CoinSummit London - Jonathan Levin & Peter Todd

Transcript

[Music] welcome to epicenter Bitcoin the show which talks about the Technologies projects and startups driving decentralization and the global cryptocurrency Revolution my name is Sebastian Cur and I'm Brian Fabian crane on July 10th and 11th we were in London for the coin Summit conference this two-day event gathered approximately 250 investors entrepreneurs and developers to discuss some of the most important issues facing the Bitcoin and the cryptocurrency ecosystem this episode features two interviews the first is with Jonathan Levan co-founder of coin Matrix and he

discusses transaction fees Bitcoin economics and the upcoming relaunch of Corin metrics in the second interview we talked with Peter to who's a Bitcoin core developer and a consultant to a number of different projects such as Master coin and dark wallet discussed with him a mining centralization the state of Bitcoin development and the economics of transaction [Music] fees yeah so we're here with Jonathan Le he's the until recently he was at Oxford during a disertation master thesis on bitcoin which I'm extremely eager to read and he's also co-found of coin metrics he was just presenting at the startup showcase U perhaps to start off

do you want to int uce yourself and tell us a bit about perhaps let's start with your dissertation sure so um yeah I'm yeah we know each other we've been on the podcast before but Jonathan Lan for the for the people that haven't listened uh Jonathan Lan uh I was doing a economics Masters at Oxford and I wrote about the economic incentives that are introduced uh in a system that spends time away from consensus so we know that Bitcoin has been designed as this really elegant science solution to the bantin General's problem but that does mean that although we come to consensus about what transactions have happened we do spend time as a network away from that state and what that means is that which

are so are you talking about the time after a block the time between a block is mind and the next block is that so so the time the time between a block is found on the network and the time at which everyone now finds out about that new block so when when a minor finds a block they individually find it and they tell say eight peers about the block and then those eight peers verify that the minor has done the it's got the right proof of work and all the transactions in it are valid and then they propagate it around the network so slowly the network builds consensus in knowing what the latest Block in the chain is but you can see that initially only one person knows the new state of the Bitcoin Network and

everyone else is left in the dark so as the block spreads around so consensus is built um and essentially that that means some interesting things on the mining side so my thesis was about well what does that information delay mean for someone who is trying to mine a block and if blocks that are larger propagate slower is that costly for the minor and what I found was that basically the marginal cost of including a Bitcoin transaction in a block was proportional to the information delay the network what did you uh what you defined was the marginal cost of including so a

transaction yeah so so you need to make a couple of assumptions to make some progress here um but essentially I found that Bitcoin currently at the low fee is um is not incentive compatible for for a for a small Miner so if you if you were solo mining on the network you should not be including any transac actions uh which I thought was really problematic um and the fee would have to go up by about four times in order for you to break that incentive compatibility problem um four times is not that much I mean it's then 20 cent on a transaction of I was I was interesting because I was asking gin uh I was talking with gin at um the Amsterdam conference yeah and I

asked him something very similar and he said according to his calculation maybe he uses some other method he said that he thinks it's 10 cents the more cost of including transaction yeah so Gavin uses um Gavin uses the average uh propagation delay figure from a Christian Deca paper back in 2013 okay as his as his way of calculating poor data poor data we I I'm in constant I'm constantly trying to give Gavin updated data but uh so far he we haven't we haven't managed to do that I'm really looking forward to Smart fees and and actually providing some good data for them to make decisions about how that market looks like um because I think that's I think fundamentally we

need to do some modeling before that gets implemented yeah I think the miners also need to understand this so one of the things is that it's an underappreciated issue under researched and no one knows what the marginal cost of a transaction is and uh miners should be aware of it specifically small pools actually so uh what would the consequence of this be I mean uh do you expect that maybe if you're going to post your disseration or it's going to get some attention maybe now that people hear about it do you expect that miners will stop more miners will stop including transactions in their blocks no so so right now I mean when we say it's not incentive compatible I think I mean you're you're

