Adam Back: How Bukele Is TACTICALLY Making El Salvador Wealthier Than Germany (Bitcoin Treasury)

Why did the academic elite fail to see Bitcoin coming? Dr. Adam Back (@adam3us), the inventor of Hashcash, explains that professors were too obsessed with centralized bank models to conceive of a proof of work system that replaces central authority. While the ivory tower refined flawed systems, cypherpunks built a reality that does not require a middleman.

Adam’s journey started on the front lines of digital privacy, using his PhD as a license to hack. He laid the foundation for electronic cash by prioritizing sovereign rights. As the founder of Blockstream, he is an OG who never sold out, famously moving past shitcoin bribes to protect his ethical reputation.

We tackle the reality of scaling. Adam argues that while Bitcoin is hard to change by design, the lightning network and sidechains allow for high-speed trade without risking the base layer. This modular approach lets Bitcoin evolve into a global financial layer while staying decentralized, proving the skeptics wrong one block at a time.

In El Salvador, the government rejected shitcoin pitches to double down on Bitcoin. Adam notes this homegrown success could see the country rival major powers like Germany. It is a blueprint for using sound money to leapfrog the legacy financial system.

Adam is now focused on filling innovation gaps from privacy to treasury reserves. The mission to replace fiat is just beginning. Subscribe and comment. Is El Salvador the next Singapore?

—Bitcoin Beach Team

Connect and Learn more about Adam Back
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Hashcash Web: http://www.hashcash.org/
Cypherspace Web: http://www.cypherspace.org/adam/
Blockstream web: https://blockstream.com/
Github: https://github.com/Blockstream
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Browse through this quick guide to learn more about the episode:
00:00 Intro
01:33 How Bitcoin achieves decentralized trust without banks. 
04:49 Has institutional Bitcoin ruined the cypherpunk mission? 
10:48 How Adam Back spotted and rejected shitcoin scams. 
12:43 Is Tether (USDT) a systemic risk to the Bitcoin ecosystem? 
15:44 Why El Salvador succeeded where other nations failed. 
20:32 Scaling Bitcoin via Blockstream, sidechains, and Lightning. 
25:50 Adam Back on the 100-year mission for sound money.

Live From Bitcoin Beach

Transcript

Adam Back: 0:27

And you know, one in 20 might be usable, and then they'd go figure it out and implement it. So curiously, when Bitcoin came about, the academics were very dismissive, because it didn't look anything like the previous electronic cash systems that the academics had spent probably a couple of decades refining to what they thought the ideal properties of electronic cash systems should be. And unfortunately, their idea in almost all of those papers was that there's a central pi, which is the bank, they maintain the double spend database, and you have to trust them to not inflate the monetary supply. And so, as we know, Bitcoin avoids that risk because you can audit it. That implies that it's broadcast. That makes it less scalable.

Mike Peterson: 1:16

Did they just not conceive that there was a possibility to have a trustless system? Do you think that was why, or what? What was the reason that that was just because they wanted to replicate the existing system? Or why did they have that view that that was crucial?

Adam Back: 1:33

I think it's just a kind of historic bias, because it's it takes some imagination and peer to peer mindset, to have something with distributed trust, and actually distributed trust is quite hard to achieve. It's more challenging. So if you want high assurance, you know that even though you've got this trust component, it does provide high assurance if you if you accept that trust, now you know, and that was the source of their skepticism, because they would look at Bitcoin and say, Well, what guarantees it's secure? It's the arms race between the honest miners and the dishonest ones, which is like 5050, whereas normally with public key cryptography, if I have the private key and you don't, it's almost impossible to attack it. And so they were used to that model, but they hadn't realized that actually, for a deployable Electronic Cash System, it's actually more important that it be trustable in a decentralized way, without relying on central parties. And so, you know, over time, Bitcoin proved them wrong, and three or four years later, the academics started to write papers call it systematization, just describing how Bitcoin works in a more formal way. So they came around, but they were quite elitist about it for a few years.

Mike Peterson: 3:03

Well, I think that that that's not the first time that the academics have taken a little while to come around to the reality for you yourself, did you enjoy the actual time you spent getting your PhD? Did you feel like that was personally fulfilling, or would you have gone a different route if you had to do it over?

