What Bitcoin Did - SELF CUSTODY, SECURITY, & THE QUANTUM THREAT TO BITCOIN w/ Alex Leishman

Episode Date: January 28, 2025

Alex Leishman is the CEO & CTO of River. In this episode, we discuss the nuances of self-custody versus custodial solutions, the challenges of securing Bitcoin, and the trade-offs between decentralisation and scalability. We also get into the quantum threat to Bitcoin, scaling self-custody and the implications of protocol changes in Bitcoin’s future. MASSIVE THANKS TO OUR SPONSORS: IREN: https://www.iren.com/ RIVER: https://river.com/wbd CASA: https://casa.io/ LEDGER: https://www.ledger.com/

We want to maintain an environment where exchanges can't get away with funny business, right? We want a critical mass of people who self-custody to always keep everyone in check. Additionally, for the individual, self-custodying allows you to remove any third-party risk from your Bitcoin. So you don't have to trust a custodian. You don't have to trust that, you know, this operation that you can never get full transparency into is doing the right thing. So that's the steel man argument. But there's downside to that. All right.

Alex Leishman, how you doing? I'm doing great. Thanks for having me on the show. Yeah, you're out of the swamp. You were at the Crypto Bowl recently. How was that? I was. It was actually quite nice.

You know, I think a lot of people, you know, criticize something like that because there are so many different types of characters at an event like that, some of whom people would consider you know, scammy or things like that. But, you know, in my experience, the reality of politics is everyone's showing up in the room to try and sort things out. And that's effectively sort of what balls like this are. They're kind of everyone showing up, getting in the room, having some drinks and talking and trying to see kind of whose minds they can change. And I thought it was a very high quality cast of characters there. There were a lot of very powerful people from the

incoming administration there. And I'm glad that, you know, this administration is prioritizing, getting FaceTime with our, with our industry. I think maybe the coolest picture to ever go out on Bitcoin Twitter was posted up from that event with David Zell with Snoop Dog. But did, who else did you meet there? Yeah, there were all sorts of people, you know, met a number of senators there, who most of whom I already knew anyways and some cabinet members from the incoming administration who are yet to be confirmed

but should be confirmed soon and there was also a cast of characters there of people who run the largest exchanges and other politicians and sort of very well-known investors so it was really kind of everyone and then there was a number of performers he had Snoop Dogg and folks like that

so it was a fun evening I had a good time. And was there any kind of signal to be gleaned from it, or was it just people having fun? There were some signals. Really, the biggest signal was that something like this happened at all, right? I mean, imagine this happening 10 years ago. We would have never imagined that the most powerful people in the world would be in the room with people from our industry, rubbing shoulders, having drinks. and, you know, like kind of trying to understand what's going on to influence a new administration

of the United States, the most powerful country in the world. So the fact that this event happened was the signal, I think. And in private conversations I had with incoming administration, people in the incoming administration, it's very clear that they're on our side, largely. I don't think that, you know, people should assume that, you know, everyone in the incoming cabinet is a deep Bitcoin maximalist and, you know, has read Austrian economics and is a, you know, libertarian at heart. I think we, we have all sorts of people, but we don't have, we don't have the enemies that we've had historically. The first Trump administration also was sort of pretty rough to Bitcoin, you know, the Nuchin's, the Treasury Secretary and the first

administration was, was not friendly to our industry. And so even between Trump's administrations, the change in tune is drastic. Yeah, and now we've got Scott Bacent coming in, who I've seen a few clips of. I think he looks promising. Like, he's got some pretty base takes, and he seems at least to not hate Bitcoin, which is probably enough right now. Yeah, I think that's the case. And that's the impression I have.

He seems like a sharp guy, and seems like he understands that Bitcoin will play an important role in the future. probably the funniest thing to come out of that ball is that while Trump had you all in one room, he dropped his meme coin. As someone who's been like laser-focused Bitcoin only, building the best business you can for years and years and years, how frustrating is it to see the now sitting president drop a meme coin? Well, so I actually have mixed feelings on this because selfishly, the proliferation of these meme coins is actually really good for what we're doing at River.

Okay. because it forces all of the multi-asset exchanges to chase these very unsurious, you know, meme coins and go further into the territory of becoming casinos. And I think reveals really what we've been sort of strategizing and planning for the whole time, which is to be seen as this trusted serious Bitcoin bank, put bank in quotes because we're not a federally chartered bank for any regulators watching. and and you know it's it's really showing the dichotomy between what bitcoin is and what crypto is. So I actually think that's a good thing for us. Now, it is frustrating, right, to see this administration, the first thing they do before coming into office cash out by dumping some token on, you know, crypto DGens. I don't think that's ethical. but at the same time, look, you know, you got to take the bad with the good.

