Nic Carter: The Second Bitcoin Civil War

Nic Carter rejoins the podcast to discuss Bitcoin’s second civil war. When did it begin? Where are the party lines drawn? How will it end? Possible solutions? David and Nic dig into all of these questions and much more. ------ 📣SUI | Register for Sui Basecamp https://bankless.cc/SUI-podcast ------ 🎧 Listen On Your Favorite Podcast Player: https://bankless.cc/Podcast ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/toku 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum https://feeds.flightcast.com/%E2%81%A0https:/bankless.cc/Arbitrum 💸 CRYPTO TAX CALCULATOR | USE CODE BANK30 https://bankless.cc/CTC ------ TIMESTAMPS 0:00 Intro 7:30 The Bitcoin Civil War 10:32 Defining Side Lines 14:14 No Core Consensus 17:13 Filtering Out Transactions & Expressivity 22:39 Season Two 26:16 Lightning Doesn’t Work? 29:16 Ordinals & Bitcoin L2s 32:49 The Future of Bitcoin Core 35:16 Covenants Explained 37:26 Bitcoin Venture Capital 48:26 BitVM 51:64 Bitcoin Block Philosophy 1:02:10 Bitcoin Expressivity Going Too Far 1:07:36 Bitcoin Ideology 1:10:12 Closing ------ RESOURCES Nic Carter https://twitter.com/nic__carter ------ Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. See our investment disclosures here: https://www.bankless.com/disclosures

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

• 0:00Speaker 00

  I think the technology and the financialization of Bitcoin are intertwined and you can't have one without the other. And as we move into this intermediate term with ETF flows and things like that, these allocators will continue to ask themselves, is there interesting stuff happening on Bitcoin? Why Bitcoin is supposed to any other blockchain? And just being the only crypto asset within ETF, I don't think is sufficient. So we do have to continue to show that there's like actual technological developments happening.

• 0:30David Hoffman?

  Bankless Nation, welcome to a conversation with Nic Carter. Over in Bitcoin world, there is a second civil war forming. It's been forming for a while. It's always been there. We unpack it here today on the conversation with Nic Carter. But this camp is the filtering camp versus the Bitcoin rationalist camp. There's not really any good names here. These are the monetary maximalism versus the Bitcoin expressivity camp, the Satoshi's only versus the ordinals camp. Some of these people want to only have Bitcoin, the blockchain be good for BTC transfers. And the other camp is for Bitcoin expressivity, ordinals, BRC 20s, layer twos on Bitcoin. And this has worked its way up to the Bitcoin core part of the stack.

• 1:14David Hoffman?

  We're not going to hard fork the Bitcoin chain. That's not ever going to happen. But there are still places where these different philosophies want to exert control. And so there's been political fights over what gets merged into Bitcoin core. And overall, there's just been a divide in the Bitcoin community about what Bitcoin can do and what Bitcoin should be good for. Apparently, the very, very radical side of this camp wants to go so far even to make a filter that filters out Bitcoin transactions that have arbitrary data in them. Anything that's not just a simple raw BTC transfer doesn't go through the Bitcoin blockchain, at least at the surface level, not the actual chain. I think this is super interesting and I love the fact that the Bitcoin expressivity side of things,

• 1:58David Hoffman?

  the ordinals, BRC 20, layer two side of things have crescendoing momentum. And in my opinion, have a date with destiny of success. At least that's where I think things are going. But first, we're going to talk about SUI and the SUI Basecamp, which is an in-person conference in Paris during Paris Blockchain Week, April 10th through 11th. So if you are interested in a parallelized Layer 1 delegated proof-of-stake chain, the SUI Basecamp might be for you. There is a link in the show notes to get 20% off of your pass to the SUI Basecamp. This is the Move ecosystem for all the devs out there who enjoy Move. This is, SUI is like the spiritual successor to the whole Libra project, now turned into a Layer 1.

• 2:41David Hoffman?

  And so, especially if you're a dev who's interested in parallelized, new VMs that are parallelized, there's a link in the show notes to get started. Nic Carter and I unpack all of these different conversations and his opinions on this thing and where he stands. Nick has been very, very early to rejecting Bitcoin fundamentalism, Bitcoin monetary maximalism, and been a fan and an investor in Bitcoin expressivity, Bitcoin utility. And so, I just wanted to check in with him and kind of peer over the fence as to what's going on in Bitcoin world. Because I think it's been, it's been interesting ever since ordinals came about, and it's only been growing in its interestingness. And so, we have this conversation here on the show today with Nic Carter. So let's go ahead and get right into that conversation with Nic Carter.

• 3:24David Hoffman?

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• 4:08David Hoffman?

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• 4:51David Hoffman?

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• 5:36David Hoffman?

  and following the automated suggestions to quickly and accurately calculate your tax obligations. Plus, for all the airdrop farmers out there, Crypto Tax Calculator has your back as they are consistently adding support for new and upcoming Layer Ones, Layer Twos, and all the airdrops that you're currently farming. 2024 is the year where the D gens do their crypto taxes with speed and confidence. Make taxes this year easy and affordable with Crypto Tax Calculator. Sign up at cryptotaxcalculator.io and get a 30% discount with code BANK30. Click the link in the show notes for more information. What's up, Nick? How's it going?

• 6:07Speaker 00

  Good, man. Good to be back. I feel like, uh, I don't know how many of these we've done now. A good number.

• 6:13David Hoffman?

  Yeah, well, you are number two, number most frequent Bankless podcast guest, but also the instances of where it's just been like you and me going at it is also like creeping up there pretty well.

• 6:23Speaker 00

  Well, I'm honored to be back. I feel like it's been a while, so thank you.

• 6:27David Hoffman?

  Yeah, well, it's because there's like some shenanigans going on in the Bitcoin, uh, the Bitcoin sector. I think there's like a lot, there's a lot to talk about in the Bitcoin world, which like isn't usually the case. But for the last like 18 months or so, like the conversations to be had about Bitcoin are like up only.

• 6:44Speaker 00

  Are you a Bitcoiner? Do you consider yourself a Bitcoiner? Turning the tables.

• 6:50David Hoffman?

  Do I have to own Bitcoin to be a Bitcoiner?

• 6:54Speaker 00

  Uh, yeah, I think so.

• 6:55David Hoffman?

  In that case, I am not a Bitcoiner.

• 6:59Speaker 00

  Not even one Mira Satoshi David.

• 7:01David Hoffman?

  Not even a single sat, yeah. A Bitcoin believer, Bitcoin, like I think Bitcoin, I believe in the Bitcoin ideology. And I, I think the Bitcoin, Bitcoin ideology like was extremely precise on a lot of very deep truisms about crypto very early. And there's an ideology that I like largely agree with in a lot of different respects. And so in that way, if I can define Bitcoinerism like that, then I am a Bitcoiner.

• 7:30Speaker 00

  Okay. Well, we're a big tent. Yeah. So we'll, we'll have you.

• 7:34David Hoffman?

  Yeah. Okay. But one of the things that's going on recently is like that big tent is like splitting. Uh, there's like, uh, another Bitcoin civil war like bubbling at a higher level in the stack.

• 7:46David Hoffman?

  Is that how you would, uh, define the landscape in this present moment? Or would you change those words?

• 7:52Speaker 00

  Yeah. I mean, it's been going on. Don't you think there's been a Bitcoin civil war for years? That's how I feel at least. I mean.

• 7:59David Hoffman?

  Between the laser eyed Uber maxies and the Bitcoin pragmatists?

