WBD253 Audio Transcription

Protecting Your Bitcoin Privacy with Max Hillebrand

Interview date: Wednesday 12th August 2020

Note: the following is a transcription of my interview with Max Hillebrand from Wasabi Wallet. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I talk to Wasabi wallet contributor Max Hillebrand. We discuss remaining anonymous while using Bitcoin, Wasabi wallet & CoinJoin, custodian solutions and living a Bitcoin-only life.

“For me, the guiding principle is to reduce the number of seconds that I hold fiat shitcoins.”

— Max Hillebrand

Interview Transcription

Peter McCormack: Max, how are you?

Max Hillebrand: Hey, Peter. I'm fantastic, thank you very much for the invite.

Peter McCormack: No worries! I thought I'd lost you, I thought you disappeared. I was going to send out a search party for you.

Max Hillebrand: No, no, no, I'm already here full with a glass of water. I'm so looking forward to have your conversation.

Peter McCormack: Good! I've got a good cup of tea going ready here. Listen, we're going to talk a bit about Wasabi, and we're going to talk a little bit about hacking and privacy and various things like that. One of the interesting things about Bitcoin, you tend to find when you're debating somebody who doesn't really understand it, so for example I was a guest on a podcast a few days ago of quite a popular economics podcast in Ireland.

They were talking about the various problems with Bitcoin, the same old stuff; it's volatile etc, but they said it's used a lot by criminals for money laundering etc and we know that isn't particularly a larger use case. But it's one of those things that kind of... It's like a noose around the neck of Bitcoin sometimes, it never seems to go away. When you start talking about Wasabi, you have to deal with that a lot more because the majority of the time I see people discussing Wasabi is either someone like Matt Odell talking about how you should be using it for mixing your coins, or it is somebody using it for nefarious purposes. Is that frustrating for you?

Max Hillebrand: Well, no, not really I would say because it's just part of the whole process. Wasabi is free software, that is first and foremost, right? Since the very first proof of concept code, everything was free software and published. So, this means that any person can use this software to his own means for whatever reason. There is no way for developers or for anyone for that matter, to censor that. Speech should not be censored. The code that you run on your hardware should be completely up to you. If you want to use the code that is provided in the Wasabi Wallet repository, then sure, that's great, use it, it's a nice tool.

But we can't compel you to use it, and we cannot stop you from using it. So this is an inherent part of Bitcoin. There's this aspect of anonymity or at least pseudo-anonymity in a sense that exists on the Bitcoin base layer together with the permissionlessness of using the free software, running your own Bitcoin full node, creating your private keys, and receiving Bitcoin too.

Nobody can stop you from doing that and for a wallet that is its main purpose. If the wallet fails to allow you to send your money, it's a critical bug. That is the core aspect of the wallet that should functions, and this includes all types. Therefore, because it is inherent, I think it's a beautiful aspect of free software in general rather than a hindrance or something that is blocking it. It is very big enable.

Peter McCormack: So it's really a mind shift in terms of how people think about money and about permissionless money. It's really a mind shift of something that we're in the very early days of. People tend to criticize things like Bitcoin or even what you can do with something like Wasabi Wallet, but I think they tend to do it from the position of the traditional wallet of having a bank hold their money for them knowing if the account gets hacked the bank will usually return their funds in the world of chargebacks.

We're kind of shifting to this new world where you get to be self-sovereign, and there are consequences, but I guess we're in the very early days of people learning about this and having access to the tools.

Max Hillebrand: Yes, absolutely. The education is a huge, huge, huge part, because wallets have been around for a while and the tools exist. Sure, the tools have gotten better and they continue to become better, but fundamentally you can use them today already to a very great extent. The question is just do you understand how to use the tool properly?

Are you going to make some mistakes while using the tool? This is, of course, up to you. The techniques that you know, the strategies that you know about, and the methods that you choose in order to satisfy the ends that you actually want to achieve, and how you're going to align the means available in order to reach the goals that you want to satisfy.

Peter McCormack: Well I still think Wasabi is a little bit of a nerd toy in terms of usage. I also think there are people out there who just don't care. They're happy to buy Bitcoin to speculate, to be part of this Bitcoin economy, but they don't care that much about their privacy. They don't care about people knowing where their coins are, that's kind of like the reality of a certain percentage... I don't know what the percentage is, but a certain percentage of Bitcoiners.

Max Hillebrand: For sure to both part. The first part that Wasabi is a power user tool, yes. It's a desktop wallet, it has many features that the power user would like. I personally would consider myself a power user for Wasabi, and I love it because it just provides so many advanced features that I can play with, it's fantastic. However, I'm continuously surprised when I speak to new users of Wasabi.

For example, when I do workshop or just talk to a friend and I onboard them to Wasabi, generate a wallet with them, and sent them their first Bitcoin, often I'm very surprised how intuitive some sense of the user experience is, because Wasabi is very true to the Bitcoin user experience. It's one of the few wallets that, for example, focuses so much on coin control, meaning that you actually see the individual unspent transaction outputs, the UTXOs that you control in your wallet that you have the private keys to.

You actually select which one of these you want to spend and each of them is nicely labelled in all of this. It's a very different user experience to other wallets, but I'm surprised how soon new users somewhat get an intuitive understanding of how Bitcoin works much more than with any other wallet.

Peter McCormack: Why would you want coin control? This is me as one of those people who just wants to do everything in the most simple and easy way, but for example, if I go to the shops today... Well I am, I've got to take my kids shopping, I'm going to take say £200 with me, when I go to pay for something, I'm just going to give them the first note that's on the top. Historically, my use of Bitcoin has always been a wallet has a balance, when I go to send someone some Bitcoin or spend some Bitcoin, for me, coin selection is automatic.

I've got no idea how it actually works from what even happened. I almost don't want to know that, but there is obviously a reason that some people would. So I tell you what, just do two things, because some people listening to this Max, they might not even know what Wasabi is. Explain what Wasabi is first, and then let's talk about this coin control.

Max Hillebrand: Yeah, for sure. So Wasabi is a regular Bitcoin wallet, meaning it has one primary job, and that is to generate your private keys, which in the case of Wasabi, it's done on a hot computer, so a computer that is connected to the Internet, most likely your laptop or desktop. It's cross-platform so it runs on Linux, MacOS and Windows, which is quite nice. You just download it and hopefully verify P2P signatures, and then what you can do is generate your own wallet with encryption password, and you get your backup recovery words.