So I still think overall the next administration is going to be a lot better to, or this administration is going to be a lot better to us than the last one. Yeah, I'd never actually thought of it from like these chipcoin exchange point of view where they're having to be absolutely on the ball with listing these tokens as quick as possible because the liquidity is there for like two days or something. Exactly. I call it like, you know, a casino and a hamletes. their business model is basically having to add it's accelerating right uh so their business model

is going to be adding the latest meme coin as fast as possible and because meme coin issuance has become democratized on salana and devoid of any you don't need VC funding anymore you don't need to build your own layer one uh you don't even need a technical story around it you just need a meme and a you know, access to the internet, it's going to be nonstop adding this stuff. And, um, it's going to lead them running unsurious businesses. Yeah. I think you're right though. I think the kind of split between crypto and Bitcoin has never been more clear than this week. Like I feel like they're so differentiated now. It's not even, it's not even a conversation. Um, but one of the things that I want to talk to you about today, a couple of weeks ago,

there was a video going around Twitter, which was a guy who had lost basically his life savings because he'd not stored his seed word correctly. And you had quite a controversial take on it that you don't think people should be self-custody in their Bitcoin. So I want to get into that in detail. But I think an interesting place to start would be for you to actually take the other side of that argument and explain why everyone, well, or why most people should be self-custodying.

Yeah, so the steel man for telling people to self-custody is that we want to maintain an environment where exchanges can't get away with funny business, right? We want a critical mass of people who self-custody to always keep everyone in check. Additionally, for the individual, self-custodying allows you to remove any third-party risk from your Bitcoin.

So you don't have to trust a custodian. You don't have to trust that, you know, this operation that you can never get full transparency into is doing the right thing. and that's a very, you know, true reality. So that's the Steo Man argument. But there's downside to that. And the downside is that by taking self-custody of your Bitcoin,

you have to take full 100% responsibility for what many people is a very large sum of of wealth and money. And you have to deeply understand what you're doing from a technical perspective in order to not mess it up. And I think self-custy is one of these things that you probably shouldn't do if you have to be encouraged to do it.

Right? The people who are capable of self-custody don't need to be told to do so, right? So if you're inherently curious and you decide, oh, I'm going to play around with self-custying some Bitcoin, take $50 off in exchange, play around with it, like learn my lessons. I've thought about, you know, I've thought about inheritance planning. I've thought about what happens if my house burns down. I've thought about, you know, how to make sure one of my family members doesn't get scammed into kind of sharing information about this thing with other people. If you've thought through all that, you probably would just end up doing that yourself. You're just that kind of person, right? I think we're like kind of the self-custody, sometimes dogma goes off the rails, is when you're taking these people who kind of really don't want to be doing this and you force them to do it and they're really not ready for it. But they kind of feel like they should, but they don't really feel super confident. That's really where this stuff tends to kind of have a lot of issues.

But even that, some of the most technically sophisticated people I know have really messed up self-custody and lost large amounts of money. So, yeah, I'll stop there. What Bitcoin did is brought to you by our lead sponsor and Massive Legends, Iron, the largest NASDAQ listed Bitcoin miner using 100% renewable energy. Iron are not just powering the Bitcoin network.

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To find out more, head over to iron.com, which is iren.com. This episode is brought to you by CASA. For those of you out there who want to protect your Bitcoin, I want to tell you about CASA, the leading Bitcoin self-custody solution. If you're serious by protecting your Bitcoin, then you need a rock-solid security plan, and CASA gives you just that. With their multi-signiture security and key management services, CASA makes it easier than ever to take control of your Bitcoin without the risk of a single point of failure.

CASA also now has a private client option, which gives you a purpose-built security program with ongoing advisory, advanced verification inheritance, a 24-7 security emergency line, and lots more. To find out more about CASA's private client solution, go to CASA.io, which is c-a-sa.io. Well, I think it's kind of to your point about not trying to force people to do this make sense, because I also don't think you should force people to buy Bitcoin because inevitably when price goes down, you're always the one to blame. I think there is something to be.

said about people having full confidence in what they're doing and it being their own decision. I think one of the other things that makes it hard is that when you're securing your Bitcoin, you might be securing it at like, it might be worth a bit of money. But you know that in four years time it's going to be worth significantly more. And people don't plan for that when they originally set up their security protocol. So what, on from that, what else is like a challenge with Bitcoin security? So another challenge is just, remembering everything. It sounds stupid, but like,

everyone thinks they're going to remember the pin to their ledger or the password. Like, I'll never forget this. And then six months later, they totally forget, right? Or they set it up once, and they think they recorded everything they needed to, and then they come back a few years later

and realize they didn't quite restore everything in the way they remembered, and they're trying to figure out how to get in, and that pin they're putting in their ledger isn't working quite right and they only have two more tries before the thing wipes itself. So really, it's just human error.

