Max Hillebrand: The Price of Privacy

“These are the Cypherpunk ideals… to use modern day technologies to define and establish the property rights of individuals in cyberspace. And to make sure that theft and surveillance are not possible anymore.”

Automatically Generated  Transcript

Timothy Allen 3:15
I know what you’re good at, I suppose it would be privacy, it would be living in a parallel system to the current system. Would you say? Is that fair to say?

Max Hillebrand 3:33
Yeah, definitely with a little bit of economics sprinkled on top. And that that’s basicly me

Timothy Allen 3:38
What is your past, just out of interest? Well, how did you arrive at the point that you find yourself at now? Were you? What do you like? Did you study at uni? And did you do that stuff? How,

Max Hillebrand 3:49
so I started working pretty early, big fan of child labour… love it. And that gave me kind of an early insight in entrepreneurship and kind of thrive of trying to understand it more. And economics ultimately being the signs of entrepreneurship that interested me at a quite early age. So then I went to different economics schools, like at high school level, etc. and did a bunch of self research and self study, and then went to study at a dual University, something like this. So it’s like a, something like an apprenticeship. It’s part time work and part time study. So three months of the year, I was working at Deutsche Bank. In the next three months, I was studying at that university or college, then back three months at Deutsche Bank, etc. And that went for three years. That was my bachelor’s degree, basically, and that was economics and banking.

Timothy Allen 4:42
And they expect you to go and work for them afterwa rds. Was that part of the deal?

Max Hillebrand 4:47
it was a three year contract, but not longer than that. Alright, so obviously there are some people were good enough gotten a a invitation or like a an offer to continue working at the place and whichever department they enjoy. And well some people don’t take this up and some people do, etc. But they’re, it’s an it’s definitely a study programme that is designed to, you know, kickstart you into the company. And he really was awesome, because he got to see a lot of different things, you know, from the low level teller, you know, in the bank branch locally, all the way to investment banking and massive depth structures and start up financing and all of these types of things. It was really informative, I got to see a lot of different department departments. But I knew pretty quickly that this this wasn’t for me.

Timothy Allen 5:37
Did you do the full three years at Deutsche Bank afterwards?

Max Hillebrand 5:40
yeah, I, I contemplated a lot if I if I should just move on to going Bitcoin craziness, right?

Timothy Allen 5:47
When was this then so this Bitcoin existed at this point did it?

Max Hillebrand 5:51
So I, I signed the contract for the three years study programme. And a couple of weeks later, I really fell down hard to become a rabbit hole. So it just missed it by a couple of weeks. But that was nice, because I fell down the Bitcoin rabbit hole while parallely working at Deutsche Bank. And that gave me a lot of additional insights into the fiat system. You know, I knew some things before, but just getting the actual experience there was was really eye opening into a lot of ways to to really see the money printing in action. And that’s..

Timothy Allen 6:28
what was what was your job then at Deutsche Bank? I mean, I’ve never, I’ve never worked anywhere like that. But I know that you can do a number of things can’t you.

Max Hillebrand 6:39
Yeah. I mean, when I when I went there, I think Deutsche Bank had 100,000 employees, like insanely huge, you know, also the week that I came there, they announced that they’re going to fire 30,000 people. So that was a really nice first week to start with slick. Hi, I’m the new guy.

Timothy Allen 6:56
So your desk is over there, so you can choose whichever one you want!

Max Hillebrand 7:00
Yeah, no, but I really get to see everything, you know, personal banking, like, investment for private clients, company clients, structured finance, startup, finance. Yeah, that investment deals, investment, banking, mergers and acquisitions.

Timothy Allen 7:19
But they were training you up with a to join. Yeah, is that how it works?

Max Hillebrand 7:22
It was basically kind of a showcase of everything that the company has to offer. And it was really cool. Like, there were there were a bunch of extremely interesting people there and very, like, dedicated motivated people. What was was super interesting, completely different to anything in Bitcoin. But yeah, and it has its own. It’s just its own unique story has its own advantages and disadvantages.

Timothy Allen 7:49
So what was your What are your big takeaways from that, then that you, you now know, from first experience, from firsthand experience? I mean, a lot of people in the Bitcoin world learn a lot of things about a lot of things to do with economics and banking. And I think a lot of a lot of terminology is thrown around, like the money printer under this under that. And I know for one that I’ve tried my hardest to look into it. And it’s way more complicated than even the bit. If you think Bitcoin is hard, you try looking into the system of banking, as it stands at the moment. And it’s not only is it hard, it doesn’t seem to make sense. I, I can get my head around Bitcoin bit slowly, bit by bit, but I mean, is that a fair a fair classification of the banking system that you were in? Well,

Max Hillebrand 8:38
one of the big realisations was how easy money printing is. And that many people can do it. Right? So the base money, the physical cash and the central bank reserves in the fiat system, they’re just created by the central banks themselves. However, the no one, right, so the deposit banks basically the credit that can be issued on top of this money, that is it completely in the hands of just regular banks. And whenever you go to the bank, and you request a loan for $100,000, that, like, it was so funny, because, you know, I did this all the time, like issued issued loans, you know, work through them. And then one time I asked the other guy working there, the higher up so, like, you know, when we issue those $100 $100,000, like, where do they come from, you know, do we have any internal balance sheet checks, you know, do we do we do this accounting, like, right away, like, is this real time like, we’re, you know, we’re where does it come from? And she’s like, No, no, no, like, they, you just click there, there’s no checks happening in real time, it just adds adds the numbers and at the end of the month or quarter, you know, it gets settled.

Timothy Allen 9:43
Did you find all this so you found all this stuff out in I mean, I’ve you know, like I’ve theorised things like this, but did you go work in a bank and then start realising wondering what the hell’s going on here. I did not teach you that at uni or college. You know,

Max Hillebrand 10:00
I must say the vast majority of my economic understanding I got from reading Austrian economics textbooks, you know, Murray Rothbard, Ludwig von Mises and Transurban Hapa. Like before you were working? Yeah, definitely. That’s why that furthered my interest in the banking system. I like I was always interested in entrepreneurship and understanding economics. And my family is somewhat of a small history and banking. So there was also something I was grew up with. And then Rosberg taught me the beauty of of banking, you know, what it actually means to, to, you know, to shift the, or to matchmake people with different time preferences, so that entrepreneurs who don’t have capital right now can start build stuff and be productive. It’s, you know, credit is incredibly valuable for the economy. And so I understood a lot of that before, but, I mean, obviously, I learned a whole bunch during this very little at the actual university economics lectures, because there was just the Keynesian bullcrap that I already knew and knew how to debunk. But I just kept up with, you know, reading the Austrians and that, did anyone

Timothy Allen 11:01
study Austrian economics at uni? That, you know,

Max Hillebrand 11:05
I’m having no, Germany. This was Germany, Southern Germany, and a couple of people were loosely interested and even one of our economics professors actually had some of Hayek in his material, which, I guess, to some extent, my least favourite Austrian economist. Um, and, and we had long conversations and debates about this in university because, I don’t know, I went into the programme knowing a lot about Keynesianism and knew that it just wasn’t right. So and I was happy at arguing, arguing and debating. So I was, I guess, to some extent, the least favourites to have that teacher, because I was sitting in the back row, you know, doing something else, because the, the main text was bothering me or boring me, and then occasionally shouting out some, you know, little ways of debunking the claims that were being made, etc.

Timothy Allen 11:58
In that situation? Can you still pass by saying this is all bullshit? As long as you give your reasons? Like, can you still get your degree or whatever you get? Because, I mean, if they teach new Keynesian economics, and you don’t believe it, what do you do? Just say, okay, and just give them what they want? And then take your job and go and do it?

Max Hillebrand 12:21
Well, yeah, you need to pass the test. Right? That was that was basically the main thing. And the thing is, right, this apprenticeship study thing is you’re not in school, like at university where you’re kind of free to do whatever you want, you’re an employee, right, you have a full time work contract, and you’re, you have eight hours a day, either that eight hours a day is that the bank working or that eight hours a day is at University studying, like lecturing. And, you know, so you needed to be there and you needed to deliver some things. But what I also really enjoyed then was my was the papers and ultimately, the bachelor thesis that I wrote, which was, you know, first part being about project finance with initial coin offerings, was like 2017. So it was Ico boom, I was like, I gotta wait a little bit about this.

Timothy Allen 13:07
I seen what the the just the, the mechanics of

Max Hillebrand 13:09
the mechanics are project finance always interested me in all entrepreneurs wanting to do something and not having the money. And there’s there’s really cool ways that you can structure this in very creative different ways. And I thought you know, ICOs is just a public offering for with, you know, some token, well, cryptography, etc, to, to, you know, try these rights in cyberspace, et cetera. was was really interesting.

Timothy Allen 13:35
At that point. Sorry about in. Did you have a did? What was your? Did you have a thesis on Bitcoin versus other tokens?

Max Hillebrand 13:45
Yeah, I clearly defined the base money tokens. So tokens are not a claim on anything, just a gold coins, just a bunch of atoms, it’s not a claim on anything, it’s just called Full stop. So it’s a rival risk commodity. And because it’s the same, right, it’s a digital rival of a commodity, just like gold atoms. But then, of course, you can have you know, claims like Hey, I give you this one big colour now and in a year, you give me 1.1, the comeback, or in a year, you give me back the profit that you meet by investing this one Bitcoin that I’m giving you now, et cetera. So, you know, money is not an investment. It’s not. It’s not an investment. It’s not consuming. It’s, it’s just holding something that you can trade at a future point in time. And that was differentiated in the first paper. My second paper was titled anarchy in money on the ethical economics of Bitcoin, which was with that, you know, economist professor, and does you know, was a pure anarchist Rothbardian paper on why Bitcoin is the ethical way

Timothy Allen 14:49
a little bit surprised by that. Suddenly, not to from naught to anarchy escalated pretty quickly. That’s very Be funny, though, because everyone that’s ever fallen down the rabbit hole knows that experience very well. One day you wake up and you’re like, What is this thing? You know, three weeks later, you gotta got long hair, and you’re like, you’ve been up 24 hours just trying to it’s a common it’s a common theme amongst people that investigate that. Exactly. So we’ll go in and what was your taught me through the thesis?

Max Hillebrand 15:23
Well, so So what is anarchy?

Well, the paper Yeah, exactly

right, that anarchy is an archon, from the Greek meaning without rulers, without kings. And so there’s, in other words, there is no coercion involved, their property rights are being protected. And so your body, and the things you’ve created are yours. And when someone takes them against your consent or against your will, well, that’s, that’s bad. Basically, you’re no longer in a state of anarchy, you know, you have a ruler, a slave master, who can, you know, deal you around this as he wishes. And to some extent, that’s, that’s what fiat money is, the rules are defined not by you, but by someone else, especially the rules of how much money can be printed, and when it is being printed, definitely not in your hand. So there is a power of symmetry. And there’s the kings of the money, the central banks, the banks, the governments. And then there’s the slaves of the money, the the everyday user, you know, the entrepreneurs getting paid, the people holding the money and saving with it, and the people using it for payments, etc. why Bitcoin is fundamentally different. Bitcoin is a self defined monetary system. When you run a Bitcoin full node, you define for yourself the rules of your monetary network, and you and you verify every transaction that’s happening in this monetary network, so that it upholds these rules. And so you define and verify everything that’s going on. And also you enforce it. And if there’s an invalid transaction being proposed to you that that breaks, that violates the rules that you’ve defined previously. Then you just delete it and block the person who sent it to you. And so you, as the end user of the monetary system gets to define, verify and enforce the rules of the money. And that is what freedom looks like. That is where there is no kings, or we’re over you were you are a sovereign of yourself, right, the king of the kingdom of one,

Timothy Allen 17:17
did they take it? How do they take? Was it a, did you get an A,

Max Hillebrand 17:26
like, some beer or something like this, like,

Timothy Allen 17:30
but I mean, was it that fully formed back then? It was

Max Hillebrand 17:34
I think it was pretty fully formed? Yeah. Yeah. Like I drew a lot. I didn’t come up with any of this. Right. I, I just drew a lot on the arguments of Ross, part and hopper. And I think this, these are pretty rigorous arguments, you know, like there’s solid defence of it now. Did I make the arguments perfectly and provided a proper definition and defence for them? Well, maybe not. But I think at least the core of the arguments and adult cells were pretty reasonable.

Timothy Allen 18:04
So I mean, what talk me through what happened when you left Deutsche Bank then are you are you were you already thinking about? I mean, why don’t you tell like I know what you do. But why don’t you just quickly explain what it is that you do right now. And then we’ll try and find out how we got there.

Max Hillebrand 18:24
So I, again, read I have some background in economics. And roughly, you know, a year before we got into Bitcoin, I got into the Linux and free software rabbit hole, and found it extremely fascinating, especially because free software is very much in line with the Austrian economics definition of information and property information that is not property, it’s not a rival of a scarce resource, you can copy information, and share it with people without losing access to that information, it’s fundamentally different to the goods that we have in meatspace. And this, this means that words can be copied by anyone and can be changed by anyone and can be spoken. As long as you own your body and you own the computer that does the computation etc, you get to decide what to say or which software to run. Exactly. And that is the argument for free software, it’s your computer and you get to decide exactly which software you want to run. And therefore you should see the source code of the software that you run for the entire operating system for the entire stack of your computer, the source code of the programmes that are running should be available to you and you have the right and the power to edit them to change them and to share them with others. Those are basically the core tenants of free software. So that fascinated me because it was very true to Austrians categorise information and well then I discovered Bitcoin which you know is is awesome money that that is open source and free, where you can change the rules right have your Bitcoin full note the source code is open, change it If you want to have 50 million Bitcoin on your address, it’s like, super simple code changes that you could do. And, and that’s, that’s extremely powerful. And so I started using these free software tools and realised that they’re pretty bad. They’re slow, they’re clunky, they’re difficult to use, etc. And there’s not many good explanations about them, especially Bitcoin tools. So I started to learn more about them and, and teach people about them, I did a lot of videos, educating people through economic principles and software technologies. And that was, that was fantastic. Because while just like you and I, I got to sit down with with people and interview the people who made the tools and ask them questions about the rationale behind features, etc. And that was really taught me a lot, you know, you meet incredible people, you learn a lot of other software tools, you’ll learn a lot about software development, and how that actually works. And how difficult and time consuming it is, I had no idea about all of the stuff before. And so I found a couple different free software projects that I really enjoyed using, and where I saw problems on how they could be better. And then I tried fixing these problems and actually making the software better, it’s another core part of free software, like you can improve it, actually. And not just maybe someone else will allow the, like the improvements to happen, but you just improve it, and then it’s done. And and you have better software. And that was really actionable and really rewarding.