You can generate receiving addresses, you can receive Bitcoin to these, and then later send the coins that you have received. One important aspect about Wasabi is that on all levels, it a privacy-first wallet. So with every design decision that was made with every implementation decision, if there was a trade-off between privacy and anything else, the default is to opt for privacy and to increase the privacy at the expense of other things.

One of these is, for example, how your wallet finds out, or if you actually have Bitcoin on the private keys that you control. This is generally just how to check consensus for your wallet and this can be done in different ways. If you're running Bitcoin core or a different Bitcoin full node implementation, you just can check all the blocks that you have already verified to see if there is a transaction that includes your address or your public keys or your signatures. You just parse the whole blockchain block for block, and to see if this wallet has received any Bitcoin to it.

But the problem is, not every user is running a full node, so the thing is if you don't have the blocks, if you have not verified everything, how do you know if you actually have Bitcoin? So the short of it is you have to ask someone else. You have to ask or you have to communicate with someone else about the current consensus of the Bitcoin time chain if it has blocks that contain your transactions. You can do that in different ways.

One very naïve way to do it, and that is unfortunately the most widely used way, which is also the very worst for the privacy is that the user gets what is called as extended public key, which is a secret that is just a large number basically that is used to generate all the public keys of a wallet, and all the associated addresses of a wallet. Whoever has knowledge of this extended public key does knows exactly all the addresses of one user, and therefore also all the transactions that the user makes.

So he has the complete surveillance insight into everything that this user does. It's the biggest privacy fuck-up that you can make pretty much, to leak your entire transaction history to one trusted third party, which are always security holes, which we see all the time, just recently before these hacks happened.

Peter McCormack: Which I almost certainly have done myself.

Max Hillebrand: You see, Wasabi does it differently. With Wasabi, you do have a trusted third party by default, which gives you the consensus of the Bitcoin time chain. This is specifically a backend coordinating server that is operated by default by the zkSNACKs company, which is open source company that funds development in Wasabi, the main driver behind the project. You can run your own backend if you want to, and change to any other coordinator that you want to and create your consensus that way.

It's easily possible, again, free and open source codes, you can run it if you want to. But the thing here is that the coordinator has a full node and all the blocks. What the coordinator does is that it generates a BIP158 block filter. It is basically a compressed version of a block instead of the about 2.5MB that the block is, it's a couple kilobytes, so orders of magnitude smaller in size, and it represents all the addresses and all the scripts that were used in this block. So all the signatures basically and all the public keys or addresses thing were put into this block, they are referenced in here.

This block filter is sent from the backend server to all the clients that connect to it by default over Tor with new Tor identities. So this way, your local Wasabi Wallet will receive all the block filters of the entire Bitcoin blockchain, which currently is roughly 300 megabytes compared to 300 gigabytes. With this, you can locally, on your own hardware, check if any of the public keys of your extended public key in your wallet hits against one of these block filters.

If you hit, you go to a random Bitcoin full node that is running on the Bitcoin network. By the way, Wasabi packages Bitcoin D, the Bitcoin Daemon, that does basically all this stuff that the Bitcoin full node does, it's just running selectively. It does not do full verification yet, but it is used to connect to, for example, a different Bitcoin full node over Tor again, with a new Tor identity. You now download only this one specific block from this node, as any other Bitcoin full node will download a block from a different node.

At this step, Wasabi doesn't look any different than any other Bitcoin full node on the network. So you have the same privacy as any other Bitcoin full node that connects only through Tor and only through other Tor Bitcoin full nodes. So no Tor exit nodes are involved and everything stays in the Tor network. After this one block download, you actually disconnect from this node, and you kill that Tor identity and you generate a new Tor identity and connects to a different node to download the next block.

This is how you get the Bitcoin consensus without ever leaking your extended public key, which again, for privacy is like the biggest fuck-up that is avoided by default in Wasabi for any noob user. Here, we come back a bit to the user experience part. This is where I think Wasabi's UX is fucking incredible. It's specifically that part of the network level privacy, it is the best network level privacy that you can basically get.

You could even argue it's a bit better than running a Bitcoin core full node just because how smart Wasabi handles all this Tor stuff. So you never leak your XPUB, you still get the consensus, and this is a phenomenal way by default! By default all this Tor magic is done, all this filter magic is done to get you privately up to date with how much money you have in your wallet. Here again, this is where Wasabi shines in my opinion.

Peter McCormack: Which sounds amazing, and I guess if you're a developer or a coder or if you're somebody who has the time to focus on this, this is an amazing tool. But when you talk about all of that, I'm just like, "Huh?" I'm lost. I don't even want to learn this, and I know that's going to really trigger some people. They're going to be like, "Well, you should and if you want privacy and you want to be self-sovereign you should!"

But it's just these things don't really work for me because I'm not particularly technical, and it just sounds like too much effort. In some ways, the trade-off is like, "Okay, I just don't have privacy because I can't even get my head around this stuff and not that I..."

Max Hillebrand: But you see, this is where good tools come in, because I absolutely agree with you. Bitcoin privacy is crazy complex, and you need to be really well knowledgeable about this whole topic in order to use Bitcoin privately at the current moment, specifically a couple of years ago. But the nice thing is, we can build tools that make it easier for users to do the best practices and privacy. We've implemented many of these tools.

Just one example is hierarchical deterministic wallets, which fixed one of the huge privacy fuck-ups which is address reuse. Every wallet has it implemented. You don't need to worry about how to generate a new address when you do it in your wallet, it just happens automatically. The same, for example here in with Wasabi and this Tor setup. Previously to Wasabi, if you wanted to have such a Tor setup, you need to manually configure the Tor Daemon and the Bitcoin Daemon, and do all of this stuff, crazy complex. I would not be able to do that for sure!

But with Wasabi, you just download the package and you run it and it works and you don't need to worry about it. All of this happens in the default. The only thing that you see in the gooey is that you're downloading and synchronizing the filters. This takes, on the first start, maybe two minutes or so, and afterwards it is really quick when you load the wallet again. So after a couple minutes you're just up and running with Wasabi and it works by default.

