WBD625 Audio Transcription

The Future of Bitcoin Banking with Eric Yakes

Release date: Wednesday 1st March

Note: the following is a transcription of my interview with Eric Yakes. 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.

Eric Yakes is the author of ‘The 7th Property’. In this interview, we discuss how a Bitcoin native banking system could evolve, predicated on a practical vision where not everyone will be able or willing to self-custody. Eric has theorised how Fedimints may form the basis for a new digital age of free banking, and the risks and opportunities this would present.

“The whole point is that we have enough self-custody to where the system remains permissionless so that we don’t turn into digital gold 2.0. That’s the whole point. Maybe that’s 20% of all Bitcoin, maybe that’s 30%. I have no idea. But it needs to be as much as we could possibly make it based on the consumer utility trade-offs.”

— Eric Yakes

Interview Transcription

Peter McCormack: Eric.

Eric Yakes: Pete.

Peter McCormack: What the fuck do you want?!

Eric Yakes: Do you need a hug, man?

Peter McCormack: Oh, fuck, man.  Danny, we shouldn't make shows after Real Bedford games.

Danny Knowles: I did think that while we were watching it.  You're going to have to do some heavy lifting here, Eric!

Eric Yakes: I walk in and, you know, I'm walking over here imaging all the lads are going to be together watching the game, and I walk in and everybody's faces are on the floor and I'm like, "Oh, shit!"

Peter McCormack: Danny, you might have to do most of the work here, dude.

Danny Knowles: That's okay.

Peter McCormack: For people listening, watching, we just watched a Real Bedford game and we just lost, it's our third defeat in the league, against a team we should have beat.  It hurts, man, honestly.  No football ever hurts as much as when this team loses.  I take it so personally.

Eric Yakes: I can imagine.

Peter McCormack: I got divorced and each defeat is worse than the divorce, I'm telling you!  I felt shit when I got divorced; I feel worse, I feel so crap, I feel genuinely like, "Fuck this, fuck New York, fuck Danny, fuck Jeremy, fuck you, Eric"!

Eric Yakes: You've made be scared to get divorced now.

Peter McCormack: Oh, man, honestly.

Danny Knowles: You've got to get married first!

Eric Yakes: Yeah!

Peter McCormack: It's so weird, right.  It's so exciting to buy this team and think we might win the league and go on this adventure.  But…  Do you have an NFL team?

Eric Yakes: Yeah, Denver Broncos.

Peter McCormack: Yeah, so you're used to supporting a team that sucks!  I'm only joking, I don't know if they suck.

Eric Yakes: Oh, it's horrible, man.  Russell Wilson has been a nightmare, their coach.

Peter McCormack: Well, so I grew up supporting Liverpool and we have some defeats and it's shit, and then it's whatever, you get on.  But this is like someone goes and puts a knife in me and they turn it and they drag it through me and then they point and laugh.

Eric Yakes: You go to bed every night, "Oh, the game tomorrow, it's going to be great".

Peter McCormack: Yeah, I can't wait.  And now it's like, "This fucking sucks, I hate this!"  Anyway…

Eric Yakes: Should you buy your home-town team?

Peter McCormack: Oh, man, I'll tell you what, you've got to get some thick skin to deal with this stuff, because it has so much more meaning, right?

Eric Yakes: Right, totally.

Peter McCormack: Before, it was like I wanted my team to win…  I'll tell you something interesting, right.  When England win in the Euros -- by the way, people listening right now are going to be like, "Why the fuck are you not talking about Bitcoin?"  When England are the Euros, I followed England in the Euros and World Cups and they've always gone out and it's always been really miserable.  And then, in the Euros, we got to the final and I went to it.  And when we lost, I was kind of okay, I was like, "Oh, we lost".  And I think what it was, I had this realisation afterwards, I was like, "Well, if we'd have won the final, what did it actually mean?"  Like, what does it mean?  Yes, you've won, but what does it mean?  When I leave, what does it mean?

Eric Yakes: Right.

Peter McCormack: It doesn't mean anything.  But when you go out in the semis or the quarters, it does mean something, because it means you miss that next game.  I realise, it's all about the journey and staying in.  Of course, you want to win, but this isn't about -- the journey's fine, it's about the winning!  It's like, this is my home team, this is my home town, I want my home town to have something successful and fuck the journey, it's just like, "We've got to win".

Eric Yakes: Right, and you effectively have a budget built out in your mind of the long term, "We need to hit these wins to get to this place", and every single time you fall short of that, it's like, "Oh, shit".

Peter McCormack: Yeah, and we were in a position.  We win tonight, we're 9 points clear.  It's like, 9 points clear, 13 games to go, this is good.  Now it's 6 points clear, 13 games to go, but the team we're going to be 6 points clear of, we play next!  Yeah!  They call that a six-pointer, because it can go either way, right, if they win, we win…  Anyway listen, Eric, good to see you, man.  How are you, brother?

Eric Yakes: Feeling good, I think we've got to bring the vibes up in here.

Peter McCormack: Yeah, come on, man.  I'm over it, come on.

Eric Yakes: We're good.

Peter McCormack: We're good.

Eric Yakes: We're ready to talk about banking and stuff.

Peter McCormack: Yeah, let's talk about Bitcoin, let's talk about the end of the world.  How have you been though?  Your book's been out, what, how long has your book been out now?

Eric Yakes: It's been out over a year now, and I've been good.  I've been working a bunch and I'm setting up a fun thing, I won't go into too much detail around it, but yeah, I've just been working pretty heavily, building in the bear market, and yeah, it's been good.  I haven't been as active on Twitter.  I also feel like Twitter, it's different, the vibes are off.

Peter McCormack: Yeah, so that community you build around Bitcoin, it's harder to get to it now.  Elon Musk has made this decision, he thinks he wants to be the front page of the internet, or the front page of Twitter drama.  So, if you post something about shooting down a fucking balloon and make a joke about it, you'll get 2,000 likes; you post something about Bitcoin, you'll get 200 likes; I've noticed that and it's just like, "This is a bit shit".  Are you on Nostr?

Eric Yakes: I am.  The UX is just tough for me right now.  I'll hop on and I'm kind of playing around with it still, but I definitely noticed it on Twitter too.  It was funny, I took one of my tweets from the bull market that did very well, I got a few thousand likes, and I just copied and pasted it to just test and see how much engagement it would get this time, and it was like a third.

Peter McCormack: Well, what was the tweet; was it like, "Bitcoin's going to the moon"?

Eric Yakes: Oh, you know what, I probably actually shouldn't say because it's related to a certain person.

Danny Knowles: Right, you know I'm going to go and have a look now.

Peter McCormack: Yeah, I don't know, I think he's kind of fucked it up.

Eric Yakes: I agree, I think he's fucking it up and it's going way worse than I expected it was going to go.

Peter McCormack: Yeah, I think the reality of -- he got to do his dog whistle to everyone who was -- dog whistle; is that a bit unfair?  Basically, Twitter was very left and I think we all knew some weird stuff was going on, and he's got to do his fanfare of drama around that, and interesting stuff, those Twitter files are interesting.  And then he's sacked a bunch of people and said, "Yeah, we're too many people employed".  I think we're starting to realise why those people are employed, and now he's fucked with the algorithm so much, I think a lot of people are like, "This just isn't as good any more".  We joke, I think the algorithm is looking for violence.

Eric Yakes: That's interesting.  It's like, because of how it works now, I just don't have the same urge to get on as much to post.  The engagement's off and I don't like what I see usually.

Danny Knowles: Is that because it's bear market vibes as well?

Eric Yakes: It's part of it.  But I hate the "for you" column.

Danny Knowles: I hate that.

Eric Yakes: It's so annoying.

Danny Knowles: I thought that was new, but Pete said that's been there for ages.

Peter McCormack: No, maybe it is new.

Eric Yakes: I never noticed that before, and now it's like I always have to click back over to "following", and then I do that and then the engagement's bad.  It's probably bear market too.

Peter McCormack: But hold on, we've been in a bear market for a long time, it wasn't like this.  It's post-Elon, and I guess there's some kind of thesis behind it of some kind of more engagement that leads to them being able to sell more ads or something.  I'm just getting constant ads for The Athletic at the moment, constant ads, and like how much are they spending?

Eric Yakes: Yeah, I feel like every fourth tweet, I see some credit card ad or something.

Peter McCormack: Yeah, but it's like, "I think you broke Twitter, dude".

Eric Yakes: Yeah, it sucks, I don't like it as much.

Peter McCormack: Yeah, and that's a shame, because you kind of want to be in your cohort.  That's why I kind of like Nostr.  I got it first, I was like, "The UX sucks", but then I realised there's a good cohort of bitcoiners that have a good conversation, no distraction.  I mean, maybe you can build some Bitcoin lists and work with that, but I'm just like -- he put a thing up yesterday, I ended up deleting my reply.  He was like, "What feature do you most want from Twitter?" and I replied, "You to undo every change you've made!"  But it is what it is.

Eric Yakes: Got him!

Peter McCormack: Right, man.  So, we spoke about the banking system last time, you've been further down this rabbit hole, right?

Eric Yakes: Yeah, I've been digging deeper into it.  I think for perspective, the last thing we were talking about was a lot more theoretical which I was like, this is where you need to start and then you can start building more into practical applications.  Now, I'm digging more into the practical side of it, and still a lot of theory.  This is obviously very prospective and I'm assuming quite a bit about the future.  But also what I'll say is that, when you get into the practical side of it, I think 2023, 2024, a lot of this stuff is actually going to start to emerge and that's what makes this really interesting.

I think it's actually pretty near term when we have new protocols that are being built, like going back to Nostr too, I think some of these other protocols that are going to be levering Bitcoin in some form and they're not financial applications or anything, potentially could be, it's just a network system, but some of these things that people are using, I think there's a lot of interesting things that are on the horizon in terms of layers on top of Bitcoin and peer-to-peer technologies.  Yeah, there's some cool stuff coming out.  But that being said, a lot of the stuff's still in, what I've been reading into, still based on at least ten years and then some things, four years, like who knows?

