We Study Billionaires - The Investor’s Podcast Network - BTC004: Bitcoin Tech & Future Growth w/ Blockstream's Samson Mow (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to our Wednesday release of the investors podcast where we're talking about Bitcoin. On today's show, we have a major influencer in the Bitcoin space, and that's Samson Mao. Samson is the chief strategy officer at Blockstream and is the CEO of Pixelmatic. On this episode, we talk about the engineering and efforts within the Bitcoin community to make the protocol the most powerful and effective form of decentralized money the world has ever seen. We talk about Bitcoin satellites, how pegged second layers of, of Bitcoin will impact the transactional layer, how Bitcoin stacks up against other altcoins

Starting point is 00:00:34 and much, much more. If you've got an interest in the technology behind this fast-moving revolution, this is the episode for you. So without further delay, here's my discussion with Samson Mao. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right, Samson, welcome to the show. Really excited to be. able to talk with you. I am a huge fan of yourself, Adam Back, Greg Maxwell, many others there that started Blockstream. So I'm really excited to dig into the engineering and talk to you today. Thanks for having me, Preston. But one disclaimer, I'm also not an engineer. I'm a game developer and I've done web development, but I'm more of a product person wearing product and business hats.

Starting point is 00:01:37 Well, I'm pretty sure at the end of this conversation, people are not going to buy that. So here's what I want to do. I want to start off and I want to hear the story of Blockstream in the founding days when Adam was standing it up, the other key and instrumental people that were there. What time frame are we talking? And most importantly, what was kind of the mission of Blockstream when you guys first started it? Yeah.

Starting point is 00:02:03 So Blockstream was officially founded in 2014, but I think the gestation of it happened probably a year or two earlier than that just on the Bitcoin Talk forums where Adam, and Greg Maxwell, he was the founding CTO. They started talking about things like side chains and how you could scale Bitcoin using this technology. And the founding team was largely Bitcoin developers. A lot of them have since moved on to join sister or related companies like chain code. They do a lot of R&D.

Starting point is 00:02:29 Basis of Blockstream is really to advance side chain technologies and to scale Bitcoin. And I would say our company focus is very much privacy-centric. Like we want to enhance privacy for everybody. and make Bitcoin more robust. So you can also say we try to augment Bitcoin. So a lot of the projects that we undertake, you've listed it in your agenda, like satellites, wallets, explorers, all these things help to make Bitcoin more anti-fragile. So when Adam and Greg were standing it up, they went out and they started pitching to people

Starting point is 00:03:02 out in Silicon Valley to raise money, I'm assuming. I just really don't know any of that history. How long did they go through that process? What kind of funding did they secure kind of in those initials? rounds. I'm just kind of curious of the size and then how many people were brought in. Right. So I think the first seed round was 14 million. And then we raised another 50 some odd million. And the total amount of funding right now stands about 91 million. But I think for that time, it was a massive injection in capital in backing Bitcoin development. A time where

Starting point is 00:03:34 there was really no support of Bitcoin development. I think MIT was just starting to support some developers like Corfields and others. Chain code was not stood up yet, but it was a very different era back then. And I think some of our investors are really actually hardcore bitcoins, but they don't get a lot of airtime on that front. So Reid Hoffman, he was a large seed investor in Blockstream, and he likes Bitcoin. He's a strong believer in Bitcoin, but he doesn't get out that much to talk and advocate for Bitcoin like, say, Michael Sayler does. But a lot of the companies backing us do have a strong belief in this technology and where it can take us. That's the one guy that I was going to bring up because when I was reading up on Blockstream

Starting point is 00:04:17 in the beginning, and I saw a read was one of the seed investors, is he still taking an active part in really kind of understanding the direction, the strategic direction of where you guys are going? Because you're right, he does not talk about this a lot. He's on CNBC all the time. I don't ever really see him talking about it very much. It surprises me. Yeah, but he's been a few blog posts. And one of his blog posts, I believe, is hosted on our blockstream.com site. It's just explaining why he invested in Blockstream early on and what he believes that we can do. But, you know, he still is involved. He sits on our board of directors. He's also on the board of Microsoft and a number of other companies. And I think it'd be cool if he went out, Michael

Starting point is 00:04:56 Saylor style and started doing a lot of podcasts talking about Bitcoin and advocating for Blockstream, too. Yeah, it's interesting. I don't know why he isn't more vocal about it. But based on his investment and the fact that he's sitting on the board there obviously demonstrates. And I mean, this is a guy who's Titan in Silicon Valley, as far as I'm concerned, it's hard to find a bigger name than reads. So fascinating stuff. So one of the things that when I look back at the first big monumental shift where I saw Blockstream and many others, I'm not just saying it's Blockstream, many others kind of came to the table was the 2017 fork. People that I find this fascinating. On Twitter, I think very few people, especially the people that have just come into the space in the last two years,

Starting point is 00:05:40 I don't think they understand any of this background from the 2017 fork. So for the people that have been in the space for a while, this might be a little slow pace for us to talk about this, but I think it's really important for people that aren't familiar with what we're talking about, for you to give a little bit of a history on it. And then we can get into the nuances of the engineering behind what's taking place since that and how exciting some of this stuff is. So explain to them what happened in 2017? And I mean, get into all the nitty-gritty detail. All right.

Starting point is 00:06:10 So I guess that episode of Bitcoin's history, it goes by a few names. There's the scaling debate, the fork wars, the Bitcoin Civil War. I mean, which one do you think is a more suitable? All of them, all in above, yeah. Yeah, so it was a very interesting time. And I think it culminated in 2017 or maybe, yeah, I think culminated in 2017. But it started. The Genesis was in probably even earlier.

Starting point is 00:06:33 So Pete Rizzo and Aaron Van Werdam recently released the post about P2SH and that little mini-war. I think that was the beginning of the schism where Gavin and Jensen and other developers started beginning this little conflict. And I think it heated up when Mike Hearn and Gavin tried to push BitcoinXT as an upgrade. And that was probably mid to late 2015. And the idea behind that, I think, is largely them trying to get rid of the other developers based on disagreements and not seeing eye to eye. And Gavin's often presented as a very good developer, but that I don't believe is actually the case.

Starting point is 00:07:12 And that is a source of that friction between him and the other developers. So the beginning of this, the Genesis is really an effort to fork off Bitcoin and tell everyone that we're upgrading. So I forgot if it was Gavin or Mike. One of them contacted me back then. I was the CEO of BTC China or BTCC, which was one of the largest exchange. and mining pools. And they were contacting me because they said, we're upgrading now. It's time for you to upgrade to Bitcoin XT, and this is supported by all the developers.

Starting point is 00:07:42 And at the time, the channels of communication, people being accessible and making their opinions heard, it was very, very different from what you see today. Everyone is vocal. They're on Twitter. Adam is out there. He's got 200,000 so on followers. But back then, like, there was no Bitcoin Twitter or even crypto Twitter. discussions for Bitcoin development were largely on the mailing list and in IRC. And I think the general populace just had a very poor understanding of everything that was going on.

Starting point is 00:08:11 And it opened the door for them to try to throw this upgrade up there or quote-unquote upgrade and say, you know, this is it. In this upgrade that you're referring to was all about being able to do more transactions, right, per block. That's what this whole thing was about. Everyone was looking at it and they're saying, well, how is this thing going to scale? And I might get this number wrong. what's the number that Bitcoin can do per second?

Starting point is 00:08:33 Seven to ten. Seven to ten. And then when you look at Visa and MasterCard, it's like tens of thousands, like 20 or 30,000. Is that correct? Yeah, something like that. Upwards of tens of thousands, 20s of thousands. So people were looking at this and saying,

Starting point is 00:08:47 all right, well, this clearly isn't going to work long term because it can't scale for the number of transactions that are going to be needed if this tries to take on a global presence. All the engineers that have been involved to date were like, how do we solve this? And so Gavin, who you were talking about, was coming with, what did you say the upgrade that he was calling it? Bitcoin XT. Bitcoin XT.

