Introduction

AW: Some topics might have more agreement between the three of you, and some maybe less. It's up to you guys to say smart things.

JS: Can't guarantee anything there.

FUD: bitcoin too volatile to be used as money

AW: What about, bitcoin is too volatile to be used as money?

EV: It is used as money, so.

RN: Bitcoin was created so that people could do things, and that people who need it will get over the fact that there is price volatility.

JS: Who is saying that it is too volatile to be money? It's typically people who want bitcoin to have a pegged value. Any sort of asset is going to be volatile unless you have a purposeful peg that a central bank enforces or something like that. In my view, when you're talking about volatility you're really complaining about the fact that two things are not really correlated enough for your taste. That's not a realistic assumption for any kind of commodity or asset especially one that has demand fluctuations as bitcoin does. They are complaining mostly because they want to be able to buy bitcoin and pay for something. That does happen, for some people. But that's not the major use case. The major use case is store of value, at least in my estimation. That's why people pay attention to price so much. They are really complaining so much about their wealth going down in dollar terms. Nobody complains about volatility when it's going up; it's only when it's going down that people complain.

AW: No store or seller is pricing in bitcoin, as an example.

JS: Altcoins tend to be priced in bitcoin. Cascasicus coins tend to be physical bitcoin priced in bitcoin. Other than that, not really. No reason to be a unit of account. I don't think we're at that stage of monetary evolution yet.

EV: Price is a function of what's in people's mind. Price always has some volatility. The primary cause of volatility is low volume. The more something is transacted on a regular basis, the less volatile it tends to be. Bitcoin is a very thinly traded product. It's going to be highly volatile.

JS: There's definitely a relationship between liquidity and smoothness of the volatility curve.

AW: So is the consensus on this panel that it will even out eventually?

JS: I'm not sure. If you think about it, as more wealth comes into bitcoin and away from fiat currencies, there might be more liquidity in bitcoin eventually in which case like Eric was saying, there might be less liquidity in fiat.

EV: Things used to be priced in gold, when it was highly traded. There's still just as much gold held, it hasn't disappeared. The lack of trading in gold increased the volatility.

RN: Some markets would have specific goods that were priced in bitcoin for a while. People do what makes sense for them financially at the time. The idea that bitcoin is going to take all this money from the traditional markets, it could happen, but it could also take decades. Gold is thousands of years old, and bitcoin is 10 years old. We have a bit of a way to go.

FUD: altcoins are a threat to bitcoin

AW: Next topic: "altcoins are a threat to bitcoin".

JS: I don't believe they are a threat. Bitcoin is unique and decentralized. Altcoins are all as far as I can tell very centralized. They have a creator, a benevolent dictator for life, usually some kind of foundation, usually centralized services where only two or three nodes are actually made. Is anyone getting feedback?

RN: It's the hat. ((laughter))

JS: We might have to put curtains over these walls or something. Still hearing feedback. Altcoins are very different from bitcoin because they have a central point of failure. A place that can control and.. that makes it very different. Now are they a threat to bitcoin? It depends on what you mean by threat. Can they overtake bitcoin in marketcap is usually what people mean. You could artificially pump Ripple or something. At some point it was $4/XRP. The entire supply of ripple is like a 100 million, 100 billion ((nobody knows))... it would have been higher than bitcoin's market cap. But is that sustainable?

AW: One of the arguments in favor of bitcoin is that there are only 21 million coins. But if you can print billions of altcoins then what is that cap worth?

RN: It's a completely different supply. It's a different coin. Just because you can buy chickens instead of cows, it's not a threat to cows that chickens exist. ((laughter)) Bitcoin tells you the rules of the game and it promises to keep them. As long as we have enough hashrate and there's people using it, you know the rules of the game.

JS: That's like saying silver expands the supply of gold. The block reward of bcash is going to get tiny; they will have no security, and they will be forced to inflate it to reward the miners to have enough security. You have altcoins that are centralized, and bitcoin is not. They are very different commodities. You have something scarce that has a history of being scarce, versus something that has no proof that it is scarce.

