We Study Billionaires - The Investor’s Podcast Network - BTC150: Solving the Oracle Problem w/ Daniel Hinton & Steve Jeffress (Bitcoin Podcast)

Episode Date: October 4, 2023

On today’s conversation with Daniel Hinton and Steve Jeffress, they talk about the idea of financial oracles and how the price of Bitcoin in US dollar terms is passively showing up in the data of the Bitcoin blockchain. IN THIS EPISODE, YOU’LL LEARN: 00:00 - Intro 01:39 - What is an Oracle and what is it needed for? 06:42 - What is a UTXO? 08:29 - What price information was discovered in the Bitcoin blockchain? 10:17 - How was it found? 10:17 - What are some other interesting things that have been found in the "heat-maps" of the data? 31:32 - How could this discovery be used in the future? 32:54 - Can you see the Hodl-waves in the data? 47:34 - What are some of the more important things to focus on in Bitcoin? BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. UTXO.live to view the heatmaps. Daniel Hinton's Twitter. Steve Jeffress's Twitter. A paper describing the UTXOracle: A Decentralized Approach to the Oracle Problem. Daniel's education Website: RunBitcoin.org. NEW TO THE SHOW? Check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts.  SPONSORS Support our free podcast by supporting our sponsors: River Toyota Sun Life The Bitcoin Way Meyka Sound Advisory Industrious Range Rover iFlex Stretch Studios Briggs & Riley Public American Express USPS Shopify Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. Every once in a while, there's something really interesting that's discovered within the technology of Bitcoin. And during today's conversation with Daniel Hinton and Steve Jeffress, we talk about the idea of financial oracles and how the price of Bitcoin in U.S. dollar terms is passively showing up in the data of the Bitcoin blockchain. Both of these gentlemen have written some code that allows anyone to look back through their nodes' block. block data and determine the price in dollar terms within a percent. And they're able to perform this calculation without referencing any exchange data. The ramifications of this could be profound, considering there's much debate for the potential of decentralized finance and the data

Oracle always having been the centralized vulnerability. Their announcement has created quite a stir online with many critics and people suggesting this isn't a reliable tool, but we get into all of that and much, much more during this conversation. So without further delay, here's my chat with Daniel and Steve. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey, everyone, welcome to the show. I'm very excited to have Daniel and Steve with me.

And to talk about this really exciting breakthrough slash discovery that you guys recently have in the news. So welcome to the show. Thanks. Happy to be here. Yeah. Thanks, Preston. here. Great to have you guys. I was explaining to you guys before we started recording. So a lot of my audience are finance folks and some of this terminology that we're about to talk about is probably

something that they're not intimately familiar with. The first thing that I want to make sure that everybody's level set on the terminology is oracles. There's a thing called the Oracle problem and I'm going to start there and see if you guys can just define this properly for folks so that they have a base knowledge of just that definition alone? Sure, yeah, Preston. I'll take that one. The basic way to understand the Oracle problem is that a system does not know about things outside of itself.

So in Bitcoin, it doesn't know who won the Alabama game last weekend. The Oracle problem is how do you, as trustlessly as possible, input information about what's happening in the real world into a system like Bitcoin to decide the outcome of things that people want to transact on, whether that's a trade or a bet or anything else like that. Yeah. And would you say as far as you don't require trust for somebody to mediate between the value of two different things? So like if we're talking Bitcoin versus the dollar or the euro, like for that peg to occur,

like we're trusting some outside entity. So like from a practicality standpoint, where does that really apply why this Oracle would be important for somebody in finance? Well, just thinking back to the creation of Bitcoin itself, right? So say you bank with Chase, Chase, Chase is the Oracle about the status of their database in your account with them, right? So before Bitcoin existed,

there was no way to have a decentralized distributed system and not have any Oracle involved, but the parties still know the status of the system. In Bitcoin, when you run a full node, you validate all the transactions that are happening across the network over the history of the blockchain and you don't have to trust anyone to know that you have the Bitcoin that you own. And that gets us in an extremely long way, but it doesn't get us all the way to removing trusted third parties from things that people do.

The reality of it is that in today's world, people still transact in dollars, people want to place bets on things, people have commodities contracts and other things that they want to settle in Bitcoin. And that Oracle problem presents itself when you're dealing in things not denominated in Bitcoin. Yeah. And so for a person in finance, it's a bit of a challenge to get your head around why this is a problem, number one, because whenever you're trading, you go to the website, you check the price and that's the price.

