Video - Labitconf 2013 - Bitcoin Neutrality - Andreas Antonopoulos

Bitcoin is what we need in terms of thinking no-pay transactions. Hence, Andreas talks about how Bitcoin will neutralize third party players from sucking peoples money.


MAN #1: We welcome Andreas Antonopoulos who will talk on Bitcoin neutrality.

ANDREAS ANTONOPOULOS: All right. Thank you everyone. Halo, Buenos Aires. I am really excited to be here and yesterday I discovered once again why they called this the City that never sleeps. So, forgive the black shadow under my eye that’s because I participated in the festivities, a really awesome evening but – so I’m not going to do any slides and I’m not going to do podium. I’m just going to walk around and talk about the topic that’s truly important to me which is about Bitcoin neutrality.

And let me start first by saying that to me Bitcoin is not a currency and there are no coins. Bitcoin is a network and it’s a protocol. And more importantly it’s an invention and distributed computing science that truly revolutionized distributed computing because it allowed for the first time to achieve consensus across decentralized network without a trusted third party. We haven’t even begun to understand the implications of that invention but it includes a lot more than just currency.

Currency is just the first app on the Bitcoin network and the fact that the Bitcoin, the Bitcoin technology, the Bitcoin invention and the Bitcoin currency all shared the same name is rather confusing because people think it’s all about the coins and the coins don’t really matter. In fact we could completely fail this currency and they’ll be so surprised when the next morning we bootstrap another one because I think finally we killed Bitcoin what’s this thing, Bitcoin 2? Didn’t expect that one.

So I do want to talk a bit about the network and why it’s important, why it’s ground breaking and what the core principles are that make the Bitcoin network work. And why the currency has the characteristics it does that make it so popular among the early adopters that we see today.

So let me explain first of all what do I mean by Bitcoin neutrality. What is the key characteristic of Bitcoin? Is it doesn’t care who the sender is? It doesn’t care who the recipient is and it doesn’t care what the contents of the transaction is. It is a simple, layer three routing protocol that allows the transfer of abstract value from Point T to Point P.

Why is this an important principle? Because it is the same principle that underlies the internet and TCP/IP and what it does is it empowers the nodes at the end of the network instead of the network or the center itself.

Effectively the network is a dumb pipe. A mechanism for transmitting value from A to B without discrimination between sender, recipient or amount. This is important because it also shifts the center of innovation from regulated centralized permission based innovation as we had on all networks before the internet. It’s a renovation of the edges and most importantly innovation without permission.

Bitcoin is a protocol and the standard that I can connect you from anywhere in the world and I can inject messages directly into that standard without asking anybody’s permission. I can invent whole new applications and financial instruments that I can layer on top of the network and these can be completely independent to Bitcoin the currency.

We’ve already seeing the first application being launched that layer on top of this protocol. So the currency is just the beginning. This is our beta test. This is our e-mail application. Perhaps not even e-mail. We at the beginning of the equivalent where the internet was in 1991 and we have an application that’s good enough. It’s a currency, it works pretty well but that’s not the important thing.

The only thing I want to talk about briefly is about the path of adoption of Bitcoin. Let’s talk about my perspective on how Bitcoin will be adopted as a currency and what the implications of that adoption are and what pressures we will face as Bitcoin gets more widely adopted. So let me step down here.

So the first thing I think especially in North American audience is that there is this vast misunderstanding that Bitcoin will somehow grow linearly and explode from the center out, the center force being Silicon Valley. Yes, we are that thing (0:04:40). So, if you think you can start solving the world’s problem with technology which is uniquely Californian attitude you think that we – this new thing, this new technology which is (0:04:51) and will get users and IPO the thing and then grow it outwards and that’s not how it’s going to happen.

The reason it’s not going to happen that way is because I cannot answer the very simple question why is Bitcoin better than the US dollar? And I can tell you right now it’s not and it won’t be for quite a long time and it doesn’t matter because there are 192 currencies in the world and Bitcoin doesn’t have to be better in the top currency. Right now Bitcoin is better than about 40 or 50 currencies in the world both in terms of market capitalization, relative utility, safety, volatility and value.

