Unchained - Jimmy Song on Why Bitcoin Will Be the Winning Cryptocurrency - Ep.69

Episode Date: June 26, 2018

In an episode of strong positions, Blockchain Capital  partner and Bitcoin educator Jimmy Song explains why private blockchains will never work, why smart contracts will never work, and why Bitcoin will be the one and only valuable cryptocurrency. He also gives his definition sound money, describes why Bitcoin is sound money, and talks about how he finds new companies to invest in if he believes Bitcoin is already the winner. Plus, he recounts the story of his buzz-generating debate with ConsenSys's Joe Lubin at the Consensus conference, which ended with a challenge to come up with a bet in Bitcoin, and what terms Jimmy would like to make the bet on. Lubin, it's your move. Jimmy Song on Twitter: https://twitter.com/jimmysong Medium: https://medium.com/@jimmysong Blockchain Capital: http://blockchain.capital/ Programming Blockchain: http://programmingblockchain.com Off Chain with Jimmy Song on Youtube: https://www.youtube.com/channel/UCEFJVYNiPp8xeIUyfaPCPQw Medium post on smart contracts: https://medium.com/@jimmysong/the-truth-about-smart-contracts-ae825271811f Jimmy's rebuttal to the responses to his post: https://medium.com/@jimmysong/crypto-keynesian-lunacy-16bb9193a58 Video of Amber Baldet, Joe Lubin and Jimmy's panel at Consensus -- video 31 under Day 1: https://www.coindesk.com/events/consensus-2018/videos/ Thank you to our sponsors! Blockchain Warehouse: https://www.blockchainwarehouse.com Clarity PR: http://clarity.pr Preciate: https://preciate.org/recognize/ 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. If you've been enjoying Unchained, pop into iTunes to go as a top rating or review. That helps other listeners find the show. Clarity PR is a global strategic communications agency that shapes market-leading narratives for brands in crypto and blockchain to drive awareness and grow business. Working with clients, including Atlas Quantum and Securitize, Clarity can move quickly to differentiate the value of your business. Please visit clarity.pr to learn more. Blockchain Warehouse is an international blockchain accelerator, offering a wide range of token sale advisory services to promising blockchain-based ventures. With the leading advisor network, BCW is at the forefront of building landscape-changing blockchain companies and hosting successful token sales with more than $20 million raised so far. Raising the bar together with Precate, launching this summer.

As a sponsor of Unchained, Precate has recognized amazing people because we believe in the strength of recognition and relationships and the strength of community. Who will be recognized today? Stay tuned. My guest today is Jimmy Song, partner at blockchain capital and founder of programming blockchain. Welcome, Jimmy. Thanks for having me, big fan. First off, I want to know why the cowboy hat and do you wear it everywhere you go? I do wear it everywhere I go. I have three separate reasons for. wear the cowboy hat. First of all, I live in Austin. So I wear the boots and the cowboy hat as sort of a way to let people know that's where I'm from, right? Like when I go to conferences and things, it's,

hey, where are you coming in from? I'm coming from Austin. Can't tell from the hat. Second thing is, yeah, the second reason is I love the 1800s, that whole era, you know, like, yeah, the United States went from a backwater British colony to a world superpower in that period. And, you know, cowboy hats and that whole West and self-made man ethic and all that stuff was very prominent around then. And I like to point out to people, you know, that was largely built on sound money. So for me, that's a very powerful motivator to sort of imitate that era just a little bit. And finally, the third reason is I do speak on Bitcoin and the entire crypto space.

So for me, the hat represents the crypto space in the sense that, you know, we have a lot of opportunity, but also a lot of danger. It's the wild west, right? And there's, you know, a lot of interesting things that can make you a lot of money, but there's also a lot of stuff that, you know, might get you killed. So, yeah, that's why I wear it. Oh, boy. I hope you mean killed in the financial sense.

And not in any other sense. Hard to say, hard to say, though. Oh, man. Oh, boy. Okay. I was looking for some certainty there. You know, I've heard you say this word sound money so often. I'm just curious. What does it mean to you? Sound money, hard money versus easy money, as in it's very hard to produce. So not a lot of society is spending their money and resources, their resources into generating that hard money. Easy money is by definition, like easy to produce. So central banking, fiat money, that's very easy because it just requires the stroke of a pen or an update to the central bank's database in some way or shape or form.

So for me, sound money is money that is hard money. That's very difficult to increase the supply of. And that's what Bitcoin is, that's why Bitcoin is interesting to me. And did you have that interest in sound money before you got into Bitcoin? Or did you develop it once you learned about Bitcoin? Well, I think everyone sort of has that instinctual value of something that's scared. Right. Like even when I was little, I would collect baseball cards or something. And I still remember there was like a Billy Ripkin card from like 87 that, you know, had a profane word on the end of the bat that they didn't catch and then they revoked it. And everyone wanted that card because, you know, like they revoked it. So it was rare. So people wanted that card. I think that that's a natural instinct for people. And it's not necessarily something that you need to learn per se.

It's something that's almost inbuilt. And when I heard about Bitcoin first back in 2011, that's one of the first things that made me want to get some was that there was a 21 million Bitcoin limit. And I knew that it was scarce, right? Like you can't make anymore. So therefore, it's a very good thing to possess. you know, people, people recognize this about other, all sorts of scarce things. And that's, that's part of, I mean, you can be versed in economics, I guess, and know about the, you know, subjective theory of value and all that stuff. But, I mean, it's sort of inbuilt, I think,

for me, and I imagine for most people. And what were you doing at the time that you learned about Bitcoin and how did you hear about it? 2011, I was working at a startup. I was one of three people, the only technical guy at that startup. And I had been doing startups for like 15 years before that. So, you know, I was at the startup. I saw a story on SlashDot. That's a geeky website that I used to read.

