Proof of Keys, and Bitcoin’s Battle on Two Fronts

Hi, you're listening to the Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today, Trace Mayer rejoins me on the show to talk about proof of keys and Bitcoin's battle on two fronts. But first, some shoutouts for the sponsors of the show. So firstly, Kraken, a seriously impressive exchange, they're renowned for their focus on security with Kraken Security Labs. They are one of the Longest standing Bitcoin exchanges in the space, they have a high quality platform, they offer twenty four seven support, they've got best in class accounting, reconciliation and reporting, they also offer an OTC desk, they offer margin up to five times long and short and futures up to fifty times leverage and recently Kraken Pro mobile app. Kraken Pro delivers all the security and features you love about the Kraken exchange in a beautiful mobile first design for advanced Bitcoin trading on the go. Don't forget Kraken also have CryptoWatch. Where you can track your portfolio, analyze price charts, and place trades with the tool every trader knows. So go and check out Kraken dot com. Next up, you have to look into Unchained Capital. I really like the way these guys think. I just recently had Parker on from the team, and Unchained Capital are doing Bitcoin financial services, but they do it under a foundation of multisig, and so this approach gives the user collaborative custody, so you can have control over your private keys, as well as having a financial product partner in financial services. So Unchained have two or three vaults, these are a great option if you need to secure your Bitcoin, and then if you need to access liquidity without selling, that's where Unchained collateralized loans give you a unique option. All Bitcoin is stored on chain, dedicated multisig addresses, it's never rehypothecated, and you can share in the security of your Bitcoin by holding one of three keys. I'm really impressed with Unchained, they offer excellent services, valuable content, open source tools, you must check them out, go to unchained

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Keys and also Bitcoin's battle on two fronts, scarcity and privacy, and then we also discuss about Meese's book, Bureaucracy. Here's the interview. Trace, welcome back to the show! thanks for having me.

Glad to be here.

So Trace, I know we, we've got Proof of Keys, our annual community run bank run event coming up, and I thought it'd be great to get you on and talk about that and also a couple other things. So, look, let's just start with a little bit about Proof of Keys. Can you just, for my listeners who aren't aware, can you just tell them a little bit about what that is?

Yeah, so Proof of Keys, you can go to the website proofofkeys dot com. It's

Celebrate our monetary sovereignty, with the tool that Satoshi provided to us with Bitcoin on January 3rd, and we do that by withdrawing all of our bitcoins from any third party. and we, and we have a full node that we run, and we hold our own private keys. So we do our own network consensus, and we hold our own private keys, those two prongs of it. And that's how we flex our monetary sovereignty muscles. That's how, that's how we, we claim the crown as, kings and queens of, monetary sovereignty, instead of being little slaves, where someone else is telling us what a Bitcoin is, and, and deciding whether or not to send the Bitcoin to us. Us that we ask for. so

yeah, that's pretty simple. And I think the question that may come to mind is, how bad is the problem today in terms of how much of Bitcoin supply is currently held by some sort of third party or held by exchanges?

Well, we don't know. And when you, when you really dig into this, like, none of the players are, issuing audited financial statements. None of them are doing proof of reserves. showing us how many bitcoins they actually have control of, and this is a way that we can just prove it, you know? Send the bitcoins to, to me, right here, right now. and, you know, it comes out of an idea from Murray Rothbard. he wanted to, he thought it would be a good, a good idea to have an anti-banking league, where everybody, did a, a withdrawal of all of their money from the banks all on the, all on, the same time. So, you know, this kinda comes out of Rothbard's, Rothbard's idea, and because it's, it's so easy and so cheap to do it with Bitcoin, it only costs a couple cents for the transaction fee, like, why not do it? And it helps, give some real life stress testing to the policies and procedures and withdrawal processes that a lot of these third parties have. So it's really a win-win all the way around, whether we see more failures like Quadriga CX and, Cryptopia last year Here or whether it kind of passes as a non-event, you know, which hopefully that's the case, you know, hopefully we can have a massive amount of, transactions done on proof of keys and not have any failures, you know, having weeded out the bad actors. but, you know, it's really much more about helping the individual get the education, get the, practical experience, especially new people coming into the space a-and, and understand why they should be- Flexing their monetary sovereignty muscles, why that's an important thing to do. So it's just very multifaceted in a lot of different ways, and, I think the focus is much better to be on, on what you're able to do individually instead of, you know, the external factors of third parties and this and that and the other, you know, focus on what's best for you, and a lot, in a lot of cases, that's developing the human capital to be able to exercise your monetary sovereignty when you wanna do it. and- And, you know, and this is a time when you're able to ask questions and learn best practices from everybody and stuff like that.

That's excellent, and I love that you were touching on the Rothbard argument there, Zola, Rothbard, idea that he was proposing. And, to me, it reminds me of some of the debates that we see a-amongst even, the Austrian school of this idea of full reserve versus fractional reserve, and so some of the ideas there were around, and part of the debate for those of us who are more on the full reserve, hundred percent reserve banking side, is that historically there were times where there was what was known as suspension of in specie redemption, meaning you wouldn't be able to take your gold out of the bank. And so there's definitely some parallels there. W- how do you see that then in terms of, suspension of in specie redemption and the parallels to today with Bitcoin?

