Blocktime
Your go-to Bitcoin podcast hosted by Pierre Rochard, VP of Research at Riot. Tune in weekly for thought-provoking discussions, exclusive interviews, and a deep dive into the disruptive power of Bitcoin.
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Blocktime
Episode 34: A Conversation with Steve Lee on Revolutionizing Bitcoin's Ecosystem
Prepare to embark on a journey into the heart of Bitcoin's evolution with our esteemed guest, Steve Lee from Spiral. We'll unravel the mysteries of Bitcoin adoption and the limitless potential of the Lightning Network in a way that's not just for the tech-savvy, but for everyone curious about the future of currency. Steve, with his expert insights from Spiral's non-commercial initiatives by Block, spotlights the crucial role of open-source contributions and the creative strategies employed to simplify Bitcoin for the masses.
This episode takes you through the proposals that are set to revolutionize the scalability of the Lightning Network. We're talking about game-changers like John Law's Timeout Trees and the intricacies of consensus changes with technologies like CTV. Not only will we dissect these advancements, but we'll also celebrate the diversity and democracy within Bitcoin's progression, thanks to the dedication of its open-source community. From state chains to the enigmatic realm of zero-knowledge proofs, we'll examine the tapestry of innovation that continues to bolster Bitcoin's framework.
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Welcome to the Block Time podcast produced by Riot Platforms. Today we're in a bit of a different environment than our usual studio up in Round Rock. We are in downtown Austin at the Bitcoin Commons, graciously hosted by Unchained. Today we've got an excellent guest, Steve Lee. Steve, welcome.
Speaker 2:Hi, thanks, pierre, for having me on.
Speaker 1:Steve Lee's Spiral which is a part of Block which is kind of Well. I'll let you describe Block and Spiral Sure.
Speaker 2:Yeah, block's a large publicly traded company in the US. People are probably familiar with the Square brand, a product for merchants the past 15 years or so, and Cash App, super popular mobile wallet. So that's the two primary businesses of Block. But Block is also Jack Dorsey is the CEO a big fan of Bitcoin and Block's making some bets on various Bitcoin products as well. I lead a group called Spiral. It's a really unique initiative because we're not a commercial endeavor. We're not part of the business of Block. You can think of us more as Team Bitcoin. Block does fund us, but we work on open-source software and design work and do some creative content as well, and we're just trying to accelerate the adoption of Bitcoin. So we're you can think of us as Team Bitcoin.
Speaker 1:Yeah, you just reminded me with the creative content. I think you were a little humble there. I mean, I thought y'all's video was really funny, and is it going to be recurring?
Speaker 2:Well, I actually just dropped off stickers here at Bitcoin Commons. You can have some stickers if you'd like some.
Speaker 1:I would love some yes.
Speaker 2:So there'll be. I mean, we're also on TikTok, so we're experimenting at Spiral, so we're on TikTok. Now with here comes Bitcoin, so they are in YouTube shorts. There's been new content shared regularly since last fall when that film came out. If people aren't familiar with what we're talking about, we created a film called who is Bitcoin, because most people in the space answer the question what is Bitcoin or why Bitcoin. But we answered the question who is Bitcoin, and it's an attempt at just a humorous, more approachable way to learn about Bitcoin for a segment of people who might be turned off, or current methods of marketing maybe don't resonate with them. So this is intended to be very, very lightweight and funny and kind of weird. So we created this large furry orange puppet who has a personality and he is Bitcoin, and so it's a fun film and we'd love to see it. We've created emojis and different messaging platforms and digital stickers, so it's been fun and we hope it becomes popular throughout the community.
Speaker 1:Yeah, and the video. It really gets at this being misunderstood theme which I think pervades Bitcoin, especially when the price is skyrocketing, because people look at it through the CNBC price chart rather than what is the whether it's the underlying engineering of the system or how I would actually interface it, using it as almost as a culture and I'm not talking about Bitcoin specifically because we're here at a hackathon, so there's definitely builders in the Bitcoin culture but from a wider perspective, we've seen these ETFs just skyrocket in popularity and when I saw that it way exceeded my expectations, I thought that they wouldn't be a big deal until there was a bull market. I didn't think that they would cause a bull market, but then my thought was wow, nobody really wants to use Bitcoin, huh? And then I thought of your video of poor Mr. Bitcoin continues to be misunderstood.
Speaker 2:Yeah, I mean we're going to go through phases, right, and so I mean big picture. We're going through a store of value realization phase. I think most people in Bitcoin see that medium exchange comes later. I mean, obviously there's and I talked about this this morning with Matt O'Dell, about he was arguing it's money today and obviously there's people are using it as money today, whether it's Zaps or it. Certainly there's early sign to that, but for it to be broadly accepted payment method is going to take time. It's actually what spiral primarily works on. So we're huge believers in the store of value digital gold narrative. That is a very important part of Bitcoin. Our view on that is like it's kind of a done deal. I mean there's product market fit Bitcoin. It's not going to lose the pristine store value in the world where there's a lot of engineering work is around making it a great digital payments platform.
Speaker 1:And where do you think the points of friction have been that have hampered Bitcoin's adoption for payments? Oh, any.
Speaker 2:Yeah, I still think it's a there are you can. You can have experiences that are really good user experience, but they're not consistent.
Speaker 1:Like in a lab, in a controlled environment. You can have it.
Speaker 2:There's even real world experiences, but I mean they're rare. They tend to be custodial wallets, which there's no shame or harm in custodial wallets, but if that's the only way it's being used, you lose a lot of important properties of Bitcoin. So when you try to use non-custodial mobile wallets, it, you know that's where it's even a rare case of having a good user experience. So there's just a lot of engineering work to improve that design work.
