very nice touch i'm a big fan of handwritten letters and uh so what is the reception of that been and then on top of that what are like some of the most common questions you're getting from these types of uh bitcoin purchases purchasers yeah i mean i think a lot of people they have heard about bitcoin they don't really understand it and they love when they can call us up and we can patiently walk them through you know what is bitcoin how do i get bitcoin um uh and and you know we can we answer a lot of the questions

they have sometimes these conversations can be you know 20 30 minutes but we don't mind right because we're really at the end of the day we're selling people on bitcoin um and a lot of that's education and you know listening to what questions people have um it's it's interesting the different things that people think bitcoin is um i think it's kind of starting to shed its reputation as like underground dark web money and actually something that you know is becoming more and more prominent and relevant in today's economic environment. I think a lot of clients have come in they told us they're scared what's going on with the federal reserve and all the the overreach that we're seeing in terms of like low interest rates and just more and more money

reckless government spending and a lot of people think that bitcoin is the only way to opt out that in gold um and you know a lot of these folks already have decent allocations in gold and want to diversify to something that they also see has a big upside and high potential uh i just wanted to unpack this for a second because i've seen alex on twitter reply guying blue checks about your white glove 250 million dollar buy service is that is that just a meme or are you having hundred million dollar buys go through your service we we have million dollar multiple million dollar buys go through um a hundred hundred hundred million we haven't had a hundred million like we have uh we've had had some people ask the question i'm pretty sure we've gotten

we've gotten inquiries about that and larger um but uh the the the sizes we're seeing it keep increasing so i think it's only going to be a matter of time i it feels like we're making new record it yeah it personally puts a smile on my face every time i see you replying to a comment with we can accommodate a 250 million dollar purchase yeah we can accommodate more than that but you know just being conservative yeah just be conservative 250 it's really it's really unzipping your pants and put your schlong on the table there uh maybe i don't know if this puts you guys in like i probably i know it doesn't put you in an uncomfortable situation that's a lot of conversations going on right now especially as

micro strategies buying something like 21 000 bitcoin uh gbtc is a lot of buy pressure cash making a lot of uh sales as well um their growth their sales are growing and like the question of uh rehypothecation is coming up and like so like i just want to get your opinion on that like do you do you guys think there are some exchanges out there that not that you have to name any directly that that are rehypothecated is this sort of growth and interest in popularity and purchases of bitcoin match up to uh the price that we're seeing today especially considering the having from a few months ago yeah i mean i don't personally know of any exchanges i'm sure there are some that are doing it we we hold all coins in full reserve hands down um you know hands

hands down. As to other exchanges, I don't really know if they're doing anything funny with the Bitcoin. I've heard some things. I mean, obviously, they're the companies that are lending out your Bitcoin, right? And they're telling you that they're doing that. Like BlockFi. Like BlockFi, right? I mean, they're telling you that they're doing it. Or Celsius. Right. You know, are there are there exchanges doing it without telling you? I would be surprised if there were any in the U.S. that were regulated that were doing that.

You know, the regular environment, you're required to get financial audits every year. And that would be pretty difficult to cover something like that up if you're making it in the U.S. So I'd be I'd be a bit surprised if that were happening from the legitimate ones. but i'm sure it's probably happening on some of the other ones that aren't really uh you know compliant to people it'd be worth reading through all these exchanges terms of service to see if there were clauses that allow them to do that that would that'd be where i look first i i tend to agree but you know there's a lot of popularity with that block five product which is basically rehypothecation as a service and i wonder if like i what are your views on

Do you think that's going to become more common? Like do like does the coin bases of the world do all these services? Do they try and offer this product because people want that product? You know, this interest bearing savings account in quotations? I think the goldmine that BlockFi hit is that this is a great loss leader, a great marketing play and customer acquisition strategy. So, you know, why would you think of me as like, why would you buy Bitcoin on it on this exchange and you can buy Bitcoin on this other exchange and earn interests on that.

So it's hard to see in my view what the non-financial utilization of borrowing Bitcoin is. I think most people right now that I've seen who are borrowing it are using it as a way to leverage or short depending on what side you're on. And I think there's probably some use cases for that but as far as consumers go it's kind of hard to say i have to say it is it has been surprising to me how many people are willing to put their bitcoin at risk for you know interest rates that aren't really that big um but it is i mean it is clearly something people demand and you know it's something we pay close attention to you know if we ever offered anything that was lending it would be something that was completely segregated from a full reserve account um and

people would you be opting into that risk uh so you know that's how we think about it and that's how we think people should do it um if they do offer it yeah no i just had to ask that question steve barber was tweeting about it this morning calling for uh calling for an exchange insolvency at some point soon i know it's just on the top of my mind that's interesting yeah yeah and i mean this comes back to infrastructure too it's like you know how can we how can we prove we have your coins right um you know proof of reserve is a non-trivial thing to do um we have some ideas on kind of how to offer products that make it you know a simple user experience to have some assurances around where their coins are and things like that so um you

