S17 E43: Mike Belshe on BitGo, Quantum & Clarity

Hey Vlad, great to see you. Always love to see you. So, I'm sorry it's been so long, but glad to be here.

Well, like it's an honor to be there individually but for the company, for the industry. I guess a few people get to kind of represent there. So anyway, it was fun. And interesting to see kind of that side of things. But also look, there's been a lot of hard work by the industry over the last several years. And obviously right now we're supposed to have Clarity vote today, I guess, for whether it's going to go to closure through for closure to go into the next vote, I guess. But that is hard work that is not just accidental. So there's a lot of people that have been behind it and yeah look it's exciting times. We'll see what happens today.

It's interesting. If you had asked me even just a year ago about like how much do we need the Clarity Act which is market structure for digital assets from the legislative point of view I would have said ah okay it's good probably should have it help prevent FTX things like that but I didn't think it was really as required. However, you know, so we just went through the IPO process in January and so you do the road show before the IPO but before that you're talking with investors, you know, basically raising money through Wall Street. And these are investors that have been on the sidelines for crypto, digital assets, Bitcoin for a long time. Literally they're asking questions like, 'What is a private key?' I mean, very basic stuff. You find yourself paging in like this old information of things you used to share back in like 2015 and 2016 about, you know, how blockchains work and whatnot. And it shouldn't be that surprising. I mean, those of us that are in the industry, you forget like we talk about all these topics and we go from the 100 level course to the 200 level course to the 400 level course, but there's a whole slew of people around the world, especially those that come from more traditional places that really don't understand how this works. They've been hearing about it saying, 'hm, interesting, maybe someday.' All right. So all that education has to happen and during that road show process they're like well you must be really excited that Clarity that must really help your business and I was like why do you think that and you start to realize what's going on you know without a legislated path forward they still have this feeling of like crypto bitcoin is this wild wild west has no chance of being adopted or used in a major way until it's got some sort of a sanctioned path from the legislation. So, anyway, I believe this is true. And if you go inside of you know, large banks, large regulated institutions, etc. Look, there's exactly three groups of people how they feel about Bitcoin. There's those that are like they love it and they're ready to go. Those that hate it, they're like, 'Ah, you should kill it, whatever.' And of course, there's a bunch of undecideds. But all those undecideds as long as there is not a legislative path forward that holds market structure for digital assets how it's traded how do you do derivatives all that kind of stuff they will continue to be persuaded by some of those naysayers that hold up ah it's not regulated this is too wild we can't touch this it's too risky what happens when there's a new administration comes in. So look Europe I think is ahead of the US right now in terms of having just a clear path of how do you build digital asset companies products, financial services. We see it in South Korea. They're moving ahead. Of course, many countries all over the planet also have legislative paths forward. It's time for the US to join the crew. And instead, we've got infighting over we think Trump made too much money on some Trump coin. So, anyway, we'll see what happens with Clarity Act. Of course, we have market structure for how we trade these things. I mean, we don't want to have another Sam Bankman-Fried. And if you don't pass some sort of market structure, you are at risk to have that again.

I don't think it has any impact on payments. No. So this is really more about trading of tokenized assets. Bitcoin I think actually is mostly through. So if you want to just talk about the Bitcoin side of things, I think you know from the SEC to the CFTC, you know, Bitcoin is considered to be sufficiently decentralized and therefore it doesn't fall. Nobody has any question that it's a security. It's not a security. Maybe it's a commodity. I guess how you tax it becomes a little bit of a thing, but I don't know Clarity would solve that either. So for the Bitcoin side, it's in pretty safe place. And then payments are different, right? So payments fall under you got money transmission a little bit which I think is still a bit annoying and outdated but not nearly as crucial as the trading infrastructure for how we take these products into the markets.

I don't think it's going to affect payments, but it does affect the ability for large institutions to be able to touch the asset. So at this point, I mean, you can see like Morgan Stanley, Charles Schwab, Citibank, JP Morgan, think BNY Mellon, all of these guys are now in on Bitcoin. They were not a couple of years ago certainly in on it. But I think they feel pretty comfortable on that. However, inside of all these institutions, a big part of the crew that works on the regulated institution that they have and if we have a different set of politicians with a different interpretation of the exact same law because there is no specific Clarity law, then it's uncertain what happens or what those entities could do. So remember when we had Operation Chokepoint just 24 months ago, the FDIC, which is the Federal Deposit Insurance Corporation, but it's insurance for banks. The guy that was running that is a guy named Martin Gruenberg. And all he had to do in order to prevent Bitcoin adoption was say, 'I'm going to scrutinize your business if you touch crypto.' And he meant crypto or Bitcoin or anything. And then all the banks are like, 'I don't want that.' and they were so scared of their regulator that they just backed away from all of this stuff. So without Clarity we are vulnerable to that happening again. And look when it comes to payments of course it's got some overlap with banks obviously you know Bitcoin allows for a decentralized type of payment but I think when you're talking about payments at scale you're going to have to interface to the banking system. So Clarity would definitely help in that it would take away this possibility that a new administration comes in and just overrides all Bitcoin rules.

