CoinSummit London – State of Bitcoin Keynote & “Will Bitcoin Last the Distance” Panel on Mining

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 Couture 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 cryptocurrency ecosystem we would like to thank pamir gulenby and golner hasnain for putting on such a

great event thank you very much for inviting us as well so we start a coverage of Point Summit with Eric heilman he's a coindesk contributor and an economic historian at the London School of economics and he delivers the opening state of Bitcoin keynote which is a data-driven assessment of how the Bitcoin ecosystem is currently developing the second part of the episode features a panel discussion called will Bitcoin last the distance where Jeff korzig Bitcoin developer and Professor Amin green sir of canal University and Peter Todd discussed the issue of mining centralization the panel was moderated by angel investor chess San [Music] and I would like to welcome Garrick heilman welcome Garrick so Garrick is an

economic historian he's um just finishing off his PhD I think at dlse at the moment um and he's also uh a contributing writer at coindesk and he's the author of the state of Bitcoin report which he'll be presenting today yes over to you great thank you Premier it's a pleasure to be here at my third coin Summit uh boy bitcoin's come a long way in the last 12 months um so we're here to talk about the state of Bitcoin so earlier this year coindesk released its first state of Bitcoin which uh has generated about 130 000 views on SlideShare we're very happy with that we released a quarterly update a few months ago and now this is our second quarter update which we're releasing today it will be available for free download online at coindesk.com

about 11 A.M I believe so the state of Bitcoin first I hope all of you just briefly know of coindesk it's the leading provider of news price information or bitcoin price and X is widely cited and information about Bitcoin we have a global team of news Personnel around the world so here is the structure of the state of Bitcoin report we're going to talk a little bit about price the media landscape the ecosystem and VC investment landscape Commerce what's happening with Bitcoin Commerce the technology side and then a regulation in the macro economic picture we're just going to highlight a few slides from each of these sections today because we don't have time to go through

the full report I do encourage you to download it for free at coindust coindesk.com later today so first price evaluation so Professor Susan Athey at Stanford says there's been too much focus on bitcoin's price and what's interesting if we look at the top 10 stories that were read on coindesk.com over the last quarter at least four of them actually were price related a fifth the failed prediction of Marty Williams for a bitcoin price implosion in Q2 is arguably also price related so clearly there's quite a bit of interest in what's happening with bitcoin's price action and Q2 is a very good quarter for Bitcoin things started off a little you know a little sour but

actually bitcoin's price is up 40 since the end of in the q1 it's still about 16 below where it started the year at and hasn't hit its reached its all-time high again but it's actually rebounded quite nicely in Q2 of 40 percent um and the low points seem to have come basically right around the 11th of April there was a lot of rumors in China about possible exchanges getting shut down banking licenses being uh revoked and uh an official from The People's Bank of China came out on the 11th of April and said you know China is not going to be banning Bitcoin that appears to kind of Mark the bottom of the downward Trend we were seeing and then since uh we've seen a lot of positive commercial news Apple Expedia others and of course the U.S

Marshals uh possibly for the first time in history made economic policy for the United States by selling uh Bitcoins uh usually they don't sell things that are illegal so at the federal level looks like Bitcoin might be legalized and we've seen the price respond positively since then so one of the reasons we titled this the state of Bitcoin report rather than the state of cryptocurrencies is that we felt that Bitcoin was really the big enchilada and that's really continued to be the case uh the start of the Year Bitcoin had about 80 percent of the total market cap of cryptocurrencies there's some 200 or so cryptocurrencies out there it's actually grown bitcoin's share of that is growing up to 93 so even though the price has come down it's share of the cryptocurrency prize

actually increased if you look at Litecoin for example Litecoin was about 18 times smaller than Bitcoin a few months ago it's now 35 times smaller so Bitcoins really outpacing the number the number two cryptocurrency by a significant margin so at the last coin Summit March one of the questions that came up was which type of fees could Bitcoin potentially displace I believe is on the mark Andreessen panel um and gilduri at Webb Bush Securities and I decided to go through and actually start delineating which fees uh Bitcoin could potentially impact Payment Processing Title Insurance collections a whole bunch of these and if you look at the sections of the US economy this is

just the US that these fees and trust-based services touch you're talking about a slice of the US economy that is worth 3.4 trillion dollars about 23 21 of the US economy is potentially impacted by Bitcoin so a huge huge potential impact in terms of economic value on the market capitalization slide we've uh We've shown this slide before we've added in a few sectors some of these trust-based sectors like a trustee growth East Coast escrow sector and the Securities exchanges and you're looking at and again this is primarily a North American view here but you're looking at about 550 billion dollars of publicly traded market cap that's potentially impacted by Bitcoin technology okay so let's talk a little bit about

the media landscape for Bitcoin so we're seeing mainstream media uh attention and interest in Bitcoin uh remain you know the Wall Street Journal the New York Times uh the guardian and others are still really actively covering uh Bitcoin so this is something that hasn't really fallen off the radar screen um you know it's not like the media just shows up for Mount gox and other kind of big events they're actually still actively um covering the the the sector Wikipedia views are also another really interesting metric to look at um Bitcoin is the 89th most trafficked uh page on Wikipedia there are about 900 000 views over the last 90 days and in the kind of public intellectual sphere I've got three three Harvard uh

