Video - Los Angeles Bitcoin Meetup - January 2014

An older talk by Andreas, discussing Bitcoin and the implications of changing hierarchical systems to network-centric systems. He also tackles about Bitcoin's massive growth over a short period of time.


MAN #1: So, I’m just going to introduce Andreas. I actually met him on Twitter a couple of months ago when the price was kind of skyrocketing and pretty much begged him to come to Los Angeles and then I ran into him again at the Las Vegas conference and again was begging him to come, so I’m really happy that he came. Andreas, if you don’t know Andreas, if you’re in the Bitcoin world you know who he is. He is the co-host of Let’s Talk Bitcoin, it’s a Podcast, really popular, founder of RootEleven, right, and Andreas is just one of the strongest voices in our community.

At the last Las Vegas conference it was really exciting to see him speak because he had just got off a plane from Argentina and did a conference down in Argentina and Argentina, if you know what’s happening with the currency down there, I mean it’s a disaster, you know. People are flocking to Bitcoin in Argentina because of much more serious concerns than why Americans are flocking to Bitcoin and I think that, you know, there was a sense of frustration in your voice when we’re at the conference because the panel that he was on was really focused on talking about how can we legitimize Bitcoin, how can we deal with the regulators and comply with the government and really like embrace this regulations and, I don’t know he just had this powerful voice which was like why are we asking for permission to do something that we have every right to do and he got massive applause and it was just exciting and reinvigorating so I’m really happy that he’s here to speak to us and I hope you enjoy. And with that I will turn over to Andreas.

ANDREAS ANTONOPOULOS: Yeah, good everything everyone. Thank you so much for coming. This is overwhelming response and it’s so exciting to see this community just explode in size but also explode in exciting and enthusiasm so we don’t have any amplifications so can you hear me in the back there?

AUDIENCE: Yeah, (0:02:00)

ANDREAS ANTONOPOULOS: Do I need to talk – okay, great. So let’s get started and I want to get an idea of this audience so how many of you have heard of Bitcoin? No, I’ll just (0:02:09) How many of you own Bitcoin in this group? Okay, great, great. So it’s a group of my peers. Wonderful, wonderful.

So, I want to talk a bit for maybe about 20 minutes about my vision of Bitcoin and why I think it’s important, what we need to be doing in the Bitcoin community and what it means for the rest of the world and then after about 20 minutes just do a round of Q&A and I’ll answer as many questions as you have.

We’ll probably run three times longer on the Q&A than the actual presentation, at least I hope that’s going to be the case. We’re video and audio recording so if you want to give your name, if you’re asking questions that’s great. If you don’t, that’s fine too. Just be aware that this is going to be broadcast very soon after this event. All right, so let’s get started.

I first discovered Bitcoin in 2010, I heard about it I thought nerd money, sounds funny and then I ignored it for another six months. And then I rediscovered Bitcoin in 2011 and that time I decided to read the Satoshi paper. My background is in security and distributed systems so I wanted to read the actual science behind it and try to understand it from a technical perspective so I started reading the Satoshi paper. If you haven’t read it you should definitely read it.

It’s nine pages, it’s one of the most brilliant pieces of science writing. Every single word in that paper mean something. Satoshi was able to predict several things that took years to unfold in Bitcoin and just outlined every aspect of the currency in just nine pages which is incredible. I mean it would have taken me a hundred pages to say the same things. So, read that paper.

When I started reading that paper a little light bulb went off in my head, light bulb, supernova-size light bulb and it just completely overwhelmed me because immediately I realize this is not currency. It’s not a currency, it’s a network, it’s a platform, it’s an invention. And once I realize that the possibility just started unfolding in my mind and I went into a state of (0:04:23) that’s happened to me four times before in my career.

First computer I had, the first internet connection, the first website I visited, the first time I downloaded Linux, all of those were just revelatory experiences for me and they put me in a state of obsession. I wanted to learn everything about this technology and for a long time, you know, during the – I guess, ‘98–2010 period I didn’t see anything else that really excited me as much and then Bitcoin just hit me in the face like a sledgehammer.

And so, I spent the next six months obsessively consuming and writing and coding and reading everything I could about Bitcoin until I loss so much weight that my family stage (0:05:06) intervention because I had stopped eating from the obsession – yeah, not a healthy way to do it. I have a better balance now but that’s the kind of impact that Bitcoin had on me because it was something that aligned my interest and my passion for technology with my core principles, social justice and pacifism and ending war, you know, things that obviously are impossible to do but things that aspire to, you know. And so Bitcoin was this perfect combination of an incredibly disruptive technology that also had within it the ability to empower people.

And so, that started my journey in Bitcoin. I switched to doing full-time Bitcoin about a year and a half ago. I founded a company that did a few startups to provide various community services not for profit but to build the community and I started getting involved in media and trying to use my skills and my expertise to promote Bitcoin as much as I can. At the moment I’m going to conferences all around the world to talk about Bitcoin and one of the things I’m doing this year is focusing primarily on the developing world. I’m going to talk a bit about that and why it’s so important.

So, Bitcoin isn’t money. Money is just the first application on the Bitcoin network. Unfortunately the Bitcoin network, the Bitcoin system, the Bitcoin invention and the Bitcoin currency all have the same name which can be confusing. So when people first experience this they think that Bitcoin is a currency because they see the first step and that’s a bit like assuming in 1991 that the internet is an e-mail network, right?

Yes, it is the major killer appropriate, it is one of the things that’s going to make Bitcoin succeed but Bitcoin success doesn’t depend on the currency just like the internet success and the impact it had on the world didn’t depend on e-mail. In fact now a days e-mail is what my dad uses, right, and, you know, I don’t really. I use Twitter instead. So, something similar is happening in Bitcoin because currency is just the first application on this platform, on this network.

So, let’s talk a bit about the invention. What did Satoshi Nakamoto achieve with the invention of Bitcoin? Back in 1975 computer scientists in the distributed systems environment first articulated a problem called the Byzantine General’s Problem which is a problem of achieving consensus over an insecure network. A network where you don’t have the ability to send messages without those being intercepted and they describe this problem using a metaphor of a number of Byzantine Generals – generals who have amassed armies to conquer city and you have four generals raid around the city.

And they want to coordinate and decide on when to attack the city altogether. But the problem is in order for them to send messages from one general to the other they have to get their runners to go through the city and, you know, their runners are not making it through the city. And even if they do they don’t know if the message that gets to the other side is really the message from the other general.

And so this problem was expressed to describe this because in distributed systems when you have a network, when you have computer systems communicating over a network achieving consensus to something very difficult to do, being able to agree on what the state of the network is and how it operate is something very difficult especially if you have active adversaries in the system who are trying to co-opt that decision, right? Like the city that doesn’t want to be invaded. The problem was expressed in 1975 and it didn’t have any good solutions. They had some optimizations but no good solutions.

And so Satoshi Nakamoto when he first expressed this he didn’t really talk about the Byzantine General’s problem but immediately the people who read his paper understood that this might be related to this and their reaction was absolutely predictable, they laughed at it because obviously you can’t just solve the Byzantine General’s Problem. It’s gone unsolved by 35 years. Who does this guy think he is? So, they laughed at him and five years later we know it works. It may not be perfect, it’s not a perfect solution to the problem but it works and it works well enough.

And there’s this very interesting thing that happens when you have a technology that’s good enough, that achieve network scale and is able to be distributed over a large networks, where good enough suddenly becomes perfect. Not because it is perfect but because it enables the kind of innovation that makes it sticky, that starts accelerating the network effect.

Network effect is a term coined by Bob Metcalfe in 1984. He is the inventor of Ethernet. And he identified that on networks very interesting thing happens. When you have two people communicating and a third person is added to that network that person not only adds their own value to the network but they also increase the value of the other two people because they now have one more person to talk to, right? So, if you have an e-mail system with two recipients and you add a third recipient suddenly everyone on the network now has an extra recipient which accelerates the adoption of the technology.

This network effect has been seen in a number of different technologies especially communication technologies and Bitcoin is one of the strongest network effect ever seen. Why? Because it’s money. It’s network but with actual value. So when Bob Metcalfe said the value of the network increases exponentially with the addition of each node he was using the term value metaphorically.

In Bitcoin there is nothing metaphorical about it and absolutely it is the literal value of the network can increase exponentially and that’s why we see this algorithmic curve in the adoption and the price and the number of nodes and the number of users and the number of wallets and every aspect of the Bitcoin system is accelerating at an exponential rate. We don’t do one, two, three, we do one, ten, a thousand, ten thousand, hundred thousand. So on those rates of deployment and adoption things become very different and it acquires a power that is far beyond the power of each individual node.

