#210 Alex Morcos: Chaincode Labs and Why Bitcoin is Our One Shot at Creating Digital Gold

Transcript

[Music] hello and welcome to episode show which talks about the startup technologies in politics driving decentralization and the global plotting revolution my name is Brian Fabien clain and I'm heroin today we have on our show Alex Marcos who is the co-founder Eric gene code labs change code Labs is a New York city-based research and development group that builds some of the infrastructure for Bitcoin and other cryptocurrencies systems in general Alex welcome to the show thank you it's gonna be R so before

we begin talking about Bitcoin tell us about how you got interested in between the first place well my background is high-frequency trading I spent about dozen years doing that and I co-founded a company called Hudson River trading and then in about 2011 or 12 I sort of reached the point where I was kind of ready to do something else my job had kind of become management and I was interested in doing technical work and you know learning new stuff again and one of my good friends Ben Davenport has sort of been active in the Bitcoin space for a long time and he had introduced me

to Bitcoin before that but you know I kind of read the white paper thought I was interesting and then promptly forgotten about it well I so I took a year off from Hudson River trading and then I was out in California in the spring of 2013 and it was about a couple of weeks after the after the fork and I visited Ben and you know we were just sort of talking about what had happened with this fork and what it meant and that was like kind of the first time for me that I really thought about all the things that come together and in Bitcoin all the different fields the economic incentives and governance structures and the

from the technology side there's like the crypto and the p2p programming and the security and all of these things just and we talked long into the night and it was fascinating to me and I think it's kind of like a common story that there's a time when you were kind of bitten by the bug and that was it for me I knew I wanted to do to do Bitcoin after that and maybe just people so Hudson River trading is I think a quite well known company in that it was a company that it was one of the pioneers of algorithmic trading can you tell us a little bit about that like what was that how did that come about and what role has it played in in financial markets

sure yeah when I i started in that space in 1999 at terra research capital before hudson river trading and yeah there was basically nobody doing automated trading you know they're bitten recently some market structure changes which had allowed anybody direct access to the market which was a big shift i you know i think this is actually a very interesting example of regulators getting something right where they by opening up competition in the market they paved the way for it to become far far more efficient and so at that time it was sort of coincidental that we were

reaching the point where it would make sense for computers to automatically trade these things at the same time that the direct market access opened up so when we started you know we would go to a brokerage that were though there was used to like servicing day traders which was also big at the time and would try to explain to them no no we don't care what your GUI looks like we don't care about any of that we just want access to your API to your back-end and that was like you know a foreign language to them and you know finally we kind of would make inroads to the point where we would be able to set up these systems and you know it was just very primitive at the

time and then 2002 I along with four other guys left and started Hudson River trading and again this you know even in it at that point this space was still very small and we were the tech guys in a financial field there's some similarities to bit to Bitcoin there where you know we would we didn't have the finance background or the Wall Street background a lot of times we'd be in meetings and not even sort of understand that the common language just that people were speaking because we viewed all these things as computer science and math problems and didn't really have the perspective of of Wall Street but it's fascinating and you

know it we built HRT up it's probably a little over a hundred people buy time I left at the beginning of 2012 and you know when we started it was kind of just one market we started with Nasdaq that was the easiest one to trade electronically on but you know and now HRT trades all kinds of products all over the world not really because it's a proprietary trading firm in that it doesn't take outside capital it just trades the firm's own money and with high-frequency style trading you don't need a lot of capital to do it because you're sort of in and out of positions

relatively quickly so you can reuse the same capital so one of the questions I'm getting from like what you're saying is like HRT was very young in like 19 say let's say 2000 or 2002 but like quantitative trading as a field has existed for a much longer time I presume right like so we have forms like Renaissance technologies that are like 30 years old what is what is the difference between two and what did HRT exactly pioneer well I mean there were a few firms at the same time the HRT got started and his tower was starting to do

it that we're doing this automated trading but but I think that's the big difference it's not just that you're using mathematical models to analyze the trading or computers to to you know tell you what trades to do the the trades are happening in an automated fashion from the computers there's no human trader in in the in the flow I think that's probably the big big difference I mean just so if people aren't sort of familiar with what high frequency trading does you know there's this history of there being middlemen in the market either specialists or market makers that are there to kind of provide liquidity basically to solve the the time problem of if a buyer comes in the

morning and the seller comes in the afternoon like how are they going to meet up and so forth so you have these these middlemen but it was a privileged position before these market structure changes happened and there were only a few people allowed to do it and so they could you know great quite a spread between the bid and the ask and make quite a bit of money but once that God opened up where anybody could compete and be in that same position then the market became much more efficient that's when you saw you know used to be it may be as much as 25 cents between the bid and the ask uh-huh and now it's a penny on many stocks and the cost of trading you know it used to be commissions fifty or a

