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00:12:13.000You know what's the best thing about the internet is that it's a dumb network.
00:12:17.000It transmits information from point A to point B, and it doesn't care what that information is.
00:12:23.000So if you come up with a new idea, a new application, and you stick it on the edge of the network, you can transmit that information to anybody else.
00:12:30.000And there's a cherished principle behind it, net neutrality, that you don't prioritize your content instead of somebody else's.
00:12:37.000You allow equal access to all for all content.
00:12:51.000And that's what I'm here to talk about today because they didn't need to ask anybody permission and they launched Bitcoin and it happened.
00:12:58.000And now that it's here, it's enabling other people to launch money applications on the internet and it's going to fuel the internet even faster than we've seen before.
00:13:09.000Yeah, this is a very strange time in that there's actually people that are starting to accept Bitcoin, one of the first cryptocurrencies, for solid objects.
00:13:20.000Like Tiger Direct is starting to accept Bitcoin for computers.
00:13:24.000You can order a computer on Tiger Direct from fucking Bitcoins, and they'll send you a goddamn actual computer that you can get online with.
00:14:06.000For people that are completely on the outside on this, and they're listening to this podcast, and they're like, what the fuck is he talking about?
00:14:59.000So that means Joe has a tenth of a Bitcoin.
00:15:01.000And simply based on that, you can move money around.
00:15:05.000There's a lot of security and some complex math, but basically Bitcoin is a standard.
00:15:10.000It's an agreement on how to exchange money on the internet, just like the web is a standard on how to create pages and view them in a browser.
00:15:17.000There's a lot of skepticism when it comes to Bitcoin.
00:15:21.000I've spoken to people that are financial wizards that are skeptical, and I've spoken to people that have just looked into cryptocurrencies because of the rise of the popularity of Bitcoin.
00:15:44.000There's all these different arguments about why.
00:15:47.000Do you think that what we're seeing with the rise of Bitcoin is instead of just addressing all these financial concerns and all these people that are used to the current market and the place that it's at right now, the standards, the way they run things,
00:16:04.000Instead of that, Bitcoin just creates a completely new, network-driven, community-driven money.
00:16:49.000Money has existed for tens of thousands of years.
00:16:52.000Going back to shells and feathers and knots on string and giant rocks in the Polynesian Islands and then through the Iron Age to minted coins stamped with Emperor's faces.
00:17:04.000This stuff has been part of our culture for tens of thousands of years.
00:17:07.000As a result, it's no longer just technology.
00:17:11.000You are steeped in it from the moment you're born.
00:17:15.000You acquire certain notions of what money is and how it works.
00:17:19.000You think the current system by which money works is the only system because we've had it for thousands of years.
00:17:26.000Even in computer science, the idea of getting distributed computers to agree on something without cheating, we thought that problem couldn't be solved until 2008 when the invention behind Bitcoin solved that problem and created a new way of doing money.
00:17:41.000It's going to take a lot of time to understand it, primarily because people don't really understand money as it is today.
00:17:58.000I've watched documentaries and I don't understand it.
00:17:59.000Most of the people when they first face Bitcoin they start asking questions about money and it quickly becomes apparent to all of us when we do this that we don't know much about money so then we learn about money and we start reading about money.
00:18:11.000But you know it's very much part of the culture to the point where I'll talk to people about Bitcoin and they'll say well it's not backed by gold so how can it have value?
00:18:20.000The dollar hasn't been backed by gold for like 60 years.
00:18:24.000And you talk to the average person in the street and they still think there's some gold in a vault and that stuff doesn't exist.
00:18:30.000What happened to all the gold in the vault?
00:18:39.000For decades and all of the currencies in the world are created based on the productive capacity of the country and the legal system and because they have value because you pay your taxes with them and then they just float freely in exchange rates so they vary against each other and because the dollar is used to buy oil it's the world reserve currency and all the other currencies are measured against it but there is no gold and that's fine that doesn't mean it doesn't have value it absolutely has value That fucks up a lot of old action movies man It really does.
00:19:09.000Those movies where you would break into the vault?
00:19:15.000Well, the thing is, gold isn't that efficient for building a currency on, because the rates at which you can produce gold is fixed, and it's hoarded, and, you know, you have certain problems.
00:19:26.000Now, the nice thing about Bitcoin is that it takes the same concept of scarcity, of having something that is a limited resource, but it does it by algorithm.
00:19:37.000So you essentially have math that says that every 10 minutes 25 new Bitcoin is created, by the network as a whole with all of the computing capacity of the network and that's fixed and every four years we create half as much every 10 minutes so in four years it goes down to 12 and a half Bitcoin every 10 minutes and then it goes down to six and a quarter and it keeps going down until you mint the last Bitcoin and then you're done 21 million coins it's done and the idea is that you provide a sound basis for money
00:20:07.000something that is rare cannot be forged is easily transportable and that is the form of currency So 21 million bitcoins and then it's over?
00:20:40.000Well, I think part of the reason is that it's easier to write a number without a decimal point and just to write a smaller unit with lots of zeros after it.
00:20:50.000It's easier in computer terms to handle numbers that way.
00:20:53.000But most importantly, it doesn't matter because what you see on your screen at today might be a Bitcoin.
00:20:58.000Actually, on my wallets, I use Millibitcoins, thousands of a Bitcoin because it corresponds more to my daily purchases.
00:21:05.000Maybe a few years from now, you're going to be using a millionth of a Bitcoin to look at your balance.
00:21:10.000It doesn't matter what you call a unit.
00:21:12.000The point is, what value does it have because someone else is willing to give you that amount of money?
00:21:18.000Right, but we have this established ideal in our head of what a dollar is worth.
00:21:25.000We have this idea in our head, and that idea will be completely out the window when you start talking about millions of Bitcoins and trying to...
00:21:33.000How much is a laptop from Tiger Direct?
00:21:35.000If I buy a laptop, is it 200 millionths of a Bitcoin?
00:22:43.000So this is a lot broader than just the US dollar.
00:22:45.000It's not just a matter of, is this going to be comfy for consumers?
00:22:49.000This can bring people from countries that have extreme poverty, extreme problems, that are not necessarily based on a lack of technology, that have phones that can use Bitcoin, for example.
00:23:01.000But because of politics, they're trapped in this situation.
00:23:03.000Recently, I was in Argentina, in Buenos Aires, and now they're having an even worse currency crisis.
00:23:30.000So Bitcoin is a lot bigger than just, you know, a consumer thing for here in the US. How would someone get Bitcoins from those environments?
00:23:37.000Like, so let's say you're in some poor third world country with a really incredibly corrupt system and fucked up economy.
00:23:44.000How does someone from that environment get a Bitcoin?
00:23:49.000Well, so even in Argentina, for example, which is not a, you know, it's a second world country that was once the, you know, the Paris of Latin America, and it's still a beautiful place.
00:24:00.000But it has these difficult political problems.
00:24:03.000It's illegal to trade on the black market dollars for pesos, right?
00:24:08.000So you can't go in and if you're a tourist and say, okay, I'm just going to give some dude on the street 200. That's illegal.
00:24:13.000And yet, on every street corner, there's someone who will sell you pesos.
00:24:16.000And last time I went, I just asked them, will you take Bitcoin?
00:24:33.000But if you travel abroad, you see this all the time.
00:24:36.000Most places in the world, the official currency rate versus the one you can get from a corner, a street seller who is selling vegetables and the local currency for dollars.
00:24:48.000You can do that in so many countries in the world and for them it's a normal thing.
00:24:52.000Now, this novel idea of this new currency, is this something that anyone right now is living off of?
00:25:00.000Is anybody getting paid by Bitcoin and paying their rent by Bitcoin, buying their food with Bitcoin?
00:25:06.000So, first of all, my income is entirely Bitcoin.
00:25:14.000Before that I just didn't have as much income because I've been working on Bitcoin to a level almost obsession because it's such a fascinating technology for me and as someone who works in security and distributed systems this is a once in a lifetime opportunity to be involved in something monumental just like when I was involved in the early days of the internet as a young scientist and now I can do it again With Bitcoin.
00:28:24.000So I have printed pieces of paper with Bitcoin keys on them, and I make two copies, and I put one in a safe, and I put the other in a safety deposit box, and I send Bitcoin to those wallets, and then I basically have my Bitcoin sitting on paper in a bank.
00:29:18.000The straightforward one, if you come from the old banking-style world, is you open a brokerage account on a virtual currency exchange that will exchange dollars, yen, euros, whatever, to Bitcoin or even some other cryptocurrencies.
00:29:35.000And then you can go there and you can wire transfer, you know, using your bank account.
00:29:40.000You can wire transfer money into the brokerage account as you would to buy IBM stock.
00:29:44.000You wire some money to your brokerage and then you buy some IBM stock.
00:29:48.000Well, here you wire some money there and you buy some Bitcoin with it.
00:30:17.000Yeah, because the thing is, it's one of the skills they have, right?
00:30:21.000They also have the physical locations and branches to sell Bitcoin.
00:30:25.000And before long, what we're going to see is the same thing that happened in the entertainment industry when MP3 hit the scene.
00:30:31.000At first, everyone was like, whoa, we don't want to even touch this.
