The Pomp Podcast - #646 Building A Multi-Billion Dollar Bitcoin Company with Adam Back

Episode Date: August 29, 2021

Adam Back is a cryptographer and cypherpunk. He is the CEO of Blockstream, which he co-founded in 2014. He invented Hashcash, which is used in the Bitcoin mining process. In this conversation, we discuss bitcoin, mining, Liquid side-chain, Lightning Network, ASIC chips, decentralization, bitcoin maximalism, Blockstream, and whether he is Satoshi or not. ======================= BlockFi provides financial products for crypto investors. Products include high-yield interest accounts, USD loans, and no fee trading. To start earning today visit: http://www.blockfi.com/Pomp ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Adam Back is a cryptographer and cypherpunk. He is the CEO of Blockstream, which he co-founded in 2014. He also invented Hashcash, which is used in the Bitcoin mining process. In this conversation, we discuss Bitcoin mining, liquid sidechain, the Lightning Network, ASIC chips, decentralization, Bitcoin maximalism, Blockstream, and whether Adam is Satoshi or not. I really enjoyed this conversation with Adam, and I hope you do as well. Before we get into this episode, I want to quickly talk about our sponsors. First up is BlockFi. BlockFi provides

financial products for crypto investors. Those products include a high yield interest bearing account, a US dollar loan product against your crypto collateral, a no fee cryptocurrency trading platform and a Bitcoin rewards credit card where you swipe a normal credit card, but you get paid back in Bitcoin rather than cashback or airline miles. To start earning today, go visit BlockFi.com slash Pomp. I'm an investor in the business and I'm a very happy user. I think you will be too. Go to BlockFi.com slash Pomp today and you can sign up for an account and get that Bitcoin rewards credit card. Again, BlockFi.com slash Pomp. I use mine every day and I think you'll enjoy it next up is choice choice is a new self-directed ira product that i'm really excited

about if you're listening to this you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them but not bitcoin i used to be in that situation too but choice helped me fix that now you can actually buy real bitcoin in your retirement account i'm talking about owning your private keys and using tax advantage dollars to do it too it's an absolute game changer. Go to retirewithchoice.com slash pomp. Again, retirewithchoice.com slash pomp today and you can get that self-directed IRA product that lets you buy Bitcoin in a tax-advantaged way and hold your private keys. Retirewithchoice.com slash pomp. And also, if you're interested, we have a new live show, The Best Business Show, that is on YouTube every single day from 11 a.m.

to 1pm Eastern. It's me and my brothers covering all the things that are relevant in the business world, including Bitcoin, but also the stock market and many other industries. Go check it out by just searching Anthony Pompliano on YouTube, and you can subscribe to the channel and then tune into those live streams from 11am to 1pm Eastern every single day. All right, let's get this episode with Adam. I hope you guys enjoyed this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a

particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Adam, how are you? For those that don't know you or know your background, maybe give us kind of a quick one minute just on your journey in applied cryptography and how you got involved in Bitcoin? So I guess I was in some ways like super early and then kind of came and went a couple of times. So in the mid to late 90s, I was involved in the Cypherpunks list

and cryptography for things like Tor, like anonymous remittance, privacy for browsing and electronic cash. So I'd implemented some of the crypto libraries for DigiCache, kind of centralized but very anonymous electronic cash system. And then I came to invent Hashcash as a kind of postage stamp to make it more difficult for people to spam sending emails and discussion forum posts through the remailers. And usually you'd do that with identity, just blacklist IP addresses and email addresses, but you can't do that when

the sender's anonymous. That was what caused me to think about what's the real problem here? It's free. Let's impose a cost. Credit cards are difficult, but we can do proof of work. That started a multi-year discussion, probably a decade-plus discussion about how to make a re-spendable electronic cash. It involved Hal Finney, Nick Szabo, Wei Dai, and things like B-Money and Bitgold, which are some of the Bitcoin precursors. So that was a kind of early involvement. And then I think I was the first person to get an email from Satoshi Nakamoto sometime in late 2008, asking about Hashcash, Citation. So I exchanged a few emails with him. And so when you first get that email, why does he email you? He, she, they? And what was kind

your reaction or what did you think uh so the question originally was you know i'm i'm developing electronic cash system i'm citing and using your uh paper on hash cash how how should i cite it because it wasn't academic publication it was a kind of research report not my personal website right so how to cite that is a little yeah you know it's not a reference to a journal and a date kind of thing. And so I exchanged some more emails later about other related electronic cash systems. So what I thought about it, well, you know, if you've got some open source software or applied crypto publications online, from time to time you get developers and people doing other applied research, just email you out of the blue and ask you questions or send

links to what they're working on, see their ideas, ask for feedback, that kind of thing. So it didn't occur to me that Satoshi Nakamoto was a pseudonym actually at the time. And obviously, as somebody who'd been interested in the bulk of electronic cash for a long time, I thought it was pretty interesting. But at that stage, it was an open question, I guess, to everybody about whether this would actually bootstrap. So I think that was what because there were no exchanges in the early days and just kind of people mining, starting to trade things for Bitcoin, like pizzas for enormous today, enormous amount of Bitcoin and things like that. So it took some years till that, till I think there were different targets,

