Hodl Hodl Lightning Announcement with Roman Snitko and Max Keidun

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Interview location: Skype
Interview date: Wednesday 24th April, 2019
Company: Hodl Hodl
Role: Max - CEO | Roman - CTO

In this episode for Lightning Month, I talk with Max and Roman from Hodl Hodl, where they have an announcement to make regarding Lightning and their exchange. We also discuss their new prediction market and the Honebadger conference.

TIMESTAMPS

00:02:51: Introductions
00:05:11: Background to Hodl Hodl and why they are different to other peer to peer exchanges
00:10:27: Delving into the technology which underpins the Hodl Hodl exchange
00:15:27: Discussing the use of Bitcoin and other cryptocurrencies on the exchange
00:19:29: Exploring Hodl Hodl’s policy of not implementing KYC/AML
00:23:59: Discussing the upcoming implementation of Lightning on Hodl Hodl
00:27:03: Why there will be separate offer lists for Lightning and whether the price will mirror Bitcoin
00:30:53: Touching on fees on Lightning and potential limitations of the network
00:33:10: Delving into the challenges Hodl Hodl faced when integrating Lightning
00:40:08: Discussing Hodl Hodl’s other upcoming launch; prediction markets
00:45:06: Exploring whether there will be any restrictions on these prediction markets
00:46:30: Questioning who the oracle is for these markets and analysing various situations of dispute 
00:52:50: Exploring the similarities to Augur and how these prediction markets are different
00:56:24: Discussing the upcoming Baltic Honeybadger conference that Hodl Hodl produce
00:59:47: Final comments and how to stay in touch

 

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TRANSCRIPTION

Peter McCormack: How are you guys, how is everything at Hodl Hodl?

Max Keidun: Well, we are great! We are developing interesting stuff and I think Roman can say more about what is coming on because he's a technical guy. I'm just one of the stupid business developers. Nothing special!

Roman Snitko: Okay. Yeah, I have few things to say about what's going on at Hodl Hodl right now. As you probably know, we announced predictions, which is a project that we are about to release in May, that will allow people to create prediction contracts and hedge their risks using Bitcoin. It really is described very well in the blog post that we made on Medium. We can probably provide a link for your listeners to read this post.

So I'm not going to go into details about that. But I also wanted to mention another one of the big announcements that we wanted to make on your podcast. Predictions was only one project that we were working on, one sub project. The other one that is truly, really exciting to us and hopefully to the community as well, we've been working on Lightning network integration with Hodl Hodl. We are also set to release that you in the first week of May, it's going to be our testnet version of the exchange, so people can get used to it and learn how it works.

Although there's not a lot to learn, the workflow is going to be pretty much the same, except that's we are going to have a separate offer list for Lightning and the site is going to look slightly different if you hit the switcher. There you will see all the Lightning network offers to exchange Bitcoin into fiat and back. So that's the big announcement!

Peter McCormack: All right. Well that's really cool. Look, there's loads to dig into though. Can we do a bit of a background first, because I'm obviously aware of you guys. I'm aware of your amazing conference, but I've never used Hodl Hodl as a service. It hasn't been something that I've ever required, but I am aware of it.

I've clicked around it. It just doesn't fit into my requirements. But I don't really buy or sell that much Bitcoin anyway. Can we dig into the background? Firstly, can you just tell people the background to Hodl Hodl, how it came to be and the reason you created it?

Max Keidun: The story is quite interesting. We met each other in the end of 2015, when we started work in a company which was developing Bitcoin software solutions and we've been kind of forced to use LocalBitcoins or other peer to peer exchanges at that time. Well, mostly it was LocalBitcoins. At some point we actually understood that LocalBitcoins is first of all, centrally holding the coins, although stating that they're pure peer to peer, because all trades that happens from LocalBitcoins happens within their wallets.

So literally you need to find your wallet on LocalBitcoins and then you can trade in a peer to peer manner with other people. So they were storing Bitcoins, possessing Bitcoins, yet they weren't doing any KYC/AML. So we thought that at some point they will start doing this because there's no difference between them and any other centralized exchange and this year they have started to imply KYC/AML on their clients.

The second important part was that it was a bit difficult to be honest in terms of user experience, because we both had unpleasant first experience with LocalBitcoins. Roman almost lost his money during the first trade and I spent five or six hours to actually understand the workflow of LocalBitcoins. Although for a person who is entering the website and willing to buy his first Bitcoin, it's even more complicated, because I had some background at least.

So we came up with the idea of creating non-custodial, easy to use exchange, which will not employ KYC/AML, which is Hodl Hodl. What I usually say, is that we're not trying to say that LocalBitcoins are bad and something like that. No, they're great because literally guys created peer to peer market, which wasn't there before LocalBitcoins.

But at some point we're going to assume that they are a bit complicated, unsecured and there will be consequences in that they will imply KYC/AML at some point. Now maybe Roman can continue and say how the trades are happening on Hodl Hodl and what's the difference.

