Latest / TFTC: A Bitcoin Podcast / #628: Save Our Wallets with Matt Corallo

Transcript

#628: Save Our Wallets with Matt Corallo · TFTC: A Bitcoin Podcast

0:00
You've had a dynamic where money has become freer than free.
0:10
If you talk about a Fed just gone nuts, all the central banks going nuts.
0:16
So it's all acting like safe haven.
0:18
I believe that in a world where central bankers are tripping over themselves to devalue their
0:23
currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor.
0:28
I mean, that's part of the bull case for Bitcoin.
0:31
If you're not paying attention, you probably should be.
0:36
I like that hat. I wish I had one.
0:38
I have three more.
0:41
That's it? I thought you only had 25?
0:44
I had 25. I gave them all away.
0:47
Except for three.
0:48
Except for three.
0:50
It seems like it came out of nowhere.
0:51
I wasn't aware of saverwallets.org until you put a hat on the news desk in front of me two weeks ago.
0:58
Yeah, we were trying not to launch during the conference when there was so much going on and we figured we wouldn't really get a lot of news traction.
1:09
But also we kind of needed to launch during the conference because important things going on and the timeline lined up.
1:17
So we kind of haphazardly launched during the conference.
1:22
Who is we and what are you doing?
1:24
yeah um so there's just a few of us basically we we sat down and i i was like well this this
1:34
blockchain regulatory certainty x thing is really important because uh the i mean everyone's familiar
1:40
with the samurai case and the tornado cash cases where the biden doj was coming after
1:46
open source developers uh and open source wallets and non-custodial wallets specifically
1:52
and we recognize this is a major problem. It's a major problem for Lightning especially.
1:58
I've been working on Lightning for however long and for many years it's been, well,
2:03
we need to get good LSPs and we can get some LSPs, but a lot of the great people are maybe
2:09
skittish about the regulatory questions around it. So when the opportunity came up, this
2:16
blockchain regulatory certainty act bill was reproposed in this congress we said you know we
2:22
need to we need to really push hard for this we have an opportunity right now congress uh and the
2:28
white house are all aligned are all saying you know we across both parties not just republicans
2:33
but some democrats as well are saying you know we have to do good things for crypto of course
2:38
they don't know the difference between crypto and bitcoin but that's all right uh and so our view is
2:43
is like we need to make sure that they know that this defending open source wall non-custodial
2:50
wallets and open source software is our number one priority and so i reached out to a few people
2:56
and and we got a website put together we slapped something i made some hats and here we are
3:03
what what would you say is the the danger if this act doesn't pass like how imminent is it obviously
3:13
Last week, I believe it was Thursday morning, you had the Secret Service, which is an enforcement agency, doesn't write law or legislation, but they had that infographic conflating centralized mixers and coin joins, which are non-custodial ways to do collaborative transactions.
3:33
and I thought we were in the clear with the Trump administration saying we're not going to do
3:39
regulation via prosecution. And then you have the Secret Service drop, something like that.
3:46
And obviously you mentioned Samurai Tornado Cash devs in jail right now. Matt and I, Matt O'Dell
3:54
and I talked about it on Rabbit Hole Recap last week. This has to be a red line in the industry
4:01
that nobody passes and everybody's focused on bitcoin treasury companies and number go up we're
4:07
back at 108 000 it feels great it's all good but number go up bitcoin is digital capital
4:14
there's a new reserve asset of the future it does not have that value if it's peer-to-peer
4:21
properties aren't protected and people are able to use it without fear of getting thrown in jail
4:29
and build on top of it without fears of being thrown in jail.
4:33
Yeah, totally.
4:34
No, it's really important, especially, you know, we look at,
4:37
well, okay, you know, maybe the Trump administration's going to have our back,
4:41
maybe, to your point, Secret Service, who knows?
4:44
And it's not like even all of the charges against Samurai were dropped, right?
4:48
A few of the charges and a few of the money transmission charges were dropped,
4:52
but none of the money laundering charges were dropped,
4:56
and one of the money transmission charges wasn't dropped.
4:59
So the idea that we can just rely on the administration and, I mean, who knows, President AOC next or something?
5:10
Who knows what's going to come next, right?
5:13
And the next administration might want to kill crypto again.
5:18
And again, they don't distinguish between Bitcoin and crypto.
5:20
But hey, so we need to get the law changed.
5:24
We need to get it made clear because no one wants to take the risk given where we are.
5:32
It's one thing to say, well, we should defend open source devs or whatever.
5:37
But the reality is every technology to scale Bitcoin, every idea we have to scale any cryptocurrency relies on what I call ancillary services.
5:49
and so for lightning that would be like your lsp or you know just your counterparty nodes
5:55
for roll-ups is going to be a sequencer for arc you've got asps for you know you go down the list
6:03
of every scaling technology that exists for cryptocurrencies and there's some service provider
6:09
other nodes whatever involved in enabling that scaling technology and you know sometimes it's
6:18
decentralized, sometimes it's a decentralized network, sometimes it's a single entity,
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whatever it is, there's always these ancillary services there. It's not just putting things on
6:27
the blockchain because we have, it's an L2, right? We have some, something else going on.