EV: I treat the question a little differently. We've been discussing altcoins that exist. I'll assume that all of those statements about them are true, I wouldn't disagree. But there's no reason an altcoin couldn't be everything that bitcoin is. The idea of an altcoin as being a threat, some people say an attack... really an altcoin is competition. You can view that competition any way you want, like silver competing for gold. If there's only one option for money, then presumably that money would take on more capitalization which doesn't mean anything except to the people who used it before. The number of units doesn't matter except for usability. There's no reason an altcoin couldn't be just as secure as bitcoin. But to thyr's law, one money is better than many all things being equal. If something came along that is basically the same, it would still struggle. But if bitcoin reaches a point where fees are really high and maybe people don't want to use it anymore, then competition can be effective, just as silver can be effective competition to bitcoin.

AW: So you're saiyng bitcoin is not necessarily unique and it can be overtaken?

EV: Bitcoin is unique in its network but as a technology it can be overtaken.

JS: I disagree with that. You have decentralization in bitcoin. I don't know if you can reproduce that in another coin.

EV: Right, you don't know it. In other words, it's possible. We haven't seen it yet.

AW: What is decentralization in this context?

JS: Single points of failure. This was very obvious to me when you started seeing hard-forks. It's exactly the same source code or code base, more or less, like for bcash and BSV and all of these. But what you saw there was an organizational problem. The coordination problem became so difficult that you essentially ended up with a BDFL in these forks otherwise you couldn't get anything done.

RN: Bitcoin is better, but it doesn't mean something else couldn't come that is better than bitcoin. bcash came around but bitcoin is still better.

EV: There's no reason for something like bitcoin to come around because there is already bitcoin. It won't be until that need arises that it would be effective. There's no reason it couldn't happen.

JS: I guess my disagreement is regarding the difficulty of decentralizing a currency. It took a particular set of circumstances for bitcoin to achieve that, including Satoshi Nakamoto leaving the project .If we didn't have that, then I think in some ways bitcoin would be centralized. I think there's a set of circumstances that maybe could be reproduced but so many coins have tried to reproduce the initial conditions... is it possible? Probably. But I don't think it's as easy as people make it out to be. That's what I'm saying.

FUD: bitcoin can't be upgraded

AW: Another FUD is that segwit activation in 2017 was after months of debate and UASF and miners acrimony and huge discussions in the community. Can bitcoin even evolve still? Will the next soft-fork be able to activate? "Bitcoin cannot upgrade or evolve anymore".

RN: As somebody who makes products for a living, it's never ending. You can always add the next feature. I'd like to have taproot. I love taproot. The list is amazing. The human time cost that some of these things have... I think they should still be proposed, but I don't necessarily oppose ossification. TCP/IP has been around for quite some time. It's pretty old tech, and it does the job. Even ipv6 has problems. It's a nice-to-have but it's not a must-have. I think bitcoin gives us almost everything we need currently.

AW: So you would say that bitcoin might be hard to upgrade or evolve, and that might be a good thing?

RN: Technically, it's not that hard to upgrade anymore. I think people really underappreciate the human time cost that these battles take. Maybe it's a good thing, maybe it pushes away people with different time preferences around this stuff. Most of the people here are in it for the long run. But it does have a cost. I'm on the fence of where this would go.

EV: If people want new coins, changes to coins, it's very easy to do. It might be hard to get people to go along with you. If people want it, they can have it. I think the question kind of focuses around the issue of getting miners to go along with implementing a 51% attack on a coin. That's what a miner-enforced soft-fork is: they agree to not build on other miner's blocks that aren't going along with the soft-fork. If you only have a few miners, then you generally can't guarantee the sucesss of soft-fork. That could be a challenge. If people want a new feature they can make a new coin and have something new. That's the great thing about bitcoin, people can do what they want.

RN: It's a true voluntary system, yep.

