Kind: captions
Language: en
the following is a conversation with
nick carter who is a partner
at castle island ventures co-founder of
coinmetrics.io
and previously a crypto asset research
analyst at fidelity investments
he's a prominent writer speaker and
podcaster
on topics around decentralized finance
and especially
bitcoin quick mention of our sponsors
the information athletic greens for
sigmatic
and blinkist check them out in the
description to support this podcast
this conversation with nick carter is
part of a series of episodes on
cryptocurrency
that is a small journey of exploration
i'm on because i find decentralized
finance
and especially bitcoin fascinating
technically and philosophically
especially because it may be the very
mechanism that achieves
a global decentralization of power
giving more sovereignty to the
individual
and making our systems more resilient to
corruption
manipulation and in general to the
darker side
of human nature please let me also
address something
for a few minutes that happened recently
that's been weighing heavy on me
if you find me annoying to listen to
please skip to the actual conversation
with nick
i had a recent podcast episode with
anthony pompliano
where we spoke about bitcoin and life
in general for three hours i was curious
inspired
positive or at least i tried to be as i
usually do
someone clipped out out of context a
short segment of me mumbling something
about having a phd and i started getting
mocked
online because that made it convenient
for people
to mock me for being yet another
quote-unquote
expert who learns about bitcoin and
thinks he knows everything
i almost never mentioned that i have a
phd except to make fun of myself
as i was doing or at least trying to do
in the full context of that conversation
i brought up grad school as a random
example of one of the many journeys i've
taken
that was hard but where the destination
was in itself
not very useful i was saying i enjoy
exploring with a curious mind
and i'm willing to be patient to learn
to listen
to humble myself with knowledge for the
sake of knowledge itself
grad school was an example of that the
phd means nothing
at least to me i never call myself an
expert
or at least try not to because that
would be dumb
because i know how little i know i'm not
a
influencer or a thought leader or
whatever else
silly self-aggrandizing label people put
on their linkedin
i try to be the opposite of what i was
mocked for
i try to think deeply about the world to
look for the beautiful ideas in the
minds of others
and to be inspired by them i wanted to
say all this because
psychologically it struck a bit of a
blow
it made me realize that even when i
approach things with love
i may be mocked i may be derided i may
be taken out of context or even
lied about with the growing platform
this is sadly only increasing
i now have learned that there's people
who are waiting for my missteps
so they can point the finger laugh and
say
see i told you so that guy's a joke he's
a fraud
as a fellow human being the knowledge of
this is painful
yes i know people tell me to toughen up
and
my life has been about strengthening my
mind in the face of my limits
but i refuse to not be fragile and wear
my heart on my sleeve
it's who i am in some sense this is the
immune system of the internet
but let us be careful not to destroy the
good ones in the process
the bitcoin community had to endure many
years of attacks from quote unquote
experts
and also fraudulent cryptocurrency
efforts that scam people out of their
money
this created a powerful immune system
that fought the attackers and the
scammers
i understand this and i also understand
that one of the beautiful aspects
of bitcoin is its community of humans is
decentralized
but some small part of this community
has come to enjoy the
us versus them battles sometimes for the
sake
of the battle in itself this happens in
political discourse as well
i understand this but to my limited mind
it sounds like group think which has
powerful defense mechanisms against bad
ideas
but has dangerous consequences if taken
too far
as in many periods of human history that
i often talk about
where the us versus them thinking has
led to the suffering of many
again i understand the value of this as
many bitcoin is explained to me
but it's not the way i as a sovereign
individual
choose to walk in this life by the way
none of this podcast should be treated
as financial advice
before nick kindly gifted me with a
hundred dollars worth of bitcoin
in hardware form i didn't own any
i'll probably buy some bitcoin on cash
app coinbase and
other platforms and also transfer to a
hardware wallet
just to learn how to do it but other
than that i don't necessarily make wise
investment decisions
money is not a motivation for me
personally i try to avoid it actually
i'm grateful for every day i'm alive no
matter how much money is in my bank
account
for long stretches of my life that
number was very close to zero
and i was always fortunate to be free
and happy
so i encourage you to listen to people
much smarter than me
for actual good financial advice here
i'm just exploring ideas and as if this
has not already gone on too long
let me please make another comment on
the style of discourse among
some bitcoin maximalists on platforms
like twitter
that in my humble view i may be wrong
but i believe
is not conducive to the nuanced
empathetic exchange of ideas
i very much look for and enjoy again i
appreciate their style of discourse
i think i understand the value of it but
it's not my thing
so i don't want to engage in it i want
to hear the quiet voices in the room
i look for people to inspire each other
and when we disagree
i look for disagreement that is grounded
in respect
and empathy i think that mockery and
derision
destroys the possibility of those
nuanced conversations
it drives away the quiet thoughtful
empathetic voices and i try to give
those voices space to be heard
to shine to exchange ideas whether we
agree
or disagree so if i happen to block you
on twitter
i block you with love honestly
i will never speak poorly view or even
think poorly of you
i would love to hang out in person give
you a big old hug
and talk about life over some beers if
