Jameson Lopp, Adam Back, & Austin Alexander on Bitcoin’s Evolution
On this episode of Magic Internet Money, Brad Mills hosts a roundtable with Jameson Lopp, Adam Back, and Austin Alexander. They cover a wide range of topics, including updates to the bitcoin code, the success of layer twos like Lightning, and the controversial addition of Ethereum support to private key management company Casa.
Additionally, they explore the challenges facing the base layer of bitcoin, the rise of side chains and altcoins, and the potential impact of the failing banking system on bitcoin's future. This episode also touches on debates around regulation, education, and the misallocation of capital in the crypto world.
Misconceptions About Bitcoin's Development and Efficiency Gains
Despite popular belief, Bitcoin's code is continuously updated and improved. In fact, there have been significant efficiency gains in bandwidth usage, latency, and sync time. It is essential to recognize that the Bitcoin network is not a stagnant technology, but rather a constantly evolving system that addresses challenges and adapts to new requirements.
The competitive nature of the cryptocurrency market also plays a role in spreading misconceptions about Bitcoin. As various clients and companies attempt to establish their own currencies as superior alternatives, they may propagate inaccurate information or capitalize on existing misunderstandings. Consequently, it is crucial for Bitcoin enthusiasts and investors to stay informed and differentiate between facts and falsehoods.
Adam Back on Bitcoin and Innovation
Adam Back emphasized the innovative nature of the Bitcoin community, stating that the technology is far more advanced in terms of research and development than other cryptocurrencies. Back highlighted the network effect of Bitcoin, making it a more attractive platform for innovation than other coins. He stressed the importance of avoiding changes to the underlying Bitcoin protocol and emphasized the need for security-first thinking in the development of the technology.
Back also touched on the importance of layer two solutions and modularity in Bitcoin, acknowledging the success of the Lightning Network in reducing transaction fees. He discussed the potential uses of covenants in Bitcoin to improve secure storage and key management. Back elaborated on the future of Bitcoin, mentioning the possibility of implementing formal proofs for the safety of the protocol and the need for community consensus in adding script upgrades.
Austin Alexander on Bitcoin Maximalism and Coalition Building
Austin Alexander expressed his disapproval of the moralizing, self-righteous stance associated with Bitcoin maximalism. Instead, he emphasized the power of Bitcoin as a tool for personal liberty and self-actualization. Alexander noted that ossification is necessary for Bitcoin to be a relevant global asset and discussed the role of drive chains in achieving this goal.
He compared Bitcoin fees to those of altcoins and highlighted the need for all the innovation space, liquidity, and security of the altcoin world to be integrated into Bitcoin. Alexander also discussed the impact of drive chains on all coins and the importance of the Lightning Network in satisfying the demands of blockchain's paying customers. He mentioned the integration of BIP 300 side chains with Lightning and the slowing momentum in Bitcoin software development.
Jameson Lopp on Crypto Cancel Culture and Protocol Development
Jameson Lopp identified himself as a Bitcoin monetary maximalist and criticized the generalization of the beliefs held by Bitcoin maximalists. He also discussed the natural fracturing of groups over time and the tribalism within the Bitcoin community. Lopp shared his thoughts on expanding services to Ethereum users, the ongoing debate over Bitcoin's ossification, and the complexities of copying code from one blockchain to another.
Lopp emphasized the need to continue working on Bitcoin software even as the protocol ossifies. He discussed the importance of scaling solutions that make the base chain data incredibly dense and the potential for Bitcoin to implement innovations discovered by other cryptocurrencies. Lopp also touched on the challenges faced by protocol-level developers in avoiding contentious debates.
Brad Mills on Banking Crisis and Bitcoin Tribalism
Brad discussed the unique nature of Bitcoin as an asset without counterparty risk in the face of a banking crisis. He also addressed the issue of tribalism within the Bitcoin community, noting that the most vocal maximalists do not necessarily represent the majority view. Brad covered the debate around Bitcoin maximalism, the importance of sticking to the Bitcoin thesis, and the implications of adding Ethereum to the Casa platform.
Brad also talked about the potential of BIP 300 drive chains for Bitcoin protocol ossification and the impact on blockchain scalability. He expressed his doubts that drive chains would put an end to token ICOs and discussed the benefits of the Liquid Network for launching digital token equities on a Bitcoin side chain. Lastly, Mills shared his optimism about the future of Bitcoin and the upcoming soft forks
The Network Effect of Bitcoin
Brad, Jameson, Adam, and Austin covered a wide range of Bitcoin-related topics, from debunking misconceptions to exploring the potential for side chains and altcoins. With a focus on innovation and growth, these discussions provide valuable insights into the evolving Bitcoin ecosystem and its potential impact on the future of finance.
Time Stamps
[00:19:23] Bitcoin: A Useful Tool for Everyone
[00:23:42] Why I Chose Bitcoin Over All Coins
[00:32:46] Satoshi's Insightful Concept: Unchangeability of Bitcoin
[00:38:01] Bitcoin Experts Prioritize Security Over Lightning Adoption
[00:49:42] The Economic Phenomena of Altcoins and Innovation
[00:57:12] Bitcoin's Code Continues to Undergo Rapid Changes
[01:10:14] Covenants and Confidential Transactions: Exploring Liquid's Features
[01:14:40] Simplicity: Bitcoin's Soft-Forkable New Scripting Language
[01:18:05] Simplicity may make drive chain implementation easier
[01:20:08] Bitcoin's Trajectory Could Reach Global Saturation Soon
Mentions in the Show:
Simplicity: A New Scripting System for Bitcoin
Developed by Russell O'Connor, Simplicity is a compact and effective microcode for writing new opcodes. This new scripting system allows library writers to easily implement missing pieces and can be soft forked into Bitcoin. It also enables formal provability.
Caution and Innovation in Side Chains and Altcoins
Side chains were initially perceived as a threat to altcoins, causing price drops collectively. However, there is actual innovation in the altcoin market, despite its association with casinos and Ponzi schemes. Bitcoin cannot hire as many developers as altcoins due to differences in collective capital.
Issues with the Banking System and Potential Benefits of Bitcoin
The speakers predict that Bitcoin will benefit from the banking system's insolvency, with Balaji forecasting a million-dollar valuation within 90 days. This insolvency may result from sovereign nations ceasing to deal in dollars and treasuries.
Features of Liquid and Debates Around Regulation and Education
Liquid offers features such as user-issued assets, stablecoins, and shares. Covenants in Bitcoin could help with censorship resistance and secure storage. Confidential transactions in Liquid provide more privacy. Additionally, debates exist on how people learn best about crypto in a self-regulated or regulated environment.
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Find Adam Back
Find Austin Alexander
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Transcript
Brad Mills [00:00:00]:
Believe something structurally shift.
Jameson Lopp [00:00:02]:
Magic Internet.
Brad Mills [00:00:07]:
The market has changed from from speculators to allocators.
Adam Back [00:00:11]:
Magic internet me down the rabbit hole.
