We Study Billionaires - The Investor’s Podcast Network - TIP141: (Part II) Warren Buffett and Charlie Munger at the Berkshire Hathaway Shareholders Meeting 2017 - (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, I have Mr. Alexander Leashman, who's the founder, CEO of River Financial. During the show, we talk about whether the Lightning Network has the scaling capacity to take on global transactions without centralizing forces compromising the Bitcoin mission. We talk about the impact of AI and how Bitcoin's immediately settling network with near-zero of fees is potentially one of the ways for its growth to take place. Alex is a software engineer with a master's from Stanford University and is one of the leading experts on Bitcoin's code

Starting point is 00:00:37 and improvement proposals. So we get into the tech. We talk about his entrepreneurial adventures, building such a successful company in such a short amount of time and much, much more. So with that, here's my interview with Mr. Alexander Leishman. You're listening to Bitcoin Fundamentals by The Investorses, Investors, podcast network. Now for your host, Preston Pish. Hey, everyone. Welcome to the show. I'm here with Alex. And we're going to cover some interesting things today, Alex. So welcome to the show. Thanks for having me on. I want to start this off. I'm going to do this a little bit out of order. We're going to talk about you and the company that you

Starting point is 00:01:28 created and all these amazing things you guys are doing kind of in the second half. Because there's a bunch of topics like current event topics that I just want to pick your brain with personally. And So that's where we're going to start. So everybody's talking about this ETF, right? And to the point where maybe it's gotten a little out of control. But I'm curious from your point of view, and there's a reason I want to start here, because we're going to get into really kind of layer two on this topic in particular. But I'm curious, just your general overview of a Bitcoin ETF, what it means to the space, what it means to Bitcoin, like all that. What's your thoughts? The way I've always viewed an ETF is it fits the interface that the big money is used to.

Starting point is 00:02:12 It just plugs into the existing financial infrastructure for investing, which most capital has access to that's already set up. So what it will do is it will make it a lot easier for the big money to make allocations to Bitcoin. That's the upside, you could say. The downside is the risk that comes with that, which is this becoming. the default way for people to buy Bitcoin, which I don't actually think will happen. I think it will attract a lot of investment, but I think that people will start to realize that their Bitcoin is

Starting point is 00:02:45 really trapped in this instrument. And by buying Bitcoin through this, you're missing out on a lot of the benefits of having the self-sovereign liquid asset immediately at your disposal. I think we'll see people sort of weigh the pros and cons of this. But I think overall, it's going to bring a lot of positive attention to the space. I mean, just from a proportion standpoint, what are we at? 19 million have already been mined and are out there and are not in an ETF, right? So with the remaining amount and how much of that 19 million will get sucked into an ETF, I think it's going to be a pretty small proportion, relatively speaking to the amount that's actually in circulation that are out there. Any thoughts, additional thoughts on that and like how, I think it's

Starting point is 00:03:31 it supports your argument that it's not going to be a driving factor. Yeah, I tend to agree. I don't think it's going to be a massive amounts proportional to the amount of Bitcoin that's already been mined. I mean, I think the sort of the thought of experiment is, okay, all the Bitcoin that's been mine is either owned by somebody or lost. What percentage of those people are willing to sell that Bitcoin to BlackRock? Not many.

Starting point is 00:03:55 Yeah. That I know, at least. We're going to hold through this, you know, maybe, maybe long term, we'll see something there. I think, you know, one risk is potentially like regulatory capture. Lock Rock pushes for this as being the only way to buy Bitcoin, making it really, really hard to actually buy Bitcoin yourself and take control of it. So if we start to see moves like that, and then I think we'll know something's afoot. You know, we've seen the regulatory approval come through over in Europe,

Starting point is 00:04:24 and I guess they're getting ready to launch an ETF over there. I'm curious, and I know there's really no way to say, one way or the other, but it almost seems like here in the U.S. that there's this competitive piece that that's why it's being pushed so hard on the SEC, like, hey, come on. Like, we're losing the race here on the global scale of having these products in the market. I wonder if some of that might be also impacting the recent push that you're seeing with BlackRock and whatnot. Have you heard any rumors on that side?