This is where users who don't want to care about how all the magic works, this is the best spot for them, because it works by default. They don't need to change anything in the settings, they don't need to know how it works, and they just use it, and it works. This is something, the prime aspect where I think that the Wasabi UX is phenomenally good for new users. There are other aspects that are not as good for sure, but the network level privacy really is super.

Peter McCormack: Which is great! I guess, I think even for some people even Tor is a big jump for them, because some of it isn't just usability, some of it is kind of psychological. I think a lot of people aren't really fully conscious, they don't really fully care about some of the things that we are exposed to and we will talk about. For example, if I said to one of my friends if they got in touch, as it's likely to happen over the next few weeks if Bitcoin keeps going up, and they said, "Pete, I need to get into Bitcoin."

I said, "Yeah, well, the first thing you want to do is get yourself a Tor browser." They'll be like, "What?" I said, "Well, it's a way of protecting your privacy of use on the Internet because you don't want people to know what you're doing with Bitcoin." They're going to be like, "Huh?" These are people with Facebook accounts, so that is a big jump, and I'm not saying we can't get people there, and we should.

But I guess and maybe I'm a little bit selfish here, but I guess what I want is I want a wallet whereby everything is done for me. So when I send Bitcoin to my wallet, everything is just done. It's just all the privacy is handled, all the addresses are handled automatically, all the necessary mixing is done automatically, I just want that. Do you think that's a place we can get to?

Max Hillebrand: Absolutely.

Peter McCormack: Amazing!

Max Hillebrand: 100%. But what we are already building on, and this is in Wasabi for years by now, is a RPC server, which basically is a way for programmers to interact with the Wasabi Wallet infrastructure without using the graphical user interface. This is used by, for example, BullBitcoin, a Canadian Bitcoin exchange by Francis Pouliot and others. They do fantastic work there.

They use CoinJoin to protect the privacy of their clients and they have a very elaborate backup setup with their cipher node backend that uses this Wasabi RPC server to do awesome cool stuff. So this is where programmers can use it. There are other developer teams, not zkSNACKs, the company developing specifically Wasabi Wallet, but there are other development teams who are working on, for example, a mobile wallet of Wasabi Wallet.

It has the same code as the Wasabi desktop wallet, but a different user interface that is designed for mobile, and where, again, as much as possible is automated. So the CoinJoins can be automated and it's just send and receive in a very nice user interface, with that there's automatic coin selection by default with opt-in coin control. These are different user interfaces, and there are several projects. I think three different teams are working on mobile wallets backed by Wasabi. This is coming for sure, very, very soon I hope.

Peter McCormack: So that would be cool. So if I was to send Bitcoin to a wallet before the balance shows, it would go through the CoinJoining process. Is that what you're saying?

Max Hillebrand: Yes, exactly. So kind of the UX that I always envisioned is if a user receives Bitcoin, automatically in the background, the wallet should make sure that these Bitcoin that were received gained some privacy. That can be done by variety of different techniques. Of course, in the case of Wasabi, CoinJoins. So these received coins should automatically in the background be registered for CoinJoins and because this process takes a while, a couple of hours at least, if you want to do it right maybe a couple of days.

So this should all be done in the background, and then also further. When you spend coins, these transactions should also be some privacy conserving techniques and tools. Again, some other CoinJoining techniques like for example a PayJoin is interesting, or just doing payments inside CoinJoin, which is a big part of the research that we're doing right now with Wasabi. So there...

Peter McCormack: I'll tell you what will be cool. Sorry, I talked over you there. Do you want to finish what you were saying?

Max Hillebrand: No, no, no, please go ahead, Peter.

Peter McCormack: So I'm trying to envisage selfishly again the kind of wallet I would want, but I could imagine having almost two balances in there, which is my incoming Bitcoin, so just a normal Bitcoin wallet and address with a balance, and then let's say my anonymous Bitcoin, my private Bitcoin, the Bitcoin that has gone through the CoinJoin.

As I receive any Bitcoin, wouldn't it be great if it says, "You've received 1 Bitcoin," I could just press a button and then it would push that into the CoinJoin. So I don't have to do it every time. I could just choose to do it, but I wouldn't even want to know about anonymity sets and all those additional options. Really selfish, I just want to press a button and say, "Make these Bitcoin anonymous."

Max Hillebrand: Yes, exactly! That's how it should be. What you bring up here with these different types of coins that you have in your wallet. You said you have the private coins that somehow work CoinJoined, and then you have the freshly received coins where you still have some privacy downsides, that is absolutely right. The UTXOs, the Bitcoin coins, the unspent transaction outputs are not fungible, each of them is unique and each of them has a unique address.

Each of them has a unique amount, a unique transaction history and so on. It's in a unique block. So UTXOs are not fungible and they will never be fungible, it's an inherent design of how Bitcoin works. So the thing is, there are different types of coins that you own because each of them is unique and so you can display them in different ways. For example, you could have something that, as you proposed, with having different accounts maybe.

So we have one account that has only high anonymity sets, CoinJoined coins, and then you have a different account for different receivers, for example, which is one account for all receivers. That is possible for sure, and Wasabi does that too but to the maximum extent, meaning that each of the coins is shown uniquely. It's like each coin is its own account and has its own unique identifiers. With this, you have a very clear and precise overview of where the coins you receive come from, and if they have been CoinJoined already. This is done in Wasabi already now.

 Of course, the user interface is not as nice as it could be, but that will hopefully change in the future, but fundamentally this feature is here already existing in the core architecture of the wallet, and now the challenge is just to present this to the user intuitively, to automate with good defaults that are privacy-focused and to package this in a nice user interface.

Peter McCormack: Brilliant! It sounds like it comes back to the point we're still just very early. I guess this is very difficult technology, it's very complicated and I guess what you're building is tools for the power users. Then over time you'll learn how to work on the UX to make this a bit simpler for people like me.

Max Hillebrand: Exactly, I think that is in general a good approach. It goes somewhat in line with that free software ethos of scratch your own itch. Build the tools that you want to use yourself, because that gives you the right incentives, the right motivations, you have fun while doing it and all this. So I think this is quite nice.