hundred dollars to do a very small trade on a brokerage and now you have these eight dollars no matter how much you trade kind of trades on online brokerage and all of that came about in my opinion because you had this increased competition which made the markets more efficient so are there any things that you learned from from that experience of this changing market or the algorithmic trading that you know a kind of a key lessons that you took away from there that you also find you relevant now as you're looking at Bitcoin well but finally the the sort of thing that stood out to me is the biggest similarity was the perception problem people didn't

understand what high frequency trading was there were all these fears of computers running amok and causing problems in the markets or that they kind of didn't understand why these firms that were doing automated trading were making a lot of money and not understanding that the money is not coming from them it's coming from instead the other firms that used to make much more money at being the specialists and the market makers and so there was like a wave of popular sentiment against what we were doing and there was concern about regulators cracking down on it and so we felt that it was necessary to kind of educate people about what we did and in particular in terms of legislators and

regulators just making them aware of what we're doing and I feel like that was an effort that went pretty well but when I first started getting involved in Bitcoin there was all this news about you know people are using it for dark drug markets or terrorists are gonna use it and so forth and so on and there was a risk that that sort of negative PR would outweigh the potential benefits people wouldn't see the potential benefits of Bitcoin and the Bitcoin foundation one of the good things they did is they had already sort of started this message of no you got to think of Bitcoin as like the next Internet sure people can use the internet for a nefarious

purposes but no one would argue we shouldn't have the internet because some people use it inappropriately sometimes and we should give time for Bitcoin to develop and see all the positive benefits it can bring and I felt like that was an important effort to help and so I started doing that among the first things I did in the space going down and talking to people in Washington and that ended up resulting in a quaint Center I worked with apologies for the vasa and from a 16z and we got Jerry Brito on board to run coin Center and I think they're they're doing a fantastic job carrying on that that effort and so chain code lab did that come out of this

conversation you have been Davenport and they saying ok I want to work on Bitcoin and the best thing I can do is just start this company focus fully on Picon development or what was the origin story of chain code laughs yeah so that was March of 2013 that I kind of made the decision I wanted to do something in Bitcoin it took about another year before we settled and by we I mean sue as deft or who is also one of my co partners at Hudson River trading who had also left also decided he was interested in Bitcoin and the two of us started chain code it took us about a year to get to that point and we researched a lot of other ideas in the meantime I think probably the one

we focused on first was the idea of building an exchange you know we saw the exchanges that were kind of the second round of exchanges that had started in 2013 which were very Silicon Valley tech company based as opposed to kind of like the prior you know mal Cox libertarian run by the seat of your pants style exchanges and we felt that that still was kind of missing something that there was like a exchanged technology is really quite simple and a solved problem and so they shouldn't be in some sense tech companies but more financial services companies because

real problem was the regulatory issues you know how do you properly get licensed and so forth and so on and I think we still see some growing pains there and you've seen some of the tech companies that have kind of successfully solved that like coinbase sort of started by maybe saying well we're gonna do this anyway I'm worried about the regulation later and now they've gotten to the point where they've I believe solved the regulatory problems but we thought you know we had sort of some expertise for this kind of thing and maybe that was something we could do I'm so glad we did not do that I mean even though the exchange businesses have been very profitable I think that would have been the mistake of going back to running a business and dealing bureaucracy and red tape and regulation

which is kind of why I decided to move on from high-frequency trading I wanted to do tech work again and so then that's you know we just kept coming back to that well we want to kind of like sit in front of a computer and code ourselves and be surrounded by other people working on interesting problems and so that's how we sort of came up with the idea of chenko let's let's build something that could be like the Bell Labs of Bitcoin so yeah like what is the vision for change code labs would you what would you want to have achieved order so originally you know we were sort of trying to straddle the line

between doing this academic nonprofit type research and development and also believing that a lot of this sort of innovation in the space could happen from for-profit companies and maybe we should be supporting startups and you know I do a lot of angel investing early on and we kind of try to do both and [Music] that was a little bit difficult for people to understand they didn't quite get what the purpose of chain code was so we still have kept a little bit of this idea of maybe people at cheng code will spin off a for-profit company if they have something they're really

interested in doing but that's not the chain code business model the chain code business model is to have no business model we're just you know in effect a non-profit where we're gonna we're gonna do research we're gonna you know we started by saying okay well what's the best way to do this well we'll we'll start by working on biklen core well we'll learn the code base and then we'll you know go from there and we just liked doing that so much that's what we spent most of our time doing we have four employees now and you know we do a little bit of other stuff we'd like to do more we'd like to work on things like lightning we'd like to work on some of this sort of cutting-edge research in the space but for the most part to date

we've spent our time contributing to the Bitcoin core open source project and you guys supposed to do this hacker residency program key share be about that yeah I mean that kind of comes back to the idea that we want people to work at chenko to work on what they're interested in actually it was before we even quite hired him but a Matt Correll oh you know we were trying to like see what we could do with him and what was he interested in working on and he had this idea that he really wanted to kind of like help introduce new developers to Bitcoin and teach them kind of how to think about the space and teach them the Bitcoin core code base if they wanted to

