We Study Billionaires - The Investor’s Podcast Network - BTC009: Bitcoin Engineering w/ Core Developer Jimmy Song (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to our Wednesday release of the podcast where I'm covering Bitcoin. Today's guest is a well-known software engineer and core developer to the Bitcoin protocol, Mr. Jimmy Song. Jimmy has numerous contributions to the current software baseline, and he's the author of the go-to textbook programming Bitcoin. On today's show, we get into how updates are made to the code, how these updates are tested by a decentralized group of software engineers, then how does the update get

Starting point is 00:00:30 deployed. How do full node operators adopt the code? What risks are associated with this process and much, much more. Jimmy talks about other blockchains. He talks about quantum computing. There's a lot of variety in this and it all relates to the engineering. And it comes from a guy that's written some of the code itself. So without further delay, here's my chat with the one and only Jimmy Song. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right. So, hey, everyone, welcome to the show. I'm super pumped to be here with Jimmy Song talking Bitcoin and Bitcoin tech. Jimmy, welcome to the show. Well, thanks for having me. It's a pleasure to be on. I appreciate that you are on my podcast. So it's a little nice exchange here.

Starting point is 00:01:27 This is fun because, you know, we were talking all investing and now we can talk all the tech and engineering and all the really good stuff. So let's dive into this, Jimmy. Let's start off. A lot of the folks that listen to our show really kind of come out of, traditional finance and are just getting introduced to Bitcoin for the first time through the show. And you've been in this space for years. So I just want to give the audience a little bit of background on you. So tell us your story. Tell us how you got attracted to Bitcoin. What year was it? Talk to us about some of that stuff. I'm a programmer. I've been one since I graduated college in the late 90s. So I've been in the programming world for a long time. And I I programmed for a lot of different startups. I think I'd counted at one point.

Starting point is 00:02:12 I did like 13 different startups in one way, shape, or form. I did manage to get exit twice with public offerings at two of the companies that I was at. So that was kind of nice. But when I first heard about Bitcoin back in 2011, so it's been about 10 years now. And it was on a tech website called Slashdot. And the big news then was that Bitcoin has broken $1. And I didn't really, I couldn't even understand what that sentence meant. I was like, okay, what is this thing?

Starting point is 00:02:43 And why is it significant that it broke a dollar? And that's when I clicked on it, read it, and tried to understand what it was. The thing that immediately attracted me was one of the first things I learned, which is that there's a 21 million. And that human instinct, I think, is to collect anything scarce. And as soon as you find out that there's only 21 million, there's sort of like a tendency to want it, right? Like, and this is something that I recognize as sort of inborn. I remember, like, collecting baseball cards when I was little. I still remember, I think it was the Billy Ripkin

Starting point is 00:03:17 Fleer card that had like a little curse word at the end of the bat. There was only like a small number of them that got printed before they airbrushed that out or something like that subsequent printings. But that was worth something because it was rare, right? It was scarce. That same instinct, I think, sort of caught me when I first learned about Bitcoin in 2011. Of course, I was kind of primed for it because 2008 was when all of the financial stuff was happening. And that led me sort of down a libertarian rabbit hole of what's going on. Why is the system this way? And I wouldn't say that I understood all of what was going on back then, but it gave me enough of an impetus to be sort of open to Bitcoin. And the 10 years since then has been something of a journey

Starting point is 00:04:04 and learning the various aspects of Bitcoin, not just programming, which we're going to talk a lot about and the technical, but also the economic aspect of it, the social aspect of it, the game theory aspect of it, and so on. So you find out about this and you see people talking about it online, and you immediately start diving into some of the conversations with some of the people that are working on updates to the code. Is that correct? Well, so I didn't get into actual contribution as a coder until 2013. So it took me a couple of years.

Starting point is 00:04:36 At that time, like, it was just sort of like, it was so hard to get any information whatsoever in 2011. It was literally just maybe a few websites. Nowadays, you have like explainers and YouTube videos and all that stuff. Back then, it was literally just like Bitcoin talk forums. And then like Mount Cox, that was about it. Like, there was a guy who had tried to sell Bitcoin for PayPal that I found, but his account was shut down like three months before that.

Starting point is 00:05:03 So I obviously couldn't buy from him. It was like difficult even to just get your hands on Bitcoin at the time. You had to. The only way was really Mount Gox or there was an exchange where they would take a personal check, but that sounded super sketchy to me. So if you bought it on Mount Gox back in this 2011, 2011, 2012 time frame, were you just keeping it on the exchange? because it was too hard to really kind of secure it yourself?

Starting point is 00:05:28 Yeah, more or less. So I had to get it to Dwala, and then Dwala had to transfer to Mount Cox, and then you could go buy Bitcoin. And then if you had your own wallet software, then, yeah, you could do it. But there really weren't that many wallets, right? There was literally the Bitcoin core wallet, which you had to run like a full node in order to do. And, you know, that took, I mean, it was a lot less back then.

Starting point is 00:05:53 but you had to sync it and so on. You can use, I think, Armory was the other one, blockchain.Info was another one. I didn't really want an online wallet. I think I did open one. And I remember getting like 0.05 Bitcoin from a faucet, and I kept it in that wallet. And now I think it's worth a few thousand dollars.

Starting point is 00:06:14 So it's like, oh, man. So that was from a faucet. Just people were giving it away. So things have changed significantly. But yeah, I mean, 2013 was when I really got into the coding aspect of it. And that was actually kind of triggered by what you said. It was my coins were on Mount Cox at the time. And I had some friends that were telling me, hey, you know,

Starting point is 00:06:36 you should really get your coins off of Mount Cox. I'm just hearing some sketchy things going on over there. And this was summer of 2013. So I looked into the different wallets and I found Armory, downloaded Armory, and put the coins into my Armory wallet. But I thought it was very non-performing stuff, which is ironic because I ended up going working there like a couple of years later. But that was how I got my Bitcoin.

Starting point is 00:07:01 And thank God I did that because, you know, a few months later, Mount Cox turned out to be insolvent. And they're still in litigation over like, you know, getting compensated for the coins that they had on Mount Cox. So I got it off and I was very fortunate. And I'm very grateful to the friend that told me to take it off. Because, I mean, back then, I mean, you're talking, it was not uncommon for a person to have thousands of coins on Mount Cox. Thousands, right? Crazy.

Starting point is 00:07:29 Easily thousands. And there were a lot of people that lost a significant amount of Bitcoin on Mount Cox because it wasn't a thing to like sort of self-custody or people hadn't learned the lessons. And the thing is, there were other exchanges besides Mount Cox that had gone bankrupt because they got hacked or something before then. And people still didn't learn. And this is why you tell yourself blessed these days because there's so many wallets and many of them are hardware based and so on. So it's a lot easier now. But back then it wasn't. And you can see how ingrained this is in the culture.

Starting point is 00:08:05 If you're on Twitter and you're talking to anybody that's been in the space for a while, I mean, they're just like, you got to secure your own keys no matter what because, you know, Mount Gox and whatnot. But you started doing contributions to the code come 2013. 2014. Talk us through what that process is like. Yeah, so I've attributed to lots of different Bitcoin projects and there's not just one. There's like lots, right? Bitcoin Core is the one that everyone knows because that's the node software that you run. If you want to validate the entire Bitcoin ledger and so on, which, you know, is very helpful because then you don't have to compromise your privacy whenever you want to know your own transactions and so on. I first started contributing to sort of like a fringe project at the time. It was called Huller Coins in 2013.

