TFTC: A Bitcoin Podcast - #346: Diving into FediMint with the Fedi team

Episode Date: July 25, 2022

Join Marty as he sits down with the Fedi team to discuss FediMints. Follow Obi on Twitter Follow Justin on Twitter Follow Eric on Twitter Follow Fedi on Twitter Learn more about Fedi Shoutout to our sponsors: Unchained Capital Braiins HodlHodl Upstream Data CrowdHealth TFTC Merch is Available: Shop Now Join the TFTC Movement: Main YT Channel Clips YT Channel Website Twitter Instagram Follow Marty Bent: Twitter Newsletter Podcast

sup freaks it's your boy marty here to introduce this rip of tftc maybe 246 not sure on the exact number you can read it on your podcasting app it's probably there this is going to be the first uh no second episode and we have video on spotify if you're listening on spotify sat down with the individuals building out the Fetament protocol and the app Fetty on top of it, Obi Nasu, Justin Moon, Eric Siriam to go over what is a Fetament, what are the trade-offs,

what it can do for Bitcoin, what it can do for mass adoption, what it can do for lightning liquidity. Incredible episode. These guys are building something really special that I'm very proud to support and I'm very excited to see what they build out. As time moves on,

we've already built a considerable amount at the protocol level. They're building an app on top of that right now. And it will be very interesting to see what they produce in the years to come. This was brought to you by our good friends at unchained capital, right down the hall from me here in the Austin Bitcoin commons and the Bitcoin Austins and Bitcoin Austins, Bitcoin commons in Austin,

Texas. It's early. It's not early anymore. It's like almost 11 here. So I should be awake. Unchained capital is awake. awake and securing, helping you secure your Bitcoin by helping you eliminate single points of failure. As we've seen over the last many months, there is certainly single points of

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uh on top of that they're adding a bitcoin component to it they have a bitcoin community if you go to crowd health join crowdhealth.com slash tftc uh you can learn all about how they're implementing bitcoin essentially what you'll do is you'll pay your monthly fee uh and a portion of that will go to bitcoin so you can have your dollars and your bitcoin escrowed uh and segregated accounts and you can build up your your health care bank account uh in bitcoin and dollars and then if you ever have a health event and the way it works is you go, uh, you get your bill from the doctor, uh, crowd health is going to help you. Number one, negotiate that bill lower. Uh, and then number two, uh, you send that out to your community and you help crowdsource your, your

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user that's how i'm um paying for health care for my family uh and it's important to mention if you use the code tftc at checkout uh the first uh thousand members of the bitcoin community are going to get a hundred dollar or excuse me ninety nine dollars a month for the first six months that's a good discount go check it out and enjoy this rip with the gentleman building teddy You've had a dynamic where money has become freer than free. When you talk about a Fed just gone nuts, all the central banks going nuts. So it's all acting like safe haven. I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins.

In the world of fiat currencies, Bitcoin is the victor. I mean, that's part of the bull case for Bitcoin. If you're not paying attention, you probably should be. are you on mute no oh there you are you were missed last night we had austin bit devs last night you weren't here yeah it pains me it pains me but sometimes you have to go and uh actually build something we were hoping for a demo last night freaks i'm sitting down with the fetty team we've got justin moon our long lost awesome brother brother he's sitting with eric syrian who's off screen uh and obi as well we're here to talk about fetty fediments gentlemen

congratulations it's been a big week for you how are we all feeling you guys getting sleep not much yeah obi doesn't seem to sleep he just he just is always going it's amazing yeah we are slowly catching up like has been a wild week um like a lot of engagement on twitter slowly but surely we are getting back to building which is great a lot of engagement a lot of back and forth there's a lot of a lot of people saying hey what's going on here is this trade-off worthwhile why don't we just jump into the criticisms first there's been a lot of people saying hey uh what is this uh this thing's this federation's custodial

um fedements why are people excited about them why should the freaks out there be excited about Fedements and Feddy particularly? Yeah, let me take this. It's totally a valid criticism. And I think it mostly comes from hardcore Bitcoiners that know how to self-custody their Bitcoin. But something we've been discussing internally and also publicly a lot is an observation

of which I think mostly Obi made me aware of this. like most people that interact with bitcoin actually don't do this through self-custody today and um so who we are targeting with fediment is not uh the super sovereign bitcoiner that already has like five hardware wallets in a three out of five multi-stick setup with like geographically redundant backups like that's not uh who we want to like help first it's not our primary target market but who we actually want to help are the millions of people that cannot do that that um forced to use exchanges these days because they cannot figure out their backup story they cannot just like not think about um like how would they inherit or how would their hires inherit their

bitcoin for example like there's so many open questions for normal people that uh there exist technical solutions for them but it's really hard to understand for most people and i think the federated custody model makes a lot of sense in these cases and that's we're trying to help um yeah i completely agree uh a friend of mine is that runs a bitcoin exchange in africa called Bitnob is the name of the exchange. And they are very focused on getting people to self-custody there. Like I did at Coinfloor, but with the best one in the world, they're running at 80% still are custody on exchange, even though they really want to get it to much lower. And the biggest exchanges in nigeria is finance actually for users and they're therefore if they try every

day to get people to self-custody and they've managed to with education and so on get to 80 then it's probably 1995 with most other exchanges and that's the problem that um we ultimately would love everybody to self-custody but there's a process and and what we definitely all want is as quickly as possible to get them off exchanges and then once we do that we can slowly educate them up to be able to self-custody yeah i think another angle here is so we talked a little bit about you know originally uh if anyone started more as a privacy research project and then uh there were some realizations that it could be useful for custody as we've been discussed here but it also has some great properties for scalability uh you know like if you ask your

average hardcore bitcoin or how are we going to get eight billion eight billion people to own bitcoin right uh you know there aren't a lot of great answers to that currently and i think fediment's one of the best ones that i've seen you know like we have uh maybe i'll you know if i'm not talking at some point i'll run out and grab this little box of uh raspberry pi as we there's four of them simulating kind of the first federation and this thing can do as many transactions as bitcoin itself uh just a couple little uh devices you know a couple hundred hours worth of devices uh is as adds a whole new bitcoins worth of scalability uh not not not only in terms of like on-chain utxo scalability but also scaling lightning too you know so you can

You can have Lightning channels where you spread the effort to maintain it, as well as the capital that locked up the time value of the money that's sitting in the channels. You spread this out over like 1,000, 10,000 users. So it's great for scaling both Lightning and Bitcoin. And that's another, I think, thing that, you know, if you remember John Cantrell's tweets about how to get eight billion people on on lightning uh you know this is you know it needed the math like you know it'd take two years to do all the channel opens for example you know uh like this this this is uh it takes lightning where it is and what its strengths are kind of a hub and

spoke thing and and turns that into a positive rather than well i think this is a great part to jump into how um the fediment protocol actually works and what you guys will be building at feddy how are users able to engage in this custody model? How is it providing privacy? And how is it providing scalability? How do these mints work in the first place? So does Eric, you want to start on Fediment and maybe Justin on Fedi?

Yeah, that's a good plan. Because Fediment is the underlying protocol that will be powering Fedi. And as such, Fediment consists out of like three main parts. First is the Bitcoin custody where we hold the on-chain Bitcoin that people deposit into a federation.

Second is the e-cash part where we issue these IOU tokens, these blindly assigned IOU tokens, the e-cash tokens to users. And that way they can prove to the federation that they actually paid in some money. What is a federation? Just assume they know nothing.