Peter McCormack: Right.  And so, if we had to crystalise this for the listeners, how would you explain what it is you're trying to figure out here; what's the kind of elevator?

Eric Yakes: Right, so here's why this is important to me.  When I jumped into this industry, I was working in traditional finance and then it got to a certain point where, number one, I had to understand Bitcoin well enough; and number two, I realised this thing actually can't really be stopped at this point, it's spread too far.  Once I got to that point, the risk changes significantly in your mind and you're like, "Okay, if this thing's going to go, then where is it going to go?"

I think that now, Bitcoin's going to end up somewhere between this idea of digital gold 2.0 online; that's probably around my worst-case scenario.  There's nuance to it, but generally speaking.  And then, at the other end of the spectrum, we have an apolitical global monetary system that could emerge, and that's best-case scenario.

Peter McCormack: So, in that worst-case scenario, you believe that it will sit alongside fiat currencies, potentially CBDCs?

Eric Yakes: Right, it sits as a store of value in some form, maybe the East starts to adopt it for trade and there are centralised functions that are bottlenecking its use as a freedom money.  But on the whole, it's still achieved the market size of gold, or comparable to.  That's good, that's good for Bitcoin in a lot of ways, but it's not what I'm here for.  I'm here for the other end of the spectrum; apolitical global monetary system that enables freedom within society and reduces the power of governments across the world.

I think that a lot of these technologies that are starting to emerge today are going to be pivotal in us getting to that other end of the spectrum of, "We have an alternative financial system here", and that needs to be built out in the right ways.  And there are a lot of missteps that I think can happen along the road in terms of centralisation, in terms of custodial operations, in terms of the ability for a government to keep it as just a reserve asset.  But that's really what I think is interesting and what I think is really important to understand about this, because right now we're looking at an $800 trillion market of global assets, or somewhere around there, and a $500 billion market size of Bitcoin.

The question becomes, "How much of global assets will it consume?" and also, a big piece of that is, "How much will credit exist?"  Not perfectly true, there's a variety of ways credit can emerge, but depending on how credit emerges, it can actually offset the amount of market capture that Bitcoin has over time.  So, I think that that's a really important question for people listening that are thinking about, "What's the price of Bitcoin going to be in 100 years?"  Well, how the banking system around it builds out will impact that pretty significantly.  If we had some sort of fractional-reserve system and this is just hypothetical, I don't think this is going to happen, but if we had a fractional-reserve system and credit was still very prevalent, that could cut 50% of the market size. 

If you think about the world like a big balance sheet of assets that are being created, if there's no credit in the world, then Bitcoin would represent all those assets.  But depending on how that credit comes out, it could actually be used as an alternative form of money, which means Bitcoin's market size is smaller by that degree.  So, I think it's a really, really big question and I think there are a lot of technologies that are emerging that are going to be impacting this in the near term.

Peter McCormack: Why do you think we could end up in a world of no credit?

Eric Yakes: I don't think that's true, I'm just using extremes to make the example.

Danny Knowles: But that's like, people speculate that maybe Bitcoin would have hit $100,000 if it wasn't for FTX; is it the same thing but on a larger scale?

Eric Yakes: Yeah, and I wouldn't call it as much the same thing, because it's not --

Danny Knowles: It's not fraudulent.

Eric Yakes: Yeah, it's not fraudulent.  This goes back to our last episode, but hypothetically if we have a free banking system emerge, and free banking is associated with the concept of fractional-reserve banking, so it's really more like, if we have a fractional-reserve system emerge on top of Bitcoin, number one, I don't think that's the end of the world.  It's not what I think is ideal, nor do I think it's a certainty.  There was a lot of people that think it is.  I was on George Gammon's podcast, and he's a big advocate of that and thinks that will be the case.  I think that there's a lot of unique properties of the technologies in some of these emerging protocols that could actually regulate that system so efficiently that it's very hard to run a fractional-reserve institution, in which case it would be much more like a full-reserve system.

So, if we're in a full-reserve system, then there are still ways that credit will be emerging, credit still has a valuable function, but --

Peter McCormack: It will be more expensive.

Eric Yakes: Yeah, and it comes down to supply and demand.  It's hard to think about these questions in a static format, because everything affects everything else in a lot of ways.  But all else equal, if there is less of a supply of credit then, yeah, it's more expensive.  But the way in which people are accumulating wealth and how they're capitalising themselves, there are a lot of things that can also bring the demand down for it too.  So it's, where does the market settle in terms of price?  A lot of people look at it from that perspective and I have no idea. 

I think a better way to look at it is rather than from this bottom-up view, from a top-down view where you're like, "What's the total market size?  Will there be some proportion of credit that exists?  What will that be used for?"  I think what the answer to that boils down to, there are some people who think -- they're really extreme bitcoiners and they'll cite things like Jeff Booth's thesis and they'll say, "Technology's going to advance so rapidly and productivity's going to be so fast and Bitcoin, when it's fully captured the market of money, is going to give people so much wealth that we won't need credit".  I don't really think that's true at all.  I think you can really reduce the amount of credit necessary, like today in our system, we have this system that's all credit, money is credit, so we're obviously at the furthest extreme for what credit could be.  But I think that that could be reduced very significantly, but the question is, where does it come out to? 

The reason that I think there's no way it could ever possibly go away is, think about it from an entrepreneur's perspective.  You have an expectation about the future, you want to go start this business, you think it will be valuable to the world and because of that, you're going to earn some sort of economic yield, you're going to build value from creating this business.  So, you have to either finance that with savings, which Bitcoin will probably help quite a bit with, people will have more savings; you'll probably see quite a bit more businesses that are organically financed by the savings of the entrepreneur, certainly true.  That's not going to be true in every scenario, there's still scarcity of resources.  There's going to be a poor guy who's a genius who wants to go start this great business and he's going to want to go and get financing for that.

Peter McCormack: Well, there's also plenty of people out there who are very wealthy, who still borrow money to start businesses because they want to spread the risk to other people.

Eric Yakes: Totally, because we're incentivised to do it in our system.  I mean, there's tax benefits from it.  Whenever I get into this debate, this point comes up.  I mean, we're fundamentally incentivised to take on debt.  You should take on a mortgage of $200,000 and basically just perpetually roll that thing over; there are so many advantages to doing that.  So, whenever there's really cheap debt and there's tax benefits to taking it on, then it makes a lot of sense to do it.

But hypothetically, if you even removed that incentive, then it's like, why do you want to take on debt?  If I'm an entrepreneur and I want to finance my business, then I can choose equity or I can choose debt.  Equity is effectively this perpetual debt that you have the rest of your life until you buy the guy out.  So, would I rather give this guy ownership and decision-making over my business and have a perpetual liability with him; or, would I rather just have a liability that I have fixed for a period of time?  I'm optimistic about my business, I know that I'll be able to pay it off at a certain point, in which case I still own the whole business.  So, as long as there's demand for a cheaper form of financing like that, there's always going to be demand for debt in some form.

Peter McCormack: And, when you talk about the spectrum, you talk about your worst-case scenario, Bitcoin is gold, digital gold, gold 2.0, and your best case is apolitical global money and that's what you're here for, is that because if we were only digital gold, would you feel like we've missed an opportunity here?  Is there something a little bit more ideological, like the way you see the world, we need this?

Eric Yakes: Yeah, exactly.  If we don't make Bitcoin an alternative monetary system, then I struggle to see how we'll do it without some sort of new, crazy invention that nobody else expected.  So, it's like we pretty much have to make it work this time.  And if it's just digital gold, then we'll have some sort of potentially reserve standard system again, which is fine, but it's really not solving all the problems that we have.

Peter McCormack: I wonder, or I worry, that with something like that, is that people would lose interest in it, because there isn't a big enough mission behind it.

Eric Yakes: Right, yeah.

Peter McCormack: If we were just digital gold 2.0, this show kind of loses purpose, because it's like, "What the fuck are we going to talk about?"

Eric Yakes: The gold podcast.

Peter McCormack: It's going to be like the digital Peter Schiff show, it's boring as shit, it's just boring; what are we going to talk about; there's nothing to talk about?

Eric Yakes: "Gold went up 5% today", yeah.

Peter McCormack: Yeah.  But if you look at the kind of shows we make right now, we're talking about energy markets, we're talking about nuclear, we're talking about the IMF, the World Bank, we're talking about malinvestment, we're talking about incentives around political cycles.  We're talking about all the things where poor incentives allow that central ruling class to fuck everything for everybody else.  And we all recognise Bitcoin as this fairer system, and even to the point where Jason Maier -- do you know Jason Maier?

Eric Yakes: No.

Peter McCormack: He's a guy that was on our show, he's a progressive guy, he's writing this book, A Progressive's Case for Bitcoin, really, really great guy.  I keep telling him, "You've written the most important book for conservatives", and the reason it's the most important book for conservatives is that, if this is seen as a tool of the right, we've failed.  And so, conservatives do not want to fight Democrats on Bitcoin, they want to work with them, because there's money.  It's like fighting them on the dollar.  So, "You've written the most important book for conservatives, because conservatives should want Democrats to get it, understand it and not fight about it, hence apolitical".

Eric Yakes: Right, yeah, and that's incredibly important.  When I think about all the benefits, I mean the biggest thing I see -- here's what I think is so unique about how it can change things.  The question becomes, "Why do you want your government to be powerful?"  Because they provide your security.  It's kind of naïve to a degree if we were just to go undermine the US Government tomorrow and all their military power disappeared.  Now we're all huge at risk and a bunch of horrible things could happen to my family.  I don't want that.

What I do want is all the governments simultaneously start to reduce their amount of power.  That's what's unique about Bitcoin, is it creates a possibility where, if we have some sort of massive currency run in 20 years, boom, that's how you do it, that's the only way to do it.  It's kind of crazy and we've got to make that work.