So what we’re going to see is adoption at the periphery and this adoption will not be linear, it won’t be smooth, it will be explosively volatile because what we will see is crisis triggering mass adoption in tiny, tiny regions around the world. And Argentina is one of the hotspots and that’s why I’m really excited to be here.

So if you (0:06:01) the currencies in the world then you have a 192 currencies, at the top is the US dollar. It’s the world reserve currency. There is only one world reserve currency and if you’re an American you got it pretty good. You can wire transfer pretty much anywhere in the world. The regulations allow you to do it. It’s smooth, it’s efficient, the banks generally don’t steal from you unless they’re stealing from the entire population.

You know you don’t get your bank account randomly shutdown, we got it good. And then there’s the Zimbabwean dollar right at the bottom, currently 193. This great photo of a stack of 100 trillion dollar notes, that’s 100 trillion Zimbabwean dollars each and the stack is this big that is being used to buy a cup of coffee.

So, in Zimbabwe the money is literally worth less than shit. Why? Because goat shit burns longer and can be used for cooking and heating whereas paper burns way too fast. So the caloric value of the actual paper – this money not only doesn’t have monetary value, its intrinsic value is literally less than shit.

So why isn’t Bitcoin adopted widely in Zimbabwe? There are many reasons. And so I want to talk about what the requirements are for broad scale adoption by individuals within a population in a country. Broadly speaking those are:

Marginal utility versus local currency. How good is Bitcoin compared to your local money? Right now I’d say it’s better than 40, 50 currencies in the world.

The second one is infrastructure. And when we speak about infrastructure in North America people think well, not everybody has smartphones. No dummy, not everyone has electricity forget smartphones. Electricity is a much more critical component. So in order to have broad Bitcoin adoption we need to do two things. We need to be able to arrive at countries as the level of infrastructure technology increases and at the same time downtech Bitcoin to the point where it can be adopted with minimal infrastructure.

The number one use of solar panels in Africa today is to charge cellphones because the opportunity thus provided to an African villager with a cellphone that they can charge from solar panel is absolutely incredible. So can we get Bitcoin to work with SMS? Can we get Bitcoin to work with paper wallets? Can we get Bitcoin to be represented by physical redeemable tokens for hand-to-hand transactions? We need to downtech Bitcoin to get it into those corners of the world where there is desperate need.

The third is fear. If I hold Bitcoin am I likely to be killed by my government? Not a problem in North America yet. North Korea, you will be executed for holding Bitcoin and that’s not a joke. And there are many other countries that will have that problem. Do I end up in jail? Do I end up beaten up? Do I end up being tortured because I’m holding Bitcoin? That’s a key cultural adoption requirement.

And the fourth one is neutrality. And there’s a different types of neutrality not just network neutrality, not just the ability to participate in the network regardless of who you are, who you’re sending to or how much you’re sending but also cultural, linguistic, religious neutrality.

So, if I am living in Israel is the currency compatible with my religion? Can I use it on the Sabbath? For example. If I live in a country that is under Islamic law is the banking system able to support this currency under Sharia banking rules? Can I use the currency in a right to left writing system, in a system of numbers that’s not Roman numerals?

Now the answer today is yes. For most of the basic applications of Bitcoin it is a cultural, religious neutral currency and that is a tremendous advantage because very few currencies actually achieve that. But as we build new applications we must keep in the back of our mind that there is a vast world out there that has very different standards from language, cultural and religion and we have to be accommodating and be able to be neutral towards all of these cultures.

So those are the four prerequisites for adoption. And if you suddenly think about Bitcoin from this perspective the most important realization is that Bitcoin is not about us. I look around this room and I see a sea of white faces, most male, right? We have it good. Even in Argentina we have it good. We have banking systems, we have currencies.

In the US at the moment 18% of the population have insufficient or no access to banking facilities, that’s almost 60 million people mostly composed of immigrants and itinerant workers working for and, people in the deep south who have never had access to identification documents and the legal prerequisites and that’s in the richest country of the world. It goes down from there. So, there are countries where 75% of the adult have no access to banking facility. If there are a billion people in the world who have access to banking that leaves six and a half million people. So Bitcoin is all about the other six and a half million, that is my passion.

