TFTC: A Bitcoin Podcast - Tales from the Crypt #6: Matt Corallo Pt. I

Episode Date: December 12, 2017

Join Marty as he sits down with Matt Corallo, a Bitcoin Core contributor, to discuss Bitcoin, the current altcoin landscape, scaling blockchains, cryptokitties, all time highs + bubbles, and much more. Drink of choice for this Happy Hour was Brooklyn Brewery's Pilsner.

What is up freaks? Welcome back to Tales from the Crypt. We're here on another Friday afternoon, happy hour, sitting in Barstool Sports Studios in Flatiron, part of New York City. Sitting down with another very special guest as always, another member of the Chaincode Labs team, bitcoin core contributor um and somebody who's been with core for for uh years now and somebody i respect his twitter game's great that's how i found him um and was fortunate enough to meet him at a bit devs meet up here in new york as well so i'd like to introduce you all to matt corral matt welcome to the podcast hey thanks for having me thanks for being here i know um i know friday afternoons are tough to get in the studio but uh i think i think these pilsners will help will

help ease the situation i had to bribe you to get i'm i'm easily lured by free beer um yeah so i wanted to let's just jump right into it uh you've been a core dev for how many years now um let's see i got into bitcoin kind of early 2011 in february 2011 i think and i think my first contribution was late summer 2011 so a number of years now how'd you find it what's your bitcoin story a podcast ironically um a podcast that i listened to regularly did a whole like hour long introduction of bitcoin which really exposed me to a lot of the technical details and a lot of stuff that maybe i otherwise wouldn't have wouldn't have come across it was around the time of i think maybe the second or third slash starting so and what were you doing before bitcoin i was in high

school actually in fact i was still in high school for the first year and change that i contributed to bitcoin um all right so you're younger than me i always thought we were like the same age uh yeah um i was the youngest by i think 11 at blockstream of the co-founding team so i'm yeah that's incredible that's incredible i never knew that um so one thing that that you've worked on that you are working on uh and sort of built in the past is the fiber network uh for you freaks out there that don't know the fiber network stands for fast internet bitcoin relay engine um and this is uh this is something that allows uh people to relay blocks with a network of nodes uh with almost no delay and why why is this important or why was this important

when you were building it yeah so so fiber is kind of a maybe the third generation of kind of fast block relay stuff that i've worked on um so maybe a year or two after the selfish mining paper. So if you remember, gosh, I don't remember what year it is anymore. But selfish mining is an attack on Bitcoin that was known on some various parts of the Bitcoin community. And then the selfish mining paper by Emin Gonsir and a few others formalized it. And so it's this attack where if you have kind of better network connectivity than all of the other miners, you can get more blocks than you necessarily should with a given hash rate so let's say you have 10 of the network hash rate if you are successful at a selfish mining attack you might

get for example 12 of blocks um if as your hash rate goes up your potential for gains increases so if you have 40 of hash rate you might get 60 of blocks so you can get a pretty big advantage and do these problems have to deal with like local internet latency or yeah so i mean any internet latency if you if you can have i'm gonna butcher exactly the the network setup but effectively if you can have a better visibility into when other miners find blocks and you can race their blocks and when they find a block they have to tell everyone else about it if you can hear that they found a block and then tell everyone else faster about your block than they can tell people about their block then you could potentially significantly increase your gains

yes this is very reminiscent of the high frequency trading problem we have in traditional financial markets sort of the high freaks what flash boys was written about these algorithms were sort of cutting the line and and siphoning off fractions of a penny but yeah i mean the the kind of original high frequency trading stuff was all about uh having information asymmetry hearing about some trade in new york and acting based on it in london faster than anyone else can it's very very similar attack um so to answer your question i guess the um so i one kind of obvious solution to this is to try to put everyone on equal footing right if you can only pull this attack if you have better network visibility than everyone else, then providing a free and open and anyone can

use it network that has hopefully really good network properties and really fast relay will make it so that no one can get this kind of really easy advantage, or at least we'll have to put in orders of magnitude more effort to do it. And so I've built and maintained various networks over the years. Fiber is kind of the latest generation and is based on all kinds of interesting other kind of low-level technology to make it just super super fast to make it very reliably i don't know 10 milliseconds 20 milliseconds more than the speed of light between servers so it's speed of light between servers you know if you're crossing an ocean can be 80 100 milliseconds round trip so damn and one important thing one important tidbit you said in that rant there is that you are

maintaining this so you personally right so what i understand a couple bit devs meetups ago you're saying that so you're paying for like the or the yeah i pay for some servers now yeah to do it i originally ran some of these networks paid for some really cheap vms um and then i figured you know there's even better advantages to be had if i get really nice dedicated servers and i try to get some folks to um to to fund me to do it and got some folks to pay for the servers but it's a real pain in the ass to harass people to give you money on a regular basis so i i eventually gave that up moved back to some some uh vms and i'm now paying a few hundred bucks a month to run this thing are there any efforts to to sort of make this more aware to the community that this is

something that maybe we should crowdfund yeah i mean i think it's not not a huge deal in terms of money um but it's also something that you know if you are a regular user you don't really care you don't have any reason to use this network right what do you care if you get a block in one second versus 10 seconds after a miner found it it doesn't really matter to you whereas of course if you're a miner one second or 10 second can make the difference between going out of business and being in business yeah um so you know it's something i i work with a lot of pools and some miners on it but i mean i think it's a great example of something in the space or someone in the space is selfless and sort of i don't want to make it blush or anything here but like this sort

of this is a peer-to-peer network and individuals if they want can contribute and make it better and what you're doing with fiber i would put forward is something very selfless to a certain extent and um is people need to follow your example yeah don't get me wrong i mean the technology itself is fascinating um a lot of the stuff that went into it is really just really interesting technology to me i mean building kind of really low latency um networking and very low latency processing for you know there's not many other excuses to do that in bitcoin at kind of that level um but just really fun to build yeah if i'm honest um so another part of the bitcoin tech that you're interested in from what i can tell is fungibility um i was watching your talk

uh with adam back last year in milan um about fungibility and sort of the the uh the tools that are out there in the in the crypto world that that help fungibility um for their uh for the freaks out there i guess we should start uh defining fungibility what is fungibility for somebody who's new to bitcoin yeah i mean so it goes back to i don't know 13th century scottish court case or something absurd but all of that aside all it means is that one bitcoin is one bitcoin is one bitcoin that if you receive a bitcoin from someone who just received it from silk road that should be no different to you from someone who paid you bitcoin directly from coinbase or some other reputable company um because ultimately you know just like cash right if you

had if you had some responsibility for every time you received a 20 bill to make sure that there's no cocaine on the 20 bill then all of a sudden every corner store has to hire some drug sniffing dog and it just becomes ridiculous and no one can do business completely inefficient right so so this ends up being really critical property for bitcoin to function because if everyone has to pay chain analysis or coin validation or whatever some third-party company for every bitcoin they receive and make sure it's not on some blacklist then bitcoin is useless and like why the hell did we build this distributed system this peer-to-peer thing if you just have to ask bob whether or not this coin is okay yeah and that's one thing the ceo of chain analysis was on cnbc earlier today

