We Study Billionaires - The Investor’s Podcast Network - BTC040: Bitcoin ASIC Manufacturing By Blockstream w/ Dr. Adam Back and Samson Mow (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone. Welcome to this Wednesday's release of the podcast where I'm talking about Bitcoin. Today's guests are Dr. Adam Back and Samson Mao from Blockstream. Dr. Back is one of the most prominent influencers in the space and was even referenced in the Bitcoin white paper by Satoshi Nakamoto for the portions of the code that use proof of work. During the discussion, we talk about their big announcement for getting into the A6 manufacturing

Starting point is 00:00:25 business. This is a really big deal because a significant portion of the mining, hardware is currently manufactured in China, and this is an important step for decentralizing the manufacturing process. Additionally, they talk about the production of a modular mining unit that's being provided to energy producers that handle the excess energy that energy companies produce in order to fulfill peak demands. This was a fascinating discussion by some of the smartest people in the space that are making some of the boldest moves. So without further delay, here's my conversation with Dr. Adam Back and Samson Mao.

Starting point is 00:01:02 to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right. So like I said in the introduction, I'm here with Dr. Adam back and Samson Mao. Gentlemen, welcome back to the show. Thanks, Preston. Thanks for having us on. Hey, so you guys, you know, I'm checking Twitter and I'm seeing these feeds coming out of the Blockstream website.

Starting point is 00:01:35 And you guys got some big news to announce. The first thing was this announcement of this modular mining unit. You guys are just going by the acronym MNU. Talk to us about what this is and what kind of problem you're trying to solve. So it's to take mining closer to the power producers and provide them with a way to increase the sort of to have a steady base load and increase the profitability of being a power generator. And particularly for some intermittent power sources, they are, you know, they, when

Starting point is 00:02:23 they build a new sort of zero emission installation, sometimes it takes an extended period of time until they get connected to the grid. So this is something that can provide them with immediate power. And then also the, the grid demands are. variable and maybe the power generation is variable too. So, you know, they're in a business. They're trying to make an economic case to get project financing to build a zero emission, like a solar farm, wind farm, hydro farm, that kind of thing. And they have to make an economic case for it. And so having a kind of buyer of last resort that's standing by to buy any excess power

Starting point is 00:03:07 helps them economically to achieve the project financing. And so, you know, one of the differences with the Boxstream Energy or modular mining unit is that the power producer buys the unit or leases it in some form. So it's their equipment. And in exchange for that, they have the right to sell power to it. And so they are not exposed by default to the Bitcoin price. They're just able to sell power at what is for bulk power producers and attractive price. And the reason we're willing to pay this attractive price is because we want the Bitcoins.

Starting point is 00:03:51 And they've bought the miner effectively. So if you buy the miner and pay the electricity, you want a lower electricity bill. If you're only paying the electricity bill, you can afford to pay a higher power rate. And so we can pay an attractive power rate. And if they end up selling all of their power to mining, that's great. If they have high grid demands, that's fine too. That just means they made their profit in a different way. So in a way, it's kind of a black box that you're providing to energy producers,

Starting point is 00:04:26 and they are effectively mining, but they don't necessarily need to know or deal with that aspect of it. They just have this machine that buys power from them, and it can make their operations far more profitable. How much more energy, and I know this varies from energy producer to energy producer, but what are you guys going after? Is it a 20% additional energy capacity for your standard energy company that they're kicking off, that they're just not using,

Starting point is 00:04:53 and they need that additional 20% to handle peak demand, or is it even larger than that? It depends on the type of power, but certainly, you know, most grids are built for the peak power, and so they have significant unused power. And, of course, many power sources can be variable levels, so they can just turn it down when the power demands are lower.

Starting point is 00:05:20 But to give an example in a Montreal, Quebec province of Canada, about 50% of the power is unused. So it's mostly hydro, so it's just bypassing the generators and pouring out the sluice gates. And so that's in sort of missed economic opportunity they could sell that to mining. And of course, if there was a surge in power demands, they could turn the mining off. So now other kinds of power are variable for different reasons. One is solar obviously only works in the tail lights unless you have batteries as well. And wind depends on the wind speed.

Starting point is 00:06:06 And similarly, the power demands are variable. You know, people turning on, you know, eating or having a hot drink at the same time after watching a football match or something. There are sort of spikes for residential power habit reasons. and for industrial working hour, you know, reasons when people are operating industrial plants. So the power demands are all over the place. And some of these power generation methods are relatively efficient, but take a while to start up and a while to stop to wind down. And so when they're producing the power, it has to go somewhere.

Starting point is 00:06:45 You can't just, you know, keep generating it and not draw it or break something like in the grid. And so they actually, at times, have to pay people negative power rates to get rid of temporary excess power as well. So mining can also fulfill that purpose. But meanwhile, we have somebody from Forbes who's probably writing an article right now about how the energy use is going to take over the entire planet here in about six months with Bitcoin mining. The power is coming out, right? So like here you got these waterfalls or however they're harvesting the energy from the hydro dams. And I mean, it's going to produce this energy one way or the other. It's coming out.

Starting point is 00:07:31 It's just there for the taken. So this actually energy is quite abundant. Just our ability to harness and transport or transmit it is quite limited. And I think mining will be driving a lot of advancement in this sector to. improve upon that and better harness energy overall. So I think there's a net positive here. You need some new technology that moves things forward. And the demand for Bitcoin mining and the economic bonus that gives you

Starting point is 00:08:02 is that potential factor that can push us ahead technologically. So Adam, you initially described like, hey, we'll lease this, we'll come, we'll set it up, we'll service it, and you pay us. We like come up with an agreement with what energy rate will pay. that you'll be providing to the mining rig and we want to keep the Bitcoin. Do you find yourself in a situation where you think energy producers are going to say, nah, just give us the MNU itself and we'll keep the Bitcoin. Are you guys at that point?

Starting point is 00:08:35 Or do you think that they kind of like the structure of this right now? Well, I mean, for sort of conventional infrastructure, they may not be that familiar with Bitcoin. So, you know, the prospect of just getting paid conventionally for the power with a power purchase agreement sounds good to them. And of course, you know, large-scale bulk power at the generation point is relatively low cost. So that could be win-win.

Starting point is 00:09:06 But, you know, there are other people we work with like ACCA, for example, CT, who are, you know, they funded their new division for Bitcoin activities with Bitcoin. And so, you know, they were obviously much more interested in in getting the Bitcoin. So, you know, we can construct a different way to make that work economically. Well, luckily for you guys. It's kind of a Trojan horse. Yeah. It's kind of a Trojan horse because they, they will like this model now if they're not familiar with Bitcoin, Bitcoin mining and the economic benefits. but down the road, if they do learn more about it, then we can shift the model a bit and orange build them.

Starting point is 00:09:50 Why are we letting these guys keep the Bitcoin and they're paying us to. Yeah, I love it. Talk to us about where you're at on the development of the MNU itself because it looks like it's coming as a package deal, had this sleek block stream logo on the side of it. And you guys obviously have all the hardware and infrastructure inside set up. You're providing the service labor to make sure this thing is running around the clock in case it runs into any hiccups, which I wouldn't suspect anybody wants to try to take that on themselves that you would be leasing this to anyway. But how far along are you guys in that process? Have you shipped any?