How do we make it happen? We need to be able to introduce the currency in a way that allows easy adoption in a technologically depressed environment with minimal infrastructure. There are many ways to do that. One of the projects I’ve been involved in for example, is the use of paper wallets. And paper wallets allow you to encode the keys for transaction onto a piece of paper. This is very useful for cold storage.

But one of the things that became apparent almost immediately and ties in very nicely to Peter’s talk about what is money is that if you create paper wallets that can occasionally be checked against the Blockchain suddenly they acquire value. Suddenly they can be traded at face value just like normal paper currency.

We can’t do this, we can’t use physical tokens. When we think about this from a technologically advanced world we suddenly think what? There’ll be fraud, there will be double spending how could that possibly work? It has to be secured, it has to be perfect. And the truth is no money is perfect and it doesn’t have to be perfect. One out of every hundred and fifty US dollar twenty bills in an American’s pocket is counterfeit.

I’ve been passed counterfeit notes several times that are so good you can’t tell that they’re counterfeit. Do I care? No, I don’t. Why? Because as long as the next person in line is willing to take that at face value and give me goods and services, it’s money. The point being that all you need is occasional security, the ability to create just enough security to make a viable currency.

And the more distressed an economy is, the more desperate the situation, the more likely the people in that country are willing to deal with good enough security and with good enough currency. Why? Because it’s better than their money which is worst than goat shit. So we have to reset our expectations about how we distribute Bitcoin around the world.

But I want to switch tracks a bit and talk about Bitcoin neutrality because the other aspect of this is understanding that within this network we can do a lot more than currency and as we try to do this the very basis of Bitcoin neutrality, the fact that it doesn’t care about the sender, the recipient or the value is the core principle is the biggest strength of this currency.

It allows the innovation of the edges and guess what, it’s going to be the first thing that is attacked because it was the first thing that was attacked on the internet. And at one point in time we had a perfectly peer-to-peer internet with completely decentralized systems and complete network neutrality. And what do we have today? Blacklists and whitelists and restricted IP addresses and limited network neutrality. We have to resist the exact same forces as they will occur in Bitcoin.

Recently in the Bitcoin space there have been some suggestions to introduce filtering and blacklisting in order to prevent Bitcoin theft. That is both the dumbest and most dangerous idea that has ever come across the Bitcoin environment. Why? Because it will be completely ineffective at stopping theft but it will be absolutely devastating to the currency. Let’s talk about this for a second.

The core principle of network neutrality as expressed in Bitcoin means that the only requirement in order to redeem a transaction is that I can verify the transaction script by providing the necessary input usually an elliptic cryptography key that allows me to unlock a specific value. That is the only requirement.

I can do this from anywhere in the world, no one can stop me and that is the essence of removing counterparty risk from the currency. It means that the only two participants in the transaction are the sender being willing to send the money and the recipient having the necessary token to unlock it. If you break that, if you break that you break Bitcoin.

Back in the 1700s there was a famous legal case in Scotland where a merchant marked some of the Scottish bills that they had and recorded the serial numbers. And when those bills were stolen and then reappear at the local bank the merchant went to the bank and demanded that they give him back the notes. He said here I have proof that this money was stolen from me.

That was a critical case because if you can make distinctions between one currency and another currency unit you break the cardinal rule of money which is fungibility that each currency unit is completely interchangeable and of equal value to every other currency units. Fortunately, the Scottish merchant lost and in the court opinion they said well, it sounds like a good idea but it would destroy money and sorry you can’t do that. You can’t discriminate between one unit of currency versus another.

If we introduce blacklist or filtering into Bitcoin we will destroy fungibility and we will do it for a very cheap price because what we will get in return is absolutely nothing. We cannot stop that by creating blacklist because it’s so easy to remix money launder on Bitcoin, right? You would have to then provide auxiliary controls at all entry and exit points into and out of the Bitcoin network and then the slippery slope towards complete control begins.

Filtering within Bitcoin destroys fungibility. It means that in a transaction there are now three parties. The sender, the recipient and whoever manages the blacklist. It means that what was once an irrevocably redeemable transaction, meaning that it could be redeemed and no one can revoke your right to redeem that transaction is now a revocable, redeemable transaction and that breaks Bitcoin.