saying that uh he thinks this bitcoin rally rallies ephemeral it might be but um yeah that's something that skews me out in the space is companies like chain analysis that are really trying to track people down and not track people down but follow people on the bitcoin network which again like you touched on is sort of against the whole ethos of why this technology was invented or discovered yeah i mean it's not something we're going to be able to stop right now in the current technology landscape that is bitcoin um it has become a part of the pitch to regulators that bitcoin is okay so there's a lot of folks who have over the years spoken to regulators and when regulators ask about silk road or regulators ask about whatever kind of money

laundering issues they point to coin analysis chain analysis coin validation whatever and they point to these guys and they say like no actually we we do monitoring of where transactions are flowing and try to identify cases that are potentially illegal or potentially you know against some jurisdictions wishes um and and it has been a very successful arguments to regulator to regulators um it's so i you know it's something that's not all bad and you can't just kind of write it off and say like this is terrible it has helped bitcoin in some ways but at the same time it's something that at a technology layer i think we need to work our best to get rid of i think this is um it's funny to compare this to kind of early days internet

if you talk to a lot of the folks or at least some of the folks who kind of were in building kind of the internet and getting excited about the internet in on day one like building the web right you compare what their vision was to the internet today and how people actually interact with the internet today and for all intents and purposes the internet has failed to live up to its vision really right because today there's a lot of places and to some extent also in the west where the internet is facebook and like that i mean that's not the internet that was people wanted to build right they wanted to build this great decentralizing force that would open up markets and open up media and information and information sharing and it wouldn't be

controlled in wild gardens that's facebook's trying to become like the one-stop shop for the internet that's yeah that's zuck's goal yeah and and it has succeeded in some countries in some parts of the world so you know i mean to some extent the internet failed in that regard in some areas and bitcoin has a lot of potential to go down the same route it has a lot of potential to fall into similar traps where it is going to be you know you can build a centralized system on top of bitcoin that's going to be better than just using bitcoin directly you always will be able to just like facebook can build on top of the internet and give you a better product than like going on craigslist so you know it's always about how do we make sure big fan of craigslist

by the way i like craigslist yeah i mean it's helped me find many apartments it's a perfect example of uh of a website with utility that doesn't need great design yeah yeah i'm kind of impressed that craigslist is still around with such interesting design but anyway sorry to interrupt no good um no i i think we have a lot of risk of bitcoin going down the same route so we have to make sure that the kind of easy route and the most you know the the technology forces you down a route or at least strongly incentivizes you down a route or if nothing else doesn't you You know, that Bitcoin used in a decentralized and open way is as close in terms of user experience and in terms of quality of service and whatever that we can get compared to, you know, using Coinbase and only paying people within Coinbase or whatever it is. right and it looks like i mean that's one thing john and i talked about was people need to exert

some some sense of patience because it's going to take time to build these these uh apps with good ux yeah um it looks like we might have one on the horizon in lightning um yeah some of the lightning apps look really slick i mean i was i i'm sure uh a few of you bitcoiners that are listening um have seen jack mauler's app app that looks really cool yeah uh that's what and they're testing that on y'all's network y'all's.org locate locate the best troll troll in bitcoin oh yeah oh yeah i think uh it's gonna be a billion dollar company by the end of the year i thought that was yours yeah whatever both of yours or not yeah same thing right um yeah basically um actually not basically i mean one of the stessnet coin ones other coins i don't know

yeah bcash or bitcoin cash don't don't say bcash in front of jihad or roger um not in front of roger but let's go back let's go back to fungibility for a second here like our what how are we getting are we getting better do you think or do we're getting worse are we getting less fungible or more fungible as we move forward and what projects are helping or hurting i think we are i think this is maybe a controversial opinion uh within the development community but i love controversy here but i think we've we've lost the fungibility battle at the blockchain layer I think there's still a lot of desire to add better fungibility at the blockchain layer, whether that's through confidential transactions, which is a Blockstream design that has been worked on by numerous people and kind of spawned Mimblewimble or some various other proposals.

um but but i don't think those are kind of likely to happen anytime soon because i mean one the the kind of design the technology isn't there yet the crypto isn't quite there to be scalable in the way people would like um and and but more importantly i think some of these folks who excuse me some of these folks who sorry some of these folks who um yeah so some of these folks who have built a relationship with regulators on the basis of coin validation and chain analysis and some of these products are going to be very vocal about objecting to changes to add more fungibility to the bitcoin blockchain layer um i'm still i am i i would hope that we succeed in adding more fungibility properties of the bitcoin blockchain layer and there's certainly things people can do

on an individual level and wallet management and stuff like that and coin selection that would improve significantly but i'm not i don't know that things are going to happen directly at the consensus layer i think everything in fungibility is going to happen at the next layers up but i think there's a lot we can do there so i mentioned coin selection just the way your wallet works so having your wallet you know use more addresses and having your wallet be smarter about making it obvious which coins all go together in one wallet that's something that could use a lot of work right now yeah but also i mean when you think about things like lightning and tumble bit and some of these side chain stuff a lot of the second layer of scalability solutions

that people are talking about right now have really good fungibility properties or at least potentially and i think that was kind of the thrust of the scaling bitcoin talk that you mentioned that i gave with adam where it's really about talking about fungibility really matters but also we don't have to get it at the bitcoin consensus layer we can get it at the next layers up and the ways people interact with bitcoin or are going to interact with bitcoin in the future potentially we can start setting the stage now to win the fungibility battle there even if we don't win it at the consensus layer yeah and then you have like really creative um sort of uh workarounds to this like projects like open dime with uh rodolfo like that's one very

interesting project that that fascinates me because uh free freaks out there they don't know what open dime is it's basically a usb stick that you would transact as you would dollars your you would put a certain amount of bitcoin on that open dime and you'd hand it off physically to somebody without ever making a transaction on the blockchain um what are your thoughts on open dime i don't know yeah i mean obviously it's a different trust model right there is it's not quite like dollar in the sense that like if someone hands you a dollar and it's fake you probably are still going to be able to spend it like let's be honest um whereas open dime if someone hands you an open dime where the the underlying bitcoin in it doesn't actually exist or it's a fake or something

that you're probably screwed um but but that's not to say it's not really cool i mean i think it's important to explore a lot of different trust models and how people use bitcoin because that's what's going to lead to really interesting fungibility properties and really interesting scalability properties and all these things that you're not going to get if we all stick with the same trust model of, well, I need six confirmations on the blockchain. But

for exploring new trust models, OpenTime is really awesome, and certainly for small value like I take OpenTime. Yeah. Definitely look up OpenTime if you haven't already. It's a very interesting hardware tech in my opinion. And Rodolfo