I don't read that one so much anymore. I think Hacker News is like the new geek hangout. But, you know, their tagline is news for nerds, important stuff. So, you know, it has like, you know, it'll have a story on the Matrix movies or something like that. And then another story on like how SEO is a patent troll that's like suing all these companies or a new distribution of Linux. And, you know, like it's just sort of stories that I would be interested in. So it was very much catered to me. And I read a lot of the stories that are on there.

And one day I saw one story that I had no idea what I was talking about. It said Bitcoin has broken $1. And I was like, what is this talking about? So I clicked into the story. I read about it. And it's like, digital money? What the hell is this? And I basically fell down the rabbit hole.

and, you know, looked at it for a few days. And I was like, okay, I need to buy some of this largely because of that 21 million limit. Because I was like, okay, I have no idea if this will gain traction or not. But if there's only 21 million and if it does gain traction, then I better be one of the people that has some and not one of the people that's buying it much later because it'll be worth a lot more. And that's largely proof correct, which I'm kind of still astounded by that it's come this far. But, you know, if you think about it and think about how much money printing there is going on in the world, it makes sense. Wow. To get in that early and buy at that time, that's amazing.

To be clear, I didn't buy that at that point because it was really, really annoying. And I actually ended up buying many months later. But yeah, it was, yeah, I didn't buy one of the biggest regrets. Yeah. You worked at wallet company, Armory, and Enterprise blockchain from Paxos. And I was actually surprised to see that you were at Paxos as recently as March, at least according to your LinkedIn. What were you doing at those two companies?

Well, Armory, I was a VP of engineering. So I was helping develop. the product. I did a lot of coding. We weren't a very big shop. So I think we had like eight employees at our peak and it was like six engineers or something like that. So we were a very engineering having company. It's kind of funny that we're talking about that because, you know, a lot of these institutions want custody solutions. We had something back in like 2016 and we couldn't find anybody that wanted it. We had like this interested key ceremony stuff and it's it's kind of sad to look back on it because we were just two years early. But you know, what can you do? Unfortunately, we ran out

of money there and I was looking around and Armory, at least back then, was a really popular wallet. So when Alan Rayner was the CEO and he founded it, and he's a very good coder, a friend of mine, And he posted right after Armory, you know, ran out of money on the Bitcoin talk forums and told people, hey, like, we're going to stop. I think he had something like 17 emails in the next hour about how, you know, he should, he should apply to work at these other companies. So based on that, we went out and interviewed out a few. He wanted to bring me along with him. And I ended up at Haxos, otherwise known as Itbit. And they wanted to do an enterprise blockchain product.

And that's what I worked on for almost two years. I mean, I did do some advisory stuff on the Itbit side of the business. But yeah, it was largely trying to make a private blockchain work. Which is really interesting, given that you have a very strong viewpoint that private blockchains won't work or don't work. And yet you worked on one for two years. So why do you think that? Well, I mean, it's largely because I tried to make it work and I couldn't. And every single time I came back to the same thing, you have to have some central point of failure, in which case a blockchain makes zero sense.

If you try to make- But having a central point of failure, like if it's, you know, let's say five different companies, then so what is the central point of failure? Is it that a hacker would have to attack three of the five companies? And that's the central point of failure? No, no, no. Almost, so if that would be more a federated system. So three or five or something like that.

And that's what like Blockstream is doing with the element side chain and liquid and things like that. Now, I'm talking about the actual, actual blockchain. And I've studied a lot of these other ones, you know, Hyper Ledger and Corder and all of these. You almost always come back down to some sort of central entity that needs to control what goes into the ledger or not. And if it's not a central entity, if it is like you were saying like three or five, it doesn't work. And there's a lot of reasons for this. Part of it is regulatory. So if you're doing anything in the security space, there's a regulator that needs to be in the middle of that process so they can roll back a trade or, you know, like somebody's on suspicion.

They're not allowed to do that. They need to control that. So there's a central point of failure there. But more importantly, if you're going to make money with this software, almost a little bit of, always you have some sort of software as a service type offering, you need to justify why they're paying you money. If they're just running software and you're not really doing anything, then it doesn't really make sense. I mean, we tried to design it around so that you have some sort of, you know, multi-party approval, kind of like what you are suggesting. It doesn't really work.

There are lots of technical reasons for that. But the main ones are, you know, if you're trying, unless it's a digital bearer asset, you always run into the Oracle problem. You need to bind the real world thing to whatever's on the chain. And once you do that, then like, then you lose a lot of the protections that you get from, say, the gold bar being in the vault. If somebody steals that token, who does that gold bar belong to, right? Like you get weird situations like that.

So to make any of these viable, you end up needing to centralize it all. And at that point, a blockchain doesn't really make any sense. And this is something that I discovered with, I tried so hard, Laura, to make that work. And I couldn't find a way to do it without, you know, centralizing a large part of it, at which point it kind of becomes pointless. So I have multiple questions here. of all, at the beginning, you made a distinction between the example that I described, and you said that that was a federated chain. And so how are you defining federated versus private? What's a

private blockchain? Well, so federated and private are orthogonal concepts. So federated is multiple parties controlling something. So you could have something like, you know, a multi-sig is like federated control. If you have three of five, then that would be, you know, no single person controls it, but it's three or five of those people. But with a private blockchain is just something that's not public. Like you can't go look into it or download that entire database. Why did you say that that was a single point of failure? Because you could presumably have a private federated chain where the data was not public? Well, you can't in most cases.