Yeah, right. That's a good point. Like a federation is just a bunch of people running the FedEmin software. And they're communicating over the internet with each other. You can imagine it like, for example, in Liquid, like Blockstream's Liquid protocol, there are also a bunch of companies that run the server software

and they all talk to each other and manage the Bitcoin Liquid network. And so you would just start your own little federation that manages the Bitcoin Pure federation. Yeah, so I think there's a multi-stake. that is like has some ability to be scripted so all the participants in the multi-sig uh like contract uh will send messages around each other and agree on you know should we accept a deposit should we uh issue a withdrawal should we you know incentivize a lightning operator to do something you know it's it's it's it's it's like a replicated state machine every participant in this multi-sig

their software goes back and agrees on kind of how to transform the system yeah and the good thing about this model is that like even if one or two of these machines fail depending on how many there are in total the system can just continue to operate and like that's a big benefit of federations where you would actually go to all this trouble of having multiple computers run by multiple people it's uh about resilience um for example in our case like with our specific setup if like one third if less than one third of the members fail the system keeps running if less than two thirds of the members are malicious nobody can steal any money and like that's the great thing like even if like one third to two thirds was malicious they couldn't even steal

money um that's a big concern typically with these uh like custodial systems why why is that like what why is the threshold that high um like fundamentally you can think of it as like for example two of three multisig and you can imagine then like if one of the nodes fails then you can still sign if two fail let's say three out of four because that's what we actually do like if one fails you can still sign if two fail you cannot sign anymore but nobody can take the money if three are malicious then they can just take the money like that would be a concrete setup like the minimum size of a federation is four people and that works quite well awesome and so as a bitcoiner somebody who has if you can do with the like like so could you describe some of the

interesting things that you can do with this setup like what is what is the like the e-cash part So I kind of interrupted you asking what a federation is. Yeah, right, right. Yeah, so I was describing the second part, which is the eCash and what that means. Like the eCash system is essentially a system to issue private IOU tokens. Like these tokens cannot be traced back to the user to whom they were issued, but they prove to the federation that the user has paid in some money at some previous point. And so if you go to the federation again with your token and tell the federation,

hey, I want my Bitcoin back, then it should give you the Bitcoin. And then note down that this token was spent and you cannot spend it again. But the federation doesn't have to know which user is actually requesting the withdrawal, which is good for privacy. The great thing about the FedEmin protocol is it provides decent default privacy. It has good scalability. and like as we discussed earlier the trust model also works well with um like building custody on top so but these were only like two aspects of the federman protocol the third i think is most

important actually and that's that we can integrate with lightning as our payment rails yeah so think of if like let's say i'm in one mint martin marty you're in another mint and we want to do a transaction right if we both have ious issued from different third parties who don't know each other we're kind of stuck we can't do anything yeah right uh so you think of these little hubs right and they don't have they wouldn't at this point they don't have a way to talk to each other and that's what light that's where kind of lightning comes in yeah so that was a great realization like as soon as you can both receive and pay lightning invoices of money via lightning using a federation then actually all these federations become interconnected and even more

So you become interconnected with the wider Lightning economy, which is steadily growing. So what we end up with, with the system is that you essentially have a semi-custodial or like a custodial, but trust-minimized Lightning wallet or Lightning protocol. So where actually the app comes in, because currently I was always talking about the protocol, but there's a big, big step missing. We need to bring this to users. Otherwise, all our work would be for nothing. Because what we want to achieve is that this is the default way or like a good alternative to custodial solutions. And that people will use it like my grandmother could use it. That would be ideal. And that's, I think, where I should hand off to Justin. well i was going to say this i think this is a great time to dive into like the details of how one transfers from one uh federation to another over lightning you're actually so you're taking e-cash tokens from the one federation turning it into sats sending it over lightning and then sats are getting turned into that e-cash token correct and how does yeah the nice thing

about it is that by default these e-cash tokens represent sets already so there's no exchange or anything involved so but the thing we do actually is like uh we have like wrapped bitcoin in a sense like uh these bitcoin are in uh like the federation the federation has custody of them but they allows allows the users if they can present the e-cash token to decide what should happened to this bitcoin and one of the things that you could do with the bitcoin is pay lightning invoice and then on the other side you get like these uh custodial bitcoins as e-cash tokens again yeah so in terms of how it works on the lightning side uh you know one thing that's interesting about lightning now is you have all these people who've been tinkering on it for like four years

uh and they're you know some of them are very good at operating a lightning node uh they've done it for years they can keep it online they can manage liquidity uh and like a lot of these people are just doing it for themselves right like i've been watching some of eric's experiments with his node and you know he has so much expertise relative to how much actual payments he's probably using it for right like many of the lightning tinkerers right so an interesting thing about fediment is that any lightning node operator could go to a federation and if they trust that the federation's ious are honest that they'll be redeemed if they're willing to hold a balance of these ious then they could uh go and serve as a lsp basically we've called them

gateways same thing uh and uh basically what what this is is they they uh they basically transform the types of bitcoin right the iou token to lightning bitcoin right uh uh outgoing and incoming so the way it works is is is kind of like a little escrow contract that is mediated by the federation so for example if you want to uh if you want to pay if you're let's say i'm a user with an app right and uh i got the fetty app and marty is uh he's selling a thought on the internet i don't know if he still does that i know he used to sell on the internet uh so marty is trying to sell a thought absolute scammer but he's selling a thought and uh so he's got a lightning invoice and so i see the lightning voice and i want to pay it right and so what i do is i take a little

bit of my e-cash tokens and i deposit them into an escrow inside the federation uh and the inside this escrow contract it has a payment match and the the federation's job is anytime they're just going to sit on this until somebody can present a pre-image that matches this payment match and if they do they will get my escrowed e-cash tokens right and so uh so it's a simple escrow and so what i do next after i set up this escrow inside the federation is i go to the gateway and i say hey gateway uh i just set up this contract uh here is currently we have to give them the whole invoice we've been having some interesting conversations about how we can do this in a more privacy preserving way but say hey gateway uh here's an invoice if you go pay this send that

and then present the pre-image paying on lightning just means you go and get a pre-image if you can go present the pre-image to the federation you get justin's uh custody or you get justin's so that's how it works uh tldr it's like the federation uh uh uh sort of is the judge of an escrow and uh any uh any lightning node on the internet as long as they trust the federation can come in and serve this role so we see kind of like an active market of uh like a very open system for or a very open ecosystem of uh nodes being able to serve these federations based on you know how how how well they are how good they are at running a landing so actually this escrow contract in the federation it's nothing else than the htlc yeah like it's just in a

different execution environment and the main thing that the lsp does or the lightning gateway is bridges to trust like it goes from the trustless lightning network to the somewhat trusted federation model and in both directions yeah it's like an extra hop in the lightning on a Lightning route, except for now this is outside of the Bolt context, right? It's just kind of an extension where the last hop, it goes and leaves the traditional thing, but it's still doing the same thing just buying and selling pre-emerge. So in terms of the Lightning network, Lightning wallets,

LSPs, is there anything on the Lightning wallet infrastructure side that will need to be implemented to be compatible with this? Uh, well, yeah, there's lots of, uh, yeah, there's, so like, uh, I mean, this is one of the recent little, uh, things we've just added recently is, is a plugin core lightning that allows you to, uh, uh, receive Bitcoin on behalf of a federation user. Right. And so this is like a little piece of infrastructure that we need. We don't have a way to do this with LendEA, but we'll have to do something like that.

we'll have to uh you know uh a lot of like little command line tools like this probably some like kind of rebalancing tools between the e-cash tokens and lightning channels stuff like that but on a fundamental sense these are like almost like tooling on a fundamental sense it's not really like no changes to lightning i think that's the important part like we don't need any changes to lightning protocol as it exists today yeah that's the like if you want to take away something from why Fetiment is interesting is like a lot of the stuff you listen to, if you listen to podcasts or technical podcasts and you hear about new proposals, hear about new fancy things on Twitter, a lot of the times that you can't actually do that yet, right? A lot of these

things require changes to Bitcoin. And if you get it, you'd understand that one of the most important things about Bitcoin is it's very hard to change, right? That's one of the reasons why your money is relatively safe. And so that's a good thing about Fetiment is that it works of bitcoin as it is if there's never another software we can continue to execute our whole grand vision awesome yeah there's a phrase we say about maximum simplicity and um justin's being quite modest but just on the sea lightning for example um if you wanted to um be able to become a lightning gateway that would involve at the moment and correct me if that's changed but it's you've got it um just to go to the point where it's one file you put in one directory and you

should come on to to load that or you restart the lightning node and that's it you're done that's that's the upgrade for example and that's what we want to have for every aspect of the system yeah but um yeah one one thing is uh yeah like i think that uh yeah like i think it should be something where within 10 minutes if somebody would like to and they know how to run a lightning node they will they can be serving a federation right within five or ten minutes uh they could they could be fully up to speed uh like eventually it's not there yet but it should be really really quick because the important part here is um when we are talking about these federations uh we're assuming that they will be run by local communities, for example.

