Matt Corallo of Spiral Bitcoin rejoins me to chat about the purpose of Bitcoin and developments in the space:
- Bitcoin contrasted with stablecoins
- Bitcoin’s specialty
- Future problems vs today problems
- Canadian Trucker Bitcoin
- Donations and adversarial environments
- Cultural aspects
- What does it take to have Bitcoin Soft forks again?
- Twitter: @TheBlueMatt
- Spiral: Spiral.xyz
- LDK: Lightningdevkit.org
- Async payment post
- Prior episodes: SLP257 Matt Corallo – Bitcoin Soft Fork Activation, Taproot, and Playing Chicken
Other relevant episodes:
- SLP449 James O’Beirne OP_Vault – A New Way to HODL?
- SLP200 Christian Decker – ANYPREVOUT, MPP, Mitigating LN Attacks
- SLP456 Casey Rodarmor What are Ordinals?
- SLP349 Chris Stewart Bitcoin DLCs & Stablechannels
- SLP298 Rusty Russell – Lightning Offers / BOLT12: The next big thing in Lightning?
- Swan Bitcoin
- Unchained Capital (code LIVERA)
- CoinKite.com(code LIVERA)
Stephan Livera links:
Stephan – 00:00:08:
Welcome back to the show, Matt.
Matt – 00:02:53:
Yeah, thanks for having me.
Stephan – 00:02:54:
So lots of things going on. I know there’s always some topic of the day or whatever that’s happening, whether it’s Ordinals and inscriptions, which is the latest kind of craze. Maybe the Mempool is clearing out a little bit now, but yeah, I thought it would be good to chat with you again. I know nowadays you’re kind of more focused on to Lightning. What would you say your main focus is nowadays with Bitcoin and related stuff?
Matt – 00:03:22:
Yeah, my day job is obviously Lightning, so I work more than full time on the LDK project, the Lightning Dev Kit project. Just tons to do to we have a lot of people now building exciting apps using LDK. It took a little bit to kind of clean up the code base and make it easier to work with, but we now have a bunch of people in flight, and so there’s just a lot of work to clean up stuff, add features for user, for people who want to develop with LDK and all kinds of way too much work to do there, but still spend a lot of time just being in the Bitcoin community and opining on everything, I guess. Just not on Twitter these days because it’s a waste of time.
Stephan – 00:04:13:
Right. Yeah. Okay, so I guess zooming out and looking at the broader aspect of what’s going on with Bitcoin. I think even with this recent Ordinals and inscriptions thing, I think it sort of brought up this whole question of what should Bitcoin be used for? Right. And I guess it sort of reopened certain debates like the OP_RETURN wars and this notion of should you have arbitrary storage of data on the blockchain? And we’re sort of seeing, I think, people are reasoning about, well, what does the future of it look like? For example, James O’Byrne has this idea of OP_VAULT and we’re seeing maybe a bit more discussion about this idea of covenants. I know that’s something you have previously been pretty interested in, maybe you’re still interested in. Do you see anything fundamentally shifting about Bitcoin’s utility or what it means? Like, what’s the goal of the project? Or do you see it more like it’s already pretty well defined now?
Matt – 00:05:07:
Yeah, there’s a lot of places to go with that question. In terms of the direct question, no, I think Bitcoin remains focused. Even a lot of people excited about Ordinals still are like, oh, we can do this thing on the side. But Bitcoin is still focused on being a money. Right. On building how do we build the best money we can build that has certain properties, has, you know, these properties of not having to ultimately seeking to not have to trust anyone. Right. And I think that’s that’s clearly still the focus for all Bitcoiners. It is what sets Bitcoin apart. You have all this other stuff going on in cryptoland where you’ve got NFTs, you’ve got all this Stablecoin excitement, DeFI, whatever. And none of that is in any way competitive. None of it’s really seeking to do the similar kind of trustless money that Bitcoin is focused on. So I don’t think it’s changed anything from that perspective. But I think the broader space, because there is so much else going on, people get confused and start to let me rephrase. I think the space has grown up in the sense that I think the broader crypto space has kind of started to recognize this separation of what is valuable and how these things, what the goals are of different projects, whether it’s Ethereum and Solana and whatever versus Bitcoin versus Stablecoins. And it’s taken till kind of this bear market before people really recognized. I feel like in the last few months, kind of the broader crypto people are finally coming back around to Bitcoin. There’s a lot more excitement in Bitcoin, and I feel like it’s kind of a healthy Bitcoin, people talking about what Bitcoin is actually for, right? It’s not like, oh, we’re excited about Bitcoin because we can invest in Bitcoin and buy more Bitcoin and Bitcoin pumping yay, whatever. It’s like, oh, no, Bitcoin is just different from all of these other systems that we’ve been building. But as for the Ordinal’s question, I’m excited BlockSpace is getting used like Bitcoin. It is not just the case that Bitcoin only survives if people use Bitcoin, if there is demand for censorship resistant transactions, and not just in the sense that, well, Bitcoin is only useful if people use Bitcoin. Well, obviously, okay, duh. But also Bitcoin fundamentally does not work if there’s not demand for BlockSpace. Like once the subsidy goes away, there has to be a way to pay miners for security. Like, the security budget has to come from somewhere. And as long as there’s only 21 Million Bitcoin, that means it has to come from it has to come from transaction fees. It has to come from people actually having demand for on chain transaction space. And, you know, if we don’t if there’s not enough demand from people doing actual transactions, then great, shove data on there, I don’t care. Like, somebody’s got to pay for miners somehow, and there’s got to be a security budget from somewhere.
Stephan – 00:08:21:
I’m curious your thought on this, because I’ve seen people other bitcoiners come back at this idea in a different way. So, for example, some try to almost reject the notion of security budget and they sort of present this idea, oh, it’s validity, not security, and that it’s the transactor who should be caring about whether their transaction gets mined, right? And so I’m curious your thought there. And I know there are different arguments and in and out here. So one other example of her is this idea of fee-sniping. So this idea that okay, imagine where in that future hypothetical, right? Imagine let’s you know it’s 2023 now, but let’s fast forward to 2036 or 2040. Let’s say the block subsidy is a lot smaller right now. I guess the, the hypothetical concern is that, okay, if there’s like a fee-sniping incentive, let’s say there’s not a lot of fees in the blocks, but there’s like one big transaction and all the miners keep trying to reorg to get that. Is that the main concern you’re seeing from? Like if there’s not enough transactions going on or are there other concerns?
Matt – 00:09:21:
Yeah, I think that’s the big concern and there are other things we can do about it. There are other things we should do about it. So one thing we really should do is we should do, I mean, I guess there’s different terms for it, but transaction fee smoothing, right? So if you’re a miner and you mine block with a high transaction, with high total transaction fees, you shouldn’t get all of that. You should get some part of it and then the rest of it should kind of pay out to blocks later down the line. I think a lot of the kind of game theory analysis folks have done of the fee-sniping problem where miners are trying like, oh, there’s a juicy transaction fee in that block, let me try to like reorg it out to get it. A lot of the game theory analysis people have done has concluded that basically you do that anyway, right? If you are a miner and you mine that juicy transaction fee, you’re just going to go ahead and pay part of it to the next miner to try to encourage them to let you have it so that they’re not all trying to reargue. So like we should just do that. We should make that a consensus rule, just flatten out the fee reward. So there’s some things we can do to improve it, but nothing completely removes the problem. If the Mempool clears out, well, there’s no fees to smooth, you’re still going to want to reorg back a block, whatever. So there’s no complete solution. We can make it a smaller concern, but there has to be demand. Ultimately, there has to be demand for block space. There is no other solution than that. To your point, there’s all kinds of people complaining or debate around like it breaks incentives in Bitcoin. I don’t think pure data demand for block space really does quite as much. You could imagine some mev concerns where there’s like trading of NFTs on Bitcoin and people want to reorg out a block so that they can do better and maybe snipe the other half of a purchase or something on chain. There’s concerns about that that are maybe legitimate that certainly the data storage itself doesn’t necessarily currently have. But I don’t think that’s we’ll see what the staying power is of Ordinals to begin with. But I don’t think that is a huge concern, especially if we are able to do some of these other things like transaction fee smoothing to maybe alleviate the fee-sniping concerns.