know this is these are other things we're thinking through yeah well let's talk through them what uh what are you guys working on in the back end you mentioned that you guys what can you talk about that you are working on that uh from a product offering i mean so you know one of so you know we don't have any official announcements to make around um you know other than like the harvard wallet you know the thing i mean that's like step one right you know you have your coins if you have your coins right um that's that's like the top of the stack and then it's like okay if you're trusting us with your coins what kind of assurances can we give you around you know where those are that we have them under our custody and so you know we're thinking along the lines of you know

how can we do a simple proof of reserves kind of thing for our clients who want that um that shows that shows that their coins probably on chain right and sends them some proof that we can spend them um and uh you know i'm not a big fan i gotta say of like the whole like zero knowledge proof like proof of reserves kind of schemes i think they're operationally complex and operational complexity uh significantly hampers security um i also think like zero knowledge proofs are really hard at the end of the day for anyone to like do any sort of like any normal person to verify it's it's like moon math right and so you know basically i think like the the nut to crack is elegant and simple proof of reserves um you know that that people can very intuitively

double check and so we still have a lot of work to do there but we have all the infrastructure in place we think to be able to offer something like that down the road yeah what about multi-sig our infrastructure is also ready to do that like we you know that's that's something else that we're looking at um you know the the harbor wallet product we offer uh it would work just the same way it would be a pretty low lift for us to make it work to just see the coins in a multi-sig wallet as well and then and then it just comes down to building a ui to facilitate signing the partially signed Bitcoin transactions. You know, kind of the way we think about it is,

you know, our river.com and the River mobile app will be able to replace if you just use Bitcoin. You know, the goal is you won't have to use, you know, any of your other Harvard wallet interfaces, right? You can just use River or Bitcoin Core or Harvard wallet interface running locally if you don't want to trust us, right? um but and so you know the way it would work for us is you have a multi-sig wallet you're watching

you have a single pub key wallet um you know you request a partially signed bitcoin transaction from us to spend somewhere uh we send it to you you sign it you broadcast it yourself you send this test to broadcast whatever um and then on top of that we can do a lot of cool kind of value added things right like we can we can ping you we can send you a notification hey fees are low Here's a UTXO consolidation transaction for your wallet. Sign it, and your coins get consolidated, right? I love that. Yeah.

We're trying to be pretty forward-thinking with this and thinking in a world where one-chain fees are going to become higher and higher, where we have Lightning and we have this UTXO management system on our back end, And what can we do to enable our clients to help them save money on their transaction fees? And so we have a lot of ideas, you know, frankly, just kind of stirring around. And it's a matter of kind of prioritizing and finding what people want most. Multi-sig is one of those, right?

Multi-sig is, you know, I think some people have done a really great job, you know, like Casa has done a really great job. It's one of those things, though, it's hard to know, is it ever going to be a mainstream thing or is it going to remain a niche product? I think it's a, there's just a lot of user research left to do. Yeah. Yeah, I agree with that. But as Matt's, Matt's got a six months TM. Are we down to five months now?

We're at like four and a half. To self-sovereign multisig at least. I think multisig provides a really good fit for the customer that right now is more comfortable with custody because you can do a lot of interesting things as, as an organization river can where where you provide the same handholding that they like with custody without while minimizing trust there right like there's there's there's some there's some schemes there that could be really interesting that i think haven't been explored stuff like where maybe you even control the majority of the keys but the user has you know

a minority of the keys so that they know if if a transaction if if their funds are segregated if they move at least they know you're doing you're up to something you know even though they don't have the ability to actually transfer out yeah there's also the same there's also more creative things to do with single signature wallets or single pub key wallets that i don't think anyone's really put the work into to to you know taking it um taking it all the way for example another idea around making self-custody just much much less intimidating uh without uh without having to worry about seeds as much it's just this idea of like sweep transactions um a steve steve lee's actually uh kind of inspired the idea and has done a lot of work here with some others thinking

through some of this the idea basically being let's say you register to harbor wall with river right um every time that you spend from that harbor wallet uh we would ask you to sign a sweep transaction sending uh bitcoin from your harbor wallet to river right or to an address of your choice but likely to your custodial account at river and then you can choose whether we store that or whether you store that in your email or something right and so then uh you know worst case you lose your ledger use your seed but then you can broadcast this sweep transaction and then we can um child pays for parent it right if the fee is too low we can like bump it for you right or something um and uh you'd always have this like backup sweep that could send to river you know

like there are ideas like that that are also you know things worth exploring there's a lot of work left to do but um there's a lot of possibilities here i've never thought of that that's really interesting yeah so what's it been like scaling up your team throughout all this growth what uh you guys brought on a good friend of of matt and i's rod rudy uh yeah rod's awesome we love yeah uh yeah no i mean it's been it's been really fun i mean there's you know i can speak to all the engineering stuff but i think the you know the real hard work has also been on the back end When you go to river.com, it's really the tip of the iceberg. And not just tech behind the scenes, but all the operations behind the scenes, moving all the money around.

