Unchained - Is Bitcoin Doomed to Fail? Eric Wall and Justin Bons Face Off - Ep. 398

Episode Date: September 21, 2022

In a heated debate, Eric Wall, crypto blogger and investor, and Justin Bons, founder and chief investment officer of Cyber Capital, discuss Bitcoin’s security model, whether there are fundamental flaws in its design, and which is the best consensus mechanism.    Show highlights: why Justin stopped believing in Bitcoin and why he calls it “technically one of the worst cryptocurrencies” how Eric’s views on Bitcoin changed over time  the problems they see with Bitcoin’s security why Eric attacks BTC maximalism, even when he is a Bitcoiner how the Bitcoin community will change in the next decades, and why the security problem is a challenge that could be solved whether BTC should increase its inflation and whether that would break the store of value proposition why Justin thinks that BTC fails as money and won’t play a relevant role in the future what happened around the time of the blocksize debate back in 2015-2017 whether there’s something wrong with Bitcoin’s culture and why Eric compares it to a doomsday cult why Ethereum has external dependencies that can impose systemic risks, according to Eric whether proof of stake or proof of work is a better consensus mechanism whether Ethereum is more censorship resistant than Bitcoin why BTC is a speculative asset and what Justin believes is needed for crypto to finally flourish Thank you to our sponsors! Crypto.com Ava Labs a16z Justin: Twitter Eric: Twitter Medium   Episode Links   Previous Coverage of Unchained: Arthur Hayes, Former Ethereum Skeptic, on Why the Merge Makes Him Bullish on ETH  With the Merge, Will Ethereum Take Over Bitcoin’s Title as Digital Gold?   Bitcoin’s Security, Blocksize and Culture Surprisingly, Tail Emission Is Not Inflationary by Peter Todd Justin’s thread that kicked off the debate A (brief and incomplete) history of censorship in /r/Bitcoin Theory On Bitcoin Governance; Three Stage Model by Justin Bons   Centralization: Ethereum Post-Merge Centralization Lido’s validators BTC Centralization Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptobians. I started covering crypto seven years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the September 20th, 2022 episode of Unchained. Every other week, Unchained hosts the chopping block, where Crypto Insiders Haseeb Qureshi, Tom Schmidt, Robert Leshner, and and Tarun Chitra, chop it up about the latest in digital assets. Get the latest episode on YouTube and all podcast platforms. With the crypto.com app, you can buy, earn, and spend crypto in one place.

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Explore Avalanche DAPs, NFTs, bridges, subnets, and more today. Today's topic is Bitcoin's future and the narrative around it. Here to discuss are Eric Wall, Cryptoblogger and investor, and Justin Bonds, founder and chief investment officer of Cyber Capital. Welcome, Justin and Eric. Thank you very much, Laura. Thank you, Laura. The idea for this episode came about because of a tweet thread that Justin wrote about

It began by calling Bitcoin technically one of the worst cryptocurrencies. So Justin, you actually started out as pro-Bitcoin. So can you just describe what your initial feelings were about Bitcoin? And we can describe your current opinion later on. Sure. I started off very early in the space. By 2014, I was working full-time in cryptocurrency. So back then, I think there wasn't much more to support than BTC.

I think that over time, I think the competition has grown a lot stronger. And I think in many ways I still believe in Bitcoin. I just don't think that takes the form of what we know as BTC today. I don't think at best is able to represent those values. And I don't think that it's truly competitive in the market, both as a store of value or as a form of money. And Bitcoin does not exist and avoid. And that's why I've taken such a critical view of BTC. That's why, you know, the fund I manage hasn't held any BTC in its fund since 2017

because we saw the writing on the wall a long time ago. And so what were those values that initially attracted you? What initially attracted me to Bitcoin is the same things that attracts me to Bitcoin today or attracts me to cryptocurrency today, which is really decentralization, the utility that a cryptocurrency is able to create without middlemen, censorship resistance. the greater distribution of power, the separation of the monetary power from the state. I mean, I could go on, but I think in conclusion it's very much the same thing. I think a lot of Bitcoiners believe in as well.

And I suspect me and Eric Wall actually have that in common. It's just a different means to achieve that and a different view on the current state of things. So, Eric, you are also known as a bit coiner, but you definitely take a nuanced view. and the reason I say that is that scrolling your Twitter feed, it definitely seems that you spend a lot of your time these days attacking Bitcoin maximalists. And before we get into all that and talk about maximalism, because that's going to be a segment of the show, let's just talk again about your views on Bitcoin like Justin.

What were they initially? And if they changed over time, how did they change? Right. So I don't necessarily believe that cryptocons, currencies prime enemies are each other. I believe that the greater enemy is the state, the government monopoly on how to create money. And I think that in order to fight the state, we are going to have to use our full toolbox. So Bitcoin has different properties. Ethereum has different properties. I believe that there are advantages and disadvantages to both of those tools, depending on the

environment in which we're going to fight the government. So I try to focus on the positives of Bitcoin and the positives of Ethereum and highlight those properties as tools that we can use. And we don't need to necessarily focus on so much on which part of Bitcoin isn't perfect in contrast to some other protocol. We can just focus on the good parts and attack the state collectively, the state monopoly on money collectively. All right. So now let's talk about this thread in which Justin called Bitcoin one of the worst currencies.

So Justin, elaborate here. What were your thoughts? in this read? I think I'll address the elephant in the room first. And I would agree with Eric if BTC wasn't as flawed as it is today. And I think the elephant in the room is BTC's long-term security model. My position is that it's likely going to fail within the next 10 to 15 years. This is because Bitcoin was initially envisioned as being a form of peer-to-per electronic cash. and as inflation reduces every four years, and this is an exponential function, fees have to come to replace the security of the network over time.

And this is where I think Bitcoin is facing this major dilemma. Because block size is restricted, it has to gain extremely high individual transaction fees. I don't believe that this is actually going to happen. And therefore, I believe that the security model of Bitcoin is actually going to fail. And I think that supporting BTC is actually counterproductive to the goals, you know, as Eric puts it, to counter a lot of the monetary power of the state. Because if we focus and support such a fundamentally flawed network, I think it does more harm than good for the space as a whole. I think it's better if we pull off that band-date sooner rather than later. Eric, what do you think of that?

I agree. like when people ask me, like, what is the primary challenge for Bitcoin, like, one of the largest problems that Bitcoin is going to have to face is this idea that we're going to secure Bitcoin, the blockchain, purely out of transaction fees. As we know, transaction fees are one of the most volatile mechanisms for securing a blockchain. I mean, just look at how much fees fluctuate. It becomes very strange to say that the way that we're going to get consistent, security, reliable security, is by using one of the most fluctuating forms of security budget that you can think of in the blockchain space.

I mean, just look at the Ethereum fees today. They're like seven quay. And just a couple of months ago, there were 300, 400, 500, 600, 600, so there's like two orders of magnitude that they tend to fluctuate between. So are you okay with using a blockchain that one day has 1% of the security as it had six months ago, I don't think that, you know, that's necessarily a great way to secure a blockchain. And I think that there are other intellectual thinkers in the in the Bitcoin space who are also critical of this. Like Peter Todd, for example, has gone out recently and been very critical

of having no emission in Bitcoin anymore. He thinks that we should have tail emission. So the inflation should never go to zero. He assumes that, you know, because people lose Bitcoin anyway, we can have a small like 1% inflation and that makes the assumption that people lose 1% of the Bitcoin or something like that anyway. I don't know if that's necessarily true. But I think it's interesting that even Peter Todd who considers himself to be a Bitcoin maximalist is one of the old time contributors to Bitcoin. He belongs to Bitcoin Core and so on and so forth. Even he recognizes that this, you know, there's a potential risk here that the security budget in Bitcoin is not going to be reliable to secure the blockchain. Now, where I disagree with Justin is that you can take, you can look at Bitcoin today and you can say the current community and their understanding of the risks to the protocol, that current community is the way that Bitcoin is always going to be.

It's going to be it's like that today and it's not going to be like that 20 years from now. I think that first of all, like the community has a lot of churn. There's thought leaders to come. There's thought leaders that go. and ultimately the protocol's ability to face these challenges depends on what is the who are the thought leaders and what's the who are what ideas are prevalent and being spread within the bitcoin community and you said lord that you've seen that i'm attacking bitcoin maximalism on my twitter and like how does that mix with me being a bitcorner how can i be a bitconer if i'm

attacking the so-called core stewards of the protocol well i do that because i think that as justin recognizes they are perhaps not the best. You have to be, I mean, Greg Maxwell had a comment on Twitter today, which, sorry, on Reddit, is not on Twitter. He had, and also Greg Maxwell is one of the core contributors to Bitcoin, one of the core thinkers who understands the protocol better than anyone. He says that Bitcoin is not just going to automatically succeed. It's going to depend on what we, as a collective, contribute to Bitcoin.

