TFTC: A Bitcoin Podcast - #785: You Are Your Own Single Point Of Failure with Alex Bergeron

Episode Date: August 24, 2026

Alex Bergeron of Ark Labs joins Marty Bent to unpack the Coldcard exploit, the Boltz shutdown, and what AI-driven attacks mean for Bitcoin self-custody. Bergeron argues the maximalist dogma around trustlessness held back innovation, and that collaborative custody, covenants, and vaults are the path forward. The conversation covers Arkade's smart-signer architecture, spending policies, RFQ intents for Lightning swaps, Bitcoin-backed lending markets, and why he calls it collaborative finance instead of DeFi. Plus: vibe coding, open source models, and whether AI can write secure Bitcoin software. Alex on X: https://x.com/bergealex4 Ark Labs: https://arklabs.xyz/ Find the Home Mining Playbook here: https://www.tftc.io/home-mining-energy-playbook STACK SATS hat: https://tftcmerch.io/ Our newsletter: https://www.tftc.io/bitcoin-brief/ TFTC Elite (Ad-free & Discord): https://www.tftc.io/#/portal/signup/ Discord: https://discord.gg/yHGkvYxdqT Opportunity Cost Extension: https://www.opportunitycost.app/ Shoutout to our sponsors: Block: Cash App: For a limited time, new customers can get $21 added to their balance. Just use code TFTC10 when you sign up, and send at least $5 to a friend in the first two weeks. Terms apply. Bitcoin services by Block, Inc. See the Bitcoin disclosures at cash.app/legal/podcast. Square: Visit http://square.com/go/tftc for up to $200 off eligible Square hardware. Bitkey: Use code TFTC10 for 10% off the new Bitkey. Aven https://www.aven.com/bitcoin CrowdHealth https://www.joincrowdhealth.com/tftc Unchained https://unchained.com/tftc/ Salt of the Earth: https://drinksote.com/tftc Join the TFTC Movement: Main YT Channel https://www.youtube.com/c/TFTC21/videos Clips YT Channel https://www.youtube.com/channel/UCUQcW3jxfQfEUS8kqR5pJtQ Website https://tftc.io/ Newsletter tftc.io/bitcoin-brief/ Twitter https://twitter.com/tftc21 Instagram https://www.instagram.com/tftc.io/ Nostr https://primal.net/tftc Follow Marty Bent: Twitter https://twitter.com/martybent Nostr https://primal.net/martybent Newsletter https://tftc.io/martys-bent/ Podcast https://www.tftc.io/tag/podcasts/ Disclosure: Bitcoin services are provided by Block, Inc. Bitcoin services are not licensable activity in all U.S. states and territories, and not all services are available in all states. Bitkey is not available in New York. Block, Inc. operates in New York as Block of Delaware and is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Bitcoin is a non-deposit, non-bank product that is not FDIC insured and involves risk, including monetary loss. For additional information, see the Bitcoin disclosures: https://help.cash.app/btcdisclosures Get up to $200 off Square hardware when you sign up at http://square.com/go/tftc! #squarepartner. Offer expires December 31, 2026 at 11:59 pm PST. Offer for $40 off the cost of one Square Stand, $75 off the cost of one Square Terminal, $100 off the cost of one Square Handheld, or $200 off the cost of one Square Register, excluding applicable taxes. Limited to one discount per product type per seller account. Each code is limited to one redemption per account holder. Valid for new Square customers located in the US only. Offer not valid with guest checkout. Square reserves the right to modify, revoke or cancel the offer at any time. Offer cannot be combined with any other coupon. Void where prohibited, not redeemable for cash, and non-transferable. #squarepartner #blockpartner

You've had a dynamic where money has become freer than free. If you talk about a Fed just gone nuts, all the central banks going nuts. So it's all acting like safe haven. I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor. I mean, that's part of the bold case for Bitcoin. If you're not paying attention, you probably should be. Alex, welcome back to the show.

Thank you, man. It's been a minute, but there's been a whole lot of things happening. So we've got a whole lot of things to catch up on. I've been hassling it for like six months. I feel like. Yeah, I saw you in Pubkey, I think, was the last time, right? Yeah. During the Up next. Up next conference. It seems like forever ago, but I don't know that it was that far. I mean, it was just like, no, it was earlier this summer.

I guess, right? It was like March. Yeah. The suits are here. The suits are here to fix quantum. They're stable. Yeah, right. Oh, my God.

I mean, no, but I mean, exactly speaking of how that story is kind of like completely faded into nothing, really that really fell faded into the background. I wonder if it's going to wear its ugly head back. But with the way the market is going at the moment, I don't feel like anyone's trying to hear some we've had plenty of bad news so um i don't think the quantum fudsters uh are going to get people's attention with this press action no because i remember i'm i'm looking at the chart right now i think it was like mid-february early march but i think it was mid-february remember saying to you specifically because every second the price won't go up until we

have a clear path to fix this i was like all right well the price goes up we're going to change your injured tune and we are higher than we were in that period but yeah i mean i think uh we were just discussing before we hit record it's been a pretty insane three weeks uh in bitcoin today we're i mean the last two days we're up over 10 percent but this is on the heels of a pretty traumatic experience with the cold card vulnerability being exploited and then on top of that a number of other projects being pro propped and propped by by AI tools and more vulnerabilities being discovered and you were saying this you think this is like an acceleration point for bitcoin and everything really yeah well I mean it you know it it certainly triggered a lot of

as you mentioned reflections and it feels One of the bigger and most important one is a heavy dose of humility, really for everyone involved, I think, kind of all realizing that we were, everyone was swimming naked, basically. I was reflecting on this with someone just the other day and thinking about how we have been, you know, on every crypto project's asses, laughing. about all of their vulnerabilities and how, you know, shitty their codebases or the defy platforms where for getting hacked throughout the last couple of. Little did we know that we had in some way, shape, or form the same type of exposure in a lot

of our fundamental architecture, fundamental infrastructure. I think the bounties were not. as readily available as they would have been, you know, in the sort of 2021 era, DFI smart contract. But it was certainly there. So, yeah, this certainly takes off, takes us off of our high horse for hopefully what is the next step, which is going to be, well, you know, we have to kind of get a little bit more serious.

And I think, you know, it was it was time. for the adults in the room to kind of, not that, it's hard to say, you know, it was kind of like it feels, one of the thing that I tweeted really as this was unfolding was just that this was the most cathartic kind of moment for Bitcoin in the sense that, you know, I think one of the core, totem, if you will, of the OG MaxC community was being torn down and, you know, certainly forced a lot of reflection on the tribe. But I'm, you know, I've said I'm lucky enough that I've, I'm fortunate that I wasn't affected, None of my close friends or families were affected.

And I feel for the people who were. But at the same time, this really has made me hugely bullish in terms of like seeing the ability for some certain groups, certain individuals to rally together and kind of lead. I think, you know, you needed the emergence of leaders, new leaders in Bitcoin for a significant amount of time. I think for the last couple of years, it wasn't really clear who was going to pick up this slack. Who was going to be this adult in the room that say, like, okay, like, you know, we got to kind of like mature and take this to a level where it's not a little project, a little experiment anymore. And, you know, I think this process hasn't quite played out fully, but it feels to me like we're kind of like on the right path. and surely a number of, again, organization, individual projects as kind of seemingly stepped up to the plate there. Yeah.

I mean, you said we need to get more serious. What is getting more serious look like in your mind? Well, I mean, you know, it's easy to say in hindsight. But I had some interactions with spaces with American Hoddle. you know last week or whatever a couple of weeks ago i guess now just in the days ensuing following the events and we were talking about how you know we were kind of all enamored with this garage ban type of shop that cold card was and how slick it was that you know they were true to the authenticity of you know in the spirit of the bitcoin project but at the end of the day you know we're

realizing, I think we all knew in some way, shape, or form, but, you know, it was a three, four, three, four people shop managing the security infrastructure and providing security products for, you know, I mean, it may, it might have been, it might have made sense back in 2018, 2020, all the way up to 2020 or whatever, when, uh, de, um, um, uh, Dima. amount of money that was secured by those coal cart might have been significantly lower than it was today. But, you know, now that talking about large sums of money and people's life savings that have grown considerably throughout the years, I think one of the part of getting a little more serious is having processes in place where it doesn't matter if you're an OG and that you've built

this from the ground up. You need to kind of institutionalize some sort of framework to constantly especially in the world that we, I mean, again, I also told you just earlier that this is not really not only about cold card, it's about, this is a story that's larger, that's about the AI security paradigm that we're entering. And it seems very clear that it requires constant village, sort of vigilance. But it also kind of, to me, one of the lessons is really that, we're all most likely to be our own most obvious single point of failure. Like, in the sense that like we,

doesn't matter how smart you are or how many years you've been into Bitcoin. You're likely to have blind spots in the way that you operate things. And if you depend solely on yourself to secure, again, those life savings, you are, I think, kind of missing out on the opportunity. you need to optimize, again, the security. And it's all about just having the ability to distribute the trust, right? So that indeed, you can follow best practices yourself, but there are too many scenarios now where that's just not going to cut it.