Adam Back: 3:23

Well, I mean, my PhD was actually just more hacking on computers, so I taught myself c, c plus plus, which wasn't taught in the undergrad. I taught myself network programming. I taught myself machine code on some interesting distributed systems, and in the last six months of the four year program, I rushed and wrote the thesis. Right? So really, I actually misspent much of my PhD time, probably over half of it on the cipher punks list, learning about Electronic Privacy, electronic cash cryptography, reading which wasn't the topic of my PhD at all, right? So it was just a license to hack and learn things, ultimately. So it doesn't feel very academic. I'm more of a hacker kind of thing, but I did get a PhD out of it.

Mike Peterson: 4:15

I like that explanation. What would you say has changed, and I wasn't around in the Bitcoin space back then, but it was the from the cipher punk age to now, where it's it's everything's becoming financialized, and the majority of time people are spend talking about Bitcoin. It's more of the the financial aspect than the cryptography. So how has that shift been for you to see it come from, like, its roots to where it is now?

Adam Back: 4:49

Yeah, I mean, it's because when you first experience Bitcoin, and maybe you're using, like, the command line version of Bitcoin D or something, and you can. To send electronic cash with this string of letters and numbers. It's kind of mind blowing that this is even possible, right? So the technologists enjoyment of that is kind of part of the inception, right? And there's a phenomena that when people do some crafting, like they make something from cardboard and wood and glue that they ascribe value to it, because there was effort that went into it. And so I think the early mining was a bit like that. It was difficult. The instructions weren't good, the software wasn't good, and there were forums where people were exchanging tips of how to make it even work. And so I think those early miners were probably part of the bootstrap of a price for Bitcoin. Because, I mean, I mean, I wasn't active until like, 2012 2013 but there were people who were mining and, you know, before it had a price, before they're in exchanges. So there's an interesting period, I think, to hear about a vibe of that, like there's a podcast that Dustin Trammel did, and he was mining in 2009 it's kind of interesting to listen to and get a vibe. But yeah, I think the you know, for myself, even while I was doing the PhD, I was interested in economics and investing. So I was managing my own trading, my own like share trading, and I had a little bit of gold ETF allocation, and I'd researched which ETF was actually physical gold, because it was already the concept that was rehypothecated. So for me, trading and investing and the ideas of things organized by company were quite compatible with a Cypherpunk outlook, because the Cypherpunk outlook, who also say they are anarcho capitalist, which is they actually want a very, very free market, but still to have companies organized to produce products, and capital formation, and markets are part of that. So for people with that mindset, the combination of companies like maybe in their ideal mind, kind of more like Prospero, anonymous, decentralized type of things and electronic cash were very compatible. So for me, when Bitcoin, you know, got wrapped in ETFs, and when Treasury companies start buying it, or startups, you know, block stream has been around since 2013 and had Bitcoin on a balance sheet. To me, this is all very compatible. So I think it's more of a perspective for somebody who was not really interested in investment, or who heard about ICOs before they heard about IPOs, and now they think IPOs are scams too. But you know, for somebody that was had an active interest in privacy, electronic cash and investing and this kind of, you know, anarcho capitalist mindset about how the future could be organized with much less government or no government. Then, you know, this is great. It's the building block to enable it, right? You need electronic cash with no establishment influenced services in between you and free trade, right?

Mike Peterson: 8:05

So one of the things that I've noticed over the last five years is that, well, the reality is, you're one of the only OGS that I still see out like at Bitcoin conferences, being public, a lot of the people that were in the Bitcoin early went off to shit coin or kind of imploded, or had, you know, one up in jail or different things. And so I'm curious. I've always I've kind of wondered, like, is there an expiration date on public Bitcoin figures? Should people only stay in public for for a few years, and then kind of drift off into the distance. But I find like you're an example of somebody who has stayed true to what the what Bitcoin should be. And so I'm just curious, from your perspective, is why you think that's been so hard for other people, and what keeps you coming back to conferences like this to speak to people, yeah.