still talking about small amounts you're still talking about $10 worth of um Returns on a block which is worth tons more so you're talking about a pretty marginal decision for the miners but I think think uh generally you um this is an important issue to bear in mind for sort of longterm long-term development um priorities so when they're thinking about smart fees that's a long-term development um goal and we need to actually model this first so that they have the best tools to to Really um to structure this Market correctly so um what do you think Feast should look like in the future so I

think fees eventually must actually provide the incentives for security um I think it's very interesting that uh right now the model of Bitcoin security is that the uh the infl the inflation rewards the the block the block reward essentially provides the only security for the network and initially that's like the best idea ever because you don't want the security of the network to be proportional to the amount of activity if there's no activity but once there is activity then you actually do want your security to be proportional to that um and so transaction fees are a really big part of that I think you'll see ethereum and some of the altcoins take that more seriously in the next 12

months um and try and see how you can create a a decentralized cryptocurrency where fees provide a large incentive for miners to contribute I mean it might it might take a different proof of work um might might have to be more proof of stake driven um but yeah I think that I think that's the Crux of to currencies right now yeah no I think it's a super important issue and so you think that some of these other currencies like etherum or do Bitcoin too Vol stuff can solve some of these problems yeah so I mean like I've been reading a bunch of stuff that vitalic has been up to recently um I'm quite encouraged that he's thinking very hard about how

transaction fees should incentivize security um but I think that are you talking about his blog posts or his blog posts and also he posts in there's a an ethereum economics Skype group that he he often posts in he's also got some stuff on his GitHub if you go and check out vitalics GitHub he's got some interesting python code to economic to model the economics of uh a decentralized crypto so he he's I mean he's a mathematician he's he's pushing he's pushing the boundaries for um and yeah whether they have a solution for this I don't [Music] know cool well it's great uh to you know it's great to see that you talk think

about this and I think something we also talked about with Mike K recently we had on a podcast you know and he he thinks feels the same way and anyways he doesn't think that transaction fees although he's perhaps even more skeptic he said he doesn't think transaction fees will be able to provide network security in the future and he he felt that there should be more some sort of um actually contractual something Assurance he's talks about Assurance contracts like maybe I mean I had any idea well you could integrated in the wallet software that you know there's some sort of insurance contracts or basically a sort of a donation model right I mean which of course seems

problematic too so yeah I think one of the one of the other interesting discussions is if there are for example services that depend on the bit the security of the Bitcoin Network to function something like a colored coin Master coin Etc and there are services that have essentially high value high value propositions built on top of Bitcoin then actually you might you might be able to sustain a kind of fee model based on those applications rather than simply just the Bitcoin um the Bitcoin fee structure um and that might provide security although I think there's there's a lot of thinking that that's a very early

stage idea I think Peter Todd has said that the security of Bitcoin in some ways increases if you have multiple applications built on top because 51% attack on all of those is what's needed to 51% attack on one of them really it seems like it should be the opposite there and because you have uh I mean let's say the block reward now an incentive right for security but then if you have things that run on top of it you know where you don't get a block reward you can have the maybe your incentives to attack those your incentive to attack those will be higher for sure um and potentially to attack the Bitcoin Network to gain to gain 51% of the power but but essentially you

have um essentially you have multiple targets that you should be um that you need to double spend on um in order to make the attack worth it so each one of those is going to provide a level of security and in order to attack one of them you're going to have the you're going to have to have the capability to sort of overcome the security that's that's provided by all the services so so let's just be simple so you've got Bitcoin Bitcoin provides security through this block header colored coins have a fee structure that feed into Bitcoin security because miners mind colored coin transactions if the fee is high

enough yeah if the fee on colored coin transactions is is significant then Bitcoin hash rate will go up in proportion to the colored coin fees and therefore Bitcoin becomes actually more secure based on the fees of the color coin well that's interesting I mean yeah there's obviously attack vectors so it's the incentive to attack colored coins I think is a very big issue so double spending on a colored coin transaction might be really easy if they're based on the Bitcoin blockchain but double spending a Bitcoin transaction becomes less likely if a colored coin is implemented on top of the Bitcoin blockchain yeah that's that's one way

