You know people, people um, blast me and probably you too for like outrageous tweets and just trying to get people all crazy, you know using incendiary language.
Sure.
It's Twitter man.
That's how you get people to, to, to pay attention.
If I didn't, if I wasn't such a dick with a lot of this stuff, nobody would care.
There's a lot of people saying the stuff I'm saying and the stuff you're saying.
There's a lot of people saying it.
I'm with you.
But they're just like little, they're little mice, right?
They're like, you know, nobody listens.
You know, so it's like you message you want people to actually hear it.
Right?
Right.
Whether it's positive or negative, whatever it is.
I enjoy the challenge of like writing something viral.
There's a, there's a, there's a nuance in the language that I enjoy, you know.
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Justin Bonds.
Yes, we have a lot to talk about.
We were just saying like, let's stop with the chit chat before we stop recording and
save the good stuff for when we're actually recording.
Thank you for agreeing to come on.
I know we've had interactions on Twitter, and we spoke once on a Twitter space, I think.
This is good.
This gives us time to get more in depth on some of this stuff.
Oh, yeah.
And I was very happy when you reached out to come talk to me because I feel like we
have so many things in common.
We also disagree on some major things as well.
So it's a really interesting combination of ideas I think we have between the two of us.
So I'll see how much of that we could have.
Yeah I have like a short list of things, but we probably won't get through it.
Yeah, no, certainly.
So you run a hedge fund?
Is it a hedge fund?
Yeah.
Okay.
So you manage other people's money.
Yeah, that's correct.
As a centralized institution, the type of thing that I think the creator of Bitcoin
wanted to mitigate that sort of risk.
And I think I'm aware of the paradox almost, right?
That I'm an advocate of decentralization, yet I manage a centralized fund essentially.
But I do invest in decentralized assets.
And I try to serve as a bridge between different worlds and I think traditional structures
also still have a place in our ideal world as well.
Not that I think you'd be too much of a fan of a type of a smart contract fund anyway,
would you?
Well okay, so first of all, we all do centralized things.
So we all work in centralized ways in some form.
Nobody leads a fully decentralized life, right?
So I always say, I don't go out there.
A lot of people think that I'm just against everything centralized.
That's not true.
There's plenty of centralized stuff that's fine.
And even banks and exchanges, at least they're honest about their centralization.
They're honest about the fact that you can't see all the stuff that's going on.
My issues are really with transparency.
So I figure as long as you're, like if you were out there saying you were running a decentralized
hedge fund, then I might have a problem.
It's kind of like saying you're running a decentralized layer two where you got a multi-sig,
right?
So, well, otherwise like, no, you got to make a living and you got, you're really good at
doing something.
Is your hedge fund all like 100% crypto?
Yeah, 100% crypto.
We only invest in things that are decentralized and passable, all of our fundamental checks,
so to speak.
We're not based in the Bahamas or something either.
We're based in the Netherlands.
So we try to tick all the boxes from a kind of regulatory perspective.
And I talk to a lot of institutional parties actually as a evangelist, if you will, which
I think within the cryptocurrency community, I'm a bit more of a critic, I think.
I think some investors-
What's the largest holding?
We actually do not disclose what our holdings are.
Yeah.
We're the secret source for the type of fund that we're arguing.
I bet you I know what the largest holding is.
I bet you would actually.
Bitcoin Cash.
No, I'm just kidding.
No, no.
I mean, I'm glad you bring it up.
I'm glad to talk about all of these things, you know, because I used to be a Bitcoin Cash
supporter, but not since 2018, if I'm remembering my years correctly.
Back when it was the end thing.
Right.
Well, I feel like-
No, I do want to talk about that with you.
No, I would love to, because I feel from my perspective, I was being consistent with my
principle.
Yeah, we respect that.
I appreciate that from you actually.
Well, the most recent thing that we connected on and agreed on was the issue with Ethereum
layer 2s.
And by the way, your largest holding is 100%, Heath.
I know that.
I won't confirm or deny.
But layer 2s have a serious problem, right?
And we sort of saw eye to eye on the fact that specific to Polygon, which is not a layer
2 actually, I'm kind of mixing things up here.
Polygon, the side chain, has a very centralized governance structure, you know, when you consider
the fact that it has a multi-sig, can almost do anything.
But then that extends out to layer 2s as well.
So how does that, because if it were your largest holding in the hedge fund, does this
kind of stuff factor in the fact that the push seems to be to be pushing business, so
to speak, or transactions out to these centralized layer 2s, and that could be the future of
the protocol?
Absolutely.
Yeah, no, I think that this is big influence on us in terms of not seeing as bright of
a future anymore for Ethereum, because it's pushing this layer 2 narrative, which I just
don't think is as competitive, at least in terms of like a long term kind of utility
based perspective on, you know, fundamental perspective on value investing based perspective
on investing, right?
Because that changes the calculation a bit.
And in that sense, I just don't think it's a competitive solution.
And if you don't have the advantages of decentralization, and you know, I mean, look, the layer 2s
can be technically decentralized, but you're building out an ecosystem that's extremely
fragmented and will definitely still include like a lot of centralized and custodian solutions.
Like that's not going away.
That's why I've been, you know, so against this kind of L2 narrative, quote unquote,
you know, the L2 scaling solution, right?
Which I don't really consider a scaling solution at all.
But do you think that this is the future, whether we like it or not?
Or do you, are you advocating for a different path?
Oh, yeah, absolutely.
No, I think I think on chain scaling is the way forward.
You know, I really think that we can scale on the base layer and, you know, while preserving
decentralization, right, that there's a balancing act to be had there in terms of tradeoffs.
But scalability is still important.
And there's certain technologies, I think, that are very interesting from my perspective,
such as sharding and things like enshrined roll ups, I think, which, which to me are
distinct from layer 2s.
Yeah, like this stuff that Vitalik just wrote about a day or two ago, right?
Did you read that post from Vitalik?
I'm not sure about this.
He did a long post about enshrining ZK roll ups.
Yeah, I haven't read that particular post.
I do.
But I have been staying up to date with the whole ZKVM space.
And my main problem with it is, you know, when we have computer scientists and engineers
telling us, oh, yeah, it's going to be five plus years away when we figure out how to
do this.
That's just a giant red flag.
So for me, my criticism, like I'm not against this idea of ZKVM.
I think it's a fine idea.
But I think if it's an idea that's projected to be five plus years out, I mean, what that
tells me in my experience is they don't have a clue.
Basically that's some sky and like pie in the sky type of thinking.
And that's not really what I appreciate in this space.
I'm not going to apply any double standards here when it comes to such claims.
If I'm looking at some small cryptocurrency and I'm deep diving that and they're like,
oh, yeah, we'll figure out this key technology in five plus years from now.
No way.
Are you kidding me?
You don't have a clue.
Right.
What's your philosophy on how you approach the space and how you decide to criticize
and stuff like that?
First, I'll tell you mine just to compare.
So it's really for me about it's about most of the time it's about strengthening an ecosystem.
So with Bitcoin for me, it's about if I see weak spots, I see opportunities to influence
opinions on a certain thing.
I'll go there and I'll sort of reveal the soft spot in order to get people talking about
it knowing that it might take a year or two or five for people to eventually get to a
place where they want to make a fix.
I'd say that's 50% of my time.
And the other 50% is almost like a warning people about what I see.
For instance, with Ethereum, I don't think Ethereum is something that can be fixed to
the point where I would align with it philosophically anymore since it's switched to proof of stake
and I want to get into that with you too.
But it's almost like I feel like people need to understand all of the red flags and the
warning signs with regard to centralization potential for the future, with regard to how
it could be a compliant blockchain in the future with all these enshrined features.
How do you approach the space when it comes to critiquing and offering up public opinions
like that?
It's a very good question.
And what I mentioned earlier is in terms of us having similarity and differences, I think
we were both very outspoken critics of Polygon, as you mentioned before.
So we've overlapped, I think, as critics in the space on a bunch of different topics.
I think in this case, it's really good to go to first principles for me.
And I'm guessing we have most of our first principles in common because for me, that's
really the empowering vision that Bitcoin originally brought forward, like that self-ownership,
self-sovereignty, having this sound decentralized money, a separation from the monetary power
from the state.
It's about freedom, I think, on so many levels.
And a lot of that also, for me at least, goes back to a lot of my political ideology as
well, which does have some libertarian roots and things like Austrian economics.
And I think we...
Do I have that right?
Is that we all have that in common?
I suspect we do, don't we?
Well, the two of us at least, not everybody.
Yes, of course.
So far, yeah.
Yeah, okay.
So I think for me, there's this grand vision of what we can achieve with cryptocurrency
and how we can do good in the world from our perspective.
And that's the vision I'm trying to maximize.
And I feel within the space, my role, because I also am a cryptocurrency researcher and
have been for many years, my role as a critic, I think, is a way of giving back and putting
my weight on the scales a bit of history as we can at such an early stage.
And that's, to a large part, what motivates me in terms of my public critiques that I
do, is I try to identify, okay...