Starting point is 00:09:07 So you're working in a mining pool and you're saying, what in the world is this? Yeah. And there's two ways you can look at that. The optimistic way is that these guys wanted to scale Bitcoin. And they're coming out with the best of intentions that they want higher TPS. And they want to scale it to the point where a billion people could use Bitcoin. on-chain transactions for pennies on the dollar. And then the more nuanced approach is it was a power play because of this struggle with the

Starting point is 00:09:37 other developers, because of disagreements and possibly their lack of ability. And then the even more darker way is this was the first attempt to co-op Bitcoin, to centralize it to basically hard fork it and exert control over at the protocol level. Because once you do that, then there is really no going back. You've set yourselves down this path where you can upgrade it at any. time. And then you kind of become like Ethereum, which is, you know, willy-nilly upgrades. Anybody can change a number and it's largely meaningless. There is no immutability. And just for the non-technical folks that are listening to this, when you try to put that many

Starting point is 00:10:12 transactions into one block, the problem that pops out of this is it requires a huge amount of hard drive space for anybody running a full node. Because you have such a massive amount of hard drive space required to run a full node, you're pretty much pushing into servers and only a few people can run the servers and it becomes centralized and then those few people that are running the servers basically control any and all updates that happen in the future. So there's this trade-off that Samson's getting, that he's describing here where if you keep the blocks small so that anybody and everybody can run a full node, the whole protocol continues to be decentralized and no one can take it over. But the problem with doing that is you keep these small transaction

Starting point is 00:10:51 size, five or six transactions per second, which clearly doesn't work long term. So talk to us about how the solution that ultimately took place, how did all that unravel? It's a very long story. There were several different upgrades that came out, quote-unquote upgrades that came out, and there were sides, lines were drawn in the sand of who was a big blocker and small blocker. So there's this division of people that wanted the blocks small, because as you were saying, it is important. And I think even today, I don't think people fully understand the importance of why you want

Starting point is 00:11:22 anybody to be able to sync up a full node. because once you become a centralized service, you can't really decentralize yourself. If every Bitcoin node is in a server farm, well, that's really no different than the legacy financial system where you trust the bank. You know, you ask the bank, how much money do I have? The bank tells you, you've got a thousand bucks. That's it. End of discussion. Whether it's right or wrong. Yeah, whether it's right or wrong. This was like an ongoing conflict. And once Bitcoin XT failed to get traction, another one came out, Bitcoin Classic, Bitcoin Unlimited

Starting point is 00:11:51 and then Segwit 2X. But all of these were efforts. to change the block size and change the protocol and change things that were already set. A common theme during this era was the Bitcoin developers and Blockstream extension, because Blockstream often gets conflated in all of these arguments with Bitcoin Development because there were a lot of developers,

Starting point is 00:12:11 Bitcoin Core developers at Blockstream. But the argument was like, you guys don't want to compromise, but it wasn't really the point. That was never the case. You can't really say the developers don't want to compromise because as we learned at the end, at the culmination of the scaling civil war, it's the users that matter.

Starting point is 00:12:28 So this was kind of a false argument saying those guys, those developers, they want to control the protocol, they don't want to increase the size, they don't care about people living in third world countries, being able to transact for free. It's all their fault. But at the end, we saw we had lots of companies band together into this big alliance, Coinbase, BitGo, a number of companies under DCG, and they formed this coalition that was pushing Segwit 2 I just want to provide my point of view from 2017 because the argument that people didn't want the transactions to be able to occur for all the unbanked. We're really kind of the

Starting point is 00:13:06 Roger Vera argument, right? That's a strong argument, but what I think it fails to do, it's putting the priorities out of whack. They had their priorities not in the correct order. And from my vantage point, the number one thing, the number one priority is having a fixed number of units inside the protocol that cannot be manipulated and it has to be decentralized, right? That is priority number one, because if you don't do that vital thing, you're not fixing the problem because the problem is that we don't have a peg for any currency in the world right now. And so we have to get that perfect. We cannot even have a blemish on that particular mission.

Starting point is 00:13:45 And then anything else that we can do on top of that as a second tier spin-off, right, as far as transactions to the unbanked and all that kind of stuff. Like, that's the icing on the cake. As far as I'm concerned, and it seems like the market agreed and went in that direction. But a lot of people listening to this might say, well, I don't understand why one thing was more important to the other. But I can see, by the way, you're not in your head. You completely agree.

Starting point is 00:14:06 It seems like everybody else there, Blockstream agreed, right? It's about the evolution of money. I think it's commonly accepted. Nick Zavow has written a lot of papers about this. Money is first evolved as a collectible. Then it becomes a store of value. Then you have the medium of exchange phase. and then unit of account.

Starting point is 00:14:23 And I think you're mentioning Roger Vera, like, he's argued very publicly that it needs to be the medium of exchange first and the store of value second. Common sense dictates that that's not the case. You could use anything as a medium of exchange, but it won't necessarily be a store of value. And as an example, you can look at the hyperinflating currencies of some failing countries, right? Like the Venezuelan Boulevard, like that's a great medium of exchange. Everyone in the country uses it, but it's not a store of value.

Starting point is 00:14:49 And you can't go backwards. When I was coming to Bitcoin, I was coming to Bitcoin because I was coming out of this finance background, I was looking at what was happening in the bond market. And I was looking at this 80-year treasury curve and saying, this is a disaster. Like, this is being completely manipulated and we're going to zero. And then after it goes to zero, people are going to be taking cash out of their bank account and putting it in into underneath of their bed because that's going to give them a better return than a negative interest rate. And so when I was looking at it from that lens, from the finance lens, I was like, we've got to fix the money. Not the, we don't

Starting point is 00:15:26 have issues with going to Starbucks and paying. Like, that's not the fundamental issue here. The fundamental issue is we've got this race to debase. And man, what an important step for Bitcoin at this particular point in time back in 2017. Having not known anything that the research that I know now versus back in 2017, I was very concerned with this fork. And once I learned, this is going to sound really basic for a guy like you. But when I learned that when the fork was going to occur, that I was going to get both coins, it was kind of like, okay, well, there's no risk here. Like, I'm just going to let the market decide which one is right. And then it's not really kind of a risk to me. And I think that's a really important point for people coming into the space for the

Starting point is 00:16:08 first time. They might hear like, oh, my God, they can fork the code. Well, what does that mean? But you get both coins in the fork. And then you just let the market decide on which one is going to win, right? And we all know which one won. But anyway, I'm sorry, I'm going off on a tangent. I want you to keep describing this because this is so important for people that are coming into the space right now to fully understand how we got here. So I think the crux of that whole thing was can somebody come in and change the code? Can companies ban together and dictate a change? Because when Armstrong was leading this charge, Brian Armstrong of Coinbase, he was basically saying, this is an upgrade, and we companies have decided. And there was a lot of power behind that.

Starting point is 00:16:48 Like, they had the mining pools too. Jihan Wu from Bitmain was backing this heavily. Coinbase was a huge player at that time. Blockchain.com. Dot info, those guys as well. But this was a question like, who controls Bitcoin? Who dictates the future of Bitcoin and where it goes? And that question was answered.