• 8:03Speaker 00

  Yeah. Like, I don't know what any, any of the camps are called anymore, but there's like basically the fundamentalists or the purists, the light laser eyed maxies, if you want to call them that. And then there is like the moderates, maybe the like, uh, you know, integrationists, the Bitcoin season twers.

• 8:24David Hoffman?

  This is what CK was calling them, the Bitcoins. It was the fix the filter camp versus the Bitcoin season two people.

• 8:30Speaker 00

  Yeah. I think the, so basically the core divide is like to maybe call them Bitcoin monetarists, like people that think the Bitcoin, the protocol should be only interested in moving around units of Bitcoin versus people that think it ought to do other things as well. And that debate has been happening on Bitcoin forever. I mean, uh, like there was, uh, issues with counterparty back in the day. I think in 2013, maybe if I'm not getting my timelines mixed up. There were debates over op return. Vitalik has referenced those in the past. I think he might have even mentioned that as a catalytic moment for him wanting to go the Ethereum direction.

• 9:15Speaker 00

  Realizing that op return was too limited and, you know, a whole new protocol is required. So that same debate is happening. And so like now, of course, the main concern is ordinals and inscriptions and like, can the protocol filter out non-monetary data? Is this spam? Does the, does the benefits towards fee accrual, do those matter or diffuse not matter? Should there be fees? Is there a security budget questions? All these questions are pretty intertwined. And so I would say broadly, like the, the debate is that between folks that are interested in Bitcoin being more richly stateful,

• 9:55Speaker 00

  to borrow the Ethereum term, and between the folks that think Bitcoin is just about moving Bitcoin around and pretty much nothing else. But it's certainly come to the fore recently, in particular with ordinals, but we're also seeing that same debate with the covenants proposal, right? Soft fork, op cap proposal. And you're going to see it now with rollups as well as those become, you know, something that is a thing on Bitcoin, I think in the next year. And yeah, so certainly like a pretty like heated episode in sort of like that, that debate.

• 10:36David Hoffman?

  I think trying to actually define the line between these two camps has been like murky. But I think one perhaps definition that gets us, that does a lot of work, a lot of good work is like, does this trend, this Bitcoin transaction have extra data beyond BTC transfers or does it not? And I think that definition kind of gets us most of the way there, but I heard there was like some like drama around this one. Coinjoin protocol, which was about Bitcoin privacy and Bitcoin, kind of like a tornado cash equivalent. Just like a privacy tool for a privacy gadget for Bitcoin transfers. Which I think even like the Bitcoin fundamentalists, the monetary maximalists would say like we enjoy that those properties.

• 11:19David Hoffman?

  But if you filter out transactions from Bitcoin that have arbitrary data, then you also lose this one coin join implementation. And so even that isn't a perfect definition because the coin join people are enhancing the monetary properties of Bitcoin. And you wouldn't really clump them into the ordinals category, but they do need that extra stateful data about Bitcoin in order to run their program. And so even that definition isn't perfectly precise, but I think that that one line kind of gets us most of the way there in terms of determining who's on what side. Do you agree?

• 11:57Speaker 00

  Yeah, I mean, I think it's a silly debate because Bitcoin has always had non monetary data in it, literally from the first block, right? I mean Satoshi put the Genesis block information in there and people have always found ways to put arbitrary data into Bitcoin, including people that are on the filtering camp, they're on the side of filtering. So Luke Dash infamously in 2011 put Bible verses into Bitcoin. And they're still in there. If you look, if you go to an explorer that supports text, searching for arbitrary text data into Bitcoin, you can find his verses. I think they, I'm trying to remember exactly what they were, but he ran a mining pool called, I think, Allegius,

• 12:42Speaker 00

  which I think is biblical reference and you'll see that in there. I mean Coinbase outputs always have non monetary data, basically saying which mining pool mined them. And people have always found ways to insert non monetary arbitrary data into Bitcoin, even outside of op return, like using malformed transaction types. So, and you know, even very respected devs that have been very influential in Bitcoin, like Andrew Puelstra have made this point. You can't actually really inhibit arbitrary data insertion into Bitcoin.

• 13:19Speaker 00

  You can maybe try and like soft fork out the, you know, blob space associated with inscriptions. You can't actually stop people doing it. People will find a way to do it and it's just a matter of like how efficient it is and how useful for operating a node, like how burdensome that data is on node operators. So I find it to be silly. People will use Bitcoin for whatever they want. And from my stance, I think it's very useful to have, you know, other transaction types on Bitcoin. I'm always of the view that we should have like a rich and active, you know, set of different patterns of network usage, whether that's L2s or inscriptions.

• 14:02Speaker 00

  I think the ordinals thing is great. But I guess a lot of that comes from my view that like having fees and usage is good. And some people would rather preside over wasteland where no one ever moves their Bitcoin. Everyone just sits on the Bitcoin. And I guess a lot of people are content with that, but I'm not.

• 14:19David Hoffman?

  Why can't we have both? Because why can't we just have two versions of a Bitcoin node software, one that actually does filter out arbitrary data to satisfy the monetary maximalist, to satisfy the fix the filter camp, and then have a different implementation of a Bitcoin node software that does all of the expressive stuff? Why can't we have both?

• 14:41Speaker 00

  Bitcoiners generally are skeptical of multiple competing implementations. And I think Bitcoin Core is pretty much the only dominant form of software. And I think the risk is that there would be consensus issues with multiple implementations. I don't, I'm not that up to date on Ethereum, but I think there's like, it's trending in the direction of one major implementation that people generally use. Am I correct in that assertion? Or is it still pretty fragmented?

• 15:08David Hoffman?

  There's like a, there's a nuanced conversation here. So like, Geth dominance is on the execution layer. And there's been a very big push to reduce Geth dominance down from its heights of like 82 to 83%, where it is now at 75%. So still pretty dominant, but but other execution layers are coming online like Georgios from Paradigm is making Rust, so Rust Ethereum. And that's just on the execution layer on the consensus layer that we have actually a pretty good healthy state of diversity of four different clients where you need to combine at at minimum two of them in order to get over over consensus thresholds.

• 15:46Speaker 00

  Yeah, so Bitcoiners, I think the general design philosophy is like, there ought to be one major implementation and there's significant risk to consensus if there are different ones.

• 15:58David Hoffman?

  So this is a fight over Bitcoin Core?

• 16:00Speaker 00

  Yeah, in a sense, from what I've seen of the fix the filter debate, and I've honestly kind of ignored it because I think there's no chance for the like filtering camp to win here. And it's very clear to me they're not going to win. They, I think, are mostly just talking about transaction propagation. And I don't think they're talking about some way to actually eliminate inscriptions, you know, in the sort of core protocol, like undo top route or like undo SegWit or something. I think that that'd be very far fetched. And so then what you might just get is a situation where people email transaction data to miners directly to get it. Let's say they did filter out and they made inscription transactions non-standard. You

• 16:44Speaker 00

  could just email your transaction data to a miner. And so, you know, you wouldn't really eliminate those transactions from from the actual ultimate inclusion in the blockchain. You would just make it more unwieldy to get them in, but people would still do that. And it would create a shadow mempool, which I think wouldn't be good at all. And it would create out of band transactions and things like that. So I don't know, it seems like pretty silly to me, the whole thing. And, you know, I don't think those people have like the critical mass to get anything done here.

• 17:18David Hoffman?