I don't know if I'm pronouncing his name right, is one of my favorites on crypto twitter um but let's uh let's take this down to lightning because light there's a lot of talk about lightning um recently they just launched on the main main net they're doing some transactions on the main net correct yeah my understanding is they um they don't they haven't released the software yet for it uh it should be soon tm um but they but they have been testing on main net and they've been they've been kind of prepping all of their the various teams prepping all the implementations to make them make sure they're

compatible on mainnet and if we were to uh break this down for the listeners how would you describe lightning network um lightning network is the ultimate implementation of something which was designed and explicitly uh provided for in the bitcoin protocol by satoshi really yeah payment channel payment channels for satoshi's idea and building payment channel networks an obvious extension of that lightning is a really clever trick to making those uh more scalable on a broad network instead of kind of the centralized payment channel networks that people were expecting previously um but i mean the amount of work that's gone into lightning shouldn't be discarded but these guys have built this kind of super scalable way to move bitcoins between people

in this network where you're really moving bitcoin you're not moving some like bitcoin that will be settled later or whatever you're moving bitcoin between people in this network in a way that scales are very very well i mean like almost as well as you can do in terms of like just being able to send money instantly and touched on this last week with john a little bit but let's let's talk about first layer scaling versus second layer like so there's again freaks there's a huge debate about whether every transaction should be at the protocol level on chain or we should build uh second layers that handle a lot of the traffic and this is my opinion and john and i actually didn't get to talk about this on air we had a conversation after that i

wish we were recording but in my opinion the way i visualize bitcoin and see it growing is that we should have a slow dumb protocol at the protocol level that is a little cumbersome to some extent it's 10 minute confirmation times um it's going to be more expensive if everybody's trying to do things on chain i think we should have a keep it simple stupid mindset with the protocol level just keep it slow and lumbersome and then build apps on top of that um yeah what what is your opinion what what is the argument for yeah how would you argue for this if you if you do agree yeah i mean i i mean i think obviously that's kind of my impression i think it's i think there are if you want something other than that there are how many altcoins that will provide you that

i mean and to take your pick about how you think bitcoin should be changed there's an altcoin that does it in that way right so i mean if there's if there's something that differentiates bitcoin still it's the amount of you know kind of the conservatism towards changes and kind of that viewpoint that it is a system that should be as robust as possible and then you can build things on top of it and making sure that it is easy to build things on top that are as good as you can do i mean as for your kind of earlier question about just how you know how should we be thinking about scaling bitcoin i mean this gets back to the comments on open dime right bitcoin should be we should be exploring what trust models make sense in what contexts right so you don't always

have to take a transaction on the chain wait a week of confirmations and then be really confident in it in fact no one even does that yet i mean that's kind of the ultimate bitcoin trust model is a week or a month of confirmations really yeah i mean if you were to compromise ali yun which is a chinese chinese amazon web services effectively um plus maybe a few other servers you'd probably get well over 50 of hash rate for a brief period of time you could steal you know whatever four or five pool servers and you would own all of the hash rate for a while of course they'd fix it pretty quick but you'd own it for an hour right so when you're talking about just an hour of confirmations you know maybe that there are some attacks you can do

against that that wouldn't necessarily quote break bitcoin but they would kind of make your six confirmations bogus who knows right so you get a reorg or yeah i mean like if they if you're an spv client or something they could mine invalid blocks maybe they could do a big reorg who knows right so you know there are there are various shades of gray here there's like wait a month of confirmations there's wait six confirmations there's wait one confirmation there's wait no confirmations you know all of these make sense in different contexts similarly there's lightning there's tumble bit there's federated side chains there's merged mind side chains all of these things make sense in different contexts and all fit on this kind of shades of gray of what kind

of trust model you need and who are you willing to trust right if you're willing to trust coinbase and you think coinbase is a great company but you want bitcoin for the 21 million coins property You want it for the stable value because you're in Venezuela and the boulevard is completely screwing you right now. Maybe Coinbase is fine. What's wrong with that, right? It's not – I mean, I think that's controversial in the cryptocurrency community sometimes. But if that is what you want, great. Coinbase is going to provide you a better user experience than, like, Bitcoin on the chain ever will.

yeah and so you know there's a lot of room right now to be exploring different trust models and utilizing all these different trust models as best as we can and i think lightning and all these other things fit into that and building things on top of bitcoin really gives us a lot of room to explore a lot of rooms to scale and a lot of room to kind of make sure that that ultimate bitcoin trust model of looking for transactions on the blockchain really is ultimate in terms of not having to trust anyone while you can still interact with bitcoin in more friendly ways if you're willing to relax that goal yeah no and it's i think this is the most exciting time of bitcoin i mean that could be said at any point in time but um no it's the

emergence of lightning like we're we're finally we're finally going to be experimenting on the second layer which um i'm pumped for yeah and i think everybody else should be even if even if lightning fails i mean it at least we're experimenting i don't think yeah i mean i can't speak with authority on this i don't know if it will or won't but um yeah i mean even if it's only adopted in very small niches so what i mean that's still certain niches that were happy to use this trust model and are no longer competing with you for blockchain space great yeah and um so that's let's segue that into sort of you touched on the conservative nature of the course process right now uh the way they approach bitcoin making changes to the protocol and changes

to bitcoin um so there's there's a lot of blockchains out there that i think we should move fast and break things to a certain extent and have have more uh urgency in scaling um what do you think about the different approaches right now so obviously your core you're conservative um ethereum's move fast and break things bcash maybe move fast and break things they've hard forked and then have they done two hard forks since i think they have done one and they've got two more planned yeah two more planned and then you have coins like monero that have planned hard forks and stuff like that so sort of the landscape of um blockchain uh development uh processes is is is varying right now and if you i don't want to

put you on the spot make you like make you i don't want to say shit on anybody like um what i think like what is what are the advantages and disadvantages to each approach yeah i think maybe at this rate trust is going to be the most used word in this whole podcast but i think trust is maybe a better way to look at these things in context than um than kind of move fast and break things versus conservatism i think the lens through which i look at changes to bitcoin at the consensus layer um and how i compare bitcoin to most other coins in the space has to do with who am i trusting to use it and i think at this kind of viewed through this lens bitcoin is the only system where you don't trust someone else right ethereum whether it's move fast

and break things or not it is clearly you know there's a few developers a few different teams whatever but when they say this is the new ethereum hard fork this is the way it's going that's what happens um maybe with some offshoots here and there uh but same thing with bitcoin cash right bitcoin cash these folks have two planned hard forks and they announced it and they rolled it out and they're like these are the hard forks this is what's going to happen with bitcoin cash great that's fine that's a great way to run a system and depending on your trust model but if my goal is to not trust anyone and use bitcoin or not trust anyone to use bcash i can't right i'm trusting these developers to make decisions for the network that will

ultimately impact the long-term properties of how this network operates and you know and you can argue all day long about whether those properties are good or bad or what the their goals are and what properties bitcoin or other systems should have but ultimately if your goal is to not trust the developers to not trust the community even to change the system out from under you you have to have a process of letting objections take hold of letting if there's some group of stakeholders in the system there's some group of bitcoin users whatever their view is and they say screw you this change makes it so that i can't use bitcoin in the way that i was hoping to in the way that i had planned to kind of have to be willing to say okay so that change

doesn't happen and i think that's the lens through which i view consensus changes in bitcoin because i think looking at it to the lens of like well core is conservative well i think core is conservative in the sense that core doesn't want to quote core you know the group of people that it contribute to core the the kind of core process is that consensus changes don't happen unless there is pretty clear consensus in the community and it's less about kind of technical details and whatever and we do contentious changes to the non-consensus part of Bitcoin Core occasionally. I mean, it's pretty rare that people complain about details of wallet performance improvements, but whatever, you know, we're like a software project when it comes to the wallet,

when it comes to interfaces and APIs and whatever, that's, you know, we're a software project. Yeah. But when it comes to the consensus rules part of Bitcoin core, that is a whole different ballgame. And then we start talking about what is the community view and is there a strong objection in the community? And then what does that mean for. And how do you even measure what the community is? And yeah, I mean, these are these are difficult questions. Very difficult questions. And that's one thing John and I touched on last week where I think a lot of these move fast and break thing mentality chains are a little misguided. is that we're going to find that Bitcoin and other blockchains are going to change us more than we change them to a certain extent.

We're going to – Wow, that's deep. It is. We get cosmic here. This is something that surprised John. He was not ready to get cosmic. I feel like I need another beer for that. I got you.

