Speaker 1: Hello, and welcome to another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway and I'm so Joe. I think at
Speaker 1: this point we've had a number of people either involved
Speaker 1: in the cryptocurrency boom or a massive fans of it
Speaker 1: on the podcast. Correct, Yeah, we have now, haven't we.
Speaker 1: I hadn't really like thought about that, but in the
Speaker 1: last um several months, it does feel like even with
Speaker 1: the sort of boom having waned quite a bit over
Speaker 1: the last year, we have talked to a number of
Speaker 1: hardcore true believers. Yes, and we've discussed this before, but
Speaker 1: our timing on this has been absolutely terrible because we
Speaker 1: basically waited until the bubble had burst for us to
Speaker 1: get a bunch of bitcoin people on. But you know,
Speaker 1: at least we didn't contribute to the bubble, because I
Speaker 1: don't think like we did a single cryptopisode in all
Speaker 1: of as far as I know, and so at least
Speaker 1: when everyone was like, you know, losing their heads or
Speaker 1: going crazy, at least we didn't at least we didn't
Speaker 1: amplify the hype. This is very true. But I think
Speaker 1: in the interest of fairness, at this point, we need
Speaker 1: to get a sort of anti crypto person on and
Speaker 1: in my search for this ultimate anti crypto person, I
Speaker 1: think I came upon the most sort of vociferous um
Speaker 1: argument against cryptocurrencies and also the underlying blockchain technology that
Speaker 1: I have ever seen. Wait, are we gonna are we
Speaker 1: talking to Jamie Diamond today? No, it's not Jamie. Jamie
Speaker 1: Diamond was not that convincing, because you know, he came
Speaker 1: to that conference said bitcoin was a fraud. But we
Speaker 1: know that JP Morgan at the same time that it
Speaker 1: says bitcoin as a fraud, claims to be experimenting with
Speaker 1: blockchain technology. So no, no, I mean, there's a there's
Speaker 1: a really interesting there's a really good point here, and
Speaker 1: it's something that I've always foundrustrating in the debate Whisha
Speaker 1: is that there's no shortage of bitcoin skeptics and Bitcoin
Speaker 1: critics and people call it a fraud in the Ponzi
Speaker 1: scheme in a bubble. What there is a shortage of, however,
Speaker 1: are people who are who call bitcoin of fraud or
Speaker 1: their skeptical of it, who have actually done the research
Speaker 1: and have the technical chops to understand it and understand
Speaker 1: what they're talking about. So you get all these people
Speaker 1: on stage or they say bitcoin is a scam, it's
Speaker 1: like okay, but when they usually don't have is anything
Speaker 1: interesting to say after that? And so that is what
Speaker 1: I'm absolutely what I'm hoping that maybe we can accomplish today. Absolutely,
Speaker 1: And what you often hear from the crypto proponents is, oh, well,
Speaker 1: you don't understand the technology, or you don't understand the
Speaker 1: technology is potential, and so it's not worth talking to you, okay.
Speaker 1: So I'm very pleased to say that we have found
Speaker 1: not only a tech expert, but someone who is sort
Speaker 1: of the ultimate anti crypto person who gave a presentation
Speaker 1: at the Enigma Use and Next conference in California just
Speaker 1: about a month ago. The title of this conference was
Speaker 1: Cryptocurrencies and blockchain burn it with fire. You can't get
Speaker 1: stronger than that, can you. So I'm very excited to
Speaker 1: say that our guest for this episode is Nick Weaver.