Speaker 2:So those are things that are like within the control of spiral developers and other people in the space, other engineers in the space, but then there's things like regulatory and taxes you know, so, technically, if you spend your Bitcoin today, like even on, you know, a coffee or a hamburger or or an internet service that costs $9, you need to like figure out the cost basis of that Bitcoin and pay taxes. I mean, not only is that like a financial obligation, but it's like it would be a total nightmare and hassle to like account for that, Right? So we really need to see legislation where there's some value, where you know some like whatever $600 or some. If it's under that, you don't have to pay.
Speaker 2:It's treated as a currency instead of an asset, and it's hard. It's hard because, like, is it? Is it an asset? Is it currency? Is it both? Different regulatory bodies, I think, have different answers to that question, so that's another issue. Then, of course, just broad acceptance, right? I mean, like, most merchants today don't accept Bitcoin. So it's a, it's a network effects game that just takes. That takes time.
Speaker 1:Right.
Speaker 2:And I want to, oh, and just one sorry one. One last thing killer use cases. It needs killer use cases as well. And you know, remittance. There's good potential there and maybe certain purchases you make you want privacy and it can help with that. But and then there's like innovative stuff for it, like there is popularity with Zaps it's it's it's a small group, but it's a rabid group of like people here at the commons, you know. So finding use cases as well, sorry.
Speaker 3:No, no, yeah, I just wanted to bring up only because we recovered this in our last episode. But how does the Lightning Network play into all that stuff that you're mentioning?
Speaker 2:Yeah, so I think so. In Lightning Network developers have been working on it for a number of years now. There's been tremendous hype and excitement around it. The past six months or so, there's been increased criticism of it, so and and and. A lot of that criticism is valid, like valid feedback. It's not. It's not FUD or nonsense, it's valid. So I think you know what is lightning and is it. Is it succeeding? Is it going to succeed? It depends on your expectations.
Speaker 2:An area where I think it is succeeding and will succeed and it's going to be here for you know it'll be here 10 years from now and 15 years from now is being the interoperable glue between many other systems. So you could be on. You could be a Kraken customer Cash App. You could be using a product that's based on, like Fediment or Cashew, these E-Cash systems where there's like new protocols, like ARC and state chains, and this new technology. You can have users across all these different systems, none of which are compatible with each other, but they are compatible because they they can all talk the same language, which is lightning. So, pierre, you could be on. You could have a Fediment E-Cash wallet. I might not have ever even heard of it know anything about it, care about it, but I can still pay you from Cash App or from my non-custodial lightning wallet through through lightning. So I I think that's great product market fit in a slam dunk.
Speaker 2:Will lightning scale to 8 billion people on their mobile phone provide? You know Apple paid, like UX be near zero fees. We don't know who, we don't know how to do that yet. So and there's reasons to it's reasonable to be skeptical of achieving that Lightning absolutely scales on ChainBitcoin. There's zero question about that. How much does it scale is an open question and right now it's certainly no one can make the case that it scales to everyone and that's gets back to the block size limit. But also just on chain fees, I mean you definitely can amortize expensive fees across many payments, but we don't really know. I think it also depends on the use case and how you're using your wallet is going to be a function of, or that's going to like heavily factor into how many payments you can get per on chain transaction, and it can go anywhere from economical to non-economical.
Speaker 1:Yeah, the on the fees side. It's funny how I've seen this parallel emerge between where Riot is on the electricity markets and on-chain fees, where we see it's not. The on-chain fees are always high or always low, so they're very volatile. And so if we can shift the time usage of saying, hey, let's have people open and close channels when there's not a lot of network congestion, then we're able to shift on-chain footprint away from those hot spots. But then when fees are expensive, on-chain people are still able to send payments over lightning. And so we've kind of seen that stress test over the past let's call it 18 months, because there has been a lot more network congestion, and it was interesting to kind of see the narratives of, oh, it's too expensive to open a channel now, versus oh, but it's really cheap to send off chain right now. And it's almost like you're right that it's not FUD, but it was written about in the lightning white paper that, hey, we're not going to be able to put everything on chain.
Speaker 1:And I also this may be unpopular for a lot of folks, but I'm not a self-custody maximalist, and so in the sense that what I see as valuable is the option to self-custody, the ability to do so. I don't think we should have the expectation, because the past is our best guide. Coinbase has been a hugely popular custodian even before lightning existed. I onboarded onto Coinbase in 2013. And when we look at, I think they've got billions of dollars of Bitcoin under custody. Clearly, there's market demand for that, but I think that there's this vision of well, we wanted us to all be self-custodial, and anything less than that is a huge disappointment for a particular demographic.
Speaker 2:I agree with that. I agree with that. But spiral focuses a lot on self-custody, and the reason why is because it's not the kind of work we do, it's not profitable and we're lucky at spiral to have this budget given to us by Block and we can work on whatever we want to work on. So we tend to focus on things that we think are important and high impact for Bitcoin that doesn't have a business model, because if it has a business model, great, go start a company. And so I agree with you on the most important thing is the option to self-custody.
Speaker 2:But if no one's working on the underlying protocol, infrastructure design and keeps the user experience at least reasonable for self-custody, no one's going to use it. They lose the option. They lose option just because it's unusable. So that's why we focus on it. But we don't focus on it because we think custodial is bad or no one should use custodial. We just want to make sure that it's an actual, viable option. I think on the policy side too, and regulatory, we as an overall ecosystem need to really make sure that self-custody doesn't so with the ETS. One nice thing of the ETS is that it's really hard for the US to ban Bitcoin or some really egregious action, but there's still the risk of oh yeah, ets good, self-custody bad. So we need to watch it out for that from a regulatory standpoint as well.