that I think about it so you founded coin metrix and um I think you just released you guys just released a new site recently we're we're releasing a new site in the next sort of week or two so maybe by the time the podcast has come out you would have uh yeah it will be up and running and so can you just tell us about uh well the new site what's what what are the new things that you'll be offering there and sure perhaps where that's going yeah so um we decided to launch a new site we wanted to make um the information even more accessible to someone who's uh not from a Bitcoin Community um we launching a industry grade uh price index that has four quantitative rules attached to it

rather than qualitative rules that we see in all the other indexes today can you uh just explain what that means yeah so um essentially what you want from an index is you want to try and capture the fair market value of a Bitcoin today um and now that's a very subjective question and people have uh implemented price IND indices during the mount gaau kind of saga and all of those price indices were designed in such a way so that you could basically create an index that excluded Mount GA they they set some rules saying you've got to be able to process transactions like this or you've got to be able to do stuff like that um and essentially that that doesn't give you great transparency moving forward because you don't know

how often that criteria is applied you're not sure if that criteria is going to change next week based on some other exchange that comes along that behaves quite strangely and the only way to really do this is actually to to to look at the numbers and say does this exchange come uh does it behave in the same way that the market is currently behaving um and that's a statistical question rather than a qualitative question um and so what we did was we we sat down and we thought well okay we need we need a certain amount of volume on the index uh in order to in order to have sort of price Discovery um we also don't want its price to be consistently different from the median in the market we also don't want its um change in

price to move very differently to the rest of the mar Market in any given time period so we we apply that on a on a weekly basis at the moment we update that every day as it currently stands we take a volume weighted uh last price so the last price change traded on an exchange is weighted by the 24-hour volume on that exchange uh in our in our current calculation and we also have a final rule that kind of is a Black Swan uh rule where we say that if anything goes absolutely mad on any of the exchanges they automat Bally get dropped off so so uh if you apply those uh criteria and go back would M GLS have been excluded and from what point on yeah so so actually you'll see according

to our criteria exchanges go in and out um uh a little bit there was like a period where Mount gox was diverging in like sort of October time and they they then get cut off at index um but it happens in and then in February I mean they get dropped off as well but if you if you were tracking Mount go throughout a lot of the a lot of the indexes were tracking Mount gox throughout the whole thing um and I think that that's problematic because there were obviously signs that stuff was going wrong um and it and it was somewhat of an isolated market so our price index looks quite smooth throughout that time and any traders who were sort of using our index

would be able to apply the same criteria that we apply uh we apply it consistently so they would know when Mount gox was going to be excluded so that's that I think the transparency and we've as you say we've we've back tested the index we've had a look at what would have happened had we applied the index going backwards and that we use that to calibrate the index so um yeah we've prepared some documentation and we're open for people to approach us to license it out so are you going to charge fees I guess for API calls above a certain rate yeah that that's the idea um and depending on the use case as well so some some I've had some conversations at coin Summit about about implementing

uh a price indices a price index for a derivatives product uh they need to do it slightly differently they might need to tweak it and we'll we'll do some licensing agreement and and charge for that service yeah going back to uh Co of the other some the other features that are coming out uh on the new website so we had a volatility index on our previous site that's going to be expanded to cover all the exchanges to cover the price index we're going to have multiple models if you want to um if you want to compare them we're going to have some products probably not on the website but if you are a derivatives platform and you need to do some

volatility modeling to know whether you can you can offer 10x leverage then we can help you out and figure out whether that's a good idea or whether that's going to blow your bank so those are those are a couple of the features we're doing some more blockchain analysis at the moment uh lots of stuff about um estimating volumes of Casino activity trying to get into understanding how much commercial activity is actually happening on the blockchain and really trying to um uh trying to provide some more high level metrics um about velocity of money circulation wealth concentration and all of that stuff will be coming out quite

