Video - Is Bitcoin a flash in the pan?

Professor Susan Athey, Stanford, Andreas Antonopoulos,, Jonathan Levin, Coinometrics discussed about their ideas about Bitcoin. They also shared what will be Bitcoin's future and how it could dominate against fiat currencies.


NATHANIEL POPPER: Good morning. So, I guess we’ve been setup here to answer the question is Bitcoim a flash in the pan and I would venture to say that I could answer that question for all of you. If it’s not (0:00:23) let me know right now. But we have – these are three credibly smart people what I think rather different opinions about where Bitcoin might be going so I’m going to try to draw that out a little bit. And I thought a good place to start might be looking at Bitcoin for me to your perspectives what is the part of the current ecosystem that is most likely to survive and what is the part do you think is least likely to survive at this point? And then maybe that will all sort of get us going from there. Let me start with you, Susan?

SUSAN ATHEY: Sure. So, I think that the, sort of amazing organic growth of Bitcoin by aficionados, people who were early adopters and are just really excited about the technology I think that that energy will stay and that’s going to sort of support the peer-to-peer community of Bitcoin. I think that one something that’s sort of an open question for me is some of the specific vertical challenges that a lot of the people here are starting startups to solve there’s a question of how those are going to get solved best. So if you think of some of the different kinds of money movements solutions, remittance solutions your services for businesses some of those, I think, will continue to be based on Bitcoin but I also think it’s possible that some of those specific applications maybe they need a lighter touch, maybe they need more privacy, maybe they need less privacy, maybe they need a tweak to satisfy regulators and so at that point it will be sort of a race between something that’s built on top of Bitcoin to adapt to the specific circumstances or maybe something that’s forked or done independently.

JONATHAN LEVIN: Yeah. So, I think there’s some technical challenges that probably needs to be overcome as well not just the vertical ones. So I think there’s also the centralization of mining is a potential problem down the line with lower block CRUDs (0:02:32) and power of miners to determine transaction fees. I think there’s the technology of distributes and value exchange is definitely going to stay but I have questions on whether proof of work in the current architecture is able to sustain that over the long-term.

ANDREAS ANTONOPOULOS: Hmm. I think well, Blockchain, the Blockchain technology is the enduring gift of Satoshi Nakamoto and that will radically transform our world for decades to come. I think there’s no doubt in my mind that currencies based on Blockchain technology as well as a myriad of other applications based on the ability to do decentralized trust that scale while transform many aspects of the internet, many aspects of social interactions, finance, law, accounting and society in general in ways that we can’t even imagine yet.

NATHANIEL POPPER: Spoken like a true employee of

ANDREAS ANTONOPOULOS: Well, it’s not about although I think that company really captured at least in its names the essence of Bitcoin. Really for the first time in history we have the ability to do decentralized trusted scale across distances between individuals who have never met before, that is radical and it has implications we can’t even imagine.

Now, out of that many countries will evolve. I think Bitcoin is probably going to stick around for a very long time and I think that’s because the early network effect has generated enough momentum is that any of the problems will be fixed. And all of the arguments I hear about why Bitcoin will fail seem eerily reminiscent of 1992 in the internet and how it couldn’t do voice, it couldn’t do video, it couldn’t scale, it wouldn’t work, it couldn’t deliver quality and it did, did and it did.

SUSAN ATHEY: So, I just want to underscore, I think that was really well put that there is this fundamental technology of the ledger and the security around the ledger and the decentralized trust and so while I agree that that Bitcoin is very likely to stick around for a very long time there’s also all sorts of things that we haven’t even thought of that you can do with that technology and, you know, some of the current usages of, you know, the store value and the payment mechanism is very subject to regulation and so you can see things needing to evolve in certain ways to meet the regulatory environment. But a fundamental level, you know, a ledger is a powerful concept and I don’t see how you regulate a way the fundamental technological innovation and all the things that you can do with it. And so, that’s one reason that I’m a believer in the movement and all the technology and development that’s going on around it is going to be multipurpose. It’s not just for what we see today but a lot of that investment and innovation is also going to get purpose to expand the range of applications and again we can’t necessarily imagine or predict what all of those will be but this sort of fundamental technological innovation is it’s happened, it can’t un-happen and so, so we’ve entered sort of a new era of being able to do things on the internet.

NATHANIEL POPPER: All right. Well, I’d like to go back to the skepticism, dig out the skepticism in each of you a little bit and let’s say if you were Satoshi and maybe one of you are, I don’t know, so if you and you were looking back and redesign in it what would you change? And I know Jonathan I had an interesting conversation with you about this yesterday so let’s start with you or maybe you can get the argument going.