6:31
And the risk is if we can't protect these ancillary service operator, these, these people
6:37
running nodes for lightning, running LSPs for lightning, running rollup sequencers, whatever,
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then we cannot have decent user experience with non-custodial Bitcoin. We cannot have
6:48
scalable Bitcoin. We cannot have scalable cryptocurrency, period. So it's really important
6:56
that we fix that. And then also, it needs to be clear. We can't just say like, oh, well,
7:01
the Trump administration probably won't charge you. We don't know for sure, but the next
7:06
administration could. We need the law to be super clear so that big players who have lots of capital,
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who have lots of technical expertise, who can operate these ancillary services or join these
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networks and provide really high quality service can do so without fear of, in this case, criminal
7:25
prosecution. So the law needs to be clear in order for us to have decent wallets, in my view.
7:35
Well, let's get to brass tacks, too. We mentioned CoinJoin, Samurai, Tornado Cash,
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not CoinJoin, but something similar, privacy preserving smart contract on Ethereum.
7:48
When it comes to money transmission laws, I mean, obviously with Samurai, the DOJ went to FinCEN six months before letting these charges against the Samurai team.
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And FinCEN said, no, we don't think they're a money transmitter.
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And I think it's important, too, because I think we have the truth on our side about how these technologies actually work and what the ancillary service providers actually do in terms of facilitating or not facilitating the transfer of money.
8:20
They're essentially, as you mentioned, participants in a network that has certain roles and they're providing an ancillary service that individual users are leveraging.
8:31
Yeah, I mean, you know, I think the law is not 100% clear, obviously. The DOJ wouldn't have brought the charges if the law were 100% clear that it was not a money transmitter.
8:43
Obviously, FinCEN has their view on the law, and I think FinCEN's view is, I think it's right. It's certainly been held for a long time as the view, and they are ultimately the regulator who's responsible for interpreting this law from the perspective of people registering.
9:01
but the law is not 100% clear.
9:04
You know, the law was not written to consider decentralized networks and non-custodial.
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I mean, all of the law was written around the concept that the only way anyone could possibly transact
9:14
is either with cash or with a fully trusted centralized custodial intermediary.
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The law doesn't contemplate these things.
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And so, you know, the law, you know, I think we had a shot,
9:27
And I think Tornado has a shot and Samurai have a shot demonstrating that they were not, in fact, money transmitters.
9:36
But again, we don't want to rely on that.
9:39
We want to make the law clear because large providers just aren't going to join.
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We're not going to get super high quality LSPs from large companies who have lots of capital and deep capital servicing Americans and providing these things.
9:54
when the law is only probably you won't go to prison.
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But, oh, by the way, you might get arrested
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and thrown in jail for multiple years while you're awaiting trial.
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People just aren't willing to take that risk.
10:08
That risk is absurd.
10:10
Yeah, what's the state as it stands out?
10:13
Because we were talking about it before we hit record,
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and I'm looking at the Save Our Wallets X account tweet out last night.
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this is huge in reference to the ANS, which is the amendment in the nature of the substitute
10:27
for the Clarity Act. So to make it clear for everybody, the Bitcoin Regulatory Certainty Act
10:35
is what save our wallets is really pushing. But it seems like the market structure bill
10:41
that has been a big focus on Capitol Hill since Trump got into office seems to have worked in
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some language from the BRCA so that it can get sort of like grandfathered in, but included
10:55
in that bill instead of having to do the process.
10:57
Yeah.
10:58
So the BRCA is really the thing we want.
11:01
We want this text into law.
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We don't care how it gets there.
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The Blockchain Regulatory Certainty Act is one vehicle to get that text into law.
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It is pretty hard to get a small specific bill into law because floor time on the House
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and the Senate is very valuable.
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There's only so much time they have to debate and vote on individual bills.
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Debates take a long time, and so they only have so many bills they can really get through in a year.
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And that's why you see ultimately all of these large omnibus bills where there's a whole theme and they say, OK, we're going to stuff all the stuff we want to do related to this theme and to this bill, and then we're going to pass it all in one go.
11:41
There's good reason for that.
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In this case, the administration, there were two big bills that the administration and this Congress wanted to get through related to crypto, this Congress.
11:53
And that's the stablecoin bill, which is already well on its way.
11:56
It's too late to change it, too late to add stuff to it.
11:58
And the market structure bill, it's primarily about regulations of token issuance, securities, commodities, all that kind of stuff.
12:09
Stuff that does not impact Bitcoin.
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And we don't care about, you know, the token people care a lot about it.
12:16
And that's great for them.
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But we don't really care.
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It doesn't impact us.
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But importantly, it is moving.
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It's a large vehicle that is, I mean, not necessarily likely, but quite possibly going to pass.
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The Trump administration cares about it.
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Congress cares about it.
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There's a lot of work being put into it.
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And so getting this language that we care about that protects open source developers,
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that protects ancillary services for scaling that ultimately protects our wallets that protects our
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right to have decent cryptocurrency and bitcoin wallets into this the clarity act is what they're
12:51
calling it the market structure bill on the house side um we now have that language in the current
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draft it's going up for markup there's a chance that that language might get cut that language
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might get amended who knows what's going to happen who knows what's going to happen on the senate
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side. So it's even more important now for us to make our voice heard, for us to call Congress and
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let them know that we care and that this is really important to us, that specifically this section
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is what matters to us. There's a bunch of other stuff there, whatever they do what they want.
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But this section is what is make or break for our industry and for us and for whether we're
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going to vote for them in the next election. And so, yeah, I mean, we're really happy that
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this language got included in a bill that is moving.