So for me, yeah, that lesson has been kind of just we can do, like, you know, self-crestity doesn't mean that you have to do it by yourself. And I think this is kind of where I'm hoping we move in this new direction where we're a little more creative. We're a little more open to this dogma, I think that we had instituted, kind of shunned or kind of probably limited the amount of more creative ideas that could have a arrived in terms of potential alternatives to secure your funds, right? Or, yeah, and then those are not alternatives where you have to throw away the hardware wallets or anything like that, but more so kind of complement where, again, you have the ability to distribute the trust.

And I've always said, you know, in throughout, especially the last couple of years, there's always been this misconception about bitcoins that trust is to be avoided at all cost almost. And it always was kind of, I felt was an unfortunate narrative really because ultimately, I mean, Bitcoin was invented because yes, you cannot trust anyone with the management of a base reserve currency and, you know, the issuance of money. But certainly was not created because all forms of trust need to be, need to be eliminated. And, you know, trust can be usually beneficial, especially if you can engineer it the way that we're able to do so. So this is what I'm kind of like looking forward to.

And yeah, it's just a great, it kind of creates this, you know, it kind of creates a vacuum here now with cold card being, you know, more or less gone of like, okay, where do we go from there? BitKee is one project that is kind of seemingly out of me. nowhere took a center stage and it's because they deserve it. Really, it's a fantastic, it's a fantastic product. I use it myself. But, you know, I think the vacuum is more like, yeah, let's just get back to the design board and see how we can push this to really kind of new.

Something that's just more modern. You know, we'll get into that. But what I'm building, we're working on at our clubs with Arcade and whatnot, one of our mantra, internally and externally as well as just like modern Bitcoin tools. And I feel like we've kind of been living in a very primitive sort of development environment for the last decade where we've had an evolution of improvements to the protocol and improvement in, say, libraries and kind of like new ways to build things on Bitcoin. But they were kind of very much iterative and kind of piecemeal attachments.

but no one really kind of ever took a step back and be like, okay, how do we actually piece this together so that someone wants to build a multi-six solution, include new signers, distribute the trust via different methods of time locks, and perhaps additional logic there. How can we take all of this, you know, this corpus of protocol enhancement and techniques and arc and batching and all of. of this, how can we bring this together and just provide builders and, you know, users, something that is that they deserve, you know, after, like, how do they get reliable

lightning payments that doesn't require running a note, right? It's been 10 years. Now people are finally managing to ship that, but that's not the only thing that matters. And security is one of the being important pay points. And so we can do better there. And it was just a matter of kind of, yeah, just uniting all of these pieces. And I think creating an interface that people can use. Yeah.

Looking at my notebook. But that's one of the things I wrote down in the wake of this cold card stuff. As many lessons we learned from this debacle mainly in humility and the dangers of group thinking enabled by humor some peer pressure. And I think to your point about the last. lack of innovation. I think a lot of that was driven by hubris and peer pressure, like no trust at third parties. And to your point, like trust exists for, for a reason in certain situations. And not only from that angle, but also the learning from what's going on in defy and other protocols and incorporating the good ideas in Bitcoin, there's been some dogma about even attempting that over the years. And I think to your point, it's time to. brush all that away, look at it with clear eyes. And that's why, again, I've been pinging you for six months because you've been teasing what you guys are doing

with Arcade and Arc Labs and Covenants. And I think the timing of you guys releasing these products and really leaning into like, hey, we're going for this. We can do things a different way is perfect timing because when you consider what's happening in the world of stable coins and AI now, I was particularly with Stripe acquiring Open Router. I'm not sure if you saw their investor letter about that acquisition,

but they're like really going full board and digital payments using stable coins in their permission blockchain. I forget if it's called Metronome or something like that. But I think tempo, that's what it is. Yeah, if Bitcoin wants to, the metronome sets the tempo. If Bitcoin wants to compete, I mean, I think we have to begin exploring these different avenues. And I think your team at Arc Labs is definitely on the frontier and the tip of the spirit of doing that. Yeah.

No, exactly. And I feel like, you know, again, just coming back to what we can take away from this saga is also that we need to be less, I think, prescriptive about kind of like the models that we had in our. had about how things should be built and the level of trust that should, that every solution should carry. And, you know, I had one easy example is just like I had someone just a couple of days ago or so that had an interaction about what we were doing with Arcade and asking why our model whereby, you know, we use transaction logic and covenants in a way that's not enforced by Bitcoin consensus, you know, how is this useful because then you need to,

not that you need to explicitly trust someone, but the, you know, the reasoning there is that, well, if it's not secured or validated by Bitcoin, you know, it serves no purpose and has no utility. And, you know, for me, this couldn't be further from the truth. And the quick, the thing that I quickly mentioned was, well, you know, just like you're not going to have every transaction validated on Bitcoin, which wouldn't make sense, you're not going to have every financial operation or application contract or covenant validated by Bitcoin. There's no room for that. And there's no point really kind of doing any of this. So, yeah, it, you know, for us, it's been the perfect opportunity indeed because if you follow

If you've kept track to it, my account and the way that we've been going to market with Arcade, we've been kind of distancing ourselves quite a bit from the original, I guess, foundation of the company, right? At the end of the day, our company's name remains, Ark Labs. And the original vocation, I guess, was to kind of manifest the Art Protocol. and this idea to scale Bitcoin payments and create the first main net implementation of it. And we achieved that, but we achieved this quite a while ago. But very early on in that process, our mind was set on sort of much more ambitious architecture, because, yeah, we just realized that, well, it turns out that what we can do with ARC is,

appears to fit us only kind of call it a module in the entire sort of toolkit that we're building. So this idea that you can do off-chain transactions and batch them on a Bitcoin layer one in some sort of regular fashion, that's just one tool in the arcade system. Now, what does that mean, you know, practically? I think we've got to revisit a lot of the, I mean, it's interesting. There's different ways to approach just depending on the audience. But there's kind of quite a bit of artifacts from older Bitcoin days where people were exploring some of these programmable directions using cosigner systems like Arcade, right?

Because when you think about what Arcade, you know, is fundamentally just not even getting into the technology. It's really just like an architecture where you have a client and you have a server. And this idea of a client and a server and the server being this entity that, you know, coordinates Bitcoin transaction with the client, the client being a wallet or mobile phone or whatever that might be. You know, it's something that from the perspective of 10 years or plus, ago, people, Blockstream and people at specifically the Green Wallet, Green Address originally was, you know, I went, I actually went a couple of weeks ago again to look back on it in the

context of the cold card story, but Green Address in 2014 was advertising a system where you had some sort of, you know, 2FA type of co-signing service using the green address server. So we would create a two of two multi-signature system, right? And it would require, obviously, the signature of green address, the server, to be able to just send transactions around from the wallet on which the coins were deposited. And what this allowed green address to do was to tell users, well, what we can do is we can enforce daily spending conditions on your coins. So as you register your wallet and we create your account effectively, we can set a certain threshold at which point me, myself, as the green

address as the server, I'm going to refuse signing transaction beyond that threshold, say within the daily threshold or a monthly threshold, whatever that might be. And so You know, that, those were very early days. And obviously, I think in 2014, that kind of use case didn't make sense, if only for the fact that, listen, like, we've made a lot of progress in terms of Bitcoin commerce and Bitcoin daily payment usage in the last, again, 10 years. But still, you know, it hasn't grown that much. And so imagine putting yourself back in 2014, like, who really had a use for a, that type of, you know, know, spending policies for their wallet. So it kind of, you know, it's a feature that was ahead of its time.

And on top of that, they had, you know, so how does the model work? Well, obviously, if the server doesn't accept to co-sign your transaction for no reason at all, then you had a backup transaction, which you could actually broadcast. So, you know, it was kind of like a decarenting time lock or, some type of lock time where you could just then broadcast your transaction yourself, wait a little bit until a certain amount of blocks, and then you just get your money back. So you never had to trust that server with your money.