JONATHAN LEVIN: So I think Bitcoin solved and did create this technology, this ledger that allows for decentralized trust but it does so through proof of work which is expensive in terms of electricity and might not be the long-terms way of securing these Blockchains and I think that I would spend a lot longer thinking about that problem and making more cost efficient solution that was eventually more decentralized than proof of work is going to be.

The other thing now that definitely change is the currency design. I think the distribution of coins came out far too quickly for something that should scale over a very long period of time and disproportionately rewarding early adopters over people who are going to adopt the currency down the line.

NATHANIEL POPPER: Okay. Just let me refine your answer. Do you think it was a good thing that early adopters were rewarded just not as much as they were?

JONATHAN LEVIN: Well, I think it’s problematic that we had a very – we’ve got to find out money supply and a lot of coins came out well, more than halfway through the money supply. I mean we’ve had a lot of failures of companies, a lot of people being defrauded, attempt to send out the money supplies in the hands of criminals and we need to then advocate a Bitcoin price going through the roof and giving material value to those people rather than a more distributed money supply that goes to the people who need it.

ANDREAS ANTONOPOULOS: I am actually quite…

NATHANIEL POPPER: Wait. Can we – I want to hear your response to that but first can we hear from you what you would change? Maybe that’s where you’re going but what – if you were going back and redesign it would you change anything or…

ANDREAS ANTONOPOULOS: Oh, I would say the distribution of early adopters at the moment. If 10% is the hands of criminals that’s a vast improvement over the rest of our economy where 80% of the money in the hands of criminals and they own the banks.

If the rest of the money is in the hands of brilliant people who saw the early potential of technology and took a huge leap of faith with enormous personal risk in order to achieve that and I’m not one of those early holders. Trust me I’m not a Bitcoin millionaire but I’m – okay, so what things would change?

I think it’s very difficult to go back and apply hindsight in this because I don’t think we even know the answers yet. A lot these things are going to get hushed out and I think Bitcoin doesn’t have to be perfect as both for small value and the means of exchange in order to be successful. If it turns out to be less successful as a means of exchange then it can provide a proof of stake reserve currency for many other coins that are much more nimble if that is the need in the market. So far I don’t think we have indications, that’s a problem.

We talked about centralization of mining but people often forget that if you have CPU-friendly mining the easiest way to mine is to compromise 15 million bots and create a botnet and then all of the mining is in the hands of criminals. So there is that tradeoff. You know ASIC actually provide protection against botnet mining. And the proof of work can actually change so I think we shouldn’t underestimate the ability of Bitcoin to change. It’s already changed quite dramatically from the early design in 2009 and it can change again. This is a work in progress. Now, it’s not going to be elegant change necessarily. But one thing I would have done differently would have been a much stronger layer of fungible anonymity and privacy in the transaction layer. Much stronger fungibility, encryption of the amounts as well as the sender and recipients’ addresses so that you can track anything on the Blockchain.


SUSAN ATHEY: Sure. So I think it’s also – I agree with the things that you’ve said. It’s hard to second guess because you think about what it takes to develop sort of interest and trust in something really new like this. The fact that the way it was designed managed to accomplish that is kind of amazing. I mean not only was descriptive of brilliant at security but they also really thought through the incentives and, you know, the thing they created really captured the imagination as well as the investment of a large group of people. So the mining kind of provided, you know, a reason to be involved in the whole system of financial reason which then helped to grow the ecosystem so, you know, that’s a pretty amazing thing that the same concept as mining concept provided incentives, helps sort of bootstrap the system and also provided security. It’s sort of an amazing insight. That said, you know, I wish it didn’t take so much electricity as well and...

ANDREAS ANTONOPOULOS: I wonder if anybody’s done a study comparing for cost of electricity for mining on a per transaction basis with the cost of guards vault truck. Pallets of money being moved around the country, the data centers doing fraud protection on the Visa network and all of the other ancillary functions that are completely replaced by Blockchain technology because I would assume from what I’ve seen and being working in the financial service industry and fraud prevention security that the cost of those things is massive and on a per transaction basis mining might be much more elegant, much cheaper solutions and therefore this might be the greenest currency you’ve ever had.