Peter McCormack: And in part of this, you've decided to nail down and start thinking about how, I say the banking system, it's really the entire financial system, works; what is the reality of this?  And I guess during that period of, we are here now where we are with Bitcoin, a $500 billion asset, lots of cool and interesting things happening, this future scenario which may be 10, 20, 30, 50 years away, in between then, we've got parallel systems.

Eric Yakes: Yeah.

Peter McCormack: But you are spending your time thinking about the transition to this pure Bitcoin financial system, pure Bitcoin banking system?

Eric Yakes: Right.  And also, I think the next step is going to be for me to go deeper into how that's bridged.  So, I'm trying to figure out the long term and where we could get to, and then that's obviously a very vague idea.  But once you have that end goal in mind, then you can start saying, "Okay, well what technologies do we have today?  What's needed to get those to the scale that's necessary to make this system happen?"  Therefore, these are the technologies that should be invested in today.  So, I have a little bit of understanding around some of that and I have a few ideas, but it's endless amounts of information and knowledge to start working on.

Peter McCormack: Well, you have to have a thesis?

Eric Yakes: Right, yeah.  So, my thesis is basically, I hope for, number one, that we have a market-based system.  I think that that's just the most paramount aspect of how this all builds out, whether it's fractional-reserve, full-reserve, whatever it is, I just hope it's chosen by the market of whatever it should be.  And really, Bitcoin has three primary problems: its transaction throughput, which Lightning is devised as a solution to and we'll see if it gets to scale; and then, we have privacy, which is another fundamental issue; and programmability, which isn't a fundamental issue, but it's been much slower than the rest of the crypto ecosystem in certain ways, for good reason.

But I think that, when I think about technologies that can benefit that, I think the Fedimint protocol actually has a very interesting proposition for how they can solve the privacy and programmability aspect of it.  When I think about that, I bring this back to, in the first chapter of my book, I talked about how throughout history, there's always been multiple forms of money within an economy.  So, it's this Bitcoin narrative that we would only have one form of money, and obviously it won't be crypto, of course, that was an absurd proposition.  But will it be maximally one form of money? 

I was always like, there's three reasons.  There's information opacity, and throughout history it's like, you're a tribe, you've got money, another tribe shows up, they've got different money, "I don't know how to verify your money, we're not going to use your money", and there's things like that.  The internet today has largely reduced a lot of that.  And then the other big ones today are sovereign coercion, we have a lot of currencies because it's in a government's interest to issue their own currency, so that's why we have so many; and then, the last one's monetary utility trade-off.  So, from a fundamental perspective thinking about money, there are trade-offs that exist.

When you think about the problems that Bitcoin has, how are we resolving that?  Well, Lightning Network's one, and it's funny because people refer to Lightning as Bitcoin.  It's like, you can make an argument that it's a separate asset, it doesn't have the exact same properties of Bitcoin, therefore it is different.  It's more a semantic argument than anything.  As long as markets practically view it as fungible with Bitcoin, then that's probably really all that matters.  But you can make the argument that, Bitcoin you can keep in cold storage, Lightning you've got to keep in a hot wallet, so it already has different risk properties.  You can have state channels that have a channel capacity that limits how much you can actually send; Bitcoin doesn't have that.  So, it is fundamentally different in terms of how you can use it for the sake of its utility, that's why we had to create a separate network.

Then you get into Ecash, which is used by Fedimint, and I think that that could be another potential avenue for it, because it solves privacy and programmability.  And we can get into this but if, hypothetically, that was something that emerged, then we'd effectively have three monetary mediums.  And throughout history, you typically saw dual monetary standards.  So, maybe we cut the semantics, call Lightning "Bitcoin", so we have a dual monetary standard.  But nonetheless, there's problems that need to be solved and we're solving them with currently two different networks and if we had a third network step in, I think that that could be potentially valuable.

So, my thesis right now, and this isn't -- I don't want to call it a thesis, because it's not certain, it's a curiosity that I'm digging into, but I think that an Ecash system of federations around the world is actually probably a viable optimisation that could bring us to a Bitcoin native banking system.

Peter McCormack: Okay.  So we've covered Fedimint, we've had Obi on the show before.  Not everyone will have listened to that show and I think more may go back and listen to it now after hearing this, because people are really drawn into the shows where we do talk about the banking system, or macro, or the future.  So, just for those people who haven't gone and listened to that, don't know what Fedimint is, can you just explain what it is?

Eric Yakes: Yeah.  I think it's kind of good to build it up fundamentally, because when I first heard about Fedimint I was like, "I don't really think that's a great idea". 

Peter McCormack: Yeah, I dismissed it, by the way.

Eric Yakes: Yeah, there's a lot of things about it I'm like, "I have no idea how that works".  But the deeper I got into it, I was like, number one, I didn't understand it well enough; then number two, I had a myopic perspective about how things work in the world, and for me growing up in suburban America, it didn't make any sense to me.  But if you go to Africa and you actually understand how societies are structured it's like, well, it actually fits nicely into how they operate in general.

But anyway, I think a lot of it boils down to, you want to start with understanding how trust works for people.  Right now, 2022 was the year we realised the average individual who's involved in crypto realised third-party custody is a pretty bad thing and really bad things can actually happen and Bitcoin maxis aren't crazy.  So, when that occurred, it's like now a lot of people are drawn into self-custody.  Then, self-custody's the other end of the spectrum and we have people within our community that all understand that and they're like, "Okay, self-custody's good, I can spend the time to learn that".  But when I think about what my mum is going to do for her Bitcoin it's like, "Well, how does that work.  My mum's got a cold storage Bitcoin, I manage it, it's effectively my cold storage Bitcoin, she has no idea how to use it".

So, one of the problems is that not everybody is going to want to learn how to do self-custody.  And maybe in the long term, 50 years from now, whatever, the generation is full of Gen Zs, everybody manages it themselves, it's like brushing your teeth or something.

Peter McCormack: Well, I think that will come down to the tools we have at the time.  Look, I constantly bash people with this one, but my dad, there is zero chance he could set up a cold storage.  You could show him and he could write it down, but when you explain to him, "Look, by the way, if you get this wrong and you lose your Bitcoin, there's no customer service, it's gone", he's going to be too nervous to use it as well.  So, even if he could technically learn it, I know he wouldn't have the confidence.  And there's always going to be the people who do not have the technical skills or the confidence to do it, and they should not be excluded from our system because of that.

Eric Yakes: Right, I agree.  And for a lot of those people, it's not even a misunderstanding of Bitcoin problem, it's just a general technology/education problem.  It came at a later point in their life, they didn't feel like learning it, and now it's developed so rapidly and they're just like, "Oh, shit, I missed the boat on this one.

Peter McCormack: Yeah, and we have to understand that we live in a world of technology and when ChatGPT comes out, we're all playing with it straightaway and when the next thing comes out, we will play with it.  It's native to us.  My dad probably doesn't even know ChatGPT exists.

Eric Yakes: Yeah, same, my mum has no idea.  And I think from that perspective it's like, "Okay, we have a market of people with different demands and interests.  If we're going to be trusting something, is it better for my mum to use a third-party exchange, or just trust somebody within our family?"  That's kind of the idea, like anecdotally in my life, I helped a lot of people in my life get into cold storage.  I give them constant handholding on how to do things and I get them set up, and I think people naturally operate in that way.

There's people within communities and within their families who have certain specialties and skills and people trust one another and support each other, and you can tie this all back to evolutionary theory.  So, it was John Maynard Smith, the reason that humans have outpaced every other biological organism is because we could cooperate so effectively, and that was something that allowed us to organise and specialise and build the societies that we have today.

John Maynard Smith, he posited that basically, it's called the Evolutionarily Stable Strategy, and that's that we naturally evolve to find Nash equilibrium when we're making strategic decisions, which means we evolutionarily evolve to cooperate.  We don't just think in our own interests, we can think in terms of other people and their perspective, and then we can find a common ground that makes us both better off by cooperating.  And it's unique to our genes that we can do that, so that's a really interesting piece, because we already naturally have an affinity to do that, which requires trust.  We're also very good at picking up on cheats and cheaters because of that.  Whenever you have a hunch or something, or you don't trust somebody, that is a subconscious evolved state that you've gotten to not trust a certain person.  So, that's really good, because we can optimise around that.

There's another hypothesis, called the Social Risk Hypothesis, and that's that depression is this adaptive risk-averse trait that we have from social exclusion.  So, a lot of people get depressed because they're excluded from social groups, so you can see how bullying's so bad for that.  And that's another thing too; not only did we adapt to cooperate, but we're also negatively conditioned at a genetic level to make sure that we don't get excluded from communities, so that's a really interesting piece too.

So, when you think about it from that perspective and you think about how communities work, and if you look at countries like Africa, where we have all these agricultural economies, where people are living in communities and they are trusting each other for various different functions, it's like, okay, if you're going to trust, then trust your community, and we can optimise trust based around that.  So, when I think about custody and how we should be optimising custody, it's like number one, it's a free market, anybody can do whatever they want.  But I think that having a solution that enables us to optimise for custody at a community level is pretty valuable and compelling when you think about how humans work.

That was the first piece that I got into when I was like, "Okay, it's actually very interesting".  That was the first thing that turned me on to Fedimint, I was like, "Oh, a federation, sidechains kind of did that, sidechains didn't get a ton of traction".

Peter McCormack: I think you've explained why Fedimint will work on a social and psychological level, but what actually is it?

Eric Yakes: Yeah, sorry.  I want to build to it, but it's basically that was the first thing that made me realise, "Okay, people operate this way".  So, how does the technology actually work?  A federation is just a multi-signature.  So, if you are going to send Bitcoin, there's a multi-signature which can require some threshold amount of keys in order to send it, which requires you to cooperate with another person to send Bitcoin from that address.  So, that's just one layer with Fedimint; Fedimint is just a multi-signature address.  If you join a community, they have a multi-signature address, you send your Bitcoin to that address and they're now custodying it for you.

Peter McCormack: So, we could pretend in this room, that's a community.  That's you, me, Danny and Jeremy.