It also means that those blacklists are going to be managed by organizations – organizations that wouldn’t share our values. Organizations that don’t give a rats ass about consensus on the Blockchain. Organizations that will apply veto power over transactions. And guess what, do you think HSBC’s money laundered Bitcoins will be blocked? Hell, no.

Because the moment they’re added to the blacklist an army of lawyers will descend on whoever is managing the blacklist and now you’ve got another counterparty, the federal court and another counterparty the plaintiff. Now your transaction depends on six different parties. There goes fungibility. There goes redeemability of the currency. There goes neutrality. Of course they won’t apply to HSBC, too big to fail. No, greenpeace, WikiLeaks, animal activist, dissenters, opposition to your government, their coins are going to get frozen. What you will do by introducing this control is hand political control back and put the levers of power right back into the center of the currency.

So already we have seen the first attempts to break Bitcoin neutrality. We must understand that that is the core principle that makes the Bitcoin network what it is. That is what allows us to compete against any state based cryptocurrency because at the end of the day the simple rule is this – a decentralized system delivers more value to each notes that any hierarchal centralized system can.

And so if you have the opportunity to run side by side a hierarchal centralized system and a decentralized system, the decentralized system always wins. So let’s resist the temptation to introduce centralization to Bitcoin and trust me there will be plenty of pressure. It will be done for the good of the people. It will be done for safety and security. When the governments and regulators come to you and say for your own good we have come to fix Bitcoin. Your response should be fuck off, Bitcoin works fine. Bitcoin is the decentralized system by design and decentralization is not a fluke, it’s not a side effect. It is the core design principle that makes it work.

We are not experiencing simply the decentralization of money. Bitcoin decentralizes the very separation of money and state. It doesn’t disrupt national money, it disrupts nation states just like the internet is disrupting nation states because it decentralizes power. That is the most important aspect of the Bitcoin network and currency is just the first act. It’s a really powerful app because it’s fueled by the engine of neutrality and it gives us this incredible power, decentralization of power and allows us to take away the levers of control.

The levers of governments and central banks have used not to better our lives but to oppress people and exploit people and gain as much value out and exploit the economy as possible.

Hierarchal systems were designed to solve seventeenth century problems of scale. From representative government to central banking to all of the hierarchal pyramid-like systems around us were designed to solve the fact that in the seventeenth century you couldn’t get a message from one side of a continent to another and you couldn’t have a debate across millions of people and you couldn’t arrive a consensus and guess what, those problems no longer exist.

We solved communication scale with the internet. We solved discussion at scale with social media and now we have solved consensus of scale with a distributed asset ledger proof of work consensus system. We don’t need the hierarchal systems anymore because they solved the problem that no longer exist, so goodbye to them. Because they can try and build state coin, an Argentina coin, a US fed coin and whatever they want and they can put right up next to Bitcoin and let’s see who innovates faster – the centralized system with controls or the one that can innovate without permission of the edge.

We will win every single one of those fights as long as we maintain the core principle, decentralization and neutrality across sender, recipient and transaction. Thank you.

MAN: Andreas.

ANDREAS ANTONOPOULOS: Can I take some questions?

MAN: Okay.

ANDREAS ANTONOPOULOS: All right. Question?

MAN #2: I can feel the (0:23:53) where you’re trying to essentially sway the legitimacy of a coin?

ANDREAS ANTONOPOULOS: So, I am a big fan of multi-sig capabilities and generally the flexibility of the transaction scripting language. To me the Blockchain is like the IP layer, the transaction scripting language is like the TCP layer that allows us to do fine-grained transmission control within the underlying essentially network layer protocol.

And then transactions allow you to voluntarily introduce counterparty risk or third parties and you may do this voluntarily because you want to put trust in a counterparty in order to add security to your systems. That is perfectly fine. But because the person creating the transaction is the sender and the sender has the choices whether they want to or do not want to introduce counterparty risk. It’s a very big difference between that and control ceded to an authority that is not control by anyone and the (0:25:04) in a blacklist.

MAN #3: Could you say, tell me about responsibility that we have as the (0:25:16) and taking into account not only our needs but the needs of smaller countries and currencies, I mean…


MAN #3: You once talked about this.