Timothy Allen 21:33
Because I don’t think a lot of people understand how open source works. The way you just described it there. You fiddle around with some code, and then everyone adopts it, how does it actually work? Like how does how does the open source project work?

Max Hillebrand 21:52
Now? That’s a really good question. Right? So let’s say you have a piece of software and a calculator app or something on your computer or your phone. If you change any line of code in there, let’s say you make it instead of a light mode, you make it a dark mode, you know, back back black background for the user interface, etc, whatever. As soon as you change that code, and as soon as you run the code on your computer, it’s done. Like you didn’t have to ask the computer or the calculator company for permission or for how to change it. You just change the code on your computer that that you were running. And that’s it. And also there’s an instant reward an instant feedback. Does your code work? Or does it not? No, that’s very instant, very real accomplishment, basically, that you have. Now, just like you have the power to choose which software you run on your computer, so has everyone else. And that means that if you want your code that the code that you wrote, or the changes that you made, if you want other people to run this code, well, you have to convince them. And you convince them first of all by telling them about this code. So you have to publish it somewhere, that people can go and download the code that you’ve just written. And then we’ll you know, convinced them to instal it, you can brute force it to instal them that will be malware, or some you know, phishing site that instal software that that you actually don’t want, you know, you, you, as soon as people see a perceived marginal benefit in using your software compared to any other alternative. So your software solves a problem for them, that nothing else solves as good as you do, or your software does. And, and then they will choose to download and and run it. And then of course, if if different software projects, so to say different applications, build up a user base of reputation, a contributor base. And so there, then all of a sudden, it’s a team of people working on software that a large number of users are using. And this makes it of course, much more complicated. Now you’re no longer alone, a single developer changing code on by yourself, you know, you have other people whom you might have to convince that there is actually a problem here that you’re trying to address, that your solution is solving that problem, and that there is no other obvious solution that would address the problem even better. And also, that’s well, collaboration and lots of communication. And people might disagree with what you’re proposing might not be an actual problem. Maybe actually, it works exactly as it’s intended to work and you’re breaking the software. Now, that happens frequently too. And so this review process is very important to convince other people who are actively contributing to the project software project, that the changes that you propose are good or excellent. And that’s of course difficult as any human relationship is. And then you have if you convince the people who are maintaining or managing that software project, then it will be your changes will be included into the software project and included in the release that is shipped under that reputable brand of the software that has an established user base etc. So if you succeed in merging and your code changes to a software project that already is existing, and then they ship it out your your code is going to be used very fast by a lot of people.

Timothy Allen 25:09
And that’s, that’s what the platform GitHub is, right? Yes. Are there any other platforms? Well explain what GitHub is first.

Max Hillebrand 25:17
Yeah, for that, I think we first have to explain what Git is good is the the original blockchain it’s like a protocol from 2001 or something didn’t know that. It’s, it’s literally a chain of blocks. Just like in Bitcoin, right, you have a basically, in Bitcoin, you have a transactions that are happening, you know, so who’s paying whom, and you batch these transactions together into a block. So that one, block 1000 transactions. And this is how we have a chronological chain of which transaction came before the other, etc. Good is kind of the same thing. But for tracking the changes of a file. So let’s say you have a txt file, you know, it starts with nothing, and you write the first 10 lines of text. And now you you can make a block, so to say, a commit, which batches together all of these changes to the file that you made, and puts a hash on it, actually, similar to how Bitcoin hashes blocks, the same happens in Git. And now you have the first version, so to say, of this file, and later, you could add two additional lines and remove one of the lines that you wrote in the past. And you can put these three changes, again, together in batched. Commitment. or commit to, you know, and now you see the difference, you know, so you started in the first commit with 10. Lines added. The second commit is two lines added one line subtracted.

Timothy Allen 26:44
Is it the same? I’m sorry? Is it the same concept that if you want to, can you retrospectively fork or get like you’re not? I mean, because I’ll tell you why this is relevant to me, because in my business, when you say in photography, on Photoshop, when you deal with a file, there’s only so far back in the history that you can go without undoing everything you did, you can’t go back to like a previous point in the history of you doing something to this photograph. And then take it from, you can’t say I want to take that bit out, you can’t do that you can only go back and start again. From that point, I see, I see is that the same in gets

Max Hillebrand 27:26
it not good, you actually can do that. It’s called cherry picking. So you’re like, hey, I want to cherry pick this commit, you know, I just want the changes that were done in this commit. And you can do that you just read that one block, so to say,

Timothy Allen 27:38
and is it like a whole new chain from then onwards? Do you know what I mean? A bit like, that’s how I visualised the Bitcoin chain is like, a fork causes another chain, which runs parallel to it. So if you were to take a commit from there, and

Max Hillebrand 27:51
yes, so either, it’s all in GitHub, you do have this that every commit message, links to the previous. And so just in Bitcoin, every Bitcoin block has the transaction, the Bitcoin block hash of the previous block included, so there’s like a chain of reference. And if you would change the content of one of the early blocks, all of the later blocks would become invalid. And so it’s tamper evident. If you change one piece of information in the past, then the the the later part of the timeline, so to say, is no longer valid. And in good is the same thing, right? It’s a hash chain of blocks. And that what does it stand for? Well, to be honest, I have no idea. I don’t know. This is a three letter programme. We’re tight titles are very frequent.

Timothy Allen 28:40
So So Git and GitHub, then, exactly.

Max Hillebrand 28:43
So Git Hub is a way is a social media network, that where multiple people that use Git, can talk to each other to share their git commit messages and to synchronise their work. Yeah, basically, so the original git was designed for emails. So these commit messages, these bundles, or blocks of file changes were sent via emails back and forth. And you could keep up to date with everyone, right? So if you’re working with three people on the same file, and when someone makes changes, and they can push those changes to you via email, for example. And then you can see what they changed and add it to your Git chain. But maybe there might be some conflicts, right? Maybe you just edited the same file, or the same lines in the same file. And you didn’t yet tell the other person about it, right? So two people work at the same time on the piece of code. But with Git, you can resolve those conflicts quite elegantly. And this could be done via email. But GitHub is let’s say, a social media network where you create an account, you know, can set your profile picture etc. And you can there, you can send your get history to the server, right. So it’s Through the social media sites server, you can, instead of emailing your friends, all of these get to changes, you just sent them to that server and your friends can create an account there and download the Git chain that you’ve created, etc. And there’s a comment section and all of the other fancy things that such a such and

Timothy Allen 30:19
it’s also where users go to, you have to download the latest version of an open source bit of software.

Max Hillebrand 30:25
Exactly, exactly. And you could run this GitHub site yourself like the Git server, first of all, it’s super easy to run yourself, you could run it on any laptop, basically, and pull data from one laptop to the other this way, as for example, as possible, or you can run your own web server that runs this quote, unquote, social media site with a graphical user interface in the browser, where you see all the folders that you have all the data that you have, etc. So where you send your, your Git chain of blocks is totally up to you can can be emails can be GitHub can be git Lab, which was one of those self hosted alternatives. And, yeah,

Timothy Allen 31:06
so I mean, I’ve heard people comment that Git hubs, a dangerous, centralised source of all, you know, open source software, is that is that true? Or is that?

Max Hillebrand 31:17
Yeah, to some extent, I mean, Git is thankfully very decentralised. It’s like, every Bitcoin full node has the entire blockchain. So to say, every git developer has the entire history of the codebase. And so if you download a git repository, you see everything that changed from the very first file that was created, and who made the changes and when they were made, etc. And everyone working on this code has a copy of that. So even if GitHub shuts down, closes, your account, deletes all the data gets hacked, whatever, every developer still has everything that’s in this git tree, so to say, or git chain, which means that the code, and our information wants to be free, and it’s very censorship resistant that way, the big problem of GitHub, however, is that it does more than just Git. And it’s the social media network on top of Git, so to say, so your username, your avatar, picture, all the comments that you left, in the social media network, all the friends that you follow all the repositories that you’ve starred, etc, all of this very valuable metadata that is hosted exclusively on GitHub servers, you can make backups of that. So that in case they run away, us at least have access to that data. But that is definitely a big problem. And we’ve seen that frequently, I’ll get up, which is, by the way, owned by Microsoft, has frequently censored developers from from using their website, their social media site. So to say, you know, most notably, we’re, for example, some Iranian developers, because Iran was on the sanction list, all of a sudden, Iranian developers, even living outside of Iran, just got kicked out. And that’s definitely a big problem. Thankfully, there’s lots of alternatives. But GitHub is useful, because again, it’s the social media network of millions of developers. So everyone is on there, everyone can follow each other’s work, it’s great to discover new projects, it’s great to kind of get reputation of people, you see the proof of work of what have they done in the past, et cetera. It’s an extremely useful platform for developers. And that’s why many people use it. And then yeah, it becomes a single point of failure.

Timothy Allen 33:23
I’ve got a really stupid question here. That’s just occurred to me. And I, I should definitely know the answer to this. But is, what is bitcoins source code on GitHub? Yes. Is that where it started?

Max Hillebrand 33:34
Is that where it started? That’s a really good question. I think GitHub is younger than Bitcoin. I, if I might be completely wrong on this, but I think it helped 2011 or something like this. So the original Bitcoin source code was, as far as I remember, well, first of all, send me an email. Satoshi sent some code, or binary packages, at least, to Hal Finney via email, if I remember that correctly. And then the source code got originally published, it’s at Sourceforge. Sourceforge, is another website. It’s kind of old and outdated by now. But this is, I don’t know if it’s still being used to be honest. But there people could download the source code of software projects.

Timothy Allen 34:17
But if you’re if you’re someone that if you’re working on the Bitcoin source code, where do you do that? Yeah, how do you do it?

Max Hillebrand 34:28
And hear it. So there’s the bitcoin core software project, which has hundreds, many hundreds of contributors, and they do meet on so the the Git history is stored on GitHub, as well as a lot of the metadata. So new issues that need to be worked on etc, are kept there, or comments from other people etc, or even proposed changes to the source code of Bitcoin are stored there. And the comments and review of that, especially the review is incredible, incredibly valuable metadata that GitHub keeps. And so that unfortunately is is with Git with get up. There are other ways or other places where people communicate about working on the Bitcoin source code, or their IRC channels, you know, the chat forum from ages ago, and a mailing list that’s extremely active, and some other places. But GitHub is definitely a big, big, big part of the bitcoin core development process. However, there is ongoing backups for all of the metadata going on. And so in the case, and GitHub would kick out the bitcoin core software project from their platform, nothing, nothing critical will blow up. But a lot of disruptions and inefficiencies would be caused, you know, you need to move all the contributors to somewhere else, you need to import all of the old metadata to that new place, and then start working with that metadata again, which isn’t always easy. And because GitHub works differently than other solutions, like Git lab, for example, there might be issues when synchronising between these two different service providers, etc. And there, there will definitely be confusion and frustration. But ultimately, Bitcoin would not be deleted just because it’s removed from

Timothy Allen 36:13
it. May Allah meno people working on creating a decentralised place to host the Bitcoin source code? I mean, that would seem to me to be quite important.

Max Hillebrand 36:24
Yeah, it’s just difficult. I mean, so to keep the actual code is trivial, like the code of bitcoin core will never ever be forgotten. People always have it all of the versions of it, that it’s such an important important piece of, of software, that it will always be backed up somewhere. The big question is just where’s the shelling point where where people go to communicate about continuously improving it? And, yeah, that’s, that’s an issue that, that we’ll, we’ll probably change across the future. And, yeah, there are different, there’s a bunch of different software projects that try to make get up. So to try to provide a service like GitHub, while relying less on a single trusted third party. And while increasing the privacy as well, our GitHub knows a lot about its users, and a lot about the code that they’re writing on. And a lot of Bitcoin developers prefer to remain anonymous or to not attribute their contributions to Bitcoin to, to their identity. And get up can be a big attack vector here as well, they might de anonymize important contributors who are working on Bitcoin and put them in their lives at substantial risk. So there’s many reasons why we could improve the service that GitHub offers. There’s also many reasons why GitHub is currently still around and it won’t be going anywhere for a while. It’s, it’s a really useful service. And alternative solutions would really have to go into providing, you know, to have of making it even better. And it’s difficult to make something a lot better in a secure, private decentralised way, you know, doing things centralised and not blinded or not anonymous is a lot easier. And it probably will continue to have a couple of really useful features that the developers will want.

Timothy Allen 38:16
It was good that you’re talking about privacy, because that’s, I think, the core of who you are and what you do, is that fair to say?