you know become contributors and so he ran the first two hacker residency and I think September of last year and one of the guys that attended that was John Newbery who we then hired to work at chain code afterwards so it was one very successful outcome of the of the residency and then he has sort of carried on the torch and he wants to sort of it was his idea to sort of do this new residency this year or I guess it'll be next year and this one will sort of be even bigger it'll have two parts there's there's like a you know two-week section that's sort of focused

on the on the design philosophies and security implications and so forth and then a more practical two weeks of of learning the codebase and and and that kind of stuff and we'll hopefully get a few more than four people this this time well we've had a lot of get up applications already so I'm sure we will so it's been what it's been three years since change code was founded and yeah so what has changed over worked on in these in these three years and what is according to you what are the achievements of the company well you know a lot of what we do is just sort of

work on whatever projects need to be done in Bitcoin core and the biggest thing that always needs to be done is kind of review and testing of other people's work so that's where we spend most of our time some of the big projects people at chain code have done [Music] to us contributed like one of the big sections of test framework and and John has taken over really improving that I wrote all the fee estimation code we did the pruning implementation that was based off someone else's work that they had started I mean there's just a few things like that that had tended to be projects that we've spearheaded and now

of course that we have Matt on board Matt's a workhorse seed you know there's tons of stuff I mean I've worked on lots of things over the years just kind of wherever there is something interesting to work on in the project yeah I mean I remember actually I was in San Francisco I think last so towards the end of last year about yeah about a year ago and I had met up with Alex Fowler and and he was telling me oh actually now most of the Bitcoin developments not block streams chain collab those guys it's like I think I've heard of you guys like vaguely but I wasn't really fully aware of yet kind of troll you guys had taken

on yeah I mean I think that's an interesting point but that's true now I think we have you know now there were six people like were like a really big portion of the commits and that's unfortunate because I'd like to have more I mean we would be happy to sort of fund even more people to work on on biklen core than we have but I don't think that's probably good to have any more concentration at one place so I kind of I think that's something that still needs to be improved is to like what the model is for funding development and you know there are advantages to having a few people in one place as opposed to just everybody being

remote but it shouldn't just be one place it should be several places that are kind of like centers of in addition to kind of individual developers from various companies so I think we've made a lot of progress I mean we've seen more and more some of the industry companies funding a developer to work on Bitcoin core we had you know we had a meet-up this past September in San Francisco and there were two dozen really active regular contributors typically in core which is you know compared to a couple years ago three times as many or something which i think is great but we could still we're still finding our way

as to what the right way to to keep that sustained in the future is so talking about Bitcoin you know if you look at him a higher level or high level perspective so when you got excited about Bitcoin interest in Bitcoin what did you see as some of the you know core characteristics I felt okay this is really essential about Bitcoin this is amazing it shouldn't be changed and maybe what are some of the other things that if you locate those are things where beacon can change evolve but it will so be that kind of Bitcoin that I'm excited about you know struck me about Bitcoin was this idea that the it's your money and that nobody else controls it and that applies in sort of two ways

that no one can stop you from spending it or paying with anybody you want or so forth there's like freedom of financial transaction I people commonly call that censorship resistance and then there's the control of the money itself like the supply and the inflation rate and that kind of thing and I think from the standpoint of having a major store value in the world that isn't a government controlled currency where these central banks can like you know if they want to fund some major thing they can cause massive

inflation which is kind of just a hidden tax I thought that was very appealing to me in the same way that sort of gold has that property but but bitcoin has it you know in a much more efficient way you don't have to like worry about chipping off a chunk of gold move it around so those those sort of two properties give what I call financial sovereignty to two individuals and I think that's a necessary shift in the balance of power from where we've come in the recent decades where there's too much power for the state to state and sort of like big banks and so forth to control financial transactions so that's what what

interests me most about bitcoins so then the properties that are important for that I think or you know everybody says you can't just say decentralization because what does that even mean but but I think what it means is that there's no pressure points that you know the fewer pressure points or the lack of a few pressure points where you could exert control is important so that can apply in a lot of different ways if mining is too centralized or if developers have too much control or if it's you know people is too cumbersome to run a full node so people don't do it themselves and there's only like you know people tend to use like third-party

services to use their bitcoins all those things would sort of erode these fundamentally important properties so as for what you know particular technical properties of Bitcoin achieve that you know one of the most important ones is the inability of anybody to control the governance of it that's not that's not really a technical property but like the point is it doesn't kind of matter what the technical property is as long as nobody is able to change it without consent of the coin users and holders and community yeah I think