leading tankers here we're seeing uh somewhat of an evolution I think in in the comments that are coming from you know some of the people who have the the public microphone so Ken rogoff former Chief Economist of the IMF author of this time is different with Carmen Reinhardt he was a little more bearish on bitcoin's ability to become a currency but uh Larry Summers who's very close to becoming the next Federal Reserve chairman my doctoral thesis advisor Neil Ferguson they're starting to look at Bitcoin more broadly from a technology perspective and seeing that this isn't just a currency this is a very transformative technology that transcends simply a monetary analysis so if we shift to the kind of Bitcoin ecosystem and Venture Capital

environment um quarter one of 2014 was a very good quarter for Bitcoin 57 million dollars invested in in startups but actually Q2 is even better 73 million has been invested and that's not including the 20 million dollar deal that was announced here early in Q3 so so about a 28 increase over the first quarter and that's that total is actually the all-time uh quantity of money best invested in startups is actually 240 million if you factor in Zappos 20 million dollar deal 150 of which has come here just in 2014 alone so one of the slides in our last state of Bitcoin report that generated quite a bit of attention was this comparison we did between uh the early internet 1995

is the earliest year we have investment data for uh for Venture Capital Investments and internet startups and uh Bitcoin in 2014 Mark Andreessen said that Bitcoin reminds them of the internet in 1993 so the comparison's not you know completely um perfect in that regard but if you actually annualize the current 2014 venture capital investment uh and what we're projecting is 284 million dollars to be invested in 2014 that's actually higher than the early stage financing investment that was made in 1995 internet companies these numbers haven't been ingested for inflation we haven't done any adjustments for the difference in costs of starting you know starting a company between now and then but it's

still I think a very interesting comparison to to show that the VCS are really walking the talk and putting their their money where their mouth is in terms of backing Bitcoin companies to the degree they backed the early internet there have actually been eight companies in total that have raised uh 10 million dollars or more Zappos the leader with 40 million bit pays not far behind with a little over 30 million and a total of 22 startups that have at least a million dollars in capital raise and if you're a company has raised a million dollars or more you don't see your name up here please get in touch we do want to keep track of the full Universe of Bitcoin back startups so now looking at the geographic spread here uh you know North America is still

a very dominant um you know place for investment 78 percent of all dollars are going to North American companies uh but interestingly Europe actually has passed Asia in the last quarter the bit Fury investment actually I think had a big big big part of that and South America is now on the map for the first time so we're starting to see kind of a broadening of Bitcoin investment out of North America and into other areas of the world if we look at individual countries you know the United States not surprising 77 percent of all dollars 59 of the number of companies even are based in the U.S but again we're seeing uh new countries coming online Mexico Holland Argentina all got their first Bitcoin or VC backed Bitcoin company in Q2 so we're a

broadening of the investment landscape now last year at coin Summit I asked on the panel where is the future home of Bitcoin going to be where where is kind of the the center and uh if you look at Silicon Valley versus the rest of the world uh you can see that Silicon Valley is taking 48 of the the dollars and about a third of the companies are actually based there so Silicon Valley is still a very dominant um I think place for for Bitcoin but it's not 75 or or you know the whole story by any means so this is how we view the Bitcoin uh industry in terms of different sectors uh we think there are really six distinct sectors uh in the Bitcoin uh

economy uh you have Pure Play companies like your wallets your exchanges your payment processors and uh those those companies I think don't need much uh much explanation mining includes both mining manufacturers and also Cloud mining uh the two categories that do need a little more explanation are financial services and then the one we have in the center there called Universal which we'll talk about in depth in a little more uh in just a moment Financial Services uh Bitcoin companies include everything from ATM manufacturers to uh to gift cards to analytics and news firms like coindesk the universal companies are the ones actually that are doing a bunch of these different uh things they're they're a wallet they're a payment processor they

may be deploying ATMs we'll again talk about them more in just a second Universal companies are commanding the most uh VC investment 25 percent of the dollars are going to them but they've slipped a bit wallets payment processors Mining and financial services all saw a significant investment in Q2 the only categories that actually didn't see significant investment in Q2 were universals and the exchanges but the the pie is you know starting to become more evenly distributed across these six categories now this category Universal uh we we have companies like coin plug Circle coinbase in here again these are companies that are looking to do more than one aspect of kind of the Bitcoin value chain

um they're really trying to I think take advantage of two key features of financial services one is efficiency the ability to you know to have your customer relationship uh for your exchange your wallet all in one place and also trust I trust you to store my Bitcoins I'm also going to trust you to do my payment process here I'm going to trust your ATM Point plug is a good example of this they're deploying ATMs as I mentioned as well as doing processing and uh and providing a wallet and we think you know this very well could be an important Trend or development in Bitcoin um so we think a lot of companies will start pursuing the universal model or merge into universals or risk fading away trust is a very important element I