So I, and you could try to have a private federated chain. And that's what most, most of these private blockchains try to do. But almost always, you either have a regulator that needs like direct access. Even if it was federated, if somebody ended up stealing three or five of those keys, what happens? You have the Oracle problem. You have the regulator problem. You also have the very practical. practical business problem of who like how do you justify them paying you money all of those things so

and if the software is yours then they're not really controlling it and it's basically it it you can't have a federated system while making it so that the economics work out for everybody and that everyone follows the rules okay yeah You know, I don't know the business models for some of the ones that are coming out, but I do know that there are some federated private blockchains that are going live using things like IBM and Microsoft. Yeah, so Hyperledger has a central point of failure. They have something called an ordering service, which sounds very innocent. It's just something that orders it.

But if you think about it in Bitcoin terms, that's who determines which one is double spent, which is a double spend, then you take that out and which one is not. So it's actually a very powerful central entity, and they control that central entity, the ordering service. Everything else is, it's not actually federated. It's a central point that determines which transactions go in and which transactions don't. Oh, interesting. So if I'm doing like supply, if I'm one of, you know, multiple companies doing supply chain using a hyperledger blockchain, then. somehow hyperledger is sort of like the referee of different transactions, like if there's some

kind of dispute? Is that what you're saying? Yeah, yeah. That's what they call the ordering service. And it's literally ordering the transactions. And then if a new one comes in that conflicts with the previously ordered transactions, then it's not allowed in. That's how it works. But yeah, I mean, but they get to determine the order. So that's kind of a central point of failure to me. I'll have to have Brian on my show and ask him about that. I also notice that now that you've left Paxos, you have been focusing a lot on developer education. In February, you announced Platypus Labs at Blockchain, which, for my understanding at least, and you can correct me, is trying to educate developers in some respect to actually work on Bitcoin. And you also yourself run a blockchain educational course called programming blockchain. Can you. you describe these two initiatives that you're doing and how they differ from each other? Yeah, sure. So I started programming blockchain last year because I saw that the biggest risk to the Bitcoin ecosystem is the lack of developers, lack of good developers. And it's not that

Bitcoin develop is super, super difficult. I mean, it is difficult, but it's something that I think any intelligent person can, you know, pick up. It's just that there weren't resources to, you know, get people in and get a lot of these people that were interested into, you know, to learn a lot about this stuff in a reasonable way. So I created the course. It's a two-day course, live and in person. And I've done 15 of these already. But basically, they sit in a classroom. It's eight hours each day. And I go through from the very basics, it's more or less like high school level math, something called finite fields and elliptic curves and go all the way through the transaction hex dump and analyzing that and figuring out how to build those and

going all the way to the network programming and figuring out how to grab transactions and blocks from the network and how all of that works. So it's two days of very intense instruction. It's about a semester's worth of information. And I don't say that. lightly, I actually had a professor at the University of Texas and Austin asked me to do this course over an entire semester there. And it's the same exact material. How can somebody even take in that amount of information in two days? You would think that that would be hard, but amazingly, you know, like university education, I found is a little less efficient than it could be. And if you're surrounded by a lot of people

that are also learning the same thing. And, you know, you have exercises and things. It turns out to be pretty good. Or at least that's what I'm told. Wow. Yeah. As somebody who did, like, philosophy and literature and had to read, you know, like multiple books every week.

Like somehow I don't think you could do that for what I studied. But anyway. Yeah, yeah. It's a little different than philosophy and reading lots of books. Yeah. But yeah, that's programming blockchain. I, you know, I have one in July in Denver. and San Francisco, and I'll probably do one in Chicago and possibly in Prague.

And I've done these all over the world, right? I've done them in North America, Europe, Asia. I just did one in Sao Paulo. So, you know, it's been really good. The reaction by the community has been very positive. And, you know, a lot of the developers that I've trained go on to contribute to a lot of these projects or founding their own company. Really?

Wait, do you have numbers on that? Because I just, I have to admit that I'm skeptical that somebody can take a two-day course and then suddenly be contributing. Is it to Bitcoin, is it to the Bitcoin code base that they're contributing? Well, I have at least one. And I can refer you to them later. But yeah, this is something that I offer for all of my students is if you manage to get a non-trivial pull request merged into core, then I will pay you $500.

dollars. And they, and one person has taken me up on it. Other people are looking into it. Part of it is that like core developments actually very, very strict and, you know, doing that particular thing takes a lot of work and, you know, a lot of review and understanding that code base, which is separate from learning the Bitcoin protocol. But I can, yeah, Chris Cloverdale took my course in London back in January. He had a merge, he had a PR merge like, uh, the scorebed app here with trusted stats in real-time sports news. Yeah, hey, who should I take in the Boston game?

Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or? The score bet.

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And it gets harder to separate truth from fiction. That's why CBC News is putting more journalists in more places across Canada, reporting on the ground from where you live, telling the stories that matter to all of us. Because local news is big news. Choose news, not noise. CBC News. I want to say not too long ago. So, you know, yeah, there are people that are doing, you know,

like that have gotten jobs at different companies as well after the course. So yeah, that's what they do. And what about Plotipus Labs? Yeah, so Platypus Labs is a different initiative. And this is to support open source development. And I think, you know, my partners at blockchain capital recognize that, you know, the Bitcoin developers are adding a lot of value to the community, but there's not a very easy way for a lot of these companies that are getting a lot of value out of it to contribute back. And some of them certainly sponsor core developers and so on.

but they wanted something that was more systematized and long-term. And this is where we came up with Platypus Labs. And this is something that if you think about it, a venture capital firm is actually really well positioned to provide because they have a lot of portfolio companies that are benefiting from this. And they have money. So between those things, we can, build out a lab where we can support a lot of the open source work that, you know,

for a long time, a lot of these guys weren't getting paid for. But now you can at least provide them with the space, maybe even provide something of a stipend or something like that and, you know, help educate more people as we go. You know, we have all these plans for, you know, fellows and residents and associates and so on that would come through the lab and help grow the ecosystem from that perspective. So they're like paid a full-time salary and they apply? Yeah, so these are all questions that we're still wrestling with. Like my partners are currently moving offices in San Francisco, in part because of this, right?