And why would, for example, a big LSP that's doing their LSP business commercially trust such a local community and hold their e-cash tokens and be their LSP? That doesn't really work. The federation would have to KBSC with them so they feel comfortable. That's not good. But what we want instead is to enable local community members that are running Lightning Nodes anyway, or maybe just friends of theirs that run Lightning Nodes, to become an LSP in a really simple fashion, just very simply to connect to the federation.

And then from there on, the LSP tool will do everything automatically in the background. Like you manage your channel balances and stuff like that. But that's like normal Lightning business there are tools to automate that and we're not getting into that but on the federation side it should be as simple as possible and so justin you messin mentioned the the grand vision of fedi uh let's talk about that so you guys just mentioned there you'd like these federations to spin up in local communities what does this look like in the global south um or do you envision Federation members being in the same city? Do you think it's wise for Federation members to be more geographically

distributed? What does it look like when these federations begin spinning up in your mind? Well, this is something that Obi's looked into more in terms of like the deployment. So I'll let him speak on that next, but I just want to say, I think it'll be local. And I think that's really, it's like, you know, like, especially, you know, there's, there's a, you know, there's we live in a world now where there's like a few monstrous institutions that like control everything and there's like the middle sort of hollowed out and so that's what i would like to

see it is kind of like more the local middle uh regional right like less less centralized uh in in general and so yeah like in terms of how how the deployments will work in some of our target markets uh i'd uh defer to ob on that one because he's he's just done a lot more speaking to our target users so um so thank you for that i i think in in summary if i i've spoken to dozens of different people um and if i speak to x people i get x different potential topologies which is really good because that just tells you you've got this very very flexible base level tool So that's the first thing that increasingly gets me more and more excited. But some examples are local, you could say.

It could be really small groups. I was talking to someone the other day where people who hold a Bitcoin and they are effectively looking to make a FedEmin federation, where they may not, but they believe at least at the beginning, not of anyone other than the federation guardians themselves being a member at that level so it can be six people effectively having each other's back that's one extreme then you've got and what will probably naturally happen there is their friends and family will will effectively start treating some of them as like uncle jims i think that's the phrase and so it starts to extend out

from that point um so that's one topology which is local you can see it and looking at what's happened with galoy etc and bitcoin beach you can have topologies around villages or towns and so on where still i would consider that local where people visually are recognized most if not all the other people there um you can also have situations where a community can have elements of the community who are international so for example if you've got a village in nigeria um my my family's village in nigeria for example we have many relatives who live in europe and us uk etc european union so because europe uk is in europe um they don't always remember that but they send a lot of money back home um and they tend to be educated doctors

academics etc back home to their families and villages in say Nigeria an example of a federation that has been discussed there is that

the sort of educated affluent givers from the diaspora could be running the federations guardians but their families back home who they are already giving money to and they might represent a large part of the income

for their family back home are using them as a decentralized set of guardians because it sort of aligns with the trust model. Why would I just give you money, a large amount of paycheck to just steal it back from you? It makes very little sense. And then at the extreme, you've got two larger type scenarios

where organizations can set up, for example, Bitnob is looking, when we're ready, to go. And there's another exchange in Middle East who has a similar idea. They want to get their customers to self-custody. They have problems with the cost of self-custody properly when you're using hardware wallets and so on. Sometimes they have issues with the logistics of it as well.

They see this as a potentially lower cost but still off-exchange way of offering custody to their users. So if people want to go off the exchange, they just download an app and potentially scan the QR code and have privacy, but still have a exchange-like experience, but not be on an exchange. But the exchange would have one of the guardians, but they will work with other large organisations

recognised in the community, for example. In still discussions, of course, but some ideas have been other human rights or humanitarian organisations, large religious organisations, like large respected churches might have one, and so on and so forth, to form a federation that way,

which whatever makes sense for the local country and that could have in the case of a bit knob tens if not hundred plus thousand people on that one for example so we have everything from right down to five people have been discussed and so you you meant the goal of fediment and Fetty on top of Fetterman is to get people away from custodying Bitcoin on exchanges. Sounds like what you guys are describing. This could be an onboarding mechanism for people directly into the mint and then potentially on the Bitcoin without ever touching a centralized exchange.

That's a, that's a, that's, that would be my absolute dream. And so there was a, you see it on the Bitcoin jobs, Justin and Eric described it

and I really like that phrasing we're trying to build circular economies and the base of the circular economy is the custody so we will be thinking a lot about not just getting people to custody but then to start how do they then

make sure it's a circular economy and they continue to use and operate and use this part of this their daily driver for their lives but more on that down the line I think because you can envision a world where you create these circular economies

I really like the model where you have the affluent doctors that are sending money back home and they start the federation they load it up with bitcoin tell their family members in Nigeria download the Fetty app I'll send you these tokens and then they can go to their local community like hey we're using Fetty

go to a merchant and say hey download this app and this is how I'll pay you Yeah. Or they send it in and they think, well, okay, if I send it via MoneyGram or other payment systems like that, they can be paying hefty fees, really hefty fees. and then they have to wait and then someone has to visit potentially a store to wait in line to receive the money and they have to pay to get to the store you know um it might be open it might be closed and they are walking away with these these large wadges of cash in plastic bags and everybody knows you're walking around with large wadges of cash as you walk out of one of those stores so then you have a personal threat of risk as opposed to at your home you use your mobile

because mobile penetration is very high by 2025 you know we're looking at over 50 percent of phones there will be smartphones in the world 75 penetration just imagine we can just pick up your phone talk to your um your loved one abroad and they just send the money straight to your phone like that yeah it's with no cost to a money gram or western union or so on and so for that individual receiving money from their family members sending it from abroad uh let's talk about uh the security model of of downloading fetty getting these e-cash tokens like what does the backup look like uh how do you recover if you lose your phone what is the uh the fail safe model here yes i'll start and then uh and then i'll on some of the recovery stuff i'll

defer to eric so the first thing is you know you you at least in the you know our early design so far uh you know the first thing you need to do is join a federation and there's like two ways most people do that like one they might get a link uh that like encodes it as a url parameter so uh you download the you know this is usually used for ads and stuff uh to to track where the download came from but we could just say like hey you know like join this federation and then as soon as it showed up uh the app loaded up they just see they'd see some piece of information that they they'd you know check they'd cross check with whoever uh invited them to the federation something like that or they would just say scan a qr code uh enter maybe a link paste in a link

that would just go and register with the federation download the configs uh required to interact with federation you know like where are the server where are the servers what are the public keys for the multi-sig for deposits what are the public keys for all the easy cash tokens uh stuff like that uh and so and then once once you're at that point it's you know there's like one button receive receive bitcoin you know once you have some bitcoin two buttons send and receive so the idea is to just be like just really simple uh you know anyone who can use an app should be able to use this app uh and there's just the first uh first step of uh figuring out which uh which federation you're gonna you're gonna be working with uh that's the only complication and then uh