JS: The question assumes that bitcoin is primarily a technology. To me, it's money. For money, it's better if it doesn't change. It's about additive features that are backwards compatible, that's what a soft-fork is. Having a stable base layer is a feature not a bug. When people say hey ethereum is bitcoin 2.0 and eos is bitcoin 3.0, they have a completely skewed view of what this whole thing is. It's money, and you want it to stay stable. The idea that you need to evolve it or something like that is a completely misplaced notion that mostly comes from Silicon Valley where they see everything as a tech play when it is actually a monetary play instead. As far as soft-forks and whether they will activate, segwit was obviously a very difficult thing. Fortunately a lot of the haters have left, and one of the great things about bitcoin is that if you disagree you're free to leave and do your own thing. You're free to do that at any time. That's a feature, again, not a bug. A lot of people say, well now you have this toxic culture and everyone hates each other, but if you disagree enough then you can go and make your own thing. That's totally fine. In many ways, I expect the next soft-fork to be less difficult than the previous one. But who knows. It's possible that there's a much harder time doing soft-forks going forward. It's okay if it doesn't happen. The base layer works great. Would we like to have additional features so that lightning is much easier to implement and things like that? Yeah, absolutely. I would love taproot, Schnorr signatures, SIGHASH_NOINPUT and all these other things coming in. Is it necessary? Not exactly. It works great as it is. It's adding additional features to make it even better, but it's not necessary.

AW: That seems to be the consensus of this panel?

EV: It does work great, or at least it is perceived to work great today. But the privacy features that people are working on, which I don't tend to work on, I think they are essential because bitcoin is not so great when it comes to privacy. As a money that is designed to withstand state controls, uh, that's not good. I think somehow bitcoin needs to evolve to become more private.

RN: So I guess the question is how to evolve.

EV: I think the agreement is that it could evolve, but maybe a different way.

JS: I am not sure if most people care about privacy.

EV: That's because most of the economy is white market. As a money that is censorship resistant, the question is who is the censor you're resisting? It's the state. Bitcoin is a black market money. If the state says bitcoin is illegal, then the whole thing becomes black market. Is privacy important at that point? Yeah, it's real important.

RN: Yeah, there's a war on cash too.

FUD: nobody can use bitcoin for payments

AW: What about, "bitcoin is not good for payments and is not used for payments".

RN: It's kind of preposterous.

EV: I bought two beers with it the other day.

RN: Buying an asset for another asset is buying. There are transactions. Trading is a payment. How the money is being used is none of your business. If people want to say how you should be using it, it's none of your business. There are in fact transactions.

AW: Jimmy, you say that people should use credit cards and pay it off by paying off bitcoin?

JS: From a tax perspective, that makes all the sense in the world, rather than keeping track of every latte you bought with bitcoin (if they were over the $600 threshold imposed by the IRS). What about chargebacks if the merchant didn't treat you right? There's a multitude of reasons right now to be using a credit card. They solve different problems. In the future, it might make sense to use a lightning payment to buy a latte. Those incentives aren't there right now. You can't browbeat people into using their bitcoin to pay their rent or buy their lattes. It's not convenient for people, it's not something they want to do, and you can't force them to do that. Those are the words of a dictator, not a free market person. Using a credit card makes economic rational sense to me at the moment, but paying it off with fiat might make more sense. Do what you want to do- I'm a libertarian, and I think you should have the freedom to do what you want to do, and you shouldn't be bullied into using bitcoin in a particular way that someone's vision is correlated to.

EV: Money is a function of who accepts it. If nobody accepts it, it's literally worthless. When we talk about, does it need to be accepted at merchant services to be valuable? Yeah, but it also needs to be traded regularly to be secure. The only people who can enforce the consensus rules against a fraudulent money are the people who are actually accepting it. There's one company accepting all bitcoin, like Coinbase one day maybe, and only one person gets to decide the consensus rules then... It's an important aspect of security that it is actively traded. It's important to value that a lot of people accept it. What they accept it for is not really important. It's also essential that the demand to transact it is high enough to provide security. Finally, in terms of generating enough hashpower. But it's not the absolute level of hashpower that matters to system-level security, it's more about censorship resistant. Hashrate is more useful for double spend resistant. Censorship resistance is that people must rather pay more to resist censorship than the fee on whitemarket transactions, otherwise there would be no reason to mine them. That differential creates censorship resistance security. If people aren't trading, then the security is not there. Actually using the money- I don't use the term "using" often- I mean actively trading in the money for things that matter, not just spending to yourself, it's essential for the money to exist.

