Participants: Adam B. Levine (A.B.L.) Host Andreas M. Antonopolous (A.A.) Co-host Stephany Murphy (S.M.) Co-host A.B.L.

.L. : Coming up on todays show, Lets Talk Bitcoin comes to you as recorded live from Friday, May 17 in the hours before the conference kickoff. Todays release kicks off our Bitcoin 2013 San Jose extravaganza with new shows and lots of interviews being released every weekday. This episode finds the host sitting down for the first time ever in the same room with extensive discussion of the new ideas and innovative approaches proposed and suggested at the GigaOM meetup which took place on Thursday the 16th at the San Jose Tech Museum. Stay tuned for my interview with Erik Voorhees, the man who gave himself to bitcoin and a really nice guy. Thatll be out tomorrow, May 22 with more to follow. There are big things in store for Lets Talk Bitcoin, so enjoy the show. A.B.L.: Hi, and welcome to a special episode of Lets Talk Bitcoin. Today, we are reporting to you from Stephanies hotel room, actually at the Marriott at the Bitcoin Conference 2013 in San Jose, California. S.M.: Wooohooo! Were all in the same room. This is amazing. A.B.L.: Yeah, absolutely. A.A.: Never happened before. A.B.L.: As usual, I am joined by Stephanie Murphy, S.M.: Hello! A.B.L.: and Andreas Antonopolous. A.A.: Hello.

A.B.L.: And, uh, we just met for the first time about, uh, I guess it was last night, yesterday. This is the first time weve been in a room pretty much without more people outnumbering us than the three of us. This is an incredible experience and I feel incredibly blessed to be here for this. This is likethe metaphor that keeps getting used is this is the Internet in 1992 or 1989, depending on who you want to talk to A.A.: Yup. A.B.L.: but that is totally whats happening. Last night we attended the GigaOM community meetup, basically. And about half the people there were planning on going to the conference today. And, my God, it was packed S.M.: Yes, standing room only for 400 people, easily. They really know how to throw a party, too. It was very professional, met a lot of really interesting people there and they had a series of talks setup for us. We heard from Mike Kern, Google engineer, that was really interesting to hear his thoughts on bitcoin. A.B.L.: I didnt know that he was a Google engineer. Id been watching my friend for quite some time now and kind of saying, ok well, some of that stuff is good, some of that stuff is bad. But I had no idea he was affiliated with Google. Thats very interesting. A.A.: You know, this is his 20% project A.B.L.: Interesting. A.A.: It kind of shows the level of innovation you can get when you let people just focus on things that they are excited about. And Mikes really excited about Bitcoin and it shows. Thats another thing we got from all the speakers yesterday, I think, was palpable excitement from the speakers and the audience and just this incredible groundshaking ideas, history making ideas. I heard things Id never thought about, never heard of, about bitcoin. I think Ive said this before, my mind is

being blown for 9 months, well, its accelerating. And its from Buttercoin talking about unique and innovative uses of bitcoin and automated payment systems. Such as, for example, Google self-driving cars paying tiny fees to overtake other cars on the freeway. Essentially making an HOV lane that is cost-based. I dont know if its a good idea, but its a really weird and interesting idea. A.B.L.: And its something thats possible because you have the ability to transact these incredibly small values. When I heard that idea I always Ok, so this is like taking the toll road and sort of superimposing this, like social payment system where theres a value exchange between people who want to go fast versus people who want to go slow. Maybe you just dont care. Suddenly, driving in your car is being subsidized by the people who do care a lot. I mean, thats an incredible idea thats only possible with something like this. A.A.: People dont think about the fact that todays HOV lanes are really indirect. The people who can afford to use the HOV lanes for whatever reason or some of the permit based lanes that exist in other states. Essentially, that money goes back into a big highway fund and who knows it ever ends up improving the road. But in this environment, its exactly that. The people who are driving slower would literally perhaps not pay gas for that particular trip because its being subsidized. And that was just one of say twenty groundbreaking history-making ideas about I heard yesterday at the conference. Another one was Mike kern talking about bitcoin enabling autonomous agents to have their own bank accounts and operate as autonomous agents. Essentially, were talking about artificial intelligence or autonomous agents that are used to make decision making on the internet that have their own bank account and use micropayments to advance a specific goal. If you take that idea a bit further you have the possibility of processes competing in an eco-niche online. And if a process is not successful in raising funds in its wallet it cant afford its

hosting, so it goes offline. And thats really an incredible idea once you grasp the implications it has. Every two minutes, mind blown, again. A.B.L.: Yeah. A.A.: And this is happening again and again and bitcoin bots is happening in slow motion in the forums and it just got condensed in a couple of hours yesterday and I cant wait for tomorrow, the conference. A.B.L.: Yeah. So many button up shirts, so many pairs of glasses. My god, it was the nerdiest room Ive ever seen and Ive been covering games journals since 2005. It was a very diverse crowd. One of the other things that was really exciting was there were a lot of people at the meetup who were new to bitcoin, who were not necessarily attending the conference, were there to learn about it. I spoke with one gentleman from Japan who was incredibly excited and wanted to know what bitcoin was and the free money was. I think he must have stumbled into the meetup or something like that and was just so caught up in it. The other thing of course was people wanting to get involved with the project. There was that engineer who stood up S.M.: Oh, he asked a question, yeah, Im a doer not a donator, what can I do to contribute and got an answer from this whole panel. A.B.L.: Yep. A.A.: Yes, absolutely. Doers are very much needed in this environment. So I have one little complaint but it was a bit balanced. And the one complaint I had is that like many early environments in technology, the room was a sausage-fest. And you know exactly what Im talking about. S.M.: I was going to say that too. A.A.: Women were underrepresented. But, on the other hand, hearing this constant refrain of this is the internet of 1992. Well, it was