soon is anybody else doing any of this or yeah I don't I don't think we're the only people doing this I think the um I think that there's there's an index started by panta Capital which was trying to track uh Bitcoin adoption which was quite good um but I think that some of that is more high level stuff sort of GitHub repository stuff um I think really there's uh actually there was a presentation here by a guy um called Chen who's uh at block view they they're starting to do some blockchain visualizations which are which are quite nice um and trying to get inside the commercial activity angle um there's a few of us doing it um I like to think

that we're being very rigorous and ahead of the competition but maybe we're not um so I remember the last time or one of the last times we talked you were still finishing you visitation your thesis and uh you also thinking about doing a PhD are you sort of committed to you know building the company working on conric or is this still the idea of perhaps uh writing a PhD thesis on some Bitcoin topic uh yeah I think um I mean at the moment I'm working absolutely full-time on qu metrics trying to make it a company um if if in October in a few months time nothing has happened with coin metri which I would be very

surprised about if that was the case but um if that were to be the case yeah I might consider going back into Academia um I guess it's more I enjoy far more working with our coin metrics team than academics put it that way yeah I I can understand that well great thanks uh very much for taking time to talk us thanks for thanks for having me on the show and um yeah so we'll try to have you on uh on a more regular basis to give us a state of Bitcoin and the economic bulletin yeah we could call it the economic bu jonan 11 thank you guys great to have you [Music]

here so we're here with uh Peter Todd who's a Bitcoin core developer and um who just wrapped up a talk about uh Bitcoin mining and the risk of a 51% attack uh can you just kind of give us a brief summary of uh what was said and you know your thoughts on uh the state of mining right now yeah well I think what's interesting about the gash doio situation is on one level I think it really does show that the underlying incentive structure behind Bitcoin is flawed you know we should not have a system which has incentives for people to get to 51% and indeed the system should have disincentives for people to get to 51% you know even if gash doio was

completely honest and you know they were not going to attack Bitcoin the reality is they can get hacked you know they can get coerced they can turn evil later not to mention you know just it's not good PR to go and say well in reality actually one person controls most of the network so it's certainly something we need to fix long term in the short term though you know I think there's rough consensus among people in the mining Community people in the pool Comm community that we just have to really agree to limit how big pools are which is on a voluntary basis but in the short term that's a kind of um thing that has worked before and I think will work

again and in the long term while we're researching Technical Solutions and so what are some of those potential Technical Solutions I me are there propositions out there to limit mining uh so that um the network will like you say disincentivize people people from uh or disincentivized pools uh reaching this critical mass so there's a couple different mechanisms here um maybe the first one to go speak of is the actual process of solving the math problem that Bitcoin blocks need solve to exist which is the hashing and essentially of course hashing you plug in some hashing power

you turn electricity into math problems and Heat and the nice thing about this is on a physical level that's guaranteed to be decentralized at some level because useful things you going do with the heat to run this hashing power at the lowest possible cost that is not an opportunity that exists in one place you know if I'm heating my Greenhouse well there's a lot of green houses around the world and there's going to be thousands of people making use of waste heat for mining there's going to be thousands of people making use of pockets of cheap electricity like wind power generation in the middle of nowhere that's unaffordable trend uh Power Line back to civilization what can you do you can go put some mining power at the base of your wind turbine you know with a satell link and these are all good

opportunities the problem is currently all those people will still have an incentive to sell that hashing power to a big centralized mining pool where you get your attacks or you know your incentives to control the network and one of the things we can do is essentially make it impossible to run a pool uh Andrew Miller has interesting idea along these lines which is some math techniques where if I solve a block for you and near the pool I can then steal the reward later and you have no way of even proving who did it or that it was