And I have to weigh up the difficulty of doing a critique.
Some things are much harder to critique than others, takes a lot more time.
And then I look up, like, okay, how many people are going to get hurt by this?
How badly is the crime?
How badly is the potential for pain here?
And in terms of like...
The pain you're going to inflict?
Well, no, no, of course, the pain of the victims here, right?
Because I'm not the victim.
Yeah, who are the victims?
In a lot of cases, the...
Sorry?
The developers?
No, no, definitely not the developers.
No, maybe in some cases, but in most cases, it should be things like investors that I'm
thinking about primarily, you know, when people put a lot of money into a token, and their
hopes and dreams is all the psychological stuff that goes along.
And some people are just feeding into that, I think, in an irresponsible way.
And especially when, you know, their claims don't match up with reality.
And especially when someone claims to be desensualized and they're not, right?
This is, I think, one of the big crimes as well that I think we're both motivated to
call out.
Yeah.
So, wait, do you mean that before you critique something, you're thinking about how you could
affect its market value?
Or you're talking about saving people from losing money by critiquing something?
More the latter.
But I suppose the two go hand in hand.
I mean, anything goes hand in hand in this market.
You know, it's the nature of cryptocurrencies.
It's all attached to this token of value, which is what introduces a bunch of skewed
incentives.
It's like it adds all this friction that no other technology ecosystem has.
When the technology is the money, it creates such a mess of incentives that you don't see
in any other industry, right?
So well, let me ask you this.
You said you're kind of not so bullish as an investor.
I'm saying the path forward for Ethereum is not super clear, especially with the current
sentiment, right?
Pushing people to layer twos.
You're obviously, and we'll get into it, you're obviously not into Bitcoin as it currently
exists.
We should talk about that as well.
I'll be very curious.
Which I do want to talk about.
But I do want to know if those two are basically not the ultimate freedom path, right?
If those two are not the best path for freedom, what's the best path for free for freedom?
Are you at the point where it's just like crypto is not going to get us there?
Oh no, I'm still a believer.
I'm definitely still a believer in cryptocurrency.
And no, it was unfortunate.
If you say Solana, I'm going to shoot you.
We'll get to that.
But I'll add some nuance to it.
That's a good one.
So look, I think for me, I've been a supporter of Ethereum since it was launched in 2015.
I think it was.
Even mining it in the first week, I had a small mining farm at the time and I even had
all my GPUX ready to mine it.
Giant pain in the ass because it was all like command line.
I had to compile code.
Because when I first started teaching myself how to use Linux, it wasn't very usable on
launch, let's just say that.
But I've been a big supporter of it because they promised to scale through sharding and
there's a bunch of other specific aspects I like about it.
I actually do like the economic design.
I do like proof of stake, which we should talk about later a bit more as well.
So for me to see Ethereum pivot away from layer one scaling and from my perspective,
really Bitcoin history is kind of repeating itself in Ethereum now.
If you think about it, that to me was a big disappointment.
And then that made me look less optimistically towards Ethereum's future.
I do think it will continue to be a dominant blockchain for a very long time because the
network effects are very sticky in cryptocurrency.
And I think Bitcoin is a testament to that as well.
But I think long run, if Ethereum stays on its current course and really fails to meet
demand on its layer one, then I think competitors really have a really good shot at overtaking
it in the future or actually will overtake it in the future.
So I'm still hoping Ethereum can change.
I'm putting out a message saying, hey, this is what Ethereum needs to do to get out of
this hole, but people are not necessarily going to listen to me.
And I'm a big critic of how Ethereum governance works.
I think we disagree on the solution to that since I'm a fan of on-chain governance as
a solution to a lot of these problems.
But I actually think the governance in Ethereum is actually very similar to the governance
in Bitcoin.
I think that's problematic.
I think when you have highly centralized decision making and it's a bit of a wild card in terms
of predicting where that will go.
Yeah, that makes me more doubtful about Ethereum more long term.
That's why I become more interested in competing layer ones.
And now to go back to your question, it was difficult to be a critic of BTC, the largest
cryptocurrency in the entire ecosystem since 2017.
And it was a lot more controversial to take that position back then.
And now having to also be a critic of the second largest cryptocurrency, that's not
necessarily something I wanted to do.
That just does make my life more difficult.
I really felt an allegiance and I had a community there and they still host me at conferences
and things like that.
It's not something I wanted to do, but it's something I felt I had to do.
I'm looking at more alternative L1s now because if I don't see Ethereum going where I think
it should be, then I'll find my perfect cryptocurrency somewhere else.
Even if it means trading away some decentralization?
No.
Because any other L1 you're talking about, unless you're talking about certain privacy
coins or something like that, but or Litecoin or Doge, is that where you're going?
No, not Litecoin or Doge.
Okay.
All right.
You want smart contracts, right?
I want smart contracts.
Yeah, exactly.
So, are smart contracts is sort of a must have for freedom or are you thinking more from
a business point of view?
Both.
So, from my perspective, I think that well, first of all, I think the goal of cryptocurrency
is to create good money and I believe that good decentralized money and I believe good
decentralized money also needs good decentralized finance to support it.
Because otherwise, everyone just ends up putting it in centralized financial institutions and
then what's the point?
Well, I mean, there's still major advantages to it.
Don't get me wrong, but I feel like there's more to add there.
And I think that in the developed world, at least, using cryptocurrency as a form of money,
I think it's very difficult to convince people to do that.
So I've started to see DeFi being more like this stepping stone towards adoption as money
as well.
And I just think that through DeFi and a lot of the related applications, I think there
is potential for greater adoption there and usage, which then drives fees and drives demand
and etc.
etc.
And we have a virtuous cycle there.
So that's why I think DeFi is a necessary component.
Just to be competitive in the market and that's the business component.
You can collect more fees and you have higher security than you can pay for more shards.
Yeah, what are some of the decentralized parts of DeFi that you like and that you think are
sufficiently decentralized?
Let's pick them apart.
Honestly, I don't think anything is really sufficiently decentralized at this point or
maybe, but I'm not sure.
Even Bitcoin and Ethereum.
I think more practical decentralization comes at greater scale.
But in terms of, let's say, technical decentralization, there are projects out there that burn their
admin keys.
So Uniswap has no admin key.
Let me think.
What are some other examples?
Maker has no admin key.
Has that burned?
Augur is a little bit defunct right now, but had no admin key.
Whenever you have these contracts where everyone has to migrate to the next contract, that's
not ideal in my view because then you have to launch an entire new smart contract and
ask people, please move over to the next one because you literally can't change the rules.
I think that does qualify.
That's maybe in the minority, but I think that does exist.
It's not the case that all smart contracts are bad.
I remember in the Bitcoin community, in the early days, things like decentralized exchanges
were one of the big ambitions of Bitcoin.
It's like, yeah, we can build a decentralized exchange over Bitcoin.
That was one of the dreams.
Where's that gone?
Yeah, yeah.
I mean, I guess one of my biggest issues with DeFi though, as we currently know it, is that
it wouldn't be possible without Chainlink.
And Chainlink has the same problem as Polygon with regard to having that multi-sig that
can nuke the whole thing.
I initially got interested in DeFi because I thought it was going to fulfill that promise
that you were just talking about that.
We have decentralized money.
Now we need decentralized financial services for that decentralized money.
We shouldn't have to use that decentralized money on centralized exchanges only.
I get that.
And that's why I was initially attracted to DeFi.
But initially with DeFi, that's how it was advertised.
It was advertised as trying to solve that problem.
But then just like every other project in the space, over time, and in this case it
was really over a year or less, incentives changed.
And the incentive became how do we provide a return to these VCs who came in and decided
that they needed a return through a token or through all these other ways that they
have to make money in DeFi.
And it became about just building things that were just decentralized enough to pass.
And using centralized price feeds from Chainlink and basically taking shortcuts wherever necessary
to get a product to market now because we don't have years to wait.
We have to get a product out the door now.
And by the way, we need to do all this before regulators realize what the hell we're doing
because by that point it'll be far too late.
They're going to nuke the whole industry.
So we have to buy 2023, have a token out, airdrop, come up with this cool way to create
this new investment opportunity by airdropping and then dumping on people's heads.
All this stuff which is regulated in traditional markets.
But really it just became this mess.
To me, it almost killed the whole idea.
I think that if we're going to see real DeFi anytime soon, it's going to start from scratch.
What we've already done has been a complete disaster with regards to freedom.
So it's more to separate.
I'm not talking about building a great investment.
I'm not talking about building a great portfolio or I'm not talking about is this going to
help increase in value over the next five years.
I don't care about that.
What I care about is, is it going to help me be a freer person?
Is it going to help me not have to trust people with my money?
Is it going to help me have a plan B if I need it?
That's the kind of stuff I'm talking about.
I think that's the kind of stuff you're talking about too.
And you're not wrong with everything you said there.
The Chainlink admin key can mess with the price freeze and totally tank what is this?
Several billion dollar market.