Like when you're self-custin, you're signing up to be your own financial institution. And to run a financial institution means a lot of operational rigor, right? So like most people just aren't ready to operate like that in their daily lives. And, but some people are. And it's important that we have people that are.

What I always say is it's not, what's more important is that you can self-custody, not that you do. Right? That's what keeps the institutions in check. And so that's how I frame it. And what I always say when people ask for advice, should I self-custody,

I always say, you decide for yourself by taking $50 or $100 a Bitcoin off of the exchange, play around with it yourself, learn your lessons, make your mistakes, and then you decide if this is something you want to deal with. I actually had a scenario a bit like this recently. One of my friends, I got like a panicked message from him saying the screen on his hardware wallet was broken. And this is the second time he sent me a message like that. And he clearly doesn't either know or believe in his ability to recover

that. And I said to him, to be fair, I didn't say you should stop self-custening. I said you should get a bit key because I think that is just a solution that makes this a lot easier for people who aren't sort of, there's obviously tradeoffs with that in terms of privacy and things like that, but it's a lot easier solution. Yeah, Bitkey is the most user-friendly self-custody for sure. It's designed to be as unscrew-u-u-uppable as possible. Yeah. And the interesting thing you said there a little earlier was about inheritance, because I don't mind sort of explaining how I have this set up, because in terms of the security of my, I've got sort of geographically distributed multi-sig, I'm happy with that. But the inheritance side is something that I have not done very well at all.

Like, my inheritance relies on people that I trust and basically saying to my wife, speak to this person, which I know is a terrible solution. Do you think that is probably the most overlooked area of Bitcoin security? Absolutely. I think it's one of, by far, one of the most overlooked things. One, because I think a lot of people who self-classy Bitcoin tend to be younger guys. And so they're just not, it's not that top of mind for them. But once you get married, once you start having kids, you know, addressing your own, mortality gets more and more real. And what we see is a lot, we see a lot of people moving off of

self-custody into custody again because they start to think about this. And they go, I don't have a good answer here. And maybe they just put half into a custodian when that happens. Because, you know, the last, like, for example, you know, you just go through the thought experiment. I die. My family's grieving. My wife's grieving. I have this large chunk of our family wealth in this thing. Do I want my wife, what do I want her experience to be? Do I want it to be trying to figure out this technical sort of thing that who knows if it's going to work or do I want to be able to call this company and just have it taken

care of? So, and I think what people run into is there's just no perfect solution, right? Trusting a Kosanian isn't perfect either. Something could happen there and it's all gone. There's no FDIC for Bitcoin, right? So everyone has to come to their own conclusions. So I heard a fucking terrifying story the other day. I've got to be careful about what I say

because I don't want to give away too much information about the person. But it was someone who lived in, I think I can say the UK, and they were going home from London, got off a train, were kidnapped, held for eight hours, tortured until they sent Bitcoin, which they did. They ended up doing it. They had terrible security practices.

I won't say what they were, but it was like literally the first thing in the book that you don't do. And I think the idea of this like physical threat on Bitcoin is becoming quite apparent and quite scary. How big a component do you think that is in this? And also to add to that, just one more thing, sorry, is that even the best Bitcoin security setup doesn't stop you getting kidnapped and tortured. Exactly. And that, so that is another downside to self-custody is that if you have full control of your funds, you have full control of your funds.

And if you get robbed and they know that, then, you know, they know that as long as they can put the, apply the right pressure, you're going to send it. So that's where outsourcing custody to a third party also has benefits, right? this is going to sound super, super heretical. But like, if you own the Bitcoin ECF, that can't really happen to you, right? However, in a river, we actually have a solution to this that is, allows you to own real Bitcoin and also protect yourself against us. It's called Force Field. We launched it a few weeks ago. And what it is is basically a five-day time lock on allowing withdrawing.

draws from your account. You can set up a weekly spend limit. So if you want to make sure you can spend, let's say, $1,000 a week without any limits, you can send out Bitcoin anywhere, $1,000 worth a week. But the rest, if you want it to get to leave your account, whether out via Bitcoin transaction or even if you sell it and want to send out via bank wire, you can't unless you disable lockdown or disable force field and and wait five days.