  I do think it's interesting that there are these two different philosophies. Call it the monetary maximalist fix the filter camp versus the Bitcoin Expressivity camp. I like the, I really like the word expressive and I think that's kind of like some of the ideology that's being expressed on the arbitrary data where like adding more expressivity to Bitcoin is, I think it's no coincidence that like Vitalik is pushed out from that early like op code thing and then goes make literally a fully expressive smart contract platform. And so we're starting to see Bitcoin land dabble into this. But like, who has the incentive to filter out transactions? Is it like, why are they so motivated to care so hard?

• 17:55Speaker 00

  Yeah, I mean, I think they don't want Bitcoin to host like, you know, NFT activity. They, they don't want to reward those kinds of people and they don't want their node software.

• 18:07David Hoffman?

  I mean, I don't want a lot of things in this world, but a lot of things don't also motivate me to get out of the bed in the morning to go like change the world in that particular state because I don't have the incentive to like, they can want that, but why do they fight so hard?

• 18:20Speaker 00

  Yeah, I mean, I think it's about showing your adherence to the, you know, a specific breed of Bitcoin ideology and like showing how pure you are, basically.

• 18:31David Hoffman?

  We're back here.

• 18:32Speaker 00

  You know, like creating that signal and gaining clout on that basis. But yeah, it seems like they're tilting a windmills and.

• 18:41David Hoffman?

  Virtures, it's Bitcoin virtue signaling?

• 18:43Speaker 00

  Yeah, effectively. And I don't think there's any prospect of it happening. So I've, I'm pretty puzzled by it, frankly. I think ordinals are great. I think Bitcoin itself is a good host for NFT data or other arbitrary data types in particular because the blockchain is small. And so we have like really good assurances that the data is going to be there and accessible, you know, 10, 20 years from now. So, and you know, like we've had insertions of this kinds of data for a long time and inscriptions just codify it and do it in a pretty. You know, benevolent way from a user perspective. So I see very few downsides there.

• 19:25David Hoffman?

  Mm hmm. I was hanging out with Alex Edelman and we were talking about just some of the natural incentives that comes with like an expressive layer on a blockchain. I use the example of Bitcoin Media, Bitcoin Inc., the media, one of the big media companies in the Bitcoin space were one of the first ones to do some ordinals initiative where they like minted an ordinal on the blockchain and that caused that, I think was at the very beginning of like one of the schisms. I mean, it's the same schism as you've defined, but the modern schism between these two camps, one, the Bitcoin fundamentalists that like pointed their way fingers at Bitcoin Media for playing, how dare they play in the ordinal space. But somebody who like me, who works at a media company, who understands media incentives,

• 20:09David Hoffman?

  I see like Bitcoin expressivity as like a great compliment to a media company's business model because expressivity is like drama surface area is like there's things to talk about, there's content to produce, there is more than just mini like mere BTC transfers to talk about. And as like BTC Media, who is going to be like one of the largest distributors of thought, of narrative, of content in this space, probably loves the aspect that there is like expressivity happening on Bitcoin. There's ordinals, there's NFTs, there's datefulness in its essence. And so any sort of media ecosystem around Bitcoin is going to enjoy

• 20:50David Hoffman?

  that because that is a boon to their business. They have more content to produce. And I think that is just one shard of which you could look at this. You could also look at it from the VC angle, like VCs also will love the expressivity going on Bitcoin because there's this more investable surface area. So like we have like these ideological motivated side of the camp versus like the actual rational, more economically rational agents on the other side of the camp. To me, it's just like, well, I know which one's going to win here. Like I know how the story goes.

• 21:22Speaker 00

  Yeah, I thought it was brave of BTC Media to do that. And that was a signal to me that the sort of like, let's say purist camp, which they'd probably identified with more. Historically, throughout the debates like that started, well, that have always existed. But in my case, like, there was a big fallout in 2021 where people got mad at me for investing in non Bitcoin stuff, right? So that was like part of the Bitcoin civil war, so sort of like Bitcoin cold civil war, maybe like it wasn't that bad. So I sort of see fractures, even in the purist camp. And now they seem very fractured. Now, we see big debates around covenants between the purists. We see, I think now, a realization has set in that ordinals

• 22:07Speaker 00

  are not going anywhere. Inscriptions aren't going anywhere. And so I think that camp has been somewhat defanged because reality has just imposed itself on them and they realized, well, this stuff is actually going to stick around regardless of whether you want it or not. So I see the kind of purist side is very fractured and not very organized, not very coordinated. And I think like the Bitcoin season tours, whatever you want to call them, like the Udis and Eric's of the world, like, very clear to me that they are in the process of winning or have won already, basically.

• 22:44David Hoffman?

  Why is it called season two?

• 22:46Speaker 00

  Well, I guess the idea is that season one was to do with Lightning and the previous big civil war, which was the block size war, which was won by the small blockers and Lightning was the output of that. Like, so much effort went to SegWit and Lightning. That was one technological, like, theme that characterized Bitcoin from 2015, let's say, when SegWit and Lightning were sort of first theorized, to 2023. I would say that was sort of the thrust. Like Bitcoin early days is just a thing people were trying to build. And then it's like, okay, scalability, how are we going to do it? Okay, we're going to do this.

• 23:26Speaker 00

  Then there was a period of slumber, you know, like, relative complacency, I would say, is Bitcoin core and application developers were just focused on Lightning.

• 23:38Speaker 00

  Now, there's been a reinvigoration, you know, partially due to ordinals and inscriptions, but also due to disillusionment with lightning as the ordained scaling method. And it's really puzzled me that lightning has been the focus for so long. It's still the focus among many Bitcoin-focused VCs, among many application developers, founders that are building infrastructure on Bitcoin, and for core devs. Like, if you look at the core dev roadmap, it's still sort of like lightning-focused. And season two is just to pose the question, hey, is there like something else we could do here? You're like, is it all lightning? Is that the ordained scaling mechanism?

• 24:22Speaker 00

  Are there other ways to do things? Are there other things we can do? And ordinals and inscriptions, I think, ordinals were invented, conceived of in late '22, maybe if I'm remembering that correctly. And that, you know, they had a big '23. And now is a new season, for sure. From my seat, I see it happening of new L2s and contemplating things like rollups. So, doing what Bitcoiners said they would always do, which is inherit the best tech from other blockchains. Let other blockchains experiment, make mistakes, learn things, and then we'll bring it over. Bitcoin is now considering, or Bitcoiners are considering,

• 25:06Speaker 00

  doing that thing that we said we would do, which is inheriting the best technology. But it does require making this heretical statement, hey, maybe lightning's not all it's cracked up to be. And that takes a lot. And, you know, obviously, people aren't going to be happy with that because we have such a sunk cost, both like intellectually and positioning-wise in favor of lightning, and a ton of capital as well. And just developer time has been sunk into lightning. It takes a lot to acknowledge that it hasn't succeeded in the way that maybe we thought it would if, looking back, we look back at the way we thought about things in 2016, 17. You have to be kind of brave to, to, you know, stick your hand up and say lightning didn't deliver.

• 25:51Speaker 00

  Also, because you never want to show weakness, but it doesn't like, look at the stats, look at the data, like the traction. Lightning is useful for some types of transactions for certain transaction niches. But it's not a panacea and it's certainly not the scaling method that's going to take Bitcoin to the promised land. It's not where, um, you know, these richly staple transactions are going to occur. It's clear to me. I think I have relatively good view into this stuff. It's time to explore alternatives.

• 26:21David Hoffman?