Eric Yakes: So, we would pick the leaders of our community who we trust the most, so that would probably be me and Danny.

Peter McCormack: Yeah, fair.

Eric Yakes: And then you guys would send us your Bitcoin into the multisig, and then there's this whole separate layer of software that they use.  So, once it's within -- all these guys have, just think about it like servers, within their homes, and we'll call it me and Danny, both Danny and I have to agree to send Bitcoin away from this so that we could collude against you and Jeremy and we could say, "All right, we're going to send off your Bitcoin, and we're just going to take it and we're going to have a night in Soho".  And I think when you think about that, it's like, okay, that's a pretty big risk.

It's also a risk in centralised custody as well, that people cooperate and can do certain things.  I mean, we look at what happened with FTX and it's like, who was even in control of the funds?  There was basically one guy who controlled the funds.  So, when you think about it like that, it's like when you compare it to third-party custody, it's actually a lot better because there are people whose interests are aligned with you and there's a risk of social cost if they defect against your interest.  But that's the key hump to get over, is that if I was trusting my finances with my mum and dad, would they steal it from me?  That's kind of the idea of entrusting something to a community leader.  So, they have these computers that are set up to have that ability and they're storing it to you with, assume the best practices for cold storage.

Then, on top of those servers, they also have other software that's running, and that's what the Fedimint protocol really is, is there's this one part that's the multisig that enables you to interact with it, because the other part of the protocol issues you a separate monetary asset, called Ecash.  Ecash is probably the most optimally efficient way to achieve privacy today.  I've read into some of the other technologies and they're either a long way out, or they'll probably never get implemented.  When you think about it, there's zero-knowledge rollups really sounds like the only one that would be superior at a technical level to something like an Ecash privacy token, which I'll explain in a second.  But zero-knowledge rollups, all the ones on Ethereum right now, they're just like everything else, there's a backdoor access key, they don't actually have the degree of trust loss that you have.

The only thing that I think's a superior quality is they have the ability to voluntarily exit from it, so that's an interesting property, the ability to -- if you put an asset into a zero-knowledge rollup, think of that kind of like a sidechain and then that enables you to do all these other things with it and it doesn't bloat the mainchain and have the same costs as the mainchain; it allows you to permissionlessly exit, assuming that they can actually implement these in a decentralised way.  So, that's the first thing is, I don't know if they're going to get there, I don't know enough technically to actually get to that point.

But the other thing too is, even if we were to implement a technology like that, it would require a soft fork in Bitcoin, we all know how hard those things are, and there's a lot of uncertainty about how that would impact the basechain.  So, I'm not super-bullish on those, at least in the near term, and maybe the long term they do; but what's interesting about Ecash is this technology's been around since the 1980s, it was created by David Chaum.  That was actually the first real, and I wrote about this in my book, the first real attempt at creating a digital Ecash by the cypherpunk movement.  And it's funny because it's come full circle 40 years later.  Now there actually is, now we have a digitally native money that's emerging, we can take this technology again and we can use it.

So, you put into the multisig, you get issued Ecash, and then that goes into your wallet.  You have a wallet that operates on software that allows you to leverage Ecash.  And then, because we're using a different monetary asset, the Fedimint protocol has all these other different technologies around it that allow you to create things that are much more programmable.  So, by pushing it into this new form, we can actually have all these other new forms of utility; we can create all these applications that you couldn't create directly on Bitcoin because Bitcoin's constrained in a lot of different ways.

That's what's kind of compelling.  The ease of the developer experience is a lot greater within this type of system, and you're effectively creating this form of digital privacy, which when I explain that it's basically like when they issue you Ecash, they're actually issuing you something that, you know, you have a wallet on your phone; when they issue you Ecash to your phone, you send your Bitcoin to them, they come back, you have Ecash, it's literally living in the memory of your phone, it's not on a blockchain or anything, it's just Ecash on the memory of your phone.

Now, it has backups and stuff like that in case you lose your phone, but what happens is you have your Ecash, I have my Ecash, I send some to you and what happens is, by doing that, the technology will send that information to you and then will immediately check at the federation servers whether or not that's already been redeemed.  So, the federations don't know who has what, there's no blockchain tracking it.  What they do know is that I issued this Ecash that has a unique ID, it went to this guy, and then if he goes and checks it and it hasn't already been redeemed, then they refresh and give you a new one. 

It sounds complicated, but when it comes to the automated software, it's actually a simple process.  What it allows you to do is to verify that that hasn't been double spent.

Peter McCormack: So, why do we ever need a blockchain then?

Eric Yakes: Yeah, exactly, why do we need a blockchain?  It's because it doesn't have the same security properties.  So, that's the key thing.  We can get into this right now, but I think this could be potentially better for later in the discussion.  But basically, you're trusting that the federation will issue the amount of Ecash that's proportional to the amount of Bitcoin they've received.  They could issue more, they have that ability to do that.  And because of that, you don't have those degrees of certainty, which complicates it quite a bit.  And then that kind of gets into free banking theory, and then there's quite a bit that I see emerging in the system that would naturally prevent some of the negative incentives, or malincentives, that could emerge from having that kind of an ability.

Peter McCormack: Yeah, so we've kind of identified two of the issues I have with Fedimint; the first one being, we for years have said, "Not your keys, not your Bitcoin", we keep saying, "Not your keys, not your Bitcoin".  Now listen, if my dad needs Bitcoin, I'm going to manage it for him.  There's zero scenario where I steal from my dad, there's zero scenario where I steal from my children, there's zero scenario where I steal from my brother or sister. 

There's zero scenario I steal from anyone, but by moving to a multisig where we are trusting others to manage our keys for us, I think there are many scenarios where people may steal.  They may go, "You know what, I don't care about my social position.  I can collude with Danny, we can move to Panama, we can run away with this Bitcoin, we're done".  And I have no doubt in my mind, with all these different federations building up, there will be some scandals in there.  "This federation in", I don't know, "Buenos Aires, three guys ran off with it", there will be scandals, there will be scenarios.

I trust Fidelity more than I would trust a federation of individuals.  I trust a company more than I'd trust a federation of individuals that isn't my family.  If I built a trust model, I would go, "The top trust me, I can do my own.  If I can't do my own, the second one, and I have to do some alternative custody, I think I'd trust a Fidelity", because with Fidelity, my risk is more state capture.  I don't believe there's a scenario where Fidelity -- Fidelity aren't lending out my Bitcoin, so there's no risk there; they'll have good protocols in place for managing it.  Coinbase have proved themselves, despite not being the most popular exchange in the world, to be one of the most trusted places to leave your Bitcoin, if you're going to custody somewhere.

Then, a Fedimint, a federation to me is below that one in terms of the trust level, because I'm having to trust individuals.  Do you get what I'm saying there, Danny? 

Danny Knowles: I get what you're saying.  I don't know whether I agree, but I get what you're saying.

Eric Yakes: I think a lot of it comes down to the perspective.  So, when we say, "What is a federation, what is a community?" that's also something that I think's going to be redefined potentially.  So, from the perspective of, would I trust my mum or dad?  Sure.  Would I trust my pastor, or would I trust my gym coach, or whatever it is, there's different extents to which you can think about it; what about commercial institutions that are levering this technology?  Would you trust Fidelity more if you knew that their custodial operations had a certain setup that they did to maintain security properly so that nobody has full control over everything, which they probably do?

So it's like, well, maybe you are trusting a very similar concept in a certain form.  It's more the legitimacy of the institution, the scale and the Lindy effect for how long it's been; that's what you're trusting.

Peter McCormack: Yeah, I know absolutely that's what I'm trusting.

Danny Knowles: And presumably if you trusted the companies more, there's no reason that Kraken, Gemini, Coinbase, Fidelity could also have a Fedimint themselves, then you're trusting all four companies rather than an individual one.

Peter McCormack: I think that's a brilliant scenario.

Eric Yakes: Right, exactly, that's exactly the point, like what is a federation going to be?  It's really just a technology that can be leveraged in a lot of different ways.

Peter McCormack: And so, the second thing on the Ecash level is the idea that people can print as much Ecash as they want and you would never know, because it's not transparent, means somebody can just essentially print free money.  That one I'm still struggling with.

Eric Yakes: Well, yeah, until we set up our own federation, Pete, and then…!

Peter McCormack: No, but do you know what I mean?  If you think about it, the great thing about Lightning is when you put Bitcoin in a multisig wallet to add Lightning to your wallet, you know there's a one-for-one.  And then, when you convert your Lightning sats back into basechain, it's a one-for-one, you know that.  How do you know what the one-for-one is on Ecash?

Eric Yakes: So, this is going to be pretty long-winded.

Peter McCormack: Yeah, tell me.

Danny Knowles: I think while we're actually still on that, because I've got a question for you, presumably if me and you set up a federation, we aren't registered, so we can't charge Peter to use our federation, right?

Eric Yakes: Oh, when you say, "Not registered", because it's not --

Danny Knowles: We're not a financial, I don't know what the fucking licence would be, but we don't have that licence for us to charge a fee for us to custody his Bitcoin.

Eric Yakes: I'm not an expert on the regulatory piece.  I know that basically, if Bitcoin is a commodity and you're charging a fee for some of those things, then it gets a lot more complicated.  I'm not sure exactly what you qualify as necessarily.

Danny Knowles: But I'm presuming that if, say, Gemini, Kraken, Coinbase, whoever, set up a federation, they could actually charge for theirs?

Eric Yakes: Yeah, custodial service.  The decision-making is held by parties with competing interests, which I think is an interesting model, and it's also one of the ideas around Liquid as a sidechain is like, "Let's get a bunch of constituents in the industry to all set up this sidechain that they need permission to adjust the rules of", which I think is interesting and I think that despite Liquid not getting a ton of traction over the years, I don't think that we've seen the last of that concept; I can see that emerging in the long term.

Peter McCormack: I really like Liquid.

Eric Yakes: I think it's a good idea, yeah.  I think it comes down to timing, and that's another piece around a lot of this, it's like I talk about the term, "irreducible complexity"; there's probably a lot of ideas that are really valuable that have emerged, but the timing was off and there was other things that needed to be built before it would work.