in terms of the the recovery side i'd ask eric to give a little yeah so that was actually um realization that both Obi and I came to when we were talking to each other, like with this community custody model where you essentially know the guardians that are running the federation, you get a great tool of doing Shamir secret shared backups, basically. Like you can think of it when you sign up for the federation, then what you could do is if it's like a local community federation, then these people will know you by some name. example and the app would just ask you please enter your name and it will then like generate a seed phrase from which all your money can be like recovered and encrypt that seed phrase and

shamir secret shared to all the guardians and what is your secret sharing for those who don't know that's a good question um like it's a way of splitting up a secret into n parts and as long as you can get T of these parts. For example, if you have a four out of three federation, then you would set N to four and T to three. And then as long as you get these T parts of these shares, then you can recover the secret from that. So it's a lot like multi-secrets, it's just not related to Bitcoin. It's just of the secret itself. So it's not enforced by the blockchain, it's enforced by some cryptography off-chain. yeah and so the trick there is you generate the secret chairs you then put like a label on them

pretty much like this secret chair belongs to a person xyz like this secret chair belongs to eric and everyone who know everyone in my local community knows who i am and i just give the secret chairs to all the guardians and then in the case that for example i lose my phone i can physically go to my guardians and tell them, hey, you know me, I'm Eric, and I'm currently trying to recover my funds. Could you please give me back my share? And that would be kind of involved. You have to actually go to your guardians, but the sign-up process would be that simple. You just have to give some identifier by which your local community knows you.

It might be just El Sirian in my case. That's a superpower, I think, of these federations because your trust model like you're trusting them with your money anyway so why not actually trust them with your backup too and they will probably be around for quite some time because they have to take care of your money like if they're just gone then your money is gone too so you probably have chosen people that are reliable for that yeah and so it's just a great and that's super interesting one first of all just on top of going up to them in person you could contact them over zoom or something like that or or a whatsapp chat and have a video

call but if in that example eric went up and somehow i managed to i tried to recover and say hey guys i'm i'm eric and you're you're a member of the or i'm justin and and you're one of the guardians you know you're gonna know i'm not justin yeah i'm hoping you're gonna know i'm not justin you didn't need my um passport and selfie to know that you just you just know you you've got something better than kyc you've got kyf know your friend know your family you just know it in a human level from interacting with that person and so we're just taking and we're leveraging that which is much higher levels of uh of um of knowledge of someone without the onerous and that was voluntary given over a life of time spent with each other if i understand it

correctly too this recovery process it doesn't give the guardians visibility into your current balance at that time too it just gives you access to spend again correct correct yeah exactly um like the only real risk there is that if the guardians would um like would come together and conspire against you but then they could without your knowing uh so without your instruction like decrypt the secret and uh then they would be able to see your balance and past transactions but actually like obi and i talked about this extensively so we also got a solution for that um but as long as we assume the federation to be honest and we should do that because they own like they hold the money for us like if they are not honest then we chose the wrong people

uh then the recovery process works without telling them or without leaking anything um about your holdings about your past transaction history to them yeah so they would have to they would have to uh collaborate in a way that they could steal your money but then they choose not to right they're just going to de-anonymize you they're not going to choose your money they're not going to steal your money it's it's a little yeah it's somewhat i mean it could happen but it's uh you know but just to just to in the middle of that just to the recovery process will be your contact say you've got a a free of a four person uh federation and you need three or four that's the threshold you would contact free by a by a zoom whatsapp or in person they would they would

recognize you because they know you and so they would basically say okay and send you back their shard their share of the of the of that you sent to them and you on your own um within your fedi app for example would reconstitute your key locally yeah i think something important to add here is that uh when i say like they give you back your share that should be highly automated in the app yeah like you would um like in the like when you lost your phone you would get a new app like open it and tell it to please recover my previous wallet and then it would let you enter your name again and at that point like it submits your new public key like some new information to the federation and then you would either reach out to them via

zoom for example or like they might even call you because they notice hey eric is trying to recover his funds uh i should call him is it actually him like ask him and uh then they could in their app just click okay or decline like depending if it was imposter then uh we probably don't want to go through with this yeah that should be the ux like maximum simplicity all the way through exactly what's so cool about this is that you know having run exchange we have we had a program for very high net worths and most exchanges have that and then there are dedicated custodians who have this you know the unchanged the casas anchorages and so on um fireblocks and then you have coinbase custody we have a similar and for those high-end customers you you'd charge

a pretty penny for it but fundamentally they'll say if they lost their keys you'd you'd you'd have a dedicated agent who they would get on a Zoom call with, and that person would look at some details for them to figure out if it is the person expected. And then they would potentially pass it to a second person who would go for a similar set of details, and then they would allow them to get back their balance. We've effectively replicated that, but for anyone, anywhere, for free using people who know you even better than any agent for any third party agent so you get this sort of institutional grade like experience for recovering your key white glove experience but for free yeah i mean maybe not for free maybe you invite your guardians for uh for dinner once

it's friends and family yeah thanks you're right that's i mean it's incredibly novel and when you consider like the privacy and scalability benefits it's mind-blowing how this can get bitcoin into the hands of the masses and up to this point we've been discussing a very rudimentary use case which is simply sending and receiving these tokens but there's much more you can do with fediment and that you can build on fetty i know justin you uh did a hackathon project at bitcoin plus plus where you injected simplicity into fediment i i guess we can begin to go there like what else can you do beyond sending and receiving these tokens yeah i mean this this

could be like uh it's like a federated uh program or contract execution environment you can put anything that you can express really in a computer program you could have these uh federation uh servers run and then agree on whether they got the same thing of course there's some you probably don't want to run fibonacci you know like you don't want to research programs you don't want probably run but i think this is going to be kind of a fruitful area of uh of exploration because fediment is very modular uh like currently there's a consensus system for how these servers talk to each other uh but everything else is uh in terms of like what messages they actually send back and forth what state they agree on what uh contracts they enforce all that's in

uh implemented in modules so we have a module for an on-chain wallet we have a module for the chami and mint and we have a module for lightning to incentivize these light node operators to uh sir uh you know fulfill fulfill uh payments on behalf of the users and so you can put whatever you want in there and so yeah my uh idea was simplicity so simplicity is a it's it's intended it's a it's a very long running project from block stream it's about Eight or nine years old, created by a really brilliant guy named Russell Connor. And it's intended to be a replacement for Bitcoin script. That is how it's the scripting language for Bitcoin 4.

So if you've ever heard of an HTLC, hash time lock contract, that's implemented in Bitcoin script. And that's about all that Bitcoin script can do. It can hash, it can time lock, and it can do signatures. And so the idea of Ethereum was like, let's basically run JavaScript inside of the blockchain. Right. And that was a stupid idea because you can't tell when JavaScript is going to terminate. You know, it could run forever. So they have a gas. Right. So now that now it gets really complicated. You have to pay for every execution in your thing and it's stupid. So simplicity was an idea that you can tell ahead of time how long a program is going to run for.

And because they, you know, they model it out really well. But it can express a lot of like the covenants that we have been discussing, like CTV and a lot of these ideas. I think recursive covenants, a lot of these could be implemented in simplicity. One problem with simplicity is it may never get deployed in Bitcoin, right? Because it's very invasive change. If I had to bet, there's maybe like a 1% chance it ever gets in. I would love to see it in, but I think it's slow. But we can still use it in stuff like Liquid or Fetiman.