But in the world that we're living in, the trust that's been eroded. And in the Bitcoin markets, particularly, there's not a central clearinghouse for the price of Bitcoin, right? There is a global market with hundreds and thousands of different participants every day with different market depth and different spreads and prices and fees. So there is no single price of Bitcoin, which is one of the really interesting things that we've sort of tried to approach this with. Where I find it to be really important for people to wrap their head around this Oracle idea is,

like let's say I bought a call option and it's that I want to be able to buy Bitcoin at the current price, $26,000 roughly right now today. I want to be able to buy it at that price one year from now, and this would be a derivative. What am I using for my reference rate six months from now when I'm looking at that derivative? And I'm saying, okay, well, the price on this exchange is saying it's 30,000. The price on this exchange is saying it's this price. And I'm relying on a person that's managing that exchange to tell me that that's that price or some entity that's telling me that it's that price. But how does that become decentralized that somebody's not saying that price or some entity that's controlling that price? Really kind of the essence of what

we're getting at with oracles. This concept at my day job, I run finance and operations for S Fox. And what we do is we aggregate pricing from exchanges and OTCs around the world. And something that we see happen not every day, but on a fairly routine basis, is significant market dislocations at a single particular venue. So you'll have 20 exchanges with one price, and then one of them has a significantly different price. This has happened at all the big name exchanges, you know, for brief periods of time, but it does happen. And just understanding that concept of there's not equally distributed liquidity across the market at all points in time in a market like Bitcoin, where there is no central clearinghouse or exchange, it kind of necessitates this more decentralized approach of

using the blockchain itself as the price Oracle because that's where this genuine settlement activity happens. And it is actually the clearinghouse for Bitcoin is the Bitcoin network. So it's gotcha. Pretty interesting. One other terminology that I think we have to address before we get into this is just UTXOs. I know for you guys, that might be a little. funny to think that that's a term that we have to cover. But for most people that aren't intimately familiar with the space, it's just a term that they've never heard before. And the concept,

I don't know if you can put it into terms. One example that really resonated for me was just like coinage or coins when you have a dollar and it turns into four quarters and things like that so that you can explain it for people that they can kind of really wrap their head around what a UTXO is. I'll give the layman approach here. So the way that I think about it is, imagine you have a Bitcoin wallet and it's a physical wallet sitting in your hand, you know, there's a bunch of different bills in that wallet, right? Each bill, it doesn't have to be $5 or $1. It can be a bill of any size. So you've got a $100 bill in your wallet. That single bill is a UTXO, right? And then you have your set of UTXOs. Everyone else has their set of

UTXOs. When you add up all those UTXOs that everyone else around the world's owns, that adds up to the exact amount of Bitcoin that exists in the world today. And when you spend a UTXO, you know, you've got your $100 bill, you go to the convenience store, you want to spend $3. You can't rip off a corner of the bill and hand that to the clerk. All right, you have to spend the entire $100 bill. It splits into two new UTXOs. They get their $3 and then you get changed back for $97. And that's, you know, one UTXO is now spent and that becomes two different UTXOs.

same way you can combine them. If you had to spend $1,000, you can combine multiple UTXOs together in a single transaction to spend $1,000 for something. So I think that visual has always resonated with me. Okay. So now we've got these two really important terms, UTXOs and oracles, define for folks. Tell people about your discovery. Steve, I'll pass this one to you. You want to pass that one to me?

Okay. I do like that analogy of using coins or bills for UTXO. If you want a little more technical way to think about it, you know, Bitcoin is a database system. Things in databases are stored in rows of a database, kind of like an Excel spreadsheet. And every time you make a new transaction, you're creating kind of new rows.

And you can think of each row on the spreadsheet as a UTXO. It's just that in Bitcoin, you have to delete the old row. So it's kind of like the old row up there is kind of not active anymore and you have like two more rows. And these transactions, they're all publicly available. They're on the Bitcoin blockchain. And one of the things I've kind of been passionate about for a long time is data visualization. And I think it was about five years ago.

Well, I started making these heat maps at UTXO.live probably like eight or nine years ago now. And then of all the sorts, interesting sorts of things I saw in these heat maps, one of them was the USD price. So I've known that you could look at the heat maps by eye and see the Bitcoin price on chain for like, what, five years now? Was that at that Starbucks meetup back in 2018, Daniel when we saw that, I think? So yeah, it's something I've known for a long time. And I thought about all the different kind of creative ways I could write some kind of pattern matching or machine learning. or, you know, I've been thinking about all the different ways I could have pulled out what I can see by eye and just finally did it in January early this year. So for people that are trying to just kind of wrap their head around how profound this is.

So you have all the transactions that have ever occurred throughout time that are graphically being shown. And we're going to have some links to in the show notes for people to kind of pull up these charts and some articles that are written about this. But you can see like these like wiggles in the chart that are brighter than the rest of the transactions. And Steve, for both of you guys, when you saw this for the very first time to start to show up, you knew immediately that that was in USD terms, that that was like the price action that was kind of manifesting itself in these patterns that you were graphically displaying. Was it just immediate that you knew that that's what it was?

I didn't know what it was at first. you know, when you look at these heat maps, you can see things like when miners get paid out, you know, the dust limit. You can see that people don't really transact very much on Saturdays and Sundays. I saw really interesting things during the Mount Gawks collapse that I still don't quite understand. But then I saw, I think starting in like 2012 or 2013, these really like faint traces. And then there was a bunch of them. And they were all like wavy, but they were all co-aligned with each other and all parallel.