Adam Back: 9:05

I mean, the cipher punks were interested in, you know, this inarca Capitalist thing, but also in privacy and the technology to enable you to assert your rights of freedom of association and privacy online, and to use electronic cash in there. And so, you know, I used to run remailer, one of the in part the RE mailer network, which is a technology to enable that. And so I was quite interested in anonymity and privacy. And I used remailers a bit for discussion forums in the past, but at some point, I used my own name too much in discussion forums, and so it's kind of too late. And then, of course, once you start a company, it's too late. But I would encourage people, unless you have a need, to just stay very low profile. It's just safer. Privacy is good. You're much less likely to run into different types of issues if you're low profile. But and then. In terms of sort of consistency, I was always very interested in the sort of Cypherpunk privacy technology mission to achieve positive social change, to re establish rights using technology. So I never really, you know, I got into that when I was at university, and I never changed my viewpoint. So you know, people like Aaron van William, who wrote the Genesis book, found lots of old forum posts where people were discussing Bitcoin, like electronic cash ideas in 9619 9719 98 times like that, and he found some old posts that I'd written that I've kind of half forgotten about, but they sound very consistent, like I could have written them yesterday. So really, my viewpoint has never changed. And in terms of the altcoin phenomena, when I joined the Bitcoin talk forum in 2013 some guys who had started a couple of old coins jumped and pulled me into a private chat and tried to basically entice me to join the altcoin project and they were going to give me some tokens. And it took me all of 30 trying to shit pill you, yeah, basically. And it took me all of 30 Seconds to realize I wanted no part of it. And the thought process was, ooh, that's kind of scammy. And why do they want me to be involved with so they can use your name, they're probably gonna, like, burn your reputation. Why would you, you know, if you're gonna burn your reputation, you'd at least want the money. And lastly, I don't want to burn my reputation, and this is unethical. So that was the beginning and end of my thought process about all coins, and I never owned an old coin as a result. Now, of course, it's, you know, it's a complicated topic, and many people went through a phase and then realized, or learn the hard way that they got because there's a lot of kind of insider trading with those things. So you statistically, the market is against you, so it's just safer to buy bitcoin anyway. But unfortunately, for a lot of people, they learn that by experience. But in my case, I just had this immediate gut reaction of not wanting anything to do with it.

Mike Peterson: 12:11

So on, on that kind of same vein. Tether is something that kind of divides the Bitcoin community, with some people feeling that it's, it's very good for Bitcoin, that it's kind of a bridge other people feeling like, No, we're just promoting another shit coin. I think in general, you've been fairly favorable and in your view of but correct me if I'm wrong, of tethers role within the Bitcoin space. But I'd be curious if you could elaborate a little bit on what role you think dollar back stable coins play?

Adam Back: 12:43

Yeah, I mean, I think because, because I'm somebody that likes trading, if you are trading, you will find that the stable coin is actually a very useful tool to move dollar liquidity between exchanges. If you are trading Bitcoin, trading Bitcoin on margin or petrol futures or derivatives, and you want to do that between different platforms. You can move tether quickly, whereas if you try to do that with a wire transfer, and I used to do 2013 2014 as I got more actively involved in Bitcoin, the first thing I did is try to arbitrage the price of Bitcoin between exchanges, and there were huge spreads at that time, like three 3% and things like that. And so the bottleneck was the wire transfer. It literally take a week to get your money there, and then you don't trust the exchange. So you soon, as soon as you get notification, you buy the Bitcoin and snatch it out, and then you swap it on another exchange with a higher price, and he'd do it again. And so tether solved that problem. So the problem I'd experienced, which is, like, it takes a week to do a wire transfer, and at that time, if there was a price pullback, it would take multiple days for the buying to start, because people had to wait for the wire transfers, and nobody trusted the exchanges. And so, you know, tether was basically born to address that problem. And part of the problem was Bitcoin was much more niche at that time, so it's very hard for most exchanges to get a bank account where users could transfer money in and out. And so tether also solved that problem. So it started a phenomena of many early exchanges that had no bank account. The only way to interact was deposit Bitcoin or deposit tether. And then, you know, if you want to convert tether into dollars or euros, you'd have to do that in some roundabout way, but the exchange had no solution. So think tether. You know, tether solved a problem. That's where it grew. And I think you know, there are, of course, there are multiple stable coin providers, tether being the biggest. But I think, you know, one of the advantages of tether is the people, it's a private company, right? It's not a VC owned company or a public company. And the people that own and operate it are Bitcoiners. So they are, you know, investing in the Bitcoin sector. They're participating in this conference. They're trying to help Bitcoin education. Yeah, they're buying Bitcoin with some of the profits. And so, you know, I think they're a positive force as individuals and with their corporate actions in the sector. And so, you know, I mean, but stable coin is, is, you know, I think some people worry that stable coin is competitive to Bitcoin, and it is a, you know, lower friction, wire transfer alternative, and in some countries, people use it just as inflation hedge, actually, with less volatile, without the Bitcoin volatility. But, you know, ultimately, it's not unseasonable, it's not bearer. It's definitely not going to go up in value. So it's not really competing. It's, you know, it's providing a function, but it's different. Let's say

Mike Peterson: 15:44

that makes sense. I'm curious to hear like, go back 10 years and you're thinking about how Bitcoin is going to progress and get to nation state adoption. What kind of country did you think would be the first country to adopt. And Did it surprise you that it wound up being El Salvador?