And yeah, so that's a really cool thing. I mean, there's, you can, you know, I think there's all kinds of stuff we can do here that you know like uh that it would make more sense to do it here than on some kind of some of these other like smart contract platforms yeah yeah so go on eric go ahead i was only going to say one sentence you think about bitcoin as this layer one and then lightning as this layer two and what's interesting with 30 minutes effectively you make potentially hundreds of thousands of bespoke to your requirement on a community level layer freeze and you can pick and choose you don't have to everybody have every feature yeah and i think the like really a

powerful realization of the federation concept is that a you not always need like the full trustlessness that bitcoin provides like sometimes this trade-off is just profile and we can like scale much better like for example when you think about a smart contract execution on ethereum like everyone needs to evaluate these contracts that's in most cases not really useful like for example if you had a local community that wants to do their um like land registry on the federation why would they ever do this on like a really public blockchain there's no sense in it like the enforcement of the land registry of land ownership would be local anyway so why not run it locally where it belongs and as long as you have some smart contracting capability that you

can interact with all these other systems like bitcoin like lightning uh then you're golden like you can suddenly sell and buy land for lightning or bitcoin stand for lightning and that would be awesome i think many other opportunities for federations in general like something i will be looking into at some point is building generalized sidechains like we got this one big liquid sidechain by blockstream who is they are also funding my work right away like a big shout out to blockstream uh but i think they were a impediment but eventually i will um build a module that allows you to spin up your own sidechain which would be awesome like just imagine people are discussing about

OpCTV and like writing long threads on email lists. What if we could just spin up a sidechain that has CTV and where like a bunch of interested people like Jeremy Rubin and some others just act

as guardians and they let people try out the technology. Nothing easier than that. We have gotten some changes into Bitcoin one or two years ago with that you can actually spin up your own like side chain kind of and that would be super interesting to see being built on federman yeah and it's much more organic if if they do that and people start finding value then they say you know what we have our own community federation

we'll just take that module and add it to ours and then if it's valuable people will start to adopt it but you don't have to get everyone in the world to adopt it because you before anybody gets utility from it yeah i think one of the interesting things here is if uh like i what i hope to see in the world over like the next 10 years is that like you have some really high quality software that uh can be used by lots of people in some sort of like a federated context like this so that like you know the start stuff we're using in austin or uh some of these nice some of these expensive first world cities right they'd be using the same thing in like calcutta for something for example right in in uh in developing countries uh and so like if you could

if if if some of these like better modules that the client software uh develops like a network effect such that like you know if you want some land registry for example right there's just like a extremely uh well-tested battle-tested implementation as well as client client software that's beautiful and usable uh and just any community in the world could spin that up like That's kind of like a vision of the future that would get me pretty excited. It's kind of like, you know, it's still wild when you think about it that, like, the phone and laptop that a college student has is the same one that Mark Zuckerberg has, right? Like, what if we could bring some of that in terms of a phenomenon like that in terms of, like, how people get to use Bitcoin, how people do banking? Like, how different is that?

the banking stuff that rich people have is not available to anyone else, right? Just two different ballgames. So you can have like a FedEmit app store come to market and people just pick and plug as they see, right? That would be a good, interesting idea. Yeah, that's the vision. I mean, you know, but this is, so one of the things that appealed to me about this project

is that it's both something that we can deploy in the next six months, you know uh like it's actually real unlike a lot of these research proposals uh but also it would take like better part of a decade to fully realize the vision you know uh and so that's always like uh something that's hard to find right like something that's both realistic but also would take a long time a lot of dedicated effort those are the types of things i think we should really like that's what lightning was right they could deploy it but it's also still you know only partially realized right like it's going to take another decade for lightning to fully form and so So maybe Fetterman could be another one of these sorts of things that we can really work on for a long period of time.

Yeah. Although I think because of the work and maturity of Bitcoin and Lightning, we can get to utility when we're saying six months time, we get utility for real people on the ground very soon after that. And then it just gets better and better and better over those 10 years. Yeah, I mean, Obi, that's one thing you and I have talked about after your trip to Oslo is the scalability and the quickness to market that Feddy could provide. Let's talk about how you see adoption playing out and how quickly it could scale up. well how quickly it could sail up I always defer to on the protocol Fediment and on the app

Feddy because you know I was an engineer for many years so I learned that we should defer so the timelines I've given have always come from from these guys which is amazing because

you know I think they're quite aggressive timelines so on that front but in terms of the the adoption opportunities as this product can be used by anyone but the the focus we have is some of the markets where it's needed the most for one of the better phrases the global south but with particular focus on parts of the world They tend to be under authoritarian rule or under the yoke of oppressive regimes. And they tend to have high levels of inflation. So they want something that protects them from that.

They tend to have currency controls. So it's very hard to access money that has lower levels of inflation. And because of the regimes they tend to be based under, they have low confidence in the local government in um the financial institutions that they have to rely upon and as a result they tend to have high levels of trust in in community because they're forced to because they have to rely on each other so this is you can you can imagine if you see how fairly it works it's fertile ground for something like that and so um we we are looking to roll out to those markets now we've talked to a number of people who

literally have dedicated their lives to on a local basis support help give money to educate and protect people from those communities these are ngos charities um not-for-profits activist groups human rights defender groups and so on and some of these are very large groups with footprints of that cover hundreds of thousands in some cases millions of people um also separately we're talking to institutions that for example as i say exchanges that are based in some of these local jurisdictions and they want to philosophically help those people improve them they're there for the mission as well as to make money um and you know again that you're doing something really impactful when the response is almost an immediate like in the case

of bernard i say again it's just like yeah i completely get it let's do this i was going to make my own app why would i do that when this is effectively what i wanted to do but 10 times better. Um, we have, uh, people in all over the world, but there is a lot of interest and we'll have to, uh, we're setting up different projects for different regions because, um, they know the market, they know how to locate the right people, educate them and roll it out on mass. Um, we have the product, so we'll be listening to them. It's likely we want to do it and they also want to do it in a trial first make sure it works with a small group but they have the ability once we know it's working and we've covered some of the questions that make it work for that particular

market they know how to take it from 500 people to 50 000 people because that's what they do day in day out yeah it's it's uh it's very exciting when you consider the potential here but i think this is a good opportunity just to steel man everything like how could feddy mint or feddy fail in your eyes like what are what are the the roadblocks the potential hurdles so you guys are going to have to overcome um as you're building out this open source protocol and the product on top of it i think one of the big ones is uh i mean that's this is one of the i mean there's a lot of ways it could fail uh and that's why it's an interesting project to work on you know that's There's a lot. So if you're a developer who's talented, take a look. It's pretty fascinating

stuff. One of the biggest ones is we just need the daemon, the server software to be extremely reliable. If anybody's run Bitcoin Core for a couple of years, you'll come back to the server and it's still running. It's been every 10 minutes. It's doing its job. It's incredibly reliable. We need to achieve something like that. It's just got to never, ever crash. right and it's if somebody if the dog pulls the cord out uh and then you plug it back in it's got to start right back up again right the database can't be corrupted uh you know uh it's just gotta it's it's just gotta work the basic functionality has to just work extremely well uh i think another one is just making the setup easy right like people generally aren't so good

at running servers uh that's a good thing about fediment is a few people running servers can or thousands or more others. So I think if deployed, it will represent a reduction in the need to run servers by people, a little more specialization. But we need to make that really, really easy. You know, it's got to be something that we can't require our guardians to be IT users because we want the people who want the individuals

that people trust to be running these. It's got to be relatively straightforward to set it up, right? Like, Marty, we want you to be able to set it up in five, ten minutes on your model. right? Something like that. Uh, that's the, it's gotta be like very simple, right? And that's hard to do. Uh, and then I think this recovery stuff, you know, like I'm not sure if, uh, you know, this Chami and eCash idea has been around for a while, uh, since the 82 or so. And, uh, you know, it's, it hasn't been, it doesn't have a terribly successful record with deployment. Uh, so we have

to, I think, I think the recovery, this recovery idea is, is a big one, but you know, like that And Bitcoin's like a fundamental new design parameter here, right? Bitcoin is multi-sig. That doesn't exist before. It's like a new, different, interesting thing. And so we've kind of leveraged this new trust architecture. So I think we have a novel new take on things. So these are some of the things.