you see or hear me say something stupid
which i'm sure i do often or something
you disagree with
and you still respect me as a human
being please show your love as i always
do to you
but also send me some links to blogs
books
videos podcasts where people describe
why
my stated idea may be totally wrong i
love this kind of long-form disagreement
i humble myself every day by reading
books and blogs by people
much smarter than me sometimes it
strengthens my ideas
sometimes it totally changes them but i
always learn
this is a two long way of saying that
i'm here
trying to walk with grace and with an
open mind
a bit of patience and always love
if i make mistakes cut me some slack
like you
i'm only human allegedly
this is the lex friedman podcast and
here is my conversation with nick carter
what philosopher or philosophical idea
had a big impact on your life
not just in the space of cryptocurrency
but in general oh so we're
we're going now we're rolling going
right in rolling because you majored
philosophy
i did i majored in philosophy i didn't
know what to do
with my life and my parents said do
whatever you find interesting it's like
okay philosophy great
i find that interesting yeah um and it
had way more of an impact on my career
actually
uh than i thought it might you know
typically i guess if you do philosophy
you go into a lot of finance so it sort
of makes sense but
um there are a number of philosophers i
really admire
uh the big one of my favorites would be
descartes probably the notion of
skepticism
it's sort of a rabbit hole it's kind of
hard to pull yourself out of it
basically the brain in the vat theory
pulling yourself out of that
but yeah i really like epistemology you
know questioning what it is to have
knowledge
um so descartes was was one of my
gateways to that
do you think everything is noble like we
humans can
can know fully the objective reality oh
definitely not
no i mean i reality is very much
processed through your own
you know subjective lens so
how much do you think do we understand
about this world
because a lot of your ideas a lot of
things we might talk about today
are kind of trying to figure out human
civilization how
humans how human behavior works at scale
all those kinds of things that kind of
assumes that we have it
or we're able to somehow figure most of
it out
right so in your sort of when you step
way back
how much of it have we really figured
out well i think that's the conceit of
economics is
thinking that you can model human
behavior right in these unbelievably
complex systems
and then i think that's the modern
critique of economics like the sort of
tilapian critique
is that you can't have true knowledge
and they're much
less predictable than we think they are
and you know we behave
according to our accumulated assumptions
and we're using tiny sort of
data sets trained on the last fifty
hundred years
and they turn out to be horribly askew
and that's when we have our grace wands
and our black swans
uh so i'm i'm much more on the sort of
you know reality is much less notable
than we think side of things
but it is nice to have very concrete
things like bitcoin that's for sure
oh so you think so most of it is shaky
ground but there are some things there's
like islands of sturdiness
yeah bitcoin is one of them that's
that's a good way to put it yeah i mean
like look at the dollar system not to
pivot this into the dollar right away
but
the dollar is like shaky ground
who truly understands the dollar system
i mean the totality of it the euro
dollar system
the way that monetary policy interacts
with the economy
is monetary issuance inflationary
what's the relationship between
unemployment and inflation
even policymakers don't understand these
things economists don't seem to
understand them
what is deflation how do you define
inflation none of these things are
really known
or knowable so a lot of people kind of
make a claim that there's a lot of
manipulation possible with the dollar
with the
with those currencies if you couple that
with
the fact that people don't understand it
and yet
there's claims that being manipulated by
centralized power
how do you bring those two ideas
together if no one understands it how
can you manipulate it
i think what we don't understand are the
long-term consequences
of our structures so like the fed's
mandate
to target unemployment and steady
um you know exchange rates or low
inflation
you know what we don't understand is
okay what is the result of doing that
continuously for 40 years
right what is the net effect of that
what is the consequence of the long-term
accumulation of debt
and you know basement interest rates
what is the net effect of that on
society
we might understand just much short
short term
features of the system but i think it's
the longer term features we don't
understand
do you think there's like malevolent
people
like people that don't have good intent
in central banks like
in the system you know uh
when you have centralized power any
forms
it's susceptible to somebody hacking the
system
taking the power and in the shadows this
is where conspiracy theories come in
right in the shadows be able to
uh you know act
out things that have a lot of negative
impacts on the large percent of the
population
in self in greedy self-interest do you
think there's people like that or do you
think
fundamentally most people are good even
those
associated with the sort of central
banking
oh i mean i don't villainize those
people i think everyone is the hero of
their own story
right so they all believe that they're
forced for good in the world you have to
are there any true villains i don't
think so i think
they get socialized into a world where
they believe
their particular skills and their
mandate
is you know what they should be doing um
i think they might be presumptuous or
arrogant in some cases
and you know i think it's more of a
systemic issue where you have
a small handful of very homogenous
types of people with phds from the same
institutions that are brought up in the
same cultural context
that you know set policy and wield a
tremendous amount of control over
society
and i think they have this notion that
you can tinker
society you can play with a few key
variables and tinker society
