WBD250B Audio Transcription

All Things Bitcoin with Andrew Poelstra, Giacomo Zucco, Jack Mallers, Matt Odell & Nic Carter

Interview date: Wednesday 5th July 2020

Note: the following is a transcription of my interview with Matt Odell, Giacomo Zucco, Andrew Poelstra, Jack Mallers and Nic Carter. 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.

For my 250th show special, I asked some of my favourite Bitcoiners to join me for a panel discussion. In this episode, Andrew Poelstra, Giacomo Zucco, Jack Mallers, Matt Odell, Nic Carter and myself discuss all things Bitcoin.

“Bitcoin is a technology that is built for people that are paranoid and prepared, and unfortunately, the world has delivered on that paranoia this year.”

— Nic Carter

Interview Transcription

Peter McCormack: Thank you, all of you, for coming on. 250 shows, which is kind of amazing! I did the numbers beforehand and between you, you've done 19 shows for me. So obviously a massive thank you to all of you. Nic Carter has done five, but he's not here, so like I said, we'll give him some shit. But anyway, loads to talk about, Bitcoin's tearing, it's been a very interesting time. I'm going to go with you first Giacomo. We're in very unusual times, 2020 has been so weird. It feels like it's a dream.

Giacomo Zucco: Crazy, right?

Peter McCormack: Yeah, crazy man. A lot of it, which is good for Bitcoin, but with a lot of bullshit happening because of that so it's hard to get too excited sometimes. But how do you take all of this in right now, as the most anarchist person I know?

Giacomo Zucco: Well I think that a part of me has some kind of psychological pleasure in the fact that the unsustainability of the present fear system is becoming obvious even to the average Joe. So even my parents or my school friends, kind of understand that the system is fucked up, which for me, is like a step up in the respect and consideration.

But that is counterbalanced by the fact that the shit is happening is actually scary, is the death of a system is never really smooth, is never really just... It's never really just an upgrade into something better. There is always some kind of collapse that you have to go through and yeah, 2020 is pretty scary as a year. Anarchy-wise, I think that it's not really a moment in which we see the ideas of liberty, freedom, and property taking very seriously by people. People is clearly, the criticism toward the current system is becoming very, very clear.

Everybody's unhappy and angry with the current system. Everybody knows that the current system is not sustainable. The problem is that the alternatives that are being proposed are not, strictly speaking, libertarian. I think people is just oscillating between Soviet communist man, and then crazy fascism. But you cannot change if you don't get out of the status quo and the difference between me and the pre-Bitcoin, the no-coiner anarchists that there was in 2012, is that now for the first time, I see not just an idea to follow and some logic to explain, but I see some instruments, some tool to make things better and of course, that tool is Zuccs bucks, my new shitcoin!

Peter McCormack: What about you, Andrew? You're the freak amongst us, as we sit out and fight on Twitter most days, I mean Jack's not often there, Jack sometimes comes in and says hello, but you're not even on Twitter. Do you even know what's going on in the world?

Andrew Poelstra: So sometimes people send me messages about Twitter, like a Signal, or I'll receive Signal messages as Twitter links and then I'll try to open them and it will say, "Oh, JavaScript disabled. You're not able to read this." But I can maybe guess, and then I ask them, what did this post say? So I do read Twitter, but I ask people to read Twitter for me and some stuff and I understand that, yeah, there's some sort of...

There's a virus now? But I don't know what it's called. I'm not sure. So I understand that might be affecting the price and that's maybe that's my hypothesis is that perhaps, whatever this virus thing is, it might have something to do with the Bitcoin price, but I'm not sure. I don't know a lot of these details. I'm not a scientist, I'm a mathematician.

Peter McCormack: Well you need to stay in your bunker and keep coding, man. What about you, Matt? How you doing, man? We've had some battles these last couple of years. You well?

Matt Odell: Thanks for having me on again, as always. Just to echo what Giacomo said, I think a lot of no coiners or Bitcoin deniers would like to group Bitcoiners into this camp that we are rooting for collapse, that we are rooting for chaos and that can't be farther from the reality. The reality is that we see chaos coming, we see the potential for chaos, for the potential of collapse, and we think people should have an option, that people should be prepared and they should have an option, a way out to try and minimize those negative effects.

Peter McCormack: And Jack man, how are you?

Jack Mallers: Yo, congratulations buddy, 250!

Peter McCormack: Did a few including the Mallers family, including getting a little bit stoned at your mum's house once and popping in for Christmas and getting a steak from your mum, which was awesome. How've you been man?

Jack Mallers: I'm good, dude, hanging in there. Just like everyone else, trying to survive the year.

Peter McCormack: Yeah, well listen, you're the youth amongst us here. How do you make about what's going on with everything in the world right now?

Jack Mallers: I agree with previous comments. I think what's interesting is, as Bitcoiners, we've all seen this coming. You can rewind any of our interviews and we've probably hinted or predicted some variation of this, but it clearly fucking sucks man, to live it. No one's a fan of what people are going through. Unemployment rates, people getting sick, yeah, and generally the world changing is scary, no matter in what direction. So I think it sucks to live through. Now with that being said, as a trader, I'm loving it.

This is where you make your penthouse money is when there's chaos, where there's inefficiencies in the market, when from the top, down in hierarchy, no one knows what's going on. So as an entrepreneur and a trader, I live for these moments. It's why I joined and committed basically my entire life to Bitcoin is I think that this type of year is not a one off case as the public is really starting to describe it. It's not an accident and so I feel really confident in the work that we've all done over the last decade.

So there's a split, of course it's really painful and sad, there's people that really I'm close with that are going through a lot and I wouldn't wish that on anyone and especially to see people, family and friends that I'm close with to go through this is terrible.

But at the same token, a lot of risk and a lot of hard work was put into this asset class that is Bitcoin and just generally trying to prepare myself as a millennial to be an adult in this world and so it's validating to see all that's happening and to see Bitcoin trading at $11,000. There is a sense to me that is really enjoying profiting off of the chaos a little bit, I have to admit it.

Peter McCormack: Did you take out 100x leverage long?

Jack Mallers: Oh no, come on man, I'm not allowed to. I don't think there's a US exchange that allows me to do that.

Peter McCormack: You've not got a VPN??

Jack Mallers: We're trading for sure.

Peter McCormack: All right man, well listen, look, I do want to ask one more thing about this and again, back to Giacomo. So Giacomo, this is a really, really tough question. So rather than telling me, I was going to ask you, how does this play out? But that is a really tough thing. But maybe a better way to frame it is, best case scenario, how do you think this all plays out over the next 10 years with a little splash of realism?

Giacomo Zucco: Well best-case scenario and a splash of realism are a bit conflicting a request here. I think that realistically, we can expect the political world to just do more of the same. So things that are not that new, like manipulation of the stock market to try to keep... I mean, now you can see companies that are in chapter 11 and their stocks are just trading higher in the stock exchanges, something that is the same old trying to pump the stock market by printing money, but the levels that we reached are unprecedented in at least in this phase of human history. Then you have the reserve requirements for commercial banks going to zero.

It's like every discussion about politicians losing control of the monetary leverage for manipulating and sustaining their sustainable bubble of the fiat economy is just coming to its end. So the point that makes it difficult to make a prediction is especially the timing. Usually the analogy that I really like is not a very happy analogy, but it's a good analogy. So you have a friend who is a junkie, he's on heroin and you know that he's just increasing the dose every time and every time he feel bad because of withdrawal, he would just increase the shots. So you know how it's going to end.

You don't know when though, because maybe your friend is Ozzy Osborne, so he will just survive incredible doses of drugs for 60 years, but you don't know that. So you don't know how much an organic system can go on in a situation which is a clearly unstable equilibrium with the positive feedback loops. So I think we land in hyperinflation and a chain failure of the real economy, which is basically already happening. What I didn't predict and what is very surprising is the rationalization that people will want to put on top of this basic monetary dynamics.

So if you asked me one year ago, "Will the system crash?" I will have said, "Probably, yes." If you asked me, "How will people explain the crash?" I would probably have answered you, "Well, they will finally understand that the monetary manipulation was unsustainable." That's not the case. People will create very strange narrative in order to support the chaos that is arriving. So it could be a medical narrative, it could be a racial narrative, it could be a geopolitical narrative, maybe a new war or something like that and that stuff this year is unpredictable.

So I think we are going to see the collapse of the central bank standard policy in a matter of a few years at this point. I'm trying to challenge this catastrophic view, but how can you realistic imagine a situation in which they can kick the can down the road for 10 years? Can you see that? I cannot.

Peter McCormack: No, maybe not. Andrew, were you about to chip in there?

Andrew Poelstra: Yeah, I think so. I think maybe your timeframe is just too tight Giacomo. So when you talk about there being hyperinflation, when you talk about the inflation increasing right now, so it's true in terms of monetary supply and you're certainly right that we are printing money to some precedent and we have been for the last 10 years.