that's a very interesting point yeah so maybe let's speak about that now because I think that that is a topic that has been you know so was a burning I didn't in last time and I think there are two perspectives say one is one is the one you just mentioned but it's a great thing that Bitcoin is so hard to change because it gives people this kind of certainty okay beacon tomorrow is still the kind of Bitcoin that you know I I think it is today I didn't of course that's very valuable if you think about a digital gold thing but because gold endures gold lasts right gold today is the same kind of thing basically that cold was 10,000 years ago and of course if Bitcoin in search of gold well it being like very hard to change it's a

good thing and a nothing to the other perspective as well but you know bigger needs to evolve in technology changes very fast it's not like gold right and it not see often adapt and grow and scale and if it doesn't change well will be left behind right it will become increasingly hard to use and and and we see that as well like we see the enormous Lehigh transaction fees that have basically made many use cases that used to be possible impossible and any when I got into a Bitcoin in 2013 at the same time you did the way Bitcoin was sort of solved to people it was sold in a way that isn't actually possible use anymore

today right you would say okay it's actually possible to you know send money anywhere in the world like instantly and for free or you know almost free and of course that was a little bit false advertised and even then but but it was kind of true and and now it's not anymore right or the aspect of using Bitcoin as a better payment system which again I mean was it it had its benefits as a payment system back then even though there weren't many places you could use it there was still kind of use experience was pretty good actually and now it's again something that for payments doesn't go this very few cases where it makes sense for

payment at least at this point maybe will change again so how do you think about this kind of conflict between Bitcoin wanting to say the same or needing to say the same but at the same time before needing to evolve and keep up yeah I mean I think you described it in a way that I often think about it that one way to look at this sort of recent division is that one camp is looking at Bitcoin as technology and one point is looking at it as money and depending on which view you take you have sort of certain priorities on where we should focus improving things and and what we should focus on protecting so I mean it's clear that bitcoin is both

technology and and and money or store value so it's more about which do you prioritize first and in my view if you lose the properties that can make it a good store value you can't ever regain those now yeah the there is a danger that maybe there's some magical window for people thinking between is is good to use for all kinds of payment technology and whatever and if we don't build that stuff fast enough then the opportunity to be gone forever but I don't I don't really believe that I feel like it's kind of unfortunate that we

don't have more time to to build this technology where you can have Shi easy instant payments I mean but one thing you said is right I mean that was kind of false advertising even at the time even a fees are low and every transaction makes it in the first block people were thinking about payments as oh I received the uncomfirmed transaction that's my payment that was never a good way to look at a Bitcoin payment regardless of it anybody changing or not changing the system it would be nice if we did have technology that work like that and I you know I think we need to spend a lot of effort trying to build that I don't know is

that answer your question yeah no I I think it does but but maybe maybe with governance so do you think what would if we talk now about the block size increase do you think the implications of that are like they it could never be a block size increase because that is something that's like too too big of a change and and that would threaten that store value property or you think or what would have to be the process where you say like okay now it is okay to do to make that change because there's kind of sufficient sufficient or like the store value property would not be threatened like what would have to be

true for that so so I mean my personal view is would be better if we do have block size increases there's a pretty good argument to be made that they're necessary sooner rather than later at least to some degree because we don't have these other technologies yet on the other hand I think if you if you had big enough blocks that they kind of weren't full now then you would never develop all these other technologies and that would be a big mistake so it's possible that we're kind of in a sweet spot now where you do have this incentive to work on other technologies because blocks are

kind of getting crowded but they're not so crowded that fees go through the roof I mean I know we've seen some really high fees recently but we've also lost half or more of the hash power to another chain I think when we've got all the hash power you're kind of under control ish and to some extent we have this nice graduated scaling going on right now with segmented option whereas as more transaction supply happens there will be more incentive for people to adopt segue and you know the fees will kind of find the right balance but that's gonna run out at some point you know I think we need to be sort of pursuing both avenues

we need to be thinking about how could we get to the point where we have a an additional capacity increase maybe via hard fork and also how can we build these other layer solutions on top and how can we incentivize people to work on those but to me the like no matter how important I thought a block size increase would be the cost of sort of forcing it through against significant opposition would way outweigh any benefit so I might like to have one I might like to have one soon but only if we can get consensus around it and I

just don't know I mean I don't know any more than you do whether that's gonna be possible or not right I mean I always kind of felt that there was this weird position many people have it was like okay yeah block size increase would be good but I'm against it because some other people against it and then you have this like weird sort of equilibrium so I I find it hard to see how that blocks has increased could then happen you know because there's no real process to get to like consensus or agreement but you can't even measure properly as long as people are loud enough and protest enough well but but but you know I don't think we should fall into the mistake of saying that come on we've been trying to

do this for two or three years and it hasn't worked how are we gonna get consent now that's not true well when we started trying to have these hard fork proposals they were for twenty megabytes 20 x increases not doubling and you know finally only this year do we have a proposal that was just for doubling but it was still on a very aggressive timeframe within six months and it still was we're doing this whether you like it or not we're not gonna try and build consent for it so we haven't really seen anybody try to do this and what I would call the right way where you have a conservative proposal that with a long time to roll it out and you know adopt people to adopt the new