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And what does the language define?
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So the language is pretty clear right now.
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The language in the current market structure bill is not quite what was in the
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Blockchain Regulatory Certainty Act, but it's still pretty great.
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It says very clearly, if you are a, I could pull it up,
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but if you are a wallet developer or if you're just a developer,
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or an infrastructure provider,
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so if you're a developer or an infrastructure provider,
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and the only things you do are write software or operate infrastructure basically paraphrasing then you are not a money transmitter So you have to be just writing software already infrastructure
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You can't be doing some other thing.
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But as long as you're just running infrastructure for some network
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that is allowing people to transact in blockchain network tokens,
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basically any token that's defined on a blockchain.
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So if you're just building a system where people can transact in Bitcoin and it's non-custodial and you're just providing infrastructure for it or just providing software for it, then you are not regulated as a money transmitter and you don't have any of these AML, KYC, licensing, yearly exam, all this kind of nonsense requirements that you can't practically comply with anyway.
15:01
Yeah, it seems pretty common sense.
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Yeah, it's super straightforward. The language is pretty good. We're super happy with it.
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And we need to get it passed and we need to make sure that that language stays the way it is.
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In the course of getting a bill passed, it's very common that things get watered down, that different parties agree or disagree on different pieces.
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and so it's even more important now than it was two weeks ago that people literally pick up the
15:33
phone call their congressperson and say hey don't change this you know keep this as it is it's very
15:40
important it's very important to your constituents and if you want to win an election in two four or
15:45
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card queue. It's a beautiful thing. That's funny. Two months ago, I was at an event up in Dallas
16:40
meeting with a representative from Wisconsin talking about the priorities on Capitol Hill
16:47
as it pertains to Bitcoin and broader crypto. And I was pretty pissed off coming out of that meeting
16:52
because the focus was on stablecoin bill, market structure,
16:55
and then explicitly Bitcoin strategic reserve was a distant third.
17:01
And at the time during the discussion, I was like,
17:05
I really don't care about stablecoins.
17:06
They found product market fit, the free market's handling them well.
17:09
I think you can only mess this up.
17:11
Market structure, I was like, I don't really care about the ability to dump tokens on retail.
17:17
and then the fact that the strategic reserve out of those three at the time
17:22
I was perturbed because I thought the strategic Bitcoin reserve bill would be the most impactful
17:29
but actually now with this language included in the market structure bill
17:34
I think this becomes the number one priority in my mind
17:38
because again this is a red line you can't cross
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and strategic Bitcoin reserve in my mind isn't nice to have but not a necessity
17:45
this is a necessity
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certainly yeah absolutely no and that's really why we started the saver wallets initiative
17:51
is that you know in our view and especially in my view having worked on lightning for
17:57
for many years now we need good quality ancillary services we need quality lsps
18:03
in order for lightning to be compelling and competitive we need nodes to be very clearly
18:09
exempted in the law from requirements that they can't possibly comply with that don't make any
18:14
sense applied to nodes uh and if we we finally have a chance to get it and we have to push hard
18:20
for it right now and so yeah the fact that it's now in the market structure build makes
18:25
that by far in my view the most important thing happening this year in bitcoin uh let alone just
18:32
on capital kill but the most important thing happening in bitcoin yeah because last time we
18:37
spoke at bitcoin plus plus last month you were you were saying this is the year of non-custodial
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bitcoin this is non-custodial lightning specifically um yeah we're very bullish
18:49
on this particular segment of the market and so it makes sense to me that you'd be
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as vehement as you are now to make sure that we're saving our wallets because we're it seems
18:58
like in your mind at least we're on the cusp of some some breakthroughs that could really
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unleash non-custodial bitcoin to the masses yeah totally i think non-custodial bitcoin
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this year looks really, really great.
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And, you know, really the making Bitcoin the best possible money,
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making Bitcoin a great transaction platform, even.
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A lot of people don't want to necessarily transact in Bitcoin, and that's fine.
19:25
But a lot of people do.
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And having a lot of people transacting in Bitcoin makes Bitcoin stronger.
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And we are really at a point where we can start to deliver over the next,
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I would say six months to a year really really really high quality user experiences around
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transacting in bitcoin non-custodially where you're not trusting anyone else and it's just
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your money no one's between you and the merchant it's just you just your own private transactions
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and we just have to make sure the law allows us to do that at least in the United States you know
20:00
maybe maybe these things can happen outside the U.S. but the sad part is that most of the developers
20:06
who are capable of building this stuff live in the US
20:09
and they're just not going to risk prison time to build these things.
20:14
And I think it's important to belabor this point,
20:17
but that is a true fear that many developers have, right?
20:21
Certainly for operating these things.
20:23
Yeah, I mean, depending on which developers you ask,
20:25
there are many developers who are worried about going to prison
20:28
for just writing software, especially writing privacy software.
20:32
You know, the First Amendment protections for writing software,
20:35
I think are compelling. But again, just because you have a good argument in court doesn't mean
20:41
you can't be arrested and thrown in prison for six months or a year while you're waiting on trial.
20:47
And so you don't want to just have a good argument in court. You want it to be
20:49
so damn clear that prosecutors not even going to try to charge you.