There’s another effect that occurs within Bitcoin which is the issue of emergent complexity. The fact that you can have very, very simple rules on individual nodes and based on those rules the network as a whole starts exhibiting very complex behavior. 

One of the best metaphors I like to use to explain that is the leafcutter ant which is an ant, right? They cut leaves. And the interesting thing about these ants is that on an individual basis an ant is a very simple organism, it works by very simple rules. You can actually simulate, you know, all 200 neurons in an ant’s brain on a computer and have a virtual ant that works like the real ant. You put that in an environment with chemical pheromones in a real jungle and suddenly you have an emergent colony that exhibits behavior and intelligence far beyond that of each individual node.

So for example, the leaftcutter ant is the only known insect species that has domesticated another insect species and farms them as cattle. Leaftcutter ants don’t eat the leaves. They ferment them with an enzyme and then they feed them to aphids and then they eat the aphid larvae. So, this is an incredibly complex behavior, farming exhibited by an insect colony in which none of the individuals in the colony actually have that behavior in them.

Bitcoin is exactly like that. It’s a system that exhibits complex behavior as the sum that complex behavior merges from the collaboration of the thousands of nodes all executing very, very simple rules and that’s one of the best ways in nature to organize decentralized systems.

Nature doesn’t do hierarchical systems. Humans do hierarchical systems. And usually humans do hierarchical systems to solve problems of scale. All of the hierarchical systems we have in our society, the institutions of democracy and corporations, of nation states, of currencies as we know them today are based on hierarchical systems because in the 17th century you couldn’t get a message across the continent so needed representative to gather to express the will of the constituents.

Bitcoin is simply an evolution of that concept. It is taking the concept of a decentralized that has emergent behavior and applying it to currency or more specifically to a distributed asset ledger which we’ll get into in a second.

So, what’s interesting about this is that decentralized systems are more effective at scale, at large scale than any hierarchical system can ever be. And they also solved one of the main problems of hierarchical systems which is that when you have hierarchy that’s organized by people and institutions the people who arise to the top of those hierarchies become corrupted and co-opted and they gradually subvert the purpose of the hierarchical system to serve their own needs and this repeats in every political system and in every social system we have which is as soon as you rise to the top you pull up the ladder so you can make sure that none of the rebel get up there with you, right?

and you can take full advantage of your nice high position. Hierarchical systems don’t scale and they don’t deliver equality for very long because they get co-opted. Decentralize system scale and as long as the rules that they are based on continue to operate they continue to deliver the primary goal which is leveling the field –leveling the playing field for all participants.

One of the things that I believe is that if you have the ability to put a decentralized system next to a hierarchical system and people have a choice between the two the decentralized system will always deliver more value to every node in the network than the hierarchical system and it will do with better accountability, with better predictability, with less uncertainty, with less risk and it’s much harder to corrupt and co-opt. And now we’re doing to money for the first time in history. That’s a very big deal. As you can see I get emotional about it.

So, it’s hard to see from the perspective of Western nations why this is important because here in North America we have the world’s reserve currency and it’s a really good, stable currency. I mean we might disagree and I know there’s a lot libertarians and Austrian economists and people like that who will say, you know, the dollar sucks. Yes, it sucks. It sucks 193 times less than the other 193 currencies, though.

I’d say if you were to put a hierarchy of currencies and you have the dollar up here and down here is the Zimbabwe dollar, right? and you want to talk to a Zimbabwean about how they feel about their currency. There is this great picture on the internet of a stack of hundred trillion dollar Zimbabwe bills and that stack is used to buy a cup of coffee. So, that Zimbabwe dollar has been eroded to the point where it is less valuable than goat shit. And the reason for that is because you can actually burn goat shit better. So you can use it for heating and cooking and things like that whereas the Zimbabwean dollar doesn’t burn very well. It literally becomes far less valuable than the paper it’s printed up.

So, when we ask ourselves why does Bitcoin matter in North America the answer is it doesn’t. it doesn’t really matter as much. It matters far more in every other place in the world. We have it easy here. We have a currency that allows us to a certain extent to have predictability, to be able invest in the future. You go to Argentina their currency is devaluing at 30% a year, right? Now imagine you’re a parent and you’re trying to plan for the future of your children and you have your own personal wealth depreciating 30% a year, the education of your children is disappearing in front of your eyes.

Their future is being stolen from you by central bank right in front of your eyes and for these people Bitcoin is now a choice that allows them to achieve economic independence. Now we would love to have economic independence here because our financial system is fucked up and corrupt and we all know that but compare to the rest of the world it’s, you know, it’s easy, it’s great. So, one of the things I talked about a lot is the fact that Bitcoin is all about the other six billion and I want to talk a bit about that and explain what I mean.

In the world at the moment the World Bank estimates that there are about three billion people who have no bank accounts but that’s a very narrow measure they accounting only the working adults, none of their families, right? And they’re accounting only people who don’t have a bank account at all who live in an entirely cash based society.

But the reality is a whole spectrum between the two extremes. There’s about a billion people in this world mostly in Western societies and North America, in Western Europe and the upper echelons of the social process in these countries who have the ability not only to have bank accounts but to have ample access to credits and large pools of liquidity so they can start businesses, so they can borrow, so they can buy cars, so they can buy houses on mortgages.

They have access to international finance, they can transfer money to other countries with very few currency controls, right? And they can do international trade with this money essentially working above governments and above nations states in a state of complete economic freedom and that’s a billion people. And then there’s the other six billion. And they may have bank accounts but those bank accounts have currency controls. They don’t have the ability to do international trade.

They’re stuck in a specific currency that’s control by central bank that uses inflation as a means to steal from the people. Essentially inflation becomes a form of taxation, right? Because if your currency is depreciating 30% a year that means that money is going somewhere and where it’s going isn’t the new money that’s being printed by the central bank usually to buy guns and tanks and bombs which is why I’m in Bitcoin.

So, one of the reasons I’m interested in Bitcoin is because in the state of human affairs if you ask a nation to divest its wealth in order to order to fund war the only way you can do that is by stealing, is by lying, is by cheating. If you ask for the consent of the governed to fund war they will say no. They would rather fund education, healthcare, social welfare, development, things here, not abroad. And that applies here as it applies in any country in the world.

So, one of the things that happens when you have a currency that is not subject to central bank control is that you achieve separation of money and state. You take away the power of state to use money as a tool of power, as a means of control. And this means not only of control but as a means of enrichment. And money has been a means of control for governments for centuries. Until now each government was able to apply control through money not only by issuing it and then taxing in that money but also by controlling the flows of money in and out of the country. So Bitcoin is not the 194th currency.

Bitcoin is the first international currency. Bitcoin is the first algorithmic currency. Bitcoin is the first currency that is not controlled by government, is not controlled by corporations, is not controlled by banks. It’s controlled by mathematics and we can trust mathematics because we can predict exactly what’s going to happen on the Bitcoin network. In the next 10 minutes 25 Bitcoin will be created. Not 26, not 24. In 2016 that will change to twelve and a half Bitcoin every 10 minutes. I know this. How do I know this? I can read the source code. I can look at the source codes and I can know exactly how it’s going to work. And again, we’ve never this before.

So, Bitcoin offers for the first time on a global basis the opportunity for people to make a choice. To make a choice to use a currency that is outside of the control of hierarchical institutions that have become corrupted everywhere and that’s why I think Bitcoin is much more than just a currency. Let’s talk a bit about the technology.

Within Bitcoin there is a common distributed asset ledger, the Blockchain. What that is is like a big book that contains all of the transactions that have happened on the network and that distributed asset ledger allows the entire network to arrive at consensus as to what the current ownership of Bitcoin is. I’d like to think a bit like the network layer protocol, like internet protocol, IPv4.

It provides a neutral and transparent way for transferring value from one owner to another owner in a way that’s accepted by everyone in the network. Very importantly the only two participants in a Bitcoin transaction are the sender and the recipient. There is no third-party. There is no counterparty and finance that has a very important implication.

A lot of the structures we have in finance around fraud prevention, the overheads, the fees, the charges all of those things have to do with managing counterparty risk. When you use a credit card part of the fee you’re paying, the biggest part of the fee is for fraud prevention and for the risk of chargeback that you introduced through the counterparty to the merchant.

The merchant doesn’t know that they’re going to get their money. They get a promise that maybe Visa might give them the money and this applies across the entire financial system. Our financial system is riddled with counterparties because that’s the legal solution to solving counterparty risks.

Bitcoin for the first time enables financial transactions that have no counterparties where it is entirely peer-to-peer so one sender can send to one recipient. Once you encode that transaction in the Blockchain that is irrevocably redeemable. What do I mean by irrevocably redeemable? It means that as long as you can produce the necessary encumbrance, the necessary proof that you own the keys you can redeem that transaction and no one can stop you. And in fact the fact that it’s on the Blockchain has immediately made that transaction redeemable by the owner. Done. And from that moment on there is no risk that you cannot redeem that transaction as long as the network continues to exist.