Starting point is 00:10:30 Are you still in the developmental phase? Talk to us about where you're at. So we have MMUs running, but obviously we're interested to scale that up a lot more and you know, place them around the world in sites that have, I mean, sometimes remote sites also. So we have the technology to operate these using the block stream satellite. So we do have a bi-directional version of the satellite, which we've used for, you know, you know, as a backup to networking for mining or as a, you know, potentially as a primary. And, yeah, so that's the kind of model.

Starting point is 00:11:17 Obviously, you know, at this point, miners are in relatively short supply. And so that's one of the bottlenecks for Bitcoin mining generally, actually. So not only do you guys have this announcement, you have another massive announcement, that just came out today. And you guys are getting into the ASICs business. So I'm sure everybody out there's hearing this announcement just saying, oh, my God. So talk to us about this. What in the world is going on at Blockstream with respect to ASICs?

Starting point is 00:11:51 Well, I mean, it's obviously a big part of the mining space. And if you're providing hosting to individuals, and to companies access to supply chain for miners is a factor. And so, you know, we work with a number of manufacturers today, but we're interested to add some more decentralization, so an additional manufacturer built, you know, sort of more in the West and internationally. There's a lot of manufacturing that's China-centric today, so it's good to have some kind of geographic diversity of where things are made.

Starting point is 00:12:36 And yeah, so we, you know, obviously when there's a shortage for miners, as is the case today, the supply and demand situations, the prices tend to go up as well, reflecting that. So it's also a good time economically to enter this space. Now, you know, people are looking at the announcement, but actually we've been working on this for probably a couple of years in the background and under wraps. And with both Spondoulis, who, you know, if you look around on the internet, you'll see that they've been making miners for a while. And the Spondoulis team is joining Blockstream to form the Blockstream Mining Division.

Starting point is 00:13:22 So those, so we've been working with them and the Foundry partner, for a while now. And so we're projecting to have them in market Q3 next year, which is, I think, faster than people would assume if you just think that, you know, somebody's starting an activity and usually the R&D phase on a new miner would take, you know, in excess of a year. And I think another factor with mining is it's very specialized area. You need to have deep expertise. Many people who've tried it, you know, from scratch have run into issues or, you know, failed runs. Even some of the big companies have had technical failures. So we have a lot of confidence in the Spondelese team.

Starting point is 00:14:12 They've made some very nice equipment in the past, which we owned and operated in a past. And so we're, you know, very interested to bring a quality enterprise grade minor to market. And so you guys are going to have a lot of IP in this. or are you piecing together a lot of different components that doesn't necessarily have IP for Blockstream? I'm just trying to understand how much of the manufacturer you guys are doing and how much of the intellectual property for the growth of it or for the initial launch of it. Yeah, so the way the acquisition of Spondylos is structured is actually an IP purchase. Now, of course, you know, BlockDream is, you know, has participated in the kind of defensive license activities. So we're generally a fan of open intellectual property to, you know, create a level playing field.

Starting point is 00:15:12 But obviously, some of the chip level libraries are covered by patents outside of air control. So, you know, we're generally operating in the defensive patent mode as usual. But that's the way deal structured. And, you know, we're planning a roadmap for these miners. So we'll seek to, you know, improve the space over time. Samson, did you have anything else you wanted to add about the announcement? Yeah, so I think touching upon what Adam was meant, mentioning, this is a major thing for the Bitcoin mining industry.

Starting point is 00:15:55 There have been very few manufacturers outside of China, and that does pose some sort of a risk to the Bitcoin network if all the production and manufacturing and everything is based in one geographical region. So, you know, having Spondolese under Blockstream now helps us to decentralize the production of Bitcoin miners. And I think if we can grow this business to the extent we want to, then we could become a potentially major competitor in this space and grab a large chunk of that market share from the other manufacturers as well. I think traditionally Spondelis has been known for aiming for more professional grade miners. They were one of the first to try the one-you form factor, whereas everyone else was doing the shoebox style Bitcoin miners. And I think we want to keep on going in that direction and aim for more enterprise-grade hardware. It's just easier to manage. And I think we'll be able to gain an advantage in that area because if you standardize the form factor,

Starting point is 00:17:00 you can standardize a lot more things and swap out chips easier when they burn out or when they're no longer, you know, cutting edge and just replace the parts that you need to replace. I think a lot of miners are designed with the obsolete. lessons in mind. But I think what we want to go for is minimizing waste on that side and optimizing for efficiency. That's really interesting to hear you talk about the swapability of various components inside the rig itself. And I think that that's going to be a welcome change for many people in the space to be able to upgrade without the cost of replacing every single component inside the rig. Let's go ahead and transition to blockstream finance. So, Adam, the last time we talked, you were getting ready to do your minor note.

Starting point is 00:17:51 For people that maybe didn't hear that conversation, explain to them what the note is. And then I'm just kind of curious how it turned out for the first tranche that you guys did with the issuance. Yes. So the blocktream mining note was sort of reactive. if we had, you know, people were aware that we were doing, providing mining hosting for enterprises and individuals were interested to invest. And so we got a lot of inbound requests. And so the blockchain mining was partly a, you know, a way to satisfy that demand.

Starting point is 00:18:24 And so it is actually a security token. So it's a proper security. It's a fire Luxembourg securitization vehicle provided by Stoker, which is a equivalent of a share registration agent for the note. And financially it's structure a little bit different. So we used the model that we arrived at ourselves by mining for a number of years, which is to fund it and not sell the coins as you go. So keep the coins to the end. And so it's pre-funded.

Starting point is 00:19:01 It's a three-year note. And that's approximately the useful lifetime of a mine of these. days plus or minus. And so, yeah, it basically accrues the Bitcoin inside the note. And at the end of the period, the current holder would receive the Bitcoin. And because it's a liquid security, you know, an actual security token, users can transact it. So today they can transact OTC and there seems to be a decent amount of OTC transactions occurring. And there's a, Blockstream Finance Channel where people seem to be meeting other buyers. And we're also expecting one or more exchange listings in some months.

Starting point is 00:19:48 And so that will provide another, you know, hopefully price formation. And we can find out what the market pricing is for this kind of product. You know, there should be some kind of correlation between the prices of different things in mining space. Now, the mining notes is, if you sell it before maturity, you would expect the current value to reflect both the Bitcoin component and the remaining mining component. So let's say you sold it one year into three year period and it accumulated a certain number of Bitcoin.

Starting point is 00:20:23 That will be part of it plus the remaining 24 months value on the contract. I think people got more interested. and wish they'd bought earlier. Basically, we've done two sales tranches, and we'll probably do another one, and then obviously the exchange listings later. And so I think people like to see something operating, otherwise they feel like they're buying it on spec,

Starting point is 00:20:50 and it's coming in three months, which was the original tranche right back in March. And so, you know, this seems to be more interest in buying it on a secondary market now. And it's been going pretty well, you know, as we said, the mining profitability is quite high at present. It's been making a return of about 0.3% a day.