Starting point is 00:04:56 It's certainly possible. I don't, you know, it's funny. I think for most people in this industry, the SEC still feels like a black box. And I really don't know. You know, I think that a lot of people there mean well, they want sort of, they want American capital markets to be the safest in the world. But I do think there's something else in the psyche over there. I think there's like sort of political machinations and how big of a driver is it to try

Starting point is 00:05:23 and compete with Europe there? Unclear. I really don't know the answer. So this is where I really, where I really, want to go with this. So let's say that we get, you know, I don't know how much Bitcoin could flow into one of these ETF products. At the same time, you have this demand for Bitcoin as an immediately settling, just like currency is, but Bitcoin's different because it's actually money, but this immediate settlement mechanism, as the demand for this immediate settlement mechanism keeps picking up and

Starting point is 00:05:53 becomes higher and higher, you're also having an incentive for Bitcoin. to be loaded into these channels through the Lightning Network in order for the Bitcoin to actually be used in this manner. I heard you speak in Nashville, and you were talking about the capacity in the channels, not necessarily being a correlation to what people are accustomed to, and maybe the need for all these coins to be loaded in these channels isn't as high as what some people might suspect it is. So there's a lot wrapped into this question. So I'm just curious your thoughts. large, but with all these ETFs now sitting on large swaths of coins, and I guess we're warping ourselves five, ten years into the future, is there going to be a drive for them to

Starting point is 00:06:40 load them into channels to collect fees on behalf of these people, further making the custodial piece of this even more complex and complicated for the people that are just allocating into an ETF because they just want to turn key solution? So I personally think it's unlikely that large amounts of Bitcoin in the near future will be able to be efficiently allocated on the Lightning Network to generate yield. The reason for this is because you don't need that much Bitcoin on the Lightning Network to process lots of volume. And if you were to draw the curve of sort of the theoretical yields you could earn by opening channels in the Lightning Network and facility. facilitating payment routing and the sort of like maybe Y axis is sort of yield in percentage and per month per se and X axis is on a Bitcoin. You see that drop off pretty quickly.

Starting point is 00:07:39 And there's just not like there's just a point where adding more Bitcoin gets you quickly diminishing returns from a percentage yield perspective. And you just quickly drive to zero after putting I think a couple hundred Bitcoin on the Lightning Network. And I'm not so sure that chain, that drop off moves substantially over the next five to ten years. But we'll see. It's going to be a very competitive market. And I don't know that funds will find that risk-adjusted return worth it. So is it the network architecture itself? And when I say that, the connection between various nodes and servicing nodes that are kind of outliers on the network, that's way more important than the amount of coins that are loaded into the channels of the network. Is that

Starting point is 00:08:24 you're saying? Well, what really matters is how much, so if your goal is to earn returns by running a lightning node and facilitating payment routing, there's a lot of variables here. But at the end of the day, what you actually want is payment flow coming through you times your average fee rate. So you're trying to optimize that number. So opening more channel doesn't necessarily get you more payment flows. You know, the way I like to think about it is almost sort of like running a lightning node

Starting point is 00:08:54 it's almost kind of like being Citadel. Like they're trying to get order flow, right? To market make and a lightning note, you're trying to get payment flow. And so there's a number of ways to get payment flow. And obviously to do that, you have to open channels with peers so that, you know, payments were out through you. But you'll, you'd have to be positioned in a network in an optimal way. You know, just opening a node, starting a node and opening channels doesn't necessarily mean

Starting point is 00:09:18 anyone, why would they route through you and not someone else, right? There has to be a reason. And so I think what we'll see is, You'll see a sort of like a paraded distribution of, you know, some really big nodes getting most of the payment flows. And then you get these longer tail nodes. At a company like River, right, we are running a, we have a number of different business lines. One of them is this Lightning Network infrastructure business, which actually gives us proprietary payment flow. Like we're getting people kind of like Stripe does for credit cards, right?

Starting point is 00:09:45 We're getting people making lightning payments through us. So that flow is sort of like we have, that's proprietary coming through us. We decide sort of how that gets routed out. So that's another way to get payment flow, sort of playing a higher level game if you think about it that way. So this is through the API that you guys offer through the Lightning Service. Is that what you're referring to, Alex? Yes. Yeah, we have an API that makes it easy for apps to add Lightning payments.

Starting point is 00:10:11 And so, you know, Chivo, the app in El Salvador uses us and sort of a growing number of exchanges and others. I guess when we're thinking about this whole network, layer two network and the immediate settlement, it's almost like the net producers at the edge of the network, the edge nodes, are the ones that all these SATs are being moved to, and people use an abacus to talk about the Lightning Network. And if I'm just trying to intuitively understand where the payment nodes that are going to collect the highest fees, it's going to be correlated to where most of the buying power is ending up. So let me give me an example. If I'm Apple and I'm a huge net producer and you can see it in their bottom line. And again, for folks

Starting point is 00:10:59 listening, we're like five, 10, 15 years into the future trying to understand what this looks like. All those payments are being routed to these types of businesses that are net producers that are actually creating value in the marketplace because those sats on those abacuses are just all flowing to this entity that's providing value to the marketplace. And then what you're describing is the turnkey services that are providing the the route structure are another, you know, high level playing or a high level individual that's playing in this space that's collecting fees because they're making that accessible for the smaller entities. You're doing it right now for large entities, but in the future, if I'm a mom-and-paw business, I'm profitable, like,

Starting point is 00:11:45 I'm going to go to an entity like you and your API that's turnkey that I don't have to set up any of this infrastructure. Is that really kind of the business? the two entities that are going to benefit the most from this in five or ten years from now? Yeah, exactly. It's sort of the analogy I would say is it's kind of like Visa, right? Theoretically, if you really wanted to, when you were at a mom and pop shop, you could build your own credit card payment infrastructure, or you could just use square or strike, right? And that's sort of the analogy here is there's all this complexity behind the scenes and how the lightning network works, how these channels work, blah, blah, blah, blah, blah.