That server was never able to spend any of your Bitcoin, but that server provided, you know, very valuable services. And, you know, again, that model kind of like fell out of favor, I think, during this last error. And part of the reason why that is so, and I really believe is that people had started having this obsession for like solutions that were completely trustless, right? Or that appeared completely trustlessly, right? It's like, why are you going to have a single server where when you can have the lightning network, right? This super internet-like distributed system where nobody's in control.

Nobody ever holds the funds. and there's not a central node that can actually sort of censor you, right? At least the idea is, well, you want to route some payments through Lightning. Most likely you're going to find a node that's willing to do that because there is a shit ton of node on Lightning. And so we dedicated all of our resources to this. And then I think without quite being aware of it, We've walked this back, you know, over the years by reshifting the model towards client servers, right?

With LSP, it's the realization that, well, actually, no, it's like the notion that nodes, you know, everyone was going to have their lightning node didn't really make sense. So we shift the burden back on the server. And, you know, I think the, you know, the ultimate kind of full circle moment are systems like, ARC-inspired find server implementation and ultimately what Arcade does. And this is why I'm super excited about the latest work that we're doing, because it's been hard for people to understand when I tell them, listen, Arcade is not about Arc. It's not about sending transactions around.

And I've been telling everyone, yeah, it's programmable money. You can build a bunch of script and whatever. And you can do some cool defy shit. And that's all well and fair and that's going to play out, you know, as kind of like the market timing requires it. But now with the cold card event, there is kind of the opportunity to create one of the first showcase of why Arcade is more than just fast and cheap payments like Arc. So, you know, we can talk about what I'm up to with that, with the vaults and some of this stuff. But, yeah, I mean, this is something that I've been spending all of my awake hours on the last, literally in the last week. And obviously, this is all accelerated by things to AI.

Yeah, not signed in to X on this browser because I only used to cover for this. But let's dive into what this is and how. Arcade enables this. And so it's, you've vibe code of this over the last few weeks. Yeah. It's very, very rudimentary, but just I think it was trying to get the idea out there of what's possible. It's very experimental. Obviously, it's like I pointed out, it's not code that's been reviewed by any actual developer.

But I think one of the, for me, one of the fascinating breakthroughs in, it's the last couple of months in terms of AI, development and vibe coding and whatever is the ability for the codex or cloud or whatever is you use to nail front ends because it gives myself people that, you know, are not developers the ability to kind of actually materially visualize and have kind of this tangible interface with what I'm vibe coding. Because, you know, if I'm vibe coding something and it's all through GitHub and if it's all just like a bunch of lines and it's just a bunch of documentations, then I'm kind of like, you know, it's, it really is the blind leading the blind here.

But in the last couple of months, Codex specifically has just been, I mean, it's, it's absurd, the quality of front end that it's being, that it's able to deliver now. And so what I did for this is I just had it, uh, essentially fork our existing arcade money application, which is something that we've built. internally, which is something that is programmed by developers and has been around for several months now, if not a year already. And I just told it, like, listen, take that, use that as a shell. And then we're just going to take the internals and swap him out.

And instead of being a spending wallet, it's going to be a Bitcoin Vault. Right? So what's the idea of a Bitcoin Vault? Well, again, I think the closest approximation that we can give at the moment or at least something that was very inspiring to me was Bitkey. And the model that they've kind of pioneered for self-custody, meaning that obviously, you know, they've built a fantastic hardware device, especially the latest version with the screen and the ability to not do blind signing effectively.

But just the quality of the whole UX speaks for itself. I would recommend anyone to just give a try to. give a try to Bitkey. But ultimately, the thing with Bitkey, right, is that it relies on a server. That server acts as a co-signer, and it is able to enforce spending policies in the same way that the green address wallet from 12 years ago was able to do that. It was able to do. And the reason why that's also important is that, again, not only can you rely on

the service providers in this case Bitkey to set spending policies on your funds, you can use them as some sort of intermediary to recover your funds if you have an incident. So if you lose your, if you use your phone, so the device with which you recover, with which

you've set up your Bitkey wallet, then the Bitkey server has a key, and you also have the hardware wallet that has a key, and therefore you can kind of re-initialize everything and boot up a new phone and get back to fully managing your wallet. Same thing happens if you've lost your hardware. So there's all kinds of scenarios here where, again, introducing a bounded sort of service providers allows you much more latitude and much more freedom in terms of how you interface with your money in terms of how you secure with your money. And so that was the idea for the

arcade vault is, okay, well, Bitki offers that. They have fully open source code to their credit, and you can, you know, you can do something yourself with Bitkey's code that probably comes close to what I'm doing. But my idea was, well, what we've done with Arcade, you know, is fundamentally a two-of-two signing a server. Originally, it was built to be able to facilitate the transition of users from on-chain UTXOs onto off-chain virtual UTXOs for the purpose of using off-chain payments, right? And to be able to use kind of like this arc batching module, if you will.

But the pieces are there, and the pieces are modular enough where for the last couple of months, we've spent a lot of time designing something that is versatile enough, whereas you're not, whereas you're not forced to use Arcade in an off-chain environment. You can use Arcade as a sort of, I've been calling it kind of a smart signer, right? And the idea is when you think about wallets and key security and key material and the way that this is being handled nowadays, you know, regardless of your setup, whether it's collaborative, multisig, multi-sig that you implement yourself, every key is controlled

in a very discretionary way by some sort of entity that'll decide whether they sign off on a transaction or not. Whereas what Arcade is becoming is kind of a, it's a software signer, right? And what Arcade will do is that you will set some sort of template of policies. And what you'll kind of negotiate with Arcade is that, well, I'm going to include you in the multi-sync set that I've created here as a sort of coordinating signer. And your job will be the only sign. And so this is where it becomes really important, right?

The distinction is that it's not whether or not you're going to sign a transaction. but like what transactions, what transactions are you going to sign? What is the context? What are the policies? And this is made available by by additional logic. So I imagine you've had like arbed out on your show talking about Sigash. Sig bash. Exactly.

And some of that. So those are kind of very converging ideas. We're certainly not the only ones that have had this idea. Obviously Rob Admilton with Anchor Watch. I mean, Rob is one of the. I would say pioneer of commercializing this solution, right, in the sense that you look at Anchor Watch and the reason why they're able to offer this institutional insurance policy is because they insert themselves into the multi-signiture process of the client in a way that Anchor Watch can never spend their client's money, but in the way that Anchor Watch can act as some sort of fail-safe signer in terms of, you know, depending on vast scenarios of outcomes that I'm sure you diligently sort of set with them in, you know, when you begin your policy.

And so, you know, Arcade Vault is simply just an experiment in terms of saying, okay, what if we use Arcade as a module to become a generalized co-signer? And then we give any entity the ability to offer this type of service to their customer. So think if you're a river, think if you're a bull Bitcoin, and you have clients that obviously you want to steer them towards self-custodial setup, but you know that in the reality that we live in, they might not be able to fully, it's just they're not going to be able to do it alone. And they should not be doing it alone, right?

I think that's kind of the lesson again, right? It's like you're not sending people. And what I mean by doing it alone is, like, helping them secure with self-custody, it's pretty clear that it's not just sitting down with, you know, your cousin and teaching him out to use a cold card and sending him on his merry way. That's kind of a recipe to failure. You know, one of the most jarring kind of, I think, other observation from the cold card incident was the amount of people that actually, fortunately had still had their funds around but had to scrap into recovering their money and transferring them to a new wallet and people did not even know how to use you know people had

presumably hundreds of thousands of dollars on these devices and and i was listening to spaces and i couldn't believe what i was you know like you literally people were being held through transferring their funds off of cold card. And it's very clear that they had no idea what it is that they were doing. And so you got to ask yourself, like, how were they put in this situation to begin with, right? Like, this is kind of where something really went wrong. And so, yeah, Arcade Vault kind of like just is kind of an attempt to open up the design space. And hopefully someone picks up, I mean, we're going to be pushing in this direction.