Peter McCormack: And, how different is Liquid to Fedimint, because it seems very similar?

Eric Yakes: Well, Liquid's a blockchain.

Peter McCormack: But it has a federation.

Eric Yakes: Right, it's effectively a federation.  That's where the idea came from that the Fedimint protocol is using, and I think the first was technically RSK, in terms of implementation.  There's these ideas that I think with the federation, it's going to exist in a commercial form probably in a very different way than it does in a non-commercial form, and I think that will be a key distinction of how it might bifurcate in terms of its use cases.

But going back to your point, so what will prevent somebody from issuing too much Ecash?  Well, if you go back to the community trust idea, and it's a good place to start, there is probably an incentive to not undermine the earnings of the entire community that you're in, and that's not something that you'd want to build upon, but it's likely true that that wouldn't happen also, if you think about it from a community model, there probably wouldn't be as much to gain; it would quickly undermine your community as a whole, if you consider 20 people and you just inflate the value or something.  You might have a pretty good day or two getting --

Peter McCormack: But how would anyone know?

Eric Yakes: So, the guardians would all have to collude between one another and then prices would just start rising.  It wouldn't even make sense, it would be so noticeable, it would just be like, "Steve has just given me 100 Ecash and I know he doesn't have that, where did that come from?"  It would be something that would be obvious --

Peter McCormack: But how would you know that Steve shouldn't have 100 Ecash?

Eric Yakes: So, the only people that's technically all the different servers of the federation, they're tracking the different issuance that they're making of Ecash, none of them have a perfect record and they have separate records from one another.  But they could voluntarily report it, is one thing that could happen, and that's possible.  They could say, "I've issued this quantity of Ecash between the different servers", and you can come with a pretty good idea of how much Ecash has been issued.  But it's still something that, yeah, you don't have 100% certainty.

I guess I'm not certain of this point, I'd have to dig into it, but I don't think you can have 100% certainty on proof of reserves with it, digitally native proof of reserves; you could always have somebody who's issuing a loan based on the multisig completely outside of the system.

Peter McCormack: I guess what I'm trying to see is, we're going to have to go super-basic here.  We're a community, right, but say there's 100 people in this community, but us four control the multisig, right.  And all these people have put, I don't know, 100 Bitcoin into our Fedimint.  Does everyone get issued Ecash based on the amount of Bitcoin that went in?

Eric Yakes: Yes, that's the idea of it.  Theoretically, they can issue more.

Peter McCormack: Yeah, so what I'm saying is, for that 100 Bitcoin that went in, there's 100 Ecash that can go out, right.  And say we all put 10 Bitcoin in each, us four, and the other 60 Bitcoin came from the other 100 people; and then say we issue everyone their Ecash and we're meant to get 10 Ecash each, but we turn round and go, "Let's just do 11", how the fuck does anyone know?

Eric Yakes: I think that it's going to be hard for people to notice that.  There are ways that that can emerge, so you can have federations that are voluntarily reporting how much they've actually issued.  I'm not sure how it works at a technical level with verifying that, but you could have a federation that opts into the -- the federation as a whole, all the Ecash that's been issued on their servers can say, "Here's how much we've issued".  So, I think that we'll probably have some sort of, you know, if we assume the system at scale for this particular point, we'd probably have some sort of system where if you want to be a part of something, only if it's verifiable you could have something where the amount of Ecash is verifiable; there's probably a way that you can have that set up, because there is memory of it on the servers.

Peter McCormack: Okay.  And the different Fedimints, are they Ecash-compatible with each other?

Eric Yakes: No, and that's another big thing.  So, I think the best way for me to explain how I think this will build out is just to jump into the theory.  But basically, if we assume a world where there's a million different federations, they're all issuing their own Ecash, basically how the process works is everybody within that federation, they're all trading amongst each other their own Ecash, but if they want to trade their Ecash to another federation, what they're using is the Lightning Network. 

So, they're going to have these operators called Lightning Gateways, and that's basically like a Lightning company, a Lightning service provider, and they're going to act as a market maker.  That term basically means, in finance if you have an institution that stands ready to, not indiscriminately, but to always buy and sell an asset based on a spread and they adjust their spread based on their perception of risk, but they make the market, they're always a buyer or seller for you, that's effectively what these guys are going to be doing for Ecash.

Peter McCormack: Like a money changer?

Eric Yakes: Right.  So, what they're doing is they're accepting Ecash from Federation A, and then they're sending a Lightning payment over to Federation B of the equivalent amount.

Peter McCormack: But if you're the user and you go onto this website and you're like, "I want to buy this shit, I want to buy this bottle of water", it's 0.0-whatever of Ecash, I don't need to know what federation that's part of, I will just pay and all that shit will be done in the background?

Eric Yakes: Right, all that shit gets done.  There's cost associated with it.  I think a simpler way of thinking about this too that isn't part of how it's structured but could potentially emerge, they're using the Lightning Network as a way of forwarding payments, which is almost like a scaling mechanism to some degree and it creates more fungibility.  But you could also just effectively have a market maker who doesn't even use a Lightning Network and they just sit there and say, "I'll accept A, and I'll give Ecash to B", and they hold a balance of all the different federations around the world and they're constantly swapping the different ones to keep everything fungible between one another.

They might say, "Federation A, we have knowledge", or we are part of this community or something, "we think that you're doing something sketchy".  So, if you're a market maker, then you're integrated with the software, you have a knowledge of how much Ecash you've received on balance from them, you have a lot of access to information with people; and because of that, if there was somebody doing some crazy shit with it just like, "We're going to hyperinflate our Ecash", then the market makers would be knowledgeable of that, and they're not just going to indiscriminately --

Peter McCormack: How?

Eric Yakes: Okay, let's say that you've been working with this community and you know how much of the on-chain multisig Bitcoin exists, and you're processing a certain amount of transactions every single day through them, then you can look at volumes and it would be pretty easy to tell if things were starting to get abnormal; there's indicative information.  Also going back to the point, maybe a market maker says, "We're only going to deal with this federation if they're reporting the total amount of Ecash issued to us".

Peter McCormack: But you could get into scenarios, you're like, "I want to buy this but I can't buy this because that market maker doesn't work with us".  I don't mean to be a dick --

Eric Yakes: Not at all.

Peter McCormack: -- but my problem with Fedimint is it just feels like it's got a lot of holes in it; it's overcomplicating things; and, what was the third thing I didn't like about it?  That it seems to be like we're ditching long-held principles and beliefs about Bitcoin to establish it.  Constantly, every time I come to it, I'm like, "I don't get it".  Fedimint seems to have too many issues.

Eric Yakes: I agree with all of those points.  I think the biggest risk to Fedimint is its complexity because it's like, well I haven't even spoken about all this yet but I think it's a really, really big idea, there's so many different moving parts, like what we're starting to talk about with some of this stuff.  But I think that there are also a lot of benefits that can emerge, and it's potentially an optimisation of some of these things.  That's what gets me comfortable, is that we're kind of optimising around some things.  At the end of the day, everybody can still self-custody and let me be clear, when I talk about what I'm talking about, it's a lot more for how I think applications in banking functions will emerge.  There's going to be a lot better self-custody things, people are going to get more educated in that. 

The whole point is that we have enough self-custody to where the system remains permissionless so that we don't turn into digital gold 2.0; that's the whole point.  Maybe that's 20% of all Bitcoin, maybe that's 30%, I have no idea, but it needs to be as much as we could possibly make it, based on the consumer utility trade-offs.

Peter McCormack: Listen, dude, I get it.  When I went to El Salvador, the thing that really stood out to me is that I own Bitcoin and I have a multisig, cold storage solution and I live in a house made of bricks which is locked, and I can go to banks or other houses or offices or family places in other countries where I can get on a plane, and I can have quite a complex multisig which gives me a very high level of security around my Bitcoin. 

So, then I'm in Bitcoin Beach, I'm in El Zonte, and I see people who literally live in a tin hut.  It's like, firstly, even if you have a hardware wallet, where are you hiding it, because someone can just peel the door off because it's made of fucking tin.  Are you burying it in the -- like, what are you doing?  And what if you want multisig?  There is a privilege to being able to use multisig effectively.  So, I get it.  At the time -- I'm sure I talked about this on the show, didn't I talk about this?

Danny Knowles: Yeah.

Peter McCormack: And in my head I was like, "Do you know what I would want if I was them?  I would want to trust someone like Blockstream to do this".  So, I think there are potential solutions to this, but I don't think it's Fedimint; I think it is something like Liquid, whereby there is a federation that's built whereby someone like Blockstream essentially becomes a banking provider and you store your Bitcoin with them and you maybe get a Liquid token, which you can access and withdraw as and when you need small amounts.  That to me works.  Fedimint, I'm like --

Eric Yakes: So, it goes back to the point that Danny made earlier, he was like, "Why can't Fedimint be a bunch of these other institutions combining together".  That's the idea.  Your vision of Liquid or Blockstream, or what they're doing, that's something that can exist within this ecosystem.  This comes down to I think more of a business aspect, I think is the argument here for adoption.  But I think that you can have that exact property; does it have to be a sidechain technology, or could it actually be like privacy Ecash, which is a benefit?

I think that what we're going to see is that Lightning service providers are probably going to be setting up federations and operating within that, so they'll act as the Lightning gateways assisting with transactions.  There'll probably also be like commercial banks, which is what you're thinking about.  And maybe most people want to put their money in commercial banks like that, they want to do it through a federated system like that, and that would effectively be the advantages of what you talk about with Liquid, and then you pair on privacy layers to that too, which I think is interesting.

But I also see an avenue where there is community trust and we have community banking systems start to emerge with custody.  I don't think that there isn't a market for that, I actually think it could be a lot larger.  Sure, there's plenty of examples where it wouldn't make sense.  Also, in some of those ones you brought up, like in the mud hut example, it really comes down to mobile technology.  Number one, the requirements of Fedimint are probably going to be low enough in the near term to where it can be run on mobile-phone-grade technology very cheap; but also, there's going to be the ability to host and the keys just held on your phone; or, it's held wherever you want to hide it in your mud hut.