Of course, then as a free software, you share the work that you've made and let others use it too and you get a benefit when others use it. So you want to make it as user friendly and intuitive for these guys to use it too, as this will increase the quality of your product.

Peter McCormack: Okay, so listen, that sounds cool, and I know I annoy people when I talk about stuff like this, but I talk to a lot of people who are interested in Bitcoin, and there are different groups of people. There are some people who just want to buy when the number goes up, sell and make some money and then there are some people who're kind of a bit more interested in owning some long-term for various reasons.

But the amount of people who are super worried about their privacy who would consider installing a Tor browser, who would really focus on using a tool like Wasabi, it is a low number. I'm not saying... Everyone should try if they want to, but it's very cool that these things are coming. Okay, so let's talk about what happened with Twitter then, because this was really kind of interesting. What do we know about the Twitter hack?

Max Hillebrand: Actually, I personally don't know all too much about this. I was out of cyberspace actually as it happened, but apparently... So there was some social engineering going on with one of the Twitter company employees or former employees or something if I remember. Anyhow, he had access rights to some administrative privileges in the Twitter infrastructure, and basically could use this to tweet from other accounts, and somehow the hacker got access to these admin rights and then basically could tweet anything that he wants, which makes sense, as this is a centralized server.

There's a trusted third party, which is of course Twitter, and the server infrastructure that they're running, and they can do whatever they want on their own hardware obviously. So if the admins want to delete accounts, they do it. If they want to tweet something from a specific account, they do it. If they want to edit tweets, they do it. If they want to tweak search algorithms or presentation algorithms, they do it. It's their server, they do whatever they want basically, which again shows how much trusted third parties are security holes. In this case, you see it again just by that being exploited by a malicious attacker.

Peter McCormack: Okay, but I was specifically asking with regards to Bitcoin, because the Twitter hack was about... It's really a Bitcoin scam. Didn't the hackers use Wasabi to mix the coins?

Max Hillebrand: Yeah, regarding it being a Bitcoin scam, for one, it was really a very low value scam. I think 14 Bitcoin or something, like very...

Peter McCormack: Hey, I'd like 14 Bitcoin.

Max Hillebrand: Yeah, sure 14 Bitcoin is nice, but there have been much, much, much larger scams out there that even still exists, so the biggest sponsor of them all, fiat, is even larger. So it's relatively small on scale, that's the one thing. It was a big publicity stunt, because Twitter is huge, and because very high profile accounts were targeted.

Peter McCormack: By teenagers.

Max Hillebrand: Yeah, sure. So on this end it was a great propaganda stunt basically, a good marketing for Bitcoin I'd say. Everything is good for Bitcoin. Did the hacker use Bitcoin? Well, obviously, just criminals are on the edge of crime and therefore they need to defend themselves, and they will use the tools that are most useful for them that do the best job. In the case of mandatory freedom, obviously you want to use Bitcoin.

Are they going to post their PayPal accounts for the idiots to send money to? Or their bank accounts and their IBAN number? No, of course not. So the only tool that he can use for such a thing is Bitcoin. So obviously they did the right choice here of utilizing Bitcoin in this. I don't condone their actions, hacking and others is not that nice, but still using Bitcoin was a smart choice really.

Peter McCormack: Yeah, and it's interesting. The PlusToken people, they used Wasabi as well, right?

Max Hillebrand: Yeah, sure. Many people use Wasabi. That's again the thing with having a permissionless and specifically anonymous nature. zkSNACKs, the company, they do not have KYC information, none at all. They only communicate with anonymous Tor identities, new ones for every round of communication. We have no idea how many users we have, where they are, where they're from, or if...

This is the thing, zkSNACKs, the company name is a twist on zk-SNARKs, which is a cryptographic protocol to provide zero knowledge proofs. This means zkSNACKs, the company, would like to provide products where it has zero knowledge about its customers. That is really the goal of the company to not become a trusted third party, but to be a provider of tools and techniques in a way that the provider cannot steal and spy and harass the users, where this company does not need to be trusted at all for all types of different things.

We're not yet there, there are many aspects where currently the company is still trusted. Not in the important cases, for example the XBAP. The company doesn't have the XBAP obviously, so that is important. The company doesn't have IP addresses or names or shipping addresses or anything, just Tor identities. That's basically it, therefore we can't really do targeted censorship. If all you're communicating to is Tor identities, well sorry, we can't block any individual specifically because we don't know specifically which individuals are using this service. So this is a future design.

Peter McCormack: Yeah look, I get it and I accept it. I accept the reality of what it all means, but I guess this is where we can get into some of the more tricky subjects to discuss because am I right in thinking Coinbase, they blocked some people from sending Bitcoin to the people overtaking the Twitter accounts. Are you aware of this?

Max Hillebrand: Yeah exactly, and it shows again, trusted third party are security holes. They can stop you from using your money.

Peter McCormack: Well there's two things there. So firstly, they can stop you. There is an issue there whereby they censored the transactions, but I guess everybody they did censor would've been glad in that scenario they did. So it's a tricky one.

Max Hillebrand: Well, yeah, sure. The question is do you want to have that protection? Do you want to have that guardian over your shoulder? That Big Brother watching over every action you take, and when that Big Brother thinks that the action that you take is stupid, he can prevent you from doing it. If that is something that you want to have, sure, go for it, do what thy will. But I don't want that. I don't want to have Big Brother watching over me like...

Peter McCormack: Yeah, but you're smart. You're a smart Bitcoiner, you're not a moron. You're not going to see a bummer tweet out that "Send me one Bitcoin and I'll send you two back." You're not going to do that at all! But my brother might or my father might, and having that extra layer of protection from Coinbase, they would've been glad about. That's why I say it's a tricky subject. I'm not saying it's right, I'm just saying it's a tricky subject.

Max Hillebrand: Sure, I absolutely agree. That's what I meant earlier. It's a valuable service to have this in some circumstances. Specifically for larger amounts that you want to protect, you do want to have some checks and third party eyes watching over and confirming procedures. This is a very, very important aspect of custodianship specifically. The cool thing is with Bitcoin you can do such custodianship or such security checks by a third party in a trust minimized way or trust reduced way by utilizing for example multisig or whatever.

