E128 Transcript


If you’re new to Bitcoin & Markets, welcome. You’re listening to the highest rated, the best fundamentals show in Bitcoin. Let’s get started.

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Question 1 – 1:40

OK, what’s to stop the miners from forking and dismissing the next halving, sticking to the current reward forever?

Thanks for the question, @CryptoCratie. This is a good one. I can tell where you are in your learning process, as everybody is in a different place, including myself. We figured this out early on in Bitcoin. Miners tried to dismiss the first halving. I think several of them continued mining 50 coins per block, and the nodes, just made their blocks invalid. So we’ve known for a long time that the nodes run the network. The miners tried to do this in the 1st place and it didn’t work out. So the same thing would happen here again. Remember, the nodes have incentive to keep the monetary policy the way it is, and they will enforce it. The miners are the producers, and the nodes are the customers. The customers are always right in a free market. So we’re always right here and there is incentivized to not accept blocks that don’t enforce the supply. OK thanks for question. Next one.

Question 2 – 3:15

From @EJPharmD, he’s a long-time listener to show, and he has a question. Is fractional reserve a concern with custodians like ICE/Bakkt?

Good question. I don’t think it is. I think that with Bitcoin, the default risk for things in Bitcoin, are exponentially higher than fiat. Like especially for these large investment banks and large commercial banks that are expanding the money supply, the ones that are fractional reserve banks. They don’t take on much risk, because the FDIC will get a lot of their, will take a lot of their risk out, and if they’re Too Big To Fail (TBTF) they just get bailed out. That’s why we see consolidation of these big banks into a handful, because they become too big to fail and their fractional reserve just gets printed over, papered over. Risk is papered over. With bitcoin that’s not the case. You can’t have paper bitcoins. Also, there’s things like I’ve talked about before, the risk of forks. With forks we will find out very quickly who has the Bitcoin. Because if in the future we have a $10 trillion market and there’s a fork that is a 10% fork again, worth 10% of the original, or even a 1% fork, you’re still talking about, what is that, $100 million fork. You’re going to find out who has those bitcoins. And the people are going to want their fork. So they will be bankrupt banks, there will be runs on these banks.

These products like with the gold ETF stuff, people compare the gold ETF with the bitcoin ETF, but one of the things with gold ETF is very few people take delivery, because it’s so damn expensive, it is prohibitively expensive to take delivery of gold, in most cases. Especially if you’re a whale, if you’re trying to take delivery of say, 500 ounces of gold, or 1000 ounces of gold, or one gold bar, it’s not prohibitively expensive. But if you’re trying to take delivery of a ton of gold, when you’re getting into the billions of dollars’ worth of gold, it’s very expensive. It’s not that way with bitcoin, right? So lots of these whales, nation-state size whales will be able to take delivery of their bitcoin. That whole limitation that plagues gold, the whole problem that makes gold too expensive to physically delivery is not there. Also, these ETFs, at least the gold ones, can have futures products as the backing. So, I think this is what XBT Provider over there on the Nasdaq in Stockholm, are “100% hedged.” That’s the verbiage they use on their website. So I think what they do is they own mostly bitcoin to back it, but then if there’s a shortfall, or there is slippage in the market, when they’re trying to back their product, they are going to take out futures instead. So that’s what they do in the gold market. They have, I think it’s rough (I don’t know, I’d actually just be pulling number out of my ass. I don’t really want to do that.), but I know that they have a sizable percentage that is backed by futures and not by the physical gold.

That becomes really problematic, because if you have naked positions in the futures market, then you’d have total fractional reserve on your ETF as well. No this one, the ETF coming up with the CBOE, though this question from EJ was specifically about Bakkt, but the CBOE ETF is supposed to be 100% backed, those risks are supposed to be negated out of the box, but we’ll see if that’s the case.

Oh, I will say this as well. Let’s say in a Bitcoin future and you are taking out a loan in bitcoin, say bitcoin is $1 million, and you take out a $1 million loan for your business. These people they give you the Bitcoin and then you hold the bitcoin in your business, but you have to have security practices how is the bitcoin stored. The default risk is still much much higher, because how many people are touching that bitcoin? What if they run off with it? So you get the loan, who has all the keys to the Kingdom for that business? What if they disappear? Or they hire somebody else to disappear with that bitcoin, or something like that? That bank that gave the loan, they are in deep trouble. So, the default risk is much higher.