To which lengths do we go to defend Bitcoin against potential attacks? And one potential risk to Bitcoin is the security budget. So it depends on the, it's up to the community to make sure that we run a protocol that is safe and that is secure. But I suppose where me and Justin disagree is that he thinks that this can never be like the current community and their understanding and their unwillingness to change anything in Bitcoin is what stands in the way for Bitcoin to be able to meet this potential risk in the future. That's where I disagree. I think that as soon, like I think that I think that, I think that, you know, most. humans are pretty stupid. And because of that, they can't look like 20 years in the future and make the assessment

that this protocol based on, you know, such and such parameters, it's going to fail. They have to actually see it start to crack a little bit. So I think that once we're past a few more halvings, and you see the inherent security budget in Bitcoin disappearing. and you see that these transaction fees that are supposed to take over, that's not going to be like a step function. That's going to be more of a gradual thing. So you can see problems arising and you can do analysis and you can run simulations where you'll see,

oh my God, we're heading into a problem. And look, we don't know what the current set of stewards of the protocols will be at that point. We don't know what the community is going to be like. We don't know how the dialogue and the, I mean, we are, we're like 30 year old guys right now. we're going to be like 60 when this happens. I don't think that the Bitcoin community is going to be identical to what it is today. So I think it's unfair to rule out any chance of Bitcoin ever surviving because of this one challenge that is big, that is a huge thing.

But I think that we can fight it. If we make an effort to work for Bitcoin now to change the discussion climate, if we make that effort, then we might succeed. And I think it's a good thing if Bitcoin does succeed because I think it undermines the overall trust or belief in the cryptocurrency space. If you always have like one cryptocurrency becomes the big one, the major one, the first one, and then you have these other competitive protocols that keeps replacing the biggest one because this is supposed to be a store of value. And if the store value part is always depending on you being able to select whichever cryptocurrency is best at that time, then the store value property disappears. You need to be able to allocate your capital to a cryptocurrency. That cryptocurrency needs to be able to preserve its value.

And I think the one way to help that happening is by trying to help these big protocols that we have, improve them and fight for them, not just rule them out. us never having any potential of ever addressing their problems. So, Eric, just one question, because Justin was saying he feels that the security issue is going to come up within the next 10 years. And you were talking about how, you know, you think that there will be a different crop of Bitcoin leaders in 30 years. But the thing is, you know, the block size debate kind of started in 2015, which is seven years ago.

And, you know, the side that prevailed has sort of kind of been the prevailing side for the last five years. So, you know, assuming that they. last for another at least five years. Like I just don't really see how it's going to be, you know, that different of a group and if they really will make changes. And Justin, you may have, I don't know what your thoughts are, but that was my first question. Now, that's a good question. If you could hold on to that, Eric, so I have a few things to respond to here from you. So first of all, I just want to say, I'm not arguing that it won't survive because it just

going away completely is a very extreme position, right? Blockchains are incredibly resilient and they tend to just refuse to die as long as just a few people support it. But my position is that it will dramatically lose its dominance and significance in the world. So spending a lot of my energy on something that I think won't, you know, won't play a prominent role in the future and actually even stands in the way of that future from my perspective. I don't think is particularly productive, you know, for this movement. Now, there's a few things to respond to here. And I am a bit puzzled, actually, Eric, you know, because I really respect you as a thinker, because I think you're very consistent.

And, you know, you speak a lot of these hard truths and bite the bullet on these issues. And I think that's fantastic. But I'm puzzled how you can still support BTC. You know, you talk about, well, in order for BTC to survive, and I'm glad you could acknowledge this, right? It has to increase its inflation, right? So we're talking about a blockchain that will likely increase its inflation in the future or face a security dilemma. We can go for the inflation scenario because I do think you need to choose either or here.

I don't think that those are necessarily the two only options but proceed. I'm curious about the third option, but let's maybe loop back to that later. If it increases inflation through social consensus, this entire SOV narrative, I think, is very broken. I think, I think in the eyes of most people. And I don't think that's what most people actually signed up for when they first signed up for BTC. When I first signed up for BTC, I signed up for extremely high capacity network that could form it. That could be a type of medium of exchange, right? That changed.

So like Bitcoin already changed its underlying use case and its underlying vision and economic model because of that. I mean, look, you can support, you know, Bitcoin all you want. And I'm not going to argue with that. That is your choice. That is your freedom and your prerogative. I'm just saying, compared to the competition, when the eth-merge just past us, right, Ethereum will remain secure and far more scarce compared to Bitcoin in comparison. To me, that's a much better, and including a bunch of other cryptocurrencies here as well,

I don't want to make this in Ethereum versus BTC debate. But that fundamental design, and I know you've advocated for fee burning as well, I just want to give credit where credit is due there. That design is far more competitive. And I don't believe that Bitcoin exists in a void. It still has to compete with other cryptocurrencies. I mean, it's nice to think that, no, we don't have to compete, but the reality is we do. We compete for attention.

We compete for investment. We compete for energy. We compete for all of these things. And I think the competition here is a very important part of the free market mechanism. like that that free market is the crucible of evolution that will allow the best cryptocurrencies to rise and and i want to support that process and and i don't want to support something that i think will undermine the very you know the very principles it's based on and i think those those principles are what i care about right i don't care about that free letter acronym i care about you know the the end result and that's why and also like

after, after, you know, it's inflation, I don't see how, how that's going to change either. And I think Laura actually made a really good point as well about Bitcoin culture. I think what happened after the block size debates, a lot of people left. So a lot of the counter voices left Bitcoin, right? And that creates this homogeneity in the culture. And this happens for a lot of cryptocurrency. We have a certain personality type that would be attracted to a certain type of cryptocurrency, right? And that then creates a self-selecting bias.

So I don't see how that's going to change. And it just changing, as you say, as the security is failing, I just don't see that as a positive outlook. And I see that scenario is really, Bitcoin's no longer going to be number one in coin market cap. And it's no longer going to be the number one in security. Well, it actually isn't already. And it's also not going to be number one in utility. You know, this, this puzzles me. And I also respect that you're able to.

bite the bullet, but it puzzles me how you can still support Bitcoin. When really the impra's not wearing any clothes, you know, I mean, you know, what you're saying is very different to what you'd hear from a lot of the maxis. Yeah, you'll have to forgive me just, because I've, during the last couple of years, I've been debating a lot of people adversarily, like Richard Hart and other people like that. So I tend to go for the juggler when I see it. And I hope you don't mind me doing, giving you the same treatment. Please, please go for it. This is a debate. Okay. All right. I won't hold it personally.

Yeah. I mean, I think it's a bit silly, to be honest, to say that it's weird and puzzling that I support Bitcoin because, according to Justin, you have to support cryptocurrencies where you have a strong conviction in their likelihood of success. Otherwise, you are counterproductive to your goals of being a cryptocurrency advocate. you are a proponent of a cryptocurrency, which has a probability of ending up failing, which you see as high. But then it becomes a bit puzzling to me, Justin, because if I go through your Twitter

history, which I've done a couple of times, then you will see that Justin has been a very, very large advocate, not only for Ethereum, but before it was Ethereum, his main cryptocurrency that he was a proponent for was Bitcoin Cash. and while he was a proponent for Bitcoin Cash, it was also a proponent for Dash, for example. So if you can be a proponent for Dash and for Bitcoin Cash, how is it in any way strange that someone would be an advocate for Bitcoin to you? I mean, how did Dash turn out for you?

How did Bitcoin cash turn out for you? And then you look at me and you see me advocating for Bitcoin. Bitcoin is still number one, and I've been advocate for Bitcoin since 2012. Have I been, like, if I've been advocating for those for Bitcoin for 10 years and it's always been on top. It's always been the biggest one. And you have been advocating Bitcoin Cash,

which used to be number two, and now it's number, I don't know, 20, 25. I don't even know what's the relevance of Bitcoin Cash anymore. You obviously went wrong with Dash and Bitcoin Cash, and now you found Ethereum, and now you're like, Ethereum is the one. But if you're always like trying to find this altcoin, which is going to be the competitor to Bitcoin,

whereas Bitcoin just stays on top, stays number one, like how is it weird to you that, you know, I'm advocating for the biggest cryptocurrency, which has managed to stay on top all this time. It has a problem in the future. I'm trying to do what I can to change the cultures so that we are able to meet that challenge in the future. Like, is it necessarily a better path to shill these other small coins with much greater challenges that Bitcoin has and advocate for them? Like, is that really necessary? Is that a better position, like morally ethically, logically?