Max Hillebrand 38:25
Yeah, definitely is one of the other things that I learned recently of how important this is. And were tied into a lot of the Austrian economic understanding that I have as well. This is maybe one of the other big learnings that I had while working at Deutsche Bank, you know, I as a low level employee, you know, like, like a student level, like really, as as low level as you could possibly get in the company hierarchy. Let’s say, you get still, I had access to view the transactions of basically every customer of the bank. Really? Yeah. Like, you see how much total money they have. You see where they live? You see how much money they spend on their credit card? If they shop at Amazon, or efficiently? How

Timothy Allen 39:07
could do that? Or are you talking about you could pop around into someone’s office and get on a terminal. And

Max Hillebrand 39:13
so my user account to the to the company infrastructure had access, read access to all of this data, not for every customer, there are certain high net worth individuals or politically exposed people

Timothy Allen 39:24
that I could say to you timidly if you wanted to,

Max Hillebrand 39:28
if I wanted to, I have the power. I was told to not use that power, unless it is relevant. So to not look up, you know, how much money is my neighbour earning or something like, if he’s not my customer, I shouldn’t be looking into it. And probably there were some checks in the back end, you know, to make sure that company employees are not snooping around, but I have the power to I have the access rights to it. Like me as a low level employee, you know, and that’s, that’s so weird. That’s so so weird. So

Timothy Allen 39:58
that triggered knew a mission, let’s say to sort of like work on that kind of stuff is fair to say Yeah,

Max Hillebrand 40:05
exactly. And it so I realised the utter lack of financial privacy at the banking system. And I realised the utter importance of having privacy on the economic and psychological front. So privacy is the ability to selectively reveal yourself to the world. And that you can choose what you say, and whom you say it to. And that choice is being taken away by by lots of people, right? Like, when you have your bank account, there’s no real choice of hey, do you want every employee in the bank to know exactly where you’re spending your money, there’s incredible amounts of sensitive information that is just being revealed to people by default. And oftentimes, users don’t even know about it. And they don’t have called informed consent, to sharing this information. They just want to receive instant payments. That’s all they want. That’s the actual problem that they have. And the solution that has been provided, gives them that you can receive and send payments with a bank. But it’s only possible if you go completely transparent. If you tell them who you are, where you live, how much money you make, for who pays you whom do you pay, how much money do you save, etc, all of this information has to be provided in order to use that service. And that means that your your range of privacy, the extent or the range of options that you can choose from of how you would engage in this world is extremely limited. There is no option for you to receive money without telling it to all the employees of the bank, for example,

Timothy Allen 41:46
what the most common pushback against the idea of any kind of privacy really, but certainly financial privacy is. But you know, like, the only way we can find out who the bad guys are, is by by monitoring what’s going on. So what’s the why is that wrong? Why is that bad? Why is it? You know? I mean? Is there is a benefit to monitoring, for example, like take a you’re sort of you work on privacy in Bitcoin transactions, for example. Now, if bitcoin transactions are private, then presumably people that want to hide nefarious transactions are going to flood in. Is that is that? Is there any truth in this at all? Oh, is it? What’s the what’s the answer to that common rebuttal of of privacy,

Max Hillebrand 42:41
all it’s all about the freedom of choice, you know, like, and, and with that there is the ability to choose. And so it’s, it’s just a reality of life of this world, that you have a choice of how to act, and how to reveal yourself to the world. And it’s not just you that has the choice, it’s everyone. And this includes the choice of doing bad things, of stealing from your neighbour, or of spying on people. And all these are these are, these are things that that you have the ability and the mental capacity to choose to do. And this includes for for everyone, so we cannot eradicate all, you know, crime from from ever occurring, because it’s part of the human condition. And you choose every moment if you want to steal or if you don’t, basically always have the ability to do so. And that. So while there is the opportunity or the like the capacity of of bad things happening, and now the big question is, what do we do about that? And one proposed solution is let’s, let’s spy on everyone, let’s get all the important information about everyone. What are they thinking, what are they doing? What are they planning to do? And if they plan to do something bad or if they are doing something back then then we need to intervene and stop them from doing that. And well, that’s alright. But, you know, again, individuals, including the people whom you’re trying to surveil right now have the ability to choose how to reveal themselves to you and to others. And so criminals won’t, won’t just follow your, your, your lead in terms of okay, let’s show let’s, let’s, let’s, you know, be transparent now, let’s tell everyone about these transactions. If criminals don’t want you to learn about certain things that are happening, they they will find ways of doing that. But you’d say law abiding citizens will not do and they will if, if the law requires it will be transparent. You know, we’ll use bank accounts that require to know the full identity and location etc. And meaning that we decrease the range of options for everyone. We decrease the ability to choose Use for everyone, including the honest people who are not stealing from anyone. However, the bad guys who are not following the rules, you know, by definition, they, they still remain the ability to, to not be transparent, even though like yes, they will break your rules by hiding somehow or something. But still they have the ability to So ultimately, that surveillance mechanism doesn’t stop them. It cannot stop them. And a crime will continue to happen. Yet. Honest people are and peaceful people are being surveilled and restricted in their free choices substantially. So grey, it’s no, no, we have a dictatorship, you’re no longer allowed to say what you want. Or to not say what you want. You all of a sudden, you have to speak when you’re asked to and you have to tell exactly what is being asked of you. And that means you’re a slave. And well, great. So now we’ve created a system of bunch of slaves and criminals are still out there. And they’re still breaking the rules that you set out. But well, wanting the change in these two scenarios is, is that the guy doing surveillance just turned into the slave master. And now we have one additional criminal to deal with how we didn’t solve the situation, which has made it worse.

Timothy Allen 46:24
So I mean, you’re, what you’re basically saying is, regardless of what we do, we always end up with roughly the same amount of criminal activity. The only difference with the surveillance is we end up with everyone the good guys losing out. So in the first one, under surveillance, some of the bad guys lose out, but all of the good guys, and in the non surveillance, none of the bad guys, but none of the good guys.

Max Hillebrand 46:54
Exactly. And while there’s there’s Wait, you know, what we actually want to prevent is not people to speak and think freely, that’s not what we want to prevent. I what we want to prevent is crime, people stealing from each other and people murdering, and that’s, that’s what we actually want to prevent. And well, we can prevent that, you know, we can work on addressing that problem, per se, you know, by, for example, you know, if you want to prevent someone from breaking into your house, we’ll add a lock in or make it a thicker door or whatever, but use real life obstacles and real life mechanisms to to ensure that your property cannot be violated. And this is what bitcoin does. By the way. Bitcoin is a way to create a monetary system that is just so substantially more difficult to steal from than anything we’ve seen in the past. In order to steal physical gold coins, it’s actually pretty easy, you know, you walk into someone’s place, and you hit him on the head, and you take the gold coin, and there’s little you can do about it. But with Bitcoin, all of a sudden, you can have multi signature smart contracts with time locks, and God knows how many edge conditions that define the exact property rights or the rules of how this bitcoin can be spent. And nobody can break those rules. It’s just not possible. Bitcoin does not allow for it. So becomes a great tool to protect the definition of who can spend the coin to be unchangeable, literally unchangeable. And well, that that means that theft, which we tried to avoid in the first places is now impossible, or at least a lot more costly. And these are just basically the Cypherpunk ideal right to use modern day technologies to define and establish the property rights of individuals in cyberspace. And to make sure that theft and surveillance is not possible anymore, literally not possible. And I think that’s a pretty straightforward and good solution. And it doesn’t harm the privacy or the property of anyone else.

Timothy Allen 48:55
Okay, so here’s my question that I’ve just, it’s just occurred to me another thing. It’s often said, criminals don’t use Bitcoin, because they’d be stupid to because everything’s public, and it’s very forensics of the Bitcoin Blockchain are pretty easy, because you know, that it’s there, and everyone can see it, everyone can access it. So if you add privacy tools to Bitcoin, does that whole argument dissipate?

Max Hillebrand 49:28
It’s a very nuanced argument, because Bitcoin provides a great range of privacy and it always has, basically since the beginning, you can use Bitcoin in a very private way where very little information gets revealed about yourself to the outside world, like for example, by default, coins and Bitcoin, you know, are not tied to your identity. It’s just a public key. It’s not your name and address, you know, that’s on the blockchain. And, you know, you can generate a fresh address every time and they just look into distinguishably random. So each new coin that’s been created could be built up belonging to anyone, basically, to some extent, right? And there’s a lot of nuances in how do you find out how much money you have. And so if you, you should do that by running your own full node. So by verifying every transaction that ever happened in the history of Bitcoin, and then seeing which of those belong to you, very hard computationally task, it takes a couple of days to do that from scratch. But but you can do it just by yourself. The other alternative, basically, is, is to give someone else the addresses that you’re interested in. Okay? What is the total balance of all of these 10 addresses on the blockchain? Give me all the transaction history that’s related to this. And someone else can do that, right. That’s basically what a block explorer website does, someone else did all the verification of the Bitcoin transactions, and now it’s telling you how much money is on a certain address, of course, the big downside, then, you know, you have to give that other person the address, and he knows that these 10 addresses probably belong to the same person, etc,

Timothy Allen 51:01
can you in really simple lay terms, explain how privacy tools work on the blockchain, like we so we have a we have a we have a chain of transactions, which are visible to anyone there, they can anyone can explore this chain and see every single transaction. So if I know, if I buy something at Amazon tomorrow, and I pay with Bitcoin, on the on the base chain, you can automatically associate that transaction with a particular address from where the Bitcoins came. And then from that transaction, I can now see everything that’s going to happen in the future. And everything is the carpet in the past. And that’s, that’s why people say, bitcoins terrible for criminals, because as soon as they get associated with a particular address, then anything that comes from that address in the future, we know they have a hand in it, and everything from the past we can we can use forensics to see see see historically. So how does like what for example, I I know for a fact that you have software, that D anonymizes the Bitcoin, a chain of Bitcoin transactions. Is that a way? That’s a good way to describe it, isn’t it? Yeah, exactly.

Max Hillebrand 52:26
So. So I’m working on wasabi wallet, it’s a it’s a software wallet that allows you to generate private keys to find out how much money you have on these addresses in a private way, by the way, and then to receive and send money privately, with the clicker being a coin joint transactions. So in the difference between a regular transaction and the coin joint transaction is quite similar, quite simple, actually, a regular transaction you do by yourself. So you’re saying, Hey, I received these three different coins in the past. And I’m spending them now on the input side of a transaction. And I want to create, I want to pay a merchant for pizza. So he the merchant gave me this address. And he wants one Bitcoin. So I’m writing that there. And then I get my change output back, right. So there’s three inputs, let’s say, and two outputs in this transaction. And all of these inputs belong to the same person. And when you look at any transaction on the Bitcoin Blockchain, and you assume that all of the inputs in the transaction belong to the same person, in most cases, you will be correct, because most cases of Bitcoin transaction is just one person sending the payment. But then again, now you know that these three coins belong to the same person, you didn’t know that before. Because each of these three coins have a unique randomly looking at risks that are not tied to each other, they get tied to each other at the point when you’re spending them together. And a coin joint transaction and on the other hand, is a way for a group of people to make a Bitcoin transaction together. And so each of us 20 People or something, have a couple coins that we want to spend on the input side of the transaction, and a couple of addresses on the output side of the transaction that we want to pay the merchants and we’ll change. And instead of doing 20 transactions all by ourselves, we do one transaction together, where we all put our inputs together, and the outputs together. And so we create this huge transaction 300 inputs, 300 outputs, it is still a valid Bitcoin transaction, because for each of the inputs, it’s a valid coin that actually exists on the blockchain, there is a valid signature, saying that this coin can actually be spent in this particular transaction. And then there’s a bunch of outputs on this transaction, but the value of the outputs is smaller than the value of the inputs. So we’re not creating money out of nothing. We’re not spending money that we didn’t have, we’re not having more outputs. We’re not paying people more money than we put on the input side of the transaction. And these are kind of the three important Rules of a Bitcoin transaction. And the coin join satisfies all of them. There is no rule in the Bitcoin network that says that a transaction can only be made by one person, otherwise it’s invalid, such rule does not exist. That’s just the default way of how we get to use Bitcoin. Usually, when you make a transaction, it’s just you, you own your own software wallet, basically doing it a conjoined, it’s just a way of getting a bunch of people together to do this process together, making it bigger. And the effect of that is basically we’ve just increased the size of the crowd. You know, usually, when you make a Bitcoin transaction by yourself, there’s one guy walking along the street, and you’re like, hey, look, there’s Tim walking, very easy to point you out if the size of the crowd is one. But if the size walking down, the size of the crowd walking on the streets is 100. And so 100 people walking there, and I’m like, hey, look, we’re stim over there, you know, it’s, it gets a lot more difficult to, to point you out, to give a name to the person that’s walking there. And the contractor does exactly that. Instead of you alone, making a Bitcoin transaction, there’s hundreds of users doing it together. And now it becomes a lot more difficult to say, hey, look, these three inputs belong to the same guy. Because there’s 300 inputs in this transaction? How are you going to pick three of them to belong to the same guy? It’s a lot more difficult, is it?

Timothy Allen 56:21
Am I getting this straight? So if 300 People are all spending one, make it really simple if 300 People are all spending one Bitcoin? No. Yeah, let’s say like 300 people all spending one Bitcoin. Is it like, Okay, we know that the outputs should be 301 Bitcoin outputs, right? So everyone throws all their coins into a bag and someone shakes it up, and then they just pay randomly? Is that kind of how it’s working?

Max Hillebrand 56:52
That’s kind of how it’s working. Yes, the trick is that inside a Bitcoin transaction, the Satoshi stood the units of money, right, like the atoms of gold, like or grammes of gold, like the actual quantity of money, the units of money are perfectly fungible. It’s not that you say, okay, the the money from the first input got paid into the second output address, and the money of the second input got paid into the first output address, for example. That’s not how it works, technically speaking, all that is a transaction is a collection of inputs and a collection of outputs. And the rule is that the value of the outputs is smaller than the value of the inputs. And that’s it, there is no direct flow from first input to second output.

Timothy Allen 57:36
Why does the why is the value of the outputs less than the value of the inputs? Are they take a fee?