And I was like, oh my God, is this it? Is this really the USD price on chain right here? It was kind of mind blowing at first. I mean, there's tons of things about Bitcoin that just give me that like shot of joy that like restore my faith in humanity. This is definitely one of them. It was just like, wow, this is a pretty big deal. This Bitcoin system that has like, I don't know, it's like our main way of storing truth on earth, it seems like. And now we have the Bitcoin price in there.

So it was just a great. day seeing that. So you guys came up with a model that you're going to have to help me out on the stat here. So like when we go back and we and anybody can run this with the Python code that you guys wrote, I could plug it into the node that I run and I can go back and you could say Preston on last year on this day, what was the price of Bitcoin and without referencing any exchange, but just looking at the Bitcoin blockchain, transactions in Bitcoin, I can figure out what the dollar price is within how much variance is in that? It's within about a percent.

Yes. On a normal day, it will be about, you know, between 50 basis points and 1% different from the daily, you know, VWAT price. And that would be all the exchanges combined. You're within 50 bibs to 100 bips of that price. Yep. What date does this start manifesting itself that you can start seeing this in the blockchain itself?

The thing I published, I published the price, history back to July 26th, 2020. Sometime in July, you could see the emergence of the USD denominated transactions becoming a lot stronger. Like I said, I mean, you can, if you look hard at those heat maps, you can see the price back to like 2012. And I wouldn't be surprised if UTX Oracle did work back, you know, to 2015 or 2016 or something.

I just, I haven't tested it that far. But yeah, the prices that we've tested since 2020, July of 2020, have been really accurate. And just one of the things I get that question a lot, right, accuracy. And I usually respond by like, well, what's the true price? Yeah. Like, show me the true daily average price. It's like it's 1% away from what. All the other models are off.

Right. Yeah. There is no reference rate. Right. And like an exchange price, you know, we're normally talking about, let's be on, we're talking about Coinbase, finance. We're talking about these exchange prices. These are places where you pay money for Bitcoin and then you kind of have an IOU

and I hope of being able to withdraw Bitcoin a week later. Is that what spot price is? I love it. You guys are hardcore. I love this. No, so I get, I mean, I get what people say. They're like, is it way off? You know, it was like way off.

I mean, it's a fair question to ask. But once you start getting inside that 1%, it gets kind of cloudy about, you know, what the true prices. 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 high. 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.

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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. I'm curious of how you came up with the Python script. Is there AI here that helped you model this? Or like, how did you guys come up with the code to do this in very general terms?

Yeah, I guess I'll take that one, Daniel. Yeah, so I have kind of a background in machine learning. And I did some graduate courses in this. And I've just think about, do you want to use a neural network here? Do you want to use some of this new stuff? Or do you just kind of want to do something simple where other people could actually understand how it works. And I ended up going with a simple route where it's kind of like, well, I call it a stencil

method where if you think about a day where every transaction was in USD and you think it kind of like a bell curve of those transactions, you just see spikes, right? just at like $100 and $10 and $5. So I created this stencil, which uses kind of the average frequencies in which people spend this stuff on Bitcoin. And then I just slide that stencil over each day. And wherever it kind of locks in,

wherever it's maximized, that's what I use to estimate a price. Wow. Okay. Me as a non-technical person, you know, I can open the Python file and it's well annotated and I can read through it and understand pretty much exactly what's happening. And it's only a couple hundred lines, right? And this is a, it's a very simple thing for

someone if you're, if you're already running a full node to just run it yourself on your own local computer and get the output price. And it's a very cool experience. It's kind of on par with that first running a node and seeing the blockchain do the initial download of blocks from 2009. It's a very cool experience. I'm curious if you would just take the aggregate price from all the major exchanges and basically use that as your test, like, this is the price that it should be, and then you do an AI model. Do you feel like you would have got as good of a result as this simple, simplified approach that you took? I think it's that same question again. It's, you know, how would you really know what's more accurate? I mean, I think you could write an AI model that

added a lot of complexity that was probably more resistant against someone trying to manipulate it. And that's something I think about a lot. It's kind of like a tradeoff between complexity and reliability. But you also kind of have understandability of the code in that tradeoff too. And like Daniel mentioned earlier, you know, please everyone open up this Python script. If you've never opened up a computer program before, do it here. I mean, I put a ton of English words and explaining every single step of what I do. I taught introductory computing at a major university for a while. I'm very good at kind of like teaching people how programs work like on the base layer.

Like open it up, I think understandability of code is, it's very important. Like we don't want a black box AI UTX Oracle because why would he might trust that? And so, yeah, so there's just a lot of tradeoff there. Yeah, and the same logic applies to the rules of the Bitcoin, right? That's why it's 21 million. Anybody can understand that. It's 10-minute block times. It's not an AI-generated thing to sync up with the U.S. time zones.