No, sure. this is a great point. And look, first of all, I'll say I don't feel like I went wrong with supporting BCH when I did. It's also important to note that I stopped supporting BCH, I think, more than a year, two years ago. I don't remember exactly around the time when the e-cash fork happened. That's when I dropped my support of that project and very publicly as well. And look, I think I'm far more consistent in standing for the principles that Bitcoin stands for by wholeheartedly. supporting Bitcoin Cash as opposed to Bitcoin. Because Bitcoin Cash actually increased the block size limit,

as Satoshi always intended to do. So I fought for Bitcoin for many years to have a change internally, right, as a veteran of the block size debates, right? I argued for years and I fought for years to have that changed. And when after time and time again, after delay after delay, we were unable to affect that change, we split the chain. And we change, we change the underlying rules or we we stick to that original vision. And then I supported that for many years until, you know, it went wrong. And we learned lessons there why it went wrong. I think where it went wrong was very much a failure of leadership, not the fundamental design.

And I'm proud of having been part of that moment of history. And I don't think it's inconsistent. I think it's actually far more consistent because Bitcoin Cash stood for those principles. And Bitcoin Cash was the actual attempt at changing Bitcoin. And it failed. right? The battle failed, but the war wasn't lost yet. That's why the market ended up routing around BTC towards Ethereum instead. That's the twist, right? And as an investor, I was just able to ride that wave, and I'm not ashamed of those decisions. I don't regret those decisions. We got in

and we got out and we learned lessons. I mean, I'm at a position now where I think, you know, proof for workers actually has systemic flaws of governance, but that something we should maybe touch on later on. And look, I did try to change the culture, but I saw the writing on the wall, right? I saw the writing on the wall that it was unable to change for numerous amount of reasons that we can get more deeper into. And just because it stayed on top this whole time, and obviously I'm managing a fund that as a contrarian fund has a thesis that BTC will lose its top position, right? And so far, you know, BTC dominance has been falling since I maintained that that thesis and I think that's still yet to happen. I don't think that BTC is at number one now and that

you're saying it's going to continue staying at number one. I don't think that that's a good argument against its fundamental flaws. That's just an argument about the ignorance of the total market, right? And that the market takes many years to catch up to these ideas. I want to actually raise a question that's, I think, really important to this discussion because we keep talking about the block size wars, which, you know, that stretched on for a really long time. But one of the things that always struck me about that time period was the censorship on the Bitcoin subreddit. And Justin, you mentioned this in one of your tweet threads. And I remember, you know, because I'm a journalist. So for me, having all the facts is like a really important

thing to kind of figure out, you know, what the truth is. Also, my ancestry is Korean. So I'm very sensitive to anything where it's like propaganda and like, you know, censorship of facts and stuff. And so, you know, that to me always struck me as a way of like steering sentiment in Bitcoin one way or another. And I was curious for your thoughts on, you know, how that affected the community. And Eric, I'd like you to also weigh in because obviously now with all your criticism of maximalism, you know, I kind of wondered where you thought, you know, their views stem from. So if you can kind of both address this. The block size war was a long time ago now.

It was seven years ago since censorship started. And I don't want to make the mistake of remembering details incorrectly. But I think it's true that in 2015, there were threads on Reddit where most of the people were positively inclined towards a hard fork block size increase. because I've been going back to those threads as well, and I've seen some things that now in retrospect seems bizarre that that was ever allowed on our Bitcoin. So I think that, you know, Thamos did definitely take the steering wheel over the Bitcoin subreddit.

That's the moderator. Yeah, the moderator. He took charge of the trajectory of Bitcoin in a very aggressive way. And initially in 2015-2016, where these subreddits forked, and there was, in the very beginning, there were two different ones. So there was RBT and R-Bitcoin. And I remember, like, initially thinking, wait, so R-B-B-T-C is censored. So R-BTC is the uncensored one, and they're the good guys. And then I got more into the block-size debate and my own perspective, like I suppose that I was compelled by the small blocker.

arguments more because it resonated with me personally more that preserving the decentralizations of the nodes and the ability to verify the blockchain was the main important thing to defend for. And also the segregated witness solution that I at that time believed was number one, an instrumental change necessary to enable the lightning network. And also it was also a block size increase. So Segwit was a compromise in the sense that it actually increased the block size. That was where I saw the technical community sort of converging on one solution that would satisfy the asks of a big part of the ecosystem. So I suppose those people that wanted big blocks, they got bigger blocks out of segregated witness.

Then there was one part of the Bitcoin community that wasn't interested in using the lightning network to scale Bitcoin and thought that the initial design was scalable on its own. So, I mean, I definitely agree that some shit went down with the block size debate and the censorship of that subreddit. I have been questioning, like, how was I just one of these maxi plebs, like a small-minded maxi-pleb back then? Like, was that who I was in 2017? Was I someone who didn't listen to the arguments that was being put forth by big blockers? I've had moments where I've started to question how I acted and how I treated the big blockers. But I did spend an enormous amount of time trying to understand also the big blockers position. So I had, there was another, the moderator of the BTC form.

His name was Tudu and he's a Swedish guy. So I would spend a lot of time just walking around Stockholm with him and listening to the, when you started to discuss. just the block size war and you debate and you get into these niche arguments where, okay, but what happens if, okay, so let's say that not everyone can run a full node on their computer, but how are actually malicious forks or how are contentious forks actually fought in the protocol? Is it actually done at the node level or is it actually done in the marketplace? And his opinion was that it actually happens in the marketplace. If you have two forks, the market will price one differently than the other.

that's actually the primary way that these disputes are settled. I think that he definitely had a good argument there. That's one argument in favor of that you can increase the block size. You can't increase the block size because it's not ultimately, doesn't come down to like individual users' nodes as much as it comes down to the market, deciding the value between two different forks. Although I wouldn't say like it's black and white. I would say that it's perhaps, you know, it's both those things. Having people running their notes and validating the consensus rules of protocol is important, but the market will ultimately be the arbitrator of two forks. That's also true. And I don't think that those are necessarily conflicting beliefs to have that

both of those things are true. Yeah, one quick question about that is I remember there was a controversy at that time where BitFinex had these two different tokens trading to see what people's thoughts were on the block size debate. And there was, yeah, a shit storm basically about the ticker and how they gave the ticker for, you know, no hard fork to, I don't remember exactly what it was like. Just in some way they named it where people felt they were tipping the scales in favor of not doing the hard fork. So I was just curious if you thought, like, you know, for kind of a true sentiment, it should be that the two tokens just have completely different names or something.

Yeah, so there were multiple instances of that. BitFenix had a module called the chains, the chain split token, where you take your Bitcoin, you could put it into that module and you would get two tokens out. And one would be sort of a future on small blocker Bitcoin and the other one would be, there was one that was called just Bitcoin Unlimited, I think. Then it happened again when with the Segwit 2X, when the Segment 2X was going to activate. So there was one token that was called BT1 for the incumbent version and BT2, which was the hard fork version of Segwit 2x, which actually implemented the 2 megabyte block size increase along with Segwit.

And I do remember that exchanges, some exchanges were idealistic and said, we are going to just call the small blocker version Bitcoin, like BitMex, for example, they didn't leave it up to market cap or anything to decide. But I think that BitFenex, they did, you know, they didn't name these two coins anything until after the fork happened and saw which one had the largest market cap on their futures market. So I think Bitfenix handled it relatively fairly. The main interesting thing that came out of that was that everyone, like, people think that the reason that the small blockers won was because they ran their full nodes

and they just refused to accept any rule change from the Segwit 2x gang. But what I think really happened was that we gave these two different versions of the future, the Segwit 2x future and just the incumbent future with one megabyte blocks on Segwit. We gave those two tokens a chance on the market, and Segwit 2x didn't even get 15% of the value of the incumbent Bitcoin at that time. And who's going to mine that chain? Who's going to mine Bitcoin if it's just has 15% of the rewards? You have to mine for not two weeks. You have to mine for a very long time just to get a difficulty adjustment to make that chain profitable again.

So, I mean, that could be one of the reasons why there wasn't really a push from the Segwit 2x camp to even try to find. fix this off by one bug that Jeff Garsick fumbled with a Segwit 2x launch. So I think it resolved itself in the market. So I'm currently writing a history of the block size debates, which has been quite an intense project for me. So all of this is quite still fresh in my mind. And I would like to point out that that Segwit was not a compromise. I think that's a very unfair framing of what happened there. Because I think the compromise was known as Sigward 2X, which almost all major parties agreed to, including Core, which included Sigward and a 2 megabyte block size increase. I think that would have been a compromise and that would have been much better for BTC.