Starting point is 00:12:21 but 99% of people are never going to need to know any of this stuff. And they're going to use people who've abstracted away that complexity and made it really, really easy. So, Alex, a person who's hearing this and they're thinking to themselves, okay, so this sounds like centralization. Like centralization's bad. This is Bitcoin. And your opinion is the centralization piece just for layer one?

Starting point is 00:12:46 And I'm sure that's not your opinion. But it almost seems like market forces are driving these solutions where people are just going to go to a turnkey for layer two. Is that okay that that would be what happens? I think it's inevitable. I think it's just a law of nature, right? Specialization of skills. Everybody can't be an expert in everything. And the people who are experts in building Bitcoin infrastructure will do that better than people who are people who are experts at running an Italian restaurant.

Starting point is 00:13:18 And people just naturally specialize. I think it's just a fundamental law of economics, and it's just going to play out that way. But the big difference between Bitcoin and the existing system is that you can opt out. You can choose to do it yourselves. You can choose to not trust or rely on anyone else. So the centralization is more just,

Starting point is 00:13:37 it's really a layer above the Lightning Network. The Lightning Network itself isn't centralizing. People are building, are plugging in to the Lightning Network with big centralized entities, but anyone can plug into the Lightning Network, unlike Visa. So, Alex, there's been a lot of chatter since the Miami Conference because there was an announcement made down there about ARC, which is another layer two solution. I believe it requires multiple soft forks back to layer one.

Starting point is 00:14:06 What I really want to get at is the argument for this arc was proposed that it solves this inbound liquidity issue that you have with lightning. What are your thoughts? Is there actually an issue here with inbound liquidity that prevents it from scaling? And I think that's really kind of the bigger question is, are there scaling concerns or issues with Lightning as it is right now? There are always scaling challenges in building any new system or new protocol. And Inbound liquidity is certainly one of them.

Starting point is 00:14:39 I love the opinion that the Lightning Network killer app in that the United States, short term is connecting exchanges, connecting centralized institutions and making moving Bitcoin between these institutions instant, frictionless, and 10xing the user experience for any customers of those services. The reason for that is partly because of sort of this, if you want to, for consumers who want to run their own nodes, they need someone to open a channel with them so that they can receive payment. Well, that's really challenging economically because I mean someone else has to lock up capital, Bitcoin, and put that sort of on the Lightning Network to facilitate a future payment to you. Now, with centralized institutions, you have so much

Starting point is 00:15:23 volume, so much Bitcoin moving between them that that's justified. It's easy to justify that. There's lots of transaction activity happening there. You get a lot out of putting up a little bit of capital. But with these sort of lower volume destinations, consumers, small merchants, etc. How much would someone have to charge to lock up Bitcoin in a channel to you? And so that's sort of this question of, so I think this inbound capital question in Lightning, it really is a fundamental question for these small nodes. Is running a small node in Lightning or having a small node ever going to be economically viable? And that's, I think that's a question is TBD. I think there will be, it won't be cheap. And some people will be willing to pay that price and many won't.

Starting point is 00:16:06 And so the question that Arc tries to tackle or the challenge that Arc tries to tackle is, well, how can we avoid having to lock up this capital to one destination? And it makes a number of tradeoffs to accomplish that. And I want to be clear, you know, there's a big difference between a protocol that is running live in production that has been hardened over many years, such as which Lightning has to, you know, what is still sort of a back of the envelope idea, right? There's still not an ARC implementation. So it is in a very different category of protocols, I would say. It's still very, very theoretical. And you don't start, you don't really have any confidence in a protocol until you've actually built a system for it, but put it in production.

Starting point is 00:16:47 Arc is still really just an idea. And some of the downsides around Arc are that it requires the capital, large capital lockups by these sort of hubs that are sort of running and facilitating all these payments and the new structure it proposes. you kind of attach yourself to a hub and it's facilitating payments for everyone in that in that. And it's also making an on-chain Bitcoin transaction every, I think it's every five to 10 seconds. I think the jury's out. I'm sort of skeptical. It's certainly not a silver bullet. I can already tell you that. I think my guess is that there's going to be innovations and breakthroughs and making lightning more capital

Starting point is 00:17:25 efficient that will help move the needle faster than Ark will. Yeah, I agree with you, Alex. I think that the more interesting thing about ARC is that it's potentially proposing lightning doesn't scale or that there's issues with lightning and it forces us to kind of think through maybe a better approach or how we could even improve lightning itself with the issues that are being raised through the ARC piece. But I'm curious, generally your thoughts on the maturation of layer 1. Michael Saylor has come out and has kind of suggested that he thinks that we're getting to a point where maybe we just stop screwing with layer one and we just kind of let it solidify and like, hey, let's start focusing on layer two and other things because we're just introducing potential issues that could corrupt the entire quote unquote experiment. What are your thoughts on that? And I guess soft forks in general from here on now.