Roman Snitko: So we try to stay as close to LocalBitcoins as possible in terms of the workflow, but at the same time improve the UI. I understand like anybody can say, "our UI is better", but it is! The traders on our exchange always tell us, "yeah guys, you were easier to use than LocalBitcoins", which is great! But I think one of the most important features as Max mentioned is that we do not store Bitcoins in our own wallet.

It's locked in multisig escrow, two out of three keys are required to unlock funds from escrow and we also don't have KYC/AML because we are not a money transmitter. We rightly assumed back then, that at some point all peer to peer exchanges that store Bitcoins, like LocalBitcoins are going to implement KYC/AML and that's exactly what they did.

Also, we rightfully assumed that we would be much safer in not holding the Bitcoins in our own wallet because, we are less susceptible to being hacked and also we are much less of a honeypot for potential hackers who want to steal the Bitcoins. Just recently LocalBitcoins was hacked. Luckily not a lot of people lost their money, in fact, maybe five users I think were compromised. But still it's an interesting incident that just shows how inherently insecure centralized exchanges are.

Peter McCormack: So when an exchange is created, where are the coins held?

Roman Snitko: They are locked in multisig escrow. It's a special P2SH Bitcoin address and to unlock funds, to unlock Bitcoins from this address, you need two out of three keys. One key belongs to the seller, the other key belongs to the buyer. The third key belongs to Hodl Hodl.

So in case of a dispute, we are able to resolve the dispute and send money to either the buyer or the seller. But the Bitcoins are not in our wallet. We generate this multisig address based on the private keys that are also generated on the front end side for both buyer and the seller in the browser and we do not not store their private keys at all. So we're not able to send Bitcoins anywhere without the permission of either buyer or seller.

Max Keidun: Yeah and what's important is to mention that because some people, they're less sophisticated and they know a bit less. The important thing is to mention that we generate this multisig address on the public Bitcoin Blockchain. So literally, we don't do that within our storage or wallets, we don't have that.

We generate it on the public Bitcoin Blockchain during the trade. You can easily use any Blockchain explorer to see that it was uniquely generated for a specific trade. You can see the cash flow, you can see the incoming transaction on the escrow and you can see the outgoing transaction on this escrow. So literally we just provide technical solutions for traders.

Peter McCormack: So really it's a reputation based system then?

Max Keidun: Yes, we have a reputation system, we have a rating system, we have a score system. So it's literally the same. You don't need to create a bicycle here and figure out some mumbo jumbo. It's similar to what other peer to peer exchanges have. So you have feedback, you have a rating, you have etc.

Roman Snitko: Also one important thing to mention, you can actually import your reputation from both LocalBitcoin and Paxful if you have reputation there, but you don't have it on Hodl Hodl, it's easy to transfer it to Hodl Hodl.

Max Keidun: Yeah, at some point we understood that we are quite young and we thought we should allow people to import their history from LocalBitcoins, from Paxful, to our website so that other traders can see that they're reputable and good traders.

Roman Snitko: Just to a small correction. It's not importing history.

Max Keidun: Yeah it's just linking the accounts on LocalBitcoins and Paxful with Hodl Hodl so you can just check it out and see and understand that this account belongs to a real person who had a history of trades on any other peer to peer exchange.

Peter McCormack: Are there any limits on the size of the trades you can do when you first sign up?

Max Keidun: Yeah, we have a limit actually, we have a limit level. Why we do that is because again, you don't have any reputation, you don't have any ratings, you are new to our website, you are new to our platform, you are new to our customers. So we don't want anyone to scam our traders. So there are limits, there are levels. I think the first, you cannot go bigger than 0.5 BTC, so you can buy and sell 0.5 BTC for first couple of trades.

If you finish successfully those trades, then we raise the limits. Also, you can pass the KYC/AML verification, but it's an optional thing. We don't request that. If you will pass KYC/AML on our platform, then we will raise limits significantly. Why we do that because we will understand who you are and in case of a dispute, it will be way more easier for us to solve it.

Roman Snitko: But just to sort of elaborate on that. The limits are not actually connected to KYC/AML. KYC/AML is not required to raise your limits. What is required is a successful history of well executed trades and then you can raise your limit and trade more Bitcoins.

Peter McCormack: Okay, that makes sense! So also you guys are Bitcoiners right?

Roman Snitko: Yeah.

Max Keidun: Yeah.

Peter McCormack: It's a Bitcoin exchange, despite saying it's a cryptocurrency exchange. It's a Bitcoin exchange, but you do allow people to buy in any currency, therefore you accept any cryptocurrency as well. Was that a tough decision?

Max Keidun: Oh, well actually you can use any cryptocurrency as a payment method. The same way you would use a bank, the same way you use any payment systems. So we don't process... The only crypto that we have technical solution for is Bitcoin. So basically any pair that you trade is always versus Bitcoin, whether you sell or whether you bought. So for us, cryptocurrency on our exchange, cryptocurrency is just a payment method. We don't work with any other alt coins.

