Ordinals, Lightning and the Future of Bitcoin

Transcript

session is dedicated to Bitcoin. Please join me and let's sit in the order of the banner. So Paulo next to me. Nice Dan Deaza Deaza we know you already but we don't know Dan as in who who doesn't know Dan that's so please introduce yourself Dan and Paulo in a few sentences and then we can dive in. Well thank you so much for having me. I'm uh Switzerland's a beautiful country, so glad to be here. And uh my background, I've been in the Bitcoin space for about 10 years. My most recent corporate gig was head of marketing at Kraken. And uh I've done a lot of Bitcoin education. So I've got quite a

few followers on YouTube, Twitter, LinkedIn, and uh I've helped a lot of people come to understand and appreciate Bitcoin. Thanks so much, Paulo. Yeah. Uh so, welcome everyone. Thanks for being here. My name is Paul Warnerio. Uh I'm working uh I'm responsible for business development as SDX. SDX is part of the six group, one of the biggest um FMI in Switzerland and uh we run like a digital exchange for digital security and recently we have uh launched also our uh web3 units where we basically provide uh technical infrastructure for banks and regulate

the financial institution uh to access uh digital assets and cryptocurrency. Thanks so much. The reason why we have this panel because Polo pointed out last year that uh Emmy you you don't have much Bitcoin content here. So we correct this this year and uh we dedicate half an hour to Bitcoin. What do you guys think about Dem's presentation when we reach mass adoption of Bitcoin? How does that going to look like? Will there be layer twos, layer threes? Um when when do we get there?

Well, I liked a few of the points she brought up. I think uh really well well done presentation by the way. Um you know volatility as Bitcoin becomes more widely adopted and there are more and more hodlers and the market becomes deeper and deeper in terms of liquidity and the market capitalization grows um eventually Bitcoin will become boring right it is supposed to become a gold 2.0esque you know, esque asset. And all of our grandparents always tell us to go buy gold and we're like, okay, grandma, grandpa, that's that's a little boring and that's not an exciting investment.

Bitcoin ultimately is supposed to be a safe haven gold 2.0 asset. So, at its maturity, it should be low volatility. So, I think that changes a lot of how people perceive Bitcoin today. I think Bitcoin today is perceived as a higher beta tech stock by a lot of people. it's perceived as a very speculative store of value. Um, so I think you know when we look at Bitcoin's kind of final frontier at that more you know low volatility moment that's when Bitcoin kind of blossoms into becoming you know the medium of exchange and unit of account style currency.

Yeah, I agree. I mean presentation was was great uh very interesting. Um I think it's uh it's not a matter uh if uh Bitcoin will be best money. I think is is when and I think here we have like unique assets probably the most uh powerful assets that the human beings ever uh had the opportunity to use which is uh with with that has no issuer um can be transferred uh everywhere in the world in a matter of minutes. is uh can be verified at any time by everyone uh with uh uh low uh requirement and uh and uh it's cars and uh I mean we we start

to see um you know individuals corporate and I think it's just matter of time when we will see also central banks uh wanted to have bitcoin on their balance sheet so um yeah I think next year are going to be very very exciting So, how will mass adoption affect block size? When it comes to block size, what is your take as well? Dan, what do you guys think? You want to go first? You want me? I'll let you go first. That's a hard one. So in the in the block size wars we had a intense debate over what is an appropriate block size in L1 which you know it's essentially a fixed parcel of land and there's only so many

transactions that can occur within that fixed parcel and depending on the type of transaction because it's it's the fee structure is based in bytes um you know essentially any rise in demand for that fixed amount of block space will lead to a rise in fees. And so there was, you know, the block size wars outcome for the Bitcoin network was the idea that Bitcoin would scale that lower value or lower economically dense transactions would occur on L2 and L3s or layers above Bitcoin and eventually they would settle the net value on L1. Uh, Lightning is a prime example of that.