Well, we'll see. I'm not as worried about that as others are. I do think we've actually moved the ball down the field just in terms of people understanding digital assets, Bitcoin, etc. So, I think a lot has happened and more is going to happen. All right. What they're worried about though, remember under Biden, like all of the agencies, you had Martin Gruenberg of the FDIC. I mentioned him. Of course, we had Gary Gensler at the SEC. At the OCC was his name? He was that Michael Hsu, right? Michael Hsu. He wanted to be I think he had ambitions to be a bigger role at Treasury or whatnot. But all these guys were put in place. They were all negative on crypto. And they kept everything down. Then as soon as Trump comes in, what does he do? He marches in with a bunch of executive orders. Now, you know, that's not specific to Trump. The next president can come in with a set of executive orders as well. And when there's not legislation, you know, the executive orders can kind of seemingly override everything. But remember, we actually have now a whole bunch of entities that are already engaging this activity. Morgan Stanley, Citibank, like Charles, Fidelity, BlackRock, they're already in digital space. And forget about what you think about politics. Like, you know, Larry Fink, who's been running BlackRock for I'm not even sure how long, he says everything is going to be tokenized. This is not a meaningless statement, and it's not a meaningless statement for regulators. All right. So, between now and the end of the Trump administration, and I don't think that they're crypto friendly. I think all they are is they're level even keeled regulators. Remember, a regulator's job is not to determine I like what you're doing or I don't like what you're doing. Their job is to determine whether what you're doing is meeting the regulations that have been set forth by the law. That's it. Right? And they're supposed to be very levelheaded and they're not supposed to be charged at all. The idea that they're charged is really the bug. So, what we have right now is a set of administrators that are willing to take a look at what you're doing and then hopefully their job is not say, 'Oh, gotcha. Now I'm going to find you or throw you in jail.' Instead, it should be, 'Oh, wait a minute. This is not up to snuff. Let's look at the intent. All right, the intent is good, so let's just help them fix it.' As opposed to like, 'We're going to come after you with enforcement.' All right, so we have that today. I think they're levelheaded towards crypto. It's allowing us to all move forward by the time we get to the end of this administration. We're going to have a whole bunch of rule making in place. It'll be in from the SEC. It'll be from the CFTC. It'll be from the OCC. So the number of major financial institutions touching Bitcoin is going to be huge. And the number that are touching other types of digital assets is also going to be very very large. And the markets are probably going to be pretty significant. So, good news for Americans, like once those things are in place, it's difficult for any future president just like yank the banking system out, yank the trading system out, yank access to your money from all these Americans that already are going to have digital assets. So, I think we're probably going to be okay with or without Clarity in terms of not having an administration rug pull us. However, the market structure is important. If you believe that the US has the largest capital markets in the world, and when I say believe, I think it's measurably the best capital markets in the world. It's not even close. You know, we talk about China versus the US from a GDP competition, that's one thing, but from a capital markets, there's no doubt that the US capital markets are the strongest. One of the things you build with market structure is robustness. It's just like building a complicated, you know, server infrastructure. It's how do you put together these modules, these systems so that, you know, when a pricing feed goes down, the market doesn't blow up. That when this other component doesn't go down, like the whole thing doesn't go down. And when you look at the US markets now they only run 9 to 5 Monday through Friday but

Crypto inspired looks I think are a fantastic example. You can have perps without 24/7 markets. And these all come from the crypto industry and they're absolutely a better product for those that are looking to have hedging capability across any type of asset. So yeah, look there's tremendous innovation. Anyway, just to finish off that thought on market structure, when you're building market structure, it protects against risks. If the capital markets of tomorrow are going to be digital and everybody in traditional finance, not the Bitcoiners, all the traditional finance guys are saying this is true, then of course it has to be protected from any single party blowing up and failing. And that's what market structure is really about. So, look, I think there's very little risk that when this presidency ends that there'll be just a massive rug pull like what we had prior to this administration. However, yeah, as the US capital markets shift more and more digital, we need these protections in place and due to political infighting, the lawmakers right now are struggling to do what's frankly common sense.

And it's unfortunate. Look I think on the Bitcoin payment side I don't know my own personal view is that you know stablecoins are going to fill the payment gap that is digital. And I think Bitcoin is going to end up serving kind of a different purpose at this point. It's the store of value. It's the non-fiat network. In terms of payments, I think it's going to be a while before people want to pay using that. Just like we don't pay with gold, you can pay with gold today if you wanted or you pay with a tokenized gold. People are going to prefer to pay with a tokenized dollar, tokenized euro, etc. And then when it comes to digital assets, the regulators are all kind of gone bananas about, you know, what regulation is required just to move money between two parties. Like if you and I want to send some money between each other, we ought to be able to send that money. And if there's an ATM at a store, I ought to be able to use that. But frankly, this is part of a bigger problem, which is the war on cash broadly. So cash is kind of a thorn in the side of regulators because they really want to have control over all money movements. They want to see everything that you buy, everything that you spend, and have that power for whenever they need it. And cash is an anonymous form of payment. And so you probably know this, like in France, you can't pay more than 1,000 euros in cash for something. You can't buy something with more than a thousand euros. You know,

Take the most restrictive rule and apply it everywhere. Look, this is I think the real issue is they want to take away your ability to have private monetary transactions. And they don't like cash. So, I just saw there was here in the US some city banned like Bitcoin ATMs. And then people like this is anti-Bitcoin. And my response is like, no, this is anti-cash. You can still buy Bitcoin. They didn't prevent you from doing that. They're just preventing you from paying for it with cash at an ATM. They don't want the ability for you to just go and take your cash and convert it into Bitcoin. They're perfectly fine with you going to an exchange and doing that same thing.

All right. All right.

All right, you are retweeted.

Number one.

Look, actually, I think it's the right type of bank for the future. So, yes, we support custody, but we also support self-custody. I think we're the only ones that do both. Like, I'm actually surprised that it's something people don't see. Like, all right, so with BitGo, by the way, for anybody that's we just opened it up for all individual access. If you want to try it, please do. You can use it for self-custody. Doesn't require full KYC for that. That's self-custody. That's a software component. If you eventually decide, you know what, I want to put some of this in custody, you fill out the extra steps to go through the custodial part, that does require us to know who you are. But then you can have both custody wallets and self-custody wallets side by side. All of the wallets, whether they're self-custody or custody, are multi-sig or MPC with a two out of three model for security that would protect against things like some of the cold card stuff. Happy to go into details on the security of how that all works, but the idea is that you should have control over your money. And you know, some amount of self-sovereignty may be something that you value and want, and then some amount of hiring a bank is something that you want. So, look, I mean, historically, if you just go back 150, 200 years, there was a time when people actually didn't use banks for all of their savings. It was obviously a very different time. It's not electronic time. But do you think that banks kind of right out of the gate were like universally trusted and there were no rug pulls? There were rug pulls. You know, there were banks that would establish and say, 'Hey, we'll store your money and keep it safe.' And then one day you wake up, you go down to the town square and the bank is like empty and the guys ran away with all the money. Absolutely happened. And it took a while to build that into a trustworthy system. You know banks then went through an era where they established these big buildings with marble pillars and like all kinds of permanence and the reason was to show that the bank was investing locally and they weren't going to run away with your money. So anyway the same thing is happening right now I think with digital assets. They used to be, you know, a pretty small piece of people's net worth. When they get to be worth more, like every individual, and there's no judgment, has their own thinking about how comfortable they are with what they hold on their own versus what they want to put into some sort of institution. And it's a trade-off that you have to make. Like, you know, on one hand, when you hold it on your own, you get the self-sovereignty part of it. That's great. Nobody can rip it apart from you. You don't have to worry about rug pulls. You don't have to worry about security hacks. Don't worry about any of that. At least not from the third party. Instead, you put that on yourself, right? And are you going to hire guards? Are you going to put bars on your windows? What are you going to do? And then with custody, of course, you got the opposite side of that. So, look, BitGo provides both. We will continue to provide both. We provide on a very very large spectrum of coins. I think it's the largest coin support in the world. And yeah, that's what we do. So, by the way, it's completely free for individual users. You use the self-custody or the custody. Let us know what you think. If you got feedback, always open to that. Always trying to make the product better.