Starting point is 00:18:26 I think there's merit to the ossification arguments. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its,

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Starting point is 00:22:37 All right. Back to the show. That said, there are known bugs in layer one that we do need to fix at some point. with a soft fork. And actually, like, there's a bug where, I forget what estimated year it is, but sort of like after the last block reward is produced, more Bitcoin will start being produced again. There's like a, there's like a bug there that we need to just sort of like fix

Starting point is 00:23:03 with a soft fork. The little things like that, you know, we can't totally ossify. There likely has to be another software. And there's a chance I'm mistaken about that, but I'm pretty sure that's the case. And there are also some other little like minor things that would just kind of fix a few warts that are sort of known and potential risks to the protocol. There are some changes that probably should be made. And as to whether there should be new changes that unlock functionality, like Covenants,

Starting point is 00:23:33 which is this concept and the abstract of being able to define how coins get spent after you send it to somebody that could potentially unlock some interesting uses for Bitcoin. I'm on the fence with that stuff. it can unlock some cool new things, but at the same time, it does have the risks of introducing a lot more complexity to the protocol, adding one more, yet one more degree of freedom, one more thing to keep track of. And I think that these conversations are important to have. I do think it's important to really listen to the core devs. I do think there's a big disconnect between core devs and sort of the Twitter sphere. The core devs, I think, would be the first two of

Starting point is 00:24:10 agree, adding more complexity. There's just enough to do just to maintain the code base right now and improve the code base and add more tests and get people reviewing more PRs for maintenance. Adding yet another big new change is scary. So I'm on the fence. I think it should be done very, very carefully. And Bitcoin Core has always had a very conservative approach to things. I'm sort of like a maybe soft fork once every five to 10 years kind of person. You know, from my point of view, and I come with this really hardcore financial vantage

Starting point is 00:24:41 pointer lens and not so I know you're the CTO like you're a tech guy right you're you're right in lines of code for me looking at it from this financial lens like the only thing we have to do is make sure we produce some type of digital store value that can't be debased to solve what I would describe as this monster that's creating all these issues in society because when I look at the debt markets and I look at the central banks that are just debasing money and debasing the value of everything on the planet, we don't need immediate settlement. We don't need any of that stuff to at least like peg this monster to the wall with layer one, right? Now, we could get into a whole, well, we need to get into the argument of immediate settlement next with AI. But we have to get layer one right. We cannot mess.

Starting point is 00:25:41 it up. And so like every time I'm seeing people saying, oh, we need to do CTV, we need to do drive chains, we need to do all this stuff. I'm just sitting there with my financial hat on and I'm saying, no, stop, slow down. Like, we need to make sure we don't screw up layer one at all costs, no matter what. And maybe what I'm describing is just my fear of not understanding the tech and the proposals, and I'm sure that's a huge part of it. But if I was going to argue with myself, I would say, I think a lot of these tech people that are introducing these G-WIS things don't have an appreciation for how insanely broke credit markets are and how broke financial fractional reserve banking is in the world right now. So I guess that's my pitch for agreeing with you that at most five years,

Starting point is 00:26:30 10 years for these soft forks because like it has to be shaken out. Like whatever we do, we have to make sure that we don't screw up layer one. That's all I guess I can say. I think we're aligned. And I think where we're what how I would describe my take is a soft fork and adding any sort of complexity is is only merited if it can if there's a strong argument that this change can make Bitcoin better money. And so, you know, I would say Bitcoin didn't need to launch being programmatic. Like, it didn't need to launch with any scripting or anything like that. That was sort of premature complexity, Satoshi added. And a lot of it was kind of like never really used, kind of just like technical debt that probably shouldn't be there. But the subset, but he didn't know what would be used.