And, okay, business is more rapid on 8 a.m. on a.m. on a Tuesday. So we need faster blocks. And it's like, no, it's just 10 minutes, 21 million. Anybody can understand it. Because that's what you would get effectively if you did an AI model, is it would be taking into account a lot of these other things. So there's been a lot of naysayers. There's been a lot of people that are really excited.

about this in the comments of your of your post on Twitter where it was announced. I would I was surprised that there weren't more naysayers actually. Sorry, I didn't mean to interrupt. No, no, no. For Twitter, it was way positive. It was very positive. Shockingly positive. It was very positive.

Sorry, president. No, no, no, no. I love that. I would say like at least my, my read on people's comments was this is really interesting. I don't know that if I was entering into a derivatives contract that I would trust this as my sole oracle, I would probably want this in concert with others that would be weighted a certain way or whatever. I'm kind of curious how you guys see that as the creators or discoverers of this. Yeah, Preston, from my perspective, I think Steve and I wholeheartedly agree

that this is number one, this model is not perfect. And two, it's impossible to create a perfect model, right? Because the world changes and people's use cases change, the threats that you're trying to protect against change once things are known. So I would not just blindly use the model for a multi-year million dollar derivatives contract at this point. You know, there's more research that we can put into things. That being said, it's been very consistent over a multi-year period and not having large deviations and extreme volatility. So I do think it's, It's quite robust, but from a practicality usability standpoint, there are a lot of teams out there working on these types of multi-orical,

decentralized, DLC-type solutions. And my hope at least is that this version of the model or a derivative version could serve as an Oracle in those types of setups and just help people to do more things in a decentralized way. It's not really possible these days. The example I like to give for this is like, oh, well, why don't you just use a three of five multi-orical centralized approach and say, okay, well, the oracles that you chose were FTX and BlockFi and Celsius and Voyager and fill in the blank other. And it's like, surely not all five of those are going to go

away. It's like, oh, well, in the last year and a half, all those have gone away. Yeah. And now you can't settle your contract. Whereas if you had layered in the UTX Oracle, it doesn't matter of all of those have gone away, you have this fallback mechanism to rely on the on-chain data to where even if you're using a centralized venue, this is a great backup for you. What type of feedback have you guys received that was, in your opinion, pretty thoughtful or something to consider kind of moving forward ever since you announced this? Yeah, like I said before, I had just been blown away at the positive nature of the feedback. A couple people have shared some ideas about how to improve it. We had a few people that

actually ran a node for the first time in order to get this running. And I love seeing that. I mean, that's a big motivation of mine is just allowing people to do cool things with their node. Daniel, did you get anything else? No, I think it's, yeah, the people that have initially seen the idea and it really clicks with them, it kind of just makes sense. It's one of those things where once you see it, you can't unsee it. And it just, it intuitively makes sense why, you know, when you send your cousin $100 a Bitcoin, you're not pegging. that to the price a month ago. You're saying, okay, I'm going to send you $100, here's $100, and that UTXO shows up on chain. And when thousands of people do that every single day in

different USD denominations, it's kind of crazy that we haven't talked about this before. Yeah. And before you actually look at the data, you might just think, oh, okay, there's just a little bit more transactions right at these even amounts of dollars. It's way more. I mean, it looks like this giant, if you look at the bell curve, it's like a smooth bell curve. curve. And then there's these giant pitchfork prongs sticking out that just go into the stratosphere. And it's like, it's very clear where $100 is. Like that's, there's never a question in my mind, especially for a human. I mean, it's a little bit harder writing the algorithm to pull it out. But a human would have no problem looking at the heat maps and telling you what the price is.

And yeah, along the lines of that, how robust is this? It's certainly new. We've been doing it for a while. It's still probably in kind of a beta stage. But we thought it was a good enough idea and a kind of original approach that needed to be shared. Like me and Daniel, we're just like, you know, we shouldn't just keep this to ourselves. Let's just go ahead and release it. Obviously, it hasn't been tested in any kind of adversarial environment. Who knows what all happened with that. But we just thought it was good enough to release at this point.

And if a person were to try to game this, like walk us through. how you would try to game it if you were an adversary, just so we can kind of like, as a thought experiment, kind of understand the vulnerability. You want to take that, Daniel, you want me to go for it?

Sure, I'll hit a few of them. I'm sure you've got others. There's a couple of things that just, they might just happen over time natively without anyone trying to game it. If the average transaction fee on Bitcoin is over $100, then it's not going to make sense to send $100 to someone anymore.

So that line would just, not be visible on chain anymore because people don't send in those round amounts of that magnitude. So the answer is hyper-Bitcoinization would invalidate it with enough time. Exactly. Yeah, that's a good point. You just do the lines at $10,000 would be fine. Yeah, yeah, yeah. You know, when Bitcoin price goes up, like Preston or like, what's his name?