Well, look, we're fortunate enough. We've been in the space since 2013, so we built a number of services on top. It's true like if you're just using the self-custody like you know we're not going to make any money. But hopefully some number of people are like hey you know what I need some of this custody component they move to that. We've also got the best trading rates. We got staking other things. So we make money off of services that way. But we're using those to be able to allow people to use the basic service without charging. When it comes to cold card, you know, ledger as well, you know, both of these are cold storage solutions for individuals. I'm a huge believer in if you've got large amounts of asset, it needs to be cold. Remember your computer, it's vulnerable 24 hours a day, seven days a week, if it's connected to the internet. We do make mistakes as humans. We download malware. We click on phishing links. We do all kinds of things accidentally. Even the best security professionals will do those things. So having it cold is really important. Now with cold card, we learned about another thing that's also really important which is eliminating single points of failure. So sad part, a thing that you know was founded on, sorry, all the way back in 2013. I'm not trying to say I told you so, but as the asset size gets bigger, it's important to understand this. You know, what is security? Security is eliminating any place where you might have a single point of failure that you could lose your money. That's what security is. It has nothing to do with crypto. That's a principle that you would see in any financial system around the planet. Putting in controls so that no single party, no single entity can take the money. Unfortunately, that single key seed phrase that you have is a single point of failure. And the reason you put it cold is because it's so critical that you don't want to have it on your computer, making it so that your computer is a single point of failure for your money. Unfortunately, even if it's cold, you still have a single point of failure on that one guy that generated that one random number, which is that one key which protects your money. And that's where cold card, you know, let it clients down. It's pretty tragic. Of course, a lot of people very very terribly affected by that. What BitGo does with this multi-sig MPC thing is there's always three keys and you can implement those three keys using completely separate implementations. So with our Bitcoin multi-sig for instance, we've got one key which is in our HSM. That's the one that we own. You get two keys. That's how it's custody to you rather than custody to us. And then you can generate those keys however you want. We use our web-based browser it'll generate one on the browser it'll generate one on a backup system all three of those are completely independently implemented what that means is you've got three different random number generators that are used for those keys three different implementations on them so we've eliminated that single point of failure on having a single implementation that is completely controlling and protecting your money anyway that's what we do and when you do the self-custody side cold storage is a little bit harder right like how do you take those keys how do you take them offline can be done what cold card was doing was just giving you a single key taking that offline and then hopefully if that was implemented right that would be great that's what ledger does too and then of course there's tricks that you know bad guys use to try to find that private key remember Bitbit was just hacked I think a year and a half ago. They were using ledgers. They were even using a multi-sig ledger. But they were using blind signing and hackers were able to trick their user interface and then convince them to sign anyway. So all right. Anyway, using eliminating single point of failure is a really important part of security.

Yeah, look you got a bunch of things in there. First off, let's talk about random number generators. So I'm a computer scientist by background in my training. And you know, prior to crypto, random number generation has been a hard thing in computer science for a very long time. For people that are not in software technology business, this sounds like a difficult concept to understand. Like, what do you mean? How hard can it be to generate a freaking random number? And it turns out it's pretty hard. By the way, I saw a really cool thing. Apparently you can go to any AI and you say, 'Hey, select me a random number between 1 and 30.' And they all say 17. I tried it. You can go to Grok, you can go to ChatGPT, etc. They'll say 17. Go ahead and try it right now, Vlad. See if it comes back with 17. One and 30. Anyway, that's a different issue. That's not random number generation issue, but random numbers are a little bit difficult. And so, we've got secure random number generators. And we've had them for a long time. The securing of your digital asset, your crypto, your private key is effectively a big random number. That's all it is. There's no magic to it. It's a big random number. So the most important thing is getting that randomness right and yeah even good computer scientists have failed on this over and over again. So look AI I guess switching over to that topic gives us the ability to audit so much more code so much faster build code etc. It can find all these things. And sure enough, you know, it's probably part of what was used. But again, I can't see it. 17.

All of these models are orders of magnitude better than any of the models from just three years ago. So like the power at your fingertips is incredible. The price is about to come way down on this stuff and as it does it's going to be even more accessible. So, yeah, look, I think we're still figuring out a few things like, you know, how do we get to the looping and the self-improvement part? That's a little bit harder. At BitGo, we've been investing for, I don't know, two and a half, three years now pretty heavily into this. We track exactly how the AI is working, exactly how it's being used. Every time you check in a change list, it goes through five different agents that are checking different things from security to style to database load all kinds of stuff. And then of course we still require humans to review it. The new bottleneck we have is the humans are too slow on the review. The AI can put out tremendous amounts of code. But maybe one of the most interesting things for reducing bugs is the ability for the AI to look across a broad codebase and make sure that it's working across all the different modules. So I think humans have had this problem for a long time and it's why we have like okay we take this project we chop it up into teams you know this team owns the security component this team owns the database storage this guy owns the platform and then like when you want to do something that's sweeping you need all these teams to coordinate and hopefully you figure out like you know each expert doing their job AI can now just rip through that entire thing and find little details that those humans failed to communicate to each other about subtle parts of the change that impacted each of their subsystems and that's where bugs come in. So I think that's probably the most amazing part is that it can hit across your entire codebase in a way that humans can't match.