absolutely diverse by comparison because when I was on the internet in 1992 it was 250,000 academics. There wasnt a woman in sight in my computer science department, I can tell you that, or anyone near on it. S.M.: There mightve been someone pretending to be a woman. A.A.: Possibly, yes, Id say in fact, many of them. But its a much more diverse environment. I hope it gets better, but in a way its already better than some of the other technology environments. S.M.: Yeah, thank you for bring that up. I noticed that too, because Im a woman in the bitcoin community, and I sometimes notice that when I go into a room A.A.: I can vouch that shes not pretending to be a woman. S.M.: Oh my, have you seen something that I havent showed you? A.A.: Everybody just hears your voice, who knows nowadays right, with all that software. S.M.: Well, I was looking for you guys last night because we had never met each other just had seen pictures of each other online since we started working on this project and I couldnt find you. Theres this sea of men and Adam and I were emailing each other during the presentations and I said, It might be a little easier for you to pick me out of the crowd. Why dont you just look for the person with the purple skirt. A.B.L.: Well, I was looking around for wavy hair. We had identified three of four possible candidates. A.A.: On the other hand if you look at the crowd yesterday, what surprised me was the gender diversity wasnt great quite yet. But the ethnic diversity was tremendous. A.B.L.: Tremendous.

A.A.: That is a real point that people need to realize. Bitcoin is not the developed nations currency. Its going to succeed in America last. Its going to succeed everywhere else where they dont have a world reserve currency that is somewhat stable or maintains the illusion of being stable. And that was represented in the crowd. I think the first three or four questions were all from people from the Indian subcontinent, who were interested in applying it. They had some very interesting and provocative questions about how you apply microtransactions. Heres the funny thing, when we talk about microtransactions, were talking about dollars, when theyre talking about microtransactions, theyre talking about about Rupees, i.e., tenths of a penny. Thats a very different perspective. You could see the panel freeze, because they didnt have an answer for how you make an efficient transaction in less than a hundred Rupees. A.B.L.: He was fairly combative too. He asked three or four follow-up questions afterwards and really pressed them on the answers. S.M.: They had to clarify what is two hundred Rupees. A.A.: They lacked a perspective of the developed world and thats where bitcoin succeeds first. Because if its hard to do a dollar transaction with a debit card, its impossible to a Rupee transaction with a credit card, right? They have much more relative utility or much more marginal utility for the currency in microtransactions. So when people decide to set a certain fee level, they should not be thinking in dollars. They should try to figure out what the cost of a cup of coffee is in the slums of Bangalore and then figure out what kind of microtransaction that is. A.B.L.: One of the other really common nationalities that we saw there was S.M.: Argentina? A.B.L.: the Argentinians.

S.M.: There was a panel at one point where there were two people who were CEOs of major companies A.B.L.: It was the finance panel, yeah. S.M.: ..that were from Argentina. And they were talking about what its like to buy property there. You have to go and meet with a notary, I think. A.A.: Yes, for the escrow service as we do in the US, but with a suitcase of money. A.B.L.: With a suitcase of cash. S.M.: And the fees are incredible for that, I mean, just a huge amount of fees and so there was one person, I cant remember A.A.: Buencas Conceras. S.M.: Yes, he was saying his friend wanted to buy an apartment in Argentina. A.A.: Buenos Aires, for about a million and a half dollars because by the way, just because the currencys in the hole doesnt mean the apartments not bloody expensive. S.M.: Thats right. In Argentina too, they have currency controls, I think. The actual market exchange rate for their currency is different than the official exchange rate, so that complicates things even further. A.A.: And nobody keeps their money in the country, because if you keep it in the country, the government steals it from you. S.M.: Yeah, exactly. How wonderful would bitcoin in a situation like that. Buencas Conceras was saying that his friend wanted to buy an apartment and asked him to do something where he would hold the escrow, what did he exactly ask the friend?

A.A.: He wanted to front him the Argentinian money versus essentially, an IOU in dollars back in their Amerikan bank accounts because in these situation both seller and buyer both have their money outside the country usually in a bank account in the US. Essentially, all they need to do is create the necessary IOUs temporarily in Argentinian money, or bitcoin. S.M.: Yeah, exactly. He said he wanted nothing to do with that transaction. A.A.. Smart. S.M.: But if it were done it bitcoin, it would probably so much easier and the fees would be less so it would cost everybody who was involved way less money. A.A.: Yeah, and I loved the conclusion of that story where he said in the end of that I had this image of the actual transaction that went through which was two over-50 year olds, completely tech-un-savvy people exchanging QR codes in a room with a notary. This actually happened in Argentina. Argentina is a perfect example of where bitcoin gets adopted first because people in Argentina have been suffering a financial and currency crisis in slow motion for 20 years. A lot of countries are like that. We tend to assume that currencies operate like they do in Western nations and were the small, temporary exception. The vast world knows what a black market is because they have to use it on a daily basis. S.M.: What the about the concept of being able to attach your ID to a wallet voluntarily that Mike Kern was talking about, building on top of the existing bitcoin infrastructure, that was really interesting to me. He was really careful, I thought, to stress, if you want to, so that basically the pseudonymous nature of bitcoin could still be used to anyones advantage who wants to but there could be more