Starting point is 00:17:06 It's the users, ultimately. It's the full node operators. Exactly. Even the people that use it, like just transacting and holding Bitcoin. Even if you're not a full node, you still decide because you are that economic might. that gives it value. So similar to how some miners misunderstood originally. So during the first halving, when Bitcoin supplies have, some of the miners said, no, we like 50 Bitcoins per block reward. We're not going to go with 25. And they ran a different fork. And nobody cared because

Starting point is 00:17:35 with the old, we don't recognize your change to the protocol to give yourself more rewards. It is predetermined and that is the path forward. But this is a very slippery slope. If you can change the block size for reasons, no matter how good your reasons, are, then you can change the supply of Bitcoin from 21 to 42 or whatever you like. And there's always a good reason to do something. There's always a palatable reason for the masses. Like, there are not enough Bitcoin for everyone in the world to have one full Bitcoin. And that kind of argument will resonate with a lot of the populace because it sounds nice.

Starting point is 00:18:08 When someone's offering you something for free, it's not always a good thing. There's always some cost involved. And I don't believe it during this period, this time period of Bitcoin's history that everyone understood that dynamic or those tradeoffs. But, you know, it's very difficult to understand. Like, I was actually a big blocker at first. So there's an article in Bitcoin magazine where I opined about it. And I said, you know, we should increase the block size.

Starting point is 00:18:30 It's not a good idea for the fee market to price people out at this time. And that was before I really understood it. And I had a long chat with Adam for a good couple hours. And he explained a lot of it to me. But the workings of Bitcoin are just counterintuitive. Like, there's nothing like it. Nothing has existed like Bitcoin in history before Bitcoin. And it just takes a lot of time to wrap your head around those mechanics of why it works

Starting point is 00:18:53 this way and why things are important. Like, why do I need to run a node? It doesn't make any sense at first. But when you really dive in and figure it out, then it makes perfect sense. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord.

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Starting point is 00:23:17 corporate governance and they understand voting rights. And the easiest way that I would describe running a full node, it's like having a voting right to which protocol wins and which one you're going to. So if we have a bunch of miners from China that say, we don't like this protocol, we're going to upgrade the software and we're going to try to do this. everyone who's running a full node is saying, well, you can do that, but this is the one that we're saying and we're voting for that everyone's using. And if they want to mine on a version of software that's not compatible with what all the full node operators are saying is Bitcoin, well, they're just wasting their time, their energy, and their money. So I want to hear your opinion on, I hear a lot this idea that mining in China is centralized. And this poses a threat to Bitcoin. I want to hear your response to that based on what we were just talking about. Yeah, so back then during the Fork Wars, it was a scary time.

Starting point is 00:24:12 Like, there were all these mining pools saying, we're going to do something. We're going to upgrade to Segwit 2X, right? The thing that people don't understand about mining is the pool operators are communicating, but the individual miners are still like regular people. They could be a small operation. They could be a big operation, but they don't have that same voice. So it's the pool operators in some sense taking advantage of the house. hash rate they have under their command, which is not their hash rate for the most part.

Starting point is 00:24:39 Some pools might own their own miners, but for large part, they're just providing a service to their customers. And during that time, they were actually misrepresenting a lot of the intent. So being in China and knowing a lot of the individual miners, that was not the case. Like, they didn't want this thing. This was just somehow politicized like Bitmain and Jihan just got it into their heads that we want big blocks. And he didn't really ask his customers, do you want this too?

Starting point is 00:25:04 but he made a lot of bold statements at the time. So that is one common misunderstanding of how mining works. The pools are often can represent views of their own, but say we have all this hash rate supporting it. I think slush was an interesting one. They actually let their miners vote and say what they wanted. I think that's an interesting way to go about it. But the big thing about mining is like, well, first of all, mining is not as China-centric

Starting point is 00:25:27 as people will make it out to be these days. I think some numbers have been thrown out there like 65% of the hash rate is in China. I think it's lower than that. I think it's probably down to like 50% now, just because there's been a great deal of expansion out into North America, Russia, and just all over the globe. Blockstream has contributed to some of that, too, when we started our mining op. But it ultimately doesn't matter. The miners are providing a service.

Starting point is 00:25:52 They get paid through block rewards and the fee reward to extend the blockchain. And that's it. End of story. So if the users say no, then the miners can only say, well, okay, then I will follow my beliefs and I just won't get paid. And that's fine. That's free market behavior. So recently you published a chart.

Starting point is 00:26:13 So it was like a little video and it was really fascinating because you were showing how the transactional value per second compared to other alt coins in the space. And what I think would be really fascinating is to see, and I think I tweeted this at you, the transition from this 2017 time frame until now, but describe what it is you were you were presenting in this quick little video and why it's important. Bitcoin's often compared based on transactions per second. So a lot of Alpcoin marketing is centered around. They're always misleading in some way.

Starting point is 00:26:48 So I think it's the high TPS coins. They like to say, you know, we have thousands of transactions a second. And look at Bitcoin, it's like a small trickle. It's only seven or ten transactions a second. So what we did was we crunch some data on-chain transactions for various coins. And we just showed like Bitcoin has $486,000 transacted every single second. So close to half a million dollars a second.

Starting point is 00:27:13 And some of the other chains with very high TPS or transactions a second are transacting maybe $2,000 a second. It's just illustrating very simply what the value proposition of Bitcoin is. And it's just countering misleading advertising. I think it's a common alt-coin MO to, you know that graphic? where there's an elephant, it's a cartoon, and there's like several blind men touching different parts of the elephant,

Starting point is 00:27:38 and they're saying, well, this is a tail, it's a snake. This is an ear and it's a wing or something like that, right? So all the coin marketing is kind of doing the same thing. They're just zeroing in a small part of Bitcoin and comparing themselves to that small part of Bitcoin. So I think there are other chains out there that say, you know, we have 100,000 nodes, but those are probably run in servers and centralized.

Starting point is 00:27:58 They're not distributed all of the world like Bitcoin nodes. There's just a lot of misleading stuff, and I'm hoping to counter that with this graphic. And your idea is great. I think we're going to crunch some of those numbers and figure out historically what that value transacted per second is or VTPS. The key thing here, I think, the valuable properties of Bitcoin are multiplicative. So hash rate, security, value of Bitcoin, like how much does a Bitcoin cost? Liquidity, lightning network, a liquid network support, mining, what else?

Starting point is 00:28:28 Satellites, all these things add up together to make Bitcoin. far greater than some of its parts. So there is really no comparison for a lot of these other projects that are largely centralized. And they like to market themselves kind of dishonestly. But Bitcoin is really the only one that matters. Let's go back real fast to the 2017 piece, because we forgot to cover what the solution was in order to increase the amount of transactions per second, like what popped out of it from an engineering solution that now enables more transactions per second? Ultimately, with Segwit 2X, that was a compromise. It was a brokered compromise from DCG or Barry, Barry Silbert. And it basically did a block size increase with

Starting point is 00:29:13 Segwit. So I think his intentions were good, but I think misguided as well, because you can't really compromise on Bitcoin's rule set. Otherwise, you could also compromise between the number of coins. So, you know, let's increase the supply cap, not 42, but 30. It's a nice number, right? But ultimately, the scaling solution there, but it's also a bug fix, was Segwit. And that did increase the block size to four megabytes of weight versus one megabyte in size. So it changed it a bit, and we can have more transactions a second now because of Segwit. Which is through the Lightning Network. Is that what you're getting at? Yeah. So Segwit is a bug fix that got rid of malleable.

Starting point is 00:29:54 So that's the ability to basically sign something and have it changed later. So with that, you could have Lightning Network, which the theoretical throughput of Lightning Network is millions of transactions a second because it's not being broadcast and locked into a blockchain where every transaction is recorded for all history. It's largely peer-to-peer, and there is no upper bound to how much you can route through this network. So we're getting into the second layer. So you have Bitcoin Core, which we've been talking about.

Starting point is 00:30:24 which has, it's super secure, a few transactions per second. And then on top of this, we're talking about a second layer that is pegged into the primary Bitcoin layer one. And in this second layer with Lightning, we're now able to do tens of thousands of transactions per second. Talk to us how that's possible in the easiest way that you can kind of describe it. Maybe IOUs would be a good example to use. Right. So actually, before we get into that, it's important to talk, too, about why transactions per second are important.

