WBD180 Audio Transcription

The Lightning Network 2019 Review with Jack Mallers

Interview date: Monday 23rd December 2019

Note: the following is a transcription of my interview with Jack Mallers from Zap. 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 review The Lightning Network in 2019 with Zap founder Jack Mallers. We discuss why Lightning matters, private key management, custodial v non-custodial wallets, and how proprietary trading firms may be the next big use case.

“Where lightning is really valuable is, I can send money anywhere in the world, faster and cheaper than anyone else.”

— Jack Mallers

Interview Transcription

Peter McCormack: Here we go again, back in your dining room.

Bitcoin Mom: Yes!

Peter McCormack: Thank you for having me last night, thank you for dinner.

Bitcoin Mom: You're welcome, always a treat! Thanks for the champagne.

Peter McCormack: You're welcome. Morning Jack!

Jack Mallers: What's up, man? How you doing?

Peter McCormack: Good! Bit tired, long year, but here we are again. So Jack, you and I were going to get together, take two, for a Lightning thing and I've got a feeling this'll be a lot better in person.

Jack Mallers: I hope so yeah!

Peter McCormack: And a few things have happened since we tried, so that's good. But last night when we were sat down having a glass of champagne, you told me a story I'd never heard before. So whilst we're going to talk about Lightning, I think people need to hear this story because it's fascinating. So if you want to go first... Do you know what Brooke, start by telling us the phone call you received because that's the starting point for you and then Jack can do the backstory.

Bitcoin Mom: Yeah, so Jack lives in Chicago and his dad and I live here in Colorado and we got the call no parent ever, ever wants to get at like 4:30 in the morning. This was April 5th 2018 and it was Jack's best friend. My nickname's Cookie and he was like, "so Cookie, I don't want to scare you, but Jack's had a fall. He's in the hospital, he's in the ICU. He fell backwards off of a first floor landing in Chicago and hit his head.

So far he has three brain bleeds and he's not conscious. So we'll keep you updated, and we'll call you. I don't know if you have to fly to Chicago yet, we'll find out." And I woke his dad up and we just obviously couldn't go back to sleep and waited until we got the next call the next morning to see what would happen. So maybe Jack wanted to take it from there and explain what happened.

Peter McCormack: Yeah, what happened Jack? What do you remember? Or what were you told?

Jack Mallers: Yeah, so I lost memory an hour or two before the fall and an hour or two after. So a lot of the story is just people that were there. Yeah, I had just started dating this girl who I date today, and we were heading home from an event. She was living in Wrigleyville where there's steps up to the front door like very European almost.

Peter McCormack: Yeah, I know the type.

Jack Mallers: So we walk up the steps and I'm just leaning on the rail and the rail was just rusted and it rotted and flipped me over the side. Completely snapped, I fell 13 feet on my head. Totally unconscious and she looks down, as she recalls, and I'm just blood leaking from my head. I'm totally unconscious, my pinkie was facing the wrong way, I was just bad news. In the ambulance, which I don't remember, I supposedly woke up and was fighting to try and get out, but with such an injury, they don't know if your spine is damaged too, so there was police pinning me down to this bed.

Can you imagine not having context, waking up in an ambulance with police pinning you down? I was freaking out. I had no idea what was going on. I had three brain bleeds, a collapsed lung and throughout the hospital process in the first few days, it was really scary because there was a serious chance I was going to die. This is hard to talk about, and I wasn't able to talk. So I would wake up and they would ask me my name, I wasn't able to say. They would try and have conversation and I was making noise, but I wasn't making words. So it was pretty scary!

Peter McCormack: You're fully conscious at that point?

Jack Mallers: Yeah, kind of.

Bitcoin Mom: Did you think you were talking?

Jack Mallers: I don't have enough of a... I remember being in the hospital and I remember waking up and my girlfriend was there and my friend Dillon and my friend Max were there. I remember seeing them, but I don't remember any of the conversations or what I was trying to say. The fact that the doctor said I couldn't say my name or for example, I would have exercises like, "can you count down from 100?" And I wasn't able to do that. Or like the alphabet, I wasn't able to do-

Bitcoin Mom: By the way, we didn't know this, because we were still in Colorado, and so I'm kind of glad we didn't know any of this.

Jack Mallers: Yeah, it was definitely... Hearing my friends recall it, no one knew if I was going to be the same. It was a pretty safe bet at that point to kind of assume that I was never going to be the same and over the days, I had gotten better. So I stayed in ICU for a total of five days and I think it was the third day where I started to get visitors outside of my girlfriend and my friends, and in comes Andreas Antonopoulos.

Peter McCormack: As he does!

Jack Mallers: As he does!

Bitcoin Mom: As he appears in people's ICU hospital rooms.

Jack Mallers: Yeah, he's been a family friend of ours for a really long time and we have a relationship that I'd like to think exceeds Bitcoin at this point. So he comes in and I recognize him and I had been doing these brain exercises and I'd been getting better, but certainly nothing to impress. He sits down and he starts asking me questions about Lightning and at the time, it was about Neutrino. So Neutrino is a new light client type of proposal that improves on the traditional light client that we know today, this SPV, my current type of light client and it's by Lalou and Roasbeef of Lighting Labs.

At the time, Lalou had just published a couple BIPs, Bitcoin Improvement Proposals, and Andreas just started asking me, "what is your opinion on Neutrino? Do you see it working with Zap? What are the privacy trade-offs? Of course if we want it to be reliable on a P2P standpoint, we'll need to implement it into core. When do you think that will happen?" And all of a sudden, I start to have this dialogue with Andreas where I'm answering him like, "it's definitely an improvement on bloom filters.

It allows the client a lot more responsibility, which means that it's a bit more expensive on the hardware, but the things you can do, like operate a lightning node on your phone, is really powerful and it's a really clever idea. It's long overdue." I'm having this conversation and about two hours go by and Andreas leaves and the doctor looks to my girlfriend and goes, "Ma'am, I think we need to take him in for another CAT scan, that wasn't good."

And she goes, "No, no, no, believe it or not, that was English!" Because the doctor was like, "Neutrino and he said something about roast beef, which is just like sandwich meat." I was like, "No, no, no. That was English, my brain is working again!" So yeah, that's how Lightning ties into this story. I ended up on my birthday getting my final CAT scan where if it went sour, I would need brain surgery.