Speaker 3:I think this brings up another analogy that Pierre had talked about in the last episode, where it's like self-custodial can be viewed as a checking account, whereas a lightning wallet or something similar could be like you're walking around money that you would have in your leather wallet. That was a good analogy that Pierre brought up and I think it's important, like you guys mentioned, to have the ability to do both, to have the custodial and the non-custodial side of Bitcoin.
Speaker 2:Yeah, and I also.
Speaker 2:I hope that we can sort of fulfill let's call it Satoshi's vision the white paper of peer to peer digital cash right, and so where it's truly peer to peer, it's censorship resistant. I mean, it has the properties of cash that humans have depended on for centuries. That's being lost, even though I think most humans don't realize it's being lost as we move to digital money, because the digital money everyone uses today doesn't have. It has a trusted intermediary and you have financial surveillance, et cetera. So I still hope we can achieve that vision, but there's a lot of work to actually realize that. But I also agree with the point, pierre, that even if we never achieve every single possible principle of Bitcoin, bitcoin has so many positive characteristics to it that even if we realize seven out of eight, that's still this massive win for society.
Speaker 1:Yeah, it puts a dent.
Speaker 1:And the other part too is you reminded me of email when you're talking about the that we can lose the ability to self-custody if we're not investing into that stack, because with email, eventually you can't really run your own email server.
Speaker 1:It's just too complicated, and now you have to use an email provider and they're going to handle everything for you, but they're also going to read all your emails, and so I think maybe this is the criticism of lightning it's too high maintenance, right? Oh, you got this Channel management. We were promised autopilot. You won't have to manage your own channels. That's still in the works. And so do you think that the people who are looking at lightning of hey, this is going to be the self-custody solution for the average person that there might be other technologies that come about and refer to some people theorize about what those might look like? That to scale UTXOs, essentially so that you can have people sending on-chain payments transactions without lightning or without having to manage your channels? Do you think that's more science fiction or that there are promising avenues of research there?
Speaker 2:I think there's promising avenues of research. Since the beginning of this year, spiral we've started allocating quality time every week to start studying some of the more recent proposals. So we've been looking at several of the Covenant proposals and there's a proposal by John Law called Timeout Trees which helps scale lightning, and for two years now Spiral's been funding Fedement and we believed in that. I think Cache is also super interesting as eCache. So we're looking at all these different things. I guess my summary is something like this proposal Timeout Trees. It scales lightning even more. The benefits of it it solves some of the problems of lightning to onboard a new user. There can be thousands of users in one. It's sharing, basically a UTXO, among as many users as you want, pretty much like 1,000, or even a million in theory. So you do one on-chain transaction. You create what's called a Timeout Tree. You would be like an LSP or a funder of this channel. Then you can have all these users, they can do lightning payments and it basically no cost to onboard because there's just the one on-chain transaction for all these users. That Timeout Tree lasts for only a certain period of time, say three months, because there needs to be some escape hatch so that the provider can get their money out at some point. So let's call it three months. At the end of three months, everyone has to exit or else the provider can take their money. So in the happy path case, the exit is to just do a lightning payment into a new Timeout Tree and just keep repeating that process. You basically roll over into Timeout Trees. So in the happy path case, you get pretty much infinite scaling for new users at very, very, very low cost and they can do lightning payments to their content forever. That's the happy path.
Speaker 2:But what if the provider goes offline? They have technical problems and they're not available? Or what if they steal Steal, like they go offline because they want to steal? What do you do? So the protocol does have a unilateral exit option, like lightning. That's good. So now let's get OK. This sounds incredible. Why don't we do this One? It requires CTV or some covenant change, so it requires a consensus change. But even if that's the case, then I think a lot of people would be like let's do a consensus change. It would rally support for that. The other gotcha is, if you're the first person in the tree to want to exit unilaterally, the number of on-chain transactions that are required to do that is order log n of the number where n is the number of people in that tree.
Speaker 1:Oh wow, so there's, a million people.
Speaker 2:You're broadcasting in a lot of transactions. So if you were worried about the cost of lightning and having to pay $20 or whatever to close out a channel, now you're spending $200 or $2,000. So how non-custodial is this? If it costs you $200 to unilaterally exit, then any balance in your wallet below 200 is not non-custodial.
Speaker 2:So only the balance above that threshold would truly be self-sovereign. That's the big gotcha. But there's exploration and I'm still learning. So where I'm poking around is can we share fees across users? Because in the case of someone cheating, first of all, this only works if that's very rare. And in the rare case that the LSP is cheating and trying to steal, obviously everyone wants to get out. So while the cost for the first user exiting is very high and the last user, it dissipates, so the last user is much cheaper. So if you can share the fees across everyone, that makes it more manageable. And then Zman, an open source protocol developer, has posted some thoughts around fee insurance and I think that's an interesting space to. I'm interested in learning more about that. I think a lot of Bitcoiners should. Is there a way to pay an insurance so that you're paying a fixed amount all the time? But it's tiny. Again, if you can assume that these theft attempts will be very rare, so you're never hit with this gotcha of too expensive of a bill.