So you can do a lot of cool stuff like this already and use it and obviously, it's useful. For sure, I don't question this at all. Having these security features is great. You just need to be aware of the trade-off that if this is not easily implemented as it is with most current custodian accounts, this means that your trusted third party has full control over the money, and you have zero control over the money. So the trade-off here is that you give all of the control to someone else, and you get presumably a lot of security from which undoubtedly...

You could see how many of these full custodians were stolen from. But this doesn't mean that the technology itself of having these semi-trusted or trust reduced parties to be an active part of making a transaction is very important. Again, we have these techniques with multi-signatures from your signature with vault constructions and advanced time log things. This is all possible, and it's good that it's possible. We just need to be aware of the trade-offs that we choose.

Peter McCormack: This is where it gets super interesting, because I don't keep any amount of Bitcoin on an exchange ever now. I'm one of those people who is fully self-sovereign to the point now I've got a Casa multisig, I distributed my keys and I've kind of got myself to a place where I don't have to worry about a personal fuck up, someone attacking me, I'm in a really good position. That's taken me a couple of years. Originally I was on exchange, then I had a hardware wallet, then I had a couple of hardware wallets, and then rather than having my keys backed up on a piece of paper, I used a Billfodl.

I've gone through those stages over the space of a couple of years, and I'm in a position that really suits me now, and I'm happy with that. This would trigger people, but I think there are certain people who will want exposure to Bitcoin who should also use a custodial solution. That's really going to piss people off, but like my dad, for example, every time I go and see him in Ireland, he's got a list of things I have to do for him. His TV isn't connecting to his DVD player or there's some problem on his computer. Technically, he hasn't got a scooby and he never will.

The idea of him having a hardware wallet backing up his private keys or having any kind of multisig, it's not even like we could go on a journey and teach him, it's just not going to happen and it's beyond him. So I think there are certain scenarios where people should use a custodial solution and accept the trade-offs.

Also, some people who therefore would also benefit from the custodial solution having things in place which protects them from maybe sending Bitcoin to some kind of hacker or something and that means we end up in this kind of this, I guess I don't want to say layers, because that's misleading, but this kind of two different Bitcoin worlds as there is the completely self-sovereign permissionless, trustless wallet Bitcoin, which I use and you use, but then we also have this semi-trusted version which will suit some people. How does that fit with you? Does that sit comfortably with you or does that bother you?

Max Hillebrand: No, for sure, this is how it ought to be. There will be hundreds of thousands of different wallets out there provided in free software form, and many different forks and versions and releases of each of these. Hopefully we will see a thousand flowers bloom and plentiful of options to choose from for individuals, because this will allow individuals to choose the tool that aligns well with their own individual preferences.

So for your father, the risk of him fucking up by losing the paper backup that he made while being confused, is a lot higher than a reputable custodian with good and well audited security to be stolen from or to steal from the father. Therefore, it is a rational choice for him to use that tool which has less risk for him which provides him with less uncertainty, which is the main reason to use money, and that will be the custodian. There is nothing wrong with this.

Again, it's based on individual preferences, and it's a good thing to have. But still we ought to strive to provide easy-to-use tools that reduce that trust on a third party. That is the first thing. To make these tools more user friendly, as well as providing more reputable, better audited, better insured trusted third parties that in the case or first that are well defended against most cases of being stolen from. 

Second, that indicates that they are being stolen from that they, out of their own capital reserves or insurance contracts, pay out to their uses who have a custody, their precious Bitcoin with them. So we're very early in this stage and there is a lot of work to be done on many, many fronts. So for sure, this will all come, and it's good that it will come, but it is just natural that we don't yet have it because nobody built it.

Peter McCormack: But that's kind of practical of you to say that, and not everyone will agree with this. There are people who will say that you should never hold your Bitcoin with a trusted third party, that you should self-custody everything and if you're not running a node, you're not verifying your own coins. There's this high bar that some people think should exist, but it seems like you're a bit more comfortable with the kind of lower bar for other people.

Max Hillebrand: Well, I set a very high bar for myself and I make that happen for myself, but I do not force other individuals who have their own unique preferences and value judgments to make the same decisions that I do. I will most certainly educate them and help them to make a well based decision on how to act and for them to realize that the trade-offs between these different options.

Again for me, also to build on the tools and to make them better for both myself and for others, this is my approach and so I do have that very high line for myself but I don't see why I should enforce this on others.

Peter McCormack: Well, that's pretty cool. It is a tricky thing. Dan Held talked about this sometimes as well. He's talked about the fact that custodial solutions will suit some people, and also I think we just see it new law regulation change in New York maybe that banks can now custody, let's say, cryptocurrency, because I think it was broader than Bitcoin, for people.

So it is a reality that's coming. Is it potentially dangerous though, if there were too many people custodying their Bitcoin with custody solutions? Does that present any risks or dangers to Bitcoin itself? Any kind of like wider risk if too many Bitcoin were secured like that?

Max Hillebrand: Yes, I do think so. Gregory Maxwell has a very insightful comment somewhere in the archives of cyberspace, and I won't butcher his quote. But basically the idea of Bitcoin is a network of individuals finding consensus. The issue is it's a very individualist network, these are actual people demanding to be paid in Bitcoin, and verifying that they have received Bitcoin. This means that if these individuals are well aligned in their thoughts, in their motivations, in their vision, then they reach consensus.

However, if there is a fog, basically, if there is a divergence of method or vision or goals basically to achieve, then we disrupt the network. This is not good. This happens in Bitcoin, of course, on the technical level, but if you run a different consensus implementation or a different node implementation that reaches a different state of the network, then you have a fog, but it also happens on the socially. So Bitcoin only works because individuals defend their right of using Bitcoin.

If more and more of these individuals do not appreciate having this tool available and do not use it to its fullest extent and rather go down for the convenience and the security of using a less responsible, less self-responsible option out there, that risk is here. If this happens on a wider scale, then the ethos of Bitcoin is broken.

That can for sure lead to the downfall of the project. It would not be the first time. So this is why education is so primarily fucking important because you need to have a well educated base of peers, of individuals who understand the reasons why Bitcoin, why this is so important, why we're actually doing this, and why having this tool is such a valuable resource and something worth fighting for, and something worth to build and to make greater.