So, there are a ton of ways that it can emerge, and what I think is interesting is it's piecing together multiple technologies that allow people to choose this.  So, going back to the Ecash piece, let's say it starts and a bunch of people start issuing Ecash and they all debase and a bunch of people get screwed over.  This type of technology doesn't even have to use Ecash; the programmability aspects are based around that but at the end of the day, it could just be federations that are sending Lightning payments to one another, because these federations, they have Bitcoin technology, Ecash technology and Lightning technology on them.  They could just say, "We never even want to use Ecash", and maybe that never takes off. 

I think the reason that it probably will is that the programmability functions are actually probably going to be a lot better, because there's not the same degree of capacity limitations on Ecash, you can just do a lot more with it.  Then, the rest of the arguments I see for why I think it might get traction is just for more of a business angle.  It's interesting that I think people think about a lot of these technologies in terms of, what created an organic desire for these networks to grow.  It's the right way to be thinking about some of this stuff, but it's like, was there an organic desire for Binance to become the largest exchange in the world, or was it just because it just did a shit load of business development all over the world, and they were pretty early? 

I think that's another interesting way for how you get adoption in these things is like, at the business angle, if these things start to emerge like that, then that can also give something a competitive advantage, so you probably want a combination of both.  But nonetheless, I think that Fedimint has a lot of implications and it's really just a base protocol technology.  It's similar to how people think Nostr is -- a lot of people think it's like Damus, because that's the social media app that emerged on it.  Really, it's this simple relay tech, but I when I first heard about it, I was like, "Oh, Nostr's like a social media thing".  It's kind of like that.  Fedimint started with privacy, and then there's federations for communities. 

But it's just a technology.  I mean, I don't know how it's going to grow.  I just see a lot of avenues from which we could see different systems emerge within this technology, and maybe it's just like a Liquid sidechain type system.

Peter McCormack: What kind of use cases then do you see?  We've talked about maybe it's a community bank, maybe it's an era of free banking.  But you also said actually it might be more like a business application?

Eric Yakes: Well, no, I was saying more like if it gets traction, it could be from the business angle.  I guess what I would say is, one of the primary angles is, we have communities and community finance in Africa, there's a lot of microfinance.  What I think could be really interesting is let's assume a path to this in the next decade.  If you have enough of this technology garner enough attraction, what do people want?  They want to use Bitcoin for its medium-of-exchange function, not for its store-of-value function down there.  Despite the idea, it's just the volatility is too expensive.  But nonetheless, the Lightning Network for payments and for general transaction costs is quite a bit cheaper.  In fact, federated Ecash transactions will probably be even cheaper than that too, which is interesting, but let's just say it's Lightning, so that's valuable for people to be using.

But then it comes to, okay, we've got stability of the asset now, and people want dollars for their store-of-value function because of that.  So, maybe you could have stablecoins get integrated into this system, that's certainly possible.  What I think is also interesting is like Fedimint did a Hackathon, and there's this idea of stability pools, and these ideas existed in crypto in the last cycle, but it's like you pool liquidity together and you set up effectively what's like a derivative contract between two parties and it settles based on a market price. 

All that means is, you can find stability by finding buyers and sellers in a market to agree to pay you a certain amount of Bitcoin based on a price.  So, everybody pools their liquidity.  I say, "I want to have stability in my Bitcoin at $24,000", and I lock that price in for the next epoch ten minutes later.  At the end of that ten minutes, if the price of Bitcoin rose to $26,000, then I pay the extra amount of Bitcoin to the guy on the other side who took the risk, and he didn't get stability, he increased his volatility. 

So, basically there's this idea that they could use the programmability of this system to create things like stability pools that could actually create stability within Bitcoin.  You pay a fee for it and that's a huge question, like this is a new idea.  So, maybe it's way too expensive, Bitcoin's too volatile, people have to pay too much for stability.  But when you look at the transactions costs and the interest rates that people are paying down in Africa, it's pretty high.  So, maybe not; I don't know how expensive the market has to get for it to not make sense for people.  If you have to pay 2% a year, 5% a year to hold Bitcoin, use the Lightning Network and keep it stable, that's a completely fair trade-off, it's totally worth it, and I think a lot of people would get onboard with that. 

But I don't even think that's the biggest idea.  I think the biggest idea is that people are always talking about microfinance in Africa.  It's like, "Okay, cool, Lightning Network can help with microfinance and small payments, and stuff like that", but at the end of the day, Africa has a capital problem.  They need people to be investing more money in Africa.  So what I think's interesting is that if we think about if we remove Bitcoin and everything from the picture and we think about this from traditional markets, it's a lot harder through those avenues.

What I could see is that if we did have something like what I'm talking about with stability pools and this ecosystem built out down there, that creates this very seamless way for capital to start moving down to Africa.  So, if some sort of, I don't know, envision a microfinance yield product and there's a bunch of people in the US who are like, "Oh, cool, I'll throw money into that pool, they're doing all these investments", and maybe it totally blows up and doesn't work out; but I think it's interesting, because it could actually be an interesting avenue to attract capital to things that had not existed before and it could create a funnel of capital.  So, I think that's compelling.

Then you pair that with this idea of emerging capital markets native to this system, I think that's also a really, really big idea.  And when we think about, everybody talks about store of value and medium of exchange for Bitcoin; unit of account's a huge deal.  Why is the US dollar the global reserve?  Unit of account.  That's the most deeply entrenched form of monetary function you can have.  Once you get set as that, you're good.  So, if we start using things, like that stability pool concept, that's just the initial application of it.  But all it is is it's contracts being set up to track an asset price and settling between people.  You can track any publicly traded price with that.  You could turn Bitcoin into a reserve for a bunch of different -- any sort of publicly traded asset category.

So, that's pretty compelling.  We could have a lot more capital markets in Bitcoin to achieve like a reserve function.  That's a really big deal.  That could create a lot more scale and that could make it a lot less volatile.  So, there's a ton of different things, these are all very long term, but that's kind of what I'm seeing as potential here.  And it doesn't have to be people in mud huts, it doesn't have to be a bunch of -- maybe it centralises, right, and that's one of the key risks I see with Lightning, is it's a state channel system, it requires a ton of liquidity.  So, when we have a benefit of scale liquidity, Lightning has a natural incentive to centralise over time.  Maybe it doesn't become too centralised, but Ecash doesn't. 

In fact, Ecash starts to work less as it scales.  It makes more sense to keep those types of systems smaller at a federated level.  Does it work at scale?  Yeah.  But I think that the Ecash systems, when we look at it from a systemic view, if we had a system of federations all over the world, it's still at a systemic level that would maintain a pretty decentralised state to the degree that we would need to keep this permissionless, like we would in a self-custodied world where everything's peer-to-peer; it would still maintain that property.  Whereas, if everything starts going into Lightning service providers in the long term and none of these other technologies emerge, it could get pretty centralised, and that's kind of scary at a systemic level.

Danny Knowles: I don't know why Fedimint wouldn't also centralise, because let's say we had our own little federation in here, and to then interact with other people we'd need that market maker in the middle, if there was a huge one run by big companies, the fees for the market maker for them would be presumably much lower because of the added trust, as opposed to just some randoms who have a federation.  If you're then trying to interact with other federations, that's going to cost more every time that I want to transact with, say a pubkey user at one of these big company federations, and I need to swap my Ecash out so I can interact with them. 

Every single transaction's going to cost me more because I'm in a smaller pool with less trust.  So, does that not lead to more people just joining the pool that has more trust with these market makers, because then every transaction your entire life becomes a little bit cheaper?

Eric Yakes: Right, so I think you're describing, would Lightning just be used instead?

Danny Knowles: Or, just one larger federation?

Eric Yakes: Yeah, that's certainly possible.  There could definitely be a very large federation that's utilised for that purpose.  But at the end of the day, there's limitations to scaling on the custodial angle.  So, that is something that will probably remain small over time, because of how trust is optimised within a smaller community level, if that makes sense.

Danny Knowles: It does.  So, is there a maximise size for a federation, like is there an optimal size?

Eric Yakes: Well, I don't think there's an optimal size.  We're looking at a technology and applying it to different use cases.  So, there could be an optimal size for your family; there could be an optimal size for your broader community; there could be an optimal size for a commercial-like institution, like what you're talking about.  There's a lot of different ways that it could build out for different functions.

Danny Knowles: But then, the smaller you are, the more it costs you to interact with other federations?

Eric Yakes: Not necessarily.  I mean, you could just say, "I want to use Ecash to privately transact intra-federation".  And if I'm interacting with other federations and I think it's too expensive, then I can just pay them with Lightning directly.  I still have a Lightning wallet and I still have an Ecash wallet.

Danny Knowles: I see.

Peter McCormack: So, it's going to come down to, it's a bit like right now.  I have a multisig cold storage wallet, I have two single hardware wallets which have got a small amount of Bitcoin for day-to-day stuff, one for the Football Club, one for What Bitcoin Did.  Actually, I've got a personal one as well.  Then, I also have a couple of Lightning wallets.  I've got a variety of things.  It feels like I might also have some Ecash within Fedimint within some federation that I use for other transactions.  So, there's different bits that you start interacting with for different reasons.

Eric Yakes: Right, and the point is to have it in a wallet technology to where this is automated enough.  Because, the way that we're talking about it at a fundamental level, it seems really complicated.  But if it's automated enough within a wallet, a good comparison is like your Bitcoin cold storage, or in a multisig, or whatever it is, that's something that would be like your long-term savings, so you're putting a lot more effort into it for self-custody potentially, or maybe that's done through a community.  But with Ecash, I mean it's called cash for a reason, it actually works, it's on your phone.  So, it's working like you have cash in your wallet and you're probably not storing all of your money in cash, you're using that for day-to-day transactions when you're walking around, or whatever it is, or you're paying your buddy or something.