JONATHAN LEVIN: But other than that…

SUSAN ATHEY: But it has to be greener. I mean…

ANDREAS ANTONOPOULOS: It could be greener. We’re seeing new proof of work algorithms so it’s going to be very difficult to change the proof of work algorithm because you’ve got to go and get consensus from the miners to blow up their own business. So that’s going to be a bit difficult to do. But if necessary the proof of work algorithm can be changed because the nice thing is that’s it’s always just for the next block so you could say, you know, hundred blocks from now new algorithm.

JONATHAN LEVIN: Yeah. But you would have a big problem convincing all the people investing millions of dollars into ASIC miners that specialized in doing jobs best.


JONATHAN LEVIN: And then also the kind of cost of electricity has a two side of things because if it’s not that expensive, if it is really efficient that a 51% attack is more economical.


JONATHAN LEVIN: So, there’s a bit of trade off there as well.

ANDREAS ANTONOPOULOS: Yeah, exactly. And again just with – just as with botnets it’s really fascinating how mining actually provide such good equilibrium that you can figure out the price of electricity on average just by reverse engineering the difficulty. It’s such a beautifully engineered market that had efficiently calculates the price equilibrium.

NATHANIEL POPPER: We’re now moving to a world where we also – where Bitcoin also has vaults and guards and high-security. I mean obviously to a lesser degree than gold does and dollar bills do but that’s …

ANDREAS ANTONOPOULOS: I think those are really temporary measures because what we’re saying at the same time is the development of hardware wallets and other primary security mechanisms based on trusted computing but a much better solutions than vaults and buried treasure.

NATHANIEL POPPER: Right. It’s interesting choosing – I think you’re the first person I’ve heard who starts by referring to Satoshi as “they” rather than an individual. I guess we shouldn’t probably go down that rabbit hole but let’s talk about alternatives that are out there because obviously there are a lot challengers and coins and I’m curious which of those alternatives you see as having the greatest chance of success at this point or which of the models, at least, you see as having the greatest chance of success given what we’ve said about, you know, mining, electricity these sorts of things?

SUSAN ATHEY: Sure. So I guess, I mean I think one of the functionalities did and you’ve already brought this up is the privacy and anonymity. So, you’re for fitting into – there’s a couple of reasons why this is really important. For fitting into a regulatory framework it can be very important that if you trade a dollar for a Bitcoin that you know where your Bitcoin in landing. You know the identity of the wallet, that you know that wallet address is not in say, North Korea that it’s not subject to sanctions. And so the inability today to really verify the holder of an address is an issue.

On the other hand if you thought about a company doing a lot of its internal business over the Blockchain then even they would worry they would have to take a lot of effort to make sure that they weren’t revealing company secrets that way and of course there’s people out here who get paid in Bitcoin and I can publicly figure out your salary if I work at it. And so I think that the current system is kind of the worst of both world in some way. It’s not fully anonymous because with some effort I can track people but it’s not fully private so I still worry that even if I take steps to hide myself that someone might still figure me out in some way that I hadn’t anticipated because very sophisticated people can get around that but for sort of most people. So, what do you do with that? Well, I think there’s a couple of directions – one is that, you know, we build things on top of the current system better and anonymity tools as wells as better identity tools so that you can have identity when you need it and not have it when you don’t want it. But you might also imagine that this could be a feature of alternative coins or systems that might have this big (0:15:47) a little more naturally. And I don’t have a perfect solution to that today but it’s just a direction where I think innovation could happen and it’s a little hard to predict which of this house will work out. 

And then, you know, so there’s other kinds of applications you could imagine where you could actually provide a company with its own private ledger using – forking the technology but just it’s not that I’m being anonymous on the public ledger but you just have a private ledger and that type of technology I think is very interesting.

Ripple Labs where I am an advisor has a different architecture that makes it easier and more natural to choose who you trust and who you interact with. So, and their system it’s easier to choose that I’m only going to trust people say, who bank at my bank and that type of sort of architecture can be more friendly to regulators in certain situations. But, you know, we don’t know yet what the regulators are really going to ask for and until we know with certainty sort of what they want and what they say is okay it’s hard to know which technology is going to fit into it best.

ANDREAS ANTONOPOULOS: Oh, we don’t know what the regulators are going to ask for but I think I know what my answer will be – no. Listen, right now we have a situation where we have a massive imbalance in the centers of power and democracy both in this country and across the world. Organizations like (0:17:20) Lacovia and HSBC commit twenty, thirty thousand anti-money laundering violations knowingly every single year and don’t get punished. And at the same time we have a situation where we want to create the ultimate trackable money so that even cash has become suspicious.