Starting point is 00:30:59 If it's for retail payments, then your transactions a second are important. So you said Visa earlier with tens of thousands of transactions a second. Yes, because you're buying coffee with it. You're buying your newspaper, your bagel or tacos or whatever. So you need to process a lot of transactions a second. But if you're digital gold or basically money, transactional. transactions a second are less important. So even though Bitcoin has 10 transactions a second, what is being moved during those

Starting point is 00:31:27 transactions? You can visualize in your head, you're moving a bar of gold, and each bar of gold is worth half a million dollar. So you're moving that. But if you're some altcoin with thousands of transactions a second, but you're only worth like 10 cents or 20 cents, and you're centralized, they can print more of it at any time. It's kind of like you're moving toilet paper. You can move 2,000 rolls of toilet paper.

Starting point is 00:31:51 And if we run out of toilet paper, you can make more toilet paper. So incomparable, you can't compare the two things. Like Bitcoin is in a league of its own. All the alt coins that are high TPS, it's just irrelevant. Because at the end of the day, the only way you're able to keep the peg is through decentralization, period. That's like the end of all discussion points. So when you're talking about altcoins and they're able to do all these transactions on the base layer, they're doing that through a less secure model.

Starting point is 00:32:18 and they're doing it through model that can not be decentralized because the amount of data is going to be centralized on the servers like we were talking about earlier. So now I'll get into the thing. So Lightning is for retail payments. It's meant for small payments. And you're effectively opening up channel. So a good analogy here, it's from Adam Back, is a bar tab. It's a little bit outdated analogy now.

Starting point is 00:32:40 But for your average person, I think it's a simple explainer. So when you go to the bar, you give them your credit card. That's like opening up a channel. And then you have beers or wine all night and they'll charge you 100 bucks at the end of the night for all the drinks you had with your friends. But you don't need to go and pay every single time with your card and sign and tip and everything. You just do it all in one batch. That's a good example of the Lightning Network. So if Bitcoin is Digital Gold and the Lightning Network and its channels are bar tabs.

Starting point is 00:33:08 You open the channel and you can route through the network. You can send it payments through other nodes on the network and get to your final destination. and because it's a network like this and it's routed through your peers, then there is no upper bound because you're not registering everything into a block on a blockchain. Does that make sense? Absolutely. And I'm thinking of it from a use case. What organization that exists today do you see this being the biggest use case for? I think a lot of merchants are accepting lightning payments now. And basically anyone's selling something that is not very expensive should be able to use lightning.

Starting point is 00:33:46 So there are issues with lightning network, which is large payments have trouble routing through because you're pushing it through these pipes, for lack of a better analogy, you're pushing through pipes. And there is capacity in the pipes. So imagine some liquid in the pipe. You're pushing it through.

Starting point is 00:34:01 And if there's not enough capacity in the pipe, you won't be able to route your payment through to the destination. So you can fail when you're paying a couple hundred dollars. But if you're buying, I don't know, coffee, you could use it. you can use it to buy small things like stickers, pens, pencils. You could buy digital goods, songs. You could have iTunes supporting lightning and pay for a song. So anything that's small is good for now. But as Bitcoin becomes more valuable, I think we'll see increased capacity in the channels and also more rollout of bigger channels. We call them Wombo, Wombo channels.

Starting point is 00:34:35 Is there going to be any type of incentive for large holders of BTC to basically charge these channels, like you get some type of interest or to basically load up the channel so that there's more throughput amongst the various nodes? Yeah, so I believe you can do that already. By opening up channel capacity and letting people use your capacity, you can earn some stats on those transactions. And I recall Alex Bosworth, he's a developer at Lightning Labs. He's earned a decent chunk of change doing exactly that. And they recently launched a pool, lightning pool, which is a service that lets you basically earn defy-type staking yields off of your lightning channels. So talk to me about that because I find that really interesting and it's completely decentralized for people to do this.

Starting point is 00:35:22 Or is there some type of central entity that you've got to stake your coins into? Talk to us about some of that stuff. So I haven't actually played with it. I only saw it in passing and skim the article. So I'm not sure I can dive into their product. But even without their service, you can already do that just by opening up channels and routing for other people and earning sats on every routing payment, every routed payment. Fascinating.

Starting point is 00:35:45 Okay. So that's a little bit about lightning and the second layer. Now talk to us about Blockstream because you guys are working on, I don't think Adam refers to it as a second layer. He calls it like layer 1.5 with liquid. Talk to us about what liquid is, how it's different than lightning, what it is you guys are trying to achieve with this fire away. All right.

Starting point is 00:36:08 So I guess the first starting point is Liquid. So Liquid is an inter-exchange settlement network. It's a side chain. So it's a separate blockchain anchored to the Bitcoin blockchain by a federation. So it's not decentralized like Bitcoin. There is a federation of members and a subset of those members are running these, uh, functionary boxes that essentially serve as the miners. So these members are extending the liquid blockchain, and they are geographically and geopolitically dispersed. So, you know, if you wanted to

Starting point is 00:36:42 compare to Ethereum, I would say liquid is more decentralized than Ethereum is, because you have this federation around the world versus one hosting provider in FIRA. But the initial goal with liquid was inter-exchange settlement. And this was actually how I first learned about liquid. So I was at BTCE at that time, and we were one of the first members to join. So I saw this technology, and I thought this has huge potential to improve liquidity between exchanges and being able to issue assets too. So the other thing is that you can issue assets on the liquid network, like stablecoins, such as USCT, we have L-Qad from bull Bitcoin and a JPM stablecoin from crypto garage. But it's basically a way to move Bitcoin quickly from place to place. So the block times

Starting point is 00:37:26 in Liquid are one minute and you have full settlement in two minutes and you have confidential transactions as well as confidential assets. So that means every transaction in Liquid is private. So if you've seen on Twitter, you know, when people send a large amount of Bitcoin to an exchange wallet, it's broadcasted out saying, you know, someone has sent $100 million to this exchange. And that allows you to front run or potentially trade against them. And that's the same case for stable coins too, because they're all very transparent and public. But in Liquid, it's all in So nobody can see what you're sending to someone else. All the different transactions, whether it's Bitcoin or a stable coin, they look identical

Starting point is 00:38:04 from one another. And I think this is a really important point. The native currency or the native token that's associated with Liquid is Bitcoin that's through an atomic swap peg into Liquid, correct? It's just a peg. So Liquid does not have a token. There's a lot of projects out there. They have their own token.

Starting point is 00:38:25 But the native currency of Liquid is Bitcoin pegged into the network. So what you do is you create a peg-in transaction, and the Liquid blockchain watches the Bitcoin blockchain for that. So let's say you want to peg in 10 coins. You create a transaction to the Liquid wallet. Liquid detects that, and then it'll issue you on the liquid side 10 Liquid Bitcoin. And that's what you would transact in the network. The Liquid Bitcoin pays for the fees of the liquid network as well. So that's the native currency.

Starting point is 00:38:53 It is Bitcoin. It's a Bitcoin side chain. Now, whenever I look at the purpose of why Adam and team have gone about this, to me, it seems like Adam's trying to provide a solution to market makers between exchanges. So if you're trying to move very large sums of money between exchanges in order to be a market maker, which is a vital aspect of markets, this seems like this is probably one of the best solutions and one of the fastest solutions to do it without somebody front running you. Would you agree with that or is there some other type of use case that I'm missing?

Starting point is 00:39:28 I think that's the primary use case. Or even if you're a trader and you don't want to keep your coins on exchange, like you're done trading for the day, you can take it off and put it back on. Like one apprehension that people have is if I take my coins off exchange, then I need to pay potentially high fees on the main chain and I need to wait for a confirmation because block times on Bitcoin are not set. It's usually every 10 minutes, but it is not deterministic. Whereas in liquid, it's like a clockwork.