Like we have a large office space that we got so that we can have a lot of people that can work out of there. what that exactly looks like and how much they get paid in things, that's still to be worked out. But that's the vision is that we would have a place where a lot of people can come and work on Bitcoin together. So I was curious, do you consider yourself a Bitcoin maximalist? And when you answer the question, can you define it? So people who don't know what that means will understand? Well, so the way I define Bitcoin maximalism is that money has a tendency to be winner-take-all. And I personally believe that Bitcoin will be that winner.

Now, everything else that's not claiming to be money, from what I've seen, tends to have very money-like properties to them. So Ethereum always tells people we're not money, where like oil to Bitcoin's gold or something like that. But if you look at the value and what, you know, the token value versus like what people actually use it for, you know, however many crypto kitties you've created, that's, you know, the amount of Ethereum that you pay for that or whatever. it doesn't justify Ethereum's valuation. The only way that valuation makes any sense at all is if you think of it as a monetary thing. So from that sense, I'm a Bitcoin maximalist because I think money is the main use case.

And in the realm of all cryptocurrencies, I think there will be one winner and I think that winner will be Bitcoin. The history of technology shows that quite often, not always, but quite often, the first example of something does not become the dominant example of that thing. So for instance, you know, like Google with search or Facebook with social network. So why are you so convinced that this is going to happen? Well, that's true of technology, but not necessarily true. of monetary mediums. So you look at something like gold.

It had a lot of competitors with silver and other metals, but it kept it. And here's the thing that's weird about Bitcoin. A lot of people think in terms of technology, but its economics are very much like money. So, you know, there's this tendency to want to change everything, which is normal for technology. but for something like money, you don't want it to change. So there's this tension that's constantly brought up all over the place in cryptocurrency for that reason. You know, you have the tension between these two things. For me, the reason why Bitcoin is going to win or it has one is because of the network effect.

Scarcity is its own network effect. there's a reason why, you know, no competitor to, like no auction competitor to eBay has, you know, existed in the last 20 years. You know, buyers want to be where the sellers are and the sellers want to be where the buyers are. So, you know, I mean, you can try to launch it. I think Amazon at one point tried Amazon auctions or something. There were other competitors that tried. But it's a, that's a very, very hard thing to overcome is that network effect. And money certainly has that.

you have a lot of people that value something scarcity, then it's harder for other ones to overcome that. So for me, that's why Bitcoin is the main winner is because it has the network effect. It's also, I think, maybe I'm being a little biased here, but I think it has the best technology, the most well-tested. I mean, this part is objective. It's been the most well-tested in terms of time. You know, it's lasted a lot longer than some of these others.

And it's gone through a lot less desert. So that's pretty easy to do. Yeah, yeah. But, I mean, if you think about it, there were a lot of coins that came out in 2011 that are nowhere right now. I mean, have you heard of IX coin or Tenebricks? Like, they were there in 2011. They've like completely, well, not completely disappeared, but they more or less disappeared off of everyone's radar. And this is because, you know, they weren't very viable.

And also, like, a lot of people felt like the founders were being unfair. They did a large pre-mine and stuff like that, which is the exact same thing that we see in a lot of ICOs and all coin launches today. But back then, I think people were a little more offended by that sort of thing. But, you know, that's the reason why I think Bitcoin is going to win. it's lasted longer and it's scarce and a lot more people value it and it's got the network effect. So I don't see those things as very easily overcomeable. And if you are to overcome it, then you need to be at least an order of magnitude better, not like, okay, well, we have like two and a half minute blocks, therefore we're going to win. It's, okay, well, we are like 10 times

better in every aspect. That would be compelling. Pretty much everything out there is a tiny improvement if at all. Most of it isn't an improvement at all. There's a lot of these all coins are solving problems that don't exist or aren't problems at all. So yeah, I mean, that's been my assessment of the things that I've seen. Well, if you are so convinced that Bitcoin is going to be the winner and kind of has already secured that spot. As a venture capitalist, how do you find anything to invest in? Well, there are lots of, you know, companies that are related to Bitcoin that you can invest in for certain. I mean, there's a lot of companies that are making money. I mean, if you somehow found the way to invest in Binance, I think you'd be doing

pretty well right now. But what about, would you support the fact that finance lists so many tokens, including like brand new ones, we know, with kind of somewhat minimal to diligence? I mean, that's, I personally wouldn't, but my partners might feel differently. And, you know, that's part of what it means to be in a venture capital firm is, you know, you lay out your case, but, you know, they might not agree, right? Like, I think investing in Bitcoin businesses is, can be pretty good depending on what, business they're in. I mean, some of the, I mean, in any industry, you're going to find companies that are really stupid and others that are really good. So, you know, but of course, like you were implying

there, the bar is set higher because you're going to have to measure them against Bitcoin and not the US dollar. We're going to discuss smart contracts, oracles, and more. But first, I'd like to take a quick break to tell you about our fabulous sponsors. Blockchain Warehouse is an international blockchain accelerator, offering a wide range of token sale advisory services to promising blockchain-based ventures. With access to heavyweight technology leaders, the accelerator is heavily involved in crafting the blockchain technology, token sale, and regulatory landscape. Blockchain Warehouse will launch the first ever Crypto Shark Tank in June. This week's episode features Block 66, an innovative blockchain mortgage platform that streamlines and organizes the facilitation of resident. and commercial financing. Block 66 reduces the amount of time, persons involved, and money that