It's crazy.
Oh yeah.
At least 10.
Yeah.
But I think it's important to also distinguish a few things.
So I mean, we can see the good amongst the bad as well a little bit more.
So if I take the Uniswap, for example, the price on that AMM, that's not affected by
the Chainlink Oracle.
And the Chainlink Oracle can't steal funds.
Not directly.
Right.
Exactly.
Indirectly, arguably, maybe through arbitrage and manipulating other price feeds.
Who knows?
It's an edge case.
But I would say if we zoom in, then we can say, okay, this is a real application where
someone can exchange their cryptocurrency on an exchange with high liquidity without
a third trusted party.
And sure, there's a bunch of landmines on the way there and it's not exactly the most
user-friendly thing in the world.
But those cases do exist.
And that to me is that kind of glimmer of hope, you know, of like, wow, we can actually
do this.
And I think that's proof of that.
Whether it's going to be on Ethereum or the next thing.
That's wonderful.
I think Uniswap is an interesting case though, because we've seen three versions and a fourth
version proposed.
Or the fourth one is up.
I don't even know anymore.
I've lost track.
But each one has been decentralized and you've had to migrate from one to the other if you
wanted to use the newest one.
And we've seen people doing it.
You referenced this before.
We've seen people doing it almost like you upgrade your iPhone sometimes.
It's like, okay, we're going to move to the new one.
Version three created some drama just because it was so difficult to use.
But I think that where it gets kind of tricky with this stuff, and I've been thinking about
this more lately, and this applies to the Bitcoin debates too, and Ethereum debate,
all the debates, is thinking about the external stuff, the stuff that you can't see on chain.
And so from the on chain point of view, Uniswap is decentralized, unstoppable.
You can't turn it off.
There's no regulator that could come in and say, we have to turn off Uniswap version one.
It's still there.
It's always going to be there.
Nobody's using it.
Or very few are using it at this point.
It still exists.
But what Uniswap has gotten good at, and Uniswap, by the way, the company, has grown quite a
bit and has hired people that are former Federal Reserve people, former people that have been
on presidential staffs and worked in the White House, regulators and former SEC or CFTC officers.
It's become this spook operational.
They also created this white listed pool.
Did you see that as well?
Where they created only, you have to do KYC and AML to get in the pool and then all the
institutionals can kind of trade with each other there.
Oh, okay.
Yeah.
I mean, that's what version four is for.
Version four was specifically created to allow total flexibility with how you allow access
to these pools with what they call hooks.
It's building my case here for the fact that, yeah, we can, there's a million decentralized
ideas that have been built and that nobody's used.
And then there's others that have kind of caught on.
But at the end of the day, isn't it just money that talks?
We've seen principles just destroyed by large amounts of money over and over and over.
Right?
So, okay, we figured out Uniswap works.
Cool.
The math is awesome, et cetera.
Hayden is brilliant.
But then it's like, okay, all these VCs come in, all this billions of dollars comes in.
Next thing you know, we're sort of slowly going down this slippery slope towards this
regulated, captured KYC Uniswap.
So why should I have hoped that any of this could ever catch on in a decentralized way?
So I think for me, I actually really believe in the utility of this technology.
And what that also means is that it works because of greed in many ways.
So I'm coupling and sure, I find a lot of what's, I'm not a VC, I'm a value investor
myself.
I invest in tokens for long term and that's why I do fundamental research.
And sure, I find a lot of the things that happen in the VC world, not all of it, but
some of it, especially in the crypto world, it's very distasteful.
What's happening there and the kind of games that are being played.
Certainly.
But at the same time, one of the reasons I think that I really came to believe in cryptocurrency
is I think before I saw cryptocurrency, I really looked at democracy as kind of this
dysfunctional system.
And sure, it's the best system we have.
And as I think Winston Churchill said this in particular, he said that democracy is the
best of the worst system.
It's kind of the best that we have.
So that's what we go with.
But I saw a lot of-
Not sure I completely agree with that, but okay.
Maybe we'll come back to that.
That'd be fun.
I'm using a broad definition of democracy here though.
And the idea though is that one of the reasons that democracy is dysfunctional is that, and
one of the reasons it's dysfunctional is that because it requires a very highly enlightened
population for it to really function.
People have to really mean well and they have to be virtuous and they have to be informed.
And then only then, and usually it tends to break down at larger scales because then you
can't really reflect the will of the people too well either.
I have a background in political philosophy if I didn't come across yet with this little
rant.
I like it.
Yeah.
I like this kind of conversation.
No, no, that's great.
But then cryptocurrency came along for me.
And something that I saw in cryptocurrency is that actually, no, people don't need to
be very enlightened.
People don't need to mean well.
You're not dependent upon that.
It works because people follow their own incentives.
In that sense, it's kind of this idea of the black hand of the market and bringing about
positive outcomes basically in the longer run.
Of course, there's going to be negative externalities along the way and so forth.
But for me, what it therefore fixes is that, okay, you actually have a system that works
despite of people's greed or actually it works because of people's greed or selfishness
or self-interest, I should say.
And what it does is that it align those incentives and then it creates this public good.
And I think for me, that also that's why cryptocurrency works.
So that's why I'm not too disparaged when I see people following their own self-interest
unethically even.
So I'm like, okay, well, at least cryptocurrency still works under those circumstances.
As in the American founders said, it still works even when there's monsters in charge.
So it's like that's kind of the idea.
Well, no one's in charge obviously, but it's a bit of a misquote.
Now this is a super interesting area to think about because this is exactly where my head's
been at for a while now.
First of all, with regard to the US, are you in the US?
I'm not actually.
I'm based in the Netherlands and Europe.
So one of the reasons I got attracted to Bitcoin was because since I learned about the constitution
of the US and how it works and why it was set up the way it was set up, I saw Bitcoin
as sort of almost a parallel, a very similar idea where it's like, let's create these
rails for a system to run on.
And it doesn't rely on the honesty of people, like you just said.
It doesn't rely on good people running the show because we take into consideration that
there's no such thing as like a good tyrant.
Once people gain power, we have to assume they're going to get corrupted, not because
they're bad people, but because that's just the way humans are.
We have to acknowledge that humans are fallible, messed up, and there's no human that can be
trusted 100% with the fate of the world or country.
Power crops, absolutely.
Right, exactly.
So that's a big reason I got attracted to Bitcoin.
And now look at where the US is now.
We have stopped enforcing the Bill of Rights on a lot of different issues, especially the
Fourth Amendment, which is supposed to protect our right to privacy, our right to not search,
to not have to reveal all of the details of our life.
That's violated every minute of every day.
Then you talk about freedom of speech, religion, et cetera, and all this other stuff that people
want to attack and are attacking with the government.
And we see the Tenth Amendment, which says that anything that is not, any power that's
not specifically in the Constitution says to be given to the federal government belongs
to the states.
That's completely forgotten.
Like if you say that now, bring it up, it's laughed at.
So we've gotten to a point where the Constitution is almost becoming like people want it to
be a relic, people want it to be ignored in a lot of cases, change the meanings of things.
Now it was created with the best technology available at the time.
If there was the technology we have today back in the late 1700s, it might have been
a different story.
But that was the best that we had back then.
Now with Bitcoin, we have a lot of the same issues I feel like that are coming up.
And not with Bitcoin, with every cryptocurrency, Ethereum too, especially Ethereum.
In that people like to think of these things like they're a universe.
People like to think of Bitcoin like it's a universe that is unto itself.
As long as the technology works and does what it does, then we're fine.
But the reality of it is that it's almost like I've been thinking of it like a planet
and there's all these comets and asteroids that are going to be coming at it, hitting
it.
And one of those comets could be the government.
One of those comets could be BlackRock.
One of those comets could be this or that or the other thing.
And it just takes one to strike and to blow the thing up.
There's all these externalities that are attacking these things all the time that have nothing
to do.
You can't see any of it on chain and you can't see any of it maybe in the governance system.
But coming from the outside, with Ethereum, it's 100% regulators, governments having an
influence on the VCs who are having an influence on the developers and on the development of
the applications on Ethereum.
And on the layer 2s, there's a reason the layer 2s all have multi-sig and it's not just
the fixed bugs.
It's because they want to stay compliant.
And so there's all this stuff going on that's external.
So that's been top of mind for me and I'm not sure how I can ever come to terms with
that not being an issue.
How do you create a form of a Bitcoin or something like that that's not susceptible to people
with lots of guns and people who can weaponize the media against you and people who could
turn the majority of the population on you?
How does Bitcoin exist in a world like that?
I think the answer has always been, grow it so large that no single party can take it
down.
That's all you can do.
Yeah.
So it's like a race.
We have to make this thing succeed before the powers that be have an opportunity to
squash it.
But I think I'm a little bit more optimistic than you.
I think we're already past the point of no return at this stage.
And actually, I'm a student of American history as well and I do also love a lot of the ideas
presented in the US Constitution.
This might be a bit of a controversial take, but I think out of all the places you could
live in the world, certain US states are probably still some of the freest places you could
be.