JS: You think there must be transaction for there to be value?

EV: If there's no fees, then there's no enforcement of the rules.

RN: You can't upgrade the business without credit. Credit is not necessarily a bad thing. Credit was one of the first things that democratized wealth. People were able to borrow when they wanted to bulid businesses. ... You're sotring value in bitcoin and having people accept it and clear it, it's a use.

FUD: miners are whitemarket licensed businesses that can be regulated

AW: Next topic? What about, miners are going to be regulated as money transmitters which will end censorship resistance.

JS: Bring it on.

EV: Yeah... the presumption of bitcoin is that it is permissionless, which means it doesn't need permission from anyone especially the state, meaning it can operate without that permission. The assumption is that it will happen. The security model of the system is based on that happening. It may not happen. I don't give predictions about what will happen. But what is it designed to do? Everything in bitcoin is anonymous. A miner can mine with nothing but public data that they can verify. A merchant can also verify just based on public data. Mining is less profitable at smaller scale than larger scale due to proximity of allowing to see your blocks faster and being a larger pool reduces your variance. So if the state perceives that it is losing money to bitcoin, tax revenue from inflation or from transaction transparency or people evading taxes, then the simplest thing to do would be to outlaw merchanting in bitcoin. Maybe they make a fedcoin. This is when bitcoin's security model becomes relevant. Whether it happens is not knowable. Right now we're too small for the government to care. The regulators just don't really pay attention because they have more important things and they assume bitcoin will just fail on its own. Yeah it could happen, and if it did happen, whitemarket large-scale mining would disappear- except that the state could choose to engage in mining.

AW: Would that be a problem?

EV: Would it be a problem? Well, it's a problem in that the next phase if that doesn't work because presumably it wouldn't because people will continue to mine and transact unlawfully, the state would step in and 51% attack if they care enough. They could be the largest miner and it would be much more profitable than the other miners. So that becomes a problem, only to the extent that people aren't going to be willing to pay extra to get their blackmarket transactions confirmed then they won't get confirmed.

RN: There's a lot of countries and you can do jurisdiction arbitrage.

EV: That's a terminology difference. When I refer to the blackmarket, I don't mean people operating in.... the whole country can be blackmarket.

RN: It could be a cat-mouse game, you could change the proof-of-work algorithm or something.

EV: Every time you hard-fork the coin, you split the community and it gets smaller and weaker. Jurisdictional arbitrage is one answer I always hear and just think about that as part of the blackmarket. The question of hard-forking your way out of a 51% attack by the state is counterproductive. It's a foot-gun. You end up helping them. Large miners say they would just retool because they have the capital, but smaller miners wouldn't be able to do that and they go out of business because they make less money on mining. So you end up helping the miners you don't want to keep, and you shrink your security if you hard-fork and you get a smaller economy. I think we have seen this in altcoins.

JS: I am not sure I agree with that assesment. The thing about mining is that it's a physical thing. Violence can seize them and so on. The part of your analysis that I disagree with is the whole idea that if you regulate it, it can come under the control of a state... First, the economic incentives are really high for people who aren't--- if you ban mining or say it's money transmission and therefore you're not allowed to mine, there's still a lot of economic incentives still around. As soon as you shut it down in China for example, you're going to have a bunch of people in other parts of the world that are going ot want to buy those miners from China and bring it somewhere else. If the state seizes it and starts using it, it doesn't require a hard-fork, you can do everything with a soft-fork. You can essentially do enough nodes on the network and just say disconnectblock on the chain controlled by China.. if you have the smaller miners on the other chain then they will make money and the state won't make money.

RN: There's no way to tell, they can hide their presence. It's too hard to tell.

EV: You're restating the jurisdictional arbitrage comment that Rodolfo made. Soft-forking out of a 51% attack presumes that everybody who transacts and everybody else who mines has some place to go to figure out what block or transactions are being blocked. And then this devolves into a central authority to figure out which transactions to mine. How do people find this block they are going to block? How do you know which transactions are censored? The system presumes anonymity, you don't even know what is happening. It could be happening right now, seriously. If you have a transaction and it doesn't get confirmed, maybe you keep raising your fee? Maybe you incent someone to mine it even if it's unlawful. Maybe it never gets confirmed, or only confirmed in blocks that get orphaned. Figuring out which chain is the right one is very difficult. Using a fork implies more fracturing here.

