WBD176 Audio Transcription

Trace Mayer on Proof of Keys

Interview date: Tuesday 26th November 2019

Note: the following is a transcription of my interview with Tracey Mayer, from Premier Ark LLC. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I talk to Trace about his Proof of Keys campaign, exchange hackings, claiming your monetary sovereignty and stress testing custodians.

“That’s another thing I think is very important… bringing financial discipline and order to people. It changes time preference; it changes cultures; it changes values.”

— Trace Mayer

Interview Transcription

Trace Mayer: This is Trace Mayer and you're listening to the What Bitcoin Did podcast with Peter McCormack. This is a public service announcement about the annual celebration of Proof of Keys. Peter's a big fan of Proof of Keys and it's where the entire community withdrawals all their Bitcoins to addresses where they hold the private keys and run a full node.

Because Peter participated in the 2019 Proof of Keys, he secured half a Bitcoin that would have been lost in Cryptopia. So visit Proof of Keys to learn more about why and how you should participate and please make a small change to your Twitter handle to show your support, thanks!

Peter McCormack: Trace, how about you?

Trace Mayer: Wonderful Peter, how are you doing today?

Peter McCormack: Doing very well! This is third time in very short succession and your fourth appearance that's going to put you right up there now. Nobody's had a fifth appearance. We've had I think three or four appearances on the show, so I appreciate your time. We're doing Proof of Keys 2.

Trace Mayer: Yeah, thanks so much for having me! It was a lot of fun eating a bunch of steak in Wyoming, so I guess if you hang out in the same spot, you're able to get a lot of interviews done, right?

Peter McCormack: Yeah, but Proof of Keys too man! Proof of Keys a whole year. I can't believe it's been a whole year and I owe you. Everyone else knows this by the time they hear it. But I actually owe you a thanks from last Proof of Keys and actually the timing of it was really, really interesting because I went around all my old exchanges, I only have Bitcoin now, but I went and had all my old exchanges, even the ones with the shit coins on them and on Cryptopia, I found half a Bitcoin.

I was that negligent that I found half a Bitcoin on Cryptopia, which I transferred out and I wouldn't have found that without Proof of Keys. Then what was it? I think later late year, I think it was February that Cryptopia were hacked and then went into liquidation and then bankruptcy.

Trace Mayer: Right! So yeah, last year, Proof of Keys the intent is not to bankrupt a bunch of exchanges because the exchanges should be fully reserved. So Proof of Keys should be a non-issue to them if they actually have the Bitcoins. But I did find it very interesting that last year we had QuadrigaCX and Cryptopia both fail completely. Hundreds and hundreds of millions of dollars lost with customers and it sounds like you narrowly avoided becoming one of the casualties.

Peter McCormack: Well, I wouldn't have known I was a casualty either. That's the interesting thing because I didn't know I had the half a Bitcoin on there. I went around and I must've had five exchanges and I went round just to double check that I had nothing on any of them. Like I say, I found it on Cryptopia, but if I hadn't have done that I wouldn't have even known. So it was almost a half a Bitcoin bonus, which in future that might be half a million dollars.

Trace Mayer: Yeah, might be worth a couple bucks later! I think that's an excellent point that you raised. It's very easy to kind of lose track of all the stuff because we just have more important things going on and Bitcoin's digital, it's not physical, so it's kind of harder to keep track of it all and then you have your passwords, do you have the right login screens, do you have the right two factor authentication codes, do you have this, do you have that, blah, blah, blah, blah, blah! If you do this every year, then you're going through the motions and you're shooting the free throws, you're practicing and you're current in your skills.

If you'd leave stuff, if you just let stuff pile up for 4, 5 or 6 years, you're going to have no idea where the data or the information or the Bitcoins are that you need. We have hundreds and hundreds of sites that are gone now and I'm sure that there were lots of users who had Bitcoin and other crypto on those sites and they might not even know that they didn't have it, but if they were doing it every year, it's going to be a lot easier to keep track of where your stuff's at. Just bring those keys home.

Peter McCormack: Well listen, you're obviously very close to it. It's your initiative and a great initiative, everyone loves that. I noticed that people were changing their Twitter handles quite recently, but before we... Because some of the people might have heard the show last year or not fully understand what the initiative is, but before we do get into that, you've been close to it now for a year, it's your initiative, were there any other interesting stories that came out similar to mine where people had found money or anything else that interesting came out of it?