Starting point is 00:08:52 And it was headed up by a guy in the Ukraine. And basically the way open source contribution works is that you write code and then you put in what's called a poll request, which is sort of like code changes that you'd like to see, usually adding some functionality or testing or something like that. Somebody reviews it, and it could be one or more people, and then they accept the poll request that gets merged into the code base, and it becomes part of that software. And this is, this is just a normal process in a lot of software development organizations. So, to be honest, like in industry, like that level of verification actually is followed a lot of, I've been that development shops where people like hatch things directly on production and things like that,

Starting point is 00:09:40 which is kind of crazy to me. But that's what they do and they haven't been burned yet. So I guess it's okay or whatever. That's how open source contribution is. You make a contribution. You do a poll request. The contributor sort of like puts it in. And then the people that sort of like other people review it and then it gets merged and so on. And this is how Bitcoin Core works, except the process is a little more strict because we're talking about people's money and you want to be absolutely certain that, you know, it's not going to harm any. Kind of like the Hippocratic oath, right? Like, first do no harm. So, Jimmy, how, who determines that it's a stricter process? Because it's essentialized. Bitcoin Core, like, basically is a project on GitHub right now, although I think Vladimir has, like,

Starting point is 00:10:28 put it on various tour services in case, like, they have a big platform, Bitcoin Core. But basically, It's software and there's a lot of core developers. I think over 500 people have contributed to core, including like anonymous developers, right? After you put in a poll request, members of the community review it. And usually you need multiple members of the community to say, this looks good and it's not going to do any harm. And if it's a critical part of the code that might cause some harm, then a lot more review is required. And usually they ask for tests to prove that it's not going to do any harm, maybe even like some performance metrics or studies and so on just to make absolutely certain. When Peter Woolley did Segwit many years ago, there were a lot, I mean, there were literally like 20 people that reviewed it and multiple people that made sure that everything worked the way it was supposed to and so on.

Starting point is 00:11:25 That level of caution is definitely good because it makes sure that nothing bad gets in. But at the same time, it's decentralized because anyone can fork the code at any time, right? I can copy the entire code base and run my own software with whatever changes I want. Now, if I make a mistake in that code, then it's entirely my fault. That's sort of like anyone's right. So Luke Dash Jr., for example, he's a core developer. he has his own for called Bitcoin Nots. And that has some of the enhancements that he wanted to see that core developers didn't

Starting point is 00:12:01 necessarily agree belong there. So he made his own. And you can go run Bitcoin Knots if you want. He makes it available. And that's part of what makes it decentralized. And Bitcoin Core isn't the only software that runs quote unquote a full note or validates the entire ledger and so on. There's also something called BTCD, Bitcoin.

Starting point is 00:12:23 There's another one written in C by Amir Taki. I can't remember its name for some reason. And there's another one written in Haskell and so on. So there's a lot of different software that can do essentially the same thing. And they have their own processes and so on. I'm just describing to Bitcoin Core because that's the one that most people tend to use because it's based on Satoshi's original software and so on. You had mentioned earlier that Peter Woolley with his update for Segwit, this is the 2017

Starting point is 00:12:53 timeframe. For people that don't understand what that update was, this was really to allow Bitcoin to scale. This update was massive in the 2017 timeframe. How did people, so when you make this update and you put it out there, how do you get all the full node operators to adopt it? Like the network effect of running the code that already exists versus an update. seems to me like it would be such a hard hurdle or such a hard sell for people to update. So talk us through what that's like.

Starting point is 00:13:26 Is it hard? Is it easy in some respects? Just kind of give us some inside information on how that process goes down. One of the things about Bitcoin that's, I think, more or less unique among all of the other all coins and so on, is that it's always backwards compatible. So you don't have to upgrade if you don't want to. It'll run just fine. That was true of Segwit as was every other update, more or less.

Starting point is 00:13:52 It didn't require, quote, unquote, a hard fork, which would be a backwards incompatible. So because it's a backwards compatible, no one forces anyone to upgrade. But if you do upgrade, you get all these benefits. For example, you have, you know, one of the things that Segwit fixed was transaction malleability. If you, you can now do Segwit transactions using an upgraded node, which don't allow transaction malleability. And if you don't have transaction malleability, well, now you can open lightning channels much easier. And that means that you can use it for a lightning wallet and so on. So there are all these benefits. If you want to use them, then you have to go

Starting point is 00:14:31 and get the upgrade. But you can run software from 2014 if you want to. And it'll still work on the network. But if you want these new features, it sort of like gives you a natural incentive to go do it. Jimmy, I'm sure you don't know the exact number off the top of your head. I'm curious, how many people are still running some of the older versions? Like, so when you look at the latest version that's out, what percentage of the full node operators are running that versus the version before the version before that? I think Jameson Lapp has statoshi.info or something like that. And you can go look at, you know, what clients people are running. And you can query the network, they can lie to you, but there's no real reason to. And you can find out what client

Starting point is 00:15:18 they're running. And it might be, most of them are running Bitcoin Core, I think something like 90% or some version of Bitcoin Core, but others are running BTCD or Bitcoin or some of these other clients. And you can find out exactly the split. That's something that you can go and find out at any point. Of course, not every node is sort of like broadcasting or connectable or what Luke Dash Jr. calls reachable. So it's possible that those statistics aren't exactly accurate, but at least you can get a good idea of who's running previous versions. But generally, what I've noticed is that note operators,

Starting point is 00:15:54 or if you're running your own node, generally what people will do is they won't upgrade until, I don't know, six months after its release. And a lot of car buyers are the same way. They won't buy the newest year model if they just changed everything. They'll buy the year after because they'll fix all of the things that they didn't think of or whatever. That's a perfectly legitimate way to go, especially when you're talking about other people's money. Different people have different risk profiles, but that's the beauty of it is that you don't have to upgrade if you don't want to,

Starting point is 00:16:25 but there are benefits to upgrading, so many people do. So there's a lot of talk right now about Taproot. And first, just describe what this is. This is an upgrade to Bitcoin. Tell us, and it's not a hard fork, but it's an upgrade. Talk to us about what it is and what benefits it brings to the network. Yeah, so Taproot is something that Greg Maxwell, I think, proposed a couple of years ago. And it's gone a lot of things.

Starting point is 00:16:54 And there's a lot of different technologies that are sort of clumped in with Taproot. But essentially, it allows you to sort of get a little bit more privacy. Currently, if you are a single key address, it's pretty obvious that you're a single key address versus a multi-sig address. What TAP does is it combines those. So you can't tell if it's single-sig or multi-sig just by looking at the address. It allows a lot more complicated logic that is very useful. So instead of two of three, you could have two of three or four of five or seven of eight,

Starting point is 00:17:34 many more different combinations. And you can essentially have infinitely many conditions to unlock a particular coin. So this can be very useful for security. So if you can, for example, have a single key. But should you lose the phone that had the single key, you could have as a backup, you know, three or four of your friends whom you give, you know, slices to or, you know, you use their keys or something like that, then they can recover your coins for you, which is absolutely magical. right? That's a huge win from a security standpoint. There's also something called Schnur signatures, which let you essentially do multi-sig, but in a way that it's not obvious. So it doesn't take up as much block space. Right now, if you're doing like a two-of-three multi-sig, on the blockchain,

Starting point is 00:18:25 as part of the transaction that unlocks a two-of-three multi-sig, you have to have two different signatures and three different public keys that are in it. And those are fairly expensive. Signature is like 70-something bytes and a pub key is like 33 bytes. So if it's a large multi-sig, like 5 or 7, it adds up and it gets kind of expensive. What Schnorr allows you to do is to aggregate signatures and aggregate pub keys. So that means that you might have seven pub keys. You can aggregate it down to one.

Starting point is 00:18:56 So it ends up being like 32 bytes or something like that. A signature instead of like five times 73 bytes because of the new formatting and stuff like that, it ends up being a single thing of 64 bytes always. So all of those things are absolutely wonderful for sort of saving block space and getting it in cheaper and stuff. But the real thing for me is the next upgrade, which this enables, which is cross-input aggregation, which eventually will incentivize coin joins by making it economically advantageous to combine transactions with other people, which I think will be really good for Bitcoin privacy.