infrastructure or software that interfaces with the bitcoin network, where you could potentially identify yourself if you want to. A.A.: Right. A.B.L.: The verifiable nature of bitcoin is what the important part is. Its about ownership and so if you can guarantee that you own, then it doesnt really matter if its pseudonymous or using your real name, the point is that its accurate. You just have to make that association functionally. So, yeah, I mean, since we started talking about the bitcoin ID project that Joe Casio is working on, there have been several other projects that are basically in this same vein that have sort of started popping up. Clearly, this is an idea thats getting traction and clearly its something where, you know, we were talking with a potential sponsor of the show who is a DNS guy and, my god, it was blowing his mind. He was like, wow, we need to attach this to emails because it would functionally eliminate the spam problem by making it so if somebody doesnt have any sort of reputation associated with that particular address that theyre claiming as their identity, then Ill just never see the email. If someone wants to get it to me, they can send .01 bitcoins to me and Ill be able to tell that its not spam because even that small amount of relative value is still much more than someones going to send out with spam. A.A.: What were seeing at the moment is essentially the reflection of the fact that a lot of things we take for granted in traditional currencies are several different principles mashed together through necessity or constraints in the underlying currency. What do I mean by that? In most security systems you have trust, you have attestation, the ability to prove you own something and then you have identity. We dont think of these as separate things because usually, in order to make it practical, all three mash together. You know who I am, you know what I own, and therefore, you can trust me. You cant know that you can trust without knowing who I am. You cant know that I own

something without knowing who I am. Weve, by necessity, brought these three together. The analogy I like to think of is, as the internet broke apart those concepts before if you were a publisher, you were someone who had access to information, you were someone who had access to writers and then you were someone who had a megaphone or printing press and bought ink by the barrel to express that opinion. You could not separate the concept of journalist from access to the printing press, access to the halls of power, and a rational voice. Now, you can. Anyone that has a printing press who weve actually separated those and now we can focus on what really matters, which is a rational voice and a smart idea and you can get the other things for free. With currencies, weve mashed together trust, identity and attestation, we dont need to. With bitcoin you can prove you own something without telling anyone who you are and so gradually were pulling apart these concepts and were ablee to focus on how we make the most efficient transaction on each one of these. If you want to prove just trust, and build reputation, you can do it without identity. If you want to show your identity without showing any of your bank details, you can do that. This is really opening up and revealing things that were put together for no reason other than the constraints. ADVERTISEMENT: If I showed you a website where you could easily purchase electronics from the worlds largest distributor, with bitcoins at 0% markup, would you think it was too good to be true? Good news, its real and its at bitcoinstore.com. Choose from half a million items, save money over Amazon and Newegg and convert your bitcoins to real-world items. You can even buy with privacy, all they need is a shipping address. But, dont take my word for it, see for yourself at bitcoinstore.com END ADVERTISEMENT A.B.L.: One of the other themes thats been coming up on both sides of the issue is that location matters.

A.A.: Yes. A.B.L.. On the one hand, youve got this huge movement from essentially, the third world, places where they have unstable currencies. On the other hand, you have this impending threat of regulatory death, functionally, coming from the United States. We spoke about this on episode 8 S.M.: Mmm-hmm. A.B.L.: Erik Voorhees, in my interview with him this morning, functionally said, it is a bad idea to do anything with bitcoin that is a business in the United States. He thinks, fundamentally, theyre going to fail Hes moved his companies to Panama. S.M.: To Panama, yeah. I was talking with him last night too, that was really interesting to hear. A.B.L.: Absolutely. S.M.: He said its just so much easier in every way. From a business standpoint, there are no taxes except if he does business within Panama, and thats pretty miniscule. A.B.L.: Right. A.A.: I think the real issue here is you cant do a small business in the US with bitcoin. You can do a big business in the US with bitcoin. Because youre a big business, you can buy due process. If youre not a big business, you cant buy due process, you cant comply with the regulations and you will be stomped. Now, the rest of the world doesnt really care. Regulatory compliance is a first-world problem and I say that as #FirstWorldProblem as its mocked on various sides. Its the kind of problem you only worry about if no ones shooting at you. A.B.L.: Right. S.M.: Mmm-hmm.

A.A.: Quite honestly, in most of the world, regulation is a matter of whether and how much you can bribe different officials to regulate you or to be compliant. All of this checking boxes and filling forms is alien because there is no process like that. Its not a problem, you can be much more loosey-goosey with your transaction and thats perfectly fine because nuance and gray areas are how the economies work. Here, we have all of this black-and-white, we try to believe that its actually rule of law when, of course, obviously, its an illusion. Its a trap, its a terrible trap. Unless you can bring the big guns to the court to fight for your due process, regulation is just a way of killing small business. S.M.: Yeah, I actually have to say I was really disappointed with the amount of people who were on the panel last night, who seemed to be cheering regulation, saying its not only inevitable but its good and itll be great. A.A.: Well, of course it is, for them. They represent the big business that can afford to make regulation an ally, not an enemy. S.M.: I dont think of those people that were there last night as representing, really, like, big business. A.A.: Big enough. A.B.L.: Yeah, I mean, big is relative when you look at it. Weve been talking with exchanges. Kraken, I think is what its called and Tradehill, theyre both US based exchanges based out of California which is, of course, an insane environment to base any sort of business out of. S.M.: Uhh, yeah. A.B.L.: But theyre whole focus, they look at Mt. Gox and say, these people have done the regulatory side wrong. A.A.: Yes.

A.B.L.: Whether or not that be true, it makes it their focus to get the regulatory side right. So when I talk with Jarod from Tradehill, his whole focus is on over-compliance, in taking the letter of the law, then following the spirit of the law, and then going to like, 20% beyond that S.M.: In hopes that theyll leave him alone. A.B.L.: Exactly. A.A.: Its not that theyll leave him alone, its that when they do attack him, and they will, he will be beyond reproach and hell be able to drag it out in court for decades before they can shut him down. Whereas, if you go out and sign a piece of paper from Wells Fargo that says youre not a money transmission business, you then get shutdown by the Department of Homeland Security and Treasury, which is what happened to Mt. Gox. I mean, this is really a matter of not even doing the basics to protect yourself, literally opening yourself up to be a victim. A.B.L.: Well, again, in the conversation with Erik I brought that up because I was like, how could they be doing this, how can they make such basic mistakes. His point was that, yes, there were basic mistakes, but they were such small errors. This paper was signed three years ago at the time that it was done. The rules have changed, the regulatory environment has changed during that time. Its one of those things where if the government goes looking for reasons to mess with you, chances are pretty good theyre going to find them if just because the rules are constantly changing and you dont even know what all the rules are anyway. A.A.: Yeah, but I would also say, is it a surprise that the government is going after this? No. Is it a surprise that the rules have changed? No. Have a lot of things changed in the last three years? Yes. What hasnt changed? Mt. Gox didnt change their bank account for three years.