But how that translates into price inflation, so the cost of ordinary goods and services, and this is really been a surprise to me, but it seems like outside of a few key sectors, which are real estate inside of big cities, healthcare in the US, and education and very popular universities, outside of those three sectors, we've seen the price of consumer goods, the price of retail appliances, the price of food and stuff, and that's stayed flat or even lowered.

We see central banks that are worried right now and in the immediate term about deflation, about price deflation, to be clear, certainly not monetary supply deflation. Although, with this current pandemic, there has been such a demand collapse that we're seeing a lot less lending and so the monetary inflation that's caused by a fractional reserve is also contracting. So you're actually seeing a bit of a monetary supply contraction, and I appreciate that's just this year while we're having this pandemic and if we're talking about a 10 year timeline, certainly we're going to be long past the local effects.

But even before this year, it seemed to me that we weren't having as much price inflation as I expected and I've been surprised by that. I don't know how to square that with the logical inference that all of this rampant money printing is going to come in and collapse. It just seems like it's not happening or it's not happening on the timeline that we would expect, or it's not visible in the ways we'd expect.

Giacomo Zucco: Well, one other suggestion could be, sorry Peter, if I just answer to this and then I'll leave it on. One suggestion could be export of inflation. So from especially looking at it from a US point of view, because the dollar is the base, the pillar of the monetary system, there is a lot of exported inflation with the fact that the dollar is the base of most of the international commerce.

So you can print here, but then you export the price inflation in consumer goods outside, because that's the way 60%, I would say of the economy goes. Then the second point is that, you're right, there are key sector in which is like the money, which gets printed is not like no strings attached. People is mostly receiving that in order to buy stocks, to pump the market.

So what you're seeing in the stock market is clearly consumer good inflation, but this particular consumer good, like stocks, is just stock exchange shares basically. So it's probably like a very localized Cantillon Effect that enters a specific market, inflates the price there, and then it's stopped there because liquidity is very low, but then eventually can break free and if it does, people with both stock are not forced to keep stock forever with the money that they received at the negative interest.

Peter McCormack: One of the things I don't really know or understand, and I'll put this to you Matt, is that I listen to someone like Giacomo, I completely agree with him and I see the potential collapse of central banks. We're starting to see this with the collapse of currencies in smaller countries, high inflation in Turkey and we could see this kind of chain reaction effect, we could even potentially see hyperinflation in the UK or the US. People are saying it could happen.

What I don't know is that, does this move us to a place where we have a more responsible monetary system that follows that? Or do we just do the same again? Does the dollar get devalued? Does the pound get devalued? And we just carry on on the same road and on the way, we pick up a few more potential Bitcoiners.

Matt Odell: Well to be clear here, I'm definitely not an economist. But to echo what Jack said earlier, one of the cool things, one of the positive elements of this current situation is that really no one has any idea what's going on, this is all new territory. Even the specialists are trying to figure it out. So there are a lot of inefficiencies in the market and there are a lot of opportunities out there for people.

What I would say is, I think, if Bitcoin didn't exist, then we would end up with more of the same and the beauty here, one of the reasons I devote so much time to Bitcoin is because individuals will have the option to opt out of that and I think nation states and governments and just the powerful people around the world that have co-opted governments, they will begrudgingly come along eventually. I don't think we can expect them to just out of goodwill reform our money system or reform how our financial system works.

Peter McCormack: I think it's a very strange time and I think you put it well Jack, that it's obviously terribly sad. There are people losing their jobs, there are people dying in this pandemic and it is really sad. But I did also have a phone call this morning with my old business partner. I had the agency in London, I hadn't spoken to him for probably a few months and he was telling me about business.

They were about to take out a two year lease in central London, a new lease for two years and they've cancelled it because they're all working from home, they don't know when they can be back in the office. He said to me, "Oh, we've decided now that we're going to stay working from home" and also, that solves another problem. They don't have to explain away the confusion when maybe they've got a developer in Amsterdam or in India.

So they're going to become a remote business. They've all benefited from it and they've all had more time with their family. I'm the same, I've not been travelling, I've had more time with my family, I've exercised more and also, we're starting to see people reject things or question things like, "Should I be spending $50,000 a year going to college?" So do you see this potential societal shift that actually benefits people in other ways outside of just a collapse of the money system?

Jack Mallers: Yes, I have a few thoughts on this. The first, thing like remote working to me is so painfully obvious and intuitive. Zap has been remote ever since I started it out of my bedroom. The access to developers that I have is global. Some of my most talented engineers are getting paid 60 grand a year because that makes them wealthy in their block of Serbia and while some jackass is paying someone 150 grand in San Francisco.

So it's so painfully obvious to me, you should be doing your work where you're most comfortable, where you're around your family, where you feel like you can contribute to the company the best and so I think there's a broader point. You're maybe going to laugh at this, but a lot of change to me comes with like older generations dying, honestly. There's a strong correlation to the legalization of marijuana here in the US with older regulators and those senators and local governments just getting too old to run in office. Then you get younger office that legalizes things like marijuana and is more progressive towards things like Bitcoin.

So I think when we talk about a shift, I think a decade is probably too short of a timeframe in my opinion. Markets can remain irrational far longer than you can remain solvent, type of idea. So the points made earlier I think by everyone is, you can't really predict. My step mum's favourite line is, "Bitcoin went up $500. Why? Can you and dad tell me why?" And I'm like, "Yeah, the correct answer is more people bought than sold, but if you want me to say it was because of the fucking coronavirus, you just never know." So the only things I like to speculate on are where I'm confident I'm an expert.

So I think in the next 10 years, Bitcoin will be a trillion dollar asset, I can tell you that confidently. But outside of that, I don't know. I think the world will probably slowly change as old people that don't like pot, that don't like Bitcoin, that are angry, they'll die, and when my generation is in office, I know that if I was the President of the United States, the country would probably be a bit different. So I think change just takes time, longer than we expect.

Giacomo Zucco: Are you announcing the campaign, Jack? Because this would be a great part of the show!

Peter McCormack: Yeah, I can't vote for you, but I would.

Jack Mallers: If you think, for me, I have such a interesting view on a lot of the stuff and not unique though, there are plenty of people my age, but all the kids that I'm friends with, we look at the world very differently than a lot of people I argue with on Twitter. Bitcoin to us is very native. We grew up in the internet, I've never written a check before, I've never had a credit card, I've never been in debt.

The concept of me going to the bank and just borrowing, it doesn't make sense to me. Bitcoin's so native to me, whereas contrasting to people my dad's age, we argue at dinner parties and such very frequently. So I think it is really a coming of age and is the speculative question, do I think that the older generation is going to come around to Bitcoin before they die? Or are they just going to die? That's kind of my point, if that's...

Peter McCormack: Die.

Jack Mallers: That could be a really weird, unique point, but I think yeah, the world can remain irrational for, I don't know, 50 years or so. Maybe I'm still using the US dollar when I'm 80 years old, I have no idea, but I can confidently say in the next 10 years, things like remote working and Bitcoin being a trillion dollar asset, I'm very confident in things like that. But outside of that, speculating on if we're going to enter a Bitcoin standard or Bitcoinization, I think you might as well have a glass of whiskey with that conversation. You're just fucking around.

Peter McCormack: Yeah, it is a funny time because when I was growing up studying history, we studied some important events that happened. We studied the French Revolution or World Wars and I felt like all the cool shit had happened in the past and I was just living in a time whereby we just live this normal time and we've got past all the crazy stuff.

Now I'm looking at 2020 and I'm thinking, "No, we are living in one of those times that will be taught in history" and whether it's 2020 as a specific year, or perhaps it's this decade, I do feel like we're living in a weird revolution, a unique revolution. In some ways, this feels like the digital revolution, not the invention of the internet, where actually it's empowered things and I feel like a lot of things are changing. My son asked to buy Bitcoin for the first time this week and also said he's not going to go to college. He doesn't want to go to college, he doesn't see any point in it and I just can't help but feel like we're in this societal shift and I'm seeing you nodding a lot, Giacomo.

Giacomo Zucco: Yeah, I'm nodding especially because I think that theoretically what Jack just said about old people and Bitcoin shouldn't be true, but practically is. I said it shouldn't be true because I know that most people that were born the half of the last century, they should be even more familiar than us with some of the things that Bitcoin represents. For example, all the regulations about the crazy mafia of...

KYC, AML, this crazy idea that you should incriminate innocent people before any crime is even committed just to follow any private transaction. This is something very recent, it's like something starting in the seventies and really, really exploding after the 9/11 in 2001. So my grandfather is dead, but my father in theory spent half of his life in a world where KYC regulation didn't exist and, it was just natural that you could just take your money out of the bank for whatever reason, without giving any justification. Even if you talk about the inflation, the dollar really went into the crazier ride without any peg with the dollar only in 1971.