done so uh I I I want to go back to these incentives in a second cuz I'm I think I have some doubts about that but uh when we talk about this idea would there be any way of achieving a change like that cuz wouldn't the mining pools in the end have to support that and it's really against their own interests well after all the mining pools in the network can change uh you know one example that you could do to implement this is you would create the mining pool lend all mining pools and the rules are if you want to mine at this you got to go prove that you support this new protocol and the moment the majority of miners agree that

this is a good idea okay that mining pool ceases to exist and I guess you could do some kind of crowd funding that you maybe you would even pay people join that mining pool more absolutely you can yeah you can essentially subsidize this to end mining pools that's a great idea actually no maybe that is feasible yeah you know and what's interesting is you know this is really a political thing you know this is implementing a piece of technology we're not still sure yet what exact piece of technology is the right way to do do this and when time comes to implement this it'll really be matter of doing the politics to get consensus that this is the right solution forward for Bitcoin I'm sure there will be stakeholders you not do don't want this to happen but you know it's just a

matter of convincing people this is the right way forward for Bitcoin um so uh I wanted to come back to the thing you said about you know like having heat and distributed places with kind of and and I agree that factory is there right but if you have uh if you have economies of scale on the production of the hardware itself I that works against that again and I'm I've always and I guess especially when you have the hardware depreciating value so quickly it seems that those at least at this stage are much stronger maybe that will change in the future but well you know in the future we can fully expect the depreciation of Hardware to slow because we're we went through this period in the

Asic mining business where we kept creating as miners that had uh smaller and smaller geometries more and more advanced types of Asics you know we went from say 250 was it nanometers to 160 now 22 which is top of the line and you're not going to now we're at the point where the A6 are manufactured with the same technology as the best chips in the world and equally more as law this whole computers become twice as fast every 18 months that's actually ended you know that's Tech technological progression has ended and we do not know what will

be next it may never Advance at the same rate it does at the same time you know it is true that Asic production is extremely centralized there's probably a half dozen companies in the world that can make competitive Asic right now now what kind of risk does that pose do you think I think it's very simple governments can go say you know what we're going to start regulating mining equipment and even though you're Asic who we think is mining equipment manufacturers they're really designers who design equipment and then subcontract the actual creation of it to other companies yeah and that subcontracting so long as it's possible go pay someone to go make an Asic for you we're fine and if that gets

regulated we're not fine I think um I know some people are coming in Berlin that's very involved has like researching that a lot and at least what they said that is that that the kind of companies that can actually do some of their subcontracting work that is extremely limited as well y so um you know that's just something that you know you're not going to be able to change right because that's how chip manufacturing works today yeah we know of no other way to do it um on the other hand I mean keep in mind this is a problem we face with all Computing uh you know Richard stalman has said for many many years that ERM Technologies digital restrictions managements they

are very dangerous because we could end up in a world where you cannot buy a general purpose computer and the reason why you still can it really comes down to politics you know we've pushed back so hard on people trying to introduce mandatory DRM that we still have a free Computing environment I think as6 um for Bitcoin mining is a bit of more precarious situation because it's special purpose Hardware but you know ultimately control of Chip manufacturing is a very politically touchy subject you know so we do have that angle and it always comes down to the more people are involved with Bitcoin the more beneficial uses it has for society the harder it is for anyone to go say you

know what we should go stop this so do what do you think is going to happen there because I mean I see the the solution of the mining pool that's actually really interesting I think that's something that you know I think that's something that can work it makes sense to me uh but what about the mining manufacturing do you think we will find some solution there or do you think that's just too late because of the proof of work we have here I honestly have no idea I mean I can kind of I can kind of think in terms of what are possibilities but you know if you wanted me to put a beted on it I wouldn't really know and I think it's too hard to know equally you know maybe we will have some technology um advancements you know hypothetically imagine if genetic engineering got way