Max Hillebrand 57:41
Yes, the difference is the mining fee, basically, you can have a mining fee of zero. So the actual rule is like, less or equal than the inputs, right? You could have 10.00, Bitcoin on the input side and 10.00. Because on the output side, it’s correct. Just a miner is not going to get paid. So he’s probably not gonna say, does it

Timothy Allen 57:59
cost more to make a coin join transaction than a normal transaction? This is a really

Max Hillebrand 58:04
good question, by the way. And there’s It depends. So okay, if it let’s, let’s take the first naive example. Right? So you, you have with the three inputs that you want to spend, and you’re paying for pizza, so you create one output for the merchant, one output for yourself. And those three

Timothy Allen 58:25
inputs are different coins that you’re bringing together to create enough value to pay to pay. You’re right,

Max Hillebrand 58:33
exactly right. So one time you got paid from your employer, then the other time your grandma paid you money, and then the next one, just for

Timothy Allen 58:39
the people know, each Bitcoin transaction has its own well, has its own UTX Oh, its own independent thing. So sometimes you have to batch them together to create enough value to pay for something

Max Hillebrand 58:53
exactly, right. It’s like you’re single with Fiat banknotes, now you have a payment of $40. And you have a 2020 and the 10. And all you have to combine the 20 and 20 to get to 40. It’s kind of the same with Bitcoin coins. And so

Timothy Allen 59:17
so no, I’ve just got squeezed

Max Hillebrand 59:19
about about the size of like, is it more expensive? Yeah. So there’s another thing that the Bitcoin transaction has, and that’s kind of the transaction header, see the overhead cost, kind of that includes things like the transaction ID, and some other little metadata. So tiny piece of data that’s always the same, it’s like a fixed cost. And so you always have a transaction header, and then at least one input at least one output. You could have the transaction header and 100 inputs and 100 outputs, and for example, so there’s always one transaction header and that has a certain size, and then for each additional input that you add, the size gets larger, and for each additional output you get the size of the transaction gets larger.

Timothy Allen 1:00:01
I know what you’re gonna say no. And that’s what, yeah, I get it. Now it’s more expensive, the more inputs, there are,

Max Hillebrand 1:00:07
M, it is more totally expensive, right? Because if you have, of course, 100 inputs, 100 outputs, that’s way more data size, and therefore way more money or cost than if you have one input one output, obviously, right? But there’s a nuance here, right? Because so we have this three inputs to output payment that you’re making. And let’s say there’s hundreds of other people that are doing this as well, right. So each of each of you guys can make their own unique transaction. So we end up with 100 different transaction, you each spending one or three inputs and creating one or two or three outputs, whatever. Plus each of these transactions has the transaction header. So the small fixed cost that each transaction carries. Now, that’s the way that it, that’s how much block space we’re using. If if we do it all by ourselves, if we do it in a clean join altogether, each still is spending their three inputs, let’s say and creating their two outputs. So the numbers of inputs and outputs don’t change. But we only have one transaction. So there’s only one transaction header, instead of 100 transaction headers. So instead of each of you, or each of the people making a payment having to pay for their own transaction header, when we make a transaction together, you kind of split that cost of a single transaction header among 100 people. And and that’s why it’s, in fact, the most efficient way to make payments is to batch them all together, instead of making hundreds of individual transactions for each one payment, and you make one transaction with 100 payments, it’s a lot a lot cheaper. And it’s cheaper. If you do that as a single person, then this is known as transaction batching. So your let’s say your, you have 10 employees and you want to pay them on salary day, you could make 10 different transactions with 10 payments to each of them. Right. But then again, you have your transaction header, etc. And Alternatively, you could buy yourself, let’s say, only one input that you control, and 10 outputs to each of the employees, for example, you could do that. And that’s a lot a lot cheaper than making 10 individual transactions. So the cost of a coin join blocks chain speaking wise is actually extremely efficient. And it’s, it’s even as efficient as like just when you make it when you make it very naively adding the inputs and outputs together just as you would have done them in individual payments. How however, it the the efficiency of a conjoint gets even more noticeable when you don’t just want to make a payment. But when you want to make a private payment, that all of a sudden cost you a lot more block space. Maybe let’s say you a naive example again, right? You received coin a coin from an exchange. So you have two from Kraken. And now you don’t want Kraken to know or the exchange know where you’re spending that money next, or when you’re spending it or how long you’re holding on to it. So one thing that you could do all by yourself is spent the coin that you just received from Kraken and create on the input side of a new transaction and create on the output side of this transaction two outputs, both of them will go to you actually, you’re not sending the money to someone else, you’re just destroying that one coin that Kraken gave you and creating two new coins. Now Kraken, when they look at that transaction, they know that the input belongs to you, for sure, right? Because that was the address you gave them when you requested the withdrawal. But then there’s two outputs. And they don’t know if this is a payment that you just made, if you paid to people, or if you didn’t pay anyone, for example. And you can repeat this multiple times, right? So you keep spending the coin that you just send to yourself and just shuffle left pocket right pocket the you don’t send the money to someone else. You just make a bunch of transactions that look like you were doing it, basically

Timothy Allen 1:03:55
which creates plausible deniability. Right.

Max Hillebrand 1:03:59
Right. So let’s say there’s 10 transactions that you make, and no cracking things. Okay, so this coin might be might belong to 10 different people, like one of 10 different possible people, for example, because there were 10 transactions, maybe it changed hands, right? So basically, you have an anonymity set size of 10. Your your the size of your crowd is 10, there were 1010 points where the money could have changed hands. And it maybe it’s not, so maybe it still belongs to you, right? That would be the one correct interpretation of of these multiple transactions on the blockchain. But again, you just made 10 transactions, right? And meaning you had to, you know, spend for 10 times the inputs and 10 times the outputs and 10 times the transaction header, all of a sudden, it’s quite expensive. You’ve created hundreds of or 10s or hundreds of coins, etc. It’s a lot of size. So

Timothy Allen 1:04:46
anyway, what’s that got to do with coins you are now used?

Max Hillebrand 1:04:50
So this is this if you want to make a private payment, meaning you’ve received from Kraken you don’t want Kraken to know how much money you sent to whom etc. You could create a lot of fake look In payments, your setup, this is nothing by yourself nothing to do with conjoint. But that’s super expensive. You have to pay for 10s of inputs, 10s of outputs, etc.

Timothy Allen 1:05:08
It’s worth mentioning, I don’t know whether everyone understands this. But the fee you pay to send a Bitcoin transaction is is dependent upon how much data there is exactly in the file. Yes. So 10 transactions, basically batch up the amount of data and you pay more for your mining fee.

Max Hillebrand 1:05:26
Exactly, yes, the more data block space data that we consume literally ones and zeros bits and bytes text, you know, the more text we write, the more expensive it gets. And so with a coin, join, what you can do instead, instead of making 10 transactions by yourself, you make one transaction, but with hundreds of others of people. So you take the coin from Kraken that you’ve just received, and you put it on the input side of the coin join. But there’s hundreds of other inputs here. And on the output side, you can directly put the payment that you want to make in order to buy the pizza and you don’t want to crack and to know that this is the pizza that I’m actually buying. Now you can create the output of the pizza merchant directly there, together with hundreds of other outputs. Plus your change, you’ll put in all the 10 Bitcoin minus one Bitcoin for pizza is nine Bitcoin change for you, let’s say and crack. And also Kraken looks at the blockchain, and they’re like, hey, look, Tim just spent the money that we sent to him. But he spent it in a transaction not by himself, but hundreds of other inputs and outputs. So we’re not exactly sure does Timothy, Tim, on all of these inputs is he’s super rich. Or if there’s hundreds of people together and the you know, this is the only corneas. Does he have one other coin on the input side, maybe five other inputs, you know, and on the output side, which of these hundreds of outputs actually belongs to him? You know, or to the merchant that he sent it to? And and how much money that he sent here. Right. So Kraken, all of a sudden has a lot of uncertainty about what just happened in this transaction. Right? They don’t know how much money you own in this transaction, because they don’t know if you have other inputs. They don’t know how much money you kept in this transaction. Did you keep all of the outputs to yourself that you had? Or did you make a payment to the pizza merchant, all of these things are uncertain. But now let’s compare the block space, you just paid for one input, and two outputs, and like 100th of a transaction header, instead of when you do it by yourself 10 inputs, 20 outputs and 10 times the transaction header, and that the size is substantially larger when you want to make a private payment by yourself. And so what a coin join does, is to decrease the amount of block space, the amount of cost that the individual user has to make private payments, it’s a way to to spend your Bitcoin privately a lot cheaper than you otherwise would have. And that’s why conjoint is extremely efficient. And that’s why I think London has a serious chance of being the default way of of using Bitcoin, it’s, it’s incredibly cheap, and it provides a substantial amount of privacy. And if people care about their privacy, and prefer to have that option to make payments that are not attributed to them, which I think many people will prefer that, then I think many people will use it.

Timothy Allen 1:08:11
And it’s true, isn’t it that the wallet that you make? Does it automatically, right?

Max Hillebrand 1:08:18
Yeah, exactly. So the entire problem that our project is trying to address. And that was, by the way, formulated in 2015, just after Christmas, by our founder, Adam fix org and power 73 that using Bitcoin anonymously, is difficult, and expensive and slow. And that’s, that’s a big problem. Because it’s a big problem. And so what we try is to make it easier to use click on privately to make it cheaper, and also to make it faster. And the ease of use matters. So especially with our second version of wasabi, we made for example things like the coin join on chain, the default it just happens in the background. And you you just don’t have to worry about basically there’s no need to click a button just receive money and and wait a little bit and these coins happen and then you can send money and you’re you’re good.

Timothy Allen 1:09:20
So how much does it actually cost on top of the you know, like how much the wallet charge for example for a coin join or is there is there a presumably you have to make money is m ours the wallet so

Max Hillebrand 1:09:32
yeah, so the first thing that any bitcoin wallet has to charge for it is the block space. And so you pay the miner to include your transaction into a block based on how large the size of your transaction is. Just the same with wasabi

Timothy Allen 1:09:43
in a coin join is that the input amount

Max Hillebrand 1:09:50
the the number of inputs Yes. So the more number of inputs you have, the the more you have

Timothy Allen 1:09:54
to put I mean, as you said that when you batch things together, you save save money. Yes does close coin John, so does a wallet still give you that saving?

Max Hillebrand 1:10:04
It? I mean, all ultimately you still spend money to the miner, right? It’s not that you that you don’t pay anything to the miner or that the miner pays us, it’s not that it’s just other solutions that provide a similar feature are extremely more expensive, like 10 times 100 times, I’m not sure, but a lot more expensive. But ultimately, still, you have to buy block space, if you do a coin join. And then the other thing is, basically, how much privacy Do you want? Like, is it okay for you that it’s just a little difficult for Kraken to find out that you just made the pizza payment here. It’s just like you if you know, it’s cracking, there’s not going to come after you anyway. And you just want to have a little, you know, minimum amount of security here. So probably just doing, you know, your input directly into the conduit and making the payment and the conduit is good enough. But still, the problem is that Kraken knows, hey, look, his coin, Tim’s coin just went into this transaction, right? So that is still attributable, and then they know that some of these outputs probably belong to you. Now what you can do is basically to instead of making a payment in a coin join directly, you spent the money to yourself. And so you’re not paying someone else, you you have, let’s say two Bitcoin on the input side and two Bitcoin on the output side minus the fees. So you’re not making payments you’re spending to yourself, but you can do that for multiple transactions on chain. Right. So just in the first example, where when you want to get some ambiguity, you make 10 transaction to yourself, so that it’s a bit more difficult to follow what’s going on, you can do the same in a coin joint to 10 coins after each other. But instead of each being a tiny transaction, each of them is a huge transaction, hundreds of inputs, hundreds of outputs, and that 10 times, right. So the amount of possible interpretations that could be done of like, hey, this input, we’re sure it belongs to Tim, where did it go, becomes even more difficult or difficult to find out. So doing these recurring coin joins is very beneficial to your privacy. It also however, comes at the cost of more block space. And so the question of how much money will people spend in wasabi on block space depends on how much privacy they want, you can you can turn off the conjoint function and just make payments and be really efficient that way. Or you can you know, go paranoid and make hundreds of conjoint transactions across months or years in a row until you finally make your payment that is going to be really expensive. And the second part of the fee does not go to the miner, but it goes to the to my company the this for the coordination service that is provided. So we provide a communication service, social media network, basically, where you can find people who want to make a Bitcoin transaction right now. And we basically connect you with them so that you can do this together.

Timothy Allen 1:12:53
You’ve explained that badly that makes it look like a social media network. You mean that’s the back end of your wallet, which basically does all that stuff. It’s finding people like yourself that mix coins together?

Max Hillebrand 1:13:05
Exactly right. So literally think of it as a bulletin board, you know, like a whiteboard in cyberspace, where people can come and say, like, hey, I want to spend this input, you know, and later they come and I want to create this output. So we just have a huge whiteboard, where hundreds of people can come and just keep writing their inputs and outputs. And at the end, we sign it, and then it’s done. Right. So it’s a pure communication service that we provide.

Timothy Allen 1:13:28
I just, I just thought something. So basically, presumably, there are a lot of people in the world that don’t like what you’re doing. Like, what’s the legality of things like that? Like? Yeah, like, what is the legality of things like that? And obviously, it’s a bit of software jumbling up some bits, that’s all it is. Yeah. But I should imagine someone somewhere thinks that’s illegal. Is that right?