So, that's another way that you could think about it in terms of the comparison.  You'll have different systems that you're using for optimising.  Maybe when you're paying on Lightning when you know it's going to somebody over in China who I'm going to have to go through a router, a Lightning gateway or something, maybe there is a high enough fee to where you care, in which case maybe you're just using Lightning through your wallet to make those payments and you're not using Ecash.

Danny Knowles: So, the way Muun obfuscates a lot of that complication away, where this can be on-chain or Lightning, there'll just be an additional thing that is also obfuscated away and you'll just pick the cheapest way of paying every time.

Eric Yakes: Right.  Once again, this is all prospective, but yeah, I think that yeah, that's definitely how it could work, yeah.

Peter McCormack: Okay, I still don't entirely buy federations, because the other thing I'm thinking about is say, Eric, I'm like, we've had some beers -- oh, fuck, by the way, I haven't actually paid for that food.

Danny Knowles: No, I paid for it.

Peter McCormack: Oh, did you?  Oh.  So, I owe you some Ecash!

Danny Knowles: Yeah!

Peter McCormack: But so, I want to pay Danny and I go to pay him and it's like, he has a different Ecash?

Eric Yakes: Yeah, and that's where the Lightning routing piece of it comes in, but it's all automated.

Peter McCormack: Yeah, but I don't want to know any of this, I just want to go -- so, what if the federation's he's part of issues 2-to-1 Ecash, because that's just the way they want to do it, whereas mine's 1-to-1 against Bitcoin?

Eric Yakes: So, there's two incentives for that.  There's the incentive of the federation, this is just a broader idea of, what's the incentive for fractional-reserve banking?  There is an incentive, and this is something that I think could also be a vector that makes the system more attractive.  What made crypto so attractive?  Because they were able to create seigniorage through token issuance.  It's the exact same economic concept to fractional reserve in a certain sense.  You're creating a new monetisation that you're able to leverage, because it's costless for you to create.

So, this is what I see as an incentive for a potential for fractional reserve; there's an incentive like, "Why would I want to join a federation using Ecash?  Because I could get a cheap loan, or there's some sort of rate of interest that's attractive to me about that".  You could see economies start forming around that.  The question is, "Is it sustainable?"

Peter McCormack: Hold on, we're going into the world of free banking again.

Eric Yakes: Exactly.

Peter McCormack: But free banking led to central banking because of run on the banks, right?

Eric Yakes: Yeah.

Peter McCormack: And so, aren't we just recreating something that kind of broke?

Eric Yakes: Right, and that's where back to the last recording we did, it goes down into a lot of theory around what regulates a free banking system.  When we think about these systems, we have precedent from the 19th century, so that's something that was a very different system, it wasn't as competitive, information wasn't as transparent, it was much easier for these things to be controlled.

When you apply that theory to this digitally native system, the games change quite a bit.  Things are a lot more incentive, information's much more transparent, we're using a base layer monetary asset that can be withdrawn into self-custody and traded peer-to-peer, arm's length transactions.  So, that changes the incentives of the whole game.  The reason that these systems centralised in free banking was typically because of government encroachment, where they used scapegoats like, "Fractional-reserve banking destroyed this, you need us to help you so that we can do the exact same thing and eventually we're going to turn into fiat money 20 years later".

That whole scheme was more -- it's a lot less possible to occur.  Bitcoin being an immutable monetary base layer, it eliminates the possibility if Bitcoin monetises that we would have fiat money again.  And then the question is, if we have a banking system build out and it's a free banking type system, will that be so centralised that it ultimately destroys the system?  Well, the market can determine that.  As long as people can opt in to peer-to-peer trading, whether it's basechain or through Lightning, then it ultimately is something that will prevent that system from ever getting to the central bank level.  But I don't think the technology could prevent it from getting to a fractional-reserve level yet.

There's arguments, there's things like, when you go into what prevented it, you had certain parties like you had clearing houses, which was the primary thing, and those emerged because competition in free banking was very high and different banks would attack each other by buying up a bunch of their notes and redeeming them all at once and trying to put their competitors into insolvency and then acquiring the market share of their competitors.  So, that was happening more frequently when a free banking system emerged.

Then because of that, we had clearing houses step in that were netting the payments between all the free banks in the middle, and they were membership-based, so you had to have a reputation to become a part of it, and you had to abide by certain practices, you couldn't do crazy shit and be a part of it.  If you started doing that, you got kicked out of the membership of the clearing house and there was a huge cost to you, because clearing houses were very helpful.  They made it a lot more efficient, they would net payments between everybody, they would set interest rates, they would help -- it was the private market solution that central banks would ultimately use and say, "No, government should control that cog in the wheel that kept everything together".

Those were helpful and they were reputation- and membership-based.  If we have a system that's very efficient, and I see a lot of ways that if we have a free banking system emerging, putting Fedimint aside, whatever the technology is, I see a lot of ways that will have certain functions that are very parallel to that, like the proof-of-reserves topic.  That's just a reputation-based form of information transparency that people are trying to create.  So, we'll probably have an institution that emerges that's similar to a clearing house, or multiple institutions that are standard. 

So, if we have a free banking system they'll say, "Okay, if you want to be a part of this, then you could use say this federation that has the stamp of approval", from whatever the proof-of-reserve company is, or the clearing house type functions.  We'll have these guys that are monitoring, they're tracking, they're potentially auditing, they're acquiring federations to report Ecash issued, and that would probably be for things at a higher scale that has a large customer base, where moral hazard is much greater of a risk.  So, that's one thing.

But the primary thing that I think is really interesting, that could make this system potentially very efficient to the point where we may not even see fractional reserve, is because with things like the Lightning Network being able to create transaction throughput so rapidly at such a low cost, we have this very efficient mechanism for trading.  And I think that we'll probably see a class of solvency speculators on the system.  So, the point about how competitors would try to put each other into bankruptcy, it would be a lot easier to put a fractional-reserve institution into bankruptcy, because when we look at technologies that emerge in DeFi, like flash loans, where if there's a publicly traded pool of liquidity and we have a verifiable way of creating an arbitrage trade, then you could actually take out a loan that would instantaneously allow you to loan that entire liquidity pool.

What does that mean?  We can create arbitrage trades with very high ability to leverage those trades, which means you could probably put a fractional-reserve bank out of business really quickly and easily if you could scale the loan to a certain size.  That would make fractional reserve just hard to run in a private market.  The reason that that would exist is because you could make a lot of money putting these things out of business and then shorting them.  So, that is much more long term, that assumes that there's an ability to short a bank that is a federation and has some publicly traded token, security, whatever it would be.

But that's an example of something that I think, the system would just be very efficient in a digitally native way.  People always have the ability to opt out and to peer-to-peer self-custody if they want, so that puts checks and balances on the system that just have never existed before.  In old free banking systems, what are you going to do; are you going to carry your gold around and lug it?  Some people probably did do that.

Peter McCormack: Is it almost like a financial system singularity.

Eric Yakes: Oh!

Peter McCormack: Do you understand what I'm trying to get to with that point?

Eric Yakes: Yeah!

Danny Knowles: There's the title!

Peter McCormack: But do you understand what I'm getting at when I say that?

Eric Yakes: Right, we've reached a point of efficiency to where all of -- yeah, I don't want to say "perfected", but we've optimised for it.

Peter McCormack: Because we have ultimate transparency, we have ultimate arbitrage, we have massive liquidity, so everything just becomes so efficient that any fuckery gets exposed, just gets traded out, so there's no -- because a lot of the fuckery that happens in the system is because it's kind of hidden.

Eric Yakes: Yeah.

Peter McCormack: Let's look at what happened in the 2008 Financial Crisis.  That happened, one of the many reasons it happened, one of the large reasons was the AAA ratings of these essentially junk bonds.  You wouldn't have this because everything is just transparent and open and every arbitrage opportunity would close.

Eric Yakes: That's an interesting point.  I mean, I don't want to go that far, I wouldn't call it the singularity.  If we've got a curve, we're getting up to the curve.

Peter McCormack: Just much more efficient.

Eric Yakes: It's just much more efficient, it's just a lot more efficient, there's a lot more information transparency, it would be much more competitive and the ability to exit the system exists.  That's the key innovation of Bitcoin, is the ability to exit our financial system, basically it means pull all your money out in cash and try to operate in an online, digital world with that.  So, now we have it.

Peter McCormack: The two things that are on my mind are: what is the scenario where the little guy can get fucked, where does that exist within this; and how much do they technically have to understand?  Like, Nostr, I signed up, I liked it and people are like, "You need to put in your Lightning URL".  I was like, "How do I get mine?"  So, I went into my BlueWallet; that isn't a Lightning URL, so you can only get one, it turns out, Wallet of Satoshi.  It's only because I went to NVK and I said, "Look, explain to me this shit so I don't have to look it up", and he told me.  There's still lots of technical hurdles for people.

Eric Yakes: Totally.

Danny Knowles: I mean, Gandalf, who's pretty technical, shoutout Gandalf, I'm not dumping on you here, but --

Peter McCormack: Yeah, you are!

Danny Knowles: Yeah, but he exposed his private key.  There's clear flaws in that.

Peter McCormack: Clear wizardry!

Eric Yakes: Totally.  The consumer experience is so far off, and that's one of the things that I think is interesting, going back to that point around why did Binance get so much adoption; we need a protocol that works on the back end, that's creating a developer environment that's more seamless than going on Ethereum and learning Solana as a coding language in order to be able to implement this stuff.  We need something that will work for guys who know JavaScript around the world, or whatever it is.  So, we need that happening. 

We also need business development that's building this shit out and creating a good consumer experience and kind of bridging the gap between this peer-to-peer protocol-based world that we see, and then the practical reality of, we need really good marketing and we need a really good consumer experience and we need to finance that pretty heavily to make that happen.  If all that gets combined in a certain way, we can create something like -- a better example is like, Ethereum created this massive ecosystem of developers and it's like, if we get that -- and I talk to businesses that are pitching a start-up, they're always like a bunch of developers and they'll say, "Here's our business plan for how we're going to get user adoption", and it's like, "Okay, so we've got to go out and we've got to get boots on the ground and we've got to do that".  That needs to be something that's scaled and centralised for a protocol entirely. 