Brad Mills [00:00:15]:
Looking into welcome back to the Magic Internet Money podcast. This is Brad Mills and the banks are failing. Who could have predicted this? Okay, this episode was recorded about a month and a half ago, and it was a very special episode for me because I've always looked up to Adam Back as a good resource, a good voice in bitcoin. He always has nuanced, measured, takes on technical issues like scaling, and also has been pretty vocal in terms of building conviction for bitcoin's price. Adam Back was the author of the hash cash algorithm, the idea of creating a proof of work that was referenced in the bitcoin white paper. And he's from Blockstream, which is one of the companies that builds bitcoin software, does bitcoin mining, the bitcoin satellite, all kinds of stuff. So I met with Adam. We occasionally would communicate through DMs over the last few years, interact on Twitter a lot, and kind of run things by him every once in a while. He gives good feedback. And then I was at a conference that he was at, so I said, hey, why don't we do a podcast chat? And he agreed. And then I also figured, well, James and Lop is going to be there as well. There was a couple of controversial sort of things happening at the time. The Ordinals had just launched, which is an ability to use bitcoin as a data storage layer. And we were going to weigh in on that topic. Plus we were talking about drive chains. There was a debate around drive chains, which would be like a soft fork to add functionality to create, like, bitcoin side chains. And since Adams, the company, created Liquid, which is a bitcoin side chain, a Federated side chain, jameson Lop has always been weighing in on these conversations as well. And his company, Casa, which I've said before in this podcast I'm a user of, decided to add ethereum support. That was another controversial thing. I figured, why don't the three of us get together? Adam, myself and Austin, who is an early Bitcoiner that not as people don't know him as well. But Austin, I've talked with him for years, met with him at different conferences over the years in Canada, and he was at Kraken for a while and recently started a new company that's building drive chains, and he raised some millions of dollars for that. So I figured, let's do it. We were hanging out at the pool with Adam, talking about this different stuff. I was playing some pickleball with James and Lop, and I was working out in the gym at the resort with Austin. I figured, why don't we just, instead of talking about this stuff privately, let's have a podcast chat about it? So I was very glad that that worked out. So this is kind of a little bit outdated, but not so much. We don't talk about what's happening with the banking system right now. I'm sure you're aware that five US banks have failed. Signature Bank, Silicon Valley Bank, and Silvergate, as well as a couple of others, and Credit Suisse, which is one of the major GSIB globally systemic important banks in Europe, which is kind of bringing out the idea that there's not a lot of safety in the banking system. There's not as much money really in the system as we like to think, and there's more losses that are going to be incurred than the FDIC can actually insure you with. Like there's only 2% or so of the money in the FDIC fund that actually is supposed to be backing the money in these bank accounts. And we saw just recently that the FDIC kind of it's a sham, it's just a LARP, it's a confidence game. The $250,000 limit is actually unlimited if you're too big to fail, which Silicon Valley Bank was because just a week before they were talking about how strong the US banking system is and that they don't see any potential for a banking crisis. Janet Yellen, who said recently, a few years ago, that she doesn't think we'll ever see a banking crisis again in our lifetimes, and then now, literally we're living through a banking crisis. So these people don't know what the hell they're talking about. They don't instill any confidence. It really is a confidence game and it's almost like a cult, like the whole macro finance, CNBC market watch stuff. It is culty. It's completely irrelevant to most people, the things that they talk about. And they actually don't have a clue. Like, they were telling us for a decade that quantitative easing and printing money does not cause inflation. They actually target 2% inflation. And just that alone is inflation. So it's just ridiculous. They said that they were worried about disinflation, they worried about deflation. Like these central bankers and politicians that think they're so smart on macro finance and money and banking. Their biggest concern was deflation. So they were like actually trying to cause inflation, but not cause too much inflation, but cause more inflation because they were worried that it wasn't going to be enough inflation. It's the most craziest thing that they were trying to do. And they ended up screwing it up, printing more money that had existed in the first like 100 years or the last 100 years or whatever. They printed 10 trillion or more just in the US. And wouldn't you know it, they overshot the mark and now we have the highest inflation that we've had in decades. And they raised the interest rates to try to combat inflation because they said that inflation was transitory, meaning they thought that it was just a short term spike caused by COVID. Not our fault. It's not because we printed $10 trillion. It's a supply chain problem. And it's going to resolve itself. It's transitory. That's what Jay Powell was saying, the head of the federal reserve. And then literally like within a year they said they were never going to raise the rates. They were going to keep them low. They jacked the rates up higher than they've ever have before because inflation got out of control. Turns out it was not transitory. And what did they do? They actually made banks insolvent. So the federal reserve has totally screwed this up. The FDIC is LARP and Bitcoin is the only thing that you don't have counterparty risk in. We see with the Russia sanctions. What's happening is that over the next decade, the dollar and the treasury is going to lose relevance for sovereign nations to want to deal in dollars and treasuries. Because Russia just got sanctioned last year where no US and European banks were allowed to do business any longer with Russia. And the Russian central bank had their assets seized. The treasuries that they owned. So what signals does this send to the rest of the world? This isn't a political thing to say like, oh, I'm for or against Russia, but this is a nuclear bomb that was dropped on the economy. And literally, it took a year I was predicting this. It took a year to resolve out into what we're seeing right now, which is these banks are failing because Credit Suisse and Deutsche Bank do a lot of business with Russia. And you can't just cut off all that derivatives exposure and all the loans and all the business that they do. You can't just cut that off and expect that that's not going to have follow on effects. That's going to cause a spillover into the US banking system. It's going to cause them to fail and then it's going to cause more exposure, more contagion, because now US. Banks have had exposure to Credit Suisse and Deutsche Bank and they're failing. So that's going to cause more losses in the US banking system and we've seen the banks have started to fail. So now you have Bellaji Srinavasan, who is pretty well known in Silicon valley circles, come out and say that he thinks that bitcoin is going to go to a million dollars in 90 days because the banking system is insolvent. They don't have enough money actually for everybody to withdraw or to buy Bitcoin or to whatever they're going to do, like get it out of the banks because that's what happened with Silicon Valley bank. Silicon valley bank had a bank run and they didn't have enough to cover the withdrawals. It wasn't a traditional bank run. Like you see where people are lining up to take cash out. It was like these millionaires and billionaires were trying to wire their money out of the bank to another bank. And when they did that, it caused the silicon valley bank to have to sell their collateral. You've heard of fractional reserve banking which is kind of not really how it works. But the reserves that most banks keep are Treasuries, us treasuries, the most safe and liquid collateral on Earth, apparently. So when the Federal Reserve raised rates the highest they've ever been in decades, the fastest they've done it in decades, the Treasuries, the US treasuries lost value. They started to go down in value. It's one of the biggest bubbles in the world, and it's falling apart. So the Federal Reserve and the FDIC and the treasury had to step in and rescue this bank, and they had to basically go above the $250,000 limit and say, everybody's insured. We're going to take care of you. And 97% of the people in that bank were not small mom and pop businesses or individuals. They're Silicon Valley elites. They're like the 0.1%. They are the people that run the ponzi scam of investing in Silicon Valley startups, seed rounds, and then do that whole, like, Series A. They're not profitable, do the Series A at a ten x valuation, et cetera, et cetera. So what we're seeing right now is some pretty serious contagion in the banking system. It's time for bitcoin. And this conversation is relevant because we talk it's not quite about this banking system stuff, but it's about the idea of how are we going to scale bitcoin to be able to get a billion people onto bitcoin. So one of my favorite episodes, for sure. Thanks to Adam, Austin and Jameson for doing the podcast, and we'll see what people think of this one. I do think that there's a need for side chains in bitcoin, and I'm not technically smart enough to be weighing in on this debate, technically, but I think whether it's side chains like drive chains or Elements style side chains that Blockstream is doing or whatever, we need more capacity to be able to onboard people to bitcoin. Because if the banking system is going under and we need people to get onto bitcoin, then there's going to be a mix of people coming on. Some people will go on in a custodial way with Lightning wallets. Some people will be sovereign bitcoiners, run their own nodes and secure their own keys like that. And some people will just buy wallets and secure their bitcoin that way. But many will want to use Lightning network. Many will want to use custodial services. So there's all these trade offs we can make and make bitcoin more able to absorb the next billion people that need to get out of this corrupt, broken banking system and broken money. So again, thanks for listening to the podcast. If you enjoy the podcast, I would appreciate send a review over ratethpodcast.com bitcoin. And if you write me a funny review, I'll read it on the next show. All right, here's the episode. All right. Welcome to the magic Internet Money podcast. We've got Jameson, Lop, Austin, Alexander, and what's your name again?
Adam Back [00:11:51]:
Adam Back.
Brad Mills [00:11:51]:
Adam Back. Adam back. I think I've seen you on Twitter before.
Adam Back [00:11:55]:
Yeah.
Brad Mills [00:11:55]:
All right. Got together and we've been having interesting conversations over the last few days about different topics that may be somewhat controversial in bitcoin circles. So I wanted to have a longer form conversation about some of this stuff. Jameson is CTO. And are you now like the CEO as well?
Jameson Lopp [00:12:13]:
Well, I'm co founder, co founder CTO okay.
Brad Mills [00:12:16]:
Of casa and Austin just recently started layer two labs yeah. And that recently did a fundraise for a company that's building on the concept of drive chains. And Adam has just recently announced round for block stream. So, yeah, everybody here is like an entrepreneur in bitcoin. I'm investing in bitcoin companies and we're all bitcoin. Do you say bitcoin or bitcoin maximalist? What do you guys think about that term?
Austin Alexander [00:12:46]:
At this point, I don't think I would call myself a bitcoin maximalist any longer.
Jameson Lopp [00:12:50]:
Well, we can get into that as well.
Brad Mills [00:12:51]:
Let's do it.
Jameson Lopp [00:12:52]:
When I got canceled a few years ago for participating in a securities, like regulated securities token thing, I wrote a whole blog post about my perspectives on bitcoin maximalism and comparing contrasting that with the fact that I'm a technologist and I'm interested in a lot of things and I'm a cipherpunk. So I'm interested in privacy, for example. I'm interested in any new technology that may improve privacy. And sometimes that means there are tokens that are not bitcoin that may help people improve their privacy. And so I often get, quote unquote, canceled for even talking about such technologies. Anyway, I think in that blog post I tried to pin down my take on it and I said I consider myself a bitcoin monetary maximalist. There's been an explosion of different projects and different functionality that's all cryptography based. And of course, all these different things have their own economics and some of them are outright scams, some of them are just bad ideas, and I don't think any of them hold a candle to bitcoin from a security perspective and from all of the just guarantees that bitcoin has. But some of them still have interesting.
Austin Alexander [00:14:08]:
Utility, maybe I would say I'm at this point a bitcoin protestant or a bitcoin reformationist, because even though much of the dogma, a lot of the rights that the orthodoxy demands, I follow and believe. I just think that the term bitcoin maximalism has come to be associated with this very moralizing, self righteous perspective that I definitely don't want anything to do with, even when it comes to bitcoin and all these other things in life that has come to associated with the orthodoxy, like eating steaks or whatever, which I love steaks. I eat them almost every day. I even feed my barely out of infancy son steaks every day. But the moralizing and the culture surrounding it, as it has, where the bulk of the conversation is occurring on Twitter and the like, it's definitely not for me.