And so that makes the physical robbery thing a lot more difficult to pull off. And so with Forth Field, can you still sell your Bitcoin within River if you wanted to? Yeah. You can still trade without any friction. So you can still sell it. You can still send cash back to bank accounts

that you connected before you set up Force Field. It's also protection against your account getting hacked. So if somebody steals your credentials, your password, sim swaps you or something, steals your phone unlocked, they can't get that Bitcoin out. Yeah, and that's obviously been another growing sort of scam that's happening. I'm sure you heard the Junset interview did with a scammer. But I guess the elephant in the room here is that exchanges don't have the best history of custody. And I'm obviously, you are representing River, very different than FTX or Mount Gox or any of these hundreds of other coins that have lost Bitcoin. But why do you think it's, you know,

a worthwhile trade off to trust and exchange over yourself. Yeah. So, you know, I think really where people get hung up here is they hear about exchange hacks that have lost people a lot of money. And that's true. However, what I will say, and I know this is a little also heretical, if you really kind of knew what you were doing, a lot of those were predictable anyways. Um, um, no regulated, um, exchange in the United States that operates sort of an honest

full reserve business and isn't promising yield or anything like that has actually lost people's money. So, Coinbase, Crackin,

Gemini, not Gemini, Errne, Gemini, just the exchange, River Cash app. None of those have ever lost

anyone's money. Actually, I guess Prime Trust did. So, but, But that was another one where it was like obviously not high quality. But of course, the market doesn't necessarily know these things. I'm, you know, if you're an industry insider like me, you kind of know who's the quality

custodian and who's not. So now, so really sort of like what are the risks of a custodian blowing up? Well, and what would be my advice towards vetting a custodian? I would say make sure they're not promising any sort of yield or anything like that. Like the simpler the operation, the better. make sure that they're sort of very well trusted in the Bitcoin ecosystem, the Bitcoin ecosystem specifically, because Bitcoiners tend to have the best bullshit detectors, and split it up if you really want to sort of spread your risk around, right?

Don't just trust one custodian. Even Coinbase could mess up custody and blow up, right? Don't put all your eggs in one basket. At River, what we do is we do a monthly proof of reserve. So we prove every month that 100% of the Bitcoin that we are supposed to have is at River. And every client can verify that independently. For full disclosure, River a response of mine, which by the way, I appreciate massively. You were the first people to get on board and help me do this.

So thank you very much for that. But it would be worth going through, I think, how River actually secures each account. Like, if I have Bitcoin in River, on the back end, what does that actually look like? Yeah. So the easiest way to think about it is like, imagine instead of Bitcoin it was gold, right? We have one really secure vault with all the gold in it. And everyone's individual account is, you know, is a balance that is a chunk of the gold we have in this one really secure vault. And what we do is every month, we prove to any depositor, any, um, account holder that we have all of the gold that we claim we do. And the way we do that is we actually also publish our an anonymized list of liabilities, an anonymized list of client balances. And then we also prove how much Bitcoin we hold in our what we call cold storage. That's like our vault. And you can see that the amount of liabilities we have is less than the amount of

Bitcoin that we control, we own, or hold on behalf of our clients. We don't own that Bitcoin or clients own it. And now, why do we do that? Well, the thinking is if we were trying to game it, right, we would publish fewer liabilities than we actually have. But what that would mean is we would be excluding client balances from this list. So a client would be able to look in that list and say, hey, mine isn't included. you're trying to game this and they'd be able to sort of like tweet this, right?

Or yell to the world like, hey, River is like shorting us. And so that's how it works. So we do a proof of liabilities and a proof of assets every month. And anyone at River can prove that we hold the Bitcoin we're supposed to. And you were one of the first exchanges to do that. You may have been the first, I'm not sure. Are there many others that are doing this? So there have been others to do it before us, but we were the first to do.

do it in a really user-friendly, simple way. Every other exchange that has done it before, and sort of Bitmex has done it, Cracken, they do it in a way that's quite complicated and requires, I don't know, like very power users would figure it out, but they don't make it as easy and delightful as it should be, in our opinion. And so it's kind of like that Apple approach. Maybe like Samsung had a feature before the iPhone,

but the iPhone made it actually really nice and, you know, accessible. That's, we were kind of the first to do that. So one of the things, because you're going to get some shit for this, because there's a lot of bitcoins that believe that self-custy is the only way of holding Bitcoin, otherwise you just have an IOU. And presumably if we had, if everyone was holding Bitcoin in custodians, there's kind of a centralization risk in that as well. So what percentage of Bitcoin being held in self-custody do you think is sort of an

acceptable amount? Yeah, it's both a percentage of. Bitcoin and percentage of people, individual holders, right? It's just one guy self-custodyed but had a lot of Bitcoin that also wouldn't be that, you know, useful. You know, I think that, like, what we see is, like, ballpark, about 15% of our clients self-custody.