Roman Snitko: In fact we don't have any technical solution implemented... We had Litecoin, which we actually removed because it was a lot of technical depth. We didn't want to bother supporting that. So now we only have Bitcoin as a coin that's clearly integrated into the exchange. Everything else is a payment method. Just like you can add and create an offer for Euros or Dollars or Pesos or whatever currency it is, you can add a cryptocurrency and exchange it into Bitcoins. But we do not natively support any of the alt coins.

Peter McCormack: Yeah, no, that's what I mean. You're a Bitcoin exchange, but you do allow the facilitation of payment with anything. You don't have any kind of maximalist view that you can't buy Bitcoin on your exchange with Monero or Litecoin. You're agnostic with how people choose to pay.

Max Keidun: Well, I think it's still symbolism because, well, spend your shit coins and buy Bitcoin. If we can help you with that, we will happily do that! What's the problem?

Peter McCormack: Well, has anybody ever actually given you any stick back for that?

Max Keidun: Well, we had some trolls on Twitter that were saying like, "well, now you're a shit coin exchange", and we've just explained to them, because the problem with people for who are sometimes saying something that we don't like, is usually that they don't do their own research. So he saw that we are like, for example, we have this crypto to crypto Wednesday, when we are adding the liquidity for crypto to crypto offer lists.

So basically, we promote this through the traders that trade Bitcoin for Monero or for Litecoin offer any other alt coin that exists out there. Someone actually saw that and he mentioned, "well Hodl Hodl suddenly became shit coin exchange instead of being true and purely Bitcoin exchange." Well do the research. Bitcoin is still the base currency for us and we won't add any other technical solutions for any other cryptocurrency. Why we won't do that? Not only because we are like ideology... It's on the contrary with our ideas, something like that.

Now it's also the security threats. It's also the security risk because we saw that, for example with Binance. If you add any extra shit coins, it's basically the security threat. It's a risk because you don't know or you know, it's not so good [Inaudible 19:19]. So it's easier, it's better and in terms of liquidity, it's way more profitable to work with Bitcoin.

Peter McCormack: Okay. So let me talk to you about the KYC. You've explained why it's not required because you don't hold the Bitcoin. But I still expect you've come under some pressures because you are still facilitating the trade?

Roman Snitko: I'm just going to say a few words before Max continues that. I would expect Bitmex to come under a lot more pressure first. I mean they're actually holding Bitcoins, their volumes are just insane and they don't do any KYC/AML at all. So let's look at Bitmex first and then we'll talk about the pressure that we are about to experience! I don't know, maybe Max can add something.

Max Keidun: Yeah, we always have a plan B for any case and we have plan B as well for that. We won't disclose it because if we will disclose it then there's no plan basically. But yeah, we're not facilitating, we're not processing any coins. Why should we do KYC/AML?

Because we're just providing technical solution. Even if we will be pushed, then there's always an option, there are always ways to avoid this. Also, as Roman mentioned, there's even bigger exchanges with bigger volumes, that they're holding centrally Bitcoins and we think that you should focus on them, not on us.

Peter McCormack: Oh, well listen, I think it's relevant to them all. I'm not asking you the question, ignoring those. I'm asking you the question because it's still relevant to your business if you come under pressure. It's still relevant.

Max Keidun: Yeah, of course. But we're not pushed at the moment. We don't have any problems with that. If we will be pushed, if we will be forced, if there will be regulators that are willing to do something with Hodl Hodl, we will think about it. For example, we don't offer our services in US. Why specifically? Because we don't do KYC/AML and we don't want to deal with Security Exchange Commission or something like that. That's a threat for us, that's a legal threat for us.

Roman Snitko: In general, there are countries that have a lot more regulatory pressure and the US, for example, is very adamant. Most exchanges avoid the US and I think it's a good call for them. If we see regulatory pressure increased in other countries, we will also consider withdrawing from them or providing an alternative solution that does not break any laws in that particular country.

But I think, regulatory question is a very tricky one for any Bitcoin business and nobody has any straight answers to that and everybody wants to stay legal and continue working. That's what we're trying to do. We do not want to compromise our priorities and ideals in terms of not requiring KYC/AML and not storing the Bitcoins. We also don't want to facilitate any illegal activity. So we're just going to try to navigate this in the best way possible.

Peter McCormack: Yeah, but it's a key principle of yours. You don't want KYC? You don't KYC/AML, you guys are big fans of privacy!

Max Keidun: It's not a question of helping illegal stuff. It's a question of keeping your privacy and your data with yourself. So it's simple. We look at this not how banks or regulators look at this. They look at this like, "you're facilitating some bad things", well you can check it out the amount of money laundering happening through the banks each year. It's like trillions, gazillions of money and yet they pay some penalties and they continue their work. So you should fix your own system before you come to fix our system! Something like that.