Speaker 1:Interesting. Yeah, my mind goes towards a mutually assured destruction. Maybe the punishment should be that the Bitcoin just get destroyed and nobody gets any Bitcoin for that. But yeah, that probably puts a ceiling on how much value people want to put in that, which might be OK for this use case. But I think that this is really where people, especially policymakers, need to understand that this is open source software and so it's not just the case that we're looking at what Bitcoin was in 2009 or what it is in 2024. But really it's like what can it be in 2030 and 2040 and 2050? And that that roadmap is not set by a CEO and an executive team. It's set by anyone who wants to contribute to it.
Speaker 2:Exactly. I mean I'm talking about this time-outry, is it's by John Law, who? I don't know who that person is and it's probably a NIM like. So it could be you, pierre.
Speaker 3:It sounds like the most democratic idea for a monetary system to ever exist. I mean, I think it is.
Speaker 2:And you know there's just a. You know I won't go in belaborate all these, but you know there's ARC proposal, state chains there. You know the different eCash systems. All these were well. Some of them are inspired by technology from like decades ago, but all of these were like, proposed by just various developers in the space. Some of them have companies pushing them, some don't. It's super healthy. And then there's a lot of activity around zero-knowledge proof technology and optimistic rollups and, like Robin Linus, who's a spiral grantee, he published the bit BM white paper last year, which is interesting because it has interesting properties and it doesn't require consensus chains to Bitcoin. I think that's the most compelling thing about it. And there's still a lot of unanswered questions about the technology, like what's the actual on chain data footprint? I don't know the answers to that and it could be unwieldy Hopefully not, but the level of activity of R&D is seems to me like at an all time high, which is very encouraging.
Speaker 1:And do you think the taproot has? From my perspective, it seems like we're still scratching the surface on that area. Have you heard of folks digging into what taproot unlocks and what's some of the next steps there?
Speaker 2:Well, it's been five years since you and I were like championing it so well. One piece of good news is that Coinbase finally supports or I think they're in the midst of adding support for sending to Bec32M, which is the new address format that you need if you want to receive to a taproot address. So I know for a fact that, like Blocks knew BitKey wallet product when they first started designing, that there was a desire to only support taproot addresses, Because if you only support taproot, you can use technologies like Frost and they could have done some really cool. You could lose one of your keys of your two or three wallet and replace it without an on-chain transaction, which is amazing. I mean, first of all, it's technically super cool, but it also saves you that on-chain fee, which, if it's 20 or 50 bucks, that's a lot of money if you lose your phone or something. But they weren't able to because if you had coins on Coinbase, you wouldn't be able to send it to a wallet and that's just sort of a showstopper.
Speaker 2:By Coinbase unlocking that, I think we're going to see more wallets now default to taproot addresses, exclusively use taproot addresses. So I think that will help and also, with fees rising, the fee savings you get, especially in multi-sig wallets. So we're going to see more multi-sig wallets With fees rising. We're going to see more demand for taproot, and lightning implementations are adding it. So it's one of these things that takes years and years and years to get adoption because, again, there's no CEO that can just say this is a 2024 priority, we're going to support it. There can be a CEO that says that, but it's just for their product, right, and there's many implementations, many wallets. So it's going to take years, but I remain as bullish as I was then, although it depends on again, kind of like lightning what's your expectation? I recall some people claiming taproot was going to offer Ethereum smart contract functionality, and it's like no, that was like I don't know.
Speaker 1:I still think it is going to. To me, we're much earlier in the sense that the multi-sig protocols that use taproot are still being developed, and so I've been waiting for the M of N true multi-sig with 1,000 participants. We're not quite there yet. We could be, though, right. It's just a matter of getting the cryptography right.
Speaker 2:Exactly, and that's where music too has taken a long time to get a cryptography proof and be confident, and Frost is. And now we are there with music too, and Frost is not far behind. So, for the audience, if you don't know what these terms of music to allows, like an N of N wallet, two of two, 10 of 10, whatever, and Frost lets you do thresholds like interest, so two or three, three or five or one of 10,000, or crazy configurations, yeah, yeah. So I'm confident that's going to happen, is just you got to be patient.
Speaker 1:I foresee an app that legislators will have, and so then they can actually control the. They got the power of the purse. Why are they not just voting by doing a multi-sig, instead of telling Treasury to do something and then Treasury doing something else? So I think eventually we'll get everyone onto Bitcoin, including legislators, who are voting with their multi-sig wallets. But on the lightning side, I mean, that's critical, because every lightning channel is a multi-sig, and so that's just an immediate cost saving and scaling up. Essentially.
Speaker 2:Yeah, I mean there's at least three known things that can reduce fees for lightning. Taproot is one Simply just reduces the size of the transaction, so it's less fees. Splicing is another, which one of the lightning implementations Eclair, supports it and their corresponding wallet, phoenix, already is live with that and the other lightning implementations are actively adding it. But splicing will also reduce fees. And then another is actually you already mentioned it which is sort of the time preference. So if you're willing to be patient with your channel openings, you can wait for a lower fee environment.
Speaker 2:Or there are applications where you have a zero-conf, like just-in-time channel, in which there's a window of time in which there's some trust, and that window of time can be adjusted as well. So like if, and it all depends on the fee rate, right? So if I'm opening a channel and I can immediately use it because I'm trusting the zero-conf, how quickly that transaction gets mined is a function of the fee rate. So if you want to save money, spend less fees, but it might take a day, two days or a week to mine. But that's another lever, there's a trade-off.