And also because of the US Constitution, it still holds some weight.
And I know nothing is perfect.
No, we're clinging by a thread, man.
I'm in Florida, so I know all about it.
Yeah.
Anyway, we're still doing okay down here.
And I'm really curious to understand your perspective on Bitcoin because that's one
of the big areas where we differ.
And you're thinking about how can we avoid this type of capture from occurring?
And I find it curious how you see all of these problems in Ethereum, right?
And you're not entirely wrong.
But don't you see the same problems in Bitcoin as well?
Well lately, the past few months, I've been turning into a little bit with regard to,
you know what?
It's since I podcast.
Well, I was already thinking about stuff and I did a podcast with Jameson Lopp and we started
talking about mining and we started talking about some of the threats.
And I'd already been thinking about, I keep using BlackRock as an example, but it's not
the only example, but it's just such a good example that resonates with people.
And you know better than anybody that you need a good catchy example to get your tweet
out there with a get it a lot of likes, right?
So you get that sweet Elon money, right?
But just kidding.
You know what?
And by the way, sidetrack, people blast me and probably you too for outrageous tweets
and just trying to get people all crazy, you know, using incendiary language.
We're both guilty.
It's Twitter, man.
That's how you get people to pay attention.
If I wasn't such a dick with a lot of this stuff, nobody would care.
There's a lot of people saying the stuff I'm saying and the stuff you're saying.
There's a lot of people saying it, but they're just like little mice, right?
They're like, nobody listens.
If you have a positive message, you want people to actually hear it, right?
Right.
Whether it's positive or negative, whatever it is.
I enjoy the challenge of like writing something viral.
There's a nuance in the language that I enjoy, you know?
Yeah.
Yeah, it's fun.
Yeah.
Hey, my history too has been in marketing.
I did marketing for sports.
I spent a number of years with the UFC ultimate fighting, doing marketing, writing copy, promoting
fights.
So it's in my background to draw on people's emotions, to get them to think about something
or to get them to do something.
I like your content as well.
Anyway, we have that in common.
Yeah.
Right.
Yeah.
But for Bitcoin, I'm all about criticizing areas that I see as weak because I think that
that's the only way we can get them stronger.
So I have a number of concerns.
So I'll show you what for me is my biggest concern besides maybe the long term.
Okay.
Maybe not including the stuff of the security model.
Maybe we'll get into that later.
Okay.
That's a big concern.
But actually my biggest concern is actually governance.
And that's what makes me so concerned that it won't fix things in time basically because
the governance is dysfunctional.
So I've thought a lot about when changes to Bitcoin happen, right?
What is the governance process?
What is actually the decision making process in practice?
Not some idealized version.
What is actually the real politic of it?
How many people does it take to get together in a room and all agree on something?
And if they then come out with a publicly, does it actually happen?
Even if it might be controversial or can they block things, right?
So for me, like doing that type of an analysis on Bitcoin, I'm extremely concerned about
the state of governance.
And that's, I think for me, what a lot of the block size debates were about as well.
And I was on the quote unquote losing side of that, let's say.
But I think this idea that there's only one implementation, one client implementation,
one dominant one at least that's calling all of the shots.
And you have a literal lead maintainer who has the final say over code changes.
And you have this whole culture kind of propping up the supremacy of these developers.
I think that's a major problem because that concentrates power in the hands of a very
few people, which is then very easy to then capture and corrupt and pervert.
And it's subject to all of these external powers now.
And that's where I also, I'll just go straight for the major points here.
I see a major conflict of interest.
The same I see in Ethereum, by the way, where say a lot of the Bitcoin developers are being
paid or have shares in companies such as Blockstream and what's the other one?
Oh man, I forgot the name.
But there's a few companies like that that are funding developers.
And these companies can have a conflict of interest, for instance, favoring layer two
scaling over layer one scaling, for instance.
And also there was this great, did you read the CIA report that happened a year ago?
The CIA put this thing that was sponsored by the CIA.
And basically they said the way to say take over a cryptocurrency or disrupt it is to
target the core developers.
And I think they're right.
I think that's such a key pain point.
And even if the developers are honest, they could also just be making wrong decisions
because the governance process is not conducive to actually creating the best decisions.
So that's like a more optimistic scenario as opposed to being captured.
But that to me is one of my biggest concerns around Bitcoin.
And part of the reason I'm an advocate for systems of on-chain governance to kind of
mitigate those problems and add the checks and balances and add the restrictions to governance,
which I think mirroring the US Constitution in so many ways and that idea of a republic
is you're limiting power, you're dividing power.
And if you formalize it, then instead of the rulers being in the shadows, you kind of bring
it out into the open.
And I think that's a better way to do things.
Yeah, it's an interesting dichotomy in how to think about these projects.
I think that one of the things I like about Bitcoin is that it is more of an organic...
People think of it as immutable and as it is what it is, it's never going to change.
But the reality of it is that it is a...
First and foremost, it's a brand.
Bitcoin is a brand.
And the brand is... whatever the Bitcoin brand points at is what most people are going to
think is Bitcoin.
So when Bitcoin Cash happened, it lost the battle for the brand, as much as Roger Ver
tried.
He lost the battle for the brand.
And it was decided by a lot of the big powers that you were talking about.
But more importantly, it was decided by public opinion.
And public opinion was swayed in a certain way, but what we have today became Bitcoin.
I'm not sure if that's entirely true.
The public opinion piece.
That the split, that the result of the split was purely the result of an egalitarian public
opinion.
I think there was a lot more politics going on than that.
I think that censorship had a lot to do with the outcome.
I think that the exchanges actually named one side of the ticker BTC also had a lot
to do with it.
And I think for a lot of the polls that were taken and for a lot of the ecosystem and industry,
most major parties were supporting an increase in the block size and the developers got to
do the thing that they wanted to do instead.
So that to me was an example of, oh, these developers actually have too much power.
And from my view, also doing the wrong thing.
I'm not sure.
We might disagree on that one in particular.
Well regardless of which side you agree with, I think my point is that Bitcoin is sort of
this flowing thing that goes through these forks in the river and ultimately goes down
one of these paths.
And then it's up to the individuals involved if they want to participate with that, endorse
it, go off in a different way, try to get adoption with a different technology.
As opposed to formalize on-chain governance, which sort of treats the project as more of
like this is the project and a hundred years is still going to be the project.
We're going to go through iterations that governance is going to choose.
And so I'm not saying one's right or wrong, but I'm saying like they're almost two different
concepts for a path forward for a cryptocurrency like this.
So you seem to be leaning more towards this system of we need to figure out on-chain governance,
how it's going to work, participants, et cetera.
And then we need to sort of steer that ship, navigate these waters and try to keep out
the big money, keep out the big governance and stuff like that.
No, no, no.
We need governance so that it can resist the corruption of big money.
Okay.
I mean, how does...
See, that's something that that's where I start to get concerned because big money seems
to corrupt everything.
So if you can't keep big money out of a system like Bitcoin, how do you keep it out of another?
I should rephrase that, to harness the greed and corruption of big money.
To harness.
So you like proof of stake.
Yeah.
Yeah, sure.
Because that clearly aligns those incentives.
I mean, proof of work basically works on the same principles, just pros and cons to each.
I think more of the pros land on the stake.
But we're actually...
Let's not move on from the previous subject just yet.
This is becoming quite interesting.
Because in my view, that's why we need the governance is to kind of keep the system away
from corruption.
It's because if you don't have that, what you end up with in practice is a very few
people making all of the decision.
And I think that is very much goes against the ethos of cryptocurrency.
Because I think that's practically what ends up happening behind the scenes.
How do you think they're making those decisions?
I completely understand and I actually share a lot of the concerns about what are the incentives
for these developers, who's paying them.
I look at like Luke Dash Jr. getting paid to do work on BIP 300, getting paid by Layer
2 Labs, who's out there the biggest proponent for BIP 300.
And he's publicly said he doesn't even philosophically align with it.
He's just doing the work he's paid to do.
And he has this influence and access.
Luke Dash Jr. doesn't philosophically align with a lot of things.
He's just one example of...
I don't want to pick on him, but he's a good example of somebody with influence and access
getting paid to use that influence and access.
And almost just via hired gun.
So where was I going with that?
I forgot.
Yeah, the conflict of interests of developers.
So I get concerned about that too.
Yeah.
But I forgot where I was actually heading with that whole line of thought.
That's okay.
No, because the way it looks like, right, is you have this GitHub.
And you have, I think in the case of Bitcoin now, it's five people who have like a veto
power, I believe it is.
Those are the maintainers.
And then you have the lead maintainer who basically has a final say of the system.
And what they claim is they say this is a perfect meritocracy.
And this is this beautiful, organic, emergent behavior that comes from where the best ideas
always win.
That is the claim.
But I think in reality, like we said, power crops and absolute power crops, absolutely.
They kick out developers that don't agree with them and then claim consensus.
I don't think that that is truly a meritocracy.