20:55
So, yeah, especially around writing privacy software, I think a lot of people are worried
21:00
about that. But then, yeah, on top of that, you look at people who want to run LSPs, people who
21:08
want to run, I mean, you start to look at more custodial or partially custodial options like
21:15
Fetiment, like eCash. No one wants to run that. But even ARC service providers and LSPs,
21:26
are they going to serve Americans? Are they going to block the US? Is the blocked list
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going to be north korea iran russia crimea and the united states or is it just going to be the top
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four um and i think that's that's a real risk rerun if we don't make sure this is clear you know
21:43
we saw phoenix leave in under the biden administration when they charged the samurai
21:49
devs the arguments they made in court were so broad that phoenix said look it's not worth us
21:59
being in the United States. It's not worth us taking that risk servicing Americans.
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We can have our wonderful wallet with good user experience
22:07
and service the rest of the world and Americans can go fuck themselves and they can
22:11
use custodial platforms or get rugged or
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not have access to lightning and that's on them. And I think
22:19
there is a real risk that we
22:23
end up back in that situation under the next administration.
22:25
yeah i mean on that to that point how urgent is this like do you think this needs this language
22:33
needs to be included in the market structure bill if it's not included in the market structure bill
22:38
we need to go the hard path of getting the blockchain regulatory clarity act enacted
22:45
or like how many how many swings at the at the plate that we have now and i mean not many uh
22:52
Certainly trying to go standalone on the BRCA is a very high bar and is not super likely to happen.
23:00
It's possible, but it's not super likely.
23:03
So I think by far our best shot is keeping the language in the clarity or the market structure bill and getting that passed as is.
23:13
Certainly to the extent that Congress feels like this is a priority for their constituents.
23:19
You know, when people again, when people actually pick up the phone, Congress does listen.
23:23
It's proof of work.
23:25
You took the time out of your day to call them to let them know about something.
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Not many people do that.
23:31
And that proof of work does go a long ways.
23:34
It does tell Congress quite a lot.
23:38
And so we need people doing that now because this is the key time, right?
23:43
The bills and markup.
23:44
This is the time when the bill is going to get changed.
23:46
If it's going to get changed on the House side, we'll get another round of markup on the Senate side.
23:51
But this is this is the moment right now.
23:54
And so we need to as an industry and as a community, we need to make our voices heard.
24:01
We need to scream as loud as we can at Congress.
24:03
And we need to say, hey, look, don't fuck with this.
24:07
This is the important piece.
24:09
Leave this piece and do whatever the hell you want to token issuance and SEC requirements and registration and whatever.
24:16
not our problem but section 110 non-controlling developers don't touch that language leave it the
24:24
way it is yeah get on the phone freaks guess what save our wallets.org makes it very easy for you
24:33
they tell you exactly what you need to do we've got the we've got the right yeah the website needs
24:38
updated it does still say brca but but if you say the blockchain regulatory certainty act on the
24:43
phone they'll figure it out uh it's section 110 of the new clarity act um but yeah you go to
24:50
save our wall instead or you type in your zip code it'll give you you know you've got two senators and
24:55
a house rep right now the house rep's the most important but the two senators will be real
24:58
important soon too so just go ahead and call all three it'll give you all the phone numbers for
25:02
all the local offices their dc office just pick one for each of your house for each of your senate
25:07
members and your your house rep pick one phone number pick up the phone column say hi uh this is
25:14
you know i'm a constituent i might vote for you in the next election i might not
25:17
but here's something that matters a lot to me yeah and it doesn't take that long it takes like
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That's unchained.com slash TFTC. Back to non-custodial lightning. Why are you so bullish
25:59
on that? Are you willing to disclose you were a little close to the chest in Austin last month?
26:03
yeah i mean i think we're finally closing a lot of gaps that we've had for a long time
26:13
uh it's been way too long but a lot of features that we've been working on lightning for a long
26:21
time are finally finally happening so for example uh the so zero fee commitments so if you're
26:27
familiar with lightning lightning has this these commitment transactions which are uh you know you
26:32
You fund your channel, but then you have these transactions that get replaced and replaced
26:35
and replaced and replaced, but don't hit the blockchain until you go to close the channel.
26:39
At some point, you close the channel, this transaction might hit the blockchain, but
26:43
while the channel is still open, this transaction gets replaced over and over again.
26:47
Lightning has always had this weird, awkward problem with these transactions where the
26:51
transaction needs to have a fee that can get included in the blockchain at some indeterminate
26:59
time in the future. But if you ever load up mempool.space or if you've ever used Bitcoin,
27:08
you know that the fees can fluctuate. Sometimes fees are low, sometimes fees go up,
27:11
sometimes fees spike really high, sometimes very suddenly they spike very high.
27:21
We have these transactions, we have to be able to confirm them some point in the future,
27:25
but we don't know what fee is going to be required at that point in the future,
27:28
but we have to create the transaction now and pick a fee for it now this is hard in fact this
27:34
is an impossible problem um so due to a lot of work over the course of the last many years two
27:44
three four years finally we are now able to as of the last really of the last bitcoin core release
27:51
we're able to actually set zero fee on that transaction that transaction has zero fee
27:56
And then we can pay for the fee later when we go to broadcast.
27:59
When we go to broadcast it, we can add another transaction that pays for the fee.
28:03
This sounds simple-ish.
28:05
Like, okay, you have some transaction.
28:07
You have another transaction.
28:08
One pays for the other one.