The fact that this didn't happen, I view as a major failure of BTC governance. And look, there's a lot of factors at play here that that ended up in this. predicament, right? If I'm being a bit frank, honestly, I think that one of the reasons the, you know, the small block side, let's say one, is they were more, one more dominant and connected, and they were able to play far, far more dirty. And look, and I think in the end, that that whole market process is not over yet, right, in terms of BTC's future. And I think that, that war is still playing out. It's just playing out with other competitors. I think that's something that, we didn't maybe, well, at least I didn't quite foresee as clearly, was the idea that, yes, to split,

a chain is a critical governance mechanism, right? Because then people can vote with their feet. But another aspect of that is also the wider market and the alternatives that exist, and people can vote with their feet in that way as well. Now, the censorship, I think, also played a very large role in all of this, you know, that the major, you know, communication channels were all censored to the point that even if you, you know, voiced any opinion that, you know, was against Bitcoin Core at the time, especially in regards to this whole block size debate, you would be pretty much immediately banned. And I think this is also well documented and also continues to this day, right?

You know, that is a major hinderman to actually Bitcoin changing. Now, I think this is a good time for me to get more into Bitcoin governance theory specifically. And I believe that it actually, so I developed something known as the free stage theory on governance. So we're a blockchain, this is at least what I think is supposed to happen, where blockchain goes through multiple stages of decision making by different groups and party, creating a type of balance of power and checks of power, right? So I think the first stage of that is the development team, is the client's implementations, because someone actually needs to write the code, right?

And in Bitcoin case, I think it was lesser debate about the block size, in my view, the block size debates, and it was more a debate about governance. and how Bitcoin is actually governed. Because we were facing this, this, this, this, this, this, this watershed moment. We're like, oh, are we going to increase the block size? Or we're not going to increase the block size? And the second question was, how do we decide? And everyone was arguing over how do we even decide this, right?

So I've done my best to try to understand what in an ideal case does Bitcoin governance look like. And I think the first stage of decision making does fall with the developers and falls with the client implementation. someone needs to write the code. The second stage falls with the validators or miners because they actually have a, what I call a proof of positive incentive on them.

To actually, they have skin in the game. They want to do what's right for the system, right? So developers write code, validators slash miners, run that code. And now if a lot of people disagree, if there's a division among the miners or just simply just users disagree, right, the ability to run their own nodes means

that the blockchain can split. And then the ultimate arbiter of truth is the market then. The market decides between the splits, which is the most dominant. And a lot of this, you know, there's a lot of old school politics that kind of enters the game at this point, in terms of censorship, in terms of, you know, flawed narratives and all these type of things, right? And, you know, banning, you know, developers out of core and saying that, you know, we have consensus here. I mean, that's one way to reach consensus, right? So, you know, in other words, but what ended up happening, I think, in Bitcoin is Core ended up pushing out a lot of the other client implementations after the fork.

And they really ended up dominating Bitcoin governance in practice. So in my view, core, the dominant client's implementation of Bitcoin in many ways ended up capturing, you know, the governance mechanism. And if you put this in the context of my theory on governance, if the first stage, you only have one client's implementation, if the first stage is only one party, like a GitHub is like a GitHub dictatorship. You literally have one person who has the final say over what goes in or out of the code, right? Then that acts as a bottleneck. That they can essentially act like guardians of what goes in or what goes out. And I think there was a huge war fought in Bitcoin where any clients that say contradicted

core was seen as an attack on Bitcoin. So created this whole culture where it was like, no, no, no, multiple implementations is dangerous. We only have one. And in my view, that fundamentally, you know, really broke the governance process. There's another element to this as well, which is why I now believe that proof of work is systemally flawed as a governance mechanism. That's because I believe that miners incentives are actually too short term. And what I mean by that is when most miners, you know, do mining, right?

they usually have no more than a five-year time horizon because their equipment's only going to last so long. They have electricity contracts for a limited time. Most miners are actually extremely mercantile in their mentality around Bitcoin. They go in, they have an investment horizon, they go out. Right. And in my view, what ended up happening is I think that the miners, what should have happened ideally is the minor should have acted as a check against the power of the developers. and that didn't end up happening, and that led to the wrong choice being made. Because, you know, if just a two-megabyte block size increase would not have centralized BTC, it would have kept it unified.

I think it was clearly the better decision instead of splitting the community the way that it did. And a lot of people just moving on to different projects or leaving cryptocurrency entirely. You know, so much drama could have been avoided, right? I mean, you know, that compromise was never reached. Keep in mind, it was the eight-megabyte block size proposal first in 2000. Then in, I believe it was 16, it was 8 megabytes, and then it was 2 megabytes. And then, you know, we went down and down and down and compromise many, many years later. And then we finally came to an agreement after four years of arguing, okay, the compromise is this.

And even core developers signed on to this, right? Two megabyte plus Segwit. You get what you want. We get what we want. We move forward. Instead, it was a bait and switch. No block size increase. And they got Sigwit.

And that that led to the split. That was the betrayal. That was really the first shot in so many ways. Yeah. So, I mean, obviously this history has been gone over so many times. I do, you know, think it's really good to sort of discuss it now with all the developments that have happened since. But we're going to talk about kind of Bitcoin's present day, especially in the context of a lot of the more recent developments, you know, including things around Ethereum, which, you know, really. is, I think, the only other major currency to talk about when it comes to Bitcoin.

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along with frequent guest appearances and hosting by Chris Dixon. Listen to Web3 with A16Z today on Apple Podcasts, Spotify, or wherever you get your podcasts. Back to my conversation with Eric and Justin. So before we move on into, you know, some of the issues around Bitcoin itself, I wanted to, you know, ask Eric more directly about this turn that you've taken against other Bitcoiners and maximalists, you know, and it's not just you. It's also been Nick Carter, Udi Wertheimer, Eric Voorhees actually, I think, was doing this even before any of you guys. So what, you know, is like, happening here that has made you decide to come out against these people? Like, what do you think

is sort of wrong with Bitcoin culture now? Yeah, that's a great question. I have my own, like, personal history, how it happened for me. But I think like more broadly, it actually stems from the block size debate in the sense that the winners after the small blockers, when they won in 2017, what happened in my opinion was that the winners of the war got so. cocky and they rested on their laurels and just became overconfident in their own theory of Bitcoin and their own rhetorics around Bitcoin that it essentially quenched the climate for intelligent conversation in Bitcoin. So Bitcoin maximalism really got high on its own supply in a sense after the block size war. And when I used to think like in 2017, you know,

It could just be my perspective, but I really don't think it is. Like, if you just look at who was the headline speaker at conferences in 2017, Andreas Antonopoulos, a man who could design the Lightning Network. He could write the code for it. He could speak intelligently about every single aspect of it. And then the Bitcoin Protocol in general and the geopolitics of Bitcoin. And if you look at who's the headline speaker today, Michael Saylor, was the headline speaker of the Hodel Holder conference that was just in Riga just now.

Michael Saylor thinks that NFTs should go on the Lightning Network. Michael Saylor doesn't understand that NFTs and the Lightning Network are like oil and water. You can't have a channel-based network that depends on you being able to create channels where you only have one-of-a-kind tokens. Those two things don't match. And the only reason that Michael Saylor is able to pioneer these ideas in the Bitcoin community is because he doesn't get enough pushback anymore, because the intellectual climate died,

and the critical thinkers, the people who did enjoy intelligent conversation, got successively more and more pushed out from the discussion. They became more marginalized. Like I, for example, in 2019, I wanted just to draw the attention to what was happening with zero knowledge proofs and roll-ups on Ethereum, which I, in 2019, found to be a very,

interesting way to scale a blockchain. And I try to get Bitcoins to just look at the structured architecture of this design. It's kind of interesting. Could we do something like that in Bitcoin? Could we do some variant of that in Bitcoin? Before that, I was called the Altcoin Slayer. And I'd really paid my dues to the Bitcoin community over a number of years by demonstrating that I would be like this technical attack dog that would pull out the dirty laundry on any other cryptocurrency that wasn't Bitcoin and show them how these altcoins were flawed. So I thought that I had built up enough intellectual reputation, intellectual capital in the community to just say, okay, all that being said, though, look at this thing with roll-ups

that's actually kind of interesting. And we don't have to have an opinion about Ethereum, whether it's good or not, just look at this technical construction. Maybe that's something that could allow us to get greater scalability with better user experience and better privacy in Bitcoin. And I got called a ship-coiner. I was called like Peter Todd called me dangerous because I read Vitalik's blog and I found interesting technical ideas in there that the Bitcoin protocol could learn from.