You can open and close a lightning channel uh with two transaction fees and or two transactions and corresponding transaction fees and you know you can have millions of transactions occur through a Bitcoin lightning channel that's open and but only the net value settles on chain. So um you know that's an example of how this would work. And so there is a ethical and and um kind of philosophical or argument though of accessibility. Um who should be able to access layer 1? If you keep increasing the block size on layer 1 to be able to include more transactions, which would bring the the layer 1 transaction fee down, then you increase the node operator costs to to

run and to be able to connect to the Bitcoin network directly, uh aka decentralization. Um, so there was an intense debate as to how Bitcoin should scale the Bitcoin network and most blockchains have agreed that scaling should occur in layers versus everything happening on L1. I think it's widely recognized that scaling in layers is the more advantageous technical way to do this. However, that does mean that layer 1 will be inaccessible to lower income folks uh over time just due to the u high transaction fee costs. Uh but this is something that the Bitcoin network has as a community has agreed upon. Um also the Ethereum community as well. Um Ethereum gas fees are quite high and

will only get higher in the future. So this is something that we've all agreed upon as the right way to scale, but it certainly prices out uh lower income folks who might be in the uh the global south, South America, Africa, etc. when we prepped the maz you said that um Michael Taylor stake when when transaction fees can reach as high as 600k is uh somewhat realistic or not like what's your take here? Yeah, I mean I think Michael Sailor has a great point. He's saying that, you know, right now actually fees are quite low for a base layer money like to to have final settlement on on on the Bitcoin network and fees are as

affordable as they are. So I mean he's making the argument that we should be, you know, stacking SATs kind of now while fees are low because eventually fees on chain he argues will be 600,000 you know in that range. So, you know, PE forecasting this out, I I I do agree that, you know, scaling and layers having fiduciary media or even like, you know, lightning network or liquid, which are kind of not quite fiduciary media, but then possibly some something like Fetty Mint, like I've been watching that recently. And yeah, so I think there's a lot of opportunities to scale with with various products, but the the final settlement probably will have a a high fee. I I don't see a a way around that.

And and if I were to add one more thing too, if we look at other large asset transfers, wires, uh home purchases, uh homes are considered the most widely recognized store of value asset, even more so than gold. Real estate's a $250 trillion market and one of the oldest asset classes to ever exist, even before gold. Um if you look at the in in physical gold delivery you know if we look at in um also foreign for foreign bank account creation if we look at you know and that's that's created to in order to then wire money to that offshore bank. If we look at the transaction fees that are incurred doing those activities people are they're not really that price sensitive to to

transactions that cost thousands of dollars to complete. Um, so I don't think that people will have any qualms paying hundreds or maybe 600,000's a lot per transaction. I mean that's it. It it depends on it's a complex conversation around a security model in terms of what's the appropriate level of security spend which I don't think we want to go down that rabbit hole. Um, but yes, people are willing to pay much higher transaction fees than right now. I think where people had conflict and where the conflict occurred in 2017 and now are people telling uh low-income folks that Bitcoin L1 is appropriate for them. It's not true.

Um it's the uncomfortable truth, but it's the truth that all blockchains have sort of agreed upon is a necessary evil. And by the way, I mean this is something which was clear from the early beginning. Um I remember I mean recently I saw um a post from Haline which was actually the first person after Satoshi to to use Bitcoin and he clearly said that he said I mean block size is going to be um a limitation uh and we need to have layer two uh to be able to to transact uh easily uh on Bitcoin. So it was clear from the beginning and uh uh the fact that in bitcoin we have uh two

uh scars thing one are the number of bitcoin and the second thing is the is the block size and there is a clear reasons then explain why uh we have this um this uh uh limit on the size of the block and it's critical also to have um decentralization of course is an important aspect but also uh to uh have a clear rule and uh to make mining which is actually uh the way that we secure uh the blockchain uh profitable. So um I think uh and and I mean we will talk about ordinance but I think that's uh

we talk first about lightning. Yeah. Yeah. finish finish your thought. So as in um that that that uh you know layer two um development will be essential um uh to actually uh allow uh normal people to to to transact even with low amounts uh transaction and can we can we expand on the layers right now or are you going to ask a question here in a minute on that? Um so I was about to to transition to lightning. Okay. And come up with a few use cases and um and yeah why why are you excited about lightning? If if you are I don't know the maza how excited you are. Well I I am okay. So I think lightning for for me