Starting point is 00:19:41 So give us an example of that. So, for example, what a coin join is is you take all your inputs of a transaction and all your outputs and combine it with lots of other people's inputs and lots of other people's outputs. And that sort of obscures where your coins are going. Right now, if you have like 10 inputs and 10 outputs, well, then you have 10 inputs worth of pub keys and signatures. With Schnorr, you reduce them down to 1 and 1, which will be after Taproot. But with cross input, what you can do is you can take all 10 of those input signatures

Starting point is 00:20:18 and combine them down to 1, all 10 of those input pub keys and combine them down to 1. So now you only have one signature and one pub key for 10 inputs. And it doesn't matter if you have 10 inputs or 30 inputs, right? It's always one signature and one pub key. So from a fee perspective, you have less data going in on a per input basis. So that means that it's going to be cheaper. So as a result, what you end up getting is coin joins, lots of coin joins. It's economically incentivized, so more people will do it.

Starting point is 00:20:53 Meaning that the anonymity set gets bigger and you get more fungibility, if you will. 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, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo, Freedom Forum is entering its 18th year bringing together activists, technologists, journalists,

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Starting point is 00:24:50 sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify. com slash WSB. All right. Back to the show. So I'm going to jump to a question I had later on. Michael Flackman, he had a question about your thoughts on.

Starting point is 00:25:16 transitioning to a fee-based, and we're talking years from now. But based on that update that you just described, it seemed like that the miners are going to have less incentive to capture some of the fee. Like, that would be some of the offset of what you just described. Well, I mean, they're not going to capture as much of the fee because, you know, essentially you'll be able to fit more transactions in a block. But, yeah, I mean, transaction demand is continually increasing. And I think that that's just going to be the case as Bitcoin gets more popular. His question, though, is about, you know, like, how will this transition happen? Because right now, miners are getting, you know, the minor reward, which is 6.25 Bitcoins, and Bitcoin

Starting point is 00:26:01 fees, which I think is around one Bitcoin, if I'm not mistaken. You know, two more halvings from that. I think that the fees are going to actually be greater than the reward. At that point, The fees are the majority of minor revenue. And the halving after that, it'll be over 75% and so on. So I suspect that that will continue to be the case, and that will sort of change the economics quite a bit, and where miners will be very hyper, vigilant about fees and making sure that they take the best transactions that pay the most, and optimizing for that rather than like finding the block, which many miners do, they'll find like an empty block to just get that

Starting point is 00:26:45 reward sometimes because it's optimal for them. But that will no longer be the optimum at a certain point when fees are the majority. Going back to the tap route to just cover this just a little bit more. So how many years was this in development by the person that's developing it or the people? So it's been in development for a few years now. And it's, you know, it's had a lot of different people. contribute to it. I think Peter might have written the actual code at the end that's being merged, but AJ Towns and lots of other developers, I would say easily 10 developers have worked on this. And, you know, there's been a lot of, you know, another 20 or so that have reviewed it.

Starting point is 00:27:30 There was a Bitcoin Core Review Club where they just went over all of the different aspects of Taproot and went over the code. and had basically kind of reviewed it as a group and so on. So it's been going on for a couple of years. This past year, I think, was a lot of review. They found some things that they wanted to change. So it had to be resubmitted. I believe the code has been merged into the latest release,

Starting point is 00:28:01 but it's not activated yet. And right now the point of contention is how do we activate it? because the last activation system that we used in 2017 didn't go so well. So I think- Are you talking about the Jeff Garzik thing? The activation thing, the mechanism in 2017 was something called BIP-9. And essentially what BIP-9 does is it waits for miners to say that they're ready, 95% of mining hash power to say they're ready before it actually activates. It was meant to be sort of like a courtesy to the miners, like, okay, you guys need to update this.

Starting point is 00:28:37 And then when you're ready, we'll trigger it. They saw it sort of as like their ability to veto this change. A lot of people in the community didn't like that. And this led to a lot of words back and forth. And then Barry Silberg came up with a Segwit 2-X agreement, which like none of the users were invited to. And none of the developers did it. It was just a bunch of companies. And of course, like there was a lot of strife and.

Starting point is 00:29:07 and arguing back and forth. Ultimately, the users won because they said, all right, you know what? Like, you guys can do whatever you want, but we're going on our own way. We're going to have something called the user-activated software. And we're going to activate Segwit, no matter what you want to do. And that one, that made the miners capitulate.

Starting point is 00:29:25 This is a really, really important part for the history of Bitcoin that people were hearing right now. Because in this situation, this all happened in the summer of 2017 that he's talking about. What really, at the end of this, the so what, at least in my opinion, I want to hear your so what, my so what was miners can have this opinion, but at the end of the day, the users, the people that are running full nodes, the person who can set up a full node in their house and say, this is the software that works best for the majority of participants in this network. They have the voting rights. It's almost like a corporate governance thing.

Starting point is 00:30:01 And in that example that was very contentious like you're describing, we all learned. that the users, everybody who's part of this network, you know, I'll just say, the small people like myself had the power to really kind of govern where the network was going. And you agree with that. Yeah. And that was a significant moment in Bitcoin's history. And for me, it proved that, you know, the corporations weren't in charge. And like, this is just so rare in, you know, anything. in anything because whenever like corporations and government get together, they get whatever they want. That's right. Anywhere.

Starting point is 00:30:42 And this is the one instance where like all these corporations came together and they failed. And the users won. And it was just sort of like, what? We could win? This is actually possible? When in history has this happened? Yes. It was a, it was significant because like you said, you're master of your own note.

Starting point is 00:31:00 If you run the code, they can't make you change it. And that's essentially what these corporations were trying to do is say, you have to run the code that we tell you. And the user said, no, no thanks. And they managed to get everybody else to capitulate and Segwa2X never happened, although Bitcoin Cash did happen. And that was an interesting experiment as well because we didn't know if a hard fork would survive and it did. and it still survives to this day, although it has very little of the value, like, I think it has like one and a half percent of the value of Bitcoin or something like that, taught us a lot of lessons, and it showed us essentially that Bitcoin is anti-fragile in many ways.

Starting point is 00:31:47 Yes, very much so. Hey, so this kind of topic is interesting because when I hear complaints or you hear the fud on Twitter, one of the things that comes up a lot of the times is this idea of hashing power being consolidated into a specific region. And the one that is most often brought up is China. And I think that what we were just talking about is this vote of a full node operator and the corporate governance, you know, is the terminology I'm using for that node operator having a vote. I think you get into a really interesting discussion when you combine that with this idea of concentrated hashing power. So I'm curious to hear some of your thoughts on that idea.

Starting point is 00:32:28 A lot of that hashing power is in China right now. And the reason is actually much more practical than you would think. Essentially, a lot of chip manufacturing is in that region. A lot of, you know, heat sinks and parts, transistors and all that stuff. It's all manufactured over there. So it's not a surprise that a lot of the people that can take advantage of that are Chinese. In addition, they also have a lot of really cheap electricity in large part because the, Chinese government has subsidized the construction of these like very large hydroelectric dams and basically in the middle of nowhere, right? Because if you're building a dam, you don't want a New York population center because if something

Starting point is 00:33:12 happens to the dam, then the population center is screwed. So these are often in the middle of nowhere. And as a result of that, because of electricity transmission costs, what you end up having is these dams that can generate a lot of electricity. but it's not worth transmitting them to sort of the nearest city beyond a certain amount because it costs too much. So the uniqueness of Bitcoin mining is that the mining equipment can actually be moved. It's portable.