and probably polish a lot of what I've been, or maybe scrap entirely what I've been doing and start with some sort of, at least, you know, legitimate developer foundations on it, but the fact of the matter is it works. The application actually am playing around with it at the moment, and it really opens up something where you know, Bitcoin companies that have built a certain reputation in the last decade that are still

around and that deserve this reputation, they should be able to offer financial services to their clients beyond just buying, selling Bitcoin and custody. And I think the future is going to be that there will be these types of collaborative custody model, because for any company that has a bit of foresight, especially in the context of, you know, potentially change. changing regulatory environments over the rest of this decade and just liabilities. If you're able to offer consumer experience that rival custody in terms of reliability and just the assurance that you can sleep tight and that your money is safe, because and how does that happen is yes, you have control over your money, but there's also someone that is a professional

that has the vigilance of having an architecture in place that spends 24-7 making sure that your money is not moving without you making the explicit approval. And in the event that it does, you have sort of, you know, vault type. What is the idea of the vault is that if some Unforeseen transactions hits the network because a certain device that's part of a multi-sague was compromised or part of a signing setup. Ideally, the promise of the vault is that you can kind of interfere with this fraudulent withdrawal and eventually funnel the funds into a backup location, which was kind of previously agreed upon. Now, the idea with vaults, or at least the common vault design

obviously involves covenants or at least it's a bit of a difficult conversation because vaults are such a general term. When you ask anyone in crypto, outside of Bitcoin, vaults mean a completely different thing. It doesn't have anything to do with security. So it's a little hard for me when people are like,

okay, well, no, no, vaults are consent. enforce covenants setups that are completely trusted. It's like, well, yeah, maybe that's one design. But now that we don't have and we continue to bike shit covenant, and maybe that's going to be the next thing that continues tripping away at kind of like the social tissue of Bitcoin. Well, in the meantime, covenants are just, you know,

whatever covenants are just a contract. And again, the idea is, well, the idea with Arcade as well, turns out you can enforce contracts between multi-part. parties without having to require Bitcoin consensus to interject here. Obviously, if you need the most trustless type of execution, then you're going to need Bitcoin. But like Bitcoin might not apply to, you know, to every single financial arrangement. And it shouldn't. So freaks.

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Now find sovereign health and sovereign health care. Now, and so you have it. I just walk through how you're doing this with the vault demo or prototype. Yeah, yeah. Whatever you call, because you say concretely, the money sits in two tap root trees. You have a spending tree and a savings tree. And so it seems like there's some conditions there. Yeah, exactly.

Yeah, so you have two accounts because what this turns out to be is, you know, is effectively a Bitcoin account. You know, in Bitcoin, we don't have accounts. Normally, everything is UTXO and coin selection based. But when you start having a setup like this where you can actually enforce spending policies, it's not looking like accounts. And the spending account is your weekly allowance, call it like that, or your daily allowance. It's what the budget that you set with the server, when you initiate the wallet, it'll tell the server,

well, again, anything that is beyond 100,000 sets a day, just don't co-sign that transaction. But what you also do is you kind of move that, you know, you make it so that you move your budget to that. So actually you can move more. You can move 500,000 sets to your spending account. And then you can say, well, I can only spend $100,000. And that's one part of the Taproot 3.

And that Taproot 3 is effectively co-signed by your mobile device, by way of pass keys. So that's another feature that we don't, that, you know, I haven't discussed. But, you know, again, the idea was to try to replicate the Bitkey model. So there's no seeds here. Everything is very kind of like native via pass key, face ID, and all of these. Again, not for everyone maybe, but from a UX perspective, it's kind of like the bar that you need to try to set for modern applications, I think.

And so your mobile phone has a key. the vault. So what do you do when you deploy an arcade vault is, it's a third party that deploys a vault, right? So right now, I have an instance, a server implementation that runs on the cloud, that operates the vault. But the idea, again, in the future is like River, they operate their own vault, and then River becomes the co-signer

to your wallet transaction, your spending wallet transaction. And on top of that, well, Arcade is kind of like the global coordinator. So Arcade also exists in that multi-sync set. So it's a 3 of 3. It's an N-of-N transaction. Everyone needs to sign in order for spending, you know, checking account transactions to go out. And the important thing, again, is if in the event that the third-party vault operator doesn't sign,

or that arcade doesn't sign, then you have another spending condition that exists in this initial vault contract that you set up, which is, while me and my phone, sorry, my phone, my device and the hardware wallet that I tie up to it, we can use our signature to move any amount of money out of that vault that we want, right? So if all of these servers decides to go offline, I still have access to my money. I don't depend on those servers to be able to spend my money. But now, again, what happens if the Volt server is compromised? Well, they still require your mobile phone signature.

It still requires the arcade signature as well. So Arcade will actually evaluate and enforce the policies itself, meaning that even if the Volt operator gets compromised, tries to broadcast a transaction that bypasses the limit, Arcade will catch it. Obviously, yourself as a, well, perhaps even your phone might be compromised as well. But the whole thing is set up so, right, that there's no single point of failures. There are, like, the worst case scenario,

again in that kind of setup is that your spending wallet gets drained because effectively you've, you know, your phone's been stolen and listen, fucking the arcade co-signer is compromised and the vault co-signer is compromised. And if that happens, well, you're spending, you know, your checking account gets drained and it sucks, but your life savings are still safe because you're in the tap-proof path of your life savings. there is never a signature from these other third parties, right? It's only hardware and mobile and your phone.

And then there are, for example, there's a policy which is your hardware wallet alone, right? So if you lose your phone, if the arcade server is offline and whatever, you can broadcast a transaction that I'll spend from your hardware wallet, but it'll just take more time, right? It's going to have a long delay. And what is the purpose of that? Well, the purpose is that if your hardware wallet gets compromised and just in the same way that Colecard did and someone tries to drain the wallet,

well, you'll have the opportunity to kind of claw back that transaction. You'll have the opportunity to stop the attacker from being able to drain your entire wallet. So, and, you know, the parameter is, that I've set here in the tread example, they're not prescriptive. In fact, they use kind of mutiny net settings. So, you know, talking about like six blocks, which in meeting the net is literally like a couple of minutes. So, so they're not to be used in production, but it's, again, it's a, it's a blind canvas for people to be able to deploy. And I'm very, very interested to see people,

because I think, honestly, it's kind of a, it'll become a no-brainer. It'll require people to harden their infrastructure, and this is kind of what people are doing at the moment, right? So it's hard to be pushing new features right now because everyone's busy, stopping fires. But eventually, you know, we'll move past that phase. And I think hopefully customers start kind of like, you know, users start demanding better solutions. And I think that's just a very promising one. And it's one that, you know, in the spirit of what we're doing with Arcade is completely open source, completely modular. It doesn't

really, you know, if you've heard about Arc and you don't like this idea of virtual UTXOs and expiring funds and all that jazz, you know, you don't have to. It's perfectly voluntary. And that's That's a beauty of it, right? I think what we're going, the direction we're going into with Arcade is that we want to have voluntary systems where, you know, we know that working within consensus is extremely hard. We've had like a great example of the difficulty of working within consensus in the last couple of weeks. And it'll become increasingly hard. So, but people still need to have the optionality to be able to kind of like deploy, you know, the sort of commercial policies and, sort of just using Bitcoin in the way that they see fit without having to ask permission

is ultimately what it's all about, right? Yeah, and I think I definitely want to touch on the AI stuff because it wasn't an announcement this morning. I know you guys are doing stuff with Breeze in that capacity. But before we go there, I think just like really leaning into the breadth of the aperture of potential use cases here with the arcade setup. I mean, you guys launched intent to arcade intense in the aftermath of bolts going down. And it's, I think it highlights just another sort of mechanism that these transaction,

that the arc transaction batching protocols can enable. Because bolts was one of the most dependable and relied upon swapping services between lightning and another aspects of Bitcoin, whether it's on-chain liquid, whatever it may be, and they succumb to the attacks of AI, black hats, disrupting their systems. And I think we learned a lesson that that was another sort of central point of failure or maybe not even point of failure. I don't believe any funds were lost on customers behalf, but it was a central location point in that part of the industry with the swapping services.