Stephan – 00:11:48:
I see. Yeah. And I’m curious your view, because I’ve seen other people put out research reports, for example, Block, where Joe Burnett and Pierre Rochard put out a report and one statistic that they came up with was basically saying it’s almost like it might be the other way around. It might be that there’s 80,000 times as much transaction demand, let’s say, in that hypothetical future where so many people want to open or close Lightning channels or rebalance. I think if anything, and maybe it’s a binary thing, it kind of works or it doesn’t. And maybe there’s just that many people who want to transact on chain that it’s not realistically going to be a problem, but we don’t really know today. It’s hard to say. Yeah, for sure, definitively it’s going to be a problem.
Matt – 00:12:26:
Right, I think that’s definitely true. I am concerned because I look around and I think it’s pretty clear that Stablecoins are out competing Bitcoin. That of everything in the kind of crypto space, Bitcoin and Stablecoins are the only two classes of things that are really focusing on transacting. They’re focused on transactional use cases. How do I move money from A to B? Bitcoin also has the whole act as a money digital gold thing going on. But that hasn’t generated a lot of that doesn’t generate a lot of on chain demand, probably. And that hasn’t generated a lot of that seems to not be growing in terms of transaction volume versus the transacting use cases. Of course, generated transaction volume. But you look around at places where there should be a ton of demand for censorship resistant transacting. Right. Because that’s ultimately why you would use bitcoin to transact. You look at places with dysfunctional currency, you look at Lebanon, you look at Argentina, you look at all kinds of places in the world, this large part of the world, and they’re using tether. They’re using mostly tether, occasionally USDC, and somewhere down the list Bitcoin. Right. So there is some Bitcoin usage there where people are really they need censorship resistant transactions because for whatever reason, they’re unable to transact in a different way. And so here’s the system that’s providing really real important value. This Bitcoin thing is really providing critical value to these people, and stable coins just do a better job. And so I do wonder what the future holds in terms of that, because where do we go from here? I think the Stablecoin thing is regulatory question mark, big regulatory question mark, right. We don’t know. Currently, it’s the case that you can transact in Stablecoins without any KYC. It’s kind of the same AML KYC properties as Bitcoin, which is great, but we don’t know if it’ll stay that way. Super unclear what people in DC do who knows? You never really can predict that super well. But insofar as they remain the way that they are today, where sure, there are questions around censorship and these single entities can seize your money, but for 99% of people, they don’t, it works fine. They’re eating up a lot of the demand for Bitcoin and that’s healthy competition. But we, as Bitcoiners, need to correctly understand and represent Bitcoin to these potential users, right? So when there’s wallets that support Bitcoin and Stablecoins, how do you communicate that to the user? How do you communicate, hey, here’s this Bitcoin thing, it’s volatile, but it’s volatile because you don’t have to trust anyone. And here’s this Stablecoin thing and it’s not volatile, but it’s not volatile because you have to trust someone in a way that is intuitive and that users understand and then can make the decision about what system is best for them so that people are busy. They don’t generally spend a bunch of time learning about all the ins and outs of what Bitcoin and what Stablecoins are and what the trust models are and yada yada. So they just use what’s available and obviously Stablecoins have the US dollar thing on it, which is a great brand, and so people use that. And so how do we build platforms that communicate this appropriately to users, where they can understand what their options are and they make an informed decision? And I think that’s going to be the biggest challenge going forward for the Bitcoin community.
Stephan – 00:16:16:
Right, I think you’re right. Skillfully communicating that difference in censorship resistance, obviously. And I think for many of us, and I don’t know, maybe your view is similar, but I think a lot of us thought that the government was just going to drop the hammer a lot harder on these Stablecoins. Like if you would ask most of us that question four, five, six years ago, back when Omni was still around and people were using Omni Tether, like Tether used to be on Bitcoin, and then it apparently well, my recollection is it’s more like the fees rose. And then for that reason, a lot of the Tether demand today primarily exists on ERC-20 and TRC20. So basically, if you talk to an OCC trader, it’s mostly TRON. Yeah, a lot of them want to use TRON because now it’s cheaper. But now Bitcoin transactions have come cheaper again, too. So it’s kind of like.
Matt – 00:17:04:
If you’re transacting Tether, you couldn’t care less whether the blockchain you’re on is super centralized. It doesn’t matter. You’re trusting the tether company completely and fully and they can seize your money at any time and they can do whatever. So you don’t care. You might as well. You’d prefer to use a completely centralized database if you could, but probably that doesn’t meet regulatory muster. So you got to play this little game of finding the most centralized blockchain that regulators don’t want to shutdown. And then you use that because centralization breeds better performance. So, yeah, it’s moved onto other platforms, but it’s still and yeah, to your point, I thought regulators were going to shut it down. Now, I think from the perspective of a regulator, and certainly from the perspective of someone who has large US Dollar bags I live in the US. Obviously pretty tied to the US economy. I think that not shutting them down is the right move. Right. You have something that you have a little bit more ability to control than Bitcoin. They can seize funds. If they were to, they could say tomorrow, like, you have to KYC in order to use USDC or Tether in order to transact with it at all, you have to KYC with the central entity. I think that would kill it entirely. They could do that tomorrow. I don’t think they will because it would kill it entirely, but they might maybe the next whatever. They find some gang using USDC to move money, and suddenly they just ax it. And I figured, like you, four years ago, whatever, I think everyone kind of figured that they would kill this stuff way faster than they have. But I think their decision not to is, in fact, smart. I think that giving people, especially in these economies where they really need better financial services, access to the US Dollar via digital rail that doesn’t require KYC to use is actually really great for the dollar and the dollar hegemony and the ability of the US to screw over lots of other countries by exporting inflation and all kinds of other problems that that causes. But it’s great for the US at least. I hope as an American, I hope they don’t crack down on this stuff, but I don’t know that that will remain true. But to the extent that they don’t, I think Bitcoiners need to figure out the best way to communicate what the risks are with these things and figure out how to in those shoes. For the people who have a strong need for censorship resistant transactions, what value is Bitcoin providing in excess of Stablecoins in practice? And for which people can Bitcoin still provide a lot of value in excess of Stablecoins? Or can we build more decentralized options for Stablecoins? Right? Like, I think the DLCs designs so contract for difference for having a wallet that is actually in bitcoin, but trading in a decentralized market that runs a CFT so that you get a relatively stable balance, you pay a fee to some market maker who hedges out. The Bitcoin risk can also be potentially way more decentralized, way more censorship resistant than Stablecoins while still giving you a US Dollar balance. So there’s other things we can still provide a similar value using Bitcoin, but sadly, the DLC stuff hasn’t it’s not there the DLC on Lightning, which is really what you’d want for that kind of design is still being worked on/maybe would do better with some kind of sigassional input Soft Forks/we will get there when we get there, but I think there’s other directions there too that we need to go. But we as Bitcoin need to focus on building out a platform that’s more competitive with Stablecoin. Building out censorship resistant platforms that are more competitive with Stablecoins. And ideally, not just ship Stablecoins on Bitcoin because that’s not solving a problem.
Stephan – 00:21:19:
Right. Yeah. And I think there’s a few points I want to make here. So, one, I just recently was speaking offline to Abubakar Nur Khalil. So he is one of the guys involved with Qala and Recursive Capital. He’s in Nigeria. And I was asking him, just curious, are you seeing people using Bitcoin or Stablecoin? And he was saying, yeah, look, there’s a lot of people after Stablecoins, but he was saying slowly, there are more people in Nigeria who are going for Bitcoin. Slowly but surely. So maybe to some extent it’s a ball and bear market thing. Right now, maybe we’re kind of still in a bear market, so maybe just chasing up the number go up only. But we can’t really deny that that’s often a reality that pulls people in. And then maybe once they’re in, then they kind of learn more about actually having Bitcoin. That’s one idea. And I’m curious as well. Maybe some of these Stablecoins are kind of like a turkey. It’s like a turkey problem, right? Like, yeah, it gets fatter and fatter until eventually it just gets killed. And there’s a lot of people who are, unfortunately for them, if they are in another country where maybe their government or their banking system there doesn’t allow them to hold above a certain US dollar balance. For them. they would rather take that risk of tether or even a custodial position, I guess one other thing with some of the DLC Stablecoin stuff, I did an episode with Chris Stewart a little while back talking about exactly how that would work. But I think the challenge for now is that some of this stuff, it just seems really far away. Whereas, like, people, they have a today problem. They can’t afford to just wait for the soft fork and for all these things. So then I guess the question then is, should Bitcoiners be amenable to some of these Multicoin wallets? Or should we be more like, let’s say an RGB or a TARO or even the custodial platforms? Or should it be more like, no, just build out and communicate the difference. Why is Bitcoin different? And focus on the Bitcoin only aspect. I’m curious how you’re seeing that.