I don’t know how they’re going to work that out in the future, but it’s going to be much harder to fractional reserve in that type of system. You guys can see where I’m going with that. Alright thanks for the question.

You should follow all these people on Twitter, so you can get together and troll my Twitter account. Or send questions to me, I will be soliciting more questions for future episodes, as well. But follow them. Get a conversation started. All these people are genuinely interested in learning about Bitcoin, like I am. So let’s troll each other little bit, ask some questions and get them…

Question 3 – 9:30

OK let’s see @reallife_ck, “build on the idea of altcoins being crypto inflation.”

OK, yes, another long-time listener to show. You guys are awesome. So I have this crazy idea that altcoins are inflationary, even to bitcoin, because as you look at Bitcoin, it’s this digital money and that really doesn’t make sense to lot of people. You have 21,000,000 units of Bitcoin. Yes, Bitcoin is different than those altcoins, but say I am in a gold rush, OK, I’m part of the 49ers. I go into California in 1849 and I start mining gold, some people strike gold. Then you have the people selling the pitch forks, or what are they called, the axe things with the pointy tips, those guys make all the money. But you can see that these guys, they go into the hills and some find real gold, and some find fool’s gold, right? They bring it back to the town and if you’re an unsuspecting customer you might buy a fool’s gold nugget as if it were real. As if it were real gold. So, to the to the layman, there’s all of these altcoins and they’re all the same. They’re all the same. If you ask the average altcoin investor on the street, they don’t know the difference between ripple and stellar. They don’t know what the fuck you’re talking about. Or you say, what’s the difference between Ethereum and EOS? Some of them might know some talking points, but those are just false narratives, those are the claims that they are sold. There’s really no difference. It’s just more units of things, and as this is very similar to just printing money in an inflationary type fiat system. As you start printing money, it feels really good. You stimulate the economy, people feel richer, it trickles through the economy. But people feel richer and the economy picks up. There’s more value going on, so they feel like they’re creating more value, it emphasizes different activities in the market that feel like they’re adding value because they’re just printing money. And that’s an inflationary boom. Very similar to altcoins, very similar to altcoins. It only is until that fool’s gold gets to the goldsmith and he identifies it correctly as being a rock, a gold colored rock, that the inflationary bubble bursts, because there is all of that boom that just happened, and it was bullshit. It added nothing. It just made temporary people feel richer, but in reality, was built on nothing, and so that is what I see is this altcoin bubble. We went through this huge altcoin bubble, lots of false claims, lots of selling to the layman out there, and they felt really good for a while. And now this altcoin bubble, this inflationary bubble is bursting. I hope that answers your question CK. Thank you for the question.

Question 4 – 13:00

@DNickerson80h on Twitter he asks, “Although segwit has been available for a while, how many people know how to use it?”

Well, it’s at all time high usage I think. It’s around 45% and you’ll see people like Rick Falvinge say that all the actual number of transactions is down, so 45% of the lower amount is still 20% if we had as many transactions as we did last year. That’s true, but he’s looking at it wrong, because there’s a lot more batching going on. You have to look at the number of outputs and I think that overall outputs are only slightly down. On Bitcoin, one input and 2 outputs per transaction, where your payment is going, and the change. Those are the 2 outputs. Now you might have one to 10 inputs say, I don’t know what the average is, but they have one input and you might have 20 outputs, 19 payments and one change transaction. It’s still one transaction, because a transaction is an input and an output, it’s atomic, an atomic unit, on the block chain. But you have lots of payments within that transaction. So that’s much easier. Well, it will be much easier with signature stuff, but as long as you’re using segwit addresses and things, it actually saves a lot of space to do that, to have these, to segregate the signatures off of the base block. And we’ve seen more batching.

How many people know how to use it? I think a lot. The layman doesn’t need to worry about it very much. If you have a good wallet like Samurai Wallet or Wasabi, or even if you have bitcoin core on your desktop, you have Electrum on your desktop, or you make transactions from you Trezor your Ledger, that’s all going to be very transparent to people. You don’t need to worry about how to use it. Of course, the UX and the UI of these things are going to continue to improve. I’ve seen Zap Wallet by Jack Mallers, a friend of the show and a great developer out there, he is doing great stuff with Zap Wallet, I mean he’s setting a new bar with the UI. It’s a lightning wallet, but he’s setting a new bar with it, UI-wise.