And now that I think about it, like I used to view it as a failure, my own failure. Like I wasn't, I wasn't persuasive enough. I wasn't, I didn't build up my credibility within the community for a long time enough to get, to be able to say something that when. against the status quo and still maintain the respect. When I think about it now and I see that Andreas Antonopoulos, like even if I dedicated 10 lifetimes to Bitcoin, I could probably not make as good of a contribution to Bitcoin as Andreas Antonopoulos did in the way that he galvanized people in the way that he explained the Bitcoin Protocol. And he also contributed to the Bitcoin

protocol in so many ways that most people don't even understand. Even if I did all that, where is Andreas Antonopoulos now? He's not on Twitter. Why is he not on Twitter? Well, because the Bitcoin community became hostile towards Andreas Antonopoulos because he wrote a book on Ethereum and he has some ideas that are seen as more leftist than what the Bitcoin community is more inclined with and he was advocating, I suppose, for flattening the curve during the vaccine, during the COVID vaccine, which a lot of Bitcoiners really didn't like. When I think about like, okay, so I wasn't able to get the roll-up idea into Bitcoiners' minds and I was instead called a Bitcoiner, well, so was under his Antonopoulos.

So it's not really like my own failure. I think it's just a systemic problem with Bitcoin because the same thing happened with Nick Carter, who also I think has contributed way more to Bitcoin than I have with his really intelligent advocating for proof of work and making the case for Bitcoin to the broader media and educating regulators. And he, as soon as he, you know, what did he invest in?

It was like an authentication tool on a website that used Ethereum or was multi-chain or something like that. It didn't even advocate for a specific cryptocurrency. It was just a tool built on, just used the key pairs from a cryptocurrency to log into websites. And he was immediately pretty much attacked by the Bitcoin community. So I think, you know, there's no way that I could have been successful at what I tried to do. I think what needs to happen first in the Bitcoin cultures,

we have to change the culture. Actually, I think that we cannot, I think that I cannot change. the culture in Bitcoin. I think the only thing that I can do and what I'm trying to do right now is to show other people who are in the periphery on the sidelines of this, that there is a way to be a Bitcoin or there is a way to be a strong advocate for Bitcoin, but you don't have to abide by the same rhetoric and the same ideas as these maximalists do. You can still be an advocate for Bitcoin. There are still other people in this ecosystem that will listen to your ideas. I think that the problem has been right now is that people think that, okay, if I don't, if I'm not

like the Bitcoin maximalist. I don't really have any room in Bitcoin. I will be attacked, squeezed out. I won't be able to go to any conferences. And that's sort of a situation right now. But I think that we, the other side, are, and we are, there's enough people of us right now that know enough about Bitcoin that are intelligent advocates for Bitcoin, that we can create a form of Bitcoinism that isn't as dogmatic as the current version of Bitcoinism is. Okay. I also want to ask you, you've been so critical of this stock to flow model for projecting the price of Bitcoin. And in response, you made up your own fictitious rainbow chart, which has actually turned out to be more accurate. So I was curious to hear what happened there, like, why you became so critical of this stock to flow model.

Yeah. The stock to flow model was, I mean, I was already skeptical of what was happening to the Bitcoin intellectual climate before the stock to flow model. model kicked off. And the stock to flow model just became the ultimate proof for many of us in Bitcoin who were critical of the intellectual rigor of Bitcoin maximalism. When we saw that our primary podcasters and like Saifedina Amuse who wrote the Bitcoin standard, Caitlin Long, VJ who wrote the Bullis case for Bitcoin, Pierre Richard, who was of the Nakamoto Institute, like all of these really core figures in Bitcoin. Also, Raul Powell and a number of other, like, key figures of being proponents of Bitcoin at the time, what they basically said with the stock to flow model was that you can program the price of Bitcoin.

Like, it's not actually up to supply and demand. It's a programmatic quality of the inflation schedule in Bitcoin, which is absolutely absurd. But it demonstrated, it demonstrated just how vacuoles. the intellectual climate in Bitcoin had gotten. And I say now that I was a minority person who was speaking up against the stock to flow model. And other Bitcoiners just thought, you know, why is Eric being so, this is good for Bitcoin? Like, why is he advocating against this?

And now, like, when I try to look back on that debate now, then, you know, I'm being gas-lided, basically by the Bitcoin community where they say, you know, Francis Pulu, I don't I don't know how I pronounce his last name. He says, he asked me, like, when I, when I, when I criticize the stock to flow model, he says, can you find one other person than Pierre Richard that was a proponent of this model? And Laura, I think you've been in this, you, you've been a journalist covering this space. You must have seen that there was one more person than Pierre, Richard, that was a proponent of the stock to flow model. And it's just, you know, it's ludicrous to me that the whole community can basically just decide that this part of history did not.

happen. We're just trying to eliminate that thing of ever happening. And I'm being gaslighted for saying, you know, there is a collapse of the intellectual quality in Bitcoin. And the stock to flow model was the first pure demonstration of that. And to be attacked, like, well, I'm being attacked now because people are saying that I'm making this up about Bitcoin history. I'm making the stock to flow model up. It was just a few people that really believed in it. It's just like that, I can't really explain how that happens. The only way that I could explain this is by thinking about, okay, what does a cult says, if a cult says that world is going to end by a specific date and the world doesn't end by that date, does the cult disappear?

Science has shown that these cults kind of don't disappear. They go in different directions and they make up excuses and they make up reasons for why the cult was still correct in some way. And this behavior is sort of how the Bitcoin community is acting right now. And it's really like, it's actually, it's gotten to the point where it scares me to see people rejecting historical facts that we need. know happened and just outright denying that it was ever a problem in Bitcoin. Jesus Christ. I mean, I can get so right. I can get like my blood's such a pump when I talk about that,

but I'm going to try to. Yeah, honestly, what just flashed through my head was, oh my God, did Eric just compare Bitcoin to a cult? I was like, wow. But I totally take your point about, you know, people revising history, which, I mean, it has. happens in a lot of spheres in life. And, you know, from what you say, it sounds like Bitcoin is not immune to that. Okay, so now let's, you know, address some of these kind of more core criticisms of Bitcoin around sort of like either technical or monetary aspects of Bitcoin. And Justin kind of was implying this before. So you guys both probably heard a lot of people call Bitcoin a dumb rock or they say like, you can't do anything with it. You just hold it.

they talk about how it's not programmable. So I was kind of curious for your thoughts. So Justin, you know, maybe you actually just want to elaborate a little bit on what this criticism is because, you know, there are the people out there like Arthur Hayes was just on my show and he was like, I view Bitcoin and Ether as different. They have totally different purposes. You know, Bitcoin just needs to be money. And, you know, Ethereum has this other utility.

It's more like oil, et cetera. So I was curious to hear your thoughts on, you know, what you think the future of Bitcoin is. Absolutely. I would love to touch on that. So the whole beats here's money. I would just like to address a few things that Eric just said before first. In terms of the current social climate in Bitcoin, I mean, that's the thing that I saw coming, you know, years in advance. And I think it's rather tragic that it's really, you know, I mean, I think Eric, you must like me remember some of the early days very fondly where there was a lot of intellectual

capital and that was promoted. And Andreas was also in very early inspiration for me as well. I remember he had a speech where he said, the power of Bitcoin is that this $1 worth of Bitcoin can be, it can be sent 100 times. You could do 100 transactions with it. Right. And that's something that really drew me to Bitcoin as well. So, and that's speaking to the money aspect. But I think, I think the problem with Bitcoin, and you refer to Bitcoin as a cult, and I don't think that's unfair, but I think this kind of cult, like thinking occurs in all cryptocurrencies and many walks of life, you know, where people get very tunnel vision in how they see things. And I think this is true for a lot of radical political movements, the ones that go too far off the spectrum,

have a tendency to eat their own best people in the process, you know, from the French Revolution to the Russian Revolution, I think also very much Bitcoin as well. And I think that, that's That's also where, you know, toxicity is not necessarily the problem. It's a symptom. Toxicity is a symptom of a lot of the problems that Bitcoin has. And the demographics of Bitcoin are also a symptom because like is attracting like. And new people that come and now look at this and they go, no way, this other thing over here looks much more interesting, which is why my thesis is so, you know, heavily based on this idea

that that, you know, BTC will lose its dominance. Now to speak to this whole money issue, right? So I do view Bitcoin, well, at least when we look at Ethereum and Bitcoin and we look at many other cryptocurrencies, I think saying that these are different and they fit different purposes is a way of putting BTC in its own special box into its own category so that it cannot be compared directly. In my view, actually, Ethereum and Bitcoin should be attempting to achieve the same goals. They are both base layer blockchains.