Speaker 1: He is a researcher at the International Computer Science Institute
Speaker 1: and a lecturer at UC Berkeley. Nick, thanks so much
Speaker 1: for coming on, Thanks for hosting me. Uh So, Nick,
Speaker 1: I gotta say cryptocurrencies burn it with fire. You know
Speaker 1: you're you're clearly not mincing your words here. You have
Speaker 1: strong feelings about the crypto sphere, yes, and that's because
Speaker 1: I've actually been able to watch it for uh three
Speaker 1: quarters of a decade now. So what happened when the
Speaker 1: cryptocurrencies first came out in in and is most people
Speaker 1: who looked at it with technical understanding went, oh, this
Speaker 1: is bovine excrement and walked away. But I have a
Speaker 1: monetization model. I can watch the cryptocurrency space and turn
Speaker 1: it into both academic papers and non academic papers, and
Speaker 1: so I've been able to basically mind comedy gold from
Speaker 1: the field for uh several years now. And that means
Speaker 1: I've been aware from the beginning from Saga's such as
Speaker 1: ten percent of all bitcoin being invested in a ponzi
Speaker 1: scheme run by a guy called Pirate at forty so uh.
Speaker 1: In your presentation and in your talks and tweeting your
Speaker 1: critical of both sort of public block chains which is
Speaker 1: what we call cryptocurrency, uh, and also corporate block chains.
Speaker 1: I'm a little less interested in the corporate side because
Speaker 1: I feel like there are very few defenders of them anymore.
Speaker 1: And so you'll find a lot of agreement even among
Speaker 1: cryptocurrency enthusiasts when you look at cryptocurrent these however, and
Speaker 1: this idea of like bitcoin as this sort of permission
Speaker 1: list kind of anonymous payment system, decentralized, what is, in
Speaker 1: your view, the sort of fatal flaw that makes it
Speaker 1: not live up to the hype of its advocates, the
Speaker 1: big fatal flaws. It doesn't actually work as currency if
Speaker 1: you can't use it as a competitor to all the
Speaker 1: other actual digital currency systems we have, like oh, PayPal, Impassa's,
Speaker 1: l Asa. All of these payment systems are vastly more
Speaker 1: efficient than the cryptocurrencies, unless you're interested in criminal activity.
Speaker 1: So walk us through the technical aspects of why you
Speaker 1: think bitcoin doesn't work as a currency or as a
Speaker 1: payment system. Okay, so let's start with the three things
Speaker 1: you need to be able to do with the currency.
Speaker 1: Need to be will acquire it, you need to be
Speaker 1: able to hold onto it, and you need to be
Speaker 1: able to spend it. Now, actually acquiring cryptocurrency is a
Speaker 1: hard problem because cryptocurrency the one property it has that
Speaker 1: the other payment systems don't is it's designed to be irreversible.
Speaker 1: There's no go back or undo button, which means in
Speaker 1: order to buy cryptocurrency, you have to do one of
Speaker 1: three things. You either have to bring cash, so the
Speaker 1: bitcoin a t m S don't take your ATAM card,
Speaker 1: they take cash. Or you have to be given credit
Speaker 1: by the seller of the cryptocurrency, so you transfer your
Speaker 1: money electronically and are given credit. Or you have to wait,
Speaker 1: so you transfer your money your to the exchange. The
Speaker 1: exchange then sits on it for several days. Anyone who
Speaker 1: doesn't follow these three rules when selling you cryptocurrency is
Speaker 1: able to be defrauded because the rest of the financial
Speaker 1: system is all designed with an undue button to mitigate fraud,
Speaker 1: and so for example, one of the early bitcoin exchanges
Speaker 1: used a PayPal clow that promise no chargebacks, and then
Speaker 1: there were chargebacks and they went out of business. Likewise,
Speaker 1: Steve Wozniaks sold seventy thousand dollars worth of bitcoin to
Speaker 1: somebody who paid with PayPal, only to find out that
Speaker 1: it was a fraudulent transaction. The PayPal was reversed and
Speaker 1: he was out the bitcoin. Fortunately, I think the laws
Speaker 1: can afford the loss. So they're hard to buy, they're
Speaker 1: harder to hold onto. So if you store your cryptocurrency
Speaker 1: on a third party exchange, you are on the hook
Speaker 1: if they are hacked, and that has been billions of
Speaker 1: dollars of notional value lost for the years as the
Speaker 1: exchanges are hacked, and apparently North Korea is now one
Speaker 1: of the big hackers on this. So you store your
Speaker 1: cryptocurrency on your own computer, Well you can't do that either,
Speaker 1: because if your computer is hacked, your cryptocurrency gets stolen.