Max Hillebrand 1:13:55
Yeah. It’s it to be honest, it’s, it’s uncertain to a large extent. I mean, if you neutrally look at what we’re doing, we’re, as you say, We’re just passing messages along, you know, we take a message from from one guy saying, Hey, this is the input I want to write in this text file. And, you know, we give that text and forwarded to other people. And we just do that, you know, people send us text, and we forward it to everyone else. And, very importantly, we do not hold custody over the money of other users. We don’t hold we don’t hold money of our users. It’s, it’s a noncustodial service. So the users at any time point in time are the only ones that have access to the private keys. We cannot steal their money, or we cannot run away with the money. So we’re not a bank. We’re not a money warehouse provider. Like other people are a lot of the currently existing regulation in the Bitcoin space is on money warehouses. If you hold the money of other people, that’s some serious business and there’s rightfully so a lot of regulation on how to do that properly. Because well, it’s not your money. So users money and but then the regulation on a website where people can write a comment, you know, and where it’s not even you can upload pictures. And there might be animal child porn upload to your server, which is kind of an edge case, this can even happen on our server because you can upload a picture, you literally just pass a tiny bit of text left and right. So in, and we have confirmations of this from from multiple lawyers and regulate regulatory bodies that what we’re doing is is not a money service business. It’s a pure communication provider, and is absolutely illegal. Absolutely legal, what we do, because freedom of speech, and which we just talked to people, basically. And likewise, is the usage of, of this tool, fully legal. Again, you’re not engaging in a custodial relationship, it is as legal as holding your Bitcoin by yourself. And it is as legal as spending Bitcoin by yourself. Meaning, you know, for example, if you would, you know, buy some weapons of mass destructions or something with your Bitcoin, well, probably people are going to get angry at you for this. But they’re get angry because you’re buying weapons of mass destruction, not because of the way that you talked while making that payment, you know, it’s so conjoint is basically it’s very similar to using a VPN, to be honest, it’s it and VP, PPS are legal, etc. It’s so the intent of the service that we provide this is for one, block space efficiency. And of course, for the other privacy. Right. And yes, privacy is a contextual or can have contended, controversial, contentious service. Yes. And some people don’t like it. But I believe that there is numerous ethical and legal reasons of why what we’re doing is not just all right, and should be tolerated, but by but because why what we’re doing is of the utmost importance in terms of human rights. And in terms of security. And in terms of peace of mind. A civil society is not possible without privacy. It is a slave society at that point. And I have pretty high convictions in that what we’re doing as is ultimately correct. But if it won’t ruffle some feathers, I mean, who knows?

Timothy Allen 1:17:30
Well, it is. I mean, every time a big something big happens, and Bitcoin was used. There’s always someone somewhere saying, Oh, it was coined, joined here, it was this, that and the other. You know, any, it’s obvious that if you’ve want to hide a transaction, you haven’t got many tools at your disposal, like you say, and the easiest one is one of them. But I mean, what is the attack vector on on, you know, this thing, like, because, obviously, privacy is on the way out, it’s a trend, as in the state doesn’t like privacy, the powers that be don’t like privacy. And it’s really ramped up in the last 10 years. When I was a kid, privacy was a real thing. And now, like people are being born into a system where people are saying it out loud, now, it’s privacy is not a right. You know, I’ve heard I’ve heard various people up on stage in positions of power starts hinting at the fact that privacy is not a right. You know, it’s, it’s, um, it’s unethical to be private, which is a crazy thing when you think about it. But it really is being said, so what’s the attack vector on like, a service? Like, for SRV, for example? Well,

Max Hillebrand 1:18:58
ultimately, because we’ve, we’ve designed to service in a way that the service provider has very little power over the user, can the service provider can steal from the user or can spy on the user, etc. What the service provider can do is deny service to to anyone, basically. So that’s the the extent of the attack vector. I don’t our servers get hacked and shut down, you know, or someone pulls the plug on the computer, etc. And that just means that well, users can no longer communicate via our server with each other and we no longer pass the messages forward. So that’s, that’s one option. But in you know, even so one of the design architectures of wasabi is that we assume that everyone knows what the coordinator knows. And so even if someone would, if we will tweet out the entire logs of what happened on our computer, for example, or a hacker gets access to it, there should not be any sensitive finding General information here. Like the names of the people who use the service, or private keys to the money of the people use the service or even ways to break the privacy of the people who used it. So that’s some extent the goal of the architecture.

Timothy Allen 1:20:17
I mean, presumably that I mean, I’m not nowhere near a lawyer. But what you’re doing is facilitating something, isn’t it? I mean, I don’t know whether that’s a legal term or whatever. But you know, are you are you all confident that that you’re you can’t be indicted in indicted or whatever the word is, in things that bad things that get bought or spent or transacted? I mean, I don’t know how any of this works. I’m just trying to think it through. It’s it seems pretty obvious that the neck when if someone, I don’t know, it’s very easy to implement a wallet in this situation by Okay, someone stole some money. They used your wallet, to anonymize the money, and now we don’t know where it is. It’s your fault. You know, that’s it. It’s an obvious argument, isn’t it? Even though Yeah, it’s not that, you know, in a way, the guy shouldn’t have stolen the money. Yeah, it’s as simple as that. Now, is that is that the legality of it as well?

Max Hillebrand 1:21:21
Yeah, I think it’s very similar to hate the the guy who, you know, coordinated with someone on WhatsApp or something to steal your money. Or he was driving the car by, you know, Volkswagen, as he got to the place where he stole the money, etc. He was wearing shoes from Nike, as he was stealing the money and running away with it. So there’s, there’s a huge difference in providing a service that happens to be used by criminals, versus providing a service that actively steals from people. I

Timothy Allen 1:21:50
see my own bias there. My own bias had me thinking straightaway, well, it’s a criminal service. Yeah, it’s interesting.

Max Hillebrand 1:21:58
And, you know, there’s, this is really, this is such a tough and complex problem. And, and one of the things is that, obviously, so you know, if you’re a shoe provider, if you’re a restaurant owner or something, you know, and okay, so your restaurant owner, and like randomly, someone walks into your store, and you provide them a service, it just happens that he’s a serial killer. And you had no idea about it, though. Now, just because you gave them and some food, does that mean you’re actively complicit in the murders that he did? And we’ll we’ll probably not. However, like, if you actively know that, hey, this guy is a serial killer, you know, and, well, you know, he’s coming into my restaurant, sure, I can earn a buck by giving him a burger or something. At now, that’s, that’s kind of different right to knowingly provide a service to people that you know, are criminal. Now, it’s still my opinion, a question of, are you legally allowed to sell a criminal food, for example, knowing that, that he’s a criminal? I would still argue, yes, there is nothing inherently legally speaking wrong with that. But there might be an ethical conundrum. And you could have in your restaurant haev, like, I’m not gonna give you food, because I know, you just murdered a bunch of people like, I will decline you as a customer, which is the right and the power of the entrepreneur to do you’re not obligated to provide the service to anyone.

Timothy Allen 1:23:24
Okay, what about this then? So, some money, some bitcoin gets stolen, and it’s sitting in a dress, and you get a call from a bank who or whatever, the US government, I don’t know who. And they say, Look, we know this money stolen. If it arrives at your wallet, we’d really like you to stop it. Or you we’d really like you to not allow it into a coin join. What how does that work?

Max Hillebrand 1:23:51
Yeah, exactly. So can we can we take the money from the user? No, we sorry, we can’t steal the money back and hold it and give it back to the person who’s actually belongs to we don’t have that power. Unfortunately. We don’t, for example, know the IP address that was used by that person, you know, to contact our server because he’s using Tor. And so we can help you are finding out hey, this guy is living in the Philippines or something, you know, what we can do you rightly pointed out is to deny service to that person. And this is something that we actively do. Alright, in fact, we like so not just do we wait until people contact us with Hey, these are criminal addresses, please don’t tell them. In fact, we we check when a new coin gets registered into our service, we check what’s the additional metadata that we can find in some databases about this coin, as specifically we’re looking for does this belong in all to terrorists to you know, weapon dealers to child traffickers, etc. You know, all of all of these obviously Bad people whom you, you at least don’t want to actively help them, you know, maybe you don’t have to try to stop them and like, try to arrest them and spend money on that, etc. But at least you know, you you shouldn’t be making their life and where does

Timothy Allen 1:25:14
that data come from? Then? How do you know? Where does it where does that reside? And

Max Hillebrand 1:25:19
that’s basically what all of these train surveillance companies do, you know, like, tree analysis, etc. There’s a bunch of them. And that’s, that’s exactly

Timothy Allen 1:25:27
what they have a database of illicit coins.

Max Hillebrand 1:25:31
Yeah, they have. So they know, of course, all of the addresses and all of the coins that were on the blockchain ever, and they are continuously building a, a data base of metadata on top of that, like, if they know that, hey, this is an address that is part of the Kraken cold wallet, you know, that’s how they store their their money. Like, we know that and that’s tactful exists. That grey

Timothy Allen 1:25:54
area, I would imagine Bitcoiners don’t like the association with chain and chain analysis companies.

Max Hillebrand 1:26:03
Yeah, definitely. This this. There’s, there’s so much nuance here. And there’s there’s pros and downsides to this.

Timothy Allen 1:26:10
So, I mean, sorry, do you give them any information? Or are you just using their information and saying, like, or would you say, Look, someone tried to spend here?

Max Hillebrand 1:26:21
Yes. So we, we do give them the information of which coin freshclam actually wants to get registered right now? Anyone? Well, we give that basically to the to the service provider via their way an API request. So they know that this certain address was interested in doing a contract, that the thing is

Timothy Allen 1:26:41
tournament. So if I tried to do a coin join, would somebody know what chain analysis? No, I mean, would they know anyway? Would they? Or no, it wouldn’t? Oh, anyway, they know I was making a coin join, though. Yes, that’s the other thing,

Max Hillebrand 1:26:54
right? It looks super unique, hundreds of inputs, hundreds of outputs looks very different than a one input to output transaction.

Timothy Allen 1:27:00
What about in 50 years time, if more and more people use going joins? Would they look less visible?

Max Hillebrand 1:27:07
They are still visible that it is a coin join? It’s just 80% of all transactions on the blockchain are coin join. So who cares, right? That’s probably what’s going to happen, right? And so the thing is, but yeah, doing a blockchain or doing a coin join is obviously, that you’re spending a certain input. So if someone knows that this address belongs to you, they see where you spend it as part of the Bitcoin Blockchain. And then they see in the transaction that you’re spending, and then they see what type of transaction This is, how many inputs, how many outputs, etcetera, a bunch of additional metadata that can be found out. And so the thing is, the fact that someone is wanting to do a contract, or that someone did a successful coin join is evident on the Bitcoin Blockchain. So if we if we would not be, you know, using this chain surveillance system, so to say, there, you know, people registered their inputs and outputs, and we make the coin join, and that goes onto the blockchain. And at that point, the chain surveillance firm knows, hey, all of these addresses just went into the, into the contract. And all of these output addresses are also related to this contract, right? So they would add this metadata to their database.

Timothy Allen 1:28:11
I wonder how much what the percentages of people making illicit going joins versus just your average? Because right now, I mean, I really noticed the bias inside me like just having this conversation, I’m thinking, why would I do you know, why? Why do they want to hide their money? Even though I know that’s absolute nonsense. So there’s a complete answer. I do have that I do have that bias. So do you know anything about the data, they’re like, how many people just make coin joins, because they want to be private? And how many are actually hiding something illicit? So I

Max Hillebrand 1:28:49
don’t know the exact percentage point. But okay, so and that brings us to one of the downsides of this whole thing, that third party surveillance firm that has this list of metadata of each coin, they’re not on the omnisend. And they don’t know everything, right. So they have false positives, meaning that actually honest people are identified as criminals. And so honest, people who didn’t steal from anyone are falsely accused of being bad, and therefore then falsely removed from our service.

Timothy Allen 1:29:16
So do you think do you think labelling something as a coin join has a negative connotation?

Max Hillebrand 1:29:22
So the way that these things work is that the provider that surveillance provider just adds the metadata tag like this is a conjoint? Maybe they even say this is a wasabi coin, specifically, right? Or maybe they even find out this is a wasabi coin joined, coordinated by this company, but they don’t

Timothy Allen 1:29:36
know what’s coming out of it. Well, they know what’s coming out the other side, they just don’t

Max Hillebrand 1:29:41
need it. They cannot link the inputs to outputs but they know that these inputs and these outputs are part of this contract transaction, right? They just don’t know which belong to the same user. That’s that’s the thing that they don’t know. And yeah, so the the other big problem is there’s false negatives, right. So that the they think that a This is a good coin, you know, but in fact, it belongs to some criminal. And obviously, because the world is big, you know, there’s like billions of people, here’s a bunch of bad people. And there’s a bunch of bad people that have money. And there’s a bunch of bad people that communicate about how to spend their money. And so you can’t catch them all. It’s It’s literally impossible, right? Even according to which definition of a crime right, so there will never ever be 100% success rate of here are only, you know, only honest people who’ve never ever stolen that’s, that’s going to be very difficult. You know, especially when you when you have to there’s like, anyone can come conjoint style, what you can do is invite only contracts, by the way, right? Like you and your family and your friends, and all the people that you really trust, you could run a coordinator and sign a Bitcoin transaction together. And when

Timothy Allen 1:30:51
you say run a coordinator does that. Is that something that in the wallet? Or would I have to do something when I have to create a bit of software, you have

Max Hillebrand 1:30:59
to run software piece of software exists, and it’s free and open source, meaning you can run it, you can change it and do whatever you want with it. Basically,

Timothy Allen 1:31:08
another thing I just thought of Do you happen to know? According to do surveillance companies? How long along the chain? Do you have transactions? Do you decide that this is no longer? A bad coin or whatever you want to call it? Like because

Max Hillebrand 1:31:27
it’s super difficult. It’s a super, super, super complex algorithm. And it’s, there’s 100% certainty that it is not correct. Because it’s so complex, it cannot possibly be perfectly accurate. And exactly how many hops is being followed really depends on on a lot of factors. Six hops, probably minimum 10 hops, most likely, like even 20 hops or something. It just depends, right? If you make a chain of transactions with each one input one output, you make the 10 times that gets differently Anala analysed than if you always have like one input two outputs for you can easily

Timothy Allen 1:32:07
run out run a bit of software to to make a chain of 50 really bizarre little transactions. Exactly. And the problem is, it’s expensive, it’s super

Max Hillebrand 1:32:16
expensive. That’s the big problem. It’s super expensive. And arguably, it doesn’t do much at all, because hey, the UTX o set size isn’t that big. Doing a couple hops isn’t that much. We’re dealing with computers here that can do billions of calculations per second. It’s not a biggie, to find out these things, and and to get some useful information out here. And to follow for 20 Hops is absolutely in the realm of possibilities.