Matt – 00:23:06:
So, yeah, I mean, a few things. Yeah, I do think at least it’s my impression, and I don’t have super detailed knowledge, but it is my impression that Bitcoin has done a little better in Nigeria than in, for example, Lebanon or Argentina, that Nigerian. For whatever reason, Nigerian culture is just a little more excited about this. Like, don’t trust anyone property. So, yeah, I mean, there are definitely, let’s not confuse it, there are definitely people who get into cryptocurrency in one way or another, Stablecoins probably, and then look around and say like, oh, this Bitcoin thing is not trusting anyone. That’s awesome, I want to get into that. So Bitcoin is competitive in that market, certainly. As for the, yeah, it is absolutely the case that people can’t use Stablecoins outside of these super trusted versions today. There’s Dai, there’s the decentralized Stablecoin thing on a theorem that’s supposed to be a little more decentralized. But in fact, actually, Dai is now mostly backed by USDC, so it hasn’t moved the needle there. USDC could still chop it and kill it. So that didn’t really make a difference. There’s a few other projects, but they keep imploding and yada yada. So, yeah, I mean, certainly people are going to use what’s available today. They want to solve their problem today, and so they’re going to use what they can. And that’s USDC, although, honestly, even the transacting platforms for these things aren’t super great. I guess some of the Ethereum L2s have started shipping in meaningful ways and so you can now transact easier in these things. Previously you had Ethereum transaction fees, which were super high, which was a problem, but these days it’s a little easier to transact with those. So people are encouraged to use that in terms of like, let’s just ship TARO or something like that, to ship Stablecoins on Bitcoin. I mean, you haven’t changed anything, right? You still have this very centralized token that they could theoretically prevent you from redeeming, et cetera. It is a little more private because it’s in Lightning. And so you do get that potentially you get that ability to clear transactions without the issuer seeing those transactions. But then it’s also not clear what the regulatory response to that is going to be if regulators aren’t just going to say like, that’s even worse for AML compliance than USDC and Tether are. You have a weak AML compliance story. You can’t issue a Srablecoin, or if the kind of TARO design as described requires you, the end user who has a Lightning wallet, to have a channel with a market maker. And that market maker will, when you send an HTLC, it’ll turn your dollar balance in your TARO balance into Bitcoin and then route the Bitcoin HTLC. What the regulatory requirements are on that market maker is also unclear because ultimately they’re executing a trade on your behalf. So that might also be an issue. So TARO, a lot remains to be seen with TARO, especially around the regulatory overhead, but a lot of that’s going to inform whether it’s changing, moving the needle or not, whether it’s just another Stablecoin, that’s the same as all the existing ones. And it’s cool that they’re building one on Lightning. I guess maybe it’ll have a little better UX, but in that sense, it wouldn’t change. The people still aren’t really using Bitcoin. Maybe it’s creating some transaction volume on Bitcoin, but not a lot, and it’s just another centralized, trusted, Stablecoin, or whether it’s going to be materially different. And I’m not really holding my breath, I admit. But, yeah, DLC is like, I think we need to make them happen in one way or another. Bitcoin does currently have the luxury of not needing a lot of transaction demand because we have this block subsidy thing that’s going to keep going for a little bit, but we also have to get the pieces in place. Like, Bitcoin has spent the last, whatever, ten, 1112 years, more than that now, building a brand and building a really strong brand. And I think one thing that whatever your politics are, whatever your view of the Canadian trucker protest stuff was, the fact was all of the discussion around the donations of that were about how people were using Bitcoin to avoid financial censorship. And I think nearly everyone I saw in those conversations, almost none of them Bitcoiners, almost none of them cared about Bitcoin. But whether it was pro or against, they all understood why Bitcoin was being used there and what Bitcoin was valuable for. And I thought that was really interesting, right, that it was here’s. The bitcoin has entered the mainstream consciousness, and not just like, entered it. Like, people are aware of this, like, weird, scammy investment product Bitcoin thing. No, people are aware of Btcoin is a tool for moving money when you’re being censored. And I thought that was freaking awesome. And so we built this great brand around what Bitcoin is, and people kind of intuitively understand what Bitcoin and why Bitcoin and win Bitcoin, but now we have to build out the tools. And so we’ve built with Lightning. We’re finally getting to the point where the user experience of actually transacting in Bitcoin is pretty awesome. And so now, to your point, it’s really time to start shipping other features that are important, like DLCs, like the ability to hold stable balances.
Stephan – 00:28:54:
So a few things, even with the Canadian trucker example, I can see mixed messages out there because there are some people saying, well, look, actually a whole bunch of people got censored because they were using, like and maybe you could say, hey, they did it wrong, et cetera. But I know at least some of the Bitcoin went through, and it has been used in lots of situations, whether it’s on both sides of the Russia-Ukraine conflict, there have been people using Bitcoin, right? And that’s kind of the same kind of idea. I know Taj Dredger popularized this idea a few years ago. Bitcoin is the money of enemies, and it really is in that way. And so that part. Is cool. I think it’s fair to also say what a lot of people are doing today. Let’s say if they’re not really in the Bitcoin world, if they want to have a Bitcoin donation, they just kind of put up one single address. And of course, you and I know we can do a lot better than that. You could be running a BTCPay. You could have a Lightning address. You could do some kind of maybe in the future we can have BOLT12, and that would make it like Lightning enabled really fast, cheap donations as opposed to this kind of everyone doing what people were doing ten years ago. Right. And maybe that is also part of the story of bitcoin is making Lightning experience, making the Lightning experience better and smoother for more people in a non custodial way. Because I think that’s also another angle of criticism we’re seeing is, oh, look, all you Bitcoiners there’s a lot of people using Custodial Lightning address as an example because we don’t have and I guess this is something you I know you were trying to solve this with asynchronous payments as well, I believe. Late 2021, I think you did a post on the Lightning dev about on the Lightning dev mailing list about this idea. And maybe that’s something that could potentially help in this kind of situation. Maybe it’s BOLT12. I’m curious what you see is what are some of the big wins that we could get in Lightning that would really make it more feasible for the average person?