But there’s actually, wallets out there that haven’t implemented segwit yet. The big one out there is BCi, blockchain(dot)info. They are a long-time enemy of Bitcoin. They’ve taken the position against the nodes, and against the users, for basically every large, in every conflict that has happened over the last few years. BCi has always taken the side of big business and the compliant regulators, and things, so they have refused to implement segwit. This is an ongoing battle. They have lost a lot of market share, in my opinion. They say they have like 10,000,000 wallets, OK, 10,000,000 users. Coinbase has a lot more than that, but BCi, they say they have about 10,000,000, and they’re “excited for the next 10,000,000”, blah blah blah. They said that in the press before, but back in the day, I’m sure some people had 20, 50, or 100 different wallets from them, so the “10,000,000” that they have isn’t that impressive. It is still one of the larger wallets out there. There’s other wallets like that, that people use, maybe Airbits hasn’t done segwit yet and that was a fairly popular wallet. It’s just these wallets haven’t implemented segwit.

Now to use segwit is straightforward. Just create a new segwit address and send bitcoins to it. It’s not that hard to use. Plus, a lot of people don’t move their Bitcoin at all. They might not have updated their addresses yet, which they should be doing, I agree with that. They should be taking all of their bitcoin and putting them on a segwit address, that way in the future they’ll have lower fees during high network times, when there’s lots of traffic on the network. But now there’s nothing to using a segwit address versus not using segwit. Just have a good wallet to do that. Hope that answers your question.

Now there might be some people on the enterprise side, where your batching a lot of transactions, and you’re getting deep down into the nitty gritty of segwit and how to use it properly. Now that could have a learning curve to it. So, I would say that say that makes it a little bit more involved than personal segwit. I don’t know, I’m not a developer in that space, worried about that all the time, but I can see that you might have to worry. You have to manage that a little bit more, but on the individual basis it’s not hard, but I can see it might be a little bit harder on an enterprise basis.

Question 5 – 19:00

@SnuffyJoeSnuffy on Twitter he asked a question. “Can you rattle off a list of reasons that people didn’t sell the top this time, was so much different than the gox hack, but has had pretty similar results so far?”

OK interesting question. I’ve been saying that this consolidation period,… I think Mt Gox led to a bear market, I don’t think we’re in a bear market. I think we’re in a consolidation period. We’ve been in the consolidation since November. We went up and then we went down, and now we’re sideways, and so we’re in this consolidation period. It was much longer, Gox was an existential threat to Bitcoin, and there is no existential threat at this point. It’s going to be much faster, so I think that after a 75% decrease in liquid and a nearly million Bitcoin theft, you’re going to have a much longer consolidation, much longer pull back and a bear market in that in that case. Right now, I don’t know if we see $7,000 by January and we saw $10,000 by next December, that would be a win in my book. I don’t see us falling anymore. I think it’s just, I think it’s just different, and it is going to be more short-lived, as well, but we’ll have to see how that turns out. Hope that sheds some light on it, I know that wasn’t a very good answer but. Ok next one.

Question 6 – 20:45

OK this is from @matiasmatias, Arrow on Twitter, “developers incentive to work on BTC?” I guess he’s asking what is the incentive to work on BTC? “What will make the best developers choose BTC over other projects?”

Very good question. Well, here’s the thing, like let’s say I’m like this hot shot app developer and I just wasted 2 years of my life building on Ethereum. And nothing came of it. The app has 20 daily active users. LOL. Where I could’ve built an app for the App Store, a game for the App Store, a simple game and now I can put lightning network with it, very simple API type stuff, and I’m going to have instantly I’ll have at least 10,000 users, but if I just put a simple game in the App Store I would have had maybe 100,000 users. So I think there’s just more opportunity with Bitcoin. Bitcoin doesn’t try to do too much. It builds in layers, so your app doesn’t have to be on the base layer like Ethereum’s or EOS’s. You build it on layer 2 or layer 3. You as an app developer don’t have to worry about staying in consensus. App developers don’t have to worry about doing all these things. So I think that is an incentive to build on Bitcoin, because they’ve tried it for 2 years on Ethereum and it’s led to nothing.