No, but that's like one thing. Again, like I said, John, I touched on the long-term view of all this stuff and basically touching on we're the first guardians of these technologies. And we envision them to be around for decades, possibly centuries, potentially millennia, who knows. And to think that we're going to be able to figure out exactly how these things work in the first decade as the first arbiters of the network

while we're still trying to figure out exactly what these technologies are. Yeah, totally. I think it's a little hubristic. And like I was telling John last week, I think we're going to find going forward as we live with these blockchains for decades that they change us more than we're going to be able to change them because it is hard to reach that consensus. Like, how do you get to consensus, and does a certain governance model favored over another sort of defeat the purpose of a peer-to-peer network where you can define what your money is, and the fact that a small, somewhat centralized group of people can change it sort of defeats the purpose in my mind. yeah i mean i i tend to wholesale agree there i mean i think the anyone who tells you they they understand bitcoin anyone who tells you they're a bitcoin expert's a fucking moron let's be honest that's what we have no idea for all your freaks that watch barstool

and so this week i got on one of their shows called the rundown and they referred to me as a bitcoin expert while i wasn't on camera i didn't know i'm not a bitcoin expert i've just i've just been fascinated by this for years fair enough and know and know a little bit about the space but but yeah i think i think we're all still discovering what the hell this thing is and what properties you know what property should it have and and what practical details of process of consensus changes and process of whatever and technical details is required for the properties that people want right what but what are all the properties that are important and how do we weigh those properties i think is something we're all still figuring out um someone put it to me uh

likes to call it a culture war right bitcoin right now we're in a culture war we're trying to you know figure out what culture across the bitcoin community is required for the properties that we want with respect to how conscientious changes are made um and and trying to kind of get to the point where your culture wins well i mean ultimately that's going to define what these systems are over the next 10 20 years and so you know people need to be thinking in that context unless how do i make my business run next year exactly and that's my point is that maybe none of the cultures win and they're just forced to to evolve uh to to what bitcoin does and yeah I mean, personally, I meet a lot of Bitcoiners and they'll openly admit Bitcoin has changed my tendencies, my saving tendencies, the way I view money, the way I view going out and spending money.

It has changed me. I know that I'll speak for myself. It has changed my view of money and how I definitely weigh the opportunity cost of spending money versus saving it now. And I was a frivolous, frivolous spender for much of my life. Yeah. I mean, the number of Bitcoiners who got into Bitcoin and then realized that they need to research monetary policy and have an opinion on monetary policy so that they can have conversations with other Bitcoin seems very high. I'm still not convinced that everyone at Bitcoin having an opinion on monetary policy is a good thing, but somehow we all do. We now all have a view on it. Especially at this day and age, I mean, I'm in economics. I was an economics major in college.

That's where I studied, and that's how I came to Bitcoin was from a monetary perspective. But I don't think everybody needs to be an expert on monetary policy, but I think it is a conversation that needs to be had that people should understand what money is because we were sort of born into a situation where it's just like, hey, this is money. This is how it works. I go to the grocery store. I use these dollars. nobody truly understands what they represent and how that system can become bastardized and

is becoming bastardized to a certain extent yeah no i mean the yeah i i don't i don't claim to be an expert in economics it's one of those things that i'm always fascinated by and i've never taken enough uh formal courses or formal formal knowledge on it um but it's always something that i look at and you know any conversation that people talk about especially when you start talking about politics you start talking about you know what people's views are for the future of the country and the future of the world i'm always constantly disappointed by the lack of economics knowledge in that conversation because it's so important it's so i mean everyone's saying money money is the root of everything it's the root of all evil everything starts with money and

especially politics every politician is sitting there like okay first priority is jobs second priority is jobs and third priority is jobs well like okay well all of a sudden you need to be having a pretty detailed conversation about economic macroeconomic structure before you can really you know yeah evaluate that kind of thing and i don't want to get into the nitty-gritty of qe but like you can't you can't i mean this is so the u.s the federal reserve was created in 1913 from 1913 to 2008 their balance sheet expanded from zero dollars to 800 billion almost 100 years 95 years it goes from zero to 800 billion from 2008 till 2014 i think six years it went from 800 billion to 4.3 trillion so you have it's slightly absurd you have an overt quadrupling

of the monetary base that took 100 years to get to that point in six years like just if just looking at nature that that is unnatural and i don't think it's it's uh sustainable in the long run yeah i mean that's it i i mean again i'm no economics expert i don't know shit about economics i shouldn't be uh proclaiming to know anything about it but it seems to me like you know you talk to folks who are watching these things talk to folks who are watching economic theory and trying to apply it to reality they're looking at this thing like oh shit i mean yeah there's nowhere else for people to put their money so they keep putting it in the stock market and they keep putting it in bonds and there's nowhere else in the world

you want to put your money so you end up putting it in u.s bonds and bond rates are low and the fed keeps buying these things so they're low the interest rates are low but the economic theory just doesn't explain anything anymore because everything is so absurd it doesn't make sense But mathematically, it might not make sense, the amount of interest that we have to pay back going forward. It's insane. People don't like to have these conversations. A lot of people keep their heads in the sand and say, oh, we're good, we're good. We're the U.S. government.

The dollar's backed by the U.S. Army. We're going to be good. I mean, the reality is it's backed by people's faith in the U.S. over other places in the world. And right now, there's not many places in the world you'd really want to put your money. No. Europe's been a consistent shitshow since 2008 The US is a shitshow But it's not that much of a shitshow

Donald Trump is our president If you ignore that It's, you know, whatever Like China's still going through All kinds of issues Australia's actually not terrible Although they've been doing too well

Recently, that's not sustainable Russia's a shitshow Everything's a shitshow There's nowhere to put fucking money anymore And the biggest example of this shit show Is actually Japan Abe was re-elected though Abe was re-elected

But They are the prime example They've been doing QE for 30 years And the Bank of Japan Owns I think 80% Of the Japanese government bond market And then 50%

Of the Japanese ETF market so it's funny what's the old saying there's three types of economies in the world developed developing and japan it seems like we're now at developing and japan yeah because like everything else is the same thing now it's just like crazy it doesn't make sense mathematically anymore kind of economy is it's where japan's always been and that's where most of the west is going now so when i was in college i started working for a managed futures fund and so and part of my job there i was an analyst what my job part of my job was was to follow central banks around the world and sort of comment on their monetary policy and while i was doing this you had 22 central banks

around the world coordinating dovish monetary policy so printing money and and trying to inflate stock markets and asset prices yeah it's not sustainable you can't like that is in my opinion like that's why i left it was like a death row of all right we give up we're just gonna pump pump the economies full of assets that we just printed uh and it got to a certain point where all these central banks were setting targets they were setting projections they were never getting close to them and i was like this is all fucking bullshit like i'm not gonna waste my time no it is it is crazy it it's funny because you know historically the response to that is like well the central banks lost it they're crazy everyone takes their money out puts it

somewhere else and then that's kind of what makes the math work economics largely is kind of a self-fulfilling prophecy everyone expects it to behave this way and so the market predicts that prices it in and so that's how things work but but when there's nowhere else to take your money like if some central bank some country is doing something completely crazy and normally you would take your money out of that and put it somewhere else because that's crazy but everyone's doing that all of a sudden it's like well well wait a second normally the way that people get punished by having crazy monetary policy and printing money and whatever else it doesn't work anymore because no one's going to take their money out and what put it under the mattress i mean that's