Starting point is 00:33:41 And you can put it wherever there is electricity. And a lot of these Chinese miners, they have access to the equipment. And they were able to go to these hydroelectric dams during rainy season when electricity is especially cheap and get a lot of that. access capacity and use it for mining and so on. After rainy season, they might go elsewhere and so on. But that's sort of been why mining has been concentrated in China. But the latest reports that I'm seeing is that less than 50% of all hashing power is now in China. There are countries that you wouldn't expect that have a significant amount of hash in power right

Starting point is 00:34:20 now, including countries like Iran, which apparently currently has somewhere around 8% of all hashing power, which I think is more than Canada, which is kind of crazy. There are other places like Russia and Kazakhstan and Sweden and Iceland that have access to really cheap electricity that end up going towards those as well. Now, as far as sort of the decentralization aspect of this hashing power, if China went offline tomorrow, if the Chinese government said that it is illegal to mine in our country and just completely like rated all of these mining facilities and shut them down. What would happen? Well, you'd still have the other 50% of hashing power. And that means that blocks would be slower, fees would be higher, but the Bitcoin

Starting point is 00:35:09 network would still chug on. And in fact, this was one of the arguments during SegWart 2x, was even if the miners held 80% of the hashing power, which we thought was on the high end, and the miners that would cooperate with Segwa 2X. Bitcoin would still have 20% of the hashing power. So, you know, you get 50-minute blocks, hour-block, something like that. It would still keep chugging along. And because Bitcoin has difficulty adjustment every 2016 blocks, after 2016 blocks passed, then it goes back more or less towards 10 minutes any.

Starting point is 00:35:43 Now, it's possible that the miners collude to try to attack the network. And there was a lot of discussions around that. but that ends up not being that much of a threat, just given what we've learned about different forks. For example, Bitcoin Cash right now has like 1.5% of the hashing rate of Bitcoin, and any large miner could easily attack Bitcoin Cash, but they don't, in part because, you know, they don't matter in a sense. If you've already won, then you don't really care.

Starting point is 00:36:14 And the thing is, like, the economic game theory is such that whatever has the more more economic value, that's where miners were be incentivized to go. You'd be mining at a loss and have a tremendous opportunity cost if you mined on a worse chain. So even if Bitcoin at that point had 20% of the hashing rate, the other 80% would be mining at a loss and they would either go bankrupt or have to switch. So in a sense, the miners, this is one of the things that we recognize after game-thiering out everything is that the miners work for the network. It's not that the network works for the miners. And that was one of the big key things that we learned out of that whole year was that wherever the miners are, economically, they are incentivized to

Starting point is 00:37:06 go with the strongest network, the network that the users want. And that's why users are ultimately sovereign over the entire network. So let's just pull the thread on a scenario that doesn't make any sense, but if you got a sovereign nation that really wanted to go after this thing, and let's just say, let's just say that in China, there's 55% of the hashing there, even though we know that these aren't the numbers. Let's say the sovereign nation steps in and says, we want to attack this network, we want to take it down. They get all their miners to come online and they try to attack it. What is the attack? When we talk about a 51% attack. Describe what it is and describe in detail what it is that they're able to actually attack. And then talk about, as we would march, 15 days into the future after the attack happened, how it has to be sustained in all those types of factors. Walk us through this attack. Here's what a 51% attack is. Every 10 minutes, you essentially get a new page in the ledger. We call this a block, right? It's a list of transactions that goes into the leetion.

Starting point is 00:38:14 that every node in the world validates as consistent with the rest of the ledger and so on. But once in a while, though, you'll get two candidates for the next page and they might have some differences. And in that case, every node is supposed to figure out, like, wait until one of them has an additional page built on top of it. And whichever is longer, that's what they keep. So at any time, if you see a longer chain than the one that you currently have, then you're supposed to take the longer chain with more proof of work.

Starting point is 00:38:44 That's at the heart of what a 51% attack is, is it rearranges the ledger in some way. So a very simple 51% attack would be, you know, you first send 100 Bitcoins to an exchange, right, as part of that block. Say that they don't wait for more than one confirmation, in which case you can, get credited right away. Somehow you're able to withdraw, you know, I guess 100 Bitcoin's is like times 35,000, I guess three and a half million dollars or something like that. Yes. You're able to withdraw three and a half million dollars. And then using the hash power you have on hand, you create two blocks before before the rest of the network finds one.

Starting point is 00:39:36 And instead of the 100 Bitcoin is going to the exchange, you send the 100 Bitcoin. back to yourself, in which case that transaction is no longer valid. And you have 100 Bitcoins and $3.5 million. That would be a way to attack it. But you're only talking about one transaction in that block. You're not talking about rearranging all the transactions in that block, correct? That's correct. So essentially what a 51% attack is, is it allows you to do what's called a double spend. It lets you spend 100 Bitcoins twice, once to the exchange and once to yourself. So you get to, you know, have your kick and eat it too, essentially. You can eat it by, you know, converting it to $3.5 million. Now, there's a lot of things, a lot of like risks in that scenario,

Starting point is 00:40:24 right? First of all, you know, the exchange might sue you, right? Like if you, if you try to do that, well, they know where they sent the money through the Fiat system. So they're, they're going to, they're going to go and find out from the bank and see if they can recover the bank that way or slap a lawsuit on the bank. And I know of no exchange that gives you like a suitcase full of cash. So that's not going to happen. And second, you don't know that you're able to get more blocks than the other part. Like, it's all probabilistic. You don't actually know that you have 55% of the network. Now, you might, but it's still probabilistic. The other chain might find it. faster than you just because it's a 60-40, well, 40% of the time they're actually going to find

Starting point is 00:41:13 the block before you. So you don't know. And essentially, you have to be longer before you can broadcast that. So there's a lot of tricky things there. Well, don't you have to keep up? You have to keep becoming the longer chain and outpacing everybody else block after block. How far out under an attack like this, would you have to keep finding the very next block faster than everybody else for everyone else to start building on the chain that you had built? Yeah. So the way that nodes work is basically, if I'm a node and I see one chain with one block and another chain with two blocks, then I have to take the two.

Starting point is 00:41:57 Or that's how the logic and the code works. But here's the weird social aspect of it. Say you have three blocks and then suddenly something with four blocks comes along. You're supposed to take the four. But pretty much everyone is going to be alerted that you had a three block reorch, which is going to ring alarm bells everywhere, including exchanges where they're going to be like, okay, we accepted this deposit. Now we're going to have to do something.

Starting point is 00:42:24 And every exchange has, or at least any good exchange, should have some protocol for what they do if you have a four block reorg or something like that, especially if you take three confirmations because it might be an attack against you. That means that at that point, we don't really know what's going to happen. It really hasn't happened. But one of the things that you can do as a node operator, remember, you're master of your own node, if you're a node operator and you're running your own full node, one of the things you can say is, you know what, reject the four. I'm going to go with the three. And you can say disconnect block. It's a simple command. You type it in. And It says, well, I'm going to go with the one that was there before instead of this

Starting point is 00:43:04 for blockchain that just suddenly came online in the last five minutes, in which case, it might not succeed. So there are so many ways in which this thing can go wrong for this sovereign nation state. And one of the things that I remember that Andreas and Antonopoulos said, like, okay, so they produce all this equipment, they run this thing, and they do it for. one double spend, then he starts still clapping. Yeah. I mean, it's crazy talk.

Starting point is 00:43:36 I'm curious for a lot of these exchanges. How many blocks do they need to call it officially cleared and they'll let you start transacting with it again? For Bitcoin, it's usually three. Maybe if they're a particularly strict exchange, they might require five or six. But, I mean, even three blocks is a lot of hashing power. And that's a lot of energy you have to expend in order to do that. And like for this quote-unquote sovereign nation state, that's three blocks of mining reward at least.

Starting point is 00:44:10 So that's what, 6.25 times three, 18.75. I mean, you're looking at, you know, close to a million dollars. I mean, not quite, but I think it's like $700,000 or something like that. So that's a lot of money just to do that. And you're only reversing one transaction. Yeah, I mean, I guess you can do multiple exchanges at the same time or something if you're particularly committed to it. But that's $700,000 just in energy cost. There's also capital costs of all the mining equipment.

Starting point is 00:44:43 And there's, of course, sort of like social coordination to make sure that, you know, you have some argument so people don't just disconnect your chain. And I mean, there are just so many aspects to it that an attack like that is at least in my mind. mind, like not realistic. Really improbable. Yeah, really improbably. Like, socially, I don't think anyone would accept it. And they would clearly see this as an attack and just cut it off.