They both aim to be money. And money should also be a good store of value, right? So if I were to define what good money is, I would say good money. If I take, for instance, the Aristotelian, the definition by Aristotle, he said money should be, you know, fungible, right? Which I think is heavily degraded in Bitcoin. It doesn't have a lot of privacy technologies and having a limit on the transaction amount also limits the anonymity set. you know, it should be portable. I think BTC is not very portable at all because it's, if a lot of people use it,

it will end up being very expensive and unreliable, right? So, and it's also not very divisible either because same problems with fee markets. That's, that's not a reliable system. And I think in that sense, it's not very good money at all. I mean, it's easy saying Bitcoin is the best money the world has ever seen. But if you objectively look at it and you look at what, the technology is capable of today where we are able to have high capacity networks. Like Ethereum alone is already 12 times the capacity of Bitcoin, right? And smart contracts, that's,

that's the perfect example of a type of innovation that, you know, in the early Bitcoin days, it was an early dream of Bitcoin to have decentralized exchanges. Where is that dream today? That dream has been pushed out because, no, no, no, that's what the evil Ethereum people do. That's what the bad old coiners do. So we don't want none of that here. We want. want to stay pure. And there's, by the way, when someone says pure runaway, because that's, that's partially a cult-like mentality. And I think that's where Bitcoin really fails as money. It's a terrible medium of exchange. It's, it's comparatively a bad store of value. I mean, especially if you acknowledge that, you know, Bitcoin will have to increase inflation in the

future. So, so like this whole argument really has no, no objective grounds to be true. It's only true if you look at Bitcoin in a vacuum. If you put on rose-tinted glasses or you really get tunnel vision, and you only look at Bitcoin in isolation, you ignore all of the other cryptocurrencies, I will admit that Bitcoin looks amazing. And I would support that wholeheartedly. I would, because it's a lot better than what we have today. But now if we compare Bitcoin to the competitors,

competitors that at least theoretically and fundamentally are able to be far more scarce, far more secure, far more usable, have far more utility. You know, how can we even support Bitcoin in that comparison? Bitcoin has failed. And I do admire your hope in wanting to see that change in the future and fighting for that change, just like I did many years ago. But I decided to walk away from that fight because I saw it as a losing battle. And that greater gains were to be made in just letting that market run its course and

supporting the alternatives instead that did have a clear site that weren't hampered by their own governance. And this is the thing about blockchains, right? Blockchains are very difficult to change. And sometimes, as I mentioned earlier, where I believe that miners were actually prioritizing short-term decision-making over long-term decision-making, really messing up that governance process. In some cases, and I think in this example, in order to fix these problems, it actually requires a clean slate. Because these are changes that are very difficult, at least to implement in Bitcoin in time, before the crisis actually happens, as you've also earlier acknowledged. And that, to me, really speaks to this failure of Bitcoin, you know, flawed security, reduce scarcity, very little

utility. You know, there is no smart contracts, right? And I'm very happy, you're also somewhat of a critic of Lightning Network as I am, it's, it's, that's not going to save Bitcoin. And I think, I think a lot of the numbers have also confirmed that over the years. I think, you know, even if we assume like if, if we assume that everything that you say about Bitcoin is correct, like let me make that assumption, say, okay, Bitcoin has these issues and it's, you know, not doing smart contracts and it should and so on and so forth. Then, you know, my alternative then becomes what, to be an Ethereum maximalist, to be hyper-focused on Ethereum? I think when I look at Ethereum, if I just imagine that Bitcoin doesn't exist and I look at

Ethereum, Ethereum is not, it also has a bunch of different attack surfaces. I mean, just the most obvious one which has been talked about again and again and again, if you have a platform that is designed for Defi and you have all these external assets that are tokenized on the protocol, it ultimately, like ultimately those stable, issuers and those real-world asset issuers get immense control over forks in the protocol. So it becomes very difficult to fork Ethereum if you have stakeholders which control assets in Defi and all these DeFi protocols are interlinked and collateralized by each other. That's a systemic issue for the Ethereum protocol.

So I think that there should be an alternative to Ethereum. I just think that there should be something that is dependence. If Ethereum has tons of external dependencies, there should exist. one cryptocurrency, which is dependency-free, which tries to minimize the amount of dependencies as it has. And I think that, you know, proof of stake is interesting and amazing in many ways. But I also think that proof of work is interesting and has a very powerful attribute by being the most robust, most tested one that has been securing Bitcoin since day one and is generally not as all nearly as complex as proof of stake is in many of the ways that it operates.

I think that there should exist one cryptocurrency like that, which runs on the tried and tested, proof of work, that doesn't have dependencies, which is, also has the strongest brand name in Bitcoin that just, I basically compared like, let's say that the ultimate enemy is Captain Ahab. How do you kill Captain Ahab? You have an octopus or you have a revolver with one gun in it. Which weapon is best to attack Ahab? Well, it depends. Like, is Ahab submerged underwater? Is Ahab underwater? Well, then the gun probably isn't going to going to work. And to put this into consequence, okay, so underwater could basically be, what if the US government bans proof of work? Well, then it becomes difficult for Bitcoin,

which in my example here is the gun, it becomes difficult for Bitcoin to fight Captain Ahab if it's underwater. But the octopus could be extremely good at fighting Ahab underwater because the octopus is ESG friendly. The octopus has a medium of exchange use case in the sense that it's becoming the primary asset of which NFTs are being traded at. Ethereum has M-E-V, so it has a way to design a security budget that isn't necessarily predicated on net inflation in the same way as Bitcoin as. So Ethereum has all of these different arms that is coming for Ahab under the water. But if Captain Ahab goes out of the water and it's a different kind of fight, then the revolver might

be this dependency-free, like clear-cut game in which it wins. So I think that, you know, we probably want the octopus under the water. We want the gun above the water. It sort of depends where Ahab is. Like he's a moving target. He can fight in different ways. So that's why I think, you know, you should, how can you not view these different paths as mutualistic instead of parasitic when they are so different from each other now, especially since the merge? Sure. No, let me speak to that. So there's a few things here. First of all, I'm not, I'm not saying become an F maxi. I think that's a bit of a straw man. I don't advocate for being a maxi of anything. I've been a cryptocurrency pluralist this entire time since 2013. So I'm definitely

not advocating for that. And I find it a bit strange, your arguments saying, you know, that it has these dependencies, right? Because it has defy. Now, I view defy as actually being, you know, utility as being something that's useful. Also, I would even go first. and saying that good decentralized money requires decentralized finance to support it. Turns out that's actually part of the equation here in order to be successful in this market. Right. So I feel like you're somewhat, I mean, there's merit in what you're saying, but at the same time you're somewhat twisting the argument because it's almost like you're saying that,

oh, well, that it has no utility, that we can't build decentralized exchanges is actually a good thing. And I would really just argue completely against it. I mean, also because you're saying, oh, well, that's because it makes it harder to change, right? Well, I mean, as a bit coiner, I think out of all people, you should appreciate that as being a positive, right? That Ethereum is harder to change is actually a good thing. That actually makes it more resilient, makes it more secure, that it has this huge economy backing it up. I think growing cryptocurrency has always been the plan in terms of let's grow it so large that no single entity can attack it.

And that's exactly what defy is achieving. I think it's a very easy way to just disregard that by saying, no, no, no, B.C doesn't have these dependencies upon DFI. No, no, that's an incredibly positive thing. But, like, one thing that I do want to ask you is when you keep saying that DFI doesn't have these dependencies, I mean, this whole issue with MakerDA being so dependent on USTC, I think, kind of highlights that Eric's point about, you know, the fact that these centralized entities can sort of dictate the direction of at least DFI, if not, like Ethereum. I think that is the reason why Rune Christensen was like, oh my gosh, maybe we should DPEG away from the U.S. dollar because, you know, I think he's realizing, oh, you know,

essentially U.S.D is the kingmaker of, of die. And a lot of defy depends on USDC. It's not just maker. A lot of defy does. So I think Eric has a point there. No, he does have a point. And that's why I said his argument does have some merit. And to speak, you know, maker specifically, that's a very,

complicated case, but it also comes down to what my view of decentralization is, right? I think the ultimate form of decentralization is if you envision all of the major geopolitical powers in the world all competing with each other on the same neutral platform, that's the ultimate form of decentralization. But say, China and the USA and Europe and the Saudis are all competing over validation spots, I think that's how you create the ultimate form of decentralization. If it's always this niche thing like, oh, I'm a cyphopunk and I run a node out of my basement, well, guess what? That's easy to actually attack.