I'm in Switzerland now I'm in Lugano and the Swiss Franc kept the peg with physical gold in the central bank until the end of the 80s. So in theory, there is a lot of old people that should remember a war that was way less crazy about inflation and surveillance than, than there were now. So maybe Bitcoin could appeal to them from the monetary fundamentals of more... Jack said that he's not getting any debt, so he's basically doing like what our grandfathers were doing, saving and investing instead of borrowing and spending.

So it's something that is getting back in a way, but probably that they don't understand that any way because while the monetary fundamentals are actually turning back with Bitcoin a lot, the technological instrument is so alien, so exotic for them that they just forget it. For example, some very positive things coming out of these lockdown craziness are for sure remote working, but especially homeschooling. I think that many, many people start wondering what the hell I was doing, paying all that money to sending my kids to read stuff that is just outdated compared with stuff on the internet. So I think that the homeschooling fallout of this situation will be huge and that's positive, I think.

Peter McCormack: Welcome Nic!

Nic Carter:  Sorry I'm late guys, I'm half an hour late, which is pretty unforgivable.

Peter McCormack: No, it's totally forgivable. So what do you think on everything we just discussed?

Nic Carter: I think Andrew Poelstra made some really great points, I hated what Giacomo said, Matt Odell has got a pretty cool hat, so it sounds like he said something sensible!

Peter McCormack: So we started off by just saying like crazy fucking year 2020 just gets weirder and weirder, even yesterday having what looks like the biggest bond gone off since the Second World War just adds to this year and how terrible that is.

But it's a very, very strange year, a very good for Bitcoin, but like not always easy to enjoy because there's a lot of suffering going on, but we're kind of at that point where we're thinking about, or really as posing the question is that there seems to be some quite interesting societal changes coming, not only with money, but people reconsidering college or Giacomo mentioned in there homeschooling and maybe there's a geographical change to work, as a lot of people are going to work from home now. So how do you, Nic, take all of that in, and what's your interpretation of this year so far?

Nic Carter: Yeah, Bitcoiners get accused of having this, I don't know how to say the word exactly, eschatology like eschatological doctrine. I don't know if that's exactly right where we fixate on these doomsday scenarios and these end of times situations. I take issue with that slightly, but yeah, we're naturally paranoid. Bitcoin is a technology built for people that are paranoid and prepared and unfortunately this world has delivered on that paranoia this year and it's getting more chaotic and I don't expect it to get any less chaotic for the foreseeable future.

I think a lot of us see it, see it as we're at the nexus of a really significant historical transition from an era that was, Pax Americana, we're in the waning days of the American empire and the is going to get a lot more dangerous and, and destructive in the next decade or so. There's a monetary transition happening, which is obvious to anyone who's looking at the stats. So the technology that we kind of believe in, it can protect us from a small element of that chaos, not the whole thing, but at the very least the one thing that we're working on is going to potentially help safeguard the wealth of millions of people.

That's not going to save them from discord or famine or warfare, but it'll help with one thing that matters a whole lot. So unfortunately we're basically being vindicated right now it's going to cause the miseration of hundreds of millions of people. But I'm glad that Bitcoin exists and I think it's going to provide a lot of value to humanity in the next couple of years.

Peter McCormack: So the one thing you did miss at the start Nic, is that obviously a warm thanks to all of you for joining, it's 19 shows between you, of which Nic, you've done five and I think you're up there as like one of the most regular guests. So a massive thank you, I couldn't have done this without the kindness of your time. What I did do is, and it wasn't like just randomly picking all five of you as well, I picked you up just for different subjects and Nic, I picked you because a lot of your analysis is very interesting, especially with regards to the markets.

You corrected me on something on Twitter the other day, thank you. I asked Jack to come on, because I want to talk a bit about Lightning and Andrew on to talk about the tech, I wanted Matt to talk about just like the hardcore Bitcoin stuff and got Giacomo on just to do the weird bits! So I appreciate you coming on. But we should work through some of this because when I started the podcast, it was back in November 2017, I'd only been in Bitcoin properly for eight months and experienced a bull market and a lot of crazy stuff. Now I've been through a bear market, but it would be good to cover some of these issues. So we could start with you Andrew, can we get a bit of a tech update?

Obviously the big thing happened at the moment it's Taproot. Most of what you're going to talk about, I'm not going to have any idea what it's about, but I did see some rumblings on Twitter about Taproot, some things to do with Taproot nodes, spamming, non-Taproot nodes and so can you give us an update on what's going on here?

Andrew Poelstra: I can give a bit of an update. So I can tell you that in the last month we finally got the community started thinking about Taproot activation. So this is something technology-wise that we've been developing for quite a while, arguably since the beginning of 2018, I hope, might've been 2017. But there's now there's an IRC channel there, the Telegram group talking about activation, and this is a tremendous amount of activity and this was unlike any and I'm not sure what analogy I can draw to earlier activation scenarios in Bitcoin.

Taproot is, in terms of the scope of it, is maybe bigger than anything that we've deployed except SegWit. But it's like if, 10% is hard to say, but it's actually fairly well contained because you're just creating a new transaction output type. If you just want to use this output type, they can, this gives them all the extra Taproot features and if they don't, they can sort of just look at us say, "Oh, that's probably fine" and just look the other way, that's how a soft fork works. Whereas with SegWit we are changing the transaction format, we were moving witnesses out of the transaction, which meant that peer to peer layer had to change and here's all this extra data that needed to be hung off all these transactions.

So the result was SegWit was not only very difficult to deploy for all the usual reasons that coordinating into playing the fork is to deploy, but it was also scary to deploy because the peer to peer network was changing in kind of a fundamental way. It was changing the way that transaction to propagate, which is scary because if you screw that up with transactions to propagate, you have a potential that like false appears or something.

Even if everybody agrees on what's a valid block and what's not, they might not agree on what transaction they've seen and then you have chaos. Fortunately that didn't happen with SegWit, but what's nice with Taproot, is that we don't have that risk, like that's not a risk category that we have to think about here. So you might think that this would be like one of the earlier changes, like introducing up CSV, say what to the way that you can make coins that are unable to move until they're a certain age for example, that's like a fairly minor, very narrow, localized change that there wasn't a whole lot of argument about and there wasn't a whole lot of discussion.

People kind of agreed that it was a good idea and some people who had the ability and understanding to deploy it around the network did, nodes more or less updated and didn't really think about it. What's new with Taproot is there are so many people who care about this, which is really fantastic and this is a really good thing about Bitcoin, but like for example, six or eight... This is a year ago, Steve Lee and a few other people organized these Taproot workshops, the folks at Bitcoin OpTech, which publishes a tech news center, organized these workshops where you could sign up for this workshops, do this Python notebooks, they've worked through all the tech details of Taproot, create Taproot transactions, see how they would look on the network, all that good stuff.

Steve asked me and Peter and Greg and a few people to come up with us and we were expecting to get 10 or 20 people to sign up and like all the usual suspects on IRC. Instead we got like 150 people, which was incredible and it blew us away. We had 150 people, so we had to split up the workshop and do multiple sessions. I physically went to a couple of days because we didn't know about the virus yet and it wasn't just those of us who aren't on Twitter, like everyone thought it was cool. I went to a few days and people were really engaged.

It wasn't even like they were like showing up, like kind of sleeping in the background and not doing anything, people were asking good questions. We actually iterated a fair bit on the design because of the kind of stuff people were contributing. So to answer whatever your specific question was, which I've now long since forgotten, there's so much activity now that I actually don't know the specifics every day, as there is a different specific issue that people are talking about. In general, the impression I get is that there is a lot of activity and a lot of people would notice something and then bring up a concern and then other people reply and then there's good discussion, productive discussion, but there isn't controversy. 

There isn't like people saying Taproot is a bad idea, or this is a fundamental flaw. This is really going to change things, this is really going to break things and it seemed like all of the activity is basically excitement and positive iteration. Where you see people concerned about technical problems is maybe that they get overexcited or maybe that we need to change something, but this isn't some fundamental clash of personalities and classroom visions or anything like that, it's just technical iteration. That's surprising because it's happening on such a large human scale, that so many people are doing all at once.

Peter McCormack: Just to be clear for like a moron like me who has no idea what he's doing, when Taproot activates, I won't really know, right? It's just this benefit in the background within Bitcoin, but for most normal users, they just would have no idea.

Andrew Poelstra: Yep, that's it, that's exactly right. What you will find is that going forward there'll be slightly less pressure on the fee market, privacy story will be slightly better, there will be some things that you can do on Bitcoin that will feel like they're just like iterative improvements.

But in fact, there were some certain limits in the protocol that no longer apply in Taproot that to make that possible or make it tractable to compute or make it tractable to program because there's some stuff right now in Bitcoin that is so complicated, even though we know we could do it, everyone's scared to, and Taproot has some simplifying things to make us less scared.