Peter McCormack: Alright well listen. You mentioned before you've got quite a big announcement. You are going to be allowing people to use Lightning on Hodl Hodl. So that was quite a big deal because Lightning is still early. As you know, I'm doing a Lightning month. I'm interviewing lots of people. I'm learning a lot about it myself and the more I learn about it, the more I realize how early we are. But you still said, "fuck it, let's go for it. Let's include Lightning on Hodl Hodl." So can you explain exactly how you're implementing Lightning?

Roman Snitko: So I'm going to start with why we wanted to implement lighting on Hodl Hodl. One of the reasons is we realized that transaction fees are at some point going to go up again and they did. This is going to be an ongoing battle and people don't want to pay high fees for low volume transactions. The consumer market is therefore low volume transactions.

If you want to purchase $100 of Bitcoin, I mean you probably don't want to pay $5 in fees, which is what it is right now. The situation is even worse because we are require two transactions. One transaction is to lock Bitcoins in escrow and then the other one is to unlock them from escrow and send the coins to the buyer. That incurs double fees essentially, which is not ideal in a high fee market. So we looked at different solutions.

One of them was not Lightning. One of them was kind of an internal thing that we wanted to implement. But eventually we realized, "okay, here's a very interesting technology. It's very new and untested", but we wanted to explore it with everyone else, because everyone's exploring Lightning. But we also realized we needed to provide... In order for Lightning to succeed, it needs some liquidity. Right now there's almost none. You cannot exchange Lightning into fiat at all, to my knowledge at least.

We wanted to be the first peer to peer exchange that would provide that functionality and I think those are the reasons we're doing that. In terms of implementation, it's pretty standard. We probably are going to have another blog post describing exactly how it works. But we are using standard tools and standard software that is currently more or less stable for Lightning. Like I said, we are exploring Lightning along with everybody else in the community.

But I also wanted to mention one thing about what Lightning will look like on our exchange. So as I mentioned before, we're going to have separately offer lists for Lightning network contracts or offers and on-chain Bitcoin offers. The reason for that is because we realized that for a peer to peer exchange, Lightning network is kind of like an alt coin. It's not exactly like an alt coin and I know it's not a very popular point of view.

Peter McCormack: People won't like that.

Roman Snitko: Yeah, people might not like that. But like I said, we are exploring Lightning and ultimately the market is going to decide. What we're going to see, we're going to see whether the price for Lightning network offers, is going to be the same as for on-chain Bitcoin offers. If it is going to be the same, then clearly there is no difference and Lightning isn't an alt coin.

But if we see some deviation, then that means it is there because of the friction involved in getting money, getting Bitcoins out of the Lightning network and on-chain. I think there will be some deviation at least initially until there's enough liquidity on other exchanges as well. Then maybe we get to a point where Lightning is, in terms of price, pretty much the same as Bitcoin.

But that only is going to happen when day trading centralized exchanges are going to allow Lightning deposits. What we're trying to solve right now is the initial liquidity problem. We want people to be able to trade on Lightning network because there's a lot of demand for low volume transactions and contracts.

Peter McCormack: Yes, it's really interesting you said that about Lightning feeling like a alt coin because I know it's not a popular thing to say, but it kind of does. It kind of does feel like an alt coin pegged to the Bitcoin price, because of the fact that it isn't a smooth transition in and out of Lightning.

So, for example, one of the wallets I was playing with is BlueWallet. I have my SegWit wallet and I have my Lightning wallet. The way you move in and out and move from essentially a Bitcoin price with a decimal to then a Lightning price, which is in sats, it definitely does feel like an alt coin. I know that's really unpopular, but I understand what you're saying.

Roman Snitko: But also it's very easy to prove. Go talk to any trader on LocalBitcoins or Hodl Hodl or any other peer to peer exchange and try to sell him Lightning network Bitcoins. I bet you, right now, the price is going to be different and also very different for the Lightning network coins. That's just the reality because there is definitely a friction in getting Bitcoins out of the Lightning network and on-chain and that requires a premium.

Peter McCormack: Which is kind of counter productive for something that's meant to be about low fees!

Roman Snitko: Yeah, but also I think that is going to change. Like I said, when the liquidity is there, when more and more exchanges implement Lightning and allow Lightning deposits, this premium is going to disappear, hopefully. But it will be very hard to predict really. I think Lightning is exciting.

It's a very interesting technology, low fees in terms of regular consumer transactions. But yeah, we're just going to have to trust the market and see what happens to it, because unless everybody is excited about the technology... But we really, really need brutally honest market to decide what it is and how it's going to work in the real world.

Peter McCormack: Also, there has been a bit of pushback with people saying that Lightning isn't necessarily just about low fees, because the fees on the Lightning network actually are tied to the fees on the base chain. So there is a possibility that if you aren't using Lightning in the most optimum way, you can end up paying more in fees.

Roman Snitko: I'm not sure I can comment on that. I haven't seen these discussions. I'm going to leave it at that! Not sure.