There's so much going on that I think a lot of people don't really understand at a company. Just to make it a simple experience to log in, connect to the bank, click buy Bitcoin is an incredible amount of operational work. And so I think Andrew can talk to kind of the back end, like ops behind that. Yeah. So behind the scenes, there's an incredible amount of stuff that happens when you link your bank account and click buy Bitcoin on River.com. It seems very simple, but it's not. You know, all this stuff in the back end with the accounting is quite complex, as well as our risk management, making sure that liquidity is where it needs to be, when it needs to be there. Essentially, we're fronting liquidity for our users. So we're using our own capital and we're trading from our own position.

So managing that and optimizing and rebalancing in a very efficient manner is really, really, really important. It's complex because of Bitcoin's volatility, as well as the limitations of the U.S. banking system, which, you know, for some reason is like a 9 to 4 p.m. Monday through Friday system, whereas Bitcoin is 24-7. So how do we, thinking about how we always, you know, manage that settlement mismatch is always a challenge. And we operate 24-7. And we operate 24-7 as well. So if we let people buy Bitcoin 24-7, how do we service that demand on banks that only operate five days a week, 9-5 or 9-4, right? Do you have to err on the side of caution on the weekends and try to overcapitalize as much as possible?

We do. And so a lot of that is, you know, partnering with OTC desks, exchanges, other liquidity providers, making sure that we can, you know, have everything in place in the capacity when we need it. Because, you know, what we see in general, and I think every exchange and brokerage product sees the same, but, you know, 95% of your revenue comes from, you know, a half a percent or 1% of the days. um and and so what what you have to have is you have to kind of always be prepared for those extreme cases because that's really when the that's really when the business um has to be fine on all four cylinders so uh it's kind of over preparing um you know for those crazy conditions everything kind of hits at once right our liquidity will get constrained client services will be utilized at 100 percent um and you know just making sure that all the infrastructure

and stuff is online and functioning as expected, you know, that stuff is not, that's not trivial. Especially since Bitcoin is known to pump on the weekends. Exactly. Exactly. Yeah. I mean, you know, you're operating for, like Andrew said, you know, 95% of the time in these, you know, calm seas, glassy smooth often some days and everything's just, you know, running like a well-oiled machine. but like you have to be spending those times preparing for that day you know every three months or so we're just going to get slapped across the face with having you know your banking is going to be constrained your customer service is going to be constrained your engineering is

going to be constrained everything's just going to be like you know has to be ready to just elastically scale you know like 100x um on you know on on a moment's notice and that's really the challenge of running a business like this and you've got to be under a game on those days because that's when you really make the impression on the clients um you know people always are complaining about cash app shutting off trading or coinbase you know going going offline during those periods and it just uh you know it makes people frustrated fortunately we've never had that we've never had to go offline during one of those periods but um you know it's a lot of a lot of preparation to kind of prepare for that if i'm not mistaken you guys for you have an auto stack

feature and you provide an incentive to users because it's discounted um which i don't think i know of any other service that offers a discount to do the the auto stack do you find that that users are are liking that feature like i feel like that reduces that risk that you were talking about right absolutely um and it's a great way to kind of smooth things out a little bit what we see is we see a lot of our users signing up and buying small amounts regularly. And then when the dip happens, that's when they're lump summing

in very, very, very large amounts. But people kind of like to spread out their exposure, you know, just in general to kind of always, you know, be acquiring Bitcoin. And then when there's real price action, that's when those folks lump in the big amounts. And I think Alex actually tweeted a chart about it last week with just the number of recurring orders

we found on the platform just going parabolic right now um because i think a lot of people are preparing for the bull run yeah i remember that yeah was uh was march 12th a big test for you guys oh that was march 12th was insane yeah um we were at the office very late that night yeah i think we left like midnight yeah i am uh but that's what yeah time too right we were getting ready to head out for the day and then you know we're like oh well things are picking up the price is getting interesting here um and you know next thing we know like we're just seeing so much volume it just did not stop um until pretty late in the night but uh that was

that was an interesting night a lot of fun though yeah it was uh interesting wake up to it is a fun business to run i do have to say uh i can't imagine uh it's a fun space to be in it's uh Yeah. And that's part of talking to talking to clients. Right. You know, just like hearing their stories. Why are you buying Bitcoin, you know, for the first time? And there's just so many interesting people across the board. And so, yeah, I don't know. It's it's just it's a really good place to be. What's one of the more interesting stories you can share with us here? so i mean we see we see everything um you know from the you know very successful business person whose you know friends have been telling them about bitcoin for years and they're you know what like because you know they literally like i have phone calls with these people and they're like you know the government's printing all this money and um you know yeah this is a logical

conclusion i've come to like i need exposure to this and uh you know help me make it happen and uh you know then what's what's really cool though is that you know people are smart right you know they're thinking okay well you know what now what happens if um you know what happens if something happens to river you know what happens to my bitcoin and then i talk to them about self custody and they're like oh that's an option oh you mean like i could control it myself and and you see their brain like going there and they're like you see them kind of coming to the conclusions that we've all come to right and then the you know we can just we feel really good knowing like we're helping them start the journey right and um and and yeah and so i mean an interesting anecdote