better we could grow A6 in a thatat you know that'd be great I don't have any clue how that could happen I don't think any biologist have any clue how that could happen but I don't know maybe we'll see something that crazy you know the sky the limit you uh you mentioned politics quite quite a few times um there's been some recent uh discussion about internal politics within the Bitcoin core development Community um we interviewed Mike Hearn uh a few weeks ago and and he seems to think his impression is that there is a fundamental problem right now within Bitcoin core development where um uh developers are not getting along and development is not advancing and

essentially only one person is uh actually doing anything um to uh make the Bitcoin protocol um Advanced so what are your thoughts on this do you share this this view or do you think that uh just an exaggeration I think that view is a very misguided view of how Bitcoin progresses and how Bitcoin really works you know if anything I would say that the Bitcoin ecosystem is actually advancing and progressing and developing at a faster rate than it ever has before and you know I say this on the basis of all the things people are doing with the Bitcoin protocol you're seeing things like multi sake finally get implemented through multiple

different companies for different purposes you're seeing things like escrow get implemented you're seeing things like entire embedded consensus systems getting implemented that leverage Bitcoin to do all sorts of stuff that were never envisioned before you know there's just so many ways that people are taking the Bitcoin protocol and advancing the development of it now that's not to say that the Bitcoin core protocol itself is changing very rapidly but that's okay you know the nalga I would make us a web tcpip doesn't change very much it's very slow process to implement upgrades and that's fine it's a core base layer that everything else is built on but by the time you get up to web browsers JavaScript and so on

Innovation happens very rapidly and you should expect that kind of Stack where did you from there is base layers that are stable less stable less stable till finally get the really experimental stuff and that's what should happen I think where Mike comes from is that you know he's proposed a lot of ideas that really change Bitcoin core protocol and there's been a lot of disagreements on whether the ideas are any good and a lot of them have been shot down and you know what do you expect if you propose major changes it's going to be very hard to get consensus on it and that's fine you shouldn't expect Bitcoin core protocol to change

much equally development of refining the implementation uh would say that's again it's happening at a relatively rapid Pace has be very careful because we can make very expensive mistakes with this it's an 8 billion dollar industry and predictably people have been careful and they've been pushing unit tests along they've been pushing refinements to the protocol um implementation along um Peter wool I think I got that pronunciation right he uh he's done a tremendous amount of very interesting work um we had TX mutability that was was uh you know there's many aspects of it and a lot of them have been solved and we're working towards solving that

um we have uh things like fee estimation which you know we're kind of working out bugs of that you know to go say like there's just one person working on things I think is very misguided so when he says that uh Bitcoin cor development has pretty much grounded you know stopped um you think that this is actually the norm that things should move along slowly and and that uh yeah and and after all I mean when he says that it stopped it's running at the same speed that it always has been which is slow and careful and deliberate you know it hasn't changed actually if you know if anything we're seeing it maybe increase a little and some of that increase of speed has led to some bugs

which predictably leads to a push back and all right let's be a little more conservative next time you know the hard Fork that we had um last year that was a mistake and part caused by the increased speed of development you know equally I personally caught a bug where the next um implementation of you know the next release of Bitcoin core could have been spending $500 or more per transaction in EXs fees and fortunately that bug was caught and it's never made into release but you know that's an example the sort of thing you yeah run into if you're not careful and you're not cautious yeah so uh one topic uh I've been thinking about quite a lot in the last a few months is a transaction fees

and I'm like a lot of uh questions doubts about how these work so I'm curious can you briefly talk about you know CU now they're they're working on floating fees or you know gav floating fees can you talk about uh that and like maybe how those will work Andie you viws on that well first of all it's important to remember that we've always had floating fees and I think the Viewpoint that says that floating fees are something new is one that takes a view that Bitcoin is a network with unlimited capacity you know there's some people who take the view that transactions should always be nearly free there should obviously be tons of computing power to go around a purs transactions and block sizes should

be unlimited and we'll just manage it somehow whereas I would go argue and I think many people are in the same position here Bitcoin as a system fundamentally at the lowest level does not scale well because everyone who needs to validate the blockchain has to have a copy of it on an ongoing basis and you know in computer science terms we'd call that a system with N squar scale scalability which is usually thought of as very very poor fortunately you know we don't have to use Bitcoin directly we can go build systems on top of it uh we can go build trust free systems like micro payment channels where you know you and I can send money to each other rapidly changing how much