think in financial services and having that trusted brand is along with along with the efficiency is something that I think customers are going to gonna want so looking at Bitcoin Commerce some really important things happen in Q2 in terms of Building Services and apps that will enable trust and make Bitcoin easier to use uh circle of course launched an insured wallet insurance is a product that I think consumers have come to expect in other financial services and it's I think a very positive thing for Bitcoin to see that I think that will give a lot of consumers comfort as they experiment with Bitcoin for the first time you know Zappos debit card was derided in some circles as kind of a step back here Bitcoin is supposed to be all

digital why do we need some kind of physical card but again this is something that consumers are used to using it's a bridge to maybe going completely digital uh and I think that's a positive thing in terms of consumer adoption and then I mentioned bit Reserve they've uh they've done something I think that's not just radical for Bitcoin but potentially uh transformative across you know Corporate America the corporate world as well as uh organizations all over the world and that's a transparent balance sheet so this would be a balance sheet basically that you can audit in real time to know what kind of reserves you know what kind of assets that Reserve is holding are they in treasuries are they in something else more exotic think about you know the banking system in 2008 where all we

could see is at the end of the quarter when they've done some nice housekeeping what the balance sheets look like uh this is a complete Game Changer I think if if they can pull it off um so think about a world in which balance sheets are actually auditable in real time so for the first time coin uh desk is going to be making some forecasts uh in our state of Bitcoin report we didn't want to just be kind of like capturing kind of what had happened we might also be looking ahead and here we have our forecast for um number of wallets we're expecting uh to be in existence by the end of 2014 there's a little bit over 5 million wallets right now currently in existence we're expecting by the end of the year to be about there to be about 8 million walls

and then on the merchant side you know these names have already been mentioned dish you know 14 billion dollar company which is now accepting Bitcoin Expedia Newegg we think there's at least 63 000 merchants based on coinbases and bit pays numbers that are currently accepting Bitcoin however we did a random sample of the coin map data coin Maps the site that actually has a map of different Bitcoin companies and it looks like about half of the companies on coinmap are actually self-processing so this number could be significantly understated it could be well in excess of maybe a hundred thousand Merchants that are actually accepting Bitcoin right now and in terms of our Merchant uh

processing our Merchant accepting a forecast here we're expecting about a hundred thousand Merchants by the end of the year based on the bit paying coinbase numbers and Trends to be accepting Bitcoin uh coindesk.com we're also track tracking the ATM deployment uh so this is a map of where Bitcoin ATMs are located uh these are you know just coming on and ramping up there's about 103 roughly around the world today so briefly talk about some of the Bitcoin technology so the number of uh GitHub updated repositories has been growing quite nicely Chris sticks and I thinks wrote wrote about this recently the the incredible uh Power of having this very

large developer base out there that's interested in building applications for Bitcoin um that's a huge huge positive for bitcoin's prospects right now there's about 340 apps in the Apple App Store that are Bitcoin related and about 250 in the Android store so we're already seeing you know pretty pretty large development work being done so shifting to regulation and macro our last section the regulation story I think for Bitcoin is is tempered a bit I think things have slowed down a bit we're still seeing some setbacks Bolivia uh recently banned Bitcoin It joined Iceland and Vietnam as I think the three countries have actually

outlawed Bitcoin not surprising the case of Bolivia they've been a a Serial kind of uh currency debaster California on the other hand um like New York State and other states in the U.S is actually taking a more proactive and positive voice to actually legalize Bitcoin um so but the regulatory picture continues to be a bit mix I think the big thing was that China seems to have stabilized in in April and that's been I think a real positive story for Bitcoin and I think on the whole regular regulation is trending positively for Bitcoin um this this slide I've titled kind of keeping mount gox in perspective you know a lot of media attention was was you know paid to the 500 million or so dollars that were lost at Mount gox but

if you look at you know some of these stories coming out of the traditional Financial Services System you know BNP Paribas nine billion dollar fine just yesterday I think Citibank agreed to a seven billion dollar settlement JP Morgan really assured 30 bill or 13 billion I mean that's 30 billion right there between those three companies um and the list just goes on and on in terms of like Market manipulation and other fraud and malfeasance in the traditional Financial Services System so you know gox and some of the other problems that Bitcoin has had I think is a real small drop in the bucket compared to uh what's going on with the big boys at the same time also people always talk about aren't you concerned that Isis is using Bitcoin for uh for illicit transactions I mean Bitcoin really pales

as a as a medium for uh you know illegal activity compared to some of these other markets and in cash for example so I think again that's something that gets Blown Away out of proportion uh in the media so something we don't have in the state of Bitcoin report but I just wanted to give you uh kind of a first look at which will be coming out here very shortly is what what I'm calling my Bitcoin Market opportunity index so we all like to think that countries like Argentina and China are really fertile ground for Bitcoin for a variety of reasons but I haven't seen any analysis done which actually goes through in a quantitative fashion and actually ranks countries based on things like you know what kind of Technology capacity does the country have what kind of smartphone adoption

what percentage of online Commerce is taking place what about financial repression inflation restrictions on Capital controls we're also looking at other socio socioeconomic factors GDP growth uh whether there's an entrepreneurial culture a tech Hub uh what type of financial crisis have they had recently if any was it a currency crisis was it a banking crisis which may not has have as a positive impact on bitcoin adoption so in a few days I'll be releasing um a ranking of countries based on uh their kind of the market opportunity for Bitcoin uh based on these these variables so just to wrap up there's I think some 60 slides in the state of Bitcoin report

and uh we know that's a lot of information to go through we've got a summary uh with the highlights right at the front of the report for you and we both so uh we're adding this this dashboard as well so you can get a quick snapshot of how Bitcoin is performing over time this is what we think are the key Bitcoin adoption metrics and you can see that you know wallets for example are up 7x over the last 12 months we'll probably add a column I think for quarter over quarter as well but this and the summary are right up front in the state of Bitcoin report which you can download for free at coindust.com and I thank you very much for your time look forward to a great conference thanks [Applause]