00:30:35.000And then somebody started thinking, hey, if I start playing with this before everybody else, it's going to hurt all of us, but it's going to hurt me less, and I can start taking advantage.
00:30:44.000And they peel off the herd, and boom, you have adoption.
00:30:47.000And I think the same thing is going to start happening with banking.
00:30:51.000Some of the banks, perhaps not the big six U.S. banks, they've got a nice, comfortable $70 billion a month from the Fed right now.
00:31:01.000But maybe one of the more nimble banks, maybe, you know, in a country like Cyprus, that's been hit hard by these bail-ins, and you have a very open banking environment.
00:31:11.000Maybe Singapore is going to decide this is a good strategic move.
00:31:53.000So this is where it gets a bit more complicated, but keep in mind, the internet in 1992, you had to know Unix command line skills to send an email and it took two days to cross the network.
00:32:05.000We can get simpler and easier for most people over time, but it's still a bit geeky, so I'll get into it.
00:33:21.000In 2008. 2008. The paper came out in 2008 and followed shortly thereafter by the code.
00:33:28.000The discussion actually lasted about a year as he was mulling this over and discussing it.
00:33:32.000Keep in mind, digital money is not new.
00:33:35.000We've been doing digital money since probably the mid-80s.
00:33:38.000I think the first notable one was David Cholm's Digicash.
00:33:42.000He created a form of digital money using the new technology of cryptography at the time.
00:33:49.000Cryptography is a way of scrambling and unscrambling messages and doing digital signatures and using mathematics to prove things basically on computers.
00:33:59.000It's also what you use to protect your browsing session when you connect to your bank and it puts that little lock that's using cryptography.
00:34:26.000You have to have some kind of central authority that checks to see that you don't spend it twice.
00:34:31.000And so he put some servers together and they could handle all of the transactions and make sure nobody spent the money twice and issue the money and do all of the kind of Federal Reserve Central Bank functions and then ran it on the network and it worked.
00:34:45.000Unfortunately, if you have a central server and you try to go against the banking system, they stomp on you.
00:35:10.000How do you ensure that the network remains trusted and honest?
00:35:15.000Without having someone in the middle who checks everything, an authority.
00:35:20.000How do you put trust not in an institution or central authority, as most hierarchical systems work, but spread that trust across the whole network?
00:35:29.000And in 2008, Satoshi Nakamoto solved that problem.
00:35:32.000And he solved it by putting together four or five ideas that each of them had been done somewhat before, but he put them together in an incredible combination that just worked and worked beautifully.
00:35:45.000What the system does is it forces everyone who's participating on the network to do a bit of computing with their system, which is called mining.
00:35:56.000If you just have a wallet, you don't do this, but if you want to be part of the Bitcoin network as a miner, what you do is you run on a specialized computer, and it solves this very difficult problem.
00:36:53.000It's basically an entry on the ledger.
00:36:59.000As I mentioned before, there's a central transaction ledger where you can see everybody's transactions.
00:37:08.000In order to write on that, in order to create a new transaction that the entire network trusts, you have to solve a very difficult problem.
00:38:48.000This is, if I'm not mistaken, this is a liquid cool rack system For folks who haven't seen this photo, if you're listening to this, which is the majority of our people, what are they Googling, Brian?
00:40:06.000Alright, let me give you an argument for why that might actually make sense.
00:40:10.000If you're a sex worker, one of the problems you will have is you're going to get extorted and exploited for that money, and you're not going to keep any of it.
00:40:21.000With a Bitcoin wallet, you can basically hide that money, and you can also take it in a way that cannot be taken away from you, not easily.
00:40:30.000All you have to do is take your phone.
00:42:23.000I just found out, yes, it's being used for prostitution.
00:42:26.000The first one was September of this year, or last year, Passion VIP and Escort Agency in England says they now have accepted Bitcoins as payment.
00:42:36.000Godspeed to you, Passion VIP in England.
00:42:42.000But let's separate ourselves from such controversial talk, because this could really screw people up, their idea of what Bitcoin really is.
00:43:24.000But the beauty of it is that it can, at the moment, if you think about it, there's, let's say, a billion people in the Western world who have not just banking facilities, but like turbocharged power banking.
00:43:45.000There's another maybe two billion people who have a basic bank account, and then there's the rest of them.
00:43:52.000The giant majority of the population on this planet has very limited access to banking, very limited access to international finance, to lending, to capital, to the ability to even change their money to another currency.
00:44:09.000Bitcoin is so much more important for them.
00:44:13.000Just keep the focus on the other six billion, because for the billion, it might be a fad.
00:44:18.000But for the other six billion, this is an opportunity to change the way we deal with poverty and to change the way we unite the economic system of the planet, which is a whole other level of conversation.
00:44:30.000We look at Bitcoin and we think of it as just money.
00:44:33.000But it's not just money for the internet.
00:44:35.000Money for the internet is what it does.
00:47:27.000We can't judge Bitcoin on the standard of the most comfortable world reserve currency that's the most stable currency.
00:47:33.000We have to look at the rest of the world and see what their currencies are like.
00:47:37.000In many countries, the currency is worth less than goat shit because you can burn goat shit longer than you can burn these bundles of paper money that doesn't burn very well.
00:47:46.000In those countries, this is not a matter of shopping.
00:47:50.000This is a matter of the future of their children and it's a matter of development.
00:48:00.000What are the concerns as far as security?
00:48:02.000What are the concerns as far as if someone steals your bitcoins?
00:48:07.000Is there any sort of a regulatory body that can determine whether or not someone's computer or phone's been hacked into and their bitcoins have been stolen?
00:48:16.000I mean, has that become an issue yet or is that a potential issue?
00:48:20.000It is a potential issue, and it has become an issue.
00:48:22.000And yeah, people have had their Bitcoin stolen.
00:48:26.000Well, their computer gets hacked, and then they have a password on the account, but they don't have, like, you know, one of the things you can do very easily is set up what's called two-factor authentication.
00:48:35.000So every time you try to use your Bitcoin wallet, it sends you a little text message, and you have to enter the secret code, like you do with your bank.
00:48:43.000So if your computer's being hacked, they don't get the text messages, they can't easily get into your account.
00:48:48.000What is that article you just brought up, Brian?
00:49:41.000Because this money is controlled through mathematical security, and because it's programmable, we can actually create new ways of securing money, so we can innovate.
00:49:50.000Whether it's the paper wallet example I gave you, where you can create a physical copy that you can secure old-style in a safe deposit box.
00:49:57.000Whether it's using multi-signature transactions, where, for example, the money is locked and it takes two keys or three keys to unlock it.
00:50:06.000So, for example, you can have a backup company that provides the second key.
00:50:10.000If you lose the primary key, you could use the secondary key.
00:51:12.000It can go very easily because it flows very easily.
00:51:16.000So what we're doing at the moment is developing new security techniques to make it both harder to steal in the first place, to have backups so that you can get back if a key is stolen before it's used.
00:51:31.000There's all kinds of things we can do to make this better.
00:52:09.000I was on Reddit the other day and I was reading this great story, this student who said, you know, back in 2010 I did some Bitcoin mining on my laptop and I just found that wallet and it says I have 917 Bitcoin Am I rich or am I missing something?
00:52:24.000Because this would really change my life.
00:52:27.000And the guy had, you know, at the time it was $900,000 worth of Bitcoin that he had found from a laptop he left laying around in 2010 and did some mining.
00:52:36.000And that story is great and it's happened many, many times.
00:52:40.000So did that guy sell that and become like almost a millionaire?
00:53:07.000All of a sudden, I had it figured out.
00:53:09.000So the reason people have been successful with Bitcoin is because they got interested in the technology when only a few thousand people knew about it.
00:53:17.000And when they got involved at that point, bitcoins were worth like a hundredth of a penny or a thousandth of a penny.
00:53:42.000It's a series of rules that everybody follows, and it's hard to grasp at first because we've never seen this type of distributed organization.
00:53:50.000And is there any organization whatsoever as far as like a CEO? Nope.
00:54:16.000So, all of the people who are doing the mining, who have the hardware and are using it to mine for Bitcoin, what they do is they secure the network.
00:54:25.000By running this very hard problem, they prevent anyone else from cheating.
00:54:30.000Essentially, they end up voting on every block together with this enormous computing power.
00:54:34.000And that enormous computing power means no one can falsify the block because they would have to do that much computing power to falsify the ledger, right?
00:54:44.000So if you can't falsify it without doing enormous amounts of computing power, but if you do enormous amounts of computing power, you get a reward in Bitcoin, well, you're going to try and win the game rather than Cheat.
00:54:56.000Cheating is extremely difficult and not rewarding, whereas participating I see.
00:55:05.000And what they do is they verify the transactions and they secure the entire network.
00:55:10.000Which actually, if you look at it on the grand scheme of things, is a lot cheaper than guards and armored trucks and alarm companies and vaults and data centers and fraud prevention centers and all of those things that we have in our traditional payment system.
00:55:25.000It's actually a lot cheaper to do it by proving you're doing all of this computation for the network security.
00:55:33.000So when they verify a block, the person who manages to verify it first by finding this little magic number, the solution to the problem, I'll explain that in a second, collects the fees that are in the block.