Bitcoin Mom: And that was the same week! By the way this happened like three days before your birthday?

Jack Mallers: Yep and I got the CAT scan, I told the guy, which we had built a relationship at this point, I was like, "man, if I can get a few things for my birthday, is Bitcoin price can go up and if my brain can stop bleeding. How about it?" He rolls me in there and when he rolled me out, he was like, "your brain stopped bleeding, man. I don't know what happened, no one saw that coming.

But you might end up being okay!" Yeah, I'll quickly end it. I'll never forget, Brooke tweeted out that it was my birthday, so just totally doxxed me, but that I was going to be okay and I will never forget being handed my phone for the first time and seeing the outcry of Bitcoin Twitter supporting me, I'm almost getting emotional talking about it.

Peter McCormack: Yeah, well it is a really great community of people!

Bitcoin Mom: Oh my gosh, people really were like, "what?!" Then, if you Google Jack Mallers, one of the pre-fill, whatever the term is, is "Jack Mallers accident", so I guess enough people have been searching about that.

Jack Mallers: Yeah, but people know from this podcast at this point, I dropped out of college and you spend a lot of your early adult life alone in the basement of my dad's house, learning this Bitcoin thing and all of a sudden, you blink and you have such a traumatic life event and people all over the world supporting you. Yeah, I'm going to cry, man!

I'll never forget that, Bitcoin has a special relationship to me that's so important. But yeah, that's how Lightning ties into the time I almost died, is the doctor thought I was getting worse because I was trying to explain to Andreas these two new BIP proposals and my girlfriend was like, "I kid you not, I think he's actually speaking English. I think it's a good thing, not a bad thing."

Peter McCormack: I mean it is a great group of people. Personally, I've experienced it traveling around the world. I'm in Austin a few days ago and then I see Bitcoin Mom post a picture of a bison, so I drop a little joke in there...

Bitcoin Mom: The famous bison roast that is the gift that keeps on giving!

Peter McCormack: ... And she's like, "come over." You know I lost my mom a few years ago, so Brooke's now becoming my adoptive mom and I think you would've really got along well with my mom by the way. But I know, I'll come here, you'll put me up, you try to get me a hotel and I'm like, "no, that's my cost!" But there are so many good people around the world. If you forget about the toxicity of fighting, it is a really great group of people.

Bitcoin Mom: Absolutely!

Peter McCormack: So just a couple of questions on that before we close out on that. But long-term, there are things you have to consider, that you have to be aware of, keep an eye on?

Jack Mallers: Yeah, so with head injuries, it's a little different than breaking your wrist because you can get infinite X-rays on your wrist until they're confident the bone is fully healed. But for your head injuries, the radiation to your brain from a CAT scan, they have to really meter them. So afterwards, it was a little scary. The first head specialist I saw was really encouraging me to stop coding and having a profession that dealt with so much money management and high stakes and to take something that was much easier both on my mental and just brain calculation power.

So that was really scary. Obviously, as people can probably guess, I didn't listen, which turned out okay, but at the time was super risky. So yeah, now at this point, all my CAT scans are fine, but head injuries have really long lasting effects that you can't really get diagnosed. So things like my mental health are always a concern. They were prior and now even more so.

Yeah, people pick up slurs, like their language may slur or have stuttering issues. Symptoms like that can appear years after just from traumatizing brain injuries. But so far so good. This April will be my two year anniversary and how far Bitcoin and my career and everything, I'm pretty proud of where I am.

Peter McCormack: Well yeah, like we talked about last night, you got NFL players reaching out to you! Pretty fucking rad.

Jack Mallers: That was amazing!

Bitcoin Mom: Did he tell you the first couple of months too, not only did they say, and Jack's super athletic, "I don't want you playing basketball, obviously no boxing" that kind of thing. So he comes to visit us and we got these new eBikes and he's riding up and down this hill outside our house on the eBike with no helmet and he's going so fast and I'm like, "Jack you have to remember these things. You can't fall, you can't hit your head!"

Jack Mallers: It almost feels like it's out of a movie, but you get to that point where you have such a life-changing experience where someone is telling you that you're not allowed to be the person that you were and that you want to be anymore. Any human being, especially someone like myself is just like, "fuck you, man!

Not personally fuck you because I know you're a doctor and you're doing your job, but at the same time, fuck you! I would rather fail trying to be who I want to be, than have to take a back seat because a railing snapped." That's just never who I'm going to be. So yeah, I play basketball now. I obviously run a lot of interesting projects and trade and there's big money around in this industry and I just try to ignore it. Obviously if I have any symptoms, I'll go to the doctor, but so far, I've been pretty lucky I'd say.

Peter McCormack: Well I'm glad you told me that because I've already been super impressed by you as a person, but as a family, yeah I love and adore you all. I'm trying to remember if I... I can't believe I wouldn't have seen this on Twitter at the time, but maybe it happened before I knew you so I didn't recognize it as such, but it just makes everything all the more impressive. So fair play for everything you've done and thank you for sharing. Bill, do you want to just jump in quick? Anything you want to add?

Bill Mallers: Jack and I have been through a lot. He's my oldest son and we've been through a lot! Yeah, that was a really tough day. I mean, like Jack says, I'm going to start crying, that was tough. Yeah, it was the middle of the night too, it was like four in the morning!

Peter McCormack: Okay, should we smoke some weed?! We had a similar situation with my sister. I was at university, I was 20 years old and I got a phone call one morning from my uncle saying, "oh how's your sister?" I'm like, "I don't know. I can call her." He's like, "oh, you've not heard?" I was like, "what?" He said, "oh, don't worry. She's just had a little accident. She's fine." I'm like, "well, this doesn't sound good." So I ended up phoning my parents, no answer.

So I ended up phoning the hospital and I get through to my mom and she obviously didn't want to worry me, so she was like, "no, she's just had a little accident. She was hit by a police car, but she's fine." And I was like, "really?" I don't think I've ever told this by the way. So I'm not worried at that point, and then five minutes later, there's a knock at the door and my brother's there, and bear in mind, my brother lives 100 miles from me.

