Fred Thiel on Global adoption, Quantum preparedness, and the future of Bitcoin’s security budget

Oh, I'm feeling stoked. We had a lot of people coming by the booth voting. I haven't seen the latest figures, but the race is tight. The race was is quite tight. Clearly, we'll see if one of them pulls ahead or not. But it clearly shows that people have their favorites, which is good, and that all three candidates are excellent and getting a lot of attention, which is great. We're excited about this campaign.

Well, part of it was so over the years we have given actually a lot of money to different core developer groups. So we have funded grants with Brink for example. I think we did a matching grant that was in the hundreds, multiple hundreds of thousands of dollars. And we've done that, we did that multiple years. Started small first year and then the second year we went pretty large. And we believe very much that Bitcoin is a community project. Satoshi didn't write everything and then just put it out there and it was a finished product. It was here's a white paper and then different people contributed to the code and it has developed into what it is today. And very few people who are not longtime Bitcoiners or who have been kind of involved in the community for a long time don't realize that there are only a handful of people that are actually the ones doing the heavy lifting of looking at the improvement proposals and then coding them, putting them in the queue, coding them, QAing them, putting them on the test. All of that stuff that has to get done is done by a handful of people who are really volunteers. And so if we want Bitcoin to thrive, we need to ensure that the infrastructure survives. And for the infrastructure to survive, it needs to be maintained because it can't just ossify even though people say ossification, which is stuff goes fossilized, is good. I mean the internet essentially is ossified today when you think about TCP/IP protocol. But Bitcoin needs to live. I mean we have to deal with ongoing potential threats, quantum for example, and dealing with that. We have to deal with the fact that there are multiple generations of technologies involved in Bitcoin regarding wallets. There are multiple generations of systems that are interfacing with Bitcoin and there are different use cases. When Satoshi wrote the white paper, Bitcoin was a currency. It was meant to be a method of payment, not just a store of value, but it was a way to be independent from centralized control and the whole anti-1984 kind of brave new world. Those of you who are of my generation at least would understand that.

Yeah. So I think it's just a question of if we want Bitcoin to thrive, then we need to ensure that just like with a bonsai plant, we're trimming and pruning and tweaking and making small little modifications to it. Its core is very strong. The technology is robust. Certainly one of the most robust technologies out there. Proof of work has been proven to be one of the best forms not just for consensus but also for security. But it needs to be taken care of. It needs a little bit of maintenance and needs to go into the shop every now and again, get a little tweak. And we want to make sure that there are people who have the ability to do that. At the same time, we also want to ensure that newer generations understand why Bitcoin is so important, right? And this is the education piece of it, which is not about business products and services. It's about why is Bitcoin good? There are the two different lives of Bitcoin as I call it. There's the developed world and there's the developing world. In the developed world, it's a store of value, digital gold, all of these narratives around financial instruments, and as a digital asset. In the developing world, it's the only way you can hold your assets so that the government doesn't take it from you overnight. And if you have to flee your country, it is the only way you can move your assets without having to go through some hugely expensive transfer mechanism to move your assets. And in places where, for example, women can't have bank accounts or in places where if you're not of a certain income level, you can't get a bank account or you need to be able to trade outside of very restrictive channels, you need these types of services that Bitcoin actually provides. And I think the developing world is where I'm most excited about how Bitcoin truly thrives because it has a full life cycle. You see full Bitcoin circular economies in some parts of Costa Rica and Panama for example, in these little villages that during COVID paper money was restricted because of the spread of disease and so you had to start using digital payments to do it.