Brad Mills [00:15:03]:
Yeah, there's a thing about it where in politics and I think it makes sense to apply it to bitcoin and any other similar thing that gathers so much energy that the 2% most active people in a community are going to be the ones that are vocally on Twitter and in social media, but especially Twitter. So the 2% most active bitcoin maximalists are the ones that are getting the most likes and follows and retweets on Twitter, but it's definitely not representative of the wider view of bitcoin maximalists. And I find myself in that position too, where maybe it's because I'm Canadian or something, but I want to have a devil's advocate perspective on things. But if I'm talking to a crypto shitcoin person and they're shitting on bitcoin maximalism, I'm going to identify as a bitcoin maximalist and say, no, that's not true. Look at all the things that are happening in bitcoin. But if I'm talking to one of those toxic Twitter bitcoin maximalist people, I'm going to be like, no, that's not true. There's actually some interesting things happening over in privacy and even in some blockchain things, there's some interesting technology being built. So I'll try to bring more people towards the sort of rationality. But I find myself personally, like when you guys added ETH and Casa, I'm a Casa member, I've been a Casa client since the beginning. I was just like, no, they're adding ETH. I got to leave now. I got to leave Casa. And why would Jameson do this to me? He's supporting the network effects of a shitcoin ethereum. So then I sat on it for a day and I was like, there's a nuanced thing there. So I think people that are so passionate about bitcoin and what bitcoin still needs to do for the world, like there's still so much work we need to do, can genuinely feel offended by blockchain stuff and ethereum support, like, for example, with Casa. And sure, there's a lot of people that are just part of that toxic tribe Austin that you were talking about that are just trying to moralize and prescribe their beliefs to people. But I think there's a lot of us that are actually kind of like somewhat get hurt by things like that. Do you think about it from that perspective?
Jameson Lopp [00:17:01]:
It's a natural evolution and fracturing. It's no different than what happens with historical traditional religions, right? I think that as the size of a group grows, it's inevitable that fault lines appear. Humans are very complex creatures and the mere thought that you could have millions of people who all believe like the exact same set of things is pretty ridiculous. And so eventually what happens is some of those slight differences start to appear just as a result of interaction of people within the group. And this is sort of a tribalistic nature of humanity. People start to focus on those very slight differences. Even if you have 99.9% agreement on everything else. Eventually the 0.1% will come out and people will get offended and then they focus on it and they don't stop focusing on it until people get ostracized or they leave of their own accord. And I think that's basically the phenomenon we're seeing.
Austin Alexander [00:18:08]:
Of course, if we look back at all the various schisms throughout history and organized religion, sometimes we laugh at how, from our modern perspective, the help of the time that's passed, the centuries, often that's passed, we can't help but laugh at how insignificant these points of conflict are. Something like two sects will basically go to the point of war over is God. Three separate entities in one or one entity separated to three these types of points. I think Bitcoin is more powerful fundamentally. Bitcoin is ideologically from all sides about personal liberty and about self actualization. In that way, the individual is freedom money, as has been often called. And Bitcoin would be much more powerful from the perspective as a coalition building tool. There's some religions that are very exclusive, right, and require mountains of rituals and dogma and then others that are then it's obviously a spectrum. I think if you get too inclusive, maybe there's downsides. But with Bitcoin, I think it really towards the end of the inclusive spectrum is much more helpful.
Adam Back [00:19:23]:
So I think bitcoin is for everyone. So it's kind of like electricity or something, or gold. There are lots of people who want to protect their savings who own a bit of gold with vastly different political views. Now, of course, there may be a bit of correlation with some views of maybe more self reliance theme or something, but generally it's a useful tool for everyone in a major innovation in monetary technology and crypto has like at times very little regulation or effectively self regulated. And so I've had debates with Trace Mayor in the past, who's a very early Bitcoiner. His view is typically that people are only going to learn by losing money in the market. In my view as well, it's a self regulated market. In a self regulated market, it's useful to educate people and try to explain why some things are potentially a bad idea to save them the pain of losing money. And Trace, we're taught that, well, most people won't learn until they first lose money. So if you sell the fork or you short the fork and they lose money on it, caveat empty, they're going to learn and not do it again. So the maximalist term even was invented by Vitalik as an old coin promoter and kind of the genesis of the whole ICO craze, which pretty clearly torched billions of dollars to very little output, right? I mean, there are some innovations that came out of that, but not many proportionally to the amount of money that was spent. And so the original maximalism was just really about the ethical nature of excessive misallocation of capital or dishonest selling or something like that, right? And so of course, as somebody promoting such a model, vitalik had to find a way to legitimize what he was doing. So he's like, well, you guys are like anti innovation. And so maximalism was his way of saying that. But like Jimison said, that's actually incorrect. Like bitcoin technology people are actually very interested in innovation. And actually the innovation per dollar of R and D spended bitcoin is something like 100 or 1000 times literally of the R and D output of all coins. Now, let's not say there aren't all coins with innovations, and they clearly are, but you've got to separate that from the funding model and a sort of pump and dump nature which has got a lot more in common with early last century stock fraud. Basically. Of course, there's some gray area in between where there are projects which are effectively stocks in a company that provides a service or something and everything is kind of gray, right? So that's where maximalism came from. And sometimes people who are subject to a slur, they adopt it as a kind of self identification, right? It's like, oh yeah, we're maximalist the protest.
Jameson Lopp [00:22:03]:
Yeah, and I mean, it's often still used in a derogatory form. You've got the tribalism between all of the non bitcoin stuff. Now we're seeing interesting tribalism even within the bitcoiners and the more hardcore puritanical moralistic folks. But I think regardless of how you're using it, my general retort these days is that when you're making a broad sweeping statement about bitcoin maxis do this, believe that you sound as ignorant as someone who says all Hispanics do this or all African Americans do that, or all Christians do that, just over generalization.
Brad Mills [00:22:43]:
Even in crypto, the people that are criticizing, quote unquote shitcoiners or whatever, like all shitcoiners are this and maxis are this. I find that people that are propagating that maxi straw man, that like bitcoin maxi straw man are just as dumb as the people that are actually the bitcoin toxic maxi. People like that 2%, that one 2% of most really actually dumb toxic maxis. For sure. There's really dumb toxic bitcoin maximalists out there and they make a lot of noise and they turn off people like Austin for trying to say that you're an idiot if you don't eat meat or whatever it is. But those people that are saying like all bitcoin maxis are blah blah blah, are just as bad as the people that are the toxic maxis that are intolerant or whatever. But I'm curious, Adam, if someone doesn't know who you are or whatever and they're like, oh, what do you do in crypto? Do you ever identify as a bitcoin maximalist or how do you I'm curious how you handle that.
Adam Back [00:23:42]:
In a way, I was like one of the earliest people to decide I didn't want anything to do with all coins. And a lot of people come to a realization by losing money on all coins or trying a bunch of stuff and then deciding that was a bad idea in hindsight or something. And in my case, I joined the bitcoin talk forum in 2013, and some guys pounced on me. They see you join and they invite you into a private channel, and they start want to talk to you. So they wanted me to join their altcoin, basically. And it turns out these guys had started a couple of previous old coins and they wanted to start a new one. And so I realized, like, well, wait a minute, they're asking interesting technical questions. They're looking at papers and stuff. And I'm like, well wait a minute, why do they want me to join their project? They want name branding to increase the profile of their project. I guess that will be pretty profitable, but that's going to be really bad for my reputation. I'm going to go out and history is a scammer. And then I was like, well, if you want to torture reputation, you might as well take all the money yourself. Like, why do you have these guys market it and take all the money and then destroy your brand name? Right, right. So I'm like, well, I don't want to do that because that's scamming. Like bitcoin is a huge innovation for the future of humanity. And I viewed that projects that try to restart or leach are sort of subtractive from the network effect and the growth rate of bitcoin. So I resolved that I'm only going to do bitcoin. I'm not going to get involved in any of that stuff. And I was all in the space of like a minute or something. So that was my kind of thought experiment about all coins. Yeah, I was like, maybe kind of single track mind. Like, if there's something that has a network effect, it's better to build on it. Of course there are other network effect situations. In the past, I guess, the early internet technology, there were competing stacks other than TCP IP, and once it's a dominant one, it tends to win, and the other things just kind of fall out of favor and disappear as a footnote in history. So I think it's kind of that way of bitcoin, because money is a very network effect thing. Yeah, so that's the way I think about it.
Brad Mills [00:25:33]:
But when someone says, like, oh, what do you do? Do you say, what do you say?
Adam Back [00:25:37]:
I work on bitcoin, okay?