Speaker 1:That's interesting. Now I want to go back to your point about smart contracts and TAPR. This is something that I was looking at at Kraken when we were implementing lightning. People were like hey, why don't you look at the other layer too? So I look at arbitram and they are putting all of the data on chain and then doing the verification off chain, which is kind of the opposite of the Bitcoin ethos of hey, let's do a tiny verification on chain and then let's have all the data be off chain. And then also that you know, I was like all right, how do I run an arbitrom node? And they're like no, you don't. There's one sequencer, so there's one node and you're gonna send all your transactions to that node and they'll do all this for you.
Speaker 1:And I thought to myself, like, well, we're really talking about two very different things. Like we're calling these L2s, but they're very like arbitrom's more of you know I don't wanna start casting its versions on people but that's where I thought, well, okay, so with Taproot, we're gonna do all of this off chain, right. And we've seen proposals from Lightning Labs, for example, with Taro. And then the ordinals came out and they were like well, we're gonna put all this data on chain. And then I was having like flashbacks to arbitrom and I was like, okay, so why can't they just have their own execution environment?
Speaker 1:And then I start looking at the ordinals client and I'm like, oh okay, this is the ordinals is essentially arbitrom. You know that you've got this client that has its own consensus rules right, its own execution environment, completely separate from Bitcoin's rules, and then Bitcoin's just this data layer and yeah, they're competing against other transactional uses of Bitcoin, but it seems like they essentially. You know what Vitalik went out to do with Ethereum, because he felt limited by Operaturn was now being done on Bitcoin, and I thought to myself like, well, maybe Vitalik should come back to Bitcoin or something. But it seems like it's very like time is a circle and that we just are going to keep reinventing things of hey, let's do this part off chain. Oh, it doesn't work so well to do it off chain, let's do it on chain, but let's do this other part off chain and we're just swapping out trade-offs.
Speaker 2:Right, and I mean the reason to put it on chain is data availability right, and in the NFT case, it's like a big win by doing it. The way they're doing it on Bitcoin, versus what we saw a few years ago in Ethereum, is like all you had then is with Ethereum or the solutions that I'm aware of a few years ago is you had like a URL to some server or at best like IPFS or something, but even that didn't guarantee you that it was gonna be durable. Where the Bitcoin blockchain is the ultimate in durability, you know it's going to always be there. Of course, the cost is it takes up space and it increases the cost of running nodes. So I mean that's the trade-off right.
Speaker 2:And same with like any kind of like roll-ups technology or side-chain or anything you do and some other system with totally different rules. If you know, you can just validate it and have a very small footprint on Bitcoin to get some benefit from that. But if you also put the data on Bitcoin, you get benefit to that too, with cost.
Speaker 1:Well, when this was brought up with the Ethereum, people of like, hey, you guys just have pointers to, you know, jpegs on a website and they're like, yeah, but we used to have it on chain, but they got too expensive, and so you know. This is, I think, is critical for folks on the outside who are trying to understand okay, there's no CEO, how do you know what direction to go in? I think maybe the principle is always about are there any upgrades where it's a strict improvement and that we're not actually subtracting from any of the other properties of Bitcoin, and that's the direction we go in, and then anything else is just going to be mired and people arguing with each other because people have different interests.
Speaker 2:Yeah, I mean there's a lot of gray area too, though. Right, I mean, like, if there's some, you know, if there's a bug where all of a sudden you can create billions of Bitcoin, well, everyone, they're going to be quick consensus to let's fix that bug, right, I mean, it's in no one's interest to have that bug, so something like that is obvious. There'd be an immediate reaction and there wouldn't be drama around that. I would not expect.
Speaker 1:Except for the one guy who got the Bitcoin. He's like no, we don't need to upgrade. What are you talking about? He'll be on his own, for us.
Speaker 2:But you know, some of the covenant, like OP CTV and OP CAT are two things that I think one could argue that they're just additive, but you know. But then there's always the what F or like, especially OP CAT, I mean something that the more expressive in general it is, it's like well then, what bad thing have we not thought of yet? Some adversarial scenario we've not thought of yet that is going to bite us later and like it's basically impossible to roll it back once it's once it's activated. So that's always going to be the tension there with with changes, and obviously, the more Bitcoin grows, the harder it's going to get to make changes. There's more, yeah, more people, more companies, more dollars, bitcoin economics value. So it's going to only get harder.
Speaker 2:But I remain I mean my own view. I like I'm definitely not an ossifier, like or like you know I think Bitcoin, you know, can and should change what we need, but I'm relatively conservative about how we should go about it, and gaining consensus is a really like. How do you gain consensus? None of us really know, because there's not like a blueprint, there's not like oh, here's steps, one through seven, just follow those. And in fact, I think that's almost dangerous if such steps got created, because then you could like game, game them and attack them, and so I think it's actually healthy, like I actually love the governance of Bitcoin, and that it's like completely chaotic, no blueprint, you, and I don't really know how to go about it. But I think there's there's things we do know. There's things like there's a do not do list and there's a do list. I mean, there are like there's best practices, let's put it that way.
Speaker 1:Yeah.
Speaker 2:So, and yeah, trying you know early on, you need to win over developers. It needs to be like technically sound and like implemented and tested and that needs to be there, otherwise obviously it's a non starter. And to win over developer consensus, you need to listen to feedback and I think it helps if you have, like, co-authors to the proposal. So it's less of a, like, you know, peers change or Steve's change, but it's a community change. And there you know, pierre, steve and Gabe all co-authored this and and we don't all work for the same company or whatever, right, I mean you know, set our egos aside and yeah, and so and that is that's a.