So yeah, as an end user, it's just going to look like progress continues as usual, but actually there's a bunch of barriers to technical development that walk through there anymore.

Peter McCormack: Go on Giacomo.

Giacomo Zucco: Of course, you should also update your node and I know a lot of Twitter friends that will help you with that. So just that it's going, a lot of people will generously help you with the updating of your nodes.

Peter McCormack: I'll update all three of my nodes! I reviewed the Taproot code last week, I spoke to Matt about this. I had a look at the Taproot code and I was happy with it.

Andrew Poelstra: I really appreciated your comments and that was clever what you developed actually through the protocol, it's much more efficient.

Peter McCormack: I didn't find anything wrong with it, so we're good to go. What about you, Jack? Do you want to chip in there?

Jack Mallers: Yeah, I just want to ask Andrew, as long as I have the luxury of being on a call with him, this is pretty sweet. So a lot of the noise about old nodes, needing to update is like what people are calling this Taproot patch, which would void some type of spamming. But it seems like those that are yelling about this and characterizing it as like a quasi, like in the family of hard fork, because it's in the sense encouraging and almost requiring people to update. Isn't that severely disingenuous for a lot of reasons?

But I think it'd be cool if you just touched on that because it seems to be a lot of the public conversation coming from what is historically malicious people towards Bitcoin and for the listeners of the podcast, I personally would love to hear you touch on it, but then I also probably would be nice to clear that up for those listening, because I've seen it on Twitter now, like 10 times.

Andrew Poelstra: Of course, I'm not sure I can give you like a nice, disingenuous kind of soundbite, but I can give a bit of nuance to this, which is whenever we do an update like Taproot, we think a lot about technically how we want to plan the update. Sometimes there's an update mechanism that's particularly elegant or clean or reliable or something that we find is that would go much better. If nodes had other updates to the way that they propagate transactions, it's a way that they decide what goes in the mempool or the way they manage their denial of service limits or the rules for banning any peers, it would be nice if we could propagate transactions in a certain way today, you can't do it because we have denial of service rules.

So wouldn’t' it be nicer if the network were such that we didn't have those rules in our way. So you see something like this, where in order to update in a way that we would like to, for technical reasons, we maybe need nodes to update their software, to have slightly different transaction for a peer validation rules and if people don't update them, okay, fine, we'll just have to find a different way to deploy Taproot that's maybe a little bit less clean and so on. If people don't want to update the Taproot, certainly, that's their prerogative.

This is an open network, there are no kinks here, there's nobody who gets to dictate what updates happen, but to the extent that people trust the Taproot developers and they trust the core like community of whoever's doing technical stuff on Twitter, which is actually pretty large. It's a few hundred people now, with SegWit it was a smaller group. It's still larger than people that just say it, but it was a much smaller group to the extent that people trust that set of developers and that set of network architects to deploy something like Taproot, it seems silly that they would be willing to go along with Taproot, but unwilling to go along with like a pre-Taproot kind of update phase that doesn't even touch consensus.

So that only affects their denial of service rules on the peer to peer layer. So I guess the short soundbite answer that all of this is voluntary, that if people want to update their nodes, they're welcome to update their nodes. Nobody's being forced to update their nodes. It's not like... Saying that we're making people update their nodes so that Taproot will work, is really disingenuous because of course we can't make people update their notes for Taproot, we can't make people update their nodes for this Taproot update any more than we can make people update their nodes for Taproot, in either case it's a voluntary choice that Bitcoin validators are making when they choose whether or not to update their nodes.

If people don't want to do that, there's ultimately nothing that the developer community or nothing that any community can do to change that and if people don't do it, we can't deploy Taproot. We would be deploying Taproot into a network where nodes aren't updated and where it wouldn't be safe to do so.

Peter McCormack: So we should export this soundbite and post it to Mikeinspace and let him read it or let him hear it.

Jack Mallers: Yeah, well I think the point, or at least my opinion of digesting, it's obviously optional, by definitions like how Bitcoin works and if you don't upgrade then what can already happen today will happen. You'll probably just see more like bandwidth being used, but it's not like, I don't know. I just want to kill it. As long as we're on a podcast that gets listened by a lot of people, it's probably worth killing that narrative.

Andrew Poelstra: ... A consensus change and even if it was, which is not, it's voluntary, that's the way that updates work. Whenever people are talking about being forced into updates and Bitcoin is kind of disingenuous, what they mean might be like, they're worried that the rest of the network isn't going to update without them and then there'll be at a disadvantage and okay that's part of living in a society. 

That's sort of ultimately an aspect of personal sovereignty, as soon as you want to depend on anyone else and interact with anybody else, you kind of have to go along with what's was the way they want to interact with you and that's something that Bitcoin can make more transparent. Bitcoin can't change that and Bitcoin shouldn't change that, but it makes it more transparent certainly and maybe that's why there's more yelling about it. Maybe that's a good thing, when you see people complaining and saying there's transparency where there didn't use to be, but that's the situation.

Peter McCormack: Assuming you're dialled into a lot of this Matt?

Matt Odell: Well the concern is that obviously there's going to be a subset of people that are going to be running older nodes that do not want to update to Taproot. If they don't want to get a ton of invalid transactions, then they're going to have to update the patch. They're going to have to put a patch in there to improve their bandwidth situation. If they don't, then they will get more invalid transactions than usual and their bandwidth usage will go up a bit.

But it doesn't seem like the end of the world to me, especially since they can put a patch on the oldest software, they want to write the oldest version of Bitcoin core, they can just... There's reasons you shouldn't be using it, but they could just slap a patch on that and switch. Basically the idea is you put the witness, the witness is part of the transaction ID, am I correct in that Andrew?

Andrew Poelstra: There's two, there's the transaction ID, the WTX ID and I think the change we're talking about is one where we're using the WTX, in some context where we used to use the TX ID to identify a transaction on the node.

Matt Odell: So basically a non-Taproot node doesn't keep downloading the same transaction ID over and over again.

Andrew Poelstra: Exactly! So if you take a transaction and you tweak it's witness, right now these old nodes are not going... Well they'll recognize they're the same transaction because they see the TX ID is the same, but they won't be able to... How do I want to say this, basically without looking at the witnesses TX ID, they can't say, "Oh, I've seen this transaction before, I don't want to see it again" like it was invalid before it's invalid now. What's happening is these old nodes are checking the TX ID, they're saying, "Well, this was invalid, but only because the witness was invalid.

I can't distinguish between two transactions that are only different in the witness, so I'm just going to accept that if I see this transaction again, I'm going to check it again because I can't be sure that the witness didn't change." The update is to actually keep track of what witnesses we've seen. So now if you receive the same transaction twice, then it has the same witness and you can reject it out of hand. If witnesses change then you have to revalidate it. But that's what you have to do with the witness changes.

Matt Odell: Yeah, so that seems like relatively uncontroversial to me. Like if you're running a node and you have a way of determining which transactions would be invalid, while consuming less bandwidth than you should probably put that patch in!

Andrew Poelstra: I agree. This seems silly and I see I'm realizing now that this is something that's completely separate from Taproot. It's just something that is an issue on the network today that Taproot will make worse because Taproot changes how... The witnesses for Taproot outputs are different and richer than the witnesses for existing SegWit outputs in ways that I don't remember, I can't elaborate on that. There's nothing just kind of independent of Taproot, it's an efficiency thing that ought to be deployed.

If the controversy is about people who just don't want to have to do their nodes, people who were doing that should already have all these old nodes that they're scared to touch and maybe there are good reasons that maybe they haven't updated the hardware security module and it's behind or somehow they can't touch it. But what they should be doing is having that node talking to an updated node and the updated node talking to that wider network.

In that case, as long as they do that, as long as they are guarding their ancient untouchable node with one that they're updating, then they don't have to worry about this at all. So basically what I'm saying is any node that you have that's facing the internet should always be updated because there's ongoing reasons that you want to be updating books for inefficiency, for security, for keeping up with changes on the network and if you have a node that you don't want to update, that's fine, it doesn't need to be facing the internet.

You can just put like a firewall proxy node in front of it and then keep updating that. That you should have been doing always, right? So this specific change is not a reason to be getting upset, as every other change before this should have been equally upsetting.

Matt Odell: This is why I was categorizing it as potentially disingenuous is because I saw it the same way. To me, it just read like one of those social attacks on what is seemingly a good thing for Bitcoin from the same crowd that was around in 2017 and it just very clearly read to me, like if you had any idea what you were talking about, you wouldn't say what you are sending. So that pilot read to me and the more I think about it, I think it's just like attempt at cluttering and confusing Taproot as an upgrade and causing controversy in gathering consensus and actually deploying it.