Brad Mills [00:25:40]:
I'm similar to what you just talked about. That's why I respect Paul stork from the drive chain proposal, bit 303 one. Because unlike many people who came into bitcoin early and then decided they have some cool idea that they want to do, but that they couldn't get pushed through the approval process for whatever reason, they go off and they do a shitcoin, they do an ICO, they raise a bunch of money, and they capitalize on it. But Paul has been like, it seems like, stick with the Bitcoin thesis for a long time and slowly just keep building. And sure, maybe he's, like, built some stuff with the Zcash Foundation or whatever. I don't even know the full story there, but they built a drive chain implementation using Zcash or something. But he never did an ICO. He never launched a Token or did any kind of scammy stuff at all.
Austin Alexander [00:26:27]:
He built a clone of Zcash using drivechain testnet.
Brad Mills [00:26:34]:
I thought he built a drive chain on Zcash.
Austin Alexander [00:26:36]:
Actually, the opposite. It would be something, I imagine, that the Zcash Foundation would actually probably pay money not to have it happen.
Adam Back [00:26:43]:
Right.
Brad Mills [00:26:44]:
So it's interesting that that's your choice, and that also seems to be Paul's choice. And it's great to see that there's competition and people willing to fund drive chain promotion and research and building without resorting to unethical kind of grifting stuff. Jameson, is there anything that you wanted to say about the choice to put ETH on Casa? How did you get to that decision? I'm curious, as obviously you're publicly a Bitcoin guy and you've previously said on Twitter and in your blog and stuff that you would never add altcoin stuff, but what was it that caused you guys to go back on that and add ETH?
Jameson Lopp [00:27:24]:
I just want to clarify. I don't believe we've ever said that we would never add any other coin.
Brad Mills [00:27:30]:
Oh, you didn't?
Jameson Lopp [00:27:30]:
This is a huge misconception out.
Brad Mills [00:27:33]:
Feel free.
Jameson Lopp [00:27:33]:
Like, if anyone out there can go find a blog post or whatever where we said we will never add support for anything else, I'll happily retract.
Brad Mills [00:27:42]:
I thought I read that somewhere.
Jameson Lopp [00:27:43]:
I guess that's the narrative now. My perspective is we certainly had plenty of places where we had FAQs and people asked us, like, do you support stuff other than Bitcoin? We said no. We only support Bitcoin. Some people, they hear what they want to hear, and they heard like, we are Bitcoin only forever.
Brad Mills [00:28:00]:
That's probably what I filled in the blanks on.
Jameson Lopp [00:28:02]:
Yeah. So we have said for a long time that we are a self sovereignty company. We're a private key management company. We've certainly received many questions over the years, like, when are you going to add X, Y, or Z? And the the answer is generally, like, when we think it makes sense for us to do so. And, you know, I worked on Ethereum Multisig Tech at BitGo, like, six, seven years ago, and I wrote about it and about how it's really complicated and it was not fun to work on at BitGo back then. We had to write our own smart contracts, and that was a year long multi audit process nightmare that found so many edge cases. Like, as a security professional, it was very scary. And I said, we are not ever going to write our own smart contract. Like, internally. I said, we are not. Going to roll our own crypto. This is not something I'm comfortable with. So we were continuing to wait and see, survey the landscape, but also it's a business decision. And so we received more and more pressure over the past couple of years of both our own clients saying I have ethereum and it's in a relatively insecure place, or even with a custodian, and I would like to put it in Casa. Or we had a lot of deals come through where they say, look, I have multiple different tokens and I don't want to be managing them in all these different setups. And so they would say, I can't use Casa because it's too much complication. I've actually spoken to a number of customers that lost a lot of money in FTX, and they didn't lose their bitcoin in FTX because they had it on Casa, right? But they lost their ETH and their stablecoins on FTX because they couldn't withdraw to Casa. So I look at this more pragmatically from like I'm offering a security service. I in many cases don't agree with some of the things that people want to secure, but I also can't disagree with the economic reality that there is a lot of value there. You can certainly go down rabbit holes of, well, now I'm helping the network effects or so on. Or maybe those people deserve to lose millions of dollars in ether and other tokens because they're fundamentally immoral or whatever, but I have to be more on the business side of things than the subjective ethics and morals of all of the token. Domics with what's going on here, So it's the free market, right? So we knew that we would lose standing in the eyes of some people because we're no longer pure in this standpoint. And it is something that we've known has been coming for quite a while, and that our long term goal is not just crypto assets. We want to help people empower themselves with cryptography, with private key management in whatever form that may be. So years from now, I fully expect, and we're already seeing this with stuff like Nostril, there are going to be other forms of utility that require the ability to securely use private keys. I'm also hoping we're going to see stuff like decentralized identity. Right now it's way too early to say what's going to get the network effect there, but I want Casa to be that sort of central place for people to manage all of these different cryptographic enabled technologies.
Brad Mills [00:31:23]:
That makes a lot of sense. That'll be pretty valuable when decentralized apps like Nostar, Key, all that stuff is ubiquitous and you have a public key that you're logging into things with to have your private key for your online identity be securely stored in like a three or five or something. Adam, are you going to be putting your ETH in Casa?
Adam Back [00:31:44]:
I don't have any ETH.
Brad Mills [00:31:47]:
Okay, this is a great time to kind of move on to the discussion of protocol Ossification and the debate around whether or not new features might get themselves into Bitcoin proper. Because, Adam, you got confidential transactions and covenants that you're working on with Liquid Network and building that out. And Austin like, you guys are working on bit 300, 301. Jameson, I'm not sure if you've got anything that you're working on, but you're definitely always interested in the whole Ossification conversation. So I'm kind of a dummy on this side. So I'm just going to let you guys talk about this. And maybe we can start with we were talking about this yesterday, the idea that if you got a BIP 300 type of drive chain activated, then maybe you don't need to have Snark verify or covenants or confidential transactions soft work, because it could be done as a drive chain or something. So why don't you guys discuss that?
Adam Back [00:32:46]:
The Ossification phrase, by the way, was first described by Satoshi on bitcoin talk forum. So I didn't really join a bitcoin talk forum and I think until a year or so after Satoshi left. But I went through and read all the old posts, and there's an early one where he says something like he rushed the script system, like adding it last minute before he released it because he thought that bitcoin should be frozen for all time after it was released. So you can see the idea that got the electronic cash system, and then you got a scripting system so you can extend it and so you don't need to change it. And for any extra features you want for like, spending conditions, you could program them using this script system. That seemed to be his concept and also some concept which is kind of insightful if you consider how long ago this was, that it's important that you shouldn't be able to change Bitcoin, because if it became changeable politically, I guess it would erode its guarantees. Right. That's been a lot of the battle over the years with like, the fork wars and the drama around any change that the status quo is like, no change. You don't mess with people's digital gold. But it turned out, like, pretty immediately to have problems because some of the opcodes that she had rushed turned out to have pretty severe defects, and so they got disabled in a rush, like in a very early days. It was an op version, which it turns out yeah, that would just immediately cause a fork if anybody used it. And there are some other less over.
Brad Mills [00:34:05]:
How long ago was that?
Adam Back [00:34:06]:
When it was before my time, but I don't know, probably like 2010 or eleven or something.
Jameson Lopp [00:34:10]:
Yeah, definitely 2010 era. And this has turned into a very interesting series of changes to the protocol. And it seems like every time the protocol is changed, it's done in a different way. I'm sure there's pros and cons to that but one con is we don't have this sort of repeatable process that can give developers a sort of sense of confidence of like, if I do these things, then my proposal is likely to get implemented.
Austin Alexander [00:34:45]:
All right, there's no mention in the white paper of the processor protocol for changing bitcoin. If we're going to have hyperbitcoinization of the world and have bitcoin be a relevant asset and the global economy, ossification is necessary. It's required in order to properly and finally secure bitcoin. And it should be, in my opinion, it should be considered sacrosanct as 21 million coins. The problem, of course, being is that there's so much more that bitcoin can do should you allow degree of flexibility or amendability or whatever, adding new features and such. And so, of course, like many things, drivechain solves this. Because Drive Chains allows you to fully and finally, absent some sort of existential bug. Fully. And finally, ossify, the base layer with attributes that are focused on decentralization, focused on long term security and minimizing any sort of bloat, but allow basically unlimited innovation in the layers, in the side chains above the base. Layer so that any developer or anybody with a good idea can work on bitcoin and add that idea to bitcoin through the side chains. And they can do that without threatening the integrity of the base chain, and importantly, without having to ask anybody's permission, without having to kiss any rings or go through some process which is very difficult, arbitrary and ill defined.