Okay. I think that's a healthy amount, right? Here's how I think about it. It's like, how many users of a custodian, like, River, need to be able to stress test it, right, and sort of like pull the funds out to keep us on. Essentially, bank run river. Exactly, right. So I would say, like, you want a number self-custodying or at least capable of self-custoding, right?

Who could bank-run river or any custodian. That's, like, I guess, a good number, whatever that is. 15% is interesting because that's 15% on River, which I think you probably have quite a, what's the right word, like a set of pretty quote unquote good Bitcoiners in River. It would be, I would be very interested to hear the numbers at the sort of Coinbase

because it'll be significantly lower. I wouldn't even be surprised if it was less than 1%. Well, here's the thing, actually. There's another reason for self-custody. And in the crypto space, the non-Bitcoin space, you can actually access financial products that you can't in a custodial manner. So I would actually say Bitcoiners have a lower percentage of self-custody than crypto people because in crypto, the incentive to self-custody isn't self-sovereign finance.

It's degen trading without the IRS knowing about it. That's really interesting. I'd not really thought about it that way. So really, that's the thing. In crypto, there's an economic incentive to self-custody. In Bitcoin, it's purely philosophical. and like a sort of personal principle. So there's a few tools that I think are super valuable,

especially for people who are less confident in self-custodying. One of the most interesting products I think that's come out of Bitcoin in a long time is Ankerwatch. I think what Rob and Becker of Bill is brilliant. Do you think that removes a lot of the uncertainty that you have around self-custody? So just for clarity, for anyone listening who doesn't know what Anchor Watch is, they're fully insured through Lloyds of London, Bitcoin self-custody. Yeah, so I think they're a great team. in, it's a very,

um, it's a very innovative product for anyone that's looking to, uh, de-risk self-custody. Um, now I'm, I'm, I'm not an sort of expert in the details of their product.

Um, so I do think there are, I don't know how it addresses like loss of keys versus theft. Like, um, that's unclear to me. Does it also ensure against loss of keys? I don't,

I don't know. I think it does. Um, okay, cool. Um, and then, yeah, I don't know,

is it denominated in, is interest denominated in Bitcoin or dollars? It's denominated in dollars, yeah. So, yeah, so you can sort of kind of predictably de-risk in dollar terms. And now I guess sort of the real question for folks is sort of like, what is that worth to you from a price perspective? It seems like a very effective way to de-risk. And then I think the question for any individual is, what is that worth to me? And is that worth me more than the price of Anchor Watch?

I don't know what their pricing is, but it seems like a very, you know, presumably it would get cheaper over time as the insurance market sort of matures. So I think it's really innovative. Cool. It is cool. And while, like I think I don't know the exact price, I won't say it, but it's relatively small. And while it's denominating dollars now, it would be very cool if they could denominate in Bitcoin in the future.

Is that the kind of product that you would be able to implement at River and give people the ability to opt in to pay a certain amount per year to have their individual? account insured fully? In theory, we, in theory, we could implement it ourselves. The reality, though, of what we see in the market is people expect custody to be free. Yes. And that's a hard expectation to fight against. So I'm not sure how much demand there would be for a river to offer it.

but for people who self-custody and want to insure against their own themselves, that seems probably where the more opportunity, like it's kind of more compelling. It would be cool, though, if you could almost just have like a toggle. And because I think there'd be a large amount of people that would be willing to pay a small percentage fee to just make sure their Bitcoin is insured. So I'm thinking about my mom and dad in this scenario. So because I don't, I don't know if I really should say this, but I look after their Bitcoin for them. because there's no way I trust them.

But if they could have it on something like River, toggle insurance, I know they'd press that every single time. This episode is brought to you by Ledger. If you're serious about protecting your Bitcoin, ledger has the solution you need. Their hardware wallets give you complete control over your private keys, ensuring that your Bitcoin stay safe from hacks, fishing and malware.