Starting point is 00:45:10 Like, you could try. I mean, you could have a nation state through a hundred block reorch. There's no way in hell anyone is going to accept that because they're going to say, okay, these hundred blocks appeared out of nowhere. I'm just going to disconnect it. That's it. Now, with other chains, this is a little different.

Starting point is 00:45:27 The game theory is a little different. And there's a reason why if you're trying to deposit Bitcoin SV into BitFenex, that they don't accept anything until 50 blocks have gone. Wow. Because there's a lot of ways in which the exchange can get screwed. So that's just sort of the game theory of it all. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:49:08 All right. Back to the show. So, Jimmy, we, you know, stock to flow is suggesting we're going from probably 10x from here. If true, the 700,000 becomes 7 million for three blocks. just within a year from now. Just an energy cost, yeah. Just an energy cost alone,

Starting point is 00:49:25 not even getting into what you were describing earlier, which is that people just unplug. When does this question that I just asked you go away? I mean, I think it will always sort of exist in the popular mind in a way. But the longer it doesn't happen, the more people are able to dismiss it. It's one of those things that will sort of always be kind of a question

Starting point is 00:49:50 in their mind. I mean, I hear questions about like quantum computing, right? It's like one of my pet peeves. Well, let's go there. Let's go there. Well, the thing is very few people actually know the details of quantum computing, and they have like these popular misconceptions that somehow quantum computing can do exponential calculations in like linear time or something like that. That's not the case at all. And if you know anything about quantum computing, you recognize that the engineering challenges are so difficult that, like, you need, like, three or four breakthroughs that are the equivalent of essentially doing cold fusion before you're anywhere near, like, being able to do something like that. And we still don't have cold fusion. So, like, there you go. Do you really see

Starting point is 00:50:34 the engineering challenges as being equivalent or at parity with cold fusion type things? Even setting up a qubit is, like, incredibly difficult. It's literally atoms at, like, nanodegrades above absolute zero and you have to keep them in this weird quantum state for a significant amount of time and you have to error correct for the fact that these atoms have like half lives and things like that. And then you have to keep it in a like you have to keep it in some sort of like that quantum state until you observe the thing that you want to observe. So if anything leaks and that shows prematurely, then you're not going to be able to observe the thing that you need to observe.

Starting point is 00:51:15 Like, there's so many little things like that from an engineering standpoint that, you know, I mean, like, obviously it's captured the imagination of VC. So, of course, they're going to write articles about it or whatever. But from an engineering standpoint, it is extremely difficult. And I don't think people really appreciate how difficult it is. And when I hear people talk about it as if it's inevitable, it's like, it is anything but kind of like Cole Fusion, right? Like, people thought it was inevitable in the 80s because there were all these popular articles about it.

Starting point is 00:51:48 You know, I still remember back to the future too, right? It's like there's a little misterfusion. It's like, it's just going to happen. Talk to any physicists, and they're like, there's no way. Like, it's not going to happen in my lifetime. That's how it is. I think what you get, though, is you have people that read a couple articles. They see Google is now they've got their own quantum computing, right?

Starting point is 00:52:10 this is where everyone goes. And they say, well, if Google's got this computer and it's got this many cubits of processing, like it is real, Jimmy, this is happening. It's only a couple years out. So what do you say to that person? Then go tell me what the Google paper actually said, because what they did was actually not that impressive. I mean, essentially they define quantum supremacy as the ability to come up with a random number.

Starting point is 00:52:36 Oh, gee, quantum computer, anything quantum related always. always spits out random stuff. So of course it's going to be better at it than like a conventional computer, which is deterministic. Acting like that's some like incredible breakthrough is just really disingenuous and more marketing than anything. Yeah, it's marketing. And this is the thing about any sort of like, I just want to go on a rant here for just a little bit. This is one of the one of my pep thieves about like all these like corporate R&D departments is that almost always you have somebody in charge of that R&D department that needs to justify why that lab exists and why their job is important. So they love press releases and they will deceive the hell out of any

Starting point is 00:53:20 reporter and make their achievements sound like it's way more than it is. And it's not just Google, right? It's every company that's ever done anything blockchain related. It's like, oh, we did this, this and this. And it's so incredible. And it's going to change everything. Yeah, they're just justifying their jobs. Well, then you combine it with the fact that the people on the other end that are reading it, they are very excited to bring up in casual conversation that they're talking about quantum computing. It's kind of like, yeah, it ends up being something that they can use to sound smart.

Starting point is 00:53:58 And the unfortunate reality is that, you know, I don't know, quantum computing to me has jumped the shark like maybe 10 years ago. It was something that was exciting, that we didn't know that much about it. But then, like, you know, you learn more about, like, the engineering challenges related to that. And you go, okay, there's no way this is going to happen like any time soon. And even if it did, there are mitigations anyway. So people place just way too much importance on stuff that, you know, the press sort of, like, tells you about. I mean, we're all like kind of over-consuming media.

Starting point is 00:54:36 So there's a tendency to get manipulated by the media in ways that we don't really recognize. And this is one of them is from a science perspective, there's the illusion of making more progress than there actually is. There's actually very little progress in a lot of areas. It's just a lot of people that need to justify their salary so they make it sound like they are. I want to capture some of your thoughts on some of the other things that are happening in the space. mostly because I get a lot of complaints in my feed. I'm sure you get a lot of complaints in your feed. People saying, Preston, I'm making just as I'm making more money in Ethereum and this and that. And you know, you're totally missing the boat. You know, my background, my undergrad was in engineering. And so that's immediately where I gravitate way before the finance, to be quite honest with you. I'm curious how you view Ethereum. And then I would also like to get into a little bit of Uniswah, some of the stuff that's happening there. But let's talk, let's talk Ethereum first and just from a very high level standpoint, what are your concerns and what are some of the things that

Starting point is 00:55:43 just kind of raise the flag for you? Short story before we get into all of that. So, 2013, I was working on something called color coins on Bitcoin. And this is what you might call like photo, Ethereum, ICO stuff. And it was on the Bitcoin protocol. You could create coins that are quote unquote colored. So you can trade them as assets that are other than Bitcoin, something like that. So that was where that was sort of my first experience doing open source development on Bitcoin related projects. And one of the people that we had actually writing the white paper for color coins was Vitalipater. And he actually wrote the white paper. It wasn't what we had written. So there was a little bit of back and forth.

Starting point is 00:56:32 And he said, you know what, I'm not going to change the white paper to say what you wanted it to say. It's like, but that's what it is technically. And he's like, I'm not going to do it. And it's like, okay. He's like, I think I'm going to go make my own coin anyway. So that end that coin, of course, ended up being Ethereum. And that he launched maybe like three months later with yellow paper and a white paper. And he did the crowd fund raising in early 2014 and so on.

Starting point is 00:57:00 Now, at the time, this was my assessment of Ethereum, just given sort of the ambitions that he had for it. First, he wanted Turing-complete scripting language. Why? Because when I look at what Adam Bax doing with simplicity, isn't it the polar opposite of that? It is. And he wanted Turing-completeness. He thought that was a weakness of the Bitcoin smart contract language script. But Satoshi specifically made it not Turing-completeness.