technology and that's conditioned on building consent I think people are much more likely to consent to something if they're asked and are told you know what if we don't get consent for this we're not gonna keep pushing it I mean you can't say well if you guys don't consent for this then we'll have no choice to push a different one through because you've stopped doing that and that's what we've been doing for two years now and I think one the things a few of us have been saying is that that is making it harder because you're you're instead you're conditioning people to to get their defences up say no we have to preserve this in violent nature of Bitcoin where you can't change it against our will so I mean I actually

think that now is not the time to talk about block size increases we just I mean what the fork is still scheduled for like two days from now or three days from now to when it was supposed to happen yet so we need to let like emotions cool down a little bit we need to let people sort of hopefully come to the conclusion that no one is going to try X T number five or or whatever you know the next push through a hard fork is and I think if that happens then maybe maybe the community become more willing to talk about a a voluntary block size increase but I don't know

this is just my opinion well like what do I know how would you do a voluntary block size increase would you make it say it only activates if there's like 80 percent support for miners or how would you I mean I think it's gotta be a it's more of a social problem than then a than a you know technical activation parameter problem I think you have to put a proposal out there and you have to leave it out there and you have to wait and see if it gets support and I think people have to individually come to the conclusion of okay well this might not be exactly what I want but it's good enough for me or I'm willing to consent to it or I

guess I'm willing to go along with it if everybody else does but that kind of process doesn't happen if people feel like you know there's a clock ticking or that they're not given a choice because gonna happen anyway and we just kind of hope you come along with it I mean I don't know that nobody knows how this should work right like Bitcoin governance is an entirely new kind of thing but I think there's a few of us that have been saying that this is the way that we should try to do things like this for a long time and that way has worked for non-contentious changes right maybe it's a bit different for something that that's got a bit of history to it

now let's get some it's got some baggage but uh certainly worth trying it's not we shouldn't all give up and be like we're never gonna get a hard fork because it hasn't worked before it no-one's even try to do it right okay yeah I mean I think one one of the problems with this is probably that there's so much toxicity in hostility has been created that I don't think people believe that this is possible and maybe you're right but maybe it just takes somebody who has a lot of political ability right it's kind of a good diplomat and has you know sort of neutral and on tarnish I think you're

going back down the road of like there should be a leader that people follow into thinking this is a good idea or something IIIi don't think that's right I think yeah you know me we just need a kind of little time of peace and time of like not fighting over this and maybe we have somewhere over in the corner a proposal written down on the piece of paper maybe a few people keep coming down to coming back to it looking at it again and how maybe this wouldn't be so bad and well this doesn't happen for a couple more years anyway like maybe I could get on board with it by then and maybe six months later or a year later there's a different thing but but not if somebody's like constantly like come on

guys we got to do it this our last chance if we don't do it this time no that that's just not the right way to get people to do something I mean that's that's just my opinion so it's in my view what bitcoin has shown and as well as this problem is shown yes and I think a similar problem we have seen in etherium with the Dow hard Forge is is the problem of not having governance in the protocol itself right because I think if people actually could vote like let's say with their bitcoins and say okay I I am in favor of this I don't think you would be so controversial I don't think we would have had these like years of controversy and of course it's very hard to do this

in Bitcoin now because that in itself would be a gigantic change it would be controversial and the parameters in there but I do think it shows very clearly the massive advantage protocols will have that you know are building this and will have this in the future do you see that the same way yeah I mean I feel like that's an interesting idea because it kind of helps solve the problem of how do you actually measure this support which right now is difficult to do I mean you know look a month ago you had one set of people arguing they have overwhelming support and the other set of people arguing they

have overwhelming support like how can there be so clean so such a lack of clear evidence that you could have people arguing overwhelming support on opposite sides and if you had more sort of hard evidence like that that could be beneficial but it just doesn't seem really practical to me you know who's gonna drag their their keys out of cold storage to to vote on some proposal they don't really care about or something I don't know so maybe you would only get the 5% that really opposed it vote and the 5% that really

wanted it vote and it would look like 50/50 and what would that mean to you I don't know you don't know where the other 90% think but but I don't you know I don't know that we have to answer that question right now I think that we we've had a referendum with 2x we had basically the market in a bunch of different ways you know we had we had these public meetups we had sort of online you know Reddit and Twitter and all kinds of social media sentiment we had the futures market we had like the the evidence from people running full nodes you had this referendum that came down pretty clearly on the no 2x side so

clearly that they called off the fork which I think was was the right decision might have been even a little bit more clear if you'd had the fork and it decided in the market but I think that maybe it wasn't worth the damage it would have caused to everybody so what what does that referendum for I think it's for two things one is that we should be conservative about block size increases that like erring on the side of small blocks is a good idea for preserving these sort of decentralization properties and working on scaling off chain that's not saying no block size increases just saying be conservative at it and the second thing is that you need consent for changes so that's a important precedent in both