Starting point is 00:27:21 And it turned out that that flexibility unlocked lightning. And I would say that made Bitcoin. better money that is unlocked, you know, the ability for Bitcoin to be better money. And so what are there other things like that? And I think that's sort of how I think about it. So let's go. So after saying all that, let's talk about AI, immediate settlement, the tasking of resources, computer resourcing, processing for AI. And where this is all heading where you really need some type of currency that acts like money in that it immediately settles. It's this instrument that is a bare instrument that doesn't exist with Fiat and can't exist with Fiat. Talk to us about that and where you think some of this maybe is going in five to

Starting point is 00:28:16 10 years from now. An analogy I like to use is when the internet first came out, one way to view it was it was a better way to send a message to somebody else. That's a better way to transmit information to someone else. And that would have been a very myopic view of what the internet is. Like, yes, that was true. But the second and third order implications of that were beyond what most people imagine. The instant settlement of value and open network that Lightning provides developers and people writing software applications, many of which will be AI enabled,

Starting point is 00:28:50 the implications of that I think are going to be drastic long term. And I think the jury still out into exactly what that looks like. I wrote a paper when I was in grad school, actually, about machine-to-machine economies back in 2015, positing this idea that intelligence software agents will be economic actors and will transact with each other via Bitcoin over the internet, each sort of optimizing, each sort of like, you know, has its own sort of optimization function. Like, what is it trying to accomplish? And I think we're quite a ways from seeing that.

Starting point is 00:29:25 From what I can tell, the AI boom we're seeing is very much around sort of LLMs that I haven't seen sort of this paradigm of them really serving as like long running agents trying to sort of problem solve and like constantly to optimize this for any sort of economic objective. I don't know. I'm not an AI expert. I'm not deep in it. I have a sort of cursory understanding of the tech, but I haven't seen anyone build this

Starting point is 00:29:53 sort of paradigm yet. I actually think this is an interesting situation where the tech for transacting value is ahead of the AI substantially. But it's probably only a matter of time until some developer writes a blog post or maybe it's happening now and we just don't know. But as lightning gets bigger and bigger and as more and more commerce happens over lightning, there will be more opportunities for some smart engineer to run an autonomous system on AWS that just starts making money on the internet for him.

Starting point is 00:30:27 And would he tell anybody? I don't know. No, they wouldn't. Probably not, right? And then eventually, like, people write Twitter threads about how to make money running these things in AWS once other people figure it out. But I think the building blocks for actually transactions value are in place, but I think more lightning commerce needs to be enabled, right?

Starting point is 00:30:45 It's not like there's, what would that AI even be doing right now, right, is the question. What would you be doing to make money? I don't know the answer to that. It would be interesting. So everybody talks about the Turing test, which you just described is maybe a better form of a Turing test, is some type of artificial intelligence that can create market value. And not into perpetuity, but it's able to create market value and demonstrate that it's that it's smart. enough to make money on its own without any input beyond a prompt, right? I think that's better than a Turing test. It is. Yeah, maybe we'll call it the Pish test or the...

Starting point is 00:31:27 No, you're the one that came up with it. You're the one that came up with it, not me. Yeah, because, you know, maybe that's the definition of intelligence, right? Everybody wants to, like, pontificate on what they think intelligence is. Maybe that's the test, right? Interesting. You know, there's an interesting concept that I've talked about with some friends. One of my buddies, he runs a startup and he flagged this interesting idea to me, this thought experiment of the single person unicorn. The one person, like, you have this spectrum of big company with a lot of headcount, making a lot of money on one side of the spectrum.

Starting point is 00:32:03 And on the other end of the spectrum is the one person unicorn, right? One guy, a billion dollar company, at some point, that's going to happen. But this is almost like the zero person unicorn. Yeah, yeah. It's like maybe there's somebody who like got it started, but like can this, can you give this AI access to like a Google Cloud account and just say go or an AWS account and just say go, make money? Well, the thing that will make your mind run wild is, okay, so it figures out, let's say it can figure out how to do this through some product or service. What's going to stop it from doing it for a different product line or a different service line? and then replicating that 100 times over.

Starting point is 00:32:43 Holy molly, man. Yeah. Well, and so when we take this back to Bitcoin, like if something like this would happen, it's going to be using the resourcing requests are going to be something that has near zero fees and that's immediately settling. Like, that has to be it.

Starting point is 00:33:01 So when we look at Bitcoin relative to everything else, nothing else is doing this in the manner that it's doing it, correct? Like, at least not in a decent. centralized way, which is of primary importance, right? Like the most important thing. Unbelievable. So how far out do you think something like that could potentially have? I mean, that's a, that's a question nobody can answer, but it makes your mind run wild, huh? Yeah, you know, I think it's further than people think. I would be surprised to see it within 10 years personally. You know, I'll qualify that with saying I am not the most, I'm not the deepest expert

Starting point is 00:33:35 on these AI systems. I mean, they have come a long way. But I haven't seen that. them like show a real reason. And I don't know, there's a whole philosophical discussion there, but it seems like we're quite a ways away from being able to just say, go make money. So there's been such a massive leap because I've been playing around with GPT for a lot. I was playing around with GPT3 and 3.5. And then when I went to 4, maybe it's just me overhyping it, but I noticed a significant difference in that capability. And where I'm using a, a lot. There's really in coding and programming. So, like, I run an umbral because I don't have the tech chops to log in the terminal and do all these things. But with GPT4, I'm very comfortable

Starting point is 00:34:22 just stating this. This is the hardware. This is my son and I are programming an automatic dog feeder. I have no clue what I'm doing that I'm using GPD4 and it's helping us out. And, like, I'm just blown away at how well it's helping me do. what I would say are very complex tasks, that somebody that would have to have a lot of experience in software engineering to be able to walk us so quickly and efficiently through such a process. Do you think that that quantum leap was just something of the last five years and it's going to take another five or ten years till we see another jump like that? or do you think that we're going to see continual leaps in AI like we just saw from three to four in a year and a half?