And I think what you've done with Intents is really creative. So you sort of open the marketplace for potential providers that could execute those swaps by using ARC to create a swap message board, for lack of a better term, or order book. An order book, exactly. It's effectively sort of like an order book. And, you know, the idea behind this and the idea behind a lot of what we're doing with Arcade is simply to, standardized practices, right? So again, with Arcade, you have a toolkit where you can build those basic multisigs

up to the most complex contract you can imagine. But the reason why we believe it has a lot of value is ultimately that if you create standards that other people can build around, well, everything becomes interoperable, right? And therefore, any market participants provided they agree, it's kind of like Bitcoin's consensus rules, right? It's like, why was Bitcoin valuable in part is because everyone agrees on this set of rules and, you know, everyone coordinates around those rules. So what we've done here is, well, you know, we've had these ideas of smart contracts and

everything for, for so many years around Bitcoin. You know, it was never not formalized or specified, but kind of like we needed to create a a common interface for market actors to be able to use these contracts on Bitcoin, as limited as they may be. So the idea with intense indeed is, well, you know, Bolts was the gold standard for lightning swaps or for just not lightning swaps, but kind of like being this bridge, this non-consular bridge between every sort of layer of Bitcoin applications and services. But unfortunately, you know, their dominance, for lack a better word, and I think kind of like, just like I said, the immaturity of the technology stack made it so that it was hard to keep up with them, man. They were kind of like pushing the boundaries and they were like doing things where people at the time up until now,

maybe that AI tools are picking up, you know, it was like you needed to, you needed to have significant expertise with lightning to be able to kind of like operate a note of that importance. And a lot of people were willing to kind of like, or just had the time to dedicate into deploying that kind of architecture. And for that reason, and probably just, you know, a combination of smaller market, just generally, you know, most is doing great, but ultimately, you know, it's still a relatively small market. And perhaps, perhaps. Perhaps new entrants didn't see enough incentive to enter it, but it's a chicken and egg problem, right?

So at least what we feel like we've done with Arcade Intense is we've solved one part of that issue, which is that you don't have to be a professional sort of swap operators to be able to serve lightning swaps, right? And one of the reason why that's super important is because unfortunately, central to the vulnerability of bolts, and the reason why they took this sort of blonde force attack from AI attackers the moment that these new models were out,

is that the nature of the model made it so that they advertised themselves as a central API that were processing all of these swaps. And obviously, a lot of their code was all open source. And so it immediately puts a massive target on their back, right? And it tells every, and you know, listen, bolts, obviously we know it was not the only one. But there's a certain class of services in the Bitcoin and wider crypto ecosystem that were specifically targeted by those systems. And those are all bolts type service, meaning services that we're able to basically,

that we're just providing swap services or trading or. services between coins, chains, or whatever that is, because those were the ones. LMP2P, they had to shut down as well. LMP2P, you know, I know that the people at Garden Finance have had some issues. I think fortunately no funds was lost there. Zeus. Zeus as well. So, you know, even beyond the wider crypto world.

And so, you know, it's very clear, it's becoming therefore very clear that the architecture that's required for these types of service to operate nowadays needs to be very different from what it was before. And so what we've done with Intense is kind of leverage the architecture of Arcade and create a RFQ model. So a request for quote model where you have a marketplace of, users and service providers that are effectively advertising, the service providers are advertising different services. One of them, the leading one at the moment is Lightning Swap Services, right? And they're advertising via different rates. They might be, you know, right now it's very primitive again. You know, we've just launched it. It's kind of a developer preview. So the full vision hasn't materialized yet. But the idea is you'll have.

you know, potentially other companies, you could have a voltage, you could have a Zeus, you could have a NAMBOS directly running, what does it mean for these providers is they're running a small little server that's attached to their lightning node. It's a very lightweight sort of interface and it's not something that they need to advertise publicly to everyone. They don't have to go out on the open internet and say, hey, this is the end point by which I'm serving lightning swap. And if you can figure out how to drain it, you know, it's all yours. Rather than what happens is we have a service by which we coordinate the users that are requesting those swaps. So the wallets, the wallets are able to select from a provision of service providers and say,

okay, this is the list of service providers that I want to process the lightning transactions for my application. And what I want to be able to do is whenever the user requests an action, right, this is where the intent, where it comes from, right? The intent is an action. The intent is the user saying, I have 100,000 SATs. I want to pay this 100,000 SAT invoice. You know, find me the best lightning provider. And by way of the intent protocol, the wallet will ping all of these providers, check what are their current prices,

and return that to the wallet. The wallet will select one. We'll use that route. Again, everything is atomic. Everything happens via HTLC swaps. So there's no chain of custody here. But the important thing is you have a market, right? you have something where for the applications, it's extremely important because every single

sort of financial service right now, especially crypto's financial services, are sort of orchestrated in a way where you want to build an application, you want to build a wallet where users are interfacing with your product. You're going to have a single provider for lightning payment. You're going to have a single provider for, you know, those that are interested in swaps to stable coins. You're going to have a single provider for that. And how does it work, right? It's all APIs.

And you're programming an integration from your wallet to these APIs. And then every time you want to add a provider, you need to add another API integration. And then, you know, so there's a bit of a limit there, right? you're kind of duplicating a lot of work. Whereas with Arcade Intents, the idea is you have a single interface and you create a market for all of these swaps, whether they're lightning swaps, whether they're stable coin swaps,

and eventually, you know, tokenized asset swaps, whatever people fancy that'll be available. But the important thing is providers can directly tap into these wallets. So from the provider perspective, if you're a Lightning service provider that wants distribution, you can either go to every single wallet in the ecosystem and say, hey, I have extra liquidity. I don't know what to do with it. Maybe you guys want to integrate, you know, maybe what you guys want to use my routes to be able to send payments via Lightning. Well, that was impractical and that remains impractical, right?

It's kind of a for many different reasons from a technology perspective to a business development perspective. that type of thing is not sustainable, but now you have the opportunity where if users are using the arcade, you know, if wallet applications and operators of these services are using arcade intents, the provider can only, only has to advertise their service via intents, and then they can be matched with users depending on the application need. So it's very early, but we think it's, it's a massive, it has a lot of opportunity because, again, it just comes down to, we're going

into a direction where you cannot rely on a single service provider. The single, you know, points of failures are obvious. And, you know, if you would have told us a year ago that we should have made contingency plans for bolts because maybe someday they were going to go out of service, we would tell you, man, what are you talking about? They've been running for, you know, I don't know how many years. They have a perfect track record. We're not going to lose sleep over this. Well, you know, we're living in a world of black swans and where everything is accelerating. And so it's become very clear that whatever is the architecture, whatever is the infrastructure you're building, you want to make it resilient to the failure of a single party.

And so you do that by creating markets. And so that's kind of like what Arcade Intense does is it allows applications and financial services to plug into, you know, Bitcoin native financial markets. Yeah. I mean, what's beautiful about this too, anybody listening is like, oh, my gosh, might have to do all this? No, the service providers are. This will be all abstracted away for a net user. They'll just see. Well, exactly.

And they'll pay and they'll get paid. Exactly. It'll become, it's actually much more intuitive. It's actually just like something that is going to significantly improve the user experience for the end user. And specifically, you know, prices. You know, I think one of the thing we didn't discuss is that intents also potentially apply to credit markets, right? So what if you get to a point where you want to get a Bitcoin back loan? And rather than, you know, you know, negotiating the terms with a single service provider and going to, you know, shopping around to the LIGOs, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, one of them uses a standardized protocol, a standardized market interface, while the wallet can integrate all of them, and they'll give you the best rate depending on your loan request, right? And I think this is kind of like the natural way for, for things to evolve is you want to remove those silos because yeah they're just not they do they're just they they're just not competitive first off

is you know the idea is also you want to create a competitive market just going to give better prices to users better experience but you also you know you want to avoid censorship as well you know you want to avoid a single what if a certain service provider or certain lightning swap provider decides that, you know, they need to censor payments going to an address or whatever that is. You want to have it built into your application so that you can route around this. So freaks, when you take Bitcoin seriously, you start with custody. You want to control your keys, avoid single points of failure, and make sure your savings cannot disappear because you or someone else screwed up.

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There's questions in my mind, really, how does this compare to Morphone? Just like thinking about like how this marketplace compares to like the defy lending protocols. And there seems to be a distinct difference. There is a, yeah, there's a bit of, it's interesting. There's quite a bit of difference. There's also some similarities. You'll notice if anyone that pays attention to these crypto, Ethereum type of, of protocols.

I'm thinking of like Morpho specifically. Yeah, Morphal. So, well, so you know, Morpho specifically has been going into a direction where they're increasingly building off of a model that is more, let's say, order book than these pool models, right? Because we found out that a lot of these pool models are inefficient, there might be risky. they might sort of incur bad debt by, you know, you have these pools that are lending against a collection of different collateral. And if the quality of the collateral isn't up to par, which is the case for a lot of the

shit coins, well, you know, you can be lending against your Bitcoin in a certain pool, but someone else is lending against their other shit coin in the same pool. And because that position of the shit coin, the collateral has gone to zero, let's say, speculatively, while the pool cannot liquidate that collateral, what happens is this creates bad debt for every participant in the pool. So everyone kinds of ends up being on the hook for that hole in the... But, you know, those are things that we're exploring. I mean, you know, we're talking a lot about Arcade and we're not necessarily going to go in too much.