Well, hasn't that always been the big question when it comes to mon- Military sovereignty, over the ages, whether it's, John Law getting France to make it illegal to use gold and silver under penalty of death, whether it's the Bank of England collapsing, because of their, their Ponzi scam and then having to put Isaac Newton in as master of the mint, or whether it's the banking crisis in the 1840s in the United States, where there's a whole bunch of paper out there, or how about Executive Order 6-1-0-2? Where Franklin Roosevelt makes it illegal to hold gold, and, you know, when, and directly, you know, in, in harmony with what you were talking about, he actually stationed IRS agents at all the banks, and you had to, if you got your gold out of the safety deposit box, then you had to leave it with the IRS agent, and they would give you a bunch of, little paper coupons. So, you know, isn't that interesting? Like, when, when you have this really Hard money, i-in terms of a very high stock-to-flow ratio. isn't it interesting that everybody wants their grubby little fingers on it, and they don't wanna give it to you, they wanna give you some, some paper cartoon currency, instead? And, you know, like that's where you just have to flex your monetary sovereignty muscles. You know, you gotta do your own full node consensus, and enforce that twenty-one million limit and And you have to hold your own private keys, and there's really no substitute for it, you know, and, and you learn a lot when you demand delivery of those bitcoins 'cause they either give 'em to ya or they don't, and it's very binary.

So Bitcoin is an entirely different beast, and part of what protects the system then is people actually, as you say, taking their own financial sovereignty into their own hands, and part of the risk then potentially would be that if there were different exchanges- changes, let's, you know, without naming names, let's just say exchange A and exchange B, and the risk then would be to the system would be if people treated, what is actually more like an IOU with exchange A as the same as an IOU claim at exchange B, and then they started trading those tickets around, you know, outside saying, "Oh, I've got, I've got an IOU with exchange A, it's all good." What, what's your view there on, Bitcoin, you know, at a macro level as an ecosystem, in some sense, the individuals are defending against that, right?

Well, yeah, we're-- Well, first, like gold and silver, and I would add Bitcoin, as sound money, they protect us against these despotic inroads on the part of governments, and then only to the extent that they're actually circulating in daily commerce. And one of the problems with gold is the cost to run a gold- Full node. It's very expensive to validate and move gold, for that matter, compared to Bitcoin. Like Poland wanted, they moved a hundred tons of physical gold from London back to Poland, and I was reading the article, they have G4S, and they have police, and they have this, and they have airplanes, and like all this stuff to move some gold, and they didn't even verify the gold, whether it was actually, gold or not. They didn't melt it down and, and assay it a hundred percent. Think about it, with a Bitcoin transaction, you get to transport it anywhere in the world and verify it a hundred percent with your full node for like a couple cents in transaction fee. The cost to run a full Bitcoin node versus running a full gold node, and the cost of, of transporting value, over distance or, or location, is just so much cheaper with Bitcoin than it is with gold. And as a result, it's, you know, we can flex our- Monetary muscles so much more easily. so I think that's a very important thing to keep in mind, because gold, because you don't have these characteristics like you do with Bitcoin, it makes it very prone to censorship. Now, don't get me wrong, it has the highest stock to flow ratio, but Bitcoin will be higher, it's just a matter of time with the difficulty adjustment algorithm. but, and gold was very censorship resistant in its time, and- An age, you know, but it still had to exist in a particular place and point in time because it was physical or corporeal. Bitcoin, not so much, 'cause it's math. And you've got things like Shamir secret sharing and multi-signature, and, you got a protocol, and you've got all this infrastructure to transfer it with, with the internet and satellites and everything. And so Because gold was prone to this censorship-resistant, weakness, they were able to do the gold price suppression scheme. And what they do with that? Well, Alan Greenspan told us, he testified twice before Congress that central banks, plural, stand ready to lease gold in increasing quantities should the price rise. You know, and this was very unusual behavior. You had, you had a price being suppressed, not supported, and not by users, but by owners, and not for the obvious reasons. and the, the reason is, is really twofold. One is the suppression, suppression of evidence, because just like a rising temperature shows that the body is unhealthy, if you just destroy the thermometer, now you, you can't tell whether, whether you've got a fever or not, right? And the other is to throttle monetary innovation and evolution. Why? Because their power to issue these little comic, cartoon currencies and pieces of paper is infinitely more valuable than the price of a portfolio asset. And so that's what they would do, in order to enforce the gold price suppression scheme and economically censor the price and the interest rates, they would have paper gold and real physical gold. And because there was a very high cost to run a gold full node, they didn't have to, deliver on physical gold all that often. It was, it was difficult for people and institutions and organizations and governments to flex their monetary muscles. And we saw some of them do that, you know, like Poland recently, Germany saying, "Hey, give me eight hundred and fifty tons of gold from the New York Fed," Charles de Gaulle saying, "Hey, give me a bunch of gold, from the US," and Nixon saying, "You know what? We're not gonna give you physical gold anymore. We're gonna give you little paper tokens that represent IOUs for gold." And so if the same thing starts to happen in the Bitcoin industry and exchanges are issuing little paper tokens or IOUs for Bitcoin instead of actual Bitcoin, then now you've got an increased supply of, of what people think is Bitcoin That depresses the price and, and, and suppresses the price. And so, think about it, if you can buy a real Bitcoin and a paper Bitcoin for the same price And you can take possession of the physical, of the real Bitcoin and leave someone else with the paper IOU that doesn't really have the value with it, because eventually there's gonna be a failure. Why not do that? You know, if, if people get stuck with Quadriga CX bitcoins or Cryptopia bitcoins or Mt. Gox bitcoins, and they, and they get stuck with them because they're too ignorant or they're too lazy to prove the keys that they actually have those bitcoins? So be it. You know, that's just the way it's gonna shake out. And so as people flex their monetary muscles and they're, and, and declare and claim their monetary sovereignty, it helps weed out the bad actors that are issuing paper bitcoins in the space. And in the meantime, the people who actually flex those muscles, they're able to acquire the real bitcoins at a lower cost, at a lower price. so it's, you know, really win-win all the way around. It's like Like, oh, somebody wants to try to suppress the price of Bitcoin by, by issuing a bunch of paper IOUs for bitcoins? That's great. Do that all day long and let me buy the real bitcoins at the suppressed price and give me possession of 'em, by the way.