Government gets to have secrecy while they stripped us of privacy. Secrecy is just the word they use for their privacy while they strip us of ours and that’s not the way it should be. Government should be fully transparent and we as individuals should have the rights to privacy. Right that’s been encoded since the Magna Carta. And Blockchain technology actually give us the ability to do that because they allow – radical transparency is easier than radical anonymity and if you do traditional law enforcements which involves unraveling conspiracies and turning people state’s evidence against other people in the conspiracy you can actually track things quite effectively in the Blockchain. What you can’t do is you bequeath the surveillance and that’s the right balance.

So we can achieve individual privacy while causing governments to gravitate towards radical transparency in their ledger as it should be so that they can gain the consent for governed. We’re in an unbalance situation and the regulators have this idea that they have power over the use of Bitcoin but Bitcoin is the first transnational global currency and the Blockchain technology isn’t going anywhere and it can create these transnational currencies.

If they try to stomp on Bitcoin they’re going to discover that Bitcoin was the little gecko technology like Napster was the benign file sharing technology. And when you stomp on the gecko you cause it to evolve until it becomes a Komodo dragon and it bites off your foot next time you try to stomp on it.

If regulators try to stop Bitcoin they’re going to end up with much stealthier technologies because the evolution of currencies will create venomous versions to resist regulation. And in a transnational currency the currency will flow to the places where it can go most easily.

So, I think it’s important to understand that the regulators both have limited power and should have limited power because while we’re trying to appease regulators in the US and give them identity tracking and give them full transparency of individual’s transactions. Regulators in Egypt are using that to drag people out of their homes and torture them as they are doing in thousands of other countries around the world and we need to be more aware that this is the global environment we live in. Individual privacy means freedom of association and expression. It’s a cherished right. It’s one we have to absolutely defend. We have to do it for the places where owing currency and using it as an empowerment tool as an individual gets you killed. So, when the regulators come and they say let’s fix Bitcoin to make it more palatable so that we can regulate Bitcoin like we haven’t regulated HSBC I say go away, Bitcoin in fine.

NATHANIEL POPPER: You want to jump in there?

JONATHAN LEVIN: Yeah. I mean I think I’d take a slightly different (0:20:37) but I think the question is it’s definitely a subversive technology and something that can subvert good regimes and bad regimes and we need to obviously protect the privacy of everyone who uses the Blockchain today like Susan said. When I look at the Blockchain I could go through and see who is transacting with who and we can identify public addresses and we can see what shops people go to and things like that and that’s not acceptable and you end up in a system that doesn’t work and finding some way of creating privacy for who the transactions that needs to be private and transparency for the transactions that need to be transparent is something that everyone needs to work towards as a goal.

The thing for me about the alternatives that could come out is exactly that kind of implementation and something that’s palatable to the masses rather than a system that we have today which is essentially public knowledge about everyone’s transaction is not palatable to the general public.

ANDREAS ANTONOPOULOS: Yeah. And it’s not tenable for cooperation, either. I mean that’s a big thing that Susan mentioned.

I get paid my entire income in Bitcoin. Our company Blockchain doesn’t have a bank account, we operate entirely in Bitcoin. We can’t do payroll if the treasury account just pays individual because then you can track the treasury account and the individuals and then we become a completely transparent organization. That’s a competitive disadvantage.

NATHANIEL POPPER: So, so what is for each of you, I mean it sounds like there’s sort of an agreement that actually there’s rather than being too much anonymity there’s too little anonymity. On that front at least where do you see the most likely next move?

SUSAN ATHEY: Well, I still think that, you know, taking into account everything you said about the risks of losing privacy that it’s not totally unreasonable that a financial institution should know who they’re transacting with it at the first top. So at the time you trade dollars to Bitcoins knowing who is receiving those Bitcoins. But then at that point there are many applications where people and half from there would like to have their privacy and so, you know, my academic research I do research with internet browsing data as well as now, you know, mining the Blockchain and trying to understand transactions. As a researcher, you know, it’s fabulous that the Blockchain is so open and that not that many people are using anonymity tools right now but, you know, I am a little more skeptical of the idea that mass surveillance is impossible. I think today mass surveillance is possible specially if combine a couple of data sources. So if you had a lot of resources at your disposal and you really wanted to go after a particular person and you look at their, you know, their internet and their phone usage and things like that I think you would be able to probably triangulate them unless they were pretty sophisticated.