[Music] okay good morning it seems some of us are missing in action um I I take it the parties must have been good so welcome back to uh day two of coin Summit so we're going to start with a a panel that uh I think is is very important uh and we're going to be discussing the future of Bitcoin so first of all a few words about jazz or moderator so jazz is one of the best known and most accomplished Tech entrepreneurs here in the UK he took two companies public um he uh started more much more in two

companies his his last company pkr.com is one of the largest um uh online poker uh multiplayer poker companies in in the world very successful company um Jazz also is has been in you know invested and involved in the Bitcoin space um in a very deep way for you know for a couple years now um he's an investor in many companies in the Bitcoin space um he knows Bitcoin mining extremely well um and you know Jazz also has a very strong product and Technical background in general so I think there there couldn't have been a better person to to moderate this panel um so uh just a few words about um his fellow panelists so uh Professor

Sierra is a professor at Cornell and he's the author of hacking distributed which is a very widely read blog in the Bitcoin space and he's uh him and you know his colleagues at Cornell have written a number of papers uh particularly about some of the vulnerabilities in the Bitcoin Network um and it'll be um great to hear more about that today um Peter Todd probably doesn't need too much of an introduction in this community so he's one of the core developers um uh you know one of the guys who's you know has been um in the Bitcoin space pretty much right from the beginning and Jeff garzick also one of the core developers again doesn't need too much of an introduction and and uh he's you know one of the guys

who's been developing right from from the beginning so uh Welcome to our panel uh welcome guys big round of applause good morning and it was uh pretty tough to get here this early so um thank you all to our fantastic panel um we've been brainstorming some cool and topical questions uh and we're going to start with the one that we've heard a lot about in The Press which is the 51 problem and um what about it is it a problem do we need to worry about it uh yes

and feel free to elaborate it uh it is definitely a problem it is uh once you reach uh 50 you tend to be a single point of failure and that's that's pretty much true in many systems but especially in a consensus or distributed system in particular you can reverse transactions you can create a double spending attack if you're a malicious actor but uh also there is the counter incentives in that once you perpetuate some of those attacks then the Bitcoin Community it presumably would become aware and uh want to address that in a direct

or rather direct sort of way but so yes short answer it is a problem so let me add something to this um and Jeff mentioned the attacks that thought possible with the 51 percent uh minor but it's also quite the problem with 51 isn't so much that somebody will achieve 51 and then attack the network 51 is a problem for the perception of Bitcoin as a decentralized system the moment you have a minor that has achieved the Monopoly then the ability to distinguish uh Bitcoin from any other single issue currency uh gets lost so we suddenly lose the ability to bring new people in we suddenly lose the value proposition that Bitcoin offers the thing that

actually attracted all of us to this space was decentralization so even if a 51 percenter is on their best behavior even if there are no attacks against the system even if there are no double spins 51 is actually a net loss for the community at large so it is something that I feel very strongly that we should take measures against so what can we do about it and is there a short-term and a long-term fix we haven't heard from PT yet so well I think in the short term um there's a lot of Education to be done not of the community but really of the people who are say my name sure they better understand what their incentives are because if you have a long-term viewpoint on bitcoin you should not be part of jihash.io right now you know you

should be part of a smaller pool and then beyond that well then I think it's a very clear indication that we need to go fix the protocol and there's a whole host of Technical Solutions and it will take time to kind of evaluate them better understand them try them out on test networks and so on but long term that's probably going to be what we'll see happen and and Goodman has a proposal for a technical solution as well which will need to be evaluated yeah indeed uh it's IAL and I have come up with a solution called two-phase proof of work uh that actually is very nice in the sense that it accommodates the current mining Rings the current mining infrastructure as it exists but allows us to actually push back and I wouldn't say that it's anywhere near

ready we need to still experience get some experience with it but it's very nice to have those kinds of Technical Solutions in our back pocket as we discuss uh with say a 51 percenter and say look guys you're actually hurting the community and there are technical measures we can take in the medium to long term to actually push back against 51 percenters and so we're actually in an okay position when it comes to this that we have some Technical Solutions that we could deploy if we wanted to and so is there a short-term fix can we do something tomorrow to to get us out of the of the problem well the pool can do something tomorrow we as a collective Community can't really do anything immediately tomorrow but I also like to point out that you