And I think there's a lot of conflicts of interest, and I think that's just far too
centralized as a system.
And I think that's resulted in bad decision making in my view, such as not scaling the
blockchain up to reasonable levels, as was always intended by the founder.
I'm really curious on your view on that actually, since we're touching on it now.
Wouldn't you support say a moderate increase, say eight megabyte blocks?
It would bring so much more utility.
I mean, like 32 megabyte blocks, right?
You can still verify that on a Raspberry Pi, right?
If you just add some code optimizations for that, you can still verify that on a Raspberry
Pi.
32 megabytes, and then you have the scale of a freaking PayPal.
And now you can truly use Bitcoin as money.
And now it's like this empowering thing that people actually have direct access to with
low fees.
And you solve the security dilemma.
I will say, I think that-
Isn't that just a no brainer?
Knowing what I know now after having watched Ethereum try to scale with layer twos and
watching the Lightning Network struggle.
Knowing what I know now, and I wasn't like a vocal advocate for either side really at
the time, but it does make sense.
At the same time, I am in the process right now of syncing a node and it's taken me a
solid week.
I can see both sides, but I do agree that the decision there went in a certain way because
of money.
There were closed door meetings.
We weren't at privy to all that information, all those conversations.
We know there was the New York stuff going on and whatever else.
It's like 200 million plus funding for Blockstream.
Yeah.
But what do you think was the motivation for that outcome?
Why did they want that to go that way?
I'm hesitant to know what's in other people's minds.
I can say, look, there was a-
It must have been a business decision.
Right.
Clearly there's a conflicts of interest.
I think Adam Back, Greg Maxwell, a lot of these folks have shares in Blockstream and
they raise a lot of money for VC funding and Blockstream's promises to build L2 solutions
for profit and that clearly benefits from not scaling the layout basically.
I can't say with 100% certainty that they had this type of perverse intent, right?
But I think it's highly problematic that it's there in the first place.
They could truly believe in the ethos that they promote or maybe they were biased a bit
in that true belief, but I can't say.
But either way, I think it's wrong because it completely destroys what Bitcoin was actually
meant to do.
I think Satoshi, I think we can agree, was very clear on this about what the intent was
of Bitcoin in the white paper, in his writing extensively.
I think for me, that was really a pivot away from the social contract, which to me really
flies in the face of what Bitcoin was supposed to be.
It's not supposed to pivot away from the social contract.
Now I'm like, wow, so blockchain, that can happen?
That's why now I'm like, okay, this is just a major systemic failure in governance.
This is why I'm trying to find solutions to that.
How can we design a blockchain in such a way to avoid these problems from reoccurring?
Because the same thing is happening to Ethereum now.
How do we avoid that from repeating?
Yeah.
If there's one thing I've learned over the last three, four years, it's that the money
is always going to come down on the side of scaling because there's more opportunity for
profit.
There's more opportunity to build a business around scaling solution than there is around
having native solutions on the layer one.
No, no, but the layer one can scale in my view.
So I'm saying like, yeah, but there's less profit potential for third parties, for venture
capitalists, et cetera.
If you have that kind of a solution and that creates this perverse incentives because they
can't rein seek on the layer one, they can on the layer twos that they might build out.
And this is why just so I'm also offering some solutions while critiquing.
This is actually where I think like treasury systems, blockchain treasury systems come
in.
Because if you say take 10% of the block reward, you put that in a treasury, you then have
a proposal system with like decentralized voting, right?
There's going to be a lot of inefficiency, I know, but at least that creates a L1 bias
source of funding, which can counteract the influence of this kind of perverse incentive
that we're identifying.
This is why I've been a supporter of that type of design, things like Dash, Decree,
Tezos have implemented this and more.
Not Ethereum, unfortunately.
Yeah.
Ethereum, you know, in my opinion is far worse off in this regard than Bitcoin.
Oh, well, here I disagree with you, right?
Because if we're talking about...
I'll tell you why.
I'll also tell you why.
You can stop.
Because well, okay, DeFi had a lot to do with this.
DeFi had a chance to be built on top of decentralized stables like Dai, you know, and others that
could have existed but didn't because they didn't see the reason to.
Instead it was built on the back of Tether, of USDC, of Paxos and whatever else.
And at this point, you know, we're still talking about Ethereum is interesting because of DeFi,
right?
Ethereum is interesting.
Sure.
That's why Ethereum is at 1800, whatever, or no, where's Ethereum?
I don't even know.
I don't look at prices that much.
But the reason Ethereum is interesting is because of DeFi and because of that innovation
and because of all the VC investment.
The problem though is that they've developed this ecosystem that has to all move together,
right?
There can not be disagreement within that $10 to $20 billion ecosystem, including USDC,
Circle, including Tether, including Chainlink, including anybody else who's involved and
reliant on those organizations.
They all have to move along together or else the thing starts to fall apart because they're
all intertwined, right?
Because of the way the tech works.
So if a hard fork is proposed and Circle likes it, but Aave doesn't like it, Aave is going
to go with Circle because their whole shit's going to fall apart if they don't all stick
together.
We saw this already, which nobody really paid attention to, but it was a really interesting
case study with the proof of stake fork because the proof of work chain is still there.
It's still being mined actually, which is funny.
And all the DeFi stuff that was on the, you know, everything that was on the chain pre-fork
went along on the proof of work chain too, except USDC wasn't honoring tokens, Tether
wasn't honoring, nobody's honoring any of those tokens, but Aave was still there with
all the balances.
They had Compound still there, Uniswap still there, everything's still there, and everything
just imploded like instantly, right?
Everything's getting liquidated, everything's getting, it's like a complete shit show because
the tokens aren't being honored anymore.
You know, none of it is redeemable.
So those organizations overtly control the future of Ethereum.
If Circle doesn't like a fork and doesn't go, nobody's going.
If Tether doesn't like a fork and doesn't go, nobody's going.
So that as a put, those are direct vested interests that are controlling the future
of Ethereum, whether or not they're paying off the devs.
They don't have to have any involvement with that.
If the devs do something that they don't like, the devs are going to stop doing it, right?
And it's very clear as opposed to Bitcoin, which I hear and I understand what you're
saying about Bitcoin, but it's a little bit hazier.
It's not quite as obvious, which may be worse, maybe more dangerous, but it's less of a direct
threat, I think, in the near future.
No, and I think you have a point.
Actually, I think there are potentially perverse incentives there.
Though I did think making Ethereum harder to fork, I thought you would actually like
that as opposed to not like that.
That's okay.
How did they make it?
Oh, you mean because of that?
Yeah, well, you have to sit down in a room with Circle, Tether, and all these guys.
But I suppose one of the reasons I'm less concerned over this than you are, and I definitely
acknowledge that there can definitely be some perverse effects there.
And yes, it does make it more difficult to have this kind of forked governance.
But I think from my perspective, I think that splitting a chain, that type of governance,
that's like the nuclear option, in my view.
That's what you do when everything else has fell apart and you're just so far ideological
apart and everything else has failed that then you press the big red button.
I think that should be the very, very last thing in a long line of processes to fix things.
This is why, in my view, it's like, okay, well, yes, it does make it more difficult
to fork, but I would rather see an internal decision-making process where more diverse
voices can be heard and that is more inclusive.
And ultimately, of course, as an on-chain governance, it's tied to actual incentives
through stakeholder-based voting.
For some reason, as in proof of work, you can actually do something similar with the
miners.
I think that to me means also...
And that goes on to my next point because one of my major concerns really is this kind
of centralization in the development.
In the case of Ethereum, there's a very big difference between Ethereum and Bitcoin in
that regard.
And there is actually multiple dominant client implementations in Ethereum.
So it's not just a single dictatorship.
It's like several dictatorships that kind of have to negotiate with each other, which
I think is better because it's just another step removed from having that sort of extreme
centralization.
And I think that's...
And I think because I'm more interested in preventing...
I think if a governance mechanism keeps forking, keeps splitting, I think that's extremely
destructive.
That's one of the reasons I stopped believing in Bitcoin Cash, let's say, because I'm like,
wow, okay, this is actually systemic.
It's still happening.
You had the BSV fork and then you had the E-cash fork and it was just a disaster in
that regard.
And I don't think Bitcoin is really that different.
It's essentially the same design as Bitcoin Cash.
The only difference was the bigger block size limit and it's more optimized because core
developers are not optimizing for that.
There's a consequence of that too.
So I think for me, if I identify as a lack of client diversity, extreme centralization
of power in clients, if I identify that as a problem, then obviously I'm going to see
Ethereum actually being better in that regard because it has multiple client implementations.
The culture supports that and it went through a lot of effort from the early days to actually
make sure it was done that way.
Just like the core developers made a lot of effort to push out any alternative clients
during the block size debates.
Because it wasn't always that way in the case of Bitcoin.
Yeah.
So that's a lot to unpack.
I should have given you a bit more breaks in between there.
Well, I want to like on a grander scale, proof of stake versus proof of work.
And I'm specific to Ethereum and Bitcoin is fine.