Starting point is 00:21:11 So if it were to keep going at that trajectory, it would have recouped the capital investment within a year. And it's a three year products. Now, of course, many inputs to mining are variable, the Bitcoin price, the hash rate, of course, the hash rate depends on supply of A6 and other people building up power infrastructure and securing ASEX and putting them online. So we'll see how that plays out, but it's, you know, people who been pleased with it so far. It's quite interesting. Like when we were socializing the concept of the

Starting point is 00:21:45 BN, one of the biggest questions we get is, you know, why not just buy Bitcoin? Why buy this? And, you know, we have backtested models where in certain situations, it does become more profitable to mine Bitcoin than to buy Bitcoin. But, you know, typically those are doing bear markets and such. But you can also have that when there is a big drop in hash rate. So the timeliness of the BM is just great. You know, it launched and then there was that massive crackdown in China. And you had that mass exodus of miners, you know, leaving or just shutting down, period.

Starting point is 00:22:21 And the profitability, as I mentioned, just spiked on the BMN. If you're looking at that just as investing in a traditional financial instrument, you just ignore the Bitcoin mining part. You know, you're doing excellent, you're getting excellent yields on this instrument here. So I think a lot of people were very happy. And that's why people are trading at OTC now because they want more of it. And the people that bought early were just very prescient. And they look like they're geniuses.

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Starting point is 00:27:01 I would suspect that your variance would be way lower by owning this versus owning Bitcoin itself, just as far as the variability and the price of the security. Yeah, it's kind of a locked-in dollar-cost average, you know. You've committed to it, and you're going to average over time no matter what. So in some ways, it's better than dollar-cost averaging because you're locked in and you're locked in a specific rate of acquisition. Yeah, I mean, certainly in the back testing, it appears to be the case that you get a lower volatility of return and that's partly because there's some downside protection historically.

Starting point is 00:27:49 So, you know, if the hash rate, if the price falls, the hash rate falls, you mine more coins than you expected to because of the mining strategy baked into it, you keep the coins to the end and usually across the three-year period, you know, there'll be a price fall and a price rise of some significance. And so we actually did something like that. a few years ago at company level. And so basically we started mining when a price of this particular batch of miners at time when the price of Bitcoin was $15,000. And at the end of the duration, the price was $7,500, but we still made a 25% profit.

Starting point is 00:28:34 So if you're looking at buying Bitcoin, you'd have lost 50%. We made a 25% return instead. And if you, you know, at the time we were, we found this surprising. And so we, you know, we embarked on all this analysis and back testing to see often that kind of thing would occur what the average is, basically to break apart why that happened. It's because at the bottom of the market, the price fell to, you know, 3,500 or something. And so basically at mine two and a half times as many coins as we projected, and so even the price was half, it ended up making a 25% return at the end.

Starting point is 00:29:09 And of course, in effect, we ended up keeping those coins to the state, at which point, that looks very good overall competitive dollar into it. But I think it's a very good – people don't have the intuition, so they will often put money into mining where they'll pay the power bills by selling some of the Bitcoin. And that's not a good idea in our view because what you end up doing is selling most of the the coins at the bottom of the market because you know the percentage of the coins you have to sell is related to the price and at the bottom that's getting near to break even and you'll be selling like a big portion of the coins and that's when you're accumulating and that's what

Starting point is 00:29:50 you know ultimately provides the downside protection and return so we reflected that in a bmn note structure basically so it's pre the power is prefunded it keeps 100% of the coins and it has a relatively cost-efficient, you know, sort of administration fee? I think you can kind of say there's two kinds of miners. There are the miners that are just in it for the profit. And it may make sense at a certain point in time to do what Adam was saying, which is they just sell off some coins every month to pay for the power, and they're still incredibly profitable, right?

Starting point is 00:30:32 The cost to mine one Bitcoin right now is, you know, $6,000, $7,000. And the price is pretty high right now. It's, you know, 4, 49, 48, 49. But there's another type of miner, which is the Hodler miner. So that minor is really mining to hoddle. And like, for us, we mine and we keep everything. Like, we're not selling off every month to pay the bills or pay operational costs. And in effect, the BN is turning people into the Hodler type.

Starting point is 00:31:02 miners because they're locked in for that three-year period. So they will accrue those benefits because of that structure. I would think that, so for a lot of institutions right now, they can't get access to Bitcoin just through sheer charter limitations. Does this vehicle provide them an opportunity to invest in a debt instrument that kind of bypasses some of those charter limitations that they might have by forcing them to own some type of debt instrument. Yeah, we've actually seen that play out. So we had a couple people express interest and, you know, financial institutions that had those kind of internal policy question marks where they don't yet know how to institutionally own Bitcoin, but they can own at Luxembourg security.

Starting point is 00:31:53 And so I think they felt that it was a, you know, a good way to start, basically, because at the end of it, they'll have Bitcoin and they'll have the option to, you know, receive the dollar equivalent or the Euro equivalent. But, you know, by then they may be in position to take physical position of the coins. Yeah. So they might have to sell the, on the open market, they might have to sell it a day before the maturity, which I'm guessing. the price of this is just basically going to peg itself straight to whatever underlying bitcoins associated with the account right before it matures. So they're able to sell it on the secondary market or in the public market right before it matures. And then they bypass all of this.

Starting point is 00:32:38 But yeah, like you said, maybe maybe by then they'll be able to take physical custody of the coupon. Yeah. I think there's three ways to do it. Either you're buying a Bitcoin tracker, an ETF, or something like the BMN. But all are viable ways for those types of entities to hold Bitcoin indirectly, I think. And I think there is an added benefit of holding the BMN because it is a Luxembourg security. It will have an ICIN number.

Starting point is 00:33:07 It can be held by any securities broker or any type of financial entity like that. So it plays very well into that kind of market segment. So when are you going to do it in the U.S.? We're working on that. We're working with INX, so we'll see what we can do. Oh, okay. All right. So, I mean, I think another advantage of it being a security is that brokerages will give margin credit, basically. So a credit line for trading or other purposes held against the stocks and bonds in the portfolio.

Starting point is 00:33:48 Yeah. So you, I don't think you... Potentially a way to get leverage against a Bitcoin-related product. I think with the Grayscale, you cannot borrow against it, but you could borrow against a BM. Oh, that's interesting. So let's go down that path because that was the next path I wanted to talk to you guys about.

Starting point is 00:34:08 So you got a lot of people out there. They have substantial Bitcoin positions. They don't want to sell them, right? They'll do anything to avoid selling their Bitcoin to pay for whatever expense they might have. So they want to go buy a house. Let's say they want to buy a $500,000 house. and let's say they got $500,000 worth of Bitcoin.

Starting point is 00:34:26 They're not going to sell their Bitcoin, realize the capital gains, and buy the house. They want to borrow, you know, they want to put down a down payment of $50,000 or $100,000, and they want to use their Bitcoin in order to basically take out a loan to put down the down payment or whatever that is. Whatever gymnastics we want to play with this, but anyone who understands Bitcoin isn't going to sell it. So how are you guys thinking about providing a solution? to that quandary for anybody that understands Bitcoin and wanting to use it to buy real estate or any type of large expense in their life. Right.

Starting point is 00:35:02 So as you know, we acquired Adamant Capital and we've branded that or rolled it into Blockstream Finance. So the BMN is issued under the Blockstream Finance umbrella, but we do have plans to launch a number of innovative Bitcoin instruments. We're thinking about doing an Alpha Fund. So similar to the one that Adamant was doing originally. So you invest Bitcoin and you get returns on Bitcoin. We've kicked around the idea of doing a US dollar alpha fund.