They had three years to get this right and so I do not attribute to malice what can be explained by incompetence and this particular case, it really is a matter of incompetence, technical incompetence and regulatory incompetence. Peter Vessenes covered this well. Hes obviously biased because hes suing Mt. Gox at the moment. A.B.L.: Yeah, which is a little funny because he didnt disclose it at the time. I was like, so wheres the disclosure that youve got a thing going with them. A.A.: I dont think he really needed to disclose it, at least to the four hundred people who were in that room. They were all chuckling about it. A.B.L.: I guess thats true. A.A.: He made some very good points which is that running an exchange is not about just building a trade and order matching engine. You need an exchange stack. You need a regulatory stack. You need a compliance stack. You need a finance stack. You need a cash flow stack and, in fact, an anti-money laundering stack and several other things. Hes absolutely right, the question is, why would these companies go into business without having those things checked out. I can understand why youd do it three years ago, but have you not been paying attention? A.B.L.: And another thing thats happened is weve seen kind of a consolidation, almost, where money has started into some of the companies that were already big. Bitpay just received two million dollars in venture. You didnt know this? A.A.: I did not know this. When did this happen? A.B.L.: This happened two days ago. S.M.: Yeah.

A.A.: Oh, fantastic. A.B.L.: Oh, yeah, this happened two days ago, yeah, two days ago and in addition to that they hired Jeff Garzik, I believe? A.A.: Yes, hes now working for them but interestingly enough theyre going to donate most of his time to continue to promote the core development area. A.B.L.: I was wondering about that, yeah. A.A.: Thats what they said in the announcement. They said hes being hired by Bitpay and he will be turning all of his work into the open source. Lets be honest, I think its important to really praise all of the early companies in bitcoin. A.B.L.: Right. A.A.: Not only for the services they offer directly to customers. As bad as they are and as crashy as they are at times, were all pioneers in this. But more importantly, almost all of the businesses in bitcoin, the early ones, have contributed back to the community. Code, intellectual property and various other areas of support, funding other businesses, funding developers, and then open sourcing all of that stuff. Its really important, especially at this early stage. S.M.: They did get into it because they were excited. They were just people who were excited about bitcoin and they said, look, I need to do something thats going to build infrastructure for this. I can see why they contributed back. A.A.: Yeah, and the word amateur is a double-edged sword. It means someone who loves the profession and does it out of love. It also means someone who is not a professional. Unfortunately, that brings a lot of enthusiaS.M. early on and eventually it leads to some problems of scalability and maturity.

S.M.: Well, I think thats one reason that were now seeing so many people who are saying sort of, like, yeah, we need regulation, its good. I think with this influx of VC money theyre getting a lot of pressure. You have to be professional and part of being professional is to play the game and follow all the rules. That means you have to, at least when you talk publicly, you have to advocate for all of this regulation and stuff. Im sure its pressure. Another thing that came up last night was the idea of a bubble. Somebody, I forget who it was, but somebody on the panel said that they thought the biggest threat to bitcoin right now is a bubble. A.A.: Whoever said it, everyone agreed including the audience. So, I think that was a very elegant point. S.M.: But what if were already in a bubble? I mean, theres so much venture capital coming into bitcoin based companies. I mean, you went to this meetup the other day, Andreas, you talked about it on the show, maybe a week ago, but you talked about it on the show and you said there were VCs all over this. A.A.: I know I noticed two, maybe three investors who were looking for stuff and weve seen this again at the show. The room where we had the GigaOM, you could tell, well, actually, the easiest way to tell is look around and see whos wearing the pinstripe suit in a sea of blue jeans and t-shirts, there are the VCs and whos got the beard and the pony tail, there are the coders. S.M.: (Laughing) A.A.: Ok, Im being a bit facetious here, but yeah, you could definitely see the bankers from a mile away and there were plenty of them. Heres the issue, a bubble is only a bubble when it bursts. A.B.L.: Right.

A.A.: And its only a bubble when it can no longer sustain being inflated. Lets be real, this is a 1.6 billion dollar incredibly useful transactional currency. The internet bubble at its height was a 1.2 trillion dollar bubble. Can we go and inflate a lot more without it bursting? Yes. What we need is less panic, I think. A.B.L.: Right. A.A.: Because what we saw with the $260 was a premature burst of a bubble that really has a long way to go until it is a viable economy that reflects the utility of bitcoin. A.B.L.: Right. A.A.: There are fundamentals, here. This is a damn useful currency. Far more fundamentals than the pants shop site that had 700,000 eyeballs and got a valuation of 7 billion dollars during the internet bubble. Theres some there there. A.B.L.: Its about monetization too. That was the ultimately the problem with most of the internet bubble. Yeah, they had the eyeballs but there was no monetization. Well, with bitcoin, thats the wh ole thing, the whole thing is a monetization. A.A.: Yes, I love the fact that bitcoin comes pre-monetized. A.B.L.: Right, exactly. You know, that has good elements but it also has bad elements. Were talking about how with bitcoin, for the first time, if you steal something online, you no longer need to worry about how to monetize your theft. Its not like youre stealing credit card numbers and then have to sell them at pennies on the dollar. In fact, youre getting complete face value. Its like, the internet suddenly has all of these banks. Wherever there are wallet services, wherever there is value being stored, suddenly, there is a bank that is screaming, Rob me, rob me, rob me!