Speaker 2:That's a big challenge, right? Because often the sharpest developers who come up with some of the most genius creative things might have an ego. So finding finding a developer is really creative and innovative, technically sound and ego lists they're that. That's hard, hard to find and I think we we had, we've had that in the past with some developers who have gotten consensus changes in, and hopefully we see more and more developers adopt that in the future. But you know, and then what? But once you, once you have developer consensus, then that seems to me like when you need to go broader and like communicate this to the broader Bitcoin community and there at least shouldn't be questions and about like, is this going to blow up? Or there should be. It's totally healthy to ask questions.
Speaker 1:Yeah, it can be the question but there will be answers.
Speaker 2:But hopefully there's answers to those questions, right, I mean, in fact I should. Yeah, there definitely should be questions. Yes, everyone should be asking that, but hopefully they're solid answers. But then it still comes down to like is it a big enough benefit? Does it benefit enough users? And then it's going to get. You know, some people might just be like I don't care about that, but I'm not going to like, waste a lot of my energy fighting it. Yeah, so I mean, it's not like there's not just two, you can't. It's not just yes or no, or like I'm in favor, I'm not, you can also abstain.
Speaker 1:Right On the developers point.
Speaker 1:I think that a lot of people outside the industry see developers as like a fungible commodity of code.
Speaker 1:Monkeys, to you know, like to caricature that perspective, but it seems like within Bitcoin, not only do you have to know how to write code, but you really you have to know cryptography, kind of some of the maths behind that, if you're, if you're going in that direction of wanting to contribute to kind of the consensus part of the system, and then you have to know C++ on a very deep level, because that's just what it's written in and there's some sharp edges there that the reviewers will point out for you, but it'd be good to.
Speaker 1:But the other piece of it is that you're working out in the open and I think that there's a lot of enterprise developers who they like working on like internal tools for their company, and then there's some that like to work for, you know, public things but sometimes, fairly or unfairly, there's a spotlight put on a developer or some work that's been going on in Bitcoin core or other open source Bitcoin projects. And in particular, you know, as we mentioned, because there's so much value writing on it that sometimes there's, I find, like unreasonable public demands put on to the developers. But basically, I mean, it feels like there's only so many folks who have the combination of soft skills and technical skills to take on these roles and then to help strengthen Bitcoin.
Speaker 2:Well, I agree, and it also gets back to like it would be advised to have like a multiple people involved, right, so you could have multiple developers involved in like writing the spec and proposal, writing the code and the tests, and then also either other developers or even non developers who can help champion and communicate and also deal with feedback in whatever form that feedback comes, which can be aggressive, because, yeah, a lot of developers they just want to be technical, they just want to code, they don't want to, like, be a PR comm specialist as well.
Speaker 3:Deal with feedback.
Speaker 2:And Bitcoin. It can be harsh, right, and that's fine. Again, there should be feedback, but yeah, so I think having more people involved can help and also kind of a time and a place, like if there's a developer who's just like totally in R&D mode, like super early research, and not in any way suggesting we're going to it's ready to change Bitcoin, like just allow that person to let them cook. But once you get to the stage where it's like okay, like you know they think it's ready and it should be activated, well then obviously it requires a lot more scrutiny then and buy-in and consensus.
Speaker 1:I just remembered there was a trade-off or I'm sure there's more than one, but with Taproot which was about privacy that, hey, we're adding another address type and so now there's another way to differentiate and fingerprint, you know, wallets and whatnot. And I remember the person offering this feedback was somebody who was very critical of Bitcoin Core, et cetera. And I thought to myself, well, they've got a valid point. It still doesn't change my judgment on this We'll get everyone on taproot addresses eventually.
Speaker 1:You know, five years later, we got coinbase joining and so, in a way, you know, it's kind of like there's feedback that is valid, that is coming from people we don't like and they're doing it in a way that we don't like, but somehow we have to remove that part and just focus on, okay, how can we improve privacy in Bitcoin? Yeah, but that's yeah, that's not easy, okay. So changing gears I know that Spiral has been at the forefront of a lot of different investments in the open source area, whether it's LDK or BDK. Do you want to like, get into? What are this? What do you see as like the top investments that Spiral has been making and you know is continuing to make?
Speaker 2:And yeah, let's sure, and also just to be clear, like investments in the set you know we're not taking like equity in companies.
Speaker 2:These are grants and all open source work. So again we have this like magical money where we don't have to get a direct return on it, right. So but where, yeah, where are we? Which projects are we investing in? Certainly, you have to start with LDK, because we have a full time team of seven developers dedicated to LDK. So that's a substantial investment and LDK is getting really strong adoption from a lot of different types of use cases too. You have Cash.
Speaker 2:App was one of the first adopters. That's a you know, custodial wallet where they're running LDK on a server. So technically it's relatively easy compared to some of the other applications. Another example is LightSpark is a user of LDK, and LightSpark uses both L and D and LDK. But where they use LDK is where they need a lot of scaling. So they want to be able to support with their clients non custodial, where their clients hold the keys, but they want to run the node on LightSpark servers and so they might be running you know, if they grow and are successful like hundreds of thousands or tens of thousands of instances of a lightning node, and LDK is light weight enough and customizable enough to allow them to do that.