And that's far easier to actually overcome. I think the ultimate goal of decentralization is to have all these, I wouldn't call them dependencies, but ties into the financial world and that it starts to represent the real capital and the real GDP of the world overall. And I think that's how you get the ultimate form of decentralization. And I don't think that that's a negative. I think that defy over Ethereum represents a huge amount of utility and a huge amount of value and that it makes it harder to change and that major parties are part of this game

is actually what creates the positive balance of power that we're actually looking for in such a system. I mean, I will agree that maybe Ethereum will need to make some change in the future and it won't be able to. And then we might have another debate in a few years from now about why Ethereum will be overtaken, right? I'm not a maximalist. Clearly, clearly not. Now, just to speak to your Captain Ahab analogy, which I thought was a very, very interesting one, the reason why I maintain my position is I don't really see a single thing

that BTC is truly better at. I mean, there's maybe a few very minor cases, like maybe a better distribution in the case of proof of work and a greater cycling of participants. But to me, that doesn't overweigh the cons. So I'll ask you, Eric, because you say it's good having different types of blockchain because they're good at different types of thing. What is BTC better at doing than Ethereumus?

For example. Yeah. So I don't know if you have been paying attention to this risk of, now that Ethereum is moving to proof of stake, there's this risk of because there's so much stakes concentrated around regulated entities like Coinbase and Cracken and Binance and so on and so forth. And also, in proof of stake, you only need, like, one-third of the validators to censor in order for a censorship attack to be possible in Ethereum. So I've been advocating for this, like, the community needs to take this seriously and create a deterrent for validating entities to even think about censoring the protocol and complying with OFAC and things like that, because we are going to slash those validators that does that. And so the censorship resistance of Ethereum, in my opinion, sort of currently rests on the vigilance, like the vigilant qualities of the community to deter actors that may go overboard and just, you know, censor transactions just to stay compliant.

We got to make them understand that that is not an option. We're going to fight tooth and nail to make sure that the protocol stays neutral. And in that challenge that I've been having in trying to galvanize the community around this, one thing that has been making that whole thing, more complicated has been the fact that if there is a fork and there is one OFAC compliant fork and there is one rebel fork, it's a big question which one of these forks are these stable coin issuers that are also regulated entities going to support and what is going to happen to the defy coins on the rebel chain. If USDZ goes to zero, all these defy protocols sort of collapse in as domino as domino bricks. Because there's

so dependent on each other. So that's like having that defy on this chain definitely makes it harder to fight censorship. It makes it a bigger challenge. I don't think it's unfeasible. I still think that I don't think that every stable coin issue or every defy protocol is sort of dependent on what USDC does necessarily. There's definitely nuances where USDT might take one direction and USBC might take one direction

and there's going to be some time before this fork happens. So you can sort of unwind your positions in these defy protocol. before the split happens. But it is. I mean, DFI is a huge dependency. There's no way around it. This whole chain, there's tons of ether collateral

that might get dumped to, if USDC goes to zero, for example, just because of the way that collateral is tied up in these protocols. So, I mean, DFI is great. I love DFI. I've been a proponent for D5

ever since the end of 2018, I think. But I also recognize that this system is difficult to maintain, and it requires, or external workholes and stable coin issuers to support that ecosystem, which makes a fork in the protocol much more difficult to navigate around. That's one of the drawbacks of Ethereum. I'm still going to fight for Ethereum as much as I can. But when I am in that fight, I'm sort

of soothing and calmed by the fact that I still have the revolver with the one gun on the table that's still there. I haven't rejected it. That's Bitcoin. The dependency free, in my opinion, clean approach of Bitcoin so so so so that I don't put all my eggs in the basket of the octopus to fight Ahab. Okay, so first of all regarding the OPEC and the validators, I asked you the question, namely one thing that BTC is better at, right? That's the question I ask. And your response is well, OPEC regulations is something that Ethereum is vulnerable to.

But I would argue at least fundamentally speaking, I think, if it is more vulnerable, only due to scale, right? Not fundamental reasons. Because I would argue, actually, that proof of work is far more vulnerable to such censorship than actually Ethereum is itself, right? And this is because of the nature of proof of stake as well. Right. So in the case of proof of work, because these miners require, you know, huge spaces and

massive electricity consumption, and you can probably see a lot of mining operations from space, is that these are incredibly, you know, visible entities. And it's also highly concentrated in a relatively small number of hands. And did you know that actually OPEC compliant blocks have already been created over BTC? There's actually several mining pools that are today OPEC compliant and do not include such sanctioned transactions. Right. So what you're worried about happening in Ethereum is literally already happening in Bitcoin. It happened for a short period with a marathon mining pool and then they stopped doing that.

Okay, I wasn't, I wasn't aware of the update. But my point still stands, right, that that Bitcoin is actually far more vulnerable to this problem because if it doesn't have defy and it has less value, and we talked about the security model being flawed. As the value being paid to minors goes down, Bitcoin becomes more and more vulnerable to attack. That also makes it more and more vulnerable to censorship, right? There's fundamentally no reason why this can't occur over proof of work as well. So saying that, that, well, Ethereum, is far more vulnerable to this. No, it's just because more attention is being paid to it. Well, actually, I think the technical reason for that is just the UTXO model is kind of easier to implement an OFAC and not have sanctions affect many different actors, whereas like because Ethereum has the account model, just if your address is blocked or even just like identifying, like, when you have sanctions, it can either be that you're blocking an entity or you're blocking specific property. And because with the UTXO model under Bitcoin, like, it's easier to block that specific property. But under Ethereum, because, you know, just like I said, just account balances get

changed. It's not as easy. So actually, I do think at least, at least, you know, I'm not a technical person. I'm just kind of, you know, repeating what I've heard. So in that regard, I actually do think that's one way in which Ethereum is less censorship resistant. Okay. Well, I think in general, if you say that proof of work is bad at fighting censorship and proof of stake is better, I think that you're sort of failing, in my opinion, to recognize that there are so many different nuances to these different systems that in one situation, one might be good, like, proof of work might be good if in one situation where proof of stake is better, and it might be another way in another situation. I just think that, you know, why don't we go

head to head with the state monopoly on money with both these tools in our arsenal. Why do we have to say that one is better than the other when there's, like if you, if you spend any amount of time analyzing these two different protocols, you will see that the debate is very nuanced. There are, they behave differently in different environments. Proof-Stake, for example, has the ability where it can slash a specific validator that engaged in censorship, which you cannot do in proof of work. that's a strength for proof of stake.

But proof of stake also has the problem where you only need like Coinbase and Cracken to decide to start to censor tomorrow in order for that to be a huge problem for Ethereum. Whereas in Bitcoin, these miners are sort of not necessarily tied to a regulatory jurisdiction in that same sense because they are, they just need an energy source. And it can be in Kazakhstan, it can be in Afghanistan as long as there's some type of resource to mine there. They don't have to be in a specific jurisdiction which these. exchanges and custodians really do tend to be.

I don't think that's really fair. I mean, you can run a validator out of Kazakhstan a lot easier than you can a mess of mining operation. Yeah, but Coinbase and finance and Krocgen that are like the largest single validators tend to be exchanges and custodians. That's just an inherent aspect of- And five pools control Bitcoin right now as well, right? And it has for years. Yeah, but you can repoint your hash rate to whichever pool doesn't censor.

And in proof of stake, you have this. In proof of stake, you can do the same. Yeah, but in proof of stake, it takes time to unstake from one pool and go to another pool. There's, because of the weak subjectivity problem in long range attacks, you need to have your stake locked up for a minimum period in order for the protocol to be safe. I'm just saying, like, we can get into the specifics endlessly. There are definitely ways in which proof of work is better. And there's definitely ways that proof of stake is better.

It depends on the situation. It depends on the exact attack and pressure that the gun. government puts these systems under. And I'm just saying it's a very easy answer. No, it's not easy. They both have pros and cons. You can't say one is better than the other. No, I think people do need to decide which one is better because they have to allocate capital. They have to, you know, predict the future. I allocate capital to both. I allocate capital to both. If I go into a fight, why am I not going fully armed with multiple weapons depending on how the fight turns out? Because they're going to drag you down. I would just take the best weapons.