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providing guidance to a wide range of companies looking to build their reputation and deliver high-profile media relations campaigns across mainstream business outlets, as well as major tech and vertical trade outlets. To learn more and see a list of services, visit clarity.pr. Now it's time to recognize someone sponsored by Precce. If you've been wondering when a truly new consumer app would be launched on a blockchain-based protocol at scale, your weight is over. Precheet is building the future you deserve, a trustworthy and transparent one by design, powered by the Goodwill Composite Protocol. Today, Precci and Marissa Ionorone recognize Alexandra Guerra, a vibrant entrepreneur in the blockchain space.

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Why don't you summarize the main points for listeners? Well, so smart contracts have been hyped a lot in the past year. Only rival. blockchain in this space as a word that people think they understand but don't really. So I tried to lay out in that article exactly what a smart contract is and why it's actually not that tenable for almost anything other than digital bearer instruments. And by digital bearer instruments, I mean stuff like Bitcoin, where possession of the digital token is it. There's no physical or real world corollary to that or some rights or anything else because, you know, that that leads to the Oracle problem and so on.

But that the idea of smart contracts, I think, has been oversold and people are thinking, oh, you know, this is going to replace lawyers and all this other stuff. And I guess I had my black hat on there and sort of threw a little cold water on it. So I do agree that smart contracts probably won't work in the most idealistic way in which a lot of people write about them. But why do you think that that means that smart contracts will never work? Because I sort of feel like if you look at the history of technology, it's not a really good bet in general to say like something will never work. Do you know what I mean? So like do you ever worry that you might end up sounding like those technologies? back in the early days of the internet who would talk about like why HTTP was a poor technology?

No, I mean, I think this is kind of like saying why two plus two won't equal five. I don't see it that way at all. You can do things in a centralized way. You know, you can have contract. If you trust that third party, you know, like with a normal contract, this would be called like an escrow or something. or a judge or somebody that you both trust and they more or less tell you what the decision is going to be, should the contract go a certain way or whatever, then that's fine. That's how it's done in the real world.

With a smart contract, the promise is that you don't have to trust anybody. And the fact of the matter is, as soon as you add an external reality, right, like whether or not the 49ers won last night or something like that, you add a trust factor. And as soon as you add a trust factor, then it becomes an intractable problem because you have to, first of all, secure that Oracle, right? Like you have to make sure that that person won't collude with the other person,

doesn't have, you know, some other state, something else, some other way in which they, can get corrupted, like, you know, make sure that they're not hacked. You know, you not only have to trust their integrity, which I think it shouldn't be too hard, right? But you also have to trust their competence in being able to secure, you know, whatever method in which they give information into the blockchain. So, you know, it's an intractable problem unless it's all digital bear instruments, in which case you don't need an Oracle. But if you're If you need an Oracle, I mean, you get to, you get to this really weird state where you have, you know, the Nash equilibrium on the game theory ends up being like, okay, it's rational for me to go kidnap that person and threaten their life unless they, you know, like put something on.

And like the downside of that is I might go to jail, but the upside is I make like $100 million, right? Like there are weird, yeah, there are weird situations like that. And if you don't think like people, like, people. make those kinds of decisions. Criminals make them all the time, right? And that's that's the kind of thing that you have to think about when you're thinking about these smart contract things. But what about something like for some reason, I don't know why I'm blanking a little bit, but I think it's Auger where people bet on the outcomes of things and then based on the way you report, that affects your reputation. And so you wouldn't necessarily, what you could do is. have the same system, but not necessarily rely on a single Oracle. It could be something where,

you know, people are staking their reputations to honestly report on the outcome of an event. So why do you think that won't work? Well, so again, this is, this gets towards, this is in the article. Usually when you, when you propose something else to cover up the fact that you have less security on the previous one, you know, that, that itself usually has a lot more holes and then it can get more and more complicated to the point where it's like very, very difficult to analyze. And only after it's released, do you find out that there's a hole in it? But yeah, you could have multiple oracles, right?

And this is a typical thing. And you say, okay, well, we'll have five of them. Well, how do you make sure that they're all five independent people? I could be the same exact person and I can con somebody into, and I could even be. bet with somebody else and I can I can adjudicate fine for you know a year and then I can have a long con afterwards and bet a significant amount all five and you go okay well you know three or four four or five of these uh oracles have to agree in order for me to collect from you so your money is safe why don't you bet me a million dollars on something and then I I pulled that long con I I end up you know

reporting the opposite of the actual result, and then I run away with the money. Like, what are you going to do about it? Right? But so I totally get how this is the case with small numbers, but, you know, an example that I pointed out about Auger, where you're really using the crowd, it would be very difficult to do any kind of manipulation like that, right? Well, I don't know. I mean, I think Paul Stork has done an analysis of Auger, and you should, and I haven't

done a completed analysis of what that's all about. But he's done it and he thinks there are all sorts of holes based on that. And I'm not going to pretend. I know the details of their stuff. But this is generally true. The more complicated you make something, the larger the attack surface is going to be in, the harder it gets to analyze. And to say, okay, well, this is going to work is more faith than anything. You're not you're not actually knowing if it's actually going to work until it's built and some, you know, a lot of transactions have gone through it. And, you know, if Paul can point something out after like reading their paper, I mean, I would guess that there's a lot more exploits to be found or flaws to be found. It isn't incumbent on me to find a flaw in the system. It's