Fantastic. And then once people have taken possession with those real bitcoins, as you say, then they are now free to transact within the Bitcoin economy and world, free of that kind of, fear hanging over the top of their head that there aren't- Actually trading with IAU's. now one thing with proof of keys and just in general is that there are a lot of people who are unaware. So because Bitcoin is a new thing, it's an entirely different beast, they typically-- and this is again for the more beginner level people who are getting into Bitcoin, they don't understand that this is a new thing and that they can take it out. And so then potentially there'll be a lot of people who don't understand that this campaign is going on, and obviously we're here to bang, we're banging the drum about it, but there is There, there will be a significant population of Bitcoin holders who may not be aware of the campaign.

Yeah. and, and I think you should make the distinction, they're not Bitcoin holders, they're holders of Bitcoin IOUs. Haha.

True.

And those are different, right? Like if-- and they might find out one day that those IOUs aren't worth anything. Mount Gox, Cryptopia, QuadrigaCX, et cetera, et cetera. And so, you know, this is one of the reasons that I started Proof of Keys as an annual celebration is as we decentralize and have more people performing economically substantive transactions, where those individuals are running their own full nodes and holding their own private keys, that helps strengthen the Bitcoin network. It helps entrench the, the ethos to not- Trust, verify, right? And so all of this is, very helpful, and there are a lot of subtle financial interests that are pitted against people claiming their monetary sovereignty. In fact, a lot of these third parties in the Bitcoin ecosystem don't want you to, to move out your, your bitcoins. You know, they'll probably just remain silent, you know, but they, they don't want you to do it. You know, let, let's see how many articles and- Tweets come out from CEOs and from the official Twitter accounts of a lot of these exchanges. Let's see if they send emails out to all their customer base, saying that they, promote proof of keys, that they wanna help strengthen the Bitcoin network, by promoting it, and that their systems are ready and able to serve their customers, who make the withdrawal requests. You know, I don't, I don't know that we're gonna see much of that. And yet, it, it's a very helpful opportunity for them to be able to stress test their own policies and procedures around their withdrawals and, and their withdrawal processes, and test their cold storages and, and all of these types of things, and their AML/KYC procedures and their withdrawal limits and, and all of this stuff. So You know, because hey, you might not be able to withdraw all your Bitcoin because there might be an AML limit that's been imposed. You know, because you're, you, you don't have your account verified to a high enough level or whatever it is, whatever excuse it is that they're not gonna send you your Bitcoin. 'cause, 'cause that's really what we're talking about, right? Like, if you're monetarily sovereign, then you get to make the decision on whether Bitcoins get sent or not, because you hold the private keys. But if you're in the slave If you have a relationship, then you're relying on someone else's full node and someone else's exercise of the private keys to determine whether or not to send the bitcoins that you think you may or may not own. And so it's very important for, for individuals to understand what the relationship and what the power structure really looks like. And the private keys, that's where the, that's where the rubber meets the road. you either, you're either in possession of the keys or someone else is. And if you're in possession of the keys, then you're the king or the queen, and if someone else is, then you're the slave asking for permission to get your bitcoins.

Yeah, that's certainly not What position, we want to be in, and we want to obviously be in the position where we hold the keys. Now, in terms of recommended tools and best practices, are there any suggestions you have for the listeners, Trace?

Yeah, so on proofofkeys dot com, we, we have some guides to help people learn how to do all of this, 'cause, yeah, I, I understand there's some education that people need to do. They need to develop the human capital, you know, and this is great, let's do it when it's- It's not an emergency. Let's do the fire drill. Let, you know, let's, let's learn where the escape route is and go through the process when there's not a fire. because then, you know, if there is a fire, we're that much more competent and we know what we need to do and we can do it quickly 'cause we've practiced it and done it before. So at Proof of Keys, I have, you know, there's Bitcoin Core to run your full node, there's Armory for private keys, there's Glacier Steady, written by Christopher Allen, where we talk about, you know, different best practices on how to secure those keys and everything. Purism laptop, I like that. And then we have links to different people that support proof of keys and different articles of failures, 'cause remember last year I announced proof of keys and within a couple months, QuadrigaCX and Cryptopia both failed. I mean, they got decapitated by proof of keys, so, and people lost hundreds of millions of dollars. Being at the end of the line, you know, they should have flexed their, their monetary muscles a little earlier, and they wouldn't have had those losses. leave those, le-le-leave those paper quadriga CX bitcoins with someone else. You get the real bitcoins, you know? And, and that's the thing, if you want it, come and claim it. This is completely voluntary. Just like Bitcoin, so people get to choose the degree of sovereignty that they want. Do they want none, as a slave? Do they want full sovereignty by running a full node and holding the private keys, and then everything in between, because there are lots of different ways that you can hold those private keys. I mean, you could go full bore, have a computer that never touches the internet, you're running a satellite, your ISP doesn't even know that you're, you're, you're running Bitcoin, you know, or you could be, you know, using- A ledger or a trezor where you're broadcasting your address list all over everywhere, letting people know that you got bitcoins. And so there's lots of different ways, lots of different privacy implications, all different types of stuff like that. It's just, now's the time where we can have that discussion as an industry, and those of us with experience can help the new people that are coming in, because it's very daunting. And, and that's another reason I, I started this, is so that we can stir up the discussion and help those new people, and that way we can, we can all as an industry get that monetary sovereignty benefit and strengthen the Bitcoin network as a whole.