Developers should just be like, "I'm going to build on the app store and then people can go to the app store and buy my app".  They shouldn't be as worried about distribution and acquiring users, they should be more worried about building a really good app and then having that distribution and users already set up for them through some sort of protocol.  That will solve a lot of problems and probably create a lot of efficiency in this, because right now, there's all these Lightning applications that have just like, "Got a sponsorship here, we're going to set up a POS terminal and get a bunch of guys on the ground over here", and it's complicated. 

That needs to be centralised and pushed into a primary initiative to get that consumer UX and really push that out.  It's a long-term prospect and it's going to require quite a bit of money, but if there's some company that can really get a good global footprint, that's sending applications to the world that are all aggregated within a single platform for them, like an app store in some form, that's probably where we really start to see streamlined consumer adoption.

Peter McCormack: I don't fully understand everything, and I think that's kind of a consistent experience for me in Bitcoin, is that what you're talking about is because you natively understand this stuff.  And the point I'm trying to make really is that if you try and explain this financial system to your mum, my dad, they seem to be in a similar position, but a lot of people are going to struggle with this idea.  I think a better question therefore to you is, "What is the end goal?"  You said it's apolitical global money, but what is that as an experience for everyone, for all the plebs and peasants of the world; what is the experience and what are the benefits going to be to them?

Eric Yakes: You have an application on your phone that's just as simple as anything else that you'd be using, like your social media apps and all that, except for on the back end of all of that is just a decentralised financial infrastructure, Bitcoin, Lightning, maybe it's federations, maybe it's not.  And then you also have a primary group of developers that are all very native and understand this ecosystem, that are constantly churning out updates and constantly building that out.

I think one of the interest things is, people argue against crypto because they're centralised and I totally agree, it's because they try to act like they're not, and that's a thing.  But I honestly think that this decentralised narrative really matters in certain areas.  There's a lot of areas, like smart contracts probably don't need a global state for most -- if you think about how contracts work, they don't need that, they need a legal system; that's what makes a contract effective.  Nobody wants their contract being observable by everybody.  It makes sense in publicly traded markets for assets but for most other contract applications, I want my contract to be private, I don't want all the details of it on the Ethereum blockchain.

So, I think a lot of these things are going to be optimised more around actual companies and software companies that have that consumer efficiency, rather than trying to fix it and bring out this development, try to eventually decentralise it; these things are always growing, always changing, you have to be pushing software updates.  Trying to create a decentralised system for that just seems way too costly and you're never going to provide the consumer experience that they expect.

Peter McCormack: And, how do you think regulation keeps up, or do you think this actually leads to a less regulated world?

Eric Yakes: I think that if we get an apolitical form of global money, it's going to probably be a lot less regulated.  I think it will be because of the information transparency thing, that's key.  Consumers know what they want and they know what they're dealing with in a lot of different ways.  Obviously, there's plenty of ways to manipulate that.  Your point about the AAA ratings in the Financial Crisis, that could be a major risk that emerges in the system that I'm talking about, about reputation-based things.  I mean, where there's money, there's power, people can get paid.

It's not that I think that -- free markets have plenty of problems, it's just a price that you pay for freedom.  People get hurt, things go wrong, there are still negative incentives and there's always fringe markets where things go really bad, but the idea is that it's somewhat of a utilitarian argument of, is the greater good of everything else worth all of that, and it's a choice that people will make and we want to provide that technology for people to be able to make that decision and be informed.

Peter McCormack: And, reputation built on algorithms and transparency, that's going to be a lot better than reputation built on ratings coming from centralised bodies with an office on a street, who just don't do their job properly.

Eric Yakes: Exactly, which is a great point.  If you could have, I don't know, I haven't really thought this through much; but yeah, the more that it would software-based and something that you -- I guess that's kind of an interesting application for AI potentially, because that's what AI's really good at.  I don't even want to call it AI, I just think it's more like really efficient information aggregation, and that would be a great example of it.  You could just have this AI running on your phone that's scraping web information.  Every time you use an app, it just can naturally produce information you ask it about something that you're using; that would be kind of interesting.

I think that ideally, the ideal world is that Bitcoin doesn't have problems that require other networks to integrate with it to solve those problems; that's the ideal world.  We realise that's not the case, but Bitcoin solved the primary of not being able to create fiat money.  So, what's really important is that we get Bitcoin to a scale fast enough so that it ultimately isn't co-opted into a form of digital gold 2.0, which is very important because that is coming, and I think that's coming somewhat of the near term, which means that I think a lot of these protocols, while they're probably not going to be perfect, some of these emerging protocols I think can provide a viable path towards that in the amount of time that we would need that to occur, because I don't think we can really still sit around and just wait for Bitcoin to monetise naturally.  I still think that there are enough attack vectors to where it could become like a digital gold.

If we want it to be an apolitical monetary system, then we need to create enough paths and consumer experience and have some sort of organic, natural consumer adoption that builds over time rapidly, because there's protocols and applications on those that are enabling that growth rapidly enough.  So, that's the first thing is that, I think that ideally, I think a system of Ecash with this note on top of Bitcoin, maybe it's not used but ideally, of course we wouldn't want that, but this is probably the right solution.  We can sit around and wait for zero-knowledge rollups and see if those eventually get there, and see if we can get Bitcoin through another soft fork to implement something like that and then people can get the privacy that they want; I don't know how long that's going to be, I don't know if that's going to be in time.

We do have a solution that optimised a bit.  It's going to have trade-offs, but we do know that in free banking systems, as long as you don't have governments encroach and the system's allowed to sift itself out, these things, all private markets, have edge markets of fraud and abuse and manipulation, but as long as you know a large proportion, 80%, 90% of the market is functioning based on a profit motive, or something that is related to the community model of the best interests at a smaller scale, then that's something that I think can self-regulate enough to where those trade-offs probably wouldn't be too bad, and they probably will bring so many other benefits that could spur adoption.

I think the programmability piece will be really huge for that, and if we can have that move rapidly enough and we can get enough developers and enough building that we can actually build that out, get the consumer experience, distribute that enough throughout the world to where people have an application on their phone that's actually doing everything that they want, and we find a way to get stability automised, going back to the stability pool idea, if these things can actually emerge within the next five to six years, then that will probably be quick enough to really make this happen.

But that's probably what I'm most concerned about; we've got to move, and there's a lot of people working very hard to make that happen.  But I think that there's going to be trade-offs along the way, and everybody's free to choose exactly what they want.  But we need to make freedom money work.

Peter McCormack: Do you think he's working on a second book?

Danny Knowles: I mean, it seems like you've done the work!

Peter McCormack: Is this a second book?

Eric Yakes: I don't even know if this is a book, because it will just end up being really wrong!

Peter McCormack: Maybe it's a Substack.

Eric Yakes: Yeah.

Danny Knowles: And I think the next one should be the transition from now to this future.

Peter McCormack: Yeah.  So, the only part of the bridge that I'm thinking about, it came up when we had Amanda Cavaleri yesterday and we were talking about it, is I think the bridge is essentially going to less and less fiat currencies.  I just think we're going to see multiple currency failures and people are going to start adopting -- we have the euro across Europe, I know that we don't have it in the UK, we have the pound, and I think the yen survives for a certain period and I think obviously the dollar survives, the digital yuan.  But I think there will be a battle of countries adopting the dollar versus the digital yuan, and I think we'll just have less and less sovereign currencies, because I think people will not trust their sovereign currency, and they will start adopting Bitcoin or dollar or dollar stablecoins, and I feel like that is the transitionary period.  That's what I think will happen.

Eric Yakes: I kind of left that out of what I was just talking about, but yes, the game theory is the primary incentive that I think will keep things at bay.  But at the end of the day, if we do see some sort of crackdown globally, I guess a better way of saying it is, I don't want to be, or I'm not certain that the game theory is foolproof.  I think the game theory is the best argument and it's a strong argument and I'm very confident in it, but it's definitely not something I'm certain of.  And the better we can make consumer experience and wide global adoption move, I think that that de-risks that environment pretty quickly.

What happens when the US shows up at your door with guns, and we've got a lot of guns all over the world?  And it doesn't even need to be guns, it could be digital warfare, it could be economic warfare; there's a lot of avenues in which they can bully the shit out of some of these countries.  And I think that sometimes we're not practical enough about some of that, and they could make a phone call tomorrow and bad things could happen to El Salvador.  That's something that people need to be mindful of, and they're probably going to try to make an example out of somebody too.

Peter McCormack: Isn't it wild that we get to live through this period?

Eric Yakes: It's insane, yeah.

Peter McCormack: And kind of at the forefront of it in some ways, in that we get to have these conversations and that people are going to listen to them and care about what's happening; I mean, it's fucking wild!

Eric Yakes: It's awesome, man, yeah.  I've never felt more excited than when I jumped into all this.  Just every day is purposeful.

Peter McCormack: Yeah, too much responsibility in these hands right now!  Eric, man, honestly really, really glad I've got to know you.  I just value everything you're doing in your work and I value you as a friend as well, mate.  So, look, you're always welcome on the show.  Nice watch, by the way.

Eric Yakes: I've still got to give you that hug, man.

Peter McCormack: Oh, man!

Eric Yakes: Are you feeling better?

Peter McCormack: Well, yeah, maybe, but you know why, but we'll talk about that once the mics are done.  But listen, people, go and buy Bitcoin: The 7th Property, Eric's incredible book, it's in the show notes.  And go and follow Eric on Twitter, even though he's not tweeting much at the moment, and his Substack when he launches.  Anything you want to pimp?

Eric Yakes: No, that's pretty much it, yeah.  I'll start tweeting again in a few months.  I've just been head down, but yeah, thanks for having me on, guys, appreciate it.

Peter McCormack: Always welcome, dude.