Peter McCormack: Well, there's two kinds of things there. So firstly, the way that fees are charged on Lightning is different from on the base chain.

Roman Snitko: Sure.

Peter McCormack: So on the base chain it's on sats, but on the Lightning network is more of a proportional fee. So at certain sized transfers, it's actually cheaper on the base chain. But also if you open and close a channel and make a single Lightning payment on it, you're actually going to pay higher fees because there's two on-chain fees.

Roman Snitko: Yeah absolutely and that's not what we expect people to do really. That's kind of the point. You open a channel and then you keep it. So hopefully nobody would be that foolish to open a Lightning channel just to make one transaction on the Lightning network. But yeah, I think in terms of the fees, the market is going to balance itself, I think Lightning is definitely going to be cheaper.

But yeah, we're just going to see. Like I said, for us, Lightning is not like, it's not the only bet that we're making as a company. It's interesting, it's promising and I hope that it will find its place in the Bitcoin ecosystem. That's why we're working on it and dedicating lots of resources to it. But we're about to see what's going to happen.

Peter McCormack: Yeah, I do like the sound of that being on Hodl Hodl and actually that's probably something I would use over the Bitcoin exchange itself because I have got Lightning network Satoshis and I haven't actually ever converted them back to my Bitcoin wallet yet. So I'd be interested to try that out. When's it going to be available?

Roman Snitko: So on testnet we are releasing Lightning network the first week of May and then it all depends on how well the testing goes. Hopefully May, it's going to be live on production. That is mainnet.

Peter McCormack: That's exciting. So what are the challenges you faced integrating Lightning into Hodl Hodl?

Roman Snitko: I think the main challenge is that nobody really knew, at least at our company, how it works. Luckily we had connections with Lightning developers and different companies, they were very helpful. Specifically Lightning Labs and Elizabeth Stark, they were very helpful and our developers were able to figure it out. Yeah, that's the main challenge, implementing something that nobody really knows how to work with and all sorts of problems associated with that!

Max Keidun: In terms of business development, at the moment there is no difficulty in implementing Lightning. Even more in terms for business development, I was cheering from the beginning, we should do that, we should implement, because eventually we will become the first peer to peer exchange that actually, not only allows you to front the balances with the Lightning, but you will be able to do the trades through the Lightning channels.

So literally we will give you an opportunity to trade through the Lightning network, if I may say so. To trade, not only using atomic swaps, something like that to other crypto. No, you will be able to trade into fiat and back and forth.

Peter McCormack: How do you handle the multisig two or three with Lightning?

Roman Snitko: There's no multisig on Lightning.

Peter McCormack: Of course.

Roman Snitko: We figured that we're just going to start in the most simple way possible. That is we have our own Lightning Daemon running and our own channel opens and the funds go through us. But of course it's still not exactly as holding lots of funds in your own wallet because they're only there for the lifetime of the contract. As soon as the contract is completed, the funds go to the buyer. So it's still better than actually holding funds in your own wallet.

Although I would admit that it is slightly less secure than, than our current on-chain implementation of multisig contracts. The other thing, sort of on the same note here, you asked about the challenges. What I'm slightly worried about is whenever you introduce a new stack into your existing stack of technologies and Lightning network and all the software that we need to run on our servers, is something new and untested and I'm worried about the potential vulnerabilities in adding additional angles of attack.

The same way as, I would be worried about and another alt coin being added to our exchange. It just increases the attack surface and the problem with Lightning is that we haven't had major accidents with it and I think at some point Lightning will have its stress test and I hope we will be well prepared for that.

Peter McCormack: Okay. So before you said about not having KYC because you're not actually holding the funds, you just create a two or three multisig of which you hold a single key. But in this instance with Lightning you are holding the funds?

Roman Snitko: For a very short amount of time, first of all. Also like I said, we are going to track the regulatory demands and all the laws associated with it. Right now we do not foresee any problem. If something comes along, we're just going to take it, step by step and figure it out. I think Lightning as a technology, it is supposed to be more private and even if we introduced KYC/AML, which we definitely will not, I think the point of the technology itself, will just diminish the value that the regulators would get from any kind of information.

Also one important thing I wanted to mention, right now Hodl Hodl is in compliance with the European privacy law. Max, can maybe remind me what it's called, GDPR or something like that, which requires all websites to securely store user data. For us, in our case, we only store email and password for the users. So we don't really store any other additional information.

No phone numbers, nothing else. Introducing KYC/AML may actually incure so many additional expenses and may actually break that law, which we don't want to do. So I think right now we are in full compliance with that law and all the other laws. If regulatory pressure increases in some jurisdictions., well we're going to have to look at that and come up with a solution.

Peter McCormack: All right, well that sounds pretty cool. I'm really looking forward to seeing it actually. I want to have a play with it. I want to see what it's like because I think it sounds super interesting and the fact that you're the first to do this, I think is pretty cool. It might actually end up being a good way to buy liquidity in Lightning?