Excellent. And do you think- That there'll be some people who go early because they're worried that, something might go wrong and I wanna get my keys out, I wanna get my coins out early. I

suppose, that'll happen in some cases. I mean, really, you know, this is a, a best practice to be doing on a regular basis, you know, not holding, not, not letting other people hold your private keys unless there's a particularly compelling reason for that. so, not your keys, not your coins. The January Third, just happens to be a date that we can all rally around and have the discussion and have some fun with. but if you're particularly worried about your exchange or your third party that's holding 'em, yeah, do it early. You know, I, I definitely recommend like being extremely cautious and skeptical of any third parties that, that you wanna entrust with holding keys. It should be a great privilege for, for them to- To be entrusted with your Bitcoin, you shouldn't just bestow that on any institution or organization for just willy-nilly for any reason, 'cause a lot of 'em just have really grubby fingers and they think that they matter because they get to hold private keys. No, like the valet driver, it's a privilege to get to go park the Ferrari, you know? And that's what you pay 'em for, you know, to take very good care of your car, you know, but at the end of the day, he drives home in his Honda. Specific, right?

Well, yeah, they are, they are a service provider and, it's up to Bitcoin, holders to make sure they are Bitcoin holders, as you say. I'm also interested now to discuss around privacy. So there's been some discussion around Bitcoin privacy and some different implications of this. potentially we could start with talking a little bit about on-chain privacy. Now, part of that involves the use of techniques such as coin- Coinjoin, and, there are analysis and surveillance companies performing analysis on the blockchain to try and understand the origin of certain bitcoins where, where possible. Obviously, it's not always possible. What's your view on whether people should be doing coinjoins and using those sorts of techniques or whether they should be looking to other coming technologies for that sort of privacy?

Well, my, my short answer is Like, I don't necessarily think it's a very good idea to be doing coin joints and stuff. you know, you don't necessarily know who you're coin joining with. What if they're like a North Korean or a, or a terrorist, right? And now you've mixed your UTXOs with them, then you try to deposit your UTXOs in the exchange, and now you're a person of interest, like under investigation. Like, that wasn't a very good idea. So, you know, coin joining, I, I don't know that that's the best idea. but, but this raises a much larger, question and much larger debate, which is the privacy, anonymity, fungibility debate. And the way I look at it is When claiming our monetary sovereignty, we have two massive theaters of war, like Europe and the Pacific. Europe, that's scarcity, that's having the hardest money ever. And Bitcoin, you know, we're winning that battle. You know, we're, we're, we're, we're winning that war, that, that particular theater. The privacy, anonymity, fungibility, that has to take place, over in the Pacific. You know, it's a different, it's a different battle And there are going to be different tools and stuff that people are gonna, gonna have to use when fighting that battle. And even Satoshi himself, in the, in the white paper, acknowledged that Bitcoin had a very, problematic- technological hampering when it came to privacy. reading from section ten, he said, "Quote, the necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place, by keeping public keys anonymous." End of quote. Like that isn't a potential solution at all. The whole point of the public key is to be able to make it public, right? And if, and if making the public key spoils your privacy and your-- and the only way that you have to be able to get privacy or anonymity or fungibility is by disc-- is by keeping the public key private. Well, that's just not gonna work. And we're seeing, we're seeing that getting massively attacked with AMLKYC, with the Financial Action Task Force and their rules for VASPs, virtual asset service providers, the travel rule under the Bank Secrecy Act, all of this And at a technological level, if you have to trade between scarcity, and privacy, well, you, you need to go with scarcity. That's more important. And, and that's what, that's the trade-off that's been made with Bitcoin. And so the privacy, like on-chain, it's just gonna be very, very, very difficult to get True privacy and anonymity and fungibility, especially in size and scale on chain, with Bitcoin. And, and even then, I wouldn't recommend doing it for the reasons I mentioned about coinjoin. You, you don't know who you're coinjoining with. That's a bad idea. and so then it leaves, okay, well now we got layer two solutions, you know, not to jump too far ahead, but, you know, we got layer two with Lightning Network or sidechains, we've got onion routing in there. Okay, so we, we're getting more privacy and fungibility opportunities there, but not necessarily in size, because, you know, Lightning Network has a limit and, and there's still a bunch of chain analysis that's gonna be done. well, what about other coins? You know, well, other coins can definitely focus on serving this particular niche, and in some cases, they might be able to do it in a superior way to what Bitcoin does. We've got Monero with ring signatures, we've got, Charlie Lee talking about implementing MimbleWimble via an extension block into Litecoin. Monero wants to do MimbleWimble, as a side chain. We've got Z- Decash that, you know, is trying to use homomorphic encryption with zk-Snarks, but that's problematic because what about hidden inflation and not to mention all the problems with trusted setup. then we've got MimbleWimble, you know, that paper came out in twenty sixteen, we're able to have provably, scarce, limited in amountness, but at the same time we're able to remove all of the data in, in the blockchain, you know? You know, in terms of addresses and amounts. so MimbleWimble could be a solution, but not in Bitcoin, because I just don't see it being feasible to have MimbleWimble in the base layer of Bitcoin. And even if we did, we would be starting, you know, eleven years after the fact if we started now, and it's not gonna happen for a decade, it'll-- minimum, right? If ever, it'll probably never happen. But Another coin that has MimbleWimble in the base layer, like now you've got a bunch of, privacy and fungibility enhancements that you could potentially do there, even though there are potential attacks, on, on the privacy, if people have enough nodes, you could still be broadcasting a bunch of transactions to other trusted nodes, that, that you verified, like say you ran a node and, and other people I trusted ran a node and I broadcasted through Dandelion lie in that way, and we were doing value shuffle and coin shuffle and all of this process and, and stuff like, you know, and that happens all out, out of band before it gets into the mempool. And, you know, so, so Mimblewimble at the base layer could be a very helpful feature set for the privacy, and anonymity fungibility, service But, you know, what do we have there? We've got Grin and Beam, and, and now there's a MimbleWimble coin that just got launched. so, you know, people are working on this problem. They're working on, on trying to solve this particular threat to our monetary sovereignty, because, you know, look at, they, they, they've already wielded the financial system to, to attack political speech with the blanking block-blockade on WikiLeaks. And so the, you know, the regulator- And other people, they'll wanna do it if they can, and so we need to be proactive and be building the solutions that we want. And so I see that debate being an entirely new front, where the war is gonna get opened up, and we're gonna have a lot of stuff happening over there that isn't going to be happening on the scarcity front with Bitcoin. so, you know, Bitcoin maximalists, good luck, you know, because you're gonna need to be open-minded. Your parachute's gonna have to- be open to work, your mind's gonna have to be open to work, and you're gonna have to be able to look at the different, things that are coming out of that, and the, in my opinion, the more options we have, the better off we'll be. You know, what, the more, the more privacy, anonymity, fungibility options we have, the better. you know, doing Monero sidechains with MimbleWimble, being able to atomic swap into one of these MimbleWimble In the base layer coins and also be doing atomic swaps back and forth into Bitcoin, you know, and then you don't have to rely on, third party exchanges, to be swapping for all these bitcoins. Yeah, I mean, I think a lot of this could be, be very helpful for just making, raising the cost, on breaching privacy. And look, Chainalysis just laid off like thirty nine people. that's great, you know, let's make it more difficult on them, raise the cost to breach the priva- privacy. And remember, it's a pure cost center. The governments aren't paying, they aren't paying the, the exchanges and all the actors to be doing this compliance work. They're just threatening them with fines. And so, you know, we, we can, we can just raise the costs in order to do that type of work, and that's another way we can fight in this monetary sovereignty war in the privacy front.