Yeah, it's amazing. Also for video, like I was able to do very accurate Seinfeld representations, just inserting random people into Seinfeld episodes. And this is amazing. Like three years ago, people were making fun of Will Smith trying to eat spaghetti. And that was so bad. And now it's almost like they trained their model on Seinfeld, which I guess is a copyright infringement, but it's so good. Think of how many podcasts you'll be able to do. I mean, you say you're on season 17. I don't know how that's possible. Bitcoin was invented 17 years ago. I don't know. Did you have all the seasons, but

All right. Well, there's so much recorded of you. It cannot be that hard to create an AI Vlad and then you could have like seasons 18, 19, 20, and 21 all run in parallel.

I don't know. I think it's going to be able to make it all up in just a couple of years. But you're right. I accused you of being the AI and you know I could be the AI just as easily and the scammers are going to love that, right? I mean, I get all the time, you know, some message saying, 'Oh, I thought you told me on WhatsApp to buy something.' And was it you? I was like, 'Uh oh, hope you didn't send money.' That's without much AI. Happens every day.

Correct.

Look, I mean, this is a place where you know, back to kind of the whole politics and like should you be required to have money transmission license or a MiCA license or payments license or whatever, regulators are stymied by the fact that digital assets can move across borders instantly and transparently. They've never had to deal with this before. In the past, they always had the bank that they could go to and they could put rules on the bank and that's how they could control the money. And so, look, I am somewhat appreciative of this problem, right? Like, I don't necessarily agree with why they're

Trying to do it, but I do understand that they've tried to have controls on how the money flows in and out of their citizenry. That's no longer possible, but they're struggling because they're trying to enforce the same rules. They want that control back. Unfortunately, there's not really going to be an answer. It could be, I guess, maybe the one answer would be that all of the nations come together and pass laws across the entire globe to set a standard set of rules. Fortunately, I don't think that'll happen. I don't think that they will come to an agreement. But they could try to do that as a way to kind of lock these things down. But yeah, this is just a new era, right? Money can move easily now.

Well, I think the challenge of like once you have the... So we have some guy who's posing to be me or you or whatever and sells some product and he scams people. Okay, we've always had scammers. We try to stop scammers. We should try to stop scammers, but how much do we expect that to be the burden of our governments versus that to be the burden of us as individuals? And I think we have to be really careful here. Like somebody falling for a stupid scam on a Telegram or a WhatsApp, I think has to be their own responsibility and we should not look to the government to solve it. And in the past the government has looked to solve these things by putting in money transmission rules. If you really want to solve it the only way to do it is just continue to lock everybody down. And the problem with that is that it is going to take away self-sovereignty, it is going to tie you into a one true banking system. And actually I think it compounds on itself. You know, every time you ask for a protection, well then if you find a new bug where the scammer is going to... and scammers are clever, right? Scammers got AI too. Every time you find a new one, they're going to have to lock that down and lock that down and lock that down. So, it really does come down to kind of a freedom and civil liberties versus I want to have safety and protection.

The one true number.

Yeah. Look, I don't know. Here we can get into the discussion about AI. So we've got pretty hefty bills at BitGo for the AI frontier models. And of course internally we're looking at like how they get used and some of the things we're using AI for. Yeah, you want to use the frontier models. Others at this point like the open routers and the cheaper models work just as well. And we don't need to be spending that top dollar. And the difference in price is astronomical, right? I mean, we're not talking about like 10% less. We're talking about 90% less, 95% less. And these AI bills have gone up so quickly as operating expenses for pretty much any software company worth their salt. Of course, you have to be looking at it. So, I don't know. I think Anthropic and OpenAI haven't really quite realized this yet, but their business model is in trouble. They're not going to sustain these prices.

Well, the giving away basic models for retail or individual users. Heck, that's similar to what we're doing right at BitGo where we'll take your custody, we'll take your self-custody and that's more or less a free product. We'll make money elsewhere. But businesses, I mean, we're spending millions of dollars on AI models. So, this is not small amounts. These are significant costs, right? These are like up there with how much you're spending on personnel. So if you're running a business and you're spending that kind of money, of course you're looking for ways to optimize it. And by the way, we've met with Anthropic and OpenAI. They are I think so consumed by the race that they're in that they're not particularly concerned right now about like hey whether you move over to open router or cheaper models. They're kind of like yeah you should. That's what they say. We were kind of surprised. But okay, look, we think we just have to do that. By the way, and I think when you've had big infrastructure rollouts in the past in other industries, we've seen a similar thing. Right now, there's so much capital going into the infrastructure buildout of AI. And of course, it's needed. We need lots of data capability. We need lots of energy. All that stuff's going to go in. But it's really costly. People are so excited about it, they're spending a lot of, they're investing a ton of money into it. Now, the question is like, are you going to be able to get the return? Look, I think in the end, the value always accrues to the applications. It doesn't accrue to the protocol. It doesn't accrue to the network. Yes, there's money to be made on the infrastructure. There will be pieces there, but it's the applications that are built on top that will receive all the rewards. So there's going to be this huge capital inflow in until there's not enough capital to continue invest. There'll be a massive collapse. There'll be a reset. Some people buy that infrastructure and capital for pennies on the dollar. And then all the token costs come down. The real place where the value is is whoever is building apps on top of this AI, whether that's in supply chain systems or whether it's in financial services systems or whatever. It's going to be the applications.

All right. You're obsessed now with the random number.

Well, well, if you want to bring this back to crypto then, okay, now we got to go and see like, hey, hey Grok, give me a random seed phrase for my Bitcoin wallet.

It'll be like 17 17. No. The... I think I've tried this already, so I think they're going to start giving you safety controls and say you shouldn't generate a seed phrase in chat.

It's an interesting question, right? Like do you need your Grok AI to tell you not to do these things? Or should it do it and then say like this is a bad way to do it? Right. It's sort of like the nanny state of like do you want the protection or do you want the information?

If you do it again, does it give you a new one or does it give you the same seed phrase over and over again?

Yeah. Abandon is the first word in the lookup for BIP 39.

Yeah. I mean it's a little bit trivial and it's a little silly but it does show kind of the state of where AI is at with regard to understanding this particular component.

Uh-huh.

Yeah. Right. So it's choosing safety over information. I don't know if I like that or not. I think it's okay. But look the better answer is like I'll generate you a script for it, right? Which can use the secure random number generators that are in the system. So those are good solutions.

You're running that locally on Ollama or something.