into a state that is desirable or good
and that's what they're trying to do and
i think the consequences of that can be
pretty bad
but no i don't think it's born out of
malevolence
there's an interesting idea i think
michael malus brought
up as a test whether you're on the left
or the right
the question he asks which is do you
think some people are better than
others if you say
yes he claims you're on the right if you
start
answering if you start like saying a lot
of things
like uh uh you're on the left
so if you start explaining yourself well
okay
yeah it's a good term for it i was
really
so in this in this test i suppose
i would be on the left because i'm
uncomfortable with the idea
that some people are better than others
as a basic
feeling as a starting point in the way
you think about the world because
as we're talking about everybody's a
hero of their own story
when you start to think some people are
better than others
as a starting axiom
it's like a slippery slope to where
you think you're way better than others
and then you start to like basically
it's okay to
take advantage of a large percent of the
population
for the greater good totally and then
you go into stalin mode
in hitler mode where it's okay to murder
a larger part
of the population for the greater good
so it's like it's this
very dangerous slippery slope in my mind
so i tried to
not uh i was always uncomfortable with
that kind of test
or even that kind of thought and yes the
same applies and suppose
in in government in central banking is
if you think some people are better than
others
applying your idea what is good can have
large-scale detrimental effects
of course yeah i i'm glad you didn't
pose me the question
i mean i think it maybe not the left
right axiom isn't
uh the disjunction isn't the way i would
sort of
put it but um you know to me it's just
if you reason in a consequentialist way
you know that lends itself to
authoritarianism
yeah where whereby you think you can
shape society and only you can shape
society in a positive direction
according to your you know specific
objectives
so let's step onto the land of
sturdiness that is bitcoin
what is bitcoin and um in your view what
are
you know the principles the
philosophical foundations of bitcoin
well bitcoin the term i think refers to
two things specifically
so one is the protocol for conveying
value through communications channel
so just a set of rules that we
collectively opt into
in order to transact online or just add
a distance
and then the other thing is the name of
the
asset the sort of monetary unit which
circulates
within the system and that always
confuse people a lot because it's like
well you've got uppercase bitcoin
lowercase bitcoin
why didn't satoshi just give them
different names like in ethereum you've
got ethereum
the system and then ether although
people don't really talk about ether
very much but
they you know chose to distinguish them
in bitcoin for whatever reason they're
not distinct
uh so the two bitcoins get co-mingled
all the time
in the explanations did you find that's
a problem that confuses things
i mean what's what's really a
distinction between the protocol and the
currency
well they are sometimes uh distinguished
practically
like you can transact with bitcoin
outside of the bitcoin protocol for
instance right
uh so you know you can transact with
bitcoin on
ethereum or i have bitcoin on an open
dime here
this would be a bitcoin transaction it
wouldn't settle on the bitcoin network
do you mind explaining what you have on
the table before us yeah so i brought
you
some presents this is awesome this isn't
a bribe this is just a proof of concept
okay so this is basically
um a bitcoin bearer
instrument so i put 100 bucks of bitcoin
on here
and to spend it you have to basically
physically destroy
part of the device you have to poke a
hole and um you know poke off one of the
little transistors on this
so it can only be spent once uh
so and you can't extract the private key
from this device
so the private key was generated on
device always stays on the device
so what it means without uh
like breaking off like a small part so
this basically is a way to physically
instantiate bitcoin
so it's um it's kind of
cold yeah effectively so here thank you
so much this one's limited edition it's
orange
so what is it called again open dime the
point is
if you wanted to settle a bitcoin
transaction instantly
the kind of same way that a cash
transaction is instant final settlement
right you would do it with a device like
this so
if i was buying a house from you you
know
you might prefer to do it with a
physical bearer instrument
as opposed to waiting for a confirmation
on the bitcoin
blockchain so the moment i hand that
over to you
goes in your possession you're the owner
there's no way for me to have retained
the private key like
i could have created a bitcoin paper
wallet and given that to you but
you have no assurance that i didn't copy
down that you know the key elsewhere
so this solves that problem so this is a
physical instantiation
of the the bitcoin uh
transaction outside the bitcoin protocol
that's right
this is you're transacting the currency
outside of the protocol so it's analog
bitcoin we're
we're running an analog which i always
like because bitcoin is this immaterial
thing
and so it's nice to have physical totems
how much does it cost to manufacture
this
you know like 15 bucks or something
is it so this is just kind of a almost
like a philosophical statement
versus um something that's scalable for
for use like you know the point of
bitcoin is to be in the digital space
right but
this shows like bitcoin can be anywhere
it's useful for gifts but yeah i mean
i don't know if it would be a suitable
foundation for a physical
bitcoin economy in theory these would be
like cash-like instruments that you
could use to transact
well i just mean post-apocalypse yeah
yeah but
you still need you still need to plug it
into your laptop to actually verify
that there's coins on there so you still
need the internet
so i have to take your uh word for how
much money is on here
no i mean you can you can plug it in
and check yeah but to transact to
extract
bitcoin from this i need to break yeah