shit too like go buy gold well you know everyone kind of gave up on that one and that's also not useful like a certain point enter bitcoin enter bitcoin and that's one thing um where are we at 15k yeah we're at like 15.5 i think absolutely absurd uh 15.8 uh very absurd so yeah let's talk about that this week so we started the week with crypto kitties we ended the week at 15 15 800 bitcoin um it's been it's been a chaotic week it's been insane it's been insane and i wrote about today in my newsletter like all the financial analysts out there cnbc bloomberg all the hedge fund managers who are 60 years old and know what the future holds for us uh saying this is unsustainable i would agree to a certain extent it's not going to go up forever

physics has to come into play at some point but i would put forth that we have to start looking at these price charts maybe more as adoption charts and the price is just an indicator of of the adoption level of bitcoin because you have a truly scarce new asset class um that people are pouring money into and then you and you you have a legit liquidity crunch right now because of the huddle mindset that a lot of people in bitcoin have and people are are hearing about bitcoin in the news cycles bitcoin by bitcoin google searches are at all-time highs stuff like that dollars or bust yeah million dollars or bust is i mean it's the uh the morpheus um the morpheus bitcoin meme so you're telling me you haven't seen that one it's uh neo morpheus oh the bitcoin

meme game i mean the meme game in bitcoin is very important uh it is it is i mean we weren't able to hold 11k because there just wasn't the meme game there 9k was the resistant we had what was uh 9k was the 9k was the vegeta vegeta vegeta vegeta i have no idea i haven't watched dragon ball z in too long so here is the morpheus meme what are you trying to tell me that i can trade my bitcoin for millions someday no neo i'm trying to tell you that when you're ready you won't have to oh i do know this one yeah so that's all yeah yeah i mean that that seems to be a mindset it is definitely the liquidity crunch in bitcoin is crazy and what's what was even more hilarious historically and i haven't looked recently but kind of end of last year when we saw the kind of like spam

transaction stuff that people got excited about um it seemed like it there was kind of if you went and read reddit you would have assumed that during a spam attack the price would go down but that's not how it works during all of the spam attacks the price went up and guess why you're increasing demand for the network you can't you can't put your money in a freaking exchange you can't move your money oops the price of moving my money went up maybe i'm not gonna do it yet maybe you know maybe it's not worth it for me to go to an exchange and sell right now because the fees are going up so you know i'm gonna wait and all of a sudden that puts this kind of you know some of the psychology of the market where the market where everyone like

sees a price going flying up and they're like oh shit i'm gonna go sell right now because because i'm super excited some of that psychology stays to go away because there's like this waiting period and you're like oh shit there's like these fees it sucks so i think this will actually be kind of interesting as we get more towards stuff like lightning i mean you look at if there's one niche where folks are i think could very readily adopt lightning it's the folks who want to be able to move their money quickly into an exchange to sell all right so you don't necessarily want to trust an exchange to hold your money but you do want to be able to move quickly into an exchange right now there's kind of no good option or maybe you want to be able to arb between exchanges

there's no good option you look at kind of how quickly can lightning make a difference in different niches of the bitcoin community i think exchanges is a big one right because there's only a few exchanges they have to integrate lightning and all of a sudden you can arb you can start holding your money and be able to sell quickly do they i think that might actually make a difference in the way the bitcoin markets work well we have to get coinbase to uh to upgrade to segwit first before they can interact with lightning right yeah well i mean who knows about coinbase well wasn't it brian armstrong apparently was on cnbc saying like uh segwit's not a priority right now yeah he said that his users don't want it apparently but if you if you go online and read read some of the

twitter comments it seems uh seems like he isn't listening to his users too much i mean he's probably right in terms of volume of users because the vast vast majority of his users never take their money off of coinbase most of his users don't give a fuck about like the blockchain or bitcoin or lightning or anything they're just like ah well i went on coinbase i pressed buy i linked my bank account they pulled money and they gave me bitcoin in coinbase coinbase coin and now i'm magically richer somehow i don't even know and that's one thing so that's one thing i've been spreading in this office this week is that you should get your coins off and exchange it into a personal law they got everybody with hardware wallets here um but like i've been

losing a little bit i'm not gonna lie i've lost a little bit of sleep this morning like thinking in retrospect like the the responsibility of holding your own private keys and holding your own bitcoin that's something i'm going to be uber cautious about moving forward is making sure people really really truly understand what it means to to take your private keys into your own hand like having a safe with a million dollars under your mattress or in your back pocket all the time i mean it is kind of absurd when you think about it yeah it's and so let's let's touch on that for for people that are just bought bitcoin this week and i've been blown up with dms of people like i bought last week but i want to get it off coinbase like what do i do i like i

can't stress enough that you should research this as much as possible and know what you're doing before you move your coins off exchange yeah i mean i think it's also you know research know what you're doing i think at a high level people kind of have an understanding that like yeah okay if I pull it off an exchange, I now have this thing that represents my money. And if I lose it somehow, whether it's a hardware wallet or software wallet file, whatever it is, if I lose it somehow, I'll lose my money. Knowing that versus actually appropriately understanding the risk and taking action to do something about it. So, you know, if it's a hardware wallet, it's making sure that you have a backup that you've tested that's in a safety deposit box somewhere or something

like that right or if it's a software wallet again making sure you have a backup that you've tested that is you know if you have your laptop in your house you don't want to have your backup only in your house you want to have it somewhere else too you know all of these steps that people hear and they kind of understand but yeah you're whatever it's a thousand dollars of bitcoin in at this rate a week it'll be a million dollars in bitcoin people just kind of uh people just kind of write it off and they're like you know risk is low whatever and i'm guilty of it too i mean we all are appropriately valuing that risk is hard um so i mean i don't know but like i don't i don't know what the solution to that is right like people people um people do lose their money in

this way people are going to lose their money in this way but but people also seem to understand it right when people lose their money in this way they lose their wallet or whatever you know you don't have people showing up being like oh fuck bitcoin bitcoin's terrible because i lost my money they show up and they say like yeah i lost my money because i didn't back it up like i was told to i fucked up yeah and like they understand it it's just they don't you know plan for it in advance yeah and let's roll this into a more cosmic topic which is oh dear god no but we're talking i mean yes yes uh we're gonna get a little bit more cosmic here but we're talking about like a change in society like i had santiago siri on about a month ago and he

compared it to when uh cities and countries first got like running water and baths and showers and toilets and people literally had to learn how to wipe their ass out of shower how to bathe themselves every day and we're going to go through this again with private key management and sort of security of your funds i think it's about time and i mean ignore money for a second right we talk about countries where you can vote online using a private key that's in the smart card in your id card right this is private key management whether it's your identity and you can use it to vote or prove that you're 21 and by prove that you're 18 and buy cigarettes or whether it's your money and bitcoin or whatever you know people it's kind of about time that society starts thinking

about private key management ux i don't i don't know that you can ever build a good ux necessarily but you know having having people be more aware of what the fuck a private key is i think has some benefits definitely i mean it would be you'd be ignorant to not to deny those benefits this year especially after the equifax hack and like the target hack like all the hacks that we've had like people yeah people just give their data out will we know i mean we're both guilty of it i'll speak for i'm guilty of it like i do that too but like we need to move away from uh a sort of design where we give all these companies our data to hold on servers and more towards where we hold our data,

we only reveal it when absolutely necessary. Yeah. I mean, obviously, I agree wholesale. I'm certainly guilty of it, and I think everyone is to some extent. But I'm hesitant about the folks who say, like, ah, Bitcoin's going to save us with that. I don't think so, right?