  And I don't think this is a, you're not alone here. There, I think there are people. If I'm remembering my Twitter timeline history correctly, there are like Bitcoin lightning developers who have stood up and been like, hey, guys. I don't know about this. Uh, I've been working on this for a while. Uh, I don't, I don't see the path forward here. Maybe you have more light you could shed on that?

• 26:42Speaker 00

  Yeah. I mean, we gave like, we gave lightning the old college try, you know what I mean? So we pass SegWit and we fix some malability bug for lightning. We fought this entire civil war and the whole point was, hey, we don't need to expand the block size. We have this alternative thing that we're going to do, which is lightning. That's going to win a scalability. Bitcoin core was lightning focused for the last five years. Hundreds of millions of dollars of VC, I know it doesn't seem like a lot, but for Bitcoin VC, it's a lot. Went into building lightning infrastructure, building applications for lightning.

• 27:20Speaker 00

  And as time went on, I think we had enough data regarding the usage of lightning and the drawbacks of lightning. We learned what some people theorize, like, I'll actually give Kyle Simon credit here. I remember him years ago saying, hey, lightning is capital efficient. UX complexity is very significant. And, uh, that's true, basically. And like, we're investors in lightning companies and I don't mean to denigrate them. I think lightning is still useful in certain contexts, undeniably. But it does, I think the time is such that we know now that these challenges are fundamental.

• 28:02Speaker 00

  As opposed to merely contingent challenges where like, oh, we haven't invested enough resources in this. We haven't sufficiently explored it. Now we know. Now we know that the challenges of Lightning are actually fundamental.

• 28:16Speaker 00

  In particular, the costs and difficulty of pre-funding a channel, that's very unintuitive from a UX perspective. The capital and efficiency of immobilizing capital in the network in order to transact. It doesn't adhere to our intuitions as to what a payment network is like. And it's very much unlike the way that people transact in a blockchain context. We know now that these are fundamental challenges that have to do with the actual architecture of the network. They're not things that can actually really be designed away. And if you look at Lightning, like, that's why probably most Lightning transactions today are custodial through custodial wallets as opposed to using Lightning itself.

• 29:00Speaker 00

  We know now that retail ordinary users are not going to just use Lightning wallets in the way that was maybe intended. We know that it's a more centralized model. There's nothing wrong with that. That's how payment systems develop.

• 29:14Speaker 00

  But yeah, I think basically we have enough data now to say it has these fundamental challenges. Let's look at something else.

• 29:21David Hoffman?

  And even Lightning, I kind of categorize as still a project that was, is trying to express Bitcoin. It's a payments network. It is just expressing it in a payments modality, like a payments form factor, which counts. But now these like season two, like innovations are kind of, are meaningfully different. Like ordinals is more about just like data, not about BTC transfers. It's about, it's about data. It's about NFTs, about JPEGs on the chain. But then, and then there's also some newer innovations going on in the VM that is actually layer twos, where maybe we can start to bring back the payments conversation, the BTC, the asset transfer conversation.

• 30:03David Hoffman?

  But I see kind of these two, not, not camps, but two different ways of leveraging Bitcoin data. One is like the NFT ordinals side of things. And then the second one is like the more further out, big, actual true Bitcoin layer twos. Is there actually a line there or am I imagining things?

• 30:21Speaker 00

  No, but I think the Bitcoin moderates like myself are supportive of both the creation and fostering of an NFT ecosystem on Bitcoin. I think there's benefits there and also alternative ways of making Bitcoin payments, ways of doing Bitcoin smart contracts.

• 30:37David Hoffman?

  Right. But isn't one more real, like the NFT ordinals thing is like undeniably real. We have the data. Like that's, no one's really questioning that. But the Bitcoin layer two is still more researchy, engineering, theoretical, correct?

• 30:49Speaker 00

  Undoubtedly. And BitVM, which is the catalytic sort of technological leap forward, which I am personally very excited about, after having spent a fair amount of time with Robin, the inventor, recently, that's still theoretical. And there's projects out there saying they're building on BitVM. BitVM barely exists, sort of still back in the napkin type stuff. And it may exist this year. I think it will exist this year, but doesn't really currently exist in a meaningful sense. But what I know about it is so exciting that I think we can make predictions about the infrastructure that BitVM enables, namely,

• 31:32Speaker 00

  I think, optimistic rollups in like sort of a true sense on Bitcoin.

• 31:37David Hoffman?

  And so, well, okay, if people are already saying that they're building on BitVM, like you can interpret that as like, well, you guys are crazy because you're building too far ahead of the curve. You're building on top of vaporware. Or you could say like, well, no, they just see where the puck is going and they're going ahead of it.

• 31:53Speaker 00

  Yeah. And look, we funded Bitcoin L2s, like new alternative L2s, like in 2021, in 23 as well, like before we knew about BitVM. But BitVM is an unlock, which is a massive accelerant. And it means you can now build an L2 without the requirement of a soft fork, which is essential because there is a power vacuum in Cordova. There have been a lot of, there's been a lot of turnover in Cordova. I don't think, people don't know about this. And the champions that would have historically championed a soft fork are not active. For one reason or another. So if you're predicating your business on a soft fork,

• 32:39Speaker 00

  it's not going to happen for the foreseeable. There's very few soft forks that actually appear likely in the next 12 to 24 months. So BitVM is great because like it allows us to sort of potentially circumvent that.

• 32:53David Hoffman?

  Interesting. Yeah. So what does this mean for the future of Core? You talked about how Core has been built like in a lightning centric design or in a lightning direction for so many years. And it sounds like that we are thinking about new directions. What do you, if these new incentives at play around the Bitcoin ecosystem play out as we are watching them play out, what do you, what do you think about, what does that mean for the future of Bitcoin Core?

• 33:16Speaker 00

  Core is pretty undeterred and, uh, you know, steering Bitcoin Core is like steering an aircraft carrier or frankly, that's not even a good analogy because aircraft carriers do move. You know, they can be stared, can stare one. Bitcoin Core moves at its own pace, which is glacial. There's of course a lot of work to make it, you know, root out bugs and keep it updated with like new operating system developments, but like soft forks. There's conversations around like covenants, but there's a bunch of different proposals. So nobody wants to really go to bat for one covenant proposal or another because there's so many and

• 34:00Speaker 00

  they're worried that they will pick the wrong one. So that's caused stasis.

• 34:05David Hoffman?

  Okay. So I have heard that there is a universal consensus that Bitcoiners enjoy covenants, except for the filter people. It's just like what you're saying is like, we need an implementation and deciding on which implementation has no consensus.

• 34:18Speaker 00

  Yeah, it's like a political consideration whereby people are worried about picking a specific approach to covenants. And there's, there's a lot. And so people are just waiting to see which one emerges, but for one to emerge, there need to be champions. And the typical champions that we had in prior years around, let's say, top route or SegWit. They're like basically retired, you know, partially due to like Craig Wright harassing all the court devs and suing them. So I don't blame anyone from stepping back or just due to general PTSD from like dealing with, with, you know, the activation of Taproot or SegWit.

• 35:01Speaker 00

  Like it's very hard to be the center of that. I think it's a very emotionally challenging thing. So yeah, we're kind of in stasis right now with covenants, which is weird because most people that are good agree the covenants are important. So it's a kind of a, like I would say, pretty frustrating situation.

• 35:20David Hoffman?

  This has probably been the first time the word covenants has been uttered on the Bankless Podcast, so we should probably define what it is. Can you, can you unpack a covenant?