Roman Snitko: Absolutely.

Max Keidun: As you said, it's still early technology but you need to promote it and you need to develop it. So we hope that this will be one of the, hopefully major steps for Lightning evolution or development in future because we really liked the idea and hopefully on the practice it will be even better.

Peter McCormack: Okay. When are you going to be announcing this publicly?

Max Keidun: Right now, we are announcing it publicly!

Peter McCormack: Is my episode going to be the public announcement?

Max Keidun: Yeah. Your episode will be the first public announcement. Then we will make blog posts, then we will make a lot of stuff. Yes, so you are the first mover, you have the first mover advantage Peter!

Peter McCormack: Oh, awesome. Well there are a couple of other things I want to talk to you about though, while I've got your here. So let's talk about prediction markets because you mentioned that as well. You're releasing that in May. Can you explain how this is going to work?

Roman Snitko: Sure. So we are releasing this prediction market in May as you said. The point is to allow people to create contracts that claim that certain events are going to happen and then lock Bitcoins in escrow and wait for a counter party to do the same. Then when the settlement date arrives, both parties either agree on the outcome and then one party gets paid and the other one loses the funds that were locked in escrow, in favour of the winning party.

Or if there's a dispute, then Hodl Hodl having the third key, would interfere and will look at the outcome of the events. I think, it kind of sounds really ambiguous and maybe it's actually a better idea to read the blog post. But one example I like to give to people is imagine you are a Mt Gox creditor and you are hoping to get your funds back from Mt Gox by the end of the year. But that might not necessarily happen due to all the legal complications and the bankruptcy process that is ongoing.

So you would like to maybe create a contract to hedge this risk of not getting your money back from Mt Gox and so you create an offer saying, "I think that Mt Gox will not return funds to all the creditors by the end of the year and I would like to lock 1 Bitcoin in escrow. I expect the counterparty to say the opposite, to claim the opposite and lock 5 Bitcoins in escrow. So the odds are five to one." If Mt Gox returns money, you're happy, you got the money.

You lost this 1 Bitcoin in favour of the winner, but you hopefully get a lot more Bitcoins back. But if there are complications and nobody gets their money back from Mt Gox, then you at least have some more money to wait on it longer. So that's one of the examples that I think would be very valuable as a use case for many people. You don't have to have a vivid imagination to come up with hundreds and hundreds of other examples that are very similar.

Max Keidun: For example, Peter, you think that Liverpool will win with Chelsea and I think that Chelsea will win, so I'm putting 0.5 Bitcoin in that contract and you're putting 0.5 in and we'll see who wins!

Peter McCormack: I think that's a good deal. I would take that bet!

Roman Snitko: We intentionally don't use the word "bet" and the reason for that is because we truly believe that the instrument that we're building is not betting, it's not gambling. Gambling is all about instant gratification and impulsive decisions, compulsive decisions, which we would like our users to avoid. In fact, what we are building is something that allows you to hedge your risks to be responsible because it's all on-chain, at least for now.

We are planning to integrate Lightning into that. But the point is, I think there's nothing like it out there. I think Bitcoin can be used for so many more things using smart contracts, two out of three multisig or some other combination and that's just one use case; prediction contracts. These can be employed for many business cases out there, where banks would charge a very high commission or it wouldn't be possible at all, because one counter party is let's say, in China and the other counterparty is in South Africa for example.

It's really hard to do that. So I think to sum this up, we are building this new instrument, new financial instrument that hopefully will be very, very useful to not just Bitcoin users or the crypto community as a whole, but also to all sorts of businesses that do not necessarily employ Bitcoin at this point, but who might consider doing this.

Peter McCormack: Okay. So you're obviously going to have restrictions on the kind of markets that people can create. You've said that they can't contain anything illegal and the conditions cannot be ambiguous. Are you post reviewing these or does it require some kind of pre-approval of a market that is created?

Max Keidun: We will have a pre-moderation and [Inaudible 45:28], so we will see how the market reacts. We already have a preliminary feeling and the reaction and amount of requests to use this, is really high. We've been surprised by the community that people are really expecting this. But in time we will definitely create some additional categories.

For example, you want to create offer in cryptocurrency, you are saying that the price of Bitcoin will increase to $10,000 by the end of May and you will go to the cryptocurrency a section. We will create a section on stocks, commodities, I don't know, ETFs, whatever. So I think we will divide at some point, but now we just have one offer list, so we will see how the market reacts.

Peter McCormack: Who is the Oracle in these prediction markets?

Roman Snitko: Well, there's always this question, "who's the Oracle?" We don't have an oracle. The idea is that come settlement date, both parties agree on the outcome. If they don't, although it is in their best interest because they want continuous business, they want to continue trading on the platform.

But let's say they're not agreeing. Well we have the third key and we're just going to look at it, but I cannot answer this question of yours, "who's the oracle" by saying Hodl Hodl is the oracle, because it's not true. We are not an oracle in this case and it's going to depend on how well the users and counterparties can agree on the outcome.