Starting point is 00:35:31 I'm calling it the plunge protection fund. So this would be a US dollar fund where we would take some of the capital to invest in stable yield areas. And then take some of it just to place them in orders and buy Bitcoin whenever there's a big dip. So in effect, it's plunge protection. But Adam and I also talked about doing some. mortgages under the Blockstream Finance brand too, because I think that is something that Bitcoiners do want. So much like you said, people don't want to sell, but they want to, say, buy a house or an apartment or something. Yeah, I mean, I think the key is to get the

Starting point is 00:36:09 lending rates down because mortgage lending rates are quite low with, you know, zero interest rate policies and so on. And Bitcoin-related finance rates tend to be quite high because there's a shortage of dollars to use for leverage in the system. You know, I think that's because ultimately anybody who's interested in Bitcoin tends to get heavily invested into Bitcoin and run low on dollars. And so, you know, they've largely exhausted their dollar liquidity. And that puts the price up of Bitcoin-related dollar liquidity. And of course, you know, there are large amounts of fiatts in the system,

Starting point is 00:36:51 in general, you know, in fixed income, in bonds, in pension funds that are getting very, very low rates. And so, you know, you would wonder that those two things should normalize eventually. But I think for the moment, they're hesitant to place funds into Bitcoin exchange, margin lending and things like that. So it means that at least so far, the lending rates against Bitcoin have been a bit higher. to use as, you know, collateral for a house, let's say. So, I mean, as you were hinting, one thing that people could do, and I expect some people are doing this, is take a, you know, smaller loan against Bitcoin, like a 10% loan against

Starting point is 00:37:39 Bitcoin, put the down payment, and then get a conventional mortgage on the rest, right? Trying to get as large, higher leverage mortgage as I can because the mortgage rates will be low and that'll bring down the average cost of lending and reduce the liquidation risk as well because the Bitcoin secured part is then percentage wise small. So I think that's the kind of interim thing. The BMN, you know, because it's normal collateral, you might be able to get directly lower rates on it if you give it to a broker. You just got to find some type of mortgage house that understands all of this and understands

Starting point is 00:38:15 the risk associated with that type of collateral being used. And it seems like that's the biggest hurdle right now is finding a company like your company that can bridge that gap and provide that offering to the clientele that I think is exploding right now all around the world that's demanding a product like this, but it just doesn't exist because we're just so early. But yeah, man, I hope you guys pull it off. Soon you might be going to add them back to get a mortgage loan. I hope so. I mean, to be quite honest with you, I mean, anybody who's selling their Bitcoin right now to make a substantial purchase like that, I think they're crazy. I think they're nuts. But obviously, obviously we see the world through a different lens than most people. So the Lightning Network seems to be just taken off right now. It seems like there's numerous incentives that are driving this adoption and this use. We're seeing it with the rewards cards.

Starting point is 00:39:17 We're just seeing really innovative wallets that are enabling lightning transactions. I'm kind of curious to hear what you guys think is like one of the driving forces of why lightning is taking off at this point. And then any other thoughts that you guys have on kind of where you see it going as far as like a projection into the next year or two? Yeah, so we've, you know, Blockstream is one of the sort of three main developers of our Lightning Core Protocol. So the Sea Lightning team at Blockstream has been working on core protocol work. But we've also released recently something called Green Lights, which is an interesting server-assisted way to do Lightning. The trade-off is it provides the same kind of improved reliability and lower latency that you get from a hosted lightning wallet while actually having the keys yourself. So how it works is we modularize C-Lightening.

Starting point is 00:40:29 So there's a module called H-SM, which contains the keys, and does the key operations. And normally that's just a software module inside C-Lighting, but what we did is a separate those. So you have that key management on a client, it can verify enough to be secure. And then the server is sort of doing the routing, staying up to date with the network state, tracking the status and uptime of nodes. And so when you come to make a payment, it's much faster and there's less kind of traffic going backwards and forwards to between a client. And some of the clients are intimately connected.

Starting point is 00:41:09 or low bandwidth devices. So that will generally make for a more reliable experience. So we announced a couple of launch partners who are using it. And so we're hoping that we'll see more lightning software companies use that as a way to improve lightning. Certainly lightnings, you know, assets in network and growth rate of that have been increasing greatly. I think it's proven to be pretty good for kind of lower value retail, faster, foster payments, and you certainly saw a lot of interest in that in El Salvador. Now that's primarily driven off of lightning. So, Adam, help me understand

Starting point is 00:42:01 the tech. So you said server assisted. So I have my own full node here at the house. If I didn't want to go out and set up my own full node. I can basically outsource this to a server that you're running, but yet I'm still holding the private keys. And so you're basically running the node for me, but yet I still have control of the part that's important. Is that my understanding that correctly? That's right. Yeah. That's exactly it. So like most people are using SPB wallets now. So they're just, they're not running their own full node, but their keys are still on their phone or on your device. And you know, you're really using, you know, some Electrum server somewhere else.

Starting point is 00:42:40 So in some ways, this is a parallel of that. So you have your own, your keys stored locally, perhaps on your phone. And then Blockstream is running this lightning infrastructure in the cloud. And the great thing here is that it solves one of the biggest problems, which is channel management. So like, we don't have this right now. But down the road, we will be doing a lot of that balancing and channel management for end users. So you don't have to deal with that complexity. You won't have to worry about being able to

Starting point is 00:43:07 route payments successfully and all that stuff that you want to abstract away from the end users. For them, the most important thing is Lightning just works. I can just pay someone if I have enough money in a wallet and it'll just work perfectly. So I think this is a really good step because with Greenlight, you can also take that node in the cloud and run it locally when you are more established and more familiar with all this stuff. So it's kind of the best of both worlds. You can onboard the beginners into this system and they can offboard. And all the while, they have their own keys and full control over their funds. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up. And customers now expect

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Starting point is 00:46:59 This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. So you had mentioned the channel management and for people maybe not familiar with how complex this can get, just kind of give a generic exam. example of what you mean by the channel management. And then also, I know there's a lot of work

Starting point is 00:47:24 right now taking place where people are trying to come up with like statistical models in order to find the fastest path for larger scale transactions. Like if I wanted to send $5,000 over lightning, it's extremely difficult today just because of the channel management issues. But based on some of these new algorithms that people are coming out with, you're going to be able to conduct the transaction of that size fairly easily and fairly quickly through like these dynamic models that are then able to sniff out where there's channel capacity in order to route this through multiple different nodes. I mean, I think one of the problems is that as a new user, when you connect a channel,

Starting point is 00:48:10 you fund it. And that means you can send lightning Bitcoin, but you can't receive because you can only receive if there's funding coming towards you. So we've been working on a few things. I think C Lightning was the first to have dual funded channels. So you can create a channel where there's funds coming from both sides. So sort of like a coin join going into a channel in a way, a spend from both parties to set it up. And so the channel capacity is kind of somewhere in the middle. The other problem that sometimes occurs is that the, you know, spending habits are pushing all the funds towards one end and so your channels get imbalanced

Starting point is 00:48:52 and in theory you should be able to rebalance them by sort of um now if i have two channels and one is getting low i can kind of send money to myself throughout one channel and in the other channel via some other people and that that's the theory but in practice um it takes tends to deplete channels in between. So you're kind of trying to do a complicated rebalancing job there. So that's where it gets more interesting. And then the capacity issue you mentioned, where people would find that as you increase the amount you're trying to spend, it would get less reliable.