it's still a little bit difficult to use. Like I got the Phoenix wallet and I've seen do do a couple transactions here and there but I'm I'm still not like uh I wouldn't say proficient in the lightning network. But in terms of use cases, I see it being great for like spam produ uh reduction. So so basically with Nostra or you know you can charge people a small fee before they can post information you know. So for example like on Twitter with all these bots that you know astroturf someone when when they you post something that that they don't like you know with Nostra if you just pay like a little lightning fee you can stop a lot of this spam um from occurring in the first place. Plus, you actually, you know, people that do want

to attack you, they're going to have to exhaust substantial resources, you know, to to to facilitate this attack. So, I think that lightning network because it it facilitates microp payments, it really can be integrated into a lot of the different u you know apps that we use um and it's just a matter of time before entrepreneurs kind of come into the space for for various use cases. I'm obviously bullish on Lightning. Lightning is a great scaling tech. I don't think it's a uh a general purpose fit for everything. And I think it was treated like that by a lot of the Bitcoin community of how do we fix scaling? Lightning. Lightning is the most popular layer to cor right now. But we've got side chains that are pretty

old like roottock, uh liquid, you know, when we look at the opening and closing. So if you want to have a non-custodial lightning wallet, if those onchain transaction fees are high, that still prices out a lot of like the global south. So their first access might actually be more in the form of side chains uh like liquid or uh rootstock. So I'm more layer agnostic. I think uh there's a lot of different ways to scale Bitcoin. Lightning is exciting. I I welcome it. I'm loving seeing all the different applications and companies built on top of it. But I do think we have sort of neglected the other ways to scale Bitcoin. And there's a lot of really cool exciting things coming out,

not just side chains, but drive chains and all sorts of other ways to scale Bitcoin. So I I welcome all the different types of layers. Paulo, what's your favorite uh application on Lightning? And and yeah, of course, we want to hear your take as well. Well, I I have a lot of favorite application. Um well look I I think lightning it's it's probably you know the the the most used um layer 2 uh application. There are other coming. I mean RGB is something uh very very interesting that we will hear more and more often uh in the future. Um and uh I think the use case of lightning is very interesting because it allow everyone to um send uh you know tiny amounts of uh

of money like uh uh t you know small percentage of a cent uh with almost instant setment and uh um I was reading recently an interview from uh one of the main developer of uh of of lining and it was saying I I see actually liking being integrated in uh social media in in Tik Tok in Facebook and uh ideally you know instead of you know uh putting a like on a post uh I can send some Satoshi to actually and create like new way for um content creator to monetize uh their uh

their content without relying on intermediary. So um it's maybe I think something that uh it will be challenging in the future is really to create standard for uh lightning and um second layer and this is something that uh for example LBP is is a is an um association here in Switzerland is actually trying to do uh because that will actually allow more application and more developer to actually build on lining. We I hope that was uh not too layered of an answer for your lightning question.

Yeah. If um if you guys uh want want to tell me that like fruitstock is more popular as in not popular but also also widely used or somewhat used. uh I think the best applications is a nostal or or or the ones which uh we talk about the one which is used in Africa and South America uh where you can send um Satoshi is I I can't recollect now the name of that one but uh but yeah certain companies are using lightning to send field so um let's talk about ordinals because uh I know the level of uh enthusiasm towards ordinals here here differs

Um, I think your Twitter picture is uh it's a wizard. It's a wizard. Yes, a taproot wizard. A taproot wizard is a Bitcoin NFT project that is powered and and you know able to be created through ordinals. Um, you know, without getting too technical with with how ordinals work, uh, basically ordinals and a, you know, lay person's uh, knowledge here, an ordinal allows you to put graphic assets, music or other code on the Bitcoin blockchain and then you can interact with that code. You can interact with that data. I think it's the easiest way to summarize what

ordinals do because ordinals also support BRC20 tokens which are um the the ability to create tokens and issue them on the Bitcoin base layer. Um by the way ordinals exist on Bitcoin base layer layer 1. And so ordinals I think represent probably the largest amount of enthusiasm I've ever seen in the Bitcoin community since I I don't know when. It's been it's been forever. What's interesting is that the hardcore Bitcoiners themselves aren't that interested. But the enthusiasm is drawing in are people from Salana, Ethereum, and all these other chains because Bitcoin's like Coca-Cola.