we send and then all collapsing that into one transaction and you know what it comes down to is fees are just a way of bidding for space in the blockchain and you've always been able to bid what you want you know with this fee estimation stuff we're just seeing a mechanism to go estimate that and yeah so I mean right now right the the standard way of [Music] um of um if you have a double spending attempt right we have two transactions spending the same inputs uh right now the miners take the the first one in general yeah that's a separate issue

yeah um and I know you actually wrote a patch replaced by fee yeah uh which in my view seems to be extremely problematic because it would destroy zero confirmation unconfirmed transactions no like the ability to accept unconfirmed transactions actually argue the opposite um what it does it aligns the incentives correctly and what's interesting about this so I'll explain so replac by fee says rather than you accepting the first transaction you see you just accept whichever one pays the highest fee so basically if I send money to you I can then modify the transaction later which may include not sending the money to you anymore but what's interesting is that if then I

modify that transaction broadcast a new one that sends the money somewhere else you can go respond to me and say you know what screw you I'm going to go take the money you rightfully sent me and sent it all the fees and now chances are that transaction will be the one that gets mine and I'm still going to end up paying someone wait chances are there the second one gets my the third one so I create transaction number one being some Merchant create transaction number two paying myself paying myself with more fee and then the merchant creates transaction number three that spends output of transaction number one all the mining fees so the per the person trying to go rip off the

merchant still ends up paying and the merchant may not get the money but businesses do not operate on uh the need for every single transaction happen without fraud they operate on the need to keep fraud low and by turning something where I can go get away with fraud into simple vandalism where I don't earn anything from it really removes incentives but that also presumes that somehow Merchants are uh prepared for this and uh well they're already prepared very few Merchants except zero comp transactions because the current system does right no they don't I guess they leave it up to merch yeah they don't actually bit

pay the way they handle zerov is a merchant who's in a position where it doesn't actually matter if a transaction gets double spent provided they find out before they say ship the goods they'll of course tell you your order is accepted instantly but it doesn't mean that they've sent you a package in the mail instantly yeah and as an example ATM machines where deposit some Bitcoins and you get cash out um I've personally been in discussion with uh some vendors of this stuff as well some operators and nearly everyone's turned off Zer comp transactions in a way that exposes them to fraud because the current system is insecure and it's very easy to double

spend you just have to use some technical tricks so do you think uh unconfirmed transactions are just like unsecure uh Point there's no way to make them well I think with replace by fee this so-called Scorch sh strategy it goes a long way to making them secure um with micro payment channels you can make them here the point is that the existing system has been proven not to work for but then if replace by fee would increase the it would end up increasing transaction fees no no no replace by fee is independent of transaction fees wait so uh I want to get back to that cuz I didn't quite understand it so I I send the transaction to the merchant and then I send the transaction myself paying a higher fee right this this far I

understand it but then what do you have just tried to rip me if I'm the merchant you just tried to rip me off now the merchant can respond by taking your first transaction sending it all the fees yeah which means that the merchant still doesn't receive the money so person trying to commit fraud doesn't gain anyit what does the merchant do with the first transaction they spended all the fees they spend all the fees they spend it all to fees because they have the money okay now they spend it all to fees a minor will include both transactions they yeah earn the benefit of all those fees and the person trying to commit fraud has no gain but this if you have you know I recently there was

this uh pool which I thought was very interesting this bit undo thing uh where they would have a mining pool uh just of miners supporting this kind you know basically replac by B had nearly no traction I I know they have no traction and what's interesting about bid UND do is if you're a mining pool operating the service you have an incentive to tell the merchants about the double spend so you can go get more fees yeah true and but it would be possible there to do it privately so when the merchant realizes it's too late sure but after all if you make the assumption that mining power is well distributed there's never going to be one pool that has significant hashing power to go pull this kind of attack off often yeah other