Yeah.

So instead of the number between one and 100 that you asked earlier, you should do hey I generated a random seed phrase with my AI hack my Bitcoin wallet.

Vlad presented a Bitcoin wallet hack it for me.

Look, great question. I think we've been getting this question since 2017 or so back when we had kind of the first round of forkiness. And we put in a, we've got a fork policy. I think if you search for BitGo... but we have a couple criteria. Like look first off you can't possibly support any single person's fork that might get created. There's just too much cost that goes in with it. So we look at three things. We got some technical requirements. We look at market cap like is it a sufficient size that's worth like doing and does it have liquidity? Because even if it has a market cap remember it may not have any sufficient liquidity. So the second two are more subjective. The first one on the technical side we do care about who the technical team is. And we do care does it have like replay protection? I don't know if your audience has heard of replay protection, but when you fork a coin, the responsible technical thing to do, unless you're deliberately trying to trick people, is to add into the protocol something that's called replay protection, which means when you're spending the coins for the forked coin, does it cause you to simultaneously spend the original coin? So, if you had Bitcoin and now you create a fork and you spend on the fork, does it cause you to accidentally spend on the original? If it does, it's a problem. Because now every user that's trying to use the new thing to collect that airdrop, as you say, can accidentally lose their real money. So anyway, these things go into it. Of course, most forks don't support replay protection. Which means that okay either a you don't support it or b the wallet provider us has to go figure out how to basically manually create it and there's ways we can do it right so if you had a really popular fork of bitcoin what we would do probably is we would suspend movements on both chains for some period of time we would go get some I guess not satoshis but satoshi primes whatever it is from the forked chain and then we can insert those into transactions to help make it so that transactions don't replay across both chains. Super expensive. Lot of development work that has to go into this. So we very much do not want to have to do that. It's going to have to take a very high bar before we would support a chain where we have to do that type of activity. It's also risky, right? Like you know, you screw anything up and then people lose their money. Terrible. So, look, on the good news side, I don't actually see any material forks on the near-term horizon. That could change, of course, you never know.

Well, we reserve the right to decide. But there's three things that we really think if you're going to do a fork, we think there's three things that you should accomplish. Number one, you should hit some level of technical proficiency with your new fork. And if you do those things, it makes it a lot more likely that it could be supported. Number two, you have to have a new fork that's got a market cap with some value that like matters. And then number three, there has to be liquidity on it. Number three is usually the easiest. I mean, exchanges like to trade anything. So, like, you create a fork, like for them, it's cheap and easy. They don't have to do all the work we have to do. So they'll often support a fork before we would, but again, it's hard to get all of these things going. It doesn't really happen with credibility very often.

Look, exchanges like to trade, right? So, how do they grow? They have to grow users or they have to grow tradable assets. I mean I think it's why right now we see so much hotness with these offshore SPV tokenized stocks right it's new audience for the US exchanges that trade stocks they used to only be able to trade with US persons now they can trade this tokenized stock give people price exposure outside the US so it increases their audience and then of course it trades 24/7 so it allows them to trade more and that's how they make money. I don't, again this kind of comes back to like, you know, should we have a listing of like, oh, you should trade this but not that. Anytime you get into a subjective thing there, like it's like, okay, well, who gets to decide? I don't actually have a problem with all these things being tradable. Anyone should be able to decide that. And then you or me, we should be very discerning about which assets we decide to buy or sell. But as for the exchanges, like yeah, that's kind of their business.

Yeah, I think there's some pent-up frustration about, you know, should the protocol completely ossify or not? And so yeah, it does seem to come up. I don't know. I think in 2017 when we had the what's now called the block size wars remember the fees on Bitcoin really really spiked. And there were pretty much everybody was universally like hey what should we be doing to address this? And there were proposals from pretty much every party. And then eventually it turned into this thing of like hey it's us versus them. But really it was a technical debate about you know what should the block size be? And that led to some things eventually okay have a fork people kind of pick which fork they want to be on. I think that actually works out pretty well. BIP 101 or whatever that was. I mean I thought that was interesting. I don't know. Some people think that like there should be a control over what goes into I guess a transaction. I think that's kind of a feudal thing to do. It doesn't seem like there was much support for it. So I think we got a very market-based answer to whether people think that that's a good thing for the Bitcoin protocol. And then there's more coming, right? So Paul Stor got his thing going. And we'll see what happens there. I think he's at least, you know, he's been around for a long time. I think he's got some credible reasons for like why he wants to make the changes he wants to make. Whether the market's going to value that or not. I mean, we'll see, right? So, Bitcoin Cash back in 2017, 2018, it got a value, right? And some people thought it was going to go a different direction. But now, if you look at the price of Bitcoin compared to Bitcoin Cash, the market has solidly decided where it thinks the value is. So other than the fact that these forks are quite annoying from the perspective of wallets and security providers because we have to do all the work. We do all the work. The market sorting it out I think is great. I don't have a problem with that at all.

Yeah. Like there's some amount of like almost a fair launch. If you're launching any coin, right? How do you get the money distributed? So one thing you can do is you can fork a chain. If you're not trying to claim the naming or the branding of the original, like really what are you doing? It's just like, hey, I liked this technology. I like this distribution of users. I can give them an airdrop of my new coins and then like we can see what happens. You can love it or hate it, but you're not affected. If you were holding the original coin and now this new thing emerges. The debate over naming I think at this point is quite silly. I think it's very clear there is actually a thing that's called Bitcoin. I think people invested into it with a set of expectations and anyone trying to say, 'Hey, there's a new set of expectations and they know the one true set of new expectations and they should control that.' that seems just wrong to me. If they want to say they want to create a new thing, okay, you know, they can do that. Anyone can do that. The market is open. But yeah, I don't know. These things have two halves. One is the technical half, like what are you trying to accomplish? And the second one is like the branding and political half. And maybe the third one is like the masses of people that, you know, maybe just join on because they have a popularity vote of like who runs the original and who runs the fork. But I tend to concern myself more with the first thing like what's the technical thing that you're trying to do then let the market sort out the rest and all the politics is not that interesting.