Our expectation is that in most cases they are incentivized to agree, because what happens if they don't agree? Well, we interfere and obviously because all offers are pre-moderated and conditions are unambiguous, then it will be very easy for us to determine the outcome.

Peter McCormack: But I guess in the instance of a dispute, you do perform the role of an oracle?

Max Keidun: Well we perform the role of a holder of the third key and of course, quite early we decide on this dispute because we have the opportunity to allocate funds, whether to one side or to another side. But as Roman mentioned, we're trying to build systems, where users decide between them and there's no incentive for them to break the rules.

Because if you created an offer way where you say that, "I believe that on 31st of May, 2019, the price of Bitcoin at 5pm GMT on the Kraken exchange will be more than €7,000," then it's kind of difficult to dispute this because you have the precise exchange, precise time, precise dates and precise asset, on which you are creating this offer. So it's kind of stupid to say that I don't agree and I want to release coins from escrow. Well it's dumb!

Peter McCormack: Yeah. I guess there's going to be weird scenarios. So for example, I don't know, say there was a prediction market created on the outcome of some kind of political vote and then during that process the vote got cancelled or one of the people running dies or something happen that means the vote doesn't happen or the vote has to end. That's the kind of weird scenario where you may have some kind of dispute to deal with.

Roman Snitko: Yes, of course. In that case, we would rule to return deposits to both users, most likely. So an example of that, we wouldn't allow a contract that is not binary. When I say that "Trump is going to win the 2020 election" and you say that, "Hillary, if she runs again, is going to win the election." Then a third party candidate wins the election.

This kind of contract will not be allowed. But what will be allowed is to say, "I think that Trump wins 2020 election" and the other person says he won't. But of course, if he's for example impeached and he cannot run anymore, then it's an obvious situation where there's a draw and we just need to return the funds locked in escrow, to each counterparty.

Peter McCormack: Or like in the election with Bush where there was a legal dispute. If that would of dragged on, that would have been a confusing situation that you would have to deal with, maybe extend the time limit. I guess you won't really know until it's out there in the wild that there's going to be certain scenarios that you can't predict for, that are just going to happen. That's where I guess you'll learn from.

Roman Snitko: Yeah, absolutely. Also, one thing to mention is that a dispute is not necessarily... Well, a situation where there's a potential dispute is not necessarily an actual dispute where users don't agree. The Trump example that I gave you, both users can reasonably agree that, "hey, you know what, it's fair that we get our money back and nobody loses anything." I think that's very likely and in that case, Hodl Hodl wouldn't even need to use it's third key.

Max Keidun: Yeah. As for me, I actually discussed this internally and I was insisting, and maybe at some point we will return to that, that we should actually focus on price of assets, something like that. So where are you have facts and figures and there's no other options. So you have a price of Bitcoin at a certain point, on a certain exchange that's it!

Or you have a price of crude oil or you have a price of gold ETF, whatever. So maybe at some point if we will see that there's a lot of disputes coming in, then we will just allow only certain options and creating offers only in certain categories like economic or digital assets or stocks and whatever.

Roman Snitko: So I wouldn't go as far to say that, but where Max is definitely right, is that we are going to have certain templates. So people don't need to fill manually like, "the price of Bitcoin is going to be this and that, on this exchange, at that time." They would just select a template and quickly fill in the fields, with time and price and that'll be it. So they know that this contract is pre-approved by the moderator, because you used a template.

Peter McCormack: It seems like you've come up with a much preferable model than Augur has?

Roman Snitko: We'd like to think that!

Max Keidun: Yeah, we are much more preferable, I believe because we use Bitcoin, that's the first one.

Peter McCormack: Of course.

Max Keidun: So we don't have that much security risks, that's the first one. Another one is that we are not trying to decentralize oracles, we're not trying to become become decentralized. No, we have basically semi-decentralized or it's non-custodial prediction platform, because we still believe that at some point there is need for centralized decision maker, the person who will come in and will say, "okay the price was above €7,000, you are trying to cheat, the other guy gets the money." That's it.

Peter McCormack: Sounds pretty cool! So have you got a launch date for this?

Roman Snitko: Probably going to be May as well. So we're launching two things in May, that is Lightning network and predictions. So already in private internal testing and first we are going to release a public testnet version of predictions and then it's going to go to the mainnet.

Peter McCormack: Are you insane launching both in one month?!

Roman Snitko: Insane?

Peter McCormack: You could have easily done one in May and one in June and just get one out and you're like "no, we're going to do two of our biggest ever product launches, both in the same month!"

Max Keidun: Well there's a third product launch that will be happening some time later! Not in May because we want to integrate Lightning into predictions platform. So basically you will be able to create small offers for $5 or €5, whatever and maybe you will create an offer on the football game, like Chelsea vs Liverpool or whatever.

So yeah, that's the third actually thing that will happen at some point. So we will have June or July for that, so it's no worries! We have like a lot of interesting things coming out on our roadmap. But yeah, why should we wait? We have amazing products coming in, so let's release them.