than the replace by fee method where you have the scir sh defense and you know that's not even getting into all these other mechanisms like green addresses and micro payment channels and yeah you know offchain transactions which protect this never mind the fact that few Merchants are actually vulnerable anyway I mean what's important with replace by fees it ensures that incentives are aligned so we're not depending on honesty we're depending on economic self-interest and that's a much better position for Bitcoin to be in than trust not to mention I mean replace by Fe is useful too for many protocols you know regardless of who's trying to rip who off in many cases it's just useful to be able to change a transaction after

the fact and if I pay three people in a row it's more efficient and I'll spend less money if I modify the first transaction to then pay the second person and the third person and that makes Bitcoin as a whole more efficient okay no that's uh interesting uh it's interesting hear your perspective on that I guess another thing that may very briefly although I think it's maybe not as important of an issue one thing I've also been thinking about that seems like doesn't make any sense to me is right now right if you have if I send a transaction that doesn't pay a fee like eventually will get included in the block because it like becomes uh rises in priority over time oh that's just a simple thing of miners giving away transaction space for

free exactly it makes no sense really from a miners perspective yeah it's you know it's one of those things where it has a low cost them it's a very small amount of space per block that's um reserved for this so for them to give away you know maybe a dollar worth of transaction fees every block yeah it's sort of of one of those decisions where it's not even worth her time to turn that functionality off some do but would I bother spending 5 minutes hunting down the configuration option for that yeah probably not it's kind of an inertia thing I wouldn't be surprised if that goes away in the future but for now it seems to kind of just happen by inertia okay well maybe one uh last thing on the transaction fees so do you

think uh the way uh in the future we will have have uh you know maybe the block limit will become a real Factor so that we'll have blocks that are full and you know people will have people who pay less you know they will have to wait for a future block with less uh less transactions in it or um misconception to think that blocks are not already full in that there is more demand for Block blockchain space than there is capacity however that demand tends to be for extremely low value applications so those people get priced to the market by transaction fees therefore they use other ways to

transact with Bitcoin so you mean uh if can I is that correct if what you're saying is that if it was free then it would be full but so now they they people use offchain transactions well I'm saying that the transaction fees as they are are already expensive enough that they price people at the market and they use other systems yeah uh just dice was an example where they gained a lot of business from Satoshi dice in part because per gamble cost L money yeah and equally you see coinbase to coinbase transactions that's actually a very common case someone has a coinbase account that pay a merchant

it's entirely offchain no transaction fees you know and also you see people who want spam the blockchain with junk for advertising messages and whatnot and what do you know they don't get the blockchain because they can't afford the fees equally I'll also point out that there's this misconception that miners don't fill up the blocks they're creating small blocks you know you go see blocks that are nearly makeit all the time there's a subset of miners who mine at theoretical capacity so to speak and they create nearly full blocks all the time and to the extent that you don't see every single person doing this well there's not that much difference between half a megabyte in a

megabyte yeah you know when transaction fees are worth so little again it's an inertia thing why would you even turn that little not and change things well I was asking ging about that at the the Amsterdam conference and he told me that the cost of including a transaction was a 10 cents in that it you know makes your L bigger and increases your risk of BL that's a very complex topic uh he is rice in the broad brush strs the problem is that there's no good way to get the cost down without creating incentives where for instance a larger Miner has a lower cost than a smaller minor because a larger Miner will never orphan

themselves they'll always build on their own blocks so if you try to optimize that number a lot you further in make it um give an incentive for pools like ghash doio to exist calization exactly and they'll earn more money than smaller pools which is already the case but the extra money they earn is say 0.1% and you could easily get that to say 1% 5% 10% that's a big Edge thank thank you very much for taking the time to talk to us today um hope you enjoy the rest of the conference yeah you're welcome yeah thanks so [Music] much thanks so much for listening to our

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