You know, when Bitcoin price goes up, people just use Bitcoin to send higher amounts of money. And those lines would be even. more crystal clear, in my opinion. It used to be you'd send your friend $1 a Bitcoin. Nobody sends $1 a Bitcoin anymore. You send $10 or $50 or $100. Yeah. One other reasonable approach that someone might take is just to create a lot of UTXOs

that instead of $100 or $1,000, you'd create $107 just to create more confusion in the model. But for many reasons, I don't think that that would be an effective use of an attack because number one, you can add. UTXOs to the Bitcoin data set, and you can transact on your own. But this whole horde of other people that are just transacting in their daily lives, they're not going to stop just because you're attacking. All you could do is create a second line with a slightly different price. And I don't think that you would overwhelm the entire global user base of Bitcoin

in that type of attack. And you can't get rid of their UTXOs. All you can do is create a slightly, you know, a slightly different line, which you'd have to have a lot of money on the line to give, you know, to give it that much effort and cost. You'd be paying huge fees for doing something like that, right? Right. And by my estimate, at today's rate, it would cost you about seven Bitcoin a day to do this. And another nuance here about how this model works is we're taking the average price for the day.

We're not just taking a single blocks worth of UTX. So you'd have to create this signal over a full day. And if a day is not long enough, just wait longer. All right. Just do it a three day or a seven day or a 30 day. And that just drastically increases the cost of attack to where if you're doing a year-long options contract on-chain, you probably don't mind taking the last month's average price for the settlement price. And you could do that very easily with this model.

Yeah. Well, that's how a lot of these derivatives contracts are closed out. It's the close of business on Friday of this date on this month. Your seven Bitcoin threshold is you're saying to basically wash out because Steve described it as basically like these peaks that really like stand out on the blockchain. So you'd need seven Bitcoin per day to basically wash that out across the whole spectrum. It seems like it would be higher than that. Well, no, what you, you'd be paying seven Bitcoin in fees just to create a second set of lines. Oh, got it. Okay. So that there would be rivalry. Okay. And then you also need about $100 million of Bitcoin to make those UTXOs as well because you're going to have to do tens of thousands of transactions

in a day that's going to use Bitcoin to do that. So it's going to be fairly expensive. But I've seen the, I've seen the chart and you have lines at 100. You have lines at 1,000. You have lines at 10,000. So you would have to basically replicate the 107 and the 1,070. Right. So like it seems like it'd even be more than what you're saying. Right. Yeah, you can't just manipulate one line and think, you're going to fool it. But keep in mind, when you are paying high transaction fees, you are trying to crowd other people out. So, you know, one person could essentially pay the entire fees and be the only person in the blocks. So there's, there's that to add to it. But that might just be astronomical

to think someone would pay the fees for all blocks in a single day, but they might. But anyone who is really seriously considering using this for some high-level contracts should have some kind of model of the cost of attack because that would give you kind of a natural price. You wouldn't want to exceed in your contract or something like that. Do you guys think- The block fees are, those are constantly iterating. So if this type of thing were happening, after 10 minutes, the entire Bitcoin blockchain's fee model would kick in and everyone would be paying a higher fee.

So it's going to get exponentially more costly to run this type of attack if you're running it, you know, actively. To me, it seems like the signal, in the data is getting stronger with time. Is that what you guys are seeing? And so like if we warp five years into the future, do you feel like this signal or this peg to the dollar in the data is this Oracle data is going to get stronger?

I've been surprised at how strong the USDA round amount of patterns have gotten. Right now, I would predict it getting stronger, you know, in the long run. You know, hopefully it's like a dating app that's designed to be deleted. Like hopefully, you know, USD isn't the major unit of account for the world in 100 years. But right now, yeah, it's gotten stronger. That's been interesting. It's also interesting. So back in 2015, the brightest line was like the $1 line.

And then it was the $10 line. And now it's the $100 line. Maybe the brightest line will be $1,000. So that's happening to. Yeah, not sure. But definitely, definitely getting stronger over the last few years. Okay. Yeah. Oh, go ahead. It's also just one of those things we're pressing. You hit it dead on with, you know, hyper-bitquinization, this line probably, the signal probably goes away.

Because why transaction dollars if hyper-bitonization is here? And also, if Bitcoin goes to zero, the line goes away because, so either way is going away eventually. But who knows how long that will take. Looking at the heat map, one of the things that I found really fascinating and I think I'm understanding the data, but correct me if I'm not, I feel like I can really see the hot. waves on the chart behind you there, Daniel, in particular, where you can see where the price in dollar terms kind of hit its high. And you can see how people who were sitting on coins, like just let them age as you go through this next cycle. I'm curious, A, is that correct? And then B, what data or what visual are you seeing beyond what we've already talked about that has just really been intriguing for you guys by looking at all of this. You're definitely right about the way you can see the hotaways and the charts.