Starting point is 00:49:37 And that's because there'll be some channels that you might route through that don't have enough for that payment. And so there's been some work in the last. year or so on these multipath payments where you can pay somebody with parts of the liquidity coming via different channels. So if there are enough channels, then that will work also. So right now when I look at wallets that you could have on your phone, it looks like Munn and blue or some of the best like user interface type wallets for lightning type transactions. I'm curious because I know you guys have a green product.

Starting point is 00:50:20 You also have Aqua. I'm curious if you're going to be bringing some of those types of capabilities from a user experience kind of vantage point where it's just, I don't have to think about it. I can just do it. Is that in the works or kind of where are you guys at with your thinking on that? Definitely we want to get it into green and aqua. We want to give access to upstream green light in those two wallets. Okay. Yeah.

Starting point is 00:50:45 I mean, in some ways, it's a simpler program model. So I think it should simplify, integrate and lightning into a smartphone wallet. And I don't want to, so as far as I know, at least until, you know, last year, maybe it's improved now. But Blue Wallet was kind of custodial, right? So it's the server-side model. And so I think people do that because of the usability, you know, lower latency, high reliability. And I think also they can kind of share channel capacity so they can have fewer channels, so less things to rebalance.

Starting point is 00:51:28 I mean, one factor of rebalancing as well as the cost because you can rebalance channels, but if you have to create a new channel that incurs main chain fees and when they're traders get busy in a ball market, the Bitcoin main chain fees get pretty high. So with Blockstream, we also have for liquid network and sea lightning. Well, lightning can in principle work on top of other chains. So we have lightning on top of liquid as well. And that's a way to get, get lower fees and potentially channels with other assets in them, like a channel with tether for it.

Starting point is 00:52:10 example. So for people that are using tether, often that is for trading or even business to business transactions internationally because it's a cheaper, faster wire transfer, basically. But you know, for the smaller payments, if it gets used for that case, that kind of use case or for more scale, then lightning, tether or liquid is another distinct possibility or other stable coins. You know, there's also the Canadian dollar. The euro as a euro stable coin by side swap. There are a number of staple coins. There was a person on Twitter asking about mesh nets.

Starting point is 00:52:52 I think we're still talking about kind of the same technological space here, but make me smart on mesh nets. So there is some sort of emerging market, can't see. that people tried to build, which is to use the Blockstream satellite to get the bulk data. So they'll have a situation where high capacity bidirectional internet is expensive. And so with Blockstream satellite, we're sending the history to sync of Bitcoin nodes. And more recently, we also added lightning gossip data so you can keep a lightning node up to date on the satellite. And then you still have some direct connectivity

Starting point is 00:53:47 because the satellite service on offer to, buyers of the base station today is receive only. So they're going to be using bandwidth, but it will reduce their send bandwidth, which will be going over, you know, 2G or 3G, which is locally expensive in some markets. And so one concept was to use Meshnetwork, or Wi-Fi hubs to repeat and broadcast that through a local area,

Starting point is 00:54:14 through a village or a marketplace or something like that, so that you could share the bulk satellite data for running a full nodes or participating in the Lightning Network. So the mesh is very interesting technology. Obviously, it's a way to kind of have a onwards broadcast repeating kind of peer-operated network rather than the conventional network. operate by a cell phone provider or something like that. So I have a peer-to-peer internet.

Starting point is 00:54:46 And we also have a, we have a integration with Gottena. So they are a producer of the Meshnet dongles. So you can actually use that already in the wild today. And you use Götna with Bocstream satellite to send a transaction through a Meshnet up through the satellite. And, you know, there's no need for internet at that point, really. So that's fascinating. So are you guys using the Wi-Fi signal then to do that?

Starting point is 00:55:14 I know Samson, you just said this Gotenna, so I don't know what frequency that's operating on. But so your satellite is broadcasting the signal of the blockchain, right? Then it's hitting some type of hub. You're using Gotenna or even a Wi-Fi router to then distribute it throughout whatever community. Are you using the Wi-Fi signal? Are you on different bandwidths?

Starting point is 00:55:35 What do you guys use it? So the Gotenna is a different. spectrum. This is wireless network. Wireless. Yeah. So it's hop by hop. And so the concept is that you'll find your way through the network.

Starting point is 00:55:49 And if it's a message that needs to go to the internet proper, somewhere in the mesh network will be people running 3G data or something like that. So part of the concept that GoTen are also interested in is micropayments using lightning itself so that the use of this peer-to-peer bandwidth can be managed, not saturated by one user or something like that. So it's a way to do quality of service metering. That's fascinating. And I would think that there'd be a huge demand for this in smaller towns, remote locations, whatnot. I mean, wow.

Starting point is 00:56:28 Interesting. I didn't know you guys were working on that. Working on a lot of stuff. Yeah, I'd say you guys are working on. a lot of stuff. Speaking of working on a lot of stuff, I know the El Salvador announcement was just kind of making the airwaves whenever Adam and I talked last. I'm curious if they've reached out to Blockstream or you guys have reached out to them in reference to doing the mining there with the volcano or any other type of activities down there because, I mean, if it's now a legal tender in

Starting point is 00:56:58 the country, I would imagine that they are trying to set up as much infrastructure as possible. So I'm curious what you guys have or if anything. Right now our discussions are mostly around the bond. We had to call with them a couple weeks ago to talk about potentially doing bonds on the liquid network using our asset management platform. So that could be an interesting way for them to tap into some more of that geothermal energy that's powering a lot of their grid right now. But it is costly. So I think what you would need to do is sell a bond, take some of the proceeds from the bond, and build up more of that energy generation infrastructure, and then get into mining.

Starting point is 00:57:43 And I think proprietary mining would be the best bet because geothermal power is typically more expensive than, say, hydro. But if you're just prop mining and let's say it is a component of that bond offering, like the bond is backed by some portion of hash rate, then I think it'd be fine if the cost is higher than, say, hydro. Yeah, I think your new model here by selling hash rate via a bond vehicle is just going to flip fixed income on its head here. It just needs more time. Like anybody in the fixed income space that's ignoring this is, holy moly. Go ahead.

Starting point is 00:58:24 It always is that way. It's always that way. Like, you know, when you're pushing at the boundary of all this technology and innovation, you can do a lot of interesting things that most people in traditional markets will not really think about because, you know, that's not available to them, right? They can't really securitize hash rate. Yeah. Yeah, give it a couple years.

Starting point is 00:58:48 Hey, I wanted to ask you about just the gaming industry in general. When am I going to be able to watch a Nintendo game? And like instead of running around collecting Mario coins, we're running around collecting Satoshi's. Like what's this progression take? Because you guys are obviously at the forefront of this idea. There's some other companies out there that are starting to incorporate SATs via the Lightning Network into their games. I saw Will Reeves had a really cool announcement where he's basically doing Pokemon.