I think all the concerns you mentioned were mostly technical in nature. And actually, I have little concern because it's a very interesting project. And we have a lot of very smart people that reached out to us and want to work on it. And so I think we will be able to overcome all of these. Like it will be a work, a lot of work, but we'll manage to do it. What I find really fascinating about having Feddy as a company involved now is that we can actually do the also hard work of exploring and finding out what our target users actually want. Like what do we need to build for them, for them to be able to use it day to day? and that's something open source projects haven't been as successful at uh i think and that's why

it's really useful to have the company build um a wallet based on the core protocol of fediment because now we can go into these markets do our research um and and just the very versatile protocol which is fediment to exactly fit their needs and be like the best wallet they could dimension and that's our goal and i think that's um it was really interesting when justin spoke to the technical risks but from my side of looking at this i have the i i mean i've worked with um a number of engineers and architects over over the years application activities over the years and these are these these guys are right out there at the top i mean hundreds i've i was a cto for for 15 years before being a ceo so um i know when i meet someone or people who are just really

really good on a combination of levels um so when people if people want to get involved this project it's always good to be working with some of the best and you're going to be working with some of the best here so that's just going to be an incredibly and very humble people so it's incredible environment to work in um but uh and that's why i feel that there's going to be challenges, but I feel very confident that they're going to fix or resolve them or make sure it will work. On the other side, I think that the risk that I see the most is that we will create a great product. People can use it and download it, but then we stop there and we don't want to stop there it's not just holding ultimately we want people to use bitcoin now that we've made a tool

that's cheap privacy preserving um relatively fast transactions really good default level of security as well okay that's the basic platform but we have to solve the problem of creating a circular economy uh what and and that's and that's an unsolved problem where at scale you i you've got a city or a town who you know you walk in and pretty much a large percentage of people a large percentage of the places readily accept readily use readily pay with um with um technology that's powered by bitcoin um we need to make that's the point that we have to get to and make sure that happens um it's unsolved but again um unlike other projects and though feddy is ostensibly a company

that creates this app, really it's a company dedicated to creating Bitcoin mass adoption of circular economies, knowing that that's the base for it. We have the basic tool to be able to do that.

And a key part is partnering of all these people who are on the ground, who know their community and know the problem that hopefully Feddy and Feddy Mint sells and are willing to work

around the clock till we figure out how to make sure this happens as a circular economy but that's that's the one risk that we don't we also don't create a circular economy but again my feeling is given the wealth of skill that we've managed to amass on that side of things that we will find solutions and then we can just replicate that's an issue of replicating and tuning over the next 10 years yeah yeah circular i mean that's like the thing in my mind the circular economy obviously it's like been a big meme in bitcoin we had the merchant adoption meme in 2013 and now as the price of bitcoin has fallen people are pooh-poohing number go up and trying to entice people to use bitcoin more and that's why i'm particularly excited about your focus on the

global south and uh that market because it seems like they need desperately need these tools and that's the question in my mind do they get this tool and have an aha moment like oh this is the solution and then it spreads like viral wildfire where they go to every merchant like download this is what we're going to use from now on yeah there's there's a lot of things that we're looking at in that respect but ultimately we're going to run a number of experiments some of them might be um getting there's a lot of money that goes into these um these uh various locations from the outside one obvious example you stated is from the diaspora itself and others getting um educating people to put a percentage of that um into um being donated in the form of bitcoin or running

on bitcoin rails as the mechanism for them to receive that that's one that's one area that we want to trial in certain places there's also understanding what who are the different actors the commercial the the the actors in a given jurisdiction and that need to be focused and educated and they're the sort of like linchpins who from there everybody else follows um again that's another area of investigation so we might say well we make sure that these people are really comfortable and using it because if they use it everyone else follows them and it's different depending on the culture and so on and there's um many other features as well um and and parts of it but all of these are with the higher level objective how do we make sure

they don't just download the app and install it and use it and then don't follow on from there but there's some reason why they have to keep coming back to the app because that's the thing if you have a really simple easy to use app with everything and there's a reason to keep coming back to it then eventually the aha moments will happen

and so I mean we started this discussion with the criticism of Fetty Mint after the launch because of the trade off on the custody side and a lot of that criticism revolved around uh we don't need mass adoption uh bitcoin doesn't need mass adoption what would you say to

people who are are saying that that bitcoin doesn't need mass adoption it just needs a core group of people who are holding their own private keys and self-custody and interacting in their own circular economy like what is the the case for for mass adoption uh in your guys perspective i mean i think of it in terms of people need bitcoin right like we've experienced that it's a great tool for freedom and for thriving and it's helped all of us and it's helped a lot of our friends and so you have sort of responsibility to try to bring it to other people you know there's most people don't have it yet and so that's what we're trying to do is trying to help bring this to other people right uh because that's a that's what we should do it's

this great tool you should you should bring it to as many people as you possibly can yeah i think two parts to this question. First of all, if you believe that Bitcoin has such good monetary properties that adoption is inevitable, basically, because people see it as a way to preserve their wealth, then you really want to enable them to hold it in the most decentralized fashion possible or in the most self-serving fashion possible. And that might not be like everyone having big multisig for Fatra wallets.

that's probably not the case like that's not possible like we have to work with what is actually achievable and uh work inside this um this mindset so that's the first part and secondly if this wasn't the case and you wanted to keep bitcoin the small fringe thing that people that like privacy that like sorrentia use um how do you buy things like if you if every time you want to buy some real world goods, you have to go through an exchange. How much privacy can you actually achieve? How much self-sovereignty can you actually achieve?

I don't think that's like a viable path forward, even for hardcore Bitcoiners that don't really want others to adopt it necessarily. It won't give you the sovereignty you're looking for, I think. Yeah, I would like to think about it. This hyper-Bitcoinization for me is an end goal where everybody everywhere has the ability if they so wish to hold and use

bitcoin if for whatever reason for reasons of um cost or reasons of fear or for reasons of regulatory um um exclusion billions of people and you know we're talking if you add those things together, billions of people do not have access to being able to hold Bitcoin for one reason or another, then you cannot, by definition, have hyper-Bitcoinization. So you're precluding that. And the second thing for me is money has a network effect. I think Eric mentioned it already to some degree. The more places, the value of your money and the value of the network goes up with met cost and so if you um exclude half the people on the planet say from using it it's not half as valuable it's a tiny fraction of the value as the point where anywhere i go

in any country i can use this same token it's far more useful than if it's only in these few places so um those are my two the network effect of money um and also the desire ultimately for hyper-Bitcoinization to be realized requires you to have a solution that works for everybody. And I think the individuals who are saying, oh, we don't need mass adoption, like it would be bad if we had

a critical mass of people interacting with Bitcoin via these federations. I don't want to call it a straw man, but it sort of paints the picture of, oh, if we get all this Bitcoin locked in these federations and something happens,

everybody's going to get rug pulled. But I think the nature of distributed federations where you have thousands, hundreds of thousands really distributes that risk at a granular level. Yeah, and I think we should be totally honest there. There will probably be some rug pulls eventually. If people don't choose their guardians carefully, if they just go with some random anonymous people,

that set up a federation, then that's a possibility. But the great thing about these federations being interconnected by Lightning is that none of them has to become so large that it would be a systemic risk to Bitcoin, first of all. Like the damage would be localized. And on our mid to longer term roadmap, it's also that we want to enable people

to hold their money on multiple federations. Like you might choose one federation, which is really local to you, where you really trust the people to hold most of your money, but it doesn't have such a good privacy set. Like it might only be like your 500 people in your village. While when you want some more privacy to transact, then you might choose a different federation that has many more users,