know their their Technical Solutions there are uh education but there's also just simple free market and free market competition and the interest of the Bitcoin community and Mining pools really incentivizes people to look at the 51 percent issue and say okay I'm going to switch pools so in terms of uh Market leadership I like to point out that pools rapidly change Market leadership we've hit 51 percent multiple times before G hash and each time if You observe the mining pools over uh you know periods of months and then years you see Market leadership just rapidly recycles it's not just one

player it's one player and then it's a second player and then it's a third player and so you really have a very very Dynamic competitive system let's just summarize in the long term we'll have a technical fix and we'll evaluate all of them but in the short term we need the community to be more careful about where they might and to spread their mining about and we also need the mining pools to take more responsibility for their actions absolutely okay great so um now a slightly more controversial one even so mining is the cost of securing the network and currently mining is 140 Peter hash approximately which today is about 140

megawatts of power but the cost of mining is related to the cost of bitcoin and the block reward so when when Bitcoin price gets higher are we going to spend many megawatts or even gigawatts one day on air Mining and is that reasonable yes yes absolutely we have to secure our network but I think it's only a valid comparison if you compare what it takes to secure a traditional currency both in terms of multi-million dollar printers inks for to secure the physical currency the costs of the data centers and remember Bitcoin is not just currency

it's a payment Network and so you have to consider the cost of securing a comparative payment Network on top of securing the currency so you know for the US dollar you have Secret Service agents U.S treasury agents you have data centers and you have multi-million dollar printers inks Etc all of that has to be factored into the comparative equation and so if you consider all of that there's a great deal of energy wasted in securing the US dollar and you know that big number can be a little misleading because in the future and we're already beginning to see it as well we'll be seeing things like people using Bitcoin mining equipment to go

heat their houses you know yeah and make use of all this extra heat as well as curiously enough put Bitcoin mining equipment in more decentralized ways because renewable energy is very cheap except for the fact they have to get it from the middle of nowhere to cities of course with Bitcoin mining equipment people are already beginning to put the Bitcoin mining equipment with energy is generated which kind of changes economics and it's not as simple as saying oh yeah this must be generated by Dirty coal yeah there's a lot of Bitcoin mining now in Iceland where they have almost free energy with geothermal and very cold ambient temperatures so cooling is free as well so and that's one of the business ideas I love to toss off is a mining water heater yeah so don't use that phrase in England

it means something different oh great okay so um what's happening with the Bitcoin core development where's it going what are the issues well uh uh basically uh Bitcoin core development I'll just give sort of a general overview uh coming from the Linux kernel open source space I try to draw a lot of analogies from that Bitcoin is an open source project and the Bitcoin protocol itself changes to that are modeled after the ietf RFC process it's called a bip or Bitcoin Improvement proposal and so if you're going to change the protocol then you'll follow a standard process where you'd

create an implementation write up a draft specification then you'd engage the community in that regard in terms specifically of Bitcoin development um there there's no entrance exam there's there's no qualification all you have to do is show up and start contributing now if you show up and start contributing at a sort of either low knowledge or low quality level then you'll take a longer time to build trust with the existing programmers in the existing community but if you show up and this this happens both in the Linux kernel and in Bitcoin you show up you know your stuff you're a genius your changes are uh are perfect then uh they'll be instantly accepted

and so we have a problem you got you two are cool developers but there's not enough core developers out there I think that's an education issue I think it's just the number of people who really understand the protocol is extremely small and that's a problem yeah it is a problem and it's not a problem that you go fixed by you know creating a group negotiating access to core protocols probably fixed by teaching people yeah that has to happen naturally and organically I think but one nice thing that's happening outside the development community in the research community that I can speak to is uh there are a lot of academics now actually taking a more critical look at Bitcoin who are excited about Bitcoin who are excited about the opportunities indeed it's it's suddenly put

cryptography so you know front square and center and so that's really exciting and and there are a lot of young bright Minds who actually have uh are very excited so that I think there's good organic growth in that but also I mean bit pay um has effectively paid for you to be um full-time core development but there are a few other companies that are doing the same thing so we you know we need to encourage that absolutely we need not only education but uh other Bitcoin companies uh need to not get into the mode of thinking where if they want something they come to the core developers that's not how open source works if you want something done

you need to hire the developers to do it and your developers will then become your interface into the Bitcoin Community I mean as right now we have so few core developers that it's simply not scalable to add task upon task you need to scale horizontally and add more developers so a lot of businesses are are just floating just starting in the community and they need to learn that you know either you need to hire some developers yourself or there are for example the Bitcoin Foundation does fund Three core developers right now as well and so contributing to the Bitcoin Foundation also contributes to core

development every company should particularly every company that's raised Finance should have in their business plan to at least you know tribute a core developer not just poached core developer from another company but actually create a new core developer absolutely and also it's important to note that development isn't just a single uh single sort of stage of a of a process it's really a pipeline you need research and development so um I think we saw with the selfish mining discovery that indeed there are some issues that are higher than we need to write some code that somebody needs to think about well what are the Dynamics of this distributed system what do we need to anticipate ahead and these are not easy easy issues and it really takes