Starting point is 00:39:57 Every minute there is a block because it is a federation signing those blocks. So you're guaranteed to be able to move on and off exchange quickly or between exchanges quickly, which you cannot do with Bitcoin's main chain. So it seems to me like Adam strongly believes that if you're not using Bitcoin or basically pegging Bitcoin into whatever protocol you develop, in the long game and in the long run, it's going to be cannibalized or that some other. their protocol is going to step in that's going to provide some type of solution that uses Bitcoin as its native currency for processing purposes, I think is probably the best way to describe it.

Starting point is 00:40:35 Talk to us about that idea. Am I right about that or would you describe it differently? You would think so, but I think it's far easier to print your own money, like some of these other chains or protocols, and have your own token and then wrap Bitcoin on your chain, because then you have your own war chest of your printed money out of thin air that you can use to incentivize adoption. So it's been a challenge for us to push for liquid adoption because a lot of these other protocols out there, they have their war chest and they can say to an exchange, well, integrate this thing and we'll pay you a couple million bucks and then they can push their adoption through essentially by force. And then they can wrap Bitcoin on their protocols like say on Ethereum. But those are not decentralized in any way.

Starting point is 00:41:20 It's like a single service provider. So wrapped Bitcoin or WBDC is BitGo. They're the custodian of that. But I guess my point, and I completely, obviously, I agree with what you're saying, and I can see how that can be very frustrating for you guys. But does it win in the long term? So like if we're looking at this with a 10 or 20 year lens, don't they always just revert back to manipulation and debasement of their own protocol token?

Starting point is 00:41:45 And does that end in their own demise? Meanwhile, somebody who's been doing something like what you guys are doing, which is using Bitcoin as your native token, it wins in the long run, even though it's kind of the tortoise in the race. Yeah, I think in the long run, this will win out also because of better technology. Like a lot of the other protocols out there are more like science experiments, whereas liquid and like elements, which liquid is based off of, is a fork of Bitcoin. So you're always moving lockstep with Bitcoin development. we can actually roll out new features on the Liquid Network first that would come out later on Bitcoin.

Starting point is 00:42:22 So, for example, we had Segwit first in Liquid, and we're working on getting tap read out in Liquid. So I believe technologically, it's more reliable, more robust, and more secure than a lot of the other options. But right now, security doesn't almost, it almost doesn't matter. Like, if you take Ethereum as an example, looking at it realistically, you think after so many hacks and security issues and failures, that people would not support it or buy their token. But that's not the case. It's almost like the more they get hacked, the more the price goes up. So I don't believe the market is rational.

Starting point is 00:42:57 Talk to us a little bit about you had talked about Inferra and that they have one hosting node. Go into detail on that for people listening to this that might own Ethereum to talk to them about the centralization from your point of view. Going back to some of our early discussions about Bitcoin full nodes and why it's important to run it, Ethereum is essentially the opposite. So it's very difficult for someone to run an Ethereum full node. And if you remember to run the number stuff earlier this year, the lexicon of what they call a full node is always in flux.

Starting point is 00:43:29 And I don't even think they have a full agreement on what a full node is. So I was talking with Dalek on the podcast, on McCormack's podcast, and he was saying, I run a ether mine node. And I think a couple months after that, etherline nose failed. But like I said, it's like a kind of a science experiment. And because they play on terminology. It's a play on terminology, but it's also very hard to run a full node. So talking to a lot of exchange operators, it's a constant battle for them to be able to run an Ethereum

Starting point is 00:43:56 full node. And a lot of them probably just default to using Inferra. So that is the full node as a service provider that essentially powers most of the Ethereum network. So everyone's just querying Inferra and getting the data versus running their own and verifying their own. It's a dangerous game, I think, because if Inferra were to go down, Ethereum goes down. Actually, we saw that.

Starting point is 00:44:17 I think there was an outage, an Amazon outage, which affected Inferra, and a lot of services were broken on Ethereum because it's largely centralized. And I think a lot of people take it for granted. You hear their marketing, and you just buy it. I was on another discussion panel with some academics, and they were talking about Ethereum saying, well, it's decentralized, blah, blah, blah. They drank the Kool-Aid that Ethereum is decentralized, and they're just talking from that point. And I tried to correct them and explain that it's not decentralized.

Starting point is 00:44:45 It was a centralized premine, and it is a centralized service. So what do you say? Because any Ethereum person who's hearing this right now is going to say, well, it's a spectrum, Samson. It's a spectrum of decentralization. So how do you respond to that? I think there is a spectrum of decentralization. If you look at liquid, it's federated. It's still centralized, but it is somewhat decentralized.

Starting point is 00:45:08 But the problem is with Ethereum, it's not on that spectrum. It's not even anywhere close to being decentralized, too. They have their, what was it? Their Ice Age bomb or whatever, difficulty bomb. And that was supposed to be something to force the transition to proof of state. And they just keep moving it. Explain the people what you're talking about, because I know what you're talking about. And it's hilarious because if they're really decentralized, you just couldn't keep kicking

Starting point is 00:45:32 the can down the road. So, they have this bomb in their code, which sets, I guess, a certain block height that they will essentially stop, slow down transactions and block times to the point where it's almost stopped. And that's why it's called Ice Age. And that is meant to force them to transition to prove a stake. But over the past few years, they hit that deadline and they just punt it down the road. So effectively, anybody can modify that deadline and change the protocol. And in fact, they screwed it up once. So they had a double hard fork where they forgot to punt the deadline. So they did a hard fork for some reason. And then they did another hard fork right after.

Starting point is 00:46:08 but Harfork is basically rebooting the whole network. So it's not decentralized at all. You just rebooted everything and so told everyone, switch to this thing, but pretend it's the original. So what percent of their full nodes is running on inferior? I don't know. If I had to harbor a guess, I would say 90%. 90%.

Starting point is 00:46:28 And then everyone else is just a client referencing that. Yeah. If there is one other thing that I think for me is a problem, whenever I think of Ethereum, is what we were talking about earlier, which is the hard cap of, in Bitcoin, you know, it's 21 million. And the whole reason I came into this space is because the world needs a peg and the world needs real money. And without that, this insanity that we're seeing from policy makers, particularly on the central banking side and fiscal appropriators that are basically forcing central bankers to make these decisions, you have to have that hard-coated peg of money. And with Ethereum, you don't have anything close to that. They can't even tell you what the total number of units are in the code, right?

Starting point is 00:47:15 There's none of that. We had that whole thing where we were running the numbers. And a lot of Bitcoiners were running scripts on their full node to determine the supply of Bitcoin. And we can all tell you which block what the supply is. But there's just nothing like that in Ethereum. And even though Vitalik accepted my challenge that they would run their numbers, he never actually did it.

Starting point is 00:47:34 And it's not important for them, I think, because at the end of the day, they printed 72 million ethers out of thin air. And everything that you're mining today is a pittance to that. It doesn't matter. Or you're buying an ether for $400,500. It doesn't matter because they already lined their pockets with 72 million of these way before you bought your one ether. So, you know, it's not really relevant.

Starting point is 00:47:55 And a lot of these coins or chains or protocols, there are more companies than a decentralized network. It's a company behind it. There's a lot of decentralization theater. They set up a foundation somewhere and say, oh, this is the foundation and this is the protocol. But at the end of day, it's like a company. Like, Ripple is a company.

Starting point is 00:48:12 They're jobs programs. They're engineer, their software engineers that are creating jobs for themselves by offering tokens with, you know, some new innovative idea. And they market it, they sell it. And then they have jobs that they pay themselves with the funding round that they were basically able to do via, and I'm doing air quotes, decentralized. It's interesting. Now, this is a caveat that I would say.