Understood. So on the privacy front, then, Trace, you mentioned earlier that you didn't believe I don't believe CoinJoin is a good idea because that might mean you're mixing your UTXOs with some kind of nefarious party, but by the same token, wouldn't that also similarly be true for swapping into and out of other coins? Is there a reason you distinguish between CoinJoining Bitcoin and atomically swapping to other coins?

Well, with Bitcoin, you've got, you've got the, the blockchain record, right? So all those, all those transactions and amounts are in a public immutable blockchain record. When you're doing atomic swaps, well, you don't, you, you don't have as much data or, or record that you're leaving behind, especially if you're going, in and out of MimbleWimble coins in the base layer, you know, because everything in a, in a MimbleWimble, that's all coin joined, and then there are cut-throughs, and the only thing that remains is an excess value that's kind of like a hash and is unintelligible, looking in at it. and, and then there's only one transaction in the block, so there's just way less data, that's there, especially after the fact, you know, a few years after the transaction happens. Like if you weren't there, like monitoring all the transactions in the mempool, and even then, you, you know, I, I talked about doing stuff out of band, and, and, you know, and it, with Dandelion and, and other ways that you can broadcast the transactions and be doing cut-throughs and va-value coin, value shuffle and coin shuffle and stuff like that. I mean, we could just make it very, very difficult for there to be any records, of the footprints, you know, like in- But Bitcoin, man, the, that blockchain's immutable. There's no rolling that back, and it's public and available to everybody. So that can leave a lot of threads that investigators can pull on, especially in the future, because we don't know exactly how much data or information, they've got or will have. So it's better to just not even leave any of that data or information at all if we can, in my opinion.

Right. But I suppose then for Bitcoin Users who wish to transact without necessarily help-- like letting the other party or an outside observer cluster their balances if they don't use some of those privacy techniques, and that leaves them a little bit more vulnerable to an outsider knowing what their wallet cluster is and potentially knowing what their balance is. For example, if I send you a transaction and then you could then, you know, try, try to trace that back on the chain and try and figure out what my balance is without the use of CoinJoin techniques That becomes a little bit more easily possible for you or an outside observer. What's your view on that? Look,

Satoshi put it in section ten of the white paper. Bitcoin isn't very good on the privacy side of stuff. It's got seven network effects, it's the scarsest money, like it's winning in that particular front of monetary sovereignty. Sometimes you want a fork, sometimes you want a knife, and sometimes you want both in order to accomplish something. And trying to, trying to use a fork to accomplish, something where a knife is a better designed tool to accomplish what you're trying to get done, why are you using a fork? Like, are you just being dogmatic? Are you not being open-minded? discounting that forks even exist or that forks could, or knives even exist? Or that knives could even be useful. you know, we, we need to, we need to be, in my opinion, we need to be flexible and open and use whatever the best tool is for the job. I gave a presentation a few years ago, "Why Hire Bitcoin?" it was based off of Clayton Christensen's "Why Hire a Milkshake?" And, 'cause he had done-- he's a professor of marketing at Harvard, great thought leader in the space, and he, he was going in and consulting, for fast food company trying to figure out how they could sell more milkshakes. And so what he, what he decided to do was to try and figure out why people hired milkshakes. And, and, and it was very interesting, why people hired milkshakes, you know? And, and it was counterintuitive to why you might, might think people were buying milkshakes. And it's the same type of thing, why hire Bitcoin? Well, Bitcoin's got the network effects and it's got these Hottel characteristics, but it doesn't have the- These privacy characteristics and fungibility characteristics, you know, so if you're hiring Bitcoin for privacy and fungibility reasons, you might just be using the wrong tool to accomplish the job. You know, that, that's, that's kind of the point I'm getting at.