So he's come to get me and at that point, I knew there was a problem. Then I get to the hospital and my dad's outside in his car having a cigarette crying and my dad never cries. Yeah, so my sister was hit by a police car, I think it was something like 55 miles an hour. She broke both legs, both arms, her ankle and when she landed, she landed on her face, on her teeth, which saved her life. Anywhere else, she would've died, but because she landed on her teeth, it shattered her teeth, but that took the brunt of the force. She died three times during the night and they resuscitated her.

When you talked about being unable to talk, I remember when she woke up, and it was a very emotional moment, but she couldn't talk. You could see her trying, she couldn't talk, and it was really sad actually. She was a very good netball player, she played for Great Britain universities and she was I think one below an England place, but she never played again because of that. She's fine now! I tell you a funny story as well.

So when she was in the coma, the doctors told us to talk to her and sing to her and tell her things. So we got her a little stereo. We were playing her ABBA songs, there was no-one in the room and I was like, "Lorraine, you're having a baby. You need to wake up..." Bear in mind, she's a lesbian, I was like, "You're having a baby, you need to wake up."

Anyway apparently, I wasn't in the room, but two days after she woke up, my mom came and said, "oh the strangest things happened. Lorraine was saying, "Where's my baby?"" And calling for her baby. So yeah, I can understand a lot of what you've been through, you got to realize how fragile life is. So yeah, thank you for sharing that with me, I'm glad you guys are in my life.

Bitcoin Mom: You can tell we're kind of emotional on it, Jack and Bill here!

Peter McCormack: I think I understand a bit more about it now saying it. So all right, should we talk about some Lightning stuff Jack?

Jack Mallers: Yeah, sure!

Peter McCormack: All right, man. Well listen this is take two, we tried to do it before and I screwed up on the tech.

Jack Mallers: I screwed up too!

Peter McCormack: No, that was my fault, not your fault.

Jack Mallers: Can I say though, now that I'm done crying, I'm super proud of all your success, man.

Peter McCormack: Thank you!

Jack Mallers: I didn't really get a proper introduction, but the success of the podcast is so cool, so congratulations before we start.

Peter McCormack: Thank you. I can't do it without people supporting it, and better not with my stupidity and stuff, but I always prefer doing it like this in person, right?

Jack Mallers: So do I!

Peter McCormack: It's so much better! So thank you, and congratulations on your success and being friends with NFL footballers and loved the world over.

Jack Mallers: I grew up obviously a huge sports fan and when Russell won his Super Bowl in Seattle, was when I was graduating high school, so I actually remember watching him win that Super Bowl next to my dad in his living room. So it is a crazy world where you grow up idolizing these guys and then you blink and they're, in return, idolizing you over fake internet money.

I couldn't believe it! I screenshot it and I sent it to all my friends. I was like, "you guys remember that Seattle team, Marshawn Lynch, Russell Okung, Russell Wilson? He likes Bitcoin and he knows what Zap is!" It was a very cool moment for me.

Peter McCormack: That's pretty badass! I had one the other day where Fred Wilson wrote a blog about one of my shows, that he'd listened to the show with...

Jack Mallers: Wow!

Peter McCormack: ... Andreas and I was like, "What? This is surreal." I was saying before once, I don't know if you've heard me say this, I said that the harder you work, the weirder life gets.

Jack Mallers: True!

Peter McCormack: All right man. Well listen, interesting year! We first spoke about Lightning... It's funny, it feels longer than, was it March we spoke first? I feel like I've known you longer than a year, it feels weird. So much happens in a year, but I was doing my Lightning series and I was interested, but I thought there was a lot of issues with Lightning as a user. We're now at the end of the year and almost every concern I have has gone. I think a huge amount has happened probably on the tech in the background that you can explain, but also I think most importantly for me on the UX front. So how do you think the year's been?

Jack Mallers: As far as Lightning goes?

Peter McCormack: Yeah.

Jack Mallers: Yeah, fantastic of course. To your point, eight months feels like eight years ago and I think that just says a lot about the progress, technical progress, UX progress, product progress and just the natural magnet that Lightning is to talent. You've got talented designers, talented engineers, talented product... I mean the Jack Dorsey's of the world are now putting skin in the game. So yeah, I think the year's been absolutely fantastic.

Peter McCormack: All right, well as a starting point, I'll talk about my experience in El Salvador because that was really interesting and after I'd talked about it, Mr. Hodl put out a tweet, which was really, really good one where he said, "I've always said this, but dependent on who you are, your need or use of Bitcoin might be different" and that kind of singular idea that Bitcoin is gold or Bitcoin is money is wrong, and he was right. So I was at LaBITconf, met this guy who lives in El Salvador, and he said, "oh we're running a Bitcoin project. Do you want to come out?" And I was like, "yeah, cool!"

So I booked a flight and he took me down to this village. It was like a seaside village, village is probably the wrong word, but little seaside surf town, and what happened was he got approached by somebody who said, "I want to invest in a community project" and in El Salvador, they have a big problem with one, education and two, kids joining gangs. So he created this project where if the kids committed to their education, didn't join the gangs, they could have a job, and the job would be cleaning up rivers, clearing up rubbish on the side of the road, helping old people and soon they're going to be adding lifeguarding.

They clock their hours and the end of each week or two weeks, they get paid, but they get paid in Bitcoin. Then what happens is he went round to all the local shops, the hairdresser, the café... But this isn't like Boulder-like cafés and restaurants, these are side of the road things, who don't have card services, none of them have banks and he said, "if you accept Bitcoin, we'll create this kind of circular economy."

There was a few really interesting things about that, the first one being is that Lightning Bitcoin is essentially money in this town. It's a way of get paid and a way for people to then spend that money and secondly, it genuinely is a banking the un-banked, which is a thrown around term, which is a weird term, but it's genuinely banking the un-banked, because these people can't get bank accounts or card services. I was able to buy dinner there even though I didn't have any cash on me.

So that for me was an eye-opening experience for seeing the use of Lightning, and the reason they moved to Lightning was firstly he first started paying people in Bitcoin, but these kids are buying a 25 cent sweet and then paying a 50 cent transaction fee. But the other reason is at the end of the week when the retailers were batching up the transactions, lots of tiny transactions and he was ending up sometimes paying $8 to process them. So that was a really interesting experience for me.