Starting point is 00:48:33 when I look at this cycle we're about to go into and the number go up technology that we both understand is baked into this with the four year having, the difficulty adjustment, how they work in harmony to drive the price through proof of work, all that kind of stuff. Bitcoin is driving these bursts that we see in market capitalization every four years. When I look at the type of person and the institutional investments that are coming into the space, the way Wall Street looks at this is they say, well, there's a lot of of nuances to this that I clearly don't understand. There's no way that I can fully understand all of it. So here's how I'm going to approach this. I'm going to look at the market cap of all these

Starting point is 00:49:13 different coins, and I'm going to look at the top five. And if Bitcoin makes up 70% of the market cap or 60% of the market cap, well, 60% of my money is going to go into Bitcoin. And if 20% of it makes up Ethereum, well, then 20% of my money is going to go into Ethereum. Because they're looking at it as a venture capital kind of investment that's got tremendous, upside. And if they get a couple of them wrong and they get one of them right, they win. And so I think because that's the mindset, I personally think in the short term, we're going to continue to see Ethereum go up. We might even see Ethereum outperform Bitcoin because it's a much smaller market cap and you have this way of investing kind of coming into the market. Do you agree with that?

Starting point is 00:49:54 I agree. I think with Bitcoin's rise and it will continue to rise, I believe, in 2021. I think next year, we're just going to see a wave of alt coins pumping and a frenzy. Another guilty party here is the mainstream media. They release things like saying, oh, this altcoin pump 200%, and Bitcoin's only up this percent. But they just gloss over the fact that it's a very low cap, low liquidity coin. The other thing that compounds the issue is unit bias. So I've known people in the past that have bought Ripple XRP, and they just said,

Starting point is 00:50:25 oh, it's so cheap, it's 25 cents, you know? I said before, Bitcoin rewards people that understand math. And, you know, I believe your network of listeners can do the math. Like, you're buying some of these coins. I've done a talk before and I've presented, this is a couple of years back, but I actually calculated everything out. And if you reduce the supply of those coins to 21 million, you're paying like maybe a thousand dollars for a ripple or some other alt coin because of that unit bias.

Starting point is 00:50:53 So it's not cheap. It's actually very expensive. And people just don't do basic math to calculate it. And I think the other point you just touched on is dominance, right? Bitcoin dominance. But Bitcoin dominance, it's a really bad metric. If you look at Bitcoin, it has very unique properties. It has a virgin birth.

Starting point is 00:51:11 There's no corporation behind Bitcoin manipulating it and promoting it. It is decentralized and censorship resistant. So you could compare it to being a nuclear-proof fortress or bunker of some sort. And all these other alt-coins, they're cardboard boxes, and they're stacking them next to this nuclear-proof bunker. But when that nuke drops, they're just going to be blown away, right? They're not going to survive this thing. But they'll stand outside this bunker with some cardboard boxes stacked up next to it

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Starting point is 00:55:00 objectives, risks, charges, and expenses. This and other information can be found in the income fund fundrise.com slash income. This is a paid advertisement. back to the show. So Samson, I'm curious for a guy who's so dialed in on the technology and the engineering front, what are you most excited about moving into the coming five years? Not just this year, but like literally if we could jump fast forward, five years into the future, what's this world that you see we're moving into? Near term, I'm very interested in security tokens. And I've steered Blockstream in the direction where we're working on products and tools that can enable that. But five to 10 years out, I hope that we'll see more privacy becoming the norm. So

Starting point is 00:55:48 we hope that with Liquid, it'll normalize that idea of confidential transactions and having people value privacy and confidentiality. And I think if you look at a lot of stuff that Blockstream is doing, we're trying to re-architect financial markets and make everything compatible with Bitcoin. So Liquid is a step in that direction. Lightning is a step in that direction. So you mentioned earlier about Adam saying liquid is layer 1.5. The reason for that is because liquid is its own chain. So it's not a layer two like lightning, but we can also have a layer two on top of liquid. So this is where it gets tricky for people to conceptualize because you can have lightning on top of Bitcoin, but you can also have lightning on top of liquid Bitcoin and on top of

Starting point is 00:56:33 liquid assets. So imagine any stable coin, you can have a lightning network for that stable And once you have that, you have enough TPS to service the world. You could use that to buy your coffee. And there's no barrier to that. So what you're really getting at, and I want to see if this is what you're saying, if I own stock and Apple, and Apple actually tokenized their stock certificate, so I didn't have to go through whatever, right, to own an e-trade. But I'm now buying my Apple stock on Liquid as a security token.

Starting point is 00:57:06 And then you run Lightning on top of that. security token, I can now transact, if I go to Starbucks, right, I can literally transact with my Apple stock certificates. Is that what you're getting at? theoretically, yes. The question is, do they accept that as payment? But you could have a middleman, which is it out or swaps it with something else for a different asset. But yeah, in theory, what you just said is possible. But I guess you could say like the goal of Blockstream is that we would make the entire market into a dark pool. So nobody knows what anyone is trading with anyone else and that would really democratize a lot of things. So at first, security tokens,

Starting point is 00:57:44 I think democratize a lot of capital formation and financing. You can tokenize your company's equity and offer it out. And I think the way that the winds are shifting now, we're starting to have the perfect landscape to be able to do this. So security tokens first started coming out a little bit in 2017, but they kind of fizzled out. But I think there were missing pieces. So the first big piece is the regulatory environment. And I believe the regulatory environment has shifted to become favorable for the issuance of security tokens. So I have a game company, Pixelmatic, is issuing a security token for Infinite Fleet,

Starting point is 00:58:21 or game. And we're working with Stalker out of Luxembourg, who do a security token for Europe. And the whole regulatory process is not that cumbersome and not that time consuming. So within probably six to nine months, so we can get a prospectus out and it could be publicly offered. In the U.S., you have, you must know this one, like reg CF was changed to allow up to 5 million in fundraising, right? But you also have reg D and reg A plus filings that you can do. And those are not that cumbersome either.

Starting point is 00:58:50 And the cost is not that extreme. So I could see a lot more companies going this route of regulated token issuance or security token to raise that capital. And with a reg A plus filing, it's tradable by anybody. There's no limits on trading. you're not bound to only accredited investors. So that is one piece of the puzzle. The other piece of the puzzle is technology,

Starting point is 00:59:12 which I believe that we can provide with Liquid and Blockstream AMP for the issuance and management of these tokens. And then the final piece is Venues. And the thing you saw in the news a couple days ago, BitTrek announced that they are going to support tokenize stocks or trading of stocks. But there are many other exchanges working on being able to support the trading of security tokens.

Starting point is 00:59:35 if not the issuance, then at least secondary markets. So with these three pieces, you have the perfect recipe for security tokens getting big. And the other part is tokenizing traditional equities, like you said, Apple stock. I think that is coming too. Perhaps some bigger companies will allocate a portion of their stock to become security tokens. The reason why I'm excited about all this is because the environment has changed. And it's kind of like what led to Tesla being able to dominate, right? It's the battery technology catching up to the point where Elon Musk can say, okay, now I can make electric cars cheap enough for the mass market.

Starting point is 01:00:13 And then you put together a plan. You start with the roadster first and you sell a limited amount and you can go to another lower end vehicle. Well, not that low, but then you have the model S and then you have the X and then you get to mass market with the model 3 and Y. So it's just a path to the goal you want is now open because technology has enabled that. Same for Apple with the iPhone, right? Capacitative touch and better processing power means you can have a tablet that is now the size of a phone and it's responsive and the battery life lasts more than a couple hours. So it's a game changer. And I think for security tokens, we're seeing the same thing, which is the environment is now permitting them to flourish. If I'm a regulator and I'm hearing you talk about all of these things, I mean, I'm on edge, right? I'm scared to death. I'm saying, oh, my God, they're doing it in this permissionless way.