I mean, I like the triangle better than the hotaways chart, but that might just be because I'm more familiar with that triangle chart. In terms of what other pattern, I'm sure I could think of something. Daniel, do you have anything in mind? I'll just say there are, this is not necessarily a modern thing, but this concept of Bitcoin archaeology or just like, you know, digging into the UTXO set and seeing the history of things that have happened. Steve has a really awesome chart that is annotated over the entire history of Bitcoin's existence about interesting things that are happening. So there's,

there's Satoshi coins, there's Satoshi Dice, there's Mount Gox, there's all these things that have happened. And then there are some other things that are very visible and distinct on chain, but there's still a mystery. Somebody was testing a wallet back in 2011 and they created a bunch of these UTXOs that are still there today. And that in all likelihood will never ever be move so they're just permanently there. There's a lot of cool things you can look at in the history. Yes, so UTXO. Live has some really great charts to explore that type of thing.

We'll have to have a link there. Okay, that's awesome. I did think of one thing that I am fascinated with is I have one. If you go to UTXO Live slash changes, I think it is, you can see what the distribution of ages of coins that were spent yesterday were. And this distribution is fascinating. So, you know, you get things on glass node kind of like, you know, the average holder is holding on for two years and this has changed, whatever. But I think it's so much more fascinating to just look at that statistical distribution of how long people have been holding on to the coins they spent every day. You know, you'll see one or two coins that are spent from back in 2013 or 2012 or something like that. And then you'll see this kind of like bell curve in log space over amounts where like, you know, the mean is right at the point. 0-1 Bitcoin and it kind of maybe the top of that bell curve goes back three or four years or something.

And that makes me think about, you know, this is kind of philosophical, but like, is there a sense of an average time preference of how people just act in general? And could something like the Bitcoin blockchain really tell us something about average human behavior in terms of time preference? So that's kind of just like a more of a scientific question. but I'm interested in that. I love both of those. That's awesome. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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on this new development that we've seen really kind of play out here in 2023? And is there any type of cause for concern as far as the impacts that it might have on the longevity and just the use and the utility of the blockchain? I think from both of our perspectives, we're largely just Bitcoin only, right? So I don't particularly have any interest in ordinals or inscriptions from a monetary perspective. I do like the concept of the numbering and just having a social layer of like, okay, we're going to number these UTXOs and do fun things with them.

but I'm staunchly Bitcoin only from that perspective. And I think we'll probably talk about this more in a bit. But just changing the Bitcoin software has unintended consequences. And to claim that any type of change that you happen to personally want and advocate for, I'm not advocating for any change in Bitcoin with related to, you know, with regard to UTX Oracle. The good news is it works today without any changes, which is nice. Yeah, yeah. I just think that people need to really be serious when they consider these things.

And there are going to be second and third order effects that we can't predict, you know, with with inscriptions coming out of Taproot and other changes that people are talking about today. It's just kind of naive and foolish to think that we know all the answers about what's going to happen with changes in Bitcoin. Steve? Yeah, I pretty much agree with Daniel on that. I'm more on the conservative side when it comes to changing the code. You know, I've been around forever. You know, I lived through the block size wars. I, you know, that was a deeply personal time about whether we thought Bitcoin was going to survive.

Yeah, the changes people won't want today, they just, it doesn't seem like that big of a deal. You know, keep in mind, like Daniel said, you know, but for Taproot, nobody saw any problems with Taproot. And then now we kind of have things that we didn't expect to come, which may have come more from the Segwit limit. But, yeah, there's going to be unexpected changes. You can't predict complex code really what's going to happen. for it. What you want to introduce into the code is probably not going to be how other people want to use it. So it doesn't really matter what you think the code can be used for. It matters like what else it can be used for. But, you know, Bitcoin is, you know, I write software.

I understand that you always kind of have to keep software up to date. So it's not like total ossification, but just a conservative approach. Well, there's just so many greenfield areas of development that we have not exhausted or even come close to exhausting with Bitcoin today. You know, there are, there are very few tap-root specific applications in use today. And it just takes a long time in Bitcoin to do anything. And having a long-term perspective is really necessary to keep your head on straight, basically, because things are not going to happen on your time frame. And people just have to be okay with that.

It doesn't mean you can't work on things and propose things and talk about it, But you can't expect to change it on your timeline. Yeah, I'm with you guys, 100%. The thing I tell people is if we truly want to change the direction of clown world, like the only way we're going to do it is with sound money and money that's immutable and all the stuff that we talk about in Bitcoin and tinkering with the code and doing the gee whiz swoopy thing that everybody's talking about in the moment is just all risk to perpetuating clown world as far as I'm concerned.