Yeah, gotcha. so a-as I see it, then, given the need for confidence around Bitcoin's total supply, potentially then that points towards a tension there between the scarcity front and the privacy front, if you will, and so that might eventually resolve out in-- well, it's unknown how that, resolves.

Yeah, it, I, I mean, yeah, there, there's, there's usually always a trade-off in life, you know? You, you, and, and that's why humans have become the dominant species on this planet, is because we have been able to be more successful at using and inventing tools to accomplish ends or means or purposes that we're trying to get done. And so, you know, Bitcoin doesn't have to solve every single problem. You know, we can use other tools to solve different problems. and we can use those tools in conjunction with Bitcoin to solve problems. We need to be very creative in how we do that. And anything that could potentially, jeopardize those seven network effects, especially the scarcity and the limited amountness of Bitcoin, that's going to be viewed as a, as an- An attack on Bitcoin. you know, especially this fifth net-network effect of developers, where we've got-- and I, I'd put not just developers, but accountants, attorneys, lawyers, regulators, legislators, you know, Bitcoin In order for it to be integrated into the, into society and the social system in a big way, all of these things in the legal code are going to be happening around and outside of the technical code of Bitcoin. but there's a lot that they can do to ham-hinder or hamper, Bitcoin's development Or introduce a competitor, that, you know, might have a very hard money, s-emission rate schedule and stuff like that, you know, that, and, and m-and raise the cost on, on using Bitcoin, and that could just further delay, Bitcoin integration into society, 'cause even though Bitcoin's censorship resistant You know, if the costs to use Bitcoin are raised too high, then different institutions and organizations won't interact with it or, or, or operate with it. You know, like look at, look at getting bank accounts for the early Bitcoin businesses. Like, very, very difficult, still very, very difficult. Why? Because the, the legal structure has raised the cost, via Bank Secrecy Act laws and AML KYC laws and stuff like that, and that's hindered the development and growth of, of that network effect on Bitcoin. And so, you know, there's, there's definitely this tension, and if Bitcoin, if, like the privacy coins, we've, we've already seen that they've started to- Get delisted from different exchanges and stuff, you know, because of the FATF and the, and the travel rule and stuff like, and stuff like that. So, you know, we, we live in a very complicated world, and there are lots of different ways that we can accomplish what we're trying to accomplish, and, you know, the technology might get something there, but it's gonna take the political will to keep it there. And just getting, just keeping Bitcoin scarcity there might require all the political capital that we as an industry are able to muster You know, we might, we might not be able to muster enough political will to have both Bitcoin and privacy fungibility characteristics, right? And so, and so that stuff will have to happen in the censorship-resistant way, out of band from the Fedwire system or the Eurosystem or whatever, You know, so it-- we, we don't know how this is gonna turn out. That's why this is gonna be a new front in the battle for monetary sovereignty, and that's why the twenty twenties, are gonna be so exciting because, you know, we're gonna get to build a lot of these solutions that don't even exist yet, and, and it's gonna be fun to be participating and watching and, and theorizing and talking about all of this stuff.

Yeah, I think you're right. It'll be a very interesting-- it's gonna be wild. I'm, I Seeing, how that, plays out. And also, Trace, I know you were just recently reading Mises' Bureaucracy, and I was keen to discuss, to understand some of your thoughts on that. I think it's a fantastic book for listeners who haven't. You can get it at mises dot org, but, Trace, do you wanna just o-open up with some of your thoughts, at high level? What was your view on the book?

Oh, yeah, I mean, anything Mises is a lot of

fun,

For the entrepreneur, one, one particular section, you said a true genius is rarely recognized as such by his contemporaries. It takes some temporal distance, ha, to, to fully appreciate the creative genius. And, you know, isn't that the truth? it takes a while usually to recognize, just how much foresight, you know, the, the, the true geniuses really have, whether it's Bezos or, Steve Jobs or Isaac Newton with the gold standard, you know, any of these people that look far into the future and, then like literally move the world to carry out their vision, and, and then how stifling bureaucracy is Just how stifling it is to the human spirit, just how deadening it is in terms of, you know, turning people into just stamp-- peo-people with stamps, you know, that just stamp papers. I mean, how deadening of a job must it be to work at Customs and Border Patrol, right? I mean, like, like, man, that takes a lot of-- man, that's, that's really rewarding. And, and the book has just gives such a great insight into how bureaucracies think versus how the market thinks, and why bureaucracies have the problems that they have. You know, that, that they're-- that, that they're not using economic calculation to, figure out how to allocate the factors of production, so they're not serving the consumer, and, and, and instead you get currying a favor with whoever the dictator is. Is, you know, no matter what type of bureaucracy you're dealing with, so it, it was a very interesting book. I, I had a lot of fun kind of reading it. I like to read different, different books by Mises and Rothbard and other Austrian school economists just to kind of learn new things, 'cause we, we need to always be learning new things, that's for sure, especially as the competition, in this space, continues to heat up. And, you know, being open-minded, learning new things Things, it's very important.