Starting point is 01:01:08 I can't track who's doing anything. It might cause this overreaction to a 180 of like, well, if this is the direction this is going, well, we can't allow any of it. Is that what you're hearing? Is that what you're seeing or are you actually seeing them doing the opposite, which is embrace it? Well, I believe they're embracing this. Otherwise, they wouldn't change the reg CF regs or allow for reg A plus. I think they want you to register and they want you to be compliant. And they'd rather you do it this way than run an ICO and then run away with people's money,

Starting point is 01:01:39 which is what we saw in the past. So this is preferable. I believe that they're not worried about it because if you are doing these filings, you need to comply. You have to KIC your customers. You're a security, right? Ultimately, you can't just sell to anybody. But it's once you've set it up, so this is what Blockstream AMP enables, you can issue the token.

Starting point is 01:01:57 And if the regulation is change, you can change the rules that are applied to your token. So you can tighten the white list. You can freeze, you can reissue, you can manage these cryptographic tokens that are representing equity. And it's a very powerful thing. So you can evolve as a regulation evolves with this tool set. So there's this really clever app that's called Do Not Pay. and it's basically like having a lawyer in your pocket where it does all this fancy filings and paperwork on your behalf to make it really easy to use. I'm very curious if you guys are looking at,

Starting point is 01:02:33 in addition to all the G-WIS stuff that you're doing, to make that process of somebody filing completely automated or in somehow some way more user-friendly or ease of use in order to conduct one of these filings. I don't know if that's something. we will focus on, but I know our partners are working on that. So Stalker, they have their platform to raise capital. And a lot of this is the legal side. And I don't know how much you can automate of that. But I think we're moving in the right direction. And for their end users to be able to buy these security tokens, they've made it pretty streamlined. You can register and complete your application in a couple minutes. And then you're good to go. One final question on Liquid. I'm

Starting point is 01:03:17 curious if you've had any sovereign nations, smaller nations, that have reached out to you to do central bank digital tokens on liquid. Is this something that you've seen, heard? Yeah, so that's an interesting one. We're not directly engaged with them. It's a stablehouse, one of the liquid members, but they've been working with the government of Bermuda to do a stimulus token, and they're using Blockstream Amp, and they're using Blockchain Green to do this. So it's a stimulus token meant to pave the way for potentially a central bank digital currency. So what this is right now is you can spend at certain merchants because they're giving you this token that can be paying for certain things like food, but they don't want you to use

Starting point is 01:03:59 it everywhere. But it only works certain places. And the way you can do this is with Blockstream app issuing this managed asset. And we've also talked to some other people that want to do essential bank digital currencies on top of liquids. So it's very possible down the road that you might see this happen, or they might set up their own liquid federation. But it would be like, that doesn't really matter because it's all Bitcoin-based tech. Everything is a fork of Bitcoin.

Starting point is 01:04:24 So it's compatible with Bitcoin. And in the end, that's what matters. Wow. And so would they be using the Aqua app in order to conduct transactions, send, receive these tokens? Would that be the most likely outcome for users? Potentially. Like the green is open source. the backend is not, but with Aqua, the backend is the Electrum server. So it's all open source. You

Starting point is 01:04:48 could totally use Aqua. You can take the code, re-skin it, and just only support your own central bank digital currency and use this for your country. So changing gears again, one of the other initiatives that you guys have at Blockstream is now mining. I think this announcement came out probably a year and a half, two years ago. Why get into this space? It's very competitive. I wouldn't suspect the margins are, well, I guess I don't even know. I just know it's super competitive, so I guess I'm not fully understanding why you would step into this space. I think it has a lot to do with Bitcoin being counterintuitive, right? Like, people don't think that they need to run a node. And people think they don't need to

Starting point is 01:05:28 mine either. But for the security of the network, it's better that there are a lot of stakeholders with skin in the game that are mining, because mining is ultimately securing the network. And you also want mining to be dispersed as much as possible. So again, like liquid, geopolitically and geographically disperse. And having a large mining operation in North America like Blockstream has, we're at 300 megawatts now at total capacity. It is good for Bitcoin because then that means hash rate is not all centralized in one region. And I also think it's important that a lot of companies do mine.

Starting point is 01:06:05 So what we actually offer is we do some prompt market. Mining, proprietary mining, mining our own Bitcoin, but we are primarily a hosting and service provider. So what we allow is for other companies to start mining. They can buy their equipment or they can contact Blockstream and we use our network to procure for them. But it's like an end-to-end solution. We can get your equipment, set it up, mine for you, and you can mine with any pool that you want to. But it's opening the door for people to easily get access to Bitcoin mining that otherwise may not mine. So one of our customers is Reid Hoffman.

Starting point is 01:06:39 So I don't think he would go and set up his own mining operation in his garage, but he'll host with us and put his miners here. Another one of our customers is Fidelity FAC. So there is demand for this, institutional demand for mining. And having this setup, it opens a door for more people to get involved. One of the things that for anybody that's new to the space, and they hear this for the first time, I think it's eye-opening. Blockstream has satellites in space that are broadcasting the blockchain that anybody can set up a satellite receiver on the ground and tap into this feed that's being transmitted by one of the six satellites that are going around the earth. I'm assuming that you guys are licensing

Starting point is 01:07:22 this bandwidth off of these satellites. These aren't like, you know, you don't own the satellites. You're just licensing a certain portion of the bandwidth that's coming off. I don't suspect it's a lot of bandwidth, so the cost isn't like if you're streaming video, right? But talk to me about the ROI, Blockstreams ROI for something like this. Right. So I think it comes down to it's augmenting the Bitcoin network. So the biggest benefit to the network of there being these Bitcoin satellites in space is that you can prevent network splits. So if an undersea cable is cut to some country or region and there's a decent amount of hashing power there, you can potentially be split off from the rest of the network and you might say a transaction is valid when it's not.

Starting point is 01:08:06 But if as long as one person in that region is running a blockchain satellite dish, then they can keep that whole area in sync with the rest of the network. And I think that's valuable, especially when we are spending and investing so much money in building on top of Bitcoin, if there are splits in the network, that will impact your Pagan transactions on Liquid. That will impact a lot of things like Lightning. and if we have securities issued on the liquid network, that will impact those too.

Starting point is 01:08:33 So we want to make sure we're stable all through the entire stack. And that is the main benefit. But actually, it benefits everyone else too. So a lot of people don't understand how all the different parts of what we're working on at Blockstream, how they all fit together. But you can also use the Blockstream satellite service for mining. So if you have access to cheap power in some place with poor internet or even no internet.

Starting point is 01:08:59 Let's say there's a solar farm installation in the desert. There's no internet. You can still mine there. You can broadcast the block you find over a cell phone signal, and you can get the entire Bitcoin blockchain through satellite. So the cool thing is we've recently upgraded to blockchain satellite version 2.0. With this version, you can go into the middle of the desert, set up a dish, download the entire Bitcoin blockchain from the Genesis block without any internet,

Starting point is 01:09:25 and keep in sync with the Bitcoin. network through this service. So that's actually really cool. So it opens up the door for mining in various parts of the world that you probably would not consider mining in previously. And this is really important because you can tap into energy sources that are very low cost that weren't being tapped into and being used in a productive manner that now you can. All right, we're getting near the end here. And I'm real curious about this one. So simplicity. This is Simplicity is code. It's not a lot of code. It's actually just a couple lines. And it assists in making Bitcoin non-pern complete. Tell us why that's important.