Adam Back: 16:10

Yeah, I'm not sure. I guess it would have, you know, have to be a smaller country, emerging market country, probably because the established countries are, you know, benefiting from the Fiat hegemony. And I think the interesting thing about El Salvador, when I first heard about it, is that, you know, your assumption is that somebody has done a business development job. And the next thing to watch out is all the altcoin promoters will, you know, fly there and try to bribe people or something. But you know, together with your initiative in Horizonte, and hearing about reading more about it, early on, it became apparent that it's also homegrown, that the bukele administration were themselves Bitcoiners, and so that made it different. There has certainly been a few follow on countries that have come off the rails with, you know, alt coins and pre mine coins from people in the administration, from governors of states and things like that. So I think, you know, the big differentiator is it was, you know, homegrown and on the Bitcoin mission specifically.

Mike Peterson: 17:23

Did you when you heard the announcement? I'm not sure if you were at the Bitcoin Conference where they made the announcement, but when you when you heard about it, did you think that this was a big deal? Or did you feel like this is, you know, just a publicity thing, or how did it, as somebody that's been in the space for so long, and to see a nation state adopt what? How did you put that in the, you know, realm of importance?

Adam Back: 17:49

Well, I'm generally an optimist, so I thought it was, you know, great. But what it was a little concerned about, as I said, was that the Alpines would get in and try to derail it and, like, lose the momentum,

Mike Peterson: 18:04

which they did. I kept getting reports that, you know, there was all the shit coin, you know, heads were flying down here to meet with them and promising them hundreds of millions of dollars. So that was definitely

Adam Back: 18:17

mine, the fact that the administration, like, held course and rejected that, you know, kind of influence and money as really, you know, kudos to them for for holding, you know, the honest path and taking the Bitcoin path here. So I think as a result, El Salvador has, you know, really set an example in the world, which is very interesting. Very interesting. And I think, you know, there have been different, you know, the country is buying Bitcoin and potential to raise money in different ways, build the Bitcoin city. And at some point, I did some back of the envelope calculations that, you know, well, if bitcoin continues to do what it does in the past, and they're able to, you know, accumulate this much Bitcoin, the per capita wealth within, you know, a decade or something, could match Germany or something like that. So there's actually, you know, it's, it's a serious thing as well, right? It's, it's benefited the country already through tourism and companies coming here and setting up, doing operations, hiring people, benefited in that direct way. But I think in the long term, it has actually quite big scope and a positive story in the world. And it's not, you know, it's not completely unimaginable, because there are other countries that have gone through a rapid arc, like Singapore and Dubai, which you know, didn't have a lot of resources, were in a difficult time, and, you know, seized a global market opportunity and ran with it when others were not. And you know, found their place in the world as a, you know, a new economic power or in. Economic center within a region, or something like that. So I think there's, you know, it's a very, very interesting undertaking for the future.

Mike Peterson: 20:10

No, I think that bukele has made it pretty clear that Singapore is kind of the model that I mean you see even you know, some of the things you do and like making sure that you know when you come out of the airport. Your first impression is good and things like that that we kind of see that Singapore led the way in. I believe. When was it that you co founded the block

Adam Back: 20:32

stream, 2014 2014 for 10 years now.

Mike Peterson: 20:37

So what was the initial vision of block stream? And then what are the things that you're most excited about now that you guys are doing?