All of these aspects don't come out of nothing. They actually do have to be fought for over and over and over again. The work that educators do, all the great podcasts out there, the YouTubers and journalists and whatnot, and of course, Peter you included, this is why this is so important and this is why this is such a great work.

Peter McCormack: Well why do you care so much Max? Why have you made this essentially your life's work?

Max Hillebrand: First and foremost, because I need these tools myself. I want to protect my property, I want to protect my life and my liberties, and Bitcoin is a phenomenal tool for that. The capital that you hold in Bitcoin on your own private keys verified on your full node is completely seizure-resistant. If done properly, nobody can steal this money from you directly via theft of the coins, and no indirect theft because of the increase in the money supply, because I verify everything on my full node. 

Therefore, Bitcoin is a phenomenal tool for me to protect my property rights, and I want the tool to be functional, therefore I build or I contribute to the tools that I need, which for example, needs to be Bisq, a decentralized exchange to exchange my fiat shit for Bitcoin, I wanted to have a permanent version of that. So I contributed to it, made it a bit better, and then used it myself. Now I no longer have any fiats, so unfortunately I no longer enjoy the use of Bisq, but...

Peter McCormack: You are 100% Bitcoin?

Max Hillebrand: Yes. I earn Bitcoin, hold Bitcoin, and spend Bitcoin.

Peter McCormack: Let's talk about this, because I thought about this. I've thought about making that full commitment, and it's funny, if I'd have done that two years ago, I would be wealthier than I am today when comparing the value of my Bitcoin to the pound. If I had to run the exchange rate then and now, I would be a lot more wealthy. But I haven't and there's a couple of reasons. So I have a house, I have to pay my mortgage, and I also have two kids and various things I have to pay for them.

So there's always this need to be transferring money back into the local currency. You can tell me as much as you want about this or keep it as much to yourself because some things must be private, but do you still have to operate a fiat currency bank account to deal with certain things which were inferred? Or if you manage to put your entire life into Bitcoin, and everything you pay for uses Bitcoin?

Max Hillebrand: So I only had a bank account for three years of my life, which was in a period where I actually did my bachelor's degree cooperatively at the Deutsche Bank. So I worked a bit in the belly of the beast for three days, and that is when I had a bank account to receive that salary. I rarely used that bank account actually, mainly to withdraw cash, which was the only reasonable way for me to use and interact with fiat.

Then as soon as that bachelor's degree was finished and I quit work at Deutsche Bank, I also quit my bank account. So for over a year now I no longer have a bank account at all. No PayPal, no credit cards, no debit cards, nothing. I demand from all of the clients that I work with to be paid in Bitcoin. Therefore, I no longer have any income that is denominated in fiat or that is paid on in fiat rather and then I hold Bitcoin, and that's it.

By now, both my store of value, medium of exchange and unit of account, I no longer see the fiat value of Bitcoin, that doesn't change. In my Wasabi Wallet, I only see the quantity of Bitcoin that I have, that doesn't change. It only changes when I earn more or when I spend.

Peter McCormack: If you were going to do some work for somebody, how do you price that work? Do you have a fixed daily rate which is Bitcoin and it doesn't matter if the price in Bitcoin doubles, that's going to be your fixed daily rate? Or do you adjust for the changes in the price?

Max Hillebrand: All of my contracts are denominated in Bitcoin, meaning that there is a certain amount of Bitcoin that I charge per hour or by day or month or whatever the contract is. Every month, that is the same, which is reasonable, because it is a very stable currency. I know that this is exactly the percentage of the money supply that I get every month, it's very...

Peter McCormack: Well, hold on, it's not really a stable currency. It depends how you look at it. You could say it's stable because fiat is unstable, but most people are still using fiat as their unit of account. I don't know, say you charge a day rate of 0.1 Bitcoin, about $1,000, and Bitcoin did a 10X and you're still charging 0.1 Bitcoin, to those people your rate might've gone up to $10,000 a day. You see where I'm getting at?

Max Hillebrand: For sure, absolutely, but you know what you can do as a smart entrepreneur then is to give a discount. You can say, "Hey guys, Bitcoin did great. You know what? You get a 50% discount on my services."

Peter McCormack: That's a 5X.

Max Hillebrand: That's a nice way to sell it.

Peter McCormack: Yeah, I don't disagree with it, and it's very cool that you're using it as your unit account, but if I was buying services from you, I'd be like, "Whoa, hold on Max. Bitcoin has gone up 10X. Even with the 50% discount, that's like a 5X price I've got to pay."

Max Hillebrand: Okay, sure, then we negotiate. You can do re-negotiations of price, I regularly do that. Well I also would do that if it's denominated in fiat. The fiat is such a shitcoin! The nominal amount of the currency that I receive needs to increase drastically with every month basically. It's insane the amount of inflation that we have, right? So I want to adjust that price, but you see that if I earn fiat shitcoin, I need to negotiate to increase my salary.

That is a very weak negotiation position, because now I need to beg the other party, "Hey, please, please, please, give me more money for the same service that I provide you?" That is a difficult sell on my side. I can say, "No, no, you pay me Bitcoin" and if Bitcoin is doing well, I can say, "You know what? I'll give you a discount." §I'm in a much stronger argumentative position to argue for the value that I receive in exchange.

Peter McCormack: Now I want to get paid by everyone in Bitcoin.

Max Hillebrand: You see?

Peter McCormack: Damn you! But you know what I do? I actually have one of my sponsors who pays me in Bitcoin. Historically, 75% of everything I receive in Bitcoin gets transferred into pounds. I have a pound bank account, because all the services that I have to use; the hosting, everything, I do have to pay in pounds or dollars, and the people I pay.

So I had to do that, but recently the last time I got paid, I left it all in Bitcoin but I did it at a time when Bitcoin was $9,200 and then we've gone up like $11,000 to $12,000. So I made the right decision at some point, but if the money was worth $20,000, and that'd gone down to being worth like $5,000, that would have a material impact on me running the business.

Max Hillebrand: Sure.

Peter McCormack: I would like to do it, but I can't because it's too risky. So my risk I was willing to take was like 25% of every invoice, I'll leave in Bitcoin. So I would say I'm partway towards what you're doing. But let me ask you...