Bitcoin also for the first time converts money or asset ownership into a content type. A Bitcoin transaction is about 350 bytes of information. I can write it in Hex (0:24:50) on a napkin. It can hand it to someone to type in a computer in Kuala Lumpur and when it hits the Blockchain I have executed that transaction.

I could transmit it over shortwave radio to a listening station in (0:25:04) and no one can stop me from doing it. You cannot stop money that is information. Because in order to stop money that is information you have to shut down every means of information transfer on the planet and you can’t do that anymore. So stopping Bitcoin actually involves shutting down the internet.

A couple of months ago some groups are now working to introduce a fully index Blockchain node on a satellite so you could put a Bitcoin node in space. Good luck shutting that down.

The Bitcoin network only requires two nodes to be communicating the Blockchain among each other and mining and it survives. So you would have to eradicate it everywhere simultaneously and ensure it never comes back. There’s one other form of species on our planet that operates like that and it’s a virus and we’re not very good at eradicating those either. 

So, when I hear about the idea that governments will stomp on Bitcoin and shut it down I find that highly amusing because it’s very similar to the idea that governments can now stop the internet. They can’t and Bitcoin is just an internet application and can be stopped even less. The biggest difference there’s an economic incentive, a ten-billion dollar economic incentive from all of us who are invested in the Bitcoin network to ensure that that never happens. So I truly believe that Bitcoin is absolutely unstoppable from external perspectives today.

Now that doesn’t mean that Bitcoin will survive. It means that if we fucked it up it will fail from the inside. There are certain failure modes that Bitcoin could exhibit today. Probably the most serious is a bug that allows someone to subvert the elliptic curve digital signature algorithm in a way that’s not noticed for a long time. and if that’s done effectively then you wouldn’t know who owns what and you wouldn’t be able to make sure that a transaction is executed by the actual holder of the keys.

If there was a fundamental bug in the way ECDSA was implemented on Bitcoin that could crash Bitcoin. Then what happens? The very next wording we start again with Bitcoin 2 and we implement a better digital signature algorithm and all of us get a chance to be back on the system on the ground level. We can now mine on CPUs again. Difficulty one. And if you have understood what Bitcoin can do and you’ve bought into this idea you’d want to be on Bitcoin 2.

So, one of the things I talked about which I think is really important to understand is that Bitcoin the network and Bitcoin the invention of cryptocurrency, the invention of a distributed asset ledger based on proof-of-work consensus will survive Bitcoin the currency. If Bitcoin the currency goes away tomorrow the invention has not been uninvented. It get (0:28:16) we’re going to have a terrible job doing all the public relations and branding again, right?

It’s going to lose a lot of credibility but in a few years we’re going to boot it again and we’ve got all the time in the world because this is history making technology that has been invented, has happened and will change the world. So, the reason I’m excited about Bitcoin is because of all of the other applications that can also build on top of the currency. Already we’re seeing the emergence of a additional layers.

I talked about how Bitcoin the Blockchain is a network layer that allows you do transfer of assets from sender to recipient but within that there’s a transaction scripting language. If you look at how a transaction is executed when Alice pays Bob one Bitcoin that’s actually encoded in a transaction script that uses a fort-like (0:29:13) stack based language Reverse Polish Notation, forensic computer science you know what I mean. What that means is that language is capable of expressing much more complex transactions including multisignature transactions but even other conditions that have nothing to do with currency or signatures. You can do trust, you can do escrows, you can do time loss, you can do infinite complexity within that.

And already based on that transaction scripting language which I think is equivalent to TCP on the internet we’re now seeing the emergence of higher level protocols – ColoredCoins, Mastercoin, Nxt, Ethereum and a whole bunch of others that are coming along right now. 2014 will be the year of the next layers.

We’re already moving the innovation up a layer and these layers represent the http of Bitcoin. They represent the ability to start to innovate and layer applications on top of the core transport to enable other types of assets to be exchanged. For example, stock certificates that are redeemable by the bearer completely anonymously, fully transferrable that allow the bearer that stock certificate to both vote in terms of a board shareholder election as well as receive direct dividends to that coin. So we can reinvent corporate management and governance on a global distributed corporation basis.

You may hear people talk about distributed autonomous corporations, the idea of having a structure that allows people to associate in business without the legal component and without the hierarchy of the board of directors replacing both of those with an algorithm. Bitcoin represents the first steps because what we’ve done is we’ve replace central banking, the issuance and minting of new currency by an algorithm. But at its core it allows us to do this with all other things that are hierarchical and replace those with algorithm. There are already coins that can do income redistribution based on proof-of-stake.

So, that’s taxation, social welfare and basic income guarantees implemented as an algorithm. The decentralized nature of Bitcoin allows us to implement metapolitics. Politics as an algorithm. Governance as a predictable algorithm. And so, it’s not just disrupting money. Money is just the first step.

It’s going to fundamentally disrupt corporations. It’s going to fundamentally disrupt nation states because it allows those forms of organizations to be redesign on a decentralized principle that removes the levers of control that historically have been grabbed by the first adopters and manipulated to prevent others from using it. So, equitable solutions can be encoded in an algorithm in a way that cannot be corrupted.

Some of the applications that come out of the Bitcoin invention are things like distributed fair provable elections. You can use a pseudo-currency to vote on a global basis. So the hierarchical concept of representative democracy where you have no direct access to decision-making itself can be disrupted by immediate and direct decision-making on a global basis.

You can implement global lotteries, you can implement crowd funding, global stock markets where a digital autonomous corporation registered nowhere can fundraise from shareholders from the entire globe and then implement its corporate strategy and respond to the demands of those shareholders without any regulation and the shareholders are going to execute their decisions by voting with their coin and getting dividends back with their coin. You can implement global lotteries, you can implement bond systems. So, we start by disrupting the core concept of currencies and we do that by reinventing the central bank as an algorithm. We replace the fed with a hundred lines of Python code.

But that’s only the beginning. Because out there in the world there is an enormous need for financial solutions that are independent in corruption. Probably one of the most exciting to me is the ability to use the payment network to do peer-to-peer payments and the most important application for that is global remittances.

Global remittances represent a 510-billion-dollar market where migrant workers resident here in the US, in Northern Europe and other rich countries sent 510 billion dollars a year home to their own countries and their own families and this money goes to fund entire communities and extended families in the poorest nations in the world. Today, Western Union and companies like that extract 74 billion dollars in fees from this flows of money and they do it in the most exploited, even corrupt manner possible by charging the highest interest rates to send money to the poorest countries in the world.

So, even as the developed world is providing 150 billion dollars in direct foreign aid to the developing world that foreign aid is going to the top of the pyramid in these developing countries and we hope eventually trickles down to the bottom and we’re stealing 74 billion dollars from the bottom of the pyramid. If we solve this problem we can re-inject that money that will transform communities around the world.

Bitcoin has the ability in the remittances market alone to redirect 74 billion into sanitation, clean water, food in the poorest countries in the world. And this is not our money, this is their money and allow them to keep more of it. It just means taking it away from Western Union and it couldn’t happen to a more deserving bunch of corrupts.

Peer-to-peer payments are the first step. The next step is peer-to-peer lending. I personally invested in Kiva Lending Club with some of my money. Lending club is a peer-to-peer lending system that exist mostly here in the US that allows people to get loans for cars and TVs to restructure their debt and things like that by getting funds from other individuals who want to invest directly in those loans.

And by diversifying against thousands of lenders you can essentially cut out the credit making banks and allow people to extend credit to each other. Kiva does this on a global basis. So, for example, with a few thousand dollars I’ve invested in more than five thousand people around the world who use that money to restart their shop inventory in Kenya, to buy seeds for the next production in Tanzania, to buy a motorcycle as a taxi in Zimbabwe and this is something you can all do, it’s very easy.

But Kiva is a centralized approach to doing this and it’s limited in its reach. We can redo this on a decentralized basis and provide peer-to-peer lending where an individual in a developing world can actually source credit from thousands or tens of thousands of lenders from around the world. Do you really need a credit rating if you’re giving someone a dollar? But you get ten thousand people to give a dollar and you’ve change the community.

And after peer-to-peer lending we can do peer-to-peer crowd funding. We can allow organizations to do kick-starter in a completely decentralized fashion to raise funds to start new and innovative businesses without a middleman, without the banks, just directly peer-to-peer where individuals in the Bitcoin community can invest in the businesses around the world that they want to invest in directly without regulations, without middlemen. So, peer-to-peer payments, peer-to-peer lending, peer-to-peer crowd sourcing, Western Union, the big six banks and all of the stock markets and that’s just the beginning.