And so, you know, it is what it is and I think if we’d had more identity from the beginning it never would have grown so I don’t to criticize sort of the way that it’s evolved but as it kind of goes out to prime time you want to be able to avoid mass surveillance, avoid individuals poking you out but allow the financial institutions which, you know, at the moment are the on-ramps and off-ramps to have some control over who they’re transacting with it at the first – at the entrance and exit of the system.

ANDREAS ANTONOPOULOS: We have a couple of technologies that are beginning to address this issue. CoinJoin is getting more broadly deployed. That’s a technology that is used probably by corporations in order to protect their privacy on the Bitcoin Blockchain. You need it to do payroll, you can’t really do it otherwise. And we see CoinSwap which is even more powerful technology in that respect for anonymity. And these are really built as layers on top of the core transaction layer. They can provide privacy on demand. Personally I would like to see those implemented in every wallet with reusable addresses going away and having unique addresses for every transaction and every transaction goes through CoinJoin whether you know it or not. Just like if you use a browser on the internet today you use as a (0:24:56). You do not have a choice to not use as a (0:24:59) for the sites that enforce it. It’s end-to-end, it’s solid and the user doesn’t know it’s on and I think that should be the (0:25:06) anonymity is that every wallet does basic privacy management built-in, not reusing addresses using CoinJoin for their transaction and when you’re not doing transactions remixing your own addresses with CoinJoin.

NATHANIEL POPPER: Jonathan, you want to add to that?

JONATHAN LEVIN: Yeah. I mean, I guess to the point of regulation. I mean the regulator is not going to agree to it.

ANDREAS ANTONOPOULOS: Well, the regulators can provide identity tracking as an optional feature on top of those technologies where you can do the appropriate disclosure when you want to. But, you know, the point is the regulators are not going to agree to that. Great. They can go build their own Blockchain which does have that feature but they don’t have consensus on the Bitcoin network and they do not control the entire globe and this is a transnational global currency so it’s the regulators in one place saying no. All that does is to stop some people in that place. Mostly the legitimate users from using it in that locality while the criminals continue to use it, the regulators themselves continue to use it and the jobs and the growth and innovation and the votes go elsewhere. So, you know, that’s going to be a big problem for regulators because you can’t do this on the locality by locality basis.

SUSAN ATHEY: I think that you made a very important about the way that this evolves and I think that point has resonated with a number of regulators but it should be really underscored that if we make it too hard for this to happen in the United States the development will go elsewhere and it won’t necessarily have the support of the venture capital community which does have extensive experience in, you know, financial markets and regulation and also in, you know, just how to run a very complex financial business.

ANDREAS ANTONOPOULOS: And it exposes legitimate users to risk.


ANDREAS ANTONOPOULOS: Because when you don’t have a US exchange at all still five years on because they’ve been squeezed out what happens is you have poorly managed setups like Mt Gogs being used by most Americans in Japan and then that collapses and most Americans have no recourse on the US law to go after it. So it creates a really bizarre situations because lack of clarity of regulators or needs of reactions by regulators just needs to more poorly managed less regulated solutions elsewhere.

NATHANIEL POPPER: You know you’ve raised the question as to whether or you’ve indicated that it will survive if regulators in various localities decide to stamp down on it and it’s always an interesting question for me I mean right now, you know, for all the people that are using Bitcoin it’s still a relatively small community in the scope of the world. I mean, Jonathan you’d told me some of your data on this and it does strike me that when we’ve seen regulators clamp down on this it has essentially stopped, you know, the network from being used in any widespread way in those countries and being interested I think you might have different opinions on this on whether at this point Bitcoin is strong enough to survive if – and maybe Bitcoin – there are different ways looking at this maybe Bitcoin could survive but some parts of that technology as you are indicating would survive but what would happen if regulators in Europe, the US, these big economies did decide to take a harsher stance?

SUSAN ATHEY: So, I mean I will start with saying, I mean obviously that would be bad and it would be a hit and publicly it would have impact prices and transaction volume over the shorter run.

I think that some of the countries where Bitcoin provides the biggest value add above the next best alternative are countries where the rule of law is already weak. So, you know, you have countries with hyperinflation and there’s tons of people running around with suitcases full of dollar bills risking their lives, risking jail to go to Miami to get those suitcases full of dollar bills and despite the fact that they’re not supposed to have them that sort of a thriving subeconomy. And so when I think about the ability of the government to clamp down on that now maybe they would clamp down on it more if it was Bitcoin and not suitcases full of dollar bills but I sort of think they’re already working hard to clamp down on it and I think that the technology of Bitcoin is nice if the guys walking around with two suitcases, you know, one with pesos and one dollar bills and you can eliminate the suitcase full of dollar bills than he’s going to be much harder to detect you can have easier entry in this business of trading assets for your local currency and, you know, it’s going to be almost impossible to clamp down on.