Like, there's, what's the meme? we're going to put our medical data on the blockchain and that's going to fix it wait a second I'm saying like storing your credit card information like on a target server or something like that well

there's an interesting problem there remember so right now if you have a credit card and it gets hacked in some way they get the number they steal it whatever you're not responsible for call your bank you tell them like hey this is fraud maybe they give you a hard time probably not even that

and then you don't lose any money for it. The worst that happens to you is you have to wait a week for a new credit card to come in the mail. Okay, so what? And that's a result of the fact that this is so common, or at least easy, right? It's so easy to steal someone's credit card. It's so easy to steal the number off of it, to take a picture of it, whatever, that banks and our system is built to handle that

in a relatively convenient and easy way. The second we start talking about, well, your money is in a private key, and how did you lose your private key oh that's your fault you're responsible for the fraud well does that have societal risks i don't i don't want to say that that's you know all bad or good but there's always trade-offs here right there's trade-offs to you know a lot of people like to point to social security numbers is kind of the best example or social security numbers are whatever what nine digits something absurdly short four three and two yeah nine nine digits um uh and so they're trivial to steal they're they're like there's no security

there there's no privacy there you give it to all of your medical stuff and you give it to all your bank stuff and like whatever they get stolen all the time give it to coinbase yeah and you give it to equifax which is apparently worse who would have guessed um but well that's the thing with equifax people don't even get it give it to them it was like a third party they collected it from other people most in most cases collected it from coinbase and now you're fucked yeah but but but like the second we start talking about giving you a private key and replacing your social security number with this like private key thing potentially instead of there being a process to deal with a social security number that got stolen even if it's not good and it's really painful and

you have to like pay lawyers and whatever that there is a process there but the second we start saying like okay no your social security number wasn't stolen that's not possible it's a private key you have it like it's given to you you still have the card like no one could have stolen that fuck you all of a sudden when that does happen because it will still happen there is if you ever find a security person who tells you that he can build something that's you know secure fire them if they say they can build something that costs x dollars to secure they're good okay because there's always there's always a way to break it maybe the threshold is a hundred thousand dollars maybe it's a million dollars maybe it's a billion dollars but there is a way to break it

and the second that that threshold gets too high we start assuming that it didn't actually happen yeah if it's a hundred million if it's a million dollars to break someone's social security number and steal it and bob shows up and says like they that's my social security number got stolen like it really did they're going to get told to fuck off and they're going to be on the hook for everything so there are there are still costs yeah and that's yeah again that's something that we touched on earlier like nobody knows exactly how this shit works and how it's going to work but what we do know is that it's revolutionary to a certain extent yeah i mean it is going to carry societal changes it already is like someone was saying uh i read somewhere

this morning some folks were walking down the street in sf and uh overheard some construction workers san fran for you freaks that don't know excuse me excuse me um and we're like listening to some construction workers on the job site uh debating the the merits of different cryptocurrency portfolios which altcoins you should be holding and what that's that's a societal change i think right like all of a sudden all these folks is it a societal change or is it like taxi drivers talking about stocks that old adage is probably taxi drivers talking about stocks but taxi drivers talking about but no but then weird invest unregulated investment schemes but at the same time it goes back to my argument earlier is like are we seeing it are we seeing technology adoption

or are we seeing like uh uh an investment bubble right now investment bubble yes i mean i mean yeah it's definitely a bubble i mean come on there's so many the way we'll know it's not a bubble when the cryptocurrencies that have vaguely competent technology are orders of magnitude worth more than the cryptocurrencies that have incompetent nonsense technology how many i like to refer to i recently started referring to someone's gonna shoot me walking down the street later for this but i recently started referring to iota as the market manipulation index oh my god i've gotten so many dms about iota like all you have to do is send people that medium article from the mit team that audited them it's like how can you trust the iota team after those

vulnerabilities the tech scene there is like garbage it's nonsense right there it's like technology behind iota don't worry entanglement is is the future it's the future trinary computing we're not we're not gonna have binary computers anymore we're preparing for the future that may or may not come it's fine uh but but like the fact that iota gets high on the kind of whatever index you look at whether it's um you know trading volume or whether it's market cap or whatever that when iota gets high on that you know there's like absurdity in this market we're in a bubble so how many blockchain projects outside of bitcoin do you think have vaguely competent technology oh god damn it i was hoping you wouldn't call me on that one um

i think there's a lot of interesting experimentation to be done i think obviously there's some some really obvious standards that are actually really doing good work there's like monero there's this mimble wimble which i think has a test net not not a main net but um there's just like the zcash folks have put a lot of funding into actual development of zk snarks so there's like funding going from zcash into fundamental crypto research we're gonna come back to zcash we're gonna come back there's other trade-offs with zcash that i won't get into um but but um are there other ones probably i mean but like also you know you look at ethan a lot of people like to make ethan to a punching bag and you know i think a lot of their technology decisions

are let's say not ones i would have made but they're experimenting and there are there is some value to experimenting even if it's not necessarily where i would be investing there's value to experimenting so now i'm very very very very very very interested to see the transition to pos on ethereum yeah i what what's most interesting to me about pos i think is so pos stands for proof of stake it's a different way of coming to consensus on a blockchain bitcoin and ethereum at this point use proof of work which is very computer intensive The argument for proof-of-stake is it's less computer-intensive, more energy-efficient. Better for the environment.

Better for the environment. And the knock on POS is that it's not as secure as POW. Yeah, I mean, I think that's probably a fair explanation. I think the interesting thing that I will watch with POS is whether or not the differences in security are accurately explained. I mean, we talked about this earlier, kind of I like that Bitcoin has this property that if you want to use Bitcoin in this like uber secure, really wait for a week of confirmations kind of way, you can. And that's always an option there for you. And then you can choose to have other lower security things. Well, when you start talking about proof of stake, of course, there is no kind of fallback.

This is really secure. I can look at it. It's got all these really nice properties. there's all kinds of weird trade-offs and like well okay in this crazy scenario or in this marginally crazy scenario you you might get screwed right so kind of accurately explaining and accurately compensating for all of these various trade-offs is something that's really not easy and trying to make clear to the ethereum community the investor community and the user community what those trade-offs are between proof of stake ethereum or proof of work bitcoin or

sidechain bitcoin or lightning bitcoin or whatever it is all of a sudden starts to be a really difficult task and i'm i think that's one of the things that i'm really looking for over the next you know 6 to 18 to 24 months about you know how good is the community and actually doing that Yeah, and that's the one thing that sort of perturbs me about Ethereum's plan to transition to POS. There's a lot of assumptions baked into their plan. And we all know what happens when people assume. You make an ass out of you and me. And, again, there's just too many assumptions in my mind for me to be comfortable to think they're going to be able to do it successfully.