Timothy Allen 1:32:43
It’s interesting because the even the mention of chain surveillance and I already feel and on edge, you know, it’s like it, I’m trying to understand how it fits into the grand scheme of things. So So you’re in a way, wouldn’t you want your service to be completely? Just like you out of your control, not even stopping anything, you know? Isn’t that the kind of ethos behind bitcoin? Shouldn’t it be just like, look, here’s, here’s the software run it. There’s nothing I can there’s nothing I can do about it. Because if you give yourself any control it then you’ve you’ve broken the spell

Max Hillebrand 1:33:22
of exactly right. And that’s, that’s why we’re companies is kind of unique, right? It’s a centralised company. We provide a centralised service, there is one choke port, a choke point, the coordinator, if you plug out that computer, our services down fully, we are in full control over which inputs and which outputs were allowed to register. We have zero control about the private key of our users, we cannot spend the money. And we have zero control about how our users choose to talk to our API. If they use Tor are not out of our control, right? They just choose to use Tor. So we have no power to get their IP address. Or you know, like using a bunch of different details of how people use our software so so that we get little information about

Timothy Allen 1:34:07
it. There are decentralised versions of it.

Max Hillebrand 1:34:09
No, in fact, None None up and running. When we’re talking about coins, when we looked into the centrally coordinated coins, and they’re a pain in the ass, they’re incredibly complex, incredibly slow and and expensive. And they’re easy to fail, basically. But we’ll use these centralised it’s a lot easier you need

Timothy Allen 1:34:29
the like if say you want to say there was only you could only do conjoins via your software right? And you know, something happened you were all in jail. You put in jail. The website came down, but I had a copy of the software. All I have to do is host it somewhere and then people can come Yep, I’m the central point where everyone meets and starts mixing their coins.

Max Hillebrand 1:34:55
Exactly. So that’s the thing right the the software both the client and the back end server is free and open source. So people can and do run it. And I have no power over the computer of other people and to change the software that they run.

Timothy Allen 1:35:10
If I run it, though, do I do I get the payment for the going job?

Max Hillebrand 1:35:15
If you configure your software to demand the payment, right, you can say my I charge zero fee, and the client will be happy. But it’s your computer, it’s your service that you provide, etcetera.

Timothy Allen 1:35:26
You have to get people to come, obviously. So this is the big thing, right? There’s no way to do this in a decentralised way. So there’s

Max Hillebrand 1:35:33
okay, what’s the coin Joint Coordination process? And why? Why does it have to be? Or why is it centralised? And why it’s difficult to do a decentralised? It’s a consensus problem, right? We have hundreds of people who want to sign a Bitcoin transaction together. The thing is, if one tiny bit, a piece of information of this transaction is different for one of the users, his signature will be different and not valid. So we need to make sure that all of these hundreds of users have exactly bid for bit the same transaction that that they’re about to sign. And then if one of these people fails to sign for whatever reason, it’s an invalid transaction that we did not have success. So we need 100% consensus, and agreement on this is the transaction that we sign and everyone signs it. Now, how do we find? How do we get the consensus over which exact piece of data to find? That’s a super, super, super difficult problem if you don’t trust anyone else? That’s the Byzantine generals problem, right? How can we get the single source of truth if we have malicious people in our group, and unreliable connections, so that messages that we sent might get lost and never reach people? It’s incredibly, incredibly difficult. Satoshi managed a way to find the single source of truth over all of the transactions in the history with the Bitcoin and the proof of work algorithm, etc. Crazy complex solution, crazy complex solution, our solution, like and we could do something like this for coin joins. Coin join. Now coin shuffle and shuffle plus, plus or decentralised coin, Joint Coordination protocols, we looked into them super difficult to do them good. And to do them at scale, you know, with large number of users doing things centralised this way easier. It just is way easier, because that one coordinator says this is the input, this is the output, this is the ordering. That’s it full stop. And if we all agree with, with with a coordinator, and we just basically follow the transaction he proposes, of course after validating it, then we have an easy way of consensus, because the consensus is just do whatever the coordinator says, As long as you’re not losing money.

Timothy Allen 1:37:44
And is there any so like, because you’re a centralised entity, one of the things people say is, well, you if you get hacked, then all everything you know, belongs to someone else. Is there any difference between what a chain analysis company can see and what you can see?

Max Hillebrand 1:38:03
Um, that’s a good question. Well, we have I mean, there is interesting metadata that we get, like, for example, what was the timing of the actual requests? And how like it like when different users talk to us? What was the time in between those talks? And maybe we could use this information, you know, in some fancy way. But even the client prevents against this, right? Because the client uses randomness in how frequently or like, what’s the delay between each time he talks to the coordinator, that’s a random choice. And so that makes all of this additional metadata look quite difficult. And I’m sure that if a dedicated an analyst would get access to our logs and everything that we knew that he would probably find out something useful that he would not have found out if he didn’t have our stuff. But still, it shouldn’t lead to the anonymization of users. On the other hand, pay these you know, that there’s this is a very specialised skill, and there’s lots of experts with lots of specialised software and huge compute power to run that software because it’s also extremely computationally expensive to analyse this is especially like if we’re talking

Timothy Allen 1:39:18
about that out of interest like what do you what can what tell me something about chain analysis that I probably haven’t realised yet scare me Is it is it like, you know, getting the same way that what what those kinds of companies are those services really start getting scary when you look at them over time and you start realising they are literally creating a digital version of whatever you if it’s your spending patterns if it’s necessary. You know, I mean, as someone that works in the Bitcoin privacy space, do you are you confident that they’re gonna win? You’re gonna win who you know,

Max Hillebrand 1:39:59
out there have no chance 100 Yeah, not no chance, no chance. But, but right now they’re winning. Like, if you’re, if you’re not using coin join, assume that every Bitcoin payment that you’ve made, is tight, or every Bitcoin that you’ve made in the same wallet, especially that is tied to one entity. And if you one time revealed one of your, if you did one of the transactions with this wallet, the to your publicly related identity, for example, you posted an address on Twitter, or you use the KYC exchange, then all of your art and I mean, all of the payments that were done in this wallet are not just tied to each other, they’re also tied to your as your identity, you’re

Timothy Allen 1:40:41
saying that they can tie different addresses in the same wallet together without knowing the without knowing the

Max Hillebrand 1:40:49
expert or anything just by looking at the Bitcoin Blockchain really Yeah,

Timothy Allen 1:40:53
it’s pretty badly, I thought that was the whole point of of not revealing your ex. But by that, let’s explain what an ex Bob is. So that, so So a Bitcoin wallet is a large, very large number of addresses that which are the long strings or numbers that and that’s that’s where your transactions reside on those different addresses. And an X Pub is the one big long number that encrypts all of those into the same wallet is that is that right?

Max Hillebrand 1:41:20
Basically, whoever knows your x pipe, your extended public key knows all of your public keys, and therefore all of your addresses

Timothy Allen 1:41:27
in one particular Wallet. So when you have a wallet, so the sum total of your wallet would be the amount of bitcoin you have, and not all these different transactions or residing in different, hopefully in different addresses. And they are these addresses are generated automatically from this one exact graphic.

Max Hillebrand 1:41:48
And one of the triggers for every new transaction generate a new address,

Timothy Allen 1:41:51
yes. But even if you’re doing that, so even if you’re generating a new address, you’re saying, chain analysis, just by looking at the blockchain, with their complicated tools could tie all of your addresses together, even if you’ve never, it just knows that they’re all part of the same wallet,

Max Hillebrand 1:42:09
it depends a lot on the individual case. But and if you’re only receiving you’re probably good if you only receive and you always generate a new address most of the world, just by looking at the blockchain, there is nothing that can tie them to each other. So unless I don’t know you’re simultaneously posting them on Twitter or not using a VPN, etc, like that. You’re good. But as soon as you start spending your coins, that’s when your wallet makes decisions of which coins that you already have to put on the input side. And again, right we assume that every input that you add together, like multiple inputs together belong to the same person.

Timothy Allen 1:42:46
That’s an interesting thing that I didn’t know until I start I now. I mean, for quite a while I’ve been using a wallet, which I can choose which coins I spent. But I didn’t realise that for for a few years. And I was wondering, do you know how wallets decide which coins to spend

Max Hillebrand 1:43:04
super, super difficult and complex algorithm? And the reason why it’s so difficult is one of the many reasons why it’s so difficult is because you can optimise it for different use cases, you can optimise your coin selection to be as cheap as possible. You can optimise it to be as private as possible. You can optimise it to you know send arbitrary amounts of money. For example, there’s many different ways that you could choose or do coin selection. It’s incredibly, incredibly complex. And that’s why most software developers just made it easy. In all they like they just did something that worked. But it maybe was more optimised for cost for example, and or, and they completely disregarded privacy. Most wallets right now have coin selection that does not give a flying fuck about privacy, they make zero reasonings about which claims should be selected based on how that affects your privacy. And it’s really not easy. And even if you would do a good job at it just just by the fact that you’re alone making a transaction and that you’re this common input ownership I Ristic. Like works out. If you do that across multiple transactions, you you have to be a ninja to to do this type of coin selection in your head.

Timothy Allen 1:44:23
Do you know how much it would cost you to be making? Like say as a percentage of your spend? It say you were just making coin joins, like using wasabi? Not you know, how much does it cost? What’s a transaction fee? Is it a percentage of the

Max Hillebrand 1:44:43
sword? There’s two there’s the fee to the coordinator. Yeah, which we’ve configured at 0.3% of the Bitcoin input amount. So let’s say you got one bitcoin withdrew from Kraken and you put it into wasabi and it starts conjoining then you pay 0.3% of that one because that’s what 300,000 SATs or something,

Timothy Allen 1:45:02
which is currently was that 20?

Max Hillebrand 1:45:07
I mean, it really depends on on the amount of money that you have, right? If if you only have like a couple million SATs or so that’s almost nothing,

Timothy Allen 1:45:14
that’s what I mean. But if he was in Bitcoin is like 100

Max Hillebrand 1:45:17
Bitcoin right? Then it’s 0.3 Bitcoin that puffy. So it can get quite expensive if, of course, you have a lot of money. The second thing is, is about the mining fee? And that’s super volatile. Like that’s so difficult to say. So it depends on how much privacy do you want, you can do one coin draw and round, you can do 10 coin rounds. And it depends on what’s the current fee rate available, or like at the current marketplace, right? Sometimes you get away with, we pay less than two cents per view buy it for for free, right? Sometimes it has to be 20. Right? So 10 times more,

Timothy Allen 1:45:51
is there a cut? Is there an additional on top of that, that you take a cut? Or is that just a fee? Now their point oh three is your free? Yes,

Max Hillebrand 1:45:58
it’s our fee, and it’s a one time fee. So if you only pay basically for the first coin join, so to say. And if you then do 10 coin joins afterwards with that same money, you don’t pay coordinator fee anymore. You pay mining fee, but not coordinator fee. So the coordinator fee is only for what we call fresh Bitcoin. clients that were not in a casino.

Timothy Allen 1:46:17
I wonder what the This is, like, I’m trying to work out what the fee for privacy would be. If you were It’s like a It’s less

Max Hillebrand 1:46:24
less than 0.5%. Especially right now. It’s it’s super cheap. And that’s like, including everything. So probably right now considering how cheap it is as like as 0.4%, something like this, including our coordinator fee, right.

Timothy Allen 1:46:37
So if you were someone that wanted to be as privacy conscious as possible, you’d be paying about half a percent to be privacy conscious.

Max Hillebrand 1:46:47
Okay, yes. And of course, right? A lot of that cost is the same as if you were just using Bitcoin without any privacy cost. using Bitcoin, even when you’re fully fully transparent is still expensive. Yeah. So we have we do have an additional cost. But the alternative is not zero.

Timothy Allen 1:47:04
How much knew about the Lightning Network? of it? No, I mean, technically, because I want to, I want to have an absolute learning streak at the moment. I hope you’ve got time. Sure. Well, because obviously, here’s my interpretation of this, the Lightning Network has relatively strong privacy. implications. Is that right? Yeah. Because obviously, as far as the the on chain transactions that you get with a Lightning Network, there’s only two one when you go on and when when you come off. And everything that happens in between how easy I mean, maybe we should explain what even the lightning give it give us a quick explanation of what the Lightning Network is first, because just in case anyone doesn’t know what we’re talking about. So

Max Hillebrand 1:47:49
the Bitcoin Blockchain works in a way that everyone has to verify every transaction of everyone else. Since the beginning January 3 2009, every single transaction that ever happened, every user of the Bitcoin blockchain has to fully validate that forever and ever and ever, and it will just keep growing. So that’s inefficient, that’s not scalable, was the number one criticism and feedback right after the white paper got published, this doesn’t scale at all. What’s the Lightning Network, the Lightning Network is to make payments with Bitcoin as money that do not have to be verified and enforced by everyone. So we’re making payments, where the the actual transactions that we’re making is not part of the global consensus, not everyone has to agree on them. In fact, just two people have to agree with it. And especially the people who are part of this payment channel. So a payment channel is what the Lightning Network is made up of a payment channel is on the Bitcoin Blockchain, an address that has a bunch of Bitcoin on there. And this address can be spent by two people, if they agree. And if they agree, they can make payments really, really quickly back and forth. Because they don’t have to wait until everyone else on the network sees the transaction. But as soon as these two people agree of, we’ll spend the money here, then it’s done. So we’re talking about the cost of making a signature and like one or two round trips, so it’s millions of or 1000s of transactions per second, that these two people can do with no fee with zero fee. Exactly. So as you say, right, there’s a cost for opening a channel and for putting money on the table between these two people. And then there is a cost for closing the channel. So after they’ve made all of these payments back and forth to take the money off the table and send it to somewhere completely else.

Timothy Allen 1:49:38
And just to even try and simplify it a bit more. This is this is kind of how the current monetary system kind of works as well. It’s like you have the base layer of some the base layer of the money which is the Bitcoin Blockchain. But the problem with that layer is transactions confirm only roughly every 10 minutes, so there’s no good for making instant payments. I mean, one of the ways I think about it, and this, you correct me if I’m wrong is you take some bitcoin from the base layer, and you kind of stake it on another layer, and it sits there until you return it back to the base layer. And that’s the only two transactions that occur on the Bitcoin Blockchain. While it’s staked on this new layer, it creates a liquidity pool that you can send around really quickly. Is that Is that a fair way to describe it?