Well, I don't really like any of that religious or cultish type behavior of Satoshi is some sort of a Jesus creator. I think that that is just not very interesting. What did he do? He invented a set of technologies and assembled a set of pre-invented technologies in such a way that it gave us decentralization like we never had before. That's what he did. And it's a protocol and it's got scarcity and it's got decentralization built into it. It uses proof of work consensus and that's what it is. It's inspired tremendous amounts of fantastic work across all of these blockchains that have been invented since each of which has different degrees of decentralization. They've added new features. They've added smart contracts. They've added all kinds of things on top. I think all of that's fantastic and Satoshi deserves some sort of credit for having inspired it. In terms of these forks, yes, you can always use a fork as a way to start jump start a new thing whether it's you want side chains, drive chains, you know, whatever. But it doesn't take away from like look there's a thing called Bitcoin which operates the way it operates today and it does get some amount of modest update. There's some debate about, you know, should there be one true implementation of that, the Bitcoin Core implementation. There's been, you know, Bitcoin Knots for a long time. I see. There's a new one called R Bitcoin. I'm not sure if you've seen that as a new implementation of Bitcoin. It's just trying to implement the protocol. It's not trying to change the protocol. So look, I don't know exactly how to answer the question. I think he invented a technology and that technology has been inspiring to I think millions of developers at this point.

That's a very abstract point of view. You know, kind of that everything is some flavor of Bitcoin. Look, I think Bitcoin has inspired a... I mean, people look at Bitcoin, they're like, 'Wow, that's an amazing store of value. I would like to have a store of value of my own.' And so, I'm going to create, you know, my coin or whatever. And I'm going to go try to make that work. Look, I think the best part is that it's taught people to start thinking about money. What is money? How does it work? You've been spending your whole life pursuing it. Your parents pursued it. Like, what is it really? And so I think that educational component is really really valuable. It allows people to start thinking about what are the systems behind what we put our faith into. What risks do we have for ourselves, for our children, for families. Now then separately when you start using it in different contexts, it ends up being very different very quickly. So, Bitcoin really is the only coin so far that has achieved a decent level of decentralization. And I say decent because it still needs to be better. I personally don't think Satoshi fully anticipated like mining pools, which creates a bit of a centralization point. I think he probably did think about a single codebase which creates a centralization point. But you know there's a number of places where we can do better to decentralize it. I don't think he anticipated digital asset treasuries. And you know what happens when one digital asset treasury accumulates a tremendous amount of bitcoin. He did anticipate ETFs coming along and those also create centralization points. All right. Bitcoin has done that. Anyone that takes that technology and uses it for a different purpose first has a decision around how decentralized do they want to be. It's hard to be decentralized. Super hard to be decentralized. It does have an ossification property to it in that it's much harder to change the protocol once you decentralized it. So, a lot of these guys that are trying to build, you know, securities tokens or when they're trying to build, you know, commodities trading or all of these other things, they're blockchain inspired, but they actually don't want to necessarily move to a fully decentralized thing. That's not the biggest value to them. The biggest value to them is to have kind of the open API that everybody can participate in. It's public ledger. Everyone can see it. It's got a bunch of properties that way, but they want to be able to continue to change it as they build their software. Remember, prior to Bitcoin, like you think about software, you launch version one, there's always a version 1.01, there's always a version 1.02, then a version 1.1, a version 2.0. This is the way software works. There's always something that you could have done better. Even with Bitcoin, that's true. But with Bitcoin, the protocol is locked in a way that's very, very, very hard to change. So, when you're building other applications, you know, that do have regulators looking at them, like you actually need to be able to change them. So look, the good news is he created a mechanism with blockchain that's got transparency to it. Can't be cheated as much because it's got cryptography built into it. It's got a consensus layer. Depending how you do that, it could be more or less decentralized. This allows us to build all kinds of new financial products. Helps increase that education cycle for investors and people that are trying to just keep money, keep their, you know, grow their wealth for themselves. But those are going to have very different properties than what was originally invented or attempted to be accomplished by Satoshi.

I was not part of the New York agreement by the way.

But I will talk about where I am, where it was if you want to ask that.

Well, just to be clear on kind of what happened because I think it gets portrayed almost from a religious perspective and it doesn't necessarily need to. You know, I'm like I said, I'm a technologist. I worked on HTTP version 2.0. I'm the lead author of that product. In the case of internet protocol standards, they go through this body called the IETF, the Internet Engineering Task Force. It's been around since early 70s. When you go into the IETF and you talk about how protocols can be improved, you will find fervent heated debates between people that are very very smart, diametrically opposed, staunchly convicted that their method is the right one. And you come into these meetings and these debates and you solve these issues. And that debate is necessary and healthy in order for the protocols to evolve. Do you get the perfect answers? Nope. Like with any human system, you don't always get perfect answers, but you do get the debate out, you do get the ideas out and you resolve things. At the time that we got to what's now been dubbed as like the New York agreement. And by the way, BitGo never signed it. We intentionally didn't sign it because I did not believe that like you should sign something that says I think the protocol should be this way. When you go into the IETF, individuals that come and at the time I was working at Google, you shed your company affiliation and everybody is an equal voice as an individual. So you're there to debate protocol. You're not there to debate on behalf of your company. So I come from that ethos in terms of like how you should build protocols. And of course, Bitcoin's got its own BIPs. In the early days, people come wondering, you know, how's this going to evolve? Will there somebody be? You could still ask like should there be an IETF type of body that has a little bit more mature process around how do you evolve protocols it's not a terrible idea to consider. But everybody had an approach about how to increase the block size like Anderson had it Adam Back had it there was you know we weren't even related to it like Blockstream took a bunch of people went out to talk to all the miners in China had like the Hong Kong agreement these agreements were silly in my view. So, Barry Silbert, I guess, is probably one of the organizers of the now dubbed New York agreement. Basically, after having not had a lot of consensus, people said, 'Okay, well, we haven't had consensus. How do we build it? Let's go get some of the players in the space and let's see what they think and let's see if we have a common viewpoint and can we use that to get a resolution to increase the block size.' So, really, it's just another consensus building mechanism. The Bitcoin protocol can change and it does from time to time. But it requires everybody to come to agreement. So, how do you get a consensus or an agreement? Well, you start with an idea. That's one person. And then you got to bring other people in and see if they agree. And if they don't agree, in the end, you're not going to do it. So, anyway, with the block size wars, there were a whole bunch of people that thought, you know what, the best way to deal with this is just increase the block size. And it's a little unclear as to what the original intent of the protocol was. I mean, really, the one megabyte cap from the early days was clearly as much of a spam prevention as anything else. All right, so SegWit got created. That's good. That's helpful. Kind of separates some of the data that's in the blockchain and in a pretty constructive way kind of regardless. But you know, yeah, the plan was like Lightning's going to come and it's going to take all this stuff and like it's all going to work. Well, here we are eight years later. And you know that hasn't really materialized. It also took way too long to get these implementations. You know, even the SegWit side took a long time. Look, I do think that like the community could have decided to just increase the block size and it would have been pretty trivial and easy. But the community decided not to do that. And so that is what it is. I don't have a problem with that in any way. Would it have grown faster? It might have. Look, I do think that without having a path to low fees, a path to be able to support large numbers of transactions, you know, Bitcoin missed out on what eventually went to become stable coins on different chains. And I think at this point it's done. So, you know, whether Bitcoin should be a payment system, a peer-to-peer electronic payment system like what Satoshi wrote in the white paper, whether it should be a store of value, you know, people talk about what it should be. Look, in terms of what it is, it's that store of value at this point. With 10-minute blocks and relatively limited block space, the community decided that that was the path. Now, just to play the other side of the argument, you know, we talked about decentralization a lot. You know, there's a lot of fear that if you did increase the block size that it would negatively impact decentralization. I think those have mostly been debunked at this point. I mean, the size of the blocks are so small that you can double quadruple them and it's pretty clear it wouldn't have a lot of impact. But I do value decentralization tremendously. So doing anything that would potentially destabilize or reduce that decentralization, not good. So look, the community decided to take a very conservative approach towards decentralization and forgo becoming payments and that choice has been made for Bitcoin. Done.