I'm not going to go too much into details, but one of the exercise that we've also done is that our Clabs is kind of evolving beyond just a research technology company, but more so towards what is going to start looking like a sort of financial product company. So our idea with R Clabs is that we're not spending anymore our entire days building the info. in building the arcade protocol, but rather we want to be first to market with a lot of the applications that we think are best implemented on the arcade protocol, right?

And so when you think about the standardization of credit markets or Bitcoin back loans, well, this is something that we're looking at is, okay, well, how can we build something that is going to be versatile enough that it can fit any type of custody infrastructure? So again, we're not prescriptive anymore in the sense of, okay, well, if you use Arcade, everything is going to be self-custodial.

Actually, it's not the case. You know, you can actually use Arcade as part of your sort of custodial service. But the idea is, well, anyone that operates, even a custodian, needs to be managing keys, needs to be managing, you know, lending origination flows. There's some sort of logic, okay, tracking the collateral. role, where does this go, who are the creditors and all of that stuff? Well, it turns out that, you know, you can do that on a very simple database, but there's also the opportunity to do that by just using modern Bitcoin software that is going to be much closer to the Bitcoin and kind of just provides something that, again, lends itself more to interoperability between

providers. So what does that mean? Well, it means potentially open credit markets, right? Well, where you have a custodian originator, you have a self-custodial LIGUS type originator. And everyone is starting to have the ability to open their books to each other, right? In the sense that, hey, if someone comes to you and says, I need a $100 million loan against my Bitcoin, maybe you don't have the lender available, maybe you don't have the liquidity to serve that loan. But maybe someone else does. Now, to what extent do you want to open those books? And a lot of the game in lending is origination. So you're not going to, you know, send a potential client to one of your competitor. But there's an opportunity here to just, again, standardize a lot

of that. And the other things that we're looking at is, you know, very sort of grounded financial primitives. What does it look like if you want to exercise options, hash rate derivatives on top of your bitcoins? If you're a mining operation, if you're a treasury that wants to hedge against market volatility, or take directional position against market volatility, again, these are not necessarily defy protocols, right? We don't think, or at least I don't think that what we are doing and what we've been needing to do is bring defy to Bitcoin. Rather, we need to just improve what Bitcoin is able to do. And just, you know, smart contracts were never about making everything trustless. If you look at what the work at Nick Sable and if you go back and read a lot of

these papers, they were simply about elevating business logic into software, right? And how do you create checks and balances around the handling of trust? treasury, the handling of budgeting of, you know, all these movements and flows of monies within organization and institutions, there's an ability to be able to elevate that at the software layer where you have something that is more compatible with a native digital currency, right? But that doesn't mean that every single third party, you know, needs to be removed. No, I mean, actually, I like to, I've been thinking about a lot about how to frame this. And I like to say that what we're doing is not essentialized finance.

It's more like actually it's collaborative finance, right? It's like, hey, listen, if we get a bunch of parties together and we get them to agree on a set of rules, as long as everyone is collaborating with each other, the outcome is running great. And it's going to be very efficient. And we're able to do a lot more with the liquidity that we have available. we can open it up to new markets and find new business lines and opportunities. And worst case scenarios, if for whatever reason, the agreement between the parties fall apart, well, everyone has kind of like these routes back to get their money back on chain.

No one gets to censor anyone. Again, it's all just voluntary, right? So it's kind of like this voluntary, collaborative finance. and I think it's a more productive way to think about it, right? Ultimately, like this sort of decentralized finance where we almost kind of disenfranchise the individual, right, and be like, okay, well, you know, you can't be trusted. We don't want to have to trust you in any ways. And kind of like, actually, no, like there's, if you can build solid, bounded trust,

then that is going to unlock a lot of things. And I think, you know, this is what we're trying to do on a commercial side. side by kind of creating commercial interface to the arcade protocols so that businesses that don't want to implement everything from scratch themselves can actually rely on our product as standards to be able to do so. Yeah, it ties nicely with the conversation I had earlier this week too. If you can successfully implement that collaborative lending protocol, whatever you want protocol or market. You can see a scenario where liquidity against liquidity, customers are happy.

They're choosing it more as an optioned and yes, competition exists and it should exist. The individual actors within that marketplace should refine their systems based off of the sort of competitive feedbacks that they're getting and try to outcompete. But you can see a scenario in a long run where if you collaborate instead of trying to dominate the market, you could actually see yourself doing more origination because people just like the UX of that collaborative marketplace much better than having to go to individual operators. Yeah, I look at it very much kind of like we need to find a substitute for the rule of law, right, in the digital world, right?

Why do, you know, you can, you know, everyone has their own opinion, but like, why are U.S. markets, you know, the most, you know, again, the most successful markets in the history of the world is that they're ultimately, you know, you can debate it nowadays, but ultimately they're kind of held by a rule of law framework that has proven itself over, you know, like more than essential. now. And the underpinning of the value of a lot of these, you know, the value of private property and things like that is held by the implementation of the rule of law. But the rule of law only exists to a certain extent in the digital world with digitally native currencies. And what is the rule of law? I mean, you know, on one hand, it's the ability he has to throw someone in jail if it doesn't do what the society expects them to do. But it's also kind of just a bit of a common framework, which we agree to operate under which just fast facilitates, right? The attraction. Don't tell me you're going to say it. Don't tell me you're going to say it.

Code is law. Code is law. No, I mean, no far from it. No, no, no. I mean, code is never going to be law, of course. So that's why, you know, you got to be very careful of, but there are, there is room whereby, you know, it's like, it's like in normal law. You don't need to adjudicate everything in court, right? People were making that analogy with lightning back in the days, but it's kind of like, if you have a system in place that align everyone's incentives in a way where the game theory is that it's preferable for everyone, right? It's kind of like Nashikula, The game theory is that everyone is better incentivized to follow the rules and to break apart from it, then you start building a system that it relies on trust as much as much as it relies on incentives.

And I think we haven't done a lot of that, right? This is kind of when you were asking, how do we mature out of this last era of Bitcoin is stop being so pedantic about trying to disenfranchise the individual, the institution, and their ability to kind of have agency in the market by collaborating with others, right? It is true that, you know, the ultimate form of agency is the sovereignty of the individual, but the reason why, you know, free market capitalism works is that, you know, listen, we operate the market that we're able to collaborate with one another to achieve the outcomes that we need. And this needs some sort of rules, right? This needs like the ultimate law, the only law in

Bitcoin is the laws of consensus, right? And those are the ones that everyone needs to abide by. No one can really debate or discuss. Well, certainly they can debate or discuss them, but in their individual agency, there are very little recourse to be able to change them. But on top of that, there's a, there's room for systems of rules.

And this is what protocols are, right? You know, smart contracts are protocols. Nick Sable used to refer to them as functionary code, right? Functionary protocols, which is how do you, these kind of flow charts that you think about,

maybe if you've taken like an account, accounting class back in college. And you think about these flowcharts where it's like, okay, the auditor signs off on this transaction, this debit, and then it goes somewhere, and then the treasurer, whatever, and so on and so forth, right? And I mean, there's books and books and books and books of these processes that are embedded in the Fiat monetary system.

And it's part of the reason why it's, you know, as big as it is. So the way that I see it is we have a lot of work to do to kind of pick up the slack and kind of be able to create these types of frameworks so that regardless of where you come from, if you're an ardent sovereign maximalist that's never going to trust anyone with your coin or you're a sort of middle-aged person that prefers dealing with Coinbase or whatever, there needs to be some sort of ways by which we can connect all of these people together. And these are the market interface that we're hoping to create with arcade and with our clubs. Well, I love to see it. I've been telling you, I'm going to see you in person and in DMs. Like, I think what you guys have been building, what you've been teasing is very exciting.

I think you are finding success in achieving your goal of sort of expanding the conversation and pushing the boundaries of how we think about individuals interacting with Bitcoin, businesses interacting with Bitcoin and interacting with each other as interacting with the protocol at different layers. And I think Arc Labs Arcade has been a breadth of fresh air that's been underappreciated in the market for quite a while now. But I think, per our discussions and DMs, it seems like you guys are really ready to begin leaning in and going after all this stuff that we just discussed. So I'm very excited to see that.