Starting point is 00:57:30 because you could dedos all nodes with an infinite loop. And as soon as you have tiering completeness, you just have, you know, you just put an infinite loop out there. And this is why Ethereum has such complicated mechanics like the idea of gas. It's so that you can't have infinite loops. Like every time you run through a loop, you use up some gas. And if you run out of gas, you know, too bad. And this is why if your transaction doesn't go through on Ethereum, you lose your fees

Starting point is 00:57:57 anyway. This is one of the subtle gotchas. The thing is like Vitalik has sort of like this reputation as some sort of prodigy or whatever. You didn't see it. Yeah. I mean, I mean, I'm just a coder, right? And I

Starting point is 00:58:13 you know, I've been quoting for like since I was nine, but professionally for like 23 years or something like that. And I got to say, I've looked at his code. And the thing is like he started as sort of like a 19 year old, like getting into Bitcoin and then, you know, he did Ethereum and all that. And everyone kind of like has this incentive to make them out to be this child prodigy genius or whatever. The thing is, what I see is like a kid that doesn't really know how to code well as a programmer,

Starting point is 00:58:46 right? You just have no experience at that age. Yeah, yeah, exactly, right? You don't have 20, or 30 years of experience. So like, how could you? Yeah, and I look at Ethereum and I see all these Flaws, right? Initially, like Ethereum addresses, simple example, but Bitcoin addresses, you know, they're base 58, at least until Beck 32. If you're using Native Segwit, then that's something else. But Bitcoin addresses are base 58. And they, the last four or five, five or six characters are what you call the checksum. So it makes sure that if you wrote it down wrong or you pasted something wrong in that address, any wallet, can easily detect it and say, you know what, this is, you pasted it wrong or maybe, you know,

Starting point is 00:59:33 maybe you did something wrong. Can you check again and make sure you get the right address? And that's just good practice, right? In case you write, right, if you didn't have just the check sum and you wrote the wrong thing, then it'll go somewhere else and you'll lose those coins and the person won't receive them. So that's just good engineering. That's what you would call something, you make it hard for the user to do the wrong. Ethereum, they had this brilliant idea. We're going to ditch base 58 and we're going to use hexadecimal and all our address is going to start with zero X.

Starting point is 01:00:11 They took out the checks up. So what happens? Lots of people put the wrong address in and they just burn their Ethereum. So they obviously recognize their mistake. But there are all sorts of things like that throughout the entire thing. thing. And Vitalik to me, like, is sort of like that, and I've seen this. I've managed, you know, college kids that came out and like work for me in different capacities or whatever. And the typical sort of mentality of somebody that comes out of college as a, you know, maybe they study

Starting point is 01:00:43 software engineering college is they just want to use like something cool and do something new or whatever. And Vitalik's almost exact, it fits that profile to a T, right? Like, His mentality is, if it's not built here, I want to make my own because I think I can make it better. He kind of has that. And the result is usually that's something that's a complete mess. And this is in stark contrast to Satoshi's choices. Almost all of Satoshi's choices in creating the Bitcoin protocol is take some standard that already existed instead of trying to roll your own crypto, which is, which unfortunately is

Starting point is 01:01:20 what Vitalik seems to have done with everything Ethereum related. And this is why solidity is such a mess and it has so many security flaws. And it's very difficult to analyze. And you don't know what's going on. And you're not sure how long it'll run. And it's just a giant mess. At the heart of it for me is going back to a conversation that you and I had earlier, which is about this governance, this full node operator that any person in the world can go

Starting point is 01:01:51 out and do inside their house. and more importantly, 10, 15, 20 years from now, they're still going to be able to do it from their house. When I think about Ethereum, is that even possible for a full node? I mean, today, not even talking 10 or 15 or 20 years from now, running a full node in order to say, hey, this is my vote on the direction I think the protocol needs to go. You're just nowhere near that with Ethereum.

Starting point is 01:02:19 You don't have a vote whatsoever. The thing about Ethereum is that they hard fork every six months or whenever they need to because a hard fork is essentially backwards incompatible. And this is sort of built in so that the Ethereum Foundation and the Ethereum developers will have all the power perpetually forever. And this was, I think, one of the early things that happened to Ethereum was the quote-unquote Dow hack. It wasn't so much a hack as it was more like good smart.

Starting point is 01:02:51 contract warring. But essentially what had happened was you had this thing called the Dow, which was supposed to be a decentralized autonomous organization, where you can, the crowd would decide where the fund would invest. So it was sort of like a crowdfunded VC fund or something like that. And that was the idea behind it. But of course, like the contracts were written wrong and somebody figured out how to drain it of all its money. And basically they did. And then they decided, oh, you know what? I think at the time one sixth of all Ethereum was in the Dow contract. So they decided, okay, it's getting drained of all this money. We're going to roll that back. When you say they, you're saying the Ethereum Foundation. Yeah. Essentially it was Vitalik. And I still remember to this day

Starting point is 01:03:36 what Vitalik said like the week before he made that decision. Or not Vitalik, but other people in the Ethereum community were saying before the decision. There was a guy that was literally on YouTube saying, you know, I would understand if Vitalik decided that code is law and that he would let this go. I would also understand if he decided to roll it back, which tells me there was no principle here. It was just, let's just follow our dear leader into whatever he wants to do. And of course, a week later, he decided, okay, we're going to roll all those transactions back. And that caused what was at that time known as the Ethereum, Ethereum Classic split. The Ethereum classic note operators were basically saying, you know what, we think code is law and we're going to keep going with it.

Starting point is 01:04:23 Barry Silbert bought into that soon afterwards, and he's, I think, pretty much the only one that pumps it at this point. But that proved that the talek controls the entire Ethereum ledger. He said, all of these spends to that contract, we're going to just roll them back. We're not going to, we're going to pretend they didn't happen. I mean, this is nothing different than a government bailout of an industry. And that's essentially what Ethereum did. There's no reason to think that he wouldn't do it again if it was sufficiently harmful to Ethereum to not do so.

Starting point is 01:04:59 And just for the record, if somebody, well, I think we just had the example. I've been seeing the article the last two days or whatever. This person who lost their private keys on their computer, and I think it's $100 million or more or something like that. It's not like any one person can roll that back, no matter what, right, with Bitcoin. It's impossible. It is. It is impossible because it's a bearer instrument. And somebody told me that like the last 50 years of U.S. policy has been getting rid of bearer instruments and Bitcoin's kind of bringing them back. Yeah, the reason why they've been taking it away is because then they can have their hands in the middle of it and they can be the

Starting point is 01:05:40 intermediary that can control you sort of financially. With Bitcoin, you get that back. With Ethereum, you don't have that at all because you had this intermediary central party that can do whatever the heck they want. But with Bitcoin, you lose your keys. It's losing the 400-ounce gold bar that you had in your safe or buried in your backyard and forgot where it is. You're not getting it back. And, you know, it's both sort of a thrilling prospect because you You're your own bank, but it's also a scary prospect because you're your own bank, because people are not used to taking custody of their own stuff or having that much responsibility. We're used to outsourcing it to trust the third parties, which in a sense, I can kind of

Starting point is 01:06:26 understand. It makes it more difficult for certain types of attacks, but it makes you way more vulnerable to another type of attack, which is that the government can take it away. That's horrible. Yeah, shut it down or manipulate it or whatever. All right, real fast, talk to us about what Uniswap is and then talk to us about your thoughts on just decentralized lending and things like that moving forward with Bitcoin specifically. Uniswap is what they call a DeFi platform. Decentralized finance.

Starting point is 01:07:03 Yeah, which I think is a misnomer because it's anything but decentralized. was because you have the uniswap token token issuers and the uniswop contract writers, right? And they have backdoors and all this other stuff. Who knows? But basically, it's a platform for some sort of lending or whatever, and you have different assets on there. For some reason, they're named after lots of different foods. But essentially, you have different ways in which you can collateralize your Bitcoin or

Starting point is 01:07:35 Ethereum or whatever. you have to wrap it in an Ethereum contract. And of course, that Bitcoin is held by Bitcoin, but it's wrapped. So you have some guarantees. But it's like the worst thing to call it decentralized because it's centralized at like six different points. And it's not decentralized at all. It's more like anonymous finance or something like that or pseudonymous finance because

Starting point is 01:07:58 you just put up the collateral and you get the loan and you can, I don't know, maybe go buy more of Ethereum or more of whatever. And that's how most people use it is some way to leverage it. And, you know, as a result, you know, you have this platform for doing something, you know, playing financial games that Wall Street has been playing for many years on Ethereum. And of course, most of these games are zero sum. So really, you're just sort of taking suckers money if you're good at it or you're the sucker. I'm looking at it because the whole yield farming, you know, I mean, it is just a total scam, right? My thing that I'm looking at it more from is the technology of using an exchange, basically decentralizing an exchange. And even though this particular example with Uniswap, and you're saying that it's centralized, I agree with you, is there a way to do this in a way that would be decentralized in the future? Let's say we're five, ten years from now. Is this something that

Starting point is 01:09:00 the engineering can actually catch up to? And is this something that could actually be applied to the Bitcoin blockchain protocol? Here's the difficult thing. And this is what you always end up at when you talk about smart contracts is something called the Oracle problem. And the Oracle problem is that almost anything interesting requires some information from the real world, right? Like whether or not a house changed hands or that it legally, something happened in the real

Starting point is 01:09:30 world, the score of a baseball game or something, whatever it is. So this would be a good one, the weather. So everyone wants to do futures contracts based on the way that the weather was reported, right? And so if it was between 50 degrees. You need an Oracle. You need somebody to add that data to the smart contract. Now, there are many ways to do that, but all of them are essentially centralized on that Oracle, because the Oracle needs to report truthfully and you have no guarantees that they will.