like a dollar or a hundred dollars and people would think, well, actually maybe it is going going to take off you know because it's unclear as a hobbyist kind of technologist interest type of thing whether that would bootstrap a stable value and reach kind of take off energy is it fair to think that in the beginning you thought the technical architecture was super fascinating and and a breakthrough or kind of a continuation of prior work but you had questions about the social consensus and the social acceptability and like the mainstream adoption like if we separate out the technical from more of like the adoption question is that a fair categorization as to how you first looked at it well there was a previous attempt to bootstrap a system so

digicash but just by you know community of users trying to trade things organically right so digicash which was a startup by david tron headquartered in the netherlands and they They ran a demo server, this was like mid-90s, before Hashcash, and they promised that they would only issue a million tokens. Now, unfortunately, there were no blockchain audit features, so you had to trust them. But they said they'd just keep it running, and they'd email you some coins if you just emailed them and asked for some. And so people on the Cypherpunks list thought it would be a fun prank to start selling stuff

for it, T-shirts and different things. So I did a bit of that. And because it had bucks in the name, people just treated it as if it was worth a dollar. But unfortunately, DigiCash went bankrupt in the middle of that experiment, and all the coins kind of disappeared because the double spend database got lost. So I think that living through that experience motivated the thinking about how could you make a decentralized electronic cash system. There are some more things on the technical side. like Bitcoin took some getting used to for people involved in these kind of very cryptography heavy electronic cash systems that have perfect privacy, which is to attack or steal

a coin in those systems, it's virtually impossible, but you have to trust the central party. Where in Bitcoin, there is no central party, but the security model, you've got your private keys, so that's similarly expensive. But in terms of the finality of the chain, that's kind of arms race between the good guys and the bad guys. And that, you know, change in threat model took a while for, you know, some of the applied crypto and academic guys to come around to because it was so novel. Yeah. Talk to me about the founding of Blockstream. I believe in 2014, you and a few other folks came together to start the business. What was the original idea? And how did you guys get it off the ground? Yeah. So what I had tried to do, so I got more actively involved.

I was involved in another startup that I'd co-founded before this, and so I was busy with that kind of stuff. And so in 2013, some price points were reached. I started looking more deeply into technology and proposed what became confidential transactions, just finding where the people working on next-gen things hang out, which was IRC at the time. And so I proposed confidential transactions as a way to get back some confidentiality confidentiality and privacy from the kind of very open book Bitcoin model and so then I was like okay let's do this let's integrate it into Bitcoin and I came to realize actually that's kind of

difficult to do because it's a big piece of technology that kind of likes to work incrementally and it's not very modular so you can't kind of have like a opt-in feature so I changed my attention to like figuring out how to make Bitcoin modular so that's where the And so I resolved after a bit that, you know, that really needed a company around it to make it a reality. Because you don't just need to like build a library, you need to build wallets, block explorers, you know, user interface, integration, so it's a lot of work ultimately. So then we kind of, I recruited some of the key technical contributors that I got to know

exploring the bleeding edge of what you could do with Bitcoin and how to extend it. So we recruited them. So, you know, Greg Maxwell, Peter Wall and a number of other active Bitcoin protocol developers and other guys, you know, from previous startup contacts to Starbucks Dream and put together a seed round. The lead was Reid Hoffman, founder of LinkedIn. Got it. And so walk us through kind of the services that you all offer or the products that you spend your time building at Blockstream today? Because you're not just doing one thing. You've got kind of a whole business full or a product suite. So what exactly do you describe as the Blockstream business today? So at a very high level, we describe ourselves

as the Cisco of Bitcoin-related internet finance. And so we're building a platform. So it's very full stack so we've got everything from the physical layer that's we make our own hardware wallet we integrate everybody else's hardware wallets that we can uh we acquired a software wallet that integrates with hardware wallets we built a block explorer we built the liquid network and that's operated by around 60 different exchanges and market makers so it's kind of we also make the hsms that operate that so they uh the liquid network is a bit different to the lightning network so it has block signers and it's organized more like bitcoin so kind of like a chain but with no native coin apart from bitcoin and you can move bitcoins in and out of it between

the main chain and liquid kind of like you can with lightning right you can kind of give superpowers or extra features to your bitcoin on the lightning network and on liquid what it gives you is confidential transactions atomic trades some smart contracting extensions faster confirmation times for traders and sort of acts as a complement to Bitcoin. So it sucks the trading volume out of the Bitcoin chain, which tends to congest it. So when you see the Bitcoin fees spike on the main chain, I believe that's mostly actually traders clogging it up. When you think about kind of the future plans, you've gone out and recently announced that you raised $210 million at a $3.2 billion valuation.