Absolutely. And I, I particularly love the point, Mises was making in the book around the structure, right? So he makes a point in the book around how even if you took an ex businessman and put them into a bureaucrat role, that still wouldn't fix it, because it's, it's about the position they, they occupy in the framework of a market society. Did you have any reflections on that idea?

So talking about, orange, orange hair man, right? yeah, 'cause you might be good in business, but, but you're good at satisfying consumer wants and needs, right? which is being done in a voluntary context. And in the market, in the market structure, you're getting signals via economic calculation, via prices and all that stuff to help you understand what it is that you need to do, how it is that you need to best serve your fellow man. whereas in a- Bureaucratic structure, you, you're handicapped because you don't have those pricing signals to determine how to allocate capital, and instead you, you just have to, you just have to deal with, with the, with courting favor with the dictator, you know, or the other people in charge of their little fiefdoms, and just the amount of waste and lack of production and stifling of the human spirit that results from that, you know, it's no wonder that That we have so many zombie movies, 'cause so many people are, are zombies, living, you know, these, these dreary lives of existence in a bureaucracy, because they're not actually serving Other people, they're just currying favor with whoever the next person up on the ladder is.

Yeah, that's a great way of putting it, because really the-- if you've got a king or a dictator, and then they've got a big enough area that they need to start having delegates or somebody to command a certain area, well, then now they need to restrict the way they control that, and then that's where they have some of these rules and regulations and so on, and there's no room for-- there's little room for improvement and innovation, because coming back to as you were saying Even before in the, in the master and slave analogy and so on, you're, you're always gonna be there asking for permission, as opposed to being an entrepreneur where your, your main goal is to make a profit and serve the consumer, and you will try to find ways to serve the consumer demand, and that may force you to innovate.

Yeah, and Mises talks all about that, and I think that's one of the reasons, we don't see a lot of innovation come out of these highly bureaucratic institutions. You know, they-- North Korea's living in typewriter era, era, right? Like, I mean, we, we-- It's, it's the entrepreneurs and the innovators that forever change markets and our lives. I mean, the whole reason we're not continuing to, to live in little mud huts is because somebody innovated something better. And, and so, you know, these bureaucracies, they just strangle the lifeblood and the creativity out of the- human soul, because, you know, we, we, what, what really is gonna add a lot of happiness and value, to, to the individual is, you know Serving other people and being useful and being helpful, you know, and, and in a bureaucratic institution, you, you're not able to do that. And because you're, since you're not able to do that, you're not gonna be happy, because you're, you're not, you're not being obedient to the laws that happiness are predicated upon. And, and so is there any wonder that as bureaucracy has increased, happiness has decreased, and anxiety and depression has increased, and people are just not happy anymore? Why are they not happy? Because they're not serving other people and being useful and helpful. They're just- Just being bureaucratic lumps on a, on a log, stamping papers, right? Currying favor with someone higher up on the rung instead of figuring out how they can serve somebody. And, and fulfill their wants and needs. And so, yeah, I mean, it's very deadening to the human spirit, the, the bureaucracy and just how it, how it all sets up. I don't, I don't understand why humans are-- seem to be so drawn to it. You know, it's just, it's not gonna make you happy. So like, I mean, why, why do humans get drawn to it? I don't know. that's kind of a, an interesting question.

Yeah, right. And at the start of the book, I think Mayer points out that nobody refers to themselves as a bureaucrat. It's, it's, it's an epithet or a put-down term, but nonetheless, that is what a lot of, government, controlled industries end up becoming or government-controlled, enterprise or government-controlled, end up becoming. And, another point you were just, you reminded me there was also in the book. So Mises wrote this book in the forties, and he was commenting about how when American entrepreneurs went to Europe to try and be successful there, some of them had problems because they were applying more of a market, view and trying to be serving the market when they realized they, they were playing the wrong game. They weren't trying to play the game of pleasing the politicians or, you know, the people higher up to have them permit their business to operate, whereas people from some of the European businesses were already accustomed to that as well.

Yeah, it's, it shows just the difference in culture, you know, like why, why, how'd the Americans get here in the first place, right? Well, they, they fought against the k- you know, the king with, with the Bill of Rights and with, the Magna Carta. They fled to Holland, they fled to the UK They fled to the United States in order to have freedom of speech and freedom of religion, and really to just go to the Wild West, you know? They wanted to, they wanted to live their own life and do their own thing. And so we, you know, and everybody who was left, you know, they were the, the, the drudgery, you know, was the, were all the people that were left in Europe. And so, you know, it's not, you know, of course the Americans, they, you know, they wanna serve everybody. You know, we're consummate traders, you know, Americans really are. Like when you, when you look at it, Americans, they, they just have this burning desire to serve other people. look at Microsoft, look at Amazon, look at, Ford, look at GE. You know, we brought electricity to the world, we brought oil to the world, we brought the airplane to the world, we brought the internet to the world, we brought so many of these innovations to the world, like figuring out how to serve other people. And- Americans just, you know, they really wanna serve and, and lift the standard of living of, of, of everybody, you know, not just Americans. They wanna go figure out, they go-- they wanna go find other markets, they go wanna go find other people that they can, you know, bring these products and services to. And, you know, so they, they run over there to Europe and they run into this like bureaucratic morass. but, you know, we, we figured out our way around that, right? it, it might have taken a little bit of bombing and, and whatnot to, so that everything had to be rebuilt. but, you know, Americans are, are very creative in that way, and it's really the only country that has been built around an ideology or around ideas. Whereas all of the other countries in the world, that's just, you know, where people happen to be, born, right? America, people had to choose to go there. it was the New World, a world of opportunity, a world of rugged individualism and opportunity to make your, make your way and, you know, come over here and figure out how you can serve people. w-was, was the siren call of, of America. whereas you didn't have that with other, with other- Other places. So, you know, there's definitely a culture, a culture difference 'cause, you know, we got lots of-- we got billions of people on this planet, there's a lot of different cultures, and the cultures are a result of millions and millions of people making billions and billions of choices over a lot of years. so, like, culture doesn't just get built all at once. It takes a long time for that to happen, and that's why, you know, another reason why I think that it's bureaucratic Currency is just so deadening to a society and to a culture, because it, you know, it just, it just inervates the human spirit and the, and the willingness to serve other people.