Starting point is 01:10:00 And, I mean, you can try to say, okay, well, we'll then use 10 oracles. the majority will listen to the majority, well, there's no guarantees that they're, first of all, 10 different entities, and second of all, that they won't collude with each other. You have no idea. So you get into these weird situations with all of this where you still have to trust the third party. And when you're asking for something decentralized, what you're asking for is no trust the third party.

Starting point is 01:10:28 That is essentially what you're asking. And from a metaphysical standpoint, it's not even at the layer of engineering. you can't get away from that. If it has anything to do with the real world in any way, shape, or form, it cannot even in principle be a decentralized thing because of the external data that you need. Now, within an ecosystem, so even like price-based contracts or something like that on Bitcoin, right,

Starting point is 01:10:55 you still need somebody to say that Bitcoin exchange for this many dollars on this day, on this exchange. That's data that needs to come in from the end. outside. So I have a hard time, unless it's like purely digital and it's like, okay, blocks will be found within or difficulty will be this and the next difficulty adjustment or something that's within the Bitcoin ecosystem that you can sort of measure without trusting a third party to report data from outside the blockchain. It's in principle impossible because it requires some trust on somebody. When I think about my experience in financial markets over the last 20 years, there's never

Starting point is 01:11:37 been a situation where I've said to myself, I wish this exchange was decentralized. I wish that these stock certificates that I'm buying or this derivatives exchange that I'm using the buy call options was decentralized. Never. I've never had a need for that. Sure, the fees could be lower, but I mean, look at Robin Hood right now. There's no fees for any of it. Now they're selling the data to make some money. But at the end of the day, I just don't have, when you go to the fundamental root, what is the problem that we're solving for society? Where's the value capture that we're adding that the customer isn't getting right now?

Starting point is 01:12:17 I just don't see what problem you're solving. When I look at Bitcoin, my issue with that Bitcoin solves is like you and I talked about last week when we were talking about the whole valuation process. You can't conduct a valuation on something if the units you're using are getting debased at 15 or 20 percent annually. Like, you're using a ruler that's a Gumby ruler that's changing by the day. And so I guess when I look at the heart of what it is Ethereum, Uniswap, like we're just talking about, like, I just can't wrap my head around what the problem is that they're solving. It just seems like they've discovered all this neat tech, they've discovered this massive influx of capital that people are just

Starting point is 01:13:01 willingly throwing at it because it's effectively coming from the problem that I was just describing, that Bitcoin's solving. And so I think you have this really interesting scenario where you got a lot of engineers who might not be looking at the big picture of what is the problem that we're solving, but they're able to play with a bunch of levers and a bunch of gears and a bunch of code, and they're having fun, right? It goes back to your description of his personality, and that's totally reflective in how I see what he's doing and what the code is actually doing from a performance standpoint. Yeah, I would say that that's a very accurate description. Essentially, like, when you have new grads that want to play with new technology or whatever,

Starting point is 01:13:48 you know, they kind of get lost. And when they come back with whatever project you gave them and, you know, they come back with this thing, it like barely works. It's not performing it. You're just like, okay, go do it again and use the tech stack that I told you. And, you know, they learn that way. With something like Ethereum, Uniswap, all that, they don't have that feedback loop because they get a new injection of money by printing their own money.

Starting point is 01:14:13 Like they'll create a new token for some reason. and then they sell it to investors or whatever, so they get this new influx of cash, so they can play this game forever or for as long as that money lasts. And the unfortunate reality is that there's a lot of that money, and it's not going away. We can go back to exactly where that money comes from, but they have influx of new cash coming in from retail or VCs or whoever

Starting point is 01:14:40 that want them to keep creating these like Rube Goldberg machines that aren't really doing anything. They're essentially, like the one need that I do think that they are filling is a need to gamble. A lot of people, and we can talk about exactly why that is in this sort of economy, but there's a lot of people that want to gamble on stuff. And this looks like it's a decent gamble. They might not understand it, but, you know, they're fine, buying lots of different lottery

Starting point is 01:15:10 tickets and seeing how many of them pay off. That's the only actual human need that seems to be fulfilled. Nothing actually in the market that people want. You couldn't explain it any better than a bunch of lottery tickets. Really? I mean, at the end of the day, I think most people approach this and they say, this is really complex stuff. This is really hard to understand. There's no way I can understand it all. And therefore, what I'm going to do is I'm just going to typical Wall Street portfolio style. I'm going to invest in 10 different things. I'm going to throw a little money over here, a little over there. I mean, when you have, I mean, we're almost at a trillion dollars, Jimmy.

Starting point is 01:15:47 This is getting wild. We're almost at a trillion dollars in the space collectively. And when you look at the growth rate of it, it's going parabolic. And so that money is just getting thrown at everything. People are just throwing it at the wall because they don't want to do the hard homework to try to understand the countless, technological rabbit holes that are out there? Like, sort of psychologically, you know how if people win at a casino, they don't really feel like they deserved it on the inside. So they'll just sort of spend it very freely on stuff that they would never spend their own money on. I think it's kind of like that

Starting point is 01:16:27 with a lot of people that have received money from some sort of government subsidy or whatever. They're spending it on stuff that very frivolously on things that, you know, they never otherwise would spend on. Yeah, it's never earned. Yeah. Yeah, and it's going towards projects like this that absolutely do not deserve it, that have no value prop. It's just sort of like gambling vehicles. And I'm thinking now that maybe like all coins are a symptom of sort of the fiat disease. It's one of the ways in which it manifests itself is that people will just sort of gamble and spray and pray or whatever. Like that

Starting point is 01:17:06 that's sort of the style that people tend towards when they don't know what to do. So, yeah, that seems to the case. That's why there's like five Louis Vuittons inside of Caesars. That's right. That's right. Because, you know, at least you could come away with a nice bag. Because if you didn't see the first one, the one that's four stores down, you might see. Yeah.

Starting point is 01:17:30 It is hilarious. All right. Last question for you. Man, this time has gone so fast. I've really enjoyed this conversation. The last question I got for you is Jack Mahler's, his big announcement. I mean, it's just really exciting to see some of the stuff that's happening out in the payment space. I'm curious if there's any other projects from like an engineering standpoint that you're seeing that you're really excited about, particularly with Bitcoin,

Starting point is 01:17:56 that you see really kind of playing out in the next three to five years. I really like Jack's project. I always thought Strike was revolutionary for the fact that it can convert theot to Bitcoin within that transaction of customer to merchant, right? And it's almost like every other merchant that's quote unquote taken Bitcoin, it's gone the other way. Like somebody will pay in Bitcoin and then the merchant will convert that to Fiat. And it's essentially people selling their Bitcoin for goods. And for that reason, most of these companies soon saw their Bitcoin sales dry up very quickly

Starting point is 01:18:33 after maybe a little bit of an initial burst, and then they'll stop taking it because the engineering cost of keeping that on their website would be very high. What Jack's thing does that's absolutely brilliant is that for people that want to receive or have no other choice, this is perfect because you receive, your customer just needs to hold dollars, but you receive Bitcoin and you don't have to convert it in between. So the customer gets to choose the worst money to spend, but the merchant receives the better money. It's sort of like subverting Gresham's law for both parties in a way that works out for both of them. Now, he's planning to do the same for remittances, which I think is absolutely awesome, because if you're on the other end of remittances,

Starting point is 01:19:21 you want the currency that's going to store value because generally you're in a country that doesn't have very good stores of value. And you have legal tender laws that make, you know, it make you have to spend your local currency, but no one actually wants to hold it. So if you're receiving Bitcoin, that's great because now you don't have to worry about kind of your currency inflating away. And that helps you save not just during that transaction, but in other transactions as well. So I think his project is great. But as far as other ones that I'm excited about, these might sound pretty mundane, but

Starting point is 01:20:03 I think they're significant from a consumer standpoint. One is Specter multi-sig wallet. So it's essentially multi-sig security that is pretty excessive. Use multiple hardware wallets and so on. I know so many Bitcoin holders that have a single point of failure and they get nervous as hell about it. And not having a single point of failure is actually very freeing because now even if something goes wrong with one thing, you have backups.