here is actually it kind of ties back to andrew and i's backstory our great grandfather um he had his gold confiscated by the government uh under executive order 6102 which we have a poster of it in the office and um we have clients who ask us and they go i know about executive order 6102 you know, what happens if the government, you know, comes from my Bitcoin? And so we get people like that. And then we have all sorts of very interesting, other interesting people. You know, I don't know if you have any stories you want to share. Well, you know, I think what's interesting is we have a lot of clients who, you know,

they're pretty wealthy and they make their first Bitcoin purchase with us. And they will call in to place the orders over the phone sometimes, sometimes they'll do it on the web app. But they'd like to have that high touch relationship with us. we love that um and so they you know talking to them they see their journey into bitcoin i think has been really really interesting because some of these folks they don't have any bitcoin and then three months later they're all in right and i mean these are people who are incredibly wealthy like half their net worth into bitcoin um and so you know that's been really really exciting to see

uh because a lot of these folks have been successful in their careers doing a lot of things in the financial services and they they kind of see how the sausage is made and they realize the whole financial system is a house of cards and uh the bitcoin is kind of the way out um and it's reckless and they come to conclusion it's reckless not to hold bitcoin um and so we i you know i see that you know moderately regularly in some of our clients that's uh that's the conclusion i came to from finances looking at emily this doesn't seem like it's going to work out but going back to sort of the process your users go through when they have that aha moment like ah i can take custody of this like are you noticing any trends of people going

from zero to taking their utxs into their own possession so typically this is the typical breakdown we either have the clients who come in as powered users have a cold storage already set up and are switching over to river from a coinbase or something like that and um they're ready to go We have the brand new people who I would say break into two buckets. Either they have a friend helping them, and those people sometimes self-custody because they're friends helping them self-custody and explaining everything to them. And then we have the people who don't have really any friends hand-holding them. We're their kind of first touchpoint, and they are almost exclusively custodying with us but interested in self-custodying and ask us a lot of questions. And so, you know, we're not, we haven't, you know, our company, we launched, you know, pretty much went public earlier this year. So our clients are still, you know, typically less than a year of history with us. And they have a lot of learning to do. And so with these clients, what we do is we say, you know, if you want to cause self custody, you know, withdraw a little bit of Bitcoin first, play around with it, get comfortable, you know, come to us with questions. um here's like here's here's a ledger here's a trezor you know here are your different options for hardware wallets and kind of a seed exactly and so you know we want to say like make the

mistakes with a little bit of money uh and then you know ask us questions along the way and we're here for you and that's kind of like that's kind of where it is right it's and then they go at their own pace um the last thing you want to do is force someone to custody a bunch of money but they're not ready to custody um because they're going to end up in a really bad spot so we really to see our job is holding their hand and answering their questions at whatever pace they want to go. That's what Marty did with Portnoy and he lost

his seed. Then he traded Lincoln all those shit coins for one week and now he's on his deathbed with coronavirus. Yeah. I hate to see it. That's why you don't mess with

the identical twins, you mess with the cousins. they'll get you into some bad stuff you know exactly i'm kidding i'm kidding i have no ill will towards the winglevi um but uh no it is funny we were talking about the the family dynamics of running a business you either want to be identical twins or cousins you don't want to be uh brothers that that aren't identical twins yeah i mean you know i don't i don't have any experience running a business with siblings but you know i would imagine it'd be it could be there's a lot more challenges when it's an immediate family member yeah yeah um this is something i had to bring up while we have matt here because we talked about it uh during our first conversation alex with matt

what do you think of the river.com domain name is that a quality domain super quality i don't know i don't know how you guys got that 9.99 on godaddy is there is there a story behind it yeah i mean uh well it was so it was the result of you know we decided to rebrand um and you want to tell the story andrew uh you can tell you can tell it okay you got it so we were we were deciding that we needed to rebrand if you didn't know our previous domain was alto.financial so right um you know just on the merit of absolutely horrible domain name horrible domain Yeah, it's a great domain before you raise any funds, but after that, it's not a great one for a consumer product.

So kind of looking at different things there, we looked around, we talked to some experts in the space, some big domain brokers, and eventually saw that river.com was going for what we thought was a pretty good price, and decided, you know, hey, let's rebrand River Financial. There's a lot of symbolism with it as well. we kind of take a long-term approach and river is kind of something that's carved out over thousands of years, tens of thousands, millions of years. And, you know, there's just a lot of symbolism with that as well.

The previous owner had owned it since like the early nineties and, you know, was just sitting on it pretty much and was ready to, I guess, ready to cash it in. Ready to part ways with it. It's great. It's ironic because it's such a good domain name. that I do find myself going to riverfinancial.com sometimes by accident, because I just assume you can't have river.com.