So, yeah, I'm with you guys 100%. Daniel, you wanted to talk about positive rationalism. Explain what you're getting at with this. Well, I kind of, it's sort of piggybacks on what you were talking about just now with not participating in the clown world. You know, it's almost impossible to look anywhere in life today and not just shake your head and say, like, what in the world are we even doing? How do you consider these to be serious people who are doing a lot of these things? And I think with Bitcoin, we have a good history of being seriously considerate people. And because of that, I am mine, I think every other Bitcoiner I know, if you were to talk to a Normie and say, like, oh, what do you think about the Bitcoiners?

They'd probably think that you were a doomer and that you were pessimistic. And you're like, oh, just burn everything down. But that's not how Bitcoiners actually live their lives. These are people who are optimistic, you know, reasonably optimistic. We don't think that there aren't challenges, but like I listened to your conversation with Guy who's a good friend of ours as well. And, you know, Guy is really positive on the AI trend, not for its centralizing effects, but for its decentralizing effects. And I feel the same way. With everything that happens to the negative side, luckily there are extremely positive things happening as well on the on the social layer, on the personal layer, on the business layer.

You just have to open your eyes and participate in these things to really see how important they are. But yeah, that's where I come at it is there are so many good things happening in the world that kind of get swept under the rug because they're not maybe as fun to talk about as the sensational headline. But I'm very optimistic for the future of the world and for my family. And I think that that's very common with Bitcoiners. Amen. Amen. Steve, did you have anything to add on that one or did Daniel? Oh, yeah.

Absolutely. Daniel was really good at speaking about that kind of stuff. Yeah, I mean, Bitcoin really, there was a time in my life for sure, 2013, 2014, 2015. It was like Bitcoin is really the only thing I think is true and is kind of like optimistic. And that's the reason I held for so long, to be honest. People think holding through the bear market's hard. I mean, it's not hold the hard through the bear market when you feel like this is like the greatest path forward for humanity. It's pretty easy.

But yeah, definitely not go to that rational opposite. You have to understand it for the essence of what it's trying to accomplish to look at it through that lens. If you stepped into this purely because you were trying to make money on number go up and then you're not here for like the actual mission of what it's trying to accomplish. I think the bare markets just wreck havoc on the people that are here for all the wrong reasons. That's the situation I found myself in back when I first got into Bitcoin was I saw number go up. And immediately after I bought a number went down for a long time. And you know, you get to a point where you have to ask yourself like, why do I own this thing? And so you start asking the questions that everyone asks.

And it turns out they're really good, solid, considerate answers for these questions. And another thing that we were talking about earlier, Preston, about this orange pill culture of like, yeah, I sat down with my neighbor and I orange pilled him. It's like, guess what? That's not going to stick. You can't just tell someone to buy Bitcoin. Yeah. It takes weeks and months and years in some cases to really internalize why. This is why money and having a good money is such a big deal.

And it doesn't just stop it money. It affects your personality, your life, your family. You know, it affects the world. And this is not a trivial thing here that we're embarking on. I was talking with Jimmy Song recently. And he got into like the cultural world. rot that really kind of manifests itself through Fiat. And I just find it to be so true and so important and just at a much deeper context than I think most ever would even give it the time

of day to have that conversation. But when you really pull the thread, it's just, it is just Fiat in general is just wrecking havoc on society at large globally all over the place. But Daniel, you have a very interesting quote on Twitter, and I've got to ask you about it. It's very short. You said clocks didn't create time. What are you saying here? I was getting a little philosophical over the weekend. And just thinking about, number one, thinking about an analogy for how to explain to people the UTX Oracle concept.

But just the fact that when people say, oh, what's the price of Bitcoin? You look at your venue of choice. But that doesn't mean that's the price of Bitcoin. Time existed before we had clocks and the price of Bitcoin existed before there were centralized exchanges. So just trying to conceptualize the fact that there is not a particular price of Bitcoin. And if you like using the UTX Oracle model as the price that you're using for whatever you need, you know, go for it. This is a method of doing that that doesn't rely on a centralized party. That's pretty much where I was going with that. We had a side conversation about this. and there's a group of people that talk about Bitcoin in time. And it can get a little confusing and you can get wrapped around the axle. So I'm not trying to go too deep with the time thing, but just the fact of there is no Bitcoin website, right? There's not even a single version of the Bitcoin software. There's Bitcoin Core and there's other versions that, you know, of course, the main version people use.