Speaker 2:Lexi is a startup L-E-X-E that is using LDK on a server, but in an enterprise HSM, which is technically super interesting. And what does that mean? It's different than every other lightning implementation, I know, because the keys are in the cloud. They don't have to be on your phone or on a client device, they don't have to be in a browser. But it's non custodial in the sense that the company behind it, lexi, doesn't have access to the keys in that HSM. It also allows for offline receive, because the keys are in this HSM, that's always as an internet connection. It matches lightning's requirements nicely of needing to always be online. So that's interesting. And then, of course, there's BitKit and Mutiny, which are mobile wallets which are using LDK to run a lightning node on your phone and be self sovereign with a lightning wallet on your phone. So there's many different. Like another one at C, equals is an LSP that's running LDK. So all these things I just mentioned are each a different application of LDK. So we're really happy with the adoption of LDK, but our grant program doesn't or we haven't at least today, given grants for LDK. We give grants to like a dozen other projects in the space you mentioned, bdk Bitcoin Development Kit. It's just like LDK, except for Layer 1 on Chain Bitcoin. So if you want to build a Bitcoin wallet, you can use this library. It has a bunch of stuff that you don't have to roll roll your own. You can just use their libraries.
Speaker 2:Stratum V2 is a project we've supported for over three years now and this is a new mining protocol. As the name implies, it's V2. Stratum V1 came about like over a decade ago, I think, and it's what the industry has used for over a decade. As one might guess, v2 has some enhancements and improvements and also after 10 years, there's probably room for enhancement improvements. There's improvements on like encryption and security, but the most important one, I think to broader Bitcoin base is around decentralization.
Speaker 2:Today, with Stratum V1, the only actors that can select transactions when mining are pools and not miners themselves, unless they're self-mining, but all miners using a pool, which are most miners. The miners don't select the transactions. So with Stratum V2, it actually creates an infrastructure that allows the miners to select the transactions. So the pools still can, the miners can and technically anyone can, a third party even could. So it's very flexible. So I'm super excited that that. In fact, I think they are that project.
Speaker 2:So there's an open source reference implementation of this protocol that we've been helping funding. But Galaxy has been involved in Foundry and many other mining companies and Riot is doing some testing and so we are that that project is on the verge, like within days, of 1.0, like actual software. That I would still test really well Before you put your whole farm on it. I would do some testing, but it you know this is the year where it should. Finally, you know you could actually do real hash rate on it. So hopefully we see real hash rate this year and then over the ensuing years just be able to get comfortable with it. It gets proven and it you're not losing profitability. It's proven then and then we'll get full adoption and that'll be really strong and healthy.
Speaker 1:Yeah, I mean, it's been exciting to try it out. It works. It works for us and the you know. I think that there's, on the mining pool side, two things. There's the policy question of transaction selection, because we see this come up in debates about whether how much, how much should Bitcoin you know, let's call them transaction selectors how much should they be driven by fee maximization, and that actually is a very complicated topic itself is how do you maximize fees in a, you know, four million weight unit block? Lots of active research happening there, mempool policy, ancestors, descendants, things that are, you know, we rely on one of the most active projects in the Bitcoin Core project.
Speaker 1:Yeah, it's rethinking that we rely on the brilliant minds there to on. I think that the political side it's about okay, if I don't like this person and this address, how do I get all of the all the transaction selectors to not select any transactions associated with this address, so they don't include it, you know, in in the ledger? And that's where I think that there's like probably a lot more political debate, a lot less technical debate, because on the technical side it's kind of just cut and dry of well, do you have the address? You know, we know how to filter things right, but the the technical side would just say that's fruitless because somebody else is going to include it anyway.
Speaker 1:There's no way you're going to be able to fork Bitcoin to like filter these addresses. But it seems like it's a very circular conversation. I don't know if you've gotten into these.
Speaker 2:There's two levels too. I mean there's like of what regulatory pressure could look like there could be. Regulators could say here's a list and you, as like an American company or whatever, cannot mine any transaction that pays to or from like these addresses or whatever. That's. That's bad, but not devastating for the reason you just said, because some other miners somewhere in the world will include that transaction and the only cost is a little bit of a delay or maybe a little bit more fees or something. The devastating one would be if regulator said you can't mine a block with this transaction and you can't mine on top of a block that has that transaction, because then I'll. That would I mean. I think, like if that happened in the US, then I think all miners would have to exit the US. Yeah, you're banning. You're banning Bitcoin mining in the.
Speaker 1:US and not just Bitcoin mining right, because if you're operating a Bitcoin node in the US and you're processing this block with these bad transactions.
Speaker 2:Well, that's the date the infrastructure bill from. Was it 2021? I think, you know, has dangerous legislation in it because if broadly interpreted and interpreted in a certain way by by regulators, it can create policy that makes running a node, doing mining or lightning any of these things, effectively illegal, because you would have to report to the IRS like every transactor through those nodes and you obviously don't have the KYC data you meaning anyone running those nodes.
Speaker 1:And then we see on the Ethereum side, tornado cash, you know where. Well, maybe, maybe it won't be so complicated. They'll just put the Bitcoin network itself on the sanctions list and then nobody will be allowed to access the Bitcoin network and there's no question about are you building on top of the block or not. But that's where it's like okay, we're not, as as in the United States, I don't think that we're going to be able to develop a software solution to what is a political question and that, essentially, we have to defend ourselves with political arguments of why this is a bad idea, why you're not going to get the policy outcome that they want, which I think. To me that's like that's a slam dunk argument of well, you're just going to drive all of this abroad.
Speaker 1:And that's what we've seen in the past is that when they try to stop people from doing things in the US, then it just goes abroad. And then you get FTX, right Like, you just get a worse outcome abroad than here in the US. But the on the transaction selection, I think that there's now a third debate that is emerging between okay, profit maximizing sanctions, and then ordinals, right of okay, what are the correct use cases. And then and then there you know, even if my node is filtering out my mem pool you can go directly to a transaction selector and propose your transaction without ever having to go through any of the peer to peer network.