Starting point is 00:35:10 Or are we going to see that again in another year and a half that GPT5 is exponentially better than four? Or are we kind of hitting a plateau there? I mean, I think it's a better at what. It's a better at what question. I think there's things that it's already way better than Google at. Sometimes you just want an answer to a question. Google's giving you content. You don't want content.

Starting point is 00:35:32 You want an answer. For that, I would say it's already getting better. But for reasoning about new things, things that actually still require sort of a first principles understanding of the world and coming to conclusions that you haven't told it, that haven't been written somewhere, unclear. I don't know how long that takes. I don't know sort of what, I think we're still trying to figure out, like, what are the fundamental limitations of these LLMs and how it's.

Starting point is 00:36:02 close to reason can the approach and the architecture of these GBT models get? I think it's really a question of, sort of, yeah, it's TBD. All right. So let's talk about River. So you've stood up this monster from nothing, right? Like just from the ground up. What was the original value prop that you had for customers? Because, I mean, this was a pretty crowded space and you step in.

Starting point is 00:36:32 And so, like, what was your value prop that you went after? Started a river almost five years ago. And to be totally honest, the original idea, it was more of a feeling than an idea at first. And the feeling and sort of the feeling I was chasing was this void in the market that I saw, which was that Coinbase was what I thought on a trajectory to become the Bitcoin bank of the world. And I'm using the word bank here very loosely, right? Just sort of it's the best script word, we are not a bank. I guess it's not a bank.

Starting point is 00:37:08 But then Coinbase pivoted. They started adding lots of different cryptocurrencies. They started taking this, they sort of took this philosophical approach that this isn't about redefining money, purely. This is about this whole new asset class, lots of different cryptocurrencies. And we're going to build a way to trade these things and lean into making this asset class accessible. to the world. I very much thought that that was a big mistake, optimizing for short-term value and short-term returns. And I thought that they really missed sort of this big picture opportunity

Starting point is 00:37:44 out in the distance beyond the clock, like, you know, behind the fog, right? But I thought that there was, that's where the Mount Everest was. Coinbase sort of veered off to chase this local maximum and sort of the Mount Everest was this building the Bitcoin Bank of the world, like leaning one 100% into this idea that Bitcoin and Bitcoin alone is redefining money and entirely new financial institutions are going to be built around this concept. And so I didn't even really know at first what exactly that would look like. And to some extent, we're still figuring it out. We have a much better idea than we did five years ago.

Starting point is 00:38:20 But the first place we decided to start was we kind of decided to take the Tesla approach, which was, okay, the obvious gap in the market at that time was Coinbase had really bad customer service. You could have a couple million dollars. Really bad. Go. You can have a couple million dollars in Coinbase and you still couldn't get anybody on the phone.

Starting point is 00:38:40 Yeah. Or get any help. And that was just like unheard of in traditional financial services. Yeah. If you have a $1 million dollars at a bank, they will be calling you checking in to see how your weekend is. The, so that was like the obvious first step, which is like start at the high end, build a Bitcoin brokerage where we're building our brand and reputation.

Starting point is 00:38:59 around serving the sort of elite clients in the United States, focus on, you know, high LTV customers and a smaller number of them so that we could serve them really well. So that was like step one. And then since then, sort of we've expanded to more sort of like the broader consumer market, the institutional market. A lot of our early clients also run businesses and, you know, have other legal entities. So now we're serving, we provide Bitcoin brokerage, custody,

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Starting point is 00:42:49 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. And that's growing very, very quickly. We're actually seeing all-time high monthly transacting clients month over month, the last five months in a row during this bearer market. So we're seeing really nice growth. People are coming to something that's focused and simpler and leading into doing Bitcoin really, really well. Because that's what at the end of the day, every one wants. We're seeing a divergence in sort of crypto trading over here. Your Bitcoin bank is over here.

Starting point is 00:43:25 And they're probably not going to be the same thing. And then we also have this enterprise Bitcoin Payments infrastructure business that I was talking about earlier. So it's been a very wild ride. It feels like it's been 15 years, not five years. Everything goes so fast in this industry. We've been through probably the equivalent of like two great depressions at this point. So, yeah, it's been a fun journey.