Max Hillebrand 1:50:35
It’s a useful analogy for sure. Just one thing I’d like to highlight is that even the second layer thing is just Bitcoin blocked or Bitcoin transactions like any other Bitcoin transaction, but they’re so they’re valid Bitcoin transactions that have not yet been broadcast to the Bitcoin Blockchain. So in Lightning Network, you’re kind of preparing and pre signing transactions that could be going to the blockchain, but you’re kind of holding off with putting them onto the blockchain just yet, because maybe you will want to make a future transaction. Right? So we just, we keep on kind of updating how we’re spending this coin on the blockchain. But for each update, we don’t send the up each update transaction to the Bitcoin network or to the Bitcoin Blockchain, we just keep it between the two parties of the channel.

Timothy Allen 1:51:26
And that way, there can be no creation of Bitcoin. Only Bitcoin that exists on the Lightning Network has to exist on the base chain, and it’s just frozen, there is a pending transaction as a good way, I’ve never thought of it like that there is a good way of thinking about it. So alright, and how private is the Lightning Network? So when those that Bitcoin gets staked? Or when that Bitcoin resides in? It’s on the Lightning Network? A chain analysis company, all they know, is there’s a pending is it? Does it look like a pending transaction? Or? Or does it look like it is a multi SIG actually, as they see

Max Hillebrand 1:52:03
on the blockchain or coin, one bitcoin on it in in a pay to script hash, or pay to witness script hash address type. So they know it’s not a single public key? That’s that’s holding on to this money, but it’s something else, okay. They don’t know exactly what the script is, they will find out later when this coin gets spent, which could

Timothy Allen 1:52:23
be like in two years time. Exactly. Yeah. So so how much do they know about what happens on the Lightning Network to that Bitcoin in the meantime, when you’re buying coffees, and you get to your friends did it IrDA.

Max Hillebrand 1:52:36
So there’s privacy of lightning is quite multifaceted. And it inherits all the privacy downsides of the Bitcoin Blockchain. So we just said that if you don’t do coin join, you can link inputs to inputs and inputs to outputs of the same user, basically, trivially. So that’s what chain surveillance companies can still do. They will basically know very easily just by looking onto the blockchain data of like, Hey, these are all the coins that belong to the same lightning node, roughly saying that these are all the channels that belong to the same note

Timothy Allen 1:53:05
Oh, to me, there is no block Explorer for the Lightning Network.

Max Hillebrand 1:53:08
No, but they’re just looking at on chain data right now. Right? They’re just saying hey, here, all here all of these Peter witness script hash coins. And if we look at the transaction graph of when they were created, and when they were spent, we can see that here is a chain of multiple transactions, where it seems like one guy had deposited 10 Bitcoin into his lightning node. Then he opened the first channel 10 Bitcoin input, and like nine a one bitcoin channel, nine Bitcoin change. Then he spent the nine Bitcoin change output, and opened another channel, where to Bitcoin and yet seven big country, I forgot

Timothy Allen 1:53:40
that so when you open a channel, you make a payment, you make an on chain

Max Hillebrand 1:53:43
exam transaction, and this is as private as the default on chain. So

Timothy Allen 1:53:49
best practice to be to just create one channel?

Max Hillebrand 1:53:55
Exactly, if you create one channel, right, so let’s say you deposit one bitcoin into your lightning wallet, and then you open a channel of exactly one Bitcoin, so you don’t get a change output. So your channel opening transaction has one input and one output. And so future, there’s, there’s no future transaction to be open, right. So that’s one benefit that you could do gets really expensive. If you consider the whole thing of how much block space you need to use in order to prepare it, that you never get to change outputs in when opening a channel. It’s not cheap, block space wise. Of course, the other alternative, as we already discussed this conjoins, right, you could open a channel, later make a coin joint transaction, then open a channel, make a coin, joint transaction, et cetera. Or even better, you also more complex, you can open a lightning channel inside the coin joint transaction. So the actual lightning channel is a two of two multi signature on the output side of a coin join with hundreds and hundreds of other inputs and outputs.

Timothy Allen 1:54:52
I can’t get my head around that I don’t understand. I’m not even sure I understand how where the Get on chain part of a transaction occurs when I’m opening a lightning channel, because I thought, like so. So I want to send a Bitcoin to lightning. And I want to create 10 channels of point one of a Bitcoin. They all have unchained transactions to create the channel. Yep. Where’s the where, where? Where is the mining fees coming from when I make that when I make those channels,

Max Hillebrand 1:55:28
you a channel is only then opened when the transaction that created it is confirmed on the Bitcoin Blockchain. So in order for this transaction,

Timothy Allen 1:55:37
point one transactions and times point one transactions.

Max Hillebrand 1:55:44
Yeah. So you would open 10 channels in this example? And I think so for each of these channels, each of these 10 different transactions has to come on to the blockchain. Let’s say the first transaction is confirmed, you have to pay two sets per view byte to get the transaction confirmed. Now the first channel is open. Yeah. And then later, the second channel, we’re in the transaction, you paid 10 cents per view, or whatever.

Timothy Allen 1:56:06
And this chain analysis company can tie that up with your original one Bitcoin 100%. Nothing you can do unless unless

Max Hillebrand 1:56:13
100%. Certainty is always tricky in blockchain analysis, but like 95 99%, confidence, something like that.

Timothy Allen 1:56:21
All right. So all right, your channels are open? How much do they know about what you’re sending backwards and forwards? In those channels?

Max Hillebrand 1:56:29
Yes, then there is the question of whom do you send the payment to? Because let’s say you only have a channel open. And let’s say I put one bitcoin onto my side of the channel to start with. And now I send you point one Bitcoin or something. The only one that know about this transaction is you and me. There is no blockchain trace yet. We didn’t talk to any other computers. It was just my computer talking to yours. And so nobody else is

Timothy Allen 1:56:54
using a custodial lightning wallet, maybe? Well, yeah. If you’re using wallet of Satoshi they have some data,

Max Hillebrand 1:57:00
then you have zero Bitcoin at all right? It’s a custodial money warehouse, and the bank uses the Lightning Network, right? And so that’s a difference. You don’t use the Lightning Network, personally in wallet of Satoshi or any of the others. But

Timothy Allen 1:57:11
in that case, is there some privacy jour? That’s quite good privacy, isn’t it? If I put a Bitcoin on wallet of Satoshi and spent is just some database spending it as

Max Hillebrand 1:57:21
the bank knows everything about you, they know that one user has one bitcoin in here, and these are all the transactions that he made. So you have no privacy against the bank, but against an outside observer blockchain wise. Yeah, it’s pretty good. Actually, of course, like, that’s what these custodial mixers are, by the way. So mixer is very different from a coin join. A mixer is when we turn on the base chain, that’s base chain, exactly. And that’s just where multiple users send money to a company. So the company has the private keys to users no longer have the private keys. But now the company is kind of collecting money from hundreds of users, and later sending out the money back to the users. But because there were hundreds of users involved in here, it’s no longer easy to, again, link that this user deposited into the bank here and withdrew from the bank here. Those deposit and withdrawal transactions become difficult to link. But of course, not just can the bank spy on you, and they know exactly when you went in, and when you went out, they can also run away with all of your money. And so that’s that’s a really risky service, then.

Timothy Allen 1:58:22
Okay, so, so, okay, so yeah, it loosely speaking, I’m trying to work out how prove how private than the Lightning Network is, if it’s just someone using it, so.

Max Hillebrand 1:58:35
So yeah, if you make a payment to your direct channel, partner, it’s for all intents and purposes, anonymous, nobody else knows that you’re making this payment, right? People know that you’ve opened a channel to that person. People know when you close the channel with that person, but they have no idea about how many transactions that you make in between? And did you send a million times back and forth one sat? Or was it you know, less frequent, nobody knows. But of course, you don’t just want to make payments to the people whom you’ve already made an on chain transaction with to open the channel. Otherwise, you will just be making on chain transactions basically, again, to everyone. So the key inside of the Lightning Network is not just to open these payment channels. That’s an older concept, but specifically to open them in such a way that you can make a payment through someone else’s payment channel. So let’s say we do have a channel open. But I don’t want to pay you. I want to pay Peter. And you might have a channel open to let’s say Tito’s and Tito’s has a channel open to Peter. And, and now I can pay Peter, under the condition like by giving you money. But under the condition you only get the money if you forwarded to Tito’s. And you set up with Tito’s that he only gets the money if he forwards it to Peter. And then Peter is the one who actually should get the money. And Peter and I are talking and we’re negotiating this whole thing and then Peter gets from Titas the responsibility here’s money. Do you want it? Peter says, yes. Sorry. Peter says yes. Which means Tito’s pays to Peter, you pay to Tito’s, and I pay to you. And all of this happens. atomically

Timothy Allen 2:00:15
Yeah. And that’s why in the old days, lots of times transactions would fail, because they couldn’t find a route to the person that they wanted it to. And not only that, but the route has to be has to have the same liquidity. Yep, the whole way that and that was that was the problem, but I really is not much of a problem. Now. I mean, I I sent 300 quids worth of lightning Bitcoin to my daughter the other day and it just went straight through no problem. So and that was on wallet is a totally that was like, mind you? Well, but if she has wallet, she didn’t know she know it went to Blue wallet. Which is is another custodian I know many still had to go over the Lightning Network, didn’t it?

Max Hillebrand 2:00:54
Well, but most likely so these two banks quote unquote blue wallet and wallet of Satoshi these money warehouses most likely have a direct channel with each other. Because there’s a bunch of users in between them that sent back and forth.

Timothy Allen 2:01:05
There was no favour. Actually, it’s interesting. I only just discovered the other day a few days ago, that blue wallets lightning wallet was custodial. Yeah, I didn’t know that. Because I I’ve been giving my kids pocket money in Bitcoin for years. And I set them up because they you know, it’s a really visual UX wallet. It’s really good for kids. They can it’s like a bank, you can see. But yeah, now I’m going to switch their it’s their savings really, I’m going to switch it to two on chain in blue wallet. Because I didn’t know that. I’ve been it’s been three or four years and I didn’t realise

Max Hillebrand 2:01:46
it’s quite scary. The differentiation between the actual base money and and the money warehouses isn’t as clear cut and Bitcoin from the user facing site. And most people just don’t know what it actually means. They don’t know that they have a custodial wallet. And they don’t know what it means. Until people run away with your money. And you’re like, oh, shit, what do you mean all my bitcoins Oh,

Timothy Allen 2:02:08
when they’re in El Salvador, they realise that Walliser Dodie works every single time. And a lot of the other ones don’t. Sure. And it’s it. Here’s my take, and I’m, I’m probably being a bad Bitcoin er here, but I don’t mind keeping a few 100 quid on wallet of Satoshi and I, I’m prepared to lose that 200 bucks there, because it’s so bloody good at what he does. Sure.

Max Hillebrand 2:02:34
And this is also nothing new. And I think it’s also nothing bad. Gold, for example, great money, right? Lovely. You can self custody, it’s awesome. It’s just so heavy. And if you want to guard it, you need a metal box and the guy with a gun standing in front of it. And then you need to move that we need like six horses to pull the thing. And also it’s it’s expensive to move gold, it’s costly to move gold. That’s known as demo rush cost, the cost of holding and spending the money moving it physically in in the world of gold, quite expensive, high demo rush cost. So what do you do, you move your money into a money warehouse, you move your gold coin once very heavily, lots of guards, lots of guns, etc. You move them into the vault there and doesn’t move anymore. And you get a paper certificate, saying that whoever has this paper gets access to the gold. And now you can move away like you have a tiny piece of paper with, I don’t know 10 kilos of gold. And you can easily pass it back and forth the demo rush cost of spending that money substitute that money certificate, that piece of paper, the cost of spending that way cheaper.

Timothy Allen 2:03:39
Do you think there’s a time in the future where not aware non custodial lightning is very simple. Sure, it

Max Hillebrand 2:03:47
will be it will be very simple. It will still be costly. I think that’s the kicker. I think Bitcoin blockchain transactions will be insanely expensive, utterly, insanely well, they

Timothy Allen 2:03:57
would have to be especially in the distant future because the miners are going to need paying with something. Yeah.

Max Hillebrand 2:04:04
And it’s just, this is a global consensus system for the planet. Now we have 8 billion people, hopefully, soon a bunch more. There’s not much block space, because we need to verify every transaction that everyone ever makes. 8 billion times does that

Timothy Allen 2:04:18
mean there’ll be another layer on top of lightning then or whatever? There will

Max Hillebrand 2:04:22
be custodians? Yeah, the demo rush cost of spending Bitcoin on the blockchain is going to be utterly expensive. So many people will be priced out of it, meaning they will prefer to not make blockchain transactions. So they will go into something like lightning, which reduces the amount of blockchain transactions that you need to make, you’re still making them. And then basically, the next step is to go into a money warehouse. Now that can be a single centralised money warehouse like blue wallet or wallet of Satoshi, et cetera. Or that could be a federation and ferryman for example, or liquid. The sidechain is, in my opinion, a money warehouse. That’s federated. So you put to your Bitcoin, your base layer money, not just to one company, but to like five out of seven companies, and you get a paper receipt that’s signed by five out of seven of these companies. And now you can move it whenever five out of the seven, collaborate. So one bank alone cannot steal your money has to be five banks together that collaborate in order to spend that money again. So Bitcoin will enable that federated money warehouses, but it because of the high demurrage cost of Bitcoin and lightning, using Lightning is going to be expensive to now now we can say it’s fast and cheap and free. Just like we said at the beginning of the Bitcoin Blockchain days, it’s fast and free, and completely gratis and fully anonymous. Turns out it’s not central to lightning

Timothy Allen 2:05:43
doesn’t I mean, the way the picture you paint there in the future is doesn’t don’t don’t me run the risk of having all the same problems of the current system or, you know, paper Bitcoin everywhere? Because no one can afford to spend real Bitcoin because one of the things I’ve always thought is, what I like about Bitcoin is that at the end of the day, I can spurn paper Bitcoin, because I can just demand real Bitcoin because I can work it out myself. Yep. But what if I can’t afford the transaction?