Jack Mallers: Yeah, that sounds great! I agree with Mr. Hodl in the sense I've always had the opinion that Bitcoin is in the eye of the beholder. There's people in Chicago that got in to Bitcoin to get really fucking rich and there's nothing wrong with that. That's a fantastic use case if you ask me. But there's people that use Bitcoin because it helps them survive and I think that's also a fantastic use case.

So yeah, the fact that you get to experience that first-hand, a lot of Bitcoiners fantasize about it, but I don't think a lot can say that they've been able to experience something like that, so that's fantastic. I have a few questions about how they're doing it. So can you walk me through... On one of your videos, I saw the Wallet of Satoshi?

Peter McCormack: Yes.

Jack Mallers: So I'm curious, are they using these custodial wallets to do it? Because I'm trying to find the value, because I can create an app that isn't Bitcoin, that just updates a database and say like, "all right, El Salvador coffee shop, you now have $20 and if this kid pays you one, then I'll up the database to $21" and it's not your money, I control it. I update everything, and you have no access to it. You don't have the keys, but it acts as money to you and I've banked the un-banked without Bitcoin or a bank with Jack Bucks.

But I don't blame them for the custodial nature because Lightning still is at a point where non-custodial isn't a superior experience and at the end of the day, they're trying to accomplish something and they don't care about crypto Twitter points and they don't care about full nodes, they need to get something done. But I guess then hidden somewhere in there is where the actual value of Lightning is because using a custodial wallet doesn't really tell me a lot about why they value Lightning. I could come out with a better version that doesn't even use Bitcoin at all, right?

Peter McCormack: Yeah, so there's a few things to put in there. So the guy I met, I don't know how deep down the Bitcoin rabbit hole he is, I think he's newer to it say than you are, and he's figuring his way through it. It's also a charity project where Bitcoin was donated. There's a couple of things to consider, so these people aren't going to be running full nodes. Some of them don't have electricity, so they're not going to be getting a Casa node.

Jack Mallers: So let me be clear. I'm not trying to lay an expectation that they should be, all I'm attempting to do is say, "well, if custodial wallets are solving their problem, then maybe a custodial database without even having to deal with Bitcoin and volatility and all of that on chain settlement at all. Maybe we can just have a PostgreSQL database coin." I'm just merely trying to understand the value Lightning gives, not trying to project any maximalist values on anyone!

Peter McCormack: El Salvador doesn't have a culture of saving. People earn and spend, earn and spend and he said one of the things he's trying to do is teach these people about the value of Bitcoin and the fact that they can save for their future and if they have their time preferences correct and that this can make a real difference in their lives later on. So say a kid's earning $100 a week. He's encouraging them saying, "okay, spend $30, $40, $50, $60, but try and save a bit.

If you keep saving, you're 15 years old now, when you're 25, this might be a life-changing amount of money for you." So that's one of the things. Also, he does want to get people to the point of being non-custodial, but one of the conversations we have, and I haven't found a good enough answer for yet, is that private key management for somebody who's living in pretty impoverished area of El Salvador is very different from us living in London or here in Boulder.

So for example, we might get something like BillFodl or two of them. We might stick one up in our attic or in a safe in the wall that nobody knows where it is and stick another one in our office and have some kind of security procedure. Or we might have some kind of procedure with the likes of CasaHODL. These are people who have a mobile phone and live in a mud hut. So they haven't come up with a way of teaching private key management. So that's a topic we were talking about, but the goal is to get there. It's just how do you provide it?

Jack Mallers: Yeah, well this may transition us into our next topic, but I spent a lot of time in the last four months or so really trying to understand why Lightning is important, period. As simple as that! So there's a lot of narratives that end up getting crossed over onto Lightning because it's just lazy way to do it. For example, Bitcoin as a savings technology to teenagers in El Salvador.

That's probably a really cool use case, but has nothing to do with Lightning. I can pay you in Jack Bucks on PostgreS and then also tip you in Bitcoin and tell you not to spend it and it would be on chain. Maybe I give you a Trezor or something. Saving on Bitcoin not only has nothing to do with Lightning, but Lightning is almost the opposite. Lightning is intended as a payment rail. You should never custody Bitcoin on top of Lightning for saving. It is totally counter to the principles of the system almost.

Peter McCormack: Well one of the things is this guy's open to talking to people and helping with them. So I left there with questions unanswered and also the want to go around the world to other places to see how people think about money and using money. But I imagine these users in El Salvador probably need a Bitcoin wallet, Lightning wallet, an ability to have some form of private key management, so they can get the full Bitcoin experience that you and I want. They can use Lightning to transact, save in Bitcoin, protect their private keys. But it needs considering in the environment they're in.

Jack Mallers: Yeah and I feel bad in this almost newfound role that I have doing this user research. So we've been testing our Olympus stuff and all of this stuff and I feel bad because with people, always their first reaction is that I'm projecting this Maximalist value and that I look at them as littler than me because I run a full node and that's exactly what I'm not doing. I'm just purely trying to find why Lightning is even important to them, right? Who cares!

Peter McCormack: For them, Lightning's purely cash in that economy, it's money

Jack Mallers: Yeah, and there's so much when you talk about key management and Bitcoin's complicated enough. Key management with Lightning and the different signing with Lightning is so complicated. So I think if someone wants to use a custodial wallet and there's trade-offs with that, that's totally their decision and I think that they're probably making the right one right now, just the tools aren't there for them.

If they want to use it now, I think that that's probably the responsible decision. So yeah, I just think that Lightning right now is this hobbyist market, is what I like to put it. Is that all of our users are the same people that follow us on Twitter and all of our users are long Bitcoin and when you talk about $100,000 Bitcoin, you talk about an ETF, you talk about institutional capital, you talk about Lightning scaling to the masses, right?

So a lot of our users are using Lightning for the purpose of advertising Bitcoin, but I don't know if we've truly understood why Lightning, if at all, is valuable on its own and the value props that could actually cause it to be used at scale outside of people that are just back-holding Bitcoin. I'm being a little bit harsh, but I think we're at a point where our user base needs to start to exceed Twitter.

Peter McCormack: No, you're fair and the tough questions need asking. We all agree that privacy is important, but what are the trade-offs? How much work are people willing to put in for full privacy? You've got to think if I want to send some money and I can do it on Venmo or I can PayPal or I can do it via my bank account, say I owed your mum some money, it's very easy and I can actually pay your mom in Bitcoin pretty easy because we're both in Bitcoin.