One of the really interesting scenarios I could see is that in some of these developing countries maybe poor people still shouldn’t be holding Bitcoin today because it’s too volatile but they could hold dollars. You know the real Bitcoin they can get onto in exchange, they can exchange their Bitcoins for dollars and so you could have access to basically a US dollar bank account for the unbanked developing countries that have hyperinflation. And so I don’t really see how those countries are going to stop that if it get started. So, but maybe Jonathan can (0:30:20) evidence. I think he has the latest.

JONATHAN LEVIN: So, just in the – because the Blockchains are public ledger you can see there’s been about 26 million public addresses that have been used over the past, since the beginning of the Blockchain. And you can also look at more values in each of those addresses and in my knowledge there’s only 250,000 addresses out there with more than Bitcoin in it. Just have think about it for a second – 250,000 addresses with more than one Bitcoin inside and most of that wealth is contained, 60% of the wealth is contained within addresses with over a thousand Bitcoins in each address. So we’ve got a huge concentration of wealth, we’ve got some (0:31:05) so it doesn’t give you the exact user distribution but I mean those are all secured to risks as we’ve seen with Mt Gogs (0:31:13) and this is still a very nascent piece of technology that it wants to go mainstream and wants to get a huge user base probably does needs to comply with regulators. And I agree that there’s huge value add in protecting the beyond banks and extending services to them but one of the problems with the idea of them holding Bitcoins than Zimbabwean dollars is that what currencies is actually on the other side of the Bitcoin transaction. Who is going to portray Bitcoin for Zimbabwean dollars?

SUSAN ATHEY: Local dealers.



SUSAN ATHEY: The guys that today have the suitcases of the dollars and the suitcases of the Zimbabwean currency. Now lose the suitcase but they’ll stay in business.

ANDREAS ANTONOPOULOS: As Susan said, I think very astutely, the places that have the highest regulatory burden because they have the highest needs through hyperinflation or collapse in local currencies and by the way the number of those places is increasing dramatically as we’re seeing a worldwide currency crisis going on at the same time as Bitcoin is emerging. A few interesting things happened.

First of all you have capital flight from the rich at the same time as you have remittances flowing into the country which is rather interesting it provides balance flow. So the reason you can actually have pesos in Argentina moving out is because the rich people are trying to get their money out of the peso.

Secondly, if you have a regulatory involved and to trace the crackdown on cryptocurrencies the people who end up holding cryptocurrencies are the regulators, the cops, the soldiers, the generals, the politicians. When hard dollars were banned in Russia the politburo was stuffing hard dollars into suitcases. The people above the law the first to adopt it as their own currency diminishes in value. So I think that’s really a funny situation because it ends up fuelling a black market for the currency and makes it more appealing and in places where the rule of law is weak if your government says don’t do Bitcoin people go “Oh, really? Maybe we should do Bitcoin.” Yeah, you have the exact opposite effect of what you’re trying to achieve.

Also, we need to realize that in many of these countries the level of desperation and the level of demand is so high. Like if you just see your life savings disappear in front of your eyes you’re going to go to great extent to bypass that law and you’re going to bribe someone in order to do it in Bitcoin by the way.

The idea of moving people in the developing world out of their own currencies into dollars is appealing, I think, but overall the volatility is an issue that’s going away as the liquidity increases. So I don’t think that Bitcoin volatility is an issue. Plus, because volatility has been on the hold over five years up. If you ask an Argentinean about Bitcoin volatility they will tell you my currency has been doing volatility like this, Bitcoin has been doing volatility like that I’d rather have upwards volatility.

As far as converting to dollars I think that’s a really difficult proposition because yeah, quite honestly dollar is not backed by anything and it didn’t have intrinsic value. So putting your money in a currency that is backed by a ponzi scheme fueled by the fed that’s really risky. I think I’d put my money in Bitcoin instead.