Speaker 1: And in fact, we used this one time to detect
Speaker 1: a break in when the stole the monitored bitcoin from
Speaker 1: a wallet that had a copy on a graduate student's account.
Speaker 1: So you use a dedicated device, say like an iPhone
Speaker 1: is a really strong device an iPhone, however, you're dependent
Speaker 1: on the cryptocurrency software, and that cryptocurrency software may be
Speaker 1: dependent on open source modules on GitHub that can be
Speaker 1: bought by somebody else, taken over and include stealing code,
Speaker 1: and this happened, so they're really hard to hold onto.
Speaker 1: And finally you can't actually spend them because the dirty
Speaker 1: little secret is the merchants who say they accept cryptocurrency, Well,
Speaker 1: first of all, the volume hasn't increased in five years,
Speaker 1: but they aren't actually accepting cryptocurrency because the cryptocurrency prices
Speaker 1: bounced up and down. They use a service like bit pay,
Speaker 1: which allows them to price in dollars and it immediately
Speaker 1: converts the cryptocurrency into actual money. Even over Stock up
Speaker 1: until a year ago, basically did not hold any cryptocurrency.
Speaker 1: They just converted it all right away. Um well, they
Speaker 1: held a teen amount um And so in order for
Speaker 1: the system to balance, as somebody buying something with cryptocurrency,
Speaker 1: because of that volatility risk the price bouncing up down,
Speaker 1: you want to immediately transfer your dollars into cryptocurrency then
Speaker 1: spend it, which means a real world cryptocurrency transaction costs
Speaker 1: vastly more than the alternatives when you include those two
Speaker 1: currency conversion steps, and one of which buying the cryptocurrency
Speaker 1: is inherently expensive. So the only people who can avoid
Speaker 1: that expensive buying cryptocurrency is the people who have been
Speaker 1: holding onto it a long time because they're a believer. Now,
Speaker 1: if you don't believe in cryptocurrency, there's no point. If
Speaker 1: you do believe in cryptocurrencies, the one rule of them
Speaker 1: is never actually spend them, because these are designed on
Speaker 1: a gold standard type model. And as we remember our
Speaker 1: economic history from the Great Depression, the only thing worse
Speaker 1: than inflation is deflation that is the notion that your
Speaker 1: currency is going to be worth more to borrow then today.
Speaker 1: And these cryptocurrencies are supposed to be deflationary, which means
Speaker 1: if you say, buy a pizza back in two thousand eleven, um,
Speaker 1: you end up dining on regret when it looks like
Speaker 1: a massive ten million a hundred million dollar pile of
Speaker 1: money in So, if you don't believe in it, they
Speaker 1: don't work for payments, and if you do believe it,
Speaker 1: they don't work for payments. All right, So everything you
Speaker 1: say makes a lot of sense in terms of Bitcoin
Speaker 1: or any other cryptocurrencies not being not making any sense
Speaker 1: whatsoever for what we would call conventional commerce. And um,
Speaker 1: obviously the pro bitcoin rhetoric has changed a lot over time.
Speaker 1: But something that strikes me listening to you and watching
Speaker 1: your presentations and also talking to bitcoin believers is there
Speaker 1: is a point of convergence. So they would say, yeah,
Speaker 1: bitcoin isn't for buying, Bitcoin isn't for coffee, Bitcoin is
Speaker 1: for uh, mostly for holding onto I would never spend
Speaker 1: my bitcoin. The point of convergence, which you say in
Speaker 1: your own presentation, the Tracy reference, is this idea of okay,
Speaker 1: there is one thing that bitcoin is good for that
Speaker 1: is censorship free transactions. So even with all the costs
Speaker 1: that you describe the cost of acquiring, the risk of
Speaker 1: losing your bitcoin, which is a calculable cost in theory,
Speaker 1: and then the volatility cost that for a certain class
Speaker 1: of transactions, um some of them outright crimes, some of
Speaker 1: them gray areas, some of them more privacy related, that
Speaker 1: cost might still be worth it. Yes, the one thing
Speaker 1: that cryptocurrencies do that all the other payment systems don't
Speaker 1: is by having no supposed central authority. We'll get to
Speaker 1: why that's false. But they're designed to be censorship resisted.