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There are many places to buy Bitcoin, but there's no exchange like River. They have innovative products, phone support, and a dedication to security that you just don't get elsewhere. With River, buying Bitcoin is easy. You can set up zero few recurring buys to automatically stack Sats, and River also lets you earn daily Bitcoin interest on your cash balance that outperforms most high yield savings accounts. With River, your Bitcoin is stored safely in multi-sid-cold storage,

plus you have peace of mind knowing they do monthly proof of reserves and hold all client Bitcoin that wasn't withdrawn to self-custody. Open an account for yourself or your business at river.com forward slash WBD, which is r-I-V-E-R dot com forward slash WBD. Just to go back very briefly, I thought something when you were talking before that, I forgot to mention, you said that any exchange offering or yield you have to be very conscious of. I want you to just differentiate what you're doing with yield on cash balances and river and yield on Bitcoin.

Yeah, that's a good question. So Bitcoin, there is no safe way to take Bitcoin and put it to work to earn yield. So anyone offering you yield on Bitcoin deposits, I would say kind of in short, stay far away. If you want to play with that fire, don't put all your Bitcoin there and sort of go in knowing that you could lose it. with cash, there's safe ways to earn interest. I mean, basically, this is built in to how the dollar works from the ground up, right? The bank can leave cash overnight at the Federal Reserve and earn interest on it at the Federal Reserve. So there's extremely safe ways to take cash and put it to work.

So U.S. dollars sitting at River earn a high-yield interest rate and pay the interest to River users in Bitcoin. and that Bitcoin accrues daily. And, you know, people will say, well, why is River doing this and the other exchanges aren't? Is River taking risks? The other exchanges aren't? No, actually. All the other exchanges are also earning interest on your cash. They're just not giving it back to you.

We are giving it back to you. And that's the difference. And if you have a cash balance in River, that's FDIC insured, right? Yeah. So the way it works is River is not a bank. River partners with a lead bank behind the scenes. And the interest, and so your cash, at LeadBank is FDIC insured up to $250,000.

We're working on some changes to hopefully get that up much higher, but that's the limit for now. So in terms of other sort of custodial solutions, and this is for people with a lot less Bitcoin, but what do you think about the idea of things like Federman and eCash as a different, like a different custody solution that has like, again, tradeoffs and there's a balance in it, but you then have privacy and you have multiple custodians rather than one in the Fetimit model.

You know, the thing about saying like what about Fetamint or what about eCash is it's like, well, who's running it? Right. At the end of the day with any custodian, it's just another custodian, right? It's an anonymous custodian. It's like, who's running it is really the question. Is it run by a really high quality operation? if you want to trust it

and if you trust and want to put some there but I think that's the issue right? It's like not all fetamints or e-caches are created equal or like mince you're just trusting whoever's running it and so I don't know how to

I don't know how to judge the security of that right? So you would have to say what about the specific one and what information do you know about this? Yeah, that's a fair point I think the idea of having like a federation with a few sort of known and respect to people

who would have a lot to lose if anything happened in that mint, it does offer quite a good solution for people with say like sub a few thousand dollars in Bitcoin. Obviously, if it gets too much, like you absolutely shouldn't be, maybe even a few thousand dollars is too much for one of those. But I think it's kind of interesting. But one of the things that I would like to touch on with you is potential upgrades to Bitcoin that makes self-custody better. So things like Covenants and OpFault, but before we even get into the details of those,

what's your general view on the sort of state of Bitcoin and the state of upgrading Bitcoin? Yeah, this is one where, you know, I've been assessed before and I've kind of just kind of gone off the cuff and I'm starting to realize that river at a certain scale where people kind of take what I say about these kinds of things very seriously, you get very sensitive if I say something that isn't quite aligns with their views. So I want to be measured here. Look, I want to caveat what I say with like, this isn't necessarily a topic that I have thought as deeply on as any of the other

things we've discussed, right? My gut tells me a few things. One, I'm nervous about the clarity of thought that exists around the current potential upgrades and protocol upgrades that are on the table. Can you expand on that? because that's interesting. I'm nervous that there isn't sufficient clarity of thought around the exact problem we're solving

with any of the given upgrades on the table, nor is there sufficient sort of command of the side effects of such an upgrade. I think Bitcoin development is at a point where it should be sort of at first do no harm and again, I'm not deep in these conversations, and it's possible that the clarity is there, and I just don't have it, right?

But my concern is that it isn't. So can I ask you a question on that before you carry on? I don't want to ruin your flow, but when you say you're concerned about the clarity of thought on what the problem that these potential upgrades are solving, is that because right now Memples, are like pretty much empty. Like I know they're not quite empty, but fees are really, really low.