a research pipeline Then followed by a development pipeline absolutely and to steal some of uh something that Peter Todd said a couple days ago in response to something I said in Twitter we often compare Bitcoin to medical device software or avionics software because it's to such a level that it simply can't fail but Bitcoin is a binary equation in that it's either worth 0 or non-zero you know I mean maybe that's self-evident but if you think about the reverse of if there's a break then it'll quickly go to zero so um it's it's very very high level software that just has to work but it

also is under researched and so we're it's a dilemma in software development because when we need to advance the protocol Advance the community we really are breaking new ground on the other hand we need both research and development to uh to get us where we need to go the Bitcoin itself has a value so it's it's its own prize to be studied and to to find security issues yeah and you know also um put a positive note which is to point out that the core Bitcoin developments it doesn't necessarily you didn't necessarily expect to change that much it's not unlike ctcpip on the other hand there's this whole ecosystem around it which I didn't make the analogy of the

web where we do see a lot of very Innovative very fast work and companies in the space who do things like experiment with multi-sig they're pushing Bitcoin forward even if they may not be directly working on this so-called Bitcoin core software and they deserve I think a lot of credit for that so that that's a great segue so let's talk about multi-sig for a moment how important is it and is it is it the next generation of wallets that will make people feel safer and um is that are we solved are we done with with safety it's absolutely necessary it's been in the Bitcoin protocol since day one but uh so that gives you an idea of how long it's taken to develop an actual secure wallet

um I like to make an uh not an analogy but uh Bitcoin is really pushing the sounds of computer security stop period end of end of sentence the uh the computer security Community has never before been called upon to secure a single digital file whose theft may result in millions of dollars of value being transferred you've had secure software before you've had encrypted software before but never is a file sitting on your computer been worse so much so it it it demands a whole new level of security multi-sig is just the first

step in that uh process yeah so um I like to call Bitcoin the universal Bounty program so um in the old days when you found a a bug in some kind of an operating system or some kind of a platform you'd have to prove to the platform operators that indeed this is a real serious bug I could break into your system they would push back on you they'd be like you don't really have a demonstrated exploit we're not going to recognize your bug and so forth and this was a given you know this was you know back and forth and it really just sort of wore everybody down but with the invention of Bitcoin now any hacker as soon as he finds a zero day vulnerability gets to collect rewards and this at once is both very infuriating because you know you suddenly have these news reports of oh

my God my Bitcoins are gone somebody swept through and took them all off but really these people are doing some in some perverse way service to the community and identifying the flaws and there really is a big issue though which is the platforms that we use to secure Bitcoins both on the server side and on the client side are typically not worthy of holding assets of such great value and we really need to take really great measures as we saw with Mount gox yeah so Mount Cox is a separate issue so um Mount Cox it's not really clear what happened but there are many other exchanges that failed and there are a lot of exchanges that failed due to uh poor server construction similarly there are a lot of stories of people who lost

uh lost their Bitcoins due to errors or flaws and the client-side software so we really need to to improve the state of computer security at all levels so Peter when if um wallets that have multi-stig built in become the norm then what about the services that provide value-added multi-sig what happens to them do you need them I think you still need them in fact I'd say it becomes more interesting use them because if for instance if I go make the promise that I will help keep your Bitcoin secure and you will also have another part of a multi-sig wallet it's really both of us are authorizing the transaction to happen so if my business is to say run you know security

service where I'm vetting what's going on I'm doing the auditing and you're a company really we've set up this Arrangement we're both participating keep your coins secure yet you can easily get into that Arrangement because I can't run with your money either and some of them have insurance policies as well which is exactly belts and braces kind of price and it's a very interesting problem for Regulators as well because with multi-sig who actually controls those funds if it's three organizations holding three keys who legally owns those funds and so you can't really write legislation that says you know these Bitcoins are uh you know this certain legal category because it might be partially owned and partially

controlled so let's move on to a confirmation time so in e-commerce we need fast confirmations we need to know that a transaction has happened you need to be able to leave the store or they need to let you leave the store knowing that they've been paid for something or or with an ATM when you make a withdrawal you need to know that you know you've shown your Bitcoin QR code or whatever you need to be able to withdraw the cash so sometimes these take a long time what's being done to help that well uh my my personal uh Pet Project is uh uh payment channels and payment channels are a smart contract technology it's a two of two multi-sig technology whereby you agree to with a server to

lock in some funds once the funds are locked in on the blockchain you can securely and rapidly revise a transaction in a trustless way such that if the server departs the client receives their full refund and this is guaranteed by the Bitcoin protocol if the client departs then the server or the merchant still has the funds up to the point where the client departed so it's functionally an automatic settlement type mechanism however it can be rapidly revised you can have four billion of these in you know per second in theory so and they're all digitally signed and they can be published on the

blockchain that's just one example of a technique week that provides instant secure transactions and you don't have to wait for a confirmation time there are other techniques out in the field that are exploring similar similar trains of thought but whenever someone says that Bitcoin is too slow because of the confirmation time then they're not they're just looking at the lowest layer they're looking at IP of tcpip whereas Bitcoin is many layers of an onion and you have to look at how you can build trustless systems on top of the Bitcoin protocol such that they achieve your goals very good so um what other exciting

things are happening in Bitcoin core in the next year I mean me personally I go work for a bunch of groups that are trying to go build financial instruments on top of Bitcoin and I think we're going to see a lot of exploration in that space you're going to see a lot of things like people experimenting with issuances of stocks or bonds you may have heard of the term colored coins is a very early example list and that's being explored you've also embedded consensus systems like your master coin your counter priority that are really in some ways changing the Bitcoin protocol but for a narrow group of users so you can have one small group of users that care about a set of rules they can choose to follow those rules and the rest of the Bitcoin