Bitcoin is the most disruptive thing that has happened at least in the last 20 years and the great news is that by the time they figure this out they’ve already lost. I think they’ve already lost and they haven’t figured this out yet. If you watch the senate hearings on Bitcoin only one of the senators really grasp some of the disruptive effects and started asking questions about how this would affect the monetary policy of the fed. All of the other ones were talking about whether there’d be money laundering on this new payment network completely missing the point.

I also like to address the issues of crime and money laundering on Bitcoin because that’s something that comes up often and it’s such a ridiculous issue. First of all, out of the seven and a half billion people on this planet how many of them are going to use Bitcoin for criminal purposes and how many of them are going to use it to achieve personal empowerment.

There’s more of us than there are criminals. Secondly, the vast majority of crime happens on one currency, the US dollar, in cash, everywhere. If I manage somehow to buy a joint for Bitcoin on the (0:38:58) I’ve added a tiny amount of Bitcoin to a pipeline that has been funded from planting to cultivation to distribution to processing to smuggling all the way until they reach (0:39:12), right? and I can’t roll up a Bitcoin and use it actually snort the drugs up my nose. But you can do that with the dollar. This is a distraction and it’s not an arbitrary distraction, it’s a very deliberate distraction.

On the internet when we started using the internet I was on in 1989 as a teenager but really got into it around 1991. I remember clearly the internet was not an engine of innovation and growth. The internet was a den of thieves, pornographers and terrorists and that’s exactly how it was portrayed by the media and we were asking the exact same questions about the internet then which was what do you mean anyone can publish? What do you mean anyone can say anything without any controls? Society wouldn’t (0:40:04), that’s impossible we can’t do that. And so now we’re having the same conversation. What do you mean people can send money anywhere in the world without controls? Or guess what, that’s how it’s always be.

The current experiment a fiat based currencies that are not tied to any tangible goods, that are used to fund war, that are issued by central banks with income taxation directly out of a worker’s paycheck is a 60-year failed experiment. We have the opportunity not to bank the other six billions but to unbank all seven billion others.

We have the opportunity to allow the developing world to leapfrog directly from their current state of cash based society to a digital cash societies and bypass the entire fiasco failed experiment of central currencies that we’ve experimented within the Western world. And they’re going to take this opportunity just like they leapfrog landlines and went directly to cellphones.

In Africa you see this one foot square solar panels on huts. Huts that have no running water and no electricity, huts that used wood to cook their food and guess what that solar panel is doing? It’s charging a Nokia R100 dumbphone because with that SMS connection the person in that hut is connected to the world. They can find out the price of grain and (0:41:27) without having to travel 40 miles.

They can use a Paysa global payment network based on cellphone (0:41:34) to create 40% of the GDP in Kenya completely bypassing the official currency. If we are able to simultaneously downtech Bitcoin and uptech the means of using it we can allow the developing world to bypass currency as we know it.

So, that’s my vision, that’s why I’m in Bitcoin. It’s not my vision, it’s the vision I got from talking to Bitcoin communities all around the world and so, I’d like to wrap it up there and take questions. So, thank you very much.

All right. So, we don’t have microphones. I’m going to point and you shout, all right? Okay. Let’s start with the gentleman over there.

MAN #2: Thanks Andreas. I’ve got two questions. First of all I totally agree with you on this development services on Blockchain and that’s coming soon. So question number one is technically how is the transaction limit going to scale up when you have maybe seven transactions (0:42:47) and how technically can we expand that?

And then point two is in terms of crowd funding and loan, lending stuff we’ve seen this for the past few years already with platforms like (0:43:00) that have sprung up and I’m going to say 70% scams so how are we going to prevent that. Is that just a caveat emptor system or is there some other technical aspect (0:43:13) to protect us from those things?

ANDREAS ANTONOPOULOS: Okay, great questions. The first one is the ability of the Blockchain to scale in terms of transaction velocity. I am not particularly worried about that because there are a number of ways we can overcome it and there is enough incentive in place to do that. One is (0:43:31) transactions and more coverage that are stored off Blockchain and referring simply to the (0:43:36) so that you can essentially have transactions that occur off the Blockchain but are then signed by the Blockchain in that respect.

If today you use something for example, on Coinbase which is a San Francisco based wallet company and you transfer money from one wallet to another it doesn’t go on the Blockchain. If you buy something from a merchant who’s using Coinbase the coin is transferred off Blockchain to that merchant. Essentially it’s fractional reserve banking implemented in digital currency.

I’m not worried about the transaction limit there’s lots of ways we can do it and quite honestly bandwidth and storage are accelerating faster than our need for transaction growth so Moore’s law applies to storage and Moore’s law applies to bandwidth. So we have the ability to simply write that acceleration and, you know, a couple of iterations are doubling and things get really, really big, really, really fast. So, I’m not particularly worried about the Blockchain reaching a terabyte in size.

The other reason is because you don’t need the whole Blockchain. There is a system called simple payment verification that allows you to use the block depth instead of the block heights and rely on other nodes as proxies. So what you’re saying is if the miners have bury this under six blocks and they have a full index I can trust that by this point it’s safe. I don’t need to know the 277000 block below it to verify every input and output because I know the miners have done that. So you get this trust bypassing. I’m not worried about the scalability at all.

The second question is the issue of trust. There are two aspects to this. The first one is welcome to a free market. The current financial system works through essentially a methodology of trust by exclusion. You deny access to the vast majority to allow access only to the vetted few. I can go to the federal reserve lending window.

I can get an accredited investor account of the New York Stock Exchange. I cannot connect to the Visa network and query it with an API because their trust depends on properly vetting me before they give me access. Bitcoin’s trust by computation allows access for everyone and innovation at the edge so it shifts the trust more dramatically. It is the basis of decentralization and that has two effects.

The first one is that for the first time in financial services we don’t need permission to innovate and for the last 50 years no innovation has happened in financial services (0:46:11) and the reason for that well, there has been innovation on creating more and more complex derivatives to rob people but in terms of innovation that actually changes people’s lives especially here in the Western world the banks are navel-gazing on tap to pay so I can spend 200 fewer calories when shopping because I don’t need to actually touch the machine and swipe, I can do it from three inches away like really? Or we could uplift a couple of billion of poor people around the world, you know, hmm, difficult choice unless you tap to pay.

There has been 50 years of pent-up innovation that has been unleashed by Bitcoin and I am the startups because a lot of them come to talk to me before they go public, you have no idea what’s coming. There are hundreds and hundreds of startups doing incredibly innovative things in Bitcoin on the fringes without asking anyone.

So when you have a completely free market that means that the offerings will span from the incredibly innovative ground change – you know, ground shaking, world changing innovation that blows your mind to the 419 Nigerian scam (0:47:25) and it’s your job to figure out which is which. So, caveat emptor that exactly what happens. We are now being exposed to a free market and currencies and financial systems where the burden of confirming trust rest with the buyer.

Now, that’s a good thing and it’s a bad thing. Quite honestly the current system is one where the burden of trust relies on Visa and they allow you to send donations to Ku Klux Klan but they don’t allow you to send donations to WikiLeaks and I have a problem with that. So, I don’t trust them to make that decision for me. I’d rather make it myself.

The other thing you have to realize is that for the first time in history we have programmable money and you can do really interesting things. So we can start innovating in terms of security and trust with programmable money. For example, programmable escrow, transactional escrow encoded directly into the system allows you to create counterparties that you choose and trust to act as trusted intermediaries between you and the recipient of the money so that if your item does not arrive the signature won’t execute.

So we can reinvent trust mechanisms through programmable money. And so, yes, there will be a lot of fraud but there’s also financial innovation that can happen to prevent that fraud without handing control back to the corruptible institutions that used it to promote their own policies. So, let’s take another question. All right, I can see – let’s take one from over there. Sir?

MAN #3: With GHash –

ANDREAS ANTONOPOULOS: Could you speak up a bit?

MAN #3: Yeah, sure. With the GHash.IO (0:49:10)


MAN #3: (0:49:12) about 40% –


MAN #3: Can we see the (0:49:15) from the 51% attack?

ANDREAS ANTONOPOULOS: Yes. So, to me the 51% attack is a very interesting academic and theoretical experience or experiment but has very few practical implications for the actual Bitcoin network and the reason for that is because the effort to execute a 51% attack is far, far greater than the actual benefit of doing it. If you were to successfully execute a 51% attack you would be able to for a couple of blocks execute a double spend until the entire network sees what you’re doing and then reacts.