But before we wrap up to, I mean, AI has been a sub-themed throughout this conversation. And I think it would be remiss if we did it sort of tie the knot on that theme and what it means for the state of Bitcoin security today. what it means for the state of Bitcoin security, maybe a year or two years from now. Are we going through hell right now to harden the system to make it more robust than we could have ever imagined just a year ago, a year from now? And then what does it look like hardening the system? I saw that Prem AI announced this morning launched a cyber scam, which is Prem's proprietary security agent for vulnerability detection, built partnership with Arc Labs, and Breeze Tech, obviously we've seen the Bitcoin Red Team, supported by individual donors, donors, excuse me, and open sets.

And what does the security landscape within Bitcoin look like today and a year from now? You know, it's interesting. I think I mean, those are maybe words that I'm going to. to eat, but I think it's as bad as it's going to get, meaning it's going to get better from here on out, I believe. And that is because as bad as we got hit and probably in certain ways we're continuing to get hit by the advance in these frontier models. At the very same time where when the, you know, the attack surface became obvious and just fucking manifested itself by the various attacks we've seen play out, you know, during this month.

The AI, again, the scope of AI development as fundamentally shifted as well, right? And so now you're seeing the open source models catching up. I mean, the open source models are the entire story here, right? They were the attackers, or at least, sorry, they were used by the attackers, or most likely we suspect that they were. And they were also the ones that were being used to fend off the attackers. And I think that's a massive story, if only for the fact that, you know, I think that's a big debate.

within the technical community now as to whether or not, I guess, whether or not it's possible at all to write secure software in this day and age. And, you know, as someone who knows nothing about software, or at least hasn't written any software other than vibe coded something, my intuition and always someone that kind of operates, always off of my intuition is that it's actually going to make writing software and safe and secure software much easier than it's ever been. And I think you can get a lot of that software to certain security domains and sort of standard of deployments where, you know, when you look

at the spectrum of security of software, you know, maybe on the further most secure end of the spectrum is all of these what has been referred to as a kind of formally verified systems, right? Where you can kind of mathematically

prove the integrity of the system, right? whereby literally, you know, unless you get to a point where, you know, it's a different conversations if AI starts breaking you know, elliptic curve cryptography, I think we're not really there yet.

But if we assume that cryptography is sound and is going to remain secure for the foreseeable future, I think we can push the development of Bitcoin software into a direction where you're going to need to harden kind of like the dependencies, right? because a lot of the security failures, a lot of time, they come from this seemingly small dependency in your code that calls another service, and perhaps that service gets compromised, and it opens up an avenue for compromise of your own system. So it's going to be teamwork, right?

It's like you can build the most secure system that you want for your own organization. But ultimately, if everyone, again, kind of like doesn't do the same thing, it only takes one, in a lot of cases, it only takes one domino to make the whole thing fall apart. You're only as strong as your weakest link. Yeah, exactly. I mean, yeah, it's very true in some ways. But so, I mean, so this is why, you know, Part of that then becomes how do you assess those threats?

And this is why Prem being kind of a non-official sister company of Arc Labs, actually, a project that is led by one of the co-founder of ArcLab, a completely separate project in its own right. It's been around for a couple of years already. and, you know, they started off with the thesis of sovereign AI and prem being in part meaning on-prem, you know, so on-premise, meaning local AI, locally deployed AI. And they've been doubling down on that for, again, the last couple of years. And, you know, what we've seen over the last couple of months is just such a validation of the direction that they were going into. win. So it really has been, you know, as far as their concern, such an opportunity to kind of

put themselves on the scene and demonstrate the expertise that they've acquired. And so one of the thing that we did with them, the moment that, you know, some of those dominoes started falling is get together in the same way that the Red team did with Rob and Cali and all of that. I think it was, again, there's not just a single group of person or contributors or individuals. It was a collective effort across all different kinds of teams. And what we did is in a lot of ways, very similar to Red Team or, you know, project loop from Block, from Spiral, sorry, which is just create a secure security harness. What is our harness?

It's just sort of a scope AI. It's a method by which you're able to run scans of your software, of your projects via an AI model and instruct the model to work in very specific ways whereby it's going to look at very specific part of the codes and follow a certain mechanism to really audit. Because you can go on Kimmy K3 and give it the GitHub link of the organization, and it's going to do a security audit. But we know that these processes of these AI and these LLMs, it's not deterministic.

It's very random. You never really know how it's going to go through. And in a lot of cases, for whatever reason, it's going to skip one part of the code that might be more critical than the other. And you never know. It just does not tell you. So you kind of have to be very stringent in terms of, you know, what you want the audit to actually be able to do.

So, you know, in the last couple of weeks, working with Breeze, working with us internally, Andrew, you know, I mean, we didn't talk about Andrew Cooks, but, you know, obviously on our end at our clubs, we were certainly talking about. targets of attacks by people poking around. Unfortunately, we, you know, we dutch the bullets and we're able to harden our infrastructure before sort of any vulnerability was exposed. But, you know, Cook's RCTO, Andrew, is also a de-mainter, one of the maintainer of BTCPay server.

And unfortunately, they were not as lucky as we were. And so Andrew decided to put a lot of work, you know, and I think just, you know, I think everyone is kind of like scrapping together and learning as, as we all go in terms of, okay, how do we adapt to this new threat? What can we put in place? But the pace, man, the pace, again, this all comes back to the acceleration is like, dude, I'm seeing what's playing out and the ability now with prem to do constant monitoring. So, you know, it's like, no, you're not doing like a security audit every, every quarter. You have a machine and an agent that's running a permanent security audit on your system. If there's a new poll request that comes in, a new commitment to the code base, that gets audited, that gets cross-checked. And so you have something that's a lot more robust.

And so generally, I'm super, I'm super positive. I mean, I think it's just like, I think AIs are just getting so good as well that, you know, they're going to just write secure code. I think it's possible to do it. I mean, I'm, I've been on the, I don't know if I'm even just a reliable opinion at this point, at least in the last couple of weeks, because man, I'm on this, I'm on the edge of the one-shoted sort of meme. where it's you know for the last year there's been kind of like these cycles and I remember very distinctly like two or three occurrence of me chatting with a friend and being like yeah you know what like the AI models man like they're they they kind of all suck now like yeah like you know I feel like they've all gone to shit like it's like they're not going they're not really I would

tell them, you know, I feel like they're not getting any better. And perhaps they're getting worse. And then inevitably, dude, like a couple of weeks after, somehow, dude, everything would change, right? And somehow I would, and I feel like, I feel like I'm in that position right now where like I was telling you what I'm developing with the vault. And obviously I can't audit any of what's happening. But dude, the quality, I mean, I'm building an app, which

would have taken two years for someone. I built that in four or five days, dude. Yeah. It's insane. And it's not like, it's not a fucking, uh, you know, it's a very complex code base that interacts with, with Bitcoin. And, you know, again, is it full of holes? Maybe.

But the reason why I'm saying I'm on the edge of being one shot at is I was actually having a conversation with Andrew, uh, just yesterday about this. And I was like, man, I feel like, like, I'm getting close to a point where I have to ask you guys, like the developers to be like, hey, like, can you honestly look at this? Because it works. And I wonder if the code is not actually quite good. I have no ability to judge it, to judge it, right?

And maybe it's not. But eventually it's going to be good, maybe even better than the developers can do it. And, you know, I was telling also, Andrew is like, how are the developers going to react to that? right are the developers going to start pushing i feel like we're on the verge of a sort of crisis in the technical community where the developers are going to realize that holy shit like you know the guy that's vibe coded something by himself like he did a better job than i could have possibly done and there's nothing i can like this and like then how do you know how do you yourself kind of accept this out of

outcome, right? Obviously, you can pick up on the tools and start working on with them yourselves, but, man, it's going to be, yeah, the acceleration is completely crazy. So I don't even know what it's going to look like three months from now, let alone a year from now. What it means for us, what we're doing, it has so many implications. And I think that's why it's very hard, you know, from the perspective of someone that operates in technology at the moment to make a plan for that make a plan that's beyond three months the next quarter like focus on what you can do in the next quarter because you don't know what what's next next no it's insane and to your point about using models but like they're getting worse i mean i i agree like you'll use it happened with 4.6 and 4.8 opus for me um but it's become obvious like yeah they'll They'll get you addicted to the crack of the frontier model. And then they'll get a ton of demand for it. And they'll need to train the next model.

So they'll divert GPUs. They just, like, segregate things. And the lack of compute and power that's out there is like the bottleneck right now. But to your point, I, too, have the intuition that it's going to make it, it's going to make it so you can vibe code and very secure systems. And just so when you think about just having competing frontier models, is able to cross-audit each other as you're building. And if the rate of intelligence continues to increase at the pace that it has,

I mean, just logically, you're going to get to the point. And if that's the case, you know, like, I think, you know, what if we're just a couple of models away from, you know, something that can build the, like perfect code, like a perfect least secured system, right? So if that's true, then we're three models. We're actually one more model away from, you know, open source because, you know, you've seen what's happening with, like, Quinn and all of those where you're actually running it on your laptop, right? You're running it locally on your laptop.