Trace Mayer: Well, I would to know where Gerald Cotton's Proof of Keys are! I would like a proof of body also! It's just very odd that you die in a hospital and then your wife takes your body back to the hotel, that's just weird!

Peter McCormack: Well we should get into that. I actually interviewed, I think it was last week, I can't remember as the days blended themselves, but I interviewed Nathaniel Rich from Vanity Fair who wrote the recent article about QuadrigaCX. Have you read that piece?

Trace Mayer: No, I haven't read that one yet.

Peter McCormack: So that's a very interesting piece, he did a lot of research in it too. So for anyone listening who doesn't know, they should do, but QuadrigaCX was a Canadian based exchange. The owner of it, a very mysterious character who was on a supposed honeymoon with his wife, had quite an exorbitant lifestyle, seemed to mix with some nefarious sites people and had also had a record of some quite crazy trading in the background. So it was quite convoluted, complicated story. But he was away in India, fell ill, died. Nobody has seen the body and nobody knows where their private keys are. What was it, $250 million?

Trace Mayer: Yes, something like that. I think there were Canadian dollars involved because it was one of the largest Canadian exchange and that's always a little confusing, as to how many US dollars those are. But yeah, it's just crazy. If you do Proof of Keys on a regular basis, you're just not trusting the exchanges with coins basically. You're not at risk for this type of bad action. The best way to deal with a problem is to avoid it. Why'd you get yourself in that mess?

We probably all thought that before, "how did I find myself in this circumstance?" And if we can just avoid the problems. That's a lot of name of the game. If you're hodling your Bitcoin, you're avoiding the problems, you're not taking on all this performance risk, this counterparty risks, when they're running fractional reserves and you're subject to the financial ability of them to perform.

So even if they wanted to perform, they can't because they don't have the financial resources, that's different from just performance risk, where whether they're going to keep the contract, whether they're going to bring the car back when you valet it. I think a lot of people, they just take it for granted and at the end of the day, it doesn't matter until it's the only thing that matters and go and ask all those people in line at Mt. Gox and QuadrigaCX and blah blah blah.

That was part of my reasoning for the genesis of this, because I got a lot of pushback from Andreas and some other people about is the Bitcoin industry ready for something like this and it could have unintended negative consequences. I'm kind of like, what unintended negative consequences? They get to a stress test or withdrawal systems. They get to polish up their policies and procedures and if they're not playing A game basketball, they need to get on the bench.

So I don't really see a lot of downsides to it. Maybe you're paying a couple cents in transaction fees, but you get some intrinsic reward out of that because you know that you've accomplished something and you've learned how to run your own full node and you've learned how to secure your own private keys.

That's all part of the human capital and the growth that we need to go through and we need to make that investment in ourselves in that knowledge and everything and those skills and those abilities, because you can be totally right about buying Bitcoin and yet be totally wrong on how you secured it and get totally wrecked. That's perhaps even worse than not having decided to buy Bitcoin in the first place because you're always going to be thinking what could have been right?

One of my friends, he had something like $5 million worth of Bitcoin on Mt. Gox and he never put in the work and the effort to withdraw off of it. It was probably two and a half years now that he got laid off from his job, then he got in a car wreck, he has been unemployed for 24 months or something and he always wonders what could have been, because his Bitcoin are now $60 million, right?

Peter McCormack: Yeah!

Trace Mayer: And he's living on his parents' couch with his hurt back that he can't pay the physical therapist to help fix. These choices have real consequences and especially as the Bitcoin price keeps going up as the network effects entrench more and there's more capital that comes into the space these choices have real consequences and so people should be aware of that. In my opinion, claim your monetary sovereignty, flex those muscles, why are you picking up tear gas canisters in Hong Kong or wherever, just withdraw all your money out of their system and let it implode.

Peter McCormack: So for those who aren't aware of the campaign or the initiative or haven't kind of dug into it, maybe saw it last year and ignored it or even new to Bitcoin, I have a lot of the newbies tend to come to or the novices tend to come to my podcast, please explain Proof of Keys to them, what it is, why it's important, why you did it.

Trace Mayer: So go to proofofkeys.com, we've got a countdown clock, we've got a cute little honey badger because that's the Bitcoin mascot, running off with the keys, we even have hats, Rodolfo Novak over at Coinkite made these Proof of Keys hats with the little money badger running off with the key because the honey badger just doesn't care. He's like, "I hear all of your soft history, but just send me the Bitcoins right here right now" and then you learn!