Jameson Lopp [00:36:20]:
So there's some interesting dynamics here. Once again, you'll see some friction and conflict between the ardent pro ossify and now argument. And then I would put myself on the, once again the technologist side of like, there's still so much work left to do. I think if you look at the history of internet protocols, correct me if I'm wrong, ossification has never been a goal of any internet protocol. It has been a natural result due to network effects. And the fact that eventually a protocol that becomes mainstream grows to be adopted by so many people, that it just becomes impossible to coordinate change to the protocol because it would result in so much breakage. Protocol is not a centrally issued, centrally administratively changeable thing. It is this peer to peer communication language. And so you have to coordinate updating software. And so doing that in bitcoin has been challenging. And it feels like some people say we should just sort of give up even trying to do that challenging thing. And also there's risks, and there certainly are. But me, as a technologist would say, you have to look at both the risks and the rewards. And I guess there's a saying there's known, knowns and unknown, unknowns and known unknowns. And I think some people are focusing a lot on the unknown unknowns, which that's going to be true all the time, regardless of if you're making changes or not making changes.
Adam Back [00:38:01]:
Yeah, I think the rigor of testing and amount of care encoding and sort of ratio testing to coding in Bitcoin has escalated over time as the value has gone up. And I went to different meeting when there were a bunch of people who were kind of like fund managers and people who had significant Bitcoin savings and some technologists just kind of general mix and match of people interested in bitcoin. One of the questions I got to put to these people who are either holding bitcoin of their own accord or managing funds with Bitcoin in it, what do you think? Do you want more smart contracting on bitcoin? Do you care about lightning? Their general view was maybe a little bit surprising and I was like, the main requirement is just don't break it, right? So they really it's like security first dependability, minimize risk. And so actually, sadly, they don't care very much about lightning. But lightning is like a separate layer and it's pretty permissionless and you can make different variants of lightning and some implementations can have kind of opt in features that others don't. So it's much more conventional protocol evolution on the layer two. The challenge with the bitcoin layer one is that it's difficult to have opt in features because you need to retain security for the old client. So basically everybody has to upgrade their clients if they want full security. If they don't keep up with soft forks, they end up being slightly SPV. And I think if you're slightly SPV, you're effectively fully SPV. And so now you're trusted miners and so that means you're asking everybody to upgrade some code. And a bitcoin network is a kind of particularly the verification is a thing where you need the most work valid chain to win. And so everybody has to be systematically compatible, which is a very fragile standard to a team. And so there's a higher degree of care, but there's certainly other scenarios I think Austin alluded to, for example, TCP IP, right? That really hasn't changed in decades, like many decades, and it doesn't need to because everything's happening at a higher level. So most networks are layered and there is IPV six, but it's been a while, like a few decades, and it hasn't actually got that much adoption and it's bridgeable and it's kind of backwards compatible and you can nest it and stuff, but even then it struggled, right? So it's definitely inertia is a factor. And historically, I think one of the challenges for bitcoin is because of this consensus fragility, it's inherently hard to make modular or harder to make modular than most networks and operating systems and stacks. And so my experience with this is when I got like fell down a bitcoin rabbit hole, as people do in 2013, I thought I would try and use expertise I had from previous electronic cash systems to try and improve anything I could about Bitcoin. And surprisingly, almost nothing about bitcoin was improvable. It seemed like optimal, you change anything, you make it worse. That was an interesting learning experience because most people come in, they got the superhero cape and they hit a fixed Bitcoin and you try and you can't improve it. But one thing I did cook up was the confidential transactions, which is reasonably compatible with the UTXO model. It fits quite well. So I was serious, like talking to developers, let's integrate it, let's go. Right. And I came to realize it's actually pretty hard so that I'm making unreasonable demands. This is like a complicated change. It's got some new risks, so I'm probably not going to be able to do it. So I kind of left it at that. Right? But I thought, what's the root cause of this? It's not very modular. You want. Like linux. There are kernel, modules and you can implement things into the core, like a driver for a new piece of hardware or something in a modular way. So you don't need like Linux 12 hours permission to or like the people that reach consensus on what features go into the Linux kernel and how it evolves. Because they give you a framework. You can build your own kernel module, you can even do it in user land, right? So it becomes much more permissionless. So that's where the side chains idea came from. It's like, well, what would it take to have a module? Because when you're writing new code that goes into Bitcoin, you got a number of risks. A major one is that you have some code which pays differently on different software and it could fork the network and that's a catastrophe. So you have to really give an answer or architectural reason why your experimental code cannot possibly fork the network. And a way to do that is to have a kind of loosely bound modularity layer. And that's a side chain because it's connected to Bitcoin, the assets in it are Bitcoin. It doesn't have a native currency, you just transfer Bitcoin and out of it. But you can have multiple side chains and they can do very different things and they could be risky. So the people that opt to use them might be taking a risk in an alpha side chain, but that doesn't hurt Bitcoin. When you get into the details, people are so cautious about Bitcoin, they start to worry about meta effects, like, well, economic incentive, what if there's too much value in the side chain? Will the tail wag the dog and start to impact the economic incentives on the main chain and stuff? I mean, that is a little bit hard to argue with, but Paul Stoughtz took that comment and developed a whole system around it, which was this blind merge mining concept. So he developed a kind of technical argument how you could avoid that.
Brad Mills [00:43:00]:
Basically, that seems to be the only good argument against drive chains that I've ever heard. Like I haven't really heard any good technical arguments or any other arguments against why we wouldn't want to see something like drive chains. And I'm not saying good as in like I agree with it. It's just like the only debate that I've heard around what could potentially be negative about drive chains is maybe the economic incentive of too much activity and volume and value. Being locked into a drive chain would make the political process more taxing on developers resources and incentivize miners to maybe behave in a way that there is.
Adam Back [00:43:38]:
One sort of one, which is that it could increase the bandwidth and storage cost of being a minor. Because you'd have to most miners goes through pools anyway, so we have that other worst problem. But in principle the pool has to if they want to merge minor side chain, they have to adjust the data. And a side chain is making different trade offs. There might be a lot of data, but on the scale of things it's not that bad. Because miners are relatively big and pools are centralized, that's another area to improve.
Austin Alexander [00:44:02]:
But of course the blind merge mining greatly reduces that burden relative to traditional merge mining, which even today can you explain that though?
Brad Mills [00:44:12]:
I don't even know what blind merge mining really is. Can you kind of give a TLDR eli five?
Austin Alexander [00:44:17]:
I'll try to do like a layman of it is. So basically the side chain miners will be vying to have the main chain or the base chain miners include a small piece of data in the next mined base chain block. And that piece of data being included in the block acts as a proof to the side chain that the proof of work has included their reference point to that side chain. The miners don't need to know.
Brad Mills [00:44:48]:
Is that kind of like how stacks works or is that different than how stacks works?
Austin Alexander [00:44:51]:
I'm not familiar enough with the stacks architecture to speak confidently or soundly about that. However, because of the way that that functions, the base chain miner does not need to know anything about the state of the side chain that they are actually mining. Because all they need to know is that somebody acting as a miner on this side chain is willing to pay me x number of bitcoin in order to include this reference point in the block.
Adam Back [00:45:20]:
Yeah, before the blind merge mining, the straight merge mining was the idea that there would be fees on the side chain. So there's no reward on the side chain, but there would be fees. And by merge mining, the miner could claim the side chain fees which are like side chain bitcoin.
Austin Alexander [00:45:37]:
So it's likely in a free market that the cost that would be a very commoditized activity for the side chain miners. So it's likely the amount of fees collected I would assume is going to be somewhere near to 99 plus percent of the fees collected on any side chain will flow down to the base chain miners. And this is a very important, very important concept, especially as we see now that tail emissions is beginning to be discussed because people are beginning to worry about the long term security model of bitcoin post block subsidy. And of course some people will say, oh well, that's 100 something years away. But I think by a decade from now we'll have over 99% of the Bitcoin mine. And the idea of perpetual doubling of the market cap of Bitcoin to keep up with the reduction in the block subsidy that can only be feasible for much shorter time period than 100 years. The problem will come and allowing all this other activity to occur on side chains and flow that revenue to flow down to the miners I believe probably fully solves that issue. To me. The scariest data point you can look at for bitcoin right now is the amount of paying customers, meaning the amount of fees collected by some of these altcoins for their block space is at this point far exceeding bitcoin. So right now, we're in kind of a bit of a lull there's. Not like an insane all coin exuberance and yet ethereum's. Paying customers are over an order of magnitude, which means over ten times as much fees collected on the average day at the peak of the exuberance in the last cycle, whatever. 18 months ago, we reached a day, I believe, where that number was 100 times the bitcoin fees collected. If you look back at the chart and you put it in log and you go to the beginning of ETH's existence and you see the data point of ETH over BTC fee revenue. It started out at one 1000 and it has peaked at 1100, but is now kind of steady at ten times. I mean it peaked at 100 times. Now it's steady at about ten times.
Jameson Lopp [00:47:53]:
I mean, it's the economic reality.
Austin Alexander [00:47:55]:
It's the economic reality. And if you put your head in the sand on this as a bitcoiner, you are doing a massive disservice to the goal of bringing sound money to the world. This is no joke. This is a real threat to the network drive chain. Solves this problem now.
Jameson Lopp [00:48:08]:
So, I mean, you can be moralistic and say, well yeah, but all that activity is because people are scamming each other. So that's where the value is.
Brad Mills [00:48:17]:
That's the hole I like to put my head into.