In my view, the switch over to proof of stake for Ethereum, you mentioned that you like
it as a form of governance and it makes more sense to you than proof of work.
It's an efficient consensus algorithm as well.
What do you dislike about it?
I'm really, really curious.
Well, my concern is that one of the things about proof of work that I appreciate is the
friction that's created between the incentives of miners versus the incentives of other ecosystem
participants.
Which, you know, it sort of goes back to that constitution comparison where you've got competing
incentives which adds friction.
It's like a division of power.
Right, it makes it harder to affect change.
And a lot of people point to that and say that's bad.
That's a bug, right?
I point to that and say that's good.
Because I think that making it more difficult to implement changes is a positive feature
of a system.
No, actually, I actually agree.
With regard to Ethereum and proof of stake, my big concern now is that validators' incentives
are directly aligned with pretty much everybody else.
Everybody's incentives are aligned to grow the value of Ethereum, to grow to, you know,
and not just the token value, but to keep it in compliance.
Because you can't have a strong ETH token if it's not in compliance with the law.
And I think that longer term, it's going to be easier.
No, because Bitcoin is almost defining the law.
I think that Bitcoin pre-existed a lot of the scrutiny.
Because it's the reason, I mean, look, if Bitcoin could be stopped.
That sounds like a double standard to me.
No, let me explain.
Bitcoin developed in silence.
Bitcoin sort of, if Bitcoin wasn't released in 2009 and had like that five, six, seven
years to bubble up before anybody in government cared.
I mean, it was only like two years ago, three years ago, when we're sitting here saying,
like, imagine the day when they say Bitcoin in Congress.
Imagine the day when the president says Bitcoin.
You know, it's like it had a long time to mature.
And by the time they figured it out, it was too late.
Okay, so isn't that true for the whole industry?
No, all of the things that make Bitcoin valuable were created in the first five years, I would
say, like the decentralization level, the immutability, etc.
With Ethereum, like I said before, everything valuable about Ethereum is being created now.
With Web3, with smart contracts, with DeFi, that ecosystem is seeking compliance.
Because without compliance, it has zero value.
So proof of stake makes it easier.
And all the stuff Italic's now pitching with enshrining, you know, all this stuff in the
protocols opposed to building on top of it.
It's all pointing towards a road toward compliance, you know, which limits freedom, which points
to a blockchain that's ultimately going to be government friendly.
Incentives being aligned between validators and the rest of the ecosystem makes it, is
going to long term make it easier for Ethereum to go in a direction that's anti-freedom.
I'll push back on that for a few reasons.
And I also want to just kind of loop it back to what we're saying earlier as well.
So there's two reasons, primarily, if I really simplify things, two reasons why I think that
proof of stake is superior.
So one is governance and the other one is just from an efficiency consensus algorithm
point of view.
Okay, so on the governance side, you know, during the block size debates, I think there
was a lot of theories and I myself included, you know, wrote some thesis about this as
well that, you know, that what role do the miners play in governance?
And I think that was a very important question.
And I think in the end, when it came to this kind of decision making, I don't feel like
the miners had much of a say in governance because the majority of miners actually wanted
a block size increase, right?
And the developers, you know, went along and did what they wanted to do anyway.
So I think for me, the miners were too weak.
And you know, they're the one party that has like a proof of positive incentive because
of proof of work.
Like they're the one party that really should be a very strong factor, let's say.
If you say, I wrote something called the theory on governance, the free stage model, where
I argue that there's free primary groups and that is like a checks and balance system.
But I think in the end, what ended up happening is the miners ended up being very weak on
that front.
And I think one of the reasons for that and one of the ways that proof of stake is potentially
different, experiment still needs to play out its course.
But is that I think that miners tend to have a too short term of a incentive.
So for instance, they're going to prioritize short term decision making over long term
decision making because they don't want to rock the boat because they tend to be very
mercenary.
They tend to think about things in terms of three to five year timeframes in terms of
electricity contracts and hardware.
So I feel like as I think if they're preferencing such a short term decision making over long
term decision making, then that to me explains, I think, why they didn't play a stronger
role in this.
And I think that miners ultimately, I think they're because they're so mercenary, they
just follow the market.
They're not really making decisions.
And I think one of the differences in proof of stake and Ethereum doesn't have this
by the way.
But I think something I do advocate for is you have very long lock in periods.
The longer you lock it in for the more the reward and that way you can actually skew
a system more towards long term decision making.
And I think that's something that's possible with proof of stake that's not possible for
proof work.
Okay, so that's the governance angle.
From a consensus algorithm design angle, I see a system that's simply more efficient.
And if you look at how difficult is it to attack a system, I look at something like
what is the cost to attack the system.
For the same amount of money, you have a system that's actually more secure.
And what that means is that you can balance that differently, but you can have more security
or you can actually have a system that's more economically sound because you can be burning
more and you don't need to generate as much inflation for things like maintaining the
security budget.
So there's a bunch of advantages there that I think by civil orders of magnitude, I actually
think proof of stake is actually more secure.
If you think about potential attack scenarios in terms of how much money would an attacker
have to put in to actually attack the system.
And there's a lot of devil in the details here in terms of working out that scenario,
but that's basically what I'm arguing.
So I'm saying, okay, it's more secure, has the potential for more sound economics and
it's a better governance mechanism.
And just to me, it just seems to achieve those purposes better than proof of work does.
That's kind of what I was alluding to before with it being potentially a feature, not a
bug.
And again, go back, think about the constitution.
It could be said that there's competing time horizons within that as well.
You think about Supreme Court's there for life, president's there for four years, senators
there for six years.
The Supreme Court is a perfect example of that, right?
That's where you quote unquote enforce a long lock-in period to ensure long-term decision
making and eliminating external pressures potentially as well.
So Supreme Court's the validators?
Is that what you're saying?
If they lock in their stake for long enough, yeah, that's how.
Hail the new Supreme Court.
But I guess what I was getting to is, is it really a bug to have a branch of government
or whatever you want to call it, that is acting as a competing incentive system, a competing
time horizon, doesn't match up exactly with other participants of the ecosystem?
Or is it better, not thinking, security is almost critical, obviously, but it's a separate
issue from the governance aspect.
And I agree, minors are typically not vocal governance participants.
Exactly.
Which was evidenced with Ethereum's fork, right?
Minors had no power over that fork.
So as much as they might have wanted to.
So they lost their living and they knew they were going to lose it.
They knew they were going to lose all the benefits of being an Ethereum miner.
But most of them probably weren't too vocal about it because they saw other opportunities
to be mercenaries on other chains.
I see where you're heading with this.
And like you're right, it could be a feature if the system was balanced out with another
party that had long-term incentives.
And I don't think that's actually the case.
That's where I see a problem with Bitcoin's design.
So what you're saying is nobody in the Bitcoin ecosystem is thinking long-term?
No, no, of course I'm not saying that.
There's plenty of people that are thinking long-term.
I think you, I'm not sure how much you've talked about the security budget and things
like that, but I know Eric Wall and Paul Stork.
There's a lot of Bitcoiners that I respect that have actually been very vocal about the
shortcomings of it.
No, I think the problem is that the people in charge are not, well, I think there being
people in charge is a problem in of itself.
And then an extension of that is that they're not doing what needs to be done to prevent
potential disaster in Bitcoin's design.
Maybe that's a good segue to talk about long-term security and why I think that more inflation
will be introduced when the security budget runs out in 7 to 11 years from now.
Yes, 7 to 11 years from now.
The security budget runs out in 7 to 11 years?
Five to nine years from now.
Sorry, I'll revise that.
Yeah.
Yeah, because I mean, so originally, right?
You mean it just goes, yeah, go ahead.
So originally, the original design of Bitcoin was you have a very large number of transactions,
each paying a small fee.
This has utility, this has purpose, therefore, this is a sustainable security model.
And it's like sustained fees as well if you have a high underlying usage and a decent
amount of capacity.
That was how Bitcoin was originally designed.
And the inflation in Bitcoin really should be seen as like this bootstrapping mechanism
to fund security until fees can actually take over.
Because the halvening are exponential, right?
So if you think about how exponential functions work, it can't just keep doubling every
four years.
Very quickly, you start running into territory that's just like...
And the reason why I say that is because in order for the security budget to remain the
same, the price has to...
And if there aren't additional fees, then the price has to double in order to maintain
that same security budget, what is being paid out to the miners, right?
So every four years that halves, that means the security budget is halving.
And I don't see a way that Bitcoin is going to be able to have sustainable high fees,
which would be in the tune if you want to just have today's security, which potentially
could be lower than today.
But for today's security needs to be around $60 to $80 per transaction.
And I just don't think that that's really something that's going to happen in a competitive
market, at least not sustained because of the way the fee market works.
You kind of have these fee spikes.
But the way...
I mean, the fee spikes alone are not going to be enough.
So basically, if you pay less to the miners, the security, the cost to attack the system,
as I mentioned before, drops lower and lower until it actually becomes profitable to attack
through things like double spends, through 51% attacks on things like exchanges.