A.A.: Right. Why do you rob the banks? Because thats where the money is. You made a very good point just now, I think, which is important to understand which is that its not a matter of the flexibility to transfer. Its whenever there is theft online the fencing component means a discount. A.B.L.: A huge discount. A.A.: A huge discount. The more specific the item is, the more of a discount. Thats why the predominant approach to protecting the crown jewels is actually misguided on the internet for corporations because the crown jewels are hardest to fence. Whereas, youre HR data and social security numbers are very easy to fence, have the lowest discount of them all. Well, now, bitcoin will be the easiest. In fact, its easier than digital money as held in banks or credit cards. Right now, the most fenceable thing on the internet is credit card numbers. Well, bitcoin is it. A.B.L.: Bitcoin is it. A.A.: Weve seen that in also not just in terms of stealing bitcoin but also in terms of surreptitiously generating bitcoin by sticking a mining engine in a game. A.B.L.: Right. A.A.: Im sure that if you look at the botnets out there, a lot of them are mining bitcoin now. And theyre huge, theyre 5-10 million machines. A.B.L.: So, it sort of begs the question, do we think that thats the future of mining? Do we think that these large autonomous networks that are essentially controlled by a couple individuals, you know what I mean? It doesnt really matter if youre talking about a mining pool that has people voluntarily putting in and then essentially just going on auto-pilot or if youre talking about, ultimately, these botnets. Functionally, they serve the same purpose. Theyre large groups of

relatively low-powered computers that are pooling all of their power together so they can achieve this goal, be it for good or for evil. A.A.: Yeah, I think thats absolutely the end result. In fact, Im looking forward to the day that both my fridge, my microwave and my car are mining while Im sleeping. It follows the same pattern of evolution of the internet where you end up with smaller and smaller and smaller devices becoming intelligent and connected. And that means intelligent, connected and capable of mining. So, yes, your light switch will be mining. Yes, your car will be mining. Tiny amounts, but it all adds up because theres 7 billion people on the planet but theres going to be more individual assets that are intelligent that can mine on behalf of those people. Its the ultimate decentralization, I think. So, in that Google car we were talking about before thats paying fees in order to overtake the other cars is also mining as its driving. A.B.L.: (Laughing) S.M.: (Laughing) Wild. A.A.: Why not? I mean, we talk about electricity generation with hybrid-electric cars, why not mining too? Pretty much anything that has computational capability can mine in its idle power. In fact, I would consider it that any device that you build, if its not completely idle and energy-saving, should immediately be switching its time to mining. Why not? A.B.L.: Why not? A.A.: That should be the energy saver version. Youre either doing productive work, mining or turned off. A.B.L.: Yeah. S.M.: I like it.

A.B.L.: I like that, too. I think that again, you know, as we get further into this home automation thing, then thats totally plausible. Already with technology that we have now its going to be a year or two, maybe. A.A.: But the best part about that, if you do start instituting or seeing mining on that scale of distribution, then the mining naturally flows to the areas of lowest cost of electricity, which also tend to be the most environmentally friendly forms of electricity. A.B.L.: Right. A.A.: It creates an automatic flow into areas where you save energy. S.M.: That goes back to the idea, some people complain that the process of bitcoin mining, the bitcoin network, is wasting energy. It is not energy efficient. Actually, no, its performing an incredibly useful function. Its creating a payment network for the entire world. A.B.L.: Yes. A.A.: And its not just mining, right? People think that the electricity that is spent mining is just to mint new coins, but its not. Its also to secure all of the transactions that go into it. S.M.: No, those are an auxiliary for doing the creation of the network. A.A.: Exactly, the creation of the network is the real function. So, if you wanted to compare mining to a real world payment network youd have to add all of the cost of armored trucks, all of the cost of printing money all around the world, the metals that go into coins, the electricity into all the payment networks. S.M.: The opportunitys lost because you cant do transactions everywhere in the world. A.A.: The fraud prevention networks, the security systems for not getting your social security card stolen and all of the other stuff. The

thing is we externalize a lot of these costs and we hide them as part of doing business. Most of the payment networks consider anything up to 10% in fraud loss as part of doing business. A.B.L.: Right. A.A.: How much of that is accounted for when youre comparing to the electricity costs of mining? (INTERLUDE) S.M.: Just to get back to the subject of theft for a moment because we were talking about it, recently. There was something that came up on the panel last night. They were saying that there have been a number of high-profile hacks where a lot of bitcoins have been stolen but havent been moved. They were moved some address or whatever and then they havent been moved. And somebody, I think it was the guy from Buttercoin A.A.: Yes, that was Bennett. S.M.: Bennett, yeah, he brought up the idea that of maybe there could be at some point, there could be kind of a pool of bitcoins that are clean, that have never been used for illicit purposes and you could spend those if you wanted somebody to know that the bitcoins youre spending are legit. Theres this other strata of bitcoins that may have been involved in fraud or stolen or used. A.A.: And are tainted. S.M.: Yeah, so-called tainted bitcoins. A.A.: Yes. S.M.: The question came up of why have these bitcoins that have been stolen in these high-profile thefts not been moved? They havent cashed out. Is it because the crooks are afraid of getting caught by the exchanges themselves or is it because theyre just basically