Starting point is 00:43:52 What are your thoughts? Going back into the tech a little bit, Mnisccript has really taken off as a talking point in things that people are getting really excited about from a tech standpoint. Is that something that, first of all, explain miniscript to the audience. And then is that something that you guys are thinking about incorporating using for your wallet or at large there at River? Miniscript really is, it's really just a way to, it's really just a subset and easy way to, to use, easier way to use the Bitcoin scripting language.

Starting point is 00:44:27 The idea behind miniscript is to sort of create the standard way to create more complex constructs in your logic and like wallet logic. So instead of just saying, hey, you know, you need one signature or you need two out of three signatures, you can say, you can, you can, you can more easily sort of create a wallet. that has custom logic. Like, you need this signature and this signature, or a two-month delay with just one signature. Or, you know, things like that.

Starting point is 00:44:57 I think that there's interesting use cases for this stuff. But my opinion generally, as an operator, is that simplicity is really key. And the complexity is the enemy of security. So while these things do have merit and benefit, I don't think most people should be using like custom scripts I think you're much more likely to just mess up something complicated and lose your eyes to your Bitcoin than it is. I think that the increased risk of messing something up is not offset by any sort of increase in security, usually with that kind of stuff.

Starting point is 00:45:31 TPD, you know, I think it's, I'm glad to see people sort of trying to do more there, but we don't have any plans. As far as like a use case goes, you know, let's say you have three executives at a company and you have two of three, multi-sig, but you want to make sure that the CEO is at least one of those two signatures. You could use something like miniscript to code that in there so that no matter what the CEO has to sign off on something leaving. And I mean, you could take this in many different directions, but just kind of as an example for people to kind of conceptualize. In the past 12 to maybe more months, there has been the quote unquote crypto crackdown at all of these large exchanges, Coinbase, crack, and it doesn't matter which one you name, they're feeling the pain of all

Starting point is 00:46:22 these lawsuits that the SEC is bringing upon them. As a Bitcoin-only exchange, has this impacted you guys at all? Is it something that you've had to spend a lot of human capital to deal with? Like, what's that experience been like for you guys? It hasn't caused us any issues. It just sort of sent more clients our way because Bitcoin is the one thing that the SEC said wasn't security. So we just didn't have any issues. And this is sort of another sort of one more example of why running a Bitcoin,

Starting point is 00:46:56 why we run a Bitcoin-only business. At first when we were starting, a lot of investors didn't really understand, like, isn't it just worse to not have more coins? Like, why would you just want Bitcoin? And it's becoming increasingly clear. Like supporting a multi-coin operation is, you know, there's revenue benefits because people like trading this long tail of assets, but it's a huge DOS on your time. And it adds a ton of complexity, not just to your products, not just to your engineering,

Starting point is 00:47:23 but also to your legal posture, your regulatory posture, which has ripple effects across the entire business. And so those are problems we completely avoided, thankfully. So you can focus your time on the stuff that's important and provide it better. Yeah, that's awesome. Walk us through the incentives on the mining piece. So you guys offer, and I was looking at this on your site, and is the pitch for doing the mining just to lower your vol as a user, as a person that would be paying for that, that you're kind of removing the volatility of the Bitcoin price by mining? So, yeah, there's a few ways to think about Bitcoin mining. Yeah, our hosted mining product allows you to easily buy Bitcoin miners that get hosted in a co-location facility, and then the Bitcoin gets mine to your account every day. You're the owner of that machine. A lot of the people mining Ruth River are actually optimizing for

Starting point is 00:48:17 dollar returns. That's how they're doing the math. We have people mining who never even have bought Bitcoin, which is interesting. But a lot of people have as well. And it's the way I would describe it is it's just at a different point on the risk return curve. You're making a different bet. There's different variables than buying spot Bitcoin. And so what I typically would tell people is if you're just optimizing for like growing your Bitcoin stack, the simplest thing to do is just buy some Bitcoin. We're set up a dollar cost average. But if you're looking to sort of diversify sort of on that risk return curve, you're sort of making some bets on different variables such as difficulty, maybe even geopolitical bets, right? If there's something

Starting point is 00:48:57 that happens with like Taiwan and Silicon manufacturing. gets, you know, restricted, then there won't be more miners produced. And like, so there's a whole sort of another world of bets you can be making with a mining investment. And it's not guaranteed to want to Bitcoin denominated return out before buying spot. But there are interesting points in that risk return curve where, for example, the Bitcoin price theoretically could stay flat and you could have an ROI mining, but not buying spot. Those are the sort of dynamics that a lot of mining clients find interesting. So, Alex, this is the part of the show that I've been looking forward to most.