aspects but neither one of those preclude a block size heart Fork you just need consent for it and used to be conservative I think that's entirely possible that could still happen I do but you know I think if there's people screaming for the rooftops we have to do it right now that's not learning the lesson today I think what we are seeing is that many Bitcoin companies that have built businesses right on the premise of Bitcoin being able to support many users on change or you know maybe off chain - right but the off chain as you pointed out isn't isn't here yet and as I think they are struggling tremendously right

and also feel like they have no voice in this process or that like Cody Bell was basically like don't care about them did you do you think that's a correct assessment did you see this problem and what do you think some of the effects if that could be okay yes I guess I got quite a few issues of that first of all I don't think it's whether core developers care about their problem or not that matters I mean first of all I think core developers do care what these businesses think but that's not really relevant what's relevant is whether the community at large feels like the needs of these businesses should be like the driving force behind change and oh well these businesses feel like they do better if we had this

change we should consent to it it's not core developers that didn't let this 2x4 cabin it's the wider community and I think what core developers have been good at is reading that sentiment from the community reading that like this cyberpunk libertarian sort of backbone of Bitcoin is where a lot of the real support comes from and that's kind of the culture that people want to keep building so I'd also question whether or not it's true that these businesses are doing poorly I mean yeah they've got problems because the underlying protocol

that they're building it on isn't just plug and play and every transaction you want to dump on there is is cheap and easy but for the most part a lot of these businesses are doing pretty well now I mean we've all seen the numbers of how many new signups coinbase gets you know we've we've seen the valuations that some of these exchanges are getting so maybe they're like a little panicked because they've got tech problems to deal with but we're building this on a brand new not only a brand new technology but a brand new field of research that didn't even exist ten years ago so ok it's ok to have tech problems it's ok to feel like you don't know exactly how your business is gonna

work three or four years from now because you haven't haven't built the tech to do it and maybe it'll be different things for different businesses but I don't kind of feel like the sky is falling in right now I think there's the other thing that you didn't mention this but the other thing that people say is oh well bitcoins gonna lose to pickling cash or bitcoins gonna lose to to aetherium I mean so first of all I think if what you're trying to build is financial sovereignty then why do you care if it's Bitcoin that does it or something else so I think it's kind of a mistake to say oh well these other things are gonna do it better and so

they're gonna win no I don't think that's very likely to happen I think that there's reasons that we haven't done the kinds of things that etherium and between cash have because we don't think that's the right path to building financial sovereignty but it's not a competition I mean we're all trying to build the same thing who cares whether it's you know it doesn't bother me that the other people like aetherium the only negative is if it kind of doesn't work and then people sort of say oh this whole space is a scam because look we put 30 billion dollars into aetherium and then there's a bug that made it all disappear like cryptocurrencies or

garbage well okay that's bad and that's a risk and I kind of wish there'd be a little less hype in mania for all of them but you know sometimes I think business is sort of think of it as a threat well we're gonna switch to Bitcoin cash or we're gonna switch to the theorem because we can't build our business on Bitcoin anymore I don't view that as a threat I feel like would be really sad and a mistake if they're not working on building layer 2 solutions because I think you're gonna need those period no matter what it's some at some point and you might as well start building them but I don't think this competition between coins so so Alex one one one one interesting question we

liked you thinking about is you use this term network effects when it comes to fit coin and we love to say that Bitcoin has the most network effects it's a game of network effects question is like what do you think concretely is bitcoins network effect and do you have a way of kind of understanding how strong these are or how weak these I think that's a good question I don't know that I have a lot of answers to it I mean I think that fundamentally is a money you know anything like Bitcoin gets its value by

shared belief so what exactly is that shared belief in and what's the culture around that shared belief like you know and that that gets to the point of how do you make changes and what should be the focus for how we evolve it and those kind of things but I've actually been surprised that there hasn't been more interest from you know anthropologists and so forth and it's studying this aspect of what Bitcoin and other cryptocurrencies have produced because this is kind of like a pretty unique thing whether it's like this new type of money that is being created and what

exactly is giving it value and and and maybe it's still too small to really have attracted the attention of people but I think that's really interesting question what one thing that I think is unique to Bitcoin amongst all these cryptocurrencies is there's this issue of digital scarcity and you know gold is scarce because there's only so much gold but a copy of Bitcoin is no different than Bitcoin itself Bitcoin cash or like Gwaine or etc to consider so I I kind of think that without a extremely

compelling reason it's kind of impossible for any of those things to long-term become the stored value because if they did then why wouldn't they just as easily be replaced by the next thing which kind of means there is no digital scarcity you know there's possibly an exception there if there's something that can they can has fundamentally different characteristics like let's say for instance we never get to the point where we can add proper privacy and legibility technology to Bitcoin then you can imagine the Bitcoin