So I think education is very important here because just like with AI, like oh Skynet and Terminator is a big risk but you really have to understand the topic a little deeper. So quantum is a great technology for essentially doing factoring problems because of quantum position superposition. And so if you think about encryption technologies tend to be factoring problems, right? SHA-256, if you're going to calculate SHA-256, you have a key, public key, private key type solutions. And so if you have one, you can derive the other by doing lots of guessing, which is what Bitcoin miners do, right? We do lots and lots and lots of guessing. That's what we use all our compute for. If you have a quantum computer however, you can do factoring problems much faster and while the Bitcoin ledger is a symmetric encryption meaning that you need just as strong computing to generate the key as you do to decode the key, wallets are essentially asymmetric. Just like RSA technology, all the technology that protects your bank accounts, your healthcare records, all of the stuff on your cloud accounts, all of those systems that have passwords and usernames are typically RSA based, which is essentially an asymmetric where it's very hard to create the key, but once the key is created, it's simple to unlock it, if you would. And that way you don't need to use a lot of software on the user client end. And quantum computers are really good at cracking that. And Bitcoin solved some of that in wallets later in its trajectory. But there are some early wallets in Bitcoin whose public keys are exposed. The wallet address is exposed. And so if you have half the equation, you can figure out the other half. And these are the old Satoshi wallets for example. There are I think it's 1.7 million Bitcoin or something like that that are in those wallets, right? And there are about 5 million Bitcoin that haven't moved or are viewed as dormant that potentially the account numbers have been lost, etc. And so the early Bitcoin accounts that were first generated, the wallets were first generated published a key address. So that's known. But modern addresses don't operate that way. But more importantly, if you have an old address, you can simply create a new wallet, move your Bitcoin to it, and then never transact with that wallet unless you empty it completely and create a new wallet. Just basic street craft if you would regarding how to protect your wallets. So the key is the challenge is really these dormant wallets that haven't moved. And the fear is that if Bitcoin moves out of a Satoshi wallet, all of a sudden, people will think it's been hacked or that Satoshi's actually alive and oh my god, now it's a different story. And that Bitcoin's value will be debased somehow. And I think if you look at the different approaches, you could essentially partition off that Bitcoin and say it's no longer viable and usable. And if somebody does have a key, then they have to go through some mechanism to prove that they are the rightful owner of that. And part of this was kind of attempted a little bit in the court trial that was done around the copyright of the Bitcoin white paper that was done a few years ago where the way to prove that this person was Satoshi was that you had to have the keys to the wallet and he couldn't open the wallet and so therefore or he wouldn't open the wallet. And so therefore this person was deemed to not be Satoshi and therefore could not have owned the copyright of the white paper. So I think that the challenge is what do you do with those wallets and I think that the work Mara's been doing together with others around BIP 360 is a great solution for that. Because it doesn't just cut everything off and it doesn't also force a necessary full force of the code.

And so I think and again it's a community project so it's not like a centralized, if Bitcoin were centralized like Ethereum for example, the Ethereum Foundation, Vitalik could just say this is the way it's going to be and it happens. Bitcoin doesn't operate that way, right? You just look at the SegWit wars and even though 90 plus percent of the miners wanted to change something, it didn't happen because the node operators wouldn't go along with it.

I think the key thing is that the community who values Bitcoin, which to your point today includes some major corporations. I mean BlackRock, Michael Saylor, he is a corporation, right? Strategy is a company with a desire to generate profits and to grow their Bitcoin hoard. They are two of the largest holders of Bitcoin in the world. They both have a combined interest in ensuring that Bitcoin doesn't go to zero overnight. And so there's definitely an interest from corporations to ensure that Bitcoin is viable and feasible and healthy and safe and they can only do so much on their side. But again, they're focused on protecting what they can protect regarding how they custody their Bitcoin. They can't do anything themselves directly about these older wallets that are at risk. And just to level set, the Bitcoin ledger itself, because of it being symmetrical, the quantum risk is diminimous. I mean even if it advances at light speed it's still diminimous.

And so it's really on these wallets. And so the question is you have to build consensus and you have to get people willing to believe in this hourglass method as being the right way. So it's a little bit like the UN, right? You get all these countries in and it's not about the big guys get to decide. It's even the little single node operator gets to decide and have a vote and figure out what they want to do. And it's getting everybody around the table, getting everybody to understand what the change is, getting to understand what this change means, what they have to do, and then they eventually will just load some new version of software on their node and operate the node and it'll all be good. But I think there are a couple of things that could accelerate this. As long as people don't think it's imminent, they don't have an urgent sense of urgency. The big fear with quantum is not when you see somebody hack a wallet. It's the fact that somebody could be draining different wallets quietly. Because why in the world would you want to announce that you've hacked the Bitcoin wallet?