00:55:43.000So all of the transactions that get verified in the next 10 minutes, the miner who finds that block will collect all of the little fees.
00:55:51.000It's about 40 cents to send a simple transaction right now.
00:55:55.000And they'll also get a reward of 25 Bitcoin.
00:55:57.000And then everyone will start the race again to verify the next block of transactions for the next 10 minutes of spending.
00:56:03.000And the first one to find the solution wins, gets the reward, gets the fees, and they all start competing again.
00:56:09.000But you don't know who's going to win it.
00:56:11.000And the enormous amount of computation that goes into it ensures that no one can cheat.
00:56:16.000Even if you put together 600 most powerful supercomputers in the world, you would not be able to beat the Bitcoin system right now.
00:56:24.000What a fascinating element to be added to the idea of economy, this idea of the unified group of computers working on ever-increasingly complex computations.
00:56:36.000So the scientific term for it is a consensus asset ledger, which means it's a ledger, a list of transactions about assets, in this case Bitcoin, that's based on consensus, on agreement.
00:56:46.000And the agreement is reached by everyone voting with their computing power.
00:56:50.000And because there's so much of it, you can't cheat the election.
00:56:54.000Now, when you said that there have been other attempts at a new type of currency that have been shut down by the current banking system, That was because they had a place where they had centralized servers.
00:57:23.000I mean, the banking system has this fortress wall of regulations around it that acts Partly, supposedly, to protect consumers from misbehaving banks, but also serves very well to prevent competition from small banks because it's very expensive to pass all the tests,
00:58:18.000Well, it has happened that way in the past.
00:58:20.000So no matter what, if you decide to create your own currency and you have an actual business and you're a centralized business, That centralized business is responsible for following all of the government's standards on banking, 100% across the board.
00:58:33.000And if you don't, that's where money laundering charges, and that's where larceny and a lot of different charges get brought up.
00:59:30.000Well, that's one of the reasons Satoshi Nakamoto disappeared, because he was smart enough to know that, you know, smearing him would affect Bitcoin.
00:59:37.000But couldn't he, since he programmed everything, have access to everybody's money if he wanted to?
00:59:58.000If you don't want to run that software, you can write a version of it.
01:00:01.000In fact, there are five or six different fully compliant versions that can participate in the network.
01:00:08.000Even if you take the basic one that started with him writing it, but since has involved in a community project with lots of people writing code, Just like the internet, you just agree to play by the rules and then you can read the code and you can see exactly what happens.
01:01:08.000So there's no concern whatsoever that there's any security openings because of the fact these guys are producing their own software that communicates in Bitcoin?
01:01:17.000Right, because the trust is based on computation, not access.
01:01:24.000All of our payment systems and banking systems up to now keep trust in the system by keeping people out, by controlling very carefully who connects to the network.
01:01:34.000That means the network is always very small.
01:01:35.000In Bitcoin, all of the trust is done by this joint computation.
01:01:41.000Who talks to the network doesn't matter, because the network is trusted and safe regardless of what you try to send to it, or receive from it, or how you interpret it, because there's no center.
01:01:52.000So this has radical implications because that means you can let anyone talk to the network or rather you can let everyone talk to the network and everyone can be a bank on that network and everyone can send wires transfers on that network.
01:02:08.000You have the power of a bank on your smartphone and as long as it speaks the Bitcoin language and understands it with the rest of the network you don't need to trust You know, that application is running.
01:02:21.000The trust happens in the transactions in the network.
01:02:23.000You can't cheat no matter what you write.
01:02:25.000So what is the motivation to write a new software?
01:02:50.000Like a BitTorrent client, there are three different versions, but they all speak BitTorrents, and your browsers all speak HTTP, the Hypertext Transfer Protocol.
01:02:57.000So no matter what website you go to, and there are lots of websites, Programs made by different companies that speak the server side of the web.
01:03:07.000There's lots of different versions, but what matters is the common language they speak.
01:03:12.000It's a common language, a protocol, or a standard.
01:03:15.000That means that no matter what you attach to the network, Whether it's a wallet that's written for Android or a wallet that's written for iPhone or a wallet that's fancier or a wallet that's more geeky, all of these will speak Bitcoin to the network and will work with the system and the trust is in the network.
01:03:35.000Now, when we were talking earlier about if you had a centralized location, centralized server, that could be shut down by the banks and they could charge you with all these crimes.
01:03:44.000Is there any concern Legally speaking, that if you were a person who has all your money in Bitcoin, that maybe one day the government could come along and say, Bitcoin is not a valid currency, it's illegal to use,
01:04:26.000Back in April, FinCEN, which is the Financial Crime Enforcement Network, created a memorandum where it explained how it would treat Bitcoin.
01:04:35.000It said, if you're just an individual using Bitcoin to buy and sell things, great.
01:05:24.000You convert it to dollars, you mark the rate at which they paid you, you know, you invoice them, they paid you in euros, you mark what rate it was, and then you put it on your tax return as income.
01:05:34.000People are notoriously bad about reporting income when, you know, when it's independent, when they're not being taxed by their employer, when it's not coming directly out of their paycheck.
01:06:21.000And if you think you can get away with not doing that, then you'll find out, like many people before you, that the IRS will come, will audit you, and you will end up paying a lot more.
01:06:31.000Yeah, even if you want to pay them back...
01:06:40.000I mean, that would simply be a monumentally stupid thing to do.
01:06:45.000To think that somehow that would protect.
01:06:47.000No, I mean, they're going to track down your accounts just as effectively with Bitcoin as they do with other things.
01:06:52.000What are these articles you keep pulling out, Brian?
01:06:54.000I keep on finding new things about different news reports.
01:06:58.000This was four hours ago where two guys have been arrested.
01:07:01.000Major prominent players in the Bitcoin universe, Charles Sherman, was arrested by federal prosecutors on Sunday and accused of helping grease the wheels for drug transactions using Bitcoins.
01:07:14.000And Mr. Shrim was also the founder and chief executive of a popular website called BitInstant, where Bitcoins could be bought using dollars.
01:07:23.000And so it seems like there's a lot of people getting arrested, though.
01:07:27.000There was another guy that I flashed up earlier that was arrested.
01:07:30.000It seems like there's a lot of shady stuff going on in this universe right now.
01:07:36.000Honestly, that's the only reason I never went and got into Bitcoins.
01:07:39.000You don't feel nervous about all these recent news things at all?
01:07:46.000Like, I'm not worried about it at all.
01:07:48.000Well, I think he already stated his position that, you know, people are not going to stop going online and shopping on Amazon.com if Amazon gets hacked.
01:08:12.000Bitcoin is a technology that is powerful and is being used by school teachers to manage PTA groups.
01:08:23.000It's being used by churches to manage tithing and their collection plates and their clubs.
01:08:29.000And it's also being used by criminals Occasionally to do crimes, just like any other currency.
01:08:35.000In fact, the point is that compared to another currency like the dollar, you know, the money laundering that happens with the dollar...
01:08:45.000I mean HSBC was found and convicted under a consent agreement, I think, for $17 billion of money laundering with the worst Mexican cartels.
01:08:56.000And they got a minor fine and no one went to jail.
01:08:59.000And Wachovia was money laundering hundreds of billions of dollars with various drug cartels in Asia.
01:09:18.000It just represents, just like the internet represents society, and you get the whole spectrum.
01:09:23.000Bitcoin as a currency can be used for economic activity, and that means the whole spectrum.
01:09:28.000And you'll have a small subset who are people who take advantage, and then you have the vast majority increasingly now as it's getting more mainstream.
01:09:36.000Who see the possibility of being able to do exciting new things with money that weren't possible before and to enable new forms of commerce.
01:09:47.000There are hundreds of startups that are innovating with new forms of, for example, how to do settlement and escrow on a real estate transaction and not spend 2% on that.
01:09:58.000But do it with Bitcoin much more safely, much more effectively.
01:10:02.000Companies that are working on doing charitable foundations based on Bitcoin endowments.
01:10:07.000Charities that are working to do remittances to foreign countries to help the poor people.
01:10:12.000You know, all kinds of activities are happening, but...
01:10:15.000What is the primary focus of the media?
01:10:18.000It is to generate page views and portraying the sensationalist stuff always wins out.
01:10:47.000The problem is, you know, you get a lot more of that than is actually occurring, and you get a lot less of the stuff that's really interesting and important, in my view.
01:11:13.000The fact that some bad dude used Bitcoin to do bad things.
01:11:18.000Your example of the bank that was laundering money with the drug cartels is absolutely perfect because that barely got a peep out of people.
01:11:27.000I saw some outrage from a few Twitter users.
01:11:31.000I read the story and my mouth was just hanging open.
01:11:34.000I was like, how could they get away with that and just get a fine?
01:11:39.000They dealt with murderers and they laundered their drug money and they did it for a long time and they made a lot of money and they just got a slap on the wrist.
01:11:48.000And the fine wasn't even up to the par of the money they made.
01:11:53.000It's not even covering the profits they lost, which basically rewards it and says, yeah, go ahead, do it again.
01:11:58.000You made a great return on that investment.
01:12:00.000There's a real issue with this whole Mexican drug war is that there's so much money to be made and being a part of it and it leaves so many holes open for corruption and even legal corruption like this type of stuff where it's it's they do something they get fined by whatever regulatory body but yet they're still in business they're still they're enacting and they profited on that decision Encouraging,
01:12:26.000literally encouraging people to continue to do business with illegal groups like that.
01:12:31.000If you can make that kind of profit, which, you know, there's a real issue in this country, a massive amount of distrust of law enforcement.
01:12:39.000And there's a big part of that becomes, it comes out of the war on drugs.
01:12:44.000It comes out of the war on, name the drug, you know, whether it's cocaine or whatever.
01:12:50.000All these different people that are struggling to keep things illegal are pumping up all these businesses that sell these illegal drugs because there's this massive demand for it.
01:12:59.000So when you see a war on drugs, what you're seeing is an engine to generate money for crime.
01:13:08.000People are not going to stop altering their consciousness.
01:13:11.000But you are ensuring that the people that are profiting off of that are going to be criminals.
01:13:17.000And then it leaves the door open for people who are in actual law enforcement to see these loopholes and see these ways they can skim a little money and take a little bit home for themselves.
01:13:25.000And next thing you know, you got corruption.
01:13:27.000And next thing you know, you got bankers going, listen, I can guarantee you the worst that's going to happen is we're going to get a fine.
01:13:33.000And the fine's going to be little, and we're going to make a fuckload of money.
01:13:35.000And these guys, Pedro's coming over, and he's got a donkey cart filled with gold coins.
01:13:41.000In one of these bank situations where they had these branches in Mexico, and they were putting literally millions of dollars in suitcases and sticking them through the teller window, they actually ended up designing and mass manufacturing suitcases that fit through the slot.
01:14:26.000I mean, it's that whole, that Fast and Furious investigation, you know about that?
01:14:31.000That was where the whatever government agency was selling arms to Mexican drug dealers so that they can quote-unquote track the guns.
01:14:40.000It's ridiculous because those guns actually got used for killing American service members, American people that were involved in Border Patrol, people that were involved in law enforcement.
01:14:51.000A lot of these guns wound up being used to actually kill Americans.
01:15:11.000These are the people that are in charge of deciding what kind of laws get enforced and what atmosphere of law enforcement this country has.
01:15:19.000When you see things like that, it's so frustrating and confusing because it seems almost like a blatant crime.
01:15:26.000Like someone sold some guns to these Mexican drug lords and they did it under the guise of this crazy operation.
01:15:33.000We're just going to sell them guns and keep an eye on them.
01:15:36.000That way we'll track them and then we're going to get them that way.
01:16:25.000Well, I mean, that's one of the reasons that I think a lot of people are also passionate about Bitcoin is that they've realized, especially since 2008, that these same people cannot be trusted to run the money system.
01:16:37.000And we've seen now for the last, for example, five years, the Fed has been printing between 85 now tapered down to about $70 billion a month and giving it as corporate welfare and direct subsidies to the banks.
01:16:53.000So we didn't get a stimulus, but they are continuing for five years now to remain solvent based on seventy billion dollars a month.
01:17:01.000That's a trillion dollars a year almost in dollars generated by the Fed.
01:17:05.000Most people don't even know this is happening.
01:17:07.000These are the people running our money.
01:17:09.000And what it means is that you go out to use your dollars at the store and suddenly you can buy a lot less bread and a lot less milk and a lot fewer eggs.
01:17:17.000But then they take items out of the inflation index.
01:17:21.000So it looks like there's no inflation.
01:17:22.000Whereas anybody who's trying to spend their dollars knows that things are getting harder and harder and harder, right?
01:17:28.000These are the people running our money.
01:17:30.000So Bitcoin offers an alternative approach which says, let's trust math.
01:17:35.000Let's trust that the system runs based on a rule, a simple mathematical rule, and everybody agrees that that is the rule by which money is created and no one can monkey with it.
01:17:47.000And that's the beauty of it, because if you know the rules, it reduces the uncertainty, it reduces the risk.
01:17:53.000And when you have a simple system where people can interact with each other and exchange money based on simple mathematic rules, that system's going to do quite well, because people no longer trust their governments, even here, and it's much worse everywhere else.
01:18:09.000Do you think that these issues that we have with the financial system and the law enforcement system Are sort of magnified by the solution of Bitcoin, that this being the internet of money, that really we need an internet of law enforcement.
01:18:29.000We don't need what's been stuffed down our throat.
01:18:31.000We need what we agree on by consensus based on the information that's currently available, which is what we would get.
01:18:37.000We didn't have some sort of a centralized group that's in charge of deciding what's legal and not legal, how things are enforced, how things are done, how laws are created.
01:18:48.000Let's talk about smart law and smart contracts because this is a perfect opportunity.
01:18:53.000Bitcoin, the underlying invention, the blockchain asset ledger as it's called, basically allows people to agree on who owns what and to resolve differences through this computation.
01:19:04.000But the basic thing that means is that you can start doing smart contracts.
01:19:09.000That means that you can put contracts into the system and then they either get executed because the conditions are met or they do not, based on mathematics.
01:19:17.000So you could say, for example, instead of having a deed to my car that's registered with the DMV, I'm going to have a digital deed that's on the Bitcoin network.
01:19:27.000And when someone pays me the money to buy that car, that transaction is married to the deed transferring to them.
01:19:35.000And the verification happens by the Bitcoin network, which I trust, based on distributed consensus.
01:19:41.000No one at the center, no one monkeying with the rules.
01:19:43.000So now you can start doing contracts Using the same basic mathematics to fully resolve contracts, you could have, for example, a parent setting up a number of transactions in the blockchain, in the Bitcoin network, that send money to their kids in two decades.
01:20:02.000When they're going to be 18 or 20 or 21, right?
01:20:23.000It allows people to have contracts between each other that are adjudicated, if you like, by the Bitcoin network based on the mathematical rules.
01:20:32.000And how would these things be enforced if they had to be in a court of law?
01:21:28.000Without, you know, the benefit of this...
01:21:32.000Is that instead of relying on the ambiguity of language, which is the basis of most law, for many things you will have to, but for some simple things, like doing an escrow for a house, or buying a car, or transferring property, or doing a trust or a will,
01:21:50.000We convert those legal contracts into Bitcoin transactions that then get executed under a set of rules.
01:21:58.000And suddenly you've got a form of smart law, self-executing law, that happens based on the Bitcoin network's ability to agree on what's true.
01:22:07.000It's fascinating to think that this could be one step in an ultimate revamping of our society.
01:22:14.000A revamping of our society based on the internet.
01:22:17.000If Bitcoin and things like Bitcoin, these peer-used groups, these groups of many people agreeing on a standard and subscribing to a system, If that can happen with this, it can start happening with a lot of things.
01:22:33.000It can start happening with education.
01:22:34.000It can start happening even with law enforcement.
01:22:39.000The idea of community law enforcement or figuring out some way to fund private law enforcement or private contractors based on a situation like this.
01:22:52.000For the biggest part of human history, a lot of the most difficult problems like communicating at distances or agreeing with lots of different people simply didn't scale.
01:23:02.000And because you couldn't scale solutions to those problems, we built hierarchical institutions to solve them.
01:23:07.000Representative democracy, we built councils and committees to solve decision-making, we built banks and central banks.
01:23:15.000in order to solve issuance of currency and other things like that and we built hierarchical media organizations because we needed a single voice to tell us what to think and then gradually we're seeing these solutions that are decentralized that solve the problem without a hierarchical organization and that scale so the internet was the first decentralized communications that scales to the whole planet Suddenly,
01:23:41.000all of the hierarchical solutions for communication are no longer necessary.
01:23:45.000They solve a problem that doesn't exist.
01:23:47.000The problem of it being difficult to transmit information across a continent or across the globe.
01:23:52.000Once that problem goes away, the institutions built to solve it, news systems, large entertainment and marketing organizations to create single output products, all of those are no longer necessary, and the choice blossoms.
01:24:08.000Bitcoin is simply the same concept of decentralization, but applied to money.
01:24:13.000And one of the interesting things is that Bitcoin at its core works on the fact that you can decentralize voting and do voting at scale.
01:24:21.000And the voting that's happening right now is the voting to agree on who has the Bitcoin.
01:24:25.000But you could do voting for other things like...
01:24:28.000You know, stocks, bonds, global lotteries, national elections, and things like that.
01:24:33.000When you say the voting is to see who has the bitcoins...
01:24:37.000So when, essentially, the mining process that verifies each block of transaction and secures it is like a giant vote, an election that happens every 10 minutes.
01:24:49.000And by looking at the transactions, you can tell who has the bitcoin.
01:24:55.000Andrea sent Joe a Bitcoin and that's been verified by the network.
01:25:01.000Then everyone trusts Joe has a Bitcoin and will be willing to accept that Bitcoin in payment for something, right?
01:25:07.000So essentially, every 10 minutes you have this consensus where the entire network agrees on all of the transactions that have happened, who has what, what's going on on the system.
01:25:19.000The ability to, at a massive scale, have everyone agree on what the truth is, That is the core invention behind Bitcoin that makes currency possible, but it also makes other things possible, including elections.
01:25:33.000So you can do some pretty incredible things because what you've done is you've decentralized decision-making.
01:25:39.000The internet decentralized communications.
01:25:41.000Bitcoin is decentralizing money, but at its core is an invention that decentralizes decision-making.
01:25:48.000Now, what are the concerns as far as Bitcoin getting shut down and what repercussions or what kind of blowback, if any?
01:25:57.000Have you guys received the people that are in charge of spreading all of this?
01:26:11.000No, I mean, you know, there's little misunderstandings that happen every now and then and, you know, people at first who don't understand the technology sometimes sit down and have conversations to understand it better.
01:26:26.000But, you know, the point is that at the moment, Bitcoin is legal to use.
01:26:31.000And it's not just legal to use in the U.S., but it's legal to use in pretty much every country.
01:26:36.000For individuals, certainly, I don't think any country has banned it or has even attempted to ban it.
01:26:43.000Bitcoin is money as a piece of content that you can send on the internet.
01:26:47.000So even if you wanted to ban it, it would be relatively difficult to do that without shutting down the internet.
01:26:52.000So that's one thing to put out there, but the point is that nobody's trying to ban Bitcoin.
01:27:46.000And I think we've got a tremendous opportunity to educate people about all of the incredible things we can do and also highlight the fact that this Bitcoin economy Just in the last year has generated thousands of jobs in an environment where we have economic stagnation.
01:28:03.000We've got this bloom of innovation and technology, much like the first burst of the internet.
01:28:12.000You don't want to squash that just because of a misunderstanding.
01:28:15.000Do you think that there's a lack of blowback because the people in the powers that be just haven't considered Bitcoin to be a threat yet?
01:28:21.000Because we talk about politicians not acting to try to silence it to service the people that get them in the office, the lobbyists or special interest groups or what have you.
01:28:31.000That's just because they haven't been contacted by those people to try to do something about Bitcoin.
01:28:35.000I think even the banks are ambivalent on this because while it may be disruptive to some of their banking practices, it is also one of the most interesting and innovative things to happen in finance in the last hundred years.
01:28:49.000And so, I think a lot of banks are smart enough to say, look, we're good at technology.
01:29:10.000You know, and I'll bring the same example.
01:29:12.000When entertainment companies were first faced with the possibility of MP3, yes, some people were like, oh my god, this is going to destroy everything, music will die, right?
01:29:21.000Which is the same they've said with every previous technology.
01:29:29.000But the point is that since then, the number of genres, the number of artists, the amount of music has exploded.
01:29:36.000People get a broader range of music than ever before, and MP3s have created so much good in the entertainment industry, so much more than damage, right?
01:29:45.000I think even in banking environments, they recognize that with Bitcoin, there's this mixed bag, which is that the good far outweighs the bad, and even in a business that's going to get disrupted, as banking will be, just like entertainment and telephone companies were disrupted by the internet.
01:30:02.000Those that are smart can take advantage, and they can build something good with this.
01:30:06.000And they're going to lose some power and leverage, but they can make some good money out of this.
01:30:09.000So I don't think anyone's out to get Bitcoin right now.
01:30:13.000I think people are kindly evaluating it and thinking about what opportunities it can bring.
01:31:06.000That's what's interesting about this is you actually haven't started doing that yet because you've only been starting to get paid fully in Bitcoin over the last few months.
01:31:13.000So this is fairly experimental even for you.
01:31:15.000You're basically at the cutting edge of this.
01:31:17.000So, I mean, there are people who have already filed taxes a few times and they've used the same approach.
01:31:23.000I'm going to be filing income taxes in Bitcoin for the first time for 2013. But, I mean, I'm discussing it with accountants and they think it's pretty straightforward.
01:31:31.000And I think the IRS will give us guidance before April.
01:31:34.000And the reason I think they will is because the IRS is interested in making revenue.
01:31:40.000And what better way to make revenue from Bitcoin than to simply explain exactly how people should pay their taxes on it so we can.
01:31:47.000Things are going to get really weird if this takes off.
01:31:50.000They're already weird and it already took off.
01:31:55.000I mean, kind of, but I don't know anybody who's using it all the time.
01:31:58.000I mean, you might say if you're involved in these online groups, but the actual percentage of people that are using Bitcoin on a regular basis, what is it?
01:32:51.000And most importantly, it's gone global.
01:32:53.000It's now being used in dozens of countries around the world.
01:32:56.000And the network is large and getting larger every day.
01:32:59.000So all of those conditions remind me exactly of what the internet was in 1992. Again, most people didn't hear about it until 94, 95. At that point, you had people go on the morning show and say, you know, is internet the email or what's this at sign?
01:33:16.000And they were having that conversation, but it had already been growing quite rapidly.
01:33:20.000I think that's where we are with Bitcoin.
01:33:22.000My mom is not going to do Bitcoin on her own for another six or seven years.
01:33:28.000Most people won't hear much about it for the next two years.
01:33:31.000They're going to hear about it occasionally.
01:33:33.000But in the meantime, it's been building momentum and getting better, and I think it's already arrived.
01:33:39.000Certainly, the invention behind it, which has also spawned many other currencies, you can't un-invent that invention.
01:33:47.000So in whatever form, and if it's not this Bitcoin currency, which I think is already pretty damn strong, You know, that same invention can be repeated and improved.
01:34:00.000The first early versions were really, really clunky and gradually it improved.
01:34:06.000And keep in mind, currency is just the first application.
01:34:09.000So if you were on the internet and you only knew email, you couldn't even imagine what the web would be like, let alone social media or mp3s or digital music and video.
01:35:39.000It's perfectly legal to use it there as well.
01:35:42.000I think it might be an exaggerated headline, but even if it isn't, if Russia bans Bitcoin, I think that probably ends up hurting Russia more than Bitcoin.
01:35:52.000Yeah, China has limited Bitcoin use for its citizens, apparently.
01:36:31.000But, you know, certainly here in the U.S., I'm certainly not worried about it being banned here, because there is a lot of legal precedent for private currencies in this country.
01:36:40.000And there's constitutional protections and there's companies that can defend themselves against that.
01:36:45.000We have a lot of people that listen to this podcast from other countries.
01:36:47.000It's one of the reasons why I wanted to bring that up, the Russia story.
01:36:50.000But to point out that this is not a universally accepted thing as far as governments and the ambivalence of American banks that they've shown and American politicians, this may not be the case in other countries.
01:37:01.000This is Bank of Russia issues warning on digital currencies.
01:37:04.000Well, you know, Russia is an incredibly suppressive place.
01:37:07.000We know what's going on with them and gay people.
01:39:30.000You know, Russia has had a long, hard history.
01:39:33.000There's been a lot of horrible things that have happened to the Russian people, both, you know, World War II and before that, they were occupied by the Mongols for 200 years.
01:40:13.000This guy, you know, they trumped up charges against him, just locked him up in a cage for a decade.
01:40:18.000Yeah, well, here's the other perspective on this, which is, in places like the US, if the government bans something, they go through a very long, arduous process, they go through courts, they have to prove their case, they can't just willingly do it, and it takes a long process,
01:40:35.000and generally the people kind of agree with it.
01:40:39.000Now, in a lot of places in the world, when something is banned by the government, the people go, hmm, maybe I should look into that.
01:40:45.000So, you know, the fact that it's banned in Russia doesn't necessarily mean that Bitcoin disappears.
01:40:50.000It simply means that Bitcoin is more of an underground currency in that place.
01:40:53.000And people have a lot less respect for laws that are arbitrary and capricious.
01:40:58.000So in countries where you have weak rule of law and you have rule of people, correspondingly, the people don't pay much attention to those.
01:41:05.000You know, a lot of things are illegal in Russia, including, you know, buying and selling dollars on the black market, and you can do it on every corner in Moscow.
01:41:13.000Yeah, isn't it essentially illegal to be gay?
01:41:15.000I mean, what are the laws on gay people?
01:41:46.000I mean, rainbows when we were a kid, it's like fucking leprechauns, pot of gold, you know, beautiful sunshine after the rain, and now it's gay.
01:43:21.000Is there any kind of insurance or a company that's going to back up?
01:43:25.000Bitcoin, like an insurance company, kind of like, you know, when a bank gets robbed, it's protected.
01:43:31.000Actually, as in many areas of kind of emerging markets, one of the first to move in is Lloyds of London, which have historically been involved in types of insurance that other companies won't necessarily offer first and introduced to the new market.
01:43:45.000So there is an organization in the UK that will take Where you can store Bitcoin and then have it insured by Lloyds of London for a specific fee and they'll protect it from theft.
01:43:59.000That's a fairly limited approach to it, but what you can do with Bitcoin is you can take insurance contracts and the guarantees of insurance companies and embed them into the transaction system.
01:44:11.000So now you could have, for example, let's say when you go and buy something on eBay and you do a PayPal transaction, and they give you the ability to do escrow.
01:44:19.000So if the product never arrives at your doorstep, you can get your money back, right?
01:44:24.000Now when you do that, you have to use PayPal escrow.
01:44:28.000And when you do that with Visa, you have to use Visa escrow.
01:44:31.000Well, on Bitcoin, you can pick an escrow provider and have them add their own key into the transaction.
01:44:37.000And now they're going to be your escrow, and you chose them.
01:44:41.000So you can pick from a market of escrow companies and they can do it without actually holding your money, simply by putting an extra key in the transaction and either authorizing it or not.
01:44:52.000So it opens up all of these possibilities for new forms of insurance, new forms of escrow, new forms of financial protections that couldn't be done with traditional money.
01:45:03.000There was news just out that the Jamaican bobsled team, this wasn't from Bitcoin, but it was a Dogecoin or whatever it's called, raised $30,000 for this year's Olympics just the other day.
01:45:14.000Yeah, and I mean, here's the other story that's not told very often, which is the charity aspect.
01:45:19.000In study after study after study, looking both at charitable organizations and user profiles, And questionnaires Bitcoin users have said repeatedly that the number one thing they do with their Bitcoin is donate or give them away Charity is very active on the Bitcoin blocks blockchain on the Bitcoin network Just recently Bitcoiners raised a ton of money for the hurricane in the Philippines There's a number of charitable organizations helping the
01:45:52.000There's other organizations doing the same in San Francisco, all based around Bitcoin.
01:45:57.000So there's this incredible charitable giving spirit in it, and we're seeing that replicate with other coins too.
01:46:04.000One of the other interesting ones is the WikiLeaks recently announced that the vast majority of their donations now come in cryptocurrencies, Bitcoin and Litecoin.
01:46:14.000This is fascinating because On certain payment networks, you can't donate to Wikileaks, right?
01:46:21.000You can't donate to Wikileaks with PayPal.
01:46:23.000You can't donate to Wikileaks with Visa.
01:46:25.000They ban you from doing that, and that's how they've cut off the funding of that organization.
01:46:29.000Yet, at the same time, on some of those payment networks, you could donate to the Ku Klux Klan.
01:46:34.000Now, that doesn't represent my principles, and I have a big problem with that.
01:47:19.000Generally speaking, the term for alternative currencies is altcoins.
01:47:23.000Some of them are alternative, some of them are more competitive with Bitcoin.
01:47:29.000All of them are based on the same invention.
01:47:32.000What this shows is that the underlying invention of how to do computational agreement on the network That invention has spawned all of these other currencies.
01:47:42.000Some of them are very innovative, some of them are just fads and memes, and some of them are pump-and-dump schemes.
01:47:50.000One of the interesting things that this has created is that in the past...
01:47:55.000Money was trusted and had value because not many people could create it.
01:48:00.000We trust governments to create money and money has value because only governments can create money.
01:48:07.000Now, because anyone can create money, how you give it value depends on other things.
01:48:13.000Which is actually a good lesson because government money doesn't really have that much value in a lot of places either.
01:48:19.000It's just an illusion that somehow that makes it valuable.
01:48:22.000In the case of Bitcoin, what makes Bitcoin valuable is the enormous amount of investment, both in terms of resources, in terms of the computing equipment that people have bought, in terms of the invested companies that are in it and the people who work in it.
01:48:39.000Other coins have slightly different variations of the same theme, and some of them are based on memes, internet memes.
01:48:47.000I see a future where a five-year-old at school could use a web browser to build a coin in an afternoon and launch it among their friends.
01:49:34.000It has startup companies that are investing and developing things with it.
01:49:39.000Some of these other coins have some of those things.
01:49:41.000Some of them have none of those things.
01:49:42.000But is there a risk of Bitcoin being like the MySpace of cryptocurrencies when you get off to this big head start and you're way ahead of the game but there's holes in your game and Facebook comes in and steals all your people?
01:49:55.000One thing to realize is that money is a lot more sticky than a social site.
01:50:00.000When people invest their skills and expertise and companies into a certain cryptocurrency, that carries a lot of weight.
01:50:06.000Bitcoin has already achieved a very high level of network effect, which means that the more people are on it, the more people it attracts.
01:50:13.000The more people are on it, the more people it attracts.
01:50:16.000But at the same time, because it's building a capital base, that makes it very difficult to unseat Bitcoin.
01:50:22.000I think what we'll end up seeing is one or two major currencies.
01:50:29.000Bitcoin is probably going to be the biggest.
01:50:32.000And then two or three or four or five secondary currencies that do some kind of niche thing that's useful for some group that Bitcoin can't do or won't do.
01:50:43.000For example, Bitcoin has reverse inflation, deflation, because there's a fixed supply.
01:50:49.000So over time, the value is gradually going to increase, right?
01:50:53.000Other people have created coins where if you don't spend them, you lose a bit, which is like inflation.
01:50:59.000So Bitcoin is not going to be able to copy that and take that feature and say, hey, that looks good, let's do it too.
01:51:05.000But for a lot of other things, when an alternative coin invents something new, Bitcoin can simply pick it up and run with it too.
01:51:15.000It was invented in 2008, and five years of innovation have gone into it, and the level of innovation is accelerating.
01:51:21.000So I think there's a lot of room for a lot of coins in this space, and not all of them are going to have value, but some of them will have value.
01:52:24.000The idea is if Bitcoin is gold, Litecoin is silver.
01:52:27.000But that's the general competitive environment.
01:52:30.000Now, beyond that, Dogecoin is, in fact, or Dogcoin or Doggycoin, I'm not quite sure how it's pronounced, is an enhancement on the original idea of Litecoin.
01:52:43.000So it took that and then twisted it a bit more.
01:52:45.000And then you've got this whole list of other coins.
01:53:46.000Very disconcerting to people that are looking for a stable investment when you see...
01:53:50.000I mean, several hundred percent, right?
01:53:52.000What is the worst day or the best day as far as the variation?
01:53:56.000So I think the best day was maybe two and a half years ago, which was minus 40 or minus 50 percent in a day.
01:54:05.000That was a really big crash, and it took it from above 30 to below a dollar.
01:54:12.000And then there was another crash around 100, and then there was another one around 266, and then there was another one around 1000. And so we're now kind of in a relatively stable band between 800, 900, somewhere there.
01:54:36.000If you look at Bitcoin, the total market capitalization, if you take all of the Bitcoins that exist times the value that they have on the market today, it's about a $10 billion market.
01:54:46.000Ten billion dollar market might sound like a lot.
01:54:49.000Certainly, if it was a tech stock, it would be a nice-sized tech stock.
01:55:00.000So what happens is, this is a shallow pool of liquidity.
01:55:06.000When you have a shallow pool of liquidity like this, with a few markets that are not very efficient, the end result is that every time someone sneezes, All of the liquidity sloshes around, and you get these fluctuations.
01:55:18.000But as it gets bigger in size, the waves get smaller, right?
01:55:25.000And if you look at it, if you plot it on a graph and you plot the volatility, you'll see that every year it's getting less and less and less and less and less volatile.
01:55:33.000Now, if at some point it became large, you know, the reason currencies like the US dollar are not very volatile is because if you think of a 14 trillion dollar economy, it's like a Titanic.
01:55:44.000It takes, you know, three miles to turn 10 degrees, right?
01:55:50.000So they're much more stable because they have weight behind them and inertia.
01:55:55.000And even if you want to change it, you tweak something now and it changes in six months because it takes time to filter through the economy.
01:56:50.000It's whatever people are paying to buy and sell Bitcoin.
01:56:54.000And so every time the order changes, you know, if suddenly you can't find anyone to buy your Bitcoin at $800, you're going to discount it a bit.
01:57:01.000And discount until you find someone who's going to buy it.
01:58:20.000We now know that LIBOR, the interest rates in the London Bank system, has been fixed for years, and that's the basis for most interest rates.
01:58:29.000We know that the stock markets, they're doing front-running on high-frequency transactions, those are fixed.
01:58:34.000Every single market out there is currently rigged.
01:58:38.000And so the people who are playing within these markets with like fiber optic connections to this main data center, you know, and they're three feet closer than the other server and can get that transaction in four nanoseconds sooner, our front running transactions are benefiting,
01:59:14.000I mean, literally, they have racks trying to get closer to the rack where the transactions are happening, until data centers had to say, no matter where you are in the room, you're getting 300 feet of fiber, and if it's coiled at the bottom of your rack, or if it's stretched out...
01:59:29.000You're still going to have to go, you know, so that everybody gets the same deal.
01:59:33.000But right now, for example, all of the banks are playing this game.
01:59:39.000So what I'm saying is, yes, there is manipulation in the Bitcoin market, but...
01:59:44.000The manipulation is on the exchange rate that happens on a day-to-day basis, but it's not on the supply of money.
01:59:52.000Whereas in the real economy, the stock market, the New York Stock Exchange, not only is the market rigged, and not only is the market being manipulated, but the currency itself is rigged and being manipulated.
02:00:03.000The Fed is printing money and handing it to the banks.
02:00:08.000It's definitely the lesser of the two evils, and also the larger it gets, the harder it is for outsiders to manipulate it, right?
02:00:16.000Because they don't control the levers of power of the currency.
02:00:18.000There are no levers, and that's the beauty of it.
02:00:21.000So you create a system that doesn't have levers to control the currency, so all they can control is the price and manipulate it, but that's a dangerous game to play long term, because if the market turns against you, you lose a lot of money too.
02:00:49.000One Bitcoin is $784 US dollars on average at the moment.
02:00:55.000And that's fairly stable, because you were talking about it at $800 before, so it's pretty close.
02:00:59.000For the last month, it's been in that band...
02:01:02.000We have seen some wild swings, but it seems to be stabilized around that level now, which by the way, is three times the level it had stabilized before the big bounce.
02:01:12.000And how much Bitcoin is actually available out there in the world?
02:01:35.000Well, the thing is, it starts operating more like a precious metal, which is that, you know, once supply of a precious metal gets restricted, it increases in value.
02:01:45.000But the one difference is that a precious metal, you can only shave so thin, you can't cut it into smaller units, and it's difficult to transport and all of that.
02:01:53.000Whereas Bitcoin, you can divide it into 100 million subunits.
02:01:56.000So basically, instead of the money in your pocket losing value over time because the central government is diluting it, it's getting concentrated because more people want to use it and there's not enough around.
02:02:20.000What do you see the future a hundred years from now?
02:02:23.000What do you think Bitcoin's place in the world is going to be?
02:02:27.000I think I can make certain predictions for sure, and I can make other predictions with absolute 90% margin, which means I'm pulling it out of my ass.
02:02:36.000So let me tell you one I can make for sure.
02:02:39.000Cryptocurrencies will be part of our financial future.
02:03:09.000If you shut down one, a hundred others are going to pop up in its place.
02:03:13.000Now, at the same time, I think Bitcoin has a very good chance of being the one that was good enough, that grew fast enough and gained enough traction that it will actually have, as a store of value, value for a very long time.
02:03:28.000Now, didn't someone sell a house in Canada through Bitcoin?
02:03:31.000We've seen transactions as big as $150 million.
02:04:02.000You would think you would know if somebody spent that much money using Bitcoin because they would, you know, as a Bitcoin user, would probably scream, I just spent $1.5 million.
02:04:10.000That's why it's so weird for me to think that, like, the guy that created it, no one knows what he looks like.
02:04:15.000Some guys spent $1.5 million, but no one knows who this guy is.
02:04:53.000It just says it seems so suspicious that there's so many...
02:04:57.000See, my biggest problem, because people have been trying to get me on Bitcoin for the longest time, is things like this, where it just seems there's so much mystery to it.
02:05:05.000Especially if you follow the conspiracies of the guy that created it, and you hear reports like somebody just spent All these millions of dollars using Bitcoin.
02:05:47.000Well, and you can see that transaction because it's on the public ledger and it did happen and it has been verified and the transaction went through and they paid zero fee.
02:05:55.000So this $150 million transaction was between two people?
02:07:08.000So Bitcoin was a key player in that whole Silk Road scandal.
02:07:12.000And for folks who don't know what Silk Road was, it was a website that allowed you to buy a lot of illegal things online, and some of it was purchased through Bitcoin.
02:07:20.000And those things were as illegal as drugs or as guns.
02:07:24.000There was a lot of different things, right?
02:08:28.000Well, there's a lot of exaggerated claims and statements in prosecution indictments.
02:08:35.000When you're a career prosecutor and you write up the indictment and decide to take it to the grand jury, you're not going to just write the littlest thing you do.
02:08:42.000You're going to make it look like every person you arrest is the worst person in the world and has massive crimes going on.
02:08:50.000Which means that reading that and seeing how much of a weak case it is, you know, allegedly sold to someone who allegedly sold to users who allegedly bought drugs.
02:09:34.000What's scary is that you've got a 24-year-old sitting in jail for this, and you've got the 55-year-old CEO of HSBC who didn't even resign after being fined hundreds of millions of dollars for laundering billions.
02:11:05.000What else is happening in this economy?
02:11:06.000Other than the military, other than more derivatives piled on top of more derivatives by the banks, pretty much everything else is at a standstill.
02:11:19.000Yeah, well, that's the one thing in this economy that's exploded in the places where it's been introduced and allowed to operate in the free market.
02:11:26.000And ironically, the situation there was that they weren't letting those people who were selling the marijuana put their money in banks.
02:11:34.000The government has since amended that and said that they're going to now start allowing these people who run these medical marijuana stores to put their money in banks, which is a huge victory.
02:11:45.000And I think, you know, ultimately it's unconscionable to do anything else because you're allowing an environment where crime, violent crime, is most likely going to take place because you are making people targets.
02:11:58.000If you're not allowing them to bank You're making sure they have massive amounts of cash on them on a regular basis, and they're going to get targeted.
02:12:06.000You're going to create victims of violent crime.
02:12:10.000So I'm glad they decided to not do that.
02:12:13.000But it's a perfect example of the kind of fuckery that's involved in our government, that you could have these people that did pass a law allowing something to be legal, and yet still those people are kept from and prohibited from putting that money in banks.
02:12:47.000Where suddenly someone gets audited for a dozen years in a row.
02:12:51.000And J. Edgar Hoover had people audited every year of their life because he didn't like them.
02:12:59.000And some of those practices continue to this day.
02:13:02.000Now, I would at least like to see the rules followed.
02:13:06.000I mean, that's the whole point of this country, isn't it?
02:13:08.000It's a rule of law equally applied to all.
02:13:10.000At least if we know what the rules are, you can follow them.
02:13:13.000Or choose not to and then face the consequences.
02:13:15.000But if you don't even know what the rules are because people make them up as they go along, that's not a good place to live.
02:13:20.000Yeah, if a business, a private business, acted the way the IRS did as far as handing out audits to people that were political opponents, handing out audits to people that were personal opponents, to people that were in power...
02:13:31.000If a private company acted out that way, they would be guilty of all sorts of fucking violations.
02:13:36.000It would probably be somebody in jail.
02:13:38.000I mean, it would be a really big issue if you found out.
02:13:40.000But they've been auditing people just to fuck with them for the longest time.
02:15:32.000Oh, for sure it doesn't matter, but aren't you fascinated?
02:15:34.000Oh, I'm totally fascinated, but at the same time, here's the lesson we've learned.
02:15:38.000Prometheus stole fire from the gods and gave it to the people, and they tied him to a fucking rock and had an eagle eat his liver every day.
02:15:46.000Satoshi Nakamoto gave money to the people, and he disappeared because he's smart enough, or she's smart enough, not to get tied to a rock.
02:16:04.000And there's nothing good that will come out of it because at the end of the day, since they control nothing, and since what they invented is a mathematical solution, it doesn't matter.
02:16:13.000So do you believe that potentially this group of people or individual person, whatever it was, whichever scenario, whichever sex, that they...
02:16:31.000I'm talking about the repercussions of their actions.
02:16:33.000And they decided to be anonymous in their delivery of this.
02:16:37.000Well, I think throughout the 90s, a lot of the people involved in the digital currency environment, because some of them were working in oppressive, highly oppressive environments, and I'm not, you know, I'm...
02:16:47.000People may be working from Burma or from China or from who knows where.
02:16:52.000And so it's not a good thing to be doing these with your own name attached.
02:16:55.000So a lot of people in this space were involved anonymously to protect their own safety as they were working in digital currencies, basically doing science work in cryptography and mathematics and distributed systems.
02:17:29.000A lot of people have tried to guess, and there's a lot of digital currency scientists and cryptographers, well-known cryptographers, who participated in the creation of many of the aspects of Bitcoin.
02:17:42.000And people have fingered them and said, you know, maybe that's Satoshi, maybe that's Satoshi.
02:21:02.000If you want to monetize your podcast, and you accepted Bitcoin, and people sent you a tenth of a penny, or a penny, or a dollar, and you added up over hundreds of thousands of users, because it doesn't cost much to send, because it's an easy transaction, people will make transactions smaller,
02:21:19.000So suddenly, Bitcoin can fund all of the independent content providers, and all of the independent infrastructure providers on the internet, and transform the internet again from the inside out.
02:21:32.000Like, imagine all of these media companies that have gotten so horribly disrupted because there's basically two media models.
02:21:38.000If you make content on the internet, you either sell advertising, so you're stuffing junk into the eyeballs of your customers or your ears, and the bigger the company, the more junk that comes out of it, right?
02:21:52.000If the product is free, you're the product.
02:21:55.000Your personal information is what generates the value.
02:21:58.000If you're on a social media site that's free, you're the product.
02:22:02.000They're selling your information in order to make money.
02:22:04.000It's either advertising or selling your information.
02:22:07.000Now there's this third way, which is you can do transactions small enough To have value when accumulated in large numbers, that you could independently and directly fund content providers and infrastructure on the internet and break the hold of these systems of concentration that advertising and social media have become.
02:22:29.000Selling privacy and selling advertising, which require concentration.
02:23:04.000The other question I wanted to ask you about, we spoke about earlier, was net neutrality.
02:23:08.000Now, that's a huge issue for anyone who loves the way the internet works and the way the internet does not judge, and the internet is freely available to anyone who ports into it at virtually whatever you pay for your connection,
02:23:25.000whatever your download speed is, but there's no regulation as far as it being...
02:23:32.000It's easier for Walmart to get online or they have more of a percentage of the pipe.
02:23:37.000Are we concerned about net neutrality being somehow or another compromised by nefarious sources?
02:23:45.000Well, I mean, net neutrality suffered a massive setback in the courts just a couple of weeks ago with a decision that allowed Verizon Communications to not be subject to the FCC rule.
02:24:04.000The case was the FCC made a rule that said that carriers must support net neutrality and Verizon sued and had it overturned as unconstitutional or outside the mandate of the FCC to be more accurate.
02:24:17.000They say they want to make the internet better, but they just got the rule that says that they have to treat all traffic equally taken out.
02:24:24.000And most people don't realize that the reason the internet allows things like Netflix to happen is because they didn't have to ask anyone's permission.
02:24:31.000Now, imagine if when Netflix started, it had to ask Comcast to run its traffic and pay for a premium.
02:24:37.000Well, they wouldn't do that because it's a competitor.
02:24:40.000So, of course, they'd crowd them out of the market with exorbitant fees.
02:24:44.000Net neutrality means that everybody has a fair shake to be heard, and it's up to the end user to decide who they want to listen to.
02:24:51.000All of the traffic will reach you if you want it as a listener or as a viewer.
02:24:55.000Now, can they somehow or another limit where the traffic goes to, like what we're seeing in other countries where they have restrictive internet laws?
02:25:02.000Is that a potential byproduct of this case?
02:25:06.000I think the biggest threat right now comes to companies like Netflix or things like streaming radio and audio systems, Spotify, Pandora, etc., whereby Service providers who have their own TV streams or their own music streams that are competing are going to make their experience great and Netflix experience somewhat suckier.
02:25:29.000So they'll limit the bandwidth of Netflix applications.
02:25:40.000Well, I mean, all kinds of shenanigans, but I mean, the basic deal is that this FCC rule was trying to establish a legal framework under which they'd be obliged to give equal access to all content.
02:25:51.000As long as the viewer chose that's what they want to see or they wanted to connect to over the internet, they would connect to that with the same bandwidth that they've bought.
02:26:00.000You buy bandwidth, and you use it for whatever you want, and you don't get better bandwidth if you use their shows than Netflix.
02:26:07.000Well, once they tried to put that rule in place, you know, the lawsuit started, and now we have a very bad decision that could really, really hamper innovation.
02:26:16.000A lot of the things that we see today on the internet would not have happened if net neutrality weren't observed.
02:26:22.000And the Verizon, for many people who don't realize this, Verizon offers home internet connection as well as 4G and...
02:26:32.000And pay-per-view and video on demand, which means that they're directly competing against other content providers.
02:26:38.000Yeah, Verizon now has a fiber optic system that's, you know...
02:26:42.000It's incredibly fast and connects you direct download movies and television shows.
02:26:49.000There's a lot going on right now as far as internet-related content, things like Netflix and things like Hulu and Hulu Plus.
02:27:02.000Places are now starting to create their own programming as well.
02:27:05.000It's getting really fascinating because they're not just competing with Verizon.
02:27:08.000Now they're competing with NBC and CBS and what have you.
02:27:11.000And if you like that, net neutrality is why it happens.
02:27:15.000And therefore we should be defending net neutrality.
02:27:17.000So what people should do is probably boycott companies that don't Well, I'm a huge supporter of the EFF, the Electronic Frontier Foundation, that's been fighting for privacy and liberty and net neutrality on the internet since the early 90s.
02:27:32.000And they've won several substantial cases, both against organizations like the NSA, but also against service providers that try to abuse their position to prioritize traffic.
02:27:41.000And they've promoted the idea of an open, independent, transparent and fair internet for all.
02:28:49.000That's so disturbing and it's so contrary to the trends that we would like to see.
02:28:55.000So here's one good idea or one good thought that comes out of this.
02:28:59.000A lot of the problem right now is that you pay for both of your infrastructure and your content in a single payment to your ISP. Well, with Bitcoin, you could pay the recipient or the content provider directly in tiny, tiny, tiny payments.
02:29:11.000Dude, you really are the Bitcoin genius.
02:29:14.000You're Bitcoin Jesus because he's offering Bitcoin as a solution for everything.
02:29:23.000Bitcoin can fix that, and Bitcoin can fix the internet, and Bitcoin can fix Verizon.
02:29:26.000It's almost, and I'm not, it's just, you know, it's almost like evangelistic.
02:29:31.000Like, it's almost like a pyramid, like when you go to a pyramid type thing where they're sounding like, no, you know, is there anything you don't like about it?
02:29:38.000Like, what's the number one thing that you're like, I hope something changes with this?
02:29:44.000I mean, it's got some scalability issues that are being solved.
02:29:48.000It's software, so we have to be very careful with the upgrades.
02:29:53.000But, you know, I mean, compared to the existing form of money we have, I honestly think it's better money and it's a great technology.
02:30:00.000I've spent 20 years doing security and distributed systems.
02:30:03.000That's my area of expertise as a professional.
02:30:05.000So what I love about this is that I can see the elegance of the technology and I understand its implications.
02:30:12.000The last time I felt like this was 1992. And it was because I saw the internet and I saw the elegance of it.
02:30:19.000And I was out telling as many people as I could, you know, this is really going to change things in ways you don't even expect.
02:30:25.000And I can't even explain to you yet because it's going to unfold in ways no one anticipates.
02:30:29.000Because what it does is it democratizes information.
02:30:32.000So yes, I'm excited about something that democratizes money, but it's because I understand the underlying technology.
02:30:39.000You know, I don't profit from talking about this.
02:30:43.000I'm able to build a career on it, sure, and I love doing it, but really at the heart of it, I'm a geek, I love the technology, and that passion just comes through.
02:32:58.000And I mean, this is not prudent investment.
02:33:01.000This is not prudent behavior financially, but as a technologist, as a person who's worked in distributed systems and security and computer systems...
02:33:13.000I could see that this was an exciting technology and I want to build a career in it.
02:33:16.000So what I've been doing is swapping money for skills and experience and the opportunity to be on the ground floor.
02:33:23.000I was too young when the internet started to be influential in that space and I see this opportunity as a second opportunity to do that.
02:33:31.000Now, how did you know that Bitcoin was the solution?
02:33:34.000What made you so confident that you invested this exorbitant amount of time in Bitcoin?
02:33:40.000And back two years ago, the future could not have looked nearly as bright as it looks now.
02:33:46.000So the key here was that I was in distributed systems and security.
02:33:52.000And then the first time I heard about it, I thought, nerd money.
02:34:01.000Then I went back and I read the Satoshi paper, and I grasped the science, and it was confusing, and then I read it again, and I really grasped the science, and then suddenly it hit me.
02:34:16.000This is the holy grail of distributed systems of the last 15 years.
02:34:20.000You can do so much more than currency.
02:34:22.000And once that light bulb went off, all I could see was the possibilities.
02:34:26.000Oh, well, now that we have this technology, we can do this and this and this, and the currency will do these things for us.
02:34:35.000And, you know, all of these possibilities unfolded in my head, and it was a...
02:34:40.000really dizzy experience but I understood the fundamental building blocks looked so much like the early internet and I knew what structures like that do they create a network effect they create this attractive force where it gets more useful the more people who use it network effect was coined first by Bob Metcalf in 1984 he said the value of the network It increases exponentially with the addition of each node.
02:35:05.000When you join a network, you don't just gain that value, but by increasing the size of the network, you make it more valuable for everyone else, because they have one more person to connect to.
02:35:15.000If you keep doing that, it achieves a scale where it starts multiplying.
02:35:21.000When you have this magic combination of money for the people, that can be sent directly between people, that forms a network, those three things came together in my head.
02:35:31.000I'm like, this is big, and nobody knows it yet.
02:35:35.000When you see something that's big and nobody knows it yet, you want to tell everyone?
02:35:40.000And you want to dedicate a large part of your time to doing this, because it's incredibly exciting.
02:37:19.000So how did you know that Bitcoin was going to be worthwhile and that so many people are going to jump on the board, jump aboard two years ago?
02:38:57.000And the reason we don't know is because the tools we have to analyze currencies don't apply because it's a completely different type of currency.
02:39:15.000What I do know is I understand the technology, and what I see is something elegant and practical.
02:39:20.000I'm interested in seeing where this experiment will go, because here's the thing.
02:39:24.000If it doesn't work, some people lose money.
02:39:26.000If it does work, we change the world of money forever.
02:39:31.000And that's a pretty big thing to say, but cryptocurrencies, I think, are here to stay.
02:39:35.000They offer an elegant solution to decentralized money, and whether Bitcoin survives or not, I want to see where this is going to go, because it has the possibility of changing a lot of people's lives.
02:39:45.000Well, it certainly does, and I want to see them find that Nakamoto thing.
02:40:44.000So you download blockchain from your app store, and then you'll get an address, and I can then send you some Bitcoin, and you'll have it in a few seconds.
02:40:52.000And if we wanted to put up a computer here, a dedicated computer that runs Bitcoin computations, it wouldn't fuck with us in any way, right?
02:41:38.000And I really respect a guy like you who takes a giant leap like that and dives into something and something that you believe in and you get really passionate about it.
02:41:59.000You know, sometimes you choose the things you want to do in life, but some of the most interesting things in life, once you find them, you have no choice.
02:42:27.000To me, it's one of the most inspirational things I encounter both online and in the real world is watching people who are passionate about what they do.
02:42:34.000Right, you can recognize it in others.