So, unless we were all not paying attention and trust me we are because GHash.IO has now become a huge topic in this community. There’s nothing they can really do with that. You can’t run away with everyone’s coins just because you got 51%. All you can do is affect the next block. So you can affect the next block and create a double spend. Big (0:50:17). If you are a merchant you add that risk to your business plan, you plan for it, you wait six confirmations and you solve that problem. If it’s not six, it’s twelve and if you try to do that with GHash you will find a lot of very angry Bitcoiners reacting to you and –

MAN #3: (0:50:33)

ANDREAS ANTONOPOULOS: One of the bitcoiners who’s going to react at you. It’s Gavin Andresen who said we’re watching the pulls. You pull some of that shit and we’re going to change the core protocol and ruin your business. So, don’t worry. I am not worried. 51% attacks are very interesting from a theoretical perspective.

The practical effort required to pull one is ridiculous. You need a hundred million dollars of equipment or the collaboration of a massive distributed network of miners. You need to persuade them that you’re not actually doing it until you do it and then once they find out they all abandon you. Already within two days the GHash.IO hashing rate has dropped as people abandon it in flocks just for the fear that this might happen. So the market is already solving this problem and if it didn’t solve this problem we can solve it technically in a number of different ways. No worries about 51%. Let’s take one in the back.

MAN #4: How do (0:51:32)

ANDREAS ANTONOPOULOS: How do we implement voting?

MAN #4: (0:51:37)

ANDREAS ANTONOPOULOS: Oh, thank you. So, voting is difficult. Electronic voting is a topic that has been explored in computer science for two decades or more. I think the most likely implementation of electronic voting will be for trivial matters between distributed system nodes. Like for example, how do we get a thousand BGP routers to decide that a certain BGP route is malicious.

Well, how about they use a pseudo-coin to vote through low level mining in their BGP routing tables so they can basically create a verifiable blacklist of malicious BGP route. That’s an example of why you would use electronic voting in a distributed system essentially take advantage of the consensus Byzantine General’s problem solution to solve the distributed computing problem. And if you start generalizing that you can see how there is a possibility of creating a pseudo-coin which is distributed to the population much like you get mailed election cards in the mail and you have a register of elections.

But instead what you’re doing is you’re getting a digital token that you execute through your smartphone. The difference is that now you can verify that your vote is counted and you can verify that the fairness of the election independently the way each Bitcoin node independently verifies every transaction and the security of the network. You don’t depend on any counterparty to tell you that it happened or didn’t happen. It’s not an easy problem.

I expect electronic voting will probably take decades but it is within the capability of the system. So, don’t know how to solve it I’m sure there are many, many really smart computer scientists were working on exactly that. Sure?

MAN #5: Can you touch base on the best way currently to secure your private Bitcoins that you own?

ANDREAS ANTONOPOULOS: Oh, really great question. This is going to be a problem especially in the next year we’re not quite ready to go mainstream. The fundamental problem is this – as a species we have four and a half million years of experience on how to do physical security from the moment the first caveman hit a squirrel (0:53:53) son the other caveman won’t eat it and in fact he learned that from the squirrel who’s hiding nuts for four and a half billion years.

So, physical security is something that is intuitively understandable to humans as part of our culture and has been embedded so deep in our culture that it is semantic paradigm that we don’t even think of. It becomes automatic. We implement physical security in every aspect of our life and it is embedded to the point where children learn how to do physical security at a very, very young age.

It’s part of our cultural need. Digital security is something we’ve been doing for 50 years and we suck at it and now we just put billions of dollars into the domain of digital security and we don’t know how to secure it. So the basic problem is we have these general purpose operating systems and I count all of them, right? Windows, Mac, Linux probably in that order of least to most security, right? And if you put your digital wallets on a Windows general purpose operating system you run a very, very high risk of being compromised.

We don’t know how to secure these operating systems. I’ve been working in security for more than 15, probably more than 20 years now and one of the things I know is that I assume my machine has been compromised. Not just by the NSA I assume it’s been compromised several times by many different organizations. I don’t trust my own operating system. I could forensically verify the security of my operating system. I would take me about three weeks of work with very sophisticated security forensic tools and then I would verify to my laptop and secure it until I plugged it into the internet again. And then I have to start all over again, right? So, you cannot maintain security on general purpose operating sytems.

There are two fundamental points to solving this. The first one is to physicalize the security. So what you do is you take the coin out of the digital (0:55:49) and you translate it into a physical form where you can then apply physical security that we know how to do as a species. So for example, and this is one of the areas I worked on.

I developed a startup called Safe Paper Wallet about a year and a half ago with the intention of creating better paper wallets and it was driven by the most basic entrepreneurial instinct which is I need this. It’s really hard to do. I’d better figure out a way to do it better. So the idea of a paper wallet is that you generate keys that never touch the network. You do them on a offline system. And you can generate them essentially by picking a random number. The search space of the Bitcoin address space is (0:56:35) 2:160 bits, 2:160 keys which is a very large number.

I will leave it at that. And so, you can just pick one at random and the chance of anybody else picking that one at random are zero. And then you print out private and public key on a piece of paper and you take only the public key and you use it to send money to that public key to essentially encode a transaction that can only be unlocked by the equivalent private key that never touches the network. Take that piece of paper and you put in a safe.

Now, here’s the problem with physical security. If you don’t do it right the greater chance you run is loss, not theft. And we’ve seen this happen again and again. Organizations or individuals who tried to do these elaborate schemes with encryptions in USB drives and things like that and then they forget the key or they lose their keys or the backups get corrupted and they lose thousands of coins. This has happened several times.

One of the most popular videos out there is the video which explains Bitcoin very nicely, read the history of how that organization worked. They raised 18,000 Bitcoins to produce that video back when it was, you know, (0:57:47) and then they spent 18,000 Bitcoins to produce the video and they had about 10 left over and they encrypted it and then they lost the keys and they loss 10,000 Bitcoins. Oops!

So, when you’re doing physical security one of the most important things is try and balance the security you’re applying with your own ability to recover that, you know. If you go and bury your money in the desert and then you forget where you buried it you lost your money, right, and so you’re doing that essentially with digital keys.

One of the things I did with the Safe Paper Wallet is print the keys twice, very, very simple thing. So, the paper wallet by the way, this is free software I’m not selling the kits anymore, it’s open paper wallet to the community project. You can download and you can use the software for free. You can print these wallets where it has two copies as keys so you tear off a little stub and then you put the stub in a secondary location. Now you have two chances of redeeming that key.

So I have 99.9% of all of my Bitcoins on paper wallets. Half of those paper wallets were sitting in a safe deposit box, the other half of those paper wallet is sitting in a friend’s safe deposit box in a different location so that even if one of my keys was compromised I could then go and redeem it. The other thing you do is you diversify. You don’t put it all on one paper wallet right, because paper is paper.

It burns, it gets wet, it gets (0:59:14), it changes colors, it gets torn whatever. So one of the things that becomes difficult is you have to keep taking that one paper wallet and splitting it 10 times every time the price rise, right? And then you end up as I have with hundreds of paper wallets with very, very small amounts on them and then the management of those gets very difficult. So, this is not easy stuff to do but it’s better than putting it online.

One of the most interesting developments in that space is the development of tamper-proof hardware wallets. Things like the Trezor, things like the – I can’t remember what it’s called. A little printer that does paper wallets –

MAN #6: Piper

ANDREAS ANTONOPOULOS: Piper, thank you. So, Piper, Trezor and various other solutions like that are coming out. If you have a hardware device that is designed to do one thing and one thing only and that’s to verify and sign transactions and maintain the security of the keys then you can do biometrics, you can do PIN security and you could put in a tamper-proof enclosure and because that thing is not a general purpose computing device it has a much, much smaller exporsure service so it can’t be hacked, right?

And so we’re going to see the development of those things. We can’t just put Bitcoin on mobile devices, on laptops and expect it to still be there in the morning.

One of the biggest things you can do personally today is immediately implement two-factor authentication on any system that you use that stores Bitcoin. Two-factor authentication is the following:

Most systems are secured by one factor – that’s a password, something you know. You can use other factors, something you have or something you are. Something you are is for example the iPhone fingerprint scanner.

So it uses an additional factor authentication which is your fingerprint, something you are in addition with something you know, a PIN number to provide two-factors before you can login. A way to do this online is to download the simple application like Google Authenticator or one-time password generator. What this does is it generates a new number, a six-digit number every 30 seconds and when you go to login to your online wallet you have to enter your username, you have to enter your extremely complex, not based on words, not even clinging on words random password that you very carefully generated with software because you don’t trust yourself to just generate it from your head. I assume everybody’s already doing that.

I know for fact that no one is but please do. And then on top of that you have to provide a second factor which is a six-digit number. Now that means that someone who has compromised you not only has to either install a key logger and capture your primary password they then have to steal your phone.