Because let's just say somebody has been collecting all this internet traffic which nation states have been doing for years and the traffic's all encrypted but now you decode it at home and now you have username and password for billions of bank accounts. Okay, you just log into the bank accounts and if there isn't 2FA and these other protections, then all of a sudden you can sit and you drain 10 bucks out of an account. How many people are going to call, oh my god, somebody's hacked my account on a $10 withdrawal from their account. The discrepancy.

I think we need to implement procedural changes so we're ready, right? Kind of if you think about the definition of luck is opportunity meets preparation, right? What you don't want to have is an attack and then you don't have a response. And if you can mitigate the risk for an attack by already having a publicly known mechanism, which makes it less attractive to go after and do this, then you know, you may not have to fight the war ever. You've simply put in place a big enough threat. It's I hate to say it, it's kind of like mutually assured destruction. It's okay, you want to go after those wallets. Well, we're going to make it so those wallets aren't really all that attractive for you.

Absolutely. And you know quantum is coming at whatever rate it's coming and it's coming faster than we think.

Well, there's a thing called the security budget in Bitcoin, which is essentially the way Bitcoin was designed by Satoshi was that miners would essentially get paid a subsidy that decrements by half every four years, the halving, until such time as fees reached a level whereby the subsidy was no longer needed. And so the subsidy goes on until the last Bitcoin is mined. But really, if you go out beyond 2032, the subsidy is pretty diminimous in Bitcoin terms. It's under a Bitcoin at that point, right? And so you want transaction fees to go up. Because the other thing, you don't want Bitcoin miners just selling the Bitcoin they earn subsidy. And so these transaction fees today because Bitcoin isn't used as a currency. Again, remember the Satoshi white paper, this premise was that Bitcoin would be used as a currency. So you and I would be transacting in Bitcoin and our systems would be transacting in Bitcoin. We'd be buying bus tickets, we'd be buying beers, whatever would be bought with Bitcoin. And so there'd be lots of transaction fees. Well, that's not the case because in the developed world, Bitcoin is a store of value. So you buy it, you put it on the shelf and you just lock it up and you're not moving it. And so there are not a lot of transaction fees. And so eventually what'll happen is the incentive for Bitcoin miners to buy new miners and keep mining once the subsidy drops below their cost of mining, which it actually has been recently with Bitcoin when it was down in the 60s for a lot of miners, they lose the incentive to keep investing in mining and they transition to other things. And while right now at one zettahash of capacity, if you look at the total global hash rate, it's or zettahash sorry, you've got way too much mining going on compared to what is required to secure the Bitcoin blockchain which makes it super secure. So the Bitcoin blockchain could certainly lose some mining capacity and would still be just as secure as it is. But the fact of the matter is that miners like to mine as much Bitcoin as they possibly can and so they're constantly incentivized to add more mining capacity, which is the whole purpose. But over time, what's going to happen is it's going to become unprofitable to mine unless Bitcoin price continues to go up. And you can't have that as a premise. And so again back to the same thing with the quantum risk, you have to put in place programs and systems where in the event these things don't happen, you have a mechanism whereby you can continue to maintain a certain level of mining in the world. Now there is a way to do it where mining is viewed as a business and then there is a way to do it where you just build Bitcoin mining into all sorts of devices that consume power.

Like heaters. So you could essentially build a Bitcoin ASIC into any electric device that you have in the home and it could essentially whenever electricity is cheap enough just run a little bit of a load, your television set, your washing machine etc. It could be a low-cost piece of silicon that goes into all of those devices and then essentially it's just mining Bitcoin whenever there's excess energy available. So, you're kind of subsidizing Bitcoin mining by double dutying that electricity with some other function, whether it be washing your clothes, running your lights, whatever.

But, so there are depend on the energy source basically. And then at the industrial level, you get energy companies. And we've been in discussions with large global energy companies who have large fleets of renewable energy and they're curtailing that energy because they can't sell it all because of transmission congestion and other problems. And they have an incentive to find a way to monetize those electrons they're not using. And so for them, the marginal cost of operating Bitcoin mining from an electricity perspective is zero. Right? If you're a solar or wind farm, if you can't sell your electrons, those electrons are going to waste. If you have a thermal plant that's running gas, it's different. You have to pay for the gas to generate the electrons, so you'll shut it off. But with wind and solar, it's free. And so notionally free. And so you have an incentive as a power company that has excess energy to run Bitcoin mining. They just haven't wanted to take the risk. Now they're actually looking at this and saying, we have grid imbalance issues. There are places in Europe, for example, where in one part of the country, they have excess power they can't sell and they're getting paid by the government not to run. And then in another part of the same country, people can't afford the electricity, right? And so if you put a bunch of Bitcoin mining in the places where they have too much energy and use the profits from that to subsidize the energy for the people who can't afford it, you may actually have a happier populace.