Starting point is 00:59:22 on Go with, but with his fold app, you can walk out in front of a store. Say it's Starbucks. They can go out in front of their store and like literally sprinkle some AR augmented reality Satoshis in front of their store. And then anybody who has the app can see that there's, there's free Satoshes in front of the Starbucks. And I can go over there and I can walk into the store and order a coffee and collect some Satoshes off the ground. So, and like that's already happening. So how does this evolve into like the major gaming companies and do you see this kind of what's this trend look like just kind of give us some of your thoughts samson well the the playing field's wide open i think we're still in the very early days of applying a lot of this technology into the gaming and entertainment space even um there's

Starting point is 01:00:10 zevidi i think they're the ones pushing forward on a lot of the play for sats uh integrating it into a lot of mini games and things like that there's also the nfts continuous I saw some people commenting on your Detroit thread saying talk about NFTs. Well, I think Lightnight has a lot of their game items as NFTs and then my game, Infinite Fleet. We're also pursuing the NFT route. We're also adding a cryptocurrency for the game currencies. So replacing World Warcraft gold, but with a crypto asset that is fully portable and can plug into, you know, all this ecosystem built up around Bitcoin. Because as a liquid asset, you have access to all that with, you know, blockstream jade.

Starting point is 01:00:49 instead of a multi-sig and store your game currency in a multi-sig wallet, which is very interesting. You can conduct atomic swaps for the game NFTs, so the ships for the game currency. So you don't need a trusted third party to intermediate that transaction. Players can fully transact peer to peer. And I think that opens up a new model where trade can be greatly expanded, and you don't have to worry about getting ripped off in the trade. Samson, let me ask you this. I'm sorry to interrupt you.

Starting point is 01:01:22 So your Aqua Wallet versus your green wallet, do you see, and maybe I'm characterizing this the way I'm thinking that it is, but I'm more asking this. The Aqua Wallet, do you see this more of an NFT type? I'm playing this game and it's giving me these tokens and I can basically bring those tokens into my Aqua Wall and swap it into Bitcoin if that's what I ultimately want a hold versus that that token. Is that how you guys see Aqua playing into it versus Green, which is just purely a Bitcoin wallet? Like, what's the difference between those two? Well, both Aqua and Green support Bitcoin and Liquid. I think Aqua aims to be more seamless.

Starting point is 01:02:05 So it's all in one view. So you see Bitcoin, Liquid Bitcoin and all the liquid assets as if it was one thing, even though it's two chains. Whereas in Green, you're toggling between the two different chains. And I think green is aiming more towards power users, like people concerned more about privacy. You know, we have tour functionality in there. But Aqua, I would say, is more leaning towards surfacing these liquid assets, having on ramp. So we have integration with wire in Aqua. And I'd like to get more and more things plugged in there. I think there's a number of different exchanges that now have, you know, buy Bitcoin easily, easy on ramps. And there's things like fast Bitcoins, we want to integrate side shift, side swap, just ways to convert assets easily

Starting point is 01:02:49 in Aqua for people that are more interested in assets than just super secure Bitcoin storage. Now I interrupted you. You were finish your thought if you can remember where I interrupted you on the gaming side. Yeah. So it's just really like where we can see it going with this technology, crypto assets, lightning, sats and NFTs. And the, and the, games industry. So I think this is a great potential here to integrate a lot of technology to facilitate trade, facilitate more open markets around these ecosystems. I think it's difficult to like the holy grail is people will think you can take one, buy one item in game A and take it into game B. I think that will be challenging just because

Starting point is 01:03:36 of the business model around that. If I'm electronic arts, I don't want a Ubisoft player to take their gun into my game because that's a lot of. lost sale. But what we could see is, you know, within the umbrella of EA games, they can have, you know, free-flowing assets because that's all their own ecosystem and business. And you would see the same like for Ubisoft or Activision or for Exordium, which is what we're trying to do too with the INF currency and those NFTs. Do you really think that they need a blockchain to do that? I mean, you're seeing a lot of this in the gaming space right now where they're managing whatever ledger they've got for whatever scarce digital items they have in their game,

Starting point is 01:04:16 does it really have to come to a blockchain or is there a big incentive for them to enforce through encryption that the scarcity of this is maintained? It just doesn't seem to me like that would necessarily be the case. Well, I think it's like an interoperability level. So, you know, you could use a central website from the game producer potentially, but then that's not going to integrate very well with, you know, a crypto exchange or a wallet. So it's a kind of online account, right? So I think cryptocurrency and Bitcoin introduced people to a different model of thinking about

Starting point is 01:04:59 things. So then being on to treat other assets in that way is convenient, I guess. and it also makes it verifiable. So we've been talking about them as NFTs, but essentially they are game artifacts that you can bring out into a wallet, you can gift to somebody, give somebody an artifact, you can sell it, you can swap it,

Starting point is 01:05:26 or you could put it into the wallet, then you put it back into the game. So I think it's a kind of open network, you know, trying open network theory on games because traditionally they've been quite controlling. They try to deter or prevent people from buying things or farming, mining things by employing people to play the game and then sell the items on a gray market.

Starting point is 01:05:52 So rather than fight it, it's kind of embrace the open networking and see where that goes. And I think that's a more user-friendly thing to do, actually. And generally, in other segments, open networks have tended to win because it enables more third-party innovation. So it's easier for somebody to make an auction site or a swap site or a swap wallet, and it will all work together, right? So the same technology can be used for swapping, you know, tethers for Bitcoin as

Starting point is 01:06:26 swapping, you know, swords for Bitcoin and technology-wise. So, for example, the side swap wallet has an integrated, marketplace where basically users can enter orders so they can build their own market for an for an asset that Sideswap didn't you know directly support but just a user set up market. Yeah I think they have B Jades on Sideswap now. I saw something like that. Cool. Yeah but to answer your question I think it's really about that permissionless element. You could do something and you know use some signing or whatever, but ultimately, if you're not using something like liquid,

Starting point is 01:07:09 it would still be in a central repository or a centralized system, which is prone to, you know, abuse and control by whoever is managing that system. And the problem is when you get into things at scale, you have the Apple App Store thing where you know, they control all the apps now. And it wasn't like that in the beginning, but you know, when that system grew and they achieved that level of dominance and ubiquity, then, you know, they're effective now the gatekeeper. But if you are using something like liquid, you kind of guarantee that that's external to that, say, game company, right? They'll never be able to, you know, grab your

Starting point is 01:07:45 assets or lock your account and take your funds from you, right? You'll have that in your non-custoddy wallet. And ultimately, it just gives people back control over their things, right? Rather it be Bitcoin, USDT or a game sword or a spaceship or a game currency. And the goal is really just to make things more bearer to go back to that system that existed before everything is centralized in a database. You know, things are yours. You have it in your control. So I really respect both of your technical expertise. And so I'm curious what you guys think about, something like stacks.