Peter McCormack: Well listen, while I've got you there Jack, I'm going to switch it up because I want to ask you something. I feel like outside of what you've been doing, that it's been a little bit quiet on the Lightning front recently. Now you're obviously doing something very cool and very interesting and we should talk about that and you're going to come on separately, as we're going to do a show about that. But I feel like Lightning has been, I don't know, it's been a little bit quiet recently. Am I missing something here? Is it quiet? Is this stuff going on I don't know about?

Jack Mallers: Well, define "quiet and stuff", like there's some variables in your sentence that could go...

Peter McCormack: What I mean is that I don't feel like I've heard a lot of conversations and talk about Lightning, say as much as I did a year ago and that could be for a variety of reasons. It could be that a lot of people just don't have a need for Lightning, how people envisaged it. A lot of people just want to buy and hold their Bitcoin and that idea of using it as a fast and quick way and cheap way to do transactions, there just isn't a huge demand for it? That said, I know Strike is doing something differently, I would put that in a separate bucket. But I just feel like it's been a bit quiet on the Lightning front.

Jack Mallers:  Yeah, certainly. Well I think the actual development on the protocol, and iterating and building spec 1.1, all of that stuff is going at a much faster pace than maybe a few years ago. This is just stuff that you may not see. But overall funding in Lightning projects is at an all time high, engineers contributing to the projects is at an all time high and all of those metrics are in really good shape. The general stability of all the client implementations and protocol implementations, everything's pretty great in that realm.

I think your point, and I would agree with you, is trying to find the existing value prop of Lightning, and understanding where that value lies in the consumer, and does that scale today, is what everyone is trying to figure out. There's a lot of entrepreneurial spirit on top of Lightning, and for good reason, but I think it's fairly undefined, what it should be used for, why it's really important etc. I agree, Strike's evolution and how transparent that story has been, I could retell it, but to me it's been mind blowing having a front-row seat and to do all of this over the last, what is it now? 

Three, four years, learning not only how Lightning works and a lot of the technicals, but more so how people use it and people's relationship with Bitcoin as a whole, how people understand and relate to Bitcoin and where their true interest in Bitcoin lies. I know in the early years of Lightning people loved Zap because it was a catalyst to help Bitcoin get to $100,000. They didn't love Zap because they were using it per se, they loved a Bitcoin ETF, they loved Lightning, they loved Bakkt, with no other justification other than this thing is going to justify my investment and make my wife happier, whatever their personal narrative was. 

So now we're past that phase though, and Lightning should be delivering on some functionality, and we need to better understand that, because it seems fundamental core relationship that the majority of the world has with Bitcoin, at least those holding it, is it's an investment vehicle for them. It's a way to preserve and appreciate wealth. That's the meme right now that has scaled the most and attracted the most market participants is, "I buy this thing, I sit on it and I get richer," and it's a meme, but it's not far from the truth. If that's the case, then using it as a unit of exchange is really counterintuitive and defeats the purpose. Exploring ways of well then, what is Lightning actually doing? 

Is it a way to settle and clear value faster? What Strike is doing, is it a open protocol of value transfer that ties different neobank and FinTech applications together? Now there, I think, is a new discovery phase. We've graduated past... In the beginning looking back, Zap was a cheerleading project. It was more representing a movement and organizing a group of people than it was actually delivering on pure functionality. Now I think we've graduated past that. It's a long winded answer, just summarizing my thoughts.

Peter McCormack: No, but that's good. Nic, I can imagine you've thought about this quite a bit. Like I said, I don't really have much of a need personally for Lightning right now. I don't use it, but yet I use Bitcoin every week, and more than once a week, perhaps two to three times a week for various reasons. But the Lightning side of Bitcoin, I'm not using and I can't seem to find a use case for it. Do you think we've got an eloquent solution to a problem that doesn't exist? Or do you think this is just another building block for the future, in 10, 15 years time we'll all be really glad that Lightning exists?

Nic Carter: Well I think Lightning typifies the way that... People said Lightning would be Bitcoin's scaling mechanism, but I think more to the point, it typifies the culture of Bitcoin scaling, the underlying philosophy, which is registering as little information to the chain as possible, and differing settlement effectively. I know some Lightning enthusiasts would disagree with me that Lightning is deferred settlement, but taken in the broader sense, initiatives like Lightning, Liquid, and any of the contract elements that we would get from Taproot, which involve registering less information to the blockchain, that is how Bitcoin scales, just by packing more transactional density into each byte that has to be saved. 

Lightning is the most well-developed of those initiatives. I think the reason it hasn't seen as much uptake is just there fundamentally isn't really a culture of retail payments in Bitcoin beyond what enthusiasts do. There isn't really as much necessity for smaller retail payments with Bitcoin. To me, basically Bitcoin is a wholesale settlement network, analogous to Fedwire, or the Clearing House Interbank Payments System in the US. It's this core settlement infrastructure and my guess is that we're going to get layers and layers on top of it, of which Lightning is the first and the best developed at present. Bitcoin retail payments don't really satisfy a need that lots of people have right now. 

It's not that surprising that we haven't seen more uptake on the retail payment side. I think Saifedean has a good quote about it and he says using Bitcoin for retail payments is like driving a Concorde down the street to get groceries, or something that. It's fine to me that there hasn't been a huge amount of uptake of Bitcoin for these smaller retail payments, and that it's primarily used on a utility basis for settling larger amounts of value. 

That makes sense. I'm sure one day it'll change, but it's probably going to take a lot of just... I don't know, something has to change in the minds of Bitcoiners for that to happen first. I don't think it's a technological problem, it's just the utility mode, that people don't really require Bitcoin for smaller payments. Not that that's not how it was intended to be used, it's just that's not how it's developed so far.

Peter McCormack: Giacomo, do you think it will require Bitcoin to get to the point where it becomes a unit of account for people for that to be a case for it to become more useful?

Giacomo Zucco: No, I don't think that. Especially in the digital age, I think that the point of having a unit of account is less useful than it was say 100 years ago. Having the same medium of exchange is important, because otherwise if I want to pay you or you don't accept the same specimen for payment, I need the liquidity for some bridge. That's a matching problem. While if we just use a different unit of account, we just use an instant converter. A unit of account function of money, I think right now is the less important thing. 

Of course, there is a logical progression. First, a store of value, then medium of exchange, and then unit of account. The reason is that a medium of exchange is serving a delayed exchange, instead of giving something to you and getting something back, I'm giving something to you, getting something that I will use later to give something else back and I need to store the medium of exchange for a while until I will exchange it again. There is a precedency there, but it's not entirely true that Bitcoin right now is not useful as medium of exchange. It is, in a very specific niche that maybe we don't discuss a lot because of the nature of this niche, which is online grey markets or dark markets. 

People are not intensively using Lightning there, but it makes perfect sense there. Think about paying for a VPS when on-chain fees go up a little bit and you want to use Bitcoin. Think about paying, I don't know, a cam girl service, or everything you don't want to pay with a name-based credit card or think about small payment online by people that are excluded by the KYC Mafia, which is most of the people inhabiting this earth. I think a very good step in this direction was made in the BetterHash protocol, starting using Lightning payment for a hasher in the mining pool. 

That's very important, because a hasher in a mining pool is a typical example of somebody doing a transaction online where anonymity and privacy are important, you don't want to use a credit card payment. In that case, having a Lightning... There are small payments there. I think that we maybe under-represent these cases, because... Let me put it this way, permissionless saving is still a revolutionary act, but it's not socially sanctioned as something dark or creepy. It's just, everybody wants to save for their family and their life. 

Even if the government may crackdown on saving, like Roosevelt did with gold, the government will eventually crack down permissionless saving, but permissionless spending is mostly associated with stuff that we don't want to show up, we don't want to discuss, like paying for a burner phone, a virtual SIM card, or stuff like that. Of course, there is other very, very niche stuff, which is permissionless innovation, that I think would be very cool about Lightning with payments and I give you an example.

 If I create any kind of crazy stuff, like a website where you can feed chicken, or a website where you can draw dick pics on a giant wall on a giant screen, then I don't want to set up a company and a bank account with Venmo for that, because it's just a very quick experiment. It's a fail-fast experiment, I need Lightning, or... The problem with Lightning is that I need that, but people is not spending that. Maybe I will need some kind of bridge like some company where you can accept Lightning payment with people spending with credit card. I don't think such a company can exist and it seems too hard to create.

Andrew Poelstra: It sounds crazy.

Peter McCormack: Well listen Jack, we're going to do that one separately. We're going to do Strike, you and me, on our own. We're going to get into that. Listen, I was on a call yesterday. I did an interview with Max Hillebrand, who you all know, and we had a long conversation about privacy. I put it to him that actually, I see there's potentially two primary types of Bitcoin user. There's the Matt Odell type who has his node, he CoinJoins, he uses Tor and you've got no idea what Bitcoin he's got, where they are, where they're going or any of his addresses. Then there's the Pete McCormack-type who doesn't do any of that shit. 