Talk a little bit about who invested that capital and then what you're going to use it for. Yeah, so on that list, one of the things we set out to do, even back at the beginning, was to take part in the mining and that was to improve decentralization in the Bitcoin network,

which kind of improves and gets to low points. And it's on the improvement track at the moment. So we wanted to do our part to decentralize it, to make, you know, fully Pittsburgh layer two more secure. And so we've been doing kind of enterprise mining. So hosting for other customers like Fidelity, Galaxy, and a number of other funds that you'd recognize the names of, but don't always have their own physical setup. So we have physical mining farms in Montreal and near Atlanta in the US. And so So that's actually been pretty profitable for us.

We accumulated a number of Bitcoin on a balance sheet. We've actually been, you know, had Bitcoin on a balance sheet from 2014, doing the Michael Saylor micro strategy before it was cool. And so realistically, that was kind of, you know, the Bitcoin price appreciation kind of gave us a round in itself. But, you know, it's a good time at the moment. We've got a lot of positive trajectory on liquid adoption, a lot of different startups building things on top of liquid, decentralized exchanges, Bitcoin-secured loans, smart contracts.

And the mining space is pretty hot right now too. So there's a lot of uses for capital basically, and mining itself is pretty profitable. kind of limitation is there's a shortage of ASICs in a wider market. You can put automotive uses, but that's flowing through into the Bitcoin space. And so, we do a lot of buying from existing minor manufacturers for ourselves and for our customers. But we wanted to do something to increase the supply chain and also diversify it. So, So we can, you know, have plans to build a miner, you know, which we have to have it in market by Q3 next year. We've been working on this for a while.

So good head start and just add a bit of extra capacity and some diversity of the supply chain. Got it. And so when you think about, let's talk mining for a second. There's obviously the China ban, and it seems like a lot of those miners have dispersed globally. What's your evaluation today? Is Bitcoin the most decentralized computing network on the world? Is it the most secure? And then how do you think about where this is headed? Do we get this geopolitical kind of global game theory playing out of people trying to

solicit miners to their countries? The nation stays actually participating in mining. Like, what are your thoughts on mining? Yeah, I mean, yeah, I think Bitcoin is the kind of most decentralized chain. It's very hard to replicate that. and it has an enormous kind of network effect and lead time and you know effectively the kind of die-hard holder fanatical uh investors are a big part of that right so that that can't really be replicated to my mind um and in terms of the types of people getting involved with bitcoin

the investment class of course you covered that in your show you know different public market companies, putting Bitcoin on a balance sheet, Wall Street firms adding Bitcoin products or offering Bitcoin-related products to their wealth management clients. We are seeing increasing enterprise and finance firms for their clients' interest in mining. And we have a financial instrument, the Blocktree Mining Note, which is a kind of securitized fractional ownership, similar to the enterprise contracts we offer. So it's a three-year term product. It rolls up Bitcoin inside it, and it's been operating. The sales started in March, and it's been operating since July. So in the first 50 days,

it's been doing about 0.3% return a day. So if that keeps up, it will recoup the capital investment in dollar terms within a year. Obviously inputs are pretty variable. It's a three-year term product. So hopefully that should do well. And in terms of Bitcoin time, as compared to internet time, things have generally moved much faster than people expect. So, you know, the prospect of sovereign Bitcoin mining or sovereign Bitcoin ownership, you know, took a leap forward with the El Salvador announcements, for example. And we're in discussion with the government down there to see if we can put together a bond to finance more power infrastructure to do, you know, the so-called volcano mining, which is a great meme. But, you know, it's actually something that's already been happening in Iceland, for example. So you think that the El Salvador volcano energy mining is possible and likely?

I think it's certainly possible. It really comes down to cost efficiency. It's a global market. And with the ASIC shortage, people will want to put them where it's most cost effective to mine. Now, power infrastructure projects are traditionally very long-term finance, 20 or 30 years to build out large-scale transformers and power infrastructure. So typically, those are funded on very low interest, long-term financing terms. So if you can assemble something with those terms, maybe with a sovereign credit rating behind it, a lot of things become possible because you can long-term amortize the effective power cost that way. Got it.

And so when you start to think about inside the United States, I believe you guys have mining facilities here in the U.S., it feels like the U.S. is probably the biggest benefactor of the China decision to ban mining. We see everything from gas flare capture all the way to states like Kentucky who are driving kind of advantageous tax regimes to try to solicit miners there. Is this something where the United States ultimately will become kind of the home or the center for mining globally? Or do you think that it will continue to be kind of globally distributed in all of these various countries and it'll just be dependent on the price of energy? Yeah, I mean, I think it's not entirely price. So BlockStreet Finance is our, you know,

we're quite a hedge fund and put out some weekly financial reports. We put out a report maybe a month or two ago, actually before the China ban, just observing that the hash rate had been growing faster outside of China than inside for the last 18 months or so before the ban. Of course, that was suddenly accelerated by the ban. And so it's becoming more geographically diverse. And we think the reason for that was the more enterprise

institutional miners coming in, placing more value on geopolitical risk diversification, preferring to do business in a country where they like the contract enforceability, that kind of thing. So we think that was a factor. So I think the US, you know, and other Western countries have that going for them, obviously. But it is international, you know, I mean, there's Iceland, Kazakhstan, all kinds of countries, and Canada, of course, where we have some mining, and there number of mining farms operated by various companies in Canada. In the Quebec province where we're operating, the power source is basically hydro. So, it's 95% hydro, 4% wind and 1% other. So, there's actually an enormous amount of hydro energy. I mean, even just the