So what's the point in bringing in upgrades that help alleviate that? What, like, is that what you mean or is it something else? No. I actually think it's very valuable to say, like, I'm very much aligned with, we need to make sure that Bitcoin self-custody can scale to more users than it does today, like on a long enough time horizon with lots of people using Bitcoin. Totally aligned with that goal. Where I, where I like get along.

is the clarity of how the potential like covenant upgrades on the table actually get us to where we need to be. Okay. Right. It all feels a little hand wavy. It all is sort of like, here's all the things we could maybe do if we had covenants. It's like not a straight line. Like if we implement this specific change, here's how many more people can self-custody, right?

It's like, it's like pretty murky. and that's where I get lost. Okay. So what about things like Op Vault then that maybe don't scale self-custy to more people, but they make it more secure for the people that are already here? I think it's interesting. I think that it can be useful for institutional custodians

or in people custody themselves, where it kind of gives you sort of more grace or like a fallback sort of option if your custody is compromised. At the same time, I also wonder if it's like, we're just adding more complexity and the problems that exist with self-custody today are really just can be solved at the application level like Bitkey did. I think really what happens, the problem most people have with their custody systems is that they're too complicated. They're not simple enough. And I wonder if it's actually solving like the biggest problem.

But it's been a while since I've reviewed it. I remember when I read it thinking it was promising and it would be valuable. The question is, is it valuable enough to make a protocol change? And that's not an easy question to answer. Do you think we're at a point now where ossification is getting more and more likely just because of how contentious every single issue is in Bitcoin? It feels like it's more split than ever. Yeah, I mean, I think that's just a practical reality of it being big,

of Bitcoin getting bigger. I think that, you know, I don't want to say this is higher priority than figuring out scaling. I do think that getting general alignment amongst the developer community on sort of a quantum sort of resistant upgrade is valuable work, potentially more valuable than Covenants. again, I don't want to make that claim for sure, but like potentially. And there is some great active discussion being done there. But I think we need to accept that ossification is going to be like, it's just going to be further ossify the bigger we get. So how much have you thought about quantum then?

Because that's really interesting to hear you say. Do you think obviously Google had that big breakthrough a month or two ago, or it was at least reported to be a big breakthrough? I don't understand it at all. Do you think we're getting close to that being a realistic threat? I don't think close means I think that we should, I think Bitcoin should assume that it's realistic, a realistic threat within, you know, in 10 years, but it probably isn't a realistic threat for a few decades, at least.

But we should be overly conservative and assume like in 10 years it's a threat, a threat, a threat. And that's how I think we should probably operate. And so the issue, you know, the dirty little secret of not just Bitcoin, but just cryptography, right, is it's built on our, like our current understanding of mathematics. And the security of all cryptography is that we think certain math problems are hard to solve because we haven't found solutions

like to the contrary. Yeah. And with, you know, what sort of Shores algorithm, which was sort of a quantum algorithm

told us, well, wait, if we have a quantum computer, this thing, this thing that secures digital signatures that we thought was hard actually isn't as hard

as, you know, isn't as hard to crack as we thought. So, you know, it's not just quantum that's a risk like just mathematical breakthroughs could also you know cause issues so i've never really looked deeply into the quantum thing i've always kind of hand-waved

it off as not a real issue and maybe that's just uh not wanting to confront it but if we were to upgrade bitcoin to be quantum resistant what would actually need to happen yeah so there's really so there's one very high um certainty thing which is like it's pretty high certainty that we could upgrade Bitcoin with enough people agreeing to move to a signature scheme that was quantum resistance. Now that would have some downsides. All the quantum resistant signatures are bigger, right? So we'd have to figure out like, and slower usually. So we'd have to figure out, are we okay with that? How would we handle that? Would we make blocks bigger? Would we, you know, how would we handle the implications of that? But like, that there's, that can be worked

through. The bigger challenge is, how do we handle the coins that don't upgrade? That was going to be my question. So it wouldn't be a backwards compatible upgrade that I assume. There's really no way to secure everything going backwards because if you think about it, right, how can you secure something that you can't change? Uh, like, well, the way this would work is we upgrade Bitcoin, right? And then we say, okay, everyone, move your Bitcoin to the, the new signature format, make a transaction and move your coins to these new addresses that are, you know, have, yeah, but what about the coins that don't move? That's going to be a lot of Bitcoin. Satoshi's coins are gone. Satoshi's coins

are made me, probably, right? Um, and we'll really find out how many coins were, you know, lost or whatever. Um, and so those coins, are, you know, how do you treat that? Do you give really two options? Do you either do something with them before a quantum computer can, in which case it's kind of a confiscation. I was going to say, would that be you fork those coins to a new address? I don't even understand how that would work. Because how do you know they're truly not being moved? Like out of, not because they can't but because someone doesn't want to or whatever reason well exactly that's the issue so like you know the what we may end up happening as we say look the way we have no right to move these

if a quantum computer is developed this is made basically a bounty for funding that right um now maybe people would fight and say you know what no we we can't let that happen it'll dump the market or something like that. And so what we need to do is we need to burn it or we need to put it back into the supply pool to incentivize future mining or something like that. Do you know what this reminds me of? It's almost like the Dow hack on Ethereum. Yeah. You get into these hairy philosophical questions. If you do something with those coins, have you sullied the sanctity of the protocol? I think we have. Arguably. That's, um, that's quite a. scary future scenario.