Yeah, yeah. Yeah, it's, I don't know, we're pretty happy with it. Like, yeah. It worked out, it really worked out. It was a good trade. Yeah. I think we, yeah. Yeah, it's a strong brand, Miff. It's a good asset on the balance sheet.

Yeah. Yeah. It is kind of funny, I have the info at river.com email that goes to Alex and I, and we just get a lot of random, random stuff that goes to it like people's hotel reservations and like lunch orders and yeah a lot of people just like send stuff to that which is always kind of fun really that's interesting oh yeah so what are you guys excited about moving forward not only for river but for bitcoin uh alex i saw you retweet something from the bitcoin optech newsletter this week about dlcs yeah and derivative p2p derivatives there there's a lot of cool stuff that's been you know going on

behind the scenes i mean in my experience the the most exciting thing happening or that's been happening over the last few years has been the least sexy um but it's going it's it you know it's about this long-term building this long-term foundation to bring bitcoin to the world and and and what the major trend here i think that a lot of people haven't seen is the the standards uh Convergence around standards and the development around standards that will enable software and very fast acceleration of the pace of Bitcoin software development for consumers. So specifically, partially signed Bitcoin transactions, right? The PSBT spec that is a standard format for storing and communicating unsigned or partially signed Bitcoin transactions is a game changer, right? This allows us in our own infrastructure to pass around a Bitcoin transaction to different signers and I'll generate a Bitcoin transaction that anyone's wallet can sign.

And, you know, basically, you know, if you look at the Internet today, right, everything is off. Everything has these like communication protocols that they follow. It allows all the software to talk to each other. Right. Until like partially signed Bitcoin transactions, Bitcoin software couldn't talk to each other in a shared format, right? It couldn't pass around the core of Bitcoin software, which is the transaction. And so going to Matt's point about multi-sig. So now once all these hardware wallets and all these software wallets implement PSPT compatibility, every wallet can participate in a multi-sig, right? And custodial institutions.

So you could have this world where you could have your multi-sig where one signer is river, one signer is your Electrum wallet, one signer is your ledger, and, you know, maybe one signer is another institution. And it'd be relatively straightforward for, you know, all of these things to be compatible. So that's one thing that I find really cool. And then there's just like these other like little standards around like wallet descriptors, right? Like how do you describe what defines a Bitcoin wallet and the rules that wallet follows? Is it multi-sig? Is it a single pub key? You know, what kind of addresses is it generating?

Just like the standards around that to allow third-party services like ours to, you know, import your watch-only wallet and watch your coins for you. Or, you know, self-hosted, you know, software tools that allow you to, you know, have your own multi-sig with different hardware wallets. and then throw that wallet descriptor into a, you know, third-party multi-sig watch-only tool that you can host yourself, right? And all these things just talk to each other now. And we're starting to see, you know, things come from this. So I think that's really cool. It's kind of boring because it's like these little minutia, you know,

behind the scenes, but it's going to enable, I think, really great consumer products. I mean, it's necessary though, right? If this is ever going to be scalable and successful and practical at the end of the day. exactly you need standards you need protocols um and that's something that bitcoin focuses on that no one else really does yeah i mean we don't need to go there

i was gonna i was i was gonna bring up the eth 2.0 test net that failed because of their dependency on ntp time last weekend but i'll i'll forget that and that's an example of the totally different mindset right where it's like let's completely break any sort of backwards compatibility for the sake of quote-unquote progress right and completely break everything and make incompatible and kind of uh obsolete everything we've built over the past five to ten years because we had a new and quote-unquote better idea and i think like the fundamental difference in mindset between that and a bitcoin is like this like the the value of like just incremental progress and hardening it's just like exponentially greater and greater and greater over

time and you know for the first few years it feels like you're kind of treading water or you're on a treadmill not really um not really moving right but then you see like the ecosystem start to like uh just flourish because now because it hits this inflection point where everything is standard and mature enough to build like people are willing to spend their time and resources building stuff on top of it now right and um you have to put in that work uh so anyways i mean yeah you can apply that to the business you two are building as well and so do you we talked about this during our first episode alex why you guys are bitcoin only and the advantages that will afford you but do you see them bit the bitcoin only advantage is paying off in the in the short to medium term in

the next two to three years it's already paying off yeah i think a lot of people come to us because we're bitcoin only um and you know as a result of just being able to offer some of the best tech in the space in the u.s at least for for bitcoin i think is has gotten us a lot of clients um and i think that trend is going to continue over time it's rule number one of business too like when you're starting a company do one thing and do it well right um we let people buy sell and manage their bitcoin right and we do it better than everyone else because we just focus on bitcoin and if you look at the demand in the market and you look at the money flowing in you know 95 these people they just want to buy bitcoin right they're not trying to trade you know uh

dogecoin date like day trade dogecoin right you know what i mean like so why not just do the one One thing that 90-95% of people want, better than everyone else, and not compromise to support that 5% long tail that, frankly, is probably not going to be around in 10 years. And I think that's paying off for us. I also think it attracts the right type of customer as well. I mean, the types of clients that we get are very long-term focused. They're not short-term focused, they're not traders, they're not gamblers, they're in this for the long run which is kind of our mindset as well you're not going to be listing

digibyte anytime soon i don't think so um that brings brings up a topic that i wanted to discuss uh lightning uh what like what pain points have you seen there with your lightning integration yeah so i mean lightning has come a very long way in the past two years uh even even when but starting the company, um, you know, we used to see a lot of payment failures and now we see a lot fewer. Um, that said, there is still a lot left to do. I think one of the biggest pain points is around the, the, the infrastructure, the backend infrastructure, right? The lightning is a completely separate system, uh, from our own wallet right now. And, you know, not to, you know, say PSBT too much, but like with the partially signed Bitcoin transactions right now,