Quebec province of Canada has more than 2 times the amount of power to run the entire Bitcoin network that is unused so it's a core of their power capacity which is only about 50 used so you know there's there's lots of excess power and that's uh you know that's one of the attractions of bitcoin mining basically that it can act as a buyer of last resort to improve profitability of power projects pull down cost of power for you know via competition then for consumers and industrial uses. Got it. And then so when you think about the actual mining equipment itself, obviously you have whether concerns or interest in making sure that that's more and more decentralized and kind of there isn't this centralized chip or wafer issue. Is that

something where blockchain can provide the solution? Or do you think there needs to be 25 other people who go out and do this and kind of continue to accelerate the actual manufacturing of the hardware um yeah i mean the decentralization uh i think the first part of decentralization is kind of chunky right say if it goes from like five suppliers to six okay that's a step forward and it's in a different geography different supply chains um longer term it would be pretty interesting to see you know more more variety there's generally more variety in terms of board manufacturer and minor branding and sales. But even if there's another form of centralization, which is that only so many factories in the world that can make advanced

process nodes, CPUs and ASICs. So that's another form of centralization. But those are generally international companies with foundries and in different countries. And as you probably know, the U.S. has made some attempts recently to increase the foundry capacity in the U.S. Those obviously take multiple years to build and get online. Got it. And then talk to me in terms of just the current state of Bitcoin, right? Obviously, we've seen everything from regulatory pressures to some of the energy FUD, but it feels like Bitcoin is doing exactly what it was designed to do? It's just kind of produces block after block after block. Is that your evaluation? How do you think about where we are right now?

Yeah, I mean, Bitcoin is kind of a power run for itself. And people will say glib things like Bitcoin doesn't care. But I guess, you know, to some extent, it doesn't, it just keeps producing blocks. And one of the beauties of the kind of decentralization or survivability of Bitcoin versus previous much more centralized electronic cash systems is that, you know, individuals and companies can leave and join the network at will. And, you know, even all countries can restrict use of Bitcoin and Bitcoin carries on.

And, you know, in certain countries, it depends on the culture, but you've seen cases where a country like will ban Bitcoin and the usage will actually go up or move to, you know, decentralized platforms for OTC trade and things like that. So that's kind of interesting because there's one form of bootstrap for Bitcoin, which is that, you know, you could do all word of mouth. You know, there's enough Bitcoin acceptance and deployment that you could ask around for a friend of a friend

and find something to do, like in-person OTCs. So I think Bitcoin is probably at that point already. And the emerging market adoption is actually accelerating faster for payments and hands-on use than the West, which is great. Obviously, they have more limited payment options compared to what we have in the West with more stable currencies, debit cards, bank accounts, and so on. So they have a reason to adopt, perhaps similar to the way

they leapfrogged fixed-line telephony and skipped straight to mobile phones. So they have a problem to solve. And so the street is figuring out how to solve it using Bitcoin. Yeah. I mean, in the month of July, 1.2 million new entities on the Bitcoin blockchain, fastest growth ever recorded in a month. So pretty incredible. What do you think the biggest hurdle for Bitcoin is over the next five years? I mean, it'll be interesting to see how it develops. Of course, it's impressive how the game theory, you know, so it's evolved over time. as bigger players have come in, there have been some kind of policy skirmishes, but basically the market has prevailed. And so I think that's one of the very interesting and illuminating

aspects of the so-called block size war, right? Which is, to my mind, without regard to what people thought or preferred, that ultimately the market prevailed. And that says that Bitcoin has It proved its chops in being an apolitical money that ultimately interest groups don't stand much chance because the market will tend to sort of wrap around it and prevail. So that's great, but it'd make it interesting if you have sovereign Bitcoin positions, mining. So I think a certain amount of decentralization

and individuals and entities holding their own private keys helps. If there's too much kind of ETF-like use, that could pose a policy risk because the ETF managers may feel they have a fiduciary responsibility to do something that the users wouldn't want to do. I think ultimately the market prevails anyway, but that could be choppy, shall we say. There's a lot of conversation right now online about Bitcoin maximalism. Do you consider yourself a Bitcoin maximalist or are there other things you're interested in or open to how do you think about uh maximalism and then everything else yeah i mean to me it's really um a kind of neutral uh bitcoin monetary maximalist so you know the