you have to poke a hole through the
the little hole and that renders it
spendable exactly
so you know that's protection again so
you spending it and then representing
that it's still loaded that's
fascinating
cool yeah so that the other thing i
brought you're basically dice
uh 12-sided they don't have any bitcoin
on them
so they just have a bunch of different
critiques of bitcoin on each side
uh we'll go through them then this is
awesome i i don't know if we have time
to do all 11
because there's one with my funds logo
on it but um
it's just basically a tongue-in-cheek
joke that
the critiques of bitcoin are so formalic
at this point that you can just put them
on dice
yeah um it's it's silly
well some of them might be topics for
interesting conversations
oh yeah we can even arrange the
conversation that way you can roll the
dice and see what you got
all right but first uh the
the philosophical foundation is a
bitcoin like how do you see bitcoin
outside of just
a basic protocol and a basic currency it
seems to be like you said
uh it seems like sturdy ground so what
do you mean by
yeah yeah so it's not just any protocol
for moving valley around it's not just
any currency it's got specific
rules and values that are embedded in it
and this is an important point as the
bitcoin is the encoding
of certain values which are often
misunderstood
or not acknowledged necessarily
um and so it's sort of impregnated with
values
and what they are specifically is a
topic of debate and there have been
civil wars fought over the values
inherent in bitcoin
you know one of them was should bitcoin
be this
cheap scalable the base layer low fee
payments system
with an emphasis on pdp payments or
should it be more of this
like gold like digital commodity
that would eventually settle
infrequently
and mainly between institutions right so
that's fundamentally a conflict of
visions
right uh but the so
you know keep in mind that this is just
one man's opinion i don't speak for
bitcoin
right so i would say the key the key
number one value that's embedded in
bitcoin is the notion of
non-discretionary monetary policy
so algorithmic monetary policy as
opposed to human
based monetary policy satoshi was very
clear about that bitcoin is an
alternative
to modern central banking where you have
constant tweaking constant intervention
which
satoshi felt leads to credit bubbles and
so on
so bitcoin proposes a completely
non-discretionary monetary policy
um sort of decays over time 50
of the coins were issued in the first
four years and then the next 25
the next four years then 12 and a half
percent in the next four years
until you get to 21 million units and
none of those numbers really matter
like it could have been 25 million units
and it could have been a more aggressive
slope or more gradual slope
but what matters is that this schedule
was proposed
even before the code was public the
schedule was proposed
and then we all collectively agreed to
stick to it
and that is kind of a first for monetary
system
i mean gold kind of has that property
right because
goal the supply of gold above ground
only really increases at one to two
percent a year
so it's it's sort of inhuman which is a
good feature right you don't want to
give humans that much control over it
bitcoin is a much more
you know fastidious approach to that it
really is super concrete about what the
supply schedule is and the fact
crucially that it can't change
so we can't have a bailout of debt
debtors
a lot of people would say a lot of
people had debts denominated in bitcoin
and we needed loose
accommodative monetary policy to bail
them out that's not possible we couldn't
have a jubilee denominated in bitcoin
because the social contract
we've all you know bought into and
committed to
is that it's not just non-discretionary
so that's sort of one of the first
things
um and i think ultimately that comes
back to
basically a strong respect for property
rights
because if we were to have unanticipated
inflation let's say
you know really charismatic leader
somehow commandeered bitcoin and
convinced everyone that we should have
30 million units and not 21 million
that would basically be dilutive on
everybody that
held bitcoin and had opted into the
21 million set of coins
an additional 9 million unanticipated
would have a dilutive effect on everyone
else
and that would be a covert way of
effectively stealing their purchasing
power
through inflation is that possible that
kind of thing i mean uh
what what's the mechanism of bitcoin
that resists that kind of charismatic
leader
well we've had people that have had
a lot of influence in bitcoin in the
past and they've tried to make changes
to the protocol not as
dramatic as that but bitcoiners
have generally resisted those
individuals
institutions and they you know
bitcoiners have a good track record of
sort of staying true to
to those core values so that you know
the you mentioned
values and and like sticking to the
monetary thing
but there's bigger values uh
there's almost like psychological values
that are instilled in bitcoin uh you
make a point
that bitcoin for many is a vessel quote
for their expectations hopes and dreams
uh can uh the bitcoin protocol support
this kind of complexity of
the human condition so like there's
ideas of freedom
that seem to be spoken about there's a
sort of ideas of um
of i mean even love yeah i mean
some people kind of use it as a meme
like you know bitcoin is love or
something like that
you know mostly to troll me because i
talk about love all the time
but you know these bigger ideas than
just
the exchange of currencies yeah i mean
bitcoin itself is very uh simple i would
say like ultimately
it doesn't you know pretend to do very
much it really just settles transactions
um but people do superimpose their own
views on it for sure um and bitcoin's
qualities give rise
to these perceptions of it having
censorship resistance
or giving you transactional freedom or a
measure of transactional privacy
so because anyone can
operate a node and join the consensus
process and because mining is a
competitive free market process
that means that it's likely that
you can't be censored by the miners so
that means you have transactional
freedom so you have these