Community doesn't have to care what they're doing and then they can accept rules that for instance may allow stock trading may allow distributed markets may allow me you guys are Finance people you can think of a ton of Finance instruments I'm not familiar with but it remains to see how valuable this stuff really is in the real world I think some of it certainly will be some of it won't be and you know we'll have a whole Space of exploration yeah we'll certainly see value-added Services built on the blockchain the blockchain allows us to bootstrap trust and that's going to be an enormous enabler for a lot of services and in general there are a lot of people who are in the altcoin space who I think they they have a legitimate

desire in that uh the term that I use is appcoin if you have an application and you want to have some tokens Etc a cryptocurrency can be a an excellent choice but the current altcoins that's uh the alternative currencies that are built on uh you know Bitcoin code base like Litecoin Etc they are both wildly insecure I'll I'll be blunt um and also I mean less and less significant I mean in terms of market cap Bitcoin is you know well well just just to finish the point is that app coins are a valid use case but altcoins are a poor implementation of that use

case so what we're going to see in the future is uh side chains or tree chains and that is a technology that allows you to bootstrap on bitcoin's network strengths while at the same time having a totally separate chain a totally separate currency or even outside the currency space a totally separate distributed database and an example of that is name coin which attempts to create sort of a decentralized DNS and namecoin has its own problems but as an analogy G that works is Bitcoin is fundamentally a database technology at the end of the day and currency is just one application that runs on that consensus database technology so once

you have other app coins which bootstrap on bitcoin's network strength and side chains and tree chains are two proposals that do that then you'll see a different explosion of altcoins in the future typically running on the Bitcoin protocol the Bitcoin blockchain so that's another exciting development of the future how do features get decided for Bitcoin core and who's in charge and you know who decides these we're all in church everybody yeah but in in the real world you can't all be in charge well I think what's interesting about it is that Technologies like side chains and tree chains a lot of what's Driven the ideas behind them is this notion that it would be better off if we didn't have to

ask permission um in with embedded consensus systems like mastercoin counterparty as well as your colored coins they're designed under the assumption that Bitcoin core protocol won't change therefore we should go work within that protocol to come up with something new and I think there's been a lot of success with people building on top of Bitcoin without making the assumption that all the stuff they do has to change Bitcoin itself and that's been I think a very very successful process whereas the proposals that assume that are we're going to change what Bitcoin is they kind of tend to just sit there on mailing lists because it takes so much time to get the consensus it's not impossible it does happen we have made a few changes to bitcoin p2sh with

multi-sig as an example but it's slow and it's not the way I personally would do things and I think going forward we're going to look for ways to make permissionless development more easy to accomplish so we do not have to continue changing the core Bitcoin protocol so one last question before we open it up to the uh to the floor well one one quick addendum if you don't mind I would uh point out that the Bitcoin protocol was built to be extensible Satoshi at many levels put in extensibility into the Bitcoin protocol you can add new script op codes you can uh you know X the transaction malleability issue there was the notion that you could piggyback some more data onto

transactions there were several other avenues of extensibility that are built into Bitcoin and so the Bitcoin protocol itself is not just Frozen in time it moves slower than most people in the community would probably like but when you have to be conservative with eight billion dollars worth of value so what if you get to a place in the world where you have no internet then how would you get the blockchain I mean how would you well what a wonderful question one of my pet projects is uh putting Bitcoin in space so uh I am I'm currently contracted with Deep Space Industries we're designing cubesats which will process the

blockchain once we get the cubesats up into space of course you need some governmental approval at launch time and frequency Etc but once they're up into space there's no off switch and so if you need remote access to bitcoin you would have the full blockchain that's not a simplified payment verification you have full trustless verification and also if you know even if you're in the western world and well connected to the internet Etc if you're civil attacked you have a local attack that's an excellent resilient backup mechanism is you can download from satellite down to earth so and that's trustless the satellites

using the same Bitcoin D algorithms to evaluate every block so even if the ground stations that are sending the blocks up to the satellites are malicious the Bitcoin algorithm itself guarantees that that's not going to be a uh an issue and you know I think I can kind of generalize where you're going with the satellite say what's really strong about Bitcoin is it's just a piece of data with an algorithm and your ability to be secure is in part dependent on how easily you can get that data and if you have more connections to different computers and so on you are more secure because you're less able to be censored from what the true Bitcoin blockchain is that's a very powerful

statement and it really leverages what the internet is good at which is Distributing data it's definitely censorship resistant but uh moving beyond satellite and generalizing a bit it's useful to bitcoin to find different Avenues to distribute the blockchain and distribute block headers I egged Peter here on months ago to post block headers to Twitter as an example of an alternate distributive map it blocks me after a month again you had to comment on on Jeff's um yeah so I really respect Jeff's effort to get to the moon and to do that first by going to outer space um but uh um and it's it's a wonderful

laudable effort I do think though that that we really have some issues on the ground here so no question so both on the service side and on the client side I think my worries really reside with security computer security so it's great to get the data on the blockchain and so forth but if your processing engine is compromised you're dead and that's really the number one issue that I see uh coming up ahead so let's uh see if there's any questions from the audience we have one in the front do we need to get a microphone to them or just over here front row [Music] hello my name is Olivia and I recently did like a hundred thousand dollar bounty to replace the