i'm pretty interested in any kinds of innovation uh you know the bitcoin sector and uh blue sky academic research and a number of chains have brought to market some pretty interesting innovations over the last five years. And so there's, you know, obviously innovation is great and chains can copy and learn from each other. Where it gets kind of debatable is the kind of switching cost of chains. So John Pfeffer has a pretty interesting paper on this where he makes argument that basically it doesn't make a lot of sense to pre-buy and hold utility tokens where the utility token is like a coin that you use to pay for smart contract execution or storage or something in a chain because technology gets cheaper and you know if a chain gets expensive

people will switch chain and then you'll be left holding the wrong utility tokens so let's say it's bit like you know early enthusiasm about the internet and somebody proposed pre-buying you know megabytes of bandwidth or something in the 90s and of course you know the cost of bandwidth dropped multiple orders of magnitude so i think the just-in-time argument means that there's definitely utility value in the chain but there may not be kind of defensible sticky value after you take into account switching costs so i'm expecting that to play out in the market mid to long term. What do you think the price of Bitcoin hits by the end of the year? Do you think about price at all? Is there any sort of framework you use to evaluate these kind of cyclical bull

and bear markets? Yeah, I mean, I'm a bit of a trader on the side and was doing some arbitrage and different types of trading before starting Blockstream. So I was a day trader back in the late 90s as well, you know, in stocks and stuff. So kind of interested in trading, dabbling and trying out the different Bitcoin products, the virtual futures and options and things. I think even before the stock-to-flow valuation model, which is an interesting observation and we'll see if it holds, the comparison I liked was the competitor to physical gold because in many ways, Bitcoin is a better physical gold. You can infer a valuation from how many coins there are current price of gold and you know let's say that value gets

divided up and you come out into the hundreds of thousands uh like maybe half a million even on that basis alone so end of year um i mean the the options prices for you know 100k are showing that that is the market's thinking that's quite possible um so i'm uh i'm curious to see if that comes would you bet on it are you are you buying options uh well i mean actually i uh looked at the ledger x options and concluded that they were underpriced so i should buy some basically I mean, basically because you can compare them to the kind of not risk-free, but a somewhat risk-incurring Bitcoin yield. So if you collect interest on Bitcoin and you can see that the option gives you less return than collecting interest on Bitcoin, that says you should buy the option because it's cheap compared to that. So, yeah, I might take a punt on that as well.

So, because people's normal intuition is, well, I'll sell some options because I get money now. And, you know, if that price is here, well, it's like I put a limit order in and it got triggered and I was philosophically happy to sell at that price. But now if you look at the pricing and you think those things are underpriced, then logically you should buy some. when you think about these cycles that have happened in the past we've obviously had incredible hundreds if not thousands of percent of appreciation and then very deep drawdowns you know 80 plus percent's happened multiple times given that you've got this background in trading etc uh the holder base has changed a little bit there's many more corporations uh large organizations financial institutions uh just kind of whales in general that are now in the market

than, let's say, five years ago. Does that have an impact, do you think, in terms of the continuation of a bull market? Is there another 80% drawdown that you could see kind of in a market correction and then a multi-year bear market? Like, how do you just think about the difference of market participants today and then what we've seen historically as kind of the crashes from those big bull markets? Yeah, I think it's a bit of a recurring cycle. I mean, some people have been for a super cycle, so we'll see if that plays out. But, you know, Obviously, the kind of money printing, quantitative easing backdrop is a reason for it to be turbocharged at this period, right? But it seems like new participants have to learn to hold because the kind of Bitcoin price swings and volatility takes getting used to, basically.

There's one thing we like about the Bitcoin mining product we have, the Blocktree Mining Note, is that it's a three-year term product and it reduces the volatility of returns and it has some downside protection. That's because if the price falls, the hash rate will tend to fall and then you'll mine more coins than you expected. So we did this in a previous period where we bought the batch of miners at a bottom corporate level. When the Bitcoin price was $15,000, we mined them through the period, and at the end of

the period, the price was $7,500. So if you even bought Bitcoin, at that point in time, you would have lost 50%. And with mining, we ended up with a 25% positive return. And then when we went to analyze that, we were kind of like, well, what's the intuition for that happening? And the reason was really that the price actually fell all the way down to $3,500 in the middle of that period. And during that period, we were mining a lot of coins, and we weren't selling coins to pay the electricity bills, so we kept them all. And so ultimately, what gave a 25%

return is that we mined two and a half times as many coins as we anticipated. So we did a bunch of backtesting for doing the luxury mining note. And to get an idea of the percentage of time this kind of thing happens, what the averages are. And what we found is you get kind of 60% upside participation in a bull case with mining, but like a pretty decent downside protection and lower volatility return.

So for people who are prone to panic sell or not yet appreciate the volatility or are not long-term investors, and I think if you were investing in shares, you would not try to buy and sell them on a week-by-week basis, but you'd aim to hold them for like three years plus if you had an investment thesis, right? So I think it's the same with Bitcoin.