Matt – 00:30:43:
Yeah, I think those examples are great. Those are great examples. Yeah. Like Lightning address requires kind of a custodian or at least requires a party that can censor if they want to or could steal your money kind of as an intermediary. So, again, it’s something that’s shipped because people have a today problem. They had problems with the user experience of Lightning. They needed to ship something that improved the user experience. And so LN-URL and Lightning Address fixed those issues and shipped and fixed it in a relatively easy way, relatively simple protocol. And so people adopted it relatively quickly with BOLT12. And then in the future, async payments, there’s just all these things that need to be built on top of Lightning to provide a similar solution, a similar user experience fix without trusting centralized parties, without trusting custodians or someone who couldn’t theory steal your money. It’s hard. We have to ship onion messages so that we have a messaging layer within Lightning that still has the privacy of the multihop routing network. We have to build on top of that with the ability to request a new invoice. And then we have to use that messaging layer to signal when you’re online so that we can route an HTLC only when you’re online so that we can do asynchronous payments. So, yeah, I mean, we have to build out all these things and it takes time and it’s always frustrating that things don’t ship faster, but it’s being worked on, it’s coming and that will hopefully improve the user experience. But I think broadly, yes, it is the case that a bunch of the truckers had their funds seized by Coinbase, et cetera. And obviously we want Bitcoin to not have that problem. But a few things I’m more excited that they tried, that they kind of used Bitcoin at all because they said, oh, I have a financial censorship problem. Oh Bitcoin. And like sure they got burned a little bit because they used a custodial platform and it seized their funds and that’s sad. But also custodial platforms are always going to exist. We’re always going to have those kinds of relationships because it makes things more efficient. I view my job as improving the noncustodial user experience to get it as close as possible to the custodial user experience. We’re never going to do better with the possible exception of custodial being a custodian being very expensive because of the regulatory compliance overhead. Aside from that, being custodian is always more efficient. You’re always going to be able to build a better user experience because you’re a big company with a lot of resources. You can do instant clearing between your users. You can probably do instant clearing to other custodial entities. You can have a username and password login instead of key management. All this stuff is just so much easier. And so again, I view my job as like how close to that can we get while keeping it decentralized? And I think it’s also a will always have some custodians. But also remember that competition between custodians can solve a lot of problems for users too, right? In the same way that Stablecoins, although they comply with a US regulatory overhead, they don’t kind of comply with, like for example, USDC is not in compliance with Lebanese rules around how much dollar balance an individual can have and that’s what gives it value to someone in Lebanon, right? In the same way a custodian in the US or custodian finance is super popular across the world for people who just want a dollar balance. They just open a binance account and move some of their they wire some of their local currency to finance and then buy USDC and keep it in finance. That’s a common use case that kind of exists in another country. It’s a sort of trusted entity, but it doesn’t have to comply with your local laws because it doesn’t really exist in your country and you can just use it from your country. Does allow this kind of regulatory arbitrage that can still add a lot of value as long as they’re building on something that is censorship resistant so that we still solve problems with custodial platforms.
Stephan – 00:35:08:
Yeah, I think that’s fair to point out. I think I’m also thinking back to a talk actually Jameson Lopp did this at the Plan B Lugano Forum. And basically he was talking about how over the years, email servers became centralized and it became so difficult that an average individual could not run their own email server because of all the whitelisting happening between the big platforms, whether it’s Gmail and all the other Yahoo and whatever else. I think maybe that’s one future that as Bitcoiners, and Lightning users, we’re trying to stave that off, right, because we want this future to be possible, that you could be just an everyday average retail individual who can run and use a Lightning node or at least a Lightning app on the phone. I’m curious, do you see that as like, is that a possible future if the community, let’s say, and the developers don’t develop in the right way?
Matt – 00:36:01:
Yeah, I mean, it’s certainly a concern, but it’s also something where we solve that by having enough people running their own node. So the reason it is so hard to run an email server is because it’s very easy for Yahoo to just block a lot of email servers or just block most of the internet IP space by default because there’s such a small long tail of really tiny volume email. You’re talking about blocking such a small amount of email that no one complains. It’s not a problem for anyone. If on the other hand so if you imagine today, like, Cash App were to go say, like we’re only going to send Lightning payments to these other nodes and it’s just like crack in and a few of the big exchanges and that’s it. Suddenly it’d be useless because very few of the invoices, tons of invoices are to BTCPay server, tons of invoices are to end user mobile handset nodes that are actually running the Lightning protocol, have their own keys, are non-custodial. So by ensuring that things remain relatively easy to use in a non-custodial way, and by accurately communicating to users the value of non-custodial Bitcoin usage, we will have enough users that it won’t be possible for large companies to just start by default blocking everything. And so that I’m not concerned about that future is possible. Yes, but I’m not concerned about it because Lightning, there’s just not a trend that’s coming in Lightning. That’s not a trend that we’re going towards. It’s not something that I’m very concerned about because it’s just not coming down the pipeline.
Stephan – 00:37:47:
Yeah, so I’m curious actually, what would you see as the big concerns in terms of the future of Bitcoin and Lightning and so on?
Matt – 00:37:53:
Yeah, I think I am very concerned that we’re getting outcompeted ultimately that Bitcoin is building DLC based Stablecoins slowly, mostly Chris Stewart but one or two other teams, that stuff is coming very slowly. People are using Stablecoins in places where the regulatory risk might not make that necessarily the optimal decision for them. We’re not communicating that there’s not a lot of communication of those differences in wallets and in the places where people get access to it. More importantly, Bitcoin is still hard to get. Like in the US. It’s a solved problem. We all sit here in the western world in relatively developed economies where there’s access to cryptocurrency exchanges that are super great, download Cash App and buy Bitcoin. It’s super easy. They have the onboarding flow great. You go to Lebanon and it’s hard to get. You’re still talking about like, meet the sketchy guy in the coffee shop and hand him some cash and he’ll give you that’s still the process for parts of the world where Bitcoin might make the biggest impact and might have the biggest demand and might have the biggest potential user base. So we really need to improve that situation a lot, and I don’t see a lot of it’s hard because I can’t do anything about that. You need people in those countries who know the systems in place, who know how to maneuver to do the work and build those platforms, and they’re taking on potentially a lot of legal risk. There’s other reasons why they don’t want to. But solving the access problem is still not a solved problem. And I think we naively treat it as a solved problem because it’s so easy for us to get Bitcoin and it’s just not for a lot of the world. So the access problem is still a big concern. There was some effort like TBD folks at block were trying to do bids in a way that kind of alleviate the KYC problem. So you do KYC with some provider and then you, the exchange, can you want to operate a Bitcoin brokerage? You can use this third party provider’s KYC solution, and then it also has a wallet plug in so that you run a brokerage and you just have to run the brokerage part. You can lean on someone else for KYC and you can acquire users via some other via some kind of marketplace that exists across wallets. It hasn’t really shipped anything. We’ll see where it goes. I’m not sure if that’s exactly what they’re focusing on building now. I think there are ideas of how to do this in a way that makes it easier by reducing the friction required to start a Bitcoin brokerage across the world. But I just don’t see a lot of motion there.
Stephan – 00:41:03:
Back to the show in a moment. BTC Prague is coming up June 8 to 10th. This is going to be the biggest bitcoin event in Europe, in Prague, the Czech republic, and it’s going to be fantastic. Prague is a beautiful city. Make sure you check your calendar, put it into your diary now, look up flights and hotels. It’s going to be an awesome experience. I’m going to be there. I’ll be one of the emcees. There is an awesome range of speakers coming. And whether you are a builder, developer, just an everyday stacker and hoddler, there’s something for you here at this conference and event, there will be a range of different tickets available, such as the conference ticket. There is also an industry ticket for those of you interested in an extra one day business conference that’s more B2B focused. And there is the Whale ticket. So for those of you who want access to unique whale zones, you want white glove treatment and premium food and drinks throughout all three days, as well as an exclusive party event for Whale ticket holders, go to btcprague.com, use code livera for a discount there. Mempool.space is a comprehensive Bitcoin explorer. It shows the entire Bitcoin ecosystem from the Mempool to the blockchain to second layer networks like the Lightning Network. So when I’m about to send a Bitcoin on chain transaction, I normally check on mempool.space so that I know to target the fee level. And mempool.space has all kinds of features that have been recently added, such as block audits. You can see data on RBF transactions replaced by fee transactions, and it has an infinitely scrolling blockchain, so there’s all kinds of new features. So go and check it out. Also, with mempool.space, you don’t have to trust a third party, you can host it yourself. Now, if you are with an enterprise, mempool.space has custom Mempool instances. You can get your company’s branding, you can get increased API limits, increased access and availability for feature requests. Go and find out more at mempool.space/enterprise. Now, when it comes to securing your coins for the long haul, Unchained Capital can help you with multisignature. Unchained Capital multisignature is secure, transparent, easy to use and sovereign. So the way it works typically, is you have two keys in different locations, and Unchained holds the third key. So you can remove single points of failure in your setup and keep your keys in different locations. And this can give you that additional peace of mind, knowing that it’s so much harder for somebody to steal your coins or you’re less likely to lose them. And that Unchained Capital can help you in the process. They have a concierge onboarding program where they can walk you through the process if you need guidance, they can ship you the hardware, they can do a call with you to teach you how to do this. And they even have ways to help in an inheritance scenario, such as a checklist. They have letters for the executor or trustee. So go and find out more. You can find it over at unchained.com/concierge. Use code livera for a discount. And now back to the show. Yeah, so as you were mentioning in Lebanon, there was a high interest rate in US dollar terms previously. And then of course, as things start to unwind now, there is high demand for Bitcoin, as you were mentioning. And I think maybe some of that is just people. Unfortunately, for better or worse, a lot of people just have to learn the hard way and they have to just get wrecked. It’s sad. I’m not saying it’s what we want to see, but I think that’s just kind of the reality of how people often learn. And I think it’s probably also fair to say, like you say in the Mid, most of the west and the developed countries, it’s a bit easier to buy Bitcoin. But even there, there are a lot of banking difficulties that even the Western Bitcoin companies struggle with because they’re often at risk of getting debunked or having issues getting money. Or even customers who want to wire US dollars to that bank. They sometimes run into issues as well because their bank will start asking them questions, saying, hey, hey, Matt, what’s this big transfer to XYZ Exchange for? Have you got an invoice for that or something? So even there, there’s just been continual difficulties, even for those Western Bitcoin entrepreneurs. I can sort of see it being difficult for a lot of people.