As we head into another bull market, we're going to have more people come into the market, we're going to have a lot of people coming in and going onto exchanges, buying, putting their credit card information, putting in their KYC information, buying Bitcoin, maybe putting on a hardware wallet, maybe leaving it on an exchange. What I feel is, over time, the volume of the numbers who are more me is going to be far higher than the numbers of you, even if the percentages stay the same. Does that worry you? Because I know how much you want to make me, more like a you, and I certainly should head that direction, but does that worry you?

Matt Odell: Look, I'm definitely concerned about the current privacy situation globally, not just in Bitcoin. We've seen a lot of surveillance overreach over the last decade, two decades. If I wasn't concerned, I wouldn't be a broken record about it. But if I wasn't optimistic, I also just wouldn't even bother to try. It's important to frame it in that way. I think it goes hand-in-hand with the previous Lightning discussion. People will figure this stuff out when they need it, when they get burned, and when they need it. 

With Lightning, it's important to unpack that we, on Bitcoin Twitter, we live in a bit of bubble. Bitcoin Twitter got a little overblown with the hype and they got really excited. We all got really excited, and now it came back down to reality. But for actual Bitcoin users, Lightning has been slow and steady improving, but there's a couple of things that have really holding back, that permissionless payments type of situation. I think that goes hand-in-hand with privacy there, because those things are the need. It's more censorship, it's that a lot of these transactions right now are happening in cash. We've already started to see restrictions in cash. 

As that continues and escalates, people will be more likely to seek private payments, seek another way to do private payments, because cash is the best way to do it. Then the other thing is, on the receiving side, people don't realize... I may now be hyperbolic, but one of the most important privacy projects in Bitcoin is BTC Pay Server, because it acts as both an off ramp and an on ramp that is open source and is not regulated. With terms of, to have more merchants go that route, and BTC Pay Server's a relatively new project, to go that route, and that's how they're getting their Bitcoin. 

They're earning it, because they have a need for Bitcoin and they have a need for those permissionless payments, should help. My concern is, I think we will get better privacy tools and more demand for those tools when there are inevitably more crackdowns. My main concern is that because the Bitcoin blockchain... If we're right, which I think we are, it's going to be around forever. 

My concern is when those crackdowns happen, individual Bitcoiners are going to get fucked for things that are 5 years ago, 10 years ago, that they didn't even realize they were doing and they just weren't even aware of it. When that happens, when you get burned, when your friends and family get burned, when people you've grew up with get burned, then you learn, then you figure it out. I would like to soften that blow before it happens.

Peter McCormack: Andrew, are we ever going to get to the point where we have privacy on chain so someone like me just doesn't even have to think about this stuff?

Andrew Poelstra: Yes. I don't know when, as there's a lot of technology components that need to be in place for that to happen. We can make small improvements. There are a few things like wallet fingerprinting, the way your wallets choose coins, the way that they set their sequence numbers, there's just a lot of different parts of the transaction that fingerprint wallets. Wallets are getting better and better at and not doing that. We're seeing more development and update on things like JoinMarket or Wasabi Wallet, we're seeing that Lightning wants to do a lot to improve the on-chain privacy story just by moving stuff off-chain. 

Taproot will do a lot for hiding the nature of the coin scripts. Right now in Bitcoin, you can tell whether or not a coin represents an escrow or represents a movement into Liquid, or if it represents some weird complicated contract, or if it represents a Lightning payment, or if it represents a multi-stake or whatever. Taproot will, in the most common case, make all of those things look indistinguishable. Then all that wallet anti-fingerprinting work will really compliment that, where not only can you not tell whether somebody is using Electrum or if they're using my Mycelium... People still use Mycelium, or if they're using Bitcoin Core or whatever. 

You also won't be able to tell if they're using Lightning even, or if they're using BitGo or something, where they have a root script associated to it. But what we really need for privacy is, one, is that we would like to be able to hide the amounts of all of our transactions. We have a few ideas of how to do that, but none of them right now have the right set of trade-offs for Bitcoin. We have confidential transactions that we've got deployed on, I guess, Liquid, and a few other systems have it. The problem with confidential transactions is that it changes the cryptographic assumptions of the system. It means the soundness of the currency supply is now dependent on the hardness of some cryptographic computational problem. 

We actually know that that specific problem, that discrete log problem, is broken by quantum computers. We know that there's an expiration date on that kind of stuff. We have a few ways, but no good ways to hide the amounts. Then going beyond hiding amounts, what we really want is to be able to hide the transaction graph in the same way as Zcash does. But as we know, Zcash makes really bad trade-offs. This is not just a bit of an efficiency hit and a bit of some new cryptographic assumptions where they didn't use to be. First of all, you have this whole issue with trusted set up, and where you try to distribute this trusted set up. 

You have a massive amount of code complexity and cryptographic system complexity that's difficult to analyze and reason about and difficult to implement. We've seen issues with the implementations not having constant time codes with stuff that needs to be constant time. Other things that are very straightforward, if you're working on something that's simple, where you can hire a bunch of auditors and where you can get an off-the-shelf cryptographer to do what you're doing, rather than needing to hire the three people in the world who wrote the paper, who represent this. With Zcash, we also see a huge performance hit. 

It's impossible to make it shield the transaction on any hardware wallet today, or even a hardware wallet that I can really imagine. If you tried to use a Ledger or a Trezor or something to produce these zero-knowledge proofs, it would take hours. You would have to have this little harder device that would probably even overheat, just churning through all this. There's a lot of research and development that needs to happen to make systems exist to delay... Crypto systems exist that could be used in Bitcoin to get on chain privacy. Then there's a lot of development work getting that from, if the crypto exists to is the crypto something that we could actually implement and deploy and audit and convince anybody that it is legitimate. 

Then there's an issue of how do we deploy that on the chain? We will get there, one day. That's the dream, that's the end point and that's the shining city on a hill that we're all slogging towards. But in the meantime, as I mentioned, there's a lot of small things that we can do that are really improving the privacy story. I think probably Lightning is actually the biggest one, just moving stuff off-chain and getting us to a point where we worry about real-time privacy, about timing attacks stuff, and then we could think about using Tor. 

We can think about using a higher latency, mixed [inaudible] actually make some leeway, rather than thinking about how are we going to make data private when we're publishing it on the blockchain permanently forever for the next hundred years? That's a much harder thing to do. That's hard, but Lightning lets us move into the easier realm.

Peter McCormack: Giacomo, I can't believe we wouldn't talk about privacy and surveillance without you chipping in.

Giacomo Zucco: Yeah, I was actually going to ask a question to Andrew about another development which I think there is some, not embarrassment, but some shyness about recently when I tried to ask about it and push it, because it seems a very challenging, very complex. Right now, the problem with the transaction graph is that you can assume that most of the outputs will just go to the payee, the single payee. That's not true only in case of batching from the exchanges, but mostly it's one change for me and the rest to the payee. 

You can assume that all the inputs are coming from the same people, if that's not the PayJoin or a CoinJoin. These are fair assumption, not because of the... Technologically, these are wrong assumptions, but economically they are realistic assumption because it's just easier to have a transaction which is not a CoinJoin on a PayJoin, and it’s easier not to batch if you are not an exchange. But there is one specific protocol change that was discussed with Taproot initially, but then I understood that it was postponed because it's changing the validation rules more aggressively, which will be cross input aggregation. Taproot allows you already to just sum up the signature of a multisig, so you can blend any multisig with normal, single seed transaction. 

But if you could aggregate across input, especially with a high block space fee environment, the effort would be people strongly, economically incentivized to CoinJoin and to PayJoin. That means that people... For example, I have to pay, if I wait to coordinate with Peter and Jack and Nic and Matt to pay Andrew, then I can get probably discount up to 30% of my block space fee, because witnesses is very heavy, and we can just sum up the witnesses and publish just one, and basically discount the transaction. 

That will be huge for pushing the CoinJoin stuff. Usually when I ask if there is... I understand that's more aggressive than Taproot, so that's the reason of the delay, but it will also be probably more huge than Taproot may be to incentivize usage of the transaction grab that are not trivially addressable, like one per year, one payee. Isn't cross input aggregation a very big deal?

Matt Odell: Yes.

Peter McCormack: I was going to ask the same question as well!

Andrew Poelstra: Yes, I could tell. I could see it on the tip of your tongue Peter! Everything you said is correct Giacomo, but as I mentioned, I guess very early in the call, I mentioned that the scale of Taproot is very small relative to something like SegWit, and cross input aggregation moves us closer to something that is a much larger scale. What we see now is that the community, that there's so much input from people even on deep technical aspects of these sorts of changes, that even something on the scale of Taproot is now getting so much detailed attention that there's a lot of value in looking at all of these things in detail, and value in keeping the scope narrow. 