And over like a three- or four-year period, Bitcoin has basically done well in all periods, right? Obviously, you guys have Liquid as a Bitcoin sidechain. Many people are familiar with the Lightning Network. How do you see the difference between these two systems? And do you see pros and cons or different applications for each one? Just how do you think about those two different systems kind of moving forward? Yeah, so there's sort of complementary different networks.

Loosely with internet analogy, you're going to see different protocols emerging for different use cases. And they're either voice over IP protocols, web protocols, mail protocols. And so we see Liquid for kind of pro traders, smart contracting, faster settlement, confidentiality. So sort of, you know, people are interested to try out confidential transactions. You know, people use it for what they use it for, right? So there are people just using it as a cheap wallet too, right? The lower fees environment with less censorship resistance trade-off. And Lightning really more for the kind of high-scale,

micro-payments, low-cost. And so Blockstream's actually involved in both. So of the three teams, three independent teams at different companies developing the lightning full node implementations now probably some more at this point but we we have one of them and it's the sea lightning project and actually uh sea lightning a lot of people don't know this but sea lightning and lightning in general can work on top of bitcoin and on top of liquid so we have sea lightning support there for a couple years so you can run a lightning channel that is backed into liquids and that opens a possibility

for, you know, even like a tether or there are some other stable coins on Liquid like the Canadian dollar by Bull Bickling to make channels with, you know, Lightning channels or stable coins in them. So that could be interesting for some use cases as well. So I think, you know, another trade-off is Lightning can only really give you features

that exist in the underlying chain, whereas Liquid being a side chain can add all new capabilities that wouldn't be possible for Lightning, like confidential transactions, enhanced smart contracting. It can make changes in behavior

about the capabilities of the chain and then put Lightning on top of that as well. The last question I have before I let my brothers ask a couple of questions is these confidential transactions. I've seen everything

from people say, you know, they're amazing and they're kind of the gold standard, no pun intended, all the way to people who basically question how confidential they can be and don't necessarily trust them. How do you think about confidentiality? What makes it confidential? And then how can people kind of verify that versus just blindly trust that they're confidential? Yeah. So it's not like

anonymous in the sense that it doesn't obscure the transaction history, but it encrypts the amounts of the transaction and even the types because there could be different kinds of assets and shares and things on liquid as well as bitcoin and so only the center and the recipient are able to see what the transaction is how much it's for what type it is and in terms of trust it's using you know similar technology to the ecdsa signatures and snore signatures that bitcoin uses so you know many people won't understand a very low level how those work but they have confidence in them so basically the confidential transactions is using the the same building blocks and so it's not doing even though it's a novel possibility the building blocks are very standard and safe

one thing that people do worry about is an inflation risk obviously the 21 million it's pretty sacrosanct in bitcoin and there are two variants of confidential transactions one where a hypothetical quantum supercomputer in many decades in the future would be able to inflate the number of coins which obviously people don't want to contemplate and there's another version which doesn't have that issue it's mathematically proven that you can't have any inflation so i think that latter one would be the one that would be more plausible for the bitcoin main chain got it joe john what questions you guys got yeah i'll go first adam thanks for for doing this. Really appreciate it. My question would be just around fundraising. You guys

recently raised $210 million in a Series B. You raised, I think it was $55 or $60 million in 2016 in the early part of that year. So from 2016 to today, the market in general has expanded rapidly. It's, I think it was around, it was less than $10 billion in total market cap beforehand, and now it's over $2 trillion or close to $2 trillion. So just through that fundraising process, talking to investors. How has that changed from when you guys did it in 2016 to today? Well, I mean, when we started with Blockstream all the way back in 2014, there was more regulatory uncertainty. Bitcoin was a dirty word to many banks. And then we scrolled forward a couple of years and every bank worth its salt had a blockchain R&D lab. And then scrolled forward

a few more years and you know his financial institutions are queuing up to offer bitcoin products to their private wealth clients and to market in general so now it's it's interesting the lead investor in our b round here is bailey gifford which is a very large uh financial institution in its own right uh headquartered in scotland is offering all kinds of funds and unit trusts and things. I think it ran 400 billion assets as a management fund. So that's a pretty big long-term thinking player. There are multiple investors in this first close, but the other one that we've been, we have to ask the investors if they want to be named. So the other one that's named is iFenix, the owner of Bitfinex parent company. And obviously they're pretty interesting

for us for a couple of reasons one is that one of the bitcoin exchanges so the crypto exchanges that does most reinvestment into the bitcoin uh into the bitcoin infrastructure into the technology stack you know so they were early integrating liquid early integrating lightning that was innovating and so they're you know one of the uh anchor participants in the liquid network and the liquid federation so you could view their investment into blockstream as a kind of of, you know, an even bigger play in reinvesting in infrastructure, invest in an infrastructure company. So that's a pretty good strategic investment for us. John? Yeah, Adam, thank you for doing this. I really appreciate it. It's nice to meet you. So my question is for individuals and