Starting point is 01:08:26 trying to do decentralized finance on top of Bitcoin. Stacks is just one of many different things out there that are trying to do this. You have root stock. But it seems like any solution that pops up has another token that's associated with it that then is trying to peg itself either to Bitcoin or it's just its own standalone protocol at its own base layer. So I'm curious how you guys view this and how that, this is going to mature, and I keep hearing rumors that, you know, Defi can find its way through

Starting point is 01:09:01 somehow on lightning. How do you guys see this kind of playing out long term? Adam, do you want to talk about that? Yeah, I mean, I think that John Feffer has an interesting, it started as a kind of collection of thoughts for himself and he shared it with some friends and it went viral. So it's called institutional investors take on cryptocurrency, something like that. So it basically describes his analysis and thesis that Bitcoin is an asset class and that utility tokens that are used to create smart contracts or store names or whatever the features of alt chains that are, won't ultimately hold on to value. So his argument, amongst other arguments, is that the, it doesn't make sense on a business

Starting point is 01:10:09 level to pre-buy a utility token. It would be like, you know, you decided to buy a million bus tickets. Well, you're not going to do that. You're going to buy the bus ticket when you need the bus ticket. You might buy a week pass, but that's about it, right? So, and generally the thing that you're buying, you know, networks get cheaper, this get cheaper. So if you were to, you know, pre-buy bandwidth in 1990 for the next 20 years, you'd have a very bad time because you'd have paid a fixed price and the price it's fallen by, you know, multiple orders of magnitude since. So I think that, you know, his argument is that businesses that want to use the smart contract,

Starting point is 01:10:54 contracting features of particular chain, it would make sense for them to buy the utility tokens to use it just in time. Otherwise, they have the inventory cost, which is not helping them. So of course, that's, you know, kind of, there's a lot of marketing around it and that has supported higher prices. But if we accept that that's the economic fundamentals of it, then the market can't remain kind of irrational indefinitely. and it will come back to, you know, the incremental network cost rather than the speculative value. And so I think that, you know, Bitcoin is different in that regard in being a digital commodity. So, Adam, you're basically saying, and I want to get over to you, Adam, but basically what you're saying is this whole 1559 update to Ethereum where it's claiming to be ultrasound money can't last.

Starting point is 01:11:53 you're saying that it has to debase itself in a way where it can't be deflationary. Is that what you're saying? Well, I mean, the collection of alternative change, there are something like 10,000 of them now. It's growing rapidly, right? So clearly there is not in net that much scarcity. And I think it's been a while since I looked, but somebody was producing graphs of, you know, a huge collection of coins versus Bitcoin and across the two to three year period, they would go up and they'd go down and then new ones would cycle it in. So that's generally sort of coins go out of favor, basically. The people that started them or promoted them move on to the next thing and the price is full.

Starting point is 01:12:45 So I think that it's, you know, nobody's debating the smart contracts are interesting. What they're saying is that the the value is a kind of network utility value. So, you know, what does it cost in the network? And if it gets too expensive, they switch chains. And you see quite a bit of that going on today. You know, when people are moving tether, they'll switch to other chains readily. You know, it's kind of like, you know, you've got a search engine. Another one's better.

Starting point is 01:13:19 They'll switch. The one provides more accurate results. They'll switch. So it shows that the switching cost is not very high. If the fees go up, because things get congested, they move to another chain. Generally, there's this new acronym, which is the dino, the decentralized name only. So I think that actually, in terms of utility, the dynos are the more centralized, the better in a sense. you know, they can market it as being decentralized, but if it's very centralized, it's easier to scale, well, easier to put a high throughput because, you know, they can put high-speed computers in a data center, basically.

Starting point is 01:14:05 So, yeah, I mean, I'm not, I'm not very, I'm sort of bearish on the long-term value potential, even though I'm bullish on the use case of smart contracting. and innovation about that. And so people need to, I think, separate the, you know, the fundamentals of the economics from assuming just kind of, I would argue, groundless inference that because there's utility in a network, the pressure go up. You know, there are multiple networks. These are open source networks. People can copy them at infinite item, and they are.

Starting point is 01:14:44 And so I think that, you know, the cost will fall to the network. operating cost. And there's lots of competition. So we should ultimately get an efficient market. Samson? Yeah. So, you know, I don't think you need to add a token onto any protocol. And the liquid network success is a testament to that fact that you don't need to bolt on some token to make something successful. In fact, I think bolting on a token generally will pervert incentives. It's It's good short term, you know, you know, people, you quickly align people to be interested in the price of this thing and you can gain adoption quickly.

Starting point is 01:15:29 But I think for us at Blockstream, we're in it for the long term. We want to build something right, the first way around. So, you know, we didn't add a token to liquid. There is no token. We've grown to 1.1 billion in assets in the network. And we see a lot of growth in debt ecosystem too, people building on this protocol because it is open and permissionless. Anybody can become a member of network and build on top of it. So you have things like T-DECS, side swap, you know, they're all heavily leveraging this.

Starting point is 01:15:58 Hodel, hoddle too. I think they want to build a version of their platform that's based on liquid and same for BISC because it makes sense. And I think ultimately a lot of these other projects missed the mark. If you're building something now for whatever reason, if it's for smart contracts or whatever, great. But if you're not including some privacy enhancements to it, it's really just more of the same thing. It's more of the legacy system and in a new technology format, which is not very interesting to me. I think without that added dimension of privacy, then it's really just meaningless. It's not going to survive any attacks or any threats. It just will crumble when they're put to the fire, right?

Starting point is 01:16:43 Like Adam said, it's decentralized in name only. I think to gain that order of magnitude in functionality, you do need that privacy component, right? You need something better. So if you have a smart contract, you still want to have that privacy. The way that we're trying to build some things is that you can have that smart contract,

Starting point is 01:17:04 but you don't need to reveal it to the world right away. You just can reveal it as needed. And Adam can speak more to that because that's more his ballpark. But I think for everything that we're doing, privacy is a key part of that. So the Lightning Network improves privacy for all those transactions. The Liquid Network has confidential assets and transactions. And I think what we're going to be doing with smart contracts will also have a degree of privacy to that as well. And to the point, Adam, you were bringing up.

Starting point is 01:17:35 I see it very similarly as you, with respect to the deflationary. token part of it and how that does not benefit somebody who's using that protocol in a commodity or having utility that you're paying for the processing associated with that protocol. So I see it similar to just how you see fiat currencies interacting with each other today, like the euro versus the dollar. If the dollar is debased and it's inflationary and it has all those attributes, it's sucking euros into the U.S. because Europeans can now get cost of products and services way cheaper than what they could before. So that utility through the debasement of the dollar has forced

Starting point is 01:18:24 other currencies to come into it and to be used. And I think that you might run into a similar dynamic. And I think this is what you were describing when you were talking about your concerns with something that would be a deflationary token on these protocols, is you're not incentivizing the use in the utility of the smart contracts that are then happening on that protocol. And you're actually incentivizing the other protocols that are trying to do all this stuff at the base layer to be used. Is that, am I describing that accurately? Well, I'm just saying that, this is John Feffer's argument, but you know, you can

Starting point is 01:19:00 arrive there through different, I think about it from different directions, from a technology direction as well. but basically that the transaction cost in the network. So I think there's two aspects to the value. One is the utility value, like how valuable is this transaction? You know, what economic benefit did you get from it? Could you run it cheaper somewhere else? And there are many compatible and competing platforms, right?

Starting point is 01:19:34 So that means the fundamental value if you shop around look for the cheapest way to run it is pretty low, like sense or something. And yet there are people marketing these tokens as, you know, something of lasting value. But it doesn't make fundamental economic sense. So I think markets can, you know, sustain a price that doesn't make sense for a while. But eventually, you know, the fundamentals kick in. And you see that with something like, you know, I think some of these markets are a bit inverted. So, you know, why did GameStop, you know, shoot up in price? Well, it's because a bunch of guys on Reddit thought it'd be funny to, you know, show their combined strength and try to do a short squeeze because they thought it was, you know, because they knew it was heavily shorted.