Now we have, like down the road, we can have a single signer that signs our Lightning channel transactions and our normal Bitcoin transactions, right? And it passes the signed transaction to L&D, right, to manage after it's signed it. So these standards will allow our infrastructure to talk to each other a little better and integrate a little easier. So, yeah, so one of the pain points has just been the completely segregated nature of the lightning node versus our rest of our Bitcoin infra. And just channel management. Loop has helped a lot here. And I think the biggest one, though, is just the UX. You know, a lot of that's on us, but part of it's just the nature of lightning.

You know, until recently, you had this whole invoice-based model where you had to, the user had to type in an amount, Generate an invoice they want it to be paid with. Copy this ugly looking string or QR code and send it to someone to pay. And it's just not that nice. I mean, it's great cuz it's instant once that's done, but it could be a lot better. And key send is really, I think, the next iteration of where Lightning is gonna go in terms of the UX.

We really wanna implement that on our end, where instead of having to generate invoices, you just have a single QR code. And embedded in that QR code is your user ID on River. And so anyone who could then pay that QR code over Lightning and the funds would be attributable to that user on River. So it would become non-interactive, basically. I think that's the next iteration.

I think the interactivity is an unfamiliar friction for most users who are the first time Lightning users. Yeah. I was going to say, I saw Stefan Levera tweet out yesterday that multi-part payments have really helped with the ability for transactions to go through pretty flawlessly. Definitely. But in liquidity, I think it's always going to be a tough constraint, right?

And there's just a lot of thinking left to do in the space around how to, as an exchange, how to reason about security, availability of funds, and how Lightning plays into that. for example um you know are we ever going to support somebody withdrawing uh you know 100 bitcoin on lightning right um like it's a very scary thing to for us to think about having a lightning channel open with that much with that much bitcoin in it right um because even though it seems secure this there are like they're the statefulness and like the state machine of a lightning transaction and a lightning channel is just so much more complex than a bitcoin transaction

and so um you know reasoning about the security of that uh there's a lot less history a lot less data a lot less you know kind of institutional knowledge around how to really lock down that much money in lightning and so you know scaling up the the maximum amount of money that can be sent over lightning i think is going to be a significant challenge uh for institutions we just have to put in the work and at its core it's a hot wallet exactly i mean that's the other challenge it's a hot wallet right so um you know and then they're the protocol itself is interactive and so you know yeah right it's like it's kind of unclear where that pain point is going to be um right now the biggest limiter has been just channel capacity and not not because of security

but just because of like the hard kind of limit on the lightning network but the next the next step once that wombo um once wombo channels i'll try the wombo bit is flipped uh it's going to be like how much money are people actually willing to put hot right yeah um that's like that's when we'll start to see the the pain points and the attack vectors probably more more aggressively right yeah and then maybe maybe the answer is um economic incentives right maybe maybe the answer is that some institutions decide um you know we haven't made any decisions here but you know maybe some institutions decide that they'll uh you know users will choose to allocate funds to put on the lightning node and will be compensated with you know routing rewards but they are also assuming

the risk of that their trust in exchange to run that lightning wallet you know with you know with proper security um but they get a reward but there's also potential risk right you know just just an idea but like maybe that's what happens i don't know it's an interesting idea it's a very interesting idea sort of spread out the risk among among the users skin in the game with the product that you're buying they get paid for it right um yeah yeah all right this has been a fun hour what uh you got another question yeah um i didn't know where to fit it in uh so apologies for the loaded question at the end of our conversation uh last time i was speaking to you both was in san francisco um pre-covid it was like january-ish i think and we were talking

about chain surveillance and we were talking about how you guys weren't subscribed to any of these services, chain analysis, uh, elliptic, any of the big names. Is that still the case today? What are your thoughts on that? Uh, it's still true. We, we, we don't have any surveillance technology in place. Um, you know, I've looked at a lot of the folks in the space. And, you know, the predominant knowledge right now is that it is a necessity. And I think in the city of New York, it probably is, but we don't operate in the city of New York yet. We don't have a bit license. So, you know, we've been able to get a lot of MPLs without it. Regulators haven't really asked us about it. I don't know if that's going to be true forever, but it's

certainly our objective to keep pushing back on that to the extent possible. You know, basically My thinking on it is this. A lot of it's pseudoscience. It's probabilistic. It has adverse effects. I think you could end up blacklisting some good transactions, especially if things are coming from another exchange or something like that. you know there might be some tainted coins there but are we really going to penalize our user uh if they didn't have any knowledge of that um yeah i don't i don't i don't think so um i've looked into this a bit but yeah i'm not i'm not really convinced about the effectiveness of it um philosophical stuff aside i just don't think practically it really does what it says it does yeah i mean hear that for us you know from a federal level like you know we have a mandate to follow OFAC rules, right?