corporations getting involved in Bitcoin, being more involved in it, how should they be looking at it? Is it a store of value? Is it a global reserve currency? What is like the end game for Bitcoin, then how do you look at it? Do you see it becoming that global reserve currency? Well, I mean, that's what Saifedean Amoos is writing about in the Bitcoin Standard and the presentations he gives relating to that. I mean, for me, it's definitely got both aspects of a kind of permissionless open network for value on the internet and a store of value, like a gold competitor. And I think the addressable market for store of value is considered to be sort of 200 to 300 trillion, which obviously, if Bitcoin would capture all of that, puts an

enormous value per coin. So I think the thing I would see as the next milestone is for Bitcoin you know, match Gold in market cap, physical Gold and Gold ETFs and things like that. And I mean, I personally think that's a very real prospect in this halving cycle, you know, to the next three years, and then we'll see what happens after that. And I think one thing that can indicate that, you know, maybe this can move faster than we might think is a lot of kind of backdrop factors saying that you've got the sovereign interest in Bitcoin and El Salvador, a couple of other countries put forward Bitcoin related currency acceptance ideas that have not yet passed. And you're seeing a lot more adoption in general and the economic backdrop basically.

right so you know a world reserve currency status historically has lasted you know maybe 100 years or something and sort of you know switched around due to geopolitical factors uh economic sort of strength in the world of a of a geography um british pound in the past us dollar today so i don't think anybody's interested expecting anything imminent but it does seem that fiat currencies everywhere are under significant stress and the uh monetary inflation is causing people to re-evaluate their investment basis right it's all very well holding stocks that are going up in nominal terms but if they're only really holding their own versus empty money expansion have you really you know protected your spending power

Adam, I would be remiss if I didn't ask you. The number one question we keep getting in the chat is one, are you Satoshi? And two, if not, who do you think Satoshi is? Do you care? No, definitely not Satoshi. I think people get kind of confirmation bias because they look around at people with kind of applied crypto and a level of computer science kind of backgrounds, and there are a number of such people around who were interested in electronic cash. I actually think it's positive for Bitcoin as a store of value that it's more of a mathematical discovered thing than there's a founder and promoter, as is the case with most other coins. There's a kind of somebody in charge of it, a CEO of it, or an inventor of it,

or lead programmer or something. So I think the fact that Satoshi, for reasons unknown, chose to step away is actually a very positive thing for Bitcoin. And I guess maybe that was intentional to avoid, to preserve some of decentralization. We don't know. It's all speculation. So no, I don't know. I mean, we can sort of empirically see what kind of of technical skills would be needed. But no, I don't have any particular people that I would guess. So one of the questions I get,

which frankly, I don't have a great answer to, and I feel like you've just been around longer and probably thought about this. What do you think the impact of Satoshi's coins moving would be? Is that a short-term price thing, but long-term doesn't matter? Would there be a long-term impact?

I'm assuming it would kind of kick off the global search, you know, who is Satoshi in the media all over again. But like, what do you think the actual impact would be? And is that something people should worry about? Yeah, I mean, I think there's a couple of things. So one is the assumed number of coins Satoshi is suspected to have mined is a bit of speculation. I mean, it's like looking at patterns in headers of mined coins or something

and so it's got a wide error bar on it and you know some technical commentators think it may be a half or a third you know so like 500,000 to 300,000 coins and not a million as the original kind of speculative analysis posted and in terms of market I think that you know it would just be absorbed. People would buy it. There's a lot of volume these days. You can market sell large amounts of money. Michael Saylor does it all the time. What you would assume a rational player to do as well is to feed it in, to sell coins a few at a time. The other curious thing is I noticed a lot of people like to say that I also never sold any coins. And I think that might be, we don't know, but if you think about it, as there were

more miners joining the network, the more recently mined coins would be more anonymous. So I don't think we have any reason to say with confidence that he hasn't sold any coins, that maybe he sold some more recent coins, right? So now, and actually, even in the first year or two, you can you can look at you know 50 coins per block 144 per day and multiply it out and there were clearly thousands of miners even in the first two years and the you know a lot a lot more than even one million mind during the first few years yeah one one thing that uh is fascinating i don't think it actually matters but uh i was asked this question once and then the follow-up was if satoshi's coins did move, would they receive a premium in the market? Because they basically would be considered

historical. And I thought that was a really interesting thing, because I think we all think of fungibility, ESG, OFAC compliant, you know, all the things that have become kind of hot topics recently. But when you take away the more controversial, you know, debates around those and just say, well, what about Satoshi's coins or the first Bitcoin ever mined, right? You know, I don't think that it would. But what do you think? Is there a potential that there's a premium in place on any kind of Bitcoin, regardless of the reason? I mean, I guess people will collect all kinds of things, you know, baseball cards and even NFTs of rocks these days.