incumbent on the system to prove that it is secure. Like to say that it's secure because I can't find the hole in it at this moment is the wrong way to go about it. You have to be the one to say this system is secure because we've thought of all of these cases. Yeah, although I think my questions are more in the direction of how can you be so certain that it won't be? That's more where, you know, kind of come. Well, so I mean, like, if you can solve the Oracle problem, there's probably a lot of money in it for you. But my, but I've examined the Oracle problem and it, it looks intractable to me. You always have to end up trusting somebody. If you can't trust that person, if you can trust some other entity or whatever, then you need to justify why you can trust that

entity. And it's, again, the whole point of a smart contract is so that you don't need to trust other people. You can just trust in the code or something like that. And if you, if you, I actually want to dispute that assumption as well. Because you mentioned this earlier. where you said, oh, if you have, say, tokenized gold or something on a blockchain, you said, what if somebody steals that gold bar, then what? But I think the judicial system or the legal system does have ways of, you know, defining who would own something in that case. And I think just because somebody steals something doesn't mean that they own it now. Okay. Yeah, yeah. And that's completely fair. But that's, again, trusting somebody.

else, right? Trusting the jurisdiction you happen to be in. And do you feel that there's no way where you can have this combined, you know, because what if there's something like certain smart contract functions, you know, we've got these standardized libraries that Open Zeppelin is trying to create for smart contract functions. And they do discrete tasks, I guess you could say. And then have that in some way at a certain point, merged or not merge, but touch upon the legal system. Does that sound like something that would be viable to you? Well, if you're doing that, then why are you using a smart contract at all? If you're going to rely on them, then you should have a centralized service that's

run by those same people that you already trust or something like that. That'd be way more efficient than, you know, paying all the different costs of a blockchain and decentralization and all the software and all that stuff. It doesn't make any sense to me. Like that's like that that would be right for disruption by something that's a more centralized because it's already centralized. You're trusting the legal system. And and to and if you are trying to do something that like that with gold, say say you made a chain that's supposedly decentralized that relies on like gold or whatever. Okay, what if that gold bar is in Afghanistan? Somebody like who owns that gold bar?

If it gets stolen out of the vault, who, who? And but the token says I have it, you know, who, you know, who does it go to, right? Like, you can't, you can't link a digital, uh, token to a real world thing without trusting somebody. And the whole point of a smart contract is that you don't need to trust anybody. So if you, if you're going to trust someone anyway, like, you are saying like, okay, well, we can we can have the judicial system settle it. Then, then it's, it's a far more efficient system if they do the running of, of the entire thing, because that's ultimately who you are going to go to anyway. So why do you need to play with

smart contracts and all this other stuff? Like what? So I definitely, yeah, I agree that crossing jurisdictions does present a lot of difficulties, like if the laws differ and people trying to transact in different jurisdictions, but I do think with a way, and I am by no means a legal expert, so please, nobody listen to what I'm saying and take it for some kind of definitive commentary here. But, you know, as far as I understand, when there's sort of like legal precedent around something, like once you sort of say like, this is how we're going to decide situations like these, and that, you know, obviously would apply. So maybe in the beginning, when there are these kinds of questions, some of them might be settled via courts, but then going forward,

you would have some kind of confidence, oh, okay, if I use the smart contract in this way, under these specific circumstances, it should be okay to cover these different scenarios or something like that. I'm making it up, but I think you see where I'm going. Yeah, but I mean, I'm not sure what the smart contract gets you in that case. Because in a sense of buying a house, you know, you had mentioned that using the smart contract would be expensive. But I actually think most people tend to think it would be quite cheaper than rather than using an escrow agent. And I think faster.

Well, so say it's a house, right? And, you know, the government tells you, you own the house and they issue you a title or something like that. So you put that title on the blockchain with a smart. And then you trade, you do an atomic swap for that house for, I don't know, 500 Ethereum or something like that. And then you do a swap. You now own the house. Except now you're essentially trusting that jurisdiction to honor the fact that this token went through. Of course.

And, you know, I don't know. Maybe there's case law and that, you know, that's been established by that point where it says, okay, this went through. what are you gaining by using using the the blockchain to do that i mean they could have just paid you 500 ethereum and you you get the house what what are you gaining right like the ability to simultaneously swap the payment and the the deed to the house without having to without one person having to go first and trusting that the other person will also but the court's going to enforce that anyway. I mean, like, why, like, if you, if you're trusting them to do that, but that's kind of what you both like enter into this agreement to do that by by both. You're going to go to the

contract anyway, because they, they need to update the registry to say, okay, well, now you actually own it. Like I like the token on the blockchain that represents the house, remember that that that's also got like a whole set of vulnerabilities. If somebody loses the key, And then that moves around now. Now the court's going to have to issue another token. Like if it becomes like this weird, weird set of scenarios where the token on the blockchain and the actual physical item can get sort of skewed, right? Like they no longer reflect reality. And like keeping that in sync is not so simple.