But for people outside of this world, if you explain to them, "well if you use Lightning, you get better privacy in your money, but what you need to do, you need to go to an exchange, get signed up, you need to get some Bitcoin and put it in a wallet. You then need to then convert that into Lightning. You might need to open a channel and even then you still don't have perfect privacy."

So you're asking the right and fair questions, my view on the moment is that if the long term goal is that there is hyperbitcoinization and we have Bitcoin takeover, then Lightning will be the means of transacting in those economies. So that's what I saw. This was almost like a mini hyperbitcoinization. These people are getting Bitcoin, but when they spend it, they need the confirmations to be straight away.

So if you're going to a restaurant, if you ordered some food, they don't want to wait an hour to confirm it, they want to instantly confirm. So that was the place where it became the cash part of it, hyperbitcoinization, was it perfect? No. Like I say, one of the things there that I couldn't stop thinking about was, if Bitcoin can really be helpful for developing countries, just say it can, and if it is a banking the unbanked situation, how does that actually plan, because volatility is definitely a problem for these retailers.

It's no good for them if they've accepted $1,000 in Bitcoin and there's a 40% price drop one week. That's terrible! So they need to have the ability almost to have an instant conversion into the local currency. So they're dollarized in El Salvador, but the only solution I can think of for private key management for people in this scenario right now, is some kind of trusted scenario.

It is a service provided by someone like a Blockstream or a Casa whereby they have the ability to custody it securely. But that is not.... you know what I'm saying.

Jack Mallers: You need some multisig help yeah. I'm going to start repeating myself, but from what I'm hearing, it sounds like Jack Bucks would be far superior than Lightning for these people, because if you're saying the value in traditional commerce for this El Salvador town is that once you transact, that it settles immediately and there's no such charge back or waiting period, right? Well, they're kind of trusting the custodial wallet to actually go about this and so I can say the same thing.

I can say, "well, why is the Wallet of Satoshi way better than mine? My words are the best. You can use Jack Bucks. You don't even need to own Bitcoin, deal with any of the volatility, deal with any private keys, my database it top notch. It's been around for way longer than Bitcoin, PostgreS, like 30, 40 years old. Yeah, my word's just as good as Wallet of Satoshi's." So I guess... And, "oh if you guys want to save Bitcoin, I'll hand out a bunch of Trezors and once a month, if you guys are good citizens, I'll tip you some Bitcoin and you shouldn't spend it until you're 25."

Peter McCormack: The only counterpoint I would add to that is that requires you building that infrastructure for Jack Bucks.

Jack Mallers: It would take me 12 hours.

Peter McCormack: But they have to trust that you're going to continue to maintain it. What I'm saying is, with Bitcoin, the infrastructure's there.

Jack Mallers: But they're not using the Bitcoin infrastructure. They're trusting their custodial wallet to maintain it and that's the same trust level. So I know I'm being hard on you, but I'm just trying...

Peter McCormack: No, I understand what you're saying.

Jack Mallers: Lightning is not being used in this user story for its inherent properties of how it was designed and why it's supposed to be valuable and so I just think this happens a lot though is that we glorify a lot of this stuff. By the way, I'm one of those people and I really have a tough time opposing myself against my family of crypto Twitter, but I think these type of questions should definitely be asked because we're at a point now where Lightning is mature enough and reliable enough where it works to your point. It works.

Peter McCormack: It does!

Jack Mallers: You can make payments, so we need to really hone down and understand why it's important. If we really want adoption, or else we wait for an expo market, everyone gets double their Twitter followers, and sure there'll be double then the amount of custodial Lightning users and we'll just continue this type of like...

Peter McCormack: Yeah, well look, I told you before whenever, because I don't mind custodial wallets, I think the experience is better. I think you've admitted that and every time I do it, I have this little Jack on my shoulder going, "fuck you Pete! Fuck you, this isn't Bitcoin!" But actually my experience is, I have a connected custodial Lightning wallet with a non-custodial Bitcoin wallet and I can move in and out very easily and I'm kind of okay with that experience.

I still get the full Bitcoin experience, but I have a very simple Lightning experience, which is much better. I would prefer the whole thing non-custodial of course, but I think you're asking the right questions. I won't deny it, but I still think these people deserve as much of an opportunity to make money with Bitcoin as the rest of us.

Jack Mallers: Yeah, but I agree. But now you're talking of a totally different use case that people lazily are just like, "yeah, Bitcoin appreciates and people grow wealth with Bitcoin, so use Lightning." You're like, "what? Lightning is not that!" If you are using Bitcoin as a portfolio asset, as a savings technology, put it away, store it somewhere else. Don't touch it and definitely don't spend it at the local pub!

Peter McCormack: Well what I think it is, is it's an opportunity there where he can say to people, "here's your Bitcoin that you've earned. If you want to have some of it in Lightning to spend it, great." By the way, I saw them getting paid. They don't all get Lightning. There's one guy specifically and he said he only wants Bitcoin. They have the choice and the opportunity.

So I doubt he wants an infrastructure where he has Bitcoin and Jack Bucks because that's two things to think about and he does educational sessions with them. He's trying to teach them about Bitcoin, but he can't help the fact that they want to spend a bit. Actually also, this actually helps top up the income of the family because these are quite poor people.

So look, I understand what you're saying. I think it's good, but I think there's a lot of work there to be done and they need help and support and I think somebody really needs to think through this whole situation. What is the benefit to these people? What infrastructure should they have? What wallets should they be using? What education should be provided? And if somebody solves this, you can export this to billions of people.

Jack Mallers: Sure! I think it kind of feels to me like 2017 almost. That's when I first started to get really public about my Lightning involvement, and it was kind of the same thing, is people were like, "oh, it's not ready. Let's focus on UASF or whatever." I was like, "no, someone's got to do it. Someone's got to build an open source wallet, demo it on Twitter, make it humanizable, relatable," and I kind of feel the same type of responsibility now.

Someone's got to start asking the hard questions of, "how many custodial tipping services or screencasts on Twitter can we post before..." Let's figure it out seriously. Why does it matter? Who cares? Why is it valuable? I spent the last four months serious user research trying to understand outside of crypto Twitter, who cheers this thing on because they want Bitcoin to be 50k. Who cares? I can buy coffee with my Visa. Who cares? Someone's got to ask those questions I think so.