Because if we had the kind of attention we have on Taproot on something that was twice as large as Taproot, it would probably take twice as long, and we'd have twice as much iteration and byte shedding and stuff. In fact, in the change for the Lightning network, SigHash new input, which allows the Lightning revocation transactions to have a much smaller size to not grow as payment channels are used. Whereas now they grow, the set of transaction grows linearly, that we had to move out of Taproot to a parallel proposal. I think this is actually a parallel proposal. 

With feature aggregation, where we landed was that because even we, meaning me, and Peter, and Greg, this is our brainchild, because even we kept getting surprised by the interactions between this and other parts of the system, we felt like it just wasn't yet at a level where we could run this through the development and review gamut, and expect it to come out in a reasonable timeframe. It would absolutely be much larger, and I think it is a really big deal because it would, you're right, incentivize people to obfuscate the transaction graph in ways that they're not incentivized to do today. But it's just not something that we could get alongside Taproot.

It's unfortunately something that, if we want to get Taproot at all, we're going to have to deploy Taproot, and then once we've done that, we can circle back and try to come up with a signature regulation proposal having had a couple of years of looking at the way it interacts with blind signatures, how it interacts with other things. Matt, did you want to...

Matt Odell: I would love to see signature aggregation, but kind of want to push back a little bit on this idea that I've seen in Twitter, where it's the classic Bitcoin Twitter thing, where let's just hype the shit out of everything. My concern is, and I think it's a reality, I think it's just, I don't know, physics or something, is that privacy will always be the more expensive option and it'll always be the more difficult option. 

You will always have to go out of your way to try and achieve some level of privacy, especially in the level of our surveillance state that we currently have. It goes beyond Bitcoin and it is something people are revealing, they're revealing addresses, they're revealing IP addresses connecting them to each other, and these little mistakes can then screw you, especially if we're talking about a high fee environment.

What do I see? I see people preferring to consolidate all their UTXOs to reduce their future fee burden, and even if when you make a transaction, making a CoinJoined batch type of transaction is the cheaper option. The cheapest option is just not making unnecessary transactions and to just consolidate it all, and maybe Lightning switches up this element a little bit, because you do batch transactions, these CoinJoined type of transactions into open and closes, and you keep the majority of your funds on Lightning. But then, we have other concerns there in terms of basically keeping your funds hot all the time in an environment where it's very hard for people to be private online.

Giacomo Zucco: Well yes, just to clarify, I think that we were specifically talking about on chain privacy, because I think that their own chain part of privacy is something that this evolution will address and mitigate. But then there is a network part of the privacy problem that this solution will actually will make worse. Like now, if you are like a network, you are in the worst case scenario, you are revealing your IP address, and the best case scenario just giving out coins, but it's maybe the same coins as everybody paying you, so it's not a general privacy improvement, it's a chain analysis privacy improvement.

The distinction, I think is that chain privacy, maybe more systemically important because with network privacy, people will suffer individually, so you have a local suffering. You screw up, you get punished, you get some retaliation, while with these chain analysis narratives that is building up, every coin is traceable, every coin is non-fungible, you create a more systemic fungibility problem. So you are completely right, Matt, off-chain privacy will not solve a privacy, but it could transform chain privacy problems into network privacy problem that are better because they are more local and a little bit less systemic, I would say.

Peter McCormack: Alrighty, listen, Nic, you came late, I've got something I want to ask you. It's been a very interesting year for Bitcoin price wise, I think last month was the second highest month close on record. It feels like a good time for Bitcoin, feels like it is for gold. It feels like there's a lot of rampant money printing, which is driving interest. But also it felt like we were due a bull market anyway, as we've been in this bear market forever. I know you do a lot of analysis of various bits of on chain activity, how are you reading it at the moment?

Nic Carter: One thing I would say, I don't do a lot of price talk, moon talk or whatever, but if you look at the appreciation in the last couple of months here, I would say a lot of it is due to the devaluation of the dollar as opposed to the increase of Bitcoin in real terms, so it's probably worth including a CPI deflator in your Bitcoin price analysis. So what that means is you might have a better denominator to better assess the actual performance of Bitcoin. 

You might want to substitute gold as your denominator instead of the dollar, because the equation could be due to the fluctuations in the numerator, the denominator. We know for a fact the dollar is devaluating both against other sovereign currencies, the DXY, the trade-weighted index, which is against other sovereign currencies, and just an absolute terms with many trillions of dollars being printed and a GDP not increasing commensurately.

So some of the growth in Bitcoin is illusory, unfortunately. It does mean that it's protecting you from the devaluation of sovereign currency, but it doesn't mean necessarily that Bitcoin is granting you an increased ability to buy real goods and services, suits and steaks and stuff, it just means that the denominator is changing and that dollars are becoming worth less and less.

Peter McCormack: Are we not seeing trade levels go up though?

Nic Carter: What do you mean?

Peter McCormack: Because I haven't looked, is volume up?

Nic Carter: Honestly, I've maybe become less of a fan of the analysis of a Bitcoin exchange volumes or on chain volumes as a way to ascertain the "fundamental." I think really, Bitcoin's kind of monetary transactional network probably has less influence on the price than just people's propensity to convert their savings into Bitcoin, and so there's definitely endogenous factors like how much Bitcoin is being used in commerce at a given time.

But really, I think the thing that has much more influence is the exogenous factor of the broader monetary context the Bitcoin sits in and whether or not certain individuals in a country with a depreciating currency are converting those savings into Bitcoin or not, and we know that's happening, obviously there's plenty of data points that tell us it's happening. People are moving into Bitcoin, just progressively converting their savings into Bitcoin. But yes, I think fiat currency failure and devaluation is going to be the main driver of Bitcoin as opposed to this kind of endogenous growth.

Peter McCormack: All right, well listen, look, I've taken up a bunch of your time and a lot of your time over the last couple of years, I do have a couple of close out things I want to do with all of you. I'll start with you, Jack. I've done 250 episodes, in another couple of years, I've done another 250 episodes. Two questions, what is one of the most important things for you to see happen on Bitcoin? What are you really interested in seeing? Then give us some kind of prediction for when we sit here in another two and a half years and do this.

Jack Mallers: I don't think there's a right or wrong answer here. Maybe privacy, I think the conversation that Matt and Giacomo and Andrew just had on privacy is really, really important and probably underappreciated, I would say, when I don't know, just comparing like resource allocation. But I also at the same token would love to see an ETF, which is a different conversation but I'll stick with privacy. I think Bitcoin development we've seen an uptick in open donations and funding engineers in 2020, which I'm really excited about, and I think there's always been a misallocation of resources, just fundamentally speaking.

I think the incentives are as always to build an exchange and become a billionaire, like everyone who starts an exchange is a billionaire, so you can't argue with that incentive. But I would like to see things like privacy on chain at the base layer. What would be great if I had a magic wand, maybe that'd be one of my topics for sure in ETF.

Peter McCormack: Any kind of interesting prediction? Anything you'd want to hang your hat on?

Jack Mallers: Yeah, I think Bitcoin is going to be a trillion dollar asset in the next 12 to 18 months. I'll hold on that one!

Peter McCormack: Yes, I'll hold you to that one. Matt, what about you? Same two questions.

Matt Odell: Got to follow up a nice conservative prediction from Jack over there. I think every day that Bitcoin survives, it gets stronger. I think we haven't really seen... I think most people realize that the true value prop of this stuff is that it's independent of states incorporations, that state resistance, that no particular country can control it, is what makes it unique and what makes it valuable in my opinion. So I think something that's really important to watch is in particular, the biggest states, the U.S, China, Russia, the most sophisticated ones, how they respond to it because the longer Bitcoin grows and survives without a very sophisticated attack against it, the better off we are.

To be clear, my perspective on the world is that if we don't have an independent private money, we are fucked. We need Bitcoin to work. So I'm hoping that over the next two and a half years, we don't see those attacks escalate. But my main concern is that, I think we are witnessing an attack right now that people aren't taking that seriously, and I think Bitcoin has gotten through a lot, and now that has gotten through so much, our biggest vulnerability is individual user privacy, because if you want to attack the system the best way to attack it is the individual users of the system, and specifically identifying them and identifying their usage patterns before you kind of implement any kind of regulatory pressure and really push it forward.

So I'm just hoping, I think we can just like skate by. That would be the best case scenario for Bitcoin. I think we pump regardless. I think Bitcoin prices... I don't know about a trillion dollars in 18 months, but I think it's inevitable. I just hope that when we come out the other side, it maintains its independence and that it is a way for people to opt out.

Peter McCormack: Giacomo, to you as well.

Giacomo Zucco: Yes, I think that Jack cheated here, because he didn't say trillion dollar of current purchasing power of the dollar. So now, he is not only playing in the Bitcoin team, but also in the Federal reserve team, which is very powerful. So, there may be some cheer there, but anyway, I think it's pretty reasonable, especially because team Fed is very great. It's doing a great job, even better than team Bitcoin could even imagine.