You learn whether they're going to send you the Bitcoin or not, because there's a whole bunch of weaseling around that can happen when it comes to the accounting statements, when it comes to how the exchanges are securing coins or any third parties, all these lending agreements with BlockFi and Celsius and Genesis and everything else. It begins tangling things up a lot and when things get tangled up and they're difficult to very easily discern.

A lot of these companies are private, most of them aren't regulated in any type of way, so they're holding billions of dollars in some cases of customer assets and they're not regulated by anybody. They don't have to disclose their financial statements to anyone! That's a scary thought. Then if something was up, you become an unsecured general creditor and you don't have any priority.

My buddy who's on his parents' couch because of his hurt back, guess why the Bitcoins haven't been withdrawn out of Mt. Gox? It's because of this Coinlab lawsuit by Peter Vessenes. Why would a potential breach of contract claim be superior to customer assets?

Peter McCormack: Well, it shouldn't be! But it wouldn't be also is he had withdrawn them because...

Trace Mayer: Well yeah, if he'd withdrawn his Bitcoins, he'd avoid the mess in the first place. But think about it the trustee, he has every reason to draw this thing out as long as possible. Why? Collect more fees? So he's just saying, "well there's this lawsuit here, so I guess we're just going to sit on it another three months." So in the meantime, you're not getting your Bitcoin Cash and being able to sell it, you're not getting your Bitcoin Gold and being able to sell it or whatever else.

More consequences piling up and you look at the effect of compound interest rate or compound growth, you miss out on a lot of those stuff and the Bitcoin price starts going up etc, you're starting to miss out on a lot of money for real because you were too lazy or ignorant to figure out how to learn and secure your own private keys and actually do the work to do it.

You didn't invest in yourself and we spend a lot of time learning how to do a bunch of stuff in this life. People go to college for four years or longer for graduate degrees trying to figure out how to do something and yet when it comes to your own money, you're not going to figure out how to hold your own private keys, run your own full node, can't take a couple of hours out of your day to do that. My buddy that lives on his parents' couch, he watched lots of Netflix TV shows, opportunity cost! You going to watch Netflix TV shows or you going to learn how to store your own private keys?

Peter McCormack: So with this Trace, there's a couple of things therefore. It is about teaching people to manage their private keys and to be sovereign. But it is also to encourage them to protect their part. So it's not just about teaching them, but it's also to encourage people, because I imagine there's some people over the space of the year can get a bit lazy, can end up leaving some Bitcoin on some exchanges for whatever reason. So it's almost a reminder as well and it's also a test of the exchanges themselves. So it feels that's the three main reasons.

Trace Mayer: Yeah, we've got those and we get the opportunity to strengthen the Bitcoin network. That's really what this is about. Why? Because the Bitcoin network is a bunch of full nodes. If you're running an SPV node, if you're on an exchange, you're in a master slave relationship in terms of the computer architecture.

When you run a full node, you're the master and when you're the master and you're validating and verifying all of those blocks that have economically substantive transactions in them, because they're withdrawals from exchanges or whatever, if they send you Bitcoin Cash instead of Bitcoin, you're like, "no, my node says that that thing's not Bitcoin. Send me Bitcoin!"

Then when we don't have all the keys to Bitcoin piled up in one central repository like these third-party exchanges are, it becomes much more difficult to seize the big ones. Like for example, when Franklin Roosevelt issued executive orders 6102 in the United States making the holding of Gold illegal, you know what he did? He sent out IRS agents to all the banks and then issued the order and then if people came in to get gold out of their safety deposit boxes, they had to give it to the IRS agents who then gave them paper cash.

Because of where the gold was stored, thinking it was safe and it wasn't distributed, it wasn't buried under the special tree in the front yard or something where the dog is, they were able to seize all the gold from the Americans. With Bitcoin, if you're handling it properly, it makes it just much more difficult to seize than gold because it doesn't have to exist in one place at one time.

So I would say that's the primary purpose is we want to help other people take their monetary sovereignty and strengthen the Bitcoin network and enhance its decentralized properties and censorship resistant properties and that's really what we're trying to do. We're building in this ethos; don't trust, verify! Don't trust the exchange, just send me my Bitcoin. It's that simple.

Peter McCormack: Did you do any analysis following the initiative last year to monitor any of the outflows from the exchanges? Were you to monitor that? Did you see any noticeable kind of outflows?