Yeah. And so in that case, the security budget is essentially managed by the fact that people are using Bitcoin mining simply as a way to monetize electrons.

Yeah. And I think what you're going to see long term, certainly this is in MARA's kind of vision is that as we begin building and operating more inference AI type data centers, inference AI workloads are very varied like this. Not unlike power demand on the grid. And we've developed technology that allows us to mirror our load, how much power we're taking to the available supply. Because we own a wind farm in Texas, for example, and we had to develop this technology so we could adjust the load of our Bitcoin mining based on the energy that was coming off the wind farm, which depends on how much the wind is blowing. And you'll get a gust of wind and you won't have a gust of wind. It literally varies from minute to minute. And you can take that technology and you can instead apply it to inference AI and say well inference does this. And so let me just respond my load to that. And then to make it even more responsive, I'll put a battery system in between. So we can essentially modulate what we're doing subsecond, sub 20 millisecond in some cases. And that all of a sudden allows an AI data center to operate as base load because the grid doesn't like it when an AI data center does this. It hates it because they're having to modulate somewhere else.

And if on one side it's doing this, they have to do this on the other side. So what we do is we sit right in between and essentially can take this and turn it into a flat line.

That makes sense. So you're sort of yeah balancing between AI and Bitcoin pending the need ultimately.

I mean absolutely. I think there's a part of what a corporation does, its mission, which is focused on supporting its stakeholders. And a lot of people talk about well our purpose is to generate the maximum return for our shareholders. Now your shareholders aren't the only stakeholders, right? If you look at the true economic value that a corporation generates, it generates value for its employees. It generates value for its customers. It generates value for its shareholders, generates value for the communities where it operates because it pays taxes, etc., etc., etc. And while there's a part of our business which is focused on generating revenues for the company, paying salaries, paying taxes, hopefully generating great returns for our shareholders over time, there's also a part of our business that is supporting the stakeholders who are the industry and community that we're in in doing innovation and moving the technologies forward and making them more beneficial to society overall.

Well I think unfortunately some of the catalysts are not as happy as one would like. High inflation, issues with US deficits.

Just around the world, right? You've had this problem in Turkey for example, a 75% devaluation of the currency. You have this kind of centralized taking if you would of people's assets and Bitcoin is a great way to protect against that and so you want to drive Bitcoin adoption in the developing world in third world nations. You've got plenty of food for education there and you see a large amount of uptake. You have to realize though that these are very low income places and so the amount of Bitcoin people can have is very small.

In the developed world I think you're starting to see for example now the ability of Bitcoin to go into 401ks. You're starting to see a lot of assets being allocated. The biggest buyers of Bitcoin during this dip have not been retail. It has been institutional buyers.

In this period of low price Bitcoin and that's because institutions want to hold it but again they want to hold it. They're not transacting in it. And so, I think anything we can do to drive more adoption of using Bitcoin actively in more of an economic sense, is better for Bitcoin than it just being locked up and put on the shelf.

I mean you look at the developed world and the population of the developed world is maybe 1.5 billion people, right? You look at population of India, it's about 1.5 billion people.

Right? So the global south and Africa are the two areas where you still are seeing large population growth.

On the payment side specifically like they need peer-to-peer payments truly.

Oh, wow.

Wow. Oh, interesting. It's their local currency. They're able.

Like free digital currency. Digital currency. That's wild. Interesting. Very interesting. Good. Hopefully they'll be easy targets for Bitcoin. I mean, that's a straightforward conversion right there.

Well, thank you so much, Fred. This was really fun to have you. I'm so excited about the work that we're doing. And yeah, I just can't wait to see kind of what we accomplish over the next year with Mara Foundation. So, thank you so much for including me in this effort and yeah, thanks for coming on the show.

Awesome. Ditto. Thank you.