Matt – 00:44:56:
Oh yeah, you have the Bitcoin. There’s also just a lot of people in the US who don’t have financial services, don’t have a bank account period, so that’s a whole other set of issues. That’s not to say there aren’t a lot of problems getting access to Bitcoin in the US. I imagine there will be increasingly more problems in the EU over the next number of years with regulation trying to crack down on the ability of people to hold their own keys. That is a priority for some sort of regulators there, some set of lawmakers there, I should say. So we’ll see what happens going forward and how that changes. But yeah, it’s an order of magnitude easier when you have you can download Cash App and at least fight with your bank and whatever, versus, oh, you have to know someone who knows someone whose son is into crypto and you can meet him at a coffee shop and it’s just a different world. Right?
Stephan – 00:45:59:
Yeah, I think that’s fair. So then, in terms of what can be done about it, in terms of what the builders, the entrepreneurs, the developers, what do you see as maybe the short or medium term options there? Is it having Stablecoin support or is it trying to build peer to peer aspects of it? Is it yeah, I mean, what are you sort of or is it technological? Is there something that can be technologically done to improve the situation?
Matt – 00:46:27:
A few things. First of all, I think I’m really happy over the last six to 12 to 18 months, we’ve really seen an increase in the number of people trying to build things in the Bitcoin space. Prior to that, you know, we had this kind of trend super early in Bitcoin. There was so much excitement across kind of the Silicon Valley crowd. They funded all these startups building Bitcoin brokerages and Bitcoin XYZ and all kinds of stuff. And then through the block size wars, a lot of that crowd got dismayed about Bitcoin. It’s like, oh, this Bitcoin thing, it doesn’t listen to us. We can’t change it, and it doesn’t scale. So we should move on to other things. It doesn’t change. We want to build all these complicated smart contract things that other platforms are offering, and Bitcoin won’t change for us to offer that. So we’re just going to go elsewhere. And you saw all of those VC dollars and all of the more importantly, all of the founder interest, all of the kind of crowd of folks who are super excited about building startups move kind of outside of Bitcoin. And we’ve seen some of that come back. And again, I think this is kind of part of the trend of people starting to really better recognize that these systems are specializing, that Bitcoin has specialized on the concept of censorship resistant money and that Ethereum is specializing. On being a platform for collectibles, whether it’s NFTs or issuing shares in your company on the blockchain and doing regulatory arbitrage around share issuance of your company shares, whatever it is. And those are different, but those are both useful, and people should build on both of those. And so we’ve seen now more VC dollars going into Bitcoin. There have been Bitcoin focused VC funds around forever. There’s a few of them, but we’ve seen a lot more of them show up in the last number of years. Some of that with Lightning as well, where people have seen that you can build a better user experience with Lightning. And so suddenly maybe it makes more sense to build on Bitcoin. So we have seen a big explosion of the number of people building startups in the Bitcoin space, and in the Lightning space especially. But again, not a lot focused on access outside the western world. A lot focused on the technology side, a lot focused on improving the user experience. Some stuff focused on building towards Stablecoins, whether it’s on taro or hopefully more dlcs in the future, but not a lot on the access side. So we’ll see. I don’t think that’s a technological problem, though. And so you have a lot of kind of western folks who want to build on the technology side, which is great, and we can improve the UX, and we should keep doing that because that’s really, really critical. But we need local entrepreneurs. And that’s why you look at like btrust, this Africa based foundation to build Bitcoin developers and fund Bitcoin development on the continent. You look at, I guess maybe that’s one of the best examples, but you look at projects like that are really important to get people excited about building in the space and just general people care about Bitcoin. Like Bitcoin has a lot of usage in Nigeria, and so that also and Nigeria obviously also has historically been a very entrepreneurial economy. So that also hopefully going forward leads to more development of better access solutions, those parts outside the western world, I should say outside the western world. So, yeah, I don’t think that said, there is maybe some technology that can be built so better. Like if you build a brokerage now, you have to acquire users. Having that integrated in wallets. That’s historically been a way wallets have made money, is they integrate a brokerage in the western world, at least, where you integrate a brokerage that can service customers, they buy Bitcoin with credit card or whatever, it’s some exorbitant fee. So you can do wallet integration, but having a marketplace for that in local markets, you certainly can’t use Coinbase in Nigeria built into wallets. That’s something that could be built. So there are some things people could build, but I don’t know how much that’s going to really make the world a world of difference to people who just want to build a brokerage outside the western world. Ultimately, that just takes local entrepreneurs being excited about Bitcoin, wanting to build on Bitcoin, and wanting to provide that service for people.
Stephan – 00:51:11:
Yeah. And I think there’s a bit of a cultural point here. Right. Obviously with obviously I’ve been very critical of things like Ethereum with the Premiere and the culture, and I think there’s like a very strong Ponzi kind of dynamic, I think, that I think people underrate. And maybe that’s a cultural thing as well, because people sort of say, oh, look, Bitcoin doesn’t do all this stuff because it doesn’t have all this technology. But then you sort of see well, as an example, even this whole Ordinal inscription thing, I don’t know, maybe it seems to have kind of died down a bit recently. And it’s kind of like, well, you had this technology, but really I think it was just a lot of people who were maybe it wasn’t competing about the technology. It was kind of competing on Bitcoin entrepreneurs were being expected to compete with Ponzi operators or people who are benefiting from being a part of the Ponzi. But I think the cultural point you make is right. I think certainly that people being interested to build Bitcoin things. We’re seeing Bitcoin communities, right? There is no Ethereum Beach, there’s Bitcoin Akazi, there’s Bitcoin Island, there’s all these communities and there’s meetup groups.