Peter McCormack: Amazing.

Roman Snitko: Also this market, this industry moves really fast and there was no choice really. We have to do something and develop products that people actually want, that's the only way to survive and that's what we're trying to do. Trying to provide an amazing service to our customers and do it as fast as possible, but also as securely as possible.

To be honest, we've been working on predictions and Lightning since December, so it's not like we've been rushing these products to the market. It's been a while, we're testing, we're going to do a round of penetration testing on both things before we launch it. So yeah, it's a long process and hopefully we are very, very close to the release of both products.

Peter McCormack: If you're not insane enough, you are also pulling together another amazing conference?

Max Keidun: Yes!

Peter McCormack: So that's the last thing I want to ask you about, because I'm going to be obviously attending this year. I'm very excited about it. I didn't get to go last year. I couldn't go because I had my kids and I ended up watching the entire livestream and annotating it and posting it up on Twitter, I don't know if you ever saw that. I thought the event was amazing and I'm really excited to go. But just tell us about the event, why you pulled it together, why are you going to carry on doing it and any different plans this year and how it would be different from last year?

Max Keidun: I doubt that it will be any different. We will use the same place, we will just have a bigger space and we will have some more one on one panels. We will actually have more panels than stand-alone presentations. Hopefully there will be a panel, which Roman wants to have is "unpopular opinion", where the people will discuss some controversy within the community or within crypto.

Peter McCormack: I'm good at those!

Roman Snitko: Well, Panda is moderating that one. He wanted to do that one!

Max Keidun: How we came up with the idea? Well, actually, it was 2017 and we were a bit disappointed with all the ICO shit shows and mumbo jumbo that was happening at that time. A lot of people were thinking that the crypto and our industry, everything is about making fast money, with white papers and beautiful advisors on your webpage.

So at some point we decided we should create an educational event for true Bitcoiners. Some may say that that is a maximalist conference. Well, let's think about it as maximalist and actually if you see Hodl Hodl Honeybadger, I think it was maybe the first conference that were 100% focused on Bitcoin and now we see that there's a lot of conferences coming this year that are focusing on Bitcoin as well. They are speaking only about Bitcoin, there's no other alt coins to discuss or something like that.

So we tend to think that we're trend setters in that case! So also it was part of our giveaway to the community. So we just wanted to thank the community, because we strongly believe and these are not just words, that the community within crypto is amazing and actually these recent cases and Twitter storms around, for example, Hodlonaut, prove that the community is amazing.

Peter McCormack: Yeah, I completely agree. Well, listen, I'm really excited to go to the event. I'm excited to try out your prediction markets. I'm excited to play with Lightning as a peer to peer exchange. You've got loads of cool stuff there, I think it's amazing. So also can I just say thank you for wanting to exclusively reveal that on my podcast! I think that was really cool. So to close out, if people want to keep an eye on what you're doing, how do they do that? How do they get in touch with you? Who do you want to hear from? The mic is open to you!

Max Keidun: Well we use Twitter. 99% of our communication through is there. It's simple @hodlhodl. I have my own personal Twitter as well, @keidunm. Roman has his own, @romansnitko. We also have a Telegram group which is quite big for Hodl Hodl and for Baltic Honeybadger, where people discuss things that are related to exchange or things that are related to conference.

For all the conference attendees, I would strongly suggest to join that group because people are discussing some stuff out there. They're planning some activities. We have people who are offering their tours in Riga or in Latvia, people who are offering accommodation, people who are joining groups and going to restaurants or whatever. So just join that group and you will enjoy our conference even more.

Roman Snitko: I just want to mention one thing about Hodl Hodl specifically. A lot of people on Twitter and on Telegram, they say that, "hey, I just signed up on the exchange and there are no offers in my country or my city" and they're sort of complaining that there's no liquidity in their particular country or region.

The message I would like to communicate to everybody who is trying to buy or sell Bitcoins using Hodl Hodl. If you don't see any offers, it doesn't hurt to create one. It doesn't cost you anything. You create an offer and then when somebody else sees that offer, they will be able to react and create a contract based on your offer.

In fact, if you create your offer, you have an upper hand in terms of price and you can maybe have a small premium and somebody would be happy to buy or sell using your offer. So it was just a message to all of your listeners, who are reluctant to try Hodl Hodl, but are still curious about it.

Peter McCormack: All right guys, amazing interview. The stuff you're doing is incredible. I love it. It's brilliant. I'm not close enough to your products, so I think over the next month I will be! Are you going to be out in New York?

Max Keidun: No we're not going to New York, but we are going to the Bitcoin conference in San Francisco in June.

Peter McCormack: Great, well we can grab a beer then. Thank you for coming on. Great to talk to you and looking forward to meeting you in person.

Max Keidun: Thanks Peter!

Roman Snitko: Cheers!

PodcastPeter McCormackComment