• 35:28Speaker 00

  Oh, man. I would say, uh, this is like you asked me, what does ZK roll up or something? I was hoping you wouldn't do this.

• 35:39Speaker 00

  I would say a covenant is transaction where you can specify the conditions for the transaction, um, which like sounds very vague, uh, but, um, it would allow you to do things like, um, have automatic recovery. If, uh, you know, there's like a transaction which is unusual and maybe you've been hacked and like redirect your funds to a vault, um, instead, um, basically setting the conditions for transaction success initially upfront. And my understanding is that unlocks a lot of, you know, like richer transaction types.

• 36:22Speaker 00

  There's a big debate right now in sort of like the more maxi focused corner of Bitcoin around onboarding the global south, onboarding hundreds of millions, billions, fusers, the views that covenants would enable that. And, um, so there's like this class argument that's happening whereby people that are anti-covenants are, are being accused of, uh, being classist because the fees would likely be prohibitive without covenants. If you wanted to onboard the whole world or whatever.

• 36:58Speaker 00

  Even though I'm pro covenants, that argument doesn't seem very convincing to me because I think there's a number of different L twos and ways you can onboard people without requiring everybody to do sort of L one transfers. Like I think scaling through exchanges and Bitcoin banks and side chains like is a valid way to do things. So yeah, that's like a weird subplot that's happening in Bitcoin land right now.

• 37:22David Hoffman?

  Okay, so maybe like reductively covenants are just expressive transactions. It fits instead of the expressive category.

• 37:29Speaker 00

  Yeah, definitely.

• 37:30David Hoffman?

  Yeah. So what's it like being a Bitcoin VC these days? Because kind of for the same way I was talking about earlier, like the expressiveness nature of Bitcoin is just like surface area for optionality about stuff. So I'd imagine being a Bitcoin VC, I don't know, do you consider yourself a Bitcoin VC or just a VC?

• 37:47Speaker 00

  I'm just a VC, you know, I'm a VC who happens to be Bitcoiner. Yeah. And a lot of people got it twisted and they thought that I'm a Bitcoin VC. And I think that I corrected the record on that, you know, pretty aggressively back in the day.

• 38:01David Hoffman?

  Yeah, but you did it from the perspective of the angry cyber hornet Bitcoin max like fundamentalists who thought you were, who thought you were exclusively a Bitcoin VC. But when it's coming from like more of the Ethereum camp and I call you a Bitcoin VC, I'm just like, oh, he's a VC who knows all the Bitcoin deals.

• 38:19Speaker 00

  Yeah. So I'm having a great time being Bitcoin VC or like a VC who looks Bitcoin stuff because there's more stuff to invest in in Bitcoin than there ever has been actually. Like would have been the VC investments in Bitcoin historically, there was like Blockstream, there was a lot of money. There were some custodians or some exchanges miners, if you're into that. And then there were lightning application infrastructure deals. And that was a, and some, you know, some like custody stuff.

• 38:48David Hoffman?

  Nothing other than the lightning deals, nothing, none of those categories were about the actual state inside of the Bitcoin blockchain.

• 38:56Speaker 00

  That's right. They're all about service provision and like ancillary services around Bitcoin. Today, it's totally different. Something has changed. There really has been a shift. And we're seeing high quality founders that are coming to Bitcoin that are newly excited about building new infrastructures on it. And I would say specifically new L twos. From the ZK roll up perspective, EVM compatible L twos, optimistic roll ups.

• 39:27Speaker 00

  Staking, like restaking, using Bitcoin security for other blockchains. So we've been like, I would love to be more active on Bitcoin. In prior years, I would have loved to have been because that would have better aligned like what I care about with my fund. But now, really, almost for the first time, there's finally a glut of deals and high-quality founders that I feel comfortable investing in, where I think the outcomes can be really big as well and very useful to Bitcoin. So it's pretty much like the best time ever to be a Bitcoin VC, but specifically one who's open-minded and more moderate.

• 40:10Speaker 00

  A lot of the Bitcoin-only VCs ironically won't participate in this season at all, which I think is a huge mistake, but that's fine with me because they're, you know, that they're occasionally my competition. So.

• 40:25David Hoffman?

  Mantle, formerly known as BitDow, is the first DAO-led Web3 ecosystem, all built on top of Mantle's first core product, the Mantle Network, a brand-new, high-performance Ethereum Layer 2 built using the OP stack, but uses Eigenlayer's data availability solution instead of the expensive Ethereum Layer 1. Not only does this reduce Mantle Network's gas fees by 80%, but it also reduces gas fee volatility, providing a more stable foundation for Mantle's applications. The Mantle Treasury is one of the biggest DAO-owned treasuries, which is seeding an ecosystem of projects from all around the Web3 space for Mantle. Mantle already has sub-communities from around Web3 on-boarded, like Game7 for Web3 gaming and Bybit for TVL and liquidity and on-ramps. So if you want to build on the Mantle Network, Mantle is offering a grants program that provides

• 41:09David Hoffman?

  milestone-based funding to promising projects that help expand, secure, and decentralize Mantle. If you want to get started working with the first DAO-led Layer 2 ecosystem, check out Mantle at mantle.xyz and follow them on Twitter at ZeroXMantle. Arbitrum is the leading Ethereum scaling solution that is home to hundreds of decentralized applications. Arbitrum's technology allows you to interact with Ethereum at scale with low fees and faster transactions. Arbitrum has the leading DeFi ecosystem, strong infrastructure. flourishing NFTs and is quickly becoming the Web3 gaming hub. Explore the ecosystem at portal.arbitrum.io. Are you looking to permissionlessly launch your own Arbitrum Orbit chain? Arbitrum Orbit allows anyone to utilize Arbitrum's secure scaling technology to build your own Orbit chain,

• 41:53David Hoffman?

  giving you access to interoperable, customizable permissions with dedicated throughput. Whether you're a developer, an enterprise, or a user, Arbitrum Orbit lets you take your project to new heights. All of these technologies leverage the security and decentralization of Ethereum. Experience Web3 development the way it was always meant to be. Secure, fast, cheap, and friction-free. Visit arbitrum.io and get your journey started in one of the largest Ethereum communities. Cello is the mobile-first, EVM-compatible, carbon-negative blockchain built for the real world, driving real-world use cases like mobile payments and mobile DeFi. And with Opera MiniPay as one of the fastest-growing Web3 wallets, Cello is seeing a meteoric rise with over 300 million transactions and 1.5 million monthly active addresses. And now, Cello is looking to come home to Ethereum as a Layer 2.

• 42:37David Hoffman?

  Optimism, Polygon, Matter Labs, and Arbitrum have all thrown their hats in the ring for the Cello Layer 2 to build upon their stacks. Why the competition? The Cello Layer 2 will bring huge advantages like a decentralized sequencer, off-chain data availability secured by Ethereum validators, and one-block finality. What does that all mean for you? With Cello Layer 2, gas fees will stay low, and you can even pay for gas natively using ERC20 tokens, sending crypto to phone numbers across wallets using social connect. But Cello is a community-governed protocol. This means that Cello needs you to weigh in and make your voice heard. Join the conversation in the Cello forums. Follow Cello on Twitter and visit cello.org to shape the future of Ethereum. Yeah, maybe another way to kind of like define the landscape here is that like all those like Bitcoin deals that you talked about,

• 43:21David Hoffman?

  the miners, the service providers, the exchanges, custodians, those are all like exogenous to Bitcoin. They're all like looking out at Bitcoin from the outside. And one of the things that like, one of the reasons why I kind of like skipped over Bitcoin and went straight for the Ethereum world was because like I saw the internal endogenous side of Ethereum, and that just kind of nerdsniped me that something that Bitcoin didn't have. Like, we had internal DeFi. We had our own exchange, it was called Uniswap. We had our own money market, it was called Compound. And that internal side of things was just like the exciting thing to me. And that's the thing that like Bitcoin has never really had. Even with Lightning, you can barely really call that internal, even though it is about, it does have some semblance of like statefulness about Bitcoin.