And that's when censorship can also occur, it becomes very vulnerable to censorship.
And this is how it ties back into all these things, right?
And I'm saying if Ethereum's economic model is more secure, it's paying out more for security,
that means it's more censorship resistant, right?
That means it's harder for any single one party to come along and take it over.
If the security budget for Bitcoin is 10 million, right?
A state actor can literally take over the system for like 8 million or something, probably
a bit more like 16 million or something.
But still, that's too low of a number, right?
That's a huge problem.
That's a huge existential threat to Bitcoin's existence.
And I think that for me, the solution was always attract real use cases, utility that
creates fees, then it becomes sustainable, then you can have your supply cap, right?
But I think instead, the core developers were really like, no, we will not increase the
block size limits and they'd rather increase the inflation over that.
And people like Peter Todd have been publicly talking about this, that in order to remain
secure, inflation has to be increased.
And that to me, it just goes against one of the few advantages that I think people cite
for Bitcoin.
And I think that's terrible.
To add inflation would be terrible?
Yeah.
I mean, it might be the best solution, but that's terrible, right?
I mean, if it pivoted now...
It's terrible today, right?
But if it's your only option...
Sure.
But I mean, that's a terrible outcome, in my view, if there were better outcomes.
I mean, if it started attracting usage now, if it pivoted its narrative now, if it increased
the block size now, there's a chance it won't have to do that.
But I don't see that happening.
If I look at who's in charge, who's making the decisions, what kind of resistance would
there be to that sort of change?
And if I try to calculate what is the probability of change before the security budget runs
out, yeah, that's a huge problem.
And that's something that I've been shouting off the rooftops.
One of the things that I just want to call out is you mentioned that you said it's harder
to change Ethereum and make it into add censorship to it because of its proof of state structure.
Well, that's depending on how much is securing the system.
Right, right.
The one caveat I want to add there, just because it is somewhere that I get hung up philosophically,
is what I said before of thinking of the externalities, not just what's happening on chain, but the
externalities and the side effects, the unintended consequences of having a fully aligned ecosystem
that's fully aligned as far as the incentive of driving up the value of the token.
And when you have that kind of...
My view is still a good motivation generally, but there are definitely negative externalities.
I agree.
So continue.
Right.
And one of them is the fact, and I think we're seeing it already, the fact that there's a
high incentive to become and to stay compliant, to not be working...
Well, let me back up.
Specifically for Ethereum, because of what it's building with DeFi, because of what its
aspirations are, which are to be sort of the base layer of programmable money in the future.
So the aspirations of the validators who are heavily backed by VC, who are centralized
entities themselves, right?
They don't want to have this pirate kind of system.
They don't want to be Monero where they're getting banned everywhere.
And miners and developers also backed by VCs.
Yeah.
And so developers are.
Yes, they are.
So like, is that different?
It's different in that they don't...
Are you honestly pointing to Bitcoin as having the same level of alignment philosophically
between those parties?
Because they don't, right?
Alignment.
Oh, that's another question entirely.
I was talking about the...
I mean, they're both backed by VCs.
Ethereum clearly has more VC investment, but I think that's because there's more utility
there.
But I do think it's somewhat of a mischaracterization, even with all of my critique of Ethereum.
I think it's a bit of a mischaracterization to say that they want compliance.
I mean, the narrative is clearly one of decentralization.
I mean, that's what motivates the community.
And I disagree that the incentives necessarily line up to just embrace compliance on like
a native L1 level, which would ruin a blockchain and would make me more concerned for Bitcoin
actually because they have the same fundamental design in terms of its core aspects, right?
That would even be possible.
No, I think that decentralization is actually what makes it valuable.
So it's like once you add compliance and you just ruin it, then you're just back to Web
2 again.
And then like, what's the point?
It's an exercise in futility, just like a bait and switch.
So I think even if that were to happen in Ethereum, which I doubt, but even if I just
entertain that thought, like just for the matter of argument, I think in the long run,
a decentralized blockchain that can offer a lot of utility, I think that will still be
far more competitive in the market and it'll be far more attractive in the long run.
So yeah, that's right.
But we know there's certain things that the government, that US government, that the European
government and other powerful governments won't accept.
And they won't accept a blockchain that has the capability of changing in a way that will
eliminate privacy from the government that'll be able to comply with KYC AML.
The governments...
Go ahead, sorry.
Sorry, just...
Well, if the governments see a way to achieve those end games, which they do with Ethereum
already, because of the alignment of incentives, particularly of validators and the big money
behind it, the external money, if they see a way to get in, they'll get in.
And they may see that with Bitcoin too, but it's a less direct route.
I think with Bitcoin, ultimately the attack will come in the form of a fork and attempt
to hijack the brand.
I think they could easily fork Bitcoin to proof of stake and convince the dummies of
the world that they're in a fork with Bitcoin now.
In about five to nine years from now.
If the security budget runs out, that creates the perfect storm for that sort of thing to
happen.
Right.
Yeah.
So I mean, it's like, at that point, that's what I was saying before.
So much of Bitcoin is psychological and we know it.
The brand is what it is.
Now, the people like us who actually understand the tech, we're a very small percentage of
the world.
We're a single digit percent of the world, tiny percent, but everybody's heard of Bitcoin
by now.
So when the other 98% of the world is told, okay, now this is Bitcoin, and anybody who
tells you differently is a criminal, you don't think that 98% is just going to just go along
with it.
They don't know what proof of stake is or proof of fork is.
You have a point if you think about Bitcoin as like this purely speculative store of value.
If you think that's going to be the most valuable thing on earth, then sure, then you're correct.
But that's not what I believe.
I think that the utility of blockchain is far more valuable.
And part of the utility is the removal of middlemen.
That's what makes it so efficient.
That's how we can actually create better products, better money, because no one is in control.
So I think in the long run, I think that's going to win.
That's why I believe in cryptocurrency.
I think at my heart, I'm still a bit of an optimist.
I mean, sure, there are futures where what you're saying plays out.
Our governments become more totalitarian.
And then I think what you're saying is true for China.
I think authoritarian governments, generally speaking, are just going to be completely
incompatible with the ethos of decentralized blockchains.
It's just not going to work out at all.
So I think places where you still have freedom of speech, or at least a part of it, places
where you still have property rights, I think these places can still be accepting of cryptocurrency.
And I'm maybe not as pessimistic as you are about regulators coming down and banning everything
I suppose I'm a bit more optimistic in terms of that future.
We just need to explain to them that, no, no, you don't apply the same regulations because
there is no intermediary that you need to protect the user from.
I think that's it's fundamentally true.
Well, that's not true, though.
Sorry?
But it's not true as long as we've got DAOs and multisig and chain links.
So hey, if the regulator goes after these things with admin keys, you know what the
regulator is doing?
The regulator is actually supporting decentralization, which I find wonderfully ironic.
So those things, the things with admin keys, sure.
Actually, I'm conflicted because the libertarian in me doesn't want more government interference.
But on the other hand, I'm like, if they do that, then they are technically protecting
people and they're supporting the cause of decentralization.
So I think I'm allowed to be conflicted about this particular case.
But you know, they won't be able to go after is the truly decentralized projects.
And they do still exist.
And then people do still have the option.
But that's not how it's playing out.
Here's how it's playing out.
No, but it is though.
Because you do still, I know most people are going to use the wrong thing, right?
Especially in the early days.
So I'm with you on that.
But those options still exist.
I can purchase cryptocurrency anonymously and obscure my IP and I can run it through
a little cash if you want to violate sanctions.
Yeah, I mean, but I won't be able to send that money back to my bank account, right?
Without identifying the source, I'll be able to do a lot of things with it.
But I can.
But here's what's actually happening.
What's actually happening is that the polygons of the world and the layer twos of the world
and the DeFi apps that have multi SIGs of the world, they are they're not just going
to get shut down by the government.
They're keeping access to be able to change stuff so that they can comply.
And there's negotiations going on.
They're negotiating with the government on what these laws and regulations are going
to look like.
And the government is not, you know, SEC is a different story, but there's other regulators
that and Congress people, you know, if you look at these hearings that are going on,
that are being lobbied to change laws, you know, and so the compliance is going to happen,
but it's going to be with a new set of laws.
And it's going to be a trade off between what the government wants and what they can get
out of these protocols.
So we're not talking about just shut down, right?
We're talking about the worst case scenario, I think, which is these mutated forms of it's
more decentralized than what we have now, but it's still giving up so much of what we
thought we were going to get out of crypto.
You know, and so that's really the worst case to me.
And that's why I think Ethereum is heading down that path.
Yeah.
I mean, I mean, and this is why also I've become such a critic of the layer two.
Because it worsens the user experience, it actually increases the need for custodians
actually pushing people into the centralized service and custodians.
But what I don't under entirely where I've maybe we we differ a bit is that I mean, they
go after these protocols of admin keys.
And so so what?
You know, we still have our decentralized options.