Speaker 2:That's right. So I think it's important for the coin community to be aware of, learn about. There are some risks with this and it's important to separate. I mean there's there's the debate where there's a lot of drama about, like, are ordinals good or bad or whatever. Is your use case good or bad? And you know I don't like it. I'm going to filter it out, that I'm not really interested in talking about that. I mean, generally, I'm, I'm, you know, free free market. Anyone can do what they want and if it's dumb the idea will die.
Speaker 1:Right.
Speaker 2:But where I think everyone really needs to understand and appreciate. There are some, some transactions that are consensus valid, that could cause denial of service attacks or security cause security concerns for the network, and those are ones we we need to be cautious of miners being, like you know, oblivious to that or not understanding the ramifications. So there's consensus valid transactions, and then Bitcoin Core has a set of a policy around standard and non standard transactions, and you know how? Is this not censorship? Well, you know the ones that are defined by Bitcoin Core, at least most of them. I think op return is the one that's maybe more debatable, but the others are strictly there to prevent DOS and security attacks.
Speaker 2:So, as an example, there are consensus valid transactions you can create that use certain op codes that can cause validation times to exponentially increase. So while today miners, nodes, your Raspberry Pi, can validate a block extremely quickly I don't know how fast, but like a second or less than a second, like very, very fast A malicious actor could create a block which can take 30 minutes to validate. Well, that would be very, very disruptive on the network since, on average, a block is mined every 10 minutes. So, while it would fall behind, it would create significant centralization pressure on miners because if you just mined the last block, you have an enormous advantage over all other miners because you can start mining the next block immediately and the other miners are spending 10 plus minutes validating that block.
Speaker 2:Or worse, not validating it or it's not even being it's like delayed being relayed because it gets validated on each hop. So that's why Bitcoin Core has these policies and defines a standard and so it doesn't relay non-standard transactions, but these some of the emerging. The risk is that a transaction selector, service or product would allow any non-standard transaction and then a malicious actor could actually carry out that attack. So it's important to not allow that and there's sound reasons why I did not like trying to censor anyone's use case and separating that out from like okay, some of the BRC-20 and these different mechanisms or they need non-standard transactions right now. So I think it's important to use those two things out and that miners or anyone operate like it's not just miners, but anyone operating one of those services has a deep appreciation for that.
Speaker 1:Yeah, I think even the block size limit was really put in place for the denial of service attack factor and kind of mitigating it before Satoshi left in 2010.
Speaker 2:Yeah, I mean, imagine if we had gigabyte blocks right now. They'd be filled up with, like data, someone's data, if it's so, I mean, no matter how big the blocks are, they're always gonna be filled up, because if people aren't filling it up, the fees are gonna basically be zero or some minimum amount.
Speaker 1:And then you're streaming Netflix by stuffing blocks with yeah.
Speaker 2:That's the challenge there, but anyway, I think that's important to consider. And then, another thing Bitcoiners should, the Bitcoin community should be paying attention to is that these transaction accelerator services could, if very successful, could become centralization choke points. What we don't want is for the mining industry like to be a miner. We wanna preserve that it's permissionless and we don't want it to be permissioned. But imagine a world where there's a couple popular transaction accelerators. Popular meaning like a substantial portion of Bitcoin transactions exclusively go through them. So you can't just run the Bitcoin software and see all the transactions in your rembable. For you to be a competitive miner, you have to go sign a legal agreement in partnership with a couple other companies to actually be competitive.
Speaker 2:That's a dangerous world. Now we've had transaction accelerators for like over a decade. So if they're small, if they're small volume, then it's like whatever. But we just need to monitor is that increasing in percentage of transactions and percentage of fee?
Speaker 1:rate and in percentage of total reward, which it does increase with every. Having that, the transaction fees are increasingly important.
Speaker 1:Yeah, so both the new use cases around ordinals and the current demand for that, plus the having both make this increase the risk and we'd like to think that, like Bitcoin never changes, but just endogenously, on its own, it is changing and it's evolving, you know, without any coach. Let's just there are big code changes happening. But even if we were to imagine there's no code changes happening, it is still changing from an economic perspective. Yeah, so that's fascinating. Yeah, so any parting thoughts before we adjourn? It's been very long since we last caught up, steve. Yeah, really good to catch up with you.
Speaker 2:No, I mean, I guess, for since the right podcast mining like I'm excited about Stratham V2, looking forward to that being rolled out over the coming years I think it's an important tool. And yeah, I mean, I think you guys focus a lot on the energy side and things like that too. That's another. I see that narrative improving over time, so that makes me happy.
Speaker 2:I spent a lot of time three years ago like talking about that but kind of got frustrated with people who don't want to actually have an honest conversation about it. But I'm happy to see reality sort of playing out as a lot of us thought even back then. So thanks for doing your part in that.
Speaker 1:Yeah, of course, it's gotten me to be looking at what government's doing more, and I actually I thought of you and Spiral recently, because the White House came out and said we need people need to start using programming languages that are more secure, and so they were like no more C or C++.
Speaker 2:Everyone has to do things in Rust. Yeah, Biden improves Rust.
Speaker 1:Yes, so I thought that was very funny.
Speaker 2:Spiral is validated for doing so much Rust work. Yeah, because a lot of the projects we I mean we don't require Rust, but it turns out a lot of the projects we support are Rust based. So I'm glad the president is on board.
Speaker 1:Yeah, seal of approval. Yes, LDK is the new national standard. Yeah, thanks for coming on, and we'll do this again soon. Yeah, thanks so much.
Speaker 3:We're SoS has been on Central RAM you.
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