holding them because they think theyre going to be more valuable in the future. Nobody knows. A.B.L.: With this problem, I think that the solution is again to look at banking. What do they do in bank robberies? You talk about an ink bomb, where essentially cashier A.A.: Laying low for a while, right? A.B.L.: No, no, no, but I mean, what do the banks actually do to actually stop this? A.A.: Oh, they taint the money. A.B.L.: Exactly, they taint the money. And so thats the solution, you just have it registered. Its not like its hard to tell if a coin is stolen. Somebody reports, hey, all these coins were stolen. If they use them themselves, theres no reason to do that, because youre saying, oh, well, these coins I still have are tainted and I dont want anyone to be able to use them. So theres no incentive to do that. So long as you have that private key from the transaction before, it just seems like that registry is something thats going to have to be built and if it does then it really disincentivizes stealing anything because if somebody reports it you cant use them. Of course, neither can the person who reported it, but that doesnt matter anymore. A.A.: Well, I think its important to explain a few of the underlying concepts here for some of the listeners who dont necessarily understand how this works. The blockchain doesnt hold bitcoin. It holds the transaction that exchange bitcoin. We talk about bitcoin being a pseudonymous or a pseudonymous network. Essentially, the individuals who are attached to addresses are difficult to track because you dont know who has which address and how many addresses they have. Great. That doesnt mean the bitcoins themselves are pseudonymous or untrackable. In fact, the exact opposite, the bitcoins that traverse through the network are trackable

from the moment of genesis all the way until they are spent and spent and respent and forever. Every single bitcoin has a unique moment of genesis, a serial number, and it follows the transactions all the way through. Not the bitcoin itself, but as it moved from transaction to transaction you can essentially create this trail that leads back to the origin. S.M.: Thats why, wasnt there somebody a while back who was trying to collect all the bitcoins from the first fifty blocks or something like that? A.A.: Yes, indeed, yeah, and you can. Now, the bitcoins themselves S.M.: If you could find them. I bet a lot of those are in like, oh, I lost my password after I encrypted my wallet, theyre gone forever. A.A.: We can track bitcoin from generation throughout and so the idea here is that as soon as you have a registry, you could essentially declare bitcoin as stolen. Heres the thing, you dont need everyone to stop accepting that bitcoin. To Adams point earlier, the big appeal of bitcoin is that the discount rate on fencing is low. Well, as soon as you take 80% of the markets and they agree to stop accepting that bitcoin, immediately, the discount on fencing will go through the roof. Suddenly, your bitcoin are only worth 20% of face value, if theyre tainted. Because you can only spend them say, on, I dont know, Silk Road or A.B.L.: Right places where it doesnt matter if theyre stolen, the market wouldve accepted them anyways. A.A.: Completely illicit things, like buying banking stock or drugs or something really ridiculously illegal like that. S.M.: I guess its the sort of the same thing for cash, right? A.A.: Yeah.

S.M.: There are some places that are going to accept cash from anywhere, no questions asked. Other places, if you walk in with a lot of cash they may have some questions, they may want to verify your ID, get some details on you or whatever. A.B.L.: If you walk in with cash covered with blue ink A.A.: Yes, exactly. If its purple fluorescent cash and it looks like its been through a couple of wash cycles, yeah, its not going to be easy to give that to anyone. So, yeah, that function would work very well for bitcoin and it was another one of those great insights that evening. A.B.L.: So do we think that theres a potential for that to be used for evil? You talk about registries for bitcoin and, suddenly, youre into this whole thing where youve got centralized registries. Ultimately, this could just be a new type of transaction thats made essentially on behalf of the coins at the time theyre stolen. A.A.: So, its a consensus network. So, as with the internet, its a double-edged sword. The internet could be the greatest liberator in the world or the worst totalitarian dystopia weve ever experienced. Bitcoin could also do both of those things. Its a neutral currency and could be manipulated. Heres what I think would happen. If you did have trackability of bitcoin on that scale, people would really, really invest in bitcoin remixers. If those remixers then take tainted coins, then as long as you had clean coins, you could remix them into anonymity very easily. A.B.L.: Right. A.A.: But you would not be able to mix your tainted coins. Again, its just a matter of getting a suitable number of remixers to do that and you lose the face value of the bitcoin thats stolen. S.M.: Those exist already by the way. Have you guys ever seen sites like bitcoinlaundry and, I think theres one called zero coin.

A.A.: Yes, they accept any coin so if they stop taking tainted coin, they could essentially achieve the purpose of preventing stolen money being re-circulated while still allowing/avoiding essentially surveillance or mass surveillance of the form where every bitcoin is tracked. By the way, if you dont think that thats already happening, since I can do at home with my PC on the eight gigabyte blockchain, I can tell you that every single bitcoin that is ever spent in every transaction is cross-correlated and tracked in great detail somewhere in a big data center in Utah by the National Storage Agency. A.B.L.: One of the people at the meetup that we just got finished with before coming to do this recording, talking with him, hes a derivatives market maker, essentially. Thats what he was saying is that if he was in the CIA, this would absolutely be the thing that he would track because right now if you want look at every single transaction that happens in a given currency you need all kinds of court orders and its basically impossible. A.A.: You dont need any court orders anymore. Not since the Patriot Act, you could look at the banking records without any court order whatsoever. S.M.: Yeah, thats true. A.B.L.: That is true. A.A.: But, this is much more trackable, its very transparent. A.B.L.: That transparency goes both ways. A.A.: Look, the Utah data center has one trillion terabytes of storage, A.B.L.: OK. A.A.: And thats been verified by a couple of independent whistleblowers. Dont worry, every single email, every single website, every single phone call,

S.M.: Text message. A.A.: Every single bitcoin is on there. S.M.: Yeah, but I mean, to a certain extent, who cares? A.B.L.: Yeah. S.M.: What are they going to do about it? A.A.: Well, what are they going to do about it? Exactly, thats the issue. For me, I like to keep a very public address for my bitcoin and use it to do very above-board tracking. You see, thats the flipside of this, and we talked about this in the context of not-for-profits, is that by having a public ledger you can also generate accountability. So, eventually, government corrupts this and they start using bitcoin, and guess what? We can track them too. A.B.L.: Right. S.M.: Right. A.A.: The counterpart to surveillance is sousveillance, a French word that means, watching from below. We are getting closer and closer to a sousveillance society, just as theyre getting closer and closer to a surveillance society. Who watches the watchers? The watched. A.B.L.: Everybody. A.A.: Everybody, exactly, exactly. And then you can have some consensus about really what is an unacceptable and evil transaction. S.M.: I would say purchasing bombs for dropping on brown people overseas is an unacceptable use of bitcoin. A.A.: Yes, and I think a lot of people would agree with you. S.M.: And US dollars. A.A.: Right, exactly.