So it's hard to predict, but there's a couple of curious things. I think some of the early, so there's, I think there's mainly only a couple of transactions that are reasonably confirmed to be Satoshi's, like the one that he sent to Hal Finney as a test, for example. And if you look at some of those, there's lots of kind of small Bitcoin transactions being sent to it, like with notes on them and stuff. So I think that's just people kind of, you know, saying hello to Satoshi or something, sending him some dust. So I guess that it might be appetite. There was a period where some buyers would pay a small premium for freshly mined coins. This is a period

where regulations were less clear. And so they just figured it'd be simpler if there was no previous owner effectively and it's kind of what you get by you know participating in mining as well there's sort of more of a limousine away but that premium as i understand it is largely eroded so de facto vulnerabilities uh kicked in these days um and i mean the the fungibility question implied by the ofac stuff and that that kind of controversy so the thing it's you know it's it's positive to note that the miner doing that has dropped that concept entirely. So that's positive. It's important that Bitcoin maintain strong de facto fungibility. Otherwise, it causes potential issues on sort of reliability or receiving coins and having to check with

central authority uh the discount on them that would be pretty bad for use utility um and so i think there's some you know potential for more kind of fungibility or privacy technology to be integrated in bitcoin over time there have been a number of kind of incremental steps and i think the visual signature uh soft fork that looks to be coming in a few months we'll do a little bit incremental on that as well, kind of make more coins and transactions look indistinguishable in type. So that helps a little bit incrementally, but there's more scope for kind of improved fungibility and privacy in the base layer, I think. You've been incredibly kind with your time. So I appreciate you coming on and spend so much time with us. Before we let you go,

what would you say is the best way for folks to interface with Blockstream? Is it certain products that you want folks to go check out or there are other things that you would push them to go uh go look at uh yeah if you go to blockstream.com there's a full list of the different platform related products on there stretching from you know physical layer mining hardware wallets through this protocol work we do um and at blockstream on twitter and then we have a number of telegram channels that are specific to products as well so we're on most of the social media platforms. And we have a YouTube channel as well with a lot of kind of technical presentations and, uh, probably this discussion will be on there in a few days.

Got it. Um, I asked everyone the same three questions to end it. Most important book you've ever read. Uh, so I don't know if people would expect this, but I like the book Snow Crash by Neil Stevenson. I think it's a blueprint for the future. I am more decentralized crypto anarchic free market world uh yeah that's a great one they when i took a job at facebook that's actually one of the books that they gave us to read so i don't know if people want to read into that but that's what they gave us nice second uh second question is sleep schedule as everyone knows now my brothers and i all sleep on the eight sleep mattress and love it what uh what's your sleep schedule uh it varies so because i'm in malta some of the time uh the siesta time is

it's common here where people will kind of sleep a little bit in the early afternoon and like some of the local stores close. It's hard to, it's hard to maintain though. So yeah, I don't manage to keep that up very well. And then a last question for you is aliens. Are you a believer in aliens or not? I mean, maybe, you know, there's the Drake's equation and there's an awful lot of fireball planets out

there uh so maybe there's somebody out there far distance i mean the interesting question is you know did they discover bitcoin too and is there you know would there be evidence of it you know like proof of work traces or a dyson sphere power and bitcoin mining or something like that i literally don't even know what to respond back if all of a sudden people in the comments are saying that somebody who may be Satoshi is talking about aliens discovering Bitcoin and mining it in space. That's like when Cameron and Tyler Winklevoss went and explained to Dave Portnoy from Barstool Sports that you could mine asteroids for gold. His mind was just blown. Yeah, I mean, I think that doesn't work as well as he thought it would, because

if you mined gold off the asteroids, you would destroy the gold price. So that would kind of kill the financing of your gold exploration. That's what I'm learning. Well, I mean, that's the argument as to if somebody was able to hack Bitcoin and steal Bitcoin somehow, you know, quantum computing,

all these like kind of theoretical things people throw out, it would essentially destroy value of Bitcoin as well. And so you would be kind of a non-economic actor to have to do it, right? Right. Yeah, I mean, I think Bitcoin may benefit from that.

So, you know, there are white hat people people who will find a floor and report it privately. And then there are black hats that will try to take money out of something. And I think everybody benefits from Bitcoin. Everybody wants Bitcoin to exist, black, gray, and white. And so I think Bitcoin may benefit from everybody having an aligned incentive for it to work. So I think actually that even something quite catastrophic, which seems remote at this point, many of the early bugs were ironed out. So, you know, people want money to work. There are far less sort of robust monetary technologies

with all kinds of risk for electronic and physical forgery. And people tolerate it and it works. You know, if there was a big issue, I think, you know, people would figure out some way to deal with it or work around it and carry on because, you know, society needs the workable money and Bitcoin is the best form of it today. I tend to agree. I think you and I see eye to eye quite a bit, my friend.

All right, Blockstream.com. Please, everyone, go check it out. Or you can follow Adam on Twitter. Your Twitter account is what? Adam? 3US. 3US. Adam 3US.

Go give him a follow and go check out Blockstream. But congrats on the fundraise. And we're excited to see kind of what you do moving forward. So we'll definitely have to do this again in the future. Great. Thank you all for the conversation. It's been fun. See you later, Adam.