• 44:05David Hoffman?

  But I think really this whole explosion of ordinals, the fact that it exploded so quickly. And then it's also been followed on by even more akin innovations. I kind of think it just alludes to like the amount of like latent potential energy. There is demand for like an internal endogenous side of Bitcoin that has ever been able to be expressed before.

• 44:27Speaker 00

  Yeah, the conditions today are very suitable for that to finally be built. Like Ethereum has built a lot of this stuff. We know now, after a lot of these experiments on Ethereum, that some of these architectures work like optimistic rollups. I think we have enough data to consider that to be like a successful technology. We have this hot ball of money that's a lot of its relatively new entrance to Bitcoin. Focus on ordinals and inscriptions and BRC 20s, which is like silly as BRC 20s are. That's a proof point to people that people are willing to go through the brain damage of using Bitcoin itself. If they think they can make money.

• 45:10Speaker 00

  And a lot of that's capital from the east, actually. And so that's another catalyst that makes builders think that they can attract liquidity in capital. Then you have the general excitement around Bitcoin with the rally, which is more of an ETF thing. And the halving, which I don't think matters, but other people think it matters. And so there's like new enthusiasm. There's a wealth effect in Bitcoin, maybe, okay, some people that are big Bitcoiners are going to be willing to, you know, do interesting stuff when one of these applications get built. And very importantly, there's disillusionment among Lightning, among people that are sort of brave enough to make that assertion.

• 45:54Speaker 00

  So those catalysts are coming together to create like a perfect storm, basically, for actually funding new infrastructures on Bitcoin and getting the capital to make them worthwhile. And there have been sidechains on Bitcoin in the past, like Rootstocks and Sovereign and Stacks, I would say represented itself as a sidechain and considered a true sidechain, but they didn't have the right catalyst. The timing wasn't right. The timing is right now. And for that reason, it's a very exciting time in Bitcoin, despite, you know, all the main stuff that I just said about it.

• 46:31David Hoffman?

  There's a meme that Chris Berneski put out there about Bitcoin, which is like Bitcoin is like soap. The more you touch it, the less you have of it. And I saw a retort to that meme, which, which is like ETH is like soap. You should probably use it every single day, which is like, it has a lot of utility and you can do stuff with it. And that's why it's valuable. And so long as I've been watching Bitcoin, Bitcoin has always been just like, you know, stack sat, stay humble, grow your Bitcoins, don't touch it, you know, put it in cold storage, you know, low cost basis, no touchy, hands off. And that's been paired well nicely with like the lack of expressivity up on, in Bitcoin up until this point. But now like,

• 47:12David Hoffman?

  there's a, there's a friction there where there's a lot of ordinal stuff and some people are like very happy to go start playing with their Bitcoins and start playing in the ordinals land. But in terms of the total market cap of BTC, the $1 trillion, I'm going to still guess it's a large minority of total capital that's like playing in ordinals expressive Bitcoin land. And so in really in order to get this endogenous side of Bitcoin fully expressed, we're going to need to like, kind of change the culture of some of that no touchy Bitcoins, that cold storage, deep cold storage Bitcoins. I mean, like, we can have both, but like, there's still like, there's still like a cultural divide here between like the come play with me Bitcoin and the deep cold storage Bitcoin.

• 47:57Speaker 00

  Yeah. And also the UX of like doing interesting stuff on Bitcoin has been challenging in the past, but I think that'll change. The Ordinals thing has catalyzed the creation of new wallets, better transactional experiences as well, which is really important. The major exchanges seem to care about it. Again, they're building like dedicated wallets and tools and things like that. They're realigning themselves with Bitcoin. So I feel good about it. I think the infrastructure is getting there. There's a lot of work to do. But yeah, I think overall, it's a pretty good time in Bitcoin.

• 48:31David Hoffman?

  What else in Bitcoin world is exciting to you?

• 48:34Speaker 00

  Well.

• 48:34David Hoffman?

  What else is worth bringing up?

• 48:36Speaker 00

  I mean, I think BitVM is the key thing. You know, I was writing some internal notes for my team recently about like what I care about. And I think BitVM enables optimistic rollups on Bitcoin. Under the, you know, caveat, the security assumptions are at least one validator in the set or a sequence or whatever you want to call them has to be honest. Plus miners have to not censor the fraud proofs. The first, both of those caveats, I think are fine. But this is another conflict of visions. Bitcoiners tend to lionize the perfect at the expense of

• 49:17Speaker 00

  the good. And I think Ethereum's are the opposite. They will iterate faster and pursue merely very good things and not try for perfect things. And a lot of Bitcoiners get lost in these conversations because they look at that assumption that miners aren't going to create a cartel of whatever 51% of hash rate and start censoring. And they think, well, it's not perfect. But that's fine with me. I know it's I'd be, I find it very far fetched that miners would decide to censor fraud proofs if there was an optimistic rollup. Like, first of all, it would be very hard to get that many miners together. If a pool started misbehaving, people could immediately defect to a different pool.

• 50:01Speaker 00

  And miners are structured along Bitcoin anyway. So why would they want to harm Bitcoin? I always found that incredibly far fetched that people consider that a showstopping objection. So my understanding is that BitVM could be out as early as mid-year. And I know that there's a lot of optimistic rollups that are being built at the moment, being funded and being built with the intention of rolling out in 2024. And I think that changes things a lot, including from the investor perspective, like the Wall Street finance people, like Main Street allocator types that are buying the ETF. I don't think we can coast on the ETF like excitement forever.

• 50:45Speaker 00

  Like, these people care about the technology. They don't maybe care enough to like dig into like how Bitcoin Core works or whatever. But they do, when they're making their allocative decisions, care about the vibrancy of the network. And if it's a total ghost town that nobody uses, I think there'd be concern about it. They'd be like, okay, am I just buying like a pet rock type thing? Like, can I really justify this? So I think you always do have to show, even if it's simply just for optics reasons, you do have to show technological development and like a positive vision of the future and a way in which this thing could become a dominant sort of transaction method and a network that people actually use.

• 51:30Speaker 00

  So I think the technology and the sort of like financialization of Bitcoin are intertwined. And you can't have one without the other. And, you know, as we move into this like intermediate term with ETF flows and things like that, these allocators will continue to ask themselves, like, is there interesting stuff happening on Bitcoin? Why Bitcoin as opposed to any other blockchain? And just being the only blockchain with an ETF or any, you know, the only crypto asset with an ETF, I don't think is sufficient. So we do have to continue to show that there's like actual technological developments happening.

• 52:08David Hoffman?

  Isn't the internal expressive endogenous side of Bitcoin kind of like the spiritual successor of the big blocker spirit?

• 52:17Speaker 00

  Well, I was a small blocker and I believed in that approach. I don't know, maybe. I think the big blockers were wrong in that they felt that merely by adding block space would be sufficient to get Bitcoin to be adopted as a payments network. Like, that was always the argument they made, like, okay, how are we going to onboard millions of people in the global south if the blocks are one megabyte or whatever? Now they're four megabytes. I don't think that was true because I don't think the block size was a constraint.