Bitcoin Foundation I don't know if you heard about that um because I think it really lack of transparency it was sort of yeah no longer representing the community properly so as the winner was my current with Lighthouse and one of the main things I want to accomplish is sort of like the couple the developers from the foundation so you're not depending on them for your wages so I was wondering if you guys are willing to use this platform in the future to have crowdfunding uh happen and be crowdfunded by the community so the community can actually choose like which um yeah features they want to have

implemented well if you want to choose what features to have implemented just hire the developers to write them I'll point out um zero cash which is one of the projects I'm working on we're planning on using Lighthouse to go raise funds in the future and we're really looking forward to that and lighthouses in particular a fantastic platform it makes use of a feature in the Bitcoin protocol whereby you can collectively build a transaction among many many people and it's it's a binary decision it's not valid on the Bitcoin Network until the transaction is fully funded so if I need to raise a thousand Bitcoins and you know he contributes to bitcoin he contributes to bitcoin it's not valid until that

thousand is reached and so that addresses in part the uh the free rider problem and or who goes first problem in economics thanks any other questions there's one over here hello I'm Denison um on the subject of education is there any work being done to maybe do something like um a master's degree in Bitcoin or would you leave to work in a university setting where you just simply teach the next generation of people who are going to be working in Bitcoin most definitely I can speak to that I think there's so much interest uh for cryptocurrencies among the young students among the 18 to 22 crowd that um I'm I know what we're doing at Cornell and I can speak to that our

operating systems class where students learn how to program and write systems code actually covers Bitcoin our master's classes typically have a lecture or two on crypto applications with specific application to bitcoin so we're certainly covering the topic um so a master's program in Bitcoin is a little too much but there are Masters Theses being written looking at different aspects of blockchain analysis for example and there are even some PhD TCS coming out of different institutions the UC system has a couple of people who've actually looked very closely at uh at blockchain analysis so it's certainly making its way and it's coming I think it's happening organically it's it's we're certainly educating the next

set of people who want to learn about cryptocurrencies yeah I think that's that's a excellent way to put it it's happening organically you see computer science departments and many universities that I'm familiar with are are just sort of scrambling to catch up with this technology but they will eventually have distributed consensus in most major computer science programs but what one thing I find interesting and I hope that universities pursue is that Bitcoin is really a fusion of computer science game theory economics Etc and computer scientists don't typically graduate with economics you know on their on their brain and economists

don't typically have much background in computer science and so I can see economics departments growing a you know a dual major or some sort of cross-pollination between the two because cross-pollination exists in the real world well most certainly so mechanism design is a topic that marries both distributed systems with economics and Game Theory so that's a topic that has received a lot of academic attention already and and there are a lot of programs that are actually looking at this and Game Theory courses most certainly touch upon aspects of distributed system design incentive compatibles through a system design and also you'll point out for developers there is developer documentation very good documentation recently it was

written up on bitcoin.org and that was a great effort to see happen and in general an invitation to anyone listening is I have an open email policy J Garza bitpay.com if you have an incredibly uh complex Bitcoin question you're more than welcome to email us or email the list or join the pound Bitcoin IRC and we're more than happy to answer questions and Mentor people into the space we're desperate to get more developers we want a thousand X developers of what we have now next question there was one over here Yeah you mentioned the side chains um I'm just interested to know does that contribute positively to the network or does it add some unnecessary weight I

just wondered if you could speak about that a little bit more well that that's a bit of a subjective question I think the uh I don't really want to form an opinion on that question it's really a matter of the community and are they paying transaction fees are they following the protocol you know the rules are really technical rather than subjective I think side chains or whatever solution approximates that are very important because they allow us to shed some load off the Bitcoin blockchain which is uh useful for efficiency but is it good that's that's a religious question these things kind of come down analysis

of the incentives behind in sort of the technical incentive compatibility and then what it does for minor profitability so there is very heated debate within the Bitcoin Community about it although to answer kind of the really broad question regardless whether you're doing an embed consensus system a side chain or a tree chain system you're all contributing towards the same 51 percent attack security of Bitcoin which is different from an altcoin where you're doing something entirely separate okay I'd like to thank our panel gun Peter Jeff and I'm Jeff [Applause] [Music] thanks so much for listening to our

coverage of coin Summit if you enjoyed this episode please support us with your donation it really helps us traveling to conferences and produce high quality content for you you could donate that episode of bitcoin.com tips where we have our tipping addresses and also an option for the nation subscriptions your support is much appreciated and special thanks to those generous Souls who have already donated to the podcast [Music]