computer science technical features of
the system that cause it to have these
political qualities which is
it's very hard or impossible to censor a
specific individual
so it's it's interesting to see that
flow
but so that's one of the core values for
sure is the censorship resistance
then you have the fact that it's a
cryptographic based system
and uh you can hold value in your brain
by memorizing 12 words for instance
that gives it seizure resistance which
is again a political concept if you
wanted to
desert your jurisdiction with your
wealth intact in your brain
you know that you know cryptographic
feature of the system the fact that it's
built on public key cryptography
and that you can encode a bitcoin
private key
in 12 words that gives it this political
salience
that you know you can you're now
empowered
relative to a despot basically yeah i
mean
there's so many beautiful concepts
behind
cryptocurrency behind bitcoin that
stand for sort of freedom some of the
basic things that the founding of this
country
the one thing i don't like personally
behind
uh bitcoin and cryptocurrency is that
money's involved
and it's like people's life savings
sometimes are involved
so there is naturally a kind of
fear a self-preservation
uh like instinctual kind of dogmatic
thing that comes in
where you're not the best of human
nature you're you stop being a george
washington
and you lose touch of the like
foundational principles which i think
are beautiful just like the founding
principles of this country
so that's that's just like um so i like
staying on the
level of like the philosophy versus the
level of like all my money is invested
in bitcoin
and that that becomes very tricky
territory to have
principal discussions yeah about ideas
well it's an interesting intention i try
to stay balanced despite being very
exposed to bitcoin so
let me ask the ridiculous question just
in case
who's satoshi is it you
we don't know it's probably not me
because i was
um like 17 when satoshi mounted bitcoin
16. so unlikely and also i'm not really
a programmer so um
there's a lot of theories but honestly
it's one of the greatest mysteries of
all time because
even bitcoins that have been around
since
day one really you know people that were
around
before bitcoin came out they're on the
mailing list they were active in the
cypherpunk community
you asked someone they sincerely will
not know and they may not even have a
good guess
as to who satoshi is is it important to
know or is it like actually important
not to know
do you think that's a feature or bug
that you we don't know
some people don't like the uncertainty
especially you know folks on wall street
they really want to know
and uh if you read the coinbase s1 their
disclosure pre-ipo that's a risk factor
that satoshi could come back
so the the risk management crowd wants
to know
because they want to know if maybe
satoshi had you know
undesirable political opinions or
something that would forever taint the
project
do you think they were just trolling
with that risk with the
satoshi's identity being a risk factor
or is that like actual
like was there an actual meeting and a
discussion of that being a risk factor
i think in the risk factor sections of
the prospectuses it's really just the
lawyers doing a total brain dump to
cover absolutely everything they can
think of so it's just lawyers it's not
like
uh you know it's like i think elon was
somewhere in the legal documents where
spacex
mentioned that like uh earth governments
have no jurisdiction on mars
like they threw that in there and it
feels like yeah that could be lawyers
but it could also just be elon trolling
yeah so i wonder if it's like the
coinbase folks trolling
or if uh i don't know if it's lawyers i
hope it's the trolling not the lawyers
the the coinbase leadership they're not
as big uh
trolls as elon is but uh i mean it's a
it's a risk for sure from their
perspective because
let's say satoshi returned doesn't seem
likely and let's say they decided to
spend all their coins
which also seems very unlikely um that's
you know
rumored to be or estimates have it at 1
to 1.2 million
bitcoin which is like 50 60 billion
dollars worth
so some people consider that to be a
risk you think it's
uh you know this is almost like a topic
of leadership
it doesn't feel like anybody any one
person speaks for bitcoin
not there's not even like prominent
figures like you have for like ethereum
you have vitalik buterin
it doesn't there's a lot of like top
minds talking about
like yourself but it's not like one or
two
do you think again is that a feature or
a bug like uh
do you think for effective for bitcoin
to effectively
have a role in um society that like
is as large or larger than the dollar
there needs to be like
leadership that represents it almost
like democratic kind of thing
well that's a real counter-intuitive
point because most bitcoiners including
myself would say no the lack of
leadership is
a great quality to have because if you
have a charismatic leader and a
foundation or corporation that controls
it
maybe they can control the features of
the protocol and maybe they can
expropriate holders of the coin or
you know build in an endowment that pays
them off and
gives them privileged access to the
units of the coin for instance so
you know we call people that have
privileged access to the money spigot
cantillon insiders which is there's this
economist that pointed out that
as you know i think richard county on
that as money enters the economy has an
uneven flow right so you see this in the
last
last decade or so before that too
the consequence of money printing in
this country is people that own
financial assets
made a lot of money and people that
didn't didn't so you see that
cantelon insider cantelon outsider
effect
and it's the same with a cryptocurrency
in many other alternative
cryptocurrencies that do
have these corporate entities or these
leaders and ceos
they're able to make specific decisions
regarding
the protocol and the currency of the
asset the benefit themselves their
cronies etc
and that's not a good feature to have i
mean
it does grant you you know the ability
to orchestrate decisions
in a faster and more efficient way but
long term what you're trying to optimize