Max Hillebrand: But you see, that's great. Even for me, it was not a one moment change. This is something that I've built for many years now and it's for sure a step-by-step process. Of course, at first online income was in Bitcoin, then a little bit of it, right then I was super happy. But you know another nice trick that I did was at first I said, "Okay, pay me 0.1 Bitcoin." That's my salary. If the person is like, " I don't know about Bitcoin, I don't have any."

Then say, "Okay, you pay in fiat but you pay 50% more" because then I have to take care of converting that fiat into Bitcoin, and I have all that cost, and I need to worry about my bank account. This is a huge amount of extra cost that I have. I'm only willing to give you that service if you pay me in fiat but more of it. So again, no, actually your customer basically is punished for giving you shit, because I'm not a waste disposal company.

I don't want to get rid of shit, that's not the business that I do. If you want to outsource that to me, I have a huge amount of trouble and headache and don't want to do it, so you have to pay for that service if actually want me to do that. Later, I increased that amount. So it was like "You pay double." Eventually even you pay triple, if you dare to even ask me if I accept fiat, now at a position when I say, "If you ask me if I can take your fiat, I say no. The price would have to be extremely, extremely high for me to take your fiat shit." Which is nice, and it's such a good argumentative position to actually make that claim and to defend it. But if I don't get paid in Bitcoin, I will not do the job.

Peter McCormack: Do you know what's super interesting? 10 years ago, 11 years ago Bitcoin was basically used by a few nerds and techy and people interested in this new interest in better money, and over time, 11 years has passed, and pretty much everyone's heard of Bitcoin, and a lot of people have it and a lot of people are using it. I guess there's this trailing group of people who're like yourself who have gone...

You've just gone in, you've gone full Bitcoin and like you said, you've essentially become part of that Bitcoin circle economy whereby you are only holding Bitcoin and only spending and only receiving Bitcoin. I guess over time, maybe in 11 years’ time, there will be more people doing that, but you're like one of the earliest adopters of entrepreneur concept. I do know other people are doing it, but it always seems a bit scary to me.

Max Hillebrand: I'm for sure not the first now and for sure not the last. One guy who really inspired me was Felix Weiss and I believe it was 2012 or 2013. He made what I'm basically doing now, went all in Bitcoin and I even believe he quit his bank account, I'm not exactly sure. So he earned Bitcoin, and then he exchanged some Bitcoin for cash locally on a peer-to-peer market and then with that fiat cash that you get from a peer-to-peer trades you buy the goods and services that you cannot acquire with Bitcoin directly.

For him, that worked. I believe it was all through like a year or so traveling to 40 different countries or whatnot. Again, it worked for me the same way over the last year or so. I don't know maybe 15 different countries without a bank account, without any credit cards, just with Bitcoin and the local fiat shitcoin that they prefer to use. That's it! It works surprisingly phenomenally well.

Peter McCormack: Have you run into any difficulties with this?

Max Hillebrand: None that were too challenging not to solve. Sure there are some inconveniences. For example, in every country that I first come into, I somehow need to find a person to do a Bitcoin peer-to-peer trade with in person and that is not always easy. The big benefit for me here is that I go to a bunch of Bitcoin events and do a lot of in-person education too. So I do meet Bitcoiners and usually Bitcoiners who want to get more Bitcoin.

Again, I'm on the easy side of the trade, I want to give my precious Bitcoin to another Hodler. This is the easy side, as they want to get rid of their shitcoin, that's difficult and that's where you need the waste disposal facility. Again, selling Bitcoin is a better position than buying Bitcoin in my opinion.

Peter McCormack: Do you have like a backup option? What if you got to a country and you could not trade some of your Bitcoin? Do you carry a few dollars with you just in case?

Max Hillebrand: Well yeah, sure, I do some reserves in fiat. For me, the guiding principle is to reduce the number of seconds that I hold fiat shitcoins, that needs to be reduced to a minimum. So the reserves that I have are really tight, and it can for sure be... It happened that I was a couple days, a couple weeks completely without any fiat shitcoin at all, both because, well, I didn't need it because I had enough food and fuel for whatever I needed, plus that I did not find other people to trade with.

That for sure can happen, and yes, that does increase your uncertainty absolutely. There are always ways to figure this out, and so far it has always worked. But yes, this is some aspect where uncertainty is introduced, and that of course, is a foreign exchange that you have to deal with. But for me personally, the quantity of liberty that I have made for myself with this strategy so incredibly far outweighs any inconvenience that I had that it is a no-brainer decision for me.

Peter McCormack: Listen, I kind of envy the freedom. If I didn't have kids, I could imagine a scenario where I sell everything, sell my house, my cars, all my bullshit, put it into Bitcoin, and just kind of roam around the world living this kind of free life, doing as I choose, blah, blah, blah. But because I've got these other responsibilities, I can't do it yet, but I definitely envy it. It does sound amazing! I'll get there eventually.

Max Hillebrand: Yeah, it is for sure fun, but to say that you can't do it is a bit harsh too.

Peter McCormack: Well, it's a struggle. It's a lot of complicated things I would have to think through to be able to do it. But that's not to say it's impossible, but also there is a financial risk with it because fiat is a shitcoin. Of course, I understand that, but over certain time periods, your wealth in Bitcoin can drop heavily. If you have a bull run into a bear market, during that period, it would be have been financially better to hold your fiat shitcoin.

Max Hillebrand: For sure, but the thing is here specifically with me, I'm just such a very fundamentalist Austrian economist that personally I just do not care about the exchange rate of different currencies. This is something that I'm, as a monetary economist, not much interested in. The main point of view for me is the monetary supply aspect. This is where I draw the basis for my economic and entrepreneurial calculation for my wealth measurement and for other parts. I know exactly the percentage of the Bitcoin money supply that I own and this is incredible!

This helps me so much with my calculation of is it worth it to invest my Bitcoin into a good or service that I want to purchase? This is one aspect where I just really don't care about the price, I really don't. I get it why other people care about it because of course, fiat is the main baseline, but for me it's just Bitcoin is by far the most stable and secure and most optimal trust trade-off asset that I could hold in order to build my capital stock to save for future investments. When you look at it from that aspect, it's as stable as it can be.

