On Tuesday I was a panelist on a new segment from Follow The Coin, hosted by Tina Hui. The other panelist was the creator of Dogecoin (among other projects), Jackson Palmer.
Below are transcribed comments I made throughout the recorded portion with the approximate time they were said.
[2:46]
Ditto. When I first got involved with Bitcoin a few years ago, I was really excited, I did some mining. I built some machines in China and slowly but surely I kind of became more of a skeptic. I guess that’s what people know me for. I wouldn’t say I’m anti-Bitcoin, I think there is a lot of Koolaid that is continually circulated. I think Jonestown would be very jealous of the Koolaid in this space. Right now, the phrase I was talking to Jackson earlier was, you know how people are saying “Be your own bank”? I’m not saying you can’t be your own bank but what happens in reality is, like “Be your own textile factory” or “be your own data center” — for whatever reason that just doesn’t work out in reality. I’m not saying it can’t work out in this space but it looks like people prefer to be nannied, prefer to have costumer assurance. I probably just lost a few friends and followers but that’s how I kind of look at things. It’s become BINO: Bitcoin in name only. I have a whole talk on that otherwise.
[4:39]
I’d have to agree for the most part. For listeners, the use cases I think are interesting with the actual technology are pretty mundane. I was talking to Everett from Bloomberg, there is this thing called Consolidated Audit Trail. Back two years ago, the SEC put together something called Rule 613. The idea was to get all these institutions together in the financial industry to actually track every single transaction. That seems like a mundane, unsexy thing but at the same time this might be something that a blockchain may be able to do in some capacity because you have people who do not necessarily trust each another, you have a lot of them. Maybe you don’t need Bitcoin’s blockchain, maybe you can use some kind of other ledger, a proof-of-stake based ledger. I do think the technology does have some interesting potential but probably not for a lot of the things that are being funded.
[7:13]
Sure, so I’ll be mean, I’ll say something not nice. Tipping is a neat idea but in practice what ends up happening a lot and we see this on reddit and LTBCoin and stuff like that, is it incentivizes begging. So we end up having this magnet to rewarding behavior that you really don’t want to have. Obviously there are people who do take tipping seriously and put together some good comments and stuff like that. For example, with LTBCoin. If you are not familiar with it, Adam Levine had this really cool idea: “hey, how about we reward people who make comments.” That sounds great, you are part of the message, part of the community. What ended up happening is that attracted just tons of bots basically, people just spamming. We see this with reddit too with the different tippers. Some guy the other day, 2 or 3 days ago said, “hey, I literally made sock puppets to collect as many tips as I could.” And he collected something like 50,000 satoshi worth, which is not a whole lot but that’s a lot just spending time spamming around to try and get. It has some interesting ideas, the question is, how do you filter out the froth from legitimate players in this. And I’m not sure there is a real silver bullet to that. Maybe it just has to be part of the ecosystem, we’ve lived with it this far maybe it is something we have to soldier on with.
[9:24]
So I’ll be mean again. There really is no correlation between tipping and then encouraging that behavior in a restaurant. Most of the literature doesn’t point to the reason why China is stagnating for example isn’t because a lack of tipping in the country. It’s a cultural thing here in the US, I’m not anti-tipping. My wife and I tip, maybe on the lower side of scale of things. I think it is a funny activity that people do and I’m not against it, but I’m not sure it’s providing a good marketing signal to the participants or the people who receive it.
[10:11]
I don’t put tipping addresses for two reasons. The first one is, actually I talked with Victoria van Eyk at Changetip yesterday, and she said, “Tim, you shouldn’t use this reason.” But I’ll tell you the first reason why, I don’t want to accept candy from strangers. I’m not sure where that coin came from, maybe it is a Silk Road coin. Obviously that is something way down the line, I don’t think anyone is going to bust me for accepting some tip that way. But I do think we should be judicious against who we receive money from, especially in this era of Alex Green and just the amount of scammers and bad apples in this space you don’t know where that money comes from. The other, and this is nothing against Changetip, it’s just how it is efficient: it’s all off-blockchain. The whole purpose of this blockchain space is to provide decentralization, if we’re accepting tips from centralized silos it just reinforces that. So again, I’m not anti their service, but it kind of defeats the purpose if you have to rely on a centralized service to do all that.
[14:17]
Just like you said, it’s unsexy to build these vigilante services because they become centralized and who are you to decide who is the bad guy and stuff like that. So you end up recreating the system that we’re in right now, for better and for worse. There are some tools, if you guys are interested, there is a company called Bitreserve. They just released their transparency initiative called Reservechain and Reserveledger. The idea is you use the Merkle root to trace back to make sure all the tx’s are accounted for. Obviously multisig is one of the few areas I’m not bearish on, it’s legit. Whether or not you can build an entire company around just multisig, I don’t know, we’ll find out. Taking that internally for financial controls, segregating. Even hardware wallets, actually I just tweeted about that the other day. Hardware wallets seem like they have, I hate to say it, maybe they do have some potential — that’s not sexy again, who wants to carry around a wallet, a smartphone and then a hardware wallet with your private keys. Maybe that’s something that user behavior will end up changing or maybe it’s not.