And just to put some kind of like weight on it, you think quantum will get to the point that it can do this at some point in the future. I don't care about timeframes, but you think that's a likely possibility. I look, I think a lot of the quantum stuff is overblown and overhyped, but we shouldn't bet against human progress with this stuff. If we extrapolate the trajectory, like potentially, um, Look, I think it's very low likelihood in the next 10 years. In the next 100 years, would I bet against it?

No, I certainly wouldn't bet against it in the next 100 years. The scary thing about this messy consensus is that what I can imagine happening with this quantum thing or anything else really is you kick the can until you have to make a last minute decision and then you've not actually prepared for it well enough. So I do like the idea of we should start this conversation now. Just going back to the self-custody thing, I want to just tie in lightning to that a little bit because, I think lightning is, I have no idea of what the actual figures are, but it's used in a largely custodial way. Like I know people have done the research on how Zaps are done on Noster and it's almost all custodial. Do you see any risk in the amount of custodial Bitcoin on Lightning as opposed to people actually running sort of self-custodial Lightning nodes?

No, I think that self-custody lightning is very far off to like be at scale. In fact, it's possibly never if it's possible lightning is really just a glue between custodians and other scaling solutions people come up with that are non-custodial um i think that's probably like the likely outcome for lightning is it's just like um like the htlc right is like this protocol that every future scaling solution will like be compatible with um and allow for like seamless connection. It's basically, I think lightning will be the bridge of all the other Bitcoin scaling solutions, whether those are custodial or not. Okay, so you've kind of touched on a lot of things that I think many people in Bitcoin are going to find quite controversial here.

What is your sort of call to action on the self-custody front? How do you want to sort of close this out? So, you know, I think that the thing that Bitcoin development should focus on is continuing to drive towards solutions to allow self-custody at scale. Like I said before, what's important is that everyone can self-custody, not that they do. But to make sure everyone can self-custody, we need to have solutions that scale beyond the existing layer one that we have. And so I do think that should be one North Star for Bitcoin development. The biggest North star for Bitcoin development, though, should always be maintaining the sanctity and the security of the protocol, right? So we should never make changes that compromise.

that, that should be an invariant. Then it's how do we scale this to as many people as possible to make sure everyone has the optionality to remain self-sovereign. And that's how I would sort of guide Bitcoin development.

Actually, I was going to close out there, but I have one more question because you kind of brought up there. How much of the challenge of self-custody do you think can be solved with better UX? Because UX, like, traditionally in Bitcoin has been pretty terrible. I think it's got a lot better recently.

But do you think that can basically alleviate some of your concerns around self-custody? Yeah, I think Bitki showed that, right? I think Big Key showed that like really investing heavily in doing the design in the design of these systems and leaning into the reality of human nature instead of trying to fight it is the way to go to make this more widely sort of accessible. So I do think that we can still make a lot of progress. and getting more people self-custodying and lowering the barrier to entry there. That said, there are still some practical realities to it, right?

It's, you know, some people want to be able to sell as fast as they can, right? There's things like that. But I think, in short, yes, there's still a lot of opportunity to level up. Yeah, I mean, I think Bitki's interesting. I personally probably wouldn't use it. I might not use it. But it's definitely something I'd recommend to friends because there's tradeoffs, but they have absolutely crushed the UX on that.

But Alex, I really appreciate the time. I really appreciate River supporting the show. It's made this whole thing possible. So thank you for that. Is there any way you want to send anyone before we close out? Yeah. I mean, I think we have a very exciting era ahead. Bitcoin is truly sort of, I think, coming into its own now.

And we're going to have a lot of challenges going forward. But we're having these challenges because of how far we've come and because of how important Bitcoin is. It's important not to lose sight of that. it's important to remain optimistic. We can work through every challenge that's going to arise over the years to come. And, you know, as Matt O'Dell always does, you know, stay humble and stack sets. Thank you, Alex. Appreciate it.

Thanks for having me.