Speaker 1: There's nobody as a third party who is willing to
Speaker 1: say no, you can't do forbidden activity. The problem is,
Speaker 1: and this is why I've gotten much more sour over
Speaker 1: the past five years, is I've come to the conclusion
Speaker 1: that that is actually a bad thing. Bitcoin actually has
Speaker 1: committed a crime against me. It has made me believe
Speaker 1: in the need for rigorous enforcement of money laundering laws.
Speaker 1: And I've got I'm a Silicon Valley quasi libertarian, and
Speaker 1: I believe in the jack boot of justice on money laundry.
Speaker 1: So what has happened with the cryptocurrencies, well, they get
Speaker 1: used for drug deals yonn. But more importantly, they get
Speaker 1: used for extortion. So give us cryptocurrency or your data
Speaker 1: get Give us cryptocurrency, or we're going to keep sending
Speaker 1: bomb threats. Um, how long before an airport is blackmailed
Speaker 1: with give us cryptocurrency or you're going to get drones
Speaker 1: flying over Um. It just ends up reaching out and
Speaker 1: touching people in a very bad way. Then there's the theft,
Speaker 1: that billions of dollars worth of theft, and then there's
Speaker 1: the environment of what's left is pure speculation based on
Speaker 1: somebody else being willing to pay more. But those markets
Speaker 1: are so blatantly manipulated and fraudulent. So I consider every
Speaker 1: I c O that was open to non accredited investors.
Speaker 1: It is securities fraud. And that's just what we have
Speaker 1: left is just basically um civil fraud, criminal fraud, and
Speaker 1: rampant speculation and market manipulation. Yeah. So I want to
Speaker 1: uh just pin down and uh not move on from
Speaker 1: something that you said. You know, you say, Okay, the
Speaker 1: only thing that it's really good for things like drug deals,
Speaker 1: and it's given rise to a new model of extortion.
Speaker 1: It only works because in theory the censorship resistance and
Speaker 1: the decentralization so that no one can say this transaction
Speaker 1: isn't allowed. But you threw in there and said we're
Speaker 1: going to get back to it. But even that is
Speaker 1: a false promise. And I really think this is the
Speaker 1: sort of central question of do you think the censorship
Speaker 1: resistant slash decentralization case for bitcoin? Why is that also
Speaker 1: not actually live up to the hype. So it lives
Speaker 1: up to the hype on censorship resistance, it does provide that,
Speaker 1: but the notion of the centralization, So decentralization the idea is,
Speaker 1: let's make it so that you don't have to trust
Speaker 1: any individual or small group of entities, but only the
Speaker 1: system as a whole. Now, the benefits of decentralization, apart
Speaker 1: from censorship resistance, are never clearly articulated. It's basically an
Speaker 1: article of beliefs. But assuming that that is good for something,
Speaker 1: the results has been dismal. They cost a huge amount
Speaker 1: to run, but they don't end up being decentralized. So
Speaker 1: cryptocurrency mining for bitcoin is controlled by basically four entities.
Speaker 1: Four entities can conspire together and completely control what transactions
Speaker 1: get approved or not likewise, so there's no actual decentralization,
Speaker 1: there's just a veneer of decentralization. Likewise, the code developers
Speaker 1: themselves are central authorities as well. So take Etherium for example.
Speaker 1: Ethereum is all code is law and no central authorities.