So I'm not sure what you gain out of it. I mean, like if you're if one party goes first and the other. doesn't. You're relying on the judicial system to enforce it anyway. Why wouldn't you trust that judicial system in the first place? Like, maybe you gain a little bit? I mean, I think most people try to avoid going to the courts when they buy their house. I think that's the point. So you would know that the judicial system was there, but you're hoping to not use it. And so if you use the technology, then the contract will enforce that they get swapped simultaneously. Okay. Whatever benefit you get out of that is the exact same on the opposite.

side if that token gets stolen because you're now going to have the keys to that token gets stolen because now you're going to have to do the same thing to say, okay, this is actually my house, but my token got stolen from me from this other person. So like the inverse is also true, right? Yeah, I mean, but I do think here we are in this summer where everybody's talking about custody and we have all these new custody solutions rolling out. And I can see a scenario in which similar types of technology do get used for even these cases. But I do agree with you. tokenizing a D to a house is a scary proposition at this point.

But actually, I want it. We have so much to get to when we're running out of time. And as you know, we want to reserve time at the end for something special for our listeners. But one more quick question before we move on to that is because you are such a big proponent of Bitcoin and here we have gone through this period where there was this big saga about whether or not the size of the block should go up or whether it shouldn't. And, instead they decided to keep the block small, which is basically for listeners who don't know, the limit on the number of transactions that can be processed at any given moment in time. Now everyone is relying on what's called Layer 2 or Lightning Network to scale Bitcoin.

So what do you feel could happen to Bitcoin if Lightning doesn't see a lot of adoption? Well, so first of all, I don't like your characterization of what happened because they didn't keep the block small. The blocks went up to two megabytes. I like they the Segwit was a block size increase and a lot of people seem to have this belief that we kept the you know block size right it was a way of reorganizing the blocks yeah to get more no no it's it's it's it's now it's it's not two megabytes right so it was a block size increase there's this false dichotomy that we have to keep it small limit no that's that's only for old notes I mean you can go to uh like uh coin dance and look at the block sizes they're all over a megabyte for a lot of? Right. I mean, yes. Okay. So the amount of data going through, yes, is higher than that. Uh-huh. So I mean, so I don't, I don't agree on this. I, I don't agree in this characterization that it was small blocks versus big blocks. It was how to, you know, different ways to get bigger

blocks. That's, that's what the debate was about. Not about small versus big. That's, that's, that's not what it was at all. Okay. But regardless, the number of transactions, the increase in the number of transactions wasn't huge. And here we are where Bitcoin, sure, it's definitely seen some adoption, but still, I'm sure in terms of the percentage of people around the world who have some Bitcoin, it's a very, very teeny, tiny number. So if Lightning really is going to take the rest of the weight, what would happen to Bitcoin if it doesn't get that kind of adoption? Well, so first, I think you can see the fact. I think it was doubling. of the block size, I think for me, that's a pretty large increase in throughput. And you can see

that, you know, the fee pressure has relieved significantly as a result of that. There were, I mean, you look at the fees back in December before a lot of these large companies implemented SegWID and batch processing and things like that. And, you know, the fees were very high largely because they weren't implementing a lot of these things. But now it's like, you know, transatlantic transactions clear very fast. A lot of transaction fees are very, very low. So I also disagree with this assessment that it wasn't a huge increase. I think it was a very large increase. And I think the Bitcoin network has benefited significantly from Segwit. But what I'm trying to say is if, you know, we doubled it from this moment in time where adoption was very small,

doubling from a very, very small number is still a small number. And presumably, like, I don't know, 20 years from now, 30 years or now, if Bitcoin really does take off, then it will be much more than double from last year, right? So that's what I'm asking about. Yeah. And this is why a lot of the developers wanted to go towards Sedwit, because a block size increase only gets you a linear increase. you know, lightning and other second layer solutions get you a much, like, orders of magnitude, multiple orders of magnitude increase. And this is what's really exciting about it.

But, I mean, this presumes, I think, something of something that there's an implicit assumption here, which is that, you know, we need to transact a lot to make Bitcoin useful or that, you know, people need to be sending Bitcoin back and forth constantly. for it to be useful. And I don't think that's necessarily true if you're using Bitcoin as a store of value. If you're using it as a store of value, you can buy it once and then you can get it out sometime, you know, in the future. But that's only really two transactions, not like a million. And, you know, that's okay. That's a perfectly good way to use Bitcoin. And a lot of the people on the Bitcoin cash side, a lot of people in a lot of these altcoins,

have this tendency to think, okay, well, you know, if you're not constantly using it to buy coffee or whatever, then you're not actually using the currency. And I completely dispute that notion. But with regard to medium of exchange, I think lightning is the superior solution because it's trustless and it's very fast. And, you know, from what I can tell, it's gaining a lot of adoption. Your question, however, was more about what if people don't use it in that way? Well, if they use it in that way, that means the market didn't really want it. And I'm perfectly comfortable with the market dictating which direction this goes. And if, and, you know, that's kind of a speculative question on a speculative question in my mind. Let's go to the end, which references something

that happened in May that was kind of a bit of a sensation when it happened, which was you were on a panel with Joe Lubin, who's the CEO of Consensus Systems. And Amber, Baldett, who is the former blockchain lead at J.P. Morgan Chase, and she recently left to found her own startup Clover. And unfortunately, the video, at least as of the time of this recording, isn't available online yet. But, well, so for that reason, for listeners who missed it, why don't you give your version of what happened during that debate? Yeah. So I thought it was online like two days ago, but then they took it off again and might be back on now. I don't know. Anyway, But here's what happened.

So Amber talked about Clover for about 10 minutes before our panel. Our panel was only supposed to be 30 minutes, so cut out like 10 minutes of it. We had 20 minutes to discuss. And her first question was, what do you think of my new company? To which Joe replied, oh, I'm really excited and so on. And I basically said, All I saw were buzzwords. I don't know what it is that you're selling or whether or not this solves any problem in the market. And because I had been exposed to so many of these kinds of pitches where, you know, they promise lots of vague things, use a lot of social signaling with respect to what other companies are on our platform or who we're working with as a way to sell things rather than the actual problem being solved.