So bringing it back to Bitcoin then, are there any particular traits that, are applicable as lessons for Bitcoiners, and is there such a thing as a Bitcoin culture?

Yeah, I mean, I think that monetary sovereignty being one of our lodestars, that's definitely very Bitcoin. don't trust, verify, run your own full node, hold your own private keys, don't, don't inflate my money, you know, don't steal my m- don't steal my money through inflation, you know, private property rights, these are all right in there with the Bitcoin ethos. And, you know, and, and then a lot of people that have, that have those values in common tend to have other values in common also, you know, property rights and- And, and whatnot. So, you know, it breeds a certain type of culture when you have sound money, because now you're able to have a change in time preference, and so you think a lot more about the future. And so, you, you don't want there to be a bunch of pollution and externalities and costs that, that get offloaded. You want, you want the environment to be taken well care of, because you're gonna have to be around in it for a lot of years, you know? so, you know, when you- Change that time preference, which SoundMoney really gives people a tool and a reason to have that, that time preference change, you know, that begins changing a whole bunch more of the culture. you work hard, you're, you're thrifty, you don't spend as much, you don't waste it on stuff, you know? that, that is, you know, just a- An erosion of your health, because, you know, if you're gonna, if you're, if you're gonna have a lot longer time preference, you might as well be healthy, during, you know, for, for a longer period of time, right? So, you know, I think, I think Bitcoin has this natural disciplining effect on people to take better care of themselves, both mentally and physically and emotionally, to have a longer time preference, you know, just begins changing a lot of A lot of the culture, because you're not, you know, not gonna be able to freeride off other people's money, when you're making poor choices with your health, you know, with universe, with all these like different healthcare plans and whatever garbage that are all funded because of fiat currency. You know, you're, you're gonna have to be able to pay for your healthcare, 'cause where's the government gonna get the money to pay for, for you instead? So I think, you know, we, we have so many changes that come when we change the- The money, a-and sound money, sound society, fiat money, fiat society, right?

Yeah, absolutely. So, I, I guess looking out to this coming Proof of Keys event on the third of January and, potentially even for twenty twenty, do you have any predictions or thoughts on how you think it might go?

Oh, I, I think it'll go, go well. You know, I think we're gonna have a lot of individuals, especially new people, maybe it's the first time they've heard about it, they're gonna take some action, they're gonna- They're gonna develop human capital, they're gonna run their own full nodes, hold their own private keys, claim their monetary sovereignty. I don't know if we're gonna have any more fireworks and popcorn entertainment value with like a quadrigas CX or a Kryptopia, it sure would be nice, you know, if we, if we had something like that, but, you know, I, I don't know that we will. But you never know, and that's, that's another reason why it's important to participate, so that you are able to learn these types of things, learn who's actually got the bitcoins and who doesn't. 'cause, I mean, even like the BitLicense requires audited financial statements, but they don't have to release 'em to the public, you know? And even for the, for the audits, they could, you know, they could have bitcoins that get moved in or get borrowed in order to pass their audits or whatever, proof- Fake keys? Like, there's no way to like fake that audit, you know, or, or confuse the auditors, 'cause you gotta deliver the coins. and, and it's delivering the coins to somebody who's running their own full node, so you gotta deliver 'em real coins, not little paper coupons or IOUs. So this is the ultimate type of test, you know, to withdraw your, your keys.

Fantastic. Well, look, links will be in the show notes, but Trace, did you wanna just shout them out now for the list? Listeners as well for how they can follow you and find out more about Proof of Keys as well, obviously.

Well, sure, I'm, on Twitter at trace mayer. I run the, I host the Bitcoin Knowledge podcast, that's bitcoin dot kn, and then proof of keys dot com, you know, and that's a public service, altruistic purpose there to help strengthen the Bitcoin network by helping everyone claim their monetary sovereignty if they want it. And thanks so much for having me on and supporting the initiative.

Interesting episode there with Trace, as they often are. So what's your view on Bitcoin privacy? Personally, I'm not ready to throw in the towel on the use of CoinJoin and potentially Lightning to give some basic level of privacy, though I understand views there will differ, and I'm still with Trace on the point that scarcity is most important. So anyway, get ready for Proof of Keys, make sure you are ready to hold your own keys and run your own node. And while we're on this topic, make sure you check out my other business, ministryofnodes dot com dot au, in the webinar That's where Katana and I are teaching beginner workshops on how to hold your own keys and run your own node. Lastly, show notes and transcript are available on my website stephanelivera dot com. Thanks for listening, and I'll see you in the citadels.