Now, if I were to just explain why I think proof of stake is fundamentally so much more secure and so much more sense-ship resistance, just as an example, right, because it's difficult looking at it now because Bitcoin is still a lot bigger in terms of value, and value also determine security. But as an example, let's say we take a hundred billion euro proof of stake network, and we also take a hundred billion euro proof of work network in this example, right? And if I use historical numbers from BTC, I think it's fair to say that there's about $2 billion worth of value on that proof of work network, right? That's securing it. So to attack it would cost about a billion, at least for an initial attack, right? In the case of proof of stake, how much would it cost to attack that proof of stake network? At the very least, $33 billion, right?

That's a much larger number. That means the cost to attack proof of stake against proof of work is far, far. far higher. And it gets better than that as well, because the response Bitcoin would have to such an attack, which is a very radical situation, but it's a good way to highlight the underlying issues, is the way Bitcoin would deal with that attack

is changing its underlying algorithm. Okay, and when you do that, then a second attack, say, if an attacker is extremely sophisticated, a second attack could come along where it's attacked using GPUs and CPUs. And after that point, you know, Bitcoin is pretty much dead in the water,

I can't recover from that, right? So that's how Bitcoin and how much it would cost to attack Bitcoin under those parameters. Whereas in proof of stake, because of slashing, that process can just be continued indefinitely until the attacker runs out of funds. And I don't think that proof of work, it doesn't have some sort of special status in terms of security, right? It doesn't. Because from the perspective of a sophisticated attacker, right, whether I spend $50 million in a

staking firm or I spent $50 million in a mining firm. It makes no difference in terms of which equity I get if my intent is to attack the network. So this is also why I say that proof of stake is fundamentally more secure. And if it's more secure and it's more decentralized, it's also more censorship resistant. And we saw this in Bitcoin as well in the early days where certain pools were reaching, we're going over 50% and then new pools were created and then it was distributed more. And we're seeing that exact same process happen over. Ethereum today. And over time, you know, the incentives work and the game theory works. And Coinbase has been fighting a lot of these OPEC regulations. And of course, my ideal is that a few

pools don't control the majority of stake. That is terrible. It's just as terrible when that happens in proof of work as well. But at least in proof of stake, we can see that the fundamentals actually do trend more towards decentralization and censorship resistance in comparison to BTC. I still disagree. Proof of stake is not fundamentally more secure. It is different. It has different advantages and disadvantages, and it depends on the enemy that we're fighting. I'm not going to just let that slide and say that proof of stake has an ultimate advantage.

It has some advantages. And let's be proud of those advantages. And let's talk about those advantages. And when someone comes and says, like proof of when the Bitcoin maxis come and say that proof of stake is absolute garbage, we address those arguments intelligently by highlighting the ways in which it is different and the qualities that it has and trying to get people to understand it, both these projects has important positives to them. I don't see any reason at all to just throw out one and just favor the other when we can use both these tools.

I'm sorry. Yeah, I have a feeling maybe Justin's point on that is he wrote, the cryptocurrency market has to now overthrow the incumbent, meaning Bitcoin, before it can truly thrive again. So why don't you guys just sort of both address this? Like it seems like Justin feels like in order for crypto to really kind of flourish, then apparently Bitcoin has to be overthrown. Can you talk a little bit about that? And Eric, you respond. And then... So the reason why I think that is because I think it gives cryptocurrency a bad name.

I think that a lot of people think that cryptocurrency is just this purely speculative thing. And in my view, I think that's what Bitcoin is. it's a purely speculative asset. That's not what I signed up for. I signed up for an asset that actually, you know, is useful, that actually has utility. And it's the underlying utility that gives it value and also gives it more security in the long run. And that's why I support the alternatives to Bitcoin and not Bitcoin itself anymore, because I think that's what helps move the, moves the world forward more.

And I'm not advocating for attacking Bitcoin. I'm not advocating. I'm not saying, well, you know, I don't want Bitcoin to improve. Of course I wanted to improve. If it turned around and fixed all of these problems, I would be overjoyed. I really would be because I love Bitcoin and I love the whole mythology and anything about it. But what it has become today just doesn't represent, you know, the original vision and the dream that I first signed up for. And I think it's admirable, Eric, that you're still fighting for that dream within Bitcoin.

And I'm not saying we need to destroy Bitcoin. And I'm not saying, you know, it should. be shot down or anything like that, but I think the market is going to do its thing. And if we have better technologies that are just better at what BTC does in every single way, then I think in the market, they are going to overcome Bitcoin. And I think that will be a positive thing because in people's perspective of what cryptocurrency is as a whole will change. Because I think that the alternatives actually represent that true perspective,

for what cryptocurrency should become far better than, I believe, BTC ever could. Thank you for that. I still can't shake this notion that it feels like you have some emotional history with Bitcoin and you're very disappointed with the trajectory that Bitcoin chose. And it feels like, I mean, you've been advocating for a number of different cryptocurrencies like Dash, Bitcoin Cash, and now it's Ethereum. and like I don't think that Bitcoin Cash is a better solution than Bitcoin. I don't think that it ever was.

And I also saw flaws with the Bitcoin Cash leadership. As you did, and I didn't ever think it was a legitimate good contender to Bitcoin. So what we really left with today, I think, is Bitcoin and Ethereum. Like those are the two big ones that we can bet on. And I think that those two cryptocurrencies are just so fundamentally different that it's obvious to me that one is going to be better in one situation and the other is going to be, better in the other situation. So you're not going to get me to abandon Bitcoin in favor of Ethereum because Ethereum is so different.

It's so different that I still think that there's a use case for this pet rock that just try to do one thing very simply. I could agree with you if you said, like, Bitcoin is bad and bad and this and this other ways. And here's a perfect alternative, which solves all those problems. And I think that your solution is Ethereum, but your solution previously was Bitcoin cash and was maybe Dash and then Ethereum. I'm wondering, like, where will you be five years from now?

Will it be something else? Will you have identified some fundamental flaw with Ethereum's proof of stake system that didn't satisfy your needs also? I just think, like, let's be a little bit humble and not necessarily rule out the chance that we might need both of these systems to combat the state in the future. The one thing I would say about that argument is like, it's not quite an ad hominem attack, but it's like almost close to it. Crypto world changes and Ethereum,

I'm not sure, you know, what time, at what time he supported Dash, but I think there was a period where Dash exists where Ethereum didn't exist. So who knows where things will go, but you guys, oh, Justin, did you want to? I just want to address this because I've supported Ethereum as well from day one, and there's over 30 different cryptocurrencies in the portfolio we manage. So I've always been a pluralist.

and I'm not going to say that Ethereum is perfect. I'm not going to say here's the perfect solution, right? Because it doesn't exist. But I don't think it's just a theory of those. If you can support 30 different cryptocurrencies, you could also support Bitcoin. I mean, Bitcoin is not so much worse than all those other 30 that you support. Well, I think it is because it lacks a long-term security model. It lacks utility.

It lacks all cryptocurrencies have, all of them have issues. Yes, all cryptocurrencies have flaws. And there's many other cryptocurrencies. cryptocurrencies that also wouldn't make it into their cyber capital portfolio, right? But in the case of Bitcoin, if something does not have utility, it does not have a viable long-term security model, it has a toxic culture, it has a dysfunctional governance, yeah, that's where I'm going to draw the line and say, no, I'm not going to support this, because we can do so much better than that today.

And it's not just Ethereum. It's also, you know, tons of other cryptocurrencies near Alron, Avax. I mean, there's tons of them, and none of them are perfect, right? but they're all still technically and fundamentally so much better than Bitcoin. And I just don't, I just don't want to stand here and say the emperor's wearing clothes when he clearly isn't. Okay. Okay. We're going to leave it on that note that you guys.

This has been an incredible discussion. I just loved the points that you made on both sides. And I think I'd be interested to hear what the listeners think. So tweet at us if you have thoughts on what was said. Where can people learn more about each of you and your work? You can follow me on Twitter. I just go on to Justin underscore Bonds, and you can also check out my company, Cyber Capital. And I'm Eric Wall on Twitter, ERCWL. Perfect. You guys, this was amazing. Thank you both so much for coming on Unchained.

Thank you. Thank you, Laura. Thanks so much for joining us today. To learn more about Bitcoin maximalism and the future of Bitcoin, as well as Justin and Eric, check out the show notes for this episode. Don't miss our daily roundup of the biggest news in crypto in the Unchained daily newsletter. Go to Unchainedpodcast.com to subscribe. Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Matt Pilchard, Juan Oranavich, Pamma Jimdark, Shishonk, and CLK transcription. Thanks for listening.