[18:04]
So there is this thing called “affinity fraud.” And just like the name affinity, when you were in school you had affiliations, it’s kind of the same idea. It happens a lot in Bitcoin because there are so many self-identified libertarians essentially. So if you pretend to be a libertarian you can — no offense to anyone here — I’m about to lose some more friends here. They are identifiable targets, it happens in religions, it happens in just about any ‘affinity’ essentially. It’s not something that can be stopped immediately, there’s going to be bad actors that know they can take advantage of this. You have to be judicious. Again, I’m not sure if there is a way you can build a startup, fund it somehow and then go after these guys. It becomes this public goods issue. Again, I’m not saying the only solution is a government, but it seems like there is a perverse incentive to not get rid of these actors. Because what happens is, is especially with thefts and scams is these people need to launder the money and move their money – exit somehow. And to do so, they end up having to use — it creates demand for these other services. So in a way, there is a perverse incentive to not get rid of these actors because creates more demand for the underlying currency. Again, I’m not saying that it is going to stay the way it is, I’m sure I’m going to get a lot of emails saying, “no Tim you are wrong.” But so far no body has done much to get rid of these guys and maybe there is a reason why, maybe everyone is sort of benefiting from this underlying demand.
[22:29]
I will argue that Satoshi pre-mined. And I’m not saying that because I hate Satoshi. Is Satoshi here? Does anyone know Satoshi? You can prove it either way by signing. The reason I argue that is the biggest complaint with pre-mining is you have this allocation that took place before anyone else could particpate, that’s the bottom line. Satoshi only advertised Bitcoin on one obscure mailing list and then preceded to mine basically for an entire year without advertising it again and without doing any effort at all to do PR. He could have run a testnet. He could have done mulligan, “hey, we have these people, it’s been a year now, we’re going to reset it.” And if you add up all the coins that were basically coinbase free, that were just the coinbase transaction or plus one tx, that is about 4.8 million bitcoins (see p. 163) that were basically handed out for free. Without any merit. Again, I’m not saying that you need to confiscate those guys. But what we’re having today is capacity issues with blocks right now: about 30% to 40% of capacity on any given day. Dave Hudson has been doing a lot of good research on this. And so these miners are essentially doing more work today than they were at the beginning. And they’re not being rewarded any more than they were then. That’s an issue with the static rewards. So I would argue that it is essentially a pre-mine, he could have said testnet for the first year and didn’t.
[25:24]
Mine what, Bitcoin? So home mining, industrial mining? The only way most people are making money off of Bitcoin is price appreciation. You mine, you hope that it will increase in value. But you might as well just buy coins at this point. The only people who are really making money are Bitfury, a few places in China (see Chapter 5) and this is because they’re able to scale it and benefit off the energy. This is not to say you can’t possibly do it in maybe certain locations here in the US, like Washington I believe has 3 cents a kilowatt hour. And they were in the news for setting up some certain sites. But in general in this day in era, with ASICs it’s very difficult to actually have any margin. The argument is, ceteris paribus, it should take one bitcoin to actually make one bitcoin just because of the way the difficulty is auto-adjusted every two weeks. So on the margins there really is no profit except maybe a few different entities that can scale, like Bitfury.
[27:22]
So many questions. So to give you an idea, the Gini coefficient in Bitcoin is 0.88 (see p. 129), perfect number 1.0 is unequal. I’m not some kind of egalitarian marching in the street. But a 0.00 is just the opposite, basically it’s perfectly even distribution. Bitcoin basically has a Gini coefficient higher than North Korea. I’m not saying that’s a good thing or bad thing, it kind of disincentivizes some people to join because they think they can no longer participate in the “get rich quick.” The whole asymptote itself was just one “get rich quick” idea. Again, I’m not saying it was a scam, I’m not saying that at all. As far as the hording versus the savings. So people get this often confused: the protocol itself does not have any mechanism to actually save. It is simply a lockbox. So it is essentially a digital mattress. There is nothing wrong with that. If you just want to hold onto it. But there is no mechanism to take that money within the protocol and lend it out. And what we’re seeing is we can build out lending platform, through like BTCJam. So as a result you have, if you actually look at liquidity, on any given month you have about 10% of all mined tokens ever are actually liquid (see Chapter 12). You have about 90% of tokens that haven’t moved for over a month and about 50% that haven’t moved in more than 6 months. And this is because there is nothing built into the protocol to actually put these into active, lending purposes or any of these other financial instruments. So that kind of creates a stagnant economy. Well you wouldn’t call it a currency. Like you’d call that some kind of commodity. There is no velocity of gold even though it’s legal. You just kind of bury it. Again, I’m not against if you guys want to hold coin. That’s the rational thing to do. The rational thing is, if you believe it is going to appreciate in value you hold onto it. Everyone thinks it’s going to go to the moon. Everyone is actually [acting] rational. So it’s not actually being used as a currency, it’s being used as a commodity and that makes sense because everyone thinks it’s going to raise and appreciate.
[29:52]
It’s hard to know how much money laundering has occurred. I mean unless you can identify ever single transaction and know what the intent was, you don’t know how much. Again, I’m not saying that this doesn’t take place with fiat. Everyone’s always saying fiat is number 1. We have the ability with a blockchain to actually monitor this stuff. And actually it defeats the whole purpose if you have to identify everybody along the way because then it adds all this costs and stuff like that. So it’s this weird paradox. [Question: So you’re actually pro-bitcoin?] I’m on the fence with the technology.