Matt – 00:52:13:
Yeah, you just don’t see a culture and Ethereum of trying to build out a payments platform. It’s not the goal. Maybe for some people it is for people building Stablecoins, maybe. But the Ethereum world is about a lot of it’s about being able to trade things. And again, whether it’s like an NFT, some kind of collectible with value people assigned to it, or whether it’s a lot of Dows, they’re not that decentralized. Usually it’s just a company with three people on a discord running a company, and maybe there’s a little bit more share voting for decisions, but not really. But they’re issuing shares in their company. That’s what they’re doing, right? Like they’re issuing shares in their company without the legal overhead of getting a lawyer and filing an LLC. And you talk to a lawyer, maybe they should be doing that too, and then being able to trade those, listing those on decentralized exchanges. But none of that has anything to do with payments or money. That’s just you’re issuing things to trade. And obviously with a decentralized marketplace where anyone can issue something and it instantly starts trading, you have a lot of people who want to build Ponzis and you have a lot of people who want to just build investment scams. And that’s been a problem certainly, but ultimately the focus is on issuing things to trade and that has nothing to do with Bitcoin, that’s not competitive with Bitcoin, that’s not anything. But it is certainly a way to make a lot more money, right? If you’re doing a lot of trading volume, there’s a lot more money to be had in that than just doing transacting in Bitcoin. And so that’s also part of the reason why a lot of the again, some of that it’s also very easy to make money by issuing shares that don’t represent anything and then pumping and dumping it and having all those scams. But ultimately all of that stuff just it’s way more easy to make money there. And so that’s also been why people have been more drawn to that world over Bitcoin. But now I think that world has matured a little bit to the point that now you might have to have an actual business plan to make as much money and as a result, people are taking more stock. And I think that that world has solidified around what it is, right? Ethereum has been like the ephemeral, we’re this, we’re that, we’re that, and it keeps changing kind of every bull market as it kind of maneuvers to find a niche where it’s like adding real value. And so initially, everyone was like, oh, yeah, Ethereum is just going to beat Bitcoin. It’s going to out compete it. And then it’s like, well, it has all these features that Bitcoin doesn’t have, and now it’s like, well, yeah, Ethereum does these things and Bitcoin does these things, and that’s a super healthy place to be, and that’s how we should. Bitcoin does love to point at the scams on a Ethereum. And it’s true that this having an open investment platform where anyone can issue shares and they instantly start trading excites lots of scammers and it draws so many scammers. There’s so many scams there. There’s so many issues with pump and dumps. There’s so many issues with people who issued Dows, and it was actually three people in the Discord. And then those three people got bored and did something else, but not until after they sold all their shares and now everyone’s sitting there holding worthless tokens. Yeah, that’s a huge issue. But it’s also not that space has matured a little bit, and there are things that aren’t that you have a lot of company. Disney and Gucci are issuing NFTs. Right? Sure, I’m not going to buy them. I don’t buy baseball cards either. But lots of people buy these collectibles and no one’s confused about what they’re getting. I think NFTs have done very well for the Ethereum space because there’s been a lot more clarity when you buy these things. What they are. Again, I don’t think people buying NFTs are really confused about the fact that they’re buying a digital collectible. That’s what they’re referred to. It’s just a baseball card or not even a baseball card. It’s just a picture and whatever. No one’s confused about that. You can’t really call it a scam if no one’s really confused about it. If there’s not this kind of pumping up going on. Yeah, someone issued a bunch of images and sold them to you, and they did no work to do that, but you knew that going in because they did no work to make those images. Like you knew that from day one. So I think that’s improved that space a lot because there’s been a lot more kind of everyone’s been upfront about what’s going on, and as a result, there’s been kind of, I think, a better understanding of how different things fit into the broader cryptocurrency ecosystem.
Stephan – 00:57:10:
Right. And certainly even there I could imagine. I had a chat recently with Casey Rodarmor, the guy behind the recent Ordinals and inscriptions. I’m not an inscriptor myself. Personally, I discourage it. But he has criticisms of shitcoin NFTs also because he said, in a way, Bitcoin, you could argue the bull case would be Bitcoin does it better. Right. It’s immutable. It’s actually on the chain per se. It’s not just a pointer. There’s various critics that he has of that too. So maybe that’s interesting as well. But also I want to chat a little bit about Bitcoin and changes to Bitcoin because it seems that and I know you’re someone who’s one of the earliest known Bitcoin Core developers, and now obviously you’re more focused on Lightning, but still obviously involved in the ecosystem. I’m curious your view on where changes to Bitcoin could happen. As an example, people are talking about OP_VAULT, and the PREVOLT. There’s been some talk about drivechains. Are these technologies that Bitcoiners should consider? Would they help Bitcoin scale to the scale more or self-custody? Would it help scale the self-custody more? Or do you see it like, okay, let me put this into a question. The soft fork frequency has been slowing down a lot. Is that a good thing?
Matt – 00:58:25:
Yeah, a few things. First of all, it’s a historical tone, right? Prior to SegWit, prior to the blocksize wars, let’s say sof fork has happened with some relative frequency once a year, once every other year, or whatever, and we’re relatively uncontroversial, right? Not in the sense that the Bitcoin community didn’t care or wasn’t actively monitoring and learning about what these changes are. And there were fewer people who chimed in. But people had an opinion, which is good, but they were also just kind of less. They just didn’t have any kind of political like. No one was interested in debating the politics of it because it wasn’t interested in check sequence verify, having a better way to do timelocks in the scripts of a Bitcoin transaction. Cool, yeah, no one’s going to complain about that. Who cares? It’s not like changing anything fundamental about Bitcoin, it’s just one little new feature. It’s not whatever the blocksize wars change that obviously where this debate around changing the block size very quickly turned into having nothing to do about the block size itself. It was just people batting around numbers and whatever, but had everything to do with how Bitcoin should work, how changes to Bitcoin should work, what’s the process for changes to Bitcoin, et cetera. And that turned into a big debate around that. And so that turned a lot of people off from forks, right? And so you had kind of a lot of the folks who worked on Bitcoin Core at the time moved off and started doing other things after. The block size war is a super high pressure environment where people were constantly worried about not only did they become more controversial, but also the people who spent time working on soft forks just kind of went off and did. Other things because this scaling controversy and the scaling drama kept everyone really focused on Bitcoin Core and soft forks and whatever and suddenly there was a little bit of breathing room and so a lot of people kind of went off and did other things and so there just wasn’t a lot of desire to go through any kind of drama. It just wasn’t worth it. And there were so many other things to build, like building Lightning stuff, building music, better MultiSig stuff in Bitcoin building Miniscript and output descriptors and all of these kinds of technologies that people wanted to build but were busy focusing on Bitcoin Core. So then there wasn’t a lot of interest in spending time on soft forks. And so we kind of indicate off like there wasn’t no one was really working on potential forks, nothing really happened. Then in part the community grew and grew and grew and there wasn’t strong memory about how it wasn’t strong shared context across the community about how soft fork should happen. Which means that any soft fork immediately turns into drama about how soft fork should happen because there’s not shared context. And so that turned people off even more from working on soft forks. So now there’s kind of this pent up demand, right? There’s this pent up demand. Like you mentioned a few things like Vault’s Covenants in general. Also sighash no input, which I guess kind of is a covenant, but like is little tangential. So like, that whole class of things is like drive changes a number of other things that people want to do from a feature perspective, that there’s some people who want it, but it’s not clear what the process is, so it’s kind of hard to make progress. But then there’s also other stuff we should do. Like I mentioned earlier, having fee reward smoothing, right? So having fees from transactions in a block be kind of averaged out over a number of blocks. These are really important things we should add that isn’t a feature. So no one’s excited to kind of spend their time working on it. But also it’s the soft fork, so no one’s excited to spend their time working on it because there’s probably drama there. I think we need to do some of these things. I don’t know what the subset is, whatever, but we do need to do some of these things. And I think there is precedent for how fork should happen, right? But we have to go back in time quite a ways to find it. And that does make it tricky to figure out and to kind of recollect around some shared context of how soft fork should happen is something that’s not easy and not clear to a lot of folks, I think kind of what the process should look like for that. So it’s hard. I don’t know what the future holds there. I’m hopeful that the folks who want to work on soft forks in Bitcoin can find that path and can make I think the specific issues also depend on which soft fork we’re talking about. Like we talk about covenants. Well, the problem with the covenant stuff is there’s like four different, five different, six different proposals, whatever, and no really strong arguments about this proposal lack of formalization, there’s no strong arguments around. Like, this proposal is clearly the right one because it does this and that and is cleaner for these reasons and enables this used case. And like, here are the three used cases we care about, or five used cases we care about, and here’s how they all break up. And there’s been some attempts at formalization. I know Jeremy did some work on his CTV proposal to try to formalize it a little better and kind of list used cases, but I think there was some debate around the used cases he listed. And also, more importantly, there was some debate around how formal the comparisons of it versus other potential solutions was. And then now Jam says the OP_VAULT proposal. And I admit I haven’t followed super deeply the details of that proposal, but I don’t get the sense that it has kind of solved that formalism problem either. That it hasn’t kind of done a nitty gritty analysis of all that kind of why this one versus some other one. Because the tough part with Bitcoin changing Bitcoin is we can’t undo it. We can’t remove that complexity later. People are going to start using it, people are going to put coins in it, we can’t remove it. And if it’s kind of a hack or if it doesn’t enable the right set of features, then we’re like doing another soft fork later to add a whole parallel set of features that isn’t compatible with the thing we just did. Not clear that that’s kind of worth the effort to me. So yeah, we’ll see where we end up with that work. Again, I’m hopeful, but it’s got to have the right kind of arguments behind it. But I’m also hopeful that we get back to a world where we can do other soft forks that are kind of more bug fixing, like transaction fee smoothing, like removing the opcode separator and squared signature hashing stuff, which can make blocks pretty slow to validate. All these things, we should clean up in Bitcoin. We should do them and we should do forks to clean these things up and not necessarily just add features. Like we have to keep Bitcoin running and keep Bitcoin secure and safe is more important than adding features. But yeah, again, we have to kind of build some kind of shared context around how these things should happen before we can really get too far down that rabbit hole again, I think.