Jameson Lopp [00:48:19]:
But I mean, maybe we would prefer that people be scamming each other on bitcoin side.
Austin Alexander [00:48:24]:
And the reality is that I'm sure all of us here have seen it being immersed in the industry and with a lot of smart people, not stupid people, they get interested. They get interested because there's space to develop and innovate and that is fun. It's fun for users, it's fun for developers. And right now, in that regard, that space doesn't exist to the same extent on Bitcoin. But it can and it should and it will. And when that happens, it's going to be very difficult for all coins because you have all the innovation potentially of all coins. In fact, hopefully the templates are there and robust enough that you can quite literally copy and paste the code of these all coins and create a side chain that includes no assets and let people start sending their Bitcoin there. But Bitcoin is a far stronger network. The network effect is stronger, it's more distributed, it's more secure. Most importantly, it's more valuable, at least for now. So you have all the innovation space of the entire altcoin world available without the extractive nature, without the VC pump and dumps, without the speculative altcoins, all of that and all of that energy and all of that liquidity and all of that security can and should and inshallah will be on Bitcoin.
Adam Back [00:49:42]:
I mean, interestingly, when the side chain paper was first published, that was like by a bunch of blockstream guys, right, at the Iranian corporation time of blockstream in 2014. And apparently the altcoin prices collectively fell because people thought side chains, oh no, it's going to absorb all the innovation. And of course sidechains took a while to come to reality in the first version is Federated because we don't have the Opcode or Opcodes to do that yet. But I do wonder, and that was my view as well, right, that it would absorb innovation as you can have innovation without speculation, as we try to make a concise version of that story. But over time, I've been kind of trying to muse about the economic phenomena of you would think, according to the efficient market hypothesis, that the market should correct for economically irrational behavior. And most of the alts have very little fundamental value. And so it's always puzzling to me like, well, why is the market not fixing this problem? Of course they're very dangerous to short because they can manipulate the price up, so it's hard to correct their price. But after a while I came to a different conclusion, which is it's just a different market. There is a market for hard money and there's a market for casinos and these things are like gamified roulette games and ponzies and stuff like that. But there is actual innovation in there and some of the people playing in it not really part of the Ponzi. They're just trying to build an app and they're excited about these centralized things. So it's definitely interesting to have more playground for people to do that, to build applications who are serious about the application and are not part of the Ponzi. But I do think that one of the problems in Bitcoin is the relatively lean capitalization. So if you like, the old coins tend to have your wash with cash because it's a very Keynesian thing, right? They're printing money. And so they can do some of them, like, literally, the Altcoin founder or some group of them hired like a thousand developers. Like they straight up on their payroll to build hundreds and hundreds of DAPs. Many of which may not make much sense, but it creates a lot of excitement and pulls in some real developers. Right. And Bitcoin can't do that because it doesn't have like $10 billion that they collectively have.
Austin Alexander [00:51:56]:
Can't do that yet. But post drive chain, every All Coin developer will be a Bitcoin developer. So when this All Coin does their billion dollar ICO and hires the 1000 devs every line of code, those thousand devs write somebody in their underwear in their basement, can control C and paste it right into their side chain template, and those devs will have done tremendous work for Bitcoin as well.
Brad Mills [00:52:22]:
I don't know if that makes a ton of realistic sense, though. Like that argument about how the activities that were happening in the past and will happen in the future to pump and dump and get their 100 X on their coin will automatically go to the bitcoin side chains, drive chains, just because of the reality of what Adam said, that the money is going there because they're speculating on a token.
Austin Alexander [00:52:45]:
You're not going to port over 100%.
Brad Mills [00:52:47]:
I'm a supporter of the idea of having people like the Linux example there, like having something in Bitcoin, like Bit 300, 301, if that's the consensus that everybody gets to to allow people to have the ability to build that stuff. But I don't think the argument makes a lot of sense that people will stop doing token ICOs and do with them on drive chains instead. Because the whole reason they're doing it in 99% of the cases of why they're getting billions of dollars is because they got easy exit scam liquidity.
Austin Alexander [00:53:17]:
It introduces a variable that we don't know for certain what will happen when you have this variable introduced that undermines each and every sentence that each and every All Coin promoter will say about anything. Everyone in the back of their mind post drive chain will know when they're talking about these transaction times, or they're talking about this amount of block space, or they're talking about this functionality, they're talking about the smart contracts. Everyone will know, oh yeah, and they're going to put that on Bitcoin or and that's also on Bitcoin. So it takes a little, UMP out. Now, of course, there's a huge element, like you said, 99% probably of that is casino. However, all of that casino is finished with a veneer of some sort of claim to innovation, right? Nobody makes an All Coin and says, yeah, this All Coin does nothing come and buy it.
Brad Mills [00:54:08]:
They always have, unless it's shiba inu.
Austin Alexander [00:54:12]:
There's an element to well, anyway, they did evolve.
Adam Back [00:54:15]:
The early ones were like icons and that was enough. They had to have the feature.
Brad Mills [00:54:21]:
So they became we're the color orange.
Jameson Lopp [00:54:23]:
Give us millions of dollars tweak the mining algorithm. As if anybody cares. But with all of these things, there's still work required, right? You can't just copy paste network effect. Even copying pasting code is never that simple. It kind of reminds me of, like, there was always this bitcoin cash argument that, oh, if we ever actually need lightning, we'll just copy paste it. And I'm like, that is theoretically true, but it is complicated and requires a lot of real engineering talent.
Adam Back [00:54:49]:
They also rejected SegWit on principle, right? Yeah.
Jameson Lopp [00:54:51]:
But you can theoretically do lightning without SegWit if you put the effort into it, which they're not going to. Now, one thing and distinction that I like to make about ossification, the way that I think about ossification is we should agree and strive for ossification of the inviolable principles of bitcoin. And we can argue about what those are. Everybody knows 21 million, like, well known supply is the obvious one. There are plenty of other good principles that I think most people agree upon are important for sound money. However, what we should steer clear of is the idea that ossification means we stop working on bitcoin software. I think one of the best ways that you can understand what I'm trying to point to is if you look at the research that I published a year or two ago, where I went back and I compiled and ran every version of Bitcoin core that I could and I actually showed what the protocol developers already know, which is that the Bitcoin protocol is not just a series of well known rules, but there are all of these other really nasty dependencies in there that over the years we suss out. But an example is that really early versions of bitcoin core, even though theoretically from the software level, they are compatible with the bitcoin protocol of today, you can't actually easily compile and run that software because of changes that happen in the OpenSSL library over the past ten years. Like really inane low level dependencies that almost nobody fully understands. Another example, of course, is the 2013 fork, which was due to a database issue between different types of database that the node was using. The actual protocol rules themselves, as we understood them, as humans, were the same. But there are other rules that can unintentionally be hiding under the surface. And then also, just in general, if you try to run a node from ten years ago, the performance is abysmal. And so we need to continue maintaining bitcoin software just to keep up with the times, to keep up with the fact that we live in a very complicated world and there are all of these other dependencies that are constantly changing.
Adam Back [00:57:12]:
Yeah, of course, it's partly due to old clients who are in a marketing competition, and bitcoin is a gold standard, so if they want to be listened to at all, they basically got to describe some argument for. Why they're better than bitcoin or why they're even relevant. And it's a noisy space because there are literally 20,000 of them, right? So they got to get noticed. But partly because of that noise and just partly because people are not involved in development, they assume that Stochastic dropped the bitcoin code and walked away. And it's just been running in a server room ever since. People's houses and nobody's touched it. And while the protocols are backwards compatible and they've been soft walks and things to add opt in features, the network protocol in terms of sufficiency has undergone like a frightening pace of change. I mean, to me, when I first got active in 2013, I was kind of I'm also a developer and I was like, well, I could go change the code, but I'm like, I'm really scared to touch that code because you make a subtle change without expecting it. It could fork a network or blow something up. So the fact that it's changing really, really fast in terms of open source projects, it's right up there in terms of lines of code change per month or year or what have you, number of contributors. It's kind of scary. But they've got some very good engineering practices and not everything is like consensus critical, right? Some things will just degrade the performance of one version and not cause a network split. Fortunately for most of the code, right, but the efficiency gains in terms of bandwidth usage and latency and sync time have improved. I think Peter Wall said at one point that the initial block download had improved four times by a factor of ten. So it's like 10,000 times more efficient, faster sync, because it's just like rewritten and redesigned and rewritten and redesigned like major ways. And it's like at this point, there's not much optimization left. So bitcoin tends to get like hyper optimized in terms of space efficiency. The ECDSA library in bitcoin is the most optimized and fastest implementation in the world used by other unrelated projects just because it's faster. So it really gets like hyper optimized and stuff. But that's part of the reason for the kind of ossification thing, because it's really a kind of thing that's converging to sort of perfected in terms of scope for optimization on space and network sync time and byte efficiency and all this stuff. But of course then we have the cat pictures and stuff, kind of wasting that high proximized space, but that's another story. But I mean, to come back to the layer twos and the modularity, I think that's super important because you can't have conflicting trade offs in the base layer. The base layer has to stick to these invariants, like 21 million coins to be decentralized, to be censorship resistant, to bearer, unfeasible. And some things people want to do would degrade there. That was the cause behind the block size wars. And during those block size wars, I remember talking with paul Stewart's and he's like, it's simple, let's just make a big block side chain. People who want that trade off, which is a perfectly reasonable trade off, can opt into it. And people who want the optimum, self efficient, unfeasible staff can use the main chain. And so that's actually a much better trade off. So I think each layer and you were talking about the fees being low, I think part of the reason the fees are low is that some of the layers have been successful. So I think Lightning sucked a lot of retail trade off the main chain because even though there's not that much like 5000 bitcoin in it, it's very high velocity, so it doesn't take that much. And all of the coffee trades and paying for a flight, paying for a hotel, paying a friend for a restaurant, almost all of that is happening on Lightning. So it's going to reduce the demand on the base chain. But that's good in a way, because as Bitcoin is, we really like the censorship resistance and the uncensorability and unseasability and we want as many people in the world as possible to enjoy that. And that's something we share in common with people who wanted the big blocks, right? But to do that, you need everybody in the world to be able to own a UTXO. And people have done calculations and said even for 1 billion people to have a Lightning channel, it's going to take ten years of half of the block space to just create the channels, right? So we really have some technological steps to go to. So I think there's a fundamental trade off where we're going to need layers optimized for different trade offs. And if we want everybody in the world to benefit from bare, censorship resistant hold your own UTXO, unless there is some major computer science breakthrough that allows us to compact them all, we're going to need bigger blocks. And the only way to have bigger blocks without kind of breaking the decentralization and censorship resistance of the main chain is to have bigger block side chains.