Trace Mayer: Nothing that I would put any stock in, because I just don't have all of the data that I would want to have in order to make conclusions about behavior like that. There was a significant amount of traffic that came up on YouTube views and tweets and stuff like that. How many people actually took action? Could we see that in the blockchain?

I imagine we might need a couple iterations of this, because each year it's going to grow stronger because people have heard about it the year before. What I do find very interesting though is I put the first tweet out announcing it on December 9th and within 24 hours, it had 100,000 views. Just the video on Twitter did and guess what Coinbase announced that Wednesday?

Peter McCormack: Tell me.

Trace Mayer: The following week they were going to be doing some tests on their cold storage and so everybody should not be alarmed when a very large amount of Bitcoins moves. Sure enough, the next week they moved 850,000 Bitcoins. It was the first time they'd ever made an announcement like that. It was just very curious because I had no idea they were going to be doing something that. Did they have that planned in advance for a long time? Was it just a interesting coincidence or were they trying to calm the markets by saying, "no, no, we have the Bitcoin here for real, we just moved them."

Peter McCormack: That's their proof of reserves.

Trace Mayer: Yeah, their proof of reserves is doing gigantic transaction on the blockchain.

Peter McCormack: Did you say you put that tweet out on December the ninth?

Trace Mayer: Yeah, December 9th and then that Wednesday because I think I put it out Sunday or Monday or something. Then that Wednesday is when Coinbase made the announcement that they were moving some cold storage coins and so I was, "wow!" It's kind of like in A Wonderful Life, "well, your money's in Bob's house." "No, we have plenty of money here!" Until it's like all gone. What if they're 3 million Bitcoins of customer deposits at Coinbase and they only have 850,000?

Peter McCormack: Well do you know what else is interesting about that date as well? Another coincidence about that date? That's the date Gerald Cotton died.

Trace Mayer: No, no, no, he met with his attorney. I think he met with his attorney the next day to do the estate plan and then a week later is when he died.

Peter McCormack: He died on, I'm looking here and Wikipedia 9th December 2018?

Trace Mayer: Oh, okay. Well maybe, I guess I was wrong.

Peter McCormack: Maybe he saw your tweet and pushed it forward.

Trace Mayer: Well it sounds he had been planning his exit scam for a while.

Peter McCormack: Well, so that's an interesting one, we can get into that. I'll talk about QuadrigaCX and the other hacks, because there were a few this last year, but I just wanted to carry on a little bit with this one. So not everybody did it, obviously a certain amount did and I know a few people who did. I guess what it will be is it'll tend to be the OGs or the very conscious Bitcoiners, but every year we're going to have new Bitcoiners who've firstly might not be on Twitter, might not see this and might not follow it.

But I think I follow what you're saying, that it's one of these things that you're going to do every year and it's almost like it almost gets to the point where it doesn't even have to be 3rd January, it's a constant reminder to own your private keys. But what I wanted to ask you related to that is that a lot of people still don't do it. There's a lot of people who... You say 850,000 Bitcoin or something with Coinbase, even with you Trace, do you see a difference between holding your Bitcoin on something Coinbase as opposed to something like Quadriga? Or does it make no difference who the exchange is, what their practices are?

Trace Mayer: None of the exchanges are too big to fail. If Coinbase failed, that would probably be one of the best things that could possibly happen for the Bitcoin price, because what would happen is you would have, how many customers did they have like 30 million or 20 million or something, so you would have 20 million customers, let's all say that they think they own 0.1 of a Bitcoin.

 Well that's 2 million Bitcoins and if there are 2 million paper Bitcoins and zero real Bitcoin, but the price of the real Bitcoin has been being enforced in this exchange relationship with paper Bitcoin, and then the supply of the paper Bitcoin goes poof, supply and demand, your Bitcoin prices is going to go up.

So ironically things like Mt. Gox and QuadrigaCX is actually a good thing for the holders of Bitcoin who have their own full nodes and private keys because you get to destroy, you get to purge a lot of these fake paper Bitcoins out of the market. So while it's painful to the particular customers of those institutions, it's like, well, why did you trust them?

So that's another aspect of Proof of Keys is, I totally understand if somebody doesn't want to put in the work and doesn't want to learn how to hold their own private keys like this, I totally understand that, but when you're on your parents' couch, unemployed without any money, don't ask me for any because you were lazy, because then that would be taking capital from people who've wisely employed it and throwing it in a hole and lighting on fire.