but you don't put that much money on that. And also better liquidity on it. Yeah, exactly. More lightning nodes, just the payment will be faster, stuff like that. it's it's it's your it's your purse federation versus your your your vault federation as it were you know and at that point then if you if they do rug pull you it's it's it's uh you know it's the the price of the dinner that you're going to pay that you know to go out to that night yes it's almost pickpocketed you know that happens as well but it doesn't mean that we

should therefore get rid of purses because pickpocketing happens yeah and i'd be i'd be very interested to see if we find user interactions similar to what we've seen historically with mining pools like when ghash got 55 percent of network hash rate people moved uh off that pool rather quickly because they noticed a systemic risk potentially to a 51 attack and like could something similar happening at the federation level where if individuals see a federation attaining x percent of the overall liquidity in overall federations they begin to move to mitigate that risk. One thing on that

actually as well, what I'm keen to see, but we'll take it step by step, is I think we're all keen to see is to include within the app reminders and education as well. So, for example, we might remind people, are you sure

you know the guardians of this federation you're joining? If you don't, do not proceed. So that way, if someone tries to trick someone, hopefully the app can help minimize that as well and just were you going to say something there before you froze up uh i forgot we lost internet for a second you know what i was gonna say i was uh yeah i was i had just made the comment about like mining pools um people migrating off once they hit a certain critical mass and then could something similar happen with federations people see one

federation getting too big they decide to move their funds off of that yeah definitely and i think a really interesting thought experiment is we want to keep these federations honest so what you could actually do is like if the user wants that then you could automate bank runs pretty much and just prove liquidity that way like uh there's some some interesting ideas around like how can you keep them honest like if a federation gets too big like you could have like a backup federation where your wallet automatically spritzes your funds too and it's then it's all connected by like like as long as there's enough liquidity it should be a rather cheap to do so that's interesting yeah well that oh yeah okay no no no no i i that's the first time

heard that idea and i i i love thinking like that because um we're all aligned on um objective that's all yeah and we've been we take this very seriously on the fediment project too there's a guy named kitman who's uh an m uh just showed up randomly a couple months ago and he's been doing a lot of great stuff on auditing like every epic right it's like a block uh every epic of the federation like making sure everything adds up to zero and making sure everything you know like uh the bank the the mint is fully backed every single moment right so like there's a lot of engineering problems here too that we've been you know very exciting if anybody's uh a rust developer rust justin and i've been talking a lot about rust he's become uh infatuated with the

the language rust rust is hot in the streets right now ever since i like freddie pilliton in miami you like uh yeah we met uh we met at jeremy uh ruben's event yeah and uh i looked over and i saw the i i recognized his twitter avatar i have like a photographic memory for twitter avatars and i'm like oh you're eric uh so we started talking i was like yeah i'm never gonna program again i'm sick of it uh and then over the but a week about a week later i was cracking open the rust editor and getting it on the compiler getting it all going again so i didn't last long there Yeah, Rust is a really interesting language. You're seeing basically the entire ecosystem of Bitcoin slowly move towards it. So many of the new interesting projects are in Rust. It has a really nice developer experience. It's just as fast as C. It's sitting safer. Code is relatively readable. Everyone's probably running to rough edges right now. Like our module system can't be very easily expressed in Rust currently. But yeah, it's a lot of fun.

And you can see, look at new projects being introduced in Bitcoin now. About half the time, there's a Rust code involved. Obi, I know you have to go in 10 minutes, but I wanted to touch on the Lightning Network aspect of this. Obviously, federations will communicate and move funds between each other using the Lightning Network. What are the externalities for the Lightning Network if FedEmit reaches a critical mass of adoption?

What will that do for liquidity and availability on the Lightning Network? You guys want to add on that or? I mean, Eric might be the most, he's the most sophisticated technical person here. I mean, from my point of view, like think of the externalities of the Lightning Network. If everybody has a phone that's intermittently connected,

running Lightning channels, comes on and offline, and you know how well is it going to work if you have five six hop payments across all these channels right like just when you think of if you just traverse the question right like that's not going to be a very uh reliable system not to say that people shouldn't do that but if the whole network is like that it might not be terribly reliable uh yeah i think you already touched on this uh earlier like uh when you're running an lsp for a federation or the lightning gateway for a federation, as we call it, then your cost of capital is much lower

because you deploy, like, essentially what you do is you open one big Lightning channel to all federation users when you connect to a federation. And, like, you share the liquidity that you provide over all these users. And when you... Amortize it, basically.

Yeah, yeah. Like, when you imagine if all these users wanted to open actual Lightning channels to you, you would need like a multiple of the capital to achieve like a usable level of capacity. Like you want to have a certain minimum of capacity to route payments to users that requires a certain amount of locked up capital per channel.

But if you can amortize like your cost of capital over all these users by using like one big channel essentially, then it's just awesome for the LSP. And it's a little different from having like, a vision where you have like custodial Lightning wallet and that node serves all of their users and there's no sort of, there's no

way for like any other node operator to come in and like, you know, plug in. Like an interesting thing about this is that, you know, you could have these nodes moving around. I think, yeah, what you're referring to is the fact that like the federation has nothing to do with the Lightning gateway or the LSP.

Like any Lightning node or any user that trusts federation can encrypt their lightning node with a small like a plug-in or like small additional program and make it an lsp for federation and so i think it can be very competitive in like the market sense which will lead to just better everything better right uh and you know you could have stuff where federations publish some sort of like uh i don't know exactly i haven't thought about this much but like some way to you know publish some performance uh privacy preserving performance statistics think of these leaderboards you know for like liquidity right like could you

have a similar thing for uh for these sort of mint things like routing success and failure statistics yeah exactly gateways and like if you're well connected and like 90 percent of your routing attempts succeed and that's much better than like someone who's badly connected and only like 40 percent of your routing attempts succeed but again that would probably be something that would be information that your software will take into account and then adjust hopefully automatically for you you wouldn't as a user be seeing that it's just but but this is the thing it's it's uh um running an exchange we would have a um cold wallet and a hot wallet or our case was a warm wallet um but the amount of capital that we had to hold on the warm wallet was just based

on modeling the statistical amount that gets withdrawn by all of our hundreds of thousands of users on average over a period of time with a little bit of buffer to add in peak periods that was a tiny fraction of the actual amount of bitcoin that we held and it's also a tiny fraction of the actual volumes that were being sent um because we could we could model that across all users um if you um if you say you had a federation of a thousand users um and now and again some of them would um potentially send i don't know 0.01 bitcoin even which is we're talking about, what is it? $200. That's not that much, but 0.01 Bitcoin. Well, if you were a lightning service provider and you wanted to individually connect up to all of them, let's just say it could

go both ways and you wanted to capitalize it as well. You would have to put 0.01 Bitcoin into each one of these thousand users channels on your side, for example, if you wanted to provide a similar level of volume the other way well that that's 10 bitcoin locked up for those thousand users in reality most of them may you know only do that very rarely and so on now if you've got a federation with a thousand users you might find that across all of them you just need to put in half a bitcoin and that gives you the same level of coverage based on the average amount someone is going to use the system and if it's getting a little bit lower just like people like an exchange managing a as a hot wallet you could top it up um out of band and just keep going

and that that's just a extremely a more powerful way and more efficient and way of managing your your capital if your endpoints are federations and therefore you're going to make more profit from it at a much lower cost of capital and therefore that's going to lead to a healthy externality for the network because it's more likely for it to be profitable to be an LSP, especially if you're in a Lightning gateway. And you're going to want

customers from that network because it's just a more reliable source of income. Yeah. Bullish on Lightning liquidity. It's a second order of fact, I think. What this means is that your cost of capital to provide inbound

liquidity for users gets lower. is that suddenly a bunch of use cases that weren't viable in Lightning so far become viable. For example, some exchanges already allow you to withdraw using Lightning, but for how many users is this actually useful? Currently, if I'm running my own Lightning node,

it's like a gamble if I will actually be able to receive from an exchange because typically I don't have that amount of inbound liquidity that I would require for my stacking, for example. When I stack sets, then it's not like a coffee. And you do this in larger increments. And so if you have these LSPs that are really well connected, I could imagine that for many people,

the onboarding experience becomes the exchange pays the lighting invoice for them. And they never touch the chain, actually. that becomes viable because the cost of providing a certain amount of inbound liquidity is so low if you have a lot of

users that are served by the same LSP. And I think that's an amazing future where we're going to because Lightning makes everything so much better. On-chain experience isn't great and I think if we want to bring Bitcoin

to the masses, it has to be Lightning or at least something that has the same properties as Lightning. If you have instant settlement, you have relatively low fees and they're actually dependent on the amount and not on whatever the mempool is doing right now and all these things. So I think it will have some enormous positive externalities too. If we can make Lightning super simple

and make it succeed in 99.9% of the cases, which like most custodial providers already manage but like most non-custodial not really then we're winning yeah I mean if this is successful it would be massive

when it's successful no it will I'm a very very very cautious person but this is going to be successful I agree I mean, disclaimer, I'm a venture partner at 1031. We are invested in Fetty and grantors to the Fettiment protocol.