So that's kind of what started that debate. And eventually it got to the point where, you know, we were talking back and forth a lot. It was a very lively and spirited debate. You can feel the energy in the room. Before I think that that whole debate, I think people were starting to fall asleep because it was like four or five in the afternoon. But as soon as that came up, people started like, wow, like, I can't believe this is going on. And the question that Amber asked was, you know, in five years, what is going to happen, you know, with respect to blockchain? And Joe sort of sarcastically said, it's only going to be Bitcoin.

I'm just kidding. Here are all the things that are going to happen with the blockchain. And my response was more or less, well, you know, let's look at some projects from five years ago, 2013. Where's MasterCoin? What's StoreJ doing? What's MaidSafecoin doing? How about, you know, factum, you know, what are all these projects doing? They haven't done anything.

And they have no users. Most of them are like not used by anybody. And, you know, they had as much hype as a lot of the stuff today. So I was like, you know what? I think most of the projects today will also be complete hype. And like most of them won't do anything. And I'd be surprised if there was even one. I think Bitcoin is going to be the major, major thing that's around in five years that anyone points to.

And after right after I said that, Joe said, if we can find some crisp criteria, I'll bet you any amount of Bitcoin that you are wrong. And he told me to, you know, contact him afterwards. He tweeted after the panel, you know, that was fun. Jimmy will be in touch. I've tweeted at him twice now. He hasn't responded, so I don't know what's going on. All right.

Well, listeners don't know this, but I'm going to explain that. We actually did try to get Joe on a last. minute, but it was to last minute. And I know from personal experience that he keeps an extremely busy schedule. So I think if we had thought of this further in advance, maybe it would have worked out. But I did ask Jimmy to come up with some metrics that he would like to use for the bet and also maybe names, you know, something like a time frame and an amount that you'd like to wager on your bet. So why don't you put that proposal out there? And after this gets public, then we can let Joe know and we'll see what he counteroffers.

Yeah, I've been trying to get in touch with him so he could do this, but he hasn't responded. So hopefully this will be a good forum to do this. The way in which you can measure whether or not an app on a phone is popular is with two metrics that a lot of, you know, app writers or app programmers and app companies really know about. which is daily active users and monthly active users. I think those would be pretty decent metrics for, you know, determining whether or not a block, quote unquote, blockchain decentralized app or something like that has a lot of traction. So I would, I think something like in five years,

let's, if there are five apps that have, you know, like a mid-tier app on Android or iOS would be something like 10,000 daily active users, something like that, and 100,000 monthly active users. Somewhere along those lines, you know, five apps, the five D apps, right, decentralized applications that use the blockchain, not are on iOS or something like that and use a centralized But something that uses a blockchain, like he was saying, that have 10,000 daily active users, 100,000 monthly active users. Wait, I don't understand because it wouldn't that be, if it's 10,000 daily, then wouldn't that be 300,000 monthly? I don't.

Yeah, so that's daily. So daily active users are basically people that log on every day. So there's 10,000 of those that, like, that are. Oh, no, I got it. Okay. Yeah, monthly is just people that show up at least once a month. Okay. So you could have something like that and then make sure that, you know, of all five, you know, sustain it for like six months or something.

So it's not like a one-off and he can't game it by like just paying a bunch of people to try it for a month or something. At the very least, it would cost them a lot of money to get them to try it for that long. But something like that where you have five different apps, D apps, that utilize the blockchain, that have a product where you have 10,000 daily active users, 100,000 monthly active users sustained for six months. I think that's fair. And I'm willing to bet him some amount of Bitcoin. I don't know what he would be comfortable with.

And I'm sorry, at what point in the future would you want to check in on this? Oh, five years because that was the question that Amber proposed five years from now. And in fact, the people at consensus were like, hey, we got to have you and Joe on a panel in five years so we can talk about that. So I'm happy to be on a panel. Mark your calendars for, what is this? 20, 23. Well, we can start scheduling that conference now. I'll be the host.

So that way, you know, I can generate the ticket sales. Anyway, okay. Yeah, that would be fun. Okay, well, it's been so great having you on Unchain. Thanks for coming on the show. Oh, and before we go, where can people learn more about you and your work? Yeah, so I'm on Twitter at Jimmy Song. I'm Medium at Jimmy Song.

I write a bunch of articles. You can find the code that I'm doing on GitHub at Jimmy Song. I run my programming blockchain seminar. The next one is in Denver and San Francisco in July, then probably Chicago in August and Czech Republic, Prague, and October. But yeah, those are the ones coming up. I also do a YouTube show. I have a YouTube channel off-chain with Jimmy Song. And I am in the process of writing a book for O'Reilly, programming Bitcoin.

and that's that's going to be fun. Hopefully I can get that out before the end of the year. But yeah, those are where you can find me. Great. All right. Well, thanks so much for joining us. Thank you for having me. Thanks so much for joining us today.

To learn more about Jimmy, check out the show notes inside your podcast episode. New episodes of Unchained come out every Tuesday. If you haven't already, rate review and subscribe on Apple Podcasts. If you liked this episode, share it with your friends on Facebook, Twitter, or LinkedIn. And if you're not yet, yet subscribe to my other podcast. Unconfirmed, I highly recommend you check it out and subscribe now. Unchained is produced by me, Laura Shid, with help from Elaine Zelmi, fractal recording, Jenny Josephson, Rahul Singheredi, and Daniel Nuss. Thanks for listening.