Peter McCormack: That means you're in a very different place from when we first spoke in March then. You've been through an experience.

Jack Mallers: Yeah, we did a lot of research with this Olympus thing. So the Olympus release was funny because the amount of beta signups we got, thousands!

Peter McCormack: And you were very excited about the release, right?

Jack Mallers: Of course! We got far too many beta signups, which defeated the purpose of a beta. The beta is like if you have the balls to test this thing, that's really dangerous, you should do it and here's this list of thousands of people. So we're like, "Well, I can't just unleash it." So it ended up being this more controlled beta, but we learned a ton, like why Lightning is valuable and some of the issues that mainstream audience would have with Lightning.

For example, in the United States, buying a coffee with Lightning incurs serious tax consequences. Bitcoin is taxed as property, you incur capital gains and so every single Lightning payment that's outgoing from your wallet, you have to report to the IRS. That's huge! Having Starbucks accept Lightning payments and expecting consumers to report their Frappuccino to the IRS is ridiculous. Volatility for a unit of exchange is a non-starter.

People were buying Bitcoin through Olympus onto their Zap wallet and the price would go up 5% and they'd be like, "fuck spending this thing, this thing's brilliant!" Or it would go down 5% and they'd be like, "fuck spending this thing, I'm going to wait for it to go back up. I'm not spending at a loss." Volatility's just a non-starter for mainstream commerce. Then you have this sort of totally opposing view of mainstream.

So in the mainstream where Lightning is really valuable is I can send money anywhere in the world faster and cheaper than anyone else and the value actually physically settles and clears in real time, so there's no charge backs, there's no issuing credit and debt. This is physical value that's cleared physically, cryptographic proof, in real time. It knows no borders and I can do it faster and cheaper than anyone; Visa, Square, I don't care who you are, anybody.

Now that's value! That has nothing to do with holding the asset, savings technology, you don't even need to know you're using the asset. It's a rail of physically settling and clearing true value. Then you've got this whole other user base where Zap Desktop is by far and away our most popular Zap wallet, which blew my mind. I was like, "How?! Our mobile apps are great."

The reason is because you can download Zap Desktop without giving away any information. If you want to download something from the Apple App Store, you have to give certain amount of information to Apple. If you want to download something from the Google Play store, you have to give certain amount of information to Google. This desktop client can be downloaded from the internet and it comes with a Lightning node. It's totally private and there's this whole other use case where Lightning is a way to conduct truly private commerce on the internet.

So you've got a tale of two worlds where one should be inherently Tor, totally non-custodial, you shouldn't have to spend through any given channel, you should be able to craft your own channels, make your channels private and it's this black box, dark hole of internet commerce that has never been seen before because the value settles so quickly, so fast and so cheaply and you're so private and you can use things like onion routing and Tor.

Now on the other side of mainstream, you've got these user stories of like, when we're doing our testing, would you pay 10 cents for this article? Almost always it's, "of course I would." Now would you buy Bitcoin to do that and deposit to this custodial wallet and they're like, "no, absolutely not. I have 10 cents in US dollars and if that's not good enough, I don't give a fuck." So there's tale of two worlds, like the 10 cent micro payment is really valuable because there's no other asset that can physically clear and settle that value as cheap, as fast and as global as Bitcoin using Lightning.

So that's like a payment rail infrastructure and we can build tools that abstracts Bitcoin away from that user story, so that the user that has 10 cents in USD, is that that's enough. But then you've got this whole other user of like, Middle East is our biggest user base for Zap and they all use Zap Desktop and it's just rampant usage. Tens of thousands of users using this thing, It's crazy! So for my user research, that's kind of where I see Lightning in real world application I guess.

A lot of these custodial wallets, there's going to be a question on everyone's tax reports in the US like, "did you spend Bitcoin or any crypto asset at all?" And they come after people like me and Zap has a big brand and the IRS is coming and custodial wallets are going to have to start to KYC. We saw it happen to Bottle Pay.

Peter McCormack: Yep, that was sad.

Jack Mallers: Yeah, so anyway, long story short, I think Lightning is about to grow up a little bit, in that you can't just create a tool and tweet about it and you're done.

Peter McCormack: Yeah, well so there's a few interesting things to pick out there. Firstly, just observing your process you're going through there. It's kind of like a step change from Jack being the Lightning wallet developer to somebody who's really considering Lightning and as an opinion leader and a thought leader, somebody who now wants to challenge people and say, "hold on, we need to really think about this."

Jack Mallers: Well I just feel responsible to do so.

Peter McCormack: But that's a step change for you.

Jack Mallers: Kind of. My approach to product has always been the same. It's rooted in where I learned to code. It's just a really practical honest approach. As a product builder, the best skill you can have is being a good listener, being patient, being open to being wrong and iterating is the only way to achieve success.

You never hit the half court shot on your first time. You have to listen, iterate, tinker, play with things, try things, not be scared to fail. So I think that this is just a really natural evolution of, "okay, I got it. Everyone's got a tipping service, everyone's got a wallet, so what? Who cares?" How are a million people going to use this thing? And for what? Who cares? A million people are going to have to care. Do you understand that?

Peter McCormack: Well yeah.

Jack Mallers: So there's no point in me wasting my time or our time, like I think of Bitcoin as a giant team, I think I just feel responsible to do this type of research and this work when I put Olympus and Zap in front of someone and all of my assumptions are wrong, that was eye opening for me.

So judging by the community's reaction to Olympus, we all had this similar assumption like, "this is it., this is going to solve things!" And it didn't. So we should just be honest about it. But I'm not opposing Lightning or anything, I just feel that it's the responsible thing to do before we get 100 new custodial wallets. Like, what's the point?

Peter McCormack: But also the second thing, was a number of your criticisms have been put out there before by people who are seen as critics of Bitcoin, maybe Bcashers, maybe Ethereum people. They've made similar criticisms and most people just come and say, "FUD, FUD, you're talking FUD." But sometimes do you think perhaps maybe Bitcoiners are too defensive and not realistic?

Jack Mallers: No.

Peter McCormack: You don't think that?