Obi, I know you have to go. I'm very excited for what you guys are building. I think we should wrap it up here with some final thoughts from the three of you. What should we look out for in the next six months? Where do you see this going? Is there anything you haven't said that you want to say before we wrap up? can i start because i didn't have to go but um i i feel blessed to be working on this project it feels like everything i've done up to now is leading up to this and what's coming in the next

six months is a just lots of awesome i'll leave these guys to say the details thank you very much guys thank you obi you want to go i'll go you go last because it's his idea yeah so uh uh i mean i'd say like my stress is going to be you know if you're if you're a developer uh check out chat.discord or no uh chat.fediment.org uh that's a uh open up discord uh just jump in there and start you know be a fly on the wall ask questions uh we have about 130 people in there uh that are interested in the project and about 10 10 or so people that are contributing now uh and so yeah we're really looking for on the fed on the open source side just some talented uh software developers rust developers to you know with some really interesting problems uh like that's that's

the you know like that's the the biggest roadblock currently is just getting the the server to work and then on the Fetty side you know Fetty meant Fetty separate things on the Fetty side checks out on

Bitcoiner Jobs just looks at Bitcoiner Jobs we're looking for a mobile developer and Rust developer there as well so that's

sorry for the shill but we really need to see talented people we need help yeah so for me I will be staying on the

open source site for like most of my time like I'm really excited about onboarding more people to the FedEmin project.

It's an open source project. It's amazing. We got already a lot of talented people working on it and it's just awesome seeing it go from, I'm hacking on it alone as a blockchain researcher and getting some help from

some crazy good people like Tim Ruffing who helped me with the crypto and Andrew Perlster who explained some of the federation to me. I was essentially working on it alone for a long time and And now I have all these co-contributors, and it's just awesome. Huge thanks, even though he already left, to Obi for just talking to everyone who would

listen about FedEment and being such a great spokesperson, pretty much. And yeah, then we will get the FedEment protocol to a state where it's deployable to the real world. by the time the team around Feddy will have an awesome app ready so we can actually use it in the real world and I want to make this my day-to-day lightning wallet so I can dock food

and from there on we will just improve, improve, improve on both sides. FeddyMint will get many more modules a lot of functionality and things we can't even imagine yet and on the Feddy side I will leave that to you guys

I think it's an interesting project because there's some really hard core like i mean i gave a talk about this at a conference right and i was like okay so we use music we use blinded threshold signatures we use just like down a list of our consensus algorithms we use all these like really fancy uh uh like technical ideas that like uh programmers like and usually when you see that it's something that's never going to see the light of day in the real world right like that's it's usually kind of a red flag but i think this is actually something there's gonna we're gonna go and like deploy it in communities right we're gonna actually

try to go and deploy it in the real world so it's it's uh it's i think it's going to be a very interesting thing to work on because you have this like combination of of actual like hardcore engineering design which is a really important thing uh and then like actual distribution right uh and then it's you know the core thing is all open source and the app will be as well yeah i mean eric it's been astonishing how quickly uh you've built out with the help of others this protocol i believe was like only a year ago maybe a little bit over a year ago that you announced that you're working on mini mint and building out this protocol and to see when did you have the idea of how like tell the whole story yeah i think the idea that was

really early uh actually because we were just talking about this and i was surprised to hear the kind of the whole saga yeah like um i don't think i want to go into all of it because we will be sitting here for quite a while yeah but just like when did it kind of start some of the yeah i think the i did the first commit to the uh pediment project uh in like in january 2021 but i think you were saying that you're you're like you're investigating the ideas like shaman e-cash like yeah three or four years before that that happened way before because when you look at Liquid was coming out in 2018 and it's a great project, but I always wondered like, why do we need to sidechain?

So from then on, I read a lot about cryptography and thought like, hey, you know this Charmin eCash thing, what if we could build this into a federation? Then the big problem was like, you kind of need to federate the signature generation. What Charmin eCash uses is plain signatures and we needed special plain signatures. took me quite a while like i got distracted again and at some point like smuggler uh johnson logan here had a presentation at hcpp here in track actually at parallel polis and i was discussing the same concepts and that we ignited my interest in uh in the technology and then i began working on like an actual implementation for like special plant signatures first and then on of the

Federation protocol. I think I began to work on the final prototype, which we're using now in January 2021. I had some other prototypes before, but nothing really worked out. And I announced it in Miami that year, 2021. That's the first time I talked about it publicly, I think. I was actually chilling in the Dominican Republic because we couldn't go to Miami directly from the Schengen area and like registering the domain the domain name and everything and getting it all set up and the open source tent uh it was terribly hot uh like I went on stage and announced this uh project yeah it has only been growing ever since but yeah it's interesting it was interesting to hear that this is actually like a 44-ish year old yeah like project right which is like I don't know

it's it was kind of encouraging me just to hear you know these things don't happen overnight you It's like slowly building all the primitives to actually make the final thing work. It didn't just take a year. It's been going on for longer, actually. Yeah, I definitely have been thinking about it for a long time. And actually doing something, that's something completely different.

Like, that just was like, okay, I have to do it now because hybrid condensation is happening. Yeah, it's just this realization. Like, if you don't do it, nobody else will. If not me, then who? And I think, I mean, I don't want to use the term black swan because it's bastardized, but for me personally, like seeing, obviously we've seen people talk about sidechains, lightning, when you announced like, hey, I'm going to build this Chami Mint on top of Bitcoin. that was like a real big wow moment for me like nobody's thought about scaling bitcoin in this

way up to this point at least not from my observation i had not seen it up to that point and i think it's a really unique and novel way to get bitcoin into the hands of the masses and somewhat uh i don't see anybody experimenting with this not only in bitcoin but other chains when they talk about like scaling and privacy technology i think this is an extremely novel and creative way to to bring these properties to bitcoin users so shout out to you guys yeah i mean it's going to take many projects like this right like we need there's no one solution in bitcoin right it's not just like there's there's one there's no silver bullets right we need we need lots of different groups trying lots of different things and that's how we figure out like get the

full product offering that uh you know where there's something for everybody so we can actually move the world off of fiat onto bitcoin let's go do it boys let's do it yeah done back to work i guess well thank you guys for doing what you do for joining me today go enjoy the rest of your afternoon in prague and uh i'll see you next month justin the the austin crew is missing you terribly your your desk got taken out of the office too so don't expect that to be here when you get back oh man that's brutal how they do me like that we do have lo-fi music playing during the day now though i think you're gonna like it well i i started that i started that i was the one who figured out how to run the speakers actually well thank you for doing that it's

much better vibe in here now yeah all right well thank you gentlemen um thank you go forth and fucking build the future let's go amen amen peace and love freaks