(Interlude/Message) A.B.L.: Lets Talk Bitcoin has some exciting things coming up on the horizon. But, we cant share details with you just yet. To all the listeners, new and old, thank you very much for helping prove that real journalism. still has a place in this crazy world we inhabit. Your emails, donations, help and support have led to where are now, on the verge of something very powerful. Of course, the show is nothing without an audience and while we appreciate your donations very much, the most important thing is to share the show with friends and family who should, but arent, going to be educating themselves on the future of money. If youre new bitcoin and would like to learn more, please visit LetsTalkBitcoin.com/learn to be directed to the Bitcoin Education Project, a free series of lectures and classes about many of the aspects of bitcoin and the surrounding topics, created and curated by Charles Hoskinson. I highly recommend this educational resource. Were also actively recruiting both on and off-air talent for this and other shows. If youre interested, please contact adam@letstalkbitcoin.com (End Interlude/Message) A.B.L.: So, one of the concepts that weve been kicking around is the idea of Peg coin. A.A.: Peg to dollar? A.B.L.: Yeah, peg to dollar. You cant call it dollar coin. I know, I know. A.A.: Lets talk about it, because I can tell you exactly how thats going to get screwed beyond belief. S.M.: Yes! A.B.L.: Heres the pitch. The pitch is that, the problem with bitcoin is that its difficult to move into and out of, from cryptocurrency to legacy currency. So, what if you created an Altcoin chain that instead

of trying to fix something about bitcoin, instead, broke all the things that bitcoin fixes and essentially pegs itself to the same issuance as US dollar. So, it does a couple of things. One, it means that vendors can accept it without having to change their prices because, functionally, its a one-to-one comparison. It also means that S.M.: Payments can be sent anywhere? A.B.L.: Yeah, payments can be sent anywhere and so it gives that sort of relative stability to S.M.: And its irreversible. A.B.L.: And its irreversible, so you still have a lot of those things and most importantly, you can play between the two currencies. You can easily move, because its very easy if you want to buy litecoins with bitcoins, thats a super-duper easy transaction. It doesnt require any sort of fenced- in regulations, doesnt require any sort of disclosures, its just crypto-to-crypto. Why not make a functionally dollar crypto? You cant call it that because if you call it dollar, immediately, it attracts the ire of the Secret Service. If you had like, a peg coin that was attached to that then you could play it both ways. If you are uncomfortable with the volatility of the market, you move to the peg. Youre potentially losing out or gaining depending on whats happening. S.M.: A couple of thoughts about that. One, a peg really requires a central authority to enforce it. A.B.L.: But theres already one. Theres already a central authority, A.A.: Fed Reserve. A.B.L.: The Federal Reserve, so you just peg it to their revolving reports or you peg it to

S.M.: But, how are you going to make sure theok, so, basically, so I understand A.A.: This has been done before. Lets look at the history lesson before we try to figure out whether its possible or not. Lets look at exactly how this scenario played out, because its played out several times the past several years. Sweden tried to it, Argentina tried to do it and at some point the British Pound Sterling tried to do it. It terms of keeping their relative volatility against the US dollar stable. And what happened, the famous phrase that comes from a hedge fund. Uh, I dont remember who it was, whether it was George Soros or Warren Buffett or somebody like that who said, Last person out, turn off the lights, because they arbitrage that national currency into death. S.M.: Mmm-Hmm. A.A.: If you try to peg a smaller economy to a bigger economy the volatility will whiplash the smaller economy to shreds. Every single shift in volatility becomes an opportunity for arbitrage and the stronger you try to peg it, the more money you have to put in on the buy side in order to stop the sell side people from unpegging it. And what happens is, essentially, you create this beautiful market of free money because youre trying to evade reality, and the reality is that the twelve trillion dollar economy thats the US wont budge because its twelve trillion dollars large, and youre trying not to budge but you dont have the twelve trillion dollars behind you. And guess what, someones going to make a lot of money on that. And its happened again and again and again. Anytime someones tried to peg a currency to any currency or any standard, in fact, the gold fiasco of an inability to grow beyond the gold standard was an attempt to peg all the currencies to something stable and ignore the fact that they had inherent volatility. And, what happens? You arbitrage the hell beyond gold and currencies or you arbitrage the hell between dollars and pegs. You can do it and it will fail miserably.

A.B.L.: Ok, but let me challenge on that because yeah, youre right with other currencies where you have that sort of latency. But, with a cryptocurrency its all about the algorithms. You build it so that it just keeps up, I mean, isnt that the thing? A.A.: Yeah, you could do that but there would still be a discrepancy between that and other cryptocurrencies. A.B.L.: So, its the size. A.A.: Heres the problem, you could trade from that peg currency into any other cryptocurrency instantly but you could not trade from that peg currency into dollars instantly. That would create a massive imbalance that would give you arbitrage opportunity of peg coin against bitcoin and youd make a ton of bitcoin, shorting peg coin. And sure, it would be remain pegged until nobobys trading it because they no longer believe that that peg value is what people will pay for it. S.M.: But isnt kind ofthis whole thing could be kind of irrelevant because there have been people before who have talked about using bitcoins properties as a payment network, independent of the exchange rate between bitcoins and dollars. So, like, its a way to send and receive payments. Its not necessarily a commodity and sort of decoupling those two things. And that works if you can get between bitcoins and dollars fast enough. A.A.: You have to get in and out fast enough. S.M.: Yes. A.A.: Interested, but in and out fast enough, yeah. S.M.: Right. I think bitpay does a decent job with that. If there were a lot more people who wanted to use that service in that way perhaps, it may overload it but then there would be more opportunities for people to just fill the same niche. Perhaps, just bitcoin, we dont need a pegged coin, we can just use bitcoin itself for that purpose.