Jack Mallers: I don't think anything of that topic.

Peter McCormack: But these are the same critiques that I've heard. Volatility is a problem, that the tax obligation is a problem.

Jack Mallers: Yeah, but volatility is a problem based on my user research. I feel confident and comfortable saying that because I've done the research and I don't know, maybe in El Salvador, it's not. I can't speak on that.

Peter McCormack: But is Lightning a toy for Bitcoiners, like Dai is a toy for Ethereum holders?

Jack Mallers: I don't think so.

Peter McCormack: You don't think so?

Jack Mallers: No. So based on our Olympus user research and a lot of things we've done, we've built some incredible products that I'll release after the holidays that I think are going to be really cool. But I think it provides serious value and it is a better payment rail in a lot of ways than the existing tools that we use to make payments. But we'll see. If I didn't believe in this, I wouldn't be spending my time here! So yeah, I spend 12 hours a day on it, so of course I believe in it.

Peter McCormack: All right, so it's going to be a big year next year! You've just hinted at stuff, I think that's about as far as I'm going to push on that. So based on 2020, we consider this stuff in years, what are the most important things that you think that people need to be focusing on then?

Jack Mallers: As far as Lightning goes?

Peter McCormack: Yeah, but also Bitcoin, we can take it wider. Is it really just having this honest conversation then?

Jack Mallers: For Lightning, at least I believe so. I got off the phone with Lightning Labs not too long ago and they were like, "what do you think needs to happen for adoption? What merchants need to start accepting it?" And it's like, you kind of have to humble yourself a little bit, who cares? You can't be scared to ask that question. So I think yeah, having an honest conversation about that, but also let me be clear, there's no one at fault. I'm not blaming anyone!

I think everyone's doing fantastic job and the more tools you can get out into the world and the more people interested in testing your stuff, that's how you learn. It's the only way to learn is you first make it real, you watch it fail and you learn from it and then you repeat that process.

So yeah, I think having the real conversation, I think institutions being involved in Lightning is going to be a huge deal in 2020. I experienced that myself. We've got a little dark pool of liquidity on top of Lightning within the Chicago prop shop trading firms and I think institutional Lightning use will be a huge deal.

Peter McCormack: In what way? How do you think the institutions will be using Lightning?

Jack Mallers: So right now, first of all, I think that a proprietary trading firm, which is a trading firm that trades their own capital, will be the first big users of the Lightning Network and the reason I believe that, well I'm speaking in context of everyone has this fantasy of exchanges that once Bitstamp, Kraken, Coinbase turn Lightning on, it's over. The problem with that is that they're in charge of customer funds. The worst thing that can happen to an exchange is it loses customer's funds, right? Branding done, reputation done, customer relationship done, customer retention done.

So here you are proposing this totally new thing which had a CVE not too long ago, like a few months ago, and asking them to host other people's funds on this infrastructure that's fairly new. Whereas a proprietary trading firm, I'm trading my own money. I got hundreds of millions of dollars of my own money. New technology, if I lose $50,000, I don't give a fuck! Let's play, let's do it! So I'm seeing serious interest from these firms that are managing private capital, the type of risk that they're talking about losing funds on top of Lightning, they don't care. Who cares?

They lose $50,000 every single day. So the reason that they're so interested is now we have the Silvergate Exchange Network, so settling dollars within the community is instant, but Bitcoin isn't. So you have these traders that are trying to pull off this type of arbitrage trades or whatever type of quantitative trades they're doing and they want to swing Bitcoin around. Also, like the OTC space, a majority of the OTC flow is crossing at spot, which means trading with other desks.

So if you, Peter McCormack, are a broker and you have a 50 BTC buy and I have a 50 BTC sell, we shouldn't take that flow to the exchange. We should just trade it against each other. So you have these prop firms and these desks that are coming to me and they're like, "hey, can we set up these large private channels with each other and just cross Bitcoin settlement with each other?

We all trust each other, so if the channel fails or goes down, I'll just call the guy who's on the other side of Chicago and is like, "yo, our channel fucked up. Send me some BTC because whatever, you force closed on me and breached me." And it was like, "Oh I got you."" It's a more trusted type of dark pool network, but then these firms can instantly settle and then you tie that into Bitfinex, so now you've got an exchange, you've got a dark pool of desks that are with each other and then now with Olympus, you've got consumer flow with Zap.

So Lightning all of a sudden accomplishes this vertical from exchange to the OTC desk and prop firms to the consumer of Zap and you can all swing Bitcoin around in real time, settle it in real time over Lightning and you're accomplishing this vertical run of going from the consumer to the exchange and back through all these prop firms and trading desks and it's a fantastic way to improve settlement and efficiency in the market.

Peter McCormack: But these are large trades that you're talking about?

Jack Mallers: Yeah, so if we're trading over a million bucks or something, I would never, but if I'm dealing with a lot of consumer flow at Zap and we're getting five figure orders a day, I can go push that flow off to a prop firm and be like, "I'm on Silvergate, here's the dollars, sling me that coin over Lightning right now, I need it." And it's a real time settlement.

Peter McCormack: You're comfortable Lightning can handle that?

Jack Mallers: Yeah, as comfortable as I need to be. You know what I mean? At what point would I really be comfortable to where nothing can ever go wrong? Never, right?

Peter McCormack: Of course.

Jack Mallers: Bitcoin is in a beta supposedly still. So I'm as comfortable as I need to be to try and that's the only way we'll be able to report a bug or figure out issues. So yeah, it's at a point where we're just giving it a shot. Why not?

If a prop firm has 10 BTC buy order and they want to fill that and they know Genesis has 2 sell, Circle has 2 sell, Kraken Desk has 2 sell, well I'll sling 6 BTC over my three Lightning channels to those firms and then I'll sling the rest over to Bitfinex and execute at spot and all of a sudden, I'm moving this Bitcoin in real time, settling in real time, getting my trades off in real time and that's a drastic improvement.

Before, I would either have to wait for confirmations or I'd have to have enough capital to go front on all of these exchanges and desks where if I had an order, I would hopefully have Bitcoin there already, like fronting my moves. But now this Bitcoins are moving around in real time, it's just like a brilliant...