Wait, wait, let's go back. Okay. So, yeah, if you want to talk about Mastercoin or Omni, those were protocols that are unbeknownst to the consensus layer of Bitcoin and they say that they run on top of Bitcoin, but they're not validated by Bitcoin. So what does it mean? What it means is there's a software layer not related to Bitcoin. Bitcoin knows nothing about it. The miners know nothing about it. The miners are not validating the transactions, but that software layer is dropping some extra stuff into Bitcoin transactions. And then when it sees those transactions on chain, it's interpreting it in some way. So the way that it is tied to Bitcoin is that as long as everybody at that upper layer, which is outside of Bitcoin, agrees, then okay, I guess it's fine. But what happens when all of a sudden one guy says he sent a million bucks, the other guy's like, 'No, that's not a million bucks. That's only two bucks.' Who's right? The Bitcoin miners don't solve that issue. There is no consensus network at all for Omni or Mastercoin. So you're correct. Tether was originally launched on Omni which is on top of Bitcoin. And then there were some people that interpreted that just because you could move the Tether on Omni by a Bitcoin transaction which had some comment at the end of it. The only reason it worked is because everybody agreed on the one true implementation of Omni. And sooner or later had that continued. And of course it didn't go very far. And there have been a long history even before Omni and Mastercoin of other types of protocols that would claim to have the security of Bitcoin by sitting at the application layer above it. Look, if the consensus layer, if the miners do not know about your transactions, it's just simple fact like you are not protected by Bitcoin. It's as simple as that. And anyway, so you're correct. Tether was launched on that. It did get a lot of usage on that. People did trust it anyway, even though that's not in my view protected by Bitcoin at all. And when I say stable coins, one, look, I think stable coins are actually kind of a better payment mechanism because they're dollar backed, euro backed, etc. You get paid in dollars, you get paid in euros, you pay your taxes in those coins. People still to this day don't really like spending Bitcoin. That's in part because it's volatile. That's in part because it's going up in value, a bunch of different reasons. So, I mean, in terms of payments, I think the ability for Bitcoin to win on the payment layer, two things had to happen. A, you have to have high volume of transactions at low fees. B, you have to have a willingness for people to spend them. Neither one of those things happened. But even if the willingness had been there without having, you know, large numbers of cheap transactions, the Bitcoin protocol decided to forgo being the layer at which they would transact.

Liquid has now kind of answered the question for us. So, you know, going all the way back to the Federation. Yeah. Back 2014 2015, there was this debate of like, well, how do you change Bitcoin? So the problem is like, okay, as Bitcoin grows and has more and more money in it, like the last thing you want to do is have that money be put at risk because you're trying something new that may not work. So, this concept of side chains came up. And of course, Blockstream came out and pioneered a lot of that work, did a bunch of things and created Liquid. And the idea was you could have a side chain where you can kind of peg some of the value to and from Bitcoin into the side chain and then the people that participate in the side chain take the risk but the Bitcoiners are not at risk. And this played out just what two weeks ago, right? So, turns out they shipped a bug on the Liquid network which allowed someone to drain through the federation off of the Liquid network. Had that bug existed on the Bitcoin side, that would have been devastating to all Bitcoin holders, right? So by using a side chain, it pushed the risk off of the main chain and allowed those people to participate on what they were doing on Liquid without exposing all Bitcoiners. So I think that part of Bitcoin has got it right like do you want to be adding smart contract layers on top of Bitcoin when it wasn't designed for that? And you know in the early days even before 2014 you know some of the things that were happening was like the script op codes were getting pruned down. Why? Because the developers recognized that like, wait a minute, even though we don't know exactly what the security issue would be with these various op codes on Bitcoin, we know that these are powerful enough that like it gives a large surface area for attackers to use to attack Bitcoin. So they pulled them out conservatively. Anyway, I think Bitcoin made the right choice here. And if you even think about Bitcoin to this day, like right now we have this problem where fiat money is going down and down in value. That doesn't seem to be fixable in the US, in Europe, anywhere. The intent that I think Satoshi very much put into the genesis block, you know, talking about the banks and talking about the 2008 crisis was about how do we have a store of value? How do we have some sort of money monetary system which is not fiat-based? And he created it. Today, if you had a billion dollars and you're like, you know what, this dollar thing isn't good. I got to get into something else. Maybe you're going to go to gold. Maybe you're going to go to Bitcoin. If Bitcoin has got Liquid side chain types of experiments going on with it, that's a billion dollars. You can be like, 'Wait a minute. Can I put this into that? I don't know. Is it safe? I'm not sure.' So, I think it's really important that Bitcoin did what it did. Lock down the various changes, make it very very difficult to change so that you can continue to invest it without knowing that tomorrow some developer isn't going to come up with some crazy idea that puts your billion dollars at risk.