Speaker 1: But when seven percent of all Ethereum got invested in
Speaker 1: basically a self creating ponzi scheme that had a bug
Speaker 1: in it that allowed the money to get stolen, the
Speaker 1: developers went, oh, you know that whole code is law business. Um, Yeah,
Speaker 1: that's a lie. We're changing the code, undo the theft
Speaker 1: because it was our money you stole. Yeah. I've wondered
Speaker 1: about this at various times, especially with the forks that
Speaker 1: we've seen in well, notably in in bitcoin, where we
Speaker 1: do seem to have the overall direction of bitcoin being
Speaker 1: determined by consensus and by users. So like, how how
Speaker 1: much of a problem are those forks? Well, they are
Speaker 1: and they aren't. They are if you actually believe that
Speaker 1: decentralization is supposed to mean something, because these forks are
Speaker 1: not some large community thing but just a few individuals,
Speaker 1: the the cartels on the mining and or the coders. Um.
Speaker 1: So if you actually believe that decentralization is important somehow
Speaker 1: these forks are problematic. Otherwise for the rest of us,
Speaker 1: it's just basically popcorn. It's entertaining to watch the interesting
Speaker 1: conflicts between various camps and the big block versus small block.
Speaker 1: It's like big Indian versus little endian Um. And so
Speaker 1: it's entertainment, but it's not anything really fundamental from a
Speaker 1: systemic viewpoint, because they're all just only worth something because
Speaker 1: somebody else will pay for it. So well, it's a
Speaker 1: good example that the notion of limited supply is. It's
Speaker 1: true because you can just create more of these out
Speaker 1: of the air, but other than that, it's just amusement value. So, Nick,
Speaker 1: I wanted to go back to something you were saying
Speaker 1: earlier about the regulatory response, and this is something that
Speaker 1: I've I've wondered at various times myself, probably on Twitter
Speaker 1: at some point, But if regulators are sort of missing
Speaker 1: a trick because they're going to get a bunch of
Speaker 1: burned investors, either via crypto investments or I c O s,
Speaker 1: why aren't they acting and why? The other thing that
Speaker 1: I often wonder is if if you think that crypto
Speaker 1: is going to be a legitimate currency sometime in the future,
Speaker 1: then surely that would undermine you know, various regulators and
Speaker 1: monetary authorities as well, so they should be acting. So like,
Speaker 1: either way, either it's a fraud or either it's going
Speaker 1: to be six tessful, you would think there should be
Speaker 1: some sort of regulatory response. I would have hoped so,
Speaker 1: But I think what it comes down to is regulators
Speaker 1: these days are afraid of being claimed to stifle innovation.
Speaker 1: And the cryptocurrency believers have talked a very good story
Speaker 1: about how they're being innovative and new um even if
Speaker 1: in reality they're basically speed running five years of economic
Speaker 1: failures over and over and over again. But so the
Speaker 1: result is the regulators have in the past been very
Speaker 1: hands off, so like you had all these I c
Speaker 1: O s and it just you just look at it
Speaker 1: and it fails. The how he tests that, the test
Speaker 1: for is this a security? And what I think has
Speaker 1: happened is now that things are collapsing, the regulators are
Speaker 1: finally starting to pay attention, and so the regulators are reactive.
Speaker 1: They are not proactive, and so as a consequence that
Speaker 1: they sat back during the boom did nothing, and now
Speaker 1: that it's a bus they're going to go and probably
Speaker 1: drop a lot of lawsuits and probably invite some people
Speaker 1: because now that the tide is rushing out, you're seeing
Speaker 1: that everyone is naked. Um, they're actually doing something, and
Speaker 1: I think it really is. Regulators are afraid of regulating
Speaker 1: new or old wine in new bottles. They think it's new,
Speaker 1: they don't know what to do yet, and so as
Speaker 1: a consequence, they just basically did nothing during the and well,
Speaker 1: now they get the joys of picking up the pieces.
Speaker 1: I wanna go back to where you say this whole
Speaker 1: cryptocurrency uh phase has sort of damaged your natural libertarian
Speaker 1: instincts because now you have this appreciation for this money
Speaker 1: laundering regulation. I'm like struck on this point that in
Speaker 1: this sense, your your view on cryptocurrencies is not all
Speaker 1: that different from a lot of believers, which is that
Speaker 1: it really comes down to censorship resistance. You point out
Speaker 1: that that's mostly used for drug dealers and all kinds
Speaker 1: of things that are awful. They would say, yes, that
Speaker 1: is a byproduct of what happens when you have freedom,
Speaker 1: and that you know there are good things that can
Speaker 1: come out of censorship resistance, that there are people in
Speaker 1: areas of the world, or people in lines of work
Speaker 1: for whatever reason they don't want their bank to know,
Speaker 1: or maybe their bank cracks down on their line of
Speaker 1: work if their say a sex work or something like that.