Because you're giving it to somebody who has proven to be incompetent at managing the capital that they got. So there's another aspect of this that it helps build the ethos around the people who have the resources, because if this is the largest wealth transfer ever and the people who actually make it to the other side of this massive financial disaster, global financial disaster, if they actually make it to the other side and have the assets they made the right choices, they got the consequences.

Now they have all the assets. Well they're going to just have a different ethos and a different way of thinking. Then all these people that just want to bail everybody out of their bad choices with universal healthcare or with whatever the program of the day is from the bureaucratic establishment. So that's another thing that I think is very important is bringing financial discipline and order to people. It changes time preference, it changes cultures, it changes values.

Saifedean talks about this extensively in his book, the Bitcoin Standard and we've had a hundred years of easy money and government bail outs for pretty much everybody's problems and how happy is society, right? Why is anxiety and depression and all this stuff bothering people so much? Because they get bailed out everything and they never have to look at themselves and so they keep lying to themselves, making bad choices and then lying to themselves about the next choice they're going to make.

Peter McCormack: But we don't actually want a Coinbase or a Kraken to actually fail. We wouldn't want that. It might be good for the price, but we don't want that. Do we?

Trace Mayer: Why not? They'd only fail if they were running a fractional reserve. If they're engaged in fraud, yeah, they should fail.

Peter McCormack: Yeah, but that's different. I'm saying may...

Trace Mayer: I don't care if they have got 50 million or a 100 million customers. If they're engaged in fraud and running fractional reserves and selling a bunch of paper Bitcoin, in other words, that they're selling stuff they don't have and they're lying to people and defrauding them, then yeah, they should fail.

Peter McCormack: It wouldn't be nice if one failed because it was hacked for some amazing complicated procedures. For example if someone managed to hack the 850,000 Coinbase, some new innovative one, we wouldn't want that to happen.

Trace Mayer: Well that's another aspect of this. Do we really want large centralized pools of Bitcoin that become massive honeypots? They've become massive targets for the hackers. If the hackers have to go out and hack 20 million people instead, it's a lot more difficult. So I don't really see that as a particularly large issue. Coinbase makes enough money that they should be able to hire competent security professionals to securely store the crypto and Bitcoins.

To date we haven't really had Kraken, which is the only major exchange that hasn't been hacked and it's only natural that we might have bugs in our information systems or whatever, but that's part of Bitcoin being the sewer rat instead of bubble boy. You want to grow up in this environment of survival of the fittest and zero tolerance for incompetence because the organisms are the companies that make it out of that type of adversarial environment are just so much more fit for purpose than anything else.

Think about Bitcoin, it's been MIT licensed, open source code. Anybody can copy it or modify it in any way. It has no moats or barriers to entry around it other than its network effects, that's why it's the apex predator. Fedwire system, UCB, you're dealing with a closed source probably written on Fortran or Cobol or something, you know what I'm saying? The only thing that's keeping it from not completely collapsing is that we just haven't built Bitcoin replacements fast enough.

Peter McCormack: Well let's talk about claiming your monetary sovereignty because we talked about this last year and there's an area we're going to disagree on and it's to do with running your full node. Do you remember me talking about this? I said to you about my dad, that there is zero chance my dad will ever run a full node. He can barely switch his computer on. Every time I go and visit him, he's got a list of things I have to fix on it. He's never going to be the guy to run a full node.

Even getting my dad to the stage of actually being able to use a Trezor or a Ledger would be difficult. But I could get into that point because I would do it for him. But a full node is too much. Would you be happy with people who took their Bitcoin off the exchanges but kept them on at least a hardware wallet? Is that a good enough first step?

Trace Mayer: Yeah, they're taking some incremental territory. You can think of monetary sovereignty, you could actually think about it as you've got North American and South America. North America is the scarcity, the limited and a mountainous, the difficulty adjustment algorithm of Bitcoin. South America that's more the privacy, the anonymity and the fungibility. So when we're looking at taking territory on these two massive continents I think we should be very strategic about it.

 He raised you in everything and now you need to make sure you take care of your parents and just because people got lied to because they had all these retirement account programs social security or whatever, and they didn't have kids as a result thinking they could free ride off other people's kids. Man, it's sad what's happening in Japan. You have people that die in their apartments and are there for five years before someone realizes that they're gone. What a lonely existence!