You know, people want to go build on the original chain if they can. Um, Bitcoin just didn't have some of this functionality, nor was the attention focused on Bitcoin. So, ordinals to me represent probably the biggest change in the in the blockchain and crypto ecosystem in a long time. And I think a lot of people are sleeping on this. I think that this allows NFTs on Bitcoin and these NFTs exist on chain too. These aren't pointing to an IPFS file like on Ethereum. So these you actually have the graphic asset that will persist through time. Um and and many other things that we can't even fathom right now. Uh ordinals are very kind of new developer. There's a bunch of new developer enthusiasm for but ordinals are quite new about five six

months old. So we don't even know what'll blossom from this over the next 6, 12, 18 months completely. Uh I mean I I think with ordinals again like Michael Sailor, you know, I don't want to quote him too much, but I think he's he's I have to agree with him here. He said he doesn't like let's say endorse it, but he doesn't censor it because we don't know who's going to build the next best app in the world with encryptions on on on bit on Bitcoin's main chain. So this is this is uh yeah it's it's generated a lot of entrepre entrepreneurial excitement as well. Um and I and I think like the the wider question for me as someone that's like I'm Bitcoin first.

I'm not Bitcoin only. But for me the question is kind of like is this going to pull DeFi over to Bitcoin? because DeFi is like right now it's on all these other these other coins, but if RGB and Stacks and all these people start to really build um is it going to attract a lot more of that market to Bitcoin? And so I I I'm excited uh for for that that possibility and but then that would really change the invest an investment thesis for for that would change the entire um you know for all the investors that have use cases that that can't be done on Bitcoin right now. Um I think that would that would definitely change

the structure of the market. So yeah, I'm I'm trying to really keep up with the developers and and what they're doing on Bitcoin. It's exciting and if they make a lot of breakthrough, it could it could challenge Ethereum. Yeah. And and there's pros and cons like a Bitcoin can't do everything Ethereum can and Ethereum can't have some of the function that Bitcoin does, right? And and I think when you look at the value to be unlocked through Bitcoin DeFi, Bitcoin's market capitalization is two and a half times Ethereum. That's a bunch of capital sitting there waiting to be used in a lending, borrowing, yield farming, NFT, all sorts of these other activities. So, this is the biggest opportunity in all of crypto.

And that's where I think a lot of people are sleeping on it. Like I mentioned before, some people may ask, well, what is the utility? What? So, you create these different DeFi applications. What does this functionally do? From my experience as a marketer, what I've noticed is that, and I think this is quite objective and and hard to disagree with, most adoption has occurred in the speculative bull runs, 13 17 2021. Most of us came for the speculation. You know, we're humans after all. It's uh it's a little bit harder to get someone interested in Bitcoin when you sit them down and you bring them through a very libertarian I you know, conversation around gold and the Fed. It's pretty boring. your buddy tells you to buy

Bitcoin because it's going to go up. That's how most people get in. Now, that's just how you acquire new Bitcoiners is through the speculative cycles, but they stay for the sound money. Once they understand it, then they become a long-term hodler. What I noticed at NFT NYC in 2022 was that um Ethereum holders, a lot of them are introduced to Ethereum through NFTs, yield farming, and other speculative games. um when I asked you know do you understand the monetary policy or proof of stake they said I don't know what you're talking about so it didn't really matter what the underlying fundamentals were because they were introduced again a new user to that network was introduced to it through speculation um

but you know coming off of my high horse then I realized most Bitcoiners don't understand how Bitcoin works either and we go to all these conferences and we talk to people very knowledgeable about Bitcoin but the masses, most of them bought Bitcoin because their friend did and because they're like, "Oh, yeah, it's like a gold 2.0, but that's about it. They don't understand anything about proof of work, monetary policy, or anything else." So, these DeFi speculative games introduce people to a protocol. And so, Bitcoin, instead of just having one game, spot trading, will now have NFTTS, yield farming, lending, and borrowing all the speculative games that Ethereum had in Salana. So this is why I care about it is that these games will introduce people to Bitcoin and

lending and borrowing is a core basic function of any market. So it's exciting to see that develop on top of Bitcoin versus CFI versions like BlockFi or Celsius or ones that failed. Yeah. Yeah. I mean I think ordinary rais um again uh the the question of are we ready for for mass adoption because I think once we will reach the the level of adoption that you show before in your presentation we need to be aware that uh transacting on on on chain will be extremely expensive so I'm actually u happy that that you Hordinars, you know, brought up that uh discussion again uh