Speaker 1: And they would say that, yes, there's money laundering and crime,
Speaker 1: but that is the price that you pay for also
Speaker 1: having this freedom. And they would also say say that, um,
Speaker 1: this debate has happened before in cryptography and the sort
Speaker 1: of export of you know, a strong cryptography where people say, oh,
Speaker 1: if cryptography exists, and that's going to be good only
Speaker 1: for terrorists, but that also is what enabled the web
Speaker 1: to work. So how much is this really like a
Speaker 1: technical fight versus essentially a values fight? I think at
Speaker 1: this point it is a values fight. And I really
Speaker 1: don't like that cryptography analogy because cryptography we've always seen
Speaker 1: good uses for it right from the start. But with
Speaker 1: the cryptocurrencies, the problem is is people can't point to
Speaker 1: legit payment system. So what has censorship resistance allowed you
Speaker 1: to do that? Um, that the others happen. Well, okay,
Speaker 1: if you need censorship resistance, you always still have cash.
Speaker 1: It's just that cash has both the need for physical
Speaker 1: proximity and significant mass. So scaling cash. Moving a thousand
Speaker 1: bucks is easy, moving a million bucks is hard. So
Speaker 1: cryptocurrencies want to um enable that moving large quantities. And
Speaker 1: the other thing is is I've just seen the damage
Speaker 1: that is done. So people point to cryptocurrency being used
Speaker 1: in two good situations to get around censorship. The first
Speaker 1: was payments to Wiki leaks. So Wiki leaks was cut
Speaker 1: off from the banking system back around when Assange first
Speaker 1: fled to the embassy to avoid the sex assault charges.
Speaker 1: So when that happened, um, you could use cryptocurrency if
Speaker 1: you wanted to support Wiki weeks, and that's all fine
Speaker 1: and good, but Wiki Leaks decided that it's actually better
Speaker 1: just to arrange with a US nonprofit to act as
Speaker 1: an intermediary and basically launder contributions. And then we had Backpage.
Speaker 1: So Backpage was a Craigslist clone that did a lot
Speaker 1: of support for sex workers, and I actually think, yeah,
Speaker 1: that probably was good overall, or at least been less
Speaker 1: damaging than the alternatives. But they were cut off from
Speaker 1: the banking system, and so to pay with them, you'd
Speaker 1: either have to pay with cryptocurrency or you send them
Speaker 1: a check in the mail. UM, and I suspect most
Speaker 1: of their payments became checks in the mail. Now the
Speaker 1: problem is is, let's face it, Backpage turned out to
Speaker 1: be a criminal conspiracy, and so we're left with very
Speaker 1: you non criminal usages because it is so expensive. So
Speaker 1: it's actually a lot more expensive than the other anonymous
Speaker 1: electronic payments you want. So if you want to buy
Speaker 1: your porn anonymously, you go into Target, pay a hundred
Speaker 1: and four dollars for a Visa gift card, and now
Speaker 1: you can use that Visa gift card to buy your porn.
Speaker 1: So the cost of privacy on electronic transactions is actually
Speaker 1: a lot less than the cryptocurrencies offer because you you
Speaker 1: have this huge problem of you can't hold onto the
Speaker 1: cryptocurrencies you can hold onto a Visa gift card. Never
Speaker 1: say odd lots doesn't bring us a useful day to
Speaker 1: day information and life tips um nick. On a serious note,
Speaker 1: if this is all about differences and values or value systems,
Speaker 1: and given that cryptocurrency supporters seemed to be so invested
Speaker 1: in the belief system around crypto and everything that comes
Speaker 1: with it, what ultimately is going to be the thing
Speaker 1: that destroys cryptocurrencies. As you put it in your presentation,
Speaker 1: that ends up burning them with fire in some way.