28:09
And Bitcoin Core should look at that and consider that.
28:11
But this is a huge change in Bitcoin Core.
28:14
Bitcoin Core, forever, when it's relaying transactions around the network, when it's looking at transactions to put in its mempool,
28:21
some peer gave it a transaction It has a transaction and wants to see like should I put this in my mempool or not It looks at individual transactions right It was given a single transaction it looks at just that transaction and it decides for just that transaction should I add it to the mempool or not
28:37
Does it have enough fee? But now we're asking it, no, no, no, no, no. All of your logic around
28:43
transaction, really, all of your logic around transaction exceptions, look at pairs of
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transactions. In the future, look at many transactions at once. But for now, just look at
28:50
pairs of transactions and say, okay, this pair of transactions, does this one pay for that one?
28:57
And do they together have enough fee to go into the mempool? That is a very substantial change that
29:04
touches the peer-to-peer logic. It touches the mempool logic. You have to reason about the
29:10
incentive compatibility of these transactions. And so that took years of smart people in Bitcoin
29:16
core working super hard to address, to rethink how the mempool accepts transactions that work
29:22
is in fact still ongoing, but the very first pieces of it shipped over the last two releases,
29:29
and we now have enough for us to use it in Lightning.
29:32
So all this to say, like, okay, well, we solved this impossible problem.
29:35
What does that actually mean for Lightning user experience?
29:39
Well, it means big things.
29:41
So Lightning historically has had issues with just protocol details leaking into the user experience in ways that break the abstraction.
29:51
So, you know, you want the wallet to just work, always work, never have to think about it.
29:56
You hit send, transaction goes through, you receive a transaction, you have money, whatever.
30:00
You don't have to think about it, right?
30:01
If all of a sudden you're negotiating a transaction with your counterparty and, well, they think the fee should be high, but you think the fee should be low, what do you do?
30:15
Well, today, that means either the other counterparty has to just blindly trust you, which isn't very good, or they have to force close the channel, which suddenly bleeds into the user's experience.
30:25
Suddenly, oh, sorry, your money has been locked for a month.
30:29
You can't access it.
30:30
why is some technical gibberish that you're not going to understand because there's commitment
30:35
transactions and fee rates and it's complicated and don't worry about it but your money is locked
30:41
for a month and oh sorry your payment failed too by the way that's a terrible user experience it's
30:48
awful and so you know when you're when your wallet doesn't work 99.99 percent of the time
30:56
Nobody wants to use it.
30:57
It's just a bad experience.
30:58
And people move on and they say that lightning is dead.
31:02
And they're totally fair.
31:03
It's totally fair.
31:03
I can't argue with that.
31:05
But finally, after years of work, we can replace this whole scheme that we had with something that doesn't randomly break all the time.
31:16
And so there's a few cases where, okay, over the last multiple years we've been working on stuff.
31:22
And finally, we're shipping features where we can make the user experience, you know, 99.99% reliable. On top of that, payment reliability has gone up a lot over the last few years. On top of that, we have splicing, which has been in Phoenix for a minute, but it's now being standardized and Core Lightning and LDK and others are all going to be interoperable and have splicing.
31:46
um so those i think are a big part of it just finally kind of hammering away all of the
31:54
lightning user experience issues and lightning protocol issues that we've known about for a long
31:59
time but have just been a lot of work to fix and then the other reason i'm bullish about
32:04
non-custodial uh wallet user experiences this year is so we at spiral have done a lot of
32:14
soul searching on this and you know we've concluded i mean look there is a limit of
32:22
if you have under some threshold of bitcoin you cannot be non-custodial period right if you have
32:30
let's say 50 sats well creating a transaction on chain is over 100 sats minimum over a thousand
32:38
sats usually and okay so you could have it in lightning but not really because no lsp is going
32:45
to open a channel to you and even if they did you can't force close the channel and take your money
32:49
uh you can't have it on arc or because you can't unilaterally exit you can't there is no way to
32:56
have bitcoin under a threshold that's non-custodial in any meaningful sense of the word
33:03
basically that threshold is can you take whatever system you were using and put your you know force
33:12
close your channel a do unilateral exit whatever it is put your money on chain uh and still have
33:19
enough of it left over that that it was worth it if you have a thousand sats you'll have zero
33:24
left over it's not even possible if you have ten thousand sats it might be possible but you won't
33:30
have very much left over, so it's still not really worth it. So there's some threshold and it starts
33:36
to get into the, you know, 10,000, 50,000, 100,000 SAT threshold where suddenly, okay, now you can
33:45
talk about a meaningful non-custodial behavior. The problem is lots of users today want to have
33:54
a wallet with 21 sats in it and have it be a great user experience lots of users you know
34:02
create their first wallet create an austro account link them get a 21 sat zap and now they
34:10
have a wallet they will expect to have the wallet show okay you have 21 sats and you can send out
34:16
21 sats if you want minus some small fee for routing fees or whatever they expect exactly
34:23
that behavior, but we can't have that in a non-custodial wallet. It's just not possible.