Peter McCormack: Yes, so what's interesting here is that Lightning was obviously seen as a consumer tool for spending Bitcoin right? But what I'm taking from you here is everything you said so far, you're seeing it more as an infrastructure for financial systems in business.

Jack Mallers: Yeah, I had to tweet someone a long time ago. I've always felt that Lightning was marketed in a really lazy way. The fact that Lightning was always marketed against Visa, I felt was just kind of lazy because we don't know... There's that infamous Harvard Business study where they were trying to help a fast food restaurant sell more milkshakes and the restaurant was like, we've come up with all these different flavors and we couldn't figure it out" and the Harvard Business School was like, "You have to think of things as if people are hiring a tool.

So when someone orders a milkshake, they're hiring a tool to perform a job for them" and they realized that milkshakes are mostly sold in the morning because people like to suck it through the straw on their commute to work. If you've got a bagel with cream cheese, two hands and the phone rings and you've got to switch lanes, it's a disaster. Bananas are healthy and fine, but they're gone before you even get on the highway.

So a milkshake, you can suck it through this little straw, you're full until lunch and it takes you your whole hour commute to finish it and you can do it with one hand. So what Harvard did is they made the straw a little smaller so it was harder to suck it through and it lasted longer, and sales went up. So I think that type of product approach is much better. It's really lazy for us to be like, "oh Lightning is a payment rail, well fuck Visa. We're here to fuck you up!"

Maybe, but maybe not. We should think like, "Why do people hire Lightning? For what purpose? Why does it actually matter to them? What else would they hire if they didn't have a milkshake, if they didn't have Lightning? If I don't have a milkshake, what else am I hiring?" So as a milkshake's competitor, not ice cream, but maybe a bagel and a banana in the morning, which you never would've intuitively thought, but just through this type of product approach.

 So I think we need to have more of that. I always thought Lightning was really lazily marketed as like, "it's a scaling solution? All right, fuck Visa." Which could be true, but also could totally not be true.

Peter McCormack: So Bitcoin is a secure, honest financial system and Lightning is the way of moving money around that system fast?

Jack Mallers: Correct! Yeah, Lightning was intended to be a throughput increase because Bitcoin had this famed up to seven transactions per second and Lightning was going to improve on that metric and enhance some privacy along the way just by the design of the system. But that was it. Now does that scale to consumer use? Maybe. Does that help efficiency and settlement of the liquidity space, which has been the most important sub-sector of this industry?

It's the only profitable sub-sector, right? Exchanges are the only real profitable businesses. Traders are the ones really printing money. The liquidity space is the one that attracts all the talent and it attracts all the money. So yeah, if I can walk into a prop firm and say, "you guys want to pull off this arbitrage where I can get you to swing Bitcoin anywhere in the world and settle instantly?" They're going to be like, "sign me up! What are the risks?"

"Well, if a channel fails, you might lose $50,000." "I don't give a fuck." That's what first movers do. You take that risk, you wear to it to the face and if it works, you win. If it doesn't, you lose. But that's the game that traders and these guys play.

Peter McCormack: Okay, but this is a very different world from a lot of people have seen it.

Jack Mallers: Yeah definitely. But like I said, why would anyone hire Lightning? For a prop firm, it's become pretty clear to me and I think that's a much healthier way to think about the product is like, why are you hiring it? A lot of people hire Lightning today to be part of this Twitter movement and be able to tweet their screencast and stuff, which is a perfectly fine use case, because they are hiring it. But does that scale globally and are we providing real value? Why would anyone hire it? That's what I always ask is like, "Tell me a story, why'd you hire Lightning?"

Peter McCormack: I use Bitcoin, I've told you this before. I invoice in Bitcoin and it's just easier for me and I convert 75% of every invoice back into pounds to run my business and the rest I leave in Bitcoin as a saving mechanism. The only way I use Lightning is people tip me, I don't buy stuff with it. Occasionally, in things like when I was out in Uruguay and Jimmy Song bought my dinner, I paid him back in Lightning just because he wanted it, but I could have just as easily given him dollars.

Jack Mallers: Sure!

Peter McCormack: I still don't think... I'm with you on I don't think that big retail use case exists and I think if you're going to be trying to sign up retailers, it's going to be hard. But yeah, I think you're on to something there.

Jack Mallers: Yeah, well I'm on to something, I'm also not onto something, just like a really blunt honest approach to product is usually the most efficient way to make progress.

Peter McCormack: Yeah man. Well listen, we did our hour already.

Jack Mallers: Really?

Peter McCormack: Yeah, that flew by! Okay, so look, what do you want to tell me about what's coming up next year?

Jack Mallers: That I just have some stuff to release. So yeah, I'm trying to release it shortly after the holidays. The holidays kind of got in the way, but I'm pretty excited and we'll see. It could go really well or it could be super fucking awful and both would be okay.

Peter McCormack: Am I allowed to talk about the fact that I know what it is, but not tell what it is?

Jack Mallers: Sure.

Peter McCormack: I know what it is and I think it's fucking badass.

Jack Mallers: Thank you, man. I appreciate it!

Peter McCormack: So I'm going to talk about in an abstract. I know what it is, I know exactly how I will use it, I know plenty of problems it solves and I've got real world personal use cases that it will solve, so I can't wait for you to get it out there and for people to see it. I think you're really on to something here.

Jack Mallers: Appreciate it man, thank you!

Peter McCormack: I've given nothing away there, have I?

Jack Mallers: No, you're fine. Thank you.

Peter McCormack: Jack, tell people how to follow you.

Jack Mallers: I wasn't smart enough to come up with some abstract private name on the internet so it's my full name everywhere, @jackmallers on Twitter. My DMs are always open. Like I said, you're going to include the accident thing, so Bitcoin is a family to me. Like my dad was hinting at, Bitcoin goes much beyond making money or making products, it's really a huge part of our family, so I appreciate everyone and thank you for the support.

Peter McCormack: All right man. Any closing words, Cookie?

Bitcoin Mom: A happy holidays everybody!

Peter McCormack: Bill, do you want to say goodbye?

Bill Mallers: No!

Bitcoin Mom: He's always the quiet one.

Peter McCormack: All right, well listen, thank you for having me over.

Bitcoin Mom: Thanks Peter, we love you!

Peter McCormack: Thank you for the lovely food last night, and I'll see you in the new year!