But when we're taking this territory in the North or South America scarcity, the very heart of that's going to be holding your own private keys, doing it on a computer like a purism, glacier protocol, smart custody, running a Bitcoin core full node, that's just heavily entrenching you in defensive on your position on the privacy, anonymity, fungibility aspect of monetary sovereignty, unlike the raising the block size argument. I don't think that reasonable minds could not really differ on that point. But on the privacy anonymity fungibility, reasonable minds can differ on how that territory gets taken.

Peter McCormack: Because of the tradeoff?

Trace Mayer: There's tons of tradeoffs and some of them are just imposed by the technological limitations. Charlie Lee recently put a post out about doing extension blocks on Litecoin to implement MimbleWimble and Peter Wuille responded and it's a great thread all about some of these tradeoffs. Then we've got Lightning Network and Tor onion routing style in there and then we've got Chaum and Ecash servers and they could be an additional layer.

We've got open dimes, those things are just fantastic for fungibility because you don't really want the transactions on the blockchain if you can help it because it's immutable, right? Then you've got really wild moon math like MimbleWimble. So you look at the MimbleWimble coins and every block only has one input and there's just no data there and there no amounts there and it's all coin-joined and confidential transactions.

You don't even see the addresses or the amounts on the blockchain and it's much more scalable. Because if Bitcoin were run on MimbleWimble since the beginning, they estimate it would be something 7GB or 16GB and the blockchain can actually shrink with MimbleWimble. So man, imagine being able to run a full node on your cell phone for your daily cash, where you're holding your own private keys. That some serious monetary sovereignty right there on your encrypted cell phone.

Peter McCormack: But it doesn't look like we will get MimbleWimble on Bitcoin. I mean I've read Peter Wuille's Reddit post, he's very doubtful about that, though he does express some kind of sympathy towards extension blocks. I think it's that whole tradeoff and some people don't realize it's kind of the tradeoff for confidential transactions is... Like it's very easy if you're happy to not be able to prove the 21 million. But if you want to prove the 21 million, it's very different. The kind of the options available to you?

Trace Mayer: Yeah, well you have the excess values when you do the cut throughs. So the limited and mountainous I think is a separate issue from the homomorphic encryption, things like Zcash and hidden inflation, because that is one of the big tradeoffs. Scarcity is more important than privacy in my opinion.

Peter McCormack: Yeah, I think in most people's opinion.

Trace Mayer: Well you have to build a secure layer first and then you can build on top of the secure layer but if we could have both scarcity and privacy and then let's say that they're operating on the same cryptographic assumptions you've got everything else being equal. Do you want the privacy? And that becomes a very personal issue because with the Bank Secrecy Act and the travel rule and [Inaudible] being required to follow these things, having the open transparent blockchain can provide a very clean source for all of your Bitcoins if you're a clean actor.

So there's an aspect where if there's opt in privacy, why would people with "clean coins" opt in with people who have dirty coins. Because the whole point is to transfer value from the clean coins to the dirty coins and that value is expressed in the form of that AML/KYC risk of getting roped into an investigation or arrested or whatever. So there's just this fundamental trade off and then at the technical level, we have all this legal kind of wrapping around it.

The way I look at it, and I was talking with Adam Back about this a couple of days ago, is when we have more choices, we're generally wealthier than when we have fewer choices. So I kind of look at it as, well why not just build up tons of different types of privacy solutions and then more people are able to use more different options. That's kind of what we're seeing. We have Monero and Zcash and Monero wants to do a side chain of MimbleWimble and Litecoin wants to do an extension block of MimbleWimble and I don't really either of those ideas because of potential consensus bug issues.

I would rather just see MimbleWimble in the base layer and then you build on top of that. So it's just a difference of value and a difference of way that the debate, it's going to be a very interesting debate for the community and we're going to need to be very civil about it and not resort to dogmatism and name calling and stuff.

Peter McCormack: Good luck with that!

Trace Mayer: Well most of the people who are still left in the Bitcoin community, we went through the fork Wars together. We've got our veteran patches already. So when Charlie Lee comes up with an idea about extension blocks in MimbleWimble, persuade me on why that's the best option.

It doesn't have consensus issues and stuff, because consensus is a very difficult thing to achieve in Bitcoin because we want extremely high consensus, like 99% hopefully of upgrades versus Ethereum! I guess it hard forked over the night and 24 minutes before the fork was supposed to happen, they only had 50% of the nodes upgraded or something.

Peter McCormack: Yeah, what a shit show!

Trace Mayer: And it's probably all the nodes that were on AWS that were all run by one person. So it does make me curious what happened with that, but I didn't even check.