That provides a much, much higher level of security. So I feel confident leaving, you know, five, ten Bitcoins at most on an online wallet and then protecting that with two-factor authentication especially if the online wallet actually doesn’t store the keys. Or they store the keys in an encrypted form that’s only encrypted by your browser. Blockchain info does this, Cryptokit does this, a number of other software wallets do this.

So, first thing you do when you get home change your password to something that’s actually strong, 16 characters randomly generated from software. Add two-factor authentication. If you don’t have a smartphone to download the software you can do two-factor authentication with SMS where when you try to login it send you a code on SMS and you have to enter that as well.

Again, that means your phone is the second factor. And then we’re going to have to invent a lot more. But we have programmable money so we can unleash a whole (1:02:53) of innovation on how to secure this up. Okay. Sorry, that was a bit of a long answer but this is a really important topic because we’re going to see of theft and a lot of loss in the next couple years until we fix this. All right, sir?

MAN #7: I (1:03:07) escrows and trusts I was just curious. Can you do anymore on that?

ANDREAS ANTONOPOULOS: Right. So, escrow is a system whereby you have a counterparty that you trust that access and intermediary in the transaction. So essentially instead of the recipient authorizing the transaction it takes the recipient plus your third-party to authorize the transaction. This is usually implanted with multi-sig which means that instead of one signature required to do the transaction we need two signatures within that same transaction.

One is the signature of the recipient, the address you send the money to and the other one is the signature of the third-party. That third-party could be an organization that for example provide you with a guarantee for small fee that they won’t actually release the money until both send and recipient had agreed or until the product you ordered is actually delivered. And they might have some kind of offline arbitration process or legal process that backs that up.

With multi-sig you could do even more interesting things which is you can do escrow on a peer-to-peer basis. You could get together for example, with five of your friends and split your Bitcoin in such a way that it takes three out of five signatures to redeem any of it so that as long as, you know, you’ll have to get three of your friends to spend any of the money but that way all of you do this in a reciprocal arrangement and your money can’t be stolen because it takes – and even if two of them run over by buses you still have the other three so your money is even more secured than your friends.

MAN #8: Andreas, I want to –

ANDREAS ANTONOPOULOS: Yeah, sure. Go ahead.

MAN #:8: – I want to ask you about the (1:04:56) that you mentioned about (1:04:58) in 2016 I was expecting in 2015. And the next question, what would be the next (1:05:04) algorithm of the Bitcoin like which coin has the algorithm (1:05:09) –


MAN #8: (1:05:11)

ANDREAS ANTONOPOULOS: Okay. So, the first one is yeah, I’m not sure it’s in 2016 because it doesn’t depend on the date, it depends on whether 806,400 blocks have been mined since the last division so it’s –

MAN #8: So it’s in 2015 or –

ANDREAS ANTONOPOULOS: It depend on how fast the blocks are mined. So, because the retargeting algorithm is always retrospective based on the average of the previous two weeks for the last two years we’ve been running ahead of schedule. So instead of blocks being mined every 10 minutes the difficulty is never quite catching up and you’ll see that the average time is sometimes between six and eight minutes which means you’re mining blocks faster than expected because the growth of hashing has shot through the roof very fast.

MAN #8: What do you think could be happening (1:05:56)

ANDREAS ANTONOPOULOS: I haven’t done the math and yeah, I don’t do math very well so I need a calculator to do that.

MAN #8: (1:06:05) or algorithm

ANDREAS ANTONOPOULOS: Okay, so the next algorithm. So, this is an interesting question because a lot of people ask what happen if SHA-256 is broken? And frankly the answer is really simple, it doesn’t matter at all. Fixing SHA-256 is the easiest thing ever. It’s going to screw the miners but other than that the rest of the network will survive it because SHA-256 is compromised all you can do is affect the next block by perhaps mining with a shortcut or lower level of difficulty than what the network requires so you get an advantage because you can mine blocks but it’s going to be pretty obvious that you got a shortcut nobody else has, right?

And so, at that point we’d have to design SHA-256 is broken let’s change it but the nice thing is that you can introduce a core protocol change that says “Well, we’re at Block 277,432.” In a hundred blocks the new mining algorithm is SHA-512. Gentlemen, start your engines. And that’s it and the entire network can continue operating and once you reach that magical block you do a hardfork and you transition into a new hashing algorithm. So the hashing algorithm can be replaced and give your replacement as minimal impact on the Blockchain but it will have a very, very big impact on the miners.

Now, here’s why I don’t worry about that. If SHA-256 is broken we have much bigger problems. SHA-256 underlies the security of every financial and credit card system in the world, all of the international wire transfers and the Tomahawk cruise missile launch codes and, you know, and the communications of every government in the world and everything else.

SHA-256 is not broken and won’t be broken any time soon. I’m not worried about that. The trick here is to pick a cryptography algorithm where the impact on the rest of the planet is so big that you’re guaranteed that a lot of people are going to be very carefully scrutinizing that algorithm and any problems are noticed very, very quickly. The other thing is who can break SHA-256? Because it’s not just a matter of someone breaking it it’s someone with easy access to mining and the ability to do it on a grand scale without being noticed.

MAN #8: Excuse me. I think that the most misconception (1:08:25) targeting is what is tendency that a new kind of like high level of Bitcoin (1:08:30) higher algorithm.

ANDREAS ANTONOPOULOS: Oh, yeah. You could see altcoins that implement (1:08:41) algorithms already Litecoin for example implements an algorithms called (1:08:44)

MAN #8: But I do think (1:08:45)


MAN #8: – not using the algorithms.

ANDREAS ANTONOPOULOS: Someone could use a different algorithm like SHA-512 or they could use, you know, Blowfish or any other hashing algorithm. You could use any form of HMAC algorithm to do proof-of-work. Or in fact you can use any algorithm which has essentially an asymmetric mathematical nature. What that means is that the effort to produce a solution is exponential but the effort to verify the solution is linear. You can implement proof-of-work mining based on Sudoku.

Sudoku is an asymmetric problem. I can look at a Sudoku with a millions and a million columns and within milliseconds on my computer I can verify it’s correct like finding that solution it’s going to be a lot harder and there are a lot mathematical problems that are asymmetric in nature and you can pick any of those and use it as the fundamental proof-of-work algorithm.

So, we will see altcoins and they won’t be successful because the network effect and power behind the brand, the invested silicon, the network effect of Bitcoin, the 10 petahashes creates such enormous stickiness that unseating Bitcoin without Bitcoin having fundamentally failed is not going to happen. And I look at for example IPv4 which was a flawed protocol that at first couldn’t do voice, couldn’t do video, couldn’t scale to a global level and yet we fixed all of those things by tweaking around the edges with network address translation and CIDR and, you know, bracket prioritization and TCP/IP QoS and all of those things allowed us to do it.

Why? Because we weren’t going to replace TCP/IP. And the reason we weren’t going to be replacing it is because it is implemented in millions of pieces of hardware and it’s known by millions of developers around the world and that creates network effect. IP’s network effect is so strong that IPv6 can’t replace it. Its own upgrade can’t displace it and we’ve been trying for 16 years to upgrade a damn thing. So, Bitcoin is good enough and just like TCP was good enough it displaced all other protocols because of the network effect.

And because Bitcoin is good enough and because the network effect of money is much bigger than any other network we are seeing I don’t see any altcoins displacing it. What I do see is altcoins co-existing primarily altcoins that have features that cannot be replicated by Bitcoin because they would fundamentally change the nature. For example, Freicoin is an altcoin that uses a demurrage structure. It has a negative interest rate.

It is inflationary and your money actually degrades over time if you don’t spend it. Bitcoin cannot cherry-pick and adopt that feature because when it does it’s no longer Bitcoin. So there are some features that are fundamentally antithetical to the nature of Bitcoin. All of the other features it can let the altcoin test it out or let the market prove it, cherry-pick it, stick it in the core protocol bye-bye altcoin and Bitcoin goes to new heights.

So it’s an experiment. The altcoins become a laboratory for testing new features and they’re great for that. There are also a great laboratory testing failure mode because we can’t do 51% attacks on Bitcoin but we sure can do them on TeraCoin and it was a lot of fun. TeraCoin imploded spectacularly and we were able to examine what happens when we do a 51% attack, how you prevent it and also what happens when the difficulty overtakes the hashing power.

So you end up with hashing being withdrawn from the network and the difficulty is so high that you can’t recalculate the next block so you can’t regarget the difficulty so the entire network freezes and we saw that executed in TeraCoin.

We could not do that on Bitcoin. So you have these many laboratories where you can simulate failure mode with bugs with all kinds of other things. So that’s what the altcoins do. But the chance of an altcoin unseating Bitcoin are nil in my opinion. Bitcoin will unseat itself through a bug that blows it up maybe and that’s really improbable but it won’t be unseated by an altcoin.