Austin Alexander [01:01:40]:
And, you know, the users, if they have demand or need for these trade offs, the paying customers, the blockchain's paying customers, will find another way to meet that demand or that want. If not Lightning, perhaps those transactions would have been occurring on a custodian or some sort of centralized database. Maybe they would have been using sending funds from their Coinbase account to another Coinbase account. Instead they're using Lightning because it's available. Maybe. And this is another reason why some of the features or wants or perceived wants of the all Coin user base, they have no option to use Bitcoin.
Jameson Lopp [01:02:17]:
Well, that was one of the first postulated ideas for scaling by Halphini was that Bitcoin would become like gold and it would end up in a bunch of central custody vaults and basically be like Banking System 2.0. And I fear that that is one potential outcome. If we don't have more scaling solutions, lightning is great. It would be great if we had things like L Two and Batched lightning channels, anything that can give us order of magnitude more, call it magnification or efficiency or I really like Adam says, cryptographic accumulator. We want the base chain to have incredibly dense data and maybe that represents data on a side chain or data that's being manipulated at high velocities off chain. But whatever it is, we understand that bitcoin block space is a highly scarce asset and we don't want to make it less scarce because of all of the negative trade offs there. But the flip side is we want everybody to be able to use this thing. There's still so many scaling challenges out there. It's one of the reasons why I'm pessimistic on the idea that we just stop developing the protocol at all because I think that there are certain changes that will give us such orders of magnitude greater scalability over the long run that the reward may very well be worth the risk.
Brad Mills [01:03:50]:
If you had something like Pip 300 301, if you have drive chains, would it make sense to put liquid as a drive chain to remove that federated peg and just use the drive chain peg?
Adam Back [01:04:03]:
I mean, actually in the 2015 sidechain paper, it has a drive chain like mechanism but with a compact fraud proof. There's a couple of ways to do it. One is this compact fraud proof, which is sort of you're sort of proving that when people take coins out of the side chain, they're doing it from the most work chain, but you can't prove it because you're not verifying it. So then you sort of assert it and then somebody who disagrees can disprove it with a compact proof. That's a little bit complicated to do. So it's a bit complicated, whereas the drive chain, it implements part of that, but then it also just leans on like economic game theory, right? Makes the withdrawal process slow months instead of hours or days. And the assumption that you'll get human intervention because you'll get this kind of slow motion theft and people will override it. So that's the concept.
Brad Mills [01:04:49]:
One of the criticisms that I hear about Liquid Network, which I'm a big supporter of liquid Network because I'm a fan of security tokens. If someone has a legitimate business, they want to launch an equity as a digital token on a bitcoin side chain makes a lot of sense to me. I like collecting digital art and playing video games that I own the ships in like Samsung Mao's infant fleet. I'm a big fan of the liquid network and people want to have USDT in countries like Nigeria and El Salvador where they have hyperinflationary or just currencies that just don't hold their value. So maybe they're not yet ready to go to Bitcoin fully. So they would need tether. So I love the idea of liquid, but the criticisms is people think it's like Federated. It's not trustless. Would drive chains actually remove? Because the way I understand people are explaining it to me, it makes it more trustless. The peg is more trustless.
Adam Back [01:05:40]:
I mean, that's what the main paper was about, mechanisms to do it in a trustless way without importing kind of fork risk into the main chain. So it's kind of loose coupling. Merge mining and drive chains adds blind merge mining and the slow withdrawal to sort of lean on because in a way that's less convenient because you have to wait a long time but you rely on arbitrage and services in interim whereas with liquid the withdrawal is like relatively slow but it's like under a day. Right, but there are services that will swap it instantly for like ten basis points or less.
Brad Mills [01:06:12]:
Yeah, it's like there's second layers on ethereum like roll up chains where it takes a long time, but there's services where you can just go on a deck and swap the layer two coin for the layer one coin. And there's an arbitrage market develops around.
Austin Alexander [01:06:25]:
That with Bit 300 side chains. This is why it's definitely not a competitive technology to Lightning. They strengthen each other because as I understand it, you will be able to open lightning channels between side chains and help facilitate decentralized swaps. And of course there will always be entities that including miners, because they would obviously have some confidence in the drive chain withdrawal succeeding, that you'd be able to buy and sell coins between the various chains and the arbitrage is extremely low risk, so the rates for those transactions are likely to be extremely small.
Brad Mills [01:07:10]:
Yeah, you see it already with stablecoins people arbitraging the peg as it goes up and down on the decentralized exchanges and the centralized exchanges they make.
Austin Alexander [01:07:20]:
Small arbitrage are priced in fractions of a cent.
Adam Back [01:07:23]:
Yeah, well, I mean, it's a time value of money thing because in one direction you can do it yourself, you can peg in more coins and just wait. And so somebody be willing to pay a tiny interest rate for a day to have the opportunity cost of doing a trade now rather than waiting a day or something.
Austin Alexander [01:07:38]:
And so, of course, that could be perceived by miners especially, but also exchanges or even individual whales as kind of a near to risk free rate of return, where I will give you base chain bitcoin today and buy the claim or buy the encumbered bitcoin that I'm going to receive on the base chain in one, two, three months from now.
Adam Back [01:08:01]:
Yeah, I think liquid has I mean, so you got the Federation model at the moment, which is a bit of a limitation, but we want to get something to market and that opcode discussion kind of got delayed by the block size drama, I think. Really. And then there were other things people were focused on. So really to get opcodes into bitcoin, you have to kind of build momentum and support and interest from a group of people to review and critique and provide slight variants and stuff like that until you get to something that people like and then see if the ecosystem likes it. But in case of liquid, it's proven to be an interesting test bed for Opcodes, some of which have actually ended up in Bitcoin like years later. So it had schnor signatures quite early, but the version that got into bitcoin is like an improved version of Schnor signatures. There were various defects with a multi SIG back then and that was in the open source code base. The actual liquid code base itself didn't end up with snow signatures. And I think some of the kind of relative timelock stuff that was in Liquid first and technically the malleability fix was there, but not as a SoftWalk, we just fixed it like at the base level.
Jameson Lopp [01:09:05]:
Right, I think that's actually an interesting point to touch on. And this actually goes back to bitcoin maximalism. In the early days when most altcoins were fairly trivial tweaks to the bitcoin code, one of the primary thesis of maximalism was this is fine, we let people experiment with their shitcoins, and if they actually manage to stumble across something valuable, some new utility and innovation, bitcoin will just implement that functionality. And I've certainly heard some pushback recently from like the pro Ossification movement of quote unquote, we should not be experimenting on bitcoin main chain because it's 400 billion dollar worth of value. So once again, why not experiment on these side chains and let them play out there?
Austin Alexander [01:09:55]:
And of course, for what it's worth, in the early bitcoin talk forum, satoshi almost flippantly assumes that there's going to be side chains and multiple chains, and was a supporter of Namecoin as well. You didn't really see in that way bitcoin maximalism from Satoshi himself.