Max Hillebrand 2:06:15
Exactly. It’s so great that you can demand you know, to get your gold coins out of the bank. But where are you going to put it? Are you going to hire a guy with a gun and a big metal box to store it? Well,

Timothy Allen 2:06:27
so cool. And then what’s that? What does that mean?

Max Hillebrand 2:06:32
is difficult? Is it a problem? Not sure. It’s a huge problem, having a good money is really, really, really, really, really, really difficult. Like, it’s anything but easy. And gold did a damn good job at it. And it was still not good enough. And now, I obviously becomes way better than gold, right? On numerous layers. Still not perfect. And the cool thing, that’s the really, the thing that gives me a lot of hope, is that no money is software. And it’s an engineering problem. And we can get some smart engineers to come up with with nice protocols and ways of using the secure monetary system. much faster, much cheaper, much more private. That’s what the Lightning Network is, right? It’s a way of using the Bitcoin Blockchain. Super smart, and at way smarter than just making one input to output transactions, to be honest. And like 100 years, if we look back at how we used the early Bitcoin block space, our grandchildren will be crying and turning in their grave of how how much we misused this, this tool, because at the beginning, we had no idea what the fuck we just discovered and how to properly use it. And I was

Timothy Allen 2:07:44
still doing it now he made no idea, man Come on, like, entertain my mind, where’s this going? What was this all about? You know, what are we? How are we misusing it now it seems pretty, you know? I’m stuck up peer to peer inflation resistant savings and peer to peer transactions. What else?

Max Hillebrand 2:08:08
Well, I mean, so in, in like the grand scheme of things like going onto the Bitcoin Blockchain is a is monumental event, like it’s something that you prepare. It’s something that you take a lot of care for. You don’t just randomly make a couple blockchain transactions in the long run future. I’m saying this is something that like a team of people, or like a very sophisticated software system will figure out of how to optimise how and when you’re going to buy block space.

Timothy Allen 2:08:35
Because it’s so expensive, because it’s

Max Hillebrand 2:08:37
so expensive. And it’s so difficult. And by the way, we’re running for sabe. Now, why

Timothy Allen 2:08:41
would you? Why is so difficult? Why would it be difficult to make a Bitcoin transaction?

Max Hillebrand 2:08:47
If only you know,

Timothy Allen 2:08:49
I’m trying to I really want to

Max Hillebrand 2:08:53
know this. This is something we’re stumbling at for sabe right now, like, so. We want we want to have an easy right, it should be easy to use the coin on the blockchain, which means it has to be automated, like manual coin selection is not going to go anywhere. This is stupid idea. Let the robot to the complicated math seriously. You’re talking about inputs here. Yes to select which inputs you’re gonna spend. So okay, but are you doing

Timothy Allen 2:09:17
it in terms of privacy? Or just how can Yeah, well,

Max Hillebrand 2:09:21
it gets even more difficult when you consider privacy on top of this. But, so But So basically, what a software wallet does is it receives a user intent. The user says, hey, I want to pay this address this amount of bitcoin, okay. And now the wallet tries to satisfy that request of the user. And the checks things like Do you have enough money? If you don’t have enough money? He’s like, Sorry, can do. If you have enough money, then the question is, which coins do you register? In order to make a good decision on which coins do you register? You need to have metadata about those coins, because one coin you have withdrawn from crepin, the other coin your wife gave you, and the third coin is from whoever, right? So now if you want to make a payment that your wife doesn’t know about, don’t use the coin from your wife, for example. So which coin you register? is a big question. And that depends on metadata. On it also depends on like, how old is that coin? You know, if it’s a coin from 2009, maybe it’s not the best to spend it now directly, you know, on a merchant, because then the pizza merchant knows that you’re a Bitcoin holder from 2009. And you probably have a couple 100,000 Bitcoin lying around, you know? So like, which coin to select? And how many coins to select? Do you want to select one big coin on the input side worth 50? Bitcoin? If you make a one Bitcoin payment? Or do you prefer to use three times 0.4 Bitcoin on the input side, and on the one in one case, you reveal that you that you own 50 Bitcoin. On the other case, he revealed that these three different coins belong to the same person. And that’s just some of the complexity, then even if we get into coinsurance, it gets even more complex, because now you have some private coins, and some non private coins. So private coins have conjoined outputs. Basically, there’s the question of how much privacy did you get in this coin join? You know, if you withdrew from Kraken, and you made a coin join, what’s the likelihood that now it’s still obvious that this output belongs to this input that came from Kraken? So maybe you have little privacy? Maybe you have a lot of privacy? How do we give that? How do we quantify that, so that the software can make decision on dealing private and non private coins differently? And so then, we need to figure out how to quantify the privacy of coins, then we need to know should know, should you select Private coins or non private coins? And, again, considering all the amounts age, etc, then we go to the output site. So which payments Do you want to make? If you want to make a payment that should be private? Then we need to consider the input selection again, did we select only private inputs? If If no, then you shouldn’t make this payment yet? Because it’s not a private payment yet, because the inputs are not yet private. So then you you need to say, Okay, let’s, let’s make only a self spent in this first round. So we’re not making the payment yet. We’re just sending it to ourselves to gain more privacy before we can make the payment. But then is how many outputs do you get? What’s the value of those outputs that you get? And how short can you be that other people, we use the same denominations as you so that the size of the crowd gets larger, etcetera? And then, okay, so we’ve done the first round, now let’s do the second round of content, how long should we wait in between these rounds of conjoins? Which of those coins that I got in the previous coins? When should I select in the future, etc, right? And then on the output side of that, okay, it’s stupid to just send it to yourself. So you want to make some payments to the merchant directly. But you also maybe want to open the lightning channel, right? Because keeping everything on chain is stupid, you want to be able to make off chain payments as well. So now we need to coordinate with whom do you want to open the channel with how much money? You know, is he online at the same time? Does he understand what a conjoint is like, and I could keep going for another hour or about the complexity of this entire thing. But I’m seriously that what we’re trying to achieve with wasabi right now, to have a privacy by default software wallet is I think, as difficult as building a self driving car, not just the drives you do whatever you want without getting into an accident, but even that the car figures out where you want to go without you needing to tell the car, right? Because we want to make it all easy and automated by default.

Timothy Allen 2:13:38
Isn’t there an inherent danger in that that in a way by knowing by having a bit of software that knows all this to make it needs to know a bunch of stuff about you in order to make the decision? So you’re basically creating an attack vector right there? Because you’re, you’re creating? Yeah,

Max Hillebrand 2:13:58
we have to assume that that your computer is secure, and that your computer isn’t hacked, etc.

Timothy Allen 2:14:05
But what I mean is like in order to know how to anonymize someone, you kind of have to D anonymize them, you know what I mean? Like, yeah, otherwise, otherwise? You know, you’re

Max Hillebrand 2:14:15
the question is, who does the computation, right? So this is, as I just laid out, incredibly complex problem. So who’s solved who’s trying to solve it? If it’s a third party computer that solves it? Well, then you have to tell the computer these are my clients. This is all the metadata. This is here’s where I got them, you know, these are all the kinds of points that I made. This is the privacy level that I gained, etc. And then that third party computer, does the verification and analysis, then optimizations and sends it back to you. But then, of course, he knows everything about you. So the goal is not just to figure this out, but to figure this out in a efficient enough way so that you can run it on your laptop on your phone, right that only your computer is involved with this that no other computers is being relied upon with the security and At the privacy of your information, and which, which turns into even more of a clusterfuck, it’s sold so difficult that

Timothy Allen 2:15:07
when you said earlier that you think in the long distant future, making an on chain transaction will be this big ceremonial sort of explain why who’s making this transaction? And why are they why are they being so specific about what they’re doing?

Max Hillebrand 2:15:24
So I mean, in the Okay, let’s go crazy Bitcoin future, right? So it doesn’t make sense to lock up a Bitcoin coin, just with one private key, most likely, you’re going to have like a multi signature, where it’s like seven out of 10 private keys have to sign it.

Timothy Allen 2:15:39
Are we talking about Bitcoin being worth like $100 million? Or something? It’s a valuable thing. Yeah, it’s

Max Hillebrand 2:15:46
an mega valuable thing and holding it already is right. So you pet it protected? Well, and so multi signatures with you’re gonna do protections on Bitcoin script layer, right? You’re gonna have multi signatures, time logs, hash, preimages, maybe some pre signed transaction, there’s going to be a lot of information and a lot of coordination that is going to be needed just to produce a valid signature of that coin or a valid script. To that coin.

Timothy Allen 2:16:11
Do you know what’s funny? Just thought, currently, people are just keeping them on exchanges. Yeah. Ridiculous. Sorry. It just occurred to me that, you know, like, if this is true, I see what you mean, now about people looking back and going, what did you get?

Max Hillebrand 2:16:27
The phone? Call? Would you ever thought that this is a good idea? What do you what do you mean, you made a transaction by yourself? Just the fact that you own an entire UTX? Oh, is going to be crazy? What do you mean, you’re the only one that has access to this one ut EXO launch? What do you mean, you have access to an unchained UTX? Oh, let it like alone, just by yourself. That’s crazy. Like in the long term future, a single UTX on the Bitcoin Blockchain is going to be controlled by 1000s of people in like lightning channel factories, etc. Like the fact that

Timothy Allen 2:17:02
even washing clean Ising channel factories are you talking about it’s

Max Hillebrand 2:17:05
basically a lightning channel that not just with two people, but with hundreds of people, or 1000s of people. And so,

Timothy Allen 2:17:11
um, what’s the point of it just to create liquidity. So it’s

Max Hillebrand 2:17:15
like it to be more block space efficient, because all of a sudden, instead of 1000, people needing 1000 outputs on to open 1000 channels. Now 1000, people get one output, and they can still open individual channels on top of that, it’s kind of so Yeah, and like all of this is the if you look into lightning, for example, or just conjuring already and lightning channel factories, we’re just layering and layering complexity on the coordination of generating a new bitcoin address and spending that. And that’s it, it will get more complex and complex and complex. And we will prepare a lot more for these types of events to get the most bang for our buck when we when we go on track. And that’s

Timothy Allen 2:17:57
purely because the value of a Bitcoin, the purchasing power will be so large, it’s as simple as that the fact

Max Hillebrand 2:18:08
that you own a UTX Oh, that has sets in them is going to be incredibly incredibly valuable. And the fact that you’re wealthy enough to move it is also going to be a something special.

Timothy Allen 2:18:20
So so in this distant future, say there’s 15 billion people on the planet. How are most of them transacting in Bitcoin? In an hyper Bitcoin world?

Max Hillebrand 2:18:32
That’s a it’s super difficult to answer. What I think most likely it’s going to be a custodial relationship with kind of second layer ways to get out of that custodial relationship so you can withdrawal from your bank via lightning payment. For example, you don’t have to go on chain to withdrawal from your bank.

Timothy Allen 2:18:51
And so most people are gonna be using custodial most people are going to be fine. There’s going to be the drug poor but it’s Yeah,

Max Hillebrand 2:18:58
yeah. People who who really want to have the full extent of self sovereignty and insecurity that Bitcoin can enable you will have to do so at a monetary premium.

Timothy Allen 2:19:10
Okay, but why then would people say that the reason that hyper Bitcoin realisation will happen is because people will choose the hardest money but they’re not using the hardest money there are they

Max Hillebrand 2:19:24
they’re choosing a a sensible money substitute that represents the hard money right you’re you you have paper Bitcoin so to say right Yeah, but

Timothy Allen 2:19:31
why why would Hyper V colonisation happen like at the moment it’s us lot. Who liked the fact that we can own our own money? Why minted? It just doesn’t go beyond that. Like, I mean, it looks like there’s a lot of like a lot of people know about Bitcoin now. I don’t know. I wouldn’t. I don’t know what percentage certainly in the western world a lot of people know about it. Sure. But still most people aren’t bothering to

Max Hillebrand 2:19:54
get involved. And even if they get involved to get to custodians,

Timothy Allen 2:19:57
right. So why would hyper be colonisation how happen, who’s driving it?

Max Hillebrand 2:20:01
Merchants will refuse to work with you if you insult them by throwing a shit coin into their face.

Timothy Allen 2:20:07
And that’s purely because of inflation or, okay. Now, it’s not

Max Hillebrand 2:20:12
purely about inflation, right? It’s it’s inflation and theft. Those are like the two things right? People get their money inflated, and people get their bank account seized. And people will get their Bitcoin bank account seized as well, I ended that that has happened in the past will continue to happen in the future. But you have an option, you have an option to leave. Exactly.

Timothy Allen 2:20:31
And what about if your only option is real Bitcoin, but you can’t afford to make a transaction?

Max Hillebrand 2:20:36
Yeah, that’s reality, man. That sucks. It really sucks. And, and then we, as entrepreneurs, we have to provide services that are cheaper, we have to make these these tools available at a more affordable price range,

Timothy Allen 2:20:50
there’ll be people that will offer you the service of spending your Bitcoin for you. Yeah, exactly. Because they have them wow. And by the way, this is

Max Hillebrand 2:20:59
all of this is, is at the baseline of of our company, right of CK snacks that does this wasabi thing, our our chief, or chief goal is to reduce the amount of block space that you have to consume, we’re saving you a shit tonne of money on block space, like you could, if you would do these things in any other way, it would be 100 times more expensive. And for that additional savings that we bring you before the efficiency of block space that we enable you, you know, for that we charge a small fee, but the small fee that we charge is way smaller than the amount of money that you saved by compared to not using us.

Timothy Allen 2:21:34
Gosh, holy, I’ve never thought any of these concepