#646 Building A Multi-Billion Dollar Bitcoin Company with Adam Back

Adam Back is a cryptographer and cypherpunk. He is the CEO of Blockstream, which he co-founded in 2014. He invented Hashcash, which is used in the Bitcoin mining process. In this conversation, we discuss bitcoin, mining, Liquid side-chain, Lightning Network, ASIC chips, decentralization, bitcoin maximalism, Blockstream, and whether he is Satoshi or not. ======================= BlockFi provides financial products for crypto investors. Products include high-yield interest accounts, USD loans, and no fee trading. To start earning today visit: http://www.blockfi.com/Pomp ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Adam Back is a cryptographer and cipher punk. He is the CEO of Blockstream, which he co-founded in 2014. He also invented Hash Cash, which is used in the Bitcoin mining process. In this conversation, we discuss Bitcoin mining, liquid sidechain, the Lightning Network, ASIC chips, decentralization, Bitcoin maximalism, Blockstream, and whether Adam is Satoshi or not. I really enjoyed this conversation with Adam, and I hope you do as well. Before we get into this episode, I want to quickly talk about our sponsors. First up is BlockFi. BlockFi provides financial products for crypto investors. Those products

• 0:47Anthony Pompliano?

  include a high-yield interest-bearing account, a US-dollar loan product against your crypto collateral, a no-fee cryptocurrency trading platform, and a Bitcoin Rewards credit card, where you swipe a normal credit card, but you get paid back in Bitcoin rather than cash back or airline miles. To start earning today, go visit blockfi.com/pomp. I'm an investor in the business, and I'm a very happy user. I think you will be too. Go to blockfi.com/pomp today, and you can sign up for an account and get that Bitcoin Rewards credit card. Again, blockfi.com/pomp. I use mine every day, and I think you'll enjoy it. Next up is Choice. Choice is a new self-directed IRA product that I'm really excited about. If you're listening to this, you are likely part of the 7.1 million Bitcoin owners who

• 1:29Anthony Pompliano?

  have retirement accounts with dollars in them, but not Bitcoin. I used to be in that situation too, but Choice helped me fix that. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. It's an absolute game changer. Go to retirewithchoice.com/pomp. Again, retirewithchoice.com/pomp today, and you can get that self-directed IRA product lets you buy Bitcoin in a tax-advantaged way and hold your private keys. Retirewithchoice.com/pomp. And also, if you're interested, we have a new live show, the best business show, that is on YouTube every single day. From 11 a.m. to 1 p.m. Eastern.

• 2:12Anthony Pompliano?

  It's me and my brothers covering all the things that are relevant in the business world, including Bitcoin, but also the stock market and many other industries. Go check it out by just searching Anthony Pompliano on YouTube, and you can subscribe to the channel and then tune into those live streams from 11 a.m. to 1 p.m. Eastern every single day. All right, let's get into this episode with Adam. I hope you guys enjoy this one.

• 2:33Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 2:56Anthony Pompliano?

  Adam, how are you? For those that don't know you or know your background, maybe give us kind of a quick one minute just on your journey in applied cryptography and how you got involved in Bitcoin.

• 3:08Speaker 02

  Hmm, so I guess I was in some ways like super early and then kind of came and went a couple of times. So I, in the mid to late 90s, I was involved in the Cyberpunk's list and cryptography for things like Tor, like anonymous remailers, privacy for browsing and electronic cash. So I'd implemented some of the crypto libraries for DigiCash, kind of centralized, but very anonymous electronic cash system. And then I came to invent HashCash as a kind of postage stamp to make it more difficult for people to spam sending emails and discussion forum posts through the remailers.

• 3:53Speaker 02

  And usually you'd do that with identity, just blacklist IP addresses and email addresses, but you can't do that when the sender's anonymous. So that was kind of what caused me to think about what's the real problem here? It's free, let's impose a cost. Credit cards are difficult, but we can do proof of work. And that started a kind of multi-year discussion, well, probably decade plus discussion about how to make a respendable electronic cash. It kind of involved, you know, how Finney, Nixarbo, WeDie, and things like Bmoney and Bitgold, which are some of the Bitcoin precursors. So that was a kind of early involvement. And then I think I was the first person to get.

• 4:36Speaker 02

  An email from Satoshi Nakamoto sometime in late 2008, asking about hashcash citation. So I exchanged a few emails with him.

• 4:47Anthony Pompliano?

  And so when you first get that email, like, why does he email you, he, she, they? And what was kind of your reaction or what did you think?

• 4:55Speaker 02

  Uh, so the question originally was, you know, I'm, I'm developing electronic cash system. I'm citing and using your paper on hashcash. How, how should I cite it? Cause it wasn't an academic publication. It was a kind of research report on a personal website, right? So how to cite that is a little, you know, it's not a reference to a journal with a date kind of thing. And so I exchanged some more emails later about other related electronic cash systems. So what I thought about it, well, you know, if you've got some open source software or applied crypto

• 5:35Speaker 02

  applications online, from time to time you get, you know, developers and people doing other applied research. Just email you out of the blue and ask you questions or send you links to what they're working on. See your ideas, ask for your feedback, that kind of thing. So it didn't occur to me that Satoshi Nakamoto was a student actually at the time. So, uh, and obviously, you know, I was, as somebody who'd been interested in the bulk of electronic cash for a long time. I thought it was pretty interesting, but you know, at that stage, it's a open question. I guess to everybody about whether this would actually bootstrap, right? So I think that was what, because there were no exchanges in the early days and just kind of, you know,

• 6:18Speaker 02

  people mining, starting to trade things for Bitcoin, like pizzas. Uh, and almost today, today, there was no Bitcoin and things like that. So it took some years till that, you know, till I think, you know, there were different targets, like a dollar or a hundred dollars. And people would think, well, actually maybe it is going to take off, you know? So it's unclear as a hobbyist kind of. Technologist, interest type of thing, whether that would bootstrap a stable value and reach kind of take off energy.

• 6:49Anthony Pompliano?

  Is it fair to think that in the beginning, you thought the technical architecture was super fascinating and a breakthrough or kind of a continuation of prior work? But you had questions about the social consensus and the social acceptability and like the mainstream adoption. Like, if we separated out the technical from more of like the adoption question, is that a fair categorization as to how you first looked at it?

• 7:12Speaker 02

  Well, there was a previous attempt to bootstrap a system, so DigiCash, but just by, you know, community of users trying to create things organically, right? So, DigiCash, which was a startup by David Chorm, headquartered in the Netherlands. They ran a demo server, this is like mid 90s, before HashCash. And they promised that they would only issue a million tokens. Now, unfortunately, there's no blockchain audit features, they had to trust them. But they said they'd just keep it running and they'd email you some coins if you just email them and ask for some. And so, you know, people on the Cyphpunks list thought it'd be a fun prank to start selling stuff for it, you know?

• 7:56Speaker 02

  T-shirts and different things, so I did a bit of that. And because it was, it had bucks in the name, people just treat it as if it was worth a dollar. But unfortunately, DigiCash went bankrupt in the middle of that experiment and all the coins kind of disappeared. The double database, double spend database got lost. So, I think that, that living through that experience motivated the, you know, the thinking about how could you make a decentralized electronic cash system?

• 8:23Speaker 02

  There are some more things on the technical side, you know, like Bitcoin took some getting used to for people involved in this kind of very cryptography-heavy electronic cash systems that had perfect privacy, which is, you know, to attack or steal a coin in those systems is virtually impossible, but you have to trust a central party, where in Bitcoin, there is no central party. But the security model, you know, you've got your private key, so you can't, that's similarly expensive. But in terms of the finality of the chain, that's a kind of arms race between the good guys and the bad guys. And that, you know, change in threat model took a while for, you know, some of the applied crypto and academic guys to come around to because it was so novel.

• 9:07Anthony Pompliano?

  Yeah. Talk to me about the founding of Blockstream. I believe in 2014, you and a few other folks came together to start the business. What was the original idea and how did you guys get it off the ground?

• 9:18Speaker 02

  Yeah, so what I had tried to do is I got more actively involved. I was involved in another startup that I had founded for this and so I was busy with that kind of stuff. And so in 2013, some price points were reached. I started looking more deeply into technology and proposed what became confidential transactions. Just, you know, talking, finding where the people working on next gen things hang out, which was IRC at the time. And so I proposed confidential transactions as a way to get back some confidentiality and privacy from the kind of very open book Bitcoin model. And so then I was like, okay, let's do this. Let's integrate it into Bitcoin.

• 10:01Speaker 02

  And I came to realize actually that's kind of difficult to do because it's a big piece of technology. Bitcoin likes to work incrementally and it's not very modular, so you can't kind of have like an opt-in feature. So I changed my attention to like figuring out how to make Bitcoin modular. So that's where the blockchain concept came from. And so I resolved after a bit that, you know, that really needed a company around it to make it a reality. Because you don't just need to like build a library, you need to build wallets, block explorers, you know, user interface, integration. So it's a lot of work ultimately. So then kind of I recruited some of the key technical contributors that I got to know

• 10:45Speaker 02

  by exploring the bleeding edge of what you could do with Bitcoin, how to extend it. So I recruited them, so you know, Greg Maxwell, Peter Wall and a number of other active Bitcoin protocol developers. And other guys, you know, from previous startup contacts to start Blockstream and put together our seed round. The lead was Reid Hoffman. Android LinkedIn.

• 11:09Anthony Pompliano?

  Got it. And so walk us through kind of the services that you all offer or the products that you spend your time building at Blockstream today. Because you're not just doing one thing. You've got kind of a whole, you know, business full or product suite. So what exactly do you describe as the Blockstream business today?

• 11:28Speaker 02

  So at a very high level, we describe ourselves as the Cisco of Bitcoin-related

• 11:35Speaker 02

  internet finance. And so we're building a platform. So, you know, there's it's very full stack. So we've got everything from the physical layer. That's we make our own hardware wallet. We integrate everybody else's hardware wallets that we can. We acquired a software wallet that integrates with hardware wallets. We built Block Explorer. We built the Liquid Network. And that's operated by around 60 different exchanges and market makers. So it's kind of, we also make the HSMs that operate out. So the Liquid Network is a bit different to the Lightning Network. So it has block signers and it's organized more like Bitcoin. So kind of like a chain, but with no native coin apart from Bitcoin. And

• 12:18Speaker 02

  you can move Bitcoins in and out of it between the main chain. And Liquid, kind of like you can with Lightning, right? You can kind of give superpowers or extra features to your Bitcoin on the Lightning Network. And on Liquid, what it gives you is confidential transactions, atomic trades, some smart contracting extensions, faster confirmation times for traders.

• 12:41Speaker 02

  And, you know, sort of acts as a complement to Bitcoin. So it sucks the trading volume out of the Bitcoin chain, which tends to congest it. So, you know, when you see Bitcoin fees spike on the main chain, I believe that's mostly actually traders clogging it up.

• 12:56Anthony Pompliano?

  When you think about kind of the future plans, you've gone out and recently announced that you raised $210 million at a $3.2 billion valuation. Talk a little bit about who invested that capital and then what you're going to use it for?

• 13:11Speaker 02

  Yeah. So on that list, one of the things we set out to do, even back at the beginning, was to take apart into mining and I was to, you know, improve decentralization in the Bitcoin network, which kind of improves and gets to low points. And it's on the improvement track at the moment. So we wanted to do our part to decentralize it, to make, you know, fully pit-to-pit layer two. Uh more secure. And so we've been doing kind of enterprise mining. So my hosting for other customers like Fidelity, Galaxy, and a number of other funds that you recognize the names of, but don't always have their own physical setup. So we have physical mining farms

• 13:55Speaker 02

  in Montreal and in near Atlanta in the US. And um so that that's actually been pretty profitable for us. We accumulated a number of Bitcoin on the balance sheet. We've actually been you know, had Bitcoin on the balance sheet from two thousand fourteen, doing the uh Michael Saylor uh micro strategy, strategy before it was cool. And um so realistically, that was kind of a, you know, the Bitcoin appreciation kind of appreciation kind of gave us a round in itself. But you know, it's a good time at the moment. We've got a lot of positive trajectory on liquid adoption, um a lot of different startups building things on top of liquid, liquid decentralized exchanges.

• 14:37Speaker 02

  Uh secure Bitcoin secured loans, smart contracts. And the mining space is pretty hot right now, too. So you know, one of the so there's a lot of uses for capital, basically, and mining itself is pretty profitable. One kind of limitation is there's a shortage of Asics in a wider market, you know, even for automotive uses, but that's flowing through into the Bitcoin space. And so, you know, we do a lot of buying from um existing miner manufacturers and for ourselves and for our customers. Um but we wanted to do something to to increase the supply chain and also diversify it. So we can, you know, have plans to build a miner

• 15:20Speaker 02

  which we have to have it in market by Q three next year. We've been working on this for a while. So uh got a head start um and just add a bit of extra capacity and some diversity of the supply chain.

• 15:34Anthony Pompliano?

  Got it. And so when you think about, let's, let's talk mining for a second. There's obviously the China ban and it seems like a lot of those miners have dispersed globally. What's your evaluation today? Is Bitcoin the most decentralized computing network on the world? Is it the most secure? And then how do you think about where this is headed? Do we get this geopolitical kind of global game theory playing out of people trying to solicit miners to their countries? The nation states actually participating in mining? Like, what are your thoughts on mining?

• 16:02Speaker 02

  Yeah, I mean, yeah, I think Bitcoin is the kind of most decentralized chain. It's very hard to replicate that and it has an enormous kind of network effect and lead time. And you know, effectively the kind of diehard holder fanatical investors are a big part of that, right? So that that can't really be replicated to my mind. And in terms of the types of people getting involved with Bitcoin, the investment class, of course, you've covered that in your show. Different public market companies putting Bitcoin on a balance sheet, Wall Street firms adding Bitcoin products or offering Bitcoin related products to their wealth management clients.

• 16:46Speaker 02

  And so, you know, we are seeing increasing enterprise and finance firms for their clients, interest in mining. And we have a financial instrument, the blockchain mining note, which is kind of securitized fractional ownership, similar to the enterprise contracts we offer. So it's a three-year term product. It rolls up Bitcoin inside it and it's been in, it's been operating. The sales started in March and it's been operating since July. So when the first... Fifty days, it's been doing about 0.3% return a day. So if that keeps up, it will

• 17:31Speaker 02

  recoup the capital investment in dollar terms within a year. Obviously inputs are pretty variable. It's a three-year term product, so hopefully that should do well. And in terms of, you know, sort of Bitcoin time as compared to internet time, things have generally moved much faster than people expect. So, you know, the prospect of sovereign Bitcoin mining or sovereign Bitcoin ownership, you know, take a leap forward with the El Salvador announcements, for example, and we're in discussion with the government down there to see if we can put together a bond to finance more power infrastructure to do, you know, the circle of volcano mining,

• 18:13Speaker 02

  mining, which is a great meme, but, you know, it's actually something that's already been happening in Iceland, for example.

• 18:21Anthony Pompliano?

  So you think that the El Salvador volcano energy mining is possible and likely?

• 18:26Speaker 02

  I think it's certainly possible. It really comes down to cost efficiency. It's a global market and, you know, with the ASIC shortage, people will want to put them where it's most cost effective to mine. Now, you know, power infrastructure projects are traditionally very long-term financed, 20 or 30 years, you know, to build out large-scale transformers and power infrastructure. So with the, typically those are funded on very low interest, long-term financing terms. So if you, if you can assemble something with those terms, maybe with a sovereign credit rating behind it, a lot of things become possible because the, you can kind of long-term amortize the effective power cost that way.

• 19:10Anthony Pompliano?

  Got it. And so when you start to think about inside the United States, I believe you guys have mining facilities here in the US, it feels like the US is probably the biggest benefactor of the China decision to ban mining. We see everything from gas flare capture all the way to states like Kentucky who are driving kind of advantageous tax regimes to try to solicit miners there. Is this something where the United States ultimately will become kind of the home or the center for mining globally? Or do you think that it will continue to be kind of globally distributed in all of these various countries and it'll just be dependent on the price of energy?

• 19:51Speaker 02

  Yeah, I mean, I think it's not entirely priced. So uh Blockstream Finance is our, you know, we're quite a hedge fund and put out some weekly financial reports. We put out a report uh maybe a month or two ago, uh actually before the China ban, just observing that the hash rate had been growing faster outside of China than inside for the last eighteen months or so before the ban. Of course, that was, you know, suddenly accelerated by the ban. Um so it's it's becoming more geographically diverse. Um and we think the reason for that was the more enterprise institutional

• 20:32Speaker 02

  miners coming in placing more value on geopolitical risk diversification, preferring to do business in a country where they like a contract enforceability, that kind of thing. So we think that was a factor. So I think the US, you know, and other Western countries have that going for them, obviously. Um but it is it is international, you know, I mean, there's Iceland, Kazakhstan, uh all all kinds of countries and Canada, of course, where we have some mining and there are a number of uh mining farms operated by various companies in Canada. In the Quebec province where we're operating, um the the power source is uh basically hydro. So it's ninety-five percent hydro, four

• 21:14Speaker 02

  percent wind and one percent other. So there's actually an enormous amount of hydro energy. I mean, even just the Quebec province of Canada has uh more than two times the amount of power to run the entire Bitcoin network that is unused. So it's a core of their power capacity, which is only about fifty percent used. So, you know, there's there's lots of excess power in that's uh now that's one of the attractions of Bitcoin mining, basically, that it can act as a buyer of last resort to improve profitability of power projects, pull down cost of power for, you know, via competition then for consumers and industrial users.

• 21:57Anthony Pompliano?

  Got it. And then, so when you think about the actual mining equipment itself, obviously, you have whether concerns or interest in making sure that that's more and more decentralized and kind of there isn't this centralized chip or wafer issue. Is that something where Blockstream can provide the solution? Or do you think there needs to be 25 other people who go out and do this and kind of continue to accelerate the actual manufacturing of the hardware?

• 22:24Speaker 02

  Um, yeah, I mean, decentralization, I think the first part of decentralization is kind of chunky, right? So if it goes from like five suppliers to six, okay, that's a step forward and it's in a different geography, different supply chains. Longer term, it would be pretty interesting to see, you know, more, more variety. There's generally more variety in terms of, you know, board manufacturer and minor branding and sales. But, you know, even if there's another form of centralization, which is there are only so many foundries in the world that can make, you know, make advanced process nodes, CPUs and ASICs.

• 23:09Speaker 02

  So that's another form of centralization. But those are generally international companies with foundries and in different countries. And as you probably know, the US has made some attempts to recently to increase the foundry capacity in the US. Those, those obviously take multiple years to build, get online.

• 23:29Anthony Pompliano?

  Got it. And then talk to me in terms of just the current state of Bitcoin, right? Obviously, we've seen everything from regulatory pressures to some of the energy FUD. But it feels like Bitcoin is doing exactly what it was designed to do. It's just kind of produces block after block after block. Is that your evaluation? How do you think about where we are right now?

• 23:52Speaker 02

  Yeah, I mean Bitcoin is kind of a power run for itself and people will say glib things like Bitcoin doesn't care, but I guess to some extent it doesn't, it just keeps producing blocks. And one of the beauties of the decentralization or survivability of Bitcoin versus previous much more centralized electronic cash systems is that, you know, individuals and companies can leave and join the network at will and even whole countries can restrict use of Bitcoin and Bitcoin carries on. And in certain countries, it depends on the culture, but you've seen cases where a country like will ban Bitcoin and the usage will actually go up or move to decentralized

• 24:37Speaker 02

  platforms or X C trade and things like that. So that's kind of interesting because there's a there's one form of bootstrap for Bitcoin, which is that, you know, you could do all word of mouth, you know, if there's enough Bitcoin acceptance and deployment that you could ask around for a friend of a friend and finally to like in-person OTCs. So I think Bitcoin is probably at that point already. And the emerging market adoption is actually accelerating faster for payments and sort of hands-on use than the West, which is, you know, which is great. And obviously they have more, more limited payment options compared to what we have in

• 25:18Speaker 02

  the West with more stable currencies, debit cards, bank accounts and so on. So they have a reason to adopt perhaps similar to the way they can leapfrog and fix line telephony and skip straight to mobile phones, right? So they have a problem to solve. And so the street is figuring out how to solve it using Bitcoin.

• 25:38Anthony Pompliano?

  Yeah, I mean, in the month of July, 1.2 million new entities on the Bitcoin blockchain, fastest growth ever recorded in a month. So pretty incredible. What do you think the biggest hurdle for Bitcoin is over the next five years?

• 25:51Speaker 02

  Um, I mean, it'll be interesting to see how it develops. Of course, it's it's impressive how the game theory, you know, so it's evolved over time. Those bigger players have come in. There have been some kind of policy skirmishes, but basically the market has prevailed. And so I think that's one of the very interesting and illuminating aspects of the, you know, so-called block size war, right? Which is, to my mind, what that, you know, without regard to what people thought or preferred, that ultimately the market prevailed. And that says that Bitcoin is, you know, it proved its its chops in being an apolitical money,

• 26:33Speaker 02

  that ultimately, you know, interest groups don't stand much chance because the market will tend to sort of run around it, prevail. So that's great, but it make it interesting if, you know, you have sovereign Bitcoin positions, mining. So I think a certain amount of decentralization and individuals and entities holding them private keys helps. If there's too much kind of ETF-like use, that could pose a policy risk because the ETF managers may feel they have fiduciary responsibility to do something that the users wouldn't want to do. I think ultimately the market prevails anyway, but that could be choppy, shall we say.

• 27:19Anthony Pompliano?

  There's a lot of conversation right now online about Bitcoin maximalism. Do you consider yourself a Bitcoin maximalist? Or are there other things that you're interested in or open to? How do you think about maximalism and then everything else?

• 27:32Speaker 02

  Yeah, I mean, to me, it's really a kind of neutral Bitcoin monetary maximalist. So, you know, the, I'm pretty interested in any kinds of innovation, you know, the Bitcoin sector and Blue Sky academic research and a number of chains of.

• 27:55Speaker 02

  Brought to market, some pretty interesting innovations over the last five years. And so there's, you know, obviously innovation is great and chains can copy and learn from each other. And where it gets kind of debatable is is the kind of switching cost of chains. So John Pfeffer has a pretty interesting paper on this where he makes the argument that basically it doesn't make a lot of sense to pre-buy and hold utility tokens, where the utility token is like a coin that you use to pay for smart contract execution or storage or something in a chain. Because technology gets cheaper and if a chain gets expensive, people will switch chain and then you'll be left holding the wrong

• 28:40Speaker 02

  utility tokens. So let's say it's a bit like, you know, early enthusiasm about the internet and somebody proposed pre-buying, you know, megabytes of bandwidth or something in the nineties. And of course, you know, the cost of bandwidth dropped multiple orders of magnitude. So I think the just-in-time argument means that there's definitely utility value in the chain, but there may not be kind of defensible sticky value after you take into account switching costs. And so I'm expecting that to play out in the market, you know, in the long term.

• 29:14Anthony Pompliano?

  What do you think the price of Bitcoin hits by the end of the year? You think about price at all? Is there any sort of framework you use to evaluate these kind of cyclical bull and bear markets?

• 29:25Speaker 02

  Yeah, I mean, I'm a bit of a trader on the side and was doing some arbitrage and different types of trading before starting Blockstream. So I was a day trader back in the late nineties as well, you know, in stocks and stuff. So kind of interested in trading, dabbling and trying out the different Bitcoin products, you know, perpetual futures and options and things. So I think even before the stock to flow valuation model, which is, you know, it's an interesting observation. We'll see if it holds. The comparison I liked was the sort of competitor to physical gold, because in many ways Bitcoin is a better physical gold.

• 30:08Speaker 02

  And so, you know, you can infer a kind of valuation from how many coins there are. Current price of gold and you know, let's say that that value gets divided up and you come out into the hundreds of thousands, uh, like maybe half a million even uh, on that basis alone. So end of year, um, I mean, the, the options prices for, you know, a hundred K are showing that that is the market's thinking that's quite possible. Um, so I'm, uh, I'm curious to see if that comes.

• 30:42Anthony Pompliano?

  Would you bet on it? Are you, are you buying options?

• 30:46Speaker 02

  Uh, well, I mean, actually I, uh, looked at the Ledger X options and concluded that they were underpriced, so I should buy some, basically. I mean, basically because you can compare them to the kind of not risk free, but a somewhat risk, uh, incurring Bitcoin yield. So if you, if you collect interest on Bitcoin and you can see that the option gives you less return than collecting interest on Bitcoin, that says you should buy, you should buy the option because it's, it's cheap compared to that. Um, so yeah, I might, I might take a punt on that as well. So, yeah, because people's normal intuition is, well,

• 31:28Speaker 02

  I'll sell some options because I get money now. And, you know, if, if that price is here, well, it's like I put a limit order in and it, and it got triggered and I was philosophically happy to sell at that price. But now if you look at the pricing and you, and you think those things are underpriced, then logically you should buy some.

• 31:48Anthony Pompliano?

  When you think about these cycles that have happened in the past, we've obviously had incredible hundreds, if not thousands of percent of appreciation and then very deep drawdowns, you know, 80 plus percent's happened multiple times. Given that you've got this background in trading, et cetera, uh, the holder base has changed a little bit. There's many more corporations, uh, large organizations, financial institutions, uh, just kind of whales in general that are now in the market than let's say five years ago. Does that have an impact, do you think, in terms of, uh, the, the continuation of a bull market? Is there another 80% drawdown that you could see kind of in a market correction and then a multi-year bear market? Like, how do you just think about the difference of market participants today and then what we've seen historically as, uh, kind of the crashes from those big bull markets?

• 32:33Speaker 02

  Yeah, I think it's a bit of a recurring cycle. I mean, some people have been for a super cycle, so we'll see if that plays out. But, you know, obviously, the the kind of money printing quantitative easing backdrop is a reason for it to be turbocharged at this period rate, but it seems like new participants have to learn to hold because the kind of Bitcoin price swings and volatility takes getting used to, basically. That's one thing we like about the Bitcoin, you know, the Bitcoin mining product we have, the Blockchain Mining Note, is that it's a three-year term product and it reduces the volatility of returns and it has some downside protection.

• 33:15Speaker 02

  So that's because if the price falls, the hash rate will tend to fall and then you'll mine more coins than you expected. So that's in a previous period where we bought a batch of miners at a Bottery corporate level. When the Bitcoin price was fifteen thousand, we mined them through the period and at the end of the period, price was seven thousand five hundred. So if you'd have bought Bitcoin, at that point in time, you would have lost fifty percent. And with mining, we ended up with a twenty-five percent positive return. And then, you know, when we went to analyze that, we were kind of like, well, what's the intuition for that happening?

• 33:55Speaker 02

  And the reason was really that the price actually fell down to, all the way down to thirty-five hundred in the middle of that period. And during that period, we were mining a lot of coins and we weren't selling coins to pay the electricity bills and kept them all. And so ultimately, what gave the twenty-five percent return is that we mined two and a half times as many coins as were anticipated. So, you know, we did a bunch of backtesting for doing the Blockchain Mining Note and to get an idea of, you know, the percentage of time this kind of thing happens, what the averages are. And what we found is you get kind of sixty percent upside participation in a bull case with mining,

• 34:35Speaker 02

  but like a pretty decent downside protection and a low volatility return. So, you know, for people who are Prone to panic sale or not yet appreciate volatility or not long term investors. And I think, you know, if you were investing in shares, you would not not try to buy and sell them on a week by week basis, but you'd aim to hold them for like three years plus if you had a investment thesis, right? So I think it's the same with Bitcoin. And over like, you know, three or four year period, Bitcoin has now basically done well in in all periods, right?

• 35:09Anthony Pompliano?

  Obviously, you guys have Liquid as a Bitcoin side chain. Many people are familiar with the Lightning Network. How do you see the difference between these two systems? And do you see pros and cons or different applications for each one? Just how do you think about those two different systems kind of moving forward?

• 35:25Speaker 02

  Um, yeah, so they're sort of complementary, different networks loosely with internet analogy. You're going to see different protocols emerging for different use cases, the voice over IP protocols, web protocols, mail protocols. And so we see Liquid for kind of pro traders, smart contracting, faster settlement, confidentiality. So sort of, you know, people are interested to trade out confidential transactions, you know, people use it for what they use it for, right? So there are people just using it as a cheap wallet to rate the lower fees environment with less censorship resistance trade off. And Lightning really more for the kind of high scale, micro payments, low cost.

• 36:10Speaker 02

  And so Pucktree was actually involved in both. So of the three teams, three independent teams of different companies developing the Lightning full node implementations, now probably some more at this point, but we we have one of them. And that's the Sea Lightning project. And actually, Sea Lightning, a lot of people don't know this, but Sea Lightning and Lightning in general can work on top of Bitcoin and on top of Liquid. So we have Sea Lightning support there for a couple of years. So you can run a Lightning channel that is backed into Liquid and opens a possibility.

• 36:46Speaker 02

  For, you know, even like a tether or there are some other stablecoins on Liquid like the Canadian dollar by Bull Bitcoin to make channels with, you know, Lightning channels of stablecoins in them. So that could be interesting for some use cases as well. So I think, you know, another trade off is Lightning can only really give you features that exist in the underlying chain, whereas Liquid being a sidechain can add all new capabilities that wouldn't be possible for Lightning, like confidential transactions, enhanced smart contracting. It can make, you know, changes in behavior about capabilities of the chain and then put Lightning on top of that as well.

• 37:29Anthony Pompliano?

  The last question I have before I let my brothers ask a couple of questions is these confidential transactions. I've seen everything from people say, you know, they're amazing and they're kind of the gold standard, no pun intended, all the way to people who basically question how confidential they can be and don't necessarily trust them. How do you think about confidentiality? What makes it confidential? And then how can people kind of verify that versus just blindly trust that they're confidential?

• 37:57Speaker 02

  Um, yeah, so it's, it's a, you know, it's not like unanimous in the sense that it doesn't obscure the transaction history, but it encrypts the amounts of the transaction and even the types because, you know, there could be different kinds of assets and shares and things on Liquid as well as Bitcoin. And so only the sender and the recipient are able to see what the transaction is, how much it's for, what type it is. And in terms of trust, it's using, you know, similar technology to the EC TSA signatures and Schnur signatures that Bitcoin uses. So, you know, many people won't understand at a very low level how

• 38:39Speaker 02

  those work, but they have confidence in them. So basically the confidential transactions is using the same building blocks. And so it's not doing, even though it's a novel.

• 38:50Speaker 02

  Possibility, the building blocks are very standard and safe. And one thing that people do worry about is an inflation risk. Obviously, the 21 million is pretty sacrosanct in Bitcoin. And there are two variants of confidential transactions. One, where a hypothetical quantum supercomputer in many decades in the future would be able to inflate the number of coins, which obviously people don't want to contemplate. And there's another version which doesn't have that issue. It's mathematically proven that you can't have any inflation. So I think that latter one would be the one that would be more plausible for the Bitcoin engine.

• 39:32Anthony Pompliano?

  Got it. Joe, John, what questions you guys got? Yeah, I'll go first. Adam, thanks for doing this. Really appreciate it. My question would be just around fundraising. You guys recently raised $210 million in a Series B. You raised, I think it was 55 or 60 million dollars in 2016, in the early part of that year.

• 39:49Speaker 02

  So from 2016 to today, the market in general has expanded rapidly. It's, I think it was around, it was less than 10 billion in total market cap beforehand. And now it's over 2 trillion or close to 2 trillion. So just through that fundraising process, talking to investors, how has that changed from when you guys did it in 2016 to today? Well, I mean, when we started with Blockstream, all the way back in 2014, there was more regulatory uncertainty. Bitcoin was a dirty word to many banks. And then we scrolled forward a couple of years and every bank, whether it's all, had a blockchain R and D lab. And then it's grown forward a few more years. And, you know, it's financial institutions are queuing up to offer Bitcoin products to their private wealth clients and to market in general.

• 40:34Speaker 02

  So now it's interesting. The lead investor in our B round here is Bailey Gifford, which is a very large financial institution. It's, I write, headquartered in Scotland, is offering all kinds of funds and unit trusts and things. And it's, I think around 400 billion assets under management funds. So that's a pretty big, long-term thinking player. The other investor, there are multiple investors in this first close, but the other one that we've been, we have to ask the investors if they want to be named. So the other one that's named is Ifinix, the owner of Bitfinex.

• 41:17Speaker 02

  Parent company and obviously they're pretty interesting for us for a couple of reasons. One is that one of the Bitcoin exchanges, so the crypto exchanges that does most reinvestment into the Bitcoin, into Bitcoin infrastructure, into the technology stack, you know, so they were early integrating Liquid, early integrating Lightning, that was innovating. And so they're, you know, one of the anchor participants in the Liquid network and the Liquid Federation. So you could view their investment, it's Blockstream as a kind of, you know, even bigger play in reinvesting in infrastructure, invest in an infrastructure company. So that's a pretty good strategic investment for us.

• 42:01Anthony Pompliano?

  John? Yeah, Adam, thank you for doing this. I really appreciate it. It's nice to meet you. So my question is for individuals and corporations getting involved in Bitcoin, being more involved in it, how should they be looking at it? Is it a store of value? Is it a global reserve currency? What is like the end game for Bitcoin? Then how do you look at it? Do you see it becoming that global reserve currency?

• 42:22Speaker 02

  Well, I mean, that's what safety and Moose is right about in the Bitcoin standard and the presentations he gives relating to that. I mean, for me, yes, it's definitely got both aspects of a kind of permissionless open network for value on the internet and a store of value, like a gold competitor. And I think the, you know, the addressable market for store of value is considered to be sort of 200 to 300 trillion, which obviously, you know, if Bitcoin would capture all of that, puts an enormous value per coin. So I think the thing I would see

• 43:06Speaker 02

  is the next milestone is for Bitcoin to, you know, match gold in market cap, physical gold and gold ETFs and things like that. And I mean, I personally think that's a very real prospect in this hopping cycle, you know, to the next three years. And then we'll see what happens after that. And I think one thing that can indicate that, you know, maybe this can be faster than we might think is a lot of kind of backdrop factors and got the sovereign interest in Bitcoin and El Salvador, a couple of other countries, you know, put forward Bitcoin related currency acceptance ideas that have not yet passed.

• 43:46Speaker 02

  And you know, you're seeing a lot more adoption in general and the, you know, the economic backdrop, basically, right? So, you know, a world reserve currency status historically has lasted, you know, maybe a hundred years or something and sort of, you know, switched around due to geopolitical factors, economic sort of strength in a world of a geography, a British pound in the past, US dollar today. So I don't think anybody's necessarily expecting

• 44:25Speaker 02

  anything imminent, but it does seem that fiat currencies everywhere are under significant stress and the monetary inflation is causing people to reevaluate their investment basis, right? It's all very well holding stocks that are going up in nominal terms, but if they're only really holding their own versus into money expansion, have you really, you know, protected your spending power?

• 44:53Anthony Pompliano?

  Adam, I would be remiss if I didn't ask you. The number one question we keep getting in the chat is, one, are you Satoshi? And two, if not, who do you think Satoshi is? Do you care?

• 45:05Speaker 02

  No, definitely not Satoshi. I think people get kind of confirmation bias because they look around at, you know, people with kind of applied crypto and a level of computer science kind of backgrounds. And there are a number of such people around who were interested in electronic cash. I actually think it's, you know, positive for Bitcoin as a store of value, that it's more of a mathematical discovered thing than that there's a founder and promoter, as is the case with, you know, most other coins, there's a kind of, you know, somebody in charge of it, a CEO of it, or an inventor of it, or lead programmer or something. So I think the fact that Satoshi, for reasons unknown, chose to step away is

• 45:48Speaker 02

  actually a very positive thing for Bitcoin. And I guess maybe that was intentional to avoid, you know, to preserve some of decentralization. We don't know, it's all speculation. So, no, I don't know. I mean, we can... Sort of empirically see what kind of technical skills would be needed. But no, I don't, I don't have any particular people that I would guess.

• 46:19Anthony Pompliano?

  So one of the questions I get, which frankly, I don't have a great answer to, and I feel like you've just been around longer and probably thought about this. What do you think the impact of Satoshi's coins moving would be? Is that a like a short term price thing, but long term doesn't matter? Would there be a long term impact? I'm assuming it would kind of kick off the global search, you know, who is Satoshi in the media all over again? But, but like, what do you think the actual impact would be? And is that something people should worry about?

• 46:46Speaker 02

  Yeah, I mean, I think there is a couple of things. So one is the assumed number of coins Satoshi is suspected to have mined is, is a bit of speculation. I mean, that it's like looking at patterns in headers of mined coins or something. And so it's got a wide error bar on it. And, you know, some technical commentators think it may be a half or a third, you know, so like 500,000 to 300,000 coins and not a million. As the original kind of speculative analysis posited. And in terms of market, I think that, you know, it would just be absorbed.

• 47:30Speaker 02

  People would buy it, you know, there's a lot of volume these days. You can market sell large amounts of money. And then Michael Saylor does it all the time, right? And what, what, you know, what, what you would assume a rational player to do as well as to feed it in, right? You know, to, to sell coins a few at a time. And the other curious thing is I know, I know it's a lot of people like to say that, oh, Satoshi never sold any coins. And I think that might be, we don't know, but you know, if you think about it, as there were more miners joining the network, the more recently mined coins would be more anonymous. So I don't, I don't think we have any reason to say with confidence that he hasn't sold any coins.

• 48:14Speaker 02

  That maybe he sold some more recent coins, right? So. Now, and actually, even in the first year or two, you can, you can look at, you know, fifty coins per block, hundred and forty-four per day and multiply it out. And there were, there were clearly thousands of miners, even in the first two years. And the, you know, a lot, a lot more than even one million mined during the first few years.

• 48:45Anthony Pompliano?

  Yeah. One, one thing that is fascinating, I don't think it actually matters, but I was asked this question once, and then the follow up was, if Satoshi's coins did move, would they receive a premium in the market? Because they basically would be considered historical. And I thought that that was a really interesting thing, because I think we all think of fungibility, ESG, OFAC compliant, and all the things that have become kind of hot topics recently. But when you take away the more controversial, you know, debates around those, and just say, well, what about Satoshi's coins? Or the first Bitcoin ever mined, right? You know, I, I don't think that it would, but what, what do you think? Is there a potential that there's a premium placed on any kind of Bitcoin, regardless of the reason?

• 49:26Speaker 02

  I mean, I guess people will collect all kinds of things, you know, baseball cards, and even NFTs of rocks these days. So it's hard to predict. But there's a couple of curious things. I think some of the early, so there's, I think there's mainly only a couple of transactions that are recently confirmed to be Satoshi's, like the one that he sent to Hal Finney as a test, for example. And if you look at some of those, there's lots of kind of small Bitcoin transactions being sent to it, like with notes on them and stuff. So I think that's just people kind of, you know, saying hello to Satoshi or something, sending him some dust. So I guess that they might be able to say, there was a period where some buyers would pay a small

• 50:11Speaker 02

  premium for freshly mined coins. This is a period where regulations were less clear. And so they, they just figured it'd be simpler if there was no previous owner, effectively. And it's kind of what you get by, you know, participating in mining as well. There's sort of more of a limacy in a way. But that premium, as I understand it, is largely eroded. So defective fungibilities. Uh, kicked in these days. Um, and I mean, the fungibility question implied by the OFAC stuff and that that kind of controversy. So I think it's, you know, it's positive to know that the uh, the miner doing that has dropped that concept entirely. So that's, that's positive.

• 50:53Speaker 02

  Um, I think it's important that Bitcoin, you know, maintain strong de facto fungibility. Al- otherwise, you know, it, it causes potential issues on sort of reliability or, you know, receiving coins and having to check with a central authority, uh, the discount on them. That would be pretty bad for use utility. Um, so I think there's some, you know, potential for more kind of fungibility or privacy technology to be integrated in Bitcoin at the time. There have, there have been a number of kind of incremental steps. And I think the, the Schnur signature, uh, software that looks to be coming in a few months, we'll,

• 51:38Speaker 02

  we'll do a little bit incremental on that as well. Kind of make more coins and transactions look indistinguishable in type. So that helps a little bit incrementally, but there's, you know, there's more scope for kind of improved fungibility and privacy in the base layer, I think.

• 51:56Anthony Pompliano?

  You've been incredibly kind with your time. So I appreciate you coming on and spend so much time with us. Um, before we let you go, what would you say is the best way for folks to interface with Blockstream? I- i- is it certain products that you want folks to go check out? Or are there other things that you would push them to go, go look at?

• 52:12Speaker 02

  Uh, yeah, if you go to blockstream.com, there's a, you know, full list of the different platform related products on there, stretching from, you know, physical layer, mining, hardware wallets, uh, through this protocol work we do. Um, and at Blockstream on Twitter, and then we have a number of Telegram channels that are specific to products as well. So we're, we're on most of the social media platforms and we have a YouTube channel as well with a lot of kind of technical presentations and, uh, probably this discussion will be on there, you know, within a few days.

• 52:43Anthony Pompliano?

  Got it. Um, I asked everyone the same three questions to end it. Most important book you've ever read?

• 52:49Speaker 02

  Uh, so people would expect this, but I like the, uh, book Snow Crash by Neil Stevenson. I think it's a blueprint for the future. I am more decentralized. Crypto, anarchy, free market, world.

• 53:03Anthony Pompliano?

  Uh, that's a great one. They, uh, when I took a job at Facebook, that's actually one of the books that they gave us to read. So I don't know if you want to read into that, but that's what they gave us.

• 53:13Speaker 02

  Nice.

• 53:13Anthony Pompliano?

  Second, uh, second question is sleep schedule. As everyone knows now, my brothers and I all sleep on the eight sleep mattress and love it. What, uh, what's your sleep schedule?

• 53:24Speaker 02

  Uh, it varies. So, cause I'm in Malta, some of the time, uh, the siesta time is, is common here where people will, uh, sleep a little bit in the early afternoon and like some of the, uh, local stores close. It's hard, it's hard to maintain though. So, yeah, that I don't manage to keep that up very well.

• 53:46Anthony Pompliano?

  And then, uh, last question for you is aliens. Are you a believer in aliens or not?

• 53:51Speaker 02

  Um, I mean, maybe, you know, there's the Drake's equation and there's an awful lot of viable planets out there. Uh, so maybe there's somebody out there at a far distance. I mean, the interesting question is, you know, did they discover Bitcoin too? And is, uh, you know, would there be evidence of it, you know, like proof of work traces or a Dyson sphere powering Bitcoin mining or something like that?

• 54:21Anthony Pompliano?

  I literally don't even know what to respond back if all of a sudden people in the comments are saying that somebody who may be Satoshi is talking about aliens discovering Bitcoin and mining it in space. That's like, uh, when Cameron and Tyler Winklevoss went and, uh, explained to, uh, Dave Portnoy from Barstool Sports that you could mine, uh, asteroids for gold. His mind was just blown.

• 54:44Speaker 02

  Yeah. I mean, I think that doesn't work as well as he thought it would because if you mined gold off the asteroids, you would destroy the gold price. So that would kind of kill the financing of, of your gold exploration.

• 54:59Anthony Pompliano?

  Well, I mean, that's, that's the argument as to if somebody was able to hack Bitcoin and steal Bitcoin somehow, you know, quantum computing, all these like kind of theoretical things people throw out. It would essentially destroy value of Bitcoin as well. And so you would be kind of a non-economic actor to have to do it, right?

• 55:15Speaker 02

  Right. Yeah. I mean, I think Bitcoin may benefit from that. So, you know, there are. White hat, people who will find a flaw and report it privately, and then there are black hats that will try to take money out of something. And I think everybody benefits from Bitcoin. Everybody wants Bitcoin to exist, black, gray, and white. And so I think Bitcoin may benefit from, you know, everybody having an aligned incentive for it to work. So I think actually that, you know, even something quite catastrophic, which, which seems remote at this point, you know, so many of the early bugs were ironed out. Um, you know, people want money to work. There are far less, uh, sort of robust monetary technologies with

• 55:57Speaker 02

  all kinds of risk for electronic and physical forgery. And people tolerate it and it works. So, you know, if there was a big issue, I think, you know, people would figure out some way to, to deal with it or work around it and carry on because, you know, society needs a workable money and Bitcoin is the best form of it today.

• 56:16Anthony Pompliano?

  I, I tend to agree. I think you and I see eye to eye quite a bit, my friend. Um, all right, blockstream.com, please, everyone, go check it out, or you can follow Adam on Twitter. Uh, your Twitter account is what? Adam?

• 56:29Speaker 02

  Three U S.

• 56:30Anthony Pompliano?

  Three U S. Adam three U S. Uh, go give him a follow and go check out Blockstream. But congrats on the, on the fundraiser. Uh, and we're excited to see kind of what you do moving forward. So we'll definitely have to do this again in the future.

• 56:42Speaker 02

  Great. Thank you all for the conversation. It's been fun.

• 56:45Anthony Pompliano?

  See you later, Adam.