But I would love to be proven wrong. Yeah, I mean, define successfully, right, though. Will they successfully switch to a chain that has proof of stake? Yeah, quite possibly. Will they successfully accurately describe the security tradeoffs of that to their users? I mean, I don't know if anyone is capable of doing that appropriately, right? I don't even know if anyone is capable of accurately understanding exactly what all of the security tradeoffs are.

so yeah i mean i don't know yeah nobody knows we're gonna find out we're gonna don't worry vlad's working on it um gotta love vlad i appreciate vlad i really like his comics are great you saw the comics that he made yeah yeah the uh the one of uh everyone's in line for for cryptocurrency to get their transaction in the blockchain guy comes along the the q shorter come to my cryptocurrency not that one that but my favorite of him is a line of people in line just to buy cryptocurrency and the other is just one person in line looking to understand cryptocurrency yeah that one too i like that one the guy looking to understand cryptocurrency yeah so we're again like i said we're in the nation stage of these technologies

we're the first guardians anybody that tells you they know what they're doing is an asshole nobody knows what they're doing at in any in any aspect of life nobody knows what they're doing we're all yeah we're all faking it till we make it exactly exactly the secret is you never make it you just keep taking it yeah you keep faking it and hopefully you have some happy moments along the way yeah there we go that's the key yeah the key is happiness and that's the one thing like all right like with the craze this week with the price with the pricing like people were FOMOing hard like am I gonna miss the boat am I gonna miss the boat like no people going all in at all-time highs and I like in the newsletter this week my one objective was to get everybody

to take a step back take a deep breath and say all right you haven't missed the boat yet like do not FOMO chase this yeah do not spend more money than you can lose never spend more money than you can we live at a time where the average American cannot afford a surprise $400 expense like if you do not have enough disposable income to lose do not go chasing these games like it's absurd yeah don't do not buy bitcoin if you're worried i mean you look in the space i mean you see people buying iota who can't afford to lose 400 and you're like whoa all right that's freaky people buying bitcoin who can't afford to lose the amount that they're buying i think like that's a terrible idea i don't do that but god this i mean this space like like the last however long we've

been talking everything's an experiment all of the space we don't know like like we've been saying right no one knows bitcoin no one knows what the fuck it's gonna be in 10 years no one knows if it's gonna be there in 10 years talking about chasing gains it's just like no and we're at the mecca of chasing gains like this barstool sport like that's that was the topic of choice this week was bitcoin yeah and it's funny though because we're i mean it was a great indicator though because the your average joe still doesn't understand the tech and that's something we need to work on that's why i had this podcast and the newsletter working on education and that's why i sort of get pissed off i don't get pissed off but again miss going back to people being

misguided is like people trying to create new protocols like oh we solved all these problems I was like, let's focus on education first and just, like, figure out. Figure out what Bitcoin is. Yeah. And then let's solve the problem. Yeah, because. I don't know what the problems are yet. There's so much goddamn marketing.

It's like. I should avoid mentioning which cryptocurrency this was. But back in the day, back, I don't know, three or four years ago, every meetup, every Bitcoin meetup, you know, Bitcoin meetups everywhere. it was kind of the only real quote-unquote cryptocurrency at the time you go to any bitcoin meetup and there was like three or four people who were there purely to shill this cryptocurrency and they were paid for it and literally it was hilarious because they they they for i don't know three months four months they were all showing up they were all there every time and they were showing this cryptocurrency hard they were like oh this is gonna replace bitcoin

is going to be great and then there was this point where all of a sudden none of them were shilling that cryptocurrency anymore and you asked a few you know meetups you go to drinks afterwards you ask them they're like well you see i was getting paid but then i was informed i was a volunteer and so now i don't give a fuck anymore and you know what it's a rhyme with cash it's one of the biggest cryptocurrencies right now does it rhyme with cash no no well i'm sure that's happening now but but back three or four years ago now but but in terms of marketing like some of these cryptocurrencies just they spend all their money on marketing and they do very very well it's like yeah but you don't spend any money on technology you're building something that's

actually useful you just spent all your money in marketing well we're we're getting uh we're getting uh you're shitting on other projects now no we're not gonna shit on another project i mean Fuck it. We'll shit on other projects. We're getting a master's degree caliber education on these marketing plans via ICOs this year. You want to talk about perverse incentives, like asking for hundreds of millions of dollars up front with vaporware and pure marketing. like it it's even it the icos that i love are the ones that are pitching to vcs and doing just killer jobs right like if you're a vc right now i shouldn't name names if you're a vc right now right you're sitting here someone comes to you and says like hey i've got this ico you can buy now and then in two weeks it's going to go public and it's going to hit these

unregulated crypto markets and you can dump your share for even if it's only a 20 gain i mean normally it's a 2x gain but even if it's only a 20 game you're talking about vcs who are used to sitting on investments for five years 10 years before they see any profit they're talking about like a week 20 gains that's absurd and it's not even like they're like oh we're going to take this game they have the fiduciary responsibility to take those gains once they arrive so they're So, like, they have to take those gains immediately. And the whole incentive system in these ICOs is so fucking perverse that, like, you give these VCs early round discounted token sales

and then they're able to dump right away as soon as the tokens launch. It's like, what are we trying to do here? Are we trying to, like, create a revolution or are we just trying to make rich people richer? Yeah, are we trying to scam off random people buying random ICOs that probably never build any tech. And then going back to the whole ethos of this, you're going to offer VCs the bulk of your token supply up front,

and these are supposed to be decentralized, sort of saturated tokens, and you're... We've had a number of conversations in the office about it, and it's funny. We get challenged on it, and we're kind of like, yeah you know look free markets free market caveat emptor whatever it's great you can do what you want but what honestly what bugs me more than anything is i you know or you know we kind of the bitcoin community i someone who is focusing on building technology who is focusing on improving

bitcoin and hopefully winning a culture war to set up a bitcoin for 10 years from now you know i i'm getting lumped into this boat with people who are just creating coins giving them to vcs vcs are making a 30 profit passing them off to the public in what is probably illegal in the u.s and then never even building the technology behind it just blatant scams like i'm sitting here in the same bucket as these guys i'm just kind of like i you're not don't want it i mean cryptocurrency sure i mean but cryptocurrency to the population to whatever ends up in the same bucket and it's it's disheartening right it is disheartening that's like that's the thing that people see when they talk about bitcoin or that is what some people see when they talk

about cryptocurrency as a whole well and this goes back to the whole aspect we were talking about earlier of i was saying these things are going to change us more than we change them like this whole ico madness is just a reversion to the systems we're trying to get away from you know conspicuous consumption uh basically creating tokens out of thin air creating money out of thin air that's what it reminds me of um yeah and then going beyond that like you said like it's all vaporware like so much of it so much of it is some of it so much of it is like i'm gonna solve a 30 year old unsolved problem in computer science as long as you give me a hundred million dollars to do it no you're not no you're not you're gonna go chill on a beach and yeah that's

like so i wrote about this in my newsletter earlier this summer it's something that pissed me off beyond belief there was a meetup an ethereum erc20 meetup in austin texas i believe earlier this summer uh i think whale panda like tweeted about it and i went into the meetup group and the description of the meetup group was come we'll teach you how to spin up an erc20 token and launch an ico make sure you have a good marketing plan like it wasn't have a good tech idea like have a good problem to solve it was like make sure you have a good marketing plan like they weren't even like pretending that they're that they're going to create like a life-changing technology yeah when a friend of mine pointed out was like uh you know works in

a co-working space that was holding you know whatever erc20 type meetup um and in kind of the friend was sitting there listening to the to the meetup and was listening to a presentation and the response to every paragraph every line that person said was why and i think that that maybe is symbolic of that of a big part of that community is like you're not allowed to ask why yeah you're not allowed to ask why in the hell does this matter why is this an important thing to build what is this gonna do for anyone you just build it you're not allowed to ask why why do we have crypto kitties so i'm gonna shit on my gachi i'm gonna shit on crypto kitties right now i saw a tweet yesterday that pissed me off and sent me down a dark path that i have to talk

about it was some sam fran fucking tech bro with kids he was like oh my god my daughter just asked me for a crypto kitty i have to buy one for her and i just had like this this daydream where you go down like you just envision the future where you're you revert to the super sweet 16 mentality where you have kids fighting over crypto kitties that their parents fight for and it's just so materialistic and vapid that it pisses me off like it you can buy your tamagotchi on a blockchain now it infuriates me like just don't forget to feed it do you have to feed crypto kitties i don't Well, actually, no. I don't know if you have to feed them, but you have to make them fuck, apparently.