RN: The statement is interesting; it's not really FUD. It's half-way there depending on who the attacker is.

AW: Jimmy, you think regulatory arbitrage will probably provide a solution?

JS: Economic incentives will make it so that it's enormously unprofitable to go and regulate the bitcoin industry to that degree and say everyone is a money transmitter and you're now under capital controls or whatever. As soon as you have stuff like that... but that's a different question than a state-level actor. It's true that at a protocol level it's difficult to tell. From a practical level, unless they have amazing opsec which we know statets don't necessarily have, I think it will be fairly obvious to most people that there's a 51% attack coming from a state actor because you can always observe censorship because you can trivially prove a negative. The economic incentives solve it in short order.

High fees

AW: Let's move on. Rusty tweeted, once subsidy runs out, fees are going to need to be $100k for bitcoin to be secure. Is that FUD? Fees are going to be too high. How are we going to deal iwth people who are willing to pay $100k?

RN: If we get there, with enough transaction volume, then there will be enough fees. If there is enough value there, and there's enough need, people are going to transact no matter the fee. It's really just the market.

EV: As I said before, transacting is necessary to bitcoin security. Whether Satoshi's numbers are fine-tuned to make everything work, that's not super important to Bitcoin with a capital B. I don't consider bitcoin to be a chain. I know Jimmy would probably disagree with me, but Satoshi laid out some principles of Bitcoin and bitcoin is an implementation of Bitcoin. I think it will survive. You can't have inflation in bitcoin, it violates the principles laid out in bitcoin. Fee premium provides censorship resistance. The use of fees is brilliant, but I am not sure if Satoshi articulated that principle about paying for censorship resistance. If there's not enough demand to transact in bitcoin, it won't be secure. Whether it's enough or not at that point is not really knowable until the state decides how much money they are going to put into attacking it.

RN: There's also this idea where if there's enough need but we don't have enough finances to keep this thing going, it's still interesting for some actors in the network to subsidize mining. They might find their value in a different way. Exchanges might want to subsidize mining.

EV: They might donate. Satoshi proposed that in 51% attacks, the community might have to come together and donate to mining. There's an economic rationality to what you're proposing: you have a large stake in the system, and you want to donate to the system. But this is not priced, and so it becomes a problem of the commons. There's a limit to how much someone can donate, and the state has no limit to how much it can tax. It's not priced, you're not getting the direct benefit of what you're using. Fees are priced, though, and you have a direct benefit there.

RN: ... price drops and we're still invested, I could see people donating hashrate.

JS: The tweet from Rusty, having seen the blog post about bitcoin being secure in the post-subsidy period. I don't think those are safe assumptions in the article, it's about linear extrapolation into the future. The future is almost never linearly extractable. Usually there are market forces that come into play on these things. As far as having large fees; if it's there, then by definition there's enough demand to create that very large amount of fees or whatever and that's what people find useful. Maybe it means things go to a second layer or third layer for cheaper fees, and that's okay, and that's what the market chose. The market is us. It's what people, that are using bitcoin, want. If that's the case then that's fine. There's a secondary question of, is that enough security to make everything safe? If you have to pay that much to get security, like Eric was saying, if it's priced, then the market tends to work. If that's how much they have to pay to get that security and that's what they use, then- again, they are paying for a service. You can complain all you want about how expensive a service is, but if it's finite and people are paying for it, I mean sure I want a lambo for $10,000 but there's a fixed number of them and the price is the price. You only pay it if you want it enough given the scarce amount of something that there is. I don't see that argument necessarily like, going through because of the fact that if there is a market that means it's a market and people want it.