that uh we need to improve our uh layer two uh we need to uh to be more active. We cannot uh uh you know relying on always on onchain transaction. Um I mean people have been um putting different you know media stuff uh uh song PDF on Bitcoin since day one uh and uh 2009. Yeah. I mean exactly I mean Satoshi itself uh so it's it's not it's nothing new right. I mean the you can actually download the uh Bitcoin white paper uh directly from uh from uh from the Bitcoin chain. Um I think you know

probably personally I think ordinal will evolve in something different um uh probably uh on layer 2 because it would be extremely expensive to use uh um uh onchain uh transaction for ordiners but you know it's a it's a it's an open network everyone can do whatever he wants uh we are actually playing with a technology that it's relatively new uh uh so uh yeah I It's it's exciting to see how people are are using Bitcoin and uh it can it cannot harm or cannot kill Bitcoin. Um because we we will face a situation where um there will be much

more pressure from governments to try to congested Bitcoin trying to uh spam Bitcoin to make it unusable. So this is just you know a test um and uh you know so far so good. Super. So real quick because we are getting to the end. How do we win? How do we increase mass adoption? If you're leaving here and you're you're like not closing the door might mildly then I'll come and talk to you because this is really really annoying. Can't focus in the Bitcoin time. So um how do we win?

How do we always have to wait till the next hing? I think we I think we we we are winning. Uh to be honest, we're already winning. I think the adoption is is is increasing. Uh I think uh more and more, you know, uh I I work with institutional clients, the demand is is growing day by day. So I think we are on the right path. I I feel like I already won. So uh basically people are living in a parallel society right now. There's like the Bitcoiners that have sound money and that changes your entire um incentive like your your preference, your time preference. You your before when you have money that gets debased every year um you just don't have an incentive to save for the future. So you don't make

long-term decisions that that you know rely on compounding uh interest because you're not going to get that right. You're going to lose money if you save money with fiat. So for me, I've been saving in Bitcoin for a decade now um since 2013 and it's given me a it's a cultural it's not just financial it's a mindset a revolutionary act. Yeah. So I them there's people in this world now living amongst the the fiat people that have the low time the high time preference. we're living right next to each other and I see people succeed that are doing long-term thinking and so that's just going to continue on until that that information gap closes and more and more

people come to to realize the benefits of sound money but that's that's you know so I've already won to bring on the rest of the community we have to talk to people we have to share it with our relatives we have to teach them DCA on relay app we have to you know get them motivated about sound money and then they will they will, you know, start for themselves this journey. I think we've succeeded wildly beyond my expectations. Um, you know, I we we're from a similar era, you know, where Bitcoin was $10 and uh there was about a dozen of us in San Francisco that were into it and that was about it. I mean, I think Coinbase had raised like a three million seed round.

You know, the Bitcoin network is very fragile in that that era. There wasn't a lot of liquidity. There wasn't a lot of content. I don't even think there were any YouTube videos back then. It was there was no newsletters. There was no Coindesk, Cointelegraph. There was no crypto media. Um, so to see where we were then, to see where we are now, I think Bitcoin has wildly, you know, succeeded. Um, it did not die. It's still the number one chain. It's extremely liquid, globally recognized by institutional investors across the world as a gold 2.0, know, including Bill Gross, some of the biggest minds on Wall Street, um, and others I can't remember off the top of my head, which is incredible considering we were 10 years ago

considered lunatics, um, literally considered lunatics uh, by family, friends, lovers, co-workers, everyone thought we were nuts. So to see where we are now is incredible with tens or hundreds of millions of people owning Bitcoin too, you know, uh, Bitcoin's narrative and network itself was able to survive and thrive. So, uh, I I couldn't be more bullish, you know, that the fact that Bitcoin's here today succeeding this well. And if you think about the next cycle, you know, Bitcoin doesn't move in linear movements, it moves in exponential ones. So, um, I'm excited to bring the next billion on board into Bitcoin, which will be really, really cool to see. Cheers to that. We are less than a year apart away from the next

hing. So, thank you so much. Clap clap clap for the Bitcoin panel. Thank you.