Stephan – 01:06:30:
Yeah. And so I guess the other question then is do you see a lot of the innovation happening at application level? Like, is it just about building things out in apps? And I know obviously you’re focused on LDK, Rust, Lightning, and I know either yourself or your team, we’re focusing on this idea of mobile graph syncing as an example. So the idea is that I believe your mobile app could quickly sync the Lightning graph as an example. So do you see that as the direction then, that let’s say people who want things to move faster, they’re going to have to do things at the application level?
Matt – 01:07:01:
Yes and no. Bitcoin consensus has never been fast. Like even we go back years, we go back ten years or we go back, I guess seven, eight years, nine years, and soft fork still took a year or two. Things were never super fast. So it’s always been the case that you can do more at the application level faster. The fact that we’re seeing more time spent at the application level is more a function of the fact that these things have shipped and that there’s now enough resources. It’s not like we didn’t know about payment channels in 2011, in 2011 or maybe 2012. It’s not like people didn’t know that we wanted to build a network of payment channels throughout payments. That’s a super old idea. Now. The HTLC Construct added a little more to it to make it much more practical. The kind of like pay in small increments payment channel network concepts didn’t really scale and were maybe a little uncertain so the HTLC Construct added a lot, but there’s also duplex micro payment channels and other constructions that kind of came around around similar time. But more importantly, we just finally have the resources. Like there’s enough people paid to work full time on Bitcoin that we can both build a set of robust Lightning implementations and also still have people working on Bitcoin Core that these two things can happen at once an hour. That just wasn’t true five years ago, six years ago, there just wasn’t that level of investment in open source technologies around Bitcoin. So that’s been great. Obviously the Spiral team at Block has done a lot there as well. We’ve given however many grants, many grants now to fund open source developers, but also the number of additional companies who’ve done that over the years now. Sadly, it’s a bear market, so some of that’s gotten cut. But there’s still a lot more open source developer funding in Bitcoin than there ever used to be. So people will still want to build at higher levels to move faster. But I think it’s mostly a function of just developer funding and that being available.
Stephan – 01:09:14:
I know networking is another area that you’re pretty interested in. Is there anything you’re seeing on that front that you’re excited about for Bitcoin or Lightning? I know there are ideas being thrown around like V2, Peer -to-peer or even this AS Map ID. Curious if you have any thoughts about anything that you’re excited there.
Speaker B – 01:09:32:
Yeah, the AS Map ID is pretty old and is focused. There’s nothing super exciting in the I think the encrypting the pure connections in Bitcoin Core finally should have happened forever ago. Project bounced around between different people who wanted to work on it and whatever it’s finally shipping. I’m really happy about that. AS Map similarly, I think it’s technically been in Bitcoin Core but not on by default. You have to actually download an AS Map which can potentially strongly improve Bitcoin Core civil resistance. So ensuring that when you spin up a node, either a new node or even an existing node, making sure that you always have connectivity to enough of the network that things are safe, that you can reliably get blocks and you can’t be censored important work. It’s important to keep ahead and keep making progress there. And AS Maps the next step, which is great to see, but I don’t think it’s sad. Like the old fiber network that I used to run kind of shut it down for a few reasons. We don’t have as many problems with the Great Firewall anymore. There’s just not as much mining in China, so we don’t see a lot of that. Big orphan rate that we saw because of that. Also compact blocks improved that somewhat, but we just don’t see as the same scale of problem. We did see a little bit of an increase in orphan rate when I did shut down the public fiber network, but it was challenging to maintain. Need some patches to go byupstream in Bitcoin Core that never did. Hopefully they still can, I don’t know, but we’ll see. I think the more exciting stuff in that vein is just on the Stratum V2 end. There’s another big risk to Bitcoin, I guess if we don’t manage to make mining materially decentralized, we’re screwed. Mining currently is fairly centralized at the pool level. We now have yet again another pool that’s at whatever, 40% of hash power or something nuts. Mining needs to be decentralized. And luckily, you know, the observation with Stratum V2 is that it doesn’t really matter whether you’re trusting some entity to maintain the funds for a mining pool. What really matters kind of to the Bitcoin system is who selects the block templates and who selects what the previous block is, and we can split those operations up. Now, you still want to make sure that the mining pool operator doesn’t just take your funds and drive you out of business because you’re selecting your own blocks. And so maybe solutions like P2Pool, like people reviving P2Pool would be nice. But there is an area that I think developers can make a big impact. The Stratum V2 project had some bear market loss in terms of funding and people having full time to work on it. But that’s something that desperately needs to ship. If we want to ever have any hope of making Bitcoin as censorship resistant, as I think we all wanted to be, we absolutely have to have mining be way more decentralized than it is today. So there’s something that developers can have a big impact working on that project.
Stephan – 01:12:41:
Yeah, and as I understand, even the pool that you mentioned has a big hash rate. Even they are supportive of the Stratum V2. So it sounds like there are a lot of people supportive, but it still needs work and time to get it over the line basically.
Matt – 01:12:58:
Right. The code needs to be there for people to use, and that is another big change in the last number of years, is like mining pool operators today, they don’t want to be in control anymore either. Things were a little different. Chinese mining pools had a very different attitude, just culturally. There wasn’t very much interest in Bitcoin as a censorship resistant platform. There just isn’t a lot of interest in that culturally in China, at least not within the community of people who operated mining pools, let’s say. So it is refreshing that mining pools today are looking at their hash power and saying, like, oh my God, we don’t want to have this much hash power. We want to use something like StratumV2. We want to somehow figure out a way to decentralize this. But yeah, the software needs to exist, the software needs to be usable, needs to ship, and that’s just taken longer than it should. But developers. If someone has time and wants to contribute to the Bitcoin ecosystem, I’d say that’s probably one of the highest leverage places to do it today by far. It’s a project that doesn’t have enough resources and would make an absolutely massive difference to the Bitcoin system.
Stephan – 01:14:13:
Right. And as I understand Braiins, obviously the guys over Braiins and yourself were working together on that and I know they supported on their pool, but the idea who is getting the software so that other pools and other mining equipment could work with Stratum V2.
Matt – 01:14:29:
Right. I believe they support using the SV2 protocol to still do mining where the pool selects the block template. I don’t think, again, because the software is just not there yet, I don’t think they yet support the Stratum V2 mode where the client, the miner, selects the block template, runs Bitcoin Core, and that’s really the thing that adds value to the Bitcoin system. Stratum V2 has other benefits. It is encrypted, it is lighter weight, it’s a binary format, so it uses less bandwidth. Yada yada. That’s all great for miners and that matters for miners, but for the Bitcoin system, it’s not all that critical. As far as, like, a user of Bitcoin. What I care about is that the people running Bitcoin Core to select the transactions that go on a block are as decentralized as possible. I don’t really care too much about anything else. And sadly, I don’t think Braiins yet supports that. Using Stratum V2. And I don’t think the code for that to use Stratum V2 is quite there yet either.
Stephan – 01:15:33:
As I understand, and I don’t know the full details, I understand there is some change needed in Bitcoin Core, not a soft fork, but there’s some as you’re saying, I think this is the code change. Right. Or one of them.
Matt – 01:15:43:
Yeah, just a small patch. I don’t think that’s as much of the hold up that needs to happen, but it’s just a small patch and people could run a patched version of Bitcoin Core. It doesn’t have a lot of change. It’s kind of attached to the side of Bitcoin Core. It’s not like it’s rewriting internals of Bitcoin Core. So it’s not really a huge deal to just run the patch. The bigger concern is just getting the software robust and tested and people should go try the software and give feedback. But yeah, getting it tested and getting people to the point where they’re comfortable putting their business on that soft fork stack versus just it being like, yeah, you can maybe use it kind of Alpha quality, maybe Beta quality, but there’s just more work to be done there.