ends up not really working as money and you need something like Z cash or Manero or something that that does have those technologies in there I mean that seems like a possibility to me but it seems more likely that you'll sort of shoehorn those concepts into Bitcoin at some point in a way that that makes it as much as it needs it so as we solve it like with the block size debate this is ultimately it's it's it's it's a conflict of vision at some level like what should what should this technology do in the end so apart from the blocks I try forgetting forgetting the block

sizes as an important issue for the time being there's a separate sort of issue in my mind which is now we have these lists of 800 alternative stupid coins right and some of them are going to pioneer or find your new things some of them are pioneering new things like smart contracts big signatures this primacy Canelo seekest not based Paris easy cash and some of these features might be there might be such that in principle Bitcoin might want to incorporate them so how do you decide yourself and then how does the community

decide at large which one of these feet which of what subset of these other features might be worth incorporating in a Bitcoin I mean that's a really good question I think that to this point Bitcoin has taken the approach that we should again be conservative on changes we shouldn't put in sort of technology that that you know ZK Starks is pretty cutting edge technology I don't think that's anywhere near the point where anybody would ever consider we should put that in Bitcoin you know I think it's kind of more of a path dependent thing where you sort of take baby steps and what's the next baby step that makes

sense from from where you are and we see like a lot of proposals for maybe potential future Bitcoin improvements you know there's been a lot of talk of snores signatures is you know a potential next step which I think there's like a slight variation called BLS signatures which you know seems to be more appropriate for the Bitcoin use case that people have been talking about for a while and then with that you can do things like signature aggregation and public key aggregation and so some of those things may improve privacy

some of them improve capacity what one of the great advantages that segments gave us wasn't like a sort of better way to roll in improvements like this I think the this idea that most improvement should be opt-in in Bitcoin it's pretty powerful so you don't want to use cigarette you don't have to you don't want to use these new signature types you you probably won't have to but I think that I just kind of has to be out there it has to circulate for a while and then you kind of have to get the sense that the community wants to do it and that's just a time-consuming process you know what one of the things that bothers me a little bit about what

happened with the New York agreement is people kept saying well look I mean nothing was happening with Segway it wasn't it was activating like we were just stuck so it had been you know available for activation for maybe nine months and just nine months it's not an eternity it's like if it had taken a couple of years to build up support for that to build up consensus to do it and I think we were pretty close then I think that's okay I think that that that should be our model for for making changes and I think a lot of core developers were kind of like okay with that they sort of

resigned themselves well that kind of sucks that we spent all this work doing segue and now we're not really sure if or when it'll get activated but it's not gonna stop us from moving forward with other things I mean it kind of is delaying these types of improvements you want to build on and say quit but that's that's okay so I think that should be the approach for for all of this stuff you know like the whole marathon not a sprint idea yeah no that makes sense now speaking about layer two right so you mentioned this how you know this is the key Fame right absolutely needed at this point for for Bitcoin to be useful for many things even the store values is

right at some point at some transaction key level that gets damaged as well maybe we're not quite there yet but not so far away now first of all what do you think of lightning what what time line you expect and do you think like what kind of use cases will really be good for because one of the issues I see of lightning for example is well he costs you $20 or 30 or 50 dollars to open a channel $50 to close it many of these use cases that people used to speak about for lightning they actually they don't make they aren't really feasible anymore either so what do you see as the role lightning can play the timeline and maybe what other layer two technologies

do you think are really needed and promising well yeah let me just sort of like talk about that second part first I think that sometimes people make the mistake of just saying okay well lightning is this is the layer to solution and I definitely wouldn't look at it that way to the extent that Bitcoin is an experiment and we're still learning how it works what lightning is like an alpha experiment like we have no idea how this might work or if it has any chance of working and I think it'll be great that we're getting close to being able to start finding that out so it is important I think that we not view that as the one all one end-all be-all solution for layer two and we should work on other models and I think there's

a lot of different other models that you know there might be a one model that works for exchanges to settle amongst themselves and another model that works for payment processors and etc so I you know I don't know that there's gonna be a one on one size fits all solution that's it I think lightning is it's really promising and I'm I'm sort of really interested to see how it plays out you know I think it'll take some time it'll take some time to see how people adopt it it's gonna take some time to see if it has as light a touch on the regulatory side as everybody's kind of hoping it will you mentioned the

cost to open and close channels I mean it's not clear to me yet whether that I mean I think certainly if it becomes really successful then yeah that'll eventually become a problem unless we have more on chain capacity but maybe that's okay if you open one $10 channel and then that's all you never ever need open ever these are just questions that we're gonna have to find out the answer to in practice okay well I think we were sort of getting to the end here but in in Bitcoin development or or maybe if you specifically about chain code labs are there some things projects that you guys are working on today that are you know