SUSAN ATHEY: Well, I might take a little bit of issue with the last part, the dollar. You know if often makes sense to think about, you know, if something that’s correlative to what you’re getting paid and in what you’re going to pay your bills in and so for countries that are doing a lot of trade with other countries that are more or less sort of tied to the dollar in some way the dollar makes sense. If you’re in the Euro zone then it makes sense to have Euros. So there’re some advantages to having fewer frictions and having your assets be related to some of your liabilities. But, you know, that said I do understand on the way up it’s nice to hold it but I mean, you know, like people living paycheck to paycheck, you know, a weekly fluctuation could be a big deal and then once it finally – as it stabilizes that stability will come also as the growth slows down and so then it becomes less interesting to hold just because it’s going up. But I agree that sort of in a steady state it should have – it wouldn’t be as great an investment vehicle but it will be easier to hold it without risking not being able to pay your rent or buy your food than it (0:35:36)

ANDREAS ANTONOPOULOS: Yeah, more seriously in the meantime until Bitcoin achieves a broader adoption of high levels of liquidity the really killer application is remittances and in that application you don’t want to use Bitcoin as the end points. You want to hide Bitcoin in between and the end points of the local currencies.

So if you’re doing a transfer from Dubai to India for example, then Bitcoin can blend into the background and just simply facilitate a system where 74 billion dollars are extracted by Western Union in exorbitant profits right now from the poorest people in the world. That’s a problem we can solve now and it will affect a billion people and deliver money into their pockets that will have an immediately effect in their communities. And that’s a valid problem that a lot of companies in this space are working on and it’s really admirable that you’re seeing that focus in much of the Bitcoin space.

NATHANIEL POPPER: You guys all are doing really interesting research digging down to levels that most of us never see and I wanted to just go through and hear from each of you sort of what the most recent kind of discovery you’ve made in this space in your own researches that, you know, might surprise people that surprised you and, you know, whether it’s the data that you found or patterns. Tell me what you’ve been working on that’s been interesting.

SUSAN ATHEY: Sure. So, one thing that I found that’s actually very high-level and can be replicated by anybody at home who wants to download some things from is to understand how the price movements actually relate to fundamentals that it’s possible to reason about. So, you know, you have sort of the wackier commentators saying things like well, the price could be anything. You know there’s no underlying value so how do I know whether a thousand dollars is a good price or five hundred dollars is a good price, you know, there’s a sort of economist out there who says things like well, what kind of asset goes from, you know, fifty dollars to a thousand dollars. You know there must be something wrong, it must be a ponzi scheme of some sort and so you can sort of refute that with just a little bit of plotting of charts. So, you know, it can be hard to reason directly about the Bitcoin price but you can reason about fundamentals like transaction volume and velocity. And so, if you – so velocity is sort of how frequently things should be used. Now, there’s no – how do I know what the velocity of Bitcoin should be. I don’t and in fact I think the velocity will change as different segments of the market change. So as you get more regular transactions as you get different wallet apps as you changes from speculation and so and so… it’s not a fundamental constant but it’s something you can reason about and possibly predict in model.

And then the transaction volume – of course the transaction volume is impacted by newspaper articles and by, you know, price movements and so. So again, it’s all sort of, you know, wrapped up but at a fundamental level if you have a certain transaction volume that’s occurring on your system in case if you want to support say a hundred billion dollars worth of transaction volume, you know, we’ve been going up like this about, you know, 40 billion roughly would be an annualized amount now so it’s not crazy it could go up to a hundred billion fairly soon, you’re going to support that level of transaction volume and if each Bitcoin can be use say like five times a year roughly on average then that’s going to tell you what the exchange rate of dollars to Bitcoin has to be.

And so if you look out – the thing that surprised me, so this is a rough theory but none of the underlying things, relationships should necessarily be stable but if you go out and look at the data you can actually more or less see that the Bitcoin prices have roughly tracked transaction volume in the proportions you would expect with a roughly constant velocity. And it’s kind of surprising because the market is so nascent and there’re so many things left out of that sort of simple analysis. And so what I take from that is just this market is not sort of crazy, it’s not completely divorced from fundamentals and that the price movements have tracked in the use of the system in a broad sense.

ANDREAS ANTONOPOULOS: So, deficient market.

SUSAN ATHEY: It’s not – the price fluctuations aren’t just coming out of nowhere.

NATHANIEL POPPER: It’s a rational market.


SUSAN ATHEY: It looks like it’s – you can understand the rough outlines of the market through fundamentals.

JONATHAN LEVIN: Yeah. I haven’t seen exactly that. I think if you look at the number of transactions on the Blockchain it has absolutely no relation to the price which is something that I think is like telling in a market that doesn’t behave like a currency like we would like to see. I agree that the velocity of money if you could measure into user trades would be a perfect model of the fed Bitcoin price. But at the moment the number of transaction (0:40:38) price and the transaction volumes don’t have an impact when the volume changes and the exchange trades also don’t map onto the transactions on the Blockchain. So, I am finding it difficult to see all the like solid relationships at the moment.