34:27
It is not technically possible under some threshold. So what do we do? We have to provide
34:34
users the user experience they want. Otherwise, they'll use some custodial thing and they'll get
34:38
rugged, but they expect this thing that's impossible non-custodially. So we need to
34:44
accept this and we need to say, okay, we need a wallet that is both non-custodial and custodial,
34:49
depending on what the user's balance is so if they receive 21 sets well okay that wall it's
34:57
going to store your money in a custodial platform you're going to be fine with it it's 21 sets it
35:03
doesn't really matter maybe you get rugged but again it's 21 sets but okay then you receive
35:08
100 000 sets 200 000 sets 300 000 sets in payments and suddenly that starts to look like a real
35:17
amount of money and now the wallet should automatically rebalance move your money into
35:22
a non-custodial segment and actually improve your trust model that way and we think that with the
35:30
improvements in lightning to make lightning super reliable you know 100 always works uh
35:38
we can do that and then also on the not on the custodial end we needed a better custodial system
35:45
years there's not there weren't really good options there was e-cash but sadly the mint
35:52
story is not yet really figured out you know having reliable mints where you can just spin up a wallet
35:58
trust that the mint is going to be there in six months or a year and can store money in it it's
36:04
not really a thing yet hopefully it will be a thing eventually but it's not today uh liquid is
36:09
only other real option but it's also not great uh it has fairly high fees fairly high minimums
36:16
for swaps uh blockstream could reduce those fees but they haven't so for now it just isn't really
36:22
competitive um but there are a lot of liquid wallets because it's the best answer if you
36:28
want to have that user experience of receiving 21 sats but now there's light spark has launched
36:34
the spark product which is a fully trusted it's not really custodial in the sense that they don't
36:42
have a key that they can use to take the money but you're 100 trusting them to be running the
36:47
software that they claim they're running correctly if they're not they can steal your money it's
36:51
fully trusted but it had it has fairly low fees they haven't actually announced what the fees are
37:00
to be but they should be very competitive and we're confident and it actually exists unlike
37:06
sadly e-cash mints so we're confident that this is actually going to be a compelling option to
37:12
build that kind of user experience of just being able to receive your first sats not think about it
37:18
totally seamless and then we can integrate that with lightning and make it totally seamless the
37:24
user will never notice anything just the wallet will be non-custodial whenever it is possible to
37:29
to be non-custodial.
37:31
And when it's not,
37:31
it'll be custodial,
37:32
but you'll still have your money.
37:35
And then it'll be super seamless.
37:37
It'll work 100% of the time
37:38
because both the custodial segment
37:40
and the non-custodial segment
37:41
will just be super 100% reliable.
37:44
And so I'm super, super bullish
37:46
on what that user experience
37:48
is going to look like
37:49
over the next six to 12 months.
37:52
And Spark's using state chains, right?
37:57
It's a modified version of state chains.
37:58
so state chains have this classic problem of uh you can only transact in whole state coins
38:07
so like let's say i create a state coin for a whole bitcoin well now i can only send you a
38:13
whole bitcoin i can't send you a half a bitcoin um there were old ideas of how to improve that
38:20
mercury never shipped mercury was the the kind of classic example of a state chain
38:24
they never shipped anything to fix that issue um so light spark has this fairly convoluted tree
38:33
structure underneath the state coins it makes it more complicated it increases the cost of
38:39
unilateral exit it uh in practice because they have to do uh like defragmentation basically it
38:46
increases the trust that you have in the operator which in this case is light spark
38:51
but we're only interested in using it
38:55
in a case where we can't be custodial anyway
38:56
we're explicitly
38:58
opting into a fully trusted system in that
39:01
case and so we're very happy
39:03
to have it be fully trusted
39:05
that's okay
39:05
yeah that makes sense
39:09
I've been bullish on the
39:10
the cashew mints too
39:13
I agree that the mint
39:15
landscape
39:17
is lacking in terms of
39:19
reliability, reputation, track record
39:21
but I could see that materializing, but any in all options to provide the market with this graduated wallet model,
39:29
which is what I think Zeus is running with is the term for this.
39:32
Start out custodially and then graduate to non-custodial.
39:36
I agree.
39:36
I think very bullish on this segment of the market too.
39:40
Yeah, the graduated wallet model is definitely the place to be.
39:43
And Cashew would be great for it.
39:47
We aren't tied to Spark in any way.
39:50
we don't really care too much if it's spark or not at the end of the day on the custodial or at
39:55
least trusted segment um to the extent that cashew or fetty mint starts really having you know fixes
40:04
the addresses the the question about mints can provide that ecosystem can provide high quality
40:10
mints that that we can really use reliably i will certainly make that an option and i'm sure a lot
40:15
wallets will want to do that but in the short term i i think spark is spark is really the answer
40:22
yeah speaking more generally is this the year of lightning i'm very uh i mean i was in vegas with
40:29
you after miles gave his presentation for for block and i think one of the sort of shocking
40:36
slides of that presentation was uh the amount of uh revenue they're generating by operating their
40:44
C equals node, I believe, annualized.
40:47
It was a 9.7% yield on the Bitcoin they had locked in the channels on that node.
40:52
Many people have been highly skeptical of that being a monetizable part of the market.
40:59
It seems like C equals has figured it out.
41:01
And obviously, there are some advantages being connected to Cash App, which is, I think Miles said, doing 9% of daily transactions on the network.