for if you're creating a money
is monetary credibility and soundness so
you don't really want it changing all
that often
and you don't want to have the
appearance of
you know these elites that are engaging
in rent seeking or anything like that so
there's definitely people that are
influential in bitcoin there's core
developers that people listen to because
it's
i would say meritocracy largely and
they're sort of self-appointed high
priest of the protocol
i write a lot about bitcoin people
listen to me but it's a completely free
market
of ideas right i don't have any
authority within bitcoin whatsoever
i'm just a scribbler you know you use
the scribbles
so was aristotle uh socrates
and nietzsche okay at the high
level uh technically how does bitcoin
work
is there interesting things you could
say like what are minors
what are nodes full nodes what are
blocks
what's proof of work is there uh a nice
way to wrap up
a clean explanation of the protocol oh
man
that's uh that could be a whole that
could be another five hours
is there interesting because i'd love to
talk to you about block size wars and
sort of the
the the politics psychology the
principles around that but sort of
building up to that it'd be nice to talk
about how the thing works
that's fair i mean and the block size
wars are really fascinating
discussion of how governance debates
intersect with technical features um
so i guess we can yeah so basically
at the highest possible level bitcoin is
a
globally shared uh it's really a
replicated ledger that
um any participant that wants to be an
equal peer on that ledger
they want to maintain that ledger and
they want to stay up to date with the
global state
of the ledger and really any monetary
system is just
a ledger with physical cash
we benefit from the physical
instantiation
of the money so the physics is the
ledger the physics is a ledger right
same with gold right you can't just
produce new units of gold
so we trust that gold atoms are hard to
create
um although not impossible right um you
could uh
fire a bunch of protons and whatever is
the adjacent metal uh and create gold
atoms would be expensive
uh and the same with dollars you know we
trust that it's hard to counterfeit a
dollar
so we trust the physical analog world to
help maintain the state of that ledger
with digital money
like um you know the money in your bank
account
your checking account we basically trust
our institutions or banking institutions
to keep a faithful record
and then ultimately we trust the central
bank to administer that system
so there's kind of a handful of nodes in
bitcoin we trust that the economic
incentives of the system
are carefully poised basically so
we trust that the free market mining
competition
will lead to the miners assembling
transactions
into blocks in a faithful and correct
way
and that we are going to converge on a
global state of the ledger continuously
which updates every 10 minutes or so
with some variants
and then the miners aren't the sole
entities that control the system to
really
participate if you're a merchant and
you're accepting bitcoin
you really want to run your own full
node and check the whole history of
transactions
sort of something like when i say five
to 600 million transactions that have
ever occurred on bitcoin
so full node contains all the
transactions ever transacted
on the the bitcoin blockchain and that's
i saw it's like 200 gigs or something
like that it's like 350 something like
that
it's doable on a regular consumer laptop
and that is going to be
really key later on in the discussion
sure
but so you know that's really the
ultimate trust models first of all we
trust that the miners that assemble
transactions into blocks and
they are the archivists you know they
inscribe those transactions onto the
ledger
and they have an economic incentive to
sort of behave correctly because they're
getting
paid and no units of bitcoin that's part
of it but then really
you are also you're not fully trusting
them
you're actually if you want to run a
node you replay every single transaction
in the history of bitcoin
from the beginning to the current day
and you arrive at the present state that
way
so you don't really have to trust too
many people or entities
you can validate the correctness of that
all the rules have been followed
that all the bitcoins that were created
were done so in the valid
way that the inflation rate was adhered
to
and that there's no covert inflation you
know that
if you're spending 50 units of bitcoin
uh you had that bitcoin to spend
in the first place uh so it's sort of
delicately poised between node operators
who who you know engage in this validity
checking
kind of anti-counterfeiting checking and
then also the miners which are an
industrial entity
and they basically produce block space
and
assemble transactions in the box and
everybody so the miners are incentivized
to not mess with the system because
they're getting value from the system
so if they mess with it it's going to
decrease the value of their physical
work investment yeah so they have to
incur a real physical cost
to produce a block right so right now
you get uh 6.25 bitcoins in a block at a
minimum and then maybe some fees
as well and how hard is it to produce a
block now
well challenging i mean you need uh
so six point two five bitcoins and a
bitcoin's worth fifty five thousand
dollars or so
so it's probably going to cost you about
that amount
to produce it because it's a free market
competition
and miners have very free thin margins
so
it's like if i auction off a dollar you
would pay up to 99 cents
to buy that dollar for me it's exactly
what happens with miners
they're you know basically competing for
the right
to obtain new units of money so
logically speaking
they would pay up to the value of that
money in order to earn it
and for people who are not familiar the
process of mining
is solving a difficult cryptographic
problem
that's a computational problem it's i
would say it's not like
people sometimes represent it as like a
really challenging puzzle
like the individual puzzle is very
simple like you can do with pen and
paper if you wanted
you know like shawn 256 it's just that
you're searching through the big