ANDREAS ANTONOPOULOS: So, to me the key argument for understanding that this is all about the other six and a half million has some important implications as to what kind of development you do, where you focus your attentions. The most important aspect of Bitcoin today for me is for remittances. It is the most exploitative market in the world, it is the industry that most deserves to be disrupted out of business.

And so, for me that is empowering for millions of people around the world right away and there is so much incentives to solve that problem. But in order for us to solve that problem as people who live in relatively wealthy countries and I think especially for the Americans among us but that also even here, you know, compare to Zambia we are rich.

And so the point is when we talk about microtransactions we need to calibrate our thinking to understand what that means to a Zambian farmer who makes four dollars a month, right? An American coming to Argentina has to make that calibration and an Argetinian going to Zambia has to make that calibration again. So, microtransaction in the context of the African subcontinent is in the order of tenth of a cent, hundredth of a cent on the US dollar, not dollars.

And that’s an important distinction and we have people in San Jose from India saying I love what you’re saying about microtransactions but what you’re calling a microtransaction in my country we called transaction. You need to take two orders of magnitudes further down.

So, understanding who our audience is. If we’re going to do developments here you have to understand that your audience is global from day one. You can’t develop a Bitcoin application and say I’m going to launch in Argentina and if it’s good I’m going to Latin America and then I’m going to go global. Day one you are global. So make sure you’re ready to be global by addressing the audience’s record.

MAN #4: Speaking Spanish.

MAN #1: The question is what’s the profit of using Bitcoin in Argentina in the context where he supposed money is trying to get out more than getting in.

ANDREAS ANTONOPOULOS: So, that’s a very good question. To me I see this as a matter of balancing currency flows, right? So what you have to do is find the right balance between say, a thousand migrant workers sending money home and one rich dude who is trying to get out of the currency sending a thousand times more money in the opposite direction.

Finding that right balance between the currency flows. Always what’s going to happen is you’re going to run out to Bitcoin if you do it one way. So that’s one of the key problems we haven’t cracked that. But essentially all you need to do is make a tiny pinprick in the dam and the money will flow through because behind that dam is 500 billion dollars of yearly transaction being exploited by companies like Western Union.

So, if you can make a tiny pinprick in that you’re biggest problem is a company doing remittances or doing capital flight is that your growth is going to go logarithmic, one, ten, a hunderd of thousand, ten thousand, ten million. So, good luck handling that kind of growth. Most companies in the Bitcoin space can’t do that. It is a big problem we haven’t solve it. Trust me, you’ll know when we solve it. You’ll see it on the Bitcoin price.

MAN #5: A little one. What do you think about Juan Llanos?


MAN #5: Juan Llanos (0:29:25)

ANDREAS ANTONOPOULOS: I don’t know. I didn’t hear those.

MAN #1: No, I think Andreas didn’t see Juan Llanos.

ANDREAS ANTONOPOULOS: Well, in either case I wouldn’t comment on another speaker’s presentation, okay. All right.

MAN #1: Yeah. I mean he didn’t see the presentation from Juan.


MAN #6: Do you see the United States of America government using a service like (0:30:17) relation? Like, supposed that the US dollar is going to be – the USA allows you to pay your taxes in Bitcoin do you see the government using some system of relation requiring you to pay in those kinds on validated coins?

ANDREAS ANTONOPOULOS: Yeah, I would’ve put a (0:30:39). I think we are going to see that kind of – well, I am assuming that the entire Blockchain is being tracked and analyzed on a big databases already and has been since the inception. So any transaction you do, if you touch another transaction then that is being tracked. To me the answer is very simple: every single Bitcoin clients needs to include remixers on by default. No user choice on every transaction.

We made a major mistake of trying to retrofit the internet with Tor after the fact. This time we have a chance to build it from the foundation and we should do that absolutely. There are a couple of projects there Dark Wallet, CoinJoin, we need to do that, we need to make the default Bitcoin network a dark net. Now they will do coin validation and I have no problem with that being done on a (0:31:30) level as long as the everyday user has the ability to do anonymization and remixing. But you have to resist it even there because if it’s legislative then that’s going to effectively nullify the opportunity for the United States to compete in this market. Bitcoin is like water and it will flow somewhere else, hopefully.