SUSAN ATHEY: So I would agree that as you dig deeper it gets more complex. But if you download the data from and draw a few pictures and do a few divisions you can get a nice, pretty picture. So I can show that to you like…


NATHANIEL POPPER: Are there any pieces of relationships you have seen that have been interesting in the data you’re looking at?

JONATHAN LEVIN: Yeah. I was actually going to say that contradicts (0:41:18) that the fact, that the number of transactions doesn’t relate at all to the number of users coming onto the system or anything like that is something that I found quite surprising.

The other thing I thought was pretty surprising is that there’s a bunch of transaction fees that are just sitting, you know, in the memory pool that aren’t being picked up by miners. So the mining market is not picking up all those transaction fees that’s a little bit of sort of irrational mining behavior that still needs to be whacked up.

ANDREAS ANTONOPOULOS: I would say that’s not irrational behavior. The ability to – the speed at which you can propagate a block depends on its size and therefore given that the reward is disproportionately bias to what’s reward instead of transaction fees at the moment getting out a smaller block at high-speed in order to collect the reward. Let’s keep in mind you don’t probabilistically decrease your reward collection. You either get it or you don’t and it’s a race. So, I think that’s a rational response.


ANDREAS ANTONOPOULOS: Leaving transactions out in order to make a smaller block.

JONATHAN LEVIN: That’s a really bad thing for the network.

ANDREAS ANTONOPOULOS: It’s a bad thing for the network now but over time I think it balances out and we’re going to see that gradually change but we’ll see.

To me the most interesting thing is the change in relationship between the authority of issuance of a currency and its monetary value. So, up to 2008 sovereignty created its currency. The fact that a scarce sovereign entity could create a currency is what gave it value. And now I foresee a world where we’re going to have hundreds of thousands of currencies because currency at its very basic level is a language. It’s a form of expression, the language that is used to communicate to transfer value between individuals.

If you look at a primary school and you look at, you know, little (0:43:10) in their native environment, what they do is they invent currency. It spontaneously merges from the social interaction. They trade bubblegum, they trade rubber bands, they trade Pokemon, they trade Tamagotchi. Trading is an exchange of values in emerging property of social behavior.

So when anyone can create a currency, when Joey can launch Joeycoin in his school with clicks of a web interface in order to complete against Mariacoin in a popularity contest we will have millions of currencies. Asking how many currencies we will have is equivalent to asking how many bloggers will there be on the internet and the answer is all of us.

Once you understand currency is a conversation the next question is what gives it monetary value. And when sovereignty is the source of authority use is the source of monetary value. So user adoption is what gives a currency value. And that creates a very interesting situation because you could imagine ten years from now in a small tribal region in a remote place in the world people are using Dogecoin as their primary currency and they have no idea what a Shiba Inu is and they have no idea what the stock is doing on the currency. Guess what, they had no idea what the old white lady that said Queen Elizabeth was on their currency either in colonial times and they used it anyway and it has monetary value for them. We’re going to be surprised by what creates monetary value and so my last prediction is this – up to 2008 sovereignty created currency we now live in a world where currency creates sovereignty and Bitcoin is the currency that will give internet sovereignty in the form of financial and purchasing power and that is a very powerful idea.

NATHANIEL POPPER: We’ve thirty seconds. You guys have all (0:44:57) you all sounded very smart. Now I’m going to ask you the stupid question that you don’t get to give any explanation for but price of Bitcoin in a year, the price of Bitcoin in five years. We were supposed to ask this question so I’m going to make it the last one that you can leave all these wonderful people with.

SUSAN ATHEY: We should start on that end, Nathan.


ANDREAS ANTONOPOULOS: You know I don’t really know and…

NATHANIEL POPPER: I know you – we can’t get a (0:45:22) number.


NATHANIEL POPPER: For at any point in the future where you would imagine this.

ANDREAS ANTONOPOULOS: Well, I think the price of Bitcoin will stabilize in the several thousands of dollars at some point in the near future. Certainly way above it’s going to be here.


SUSAN ATHEY: Yeah, in a couple of thousands in a year or so.

JONATHAN LEVIN: I’m going to go five hundred in a year.

NATHANIEL POPPER: Okay, that’s all. We’re done.

Written by Andreas M. Antonopoulos on March 26, 2014.