MAN #9: (1:12:48) the first block look like 50 Bitcoin (1:12:50) the next round 25 (1:12:53)

ANDREAS ANTONOPOULOS: So, that’s an interesting question. If you look at the choices and numbers that Satoshi had they’re not arbitrary. Twenty-one million coins produced with that geometric de-escalation produces a currency that very, very closely emulates the physical characteristics of precious metal mining.

So the geometric degradation of profit or margin in the extraction of the resource is exactly the same as you would see in the scarcest precious metal like gold or palladium or silver or something like that and so it was a very deliberate choice of numbers, 50 was arbitrary. If they picked a hundred and then it had half the value you’re exactly back where you are so it doesn’t really make a difference. All right, let’s take some more questions. Sure.

MAN #10: I guess (1:13:45) beyond that subject Satoshi clearly understood that the value of limiting monetary supply –


MAN #10: And I’m wondering the starting mechanisms step are used in the (1:13:56) industry actually creates fictitious, you know, assets which are used to devalue the real assets. We are probably moving into maybe in this coming year into a phase in which perhaps institutional money is going to start moving into Bitcoin –


MAN #10: – and (1:14:19)

ANDREAS ANTONOPOULOS: And will they come sorting in federal reserve banking and one of the other thing.

MAN #10: So, I’m – yeah, I was wondering what your take on that is.

ANDREAS ANTONOPOULOS: I’ll give you two answers. The first one is that it’s a lot harder to devalue the currency that way and it’s a lot less effective to devalue a currency that way. So I’d rather take away the central bank influence and controls even if I still don’t have perfect sound money from the Austrian economics perspective because it’s still better they cannot be inflated as fast or as effectively as you can with other currencies.

But at the same time I’m also thinking that 20 years from now we’re going to disrupt Bitcoin. So, if you think ahead of it eventually Bitcoin will be corrupted and co-opted in some way and we are going to have to boot something else to disrupt Bitcoin because Bitcoin has become Goldman Sach’s coin. But the point is that in the journey from here to there we can disrupt Goldman Sach’s more than they can disrupt Bitcoin. So, I’ll take it. All right, yes?

MAN #11: First of all thank so much for coming here (1:15:30)


MAN #11: (1:15:34)


MAN #11: and (1:15:40) it takes forever. So –

ANDREAS ANTONOPOULOS: It takes forever to what (1:15:47)?

MAN #11: For (1:15:48)

ANDREAS ANTONOPOULOS: But you don’t break the hash you erode it to the point where you can do it maybe one percent better, one percent faster. Very rarely have you seen that hash completely – actually I don’t think any hash algorithm has been broken, we just found shortcuts to make it more efficient to calculate.

MAN #11: Yeah, all right (1:16:19)

ANDREAS ANTONOPOULOS: Yeah, that’s very good point. And, you know, SHA-256 is probably one of the most studied algorithm. If you look at Satoshi Nakamoto’s discussions on a cryptomailing list you’ll see that the choices he made, the two significant choices he made SHA-256 and the horizon that has a cryptographic hash algorithm as well as ECDSA but not just ECDSA the specific elliptic curve used which is called secp256k1.

Elliptic curves are complex topic but one of the things we now know is that the process of creating the elliptic curves was corrupted by the NSA within the very same standard that secp256k1 this curve that’s used in Bitcoin was first published which is part of a niche standard that include 12 different curves that also included the dual ECRGB random number generator that we now know has a secret backdoor key that the NSA first created to subvert the cryptography standards and then they the RSA 10 million dollars to stick it into commercial product knowing that it was broken.

By the way don’t go to the RSA conference this year. Boycott the shit out of them. They betrayed our trust as did the NSA and they need to pay for that. But within that standard there’s a bunch of curves and some of those curves are weird in that an elliptic curve works on the equation y2=ax3+bx2+c or something like that. So there are three parameters in there a, b and c which determine the characteristics of the curve and you want those parameters to be something predictable.

In cryptography there are seven sets of numbers that are called nothing-up-my-sleeve numbers. So if you have say an algorithm that uses a random number initialization vector and you want to persuade people that the random number you picked is not a special one that has a weakness or that has a secrete backdoor or something like that you would use a nothing-up-my-sleeve number. For example, in Blowfish which was developed by Bruce Schneier, he use the digits of Pi. He used the specific sequence of digits of Pi.

So does Bruce Schneier created Pi? We know that he didn’t put those digits there for a purpose and he couldn’t quite pick the right thing because they’re picked on a specific basis. The other people will pick a specific part of the (1:18:53) sequence or the Napier constant or some very, very large number that’s well-known. You could pick your birthday and people that know that you didn’t select that to subvert the system.

So, within the 12 curves the constant parameter of the secp256k1 Koblitz curve is the (1:19:14). I am pretty sure the NSA hasn’t compromise seven yet. They’re working on it. So we can trust that the Koblitz curve that he picked is probably one of the purer ones, so one of the least likely to have been compromised but we can change that.

One of the things that is happening at the moment in the core protocol is the discussion to allow the elliptic curve or generally the digital signature algorithm that’s used to verify ownership and transactions to be user selectable so that you can essentially have an OP code or parameter that says “This is an old-styled ECDSA secp256k1.

Oh, this is a new one it uses the Apple curve 5392 curve that Apple uses in all their devices, an elliptic curve developed in Cupertino or a completely new one and that will allow you to gradually introduce new encryption primitives within the protocol without breaking backwards compatibility within the Blockchain. So we can change that too as long as it’s not broken before we change it.

MAN #11: So –


MAN #11: – are you concerned at all about and you trust that random, I guess, is my question because you know if you’re (1:20:22)

ANDREAS ANTONOPOULOS: I do not trust that random.

MAN #11: So, how do you (1:20:27)

ANDREAS ANTONOPOULOS: Yeah, that’s a good choice. So, first of all I use /dev/random (1:20:36) itself. Linux is not cryptographically secure, I would use /dev/urandom (1:20:40) or something like that. But what I usually do is I take the input from something like /dev/urandom and I passed it through a couple of rounds of HMAC or RIPEMDs 160 or something like that to really mix it up and then I use that as the base for generating the key.

So you can do a lot of those and there are actually specific cryptographic protocols for how you generate from a source randomness that you don’t quite trust how you take that as a (1:21:07) and then you convert it into one that you can trust through repeated applications (1:21:12).

MAN #11: (1:21:13)


MAN #11: (1:21:16)

ANDREAS ANTONOPOULOS: Yeah, there’s a lot. I mean most of these is research from cryptography experts and you can read various cryptographic papers on how to do this. You need to pick 160 bits. You could toss a coin 160 times. That’s the trusted random number source. So if, you know, push come to shove you can use things like audio sources, amplified the audio of the microphone of your laptop that actually if you amplified enough it picks up cosmic radiations noise and then you can depend on that being random.

So you can use natural sources of randomness. One of the most famous random number generators was based on image recognition of lava lamp (1:22:07) running in Stamford. So you have little blocks and they feed an algorithm (1:22:13) into random numbers so, you know, if you can predict where the next block is going to appear you can break it. So there are natural sources of random number generators and there’s a whole field of cryptography on how you do that. All right, sure.

MAN #11: Okay. I know you talked about –

ANDREAS ANTONOPOULOS: Louder please for the back.

MAN #11: Yeah. I know you talked a little about altcoins.


MAN #11: I want to touch specifically on the fungibility –


MAN #11: – and may be alternative currencies like Zerocoin and cash –


MAN #11: (1:22:41) about that?

ANDREAS ANTONOPOULOS: Thank you. So, this is a pet topic of mine I believe in this very strongly. There is a really important discussion going on about anonymity fungibility in the core protocol right now and this is one we need to pay a lot of attentions to. We made a serious mistake on the internet which was the Tor wasn’t built-in from the beginning and now we’re paying for it and we have to re-engineer the internet because the NSA broke it but what we have the opportunity to do in Bitcoin is to implement anonymity at a core level in the protocol. And anonymity is not about money laundering for criminals.

Anonymity is so that the Egyptian blogger who’s trying to start a revolution and fund the sources he needs to make his voice heard isn’t dragged down of his house, tortured and killed by an oppressive regime. Anonymity matters because anonymity is the basis for free association and expression. If you take away anonymity you lose expression, you lose free association. You can be persecuted for who you know and what you said. Anonymity gives people the ability to express themselves. It is not natural for human being to have every thought they ever express catalogued forever. Forgetting is an important part of our psyche.

And so, at the moment there is this really important discussion going on as to how we solve the issue anonymity within Bitcoin. Bitcoin is not anonymous. Bitcoin is a treasure trove of data analytics that you can mine forever and eventually you can just pull one thread and you can associate with an identity and unravel the entire set of transaction tied to that identity and track everything. Bitcoin has within it the possibility to become a totalitarian nightmare if we don’t fix this problem. And there is another very important reason why we need to fix this and it has nothing to do with anonymity and politics and it has everything to do with currency.