Peter McCormack: Well it's funny you should say that because I had debate about this the other day when we were talking about it with somebody else and they said, "you were talking about Ethereum" and they were saying I was saying it was centralized. They're like, "decentralization is a spectrum" and I was thinking about that for a second and I was thinking if you are becoming more centralized, I don't believe you're on a decentralized spectrum. I believe you're on a centralized spectrum.

I was like, "the only way you can be on a decentralized spectrum is if you're becoming more decentralized and hidden positively." But if you becoming more centralized, then I would rather say you're on a centralized spectrum, because you become a more centralized. I don't think anyone's discussed that before and I can't work out if I'm onto something here or I'm just being a moron.

Trace Mayer: No, we've talked about that for years in Bitcoin. You've got this whole spectrum and you're moving, one end is centralized, the other end is decentralized and it's not that Bitcoin is trustless, it's that Bitcoin distributes the trust through the incentives in such a way that is highly decentralized because everybody's able to be running their own full nodes and stuff that. So, and I think this centralized versus decentralized argument is very similar to a privacy versus transparency or fungibility or whatever that spectrum also, and I think it's important, as sometimes you want centralized, sometimes you don't.

For example, Liquid, which is a federated, closed sourced, well closed network, way to transfer value between exchanges, you want something like that to be operating in a centralized way or a more centralized way than the Bitcoin network in general. So with this upcoming massive privacy, fungibility argument, which the way I look at it is, we open the front, this is a war for monetary sovereignty, right? We opened the front with scarcity, with Bitcoin. But do you know what the Bitcoin white paper says about this?

Peter McCormack: I'd have to go back and look.

Trace Mayer: This is hilarious. So this is Satoshi in section 10 of the Bitcoin white paper, "the traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party, the necessity to announce all transactions publicly precludes this method. But privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous." So even Satoshi himself in the white paper acknowledged that we do have some degree of privacy with Bitcoin, but what you're going to have to do is keep your public keys anonymous.

 Okay and then what happened? AML/KYC and the exchanges and chain analysis and everybody starts mapping identities to public keys. That starts to impinge on the fungibility, the privacy, the anonymity. But like we agreed on, the scarcity is more important. So we opened the first front in the war, taking scarcity, that was our first 10 years and Bitcoin's well on its way now. 150 days it's going to have a stock to flow ratio up near gold. Four years later, it's going to be scarcer than gold in terms of that stock and flow ratio.

Now that we have been around 10 years, people gotten a lot of experience and developers are learning new stuff and things are coming out like MimbleWimble, so I think now we have enough money in the industry, we have enough skilled, talented developers and everything, so let's open an entirely new theater, like scarcity is Europe, let's open the Pacific theater on privacy and open a new front in this monetary sovereignty war and start taking more territory in terms of monetary sovereignty in the privacy, anonymity, fungibility areas.

Because right now it's really small, Monero is $1.1 billion, Grin and Beam are $30 million a piece, Zcash is a couple hundred million, but it's opt in and centralized, trusted setup. If we're really serious about taking monetary sovereignty, let's build as many tools as we can and fight the war. I think we now have the resources to open up and open up a new front in the war for monetary sovereignty and I totally agree with Peter Wuille that MimbleWimble is not going to get activated into Bitcoin.

There's nothing even on the proposal schedule for that, I mean it's just not going to happen. So that means that you're either going to have to look at layer two solutions and above like Lightning network or you're going to have to look outside Bitcoin and you got a knife, a fork and a spoon and you'd want to use them all together. So in a way, if we only had the fork, if we only have Bitcoin, getting the knife would actually be a complimentary good with Bitcoin and then we could accomplish more things with it. So we need to build the best other privacy tools that we can if we're serious about taking monetary sovereignty.

Peter McCormack: Okay, so going back to Proof of Keys because this is what we're talking about, I do have one final question for you. I think the answer is going to be quite interesting before we kind of wrap up is that I noted it down earlier on. You said about claim your private keys and you mentioned lending services like BlockFi and Celsius and to use a service like that you have to hold your private keys with them. So if I use BlockFi, BlockFi have got some Bitcoin of mine, they custody it with Gemini, which is insured.

Okay, to follow Proof of Keys, I have to take that out of BlockFi, which means I then essentially cancel my interest to prove that it's there to then potentially put it back again because I want to use the service because I like the service. I'm happy to risk a certain amount of Bitcoin for my interest. Where does fit into Proof of Keys for you? Because it's slightly different than taking from an exchange.