These are great questions. Look, I think sometimes people forget that Bitcoin still has a little bit of experimentation or still a bit of an experiment itself. And some of these things have been theoretical and as we move in time, we find out exactly what happens. So we don't know what's going to happen in terms of fees as things progress. I'm not as worried about it. I mean, I think the problem is people can speculate as to how bad they think it's going to be. And they can say like it's not healthy like you just said. I'm not sure that we really know yet. I think it's perfectly fine for now. But yeah, you're right. Like if things go the wrong way, then maybe it's not always going to be perfect. But I think humans have a way of solving these types of issues. And I don't think this is the biggest long-term threat to Bitcoin. I think there's probably other issues that we should probably worry about more. But yeah, these are things that should be watched and those might need little tweaking for Bitcoin of how do you deal with that? I don't know what the right answer is. I think Bitcoin scarcity is incredibly important. I don't think you can change Bitcoin scarcity if you do that. I think you're changing the fundamental promise of the protocol. So anyway, I wouldn't rule out, I wouldn't jump to conclusions that this is a problem yet. It's not a problem today. I think it's years away from being a real problem. Now Bitcoin mining, I think, is we're learning a little bit right now as Bitcoin miners shut down and shift over to AI. So that could create a little bit of a temporary set of conditions that'll be interesting to watch. Personally, I don't think it's going to be a big deal either. As you know, the difficulty is dynamic and it'll reset every 2,000 blocks. So, the protocol has kind of got some adaptability already built into it, which I think is going to ride us through even if we were to have a substantial drawdown of mining capacity. You might have slower blocks for a little while if it were really extreme, but I don't think that would be a killer for the protocol either.

I was not accurate with that wording. I mean fixed supply. I think the fixed supply actually is really really important to Bitcoin. With gold, you're right, the inflation rate is somewhat predictable based on historical values, but it goes up and down as the value of gold goes up. So, as the value of gold goes up, it becomes economic to go mine it from farther and farther away places. And as you know, there's folks trying to mine gold off of asteroids. And you know, there you could actually see a 5% disruption to the gold supply if somebody successfully did that. Maybe even larger, I don't know. So that's kind of a different thing. Obviously, that's not what we're talking about with Bitcoin. Some people are talking about like, hey, you're going to need a forever subsidy to miners. This argument has happened for like forever. Of course, if you're a miner, you're like, yeah, give me some more. But look, I think it violates the fundamental premise of Bitcoin in a way that would be pretty devastating to the reputation of the brand. I think it would slow things down. So, I think that should only be done at a very very very last resort. I don't even think we're close to having that discussion yet.

For sure. I guess my viewpoint is somewhat principled. I think the promises that Bitcoin had is what led to people investing in Bitcoin and what gives it its value today. And so when you change those promises, you're kind of rug pulling. And even if you're only rug pulling a tiny tiny tiny percent or it's for the good of the network, you are changing the rules under which people invested. And so people need to rethink, you know, how do they want to invest their money? So as soon as you go there, I think actually that opens up the door to like, okay, maybe I should just be thinking about something that's not Bitcoin anymore. And it may be very similar to Bitcoin, may have a lot of similar properties, may try to get to be decentralized as well. Maybe it'll be a Bitcoin with inflation and maybe people like that better. That might be a little better product. I don't know. Let the market decide. If the market thinks it's a better product, they'll shift to it. If they don't, they won't. But to change Bitcoin is to rug pull it. At this point, I think you can't do that. I don't even think like, so Paul Storck wants to change some things about Bitcoin. He's going to have his own fork. I don't think he's got inflation in his either. Do you know?

Okay. I think is a reasonable theory.

Well there is another thing that could end up happening. I'm not sure I like it, but like let's say the fees went to zero now. You know, so what would miners do? I mean, maybe they live off the subsidy alone. Obviously the subsidy continues to decrease every few years. What they could start doing is start charging SaaS subscriptions to folks like BitGo and they're like, 'Oh, you want to have your transactions included? You know, you need to pay a fee. Otherwise, we're just going to have it be really slow.' So you could end up with a market for getting into the miners. This wasn't supposed to be possible. But because of the pools, it kind of is possible. So I mentioned early briefly, I don't think Satoshi really anticipated that we would have like this concentration of what transactions go into a block by way of a pool. But you know, here we are. And anyway, I think that could happen. I'm not sure that I like it. But I think that it's another vehicle for miners to make money in the event that there's no transaction fees.

Yeah. I mean, look, I don't think as I think the market should decide if those services are good or bad. If we get to a point where that ends up being like the only way we can actually pay for the mining, then that's the part that I'm more concerned about. But, look, again, I don't think this is anything that's imminent.

I guess I kind of think that Bitcoin is not going to do this at this point. I don't know. I suppose it's possible. Maybe I'm not cryptographically smart enough to answer that question for Bitcoin. I do think other chains are going to solve the privacy issues and it may just be that they accrue the traffic of the folks that need those features. I think Bitcoin is pretty hard to change at this point. I think the more imminent concern about fungibility for Bitcoin is probably regulators. You know we have this miraculous thing which is the blockchain and you can see so deep in it. There's some companies that made massive businesses around you know claiming that they can see when bad money is moving from here to there and to some degree they can and they can trace it and they can figure out where it went etc. And regulators love this. This is like the best thing ever. They never had this with the traditional finance system and now they have it with crypto. And then they may want to a require it so that you can't have privacy and b they may make it so that like if there's any transaction in your history that they don't like for whatever reason that suddenly all of these financial institutions can't touch it. So I think that's the biggest threat to fungibility. Obviously, you know, zero knowledge proofs could be a solution to it, but you'd have to have two things. A, you'd have to have the protocol change to support it. And then B, you'd have to have all the wallets use that mode. So, for instance, Zcash, I mean, we mentioned a couple of times here, Zcash has a shielded and an unshielded mode. And it's not very few people actually I guess I don't know. Maybe you know what is the percentage that's in shielded mode on Zcash today?