Speaker 1: There's two things that can really burn the system with fire.
Speaker 1: The first is the federal government UM getting their act
Speaker 1: together and going after this cryptocurrency called tether. So tether
Speaker 1: is effectively a digital banknote. It's supposedly tied one to
Speaker 1: one with the dollar, but it's not. It's a basically
Speaker 1: it's reinventing eighteenth century banking combined with Liberty Reserve, which
Speaker 1: was a criminal enterprise the Feds shut down a few
Speaker 1: years back, and so it's a rife target for disruption.
Speaker 1: But if the uh tether is removed, that actually destroys
Speaker 1: almost the entire bitcoin exchange ecology. So eight of the
Speaker 1: cryptocurrency volume on the exchanges are on exchanges that are
Speaker 1: already cut off from the banking system because they're viewed
Speaker 1: by the banks. Is basically too high risk fraudulent enterprises
Speaker 1: with a huge amount of wash trading and painting the
Speaker 1: tape and such blatant market manipulation that the price graphs
Speaker 1: look like Bart Simpson's haircuts. UM. So if you remove
Speaker 1: tether basically removed the entire exchange ecology except for a
Speaker 1: few and so that alone would have a huge negative impact,
Speaker 1: and tether is such latently a crime under money laundering
Speaker 1: laws that it's surprising they haven't been prosecuted yet. So
Speaker 1: that's one. Number two is all these proof of work coins.
Speaker 1: So the idea behind proof of work, which is what
Speaker 1: predicts Bitcoin, ethereum and most of the other major cryptocurrencies,
Speaker 1: is basically better described as burning money. So the system
Speaker 1: burns x thousands of dollars an hour under the assumption
Speaker 1: that an attacker to attack the system would have to
Speaker 1: burn more than that. The problem is, in order to
Speaker 1: defend the system, you have to be burning x dollars
Speaker 1: an hour continuously, but an attacker might only have to
Speaker 1: burn x dollars for a limited period of time, an
Speaker 1: hour or two. And so what has happened is the
Speaker 1: cryptocurrency systems that only cost five thousand dollars an hour
Speaker 1: to run, the so called alt coins um, there's less
Speaker 1: polite turns to them as well. Those have actually become
Speaker 1: regularly attacked by people who burn six thousand dollars for
Speaker 1: an hour and use it to conduct fraudulent transactions targeting
Speaker 1: cryptocurrency exchanges. So if you're inefficient, or if you're efficient,
Speaker 1: you're vulnerable but if you're burning bitcoin level of money, uh,
Speaker 1: thousands of dollars or so, like bitcoin is what about
Speaker 1: five million dollars a day right now? Um, if you're
Speaker 1: burning five million dollars a day, yes, you are secure
Speaker 1: against an attacker, but you are so dependent on the
Speaker 1: price that you need five million dollars a day of
Speaker 1: new money coming in just to keep the lights on.
Speaker 1: So if the cryptocurrency drops in price, it actually creates
Speaker 1: a death spiral situation where you've got a lot of
Speaker 1: mind new equipment that we'll get turned off because it's
Speaker 1: not profitable to protect the network, but it may be
Speaker 1: profitable to turn on for an hour or two to
Speaker 1: attack the network. And so as long as the price
Speaker 1: stays high and growing, the system is secure. But in
Speaker 1: order for that to happen, they keep needing five million
Speaker 1: dollars a day plus of new suckers coming in wanting
Speaker 1: to buy the cryptocurrency, and that's net inflow of new money.