• 52:52David Hoffman?

  Right.

• 52:52Speaker 00

  At all. The constraint there is like, is there interesting stuff to do with it?

• 52:59Speaker 00

  You know, and I always felt, and also the other constraint is like, people don't really want to use Bitcoin to transact with for like tax drag reasons and like, because people would rather transact with dollars, right? That's another thing the Bitcoin community has been really slow on the uptake about, which is stable coins. So I think they were wrong for other reasons.

• 53:20Speaker 00

  And I see like the notion of other L2s, like rollups, I think that those are actually consistent with like even the lightning philosophy, which is execute computation off-chain and then periodically sort of batch state and register it on-chain. Like, I think that's the best way to do scaling, right? And I think Ethereum has that in common with Bitcoin, frankly. And like the Solana vision, the monolithic vision is the competitive vision. So I tend to think the rollups and like other types of sidechains and L2s are still consistent with like the dominant philosophy within Bitcoin. But it's going to take a lot of convincing to get the sort of like lightning crowd to sort of agree with that.

• 54:06David Hoffman?

  Yeah, I kind of think the reason why I asked this question is like, the big blockers, I agree, were like wrong in their implementation, but not necessarily wrong in spirit. And this is actually kind of like my overall critique of Bitcoin as a system. And like, when we opened up this conversation, I was like, oh yeah, Bitcoin ideology. But like Bitcoin, the blockchain as a product, as an execution incorrect. And Ethereum is correct. This is like my like high level view of the of this of the system. And but like small blockers, I've always thought like have the right ideology, the right design for how you build a base layer. But then the big blockers are what you want to build on top of that.

• 54:48David Hoffman?

  And so the big blocker philosophy to me is just like, we can do more with our block space. We can do more with our Bitcoins. And the small blocker philosophy is like, we need to preserve base BTC transfers peer to peer at all costs, including the cost of like being able to do more with our Bitcoins. But then, of course, we have like innovators and, you know, innovations and progress where we can we can have both. We just have to figure out how to get there. And so right now, like the the small blockers won, like we had this, we have the small block size on Bitcoin. But the big big blocker spirit is now returning with Bitcoin expressivity, BitVM, layer twos on Bitcoin, ordinals using Bitcoin for data.

• 55:30David Hoffman?

  And now we are seeing like a harmony and alignment between these two philosophies that's kind of creating some sort of like greater than the sum of its parts, which is like all you can see when you see like statefulness, vitality, vibrancy, like you've said, VC investment, content production coming around to Bitcoin. And all of a sudden, like this is kind of what you get when you align people's incentives, align people's ideologies, and you can make them both work inside of the same constraints, which is just Bitcoin. That's kind of my like landscape definition here.

• 56:01Speaker 00

  Yeah, and I would say like, I do perceive that as well. And I think the fundamental disconnect is between people that pursue layered scaling as the model and want sidechains and, you know, L2s and things like that. And between people think that you can just sort of arbitrarily increase the data throughput.

• 56:22Speaker 00

  And that's like the monolithic versus modular debate, I guess, although Bitcoiners wouldn't call it that. And from that perspective, I think Bitcoin and Ethereum are on the one camp. And then like Solana and Aptos, etc., are in the other one. But yeah, it just took Bitcoin a lot longer to realize that there should be more than one scaling solution. Like the comparison I draw, I'd be like, The sort of intellectual rot and stagnation that occurred in Bitcoin would be like if Ethereum was still trying to do Raiden, like if it was just Raiden.

• 57:02David Hoffman?

  The percentage of listeners that know what Raiden is is like below 1%. Raiden was basically Lightning Network on Ethereum.

• 57:10Speaker 00

  Yeah, you have such little faith in Bankless Nation.

• 57:15David Hoffman?

  We have just like never talked about Raiden on the podcast before.

• 57:19Speaker 00

  Okay, okay. I know that's such a deep cut reference.

• 57:22David Hoffman?

  That was a deep cut, yeah.

• 57:25Speaker 00

  But think about that, like if all of ETH core dev in the year of our Lord 2024 was still focused on Raiden or for another like Plasma, maybe for instance, or Plasma Cash.

• 57:37David Hoffman?

  Plasma is probably right, yeah.

• 57:39Speaker 00

  So like you just have to iterate and like even leaving all the details aside, obviously a system that is adaptive beats a non adaptive system. Like that's obviously true. Like you can't be completely static in a world that changes. Bitcoin has endeavored to be static for five to seven years now. Clearly, we need to be empirically driven, look at data, evaluate whether things we're doing are working, and change accordingly. But we haven't. We've been so stubborn. We've been very like a priori driven, like non empirical. And that's like my main critique of Bitcoin is is they actually reject empiricism a lot of the time.

• 58:24Speaker 00

  They reject data because they view a lot of this data or these observations as like immoral things to say. Like, stablecoin is another side of that debate. Like for years now, I've been saying, hey, stablecoins have traction. But in 2020, I wrote a paper called Crypto Dollars, and I said, wow, stablecoins are doing 30% of all value settled on blockchains, and that's growing linearly. I refreshed that last year in 23. It's now 70, 80%. All value settled on blockchains is 70, 80% of that is stablecoins. And so on that basis, I said Bitcoin is losing the medium of exchange war, right? Which is true. It's a true fact, right? Bitcoin has actually been displaced as sort of the crypto native collateral.

• 59:09Speaker 00

  It's not the thing people use to collateralize on exchanges anymore. It's not the medium exchange. It's certainly lost unit of account battle, right? You don't quote your positions and units of Bitcoin the way you used to, right? And I went and I said this to the Bitcoin community. I said, stablecoins are winning. What's our stablecoin strategy? Like, stablecoins are the killer app of crypto. Is Bitcoin going to benefit from this? Or is Bitcoin usage going to be cannibalized by stablecoins? And Bitcoiners said to me, they said, well, actually, you need to extend your time horizon. Like, this data is irrelevant. Ignore the data because, you know, decades from now, people will not use the dollar. They'll use Bitcoin to transact with. And I said, well, I don't care about decades from now.

• 59:53Speaker 00

  You know, forgive me, but I care about today. I care about years from now. I don't care about some idealized future state that you think will happen, but is very indeterminate, in which dollars don't exist anymore. And everyone has to use Bitcoin because dollars have, you know, gone, they've like exploded or whatever, hyperinflated. So like, that's another conflict of visions, which is like, I'm data-driven. I have to be. It's my job. Like, we allocate for a living. We have to look at where, you know, the puck is going. We have to be dated, like, reality-driven. But there's a lot of resistance to that in Bitcoin, which is the same resistance to lightning.