41:13
so uh cash up does about 10 of the total block space for on-chain transactions and then cash up
41:21
does 25 of that again in lightning transaction volume every day yeah it's pretty massive is this
41:29
it's huge yeah i mean i think people are sleeping on lightning to a large extent i mean you know
41:35
people kind of wrote lightning off especially on the non-custodial end and you know we just spent
41:40
a while chatting about why i think non-custodial lightning is going to be really interesting this
41:45
year but a lot of people just kind of said ah lightning's fine whatever we're not super interested
41:50
in it it's not great for non-custodial and the custodians will use lightning but whatever
41:56
meanwhile no one's been paying attention to the wild growth rates of lightning uh yes okay a lot
42:04
of it is used custodially phoenix is pretty good you know there's there are non-custodial options i
42:10
I think non-custodial options are going to look really, really good in, again, 6 to 12 months.
42:16
Now that everyone wrote Lightning off, it's finally time for Lightning to get good.
42:20
But yeah, people have been sleeping on the growth rates.
42:24
The reality is people want to transact in Bitcoin.
42:28
It not like Square decided to include Bitcoin payments as an option in Square terminals just because Jack felt like it I mean the numbers look pretty good The growth numbers certainly look pretty good The number of people withdrawing Bitcoin from Cash App and Lightning again it whatever
42:50
about two and a half percent of the block space equivalent in transactions on Lightning.
42:57
People like paying with Lightning.
42:59
It's a thing.
43:01
Yeah.
43:02
I use it every day.
43:04
And it works.
43:05
And the reliability has only gotten better.
43:07
The user experience has gotten better.
43:09
And I think non-custodial options.
43:13
I mean, I've been using Zeus for years.
43:15
And that product alone has gotten significantly better.
43:19
And now with the graduated model that they've introduced with eCash, it's only going to get better.
43:26
And I think Square unlocking payments in the terminals is going to just be a massive signal to the broader market is not really paying attention.
43:36
Like, oh, Bitcoin is a thing.
43:37
And not only that, it seems to be money.
43:39
I can pay with it here at this coffee shop in Brooklyn.
43:43
Yeah, I mean, you know, four years ago or whatever, maybe five years ago, people were super hyped on Lightning.
43:48
Lightning was going to be the future.
43:50
And then it deployed and it was just it wasn't reliable.
43:54
And when something is 95% reliable, let alone worse, sometimes people write it off.
44:01
They're like, wow, this is trash.
44:02
I cannot possibly use this.
44:04
This is unusable.
44:06
And that's totally fair.
44:08
The reality is we, the engineers building Lightning, then went and spent a ton of energy making things reliable.
44:16
the payment reliability on cash app is really really really good because we spent a lot of
44:24
energy and a lot of time and a lot of effort figuring out how to make payments on lightning
44:29
super reliable and especially you know c equals because it was a big part of that i'm not super
44:34
involved in c equals but but they spent a lot of time figuring that out as well um so yeah i mean
44:39
payments just work now with lightning and in the very near future non-custodial is going to just
44:48
work and it's already basically there if you have a high enough balance non-custodial lightning is
44:52
actually pretty good you know you can go use something like albihub and you have to host it
44:57
yourself for it to be non-custodial truly non-custodial but um you can take that kind of
45:03
You can see how compelling these kinds of things can be when you actually go put it on a phone.
45:10
Now, mobile lightning still has its challenges.
45:13
You know, you have Phoenix, Zeus, whatever, still occasionally miss payments mobile lightning.
45:20
There's still more work to be done there.
45:22
We're hoping that the async payments protocol ships this year as well.
45:27
Although, sadly, the adoption of it will take a little longer.
45:31
um but yeah i mean like it is good now it does just work and non-custodial lightning still needs
45:41
some work i mean i i love zeus but it is not a grandma friendly 99.9 percent reliable product
45:49
quite yet uh it's it's great but it still has a little work to be done there um but i think yeah
45:56
again, over the next six to 12 months, these things are going to go from today
46:00
where they're pretty good to just 100%.
46:07
And it would be I would be remiss if I didn't bring it up.
46:10
But in terms of increasing the usability, reliability
46:16
and user experience of lightning, James O'Byrne and a list of many other
46:21
developers in the space
46:24
working at companies and working on different protocols,
46:28
wrote a letter to the Bitcoin technical community,
46:30
pushing for OpCheck Template Verify and OpCheck SIG from Stack,
46:36
making the case that it would bring a number of benefits to the protocol,
46:42
both on-chain and for Lightning.
46:46
What are your thoughts on this?
46:49
Yeah, I mean, I don't think there's really material wins to Lightning
46:53
from these. There are other protocols that have larger wins. You look at things like Arc,
46:59
Timeout Trees. They're possible today, and people are implementing these things today.
47:07
They have a lot of user experience challenges in their versions today. They would still have a lot
47:13
of user experience challenges with CTV, but slightly less user experience challenges. They'd
47:18
be just a little bit better. And so, you know, we'll see as those develop what that looks like.
47:27
On the broader Bitcoin scale, you know, there are a number of ideas people have for using these
47:34
things. I think we'll see exactly what that looks like. I think there's still a lot of work to be
47:40
on the technical side about making sure this is exactly the right next step.
47:48
But I'm very happy, you know, over the last five, seven years,
47:55
I think a lot of people from the outside have looked at the lack of momentum
48:02
on some of these potential changes to Bitcoin,
48:06
of these proposed soft forks have looked at the lack of soft forks generally as an indication that
48:14
we're you know seeing uh ossification we're not going to be able to do more changes and whatever
48:20
and i don't think that's a fair conclusion i think ultimately the conclusion the right conclusion is
48:26
that advocates for these changes have proposed ideas for how to use it but not necessarily ones
48:33
that are super compelling.