There are Bitcoin addresses on the OFAC list. You know, we block those, right? You know, and so, you know, aside from that, you know, as Andrew said, it's, you know, I've spent a lot of time, you know, delving into the world of blockchain and analytics from the technical perspective. I've developed course assignments, you know,

in grad school for students to learn how to analyze the blockchain and cluster. And, you know, it's so easy to break, you know, these heuristics. and um so yeah you know the usefulness is very questionable and i think that down the road i mean there is a um i think there's an opportunity here for an open source project for someone in the bitcoin community to build um and that is like an open source uh analytic chain analytics tool that companies could run self-hosted right um and you know it's it's an idea i've had it's like

you know it's not a cure-all but it's a potential like like kind of like how btc pay server uh killed uh killed well you know was attempting to kill bitco right not bitco bit pay right you know how do we build you know who can build the self-hosted version that can help companies get off of these information sharing networks right um where they don't have to actually share information they can just keep it in the house um because really at the end of the day you know our biggest priority is our clients and their privacy and um you know we have a government mandate to also protect the privacy of our clients and we need to make sure that that you know not just ethically as well uh and and so yeah you know that's very important to us and on top of

that i've talked to every company who offers a product like this um like a you know a chain monitoring product. I'm not going to mention specifics about specific companies here, but I've seen a lot of companies in different approaches. The ones that I think are more egregious are the ones where you actually have to send a lot of data to them and they come back with a report. But some are purely pool only, meaning you're basically just pooling information about a specific address from them. So you're not really sending them information other than this address and i think you know ways around that would be you know sending them a lot of random addresses of which a subset are actually your users um so that way you're not really

disclosing anything to material um and i think that that is one way that that like companies can preserve privacy um and meet mandates if they have a mandate for this but uh even then again like the the underpinning issue here is that it's just not effective it's pseudoscience yeah it's overbearing too right because you guys would have to pay for that and and deal with the report yeah these things aren't cheap either yeah yeah i really uh really like that idea of a bit btc pay server for these chain analysis tools they could be open source and and leveraged a project idea for you freaks out there who are looking for something to do And at the end of the day, you don't want terrorists using your platform to launder

money, right? So there is a level of due diligence that you just need to do. Not just to be compliant with the law, but also to do the right thing. And I think an open source thing could help band together like-minded folks who do care about privacy and really just keep the bad people from using. and are you true are you a true anarcho-capitalist if you don't want uh would you i mean would you guys ever think about doing something like bulb bitcoin does with automatically coin joining deposits or anything like that or

well that's withdraws uh yeah i mean you know batching withdrawals is one thing i mean you know i think at the end of the day you know really we have to think long term and ask ourselves like what's what is that in state for bitcoin look like and i think you know in the near future we're you know we're seeing fees go up on chain um partnering with companies uh that that we trust to batch trip to batch transactions together um to save space right uh is interesting um offering you know our clients the ability to you know batch with us as well uh you know from their own wallets and things like that or outsiders i mean we have to think about these things but um and lightning also helps as well yeah so yeah i've never thought of two companies

batching together that's pretty pretty sweet i mean you know i think from our perspective the input uh clustering heuristic is already broken right with coin join so like why not just talk about like batch like space optimization right and lowering transaction fees on chain for your clients and also protecting their privacy right um uh you know you know it's really i think the discussion needs to be on to protecting user privacy and uh and and saving saving them money on a block on a transaction fees this is like the creative shit that nobody really thinks of well we are yeah i know i mean i know you are but everybody's like oh fees companies batching together it's something i never thought of that's pretty cool like i mean

So if you look at a transaction graph, you look at a clustered graph using kind of these various heuristics. Like, you know, you make assumptions about how Bitcoin transactions work and then cluster all transactions going back all the way to the beginning of the blockchain. And you see all these big clusters form, and one of them is Gox, right? And that already broke the clustering heuristic because you could use to be able to import private keys into Gox and also into Coinbase, right? so just by nature of that like the clusters from back then like gox is just a massive cluster right and it just consumes like like half the graph right and you know it just had all these coins in it um so so yeah you know it's yeah i don't know what i'm trying to say but kind of interesting yeah i like what you're saying uh you know and i mean if something like snore and tap

root eventually gets merged into core that could certainly help with this as well yeah it makes all the outputs look the same that'd be nice because so our multi-sig you know cold storage can look if we if we use if we can you know use um there's still ways to go i think before the multi-sig stuff that we need for smart will be there but um you know then our multi-sig storage can look exactly like you know a single single pub key wallet right yeah how long do you think we're going to wait for snort taproot and uh i'm going to put the the onus on you alex to put forth an activation path yeah well see i don't know i don't know timelines there but i do know that we're going to be ready as a company we've already started thinking about the engineering you need to do

to support taproot addresses snore addresses for timeline and network rollout you know i don't the Well, listen, don't ask. Like, I don't ask, right? It's one of those things where the code's there. Let's just see, like, who decides to kind of run with it. I don't know. Two years? I have no idea.