Starting point is 01:20:31 You have ways to get around that. That's always been there. It's just that, you know, the user experience has been kind of terrible. So now you have a user experience that's actually doable and it's not that hard and people can set it up themselves. So that's one. The other one would be sort of the mentality of dollar cost averaging, which a lot of exchanges, different apps have put in. This makes investing a lot here. And from a practical standpoint, I think that will sort of accelerate adoption and get people thinking much more about it.

Starting point is 01:21:10 And so those are the two. I know people want to hear, oh, you know, there's some space mining project or some Mars thing. But, I mean, for me, it's just making Bitcoin good for what it is, which is the store value, and that means security is important. And that means getting money into the system that you want is important. Both of those things have improved significantly. So, Jimmy, you have a new book out. This is called Thank God for Bitcoin.

Starting point is 01:21:40 And it is very easy read. You and the other people that assisted in the writing of this, you guys just got straight to the point. And you guys made it in a manner where you're not trying to impress with your writing. You're trying to make sure that it's easily. digestible and you're hitting the stuff that's important. That's what I love about this. So feel free. Just tell people where they can get it and then anything else that you want to promote or highlight that we can put in the show notes. Thank God for Bitcoin is a book that I wrote seven other people.

Starting point is 01:22:14 It's kind of a child of COVID and it started kind of as a book club slash Bible study. And we started a couple of books, Ethics of Money Production by Gwito, Von Halzman and Honest Money by Gary North. both are books from sort of an Austrian perspective, but talking about the morality of money. And that's what this book is about. The thing we didn't like about either of those books was that it didn't mention Bitcoin. And we wanted to write one that did mention Bitcoin, and that made the moral argument for it. And it comes from a Christian perspective, all of us that wrote the book are Christian. But the thing that we wanted to make sure that we got out there is that moral argument

Starting point is 01:22:52 because generally people, you know, I mean, you can make the. investment case and people will want to do it out of self-interest, but a moral case is one that causes people to think on another level. If it becomes sort of a moral imperative, which we argue that it is in this book, then there's way more reason to do it. And it's not just sort of a selfish endeavor so you can go buy a Lambo. It's much more about doing something that's good for the world that's good for civilization and make civilization better. And that's the argument that we make. It's on Amazon and you can get the print or Kindle edition and we'll have the audio book out soon. So very exciting stuff.

Starting point is 01:23:34 I want to highlight one other thing for folks because anyone listening to this knows you clearly have some programming chops here. Jimmy has another book on Amazon as well that he wrote by himself called Programming Bitcoin, learn how to program Bitcoin from scratch. and having flipped through this book, I'm not a programmer, having flipped through this book, and it's over 300 pages long, I don't know how in the world you could write a book that captures everything that's going on, and not everything, but it's capturing a significant portion of the really important stuff from a coding standpoint. And I know we have people that

Starting point is 01:24:15 have an engineering, a computer science background that are listening to this show right now. I just want to make sure that they understand that you have this other book out there as well that I think they might be very interested in. Yeah, so programming Bitcoin that's published by O'Reilly, all of you tech geeks that know about O'Reilly, they make a lot of books on different technical topics and stuff. I was privileged to be able to write that book for them. And it came out of frustration from my early days in Bitcoin where there wasn't that much documentation and nobody taught me anything.

Starting point is 01:24:47 And I couldn't find any like any of the details. for anything. So, you know, just as a programmer, this is the resource that I wish that I had. And it came as a result of me teaching a lot of different people, how to program Bitcoin stuff. And through doing that, I understood where people are getting stuck and so on. It's a very interactive book. So it has a lot of programming exercises for you to do to make sure that you understand what the heck is going on. So if you don't understand that you're not going to be to complete the exercise. So you might want to read that part again. And it's meant to be a way for you to really understand everything from a nuts and bolts level. It starts with math,

Starting point is 01:25:31 with finite fields and elliptic curves, things that you don't necessarily learn in high school or college. But they're not that hard to learn. So I teach those and a lot of programming exercises. and then it goes through signatures and public key cryptography and, you know, the Bitcoin protocol and what the anatomy of a transaction, blockheaders, and the actual networking aspect. And by the end of it, you should be able to connect to the Bitcoin network with your programming and receive transactions and block headers and so on. That's what the book is. I just have such a smile of admiration.

Starting point is 01:26:09 I just can't imagine how long it took you to write this. It took me like 16 months. It was quite the slog, mostly because writing is a lonely endeavor. It's so true. It's something that you just, especially like when you're facing that blank page, it's sort of like an existential dilemma. It's like, do I really exist unless I like write something down? But then, you know, you find every excuse imaginable to actually not write words on the page. This is why the other two books that have written Little Bitcoin, book and thank God for Bitcoin. I did it as a group because there's something about writing with other people and having them depend on you. That motivates you way better. And that's how I want to write every other book for the rest of my life is with other people and depending on other people. And part of what you described about, thank God for Bitcoin, is that we get to the point, we don't use flowery language and stuff. It's because it has eight authors and we read every page out loud. This was one of the

Starting point is 01:27:11 things that we did. And if it sounded super silly as or conceited or something like that, people would say so. So we would change up the language so that it's accessible to somebody with like a ninth grade reading level and they can understand the arguments we're making. It's not necessarily because we're more virtuous. It's because we just had a lot more eyes look at it and you can create something beautiful that way. And that's something that I learned from startups. And that's what I brought. I can hopefully bring to books. and that's what I love about it. The thing I've learned about writing is the static friction is so much higher than the kinetic

Starting point is 01:27:49 friction. It's just so hard to get started each day. This is why I like writing books with people. Yeah, yeah, yeah, you're right. You're right. The static friction kind of goes away because if the person next to you is writing. Yeah, you feel guilty. All right, Jimmy, man, thank you so much for coming on the show. We have got to do this again. I thoroughly enjoyed this. People go out, check out the book. Thank God for Bitcoin. Check out.

Starting point is 01:28:15 Jimmy also has a podcast, very active on Twitter. Where else can they find you, Jimmy? Or there's the spots that hit you. So I have a weekly newsletter that's sort of the technical developments in Bitcoin that are happening. It's called the Bitcoin Tech Talk. And it's at Jimmy'song.substack.com. And you can go and sign up for my newsletter. You'll get it in your inbox every Monday. The other thing I have is the podcast, like you said, Bitcoin fixes this. I'm on Twitter at Jimmy Song, GitHub at Jimmy Song, LinkedIn, Jimmy, In slash Jimmy Song. So Medium at Jimmy Song, I don't publish too much there anymore because I'm writing this weekly newsletter. But there's a lot of old articles that might be helpful if you want to understand

Starting point is 01:29:01 what happened during Segwit. Jimmy, thanks for coming on the show. Thanks for having me. 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 - BTC009: Bitcoin Engineering w/ Core Developer Jimmy Song (Bitcoin Podcast)

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