48:37
And I think over the last two to three years,
48:40
that's shifted substantially,
48:42
especially with the advent of more practical ARC systems.
48:47
Obviously, ARC as originally proposed was totally unusable.
48:54
But the more practical versions that people have proposed now
48:59
with timeout trees and with basically taking ARK and layering payment channels on top or layering
49:07
lightning on top are way more practical and way more interesting. And like, okay, this is actually
49:12
an idea that I can see why people would want to deploy it. I can see why people might want to use
49:18
it. I can see why a lot of people might want to use it. And so I think that does change the
49:23
discussion a lot. And so it's now, you know, instead of being, well, there's these ideas,
49:31
but it's not clear how really useful they are or whatever. Suddenly the state of things now is,
49:39
well, there's these ideas and people have concrete uses for them and there's kind of
49:46
tangible, visible benefits from them.
49:49
And so now I think it is much more
49:54
you know, now it's much more on the technical community to sit down and say,
49:57
like, OK, now that we have concrete things to use here,
50:02
what is it?
50:03
What is the next step actually look like?
50:04
How do we enable these different things?
50:08
And maybe that's CTV and check stick from stack.
50:11
I don't happen to think that that's the exact right next step,
50:15
but I think the right next step is probably not too far from that.
50:19
But yeah, now it's time for those kinds of conversations to really happen.
50:24
What do you think the next right step is?
50:29
I think that CTV is a weird, specific subset of TXHash,
50:39
and probably it makes more sense to be looking in that direction.
50:45
And I don't really buy the argument that that will unnecessarily delay things.
50:52
But we'll see.
50:53
I mean, these are still early conversations.
50:55
We'll see where things go.
51:00
It is still too early for people to have a horse to bet on here.
51:08
But yeah, I mean, I'm excited.
51:11
it seems like there's there's a little bit of real momentum now towards enabling these kinds
51:16
of features in bitcoin where there really wasn't even six months ago yeah no people are even worried
51:23
with the soft return stuff that's bubbled up in recent months that it would make people uh
51:30
apprehensive in terms of approaching any changes to bitcoin especially softworks but i think a lot
51:36
of people have been very have talked to themselves into a frenzy about ossification and i don't see
51:45
any real evidence that we're at that point um yeah yeah well we can talk about this all we want in
51:55
terms of perspective soft forks and whether or not we'll ossify but it's all for not if uh the
52:01
developers that actually make these things happen don't feel comfortable writing the code so make
52:05
Make sure you get to saveourwallets.org.
52:08
Call your reps.
52:10
Get ready to call your senators.
52:12
And you're going to be in D.C. in a couple weeks, right?
52:15
Yep.
52:15
The Bitcoin Policy Institute's summit.
52:18
I don't remember what they call it.
52:19
I think it's just the summit.
52:20
I think it's the BPI summit.
52:23
At the end of the month, like 20-something, 24th, I think, maybe.
52:28
So hopefully more opportunities to go talk to lobbyists,
52:34
congressional staffers, congresspeople, and really explain why this is the most important.
52:41
All these other things that people are throwing around are cool and useful and good public policy,
52:48
but nowhere near as important.
52:51
Yeah. And have you had conversations with policymakers or their staff?
52:56
Yeah, I mean, quite a few.
52:57
obviously the various lobbying groups have a much better have good connections with a lot of
53:05
congressional staffers they they do have a lot of conversations so you know coin center uh the
53:12
crypto currency into crypto coin institute or whatever they're called the blockchain policy
53:19
blockchain something the salon of the defy education fund you know there's all kinds of
53:24
advocacy groups now sadly most of them are funded by crypto and not bitcoin uh you know bitcoin
53:31
policy institute is kind of the one one exception there and so a lot of them are more focused or
53:37
have historically been more focused on the stable coin and market structure side of things
53:44
but i think now with the the brca we've made we've started making enough noise to really
53:51
lean on them and then to also lean on uh congress to say this is this is the one this is the most
53:57
important piece uh and more noise is welcome i think you know the more noise we make here the
54:02
clearer it'll be to everyone involved in dc that this is the thing that they need to push for that
54:08
that we need out of them um and that that you know their job you know if they're a crypto policy
54:16
advocate their job is to get this passed and not anything else yeah completely agree so if you're
54:22
out there listening you're sitting on your ass go to save our waltz.org plug in your zip code
54:27
spend five minutes to pick up the phone you just listened to a almost hour podcast you can totally
54:34
spend five minutes call your congressperson yeah well matt it's been a pleasure as always you're
54:40
running up the uh the numbers in terms of most tenured guests i think you're at eight now
54:44
so yeah you're running away and i i think we can include the uh bitcoin plus plus live stream so
54:52
maybe nine now about the digits uh i have to do like a big thing for the for the 10th one
55:00
maybe we'll have to go back to the bar drink drink some beers
55:03
yeah well um i've got a birthday party to attend to and i'm sure you've got a lot of work too but
55:13
thank you for what you're doing for making some noise about this is extremely important and
55:18
i'll see you in dc in two weeks yeah yeah see you in dc thanks for having me
55:24
peace and love freaks freaks thank you for listening to the show i hope you liked it
55:29
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