But we're thinking about the kinds of things we can do with it already. We're thinking about the code upgrades. I think – I'm hoping we're going to be able to support it day one whenever it does roll out. Maybe you guys should be the ones just championing the rollout. you know you guys want to use it so we could actually theoretically already allow like it you can already send to um these outputs right you just can't spend from them yet so you know we could just allow people to send it in there i think maybe i think there is like something where

you can allow people to send uh to it to incentivize upgrading or something i don't know maybe there's an interesting game to play there just don't don't come up with some closed door agreement about deactivation oh believe me definitely not no no uh no i will i promise i will not be making any medium posts calling the core devs you don't you don't plan on meeting in a hotel room in new york anytime soon yeah meeting if you're having a meeting in hotel rooms right like i think we've learned over the past few years you know that's what the da in florida did in, like, the Epstein case, like, it's just a bad look. Like, if you're taking a meeting in a hotel room,

like, you probably don't want to be involved. Yeah. Yeah. Agree there. You live and you learn. These agreements never really turn out well, especially in Bitcoin. What else is going on?

Are you guys excited for the election? Oh, that would be interesting. It might be a busy night for us. Who knows? We'll see. We'll see it. yeah you know i think our our client base tends to be you know like bitcoin they're they're on up it's it's the full spectrum really um and i think a lot of folks you know a lot of our clients

also tend to kind of be like uh i don't say like above it but it's kind of like i think a lot of people in bitcoin are kind of thinking on a little bit of a different plane than kind of like the day-to-day politics of things but um it will be interesting to see how how it unfolds yeah that was a troll question uh and no but and i've been thinking on this lately and thinking back to our first conversation where we got pretty philosophical especially around the founding of america the bill rights in the constitution this is something i wrote about last week after watching a lecture by judge uh andrew what the hell's his last name napolitano i can never uh i was told i pronounced it wrong last episode napolitano is what i said yeah napolitano or whatever it is

excuse me judge napolitano yes yes so he gave a lecture at the misas institute well i was actually at auburn university on behalf of the misas institute earlier this summer uh basically a first lecture in a seven course uh seven lecture course about the law as it pertains to the america and the first lecture was about natural law theory and just like listening to that getting into like uh aristotle augustine and thomas aquinas and how natural law theory flows from there really drove home the fact that bitcoin is probably like the biggest achievement in terms of preserving natural laws since the constitution i think that's probably pretty on point yeah i mean that's one of the cool things about running

a company like this is it's more than just a day-to-day you know making money thing it's really it's a lifestyle it's a lifestyle right we're part of a belief system a movement um and very few people are lucky enough to get up every day and work on something that they deeply believe in and yeah it's it's it's a blessing really yeah i may or may not have called the constitution a shit coin last rh the bill of rights that's the bill of rights i believe no it was the duck you called the declaration a shit coin um alex i know you're gonna run to a dentist appointment here soon uh do you two gentlemen have any final thoughts any parting notes any anything else that you want

to get off your chest before you wrap up here um i mean thanks so much for having us on the show i think you know that we're still in the early innings of this game um you know as a company we have a lot to build as an industry we have a lot to build um you know i think like the thing that i always try to remind myself every day is just like stay focused and ship um and you know So like the Bitcoin ethos is like, you know, conservative incremental improvements lead to, you know, civilization changing things. And I think, you know, we're just focused on staying focused and getting it right. And I hope that's what the, you know, everyone working on Bitcoin, you know, I hope that's how everyone's thinking. Andrew?

Yeah, I think the slow and steady path is the way to go. not just, you know, from the perspective of a financial institution, but also, you know, really what we're building is, it's on a multi-decade horizon, right? It's not on a month-to-month, day-to-day thing. This is all incremental progress toward a long-term vision, long-term goal. And, you know, I think that we need to celebrate the folks who are kind of in the trenches on the day-to-day, making the long-term happen. And thank you, Core Devils. Exactly.

always thank you core devs yes thank you they uh they go underscored every once in a while thank you to the core devs um no i mean if if the progress you made between the first episode we recorded which was number 125 uh to today this episode i believe will be 187 wow it'll it'll be interesting to see uh the progress you made when we next record hopefully it's in person have some whiskey we'll bring the drinks next time yes please yeah we'll do it right

Andrew it was a pleasure to meet you likewise long time coming Alex it's always a pleasure Matt you got anything to wrap up with here thank you guys cheers keep crushing it see you guys peace and love freaks

Thank you.