Stephan – 01:16:31:
Also, on the networking front, there are this idea of using alternative networks, obviously a Tor network, and I see there are more people playing around with itup as an example. Is that something you’re interested in, like alternative networks to connect your Bitcoin Core node or Bitcoin node.
Matt – 01:16:47:
Yeah, there’s the question of what you’re trying to accomplish. So there’s two different things that we have to separate here. When people are using Tor and they’re often conflated, there’s censorship and then there’s privacy, right? And Tor was originally designed to provide privacy, so it’s mostly focused on this multihop routing yada yada. And then they’ve also added a bunch of anti-censorship stuff on top, different pluggable transports. So if you’re someone somewhere where you have internet, but the Bitcoin protocol is censored, or maybe access to certain LSPs and Lightning are blocked yada yada. You care about censorship, but you’re happy to use a VPN. You don’t necessarily care about the privacy aspect of it, you just want to be able to access it. Then you want to transact with Bitcoin in a way that potentially your LSP or the person you’re transacting with has to ban you’re in Iran, and you want to pay someone on GitHub or whatever, and you can’t do that because of US sanctions. You just want to donate money to someone for writing open source software, but you can’t do that. Or maybe in Iran, and you want to receive money for running open source software and you can’t do that. So that would be somewhere where you want to add privacy. And so on the Bitcoin Core front, it’s important. I guess on the Bitcoin Core front, there’s a third reason. There’s also civil resistance, right? So if unbeknownst to you, your internet being intercepted and all of your peers are actually connecting to one node, you can be civil. And so using Bitcoin Core, traditionally these other protocols have been used as fallback civil resistance. So ensuring that you have other ways to connect to peers than just the raw, your direct Internet connection, can potentially give you some additional civil resistance. So we have to be careful to define exactly what we’re trying to achieve with these things. So with Lightning, like, why is your node on Tor? Is it just for privacy? Is it for civil resistance? Probably not, because you have the public key for your peers. Do you have a censorship concern? Are you in China? Are you in Iran? Are you in Saudi Arabia? Whatever, where you’re worried about the internet being censored in some way or another. So we have to define what it is, and then people should pick the best solution to that. But I feel like we’re just kind of throwing things at the wall often, or at least users are just like, oh, Tor, I should enable this. Yeah, maybe, but are you accomplishing something there? And then on the mobile front, too, when we’re talking about building out Lightning apps for end users? Well, an important consideration there potentially is what happens if the internet you’re on is censored and being able to access trustless financial services and uncensoredable financial services. If the internet is censored, we have to make sure that works. So having those things built in too, and taking a page out of like Telegram or whatever, where they had years of the Russian government trying to censor Telegram and Telegram continually updating the apps and adding layers of all kinds of fallback proxies and just tons and tons of proxies for people to access Telegram. Doing stuff like that in client apps for Lightning is something we should probably consider and should be building out. But Tor isn’t necessarily going to solve that for us because Tor, its anti-censorship properties are, let’s call it, a little weak. There has been a lot of effort put into making Tor censorship resistant. So you can get access to Tor if you’re internet censored, but they’re often quite manual. They often don’t work super great, they’re often super low bandwidth, they’re not very reliable, and that’s been part of the reason people have looked at I2P, et cetera. But I don’t think I2P necessarily has that much better censorship resistance. It’s just more indifferent, which is also good, but not necessarily going to solve a problem if Bitcoin is specifically targeted. So there’s a lot of work to be done there, especially on the censorship resistant front. But maybe people would choose VPNs and it won’t matter.
Stephan – 01:21:11:
Interesting. Hey, after all that, maybe for some people they’re just better off with a VPN. I also wanted to chat a little bit about LDK. Is there anything in particular that you and the team are working on? Actually, one other thing is you mentioned that there are more teams now looking at LDK, right? Like, if we went back a year or two, there weren’t that many teams looking to put it into production. And now, obviously, Cash App has it. And there are, I know, other wallets and other applications who are looking to use LDK now or are using LDK.
Matt – 01:21:45:
Yeah, I think a few things. First of all, LDK is designed to be super flexible and designed to have kind of a super pluggable architecture that’s really great, except that it requires a lot of plugging things in. And so if you’re a new developer, you get dropped on in front of the LDK API and it’s like, okay, here’s these piles of documentation about like, plug this thing in and this way it’s your block source and plug this thing into your database and blah, blah, blah. It’s just like a little overwhelming. So I think that hampered us for a long while in terms of adoption. Over time, I think people want to build mobile Lightning experiences, and it’s still the case that there’s really kind of two options. If you want to build something on mobile Lightning, you either use the Eclair has a rewrite of Eclair in Kotlin that you can compile for iOS and Android, or you can use LDK. And then if you want to run a node in your web browser, your only option is LDK. So there’s been folks who’ve kind of looked around and concluded that LDK is what they want, but that kind of just the raw amount of stuff you have to do to get it going. I’m not going to say it’s like, complex, none of it’s really complex, but it’s just a lot of stuff has slowed people down in terms of being able to ship. So that’s been an issue. It’s something we’ve improved. We’ve simplified the API a little bit, but more importantly, we’re working on this project currently called LDK Node, but it’s been renamed like five times, which isn’t necessarily a freestanding node. It might be at some point, but is really just kind of, let’s say, default configuration of hooking all those things up. This LDK node project will let people take something off the shelf and run it and have a working wallet. And then they can modify it as they see fit to kind of use the full light LDK API that allows you to have a lot more flexibility. But they can also take it and just kind of embed it and run it in their application without too much overhead. And so we’ve already seen several people taking it. I mean, it’s not even released yet and it’s still kind of getting code review and like Alpha, but people are already building on it because they’re excited about it and they want an easy to integrate Lightning node, basically, but targeted mobile, at least initially and then maybe elsewhere later. So people have been kind of really running with that. But also it’s just as more time has passed, people who otherwise wanted LDK have done the legwork to figure out the API and start hooking all those different pieces up to use LDK. And we’re starting to see some of that ship in Alpha now, obviously Cash App shipped quite a while ago, and there’s a number of other projects that haven’t shipped for various reasons, but we’re seeing a number of them kind of reach Alpha Beta stage at this point.
Stephan – 01:24:56:
Awesome. So, yeah, I think we’ve spoken about a lot of different things. So probably a good spot to wrap up here. So do you have any closing thoughts for listeners? Based on all the stuff we’ve gotten into? I guess at a high level, I’d summarize it like we spoke a little bit about what Bitcoin’s specialization is. That’s probably was one of the key themes, but I’m curious if you have any closing thoughts.
Matt – 01:25:19:
Yeah, I mean, I think that’s really the important theme is, like, the recognition that Bitcoin and cryptocurrencies have specialized and that we should be excited about that. We should welcome that and we shouldn’t spend our time there’s still a lot of people who just argue about argue, start from a point of view of like Bitcoin and Ethereum are in competition and we need to beat Ethereum versus saying, like, Bitcoin is specialized, it does this thing, and the Ethereum is specialized, it does this thing. And maybe I think that thing is not very interesting and it’s kind of dumb, but it does this thing and it’s completely different. And making sure we argue from those points of view and making sure we focus on it in that way, I think would improve a lot of debate and continue to improve this kind of healthy trend. And then also just Bitcoin is finding the best way to compete in an open marketplace. Given that and finding the best way to how do we best communicate the differences between Stablecoins and Bitcoin and how do we best compete with Stablecoins and add? We don’t really care if we win the competition. But add value to users, to users lives and really make a difference and provide something that people want to use in access from Stablecoins is something that I think the community needs to do a little more soul searching on.
Stephan – 01:26:40:
Fantastic. Well, thanks, Matt. It was educational for me and enjoyed chatting. Thank you for joining me.
Matt – 01:26:45:
Yeah, thanks for having me.
Stephan – 01:26:47:
Thanks for watching or listening to the show. If you enjoyed it, make sure to hit like and share it with your family and friends and get the show notes at @stephanlivera.com/461. Thanks and I’ll see you in the Citadels.