Starting point is 01:20:30 Now, maybe it deserved to be heavily shorted, but they knew it was so heavily. shorted that they could cause a short squeeze anyway. And so they did that for a while, but obviously, you know, that failed ultimately. And things, things, so it's like gravity, you know, something will tend to fall to its fundamental value. And so I think, you know, the fundamental value is just really what does it, what does it cost? And it should get cheaper in future. So, you know, if the utility token is covering, you know, the cost, because there's a lot of

Starting point is 01:21:02 competition, the utility value should just encompass the cost of providing the operation. The cost of providing the operation goes down over time. So the fundamental value should fall over time. So it doesn't make sense to pre-buy tickets into it. And so that's it really. I think the rest is kind of marketing or people maybe misapplying company valuation metrics, right? So they will, you know, look at the assets that the foundation

Starting point is 01:21:32 behind a coin has and think that, you know, the coins represent ownership of those assets. I'm pretty sure they don't, you know, on a legal basis, right? They're not, you know, if you buy shares in a company and it has assets, of course, there's a liquidation value and ultimately you could have a hostile takeover or where something you could buy enough shares and, you know, get the assets. And that happens in the physical world from time to time. But there's definitely, I'm pretty sure that's not the case with, you know, any kind of ICOs or coin tokens. So people have applied those metrics to it. And so I think it's just, you know,

Starting point is 01:22:08 temporary valuation mistakes. And of course, there's a kind of shared incentive to do that because it's people enjoy trading. So I think they will, you know, play along because, you know, be able to buy something, you know, there are sort of early stage investors and so they can make money on it based on naivety of later investors, I think. Or it's just pure speculation. Yeah. Okay, this is my last question for you guys. This infrastructure bill, what are your comments on just the regulatory policy takes that you're getting out of the SEC with Gensler?

Starting point is 01:22:53 You're just hearing a whole lot of takes and opinions as to the direction that this is going. Is it all noise? Is it something to pay attention to? Does it not matter in the long term? What are some of your thoughts on this idea? So I think it was a bit disappointing, obviously, the way that that went in the sense that it looked like they were going to improve it so that it'd be less problematic. But then it got vetoed at the end for some kind of tactical reason, like a point

Starting point is 01:23:28 like a blanket veto of all changes or something. So it just shows you yet again that politics is kind of disorganized and, you know, random last minute haggling. So it's not a good formula to arrive at, you know, considered and sensible regulation that doesn't get in the way of innovation. So that's a bit messy. I think that a lot of what Gensler is talking about is actually consumer protection. So reading between the lines, it looks like he's talking about rug pools, hacks, people losing

Starting point is 01:24:05 money. I think while people are making money, they're less likely to get upset, complain to a regulator join a class action. But if there's a sudden 90% drop in something or something gets hacked in a large scale, people get upset and regulators get concerned about consumer safety. So I think you can chalk that up to the ongoing kind of insecurity of a number of chains, really. And it's not clear, you know, I mean, some of them are hacks and some of them are hacks in

Starting point is 01:24:37 air quotes, like maybe the anonymous people that created it, pretended to hack it, and actually took the money. Well, some of them are just, you know, centralized. So essentially the people who set it up could take the funds at any time. and they chose to do so. And so that happens too. So there's a range of, you know, or another one is people involved in it just selling heavily shortly after, you know, exchange listing or something like that. That will bring, you know, that will upset you set upset investors. So in a conventional world, there are, you know, I mean, maybe they're imperfect, but they're intended to be consumer protection rules, you know, about share lockups after IPOs and, you know, audited accounts for companies, honesty and advertisement, disclosures and things like that. And those are, I know, say they're imperfect, but they arose from previous century rampant stock scams at the beginning of the last century, basically.

Starting point is 01:25:40 So they are intended to be about consumer protection. Samson? Well, I think in the long run, it doesn't really matter. If they get it wrong, they can still fix it. The whole point of having Bitcoin is that you don't have to carry about this stuff. So, yeah, I mean, if you had to worry about what politicians are going to do to your money, then, you know, then Bitcoin kind of failed. Like, and I guess that could happen if you rely on custodial services and whatnot.

Starting point is 01:26:10 But the whole point is to have your keys, right, to have them in your possession. And, you know, they can't really mess around with that if they choose to mess around with that. That's the real point of Bitcoin. that you have control over your funds. They're a bearer asset. And I think those things just kill industries. They're industry killing legislation that it just gets rammed through sometimes. Like you still have ramifications from the NYDFS, right?

Starting point is 01:26:41 Like with the bit license. People are not going to operate in New York under that kind of regime. And that's bad for people in New York. And if you take the infrastructure bill, if that went through as they had it, And, you know, Americans would suffer. And it's up to them to fix it. You know, either you go through the proper channels and replace the politicians and fix it or you live with it.

Starting point is 01:27:06 That's the only two choices you have, really. At the end of the day, I think Ginsler is a bitcoiner. It's very possible. What do you think, Adam? Well, he certainly has a good technical understanding. You know, he was teaching courses on. Bitcoin, MIT, prior to taking this post and there are videos online. So it's good that regulation is informed.

Starting point is 01:27:36 So we'll see. I mean, I guess one of the questions on people's minds is if a Bitcoin ETF will finally make it through the regulatory process. And it's kind of passed due in a lot of ways in a sense that I assume some Americans are buying the Canadian ETFs of which they're now multiple. And there's certainly some multiple in on six, the Swiss Stock Exchange and other places internationally. So the US has kind of been held back on that and it's a big market.

Starting point is 01:28:15 So I think there are always some. Bitcoin ETFs in the application process, people who track these things, but I think there are more than usual at the moment and some new entrants from established financial players of different flavors, you know. Big players. Big players. Yeah. So some based on the futures because it's a way to get, I mean, basically people looking

Starting point is 01:28:42 at formulaically the reason why previous ETFs have been nominally turned down. So I think going through the future gives them access to the CME market, which is harder for the regulator to criticize. All right, guys. That's all I have for you. Give a handoff to if people want to learn more about Blockstream or whatever, feel free to provide a handoff. I'm also going to have this John Feffer article in the show notes for people to check that out. And that was the one that Adam referenced earlier. But go ahead and take it away.

Starting point is 01:29:17 Yeah, so if people want to look at blockstream.com, and everything is under there. Samson, did you have anything else? Because I know you're in the gaming space. Did you have any game stuff to handoff? Well, you can find Blockstream on Twitter at Blockstream. We're on Facebook, LinkedIn, basically everywhere. And if you're interested in games and security tokens, you can check out Infinite Fleet, infinite fleet.com.

Starting point is 01:29:44 Yeah. All right. We'll have that in the show notes. Guys, thank you. so much for making time. I'm always just amazed every time I get a chance to talk to you and learn about all the things that are happening out there with Blockstream. It's just mind-blowing. But thank you for making time. Thanks, Preston. Thank you. Hey, so thanks for everybody listening to the show. If you enjoyed the conversation,

Starting point is 01:30:05 be sure to subscribe to the show on whatever podcast app you're using. We really appreciate that. And if you have time, leave us a review. So thanks for joining us this week. And we'll catch you next Wednesday. 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 - BTC040: Bitcoin ASIC Manufacturing By Blockstream w/ Dr. Adam Back and Samson Mow (Bitcoin Podcast)

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