NICHOLAS: Hi, my name is Nicholas. You mentioned that decentralization is one of the greatest strength of a network and I agree with that. My question is as mining moves into large enterprises don’t you feel that this may bring some risks in terms of decisions of the network become more and more concentrated and fewer number of people?

ANDREAS ANTONOPOULOS: Well, there are two participants in the consensus system. There are miners and then there’s us, everyday users. You choose which Satoshi reference clients’ version you’re working on. So, if I’m working on 095 and in 096 core developer group introduces filtering and all of the miners say yes and all of the users say fuck that then we’re not going to 096 it’s as simple as that. If all of the users stay on the old chain the miners can go do whatever they want.

They’re going to be mining empty blocks. We have the power as users to choose. In every upgrade decision we are voting as part of the consensus system as to whether we accept the developers’ decision to introduce a new feature.

Also, mining has now concentrated to the point of reaching the level of Silicon A6. We squeeze out four, five, six orders of magnitude of efficiency from CPUs to A6 but we are now on a rail. From now on it’s Moore’s law. The only way to improve it is to go from 28 to 26 to 20 to 14 nanometers and that’s what’s very predictable development phase and there are no more multiple orders of magnitudes other than Moore’s law doubling eight every eighteen months.

So, we’ve seen this very weird sudden increase in mining but that was an aberration of changing platforms and hardware. We’re done with that, that’s all done. So now it’s just Moore’s law which will lead less concentration.

MAN #1: Guys, we are running, we already run out of time.


MAN #1: So, this is the last two questions. You too?

MAN #7: No.

MAN #1: Sorry, then times were already up and please Andreas (0:34:01)

ANDREAS ANTONOPOULOS: Okay, short questions, short answers. Got it, okay.

MAN #1: Okay, you go ahead, please.

MAN #8: Okay. Hi, I saw that – where you’re saying that at any given point of time you’d like to keep only three cryptocurrencies so obviously Bitcoin is one and would you mind sharing which are the other two that you’d keep?


MAN #8: Cryptocurrencies.

ANDREAS ANTONOPOULOS: Yes. So, I don’t believe there’s a future with one cryptocurrency, I don’t believe there’s a future with zero cryptocurrencies, I think the most likely future is a 180-some national currencies and about six cryptocurrencies probably developed in a parallel relationship. One currency will have 70–80% of the market then the other five will share the last 20% in diminishing shares. What those currencies are? I have no idea. I don’t think they’ve been invented yet.

What we see now is a development of old coins as laboratory and evolutionary system that is responding to the current needs or current perceived needs and those will change. For example, if we did see coin validation Darkcoin would be the first old coin I developed, right? So, we’re going to see the names and attitudes of the coins change to adapt to what is needed in the ecosystem at any time and I don’t think those cryptocurrencies have been invented yet.

MAN #1: So, please (0:35:16)

MAN #9: Yeah. So, the government usually has an agenda and they used very powerful words. For instance they said terrorism and you’re supposed to freeze. What answer do you have to the term money laundering that we could interpret as like trying to get the money in this case the retro (0:35:37) coins into a whitelist.


MAN #8: We could say it does laundering but I mean it doesn’t have to be that.


MAN #8: But when they say it it’s – you’re supposed to feel about so what is your response when it happens?

ANDREAS ANTONOPOULOS: I don’t feel bad I know who the criminals are. I know where they work they work on Wall Street. I have no question in my mind as to who is doing the money laundering, who is doing the theft, who is doing the extraction of value from (0:36:07) economy.

So, if a regulator comes to me and says to me that they need to adapt Bitcoin to stop money laundering I tell them walk six blocks down Broadway until you hit Wall Street and you will find your problem. They are the same guys who got away with stealing trillions of dollars and no one went to jail.

So, money laundering is unauthorized banking by non-regulated institutions and all they can do is scream and cry and complain and talk to the media but at the end of the day they can’t touch the protocol and its information. When money becomes a content type the only way to stop money flowing is to shutdown the entire internet. Good luck with that.

MAN #1: Thank you.

ANDREAS ANTONOPOULOS: Thank you. Thank you.

Written by Andreas M. Antonopoulos on December 19, 2013.