You don't need a fucking GPU next to you. And it performs in the same way that, you know, Opus 4.6 did like six months ago. Right. So one, I think there's a certain limit where it's like everyone assumes that. I think a lot of technologists assume that everyone is always going to demand frontier intelligence. But it's like at what point is this true? Right? Eventually, you're going to...

Do you need a thousand IQ? Yeah, no. No, no, exactly. 200 should be able to operate like, like, again, write perfect code. So by the time you're able to write perfect code, you know, unless, again, it's hard. It's hard because it's kind of like all just like, I look at it from a perspective of like singularity and entropy and everything is just like the randomness of everything. It's just like what is even secure code, you know, like in this chaotic environment.

Like you never you never know. Maybe it fucking maybe we're all worried about I said that earlier, but maybe we're all worried about quantum and actually you know, AI is just going to crack an elliptic curve and then we're just all fucked anyways. Hopefully we're not fucked but yeah. Yeah. It's a I mean we go far. down this rapid hole it's never ending but i'm going to give you but i'm very i'm very positive myself

i'm i'm super um i find myself to be very optimistic about all this stuff i mean i feel i feel like really it it with bitcoin with uh with open source hardware with local uh models um it feels to me like we have like in a certain way like bitcoin was, you know, Bitcoin is what we all believe to be the ultimate kind of bearer of sovereignty. But in the world that we live in, it was probably not enough. And I think, you know, local AI models are going to, you know, open source local AI models are going to be kind of like this companion that everyone's going to have to be able to navigate this, this world. And so the convergence is impressive.

Yeah, and if you're out there, like what, you got to touch it. Can you got to use it? I was, I had a couple conversations yesterday. It was like a ton of people out there like, yeah, I use AI, but they're just using chat chobit and Opus or Claude, excuse me, as like another Google search.

It's like, no, you've got to integrate this in the systems. Uh-huh. Great agents and see how these things interact with each other. and it's once you see it, it's hard to become pessimistic. I mean, you can have the lingering thought of ASI leading to the paperclip problem and us bringing sky net to the world. But I don't know, to your point, these things aren't deterministic and I don't think they never will be.

Yeah, no, no, exactly. No, I mean, I'm a huge bear on, on AGI. I don't think, like, I don't mean, I, I, I, I, I, I, I, I, I, I, I, I don't think that this class of intelligence, if you can call it that, is ever going to get close to. You can tell, you know, like, it's kind of ridiculous how good they are at doing a million things. But you can still, you know, you can still tell that they're kind of dumb as rock, right? It's kind of like, it's just like, as our friend Rob always says, it's just like pulling the slot machine and just getting a random result. And maybe it's going to be, it's going to be great.

maybe it's going to be completely retarded. And so from that perspective, there's very little that tells me that, but maybe they'll fucking figure, you know, maybe they'll pull this slut machine one day and they'll be like, oh, yeah, I found a way to get smart, you know, to actually be smart. Seventh across the board every time. Yeah. Well, it's been great catching up, dude. Thank you for coming on.

I'm pumped to see what you guys are pushing out at arcade and arc labs and love to see you guys collaborating with breeze and prem to secure these systems. And like you, it's been a, I'm very optimistic on the future of Bitcoin. I think we've learned a lot of hard lessons in the last month, a lot of introspection and reflection. It's certainly been part of my day-to-day process over the last three weeks. And I think it's hard to say to your point about like this cathartic release that the cold card thing probably represented. It's just like I'm not going to come out and say it's hard to say, but lessons that for me personally, taking very seriously and hopefully we'll leave.

to better outcomes, better conversations, better risk assessments in the future. Yeah, and hopefully better or kind of more willingness to contribute also in whatever ways is available to people, you know, just circling back to this AI conversation. I mean, one of the reason why I'm so optimistic and one of the reason why I feel like at our clubs and with Arcade, we've been able to keep ourselves away from the distraction and kind of survive through this very difficult bear market and whatnot is that we, you know, controlled our narrative. We shaped our own future. We were not out there trying to, um, entertain identity politics or whatever that might have been or just like, you know, it's just like, man, there's never been a better time to build in Bitcoin.

Like every, you know, we've literally hit a knock on wood like peak bottom from here. And if you think that, this is the case, every single bare market, right? but we we through the through the deepest part of the bear market, we always underestimate how crazy things can get during the next bull phase. And I think people are in the state right now where kind of like people are dejected.

There's a lot of apathy about the future Bitcoin and our suits going to control everything and whatever that might be and whatnot. And well, listen, like if you care about it that much, one of the thing that you can do is not just, you know, yap about it on Twitter, but listen, man, just get a couple of agents going and let's just fucking churn out some product ideas and try to contribute in some ways.

There's really no excuse anymore. And if you have an idea and if you think things should be better, like act on it because otherwise, you're not going to have an excuse. You don't have to build a full-fledged product either. Like it was a simple. No, exactly. Exactly. The developer can look at and be like, oh, yeah, that is actually pretty cool.

That's how you would actually make it viable. That's the most. I mean, everyone now, like my, I, again, I am not going to be able to write a secure code base myself ever. But I'm at a point now where I can own an entire sort of product, design, scope, research phase and execute on it in a matter of a week. and have a proof of concept and a prototype that actually works on UnityNet. And I can go tell Andrew, like, hey, listen, Andrew, like, I know you've been busy kind of, you know, patching every code base and making sure that everything is secure. In the meantime, you know, here's what I've, because I don't, you know, I'm not going to touch that.

You don't want me touching the critical parts and fixing everything. But while you're busy doing this, like here's what about, here's the direction, here's a direction that I thought we might want to take. And when you get back to things being a little more normal, like this gets us ahead of steam in terms of being like, okay, do we discard this idea or do we start iterating on top of it? And yeah, there's just like, there's just so much opportunity for people to participate. And it's a better remedy to be able to get through. I can tell you 100% from my perspective that if I hadn't been at ARC labs and I hadn't had this opportunity to work on this project in the last two years, I probably would have been completely checked out of Bitcoin. You know, I would probably have my own little stash and I'd probably,

you know, be shit posting here and there on Twitter. But actually, I'm afraid that I would have probably fell into one of these, you know, just aimless identity sort of like wars. Because I'm a sucker for a lot of that's shit, but at least I found that, you know, I have an outlet now. So I would encourage people to just put their energy there. And with, you know, hopefully the market rallying back, you know, the opportunities will manifest themselves. It might not look like there's a lot of market, there's a lot of demand, there's a lot of attention for some of the ideas that people have at the moment.

But, man, this industry is going to be 10, 50 times bigger in the span of a couple of years the next decade. If you think that the people that own the application layer right now or own the service layer right now are going to be the same 10 years from now, when you're kidding yourself, right? I mean, there's just like, there's going to be so much market.

There's never going to be one light spark. And listen, I love the guys at Lights Park. I've always been very, very explicit that we don't see them as competitors what we're doing at Arc Labs and Arcane. And if there's room for collaboration, there would be happy to do so. But the point is, again, that there's going to be room for 10 light sparks in 10 years from now. So, you know, if you think that they have built something good that works and, you know, look into perhaps using that model and serving eventually a different part of the market with perhaps that has different demand.

but there's really no excuse for anyone anymore. So, yeah, this is what makes me optimistic. And this is why I kind of keep my circle tight with hopefully people that are of the same idea and that have never kind of reliant. I mean, dude, yeah. Let's just say we've lost a lot of good warriors, if you can call it that in this bear market, it seems like. I don't know if we're going to get them back.

Hopefully we do. but hopefully it's in a context again where they can contribute in healthy ways and not just kind of like in the social area of X. Yeah. The ROI on engaging that is very well, if positive at all. Yeah. But time is a flat circle. This happens every bare market.

Exactly. I appreciate you again, coming on doing what you. you do and we'll do this again at some point yeah man thanks for hearing me out and uh yeah it's hopefully we bump into each other soon yeah all right peace and love freaks okay peace man thank you for listening to this episode of tfTC if you've made it this far i imagine you got some value out of the episode if so please share it far and wide with your friends and family we're looking to get the word out there also wherever you're listening where that's youtube apple spot Spotify, make sure you like and subscribe to the show.

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