That's what everybody's talking about, is breeding crypto kitties. How to make sure your cats have good sex. That's very important. But, again, we're trying to get away from this culture of conspicuous consumption and fucking fiat money. I mean, I don't know. I don't know if Bitcoin's going to fundamentally change culture in that way. I think that's something that's going to have to happen on its own. But you can do a crypto kitty.

Yeah, you don't need a blockchain to do a CryptoKitty. Yeah, you don't need a blockchain for CryptoKitty. Someone on Twitter was saying, and I have not verified this, I probably shouldn't repeat it, but someone was claiming that the CryptoKitty contract, the way it was set up, there's actually someone who, the person who instantiated the contract is able to change it arbitrarily. Oh, yeah, they are. I read that. So it's not even a decentralized CryptoKitty. It's a CryptoKitty that is centralized, but happens to be on a blockchain.

It's a centralized dApp. It's a centralized, decentralized application. Yeah, that sounds useful. And it completely crippled the Ethereum network, which is supposed to run the world computer that will run apps for everything. For everything. You want your medical data? Even your centralized apps.

Yeah. You run your centralized apps on Ethereum and you blow up Ethereum. Oh, wait, that's not how it's supposed to happen. No. Well, sharding and pruning are coming. Don't worry. Sharding is a joke.

Why is it a joke? Tell me. I think sharding ultimately, so sharding is. What's the argument that sharding makes? So sharding essentially, the basic concept, right, is we have this blockchain, it doesn't scale, and so let's separate it into a bunch of different blockchains and move things between it, right? So basic computer science principle, if I want to run CryptoKitties, maybe we have CryptoKitties mostly on one shard, and then that doesn't affect other shards. That's fine in principle, but what really irks me about sharding is that everyone talking about sharding, they're actually talking about one of two things.

It's either extension blocks or sidechains. It's not new. It's not a new idea. it's just an old idea rebranded and an old idea rebranded but two different old ideas rebranded under the same name with nothing new so like someone says sharding and you don't know if they're talking about extension blocks or side chains normally they're talking about some like magical mystical being that is both a side chain and the scalability properties but it's extension block and the security properties but in reality they don't actually have an idea of how to do that

because it doesn't seem possible to do that and so but so like it it's just like to me it's a joke because if you're talking about sharding that probably means you either a don't have a concrete idea of what your security model is and thus you hand wave hand wave end up with a side chain security model but don't mean to or b you don't have an idea of what scaling is in which case you hand wave hand wave and end up with extension block scaling without really realizing it without meaning to and what irks me the most about the sharding argument is that these guys are so so confident that they're going to be able to do it successfully but like what does successfully mean well i can build a successful side chain right now i can build a successful extension

block right now but what i'm talking about it reminds me of working at the futures fund and meeting so my job was to meet with hedge fund managers that and to understand their trading uh algorithms and their sort of their their strategies behind trading and for a lot of the upstart hedge funds that would come and pitch us they would they would base their future performance on back-tested theoretical returns yeah so they basically run their strategy using data that's already happened so they would sure they would go back like 10 years and say all right if we applied our strategy to the markets 10 years ago and like ran it yeah here's the returns that would be and what you what you would find is as soon as those strategies would go live their actual

returns would be nowhere near what their what their back-tested returns were like yeah and that's what i feel is that that's sort of the analogy that i have like a visceral feeling with sharding and this this transition to pos for ethereum they're like look we're running it on test net we're doing the test for simulating it we're simulating it it's gonna work but just from experience in different aspects of life like the simulation never never is as perfect as reality or reality is never as perfect as a simulation yeah no i think that's that's probably pretty accurate for for shirting and and and proof of stake too i mean proof of stake is it is my impression that proof of stake is something which is more kind of quote-unquote

fragile it's more difficult to get right there's more edge cases that you have to make sure you handle proof of stake the edge cases you have to make sure your handle is like okay well that's actually probably not really gonna happen in real life whereas in proof of stay or sorry proof of work it's the edge cases you're going to handle probably not really going to happen in real life but proof of stake you have edge cases where you're kind of like well maybe this won't happen but unlike proof of work we're like ah well you're gonna see one confirmation that's gonna go away well hopefully you were waiting for six not a huge deal one confirmation reorgs happen all the time with proof of stake you look at it and you're like well here's this case where you think it

is buried with a day of confirmations and then it just kind of disappears or you the network forks and you just have to stop and you have to go ask reddit what the current blockchain is you know making sure you handle these things well i think becomes much more critical in proof of stake and you know i think there's people working on it i don't think it's impossible to handle these cases well but it is more important that you do it and what you know what worries me is that people aren't going to handle all these cases and they're not going to be paying that much attention and they're just going to kind of deploy it and they're going to run simulations and the simulations are going to look fine but in the real world where you have people potentially

attacking it for million dollar profits might be not so accurate i think the dal hacker might be waiting in the brush with some zero days somewhere um that's another that's another bearish case for ethereum right there um because that dude he did pretty well he fucked him up yeah yeah really dead he made short code his in-law well yeah i mean i think i think the dow hack was really interesting when looking at ethereum like i was talking we were talking a bit earlier about kind of what the process for consensus changes might be and what you know this culture war of bitcoin well i think another way to say culture war is what's the precedent what is the precedent for how changes are made and anytime you make a change that to some extent sets a precedent for the future about

what kindness of changes are acceptable to the community and what the community you know is or isn't going to fight back against what i whatever um but when you talk about the dow well there's a precedent there it's a precedent that if you steal enough money and and the people kind of quote unquote in charge lose enough money then fuck you that just gets reverted as long as it's reasonably technically possible to revert it what are you talking about the ethereum community came to consensus after the daof work yeah in like two days and there was a what was it like oh and what was it wasn't half a percentage half a percentage of people voted oh yeah have a percentage of ethereum brothers something like yeah um i mean i don't blame them they were on a timeline and and

further i i really wouldn't blame them like that's that's the kind of system they want to run and that's fine and i think there's a lot of value in that system existing it's not a system i'm interested in it's not a system i want to contribute to it's certainly not a system i would put money in because i'm trusting that development community whether you think they're great developers or not doesn't really matter i don't want to trust them i got into bitcoin because i don't want to trust anyone and so i i have no interest in that but other people do and that's great now that's now i think we can build systems on top of bitcoin that have a similar trust model and also happen to use bitcoin the asset which is depreciated how much this year

and we're gonna cut it there for this episode matt and i had a three-hour conversation i don't want to bore you with it all at once so come back in a couple days i think i'm going to post this on thursday and you'll hear me and matt talk about lightning network side chains vegan versus carnivory diet and a bunch of other stuff again thanks for listening freaks and i'll see you soon peace and love