mathematical space to find the needle in
the haystack
you're just doing lots of iterations of
a simple puzzle that's just brute force
hence like the stability of of the whole
idea of the proof of work
if it was a if you if there was a
shortcut it wouldn't be
it wouldn't work exactly so let's hope
nobody
solves sha-256 yeah there's a lot of
discussions in
from the quantum computing space but
everybody i i talk to
all my colleagues and that work on
quantum computers
uh say this we're quite a way quite a
long way away from that being an issue
in uh cryptography and then and
certainly in asian cryptocurrency
that should have been one of the sides
on these dice should have been quantum
because i don't think it is i forgot to
put on this edition
people should check out scott aaronson
there's a lot of people that are kind of
um
selling quantum snake oil so you should
be very careful
i think it is a really exciting space
that might
change the world in the next decade or
100 couple hundred years uh especially
for simulating quantum mechanical
systems
but in quantum machine learning uh
people should check out tensorflow
quantum
it's a nice way to sort of educate
yourself about the space
and actually if you're pragmatically
minded to
you know through software engineering
explore how you simulate quantum
circuits how you run machine learning on
those quantum circuits
the the main point that scott makes
scott erinson
people should check out his blog too is
that like
there's not yet a single machine
learning application
that doesn't do almost as well on a
classical computer so it doesn't
like yes the dream is somehow
uh quantum computers will change the
nature of
artificial intelligence but there's yet
to be an actual
algorithm that uh or a problem set or a
data set
where that would be the case so
skepticism is good in this space
anyway that said so you kind of
explained
uh how bitcoin works
you also wrote a blog post recently
giving a shout out to the new book
the block size wars
what is the block size what are the
block size wars
its history its importance its uh
philosophical foundations
yeah i mean bitcoin at this point we
have our own civil wars if you're
wondering
about how politically intense it gets
it's currently not hot it's cold
it's oh yeah we're in a dayton right now
there's no tanks or missiles at least
not yet hopefully
it can get a little violent i guess i
think one of the bitcoin core developers
or
one of the participants in the war got
swatted at one point
what's what it means when someone does a
fight a fake
uh phone call saying that you're holding
someone hostage at your house and the
swat team goes
it's pretty scary wow internet warfare
tactic
yeah but uh the block size warf i would
say effectively ended
um although we're definitely gonna have
more
civil wars in bitcoin for sure but
basically the core argument was
a technical one on its surface but a
very deep
political one at its core the technical
question is
how many megabytes should be in each
successive block
so satoshi basically installed a limit
of one megabyte per block
so we should backtrack there was no
limit
in the beginning and it seems like
satoshi
what is this 2000 the war started in
what 2017 or something like that
i don't know when the 15 was when the
you know
the battlecry what was the first battle
in the civil war
i don't remember but sort of satoshi i
don't know if you can comment it
on it like why does satoshi set the
limit to one megabyte
all of a sudden almost secretively
and in the beginning there was no limit
whatsoever
yeah i mean we can get into and people
have spent thousands of hours poring
over satoshi's writings to find
you know which side satoshi was on and
you can find
like any textual exegesis you can find
evidence for either
side right but uh yeah i mean
effectively when bitcoin was launched
there was a block size because
if you made a block over a certain size
with the first edition of the code
it would have crashed nodes but then
yeah in 2010 satoshi added the one
megabyte limit
in a covert way with no comments or
anything
and uh that's stock basically and uh
and then bitcoin blocks filled up and
people that had been socialized into
this vision of bitcoin as an effectively
free
transactional network like why pay a
transaction fee
if you're not at congestion if the block
isn't full the miner will mine your
transaction for free right
um people that had been brought up in
that
status quo from 2009 to kind of 2015
they noticed the blocks started to fill
up and they're like okay well let's just
remove this arbitrary limit
right what what could possibly be the
harm right and then
a whole other faction said no you need
to
cap the data throughput of the system
because if you increase it it's going to
be highly exclusionary
and ultimately regular folks are not
going to be able to run a full node
so there's a fixed number this is a
fixed frequency of blocks
and so if you want to increase the
number of transactions
per second you want to increase the size
of the block so
huge blocks allow you to shove in a lot
of transactions
right small blocks don't so that's what
you mean like constraining the system
so what's the benefit of a small block
size where transactions
when you can squeeze in only a small
number of transactions
and what's the benefit of a huge block
size where you can squeeze in a lot of
transactions
well it really comes down to the way you
think about the system
so a lot of people wanted bitcoin to be
visa scale
so to have blocks sufficiently large
that you could accommodate
a visa level scale of transactions so
which is many orders of magnitude more
transactions that's right i mean
preposterously larger in terms of data
throughput
then you know bitcoin offers up or at
least it used to 144 megabytes of space
per day
and your average transaction is 350
bytes so
you know you could add a push to for 500
000 transactions a day which is not many
so if you wanted to get to visa scale
you'd have to increase blocks
obnoxiously large uh the small blockers
claimed that this would
overwhelm the ability of any regular
person to
ingest that data and stay current at the
you know state of the ledger
to rebroadca to replay all those
transactions to ensure that the protocol