What else? The protocol developers, I mean, this is your chance to go down in history, to get a commit merged into Bitcoin. This is your chance to go down in history. And the brightest protocol developers, they want a challenge. They don’t necessarily want the money, I mean, lot of people do, they have to eat, they want to be very comfortable in their life, and things of course. But the best developers can go anywhere and make an upper-class income. They don’t have to, but they want to because they go down in history, maybe it opens up other doors to them right, so that is an incentive in itself. Also, the challenge, finding a bug in Bitcoin is a huge challenge, and I bet a lot of top protocol developers have tried to find bugs just so they could be the ones that found the bugs. They would go down in history as finding this major bug. I think that is that is the main thing for these protocol developers. And yeah just the innovativeness of Bitcoin, is fascinating to be around. You’re around the smartest other people and it’s challenging. If you have bad intentions, if you’re a scammer, scammer developers, a scammer protocol guy/gal, you’re going to go to these altcoins, right? So you have this self-selection mechanism, because it’s important not to pay the core developers very much, because you don’t want these scammers to get in there, like Mike Hearn. Another question.

Question 7 – 24:15

OK so this is from @miguelmagalhae2. Sorry I’m going to mess up your last name, Magalhaes. I don’t know, sorry about that. Miguel, thanks for sending couple questions. Here I got one from you here. “Recently many articles were published on the cost of a 51% attack on bitcoin. The cost is high but manageable, I guess, for a government (like the US) or a bank coalition. What are your views on this? Thank you so much.”

Alright, thanks Miguel for sending this in. I think a 51% attack is more than just expensive. You have to corner the market. So, it’s more than expense. Yes, if you could calculate out what it would cost right now to double the hash rate of Bitcoin, because that would be what you would need to do to get a 51% attack. If you say that everybody now is independent, and wouldn’t join you, but let’s just say upper limit, if you had to double the hash rate you could put a dollar term on that. It’s a time frame thing, too. You have to be able to buy all those ASICs. If you are trying to corrupt the current miners, building a stealth coalition like that is very difficult. Collusion breaks down. The game theory is against you. You don’t know if you were going to do a 51% attack and these guys, some guy that has 5-10% of the hash rate, and your calculations were based on him joining, you don’t know if they’re really going to join you, because they will be incentivized to actually have good behavior, act properly. There’s the commitment problem in game theory. That is of all there, but from economic supply chain type angle, you know it’s just really hard to get the ASICs. That means it would take a couple years, at least, to get double the number of ASICs out there. Well, probably not that long, let’s say 6 months, but nobody else would be able to get a miner during that time. Everybody would see you coming a mile away. Everybody would know there’s a large buyer on the market. Very similar to when the ATF for the FBI, they bought up all the ammunition. Like a billion dollars with ammunition. You couldn’t find any ammunition in United States, at least not very much of it. So you knew there was a large buyer out there. Just this way, you wouldn’t be able to find any ASICs. Say you’re a big miner, say you already have 1% of hash rate of Bitcoin, and you’re trying to maintain your market share. You’re trying to get your new miners in, your new equipment, and you can’t because there’s some big stealthy buyer in the market. buying everything up. That would leak and we would know exactly what’s happening. If it’s an existential threat to Bitcoin, we could change the Proof of Work algorithm or make it harder somehow for them to do. I have confidence in the market that that wouldn’t be a viable attack. And we have this jurisdictional arbitrage, regulatory arbitrage, different companies, different jurisdictions, different energy sources. That’s another thing. They’d have to have access to the energy, cheap energy. If you’re trying to double the hash rate you have to have access to energy. I don’t know, there’s just so many variables, and we would see it coming so far out, that there would be a solution to that problem and it probably wouldn’t be attempted in the first place.

Question 8 – 28:15

@BitcoinStrats asked about Tether.

I’m still not worried about Tether. It’s competing against a lot of other things and then you don’t need to worry about it, as far as I’m concerned. Even if it did come to pass, that Tether’s bank accounts were frozen or something like that, it would affect the market, but not that much. I really don’t think so. I think it would still function. The OMNI protocol would still function. You could have other large whales, maybe they have a backup of some sort, for providing emergency liquidity until they can fix the banking relations. Maybe there’s all sorts of lawyers and courts that they have ready to go. They are a multibillion dollar thing, they have to have a lot of lawyers to protect them against this type of thing. So I’m not worried about Tether. I’m really not.

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