Currency means flow. The word itself means flow and one of the key characteristics of currency is fungibility. Fungibility means that any single currency unit is indistinguishable and fully replaceable by another currency unit that’s equivalent. So I have a dollar in my pocket, it’s not this dollar that has value of a dollar it’s any dollar like it and in fact under US law I cannot make discrimination and say “Well, I know that this serial number was touched by a Jew, was touched by a criminal” you know you can’t do horrible politics of exclusionary discrimination based on what the serial number is.

This was resolved in Scotland in 1760-something when a merchant marked their Scottish bank notes and then tracked them after they were stolen, found them in a bank and then asked the bank to give him back his money. He said “This money was stolen from me. I have the serial numbers to prove it.” Went to court and the court decided No, you can’t do that because if you do that you break the very basis of currency which is the trust that when I receive a note it is unencumbered by prior obligation or prior (1:25:52). The note itself stands alone as a unit of currency fully redeemable without any association to a serial number or something like that and it is fully equivalent to any other note.

Bitcoin is not fungible. That’s a problem and unless we make Bitcoin fungible we may have a problem where things like coin validation or blacklisting or whitelisting will rob the basic fungibility of the currency and if you do that the currency breaks and no longer works. At the moment they’re trying to sell us the idea of whitelisting and blacklisting as an antitheft mechanism.

That is a lie and it is a very dangerous lie. Antitheft mechanisms for coin validation and blacklisting of specific coin will not stop theft. What they will do is they will introduce random and arbitrary counterparties at the process, the people who create the blacklist, the organizations that create the blacklist. Worse, the moment they blacklist someone and that organization has put you on the blacklist you sue that organization so you just drag the entire legal system into a counterparty into that transaction.

So now, it’s not between the sender and the recipient, it’s between the sender, the recipient, the blacklist and the judge as to whether you can redeem that transaction and that’s not a currency. That is not a currency. That is a possibly redeemable IOU that is heavily encumbered by third-party risk and you broke Bitcoin. Worse, it won’t work because thieves will manage to remix that coins and I can guarantee you that they will not blacklist the coins of thieves. HSBC starts money laundering they get away with it. Their coins are not getting blacklisted.

(1:27:45) coins get blacklisted. WikiLeaks coins get blacklisted. The Egyptian blogger who is trying to start a revolution gets his coins blacklisted but HSBC money launders to their heart’s content because they own the legal system. If you re-introduce the legal system into Bitcoin then it becomes as corrupted as the legal system and it’s all over. And the moment that’s introduced into the core protocol I am selling all my Bitcoin and starting an altcoin. So, we need to fix this.

And part of that is technologies like CoinJoin and Dark Wallet that allow remixing. But in order to implement this right we need to make these tools not for the power user but for the every user. We’ve learned this lesson with the NSA fiasco. What we learned was that they were able to subvert things like PGP because they can narrowly target the people who use them because not everyone uses them, right? But they were not able to affectively subvert as a (1:28:43) sell because it’s so broadly distributed that because it’s used by everyone every time they use a browser whether they like it or not, whether they know it or not.

It’s not a user choice as a sell happens and if you try to turn it off you can’t visit that website anymore. That ubiquitous deployment of common encryption standards was the most effective encryption tool we’ve ever had in the world as a cell was the most widely deployed cryptographic standard and it worked because we know that the NSA had a very hard time doing some very narrow and selective compromises of very specific sell keys. It forces them to narrow their mission to targeted and targeted is okay it’s part of their mission.

It means warrants, it means due process. Ubiquitous is the problem. So, if we think about anonymity the most important thing in anonymity within Bitcoin is what does the everyday user do? My vision is every wallet does full cryptographic CoinJoin on every transaction every time whether you know it or not. It becomes invisible as part of the protocol. We move a layer above, we no longer see addresses, we no longer see the transaction comes and it just gets remixed. And when you’re not doing transactions it’s remixing your own wallet and sending stuff between the various addresses you own and recycling them constantly so that every coin is painted with every coin.

That gives us transaction layer fungibility in the core protocol and to me that is the most important thing we need to fix with Bitcoin before it goes mainstream. All of the rest can be done in metalayers. But if we don’t have a fungible transaction layer everything else above it is compromised. So yes, thank you for asking that. Great question.

MAN #12: More (1:30:29)


MAN #12: More expert questions. (1:30:30)

ANDREAS ANTONOPOULOS: Okay, yeah. All right, let’s take one or two more questions. Yeah?

MAN #13: Yes. Can you explain the (1:30:39) of the Bitcoin platform as it pertains to sending secure messages. I’m wondering it seems natural (1:30:50) sender’s relationship between Bitcoin platform and public key, private key technology (1:30:58) where we can’t use these keys to send encrypted communications.

ANDREAS ANTONOPOULOS: But we can. Bitmessage is a system that does exactly that. It’s a Bitcoin-like Blockchain based mineable system that allows you to transmit messages from sender to recipient using the same technology as Bitcoin. So it’s called Bitmessage (1:31:21) already do that. What’s interesting however is that if Bitcoin was to succeed in terms of adoption and be adopted broadly that puts in the hands of every user the public/private key cryptography and more importantly the attachment to their identity and not only in identity as in I know who you are, I mean identity as in I am protecting these keys because my money is in it.

And therefore, my security incentives are aligned with securing these keys so other people can trust that I’ve done the effort. If you have your money in the same keys I can trust the message sent from those keys is guaranteed by the amount of money you have in those keys. You protect that message and those keys as much as the money that’s in them so you associate trust with monetary value and you put all of that in the hands of the end-user encoded in an application on their smartphone. Bitcoin might be the gateway for getting ubiquitous public in cryptography out there. So, it’s a really interesting possibility. Okay, let me take two more questions. Sir?

MAN #14: What percentage of your net worth you keep in Bitcoin?

ANDREAS ANTONOPOULOS: A hundred and fifty percent which is highly imprudent and I would not recommend anybody does it. Primarily because Bitcoin is not an investment for me, it is my career and so most of what I hope to get out of Bitcoin is future earning potential. It’s not actually, you know, I don’t have that much but the point is that over time as I believe in Bitcoin more I invested more in Bitcoin then it increase in value while I continue to spending all of my savings trying to stay afloat until it actually became a career and I could get paid in Bitcoin and so I ended up being in debt in dollars and my Bitcoin holdings got bigger and bigger until now yeah, I’m upside down. So if Bitcoin crashes I’m going bankrupt but if it doesn’t it’s all good. We’ll see. All right, let me take one more question, last question of the day. Yeah, sure.

MAN #15: Where do you see Bitcoin a year from (1:33:26)

ANDREAS ANTONOPOULOS: Where do I see Bitcoin a year from now? That’s a great question to end off. So, you know there’s a couple of things – I think you can go a number of different ways. Bitcoin doesn’t have a middle of the road mediocre growth model. It basically either dies because of a fundamental flaw over the Bitcoin system, not an external factor, an internal factor, we blow it up by accident and that could happen. We’re currently doing patches on the core protocol which is a bit like patching, you know, 787 flight control system while in flight. You know sometimes you mess it up and you crash. That could happen although the core developers are doing a very good job of the stewardship to ensure it doesn’t happen and very conservative, very careful about the change they introduce.

The other scenario is that Bitcoin survives. If Bitcoin survives it continues to accelerate on algorithmic scale and its adoption followed by the awareness that it creates causes an explosion in adoption. For me the most important matrix in Bitcoin is users, not price because price is driven by users. And as long as we keep adding users then Bitcoin will succeed and it will succeed and most importantly it will succeed far faster than any of us anticipate. Bitcoin is not a 10-year technology.

Bitcoin is not a five-year technology. Bitcoin will play out in the next three years. In the next three years we’re going to see Bitcoin arrive on the global stage and make a substantial impact both in financial terms and in political terms. It will happen. (1:35:10) will die? Either way, I’m not sure. In which case we’ll reboot another currency. So, I see Bitcoin at the moment accelerating and at this rate of acceleration if Bitcoin doesn’t die we’re looking at valuations at least 10 times higher than they are today within the next year and possibly 100 times before the end of the year.

Now that’s a very radical thing to say and I will be proved in one most likely, it’s entirely speculative. I don’t know what Bitcoin’s going to do next week but I do know that in two years Bitcoin will either gone or huge. There is not Bitcoin and still on a thousand (1:35:45) in two years. It simply doesn’t work that way so, algorithmic. Hold on to your hats this is going to be wild drive. All right, with that we’re going to close. Thank you so much.


Written by Andreas M. Antonopoulos on April 16, 2016.