• 1:00:37Speaker 00

  Like, you know, lightning is a very telling example. Like, the lightning throughput, like, there's a big debate on Bitcoin Twitter about lightning right now. And the lightning throughput is like, at most, one to $2 billion a year, in terms of value settled, right? And you could say, oh, well, you know, it's a lot of individual transactions. Like, it's, you know, useful for like, social media and content monetization applications, which is true. But the fact is, it's probably one to $2 billion. And Bitcoiners will say, oh, you're excluding private channels. That's fine, but that's not like orders of magnitude more than what's measurable. Stable coins, you probably know this, stable coins in 22 settled around $10 trillion

• 1:01:20Speaker 00

  worth of value. That's roughly the same as Visa. And they're probably going to do the same in 24. It was a little bit down in 23. $10 trillion versus $1 billion is 10,000 times more. 10,000 times more. So like, how can you not look at that and think to yourself, maybe like, we missed a trick here. Like, maybe we need to figure out how to harmonize and synergize Bitcoin and stable coins. Like, what's the strategy? But there's a general refusal and a rejection of that type of reasoning, because stable coins are like immoral, or wrong, or bad, or whatever. I will say, though, some Bitcoiners are now coming around to

• 1:02:04Speaker 00

  the notion of stables, and like, there's attempts to like, bring them onto Bitcoin in various ways. But yeah, that's like, another frustration I have, is this like refusal to be data-driven in the Bitcoin space.

• 1:02:14David Hoffman?

  If I'll put on like, my Bitcoin fundamentalist hat, which never, ever goes on.

• 1:02:19Speaker 00

  I don't think you own that hat.

• 1:02:22David Hoffman?

  I don't own that hat, that's for sure. But like, isn't there one perspective of like, a slippery slope concept here, where like, okay, we let ordinals in, but then, but then we're going to do layer twos. And then if we do layer twos, they're going to put stable coins on the layer twos. And then if we let, if we do those things, and we'll do, have to do even more things, and then even more things will happen on Bitcoin. And then, all of a sudden, like BTC and BTC transfers are just like, a complete afterthought of the Bitcoin blockchain. And like, why are we even here in the first place? What would you say to this philosophy?

• 1:02:54Speaker 00

  Yeah, I mean, I think there's just like, a general fact, which is that people prefer dollars for settling transactions, for collateralizing positions, and that applies to Bitcoin, that applies to every other crypto asset, for that matter. Like, it applies to Ethereum, applies to Solana. I think that's just a fundamental challenge, that all native crypto assets need to be able to deal with, which is, dollars are cannibalizing L1 assets. There's like, what, I mean, at a kind of a slow rate, I mean, there's $137 billion of stables, and there's, what?

• 1:03:35Speaker 00

  1.5 trillion, $2 trillion of sort of like other stuff in crypto.

• 1:03:42Speaker 00

  But that's just like a fact. I mean, I think I wrote a piece for your newsletter a couple of years ago about this, like, destabilize coins threaten like L1 tokens. I think they do. I think you have to rise the occasion. You have to find a way to make them actually benefit the protocol itself.

• 1:04:03David Hoffman?

  Well, I'm less asking about specifically stable coins, and I'm more asking about like, what happens if you let Bitcoin expressivity go too far? And it actually like pushes out BTC monetary maximalism, right? Like, it's like a slippery slope of like, you know, you let the you let the ordinals in, you let the call data in, you let the NFTs in, then you let the stable coins in, then you let the layer twos in, and then when does the shit coinery stop? Like, when when do we actually start to enshrine and preserve the sanctity of BTC and BTC transfers? Then maybe if like a Bitcoin fundamentalist was here, maybe they would, this is like the perspective that they might have.

• 1:04:42Speaker 00

  Yeah, I guess like to refine the question, it's like, is the SOV use case of Bitcoin sufficient or like, does it have to have Moe? Does it have to be a medium of exchange for it to win? Many Bitcoiners will say yes. I don't think it does. I don't think it does. Like, I think SOV is sufficient. And I think what you have to do is to find a way to, so like, first of all, none of the shitcoinery, et cetera, interferes with Bitcoins monetary properties. Like, no like random ordinal meme coin that you make makes Bitcoin have more than 21 million units, doesn't change the monetary policy that's set in stone. My view is that that improves the monetary properties of Bitcoin,

• 1:05:24Speaker 00

  because it creates this fee pressure, which is a source of revenue for the miners, albeit still a small one, which then ultimately

• 1:05:35Speaker 00

  like replaces the subsidy for like, as the form of revenue for miners, which is necessary in the long term. So I think all activity types on Bitcoin.

• 1:05:47Speaker 00

  Benefit Bitcoin from a monetary perspective because they create vibrancy and fee revenue that enhances the security of Bitcoin. So I don't think you can complain about it too much. People might say, well, yeah, you are displacing Bitcoin as a medium of exchange. I think that's already happened, though. And I think I have a hard time imagining a world in which Bitcoin is like a very widely employed medium of exchange, mainly because like sovereign nations privilege their own currencies over transactions and other currencies. So like for tax reasons, it's like basically the case everywhere. You don't want to be doing all this complex accounting when you're doing a Bitcoin transaction. You're like determining

• 1:06:30Speaker 00

  what your cost basis is and like doing your tax accounting there. And, you know, there's a foreign exchange risk. Like if I'm transacting with you, I don't want volatility to be like changing the value that I'm transacting in real time. So I think we actually need to sort of like concede defeat on the medium of exchange front. And like, maybe it'll happen years from now, but I don't see it going in that direction. I see it going in the other direction. And I think we can acknowledge that the SOV use case is sufficient. Like, gold is not something that people routinely transact in, but it's something that people own a lot of, right? Like, gold's market cap is like 11, 12 trillion, right? People

• 1:07:12Speaker 00

  don't habitually make gold transactions. Like, so Bitcoin can be a very useful SOV. Maybe you can issue stablecoins against Bitcoin and then unite the both camps. That would be one way I would see that, you know, we can have an SOV in an MOE that's sort of like benefits Bitcoin while acknowledging that people aren't going to probably use Bitcoin for transactions that often.

• 1:07:40David Hoffman?

  One thing I do appreciate about Bitcoin, the protocol is like how kind of like shooting from the hip here, just like how naked it is. It's just like, it's unlike like Aptos, Sui, Solana, like all these new layer ones, they're all, they're all like engineering and technology constructions, but Bitcoin is like, because it is what it is, it's just, there's a lot more ideology conversations to be had around Bitcoin. It's like a surface area for like ideological conversations of this. And this is something that I think is kind of like lost with these newer entrants that came in 2021 and beyond who went straight to the smart contract platforms rather than the newer entrance that went to Bitcoin. It's like they're missing like, I think a large part of these

• 1:08:23David Hoffman?

  like big blocker, small blocker philosophy debates. And Bitcoin, I think really inspires a lot of that. It's always been like my biggest interest in the Bitcoin space and definitely why I always enjoy bringing you on and having some of these conversations. Cause I think like understanding some of the, the more philosophical reasons about like how these things are built, why they're built and who they attract and where they're going. I think is like some of the most rich conversations there are to be had in this space.

• 1:08:48Speaker 00

  Yeah, the, I mean, like the ideology is a shield, but it's also like an autoimmune disorder. I think Ha Su coined that, right? So like it's an immune system and it protects Bitcoin from being debased and changing into something totally radically different. That's fine. I totally accept that. But at the same time, it's also like very off putting to a lot of people that are active in the Bitcoin space. And these days, like people that are building on Bitcoin tend to try and ignore the like excesses of Bitcoin ideology. And so I do think that like the more far reaching, you know, claims made that are part of the like Bitcoin, you know, liturgy or whatever.

• 1:09:32Speaker 00

  I think they're not negative, but I do still acknowledge that.

• 1:09:38Speaker 00

  There is a strong ideological grounding and it's probably pretty useful in terms of like keeping those core considerations alive.

• 1:09:46David Hoffman?

  Yeah. Nick, this has been fantastic. Thanks for joining me today.

• 1:09:50Speaker 00

  Thanks, David.

• 1:09:51David Hoffman?

  Cheers.