A.A.: I think the volatility problems of bitcoin are twofold. One is the lack of sufficient volume and liquidity in the market to just buffer volatility. If you have a Titanic sized economy, it doesnt turn on a dime. Thats a bad thing but its also a good thing because it provides stability. The other reason is because of the deflationary nature, people go in these cycles of hoard, panic, hoard, panic and that creates volatility. We can solve the first one by adding more liquidity and volume. Were not sure, at least Im not sure that we can solve the second one yet. That may lead to all the coins doing a bit better if they can solve the deflationary issue, a bit better. But, as long as theres friction between Fiat and cryptocurrencies, that friction will generate volatility and if you try to pretend that doesnt exist, youre going to pay for that and someones going to make a lot of money making you pay for that. S.M.: The first speaker last night was the CEO of Expensify, I cant remember his name. Do you guys remember? A.B.L.: David S.M.: Yeah, David A.B.L.: I cant recall his last name. S.M.: Ok, yeah, well, maybe well find out later. He was kind of introducing the whole panel thing and he said theres a bunch of characters involved in bitcoin. First, theres these crypto-anarchists who kind of want to liberate the world and then theres these idealists and then theres the currency speculators and we put them last of all. Theyre the worst of anybody that everybody hates the most. I thought that was kind of interesting. A.A.: Yeah. Currency speculators, at least in the naked currency speculation and the institutionalized version of that are necessary. Unfortunately, no one likes the animal that picks on the corpses of other animals. We dont like vultures and we dont like hyenas. As

necessary as they are, we dont like maggots. Yeah, theyre maggots. Theyre necessary, but theyre still maggots. S.M.: (Laughter) Right. A.B.L.: We had a meetup at Gordon Biersch today at noon and it was supposed to go noon to two. We showed up, Crystal and I, my wife, showed up wondering if anyone was going to be there. Wed gotten about twenty RSVPs and it was really a lot of fun. There were S.M.: Yeah, it rocked. I had so much fun, I talked to almost everybody there. There were a couple of people I wanted to talk to but I didnt quite catch them. The conversations were fascinating just discovering that I had a lot in common with people who came there, got so many compliments on the show. I guess those were the people who like our show because they were coming to meet up with us, but it felt great to know that people were listening and that they wanted to hang out with us. I had a lot of fun. A.B.L.: Absolutely, I mean, beyond that for me, the thing was that I like to surround myself with people who are smarter than me and my god, the conversations that youre able to have at something like this, its great. The level that were talking at is something, you know, like, I have to go on the internet to get this. It was a lot of fun and A.A.: Much faster and you get the feedback right away, you know. Absolutely, you dont want to be the smartest person in the room. Being smart is also a bit of a vector, right. So, even if the other person was as smart, they were smart at a different angle. A.B.L.: Right, yeah. S.M.: Mmm-hmm. A.A.: And so that really created some tremendous opportunities for getting new ideas in a completely different field from the one youre thinking about. I have to tell you guys, the first LetsTalkBitoin

meetup we did today was about a quarter of the size of the meetup I went to a couple of weeks ago. I think you now know why Im so excited about these things. And, so, what I hope is that this is not just the first of LetsTalkBitcoin meetups but the first of many. Lets keep doing this. A.B.L.: Yeah, absolutely. Were going to have to transition that group from a San Jose 2013 group just to a generic that can kind of be wherever. A.A.: Yup. And Im going to be organizing some more San Jose meetups as well in the next few weeks. S.M.: Cool, Ill have to fly in from New Hampshire. A.B.L.: (Laughter) S.M.: Get my private jet, vroom-vroom. A.B.L.: Yeah, vroom-vroom. Alright, well, we have a speakers dinner in about six minutes it looks like, so were going to wrap it up. Once again, thanks for tuning in to this special episode of LetsTalkBitcoin. S.M.: Yeah, well have more reporting from the conference, too. A.B.L.: Oh my god, yeah, youve been recording everybody at the meetup. You did two or three interviews. S.M.: I did a couple of interviews. A.B.L.: Yeah. S.M.: Yeah, and I know you have been too, Adam. A.B.L.: Ah, yeah. S.M.: Well be giving you the content. A.B.L.: Yeah, theres no shortage of content to be had here. Great, well, until next time, I am Adam.

S.M.: Im Stephanie. A.A.: Im Andreas, this is LetsTalkBitcoin. Stephanie: Woo-hoo! (Outro Music) A.B.L.: Thanks for tuning in to episode nine of LetsTalkBitcoin, whether you liked, loved or hated the show we want to hear what you think. Please, send all listener feedback, comments or questions to adam@letstalkbitcoin.com. If youre like me and just cant get enough information and perspective on bitcoin, check out our daily newspaper at thedailybitcoin.com, where youll find the best news presenting articles and arguments from all sides of the issue. Thanks to Andreas M. Antonopolous and Dr. Stephanie Murphy for providing content for this show. Music for this episode was provided by Jared Rubens. You can find links to the songs we use and the open-source artists who make them at letstalkbitcoin.com/music. Check back tomorrow for the first of many bonus content releases. Were kicking things off with my interview with Erik Voorhees, the man who gave himself to bitcoin and moved to Panama to facilitate that goal. We talk the future, the past and more. I really enjoyed our talk and I think you will, too. Stay tuned. (Outro Music)