really excite you and that you think could have a big impact on Bitcoin down the line well I mean you know I kind of now that we do have segue I'm kind of interested to spend more time myself thinking about these sort of next-generation ideas that aren't ready for implementation in Bitcoin and may or may not ever get implemented I haven't done that yet I've sort of like been very much focused on sort of the nuts and bolts of working on the implementation you know 99% of the work of which is not have anything to do with consensus changes but just you know efficiency improvements or so forth I think there's

a lot of a lot more to be done there you know some of places I've been spending my time is kind of like working on the wallet you know I think that's a never-ending goal of improving wallet functionality for for users so Alex the previous few years have brought sort of this movement to apply blockchain technology to different parts of Finance life inside banks as part of exchanges as part of supply chains etc now as somebody who has a background in like the particular part of Finance which is

like trading what do you what do you think of the space in general yeah so I don't really understand it I mean I think that there was initially this hype around blockchain as like this open source technology and people felt like they'd seen what had happened with Linux and they were worried that this was gonna come and replace everything they do in a proprietary way with an open source thing and they wanted to not fall behind the curve in that I think that probably doesn't make sense like you know there's like a couple of joke

slides or tweets or something on the internet where like you have like one of those flow diagrams do I need a blockchain no I think that's basically right but that's not to be said that there's not a lot of opportunity I think there is out-of-date infrastructure both in financial back office and many other areas and there are technologies that are incorporated in Bitcoin and blockchain that could be very beneficial there you know one of the things I worked on for my master's thesis was called sudsy simple distributed security

infrastructure I think which was like basically a chain of certificates to give you know authorities and so forth but that kind of said that was 20 years ago technology was already old then a lot of that hasn't kind of really made it into a the mainstream world like why do we have passwords instead of digitally signing to get into websites and you know why have we not like more widely implemented like commitments and distributed databases and you know for these sort of shared ledger type situations

so maybe the blockchain type is a vehicle for these other technologies that blockchain incorporates to get into the these areas and I think that's fine and that'll be good and beneficial for everybody I just seems weird to call it blockchain I also think it's just you know once all this technological potential there and it's like all of the political regulatory organizational risks was sort of like abstracted away and and of course if one kind of takes this into account that they're still there then the switching cost becomes so enormous for so many parties involved that even though you can kind of interior imagine okay blockchain makes

this much better then in practice it looks completely different yeah I mean I mean the thing is like all these use cases don't have the need for the the trustless nature of Bitcoin that's the innovation of Bitcoin is that the you know anybody can contribute to this distributed database it's like it you know there's an open membership there's no trusted parties and almost every other use case there's some party that already has trust so there's way more efficient solutions than having a blockchain with proof of work and of course we see that most of these you know proprietary blockchain things don't have proof of work it wouldn't make sense for them to so it's kind of alright you know if you

want to organize your data into a blockchain that that's fine I don't know why you had to wait for Bitcoin to come along to do that and what about it here maybe what's the but see a sort of very brief take on each area you know I kind of share the view the etherium is is trying to do too much and it's being too ambitious and it's hard enough to just kind of build money let alone a universal computing platform that said I'm really glad that they're doing aetherium I think it's great to learn about like I said before this is a new field and I think we need to like try tons of different ideas and maybe we don't know now what will work and what wouldn't work and it would be a shame if

we kind of felt like I don't know everything had to be funneled through this one project and this one coin so I you know I'm a I'm a big supporter of people working on many many different projects and it's great if they do that and maybe most of them will fail and that's also great I think we should be careful thinking of these things as good investments and that worries me a little bit there's a lot of hype around that especially the ICO craze is kind of insane but I guess that comes with any pipe maybe one final question so let's say this block chain or Bitcoin thing in particular you know it really succeeds a fully and in a massive way what kind of world do you think it would create

twenty years from now I mean I really like the analogy to the Internet where you know the internet sort of and I think we're still learning what world the Internet is gonna create and it comes with some some not-so-nice parts and so some good parts but like you no longer have this central control over information where there's like three or four networks that will tell you what the news is you can go to Twitter and find news faster than any of them could give it to you and you can find them you know a whole spectrum of viewpoints not just the ones that are better mainstream so I think having financial you know the ability to do financial transactions

also have that kind of freedom is gonna be really beneficial to the world I you know I kind of not a big believer in centralized power but exactly what that looks like I don't think we know yet it's more of a like first principles thing cool well Alex thanks so much for coming on I was it was a pleasure talking with you in kind of hearing from from your perspective and somebody who's very deeply involved in Bitcoin and econ course so thanks so much for sharing sharing your view bus yeah happy to be here thank you yeah and thanks much of course to listen for once again tuning in we are going to be back one week from now for next episode in the meantime if

you want to support the show you can do so by leaving us iTunes view or a do tip in ether or Bitcoin but thanks much and with the 14 back [Music] [Music]