So I think that we all agree that privacy is kind of a big deal, especially because there was a Bitcoin meetup a few years ago where there was a Peter Todd talking and he made a great analogy between two kinds of danger, the fire danger and the mercury danger. So the fire danger is, fire can hurt people, it's not good, it's bad, but is a better kind of hurt because people immediately feel the suffering and they just take out there and as soon as you feel the heat, so fire hurts you immediately, whereas mercury is something shiny that people can play with many years before dying, basically out of it without having an option to correct what went wrong.

So the privacy problem, unlike other problems, like many problems we may come to face, the privacy problem can have this kind of mercury aspect to it, which is very dangerous. Like before we stay in a kind of a honeymoon phase, apparently legal honeymoon phase for a while and then letting flowers bloom and taking names. So yes, I totally agree with Matt that's the exciting part and the other exciting part is just my shitcoin pumping even more than Bitcoin, Zucc's bucks will be a quadrillion dollar in a year!

Peter McCormack: Nic, I'm going to move to you and then we're going to give Andrew the final word.

Nic Carter: So the question is, what do we want to see happen with Bitcoin?

Peter McCormack: Yes, one prediction.

Nic Carter: Okay, so wanting to see happen with Bitcoin, some of you guys might not like this, Matt might not like this, but I'd like to see more accountable Bitcoin banking. So basically, we have a set of financial intermediaries that custody people's Bitcoin, and they provide financial services. I don't see that going away quite frankly. What I would like to see would be for the community to hold those entities more accountable, proof of reserve is the most basic element of that, but basically proving that you're solvent to your depositors.

I think if exchanges don't do that, it's going to be forced on them by the state, which would be much worse. So I'm pro the kind of self-regulatory measure here, as opposed to the reactive response from the state once they finally realized what's going on and that there's enormous consumer protection issues. So I also think that exchanges, they're not very creative in terms of what they give their depositors with the financial service that they provide to them. They could be doing a lot more. We could see the emergence of chummy and banks built on Bitcoin.

We get to see stable coins build on top of Bitcoin, I'm sure people would find that interesting. There's probably even ways to do that in permissionless way, quite frankly. So I would like to see more vibrancy there and I know that's not in the core Bitcoin ethos, but it's fine to me that there's this more financialized Bitcoin market where credit is created as well as the more Cypherpunky grey market, where settlement is final 100% of the time. I think those are going to coexist. 

My prediction would be, Bitcoin lives in this kind of broader macro economic context for better, for worse. That macro context is clearly degenerating in front of our very eyes right now, so I think in the near term we're going to see a lot of sovereign debt crisis, probably in Latin America, but maybe in central Asia, maybe Southeast Asia, the world is absolutely encumbered with debt right now, and we're going to have to pay the Piper and the easiest way to get rid of high debt burdens is not by growing GDP, it's by decreasing the size of the debt in nominal terms by defaulting or by devaluing currency. But the debt is denominated then, so we're going to see chaos there. 

We've already seen the stirrings of that in fairly middle income countries like Turkey, Lebanon, Venezuela was a middle income country before, so we're not talking about the poorest countries here. We're talking about middle of the road countries that become completely burdened by debt and have to confiscate the wealth of savers in order to get out of that conundrum. I think the other thing that I think is likely to happen is the U.S government is going to surprise everyone with the amount of inflation they're able to create and nobody's really expecting inflation right now, but if we have direct issuance of currency to individuals, the way that we've seen in the last few months here, as opposed to printing more tokens, that banks hold on their balance sheet, and those don't make it into the real economy, that direct to consumer issuance, that's kind of high velocity issuance. 

That's the stuff of inflation. That's what inflation is made of, dollars that make it out into the real economy and I'm guessing that we're going to have something that can to like wartime finance here, where we have very low real rates and relatively high inflation that the government uses to basically inflate away the real size of their debt. I don't see an alternative here, quite frankly. So it's going to be one where this basically wealth confiscation, treasuries are going to lose money and people are going to look for alternative assets and obviously the very best one is Bitcoin. 

Gold also looks good, and that's why I've seen gold doing great, but yes, I think inflation is going to surprise to the upside, obviously in developing countries where lots of these currencies are going to be destroyed and then the dollar, which is going to be pretty inferior product for the foreseeable future, so that's going to mean Bitcoin goes up in nominal terms at the very least, and probably real terms as well.

Peter McCormack: All right Andrew, you get to take us out.

Andrew Poelstra: Cool, I think normally I would talk about privacy here, but I think most of you actually covered privacy. I'm going to take a slightly different talk. So what I want to see in Bitcoin as an improvement in user's ability to have sovereignty over their own coins. I mean that in a bit of a technical sense, but I mean it's right now to hold Bitcoin. Basically you install, if you're like a power user, you install a Bitcoin core and you validate the whole network and you do all that stuff, but then you still generate these addresses where all of your coins are controlled by the secret key and maybe that secret key is actually derived from bit 32 seed.

Okay, these got on like a hardware wallet, and then you have that single seed backed up on like a crypto steel or something, or like Ti steel, where they have all these titanium metal products where you can encode your key somehow on a hunk of metal that's supposed to survive house fires and so on. So already, that's like way better than you could do three years ago, even though that's quite a power user stack that I'm talking about, but there're big problems there. So one is that it's kind of technical, like this isn't a standard workflow. You can't go to like Bitcoin.org, certainly can't go to Bitcoin.com and see that you're supposed to do this. They're kind of obscure products. 

That's a bit hokey to actually set this up, but then you just have this one key. You've got this hunk of metal that you've got to keep, I don't know, like in a safe deposit box, or I have considered etching these on the back of light switch covers, probably no one's ever going to look there. Then putting them around my house, but how do you split those keys up? You have this redundancy issue where you've got a single key where if that gets leaked, then your money gets stolen forever. If you lose that, then nobody has a key and the money's gone forever. So if you want to split that up, if you want to make it redundant, somehow right now there aren't really good workflows are doing that. 

So what I'd like to see is an improvement on two fronts there, one is the ability to split up these keys. So if you control this key you can make it redundant, you can add error correction, and you can have multiple shards around the world. Secondly, it would be nice if we could have more ergonomic multi signature addresses that ordinary users could use. So you have just like a five or six multisig, like on the blockchain and those six keys, then those correspond to two different physical entities that you're able to store around the world. So on the secret sharing and coding front, there's always all sorts of interesting projects going on there and I think that probably over the next year, one or two of them will come out, that people talk about, people actually use, but which I have mixed feelings about. 

I generally don't like secret sharing, I feel like multi signature are a superior direction to go, but people want secret sharing and people kind of understand secret sharing, so that's great that people are developing it as is much better than nothing. Then on the multisignature front, I've been working on miniscript and you're seeing Bitcoin core and a few other wallets who are working on integrating what are called Open descriptors and miniscripts, which are a way to generalize, not to generalize addresses, but to generalize the public use of corresponded addresses. 

So instead of having a single key, you can have these with a multi signatures and stuff like that and you can have those in a way that's user comprehensible, where you've got like a text string that represents like what the policy is. You got to have two of these three keys or after a certain age, then like this extra bonus key company plate, because presumably you lost the others or whatever and it's something that you can print out the keys themselves, you can etch into steel, multiple keys that you can store in different places, all that good stuff. 

I'm really optimistic that over the next year or two, we're going to and we'll see like that actually getting to use our talents and I think that's something that's really critical because right now to get all the sovereignty promises of Bitcoin, you need to be like really technical. 

Even if you're really technical, this setup that you come up with is probably pretty fragile and this is probably something that a lot of people on this call are secretly concerned about is that they have some amount of Bitcoin stored and they're like embarrassed by how fragile their storage setup is. In fact, and the reason is there just isn't good tooling out there, there isn't user accessible stuff. 

You can be crazy and write your own wallet and do all these elaborate things and then, okay, well what happens if you hit your head or something now, nobody else knows how to use your customer wallet, or you can use off the shelf stuff and it doesn't exist. So the final prediction, I need to be fun and to be aggressive, I'm going to say that by the end of 2020, a Taproot deployment will be in progress.

Peter McCormack: That's crazy talk!

Andrew Poelstra: I'm going to throw that out there and then, and for years you guys can harp on me about it.

Peter McCormack: Wow, that's a bold statement! Well listen, look, I thank you everyone. I can make this show without people coming on and appreciate you all. You've all come on multiple times, I've hung out with you all, really appreciate it. Hopefully we'll be here in another two and a half years, Bitcoin will be over $100,000, I will have a Lamborghini, I don't give a fuck whoever that pisses off and everything will be great, but look, I appreciate all of you and thank you so much and I wish you all the best.