Speaker 1: And if that ever stops, the price starts to drop,
Speaker 1: and then we get into these death spiral situations where
Speaker 1: they lose all their security. All right, Well, Nick Weaver,
Speaker 1: it was great having you on. Thanks so much for
Speaker 1: walking us through all the the tech arguments underlying the
Speaker 1: antique crypto case. Thank you, thank you very much for
Speaker 1: having Joe. I thought that conversation was absolutely fantastic, really
Speaker 1: great to get an actual, you know, computer scientist view
Speaker 1: of cryptocurrencies and how blockchain technology is working, but also
Speaker 1: to have someone sort of put it in that comical
Speaker 1: language is just fantastic. Yeah, I agree, and I do
Speaker 1: think it was interesting to me though that like at
Speaker 1: its core, there isn't this area of overlap that in
Speaker 1: a sense, the blockchain or the bitcoin blockchain kind of
Speaker 1: does what it's supposed to do, like it works. It's
Speaker 1: just that it works in a very narrow case, and
Speaker 1: you have to make the case that that narrow u
Speaker 1: that narrow use case actually has some benefit and is
Speaker 1: worth all the cost, which you don't really hear. You're
Speaker 1: even most of these sort of like crypto bitcoin blockchain
Speaker 1: enthusiasts articulating what that point is. So I find it
Speaker 1: very helpful that I feel like we're sort of getting
Speaker 1: to the nub of the issue, which is that is
Speaker 1: this sort of narrow use case actually a benefit, uh
Speaker 1: that societal benefit or not or a project worth pursuing. Well,
Speaker 1: I think that's a good way to frame it. And
Speaker 1: I think there's probably an obvious reason why crypto proponents
Speaker 1: don't talk about the narrow base case, which is essentially
Speaker 1: criminality and money laundring and blackmail. And I say that
Speaker 1: as someone who recently got a blackmail email on the
Speaker 1: Bloomberg system requesting ten thousand dollars worth of bitcoin, which
Speaker 1: they helpfully translated. I think it was to two point
Speaker 1: five or two point six bitcoin immediately deposited into their wallet. Um,
Speaker 1: so that does definitely happen. No, I didn't. Apparently there's
Speaker 1: a pending CIA investigation against me, so if I disappeared tomorrow,
Speaker 1: you know why. But I will say I actually I
Speaker 1: disagree on the point that it does have an especially
Speaker 1: good use for criminal activities. I still think at its
Speaker 1: heart the technology is unwieldy and inefficient for reasons of
Speaker 1: either energy consumption or the notion that the blockchain can
Speaker 1: be edited. It's not immutable, and you're trying to create
Speaker 1: trust amongst entities that don't trust each other anyway, and
Speaker 1: if they did trust each other, they would come up
Speaker 1: with some other sort of contract system. Well, the point
Speaker 1: that Nicholas made at the end that there is. You know,
Speaker 1: there are frailties. I mean, people would there's debate about this,
Speaker 1: but this death spiral, like, ultimately, if there are a
Speaker 1: lot of the value currently in cryptocurrencies is premised on
Speaker 1: the idea that they have. Oh there's all kinds of
Speaker 1: machine internet of things and machine machine transactions, all this stuff.
Speaker 1: If a lot of the value are still people believing
Speaker 1: in that at then it's easy to imagine a big
Speaker 1: drop in value from here that the death spiral, and
Speaker 1: then the whole thing breaks up. And if the trades
Speaker 1: actions were to ever get unwound or edited in some
Speaker 1: way in an attack, then that really would strike to
Speaker 1: the heart of the entire Oh, this is immutable, and
Speaker 1: this is censorship resistant, So it feels like even on
Speaker 1: the core use, the jury is still out about whether
Speaker 1: that will work. Yeah, and on the plus side, I
Speaker 1: guess as the price of bitcoin dips lower, we will
Speaker 1: get to see whether or not the death spiral will
Speaker 1: actually happen. So that's something to look forward to. This
Speaker 1: has been another episode of the Odd Thoughts podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy Alloway,
Speaker 1: and I'm Joe. Why is it though you can follow
Speaker 1: me on Twitter at the Stalwart, and you should follow
Speaker 1: our guest today, Nicholas Weaver. He is at nc Weaver
Speaker 1: and don't forget to follow our producer, although he was
Speaker 1: out this week. He's at for Hest as well as
Speaker 1: the Bloomberg Head of podcast for Cesca Levi at Francesca Today.
Speaker 1: Thanks for listening.