Adam Back [01:10:14]:
Of the things in liquid, I think it's interesting to observe as well that some of them probably never belong in the main chain, like the user issued assets, stablecoins and shares and things like this. But other things could be interesting for bitcoin, we think, and that's we implement them to learn from them. And I think sometimes people it's difficult to form an opinion about something without playing with it basically. Right, so we had a version of covenants in the original release and last year we made a kind of second revision to covenants, which was informed by developer feedback from the first one. So their complaint was with a covenant you're basically sort of constructing the script that should be in the next transaction. So you're sort of placing a limitation on the template of the following transaction. And they said it was a bit difficult to introspect and assemble the transaction because there weren't many helper functions. So we added, I think in total about 32 different kind of introspection and serialization functions to make it easier to do, but the same covenant mechanism. So, I mean, there's some discussion about covenants in Bitcoin and I think they are potentially interesting to help with vaults. So I think if Bitcoin is about censorship, resistance and secure storage, you don't want to ossify that key piece, you want to be able to finalize and finish support for secure storage and key management policies and stuff. So that's an interesting area. And we have some prototypes and of course there are other ones, so even if it does a small part to inform it, and something else happens in Bitcoin, we still helped, right? But I think other things that liquid has is the confidential transactions. So of course I'm an enthusiast for that. Be great if Bitcoin had that, because it's an extra bit of privacy and stuff, but that's a kind of more debatable area because technically it's harder to verify the 21 million. You can verify it, but you're relying on some mathematical proofs and you can't look at it with your own eyes as a programmer and run a small script to add them up or something right now. So that's an area where sidechains maybe are where they end up staying. And of course, the Drive chain project has implemented the Zcash protocol in a side chain, which is a more complete form of privacy because the confidential transactions hide the values and the types, but not the history in the same way.
Brad Mills [01:12:31]:
So it sounds like we're going to get at least one more soft fork with some upgrades to Bitcoin at some point in the next few years. There's a lot to talk about, things like covenants and BIP 300 301 now over the last couple of years, and people want to add more tap root functionality, like any privilege. I hear people talking about wanting to get that. So it's like, obviously the protocol, like the changes to Bitcoin is not finalized. We've got more upgrades to do.
Jameson Lopp [01:13:00]:
Well, it's not obvious, right? Ossification is something we won't know until hindsight. Like, if we've gone ten years without any protocol changes, then I think we can confidently say it's Ossified, barring some sort of existential crisis.
Austin Alexander [01:13:14]:
And it's not unrealistic or out of the question to think that maybe it's already been reached. Right. If you look at the first six years of Bitcoin, I think it was average of like two softwares every year. And there were some years where there was zero. There are some years I think there was the years where there was three, four. Momentum has slowed down considerably in the last six years. There's been two softworks that were much less ambitious, let's say, and they took much longer. Those being just SegWit and tap root. It's very unlikely we get to see a soft fork in 2023. I think we can say confidently, yeah, I doubt it. The space between SegWit and taproot is by far the longest space and time between softworks and it's not like Taproot was the most contentious or ambitious features to bitcoin.
Jameson Lopp [01:14:08]:
It was an inflection point with the scaling wars.
Adam Back [01:14:10]:
Right.
Jameson Lopp [01:14:11]:
It's like a lot of the protocol level developers still kind of have shell shock from that. We want to avoid that type of contentious thing coming up again. And I guess one of the things that concerns me is even the few developers who still have the grit to go out there and be making consensus level proposals. Common theme of what you're seeing now is they're saying, this is the proposal, I am not proposing activation parameters.
Adam Back [01:14:40]:
Yeah. So one other sort of technology arc for Ossification is to go back to Satoshi's original Aspiration to make a scripting system to make it possible to ossify that would allow general extensibility. So clearly there's an intent there. Evidently it failed for two reasons. One, it had a number of bugs and a number of the opcodes got pretty immediately disabled for safety reasons. But secondly, the script is not that general, so it's hard to implement some things where some things may be inefficient or impractical, and so I think in 2012 or something. Russell O'Connor so he's a kind of formal language security guy, guy with a PhD in formal language security area things. And he implemented a version of bitcoin in Haskell. And because he came from that formal security area and he did a re implementation, he found edge cases where his implementation didn't match bitcoins, and he actually uncovered a number of bugs in bitcoin itself by doing an exercise. And so he started on this kind of track of designing a new scripting system that could be soft forked into bitcoin. And so when people talk about mast, that's actually referring to his concept, which was more elaborate than the tree idea. Right? And so at some point, I think quite a few years now, we succeeded to recruit him to go ahead and build that thing. Right. And that's now called simplicity. And we've been working on it for a few years, hope to get it into Liquid, the first version, later this year. And there's many more people working on it now at blockstream. And it is open source. You can look at it, there's a branch of bitcoin with that integrated into it, and there's a branch of Liquid with it integrated. So the characteristics of that is a soft forkable new scripting language, and it is much lower level and complete. It has some novel properties that you can it's kind of like effectively micro code to write new opcodes or to write new behaviors. Probably more for library writers than application writers. But if somebody writes the missing library pieces for you, then you can write applications. So as an example, using Simplicity, schnoor itself wouldn't have needed a software, you could have just implemented it. And it's surprisingly compact. It's kind of bit level interpreted code. The formal provability is nice if Bitcoin has that. All these things we're talking about, like the APO thing, you could just implement it directly. It's only a few bytes because it has access to internal functions, it can call and mathematical definitions of them. So you basically write your extension in simplicity. It's compact and just use it directly. Eventually, if it's widely used, you can implement it in C and construct a formal proof that the C code is equivalent to the simplicity code in all circumstances. So you get an easier argument for why this is safe. It's like, well, we can already do it, and here's a more efficient implementation. So SoftWalk doesn't become a behavior changing thing, but an efficiency thing. So you wouldn't even have to upgrade. You're still verifying the script. Right. So that could potentially be the last SoftWalk kind of I mean, technically there are soft forks to make it more efficient, but in terms of extensibility, would.
Brad Mills [01:17:55]:
It make sense to do both at once, like do BIP 300 301 and add in simplicity? So that could be the last software that anybody can then create anything they wanted? Yeah.
Adam Back [01:18:05]:
So Austin and I have been talking about this on and off for a few conferences now. I think drive chains or side chain opcodes are likely possible to achieve faster because they're a smaller simpler narrower SoftWalk. Right. But as a plan C, I think that simplicity could easily implement the opcodes for a drive chain. And paradoxically, I think it might be easier not that simplicity is at stage where anybody could sensibly propose it as software for Bitcoin, that's five years plus away, presumably after people have experimented with it on liquid for a while. But it might paradoxically be easier to get consensus to add a script upgrade. Because then the question is to the community, do you want soft extensibility so you can ossify it? Whereas with a new feature that comes in, people start to critique and try to value, like, do I care about it? Do other people care about it? Is it worth the risk? The features that enable so that was a debate around lightning. It's like, well, is this worth it? I guess lightning is useful. So it's sort of like they want to judge the feature, whereas if the feature is general stuff, extensibility extensibility is good. Okay, great, we'll go implement a drive chain with it. Right? So it's a funny thing, but that's not a discussion that's going to happen for years. But it's a sort of plan C. There are two ways to get there, basically.
Brad Mills [01:19:24]:
Right, well, this has been a really awesome conversation. I have to go ride some camels and have dinner with my wife. So let's pick this up maybe next.
Jameson Lopp [01:19:35]:
Conference in five years.
Brad Mills [01:19:37]:
In five years. No, it's been great learning from you guys, and I think I'm looking forward to hearing more about the conversations about the next bitcoin softwork over the next year or two. And hopefully people have more of an open mind. Because definitely there can be some negative sort of closed minded ossification as that's the goal on Twitter and that may impact the class of 2000 and 22,021, which are very noisy. And we want to make sure that people should be having these conversations a lot.
Adam Back [01:20:08]:
So I want to make a pitch for the timeline here. Right, so at the beginning of this year, I looked at the bitcoin price ten years ago and it's coincidentally a little over doubled every year. So it's 1000 times up from ten years ago. If that trajectory continues, and prices, like, loosely correlated with adoption and saving and adoption for use, that another ten years we might be at global saturation, at least if that trajectory continues. And if we want all those people, we don't know what the top of the S curve is in terms of people who ultimately a full saturation care about bitcoin and want to hold bitcoin, but we might have to accommodate all those people within ten years, and that's not a very long time for some of these things we're talking about. Right, so really you get this balance. I think Austin alluded to this that if there's not a capacity, people end up using lower trust things. So it's not really a debate about is lightning good or is the drive chain trade off not quite as secure as the main chain, but the alternative is they use a custody solution and so it's clearly better than that. So I think we want to provide the option for as many people as possible to benefit from as good as possible, like security and censorship, resistance assurances as we can. We don't have decades and decades to wait. I think the way things are going, it's looking like this decade is the time.
Brad Mills [01:21:28]:
So let's have the conversation quicker.
Austin Alexander [01:21:31]:
Side chains now.
Brad Mills [01:21:32]:
Side chains now. All right, well, Austin, Jameson, Adam, really appreciate it, this has been awesome. Thank you very much for coming on the show. Thank you.
Adam Back [01:21:41]:
Thank you.
Brad Mills [01:21:45]:
Don't need to go so fast.