Peter McCormack: It's interesting, I've just calculated what percentage of Bitcoin I own and I don't think I've particularly got a large amount of Bitcoin. I certainly haven't, well under triple figures. I've just not got a lot, but when I run it as a percentage, and I think, "Wow, if this was like the primary currency of the world, the primary global currency and store of wealth, as a percentage, it's still just kind of interesting."

Max Hillebrand: You see?

Peter McCormack: I'm kind of like, "Yeah, not many other people could be that high."

Max Hillebrand: Exactly!

Peter McCormack: That's kind of cool! Maybe I'll get there, dude.

Max Hillebrand: This is what entrepreneurial calculation is about. Not the exchange rate of other currencies, right? This is what that fundamental medium of exchange value comes from, what percentage of that medium of exchange do you have. That is your purchasing power! This is what I base my economical calculation on.

Again, as you say, it's such an interesting shift of perspective, and I think it's such a meaningful one to get to this new baseline. This is what a sound monetary economy is built on. It's individuals and entrepreneurs having that shift of a mindset.

Peter McCormack: So interesting. I think basically what I need to do is kick my kids out! No look, I'm gradually getting it. Like I say, about half of my wealth is in Bitcoin. That doesn't give anything away, because people don't know what I have but about half of it is. In terms of running my business, I think about 25% of it is holding Bitcoin and it's definitely a growing number. In both of them, the percentage of what is Bitcoin measured against dollars or pounds, is definitely growing.

Max Hillebrand: Yeah.

Peter McCormack: I've got a decreasing amount of the fiat shitcoin, but to get to that point where I'm entirely on ... I guess there's another benefit from that. If you have full privacy, and you fully understand what you're doing with your privacy and you're doing your CoinJoins, and then you're getting into a local market, and you're exchanging some of the local currency, you're only ever dealing in either your Bitcoin or cash in the local market. So you're not leaving any kind of trail, which I guess is another benefit.

Max Hillebrand: That is it, and that always is something where I kind of have to smile a bit when people say Bitcoin is not private or Wasabi is not private, good luck trying to find my Bitcoin! I've never leaked my XBAPs, the receiving addresses are always freshly generated, a whole bunch of CoinJoin, and I receive them from people that you do not know that they sent me money, and I will send it to people who you do not know that I sent them to, and you have no clue the link in between these. So if you use Bitcoin properly, good luck, it's very possible.

Peter McCormack: And you could totally roam around the planet and not paying any tax if you so wish to.

Max Hillebrand: I'm not a resident of any government jurisdiction.

Peter McCormack: What? How? Is that because you're just roaming or is your base somewhere weird?

Max Hillebrand: No, I'm just roaming. I'm traveling and seeing nice places.

Peter McCormack: So essentially your income goes up by like 40% at least because you're not having to pay any tax.

Max Hillebrand: I tend to think it's a lot more. I don't pay any income tax, that's the one thing. I also reduce all the social insurance. I do not have any government mandated social insurance and all this shit. So this falls apart too. Further, the most important thing, I do not pay any inflation. This is what I mean with reducing the quantity of seconds that I hold fiat shitcoin is specifically for this.

Every second that you hold shitcoin you're being stolen from, you're being taxed, every single second. So the more you hold it, the more money is being printed and you don't get it, this is the shitty thing. So that whole tax falls out of the market completely for me. So there's, of course, still a lot of looting that is going on.

I don't even want to know what percentage of tax they steal from diesel or from steak or whatnot and I don't even want to know the whole quantity of theft that has occurred based on a structural basis by the amount of mal-investment and overproduction that this fiat prior has caused. The total cost of this entire fiasco is tremendous. I'm not saying that I'm not being stolen from, I'm just saying that I try to reduce it as much as possible.

Peter McCormack: I guess we have to sit down with the kids and have a chat and say, "Look, we're about to change our lives. We're about to roam the world." Listen, this was amazing, I've loved this Max.

Max Hillebrand: I've met several families who travel with their kids. Both parents and two or three kids, it's definitely possible. For sure, there are many trade-offs, and it's a careful decision to be made, but it's possible for sure. A lot of roamers.

Peter McCormack: I would love to do it, but it's a little bit more complicated for various other reasons, but I would absolutely love to do it. This was amazing, I didn't even think we'll get into this, this is very cool. All right, listen, look, great to talk to you Max. Can you tell people if they want to follow your work, they want to see what you're doing, and then they want to get and reach out to you, how do they get a hold of you, man?

Max Hillebrand: Yeah, Twitter is of course always a good spot, @hillebrandmax. GitHub, more and more too. Basically, under this pseudo-anonymous identity of Max Hillebrand, you can find me in cyberspace.

Peter McCormack: That's not even you.

Max Hillebrand: Well, it is one of the pseudo-anonymous identities that I choose to rename myself. So towardsliberty.com is the website. Of course, a lot of the work that I do is focused right now on Wasabi, which by the way you didn't even get the chance to talk about it. By the time this episode is release probably, we will release the next version of Wasabi, which is quite nice, version 1.1.12, which has a bunch of major upgrades. So, that's been quite a fun, so so stay tuned for some announcement there.

Peter McCormack: You should. Have we met?

Max Hillebrand: Yes, in Munich, Lightning Hack Day.

Peter McCormack: Did we meet in Germany? I thought we did! I thought we met at the Lightning Day, amazing!

Max Hillebrand: Yeah.

Peter McCormack: Well look, I loved this, I really enjoyed this, we should do this again sometime. I think I want to do a bit more of a deep dive sometime about living on Bitcoin, because I think that's a super interesting topic. But look, thanks for coming on, I look forward to the more user friendly products which a moron like me needs, but keep doing the good work and stay in touch. You ever need anything, you know you can reach out to me, Max.

Max Hillebrand: Yeah, for sure. Thank you Peter again, for the invite. It was fun to chat about all these. Again, important topics that we have a conversation about and as I mentioned earlier, it's incredibly important to have educators out there to spread that knowledge and to help other peers understand it. So thanks Peter for all the work that you do with so many good episodes and good hosts and good guests also.

Peter McCormack: Thanks man!