EV: It's important to recognize that as there's more demand to transact and fees rise and that provides double spending security and as fee premium rises on censored transaction for censorship resistance, the fee level cuts out lower value transactions. Call it a utility threshold. As this happens, the coin could become less valuable because it is used for fewer things, only large transactions. People tend to ignore that when they look at price. Mining gold creates inflation which increases the supply. Bitcoin doesn't have that; it has fixed uspply. Fees rise as other people transact. The cost of me handing you some bitcoin versus some gold is very different, it doesn't matter how many other people are transacting gold at any moment I can still hand it to you at cost. But giving you bitcoin effects the ability for other people to transfer bitcoin at that same time. Bitcoin can reach some limit due to fees, and if that's not high enough to protect against double spending security, then that's...

JS: There's also second layers.

EV: Second layers don't eliminate this problem. They mitigate it, but fees still matter.

RN: You can clear second layer transactions on the first layer in batch.

EV: When you open a channel, how much fee do you need to place on there? Are you going to put $100k to open a one penny lightning channel? Sorry for pricing everything in dollars, it's a bad habit.

RN: You could have an aggregator... the price you pay will be...

EV: So it's happening off-chain through a central institution which is not securable against the state. That's another problem, right? Tradeoffs exist. You need to settle on chain. No matter how much you move off-chain, those fee levels will push back into the second layer. There's a risk that if there's not enough demand, then you will hit that limit, and then the question is: does that sustain enough security at that point?

JS: I think your argument that there's a limit in the value of bitcoin because of the fees and number of transactions that can go through. I think this discounts the innovation coming into bitcoin about compressing more transactions into one on-chain transaction.

EV: I just addressed that.

JS: You said it's unknowable.

AW: This is why I think this is a FUD topic. It's unknowable either way.

EV: You can't know if there's a solution right now, but we do know there is some limit.

Culture war

AW: Do we have time for one more? Do we want to get into culture wars? Some say that the bitcoin community is too toxic and not inclusive enough.

RN: Bitcoin is a voluntary system. It owes you nothing. That's a good thing, right. It also doesn't force you to do anything or be anything. You can be anybody transacting and participating in the bitcoin network without ever revealing whether you're a dog on the internet. That's a huge security feature.

JS: In one sense, I don't think it's toxic at all. But in another sense, maybe it is. If everyone has the exact same opinion, it's called a cult. I guess that could be another piece of FUD. Having differences is totally okay. ... There are natural consequences that prevent you from being too much of a jerk. I don't know where the line really is, I don't think anyone can say. But there is a right to be a jerk, and you can't force anyone to not be a jerk.

AW: You want to get into this Eric?

EV: If you're in a community that you don't like, then make another community. There are so many conferences that I don't go to because it's just not my community and I don't really care. So I tend to pay attention to the things I'm interested in. Half of the time I'm not aware of what's going on in the community because I don't pay attention to those things. So you have a choice. Always try to be nice, but that's not always the way it is. The stuff I do see, often there's argument and discussion based on personality. Who somebody is doesn't matter. The arguments they make are interesting to me. When somebody posts a thread, I don't really notice who they are. It's the discussion that's interesting, at least for me. But there's often a lot of discussion based on just a person or who the author is, so I try to avoid those things.

RN: If you are more civil, then it's more likely you will get something merged because you will piss off less people. It's a tool, but not a requirement.

Q&A

AW: Any questions for the panel? Right there.

Q: Might we come to regret wasting block space on certain transactions?

RN: There's no waste, it's a market.

EV: Exactly, there's no such thing as waste. People pay for it. You get what you pay for.

Q: Might we regret how big the blockchain becomes?

EV: Assuming full blocks meaning sufficient demand, we should hope it's full. Full is good. That will be the size. The past is the past, no changing that going forward. Can we regret that not all the blocks were full in the past, no, that's part of our history.

JS: I think the bigger question is, are the resource requirements of running a full bitcoin node going to be so prohibitive because of the size of the blockchain? That's hard for me. We don't know what will get more popular with CPU and RAM and bandwidth and storage and all that stuff. We might regret it. If people are running fewer full nodes then we might regret it. Given current hardware, I'm not sure if it's in a few years time, I think you're going to have to look 10-20 years down the road to be able to make that determination.

AW: I think that's it, thank you.