rules were valid so basically
the small blocker contention is that you
eliminate the trustlessness
of the system by pushing a ton of data
through the system because only one or
two
industrial heavy duty nodes would ever
be able to run
the protocol at that point so by the way
in the civil war the two sides
as you as you're calling them the small
blocker and
the big blocker sides and so that
takes us back to the uh the thing that
you mentioned that a regular computer
could be a node
and uh with a big with big blocks
that's no longer going to be the case so
just the number of transactions
is going to blow up the size of the
blockchain
that every full node has to store and so
then
as opposed to a regular mom-and-pop
type of node you're going to have to
have data centers
so they're going to have to be owned by
large organizations there's going to
have to be very few of them
and that's how you centralize the
control over this whole
operation so the big blocker
yes it allows you to be visa and do a
huge number of transactions but it
becomes centralized and the small
blockers
you cannot actually do kind of merchant
style transactions
but you get the decentralized benefit
well i don't even think the big block
approach would allow you to be visa
frankly
because there's effectively one node at
the visa network
right so you don't really need to
maintain this peer-to-peer architecture
at all
and the amount of data you'd have to
push through the network
to reach visa scale is a really
preposterous amount
i mean and we have now evidence for what
happens
when you try and scale up as a
blockchain and do 10 million
transactions a day which is still not
visa scale right you know
i've i've you know seen what it's like
to operate
those nodes and it's not pretty so there
are totally
genuine computer science physical limits
because it's a it's a broadcast network
everyone has to be aware of every
transaction
and that model which gives you the
trustlessness the nice guarantees where
everyone's an equal peer on the network
everyone has audited the full
history of the transactions that model
falls apart under stress
so the small block of vision is that
ultimately you would scale in a layered
approach
with the base layer transactions being
settlement style transactions
and you know payments happening at the
other layers basically
is that universally agreed upon or like
to a large degree agreed upon that the
small blockers have won in this
in this debate well where would you put
the the current state of affairs
there was a wave of competing bitcoin
implementations
in starting in 2015 with bitcoin xt
um actually gavin anderson who is the
guy that satoshi handed the reins to
when satoshi left gavin supported this
large
block proposal uh and so that was that
didn't achieve
consensus and then there was bitcoin
unlimited
and then later on there was a genuine
hard fork
where the small blockers couldn't or the
large blockers couldn't push through
their proposals
on bitcoin itself so they just created a
competing version of bitcoin you know so
by the way uh
maybe you can comment on but sort of
hard fork versus a soft fork a hard fork
is
when it's not no longer compatible
what's the right way to put it
they can't operate on the same
blockchain they say with the same
protocol
yeah so there's a few ways to define
them and it's
pretty it gets controversial as well but
um
one one way to define it as a hard fork
is
a expansion of protocol rules and a soft
fork as a shrinking of protocol rules
that's an interesting way to find it
it's not very intuitive so i don't like
that way
um another way is that a hard fork is
backwards and compatible whereas
softwork is
in theory backwards compatible so in
august 2017 basically the large blockers
had had enough
and they said we're going to hard fork
bitcoin we're going to
create a clone an alternative version of
bitcoin
which has the same a shared history
as bitcoin itself but you completely
fork it and you create a new future
and uh but you know everybody that had a
balance on bitcoin at the time
also had a balance on the alternative
coin bitcoin cash
and so that was really that's what it's
called bitcoin cash is the hard fork
that was one of them there were more
actually i mean what what the heck
is bitcoin satoshi uh satoshi's vision
bsv
bitcoin sv so this is all talking about
increasing the max
the limit of the block size more and
more and more yeah that was one of the
changes they wanted to push through uh
but bsv was the fork
of bitcoin cash so hard fork of bitcoin
yeah so and so now there's multiple big
blocker
block chains floating around it's like
what are your thoughts about them
well i was pretty popular sorry to
interrupt
uh are they popular i mean if you look
at the metrics they're not and
oh they they don't trade they i think
each trade below one percent of the
value of bitcoin itself i see so
measuring popularity is like how much
they actually oh
value uh value frequency of trade oh no
no i mean
they they do like a fair number of
transactions but there's an there's no
way to know that that is genuine
or just contrived so you know ultimately
the true measure i think in my mind is
just
where the market prices these protocols
relative to bitcoin
uh because that's like a prediction
market if
if bitcoin cash was being priced at 50
of bitcoin you could say
the market has given it a 50 chance of
unseating bitcoin
right but both bitcoin cash and bitcoin
sv which was a hard fork from bitcoin
cash itself
are well i believe at this point well
below one percent of the value of
bitcoin
and in the so in like the ranking of
different cryptocurrencies
what is it bitcoin ethereum is ethereum
in value
uh yeah number two and then bitcoin cash
is the one that
it's in the top five right but it's just
a fast drop off
you know i haven't checked lately but i
think it's it's reached kind of
morbidity
you know it doesn't really have much
traction
um the blocks aren't full so the whole
value proposition was
you know we will get all this merchant
adoption if we increase the block size
that just didn't materialize
in my view they had a flawed vision of
how adoption works
and what blockchain should optimize for
uh maybe maybe you get a