Starting point is 01:10:11 Right. So simplicity is a smart contracting language, and it is very, very low level. So the entire language will fit onto the back of a t-shirt. And we actually have t-shirts in our store with the simplicity on it. But what it does is it allows for smart contracts in Bitcoin. It won't be the same as, say, smart contracts in other protocols where they have a lot of complex logic, but it allows you to do a very powerful thing. So you can create vaults, limit orders, and you can do asset-based lending. So lending, I don't know, USCT for another asset. This is important because it adds more functionality to Bitcoin, but it's still not very accessible yet. We're working on some ways to basically get it into the hands of end users. And one of these avenues is with

Starting point is 01:10:56 miniscript. So the idea is that you can compile miniscript. It's a Bitcoin scripting language into Bitcoin off codes and then also into simplicity as well. So it just makes Bitcoin more powerful. Things like vaults. So a vault is, I guess the best analogy is a vault. You can put your Bitcoin into this vault and when you devault it, there's a time period and somebody can cancel the devaulting. So if you're using, I guess like, let's say a Bitcoin multi-sig to store funds for your company. You can have someone externally cancel the devalting in case there was a security incident. Like, let's say someone compromised it and they got, your employees took two of the three of the keys and they can withdraw from the vault.

Starting point is 01:11:43 Well, somebody else could stop that withdrawal process from happening. So that's an important part of how we can evolve the security model of Bitcoin. The other thing is limit order. So right now, atomic swaps in the liquid network. It's like either the atomic swap is executed or it's not executed. So an atomic swap is where there is a trade that happens all at once or not at all. So it's like Bitcoin for liquid UCT and it just swaps and then that's it. But with limit orders, you can do a partial atomic swap, so to say. So I think simplicity just opens the door for a lot more cool things you can do with Bitcoin.

Starting point is 01:12:20 But for the average user, I think it's still some ways away. But it is there and it is coming. And I just want to highlight at the start of this conversation, Samson told you he's not an engineer and all that kind of stuff. So I think I'm proving you wrong that although you might not quote unquote be an engineer, I think we got pretty engineery there for a little bit. The Bloxham engineers would tell you that I've got it all wrong. So Samson, one of the things that I think a lot of people in the Bitcoin community might not know about you is that you do a lot of product. for gaming and software for gaming industry. And you have a team and that team of people that you currently have, they've worked on projects that have generated over a billion dollars in revenue

Starting point is 01:13:08 in the gaming industry. And you guys are getting ready to release a new game. But what I find fascinating is you're leveraging all the tech that we just talked about on this entire episode with utility tokens, security tokens, the game itself. It's intertwined. Talk to us. about what's going on here and just educate us. This sounds fascinating. So the game we're working on is called Infinite Fleet. It's an MMO strategy game. And for those that don't know, MMO stands for massively multiplayer online game. So these are games like World Warcraft, Eve Online. They have a 10 to 20 year shelf life. And at their peak, they can generate hundreds of millions and dollars in revenue per year. And the development team we have behind this game is amazing. We've got

Starting point is 01:13:51 top tier AAA talent. I personally have worked on company of heroes. Dawn of War. A lot of our other developers have worked on top titles for Sega, Nintendo, EA. And we've actually got one of the developers from Ultima Online, the original MMO game. This is like a top talent team here, putting this together. And tying it all together, we're using a lot of the technology that Blockstream has been building. You could say we're commercializing a lot of the things. So it's running on a dual token model.

Starting point is 01:14:21 There is a security token for raising capital, and there is a utility token that is replacing the in-game currency. So like World War II gold, it's replaced with a crypto asset that is portable for the players. So for the security token side, we've already raised 3.1 million, and we're going out to raise another 12 million. 8 million is slated for the EU and 4 million for the US. So this is taking advantage of that change in the regulatory landscape that I talked about, where it's much easier. easier and much more efficient to go the regulated route now. And by having this dual token model, we're not mixing it up. We're not selling a token that we stay as utility, but could be construed to be a security down the road. It's just much more clean and well-defined.

Starting point is 01:15:08 So let me ask you this. I think I know the answer. Why not use liquid Satoshis in the game? Is it because you want to create your own currency? And then you guys get to basically pre-mine or have a portion of that as a kicker in addition to the funds that you're raising on the utility side? I'm assuming that's the answer. We could use like Satoshi's like all of the lightning games and reward players that way, but I think it takes away from immersion. So for MMO games of this genre, part of it's role-playing. You want to be immersed in the universe, immersed in the story in the lore.

Starting point is 01:15:40 And if you're playing this game and earning SATs, which we could do, we could sell advertisements and then get money from sponsors and then distribute in SaaS. But then I think that takes away from the whole experience. The other part is that we want to run this sort of as an experiment to see what happens, because typically MMO games don't embrace any kind of portability for their players. They don't want you to take anything out of the game. They want you to buy a premium currency and it's locked up forever. So my theory is that the freest money will win.

Starting point is 01:16:10 That's why Bitcoin will win. And I believe the freest game that is open to secondary markets, open to letting players basically do more and trade freely will win too. So you get the tokens inside the game and you want to bring them out of the game, you can then swap them into Satoshis, liquid Satoshes at that point? Yeah, so this could be listed on an exchange because it's just a liquid asset like USDT or L-Cat or anything, or the players can trade peer to peer because it's all in the liquid network. It's freely movable and you have the benefit of confidentiality too. You don't

Starting point is 01:16:45 really need it for a game currency, but I think it is good because you don't want people watching what you're doing. And the interesting thing here is the application to gaming. So in a lot of MMO games, we hear about crypto hacks all the time, but there's also hacks in MMO games too, where someone will join a guild and they infiltrate the guild and they steal money from the guild. This has happened a few times in Yves Online. But with a crypto asset, you could actually create a multi-sig that would prevent someone from stealing it. The reason this happens in games now is because it's bound to an account and you generally give access to that account to somebody. That's how you manage the guild treasury. But this brings a little bit of the crypto security element to the game.

Starting point is 01:17:25 And you could even put this on a harbor wallet, like a treasurer or ledger or a cold card down the road too. I mean, I'm just listening to this and my mind is just exploding. Like, I just can't even believe this is real. For somebody who's hearing this and they heard you say that you're going to be issuing security tokens, which is a fundraising round, right, to build this game out with all the engineers that you said you had. If a person wants to buy one of these security tokens, how is this a publicly issued IPO for people to buy this? And if it is, how would they, how would they buy it? So we're filing for a reg a offering in the US with the SEC. So once that is done, it's effectively an IPO. They call a reg A plus a mini IPO. And it's really cool,

Starting point is 01:18:09 because then your tokens are freely tradable and there's no need for accredited investors. In the EU, we're working with Stalker. They're a platform. It's sort of like Kickstarter, but they support securities. So you just go to stalker.io, register, and you can invest if you're a non-U.S. resident. And if you're in the U.S., you can contact us directly. We can do a SAF before it's open. But once the filing is done and we're Reg A approved, then you'll be able to buy on an exchange like INX or T0 or any other security token exchange. What a way to end this and to kind of wrap all the technology all in the one. I'll tell you, I really enjoyed this conversation.

Starting point is 01:18:50 We definitely need to do something like this again in the future. Give people a handoff to where they can find you if they're listening to this and they're just amazed of some of the stuff they're hearing. Where can they reach out to you? Talk to us about some handoffs to block stream, whatever you want to promote. Hit us up. You can find me on Twitter. My handle is Excellian, E-X-C-E-L-L-O-N. Blockstream is just at Blockstream.

Starting point is 01:19:14 We're also on Facebook and LinkedIn and everywhere else. If you're interested in Infinite Fleet and the security token and the utility token, you can find out more at Infinite Fleet, all one word. That's about it. Samson, thank you so much for making time to come on and just talk about some of this fascinating stuff. And where the future's taking us is just wild. Thank you for your time and coming on. Thank you, Preston. It's been great.

Starting point is 01:19:39 Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC004: Bitcoin Tech & Future Growth w/ Blockstream's Samson Mow (Bitcoin Podcast)

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