Starting point is 00:49:37 Because you don't know what's coming here. So the last time I had dinner with you, I was with Andy Pitt. And after Andy and I walked out of the restaurant, I said to Andy, I said, that guy's a silent killer. And she goes, what's a silent killer? I said, oh, in the military, it's like this saying that it's a person who just like crushes it, but doesn't have to go around telling everybody that they're crushing it. And so she was laughing, but you're introverted. You're an introvert.

Starting point is 00:50:04 I don't know if you're comfortable with me saying that, but like you're just, you're quiet and but you are extremely technical competence is just way out there. And so I just want to have a little fun here. And I'm just going to ask you some personal questions and stuff that really doesn't have anything to do with Bitcoin because I think it'd be fun and I think that people need to get to know you better. Here's my first one. what's your favorite thing to talk about when you're not talking about Bitcoin?

Starting point is 00:50:32 Probably history. Okay. I love talking about history and learning about history. Anything in particular? You know, it changes. It depends on who I'm talking with it. I think one of my favorite conversations recently was with a group of Puerto Rican friends laid into the night talking about Puerto Rican history and Puerto Rican independence

Starting point is 00:50:51 and learning about their views on like that thing. And so, you know, I love other cultures. I love other groups of people. I love learning about how other people think. And yeah, I love like sort of seeing the world and learning about learning about all that stuff. What's one of the most interesting or fascinating places you visited? Myanmar was a very interesting place.

Starting point is 00:51:14 I visited Myanmar in 2013, I think it was. And it was like right after they just got ATMs in the country for the first time. And it was one of the most different places I've ever been. It was extremely religious. but in a Buddhist way. I had never, like, seen, like, a sort of dogmatic Buddhist country before. It was, like, really fascinating and very traditional, sort of untouched by a lot of Western culture. Very fascinating history, obviously, having some issues at the moment, but I really enjoy that country.

Starting point is 00:51:45 What's your favorite outdoor activity? Running. Oh, yeah? Like, I would say running, and I'm sort of just, like, naturally a good runner. That's for my body type. You know, my best friend is like an extremely strong, like, powerlifter who hates running. I'm like the opposite. Like, I can't lift nearly as much as him, but I can run for miles.

Starting point is 00:52:07 I would say running and then just chilling in the park with friends. I love that. Touching grass. Something that's really underrated in your opinion. You know, I think this is one of those. If you know, you know, Uruguay. Uruguay is an underrated country. It is an extremely beautiful.

Starting point is 00:52:27 beautiful and pleasant place to visit with a great culture. The way I would describe it is it's like Argentina, but without all of the sort of political and economic problems, it's not as sort of like lively and sort of like party friendly as Argentina, but it has a lot of that. And it's also summer there when it's winter and the Northern Hemisphere. So if you're looking for a good place to just sort of get some fresh air, spend time on the beach and be in an extremely pleasant culture,

Starting point is 00:52:57 with very respectful people and a family-oriented place with amazing food. I love it. All right. Favorite TV show of all time. Okay, that's a good one. Oh, Bada. What? I never even heard of.

Starting point is 00:53:13 Bauda. Bauda was a Netflix show. It's like, it's an elite special forces team in Israel. And it's sort of, it captures sort of like the Israeli-Palestinian conflict through this, like, really tight-knit team. Oh, okay.

Starting point is 00:53:28 That does like special ops. And it's an extremely well-done show. All right. Favorite book? This is the last one, favorite book. This is going to be kind of weird one. There's so many books I love, but one that just, I think, has so many fond memories for me because my dad read it to me when I was a kid was the richest man in Babylon. It's a short book.

Starting point is 00:53:48 It's like a series of stories based in ancient Babylon teaching you the principles of saving and, and, money. And I just have very fond memories of that book. Huh. Interesting. Alex, this has been a blast. Is there anything that you want to highlight to the Bitcoin community that you think is important? And it could be, it could be anything. I think Matt O'Dell says it best. Stay humble and stack sats. You have a long road ahead of us. Bitcoin is by no means guaranteed to win. You have a lot of work to do. And we're still very, very early on this journey. And it's important to keep that in mind. I love that. So, Alex, we're going to have links in the show notes. You're active on Twitter,

Starting point is 00:54:35 river.com, if people want to check out your company. Anything else that you want to highlight? Nope. No, that's it. All right. Well, we'll have that in the show notes. And thank you so much for your time. It has been a pleasure to get to know you over the past six months where we've had a lot more interactions, Alex, and just really admire your contributions to the space, your intellectual thinking, and just making time to come on the show. So thank you so much. Thanks for having me on, Preston. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin-specific shows come out

Starting point is 00:55:14 every Wednesday, and I'd love to have you as a regular listener. If you enjoyed the show or you learn something new or you found it valuable. If you can leave a review, we would really appreciate that. And it's something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening. And I'll catch you again next week. Thank you for listening to TIP.

Starting point is 00:55:39 To access our show notes, courses, or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision. consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

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