But there is a single Bitcoin blockchain, right? And that's the only real reference we have to Bitcoin is the blockchain and the YouTube. TXO set, everything around that changes. Yeah, and if people are looking for an article on Bitcoin and time, Gigi has probably one of the most eloquent, just thought-provoking articles there are, which we could have in the show notes as well. Last thing that I want to talk to you guys about is just meetups. And I think was it Steve or Daniel that you guys were talking about the various ideas that

still need to be shaken out, smelting, the 2106 time bug. things like that and how you're able to chew on ideas and interact with other people with local meetups. Give us some of your thoughts on this. Yeah, I would love to have one comment on that. And Steve, I think it'd be great for us to touch on the 2106, if you'd like to, just for a few minutes. From the Raleigh-Bitcoin meetup crew, it's just such a phenomenal group of guys and people that for years and years at this point have just been consistently meeting up. I mean, I used to live in the area. And it was essentially like every night of the week, there was a different Bitcoin meetup you could go to. It was great. And these are all just normal good people

who care about Bitcoin who are just genuinely interested in talking about it. You know, there's a, there's a lot of people in the space that you kind of reflect back on your time and you think, wow, has there been a day in the last X number of years that I didn't think about Bitcoin? And if there are any, they are very few and far between. Because it's just the most fascinating concept in the world. And it really keeps your attention for longer than most people can say about anything else. And I think big coins are probably the best nurturing ground for that. It's the place where you can go and ask the ridiculously stupid question that you're afraid to ask elsewhere. And big corners are, they have a gruff online presence,

but they're extremely nice people and will help you in anything. And that's their favorite thing to talk about. So they would love nothing more than you, to, to come to their meetup and talk about Bitcoin with them. So yeah, the Raleigh crew has a great meetup scene and I'm in Nashville now and we have a great made up scene here as well. So pretty epic in Nashville. The ideas that come up in the meetup scene are really phenomenal. We've had a couple in the Raleigh group. I'll give a quick plug to smelting. It's an idea that really doesn't happen right now and it does have some serious drawbacks with block reorgs, but it's essentially a way to coordinate with a minor to spin a UTXO and then

get a new UTXO from the Coinbase transaction. So you end up having a UTXO with fill in the blank whatever history yours had that's getting chain analysis run on it all the time. And then you end up spending that one and getting a fresh new UTXO from a coinbase that was created from nothing. And you do that through paying a really high fee to a miner. And it's a pretty cool concept. And it makes a lot of the chain analysis stuff a lot harder and maybe impractical.

So that's my point about there. a lot of privacy and scaling and other techniques that we have available to us today, if the need arose, that we just really haven't developed enough to pursue other types of changes to the core protocol. Steve, did you want to talk the 2106 time bug? Sure, yeah, Daniel, thanks for giving a shout out of the Raleigh meetup. You moved away and you're still putting out ads for us. I appreciate that.

A little nine credits. Yeah, we got a good group there. But yeah, so 216 bug, I don't know. You know, I think about what do I want to work on? Like, how do I want to contribute to Bitcoin? I think the best improvements to Bitcoin code are ones that actually solve bugs, make things more efficient. Adding features.

Okay, but, you know, there's an actual bug out there that's going to happen in 2106. If you run UTX oracle. com. I print out a display with kind of like the progress or whatever. And one of the things in that display is the 32-bit time. field in the block header, which is a problem because in 2106, those 32 bits fill up with all ones. So we do need to figure out a way to get past that. And part of me is like, oh, we got plenty years to do this. Like, who cares? But then I hear people coming on podcast talking about like,

well, we have to hard fork anyway because it's 2106, therefore we should consider these other changes. And I feel like this is a one, it's not really accurate and also it's kind of dangerous. So I was thinking maybe I should just start kind of like working on this problem. And I've seen Greg Maxwell and a couple people post very kind of like easy, simple solutions to this. And so I don't know. I just thought I'm probably going to start working on that problem next. I love it. You're describing like pork barrel like politics, but for Bitcoin updates where people just want to throw in everything, right?

Like now we want to drive change. It's deep down in the weeds. That's awesome. Okay, guys, I really enjoyed this. I learned a ton. I am way less skeptical as to the vulnerabilities to this after talking to you guys than going into the conversation, to be quite honest with you. I'm very curious what people listening to this, what their opinion might be afterwards. Make sure you guys comment when we release the show on Twitter and let these guys know your thoughts or concerns and highlights because this is really exciting.

It's an amazing discovery. And kudos to you guys for pulling this off. and writing the code that people can go and run right on their nodes and never have to reference an exchange ever again and what the price of the dollar was at any moment of time. So, Bravo. Give people a handoff to if they want to learn more about you or more about this. Steve, go ahead and throw it out there first. You can find me, Steve Simple, on Twitter.

But go to the website, utxo. Live. You can click on Oracle at the top there and open the Python script. You don't have to go to GitHub to look at software. It opens in a website. I don't love GitHub. It's a scary place. You can open UTXOoracle.P.U.I.

in your browser on the site, utxo.com. Live and just read it. It's written in English, mostly. On Twitter, I am Daniel L. Hinton. And, yeah, I just encourage people to participate in your life. You know, if you're interested in Bitcoin, run a node, go to a meetup, think about it, come up with ideas that you think can make Bitcoin better or use it differently.

because, yeah, there are a lot of very fun things. And honestly, this has been a very enjoyable process. It's so much fun hypothesizing and theorizing about these things. And yeah, I'm just glad I get to do it with such good folks. Gentlemen, thank you for your time. This was a blast. Thanks, Preston. Thanks, Preston.

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