And sure, we're going to be out there promoting that everyone should use them.
What decentralized options?
What are you talking about on Ethereum?
Yeah.
No, for instance, you're talking about Uniswap.
Okay, say I anonymize my coins through Railgun, which is an anonymity protocol.
Right.
And I run that through Uniswap to swap my coins.
Right.
Then I run it.
And then I run it into Aave.
Right.
For all.
And if I.
Well, you'll be banned from Uniswap because Uniswap's now got hooks, which allows everybody
to create these.
But I'll use Uniswap version free.
Right.
That doesn't have the hooks.
Well, there's not going to be any liquidity there.
You're not going to be easy to target.
Okay.
Well, then I'm going to get good rates.
But then I'll use a different.
You know, it's like.
No, no.
Sure.
I'll be hampered.
You're going to be a pirate.
Sure.
You'll be a pirate.
I get it.
You know, because that's that's the world we live in.
Right.
And I and I and I agree with you.
And I agree with you.
We should have more freedom.
Right.
I actually agree with you.
And I want that.
Right.
But let's not throw out the baby with the bathwater here.
Right.
If someone really needs this, if some revolutionary somewhere really needs this, it's still there.
And I think that's that's technically correct, even though it's not as good as the mainstream
thing.
It's there.
But the the problem is that the admin key driven projects, the VCs that are behind them are
actively trying to make the stuff that you like illegal.
They're actively trying to say like like if someone is they're out there paying to pay
enough Congress people.
But how do you stop someone from for like an anon from someone that has proper upset?
How do you stop them from like interacting with these smart contracts, the ones that
don't have admin keys, right?
The ones that don't have these things?
How do you stop you can't stop exactly.
But it's not about some some pirate anon.
That's exactly my point.
You can't stop loving guy.
Right.
That's my point.
Right.
You can't you can stop them from effectively using it if there's no equity.
That's that's that's a good thing.
Right.
That someone can just have the freedom to do that and nobody can stop them.
You have to agree.
That's a good thing.
It's a good thing until it's illegal.
And if they catch you doing it, it's still a good thing.
Even if it's illegal, they're making it illegal is what's bad about that scenario.
Right.
Yeah.
But that's what DeFi is doing.
That's what the that's my point.
What's the regulator reason that they're doing this illegal not DeFi itself?
No, no.
See, that's where there's confusion.
And it's the hardest thing to communicate about this space is that there are huge organizations,
huge VCs, you know, even DeFi developers themselves are out there lobbying for laws, regulations
that would hamper competition that would keep them in their prime spots, that would make
competition that doesn't comply with the rules that they're agreeing to be beholden to.
I have to point out Bitcoiners are guilty of this too, right.
In regards to some Bitcoiners at least calling for regulations to their competitors.
Right.
Yeah.
I mean, sure, there's organizations behind Bitcoin industry organizations too.
But specifically with regard to Ethereum, we're talking about banking.
You know, we're talking about stuff that's going to affect how CBDCs are rolled out.
We're talking about a whole different level of possible damage, you know, and we're talking
about a whole different level of damage to privacy, I think, you know, with regard to
especially with what's on Ethereum, but beyond that.
Because it sounds like we're disagreeing, right, but we're not actually disagreeing
with each other.
I would like like, what are we actually disagreeing on here?
Like it sounds like we are, but I think we're in agreement.
I'm just more optimistic.
I think that you where I think the point of disagreement is, is on the approach to an
optimism around DeFi on Ethereum.
I don't see a path forward for DeFi on Ethereum that doesn't involve compliance and compliance
that ultimately creates precedents that hurts the rest of the crypto industry with regard
to promises of freedom and privacy.
Would it be any different if the DeFi was over Bitcoin?
Like if we just had that functionality, wouldn't things just play out exactly the same?
It's a good question.
I think it depends how it was built, what kind of layer it was built on.
You know, I think with like we have RSK, which has smart contract functionality.
That's a perfect example of things.
I mean, that's a federated system, right, RSK.
I think I think all the pretty much almost all of the L2 solutions and or DeFi Bitcoin
are L2 solutions.
But like hypothetically, if it had native DeFi, like programmability built in, just
pure hypothetical, like I think it would play out the same.
Well, this is my concern with BIP 300.
You know, is that could we end up seeing the and I haven't been able to I want to do a
whole separate podcast about this, you know, because part of my concern goes beyond anything
technical and beyond anything that that is written in a white paper or anything like
that.
It's about longer term.
How is this going to bring in big money that's going to try to corrupt the integrity of the
base layer?
Yeah, and I, I get that.
Basically the way that it works is it doesn't change the base layer, right?
It just everything can work as it always has.
It just adds new functionality.
Miners won't know any difference.
It just gonna look like regular.
I believe it's merged mind.
So miners do need to watch the the drive chain.
But but yes, it is.
It is a layer two.
So layer one continues as is.
Sorry, continue.
Right.
And there could be hundreds of these drive chains, you know, and all doing different
things.
What I don't fully understand yet is what kind of unintended consequences could that
have politically, you know, with this amorphous governance system that you nicely described,
you know, like like what, you know, corruption with developers, like all that other stuff.
Like I haven't heard that fully vetted out, you know, and that's the part that I get concerned
about.
So I don't know the answer.
Yeah, no, I don't know the answer to that either.
But I think we have to give it our best shot.
You know, like I tend to be optimistic, but it doesn't necessarily change my course of
action because I'm still going to advocate for decentralization.
I'm still going to call out centralization where I see it.
Right.
It's it's still.
Yeah, that's that's where I think, you know, that's what really matters.
Right.
And, you know, the world can go either way.
Right.
Like this, this factors outside of our control that could sway the world one way or another.
You know, I think as long as I'm doing my best.
In terms of pushing things in a better direction, I think that's that's what matters.
And I mean, I mean, ultimately, I'm curious.
It just it comes across.
Almost pessimistic.
You still think we're going to win, right?
At the end of this long road.
Well, I was just thinking that when you were saying what you were just saying, I think
that is our biggest difference in approach is that you come at it from an optimistic
point of view.
And I come at it from the point of view that that I believe people, humans are inherently
greedy and inherently fallible.
And that money in our in our today's mutated, we don't live in a capitalist society.
We live in like this mutated form of capitalism that's, you know, crossed over with socialism
and all this other stuff, you know, crony capitalism.
I think that in this mutated economic world we live in, there's there's dangers everywhere.
And it makes it very, very unlikely that we're going to be able to achieve what we want to
achieve.
And I think that the only way we can do it is by coming at it from a completely adversarial
approach and assume that every human involved is going to mess up at some point.
You know, and I think that the only hope that we have is to assume the worst in people and
to try to use technology to avert it, to avert those those, you know, bad intentions that
people just have it in their in their core.
Yes.
I think that's the difference in how we approach.
Yeah, no, I think I think I think you're right about that.
It's but I'm sorry.
I've corrupted you.
No, yeah.
I think I think on another hand, I think it's it's we have to we have to do the best we
can, you know, and and I think ultimately, ultimately, I do think cryptocurrency will
succeed.
And and I think also I think one thing that that differentiates our our different viewpoints
here is that it's about how we're prioritizing threats.
It seems to me like for you, some of the biggest threats to cryptocurrency are external.
And actually, in my view, and this is related to a lot of the work I've done around governance.
In my view, I think the biggest threat to cryptocurrency is actually internal.
I think we're like our own worst enemy in so many ways.
Like it's it's like it's it's the corruption that happens from within or the susceptibility,
I think, you know, for corruption, I think is is one of is like the biggest threat to
me.
Like, actually, I'm fairly optimistic, you know, when it comes to the regulatory side
of things.
I mean, there's going to be ups and downs and tug of war is going to go back and forth
and the pendulum is going to swing.
But I think I'm more optimistic on that front than you are.
But I'm I'm far more concerned about being our own worst enemy in that and that it's
it's it's it's our own internal systems of governments that are actually the biggest
threat.
And we'll I think, in my view, continue to delay mass adoption, unfortunately, because
of just wrong choices being made.
It's a consequence.
Yeah, I agree with you.
I agree on a lot of that.
I think actually the biggest threats come probably right at the edge, the edge between
internal and external.
You know, and it's when the external forces find their way through weak defenses.
You know, that's where it starts to get.
That's where the two viewpoints combined.
I've seen a lot of that already.
Yeah, exactly.
But well, listen, man, this has been a great chat.
We've gone way over time.
I enjoyed this.
This was and we're probably pushing the limits of anybody who's still listening.
So we'll but we should do it again sometime.
I think it's great.
I love chatting.
We only got through half of my list.
I want to talk to you about privacy.
I want to talk to you about a bunch of privacy.
We barely let me just shove that.
But yeah, yeah, we'll definitely we'll definitely do it again.
But thanks for spending all this time.
It was a pleasure.
And yeah.
And again, I really admire the work you've been doing as well.
So just just keep up and we're going to keep crusading for decentralization and freedom.
And you know, that's that's what matters.
Thank you so much for it.
It sure does.