Trace Mayer: Yeah, I'm actually kind of wrestling with that right now. I got an email from a friend of mine who runs a fund and he needs about $10 million worth of Bitcoin from December 27th to January 3rd because he needs to... Basically the auditor wants all of the Bitcoin off the balance sheet as of the date of the audit and so they're going to get all the Bitcoin off of their balance sheet, have the audit and then all the Bitcoin comes back on January 3rd and they're going to pay a pretty decent amount of interest to borrow Bitcoin for that week.

But I don't know. I don't know if I want to pick up those pennies in front of the steam roller, just over a... Neither borrower nor lender be. If you don't lend or borrow, then you're pretty much immune to the debt based, the necessities of counterparty risk and all that type of stuff. So I mean that's definitely for each individual to figure out where are their tolerance is.

I bet the amount of money that you earn in BlockFi in a day is probably not going to make that big a difference in the grand scheme of things and the other aspect is have you ever been able to make withdrawals out of BlockFi? Do they have particular types of limits on how much you can withdraw? Do you have limits on how long you have to have the Bitcoin locked up, like a CD. So there are a lot of different considerations.

Peter McCormack: Yeah, so this is different because this isn't about claiming your monetary sovereignty so much. This is more of a test of the institution itself. Testing their processes, procedures, reserves, because if you're only going to go and put it back straight after because you want the interest, then it is only a test. Whereas something with the exchange, it's more about claiming your monetary sovereignty, it's owning your private keys. It's more of a long-term kind of discipline for how you manage a Bitcoin. But this one is more of a test of the institution.

Trace Mayer: If you're the sovereign, it's kind of nice to make the court jester dance once in a while. It's good entertainment value.

Peter McCormack: Yeah, but it is different.

Trace Mayer: But when you're the sovereign, you're the one making the choice. You can make the choice of whether or not to ask for the withdrawal. You don't have control over them making the choice of whether or not to send it to you. Right. So if someone wants to exercise their monetary sovereignty, all the power to you. I mean it's supposedly your Bitcoin, you can do what you want with it.

Peter McCormack: Yeah, but it is different.

Trace Mayer: But don't lie to yourself that they would have sent you your Bitcoin, because you don't know.

Peter McCormack: No, I know that. Yeah, it's just a different... When we talked about the different reasons to do it like I say within exchange, it is about creating your own discipline of owning your private keys. But this is more of a service. This is a financial service is built on top of it. So I don't know, I just see a slightly different.

Trace Mayer: Yeah, I mean another if people are selling options like on LedgerX or whatever, if you've sold March Bitcoin options and it has to be position locked, are you really going to exit the trade in order to withdraw the Bitcoin? Yeah, I mean probably not. Everybody's got to manage their monetary sovereignty, how they see fit and things can happen though.

If you never ask, then you don't know what the answer really is. So that's what I'd kind of lead with that and private keys, it's more of an ethos and so you want to be doing this, have these types of thinking practices throughout the year just being on guard on where your keys are at and what people are doing with them.

Peter McCormack: Okay, so before we close out, have you got any final messages for anyone? Anything you want to say before we close out and also definitely tell them where they find out more and what they need to do.

Trace Mayer: So proofofkeys.com helps you learn all that stuff. My podcast is Bitcoin Knowledge at bitcoin.kn and then on Twitter @tracemayer and yeah, just a happy December for everybody. Let's start the new year off right, knowing what we own, having possession of it, running our own full node, strengthening the Bitcoin network, helping everybody out that is in the space because it's not just about us.

With Proof of keys, we're also helping strengthen the Bitcoin network by running a full node and so if that's the only thing you want to do, at least do that, the more full nodes, the better. So yeah, the way I kind of see it, the more full nodes and the more hodlers of last resort, those are the two big categories that we want to be increasing. Then also just on the new front, the new privacy war front that we're opening, strap on your seatbelt, it's going to be a lot of fun.

Peter McCormack: Oh God! All right, well listen, look Trace, it's always a pleasure to have you on. I do have to thank you again. Like I say I've got another half a Bitcoin because of you man, that I would have lost. That's the way to create some loyalty to an initiative like this, is to I hope I find another Bitcoin this year or a few Bitcoin, but I don't think it's going to happen, but I'll be doing the same. I'll be promoting it, I'll be telling everyone the same and yeah, I appreciate everything you do ma and hopefully I'll see you soon for a good steak!

Trace Mayer: Well thanks so much, you have a great day.