Adam Back: 20:46

Yeah, so what I was trying to do originally, so how I came to take the initiative to start block stream is I was trying to set a background in electronic cash and the electronic cash systems, the academics had one point that was valid, which was, those electronic cash systems were extremely private. They had cryptographic privacy, and Bitcoin did not, you know, it has a kind of best effort privacy. And so I spent some time trying to find a way to, you know, retrofit and add privacy to Bitcoin. And so ultimately, I found an interesting way to do that, which is now called confidential transactions, in 2013 and so I explored with the Bitcoin developers on IRC, trying to understand, you know, how plausible it will be to add something like this to Bitcoin, and it was compatible, you know, it would work. And it became apparent to me that it's, it's a bit too complicated and risky to get a change. And unlike, you know, a lot of people, when they find out bitcoin is hard to change, they rage quit. But I didn't do that. I was like, Well, okay, the problem is that Bitcoin is not modular. And if you have a system like other big software systems, like Linux, they have ways to extend things in modules, like in kernel modules or something like that. So I was thinking, There's got to be a way to do something like that with Bitcoin, so that people can add opt in features without needing to change the base. And so that's where the side chain idea came in, that you could add confidential transactions or other features in the side chain, like support for stable coins, for trading or different things like that. So I thought that was sufficiently interesting to start a company to try and do it's quite challenging. And so we started block stream to build the side chain. And then, because blockchains are hard to scale, once lightning came along, and we knew that that would be true for the side chain and for the main chain. So once lightning concept was developed, we hired Christian Decker and rusty Russell and Lisa and other people over time to build one of the implementations, which is, you know, core lightning today,

Mike Peterson: 23:08

I'm curious, as you've seen, how many times you've been to El Salvador now, twice? When this is the second time? Okay, when was the first time? Last year, last year. So how much change Have you seen? Have you have you been around since you've been here for this conference? Have you seen any parts of the city, the construction, everything that's going on? Or I

Adam Back: 23:27

saw a lot of construction on the way in, but I didn't really explore but clearly the pace of building is continuing. Yeah.

Mike Peterson: 23:35

Have you guys given any consideration to moving block streams headquarters to El Salvador, and what, what would it take to make that happen?

Adam Back: 23:46

Well, we all looking at opening a QA center, so an office, but not so far the head cause, but the top company is a Cayman company, so we're already offshore, so we're halfway there in terms of mindset and thinking

Mike Peterson: 24:04

as but as a business owner, I'm just curious as to what, like, what advice or what things would you want to see if you could be, you know, talking to the people that are making decisions in government. What would you say, like, hey, as a business owner, these are the things that El Salvador needs to work on to continue to attract the most talent and financial resources.

Adam Back: 24:25

I mean, I think many of the things that the El Salvador government has already done are on the right track, which is, if you look at the companies that have public information about where they're incorporated, like the exchanges, you'll notice that many of them are in, indicate in the Caribbean, like British Virgin Islands and so on, or in countries with favorable financial regulations that are, you know, compatible with Blockchain usage and so and I think, of course, because it's a sort of competition, right, people can use the BVI to. Can use Cayman. They can use Hong Kong. You sort of look at what they're offering in terms of corporate tax rates and capital gains and things like that, right, as well as kind of, I guess, rule of law and things that companies care about. And so it has been difficult. 10 years out there for people operating companies that have to interact with a banking system has been challenging. And so, you know, part of their choice of jurisdiction is just about somewhere where you can do business. So actually, the you know, the new regulations for exchange operations in El Salvador. I think, you know, stand a real chance of having some of those existing exchanges that are in the Caribbean locations or other locations. Consider El Salvador.

Mike Peterson: 25:50

It looks like our time is about up. But I want, I got one last question. I'm just curious when, when the history books are written 100 years from now. What would you most like to be remembered for? I mean, you're already going to be in the history books regardless, so what? But what is the thing that you hope that they will remember you for?

Adam Back: 26:14

Well, hopefully it's still to come. Because, you know, I don't want to be a one trick pony, right? So it did hash cash when I was much younger, but I'm still, like, very active and interested. And I think Bitcoin is, you know, the main continuation of the siphoned mission, which is, you know, kind of my interest and life mission. And so I think that there's a lot of work to be done. You know, it's hard to scale blockchains, it's hard to make them secure, it's hard to make them private. There's still major innovation gaps to fill, and I want to be a part in bitcoins adoption and success story.

Mike Peterson: 26:50

I like that. So your best work is yet to come. All right, thank you. Let's give a hand. Dr Adam back and you guys hope you check out the podcast live from Bitcoin Beach. This is also on our rumble channel there and Adam, it was my privilege to be able to interview today. Thank you.