Steve runs Spiral, Block's open source bitcoin initiative. Lyn is founder of Lyn Alden Investment Strategy and partner at Ego Death Capital. Steve and Lyn join the show to discuss their recent research paper on bitcoin consensus changes, the process which the network implements potential improvements, and the various stakeholders involved.
Research Paper: https://github.com/bitcoin-cap/bcap
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(00:00:00) CNBC Squawk Box Intro
(00:04:36) Introduction to Citadel Dispatch
(00:06:03) Bitcoin Consensus and Protocol Changes
(00:20:27) Soft Forks vs Hard Forks
(00:38:47) Stakeholder Dynamics in Bitcoin
(01:11:17) Power Dynamics and Investor Influence
[00:00:01]
Unknown:
Bitcoin is hitting new highs above 80 actually above 82,000. And Mackenzie Tagalos joins us now with a look inside the ice. Was there ever a time, Mackenzie, where you said, why am I gonna be a crypto expert that's a big risk? Now look at you. Now look at you. We can't get we can't get enough of you. 82,000.
[00:00:18] Unknown:
Yeah. I know in 2017, I was talking to Bitcoin miners in Venezuela who were doing it to make ends meet. But now Bitcoin topping $82,000 this morning. As futures premiums jump higher, traders are now betting over $2,900,000,000 on Bitcoin soon rising past that 85 k threshold on the popular derivatives exchange, Derabit. The wider crypto market also seeing out sized gains this morning. Ether has eclipsed Bitcoin's rise up 30% in the last 7 days, and Solana's market cap topped a $100,000,000,000 level on Sunday on the back of US elections that saw a swell of pro crypto candidates win office. Now the total market cap of all those spot Bitcoin ETFs is now above $80,000,000,000 with inflows surging in the last 3 trading days as institutions and their clients pile into the Bitcoin trade post election.
Within Fintech stocks, crypto aligned companies, Coinbase and Robinhood, both of whom are in legal fights with the SEC are moving higher pre market, and most Bitcoin miners are all seeing double digit percentage gains as well. Donald Trump, remember, promised that all future Bitcoin will be mined in the US and pledged to rapidly build out the country's energy production and transmission infrastructure, which is a great thing for those power hungry miners. This is one of multiple commitments made by the president-elect to the crypto industry on the campaign trail along with vowing to fire SEC chair Gary Gensler and to launch a national crypto stockpile.
[00:01:43] Unknown:
Just looking at micro strategy and thinking about 50,000,000,000. No. But thinking about Michael Saylor in all along, what his viewpoint has been and how he he wasn't shy at all about and he really he almost in real life has his laser eyes. Almost in real life. What? But the stackers and the hodlers, they must be at this point, anyone who has been stacking or hodling
[00:02:07] Unknown:
is on top of the world. Oh, absolutely. Micro strategy was a first mover in terms of adding Bitcoin to their balance sheet, and that's why this national crypto stockpile is so compelling. So, essentially, the US government has $16,000,000,000 worth of Bitcoin already on its balance sheet that it has amassed through these seizure operations. But what Donald Trump is talking about doing is not only holding on to that, but he's also been talking to senator Lummis and her team who put forth legislation to buy 1,000,000 Bitcoin over the course of 5 years so that ultimately you get a supply of Bitcoin held by the US government that is in, you know, tantamount to what we have in gold reserves. 5% of the total Bitcoin supply. So it's just it's just you're even seeing the US government potentially leaning into this huddle strategies you were saying. Well, either you're just really excited about your job or you're orange pilled, one of the other. I I can tell how quickly you talk and how much you know about this. So you eat it up. Do do you not? No. I do. And I think that I think that especially that promise to fire SCC chair Gensler on day 1 in office is why you're seeing stocks like Coinbase and Robinhood do so well. Because you've got Coinbase that's been fighting the regulator for over a year in court. You've got Robinhood that has a Wells notice in May, so it may not materialize in an actual lawsuit if you see a change of leadership at the top of the SEC.
So it's a lot of these stocks are optimistic about what a Trump presidency might mean. I saw Anthony who we had a
[00:03:27] Unknown:
a fun show on on Friday with with the Mooch, and he's mad at Elizabeth Warren. And he he took it out on her again, and it was tweeting about her with her anti Bitcoin stance being part of the,
[00:03:39] Unknown:
not really the election losses, but being at least involved in in taking her to task. But, I mean, that's what's been so incredible. You should think there were a lot of things. There might have been a lot of there might but among other things. North of 280 pro crypto law makers elected to congress, and you saw, what, $250,000,000 raised by the crypto industry this cycle, that money was effective.
[00:04:36] ODELL:
Happy Bitcoin Monday, freaks. It's your host Odell here for another Citadel Dispatch. The interactive live show focused on actual Bitcoin and Freedom Tech discussion. We are officially back at open water Bitcoin. Pump it right into my veins. I always forget how it feels. It feels amazing. It's good to be here with you all. We have a very important topic today. We will be having heavy price discussion. No. I'm kidding. We will not be having heavy price discussion, but we will be talking about Bitcoin consensus and how Bitcoin, works at the protocol level in terms of any potential changes or no potential changes going forward.
I have 2 of my good friends here to join us. But before we get started, that intro was, a clip from the largest Bitcoin podcast in the world, CNBC's Squawk Box that broadcast every morning. Our boy, Joe Kernan, reminding the world that the Stackers and the HODLers are in charge, and they are all just following our lead. So with all that said, we got Steve Lee here, Bitcoin lead at spiral, blocks, formerly Square's, open source development division. How's it going, Steve?
[00:06:05] Steve Lee:
Really, really good. Thanks for having me. And it's kinda funny after, 2 or 3 years, we still have to preface what block is.
[00:06:15] ODELL:
I'm just I I have to say just to just to show I do too. I I do as well. And we have first time guest on sale of dispatch. It's been a long time coming. I can't believe it hasn't happened yet. We have, partner at Ego Death, founder of Lin Alden Investments, and a recently published author, with her broken money book. And she's about to release a sci fi book that she's been teasing on now, sir. We have Lynn Alden here. How's it going, Lynn? Pretty good. Happy to be here finally. Cheers. It's a pleasure. So we will be talking about Bitcoin consensus. You guys just released a paper on this.
You did a lot of work doing a research paper. Steve, where do you want us to start? What do you what are you thinking is important takeaways here? Where do you want this discussion to go?
[00:07:14] Steve Lee:
We can start really high level, what this project is, what what motivated us to start it. Also, I think we'll talk about what what it is not. So how about I start with that? So, you know, what is what is this project? We felt it was important for we felt like one motivating factor is that there's very there's we got a sense that there's very little understanding of, 2 fundamental things. First, Bitcoin's really hard to change. And what makes it hard to change? Like, why does it? A lot of us invest in Bitcoin or work on Bitcoin with this underlying thesis that it's not centrally controlled and it basically doesn't change. What actually keeps that intact? So that's one question. And then the flip side of that is, if we, the broader Bitcoin space, wants to change Bitcoin, improve Bitcoin, what does that look like? How does that happen?
And what are some inherent risks with various mechanisms to pursue that. So this project attempts to observe and describe how, how change is prevented, and then also how it has happened in the past. And then it goes through one exploration for, for future considerations of how it could happen, in a in a risky way. It's sort of a cautionary tale, that, you know, a a mechanism that we'd want to avoid. So and it's it's also important to point out this is an open source project. A few of us came together to start it, to go from concept to a good starting point, but that's exactly what this is. It's a starting point. It's not the it's not the end. And so we've had a couple dozen people in the space for with different perspectives on Bitcoin, ranging from miners to ETF issuers to protocol developers to media influencers who have reviewed it. And now it's open source so anyone can contribute and we'd very much welcome that.
[00:09:30] ODELL:
Awesome. Do you have, like, a convenient to share URL or is it just hosted on GitHub?
[00:09:41] Steve Lee:
GitHub is the canonical place to go. Okay. So I'll I'll call it convenient, but it's get github.com/bitcoin dashcapcap.
[00:09:53] ODELL:
There we go. Yeah. I guess it's not that bad of a domain. Well, we will, we will link it in the show notes. Lynn, what is your high level thoughts on this, on this paper?
[00:10:05] Lyn Alden:
My view is that what's interesting about consensus is that how consensus is achieved changes over time. So it's not like trying to analyze a static thing that's always been a certain way. It's that it changes over time. So when when when Satoshi was around, you know, consensus changed one way, mainly him updating it. Then as as the network grew larger, it updated in different ways. My first article on Bitcoin was in 2017 during the block size war, basically, when that when that was kind of unfolding. So kind of seeing consensus in action, was pretty interesting.
And so for me, the the high level takeaway, I think, is that consensus is probably has more moving parts than people think and that we can't a 100% rely on the past to dictate what future consensus either opportunities or risks look like because the field does at least gradually shift over time as there's new types of entrants or as as power shifts around a little bit.
[00:11:04] ODELL:
Bit? Yeah. I mean, it's it's kind of like, people think of Bitcoin as a, like, a software project, you know, this open source project, which it is. But it's also, like, this movement of individuals. There's all these individuals and different stakeholders. And, obviously, they those stakeholders grow over time unless Bitcoin's a complete failure. More and more people are adopting it. I mean, obviously, we saw the ETFs, launch this year. Also, I mean, this is Michael Sailor's well, Michael Sailor just has his first having. So for, like, newcomers, they're like, oh, Michael Sailor is, like, the leader of Bitcoin.
He's relatively new in the scheme of things. So we've had a lot of new entrants, pension funds, presidents of the United States, you know, all over the place. So it's I think it's almost it's it's almost more helpful to think of Bitcoin almost as, like, this living organism because there's all these different constituents that are, like, constantly coming into it.
[00:12:09] Steve Lee:
Agreed. And that's also why we we don't wanna look at this as, like, a paper that 3 people writ wrote and published, and then we move on and people can read it. It's instead it is a it's a living it's a project, and it's a living project. We just happened to start it. But we're hoping that 10 years from now or more, it's still it's tie it's a timeless project and still can help be a valuable, you know, resource within Bitcoin. And and maybe I I didn't speak to what this project does not, and I think it's important too because because it touches on such a controversial spicy topic of of change and not change. Right? So we we've had large we're actually pretty happy. We announced it on Thursday. I spoke at an event Saturday in Boston, talking about it along with our, coauthor, Wren.
And, and overall, the reception's been quite good. We're we're really happy. But, you know, there there's also some people reacting saying that, you know or or, like, concerned that it's going to, like, incur it's, like, a pro change project. And I've actually and then, like and then there we'll we'll go through some of the things we we talk about in the project, but, you know, there's been people, not liking that were saying alternative Bitcoin implementations are like an important option in Bitcoin. And and we've heard the flip side, you know, so what what this project is not, no number 1 is it's not taking a position on changing Bitcoin. It's not taking a position that we should ever change Bitcoin or with the pace of change in Bitcoin, specifically with respect to consensus rules, not taking a position there.
It's also not attempting to be a blueprint for how to change Bitcoin or what Bitcoin consensus should be. It's just trying to observe how it has worked, currently works, it might work in the future. And it's also not advocating for any particular change. Like, there's several consensus proposals that are being discussed in within Bitcoin right now. It's not taking a position or championing any of it.
[00:14:27] ODELL:
I think that's a good disclaimer. The topic in general about how Bitcoin changes is a quite taboo topic after 2017, and the very hostile tension filled dynamic that played out during that period, which is one of the reasons why I was happy to, have this conversation on dispatch because I like the more spicy things. But, yes, there's definitely a subset of the community that probably just immediately see this and think of it as an attack on Bitcoin. I think I think the overwhelmingly a large portion of the research paper is basically just, like, outlining and trying to define, characteristics of Bitcoin and just providing, basically, a primer, which I think can be very helpful for people that are relatively new to the space. I mean, historically, trying to understand how the protocol evolves over time and and and changes or doesn't change in particular situations basically took proof of work. It took, like, time and space. Like, you just had to be here and live through it.
And it's it's hard for a newcomer to come here and understand it, and there's a reason like, every good meme is based on reality. There's a reason there's a meme that's you know, I'm new to Bitcoin, and I'm here to fix it, because it happens very, very often. You see a newcomer come in, particularly someone with deep pockets that buys a lot of Bitcoin, decides that they're gonna try and impose their way on Bitcoin. And I think this type of research and definitionally wise, like, all the different things that you guys outlined in the paper kind of preempt that to a degree. It's like you send them this paper and let them read it first so they're, like, not coming in on a blank slate. Before we continue, I just wanna shout out the freaks who have supported the show in our Nasser enabled live chat, which you can get at rhr.tv/stream.
We have Kibo who zapped us 21,000 sats saying Bitcoin is hope. We have The Great Gazoo who also zapped us 21,000 sats. I think he's advertising, his vinyl livestream on zap.stream called Papoosh Radio 73100. CIL dispatch is a pure value for value show. We have no ads or sponsors. I try and do everything the hard way to make my life more difficult, and I try and practice what I preach. So this is the result of that. If it wasn't for you guys, continue to support the show. Dispatch wouldn't happen. So thank you, guys. So, I mean, let's let's go high level first. I mean, do you I I I what are your so so so this idea that, I guess, I'm kind of coming from the perspective that I think it's it's pretty much impossible for there to be any kind of real contentious Bitcoin soft forks in our future. I've kind of feel like that period has passed.
I mean, Steve, we'll start with you. I'm just curious on, like, your opinion here. Like, do you I I kind of I I kind of think it's almost like a moot point in terms of a lot of these proposals. Like, I think it's kind of just people spinning their wheels in terms of different software proposals right now because it seems like they're so far away from any kind of broad consensus on changes that they're probably unlikely to happen.
[00:18:08] Steve Lee:
I generally agree. There there's several trends that we can observe that have made it harder. I mean, first of all, Bitcoin is just bigger than ever. Any metric you pick, price, number of adopters, number of businesses, number of, you know, podcasts, whatever metric you choose. It's 10 x bigger than 4 years ago. And just with more of everything, it's harder to coordinate, a chain. It's it's harder to to get consensus across 10 times more people, a 100 times more people. It's also harder to measure consensus. I mean, Lynn alluded to it earlier, which is, like, originally, it was just Satoshi, and Satoshi could make a change, and that was consensus. He just pushed the change.
Obviously, it's much harder now. So for that reason alone, I think it's I I agree. That I still think, I mean, there's changes that we there's there's one change we have to make, when we're sticking a bug that happens, like, when we're gonna be dead, but someone's gonna have to fix it before, you know, if we want Bitcoin to work after the year 21100. There's other bugs in consensus, and there's a change great consensus cleanup, which fix fixes a number of those bugs. In theory, we could live with those and just take the risks. There's risks associated with them. My own opinion is we let let's fix those.
But there's still software development work being done to to really get that prepared to its bulletproof and ready. But in terms of, like, adding new features, yeah, it's it's much harder. But there's there is more noise than ever, in terms of I mean, there's I shouldn't call I shouldn't just say noise. There's more talented software developers than ever exploring ways to improve Bitcoin in, you know, well intentioned ways. In addition to that, there's more noise than ever to get those changes in. And a lot of those different proposals, they they overlap, they do similar things, and it's extremely difficult even just within the protocol developer community to get consensus on like, yes, we want to change, and it's this option, not the other 7 that are similar. And and I'm referring to the covenants category.
[00:20:27] ODELL:
Right.
[00:20:28] Steve Lee:
Having said that, during the show, we should talk about the a soft fork scenario that we explored pretty deeply in this project, and we should definitely talk about, which is where, you can have relatively small consensus, a relatively small group of people attempt a soft fork and make strong progress towards it. So we probably wanna talk about the 6 stakeholder groups first before we jump into that, but let's definitely, on that show, go through that scenario just so I can we can have that conversation. You can poke at it and just so the audience hears it. Well, yeah, let's break down, first of all, the difference between a soft fork and hard fork, and then let's break down the 6 stakeholder groups. Sounds good.
[00:21:07] ODELL:
And either of you can who wants to lead on that?
[00:21:12] Lyn Alden:
I can I can do it? So, basically, soft fork is when there's a backward compatible change, in general, and the rule set continues to function with the older nodes. That's historically how Bitcoin has has changed. A hard fork is when, the rules are not backward compatible anymore. So the the block construction or the types of transactions are rejected by existing nodes, and therefore, you you fork the network into 2 truly different sets of coins that share a a similar history, but then will diverge from that point. And so for an example of a hard fork was the Bitcoin and Bitcoin cash split, back in 2017, whereas an example of soft fork is Taproot or Segwit, things that, update Bitcoin in a in a backward compatible way.
And for our our 6 kind of stakeholder groups, we were trying to define, what are the different sources of power in Bitcoin, and how do they wield that power. So we basically you know, you could you could make an argument for 3 stakeholder groups or 7 stakeholder groups. And we we landed on 6, and there was kinda discussion that went into that. And there's a pretty specific reason for it, which is that we define the stakeholder groups as being sufficiently different if they, you know, they have a power and an incentive to use that power. And if one or both of those variables is different, then they're effectively a different stakeholder group. Whereas, even if they're somewhat different, if they have effectively the same type of power and the same incentive to wield it, then they're, for most intents and purposes, kind of part of the same stakeholder group. So we landed on 6 after a lot of internal discussion for the this initial framework, And those are, investors, so, you know, sizable holders of Bitcoin or even just many many numbers of smaller, investors.
Another one is economic nodes. So that's nodes for exchanges and payment processors and brokerages. Basically, economic nodes that do a lot of volume, and therefore, what what version of the software they're running is highly relevant. Then there's miners, of course, in terms of, you know, adopting new changes or not adopting new changes and and what they include in a block. Then we have media influencers. Basically, anyone that is, persuasive and has an audience in the Bitcoin space. And, of course, you know, an entity or a person could be part of multiple of these categories. You can be an investor and a media person. You could be an investor and a miner. And then the last two categories are 2 different types of developers. We have protocol developers, people that work on, Bitcoin Core or in theory, alternative clients and basically the the the core underlying software that underpins the network. And then we have another group, which is, application developers, that are building things like wallets or, you know, alternative layers and and, building other things that, can connect to the network or or optimize the network. And the reason we split those up is because they they could have somewhat different incentives, regarding Bitcoin.
[00:24:20] ODELL:
Yeah. That all makes sense to me. I I mean, I think it's a key aspect here is that there's a lot of overlap. Right? There's a lot of individuals and organizations that fill multiple stakeholder things, which just makes it even a little bit more messy than it would be otherwise. Including people on the show. Right?
[00:24:38] Steve Lee:
All 3 of us in invest in different capacities, and, you know, the 2 of you have large audiences, media influencers, you know. So there's yeah. Many many people and companies can overlap or touch on multiple, stakeholder groups. But as Lynne mentioned, that's that's not our we're we're defining it as the the separation, like, the distinction of power and incentive.
[00:25:06] ODELL:
Right. Okay. So, Steve, this is your show. What is what do you think is the most productive, next step in this discussion?
[00:25:17] Steve Lee:
Yeah. I mean, there are several sort of well, what novel in we think novel insights are and and they can get spicy too. So we can just I don't think I think there's a particular order, but we can we can start tackling those. Maybe one is, you know, Lynn mentioned one of the groups' economic nodes. And something, Matt, we we chatted about beforehand is, like, that there's a I think there's a notion among a lot of Bitcoiners that, if you just if you run a Bitcoin node, it's like it's it's your rules. You can't change my rules. Right? And and, I mean, on the safe on the face of it, of course, that's true. Like, if I'm running Bitcoin Core in this laptop I'm on right now, it's the software is running on my computer. I'm in control of that software. So I can download the latest version of Bitcoin Core and run the those rules. And those are the rules that basically everyone else is running. But I can modify those rules.
I have self sovereignty there. I can do it. No one can stop me from changing their rules.
[00:26:17] ODELL:
Or you can choose or you can choose not to update. Right? Bitcoin yeah. Yeah. If if Bitcoin Core
[00:26:24] Steve Lee:
changes consensus rules, I can choose not to update that software, or just, you know, manually roll that back, but keep keep, you know, updating, but, remove that change. So, yes, it is certainly true on the face of it that each individual in Bitcoin who's running the Bitcoin software, they unilaterally choose which rules they run. But on the flip side, of course, is that you're only in control of your own node. You can't control everyone else's. So if everyone else does change the rules and you don't, then it well, it and, you know, and then it gets it it it depends on which type of fork we're talking about. But if it's a hard fork, then you're gonna be off. It's gonna be a chain split. You're gonna be off on a different network and a different coin. So, yes, you have that power to do that. But if literally the rest of the world forks off and you're not on that network and everyone else in the world calls it Bitcoin, then you did you were powerless in that extreme example.
And I
[00:27:31] ODELL:
mean, just just to add here, the whole point of soft works is that if you don't update it in in a soft works scenario, you can you're still you're still part of the consensus of the global network. You can still, you know, participate in the system without updating it, which is a key aspect to soft works versus soft hard works.
[00:27:50] Steve Lee:
Correct. And that's that's an advantage of softworks. It it is, it's complex, though. And so in in a in a few minutes, we'll go through a scenario where, we'll go through a specific type of softworks scenario, in which what you just said, the whole still holds true, but the it still doesn't mean there's not risk, in in and and that fragility cannot, you know, be be the case with with a a soft work as well. But the flip of that is also true. If I if I'm running a note on my computer and I change the rules, I like, I didn't that doesn't mean anything for the rest of the network or other people. I have to convince them to update the rules if that is what I think Bitcoin is. So the the b cap analysis, you know, the the category of economic nodes, as Lynn mentioned, it it implies I mean, the more volume done by a node, meaning Bitcoin sent and received, the more powerful it is within that category.
So if I'm just running Bitcoin Core on my laptop, but literally don't even have a wallet with I don't even receive coins, that's basically inconsequential. It really doesn't matter. So whereas if you're a super large exchange and you're doing 1,000,000 or tens of 1,000,000 of dollars of or more of volume per day, it is a much bigger factor when it comes to defining Bitcoin.
[00:29:25] ODELL:
But, I mean, I we're gonna have to just we're gonna this is gonna be a very fluid conversation. I'm excited for it. But, like, in 2017 in 2017, what happened was we had there was 2 elements of 2017. Right? So we had Bitcoin Cash, which was a pure hard fork, right, with replay protection. So at that point with Bitcoin Cash, when it forked in, I think, early August, if you were holding Bitcoin at that point, you had an equivalent amount of Bitcoin and Bitcoin Cash. It was 2 distinct so the the chains had shared history in the past, but going forward, they had diverged history.
And you could keep both if you if you just wanted to sit there or if you're in a coma or something or you could sell 1 or the other. And then later that year, we had sega two x, which died on arrival because there was a a bug in the it was an off by 1 error in the code. But Segwit 2x was led by pretty much every major company at that point in time. Almost every major company at that point in time supported Segwit 2x, and they controlled, the overwhelming majority of economic nodes. And Segwit 2x proceeded to fail, and the status quo remained.
[00:30:46] Steve Lee:
That's true. So my statement about within the economic node category, how much volume you do matters, that shouldn't be interpreted as, like, they're the they're the ones in charge. It's not like Coinbase is in charge or Cash App's in charge just because they do a lot of volume. It's just within that category, Coinbase or Cash App have more power than me running Bitcoin on my laptop within that role.
[00:31:13] Lyn Alden:
Yeah. I would also I would also add that, Segwit two x was a a a hard fork, and we we identified in the paper, and we're not the 1st to identify this, is that in in when you have a soft fork versus a hard fork, different levers of power matter differently. So in a hard fork, investors are very impactful right away because you can sell the coin that is out of favor that is, you know, generally gonna be the the one that's the hard fork, but in theory, you could sell the incumbent. But you can sell whichever coin you don't agree with, and that is very impactful very quickly. And even with futures market, you could you could affect that even before the the split happens and therefore affect which one is likely to win after the split. In a soft fork, at least for quite a while, investors are notably less powerful because, they they have they don't really have that lever to pull unless they decide they wanna get out of the network entirely. They're not really just deciding whether or not the the new soft fork is likely to be, adopted or not.
And so I think Steve's point about economic notice being relevant, especially in that category, that would be a somewhat different scenario than Segwit two x. So I think what we learned from the whole Newark agreement and that whole era is that, you know, trying to push a hard fork change that users and and, you know, the the the broader network doesn't like is obviously very hard to do. But in theory, they could they might have had more power, for example, if they got together and decided they like the soft fork. It could have been a different scenario or different, chance of of likelihood of success.
[00:32:48] Steve Lee:
Yeah. And then if we look at 2017, well, first of all, I don't think any of us know exactly what all the factors were that led to the failure of Segwit 2x. But, certainly, one of the components was in the fall of 2017, Bitfinex ran a futures market with the 2 coins, you know, Bitcoin and Segwit 2x. And if my recollection is correct, it was something like a 10 10 to 1 price difference between the 2. And so that that that's a and we did look it up. The the volume the the trends the the volume there was not as large as maybe I had thought. So it's it's not clear how much influence it had or or, like, or, like, how representative it was if the volume was relatively low, but it was it was a real thing, and people paid attention to it.
And that was certainly a signal for, like, what what the market was thinking, what Bitcoin is and should be, which is the original rules, not Segwit 2x. There's also earlier in 2017, a UASF movement and a lot of UASF discussion on Twitter. And if I recall correctly, Litecoin, did a UASF. And I I I definitely hear from a segment of Bitcoiners saying that, like, that was the reason. Like, the the user movement, UASF, saved the day from a 100% of you know, 95% of Hash rate, 95% of exchanges, etcetera. I I think the the the media influencer part of that was powerful.
It was it it like, the people yelling and screaming were very powerful in 2017. But again, like, if you're if if you're just a a small holder, you don't, you don't run a Bitcoin business, and you're just running a note at home that actually isn't, like, sending and receiving Bitcoin every day, then running running running Bitcoin and changing or or, you know, and and and running like a UASF sorry for the dogs. It's good. Isn't really gonna be that alone is not gonna be that impactful.
[00:35:05] ODELL:
Finally, not my dogs on air. We passed 86,000. Woo. Let's go. Open water Bitcoin, baby. People forget every price is was once an all time high. Every single number, was once an all time high. Yeah. I mean, I I think I think it's important at the high level to realize that, first of all, no change. It's almost it's like in warfare. Right? Like, the defenders always have the advantage. And in Bitcoin, no change is is that home field advantage. I I think in in in general, when you're looking at any kind of change to Bitcoin, the most likely outcome is is no change.
I mean, if I recall back to 2017, there was, like, very little organic support for segway 2 x. Like, it was just there was almost no one that was formally advocating for it except for this, like, form letter that was sent out by the big companies. And in the lead up to it, the only people really talking about it having a potential happening were saying that it was a chaotic outcome, and it provided uncertainty to Bitcoin. And then you had a loud minority. Well, I maybe even a majority, but the the loud people were saying that just wasn't gonna happen. It was bad for Bitcoin. And if you look back on the price action, what happened was it failed, and then we did our, you know, 20 x run, in Bitcoin price shortly thereafter. I mean, I remember and this is one of the tragedies of me deleting my x account.
I remember, like, Celsius Ryan Celsius, specifically, saying that everyone should just pile into Ethereum because there was so much uncertainty in Bitcoin land. That was a a relatively popular sentiment at the time with Segwit 2 x looming on the horizon. So it was like there was almost no proponents for it in, like, a in a vocal way as that thing played out.
[00:37:14] Steve Lee:
Yep. Agreed. Maybe we can walk through a potential future scenario, which just adds to this conversation, but get gets into a little more of the nuance. And and that's I mean, you just said, Matt, like, it's, you know, the defenders have an advantage. I I I agree with that, but I'm gonna walk through a scenario where we could get caught off guard. So let's which which is why which is why I think it's important to discuss this so that we're not caught off guard. And I would add real quick. I I can imagine and this leads into the point you're gonna make. I can imagine a scenario where,
[00:37:51] Lyn Alden:
contentious soft fork does have, some some grassroots support, but is contentious. Right? So and I think we're seeing that to some extent now. It's it's hard to measure exactly how big. And then one of the powers that media influencers have is to try to overstate the size of a, proposed thing or or try to understate that. And that can be very powerful because it can be self prophesizing in a way. You know? People wanna be on the the if something seems like it's gaining momentum, people generally are more inclined to go that route if they were kind of undecided to begin with. So I'll I'll leave it to Steve. But, basically, I I can imagine this scenario, it's it's well, I wouldn't call it a base case.
I do think it's mindful to be aware of, and that's part of why we did this project is we figured that knowledge is power, and knowledge, can help avoid some of what what could be, you know, some pretty trick tricky or technically damaging scenarios in some contentious situations.
[00:38:47] Steve Lee:
So so the scenario I'm gonna set up, what what or did you have something, Matt? No. Go. Okay. The the, it one of the trends or or observations that is important is that mining is more centralized than ever, which is sad. And we don't it's not healthy, and a bunch of people are working on making mining more decentralized. But the reality is right now, you can get 3 people in a room, the CEOs of the 3 largest mining pools, and they control something on the order of 95% of Hash rate. And that's I find that a bit alarming. It's not it's not as bad as it sounds just with what I said because miners can switch from one pool to another, and that those switching costs are relatively low.
So it's not like red alert bad, but it's but it's a yellow alert bad that something we wanna improve over time.
[00:39:51] ODELL:
I mean, before you continue, I would, I would I would say that mining centralization on the pool level is not as bad as it was historically. I mean, if you go back to 2017, Bitmain probably indirectly controlled, and specifically, Jihan probably indirectly controlled, like, 70, 75% of the hash. And now he probably indirectly well, not him because he left, he left Bitmain, but, like, the Bitmain mafia probably controls about 50% of the hash. And we have Foundry, which is, like, the soup KYC regulated mining pool that controls about 35% of the hash. So if you combine them together, you get to, like, 90, but they're 2 very different stakeholders. Right? Like, it's it's I mean, I I don't I'm I'm not saying that it's not something that we want to see improve.
And, yes, I am acknowledging the irony that I'm putting a lot of faith in the KYC suit, mining pool. But I will say that they seem like they have their heads on straight in a lot of ways, and I don't really interact with the Chinese side of the of the ballgame. But in general, miners, I think, would rather not have any kind of uncertainty or chaos or stuff. So I I think in in general, if we saw any kind of contentious type of attack type of change, a lot of miners would act in self interest and try and seek out a way to to mitigate that, whether that's switching pools as Steve said. Yeah. Primarily switching pools. Right? And now we do have, like, a you know, Ocean doesn't really have that much hash rate, but we have the ability for people to self mine. They have the ability to move to Ocean and use data and and and choose their own block instruction, or move to a foundry, for instance. Right? If they're doing one of the and just even more before we there's a lot of nuance here.
When I say that the Antpool, Bitmain mafia has 50%, it's because of of the way block instruction works. Basically, like, the central bank of AMP pool is handling a lot of the background for a lot of smaller pools. So there's a bunch of smaller pools that in effect can be thought of as one pool, and they all add up, to 50%. Okay, Steve. Now you can continue.
[00:42:10] Steve Lee:
Yeah. I agree with everything you said. And the my statement about increased centralization, I'd you know, over the past 4 years or so, 4, 5 years. And that's because of the the last thing you said, which is bitmain slash amp pool is like a front for for many of the other branded pools today. Yeah. And but, so and and, yes, it's true. Miners can switch away from pools. But a scenario that concerns me is one in which if there's some kind of business incentive for both, Foundry and Bitmain, which I agree, it's kinda it's healthy to have 2 2 very different types of companies in 2 very different jurisdictions run by, probably, very different cultures. That is healthy for Bitcoin. But let's say there's there's some commonality and some motive business motivation or ideological or whatever that convinces both.
It's possible that they you know, all they have to do is change the software they're running silently. They don't need to go through a signaling process or communicate it publicly. They can do it silently. And, you know, and change this offer to support some new consensus rule change. And and so in in in that scenario, there's, no fleeing of minors if they're if they're unaware. Now Right. Also in this scenario, let's say there's very let's say it's I mean, it's silent maybe that when the the miners start doing these these 2 or 3 mining pools, but then a handful of economic nodes and services adopt it because they're clamoring that they're like, some services depend that are being built today or depend on a consensus rule change.
Like, their VCs are funding them to do a startup and a service that depends on a consensus change. It's huge risk because as stated earlier, the odds are Bitcoin's not gonna change, which means the service won't work. But if, if, if the consensus change is supported by Hash rate, then those services could provide features that allow their customers to lock up Bitcoin with those new rules. And the rest of the network, the rest of the economic nodes do not can be blind to this or like, you know, they don't need to upgrade their software. They don't need to even be aware of it and this could happen.
And it's a very dangerous situation if the customers of these new services start locking up their Bitcoin. Because while it works fine, as long as the miners keep producing blocks that support those new rules, what can happen is if people are if are really locking up Bitcoin in these scripts with the new rules, that builds up a bounty.
[00:45:05] ODELL:
Right.
[00:45:06] Steve Lee:
And the reason it becomes a bounty is that if the miners if if Hash rates decides to effectively 51% attack and roll back those rules, what the rest of the network sees isn't anyone can spend. That's how soft forks work. So if the rest of the network never updated their software to support these new rules and the miners roll back those rules, the rest of the network doesn't lose any sleep. It literally doesn't change the rest of network at all. But what happens to the customers who locked up their Bitcoin with these new rules? They just lost all their money. Or I mean, what technically happens is there is a chain split.
There's a fork. And those who locked up their Bitcoin with the new rules and the services and economic nodes that support the new rules would be on one chain, and the rest of the network would be on the other chain. And, of course, that's like a total shit show scenario.
[00:46:03] ODELL:
Wait. Wait. Let's just walk through. So, hypothetically, the Ample Mafia, their 50% hash rate in Foundry, they both update to the self work. People are locking up funds or whatever. Then there's still, like, 10% of the hash that's not with them. And let's, you know, let's sit well, just for for simplicity's sake, let's say someone mines a block in ocean, and they construct their own block, and they're not running, you know, this, quote, unquote, secret self work. And they spend that money. They take that money from the users that are have their funds locked up. At that point, then that software becomes a hard fork. Then there's a retroactive chain split effectively. Right?
[00:46:52] Steve Lee:
Correct.
[00:46:53] ODELL:
And Yes. So, I mean, isn't there a game theory that as long as there's I I but I guess at that point, so much of the hash is on the other side, is on the secret software side, that it would have a significant amount more of cumulative proof of work, while the other side would have, like, 3% or 5% of the hash. But at that point, it would become very obvious that a that a secret software happened, and we'd be in Hartford territory.
[00:47:25] Steve Lee:
Yeah. I think I mean, there's at least a couple scenarios to explore here. The one the one I think you're talking about is where you don't get a 100% of hash rate supporting these new rules, but, like, 90 95% or something. And then, like, Ocean or whatever still is supporting legacy. There can be a hard fork from that. The scenario I'm talking about is, like, let let's just assume a a relatively cleaner, simpler scenario where we go from 0% of ASH rate supporting a new rule to a 100%. And then some transaction you know, some customers locking up funds with these new rules.
But the rest the vast majority of the network, not Hash Free, but economic nodes, don't upgrade their Bitcoin software to to enforce the new rules, which which and and and can happen out of ignorance. It doesn't mean they're against them or or, you know, it clearly means that they're not for them because they're they're not even they didn't upgrade. But it doesn't mean they're against them. They're just they could be unaware. Right. And then in that scenario, if it let's say, like, $1,000,000,000 like, let let's say someone builds, like, some gambling casino, meme coin trading service or something on you know, with these new rules.
You you can imagine that attracting tons of, customers who wanna get rich. And, like, let's say, $1,000,000,000 is locked up in Bitcoin transactions with these new rules. That's a large bounty. Because all that has to happen then is a single person in the world, it could be us, anyone, could broadcast the transaction that spends all of that $1,000,000,000 and pays yourself, and then you give, like, half of it to the miners in fees. Right. Like a incentive. Now that transaction goes nowhere if the miners continue to support the new rules because it would be invalid with the new rules. So it would just get rejected as invalid. However, the miners are gonna see this, like, half 1,000,000,000 or $1,000,000,000 incentive. And at some threshold, they're gonna be like, we want that money.
And if there's a 51% attack, if there's collusion among a very small set of mining pools that wanna capture that bounty and claim it, they they can do that. And if their if their calculation is correct, that like the vast majority of the Bitcoin network didn't upgrade the Bitcoin rules, then it it's only forking off the small faction that wanted that really pushed for these new rules. Another ingredient for this scenario is, or, or like another observation that's important to understand. Historically, every consensus change in Bitcoin that has occurred has been merged into the Bitcoin Core project, and it's come through Bitcoin Core.
And Bitcoin Core is one implementation of Bitcoin. It doesn't define Bitcoin. It's just one implementation, but it happens to be used by, like, 99% of the network. It's the dominant implementation of the network. So if a consensus change has merged there, it doesn't mean Bitcoin adopts it. But if there's not huge controversy over a consensus change, such as Taproot is a good example, or basically any change prior to Segwit, there wasn't, like, a lot of controversy in Bitcoin. And so the rest of the network just upgrades to the latest version of Bitcoin Core. And then they have those rules. For this scenario though, or I mean, what we're observing is that, that there might be protocol developers and in others in other stakeholders who want a consensus change in Bitcoin, but the Bitcoin Core project isn't prioritizing evaluating it or reviewing any changes, and it might not get merged into Bitcoin Core.
So part of the BCAP project, part of this this scenario that I'm describing is one in which an alternative client, like an alternative implementation is created to support the consensus rules. And that can simply just be a fork of Bitcoin Core, and you add in the the consensus change and then getting adoption of that. So so a huge part of this analysis and and the reason why in this scenario, the like I think the likely outcome is that most of the network doesn't adopt these consensus rules is because they'd have to switch away from Bitcoin Core to an alternative implementation. And that's a big decision. Like, imagine you're running a multimillion dollar business.
If you don't have a great business need to for this new consensus change, why would you adopt new software when the Bitcoin Core Project has been something you've relied on for many, many years, and it's worked well. Like it's earned its reputation of being secure, trustworthy, conservative around consensus changes. It it has that reputation for a good reason, and that's why most people run that software. It's a huge, huge challenge to get a network to adopt an alternative client.
[00:52:55] ODELL:
Yes. I mean, I think it's kind of a cop out, especially after all the work you guys did on the research paper, to say these two words. But, like, rash I mean and I guess the beauty of Bitcoin is you're not supposed to assume necessarily rational actors. You're just supposed to assume selfish, greedy actors. But rational actors, I mean, there's there's a game theory here where they wouldn't want to attempt some kind of secret software because it would be incredibly messy and, you know, the their their their goose is Bitcoin. Right? I mean, in 2017, Jeehan with a bit main, like, heavily supported b cash, but he never moved the majority of his hash rate over to b cash. Like, he could've, at any point, moved, you know, nearly 70% of the hash over to to b cash, and that just never happened.
And and there's there's something that's not objective and hard to quantify. But the reason presumably was because he was afraid that he's a nobody without Bitcoin. Right? Like, he's got nothing. And he was he was afraid of of disrupting that golden goose.
[00:54:12] Steve Lee:
Yeah. I, I I hope that's true. So, I mean, I hope this scenario described is so far fetched and unrealistic that it never comes to pass. But I think it's good to discuss it. And and just so that so if if it is as easy as, like, everyone's like, of course, we won't get in this path. Well, let's have people thinking about that and having it top of mind so we don't actually go down go down that line. Definitely hear from software developers. I mean, there's definitely frustration by people who have been earnestly working on, like, how to improve Bitcoin, technically, with, proposals.
And then frustration that it doesn't get the attention from any active Bitcoin core developers, or or not that many. And it doesn't get review cycles from the Bitcoin core project. And I guess another insight from working in DCAP is, the kind of power that Bitcoin Core developers have, particularly the maintainers. It's it's, like, actually the opposite of what I hear a lot of people new to Bitcoin think. Like, a lot of a lot of people new to Bitcoin or even the people who have been around Bitcoin for a long time but don't really understand the Bitcoin core project or developers very well, will assert that the maintainers, like, 5 people, are in control of Bitcoin.
Like, they can make they can change Bitcoin, and we're powerless. And, of course, that's ridiculous and false. Sure, they can, like, click a button and merge in a consensus change to Bitcoin Core. But number 1, it's public and transparent and everyone's gonna see that and be like, what the fuck are you doing? You know, if there's not if there's not consensus. And number 2, people don't have to update that software. I mean, if there is something that absurd, like, there would be a fork of the Bitcoin Core Project, and, like, people would just the the all the earnest or or, you know, honest developers would move to that. So, of course, they don't have that power.
But we but the flip of that, we observe that they do have, which is a a veto ish type power. And I say it ish because it's not a full veto. But because Bitcoin Core is so dominant on the network, it's it's so difficult to get to to coordinate the entire network to switch to a new project, a new implementation of Bitcoin. If the Bitcoin Core project doesn't merge any consensus change, it makes it very, very, very difficult for the network to adopt that change. You would need to go through a scenario like I described 5 minutes ago.
Right. So so I I do I do that power is is quite or that is a big power, by the Bitcoin Core maintainers.
[00:57:18] ODELL:
So, I mean, plenty of people are bullying me in the chat about audio quality and video quality. And, I I I think the recording, it will be much better quality. I am obviously not home. I'm not in the studio. But I can hear Lynn and Steve great, so I think the recording is gonna come out great. The is there an argument? Like, I feel sometimes I feel like people came out of 2017. Like, they took away the wrong things. Is there an argument that there should be more hard forks because it's cleaner than soft forks? Like, I I you know, VCaaS, obviously, the market completely rejected it. No one wanted it.
It didn't really have any kind of talented developers behind it. It was very much a I I I think it was just something clearly users didn't want. Right? And it was it was making the wrong trade off balance. But is there an argument to be made that's particularly for con contentious things? Like, anyone can hard fork. 1 of the coolest parts about Bitcoin is, like, literally, anyone can hard fork if they want to. Does it not have, like, way less edge cases and potentials for chaos if you just have them just hard fork and just see what happens?
[00:58:44] Steve Lee:
I mean, I think it well, you you sort of framed it as, like, for contentious changes. I mean, for for non contentious changes, I I let me first state. My my impression when I started really diving deep into Bitcoin and learning in 2017, my initial impression was soft forks are just decidedly better than hard forks. They for for any change that a software can be used. And I don't think it's that simple. I think it's definitely there's a set trade offs between the 2. It's it's not as that it's not that simple. But having said that, I still think for any noncontendious change, a soft fork, its its advantages outweigh hard forks. And because if it's non contentious, no we don't want anyone to fork off. We wanna keep the network intact. And there if the network is just so large and vast now, it it seems incredibly difficult to get the entire network.
You need a really, really, really long period of time, like 5 years or more to like, for a flag day, in which everyone has to have upgraded their rules within that very, very long period of time. And if you do it in, like I mean, we we show data in the paper on how long it takes just naturally for people to upgrade Bitcoin Core, and I think it's, like, on average, 40 40, you know, about a year or whatever. Alright. I figured if that's the maybe that's the 50 50th percentile or something. It takes a it it takes years for people to the whole network to upgrade. So that's my thoughts on on soft fork versus hard fork.
[01:00:23] Lyn Alden:
Yeah. But they yeah. Go on, man. I think that and I also think that so because hard forks are very hard to pull off compared to the incumbent network, most of the people that are in favor of a contentious change, let's say the more progressive side, people that are more technically progressive, they want a certain change. They have an incentive to try to make all of Bitcoin change or to have a change that that is compatible with the existing network. That's kind of what they ultimately wanna do. So from their perspective, I would see why they're trying to you know, they they they instead push more toward a contentious soft fork than push toward a a contentious hard fork and just kinda go play with their own coin.
[01:01:04] Steve Lee:
Barry, where are you? I totally agree.
[01:01:09] ODELL:
But, I mean, is it doesn't it go to reason that there's so many different types of stakeholders in Bitcoin that almost everything will be contentious at this point?
[01:01:20] Steve Lee:
Well, the the I mean, I mentioned the great consensus cleanup earlier. Like, I'm optimistic that that will get we'll see that change, and it won't be controversial. But it's in the category of bug fixes. Right? So, as as long as the the the software is created super well tested, vetted, and then the purpose of it is is clearly communicated, it's really hard to imagine any stakeholder not wanting to see it. Because because even if you like, if you're in the investor stakeholder group and you only your definition or or purp the purpose of Bitcoin in your mind is state, store of value.
That's all you care about. You should absolutely care about security that could ruin your store of value. So I do think that change is likely to get consensus, but new features, much harder. But but but again, if the the way the dynamics are right now, if the Bitcoin Core project can be convinced there's a change, including a new feature that is beneficial to the network and, doesn't introduce sufficient risk. And if it gets merged into Bitcoin Core, that's a very powerful step because the inertia of the network is to run Bitcoin Core and then upgrade to the latest version of Bitcoin Core. So it requires a response then by the network to not have that change occur. And I think Taproot is a good example of that. Most people in Bitcoin can't really explain Taproot.
I when it when it activated I mean, I know if you're on if you're if if if you're, you know, on Twitter or listen to your podcast, you probably have heard of it. But there's a lot of Bitcoiners who aren't on Twitter, and they, you know so so even in 2021 when it activated the, you know, I bet a huge portion of people in Bitcoin or hold Bitcoin weren't even aware of Taproot, and guess what? They they got it, you know. They they, and so I think I think that could occur again.
[01:03:32] ODELL:
Yeah. But it was I mean, a tavern might as well have been a decade ago. Like, that was, it was a different time. And I think there was also a level of complacency where I don't know. We had just been out of 2017. We were, like, riding high. Taproot had been, like, pretty well reviewed, and, like, people were just, like, the stakeholder dynamic right now is completely different. I I just I know it's an incredibly controversial opinion. And, but I I just to me, like, it was I still I feel like it's a wrong takeaway from 2017 with hard forks. Like, for whatever re like, I know why the main reason we're not we don't we we don't do hard fork first is a security reason. Right? And it make it makes sense to me. Right? This idea that, if we do a hard fork, they're all the previous clients aren't backwards compatible.
And the problem with that is if there's a bug introduced or something like that, the network just grinds to a halt instead of people being able to fall back to older nodes. Or if you're running an older node, it still works. Right? And that's a key aspect. This idea of soft forks being backwards compatible and idea of, like, being opt in is actually kind of bullshit in my mind. Because if you have a presegment node, for instance, you're not seeing any Segment transaction or any Taproot transaction. Like, you're basically not interacting with the network. You just you're not verifying the majority of of economic activity that's happening on the network. And, ultimately, you and you have no choice but to be a part of it. So, like, the so like, when you're talking about consent rather than technical things, when you're talking about social consent, soft work actually feels a little bit more insidious to me. It feels a little bit more like the Defender doesn't have the no change defender doesn't have as much agency in that situation.
While with a hard fork, like, 2017, yeah, it was chaotic to a degree. It was a little bit messy. But, ultimately, like, if you just slept through the whole thing, you still had just as much Bitcoin as as before. And and you had just as much Bitcoin cash as before, and you could just, like, wait it out and see what happened on each side. And you'd be completely fine. Like, yep. Some of us did quite well selling the Bitcoin Cash side, but you could just sit there. And I I yes. Just just real quick. When just for, like, something that's particularly contentious, like, why, like, why it's just weird to me that we don't see more hard forks. Like, why don't we just see, like I mean, I'll just call it out by by degree because, like, it seems like the thing that most, like, a a lot a lot of people, a vocal minority have wanted, which is opcat.
It's like, why don't we just see, like, an opcat hard fork? You just do it as a hard fork and then play it out and see see what happens rather than trying to do this whole song and dance.
[01:06:43] Steve Lee:
I I mean, I think Lynn's answer before is correct and and answered that. Like like, if let let's say that happened. I think most observers, certainly including me, that hard fork would be destined to be the the next BCH or BSB. It would be it would not get much hash rate. Investors wouldn't price it very high. It would just be this altcoin, almost certainly. And I think the people who are advocates for CAT, they they don't want that. They they genuinely and earnestly believe that CAT makes Bitcoin better. They're Bitcoiners. They wanna see Bitcoin have that. They wanna see the Bitcoin that all of us use have that. So as as Lyn said earlier, they're just they're they're not incentivized to do a hard fork. It's it's like the opposite of their goals. And I would I would point out my prior comment that,
[01:07:32] Lyn Alden:
hard forks and soft forks have different, different stakeholders have different levels of power in those scenarios. So, to your point, Matt, you know, hard forks and soft forks, affect those groups differently. So in a hard fork scenario, it gives the investors a lot more power, the vast majority of the power. Whereas, in a in a contentious soft fork scenario or any sort of soft fork scenario, that gives economic nodes, and some of the other stakeholder groups generally more power than those, investors at least until there's a sufficiently long time that if they decide they don't like that network anymore, they could sell and and they therefore, they could impair the network. But they don't really have much of a say while that while that change is going, and so the network can kinda move on without them. So I I agree that, you know, obviously, contentious softworks have risks. I mean, that's part of why we wrote this paper, to explore some of those risks.
But, yeah, I I don't disagree with you.
[01:08:32] ODELL:
I mean but do we do we agree that they're like, first of all, the 21100 bug that you mentioned, that and no one's figured out a way to do that with the software. So that's gonna require a hard fork. Presumably, something that we do way in advance that has a flag day that is, like, multiple clients compatible with. Right? Like, multiple releases of Bitcoin Core compatible with. So by the time we hit the hard fork, you could be running as, you know, a 5 year backdated version of Bitcoin Core and is still compatible with the hard fork, but it's gonna require a hard fork. But this idea that the the hard fork can never become the dominant chain, I think I think that might be misguided.
Like Agree. Just because like, Bitcoin Cash was fucking retarded, just to be frank. Like, it was never it never had a chance. That doesn't mean that we couldn't have something that made sense and had actual market demand that became the predominant chain and became, quote, unquote, Bitcoin. Like, who decides which change Bitcoin?
[01:09:33] Steve Lee:
Yep. I agree with you. It would just be, I agree too. It it would just it would be really controversial. Right? Because you gotta you gotta set a date. And, like, if you pick 1 year, I I think a huge portion of people would say that's way way too, soon. And Right. I I to to to get more people on board, not not only on board with the change, but on board with the activation mechanism, you'd need to pick it to be, like, 5 years or more. Then the people who want that change don't wanna wait 5 or 10 years for a flag day to drop. So I think that's an interesting dynamic to discuss. So in in fact, that whole scenario, I think, would be interesting to add to the BCAP project,
[01:10:19] Lyn Alden:
going deeper on that. I agree. Yeah. I think that I think my takeaway from that thing is that it it's not that hard forks can never win. It's that you need quite a lot of consensus to have the hard forks. And the ones that were proposed, or or activated ranging from b cache, to Segwit 2 x just didn't hit anywhere near the threshold that would be required. Whereas something like a critical bug with the existing chain, that's that's the that's the highest, you know, obvious case for making the hard fork win. And there could be other other scenarios that are just, so powerful. May maybe some maybe before that, like, 21100 thing happens, we have quantum computers and that that that finally becomes, like, a thing, And maybe there's changes around that or something like that. Like, they they basically it's something that threatens the existing chain in such a way that the hard fork is clearly superior in that type of environment is probably the the snares I I would envision for a successful hard fork.
[01:11:18] Steve Lee:
Another before we wrap, I wanna know, or I wanted to state another insight we had from the project, which I took away as a really positive takeaway that I had not thought of before, and I'm not sure how many others have as well. But I know that there's, like, a segment of Bitcoiners who are concerned about with the emergence of ETFs and big institutional money and powerful entities like that. What what could that mean for the future of Bitcoin? Are they gonna take control of Bitcoin and add add like KYC to the protocol, etcetera? There's like a fear of that. Definitely something we should be talking about and doing everything in our power to avoid. But from our analysis on this project, I think there's a case to be made for the self custody individual investor having disproportionate power within the investor class.
And if you wind up in any kind of hard fork scenario, where you fork a and fork b that are being priced, or a futures market where we're speculating on fork a or fork b? Which one's Bitcoin? Which one do we have volume there? Well, how does that market work? It requires someone that I mean, in the case of a hard fork, you you your your Bitcoin turns into 2 coins. I have the same, you know, x number of coins for both forks. If I really feel strongly that fork a is Bitcoin and fork b is not, and then fork a is going to hold future value, then if if I I can put my my mouth is, I can sell all of fork b and buy I can double my stack size on 4 k. It's super attractive value proposition if you have the guts to do it and you believe in it. Of course, if you're wrong and you and you literally sell all of 1 and doubled on the other, you could wind up 0 Bitcoin if you're not correct.
But in that scenario, who are the investors that are in a position to do that and do that quickly? It's self custody investors. They not only own the Bitcoin, but they control the keys. Whereas if you think about, like, BlackRock, Fidelity, and big ETF issues, they're likely to be very conservative because they don't own the coin they're controlling. In fact, they don't even they don't own it, and they don't control it. Coinbase controls the Bitcoin. BlackRock is just the issuer and then the owners are the shareholders. So it's a much more complicated situation.
And obviously, BlackRock is very and Coinbase are highly regulated companies. So they're going to be very risk averse. There's tons of people involved in decision. They're they're highly unlikely to sell one fork, dump it, and double down on the other when it's still contentious and being decided. Even, like, corporate treasuries are gonna be more slow moving and slow to act than a self custody investor. So, you know, given the early movement on such a market can really suggest which works is Bitcoin, I think self custody investors have a lot of power.
[01:14:42] ODELL:
I mean, this is one of the reasons why, like, hard forks for contentious stuff kinda appeal to me more. Not that, like, I pretend to be, like, the judge, jury, and executioner on this shit. I would say, Steve mentioned earlier, like, VCs are some VCs are investing in things that require consensus changes. I will just full stop say that 10 31, has a rubric where we will never invest in anything that requires a consensus change. And that's not even necessarily ideologically driven, which it also aligns with ideology. It is just straight. If you invest in things that require consensus changes, you're probably burning your investors' capital because it probably won't happen. Like, you pick any individual consensus change.
It is very unlikely to happen on an individual basis. And I think I see Lynn nodding. I'm from what I know, at least from the non stealth companies that EagerDath has invested,
[01:15:42] Lyn Alden:
I don't think they've invested in anything that requires a consensus change. Am I correct? That's correct. And I would say that the stealth one, is also in that category. It doesn't doesn't involve it's it's nothing particularly controversial.
[01:15:55] Steve Lee:
Yeah. Yeah. I do think there's a lot of naivete from, like, expecting Bitcoin to change for some of these new VC funded services. I mean, I myself lost a bet, that I made, in 2017 or 2018. I I bet 10,000,000 sats, that Any Prevout and Taproot would be activated by the end of, I think, 2020 or something like that. And Any Prevout has never been activated and Taproot activated, like, 9 months after I the the the bet. So, well, that that's now, like, 8, $9,000. So I feel I learned my lesson there of something I was, like, really excited about and bullish on, and I thought made a lot of sense for Bitcoin. And I every every day in Bitcoin, I just learned how slow things move. And I I, like, I very much embrace that now. But, yeah, if you're new to Bitcoin and you're a VC and you're like, oh, all these shiny new things that can be done, they sound exciting, I can see how that can be, seductive. But, it it it, at minimum, has to be acknowledged as an enormous risk. I mean, investing in start ups is already a huge risk, and then you have, like, a 10 x multiplier if not only the service that's getting created finds product market fit and customers and business model, but you also need Bitcoin to change. It's like a 10 x risk multiplier.
[01:17:28] ODELL:
Awesome. Any other insights you wanna cover, from the paper?
[01:17:35] Lyn Alden:
One of the last ones is that we, define state of mind, which is that different different groups can have different, levels of conviction. So we we've, again, broke that down into 6 categories. So on one end of the spectrum, there's people that are for a change, but then are also willing to expend resources to try to make that change happen. Then there are people that are on the other side that are against it and willing to expend resources, to stop that change from happening. Then you have the 2 that are in a little bit where they either support it or against it, but they're just kinda hands off. And there's 2 in the middle that are neutral for different reasons. One is that they're they're aware of the change, and they don't have an opinion. They just decide I'm I'm not technical. I'm I'm just gonna let the network figure it out, or, they just don't even know it's happening. They they couldn't tell you it's happening. And so one of our goals with the paper, is to to get more people out of the unaware camp at least, to kind of increase the overall level of education, including for ourselves, on how the network works and what some of the risks are in consensus, because we've I guess we figure or at least I figured that a more informed network is a healthier network.
[01:18:46] Steve Lee:
Yep.
[01:18:47] ODELL:
Awesome. Yeah. I agree. Knowledge is power.
[01:18:51] Steve Lee:
Yeah. I agree. Knowledge is power. And just one one last thing. Again, it's an open source project. It's the beginning, not the end. So we very much welcome people to engage. We're not claiming this is a perfect analysis or that we have all the answers here in this analysis. So, there's undoubtedly things that can be improved and and new additions. And as as Lynn said earlier, Bitcoin keeps changing as well. Even if this were a perfect analysis, it wouldn't be a perfect analysis in in a few years. So we welcome contributors to, file issues if they see problems. If people wanna actually, you know, open PRs and and and improve it, we would love to see that.
And then people who are, you know, really highly engaged in helping with the project, we'd love to have more maintainers of the project as well. And people from different stakeholder groups, you know, a good diversity in in people who are engaging in the project would be would be great.
[01:19:52] ODELL:
Wonderful. Thank you guys for joining. I enjoyed this conversation. I hope to have both of you on again sometime in the future. I mean, Steve's a pretty much a constant routine guest, but, Lynn, it would be a pleasure to have you back. I appreciate that. It's been great to be here. I think it was a good discussion. Wonderful. So thank you guys for joining. Thanks to the freaks who joined us in the live chat. Huge shout out to the freaks who continue to support the show whether through podcasting 2.0 apps or through Zaps, on zap.stream. The top the top boost on podcasting 2.0 apps, from last week was 8 Myth Renderer, rider, die free with 21100 sets saying good grip.
Thank you. I I love having Adam back on. And stay on with success. Appreciate you guys. Peace.
[01:20:46] Unknown:
Thank you.
[01:20:54] Unknown:
Our world is chaotic, but life found its way by channeling energy to bring order to chaos. It is in our nature to seek signals amongst noise because it is through communication and exchange that we evolve beyond the darkness of chaos into the dawn of civilization. Our evolution thrives in exchange of all the info we try to convey. They flow through to the marketplace and form the signals to regulate how we coordinate where things need to be. Price speaks so we learn to compete. This drives us to efficiently shape the world with our voice. Now let the market speak. So we build, we sow, we trade, we grow to meet our wants and needs. We specialize and drive from the mind, our creations into reality. We make progress in our process to get more for less, advancing society before forth dawn of the age of technology that harnessed the energy to reach prosperity.
Our money embodies the power to reap what we sow, so the market becomes a channel for our collective energy to flow. When value is traded for value, we are aligned and so we evolve. This is how amidst uncertainty, life continues to grow. But the dawn of tech gave rise to light speed information exchange. So to transact fast, we further abstract money from energy constraints and became more aligned on a few large entities to coordinate trade, concentrating the power, resources, and authority to create more and more of our money, distorting its signals, eroding its worth, and throwing us back into the darkness of chaos.
When we destroy the mechanism of money, we destroy our ability to navigate through uncertainty. And when we can't trade value freely and directly, we must trust the few to govern the many. What happens when all our means center around an authority? Complexity builds, now coordination relies on conformity. Observe our thoughts, the sense of dissent and coerce our actions. Can there be true innovation when there's no freedom of expression? What happens to our voice, the ones that shape social discourse? Now whose ideas get created and which problems get solved? Because our progress depends on hearing many sides to resolve, then why would we suppress the voice that shapes how humanity evolves? When we cut off the perspectives that make up society, we lose sight of the truth that forms our entire reality.
Each person's contribution builds up our resiliency. Did we forget these differences are what what strengthens humanity? When communication breaks, our words turn to silence. Our acts become violent and the world is divided amongst darkness. Truth is twisted by our pain and our bias, eroding the common ground, making us more and more fragile. To navigate uncertainty, we must solve for robustness, so everything gets tried and tested by various efforts, until we discover the system that best coordinates us. Mirrors life's process of channeling energy to create signal from chaos. In the era of technology, we transform energy into computational power to process the noise of free markets into structured order. And just by looking at numbers, we can derive how much power is required to reduce chaos and inscribe a flow of value for order verify that our transactions happened in line with shared rules. We don't need to seek trust when we can see proof. It is real time consensus that our lines is to evolve. This is how amidst uncertainty our lives continue to grow when we uphold our own rules. We preserve our own work and defend our own voice, which lets the true market emerge. The strength of the design lies in each of our participation since we are the nodes of channel, our energy end to end. As we claim responsibility to uphold our own rights, we radiate the power that brings our truth into light And when that dawn of light touches all parts of the globe and it ripples throughout society and it returns us the hope that becomes the power that sparks humanity to thrive, that same power that fuels the creation of the mind. And when our mind and our money are truly set free and they transcend the limits of past boundaries, now knowing becomes owning and ideas become wealth. What happens now we can all push to expand the edges of our existence and assume evolution when things are in the hardest. As we head for the light, we have to push through the darkness that is in these moments. We do what we do best. We take the chaos in the darkness and use our power to create. It is in these moments when we're all in alignment and afraid of a difference, ascends us to a highest and distant depth of it all. Know that hope is not gone. It is always the darkest before dawn.
Bitcoin is hitting new highs above 80 actually above 82,000. And Mackenzie Tagalos joins us now with a look inside the ice. Was there ever a time, Mackenzie, where you said, why am I gonna be a crypto expert that's a big risk? Now look at you. Now look at you. We can't get we can't get enough of you. 82,000.
[00:00:18] Unknown:
Yeah. I know in 2017, I was talking to Bitcoin miners in Venezuela who were doing it to make ends meet. But now Bitcoin topping $82,000 this morning. As futures premiums jump higher, traders are now betting over $2,900,000,000 on Bitcoin soon rising past that 85 k threshold on the popular derivatives exchange, Derabit. The wider crypto market also seeing out sized gains this morning. Ether has eclipsed Bitcoin's rise up 30% in the last 7 days, and Solana's market cap topped a $100,000,000,000 level on Sunday on the back of US elections that saw a swell of pro crypto candidates win office. Now the total market cap of all those spot Bitcoin ETFs is now above $80,000,000,000 with inflows surging in the last 3 trading days as institutions and their clients pile into the Bitcoin trade post election.
Within Fintech stocks, crypto aligned companies, Coinbase and Robinhood, both of whom are in legal fights with the SEC are moving higher pre market, and most Bitcoin miners are all seeing double digit percentage gains as well. Donald Trump, remember, promised that all future Bitcoin will be mined in the US and pledged to rapidly build out the country's energy production and transmission infrastructure, which is a great thing for those power hungry miners. This is one of multiple commitments made by the president-elect to the crypto industry on the campaign trail along with vowing to fire SEC chair Gary Gensler and to launch a national crypto stockpile.
[00:01:43] Unknown:
Just looking at micro strategy and thinking about 50,000,000,000. No. But thinking about Michael Saylor in all along, what his viewpoint has been and how he he wasn't shy at all about and he really he almost in real life has his laser eyes. Almost in real life. What? But the stackers and the hodlers, they must be at this point, anyone who has been stacking or hodling
[00:02:07] Unknown:
is on top of the world. Oh, absolutely. Micro strategy was a first mover in terms of adding Bitcoin to their balance sheet, and that's why this national crypto stockpile is so compelling. So, essentially, the US government has $16,000,000,000 worth of Bitcoin already on its balance sheet that it has amassed through these seizure operations. But what Donald Trump is talking about doing is not only holding on to that, but he's also been talking to senator Lummis and her team who put forth legislation to buy 1,000,000 Bitcoin over the course of 5 years so that ultimately you get a supply of Bitcoin held by the US government that is in, you know, tantamount to what we have in gold reserves. 5% of the total Bitcoin supply. So it's just it's just you're even seeing the US government potentially leaning into this huddle strategies you were saying. Well, either you're just really excited about your job or you're orange pilled, one of the other. I I can tell how quickly you talk and how much you know about this. So you eat it up. Do do you not? No. I do. And I think that I think that especially that promise to fire SCC chair Gensler on day 1 in office is why you're seeing stocks like Coinbase and Robinhood do so well. Because you've got Coinbase that's been fighting the regulator for over a year in court. You've got Robinhood that has a Wells notice in May, so it may not materialize in an actual lawsuit if you see a change of leadership at the top of the SEC.
So it's a lot of these stocks are optimistic about what a Trump presidency might mean. I saw Anthony who we had a
[00:03:27] Unknown:
a fun show on on Friday with with the Mooch, and he's mad at Elizabeth Warren. And he he took it out on her again, and it was tweeting about her with her anti Bitcoin stance being part of the,
[00:03:39] Unknown:
not really the election losses, but being at least involved in in taking her to task. But, I mean, that's what's been so incredible. You should think there were a lot of things. There might have been a lot of there might but among other things. North of 280 pro crypto law makers elected to congress, and you saw, what, $250,000,000 raised by the crypto industry this cycle, that money was effective.
[00:04:36] ODELL:
Happy Bitcoin Monday, freaks. It's your host Odell here for another Citadel Dispatch. The interactive live show focused on actual Bitcoin and Freedom Tech discussion. We are officially back at open water Bitcoin. Pump it right into my veins. I always forget how it feels. It feels amazing. It's good to be here with you all. We have a very important topic today. We will be having heavy price discussion. No. I'm kidding. We will not be having heavy price discussion, but we will be talking about Bitcoin consensus and how Bitcoin, works at the protocol level in terms of any potential changes or no potential changes going forward.
I have 2 of my good friends here to join us. But before we get started, that intro was, a clip from the largest Bitcoin podcast in the world, CNBC's Squawk Box that broadcast every morning. Our boy, Joe Kernan, reminding the world that the Stackers and the HODLers are in charge, and they are all just following our lead. So with all that said, we got Steve Lee here, Bitcoin lead at spiral, blocks, formerly Square's, open source development division. How's it going, Steve?
[00:06:05] Steve Lee:
Really, really good. Thanks for having me. And it's kinda funny after, 2 or 3 years, we still have to preface what block is.
[00:06:15] ODELL:
I'm just I I have to say just to just to show I do too. I I do as well. And we have first time guest on sale of dispatch. It's been a long time coming. I can't believe it hasn't happened yet. We have, partner at Ego Death, founder of Lin Alden Investments, and a recently published author, with her broken money book. And she's about to release a sci fi book that she's been teasing on now, sir. We have Lynn Alden here. How's it going, Lynn? Pretty good. Happy to be here finally. Cheers. It's a pleasure. So we will be talking about Bitcoin consensus. You guys just released a paper on this.
You did a lot of work doing a research paper. Steve, where do you want us to start? What do you what are you thinking is important takeaways here? Where do you want this discussion to go?
[00:07:14] Steve Lee:
We can start really high level, what this project is, what what motivated us to start it. Also, I think we'll talk about what what it is not. So how about I start with that? So, you know, what is what is this project? We felt it was important for we felt like one motivating factor is that there's very there's we got a sense that there's very little understanding of, 2 fundamental things. First, Bitcoin's really hard to change. And what makes it hard to change? Like, why does it? A lot of us invest in Bitcoin or work on Bitcoin with this underlying thesis that it's not centrally controlled and it basically doesn't change. What actually keeps that intact? So that's one question. And then the flip side of that is, if we, the broader Bitcoin space, wants to change Bitcoin, improve Bitcoin, what does that look like? How does that happen?
And what are some inherent risks with various mechanisms to pursue that. So this project attempts to observe and describe how, how change is prevented, and then also how it has happened in the past. And then it goes through one exploration for, for future considerations of how it could happen, in a in a risky way. It's sort of a cautionary tale, that, you know, a a mechanism that we'd want to avoid. So and it's it's also important to point out this is an open source project. A few of us came together to start it, to go from concept to a good starting point, but that's exactly what this is. It's a starting point. It's not the it's not the end. And so we've had a couple dozen people in the space for with different perspectives on Bitcoin, ranging from miners to ETF issuers to protocol developers to media influencers who have reviewed it. And now it's open source so anyone can contribute and we'd very much welcome that.
[00:09:30] ODELL:
Awesome. Do you have, like, a convenient to share URL or is it just hosted on GitHub?
[00:09:41] Steve Lee:
GitHub is the canonical place to go. Okay. So I'll I'll call it convenient, but it's get github.com/bitcoin dashcapcap.
[00:09:53] ODELL:
There we go. Yeah. I guess it's not that bad of a domain. Well, we will, we will link it in the show notes. Lynn, what is your high level thoughts on this, on this paper?
[00:10:05] Lyn Alden:
My view is that what's interesting about consensus is that how consensus is achieved changes over time. So it's not like trying to analyze a static thing that's always been a certain way. It's that it changes over time. So when when when Satoshi was around, you know, consensus changed one way, mainly him updating it. Then as as the network grew larger, it updated in different ways. My first article on Bitcoin was in 2017 during the block size war, basically, when that when that was kind of unfolding. So kind of seeing consensus in action, was pretty interesting.
And so for me, the the high level takeaway, I think, is that consensus is probably has more moving parts than people think and that we can't a 100% rely on the past to dictate what future consensus either opportunities or risks look like because the field does at least gradually shift over time as there's new types of entrants or as as power shifts around a little bit.
[00:11:04] ODELL:
Bit? Yeah. I mean, it's it's kind of like, people think of Bitcoin as a, like, a software project, you know, this open source project, which it is. But it's also, like, this movement of individuals. There's all these individuals and different stakeholders. And, obviously, they those stakeholders grow over time unless Bitcoin's a complete failure. More and more people are adopting it. I mean, obviously, we saw the ETFs, launch this year. Also, I mean, this is Michael Sailor's well, Michael Sailor just has his first having. So for, like, newcomers, they're like, oh, Michael Sailor is, like, the leader of Bitcoin.
He's relatively new in the scheme of things. So we've had a lot of new entrants, pension funds, presidents of the United States, you know, all over the place. So it's I think it's almost it's it's almost more helpful to think of Bitcoin almost as, like, this living organism because there's all these different constituents that are, like, constantly coming into it.
[00:12:09] Steve Lee:
Agreed. And that's also why we we don't wanna look at this as, like, a paper that 3 people writ wrote and published, and then we move on and people can read it. It's instead it is a it's a living it's a project, and it's a living project. We just happened to start it. But we're hoping that 10 years from now or more, it's still it's tie it's a timeless project and still can help be a valuable, you know, resource within Bitcoin. And and maybe I I didn't speak to what this project does not, and I think it's important too because because it touches on such a controversial spicy topic of of change and not change. Right? So we we've had large we're actually pretty happy. We announced it on Thursday. I spoke at an event Saturday in Boston, talking about it along with our, coauthor, Wren.
And, and overall, the reception's been quite good. We're we're really happy. But, you know, there there's also some people reacting saying that, you know or or, like, concerned that it's going to, like, incur it's, like, a pro change project. And I've actually and then, like and then there we'll we'll go through some of the things we we talk about in the project, but, you know, there's been people, not liking that were saying alternative Bitcoin implementations are like an important option in Bitcoin. And and we've heard the flip side, you know, so what what this project is not, no number 1 is it's not taking a position on changing Bitcoin. It's not taking a position that we should ever change Bitcoin or with the pace of change in Bitcoin, specifically with respect to consensus rules, not taking a position there.
It's also not attempting to be a blueprint for how to change Bitcoin or what Bitcoin consensus should be. It's just trying to observe how it has worked, currently works, it might work in the future. And it's also not advocating for any particular change. Like, there's several consensus proposals that are being discussed in within Bitcoin right now. It's not taking a position or championing any of it.
[00:14:27] ODELL:
I think that's a good disclaimer. The topic in general about how Bitcoin changes is a quite taboo topic after 2017, and the very hostile tension filled dynamic that played out during that period, which is one of the reasons why I was happy to, have this conversation on dispatch because I like the more spicy things. But, yes, there's definitely a subset of the community that probably just immediately see this and think of it as an attack on Bitcoin. I think I think the overwhelmingly a large portion of the research paper is basically just, like, outlining and trying to define, characteristics of Bitcoin and just providing, basically, a primer, which I think can be very helpful for people that are relatively new to the space. I mean, historically, trying to understand how the protocol evolves over time and and and changes or doesn't change in particular situations basically took proof of work. It took, like, time and space. Like, you just had to be here and live through it.
And it's it's hard for a newcomer to come here and understand it, and there's a reason like, every good meme is based on reality. There's a reason there's a meme that's you know, I'm new to Bitcoin, and I'm here to fix it, because it happens very, very often. You see a newcomer come in, particularly someone with deep pockets that buys a lot of Bitcoin, decides that they're gonna try and impose their way on Bitcoin. And I think this type of research and definitionally wise, like, all the different things that you guys outlined in the paper kind of preempt that to a degree. It's like you send them this paper and let them read it first so they're, like, not coming in on a blank slate. Before we continue, I just wanna shout out the freaks who have supported the show in our Nasser enabled live chat, which you can get at rhr.tv/stream.
We have Kibo who zapped us 21,000 sats saying Bitcoin is hope. We have The Great Gazoo who also zapped us 21,000 sats. I think he's advertising, his vinyl livestream on zap.stream called Papoosh Radio 73100. CIL dispatch is a pure value for value show. We have no ads or sponsors. I try and do everything the hard way to make my life more difficult, and I try and practice what I preach. So this is the result of that. If it wasn't for you guys, continue to support the show. Dispatch wouldn't happen. So thank you, guys. So, I mean, let's let's go high level first. I mean, do you I I I what are your so so so this idea that, I guess, I'm kind of coming from the perspective that I think it's it's pretty much impossible for there to be any kind of real contentious Bitcoin soft forks in our future. I've kind of feel like that period has passed.
I mean, Steve, we'll start with you. I'm just curious on, like, your opinion here. Like, do you I I kind of I I kind of think it's almost like a moot point in terms of a lot of these proposals. Like, I think it's kind of just people spinning their wheels in terms of different software proposals right now because it seems like they're so far away from any kind of broad consensus on changes that they're probably unlikely to happen.
[00:18:08] Steve Lee:
I generally agree. There there's several trends that we can observe that have made it harder. I mean, first of all, Bitcoin is just bigger than ever. Any metric you pick, price, number of adopters, number of businesses, number of, you know, podcasts, whatever metric you choose. It's 10 x bigger than 4 years ago. And just with more of everything, it's harder to coordinate, a chain. It's it's harder to to get consensus across 10 times more people, a 100 times more people. It's also harder to measure consensus. I mean, Lynn alluded to it earlier, which is, like, originally, it was just Satoshi, and Satoshi could make a change, and that was consensus. He just pushed the change.
Obviously, it's much harder now. So for that reason alone, I think it's I I agree. That I still think, I mean, there's changes that we there's there's one change we have to make, when we're sticking a bug that happens, like, when we're gonna be dead, but someone's gonna have to fix it before, you know, if we want Bitcoin to work after the year 21100. There's other bugs in consensus, and there's a change great consensus cleanup, which fix fixes a number of those bugs. In theory, we could live with those and just take the risks. There's risks associated with them. My own opinion is we let let's fix those.
But there's still software development work being done to to really get that prepared to its bulletproof and ready. But in terms of, like, adding new features, yeah, it's it's much harder. But there's there is more noise than ever, in terms of I mean, there's I shouldn't call I shouldn't just say noise. There's more talented software developers than ever exploring ways to improve Bitcoin in, you know, well intentioned ways. In addition to that, there's more noise than ever to get those changes in. And a lot of those different proposals, they they overlap, they do similar things, and it's extremely difficult even just within the protocol developer community to get consensus on like, yes, we want to change, and it's this option, not the other 7 that are similar. And and I'm referring to the covenants category.
[00:20:27] ODELL:
Right.
[00:20:28] Steve Lee:
Having said that, during the show, we should talk about the a soft fork scenario that we explored pretty deeply in this project, and we should definitely talk about, which is where, you can have relatively small consensus, a relatively small group of people attempt a soft fork and make strong progress towards it. So we probably wanna talk about the 6 stakeholder groups first before we jump into that, but let's definitely, on that show, go through that scenario just so I can we can have that conversation. You can poke at it and just so the audience hears it. Well, yeah, let's break down, first of all, the difference between a soft fork and hard fork, and then let's break down the 6 stakeholder groups. Sounds good.
[00:21:07] ODELL:
And either of you can who wants to lead on that?
[00:21:12] Lyn Alden:
I can I can do it? So, basically, soft fork is when there's a backward compatible change, in general, and the rule set continues to function with the older nodes. That's historically how Bitcoin has has changed. A hard fork is when, the rules are not backward compatible anymore. So the the block construction or the types of transactions are rejected by existing nodes, and therefore, you you fork the network into 2 truly different sets of coins that share a a similar history, but then will diverge from that point. And so for an example of a hard fork was the Bitcoin and Bitcoin cash split, back in 2017, whereas an example of soft fork is Taproot or Segwit, things that, update Bitcoin in a in a backward compatible way.
And for our our 6 kind of stakeholder groups, we were trying to define, what are the different sources of power in Bitcoin, and how do they wield that power. So we basically you know, you could you could make an argument for 3 stakeholder groups or 7 stakeholder groups. And we we landed on 6, and there was kinda discussion that went into that. And there's a pretty specific reason for it, which is that we define the stakeholder groups as being sufficiently different if they, you know, they have a power and an incentive to use that power. And if one or both of those variables is different, then they're effectively a different stakeholder group. Whereas, even if they're somewhat different, if they have effectively the same type of power and the same incentive to wield it, then they're, for most intents and purposes, kind of part of the same stakeholder group. So we landed on 6 after a lot of internal discussion for the this initial framework, And those are, investors, so, you know, sizable holders of Bitcoin or even just many many numbers of smaller, investors.
Another one is economic nodes. So that's nodes for exchanges and payment processors and brokerages. Basically, economic nodes that do a lot of volume, and therefore, what what version of the software they're running is highly relevant. Then there's miners, of course, in terms of, you know, adopting new changes or not adopting new changes and and what they include in a block. Then we have media influencers. Basically, anyone that is, persuasive and has an audience in the Bitcoin space. And, of course, you know, an entity or a person could be part of multiple of these categories. You can be an investor and a media person. You could be an investor and a miner. And then the last two categories are 2 different types of developers. We have protocol developers, people that work on, Bitcoin Core or in theory, alternative clients and basically the the the core underlying software that underpins the network. And then we have another group, which is, application developers, that are building things like wallets or, you know, alternative layers and and, building other things that, can connect to the network or or optimize the network. And the reason we split those up is because they they could have somewhat different incentives, regarding Bitcoin.
[00:24:20] ODELL:
Yeah. That all makes sense to me. I I mean, I think it's a key aspect here is that there's a lot of overlap. Right? There's a lot of individuals and organizations that fill multiple stakeholder things, which just makes it even a little bit more messy than it would be otherwise. Including people on the show. Right?
[00:24:38] Steve Lee:
All 3 of us in invest in different capacities, and, you know, the 2 of you have large audiences, media influencers, you know. So there's yeah. Many many people and companies can overlap or touch on multiple, stakeholder groups. But as Lynne mentioned, that's that's not our we're we're defining it as the the separation, like, the distinction of power and incentive.
[00:25:06] ODELL:
Right. Okay. So, Steve, this is your show. What is what do you think is the most productive, next step in this discussion?
[00:25:17] Steve Lee:
Yeah. I mean, there are several sort of well, what novel in we think novel insights are and and they can get spicy too. So we can just I don't think I think there's a particular order, but we can we can start tackling those. Maybe one is, you know, Lynn mentioned one of the groups' economic nodes. And something, Matt, we we chatted about beforehand is, like, that there's a I think there's a notion among a lot of Bitcoiners that, if you just if you run a Bitcoin node, it's like it's it's your rules. You can't change my rules. Right? And and, I mean, on the safe on the face of it, of course, that's true. Like, if I'm running Bitcoin Core in this laptop I'm on right now, it's the software is running on my computer. I'm in control of that software. So I can download the latest version of Bitcoin Core and run the those rules. And those are the rules that basically everyone else is running. But I can modify those rules.
I have self sovereignty there. I can do it. No one can stop me from changing their rules.
[00:26:17] ODELL:
Or you can choose or you can choose not to update. Right? Bitcoin yeah. Yeah. If if Bitcoin Core
[00:26:24] Steve Lee:
changes consensus rules, I can choose not to update that software, or just, you know, manually roll that back, but keep keep, you know, updating, but, remove that change. So, yes, it is certainly true on the face of it that each individual in Bitcoin who's running the Bitcoin software, they unilaterally choose which rules they run. But on the flip side, of course, is that you're only in control of your own node. You can't control everyone else's. So if everyone else does change the rules and you don't, then it well, it and, you know, and then it gets it it it depends on which type of fork we're talking about. But if it's a hard fork, then you're gonna be off. It's gonna be a chain split. You're gonna be off on a different network and a different coin. So, yes, you have that power to do that. But if literally the rest of the world forks off and you're not on that network and everyone else in the world calls it Bitcoin, then you did you were powerless in that extreme example.
And I
[00:27:31] ODELL:
mean, just just to add here, the whole point of soft works is that if you don't update it in in a soft works scenario, you can you're still you're still part of the consensus of the global network. You can still, you know, participate in the system without updating it, which is a key aspect to soft works versus soft hard works.
[00:27:50] Steve Lee:
Correct. And that's that's an advantage of softworks. It it is, it's complex, though. And so in in a in a few minutes, we'll go through a scenario where, we'll go through a specific type of softworks scenario, in which what you just said, the whole still holds true, but the it still doesn't mean there's not risk, in in and and that fragility cannot, you know, be be the case with with a a soft work as well. But the flip of that is also true. If I if I'm running a note on my computer and I change the rules, I like, I didn't that doesn't mean anything for the rest of the network or other people. I have to convince them to update the rules if that is what I think Bitcoin is. So the the b cap analysis, you know, the the category of economic nodes, as Lynn mentioned, it it implies I mean, the more volume done by a node, meaning Bitcoin sent and received, the more powerful it is within that category.
So if I'm just running Bitcoin Core on my laptop, but literally don't even have a wallet with I don't even receive coins, that's basically inconsequential. It really doesn't matter. So whereas if you're a super large exchange and you're doing 1,000,000 or tens of 1,000,000 of dollars of or more of volume per day, it is a much bigger factor when it comes to defining Bitcoin.
[00:29:25] ODELL:
But, I mean, I we're gonna have to just we're gonna this is gonna be a very fluid conversation. I'm excited for it. But, like, in 2017 in 2017, what happened was we had there was 2 elements of 2017. Right? So we had Bitcoin Cash, which was a pure hard fork, right, with replay protection. So at that point with Bitcoin Cash, when it forked in, I think, early August, if you were holding Bitcoin at that point, you had an equivalent amount of Bitcoin and Bitcoin Cash. It was 2 distinct so the the chains had shared history in the past, but going forward, they had diverged history.
And you could keep both if you if you just wanted to sit there or if you're in a coma or something or you could sell 1 or the other. And then later that year, we had sega two x, which died on arrival because there was a a bug in the it was an off by 1 error in the code. But Segwit 2x was led by pretty much every major company at that point in time. Almost every major company at that point in time supported Segwit 2x, and they controlled, the overwhelming majority of economic nodes. And Segwit 2x proceeded to fail, and the status quo remained.
[00:30:46] Steve Lee:
That's true. So my statement about within the economic node category, how much volume you do matters, that shouldn't be interpreted as, like, they're the they're the ones in charge. It's not like Coinbase is in charge or Cash App's in charge just because they do a lot of volume. It's just within that category, Coinbase or Cash App have more power than me running Bitcoin on my laptop within that role.
[00:31:13] Lyn Alden:
Yeah. I would also I would also add that, Segwit two x was a a a hard fork, and we we identified in the paper, and we're not the 1st to identify this, is that in in when you have a soft fork versus a hard fork, different levers of power matter differently. So in a hard fork, investors are very impactful right away because you can sell the coin that is out of favor that is, you know, generally gonna be the the one that's the hard fork, but in theory, you could sell the incumbent. But you can sell whichever coin you don't agree with, and that is very impactful very quickly. And even with futures market, you could you could affect that even before the the split happens and therefore affect which one is likely to win after the split. In a soft fork, at least for quite a while, investors are notably less powerful because, they they have they don't really have that lever to pull unless they decide they wanna get out of the network entirely. They're not really just deciding whether or not the the new soft fork is likely to be, adopted or not.
And so I think Steve's point about economic notice being relevant, especially in that category, that would be a somewhat different scenario than Segwit two x. So I think what we learned from the whole Newark agreement and that whole era is that, you know, trying to push a hard fork change that users and and, you know, the the the broader network doesn't like is obviously very hard to do. But in theory, they could they might have had more power, for example, if they got together and decided they like the soft fork. It could have been a different scenario or different, chance of of likelihood of success.
[00:32:48] Steve Lee:
Yeah. And then if we look at 2017, well, first of all, I don't think any of us know exactly what all the factors were that led to the failure of Segwit 2x. But, certainly, one of the components was in the fall of 2017, Bitfinex ran a futures market with the 2 coins, you know, Bitcoin and Segwit 2x. And if my recollection is correct, it was something like a 10 10 to 1 price difference between the 2. And so that that that's a and we did look it up. The the volume the the trends the the volume there was not as large as maybe I had thought. So it's it's not clear how much influence it had or or, like, or, like, how representative it was if the volume was relatively low, but it was it was a real thing, and people paid attention to it.
And that was certainly a signal for, like, what what the market was thinking, what Bitcoin is and should be, which is the original rules, not Segwit 2x. There's also earlier in 2017, a UASF movement and a lot of UASF discussion on Twitter. And if I recall correctly, Litecoin, did a UASF. And I I I definitely hear from a segment of Bitcoiners saying that, like, that was the reason. Like, the the user movement, UASF, saved the day from a 100% of you know, 95% of Hash rate, 95% of exchanges, etcetera. I I think the the the media influencer part of that was powerful.
It was it it like, the people yelling and screaming were very powerful in 2017. But again, like, if you're if if you're just a a small holder, you don't, you don't run a Bitcoin business, and you're just running a note at home that actually isn't, like, sending and receiving Bitcoin every day, then running running running Bitcoin and changing or or, you know, and and and running like a UASF sorry for the dogs. It's good. Isn't really gonna be that alone is not gonna be that impactful.
[00:35:05] ODELL:
Finally, not my dogs on air. We passed 86,000. Woo. Let's go. Open water Bitcoin, baby. People forget every price is was once an all time high. Every single number, was once an all time high. Yeah. I mean, I I think I think it's important at the high level to realize that, first of all, no change. It's almost it's like in warfare. Right? Like, the defenders always have the advantage. And in Bitcoin, no change is is that home field advantage. I I think in in in general, when you're looking at any kind of change to Bitcoin, the most likely outcome is is no change.
I mean, if I recall back to 2017, there was, like, very little organic support for segway 2 x. Like, it was just there was almost no one that was formally advocating for it except for this, like, form letter that was sent out by the big companies. And in the lead up to it, the only people really talking about it having a potential happening were saying that it was a chaotic outcome, and it provided uncertainty to Bitcoin. And then you had a loud minority. Well, I maybe even a majority, but the the loud people were saying that just wasn't gonna happen. It was bad for Bitcoin. And if you look back on the price action, what happened was it failed, and then we did our, you know, 20 x run, in Bitcoin price shortly thereafter. I mean, I remember and this is one of the tragedies of me deleting my x account.
I remember, like, Celsius Ryan Celsius, specifically, saying that everyone should just pile into Ethereum because there was so much uncertainty in Bitcoin land. That was a a relatively popular sentiment at the time with Segwit 2 x looming on the horizon. So it was like there was almost no proponents for it in, like, a in a vocal way as that thing played out.
[00:37:14] Steve Lee:
Yep. Agreed. Maybe we can walk through a potential future scenario, which just adds to this conversation, but get gets into a little more of the nuance. And and that's I mean, you just said, Matt, like, it's, you know, the defenders have an advantage. I I I agree with that, but I'm gonna walk through a scenario where we could get caught off guard. So let's which which is why which is why I think it's important to discuss this so that we're not caught off guard. And I would add real quick. I I can imagine and this leads into the point you're gonna make. I can imagine a scenario where,
[00:37:51] Lyn Alden:
contentious soft fork does have, some some grassroots support, but is contentious. Right? So and I think we're seeing that to some extent now. It's it's hard to measure exactly how big. And then one of the powers that media influencers have is to try to overstate the size of a, proposed thing or or try to understate that. And that can be very powerful because it can be self prophesizing in a way. You know? People wanna be on the the if something seems like it's gaining momentum, people generally are more inclined to go that route if they were kind of undecided to begin with. So I'll I'll leave it to Steve. But, basically, I I can imagine this scenario, it's it's well, I wouldn't call it a base case.
I do think it's mindful to be aware of, and that's part of why we did this project is we figured that knowledge is power, and knowledge, can help avoid some of what what could be, you know, some pretty trick tricky or technically damaging scenarios in some contentious situations.
[00:38:47] Steve Lee:
So so the scenario I'm gonna set up, what what or did you have something, Matt? No. Go. Okay. The the, it one of the trends or or observations that is important is that mining is more centralized than ever, which is sad. And we don't it's not healthy, and a bunch of people are working on making mining more decentralized. But the reality is right now, you can get 3 people in a room, the CEOs of the 3 largest mining pools, and they control something on the order of 95% of Hash rate. And that's I find that a bit alarming. It's not it's not as bad as it sounds just with what I said because miners can switch from one pool to another, and that those switching costs are relatively low.
So it's not like red alert bad, but it's but it's a yellow alert bad that something we wanna improve over time.
[00:39:51] ODELL:
I mean, before you continue, I would, I would I would say that mining centralization on the pool level is not as bad as it was historically. I mean, if you go back to 2017, Bitmain probably indirectly controlled, and specifically, Jihan probably indirectly controlled, like, 70, 75% of the hash. And now he probably indirectly well, not him because he left, he left Bitmain, but, like, the Bitmain mafia probably controls about 50% of the hash. And we have Foundry, which is, like, the soup KYC regulated mining pool that controls about 35% of the hash. So if you combine them together, you get to, like, 90, but they're 2 very different stakeholders. Right? Like, it's it's I mean, I I don't I'm I'm not saying that it's not something that we want to see improve.
And, yes, I am acknowledging the irony that I'm putting a lot of faith in the KYC suit, mining pool. But I will say that they seem like they have their heads on straight in a lot of ways, and I don't really interact with the Chinese side of the of the ballgame. But in general, miners, I think, would rather not have any kind of uncertainty or chaos or stuff. So I I think in in general, if we saw any kind of contentious type of attack type of change, a lot of miners would act in self interest and try and seek out a way to to mitigate that, whether that's switching pools as Steve said. Yeah. Primarily switching pools. Right? And now we do have, like, a you know, Ocean doesn't really have that much hash rate, but we have the ability for people to self mine. They have the ability to move to Ocean and use data and and and choose their own block instruction, or move to a foundry, for instance. Right? If they're doing one of the and just even more before we there's a lot of nuance here.
When I say that the Antpool, Bitmain mafia has 50%, it's because of of the way block instruction works. Basically, like, the central bank of AMP pool is handling a lot of the background for a lot of smaller pools. So there's a bunch of smaller pools that in effect can be thought of as one pool, and they all add up, to 50%. Okay, Steve. Now you can continue.
[00:42:10] Steve Lee:
Yeah. I agree with everything you said. And the my statement about increased centralization, I'd you know, over the past 4 years or so, 4, 5 years. And that's because of the the last thing you said, which is bitmain slash amp pool is like a front for for many of the other branded pools today. Yeah. And but, so and and, yes, it's true. Miners can switch away from pools. But a scenario that concerns me is one in which if there's some kind of business incentive for both, Foundry and Bitmain, which I agree, it's kinda it's healthy to have 2 2 very different types of companies in 2 very different jurisdictions run by, probably, very different cultures. That is healthy for Bitcoin. But let's say there's there's some commonality and some motive business motivation or ideological or whatever that convinces both.
It's possible that they you know, all they have to do is change the software they're running silently. They don't need to go through a signaling process or communicate it publicly. They can do it silently. And, you know, and change this offer to support some new consensus rule change. And and so in in in that scenario, there's, no fleeing of minors if they're if they're unaware. Now Right. Also in this scenario, let's say there's very let's say it's I mean, it's silent maybe that when the the miners start doing these these 2 or 3 mining pools, but then a handful of economic nodes and services adopt it because they're clamoring that they're like, some services depend that are being built today or depend on a consensus rule change.
Like, their VCs are funding them to do a startup and a service that depends on a consensus change. It's huge risk because as stated earlier, the odds are Bitcoin's not gonna change, which means the service won't work. But if, if, if the consensus change is supported by Hash rate, then those services could provide features that allow their customers to lock up Bitcoin with those new rules. And the rest of the network, the rest of the economic nodes do not can be blind to this or like, you know, they don't need to upgrade their software. They don't need to even be aware of it and this could happen.
And it's a very dangerous situation if the customers of these new services start locking up their Bitcoin. Because while it works fine, as long as the miners keep producing blocks that support those new rules, what can happen is if people are if are really locking up Bitcoin in these scripts with the new rules, that builds up a bounty.
[00:45:05] ODELL:
Right.
[00:45:06] Steve Lee:
And the reason it becomes a bounty is that if the miners if if Hash rates decides to effectively 51% attack and roll back those rules, what the rest of the network sees isn't anyone can spend. That's how soft forks work. So if the rest of the network never updated their software to support these new rules and the miners roll back those rules, the rest of the network doesn't lose any sleep. It literally doesn't change the rest of network at all. But what happens to the customers who locked up their Bitcoin with these new rules? They just lost all their money. Or I mean, what technically happens is there is a chain split.
There's a fork. And those who locked up their Bitcoin with the new rules and the services and economic nodes that support the new rules would be on one chain, and the rest of the network would be on the other chain. And, of course, that's like a total shit show scenario.
[00:46:03] ODELL:
Wait. Wait. Let's just walk through. So, hypothetically, the Ample Mafia, their 50% hash rate in Foundry, they both update to the self work. People are locking up funds or whatever. Then there's still, like, 10% of the hash that's not with them. And let's, you know, let's sit well, just for for simplicity's sake, let's say someone mines a block in ocean, and they construct their own block, and they're not running, you know, this, quote, unquote, secret self work. And they spend that money. They take that money from the users that are have their funds locked up. At that point, then that software becomes a hard fork. Then there's a retroactive chain split effectively. Right?
[00:46:52] Steve Lee:
Correct.
[00:46:53] ODELL:
And Yes. So, I mean, isn't there a game theory that as long as there's I I but I guess at that point, so much of the hash is on the other side, is on the secret software side, that it would have a significant amount more of cumulative proof of work, while the other side would have, like, 3% or 5% of the hash. But at that point, it would become very obvious that a that a secret software happened, and we'd be in Hartford territory.
[00:47:25] Steve Lee:
Yeah. I think I mean, there's at least a couple scenarios to explore here. The one the one I think you're talking about is where you don't get a 100% of hash rate supporting these new rules, but, like, 90 95% or something. And then, like, Ocean or whatever still is supporting legacy. There can be a hard fork from that. The scenario I'm talking about is, like, let let's just assume a a relatively cleaner, simpler scenario where we go from 0% of ASH rate supporting a new rule to a 100%. And then some transaction you know, some customers locking up funds with these new rules.
But the rest the vast majority of the network, not Hash Free, but economic nodes, don't upgrade their Bitcoin software to to enforce the new rules, which which and and and can happen out of ignorance. It doesn't mean they're against them or or, you know, it clearly means that they're not for them because they're they're not even they didn't upgrade. But it doesn't mean they're against them. They're just they could be unaware. Right. And then in that scenario, if it let's say, like, $1,000,000,000 like, let let's say someone builds, like, some gambling casino, meme coin trading service or something on you know, with these new rules.
You you can imagine that attracting tons of, customers who wanna get rich. And, like, let's say, $1,000,000,000 is locked up in Bitcoin transactions with these new rules. That's a large bounty. Because all that has to happen then is a single person in the world, it could be us, anyone, could broadcast the transaction that spends all of that $1,000,000,000 and pays yourself, and then you give, like, half of it to the miners in fees. Right. Like a incentive. Now that transaction goes nowhere if the miners continue to support the new rules because it would be invalid with the new rules. So it would just get rejected as invalid. However, the miners are gonna see this, like, half 1,000,000,000 or $1,000,000,000 incentive. And at some threshold, they're gonna be like, we want that money.
And if there's a 51% attack, if there's collusion among a very small set of mining pools that wanna capture that bounty and claim it, they they can do that. And if their if their calculation is correct, that like the vast majority of the Bitcoin network didn't upgrade the Bitcoin rules, then it it's only forking off the small faction that wanted that really pushed for these new rules. Another ingredient for this scenario is, or, or like another observation that's important to understand. Historically, every consensus change in Bitcoin that has occurred has been merged into the Bitcoin Core project, and it's come through Bitcoin Core.
And Bitcoin Core is one implementation of Bitcoin. It doesn't define Bitcoin. It's just one implementation, but it happens to be used by, like, 99% of the network. It's the dominant implementation of the network. So if a consensus change has merged there, it doesn't mean Bitcoin adopts it. But if there's not huge controversy over a consensus change, such as Taproot is a good example, or basically any change prior to Segwit, there wasn't, like, a lot of controversy in Bitcoin. And so the rest of the network just upgrades to the latest version of Bitcoin Core. And then they have those rules. For this scenario though, or I mean, what we're observing is that, that there might be protocol developers and in others in other stakeholders who want a consensus change in Bitcoin, but the Bitcoin Core project isn't prioritizing evaluating it or reviewing any changes, and it might not get merged into Bitcoin Core.
So part of the BCAP project, part of this this scenario that I'm describing is one in which an alternative client, like an alternative implementation is created to support the consensus rules. And that can simply just be a fork of Bitcoin Core, and you add in the the consensus change and then getting adoption of that. So so a huge part of this analysis and and the reason why in this scenario, the like I think the likely outcome is that most of the network doesn't adopt these consensus rules is because they'd have to switch away from Bitcoin Core to an alternative implementation. And that's a big decision. Like, imagine you're running a multimillion dollar business.
If you don't have a great business need to for this new consensus change, why would you adopt new software when the Bitcoin Core Project has been something you've relied on for many, many years, and it's worked well. Like it's earned its reputation of being secure, trustworthy, conservative around consensus changes. It it has that reputation for a good reason, and that's why most people run that software. It's a huge, huge challenge to get a network to adopt an alternative client.
[00:52:55] ODELL:
Yes. I mean, I think it's kind of a cop out, especially after all the work you guys did on the research paper, to say these two words. But, like, rash I mean and I guess the beauty of Bitcoin is you're not supposed to assume necessarily rational actors. You're just supposed to assume selfish, greedy actors. But rational actors, I mean, there's there's a game theory here where they wouldn't want to attempt some kind of secret software because it would be incredibly messy and, you know, the their their their goose is Bitcoin. Right? I mean, in 2017, Jeehan with a bit main, like, heavily supported b cash, but he never moved the majority of his hash rate over to b cash. Like, he could've, at any point, moved, you know, nearly 70% of the hash over to to b cash, and that just never happened.
And and there's there's something that's not objective and hard to quantify. But the reason presumably was because he was afraid that he's a nobody without Bitcoin. Right? Like, he's got nothing. And he was he was afraid of of disrupting that golden goose.
[00:54:12] Steve Lee:
Yeah. I, I I hope that's true. So, I mean, I hope this scenario described is so far fetched and unrealistic that it never comes to pass. But I think it's good to discuss it. And and just so that so if if it is as easy as, like, everyone's like, of course, we won't get in this path. Well, let's have people thinking about that and having it top of mind so we don't actually go down go down that line. Definitely hear from software developers. I mean, there's definitely frustration by people who have been earnestly working on, like, how to improve Bitcoin, technically, with, proposals.
And then frustration that it doesn't get the attention from any active Bitcoin core developers, or or not that many. And it doesn't get review cycles from the Bitcoin core project. And I guess another insight from working in DCAP is, the kind of power that Bitcoin Core developers have, particularly the maintainers. It's it's, like, actually the opposite of what I hear a lot of people new to Bitcoin think. Like, a lot of a lot of people new to Bitcoin or even the people who have been around Bitcoin for a long time but don't really understand the Bitcoin core project or developers very well, will assert that the maintainers, like, 5 people, are in control of Bitcoin.
Like, they can make they can change Bitcoin, and we're powerless. And, of course, that's ridiculous and false. Sure, they can, like, click a button and merge in a consensus change to Bitcoin Core. But number 1, it's public and transparent and everyone's gonna see that and be like, what the fuck are you doing? You know, if there's not if there's not consensus. And number 2, people don't have to update that software. I mean, if there is something that absurd, like, there would be a fork of the Bitcoin Core Project, and, like, people would just the the all the earnest or or, you know, honest developers would move to that. So, of course, they don't have that power.
But we but the flip of that, we observe that they do have, which is a a veto ish type power. And I say it ish because it's not a full veto. But because Bitcoin Core is so dominant on the network, it's it's so difficult to get to to coordinate the entire network to switch to a new project, a new implementation of Bitcoin. If the Bitcoin Core project doesn't merge any consensus change, it makes it very, very, very difficult for the network to adopt that change. You would need to go through a scenario like I described 5 minutes ago.
Right. So so I I do I do that power is is quite or that is a big power, by the Bitcoin Core maintainers.
[00:57:18] ODELL:
So, I mean, plenty of people are bullying me in the chat about audio quality and video quality. And, I I I think the recording, it will be much better quality. I am obviously not home. I'm not in the studio. But I can hear Lynn and Steve great, so I think the recording is gonna come out great. The is there an argument? Like, I feel sometimes I feel like people came out of 2017. Like, they took away the wrong things. Is there an argument that there should be more hard forks because it's cleaner than soft forks? Like, I I you know, VCaaS, obviously, the market completely rejected it. No one wanted it.
It didn't really have any kind of talented developers behind it. It was very much a I I I think it was just something clearly users didn't want. Right? And it was it was making the wrong trade off balance. But is there an argument to be made that's particularly for con contentious things? Like, anyone can hard fork. 1 of the coolest parts about Bitcoin is, like, literally, anyone can hard fork if they want to. Does it not have, like, way less edge cases and potentials for chaos if you just have them just hard fork and just see what happens?
[00:58:44] Steve Lee:
I mean, I think it well, you you sort of framed it as, like, for contentious changes. I mean, for for non contentious changes, I I let me first state. My my impression when I started really diving deep into Bitcoin and learning in 2017, my initial impression was soft forks are just decidedly better than hard forks. They for for any change that a software can be used. And I don't think it's that simple. I think it's definitely there's a set trade offs between the 2. It's it's not as that it's not that simple. But having said that, I still think for any noncontendious change, a soft fork, its its advantages outweigh hard forks. And because if it's non contentious, no we don't want anyone to fork off. We wanna keep the network intact. And there if the network is just so large and vast now, it it seems incredibly difficult to get the entire network.
You need a really, really, really long period of time, like 5 years or more to like, for a flag day, in which everyone has to have upgraded their rules within that very, very long period of time. And if you do it in, like I mean, we we show data in the paper on how long it takes just naturally for people to upgrade Bitcoin Core, and I think it's, like, on average, 40 40, you know, about a year or whatever. Alright. I figured if that's the maybe that's the 50 50th percentile or something. It takes a it it takes years for people to the whole network to upgrade. So that's my thoughts on on soft fork versus hard fork.
[01:00:23] Lyn Alden:
Yeah. But they yeah. Go on, man. I think that and I also think that so because hard forks are very hard to pull off compared to the incumbent network, most of the people that are in favor of a contentious change, let's say the more progressive side, people that are more technically progressive, they want a certain change. They have an incentive to try to make all of Bitcoin change or to have a change that that is compatible with the existing network. That's kind of what they ultimately wanna do. So from their perspective, I would see why they're trying to you know, they they they instead push more toward a contentious soft fork than push toward a a contentious hard fork and just kinda go play with their own coin.
[01:01:04] Steve Lee:
Barry, where are you? I totally agree.
[01:01:09] ODELL:
But, I mean, is it doesn't it go to reason that there's so many different types of stakeholders in Bitcoin that almost everything will be contentious at this point?
[01:01:20] Steve Lee:
Well, the the I mean, I mentioned the great consensus cleanup earlier. Like, I'm optimistic that that will get we'll see that change, and it won't be controversial. But it's in the category of bug fixes. Right? So, as as long as the the the software is created super well tested, vetted, and then the purpose of it is is clearly communicated, it's really hard to imagine any stakeholder not wanting to see it. Because because even if you like, if you're in the investor stakeholder group and you only your definition or or purp the purpose of Bitcoin in your mind is state, store of value.
That's all you care about. You should absolutely care about security that could ruin your store of value. So I do think that change is likely to get consensus, but new features, much harder. But but but again, if the the way the dynamics are right now, if the Bitcoin Core project can be convinced there's a change, including a new feature that is beneficial to the network and, doesn't introduce sufficient risk. And if it gets merged into Bitcoin Core, that's a very powerful step because the inertia of the network is to run Bitcoin Core and then upgrade to the latest version of Bitcoin Core. So it requires a response then by the network to not have that change occur. And I think Taproot is a good example of that. Most people in Bitcoin can't really explain Taproot.
I when it when it activated I mean, I know if you're on if you're if if if you're, you know, on Twitter or listen to your podcast, you probably have heard of it. But there's a lot of Bitcoiners who aren't on Twitter, and they, you know so so even in 2021 when it activated the, you know, I bet a huge portion of people in Bitcoin or hold Bitcoin weren't even aware of Taproot, and guess what? They they got it, you know. They they, and so I think I think that could occur again.
[01:03:32] ODELL:
Yeah. But it was I mean, a tavern might as well have been a decade ago. Like, that was, it was a different time. And I think there was also a level of complacency where I don't know. We had just been out of 2017. We were, like, riding high. Taproot had been, like, pretty well reviewed, and, like, people were just, like, the stakeholder dynamic right now is completely different. I I just I know it's an incredibly controversial opinion. And, but I I just to me, like, it was I still I feel like it's a wrong takeaway from 2017 with hard forks. Like, for whatever re like, I know why the main reason we're not we don't we we don't do hard fork first is a security reason. Right? And it make it makes sense to me. Right? This idea that, if we do a hard fork, they're all the previous clients aren't backwards compatible.
And the problem with that is if there's a bug introduced or something like that, the network just grinds to a halt instead of people being able to fall back to older nodes. Or if you're running an older node, it still works. Right? And that's a key aspect. This idea of soft forks being backwards compatible and idea of, like, being opt in is actually kind of bullshit in my mind. Because if you have a presegment node, for instance, you're not seeing any Segment transaction or any Taproot transaction. Like, you're basically not interacting with the network. You just you're not verifying the majority of of economic activity that's happening on the network. And, ultimately, you and you have no choice but to be a part of it. So, like, the so like, when you're talking about consent rather than technical things, when you're talking about social consent, soft work actually feels a little bit more insidious to me. It feels a little bit more like the Defender doesn't have the no change defender doesn't have as much agency in that situation.
While with a hard fork, like, 2017, yeah, it was chaotic to a degree. It was a little bit messy. But, ultimately, like, if you just slept through the whole thing, you still had just as much Bitcoin as as before. And and you had just as much Bitcoin cash as before, and you could just, like, wait it out and see what happened on each side. And you'd be completely fine. Like, yep. Some of us did quite well selling the Bitcoin Cash side, but you could just sit there. And I I yes. Just just real quick. When just for, like, something that's particularly contentious, like, why, like, why it's just weird to me that we don't see more hard forks. Like, why don't we just see, like I mean, I'll just call it out by by degree because, like, it seems like the thing that most, like, a a lot a lot of people, a vocal minority have wanted, which is opcat.
It's like, why don't we just see, like, an opcat hard fork? You just do it as a hard fork and then play it out and see see what happens rather than trying to do this whole song and dance.
[01:06:43] Steve Lee:
I I mean, I think Lynn's answer before is correct and and answered that. Like like, if let let's say that happened. I think most observers, certainly including me, that hard fork would be destined to be the the next BCH or BSB. It would be it would not get much hash rate. Investors wouldn't price it very high. It would just be this altcoin, almost certainly. And I think the people who are advocates for CAT, they they don't want that. They they genuinely and earnestly believe that CAT makes Bitcoin better. They're Bitcoiners. They wanna see Bitcoin have that. They wanna see the Bitcoin that all of us use have that. So as as Lyn said earlier, they're just they're they're not incentivized to do a hard fork. It's it's like the opposite of their goals. And I would I would point out my prior comment that,
[01:07:32] Lyn Alden:
hard forks and soft forks have different, different stakeholders have different levels of power in those scenarios. So, to your point, Matt, you know, hard forks and soft forks, affect those groups differently. So in a hard fork scenario, it gives the investors a lot more power, the vast majority of the power. Whereas, in a in a contentious soft fork scenario or any sort of soft fork scenario, that gives economic nodes, and some of the other stakeholder groups generally more power than those, investors at least until there's a sufficiently long time that if they decide they don't like that network anymore, they could sell and and they therefore, they could impair the network. But they don't really have much of a say while that while that change is going, and so the network can kinda move on without them. So I I agree that, you know, obviously, contentious softworks have risks. I mean, that's part of why we wrote this paper, to explore some of those risks.
But, yeah, I I don't disagree with you.
[01:08:32] ODELL:
I mean but do we do we agree that they're like, first of all, the 21100 bug that you mentioned, that and no one's figured out a way to do that with the software. So that's gonna require a hard fork. Presumably, something that we do way in advance that has a flag day that is, like, multiple clients compatible with. Right? Like, multiple releases of Bitcoin Core compatible with. So by the time we hit the hard fork, you could be running as, you know, a 5 year backdated version of Bitcoin Core and is still compatible with the hard fork, but it's gonna require a hard fork. But this idea that the the hard fork can never become the dominant chain, I think I think that might be misguided.
Like Agree. Just because like, Bitcoin Cash was fucking retarded, just to be frank. Like, it was never it never had a chance. That doesn't mean that we couldn't have something that made sense and had actual market demand that became the predominant chain and became, quote, unquote, Bitcoin. Like, who decides which change Bitcoin?
[01:09:33] Steve Lee:
Yep. I agree with you. It would just be, I agree too. It it would just it would be really controversial. Right? Because you gotta you gotta set a date. And, like, if you pick 1 year, I I think a huge portion of people would say that's way way too, soon. And Right. I I to to to get more people on board, not not only on board with the change, but on board with the activation mechanism, you'd need to pick it to be, like, 5 years or more. Then the people who want that change don't wanna wait 5 or 10 years for a flag day to drop. So I think that's an interesting dynamic to discuss. So in in fact, that whole scenario, I think, would be interesting to add to the BCAP project,
[01:10:19] Lyn Alden:
going deeper on that. I agree. Yeah. I think that I think my takeaway from that thing is that it it's not that hard forks can never win. It's that you need quite a lot of consensus to have the hard forks. And the ones that were proposed, or or activated ranging from b cache, to Segwit 2 x just didn't hit anywhere near the threshold that would be required. Whereas something like a critical bug with the existing chain, that's that's the that's the highest, you know, obvious case for making the hard fork win. And there could be other other scenarios that are just, so powerful. May maybe some maybe before that, like, 21100 thing happens, we have quantum computers and that that that finally becomes, like, a thing, And maybe there's changes around that or something like that. Like, they they basically it's something that threatens the existing chain in such a way that the hard fork is clearly superior in that type of environment is probably the the snares I I would envision for a successful hard fork.
[01:11:18] Steve Lee:
Another before we wrap, I wanna know, or I wanted to state another insight we had from the project, which I took away as a really positive takeaway that I had not thought of before, and I'm not sure how many others have as well. But I know that there's, like, a segment of Bitcoiners who are concerned about with the emergence of ETFs and big institutional money and powerful entities like that. What what could that mean for the future of Bitcoin? Are they gonna take control of Bitcoin and add add like KYC to the protocol, etcetera? There's like a fear of that. Definitely something we should be talking about and doing everything in our power to avoid. But from our analysis on this project, I think there's a case to be made for the self custody individual investor having disproportionate power within the investor class.
And if you wind up in any kind of hard fork scenario, where you fork a and fork b that are being priced, or a futures market where we're speculating on fork a or fork b? Which one's Bitcoin? Which one do we have volume there? Well, how does that market work? It requires someone that I mean, in the case of a hard fork, you you your your Bitcoin turns into 2 coins. I have the same, you know, x number of coins for both forks. If I really feel strongly that fork a is Bitcoin and fork b is not, and then fork a is going to hold future value, then if if I I can put my my mouth is, I can sell all of fork b and buy I can double my stack size on 4 k. It's super attractive value proposition if you have the guts to do it and you believe in it. Of course, if you're wrong and you and you literally sell all of 1 and doubled on the other, you could wind up 0 Bitcoin if you're not correct.
But in that scenario, who are the investors that are in a position to do that and do that quickly? It's self custody investors. They not only own the Bitcoin, but they control the keys. Whereas if you think about, like, BlackRock, Fidelity, and big ETF issues, they're likely to be very conservative because they don't own the coin they're controlling. In fact, they don't even they don't own it, and they don't control it. Coinbase controls the Bitcoin. BlackRock is just the issuer and then the owners are the shareholders. So it's a much more complicated situation.
And obviously, BlackRock is very and Coinbase are highly regulated companies. So they're going to be very risk averse. There's tons of people involved in decision. They're they're highly unlikely to sell one fork, dump it, and double down on the other when it's still contentious and being decided. Even, like, corporate treasuries are gonna be more slow moving and slow to act than a self custody investor. So, you know, given the early movement on such a market can really suggest which works is Bitcoin, I think self custody investors have a lot of power.
[01:14:42] ODELL:
I mean, this is one of the reasons why, like, hard forks for contentious stuff kinda appeal to me more. Not that, like, I pretend to be, like, the judge, jury, and executioner on this shit. I would say, Steve mentioned earlier, like, VCs are some VCs are investing in things that require consensus changes. I will just full stop say that 10 31, has a rubric where we will never invest in anything that requires a consensus change. And that's not even necessarily ideologically driven, which it also aligns with ideology. It is just straight. If you invest in things that require consensus changes, you're probably burning your investors' capital because it probably won't happen. Like, you pick any individual consensus change.
It is very unlikely to happen on an individual basis. And I think I see Lynn nodding. I'm from what I know, at least from the non stealth companies that EagerDath has invested,
[01:15:42] Lyn Alden:
I don't think they've invested in anything that requires a consensus change. Am I correct? That's correct. And I would say that the stealth one, is also in that category. It doesn't doesn't involve it's it's nothing particularly controversial.
[01:15:55] Steve Lee:
Yeah. Yeah. I do think there's a lot of naivete from, like, expecting Bitcoin to change for some of these new VC funded services. I mean, I myself lost a bet, that I made, in 2017 or 2018. I I bet 10,000,000 sats, that Any Prevout and Taproot would be activated by the end of, I think, 2020 or something like that. And Any Prevout has never been activated and Taproot activated, like, 9 months after I the the the bet. So, well, that that's now, like, 8, $9,000. So I feel I learned my lesson there of something I was, like, really excited about and bullish on, and I thought made a lot of sense for Bitcoin. And I every every day in Bitcoin, I just learned how slow things move. And I I, like, I very much embrace that now. But, yeah, if you're new to Bitcoin and you're a VC and you're like, oh, all these shiny new things that can be done, they sound exciting, I can see how that can be, seductive. But, it it it, at minimum, has to be acknowledged as an enormous risk. I mean, investing in start ups is already a huge risk, and then you have, like, a 10 x multiplier if not only the service that's getting created finds product market fit and customers and business model, but you also need Bitcoin to change. It's like a 10 x risk multiplier.
[01:17:28] ODELL:
Awesome. Any other insights you wanna cover, from the paper?
[01:17:35] Lyn Alden:
One of the last ones is that we, define state of mind, which is that different different groups can have different, levels of conviction. So we we've, again, broke that down into 6 categories. So on one end of the spectrum, there's people that are for a change, but then are also willing to expend resources to try to make that change happen. Then there are people that are on the other side that are against it and willing to expend resources, to stop that change from happening. Then you have the 2 that are in a little bit where they either support it or against it, but they're just kinda hands off. And there's 2 in the middle that are neutral for different reasons. One is that they're they're aware of the change, and they don't have an opinion. They just decide I'm I'm not technical. I'm I'm just gonna let the network figure it out, or, they just don't even know it's happening. They they couldn't tell you it's happening. And so one of our goals with the paper, is to to get more people out of the unaware camp at least, to kind of increase the overall level of education, including for ourselves, on how the network works and what some of the risks are in consensus, because we've I guess we figure or at least I figured that a more informed network is a healthier network.
[01:18:46] Steve Lee:
Yep.
[01:18:47] ODELL:
Awesome. Yeah. I agree. Knowledge is power.
[01:18:51] Steve Lee:
Yeah. I agree. Knowledge is power. And just one one last thing. Again, it's an open source project. It's the beginning, not the end. So we very much welcome people to engage. We're not claiming this is a perfect analysis or that we have all the answers here in this analysis. So, there's undoubtedly things that can be improved and and new additions. And as as Lynn said earlier, Bitcoin keeps changing as well. Even if this were a perfect analysis, it wouldn't be a perfect analysis in in a few years. So we welcome contributors to, file issues if they see problems. If people wanna actually, you know, open PRs and and and improve it, we would love to see that.
And then people who are, you know, really highly engaged in helping with the project, we'd love to have more maintainers of the project as well. And people from different stakeholder groups, you know, a good diversity in in people who are engaging in the project would be would be great.
[01:19:52] ODELL:
Wonderful. Thank you guys for joining. I enjoyed this conversation. I hope to have both of you on again sometime in the future. I mean, Steve's a pretty much a constant routine guest, but, Lynn, it would be a pleasure to have you back. I appreciate that. It's been great to be here. I think it was a good discussion. Wonderful. So thank you guys for joining. Thanks to the freaks who joined us in the live chat. Huge shout out to the freaks who continue to support the show whether through podcasting 2.0 apps or through Zaps, on zap.stream. The top the top boost on podcasting 2.0 apps, from last week was 8 Myth Renderer, rider, die free with 21100 sets saying good grip.
Thank you. I I love having Adam back on. And stay on with success. Appreciate you guys. Peace.
[01:20:46] Unknown:
Thank you.
[01:20:54] Unknown:
Our world is chaotic, but life found its way by channeling energy to bring order to chaos. It is in our nature to seek signals amongst noise because it is through communication and exchange that we evolve beyond the darkness of chaos into the dawn of civilization. Our evolution thrives in exchange of all the info we try to convey. They flow through to the marketplace and form the signals to regulate how we coordinate where things need to be. Price speaks so we learn to compete. This drives us to efficiently shape the world with our voice. Now let the market speak. So we build, we sow, we trade, we grow to meet our wants and needs. We specialize and drive from the mind, our creations into reality. We make progress in our process to get more for less, advancing society before forth dawn of the age of technology that harnessed the energy to reach prosperity.
Our money embodies the power to reap what we sow, so the market becomes a channel for our collective energy to flow. When value is traded for value, we are aligned and so we evolve. This is how amidst uncertainty, life continues to grow. But the dawn of tech gave rise to light speed information exchange. So to transact fast, we further abstract money from energy constraints and became more aligned on a few large entities to coordinate trade, concentrating the power, resources, and authority to create more and more of our money, distorting its signals, eroding its worth, and throwing us back into the darkness of chaos.
When we destroy the mechanism of money, we destroy our ability to navigate through uncertainty. And when we can't trade value freely and directly, we must trust the few to govern the many. What happens when all our means center around an authority? Complexity builds, now coordination relies on conformity. Observe our thoughts, the sense of dissent and coerce our actions. Can there be true innovation when there's no freedom of expression? What happens to our voice, the ones that shape social discourse? Now whose ideas get created and which problems get solved? Because our progress depends on hearing many sides to resolve, then why would we suppress the voice that shapes how humanity evolves? When we cut off the perspectives that make up society, we lose sight of the truth that forms our entire reality.
Each person's contribution builds up our resiliency. Did we forget these differences are what what strengthens humanity? When communication breaks, our words turn to silence. Our acts become violent and the world is divided amongst darkness. Truth is twisted by our pain and our bias, eroding the common ground, making us more and more fragile. To navigate uncertainty, we must solve for robustness, so everything gets tried and tested by various efforts, until we discover the system that best coordinates us. Mirrors life's process of channeling energy to create signal from chaos. In the era of technology, we transform energy into computational power to process the noise of free markets into structured order. And just by looking at numbers, we can derive how much power is required to reduce chaos and inscribe a flow of value for order verify that our transactions happened in line with shared rules. We don't need to seek trust when we can see proof. It is real time consensus that our lines is to evolve. This is how amidst uncertainty our lives continue to grow when we uphold our own rules. We preserve our own work and defend our own voice, which lets the true market emerge. The strength of the design lies in each of our participation since we are the nodes of channel, our energy end to end. As we claim responsibility to uphold our own rights, we radiate the power that brings our truth into light And when that dawn of light touches all parts of the globe and it ripples throughout society and it returns us the hope that becomes the power that sparks humanity to thrive, that same power that fuels the creation of the mind. And when our mind and our money are truly set free and they transcend the limits of past boundaries, now knowing becomes owning and ideas become wealth. What happens now we can all push to expand the edges of our existence and assume evolution when things are in the hardest. As we head for the light, we have to push through the darkness that is in these moments. We do what we do best. We take the chaos in the darkness and use our power to create. It is in these moments when we're all in alignment and afraid of a difference, ascends us to a highest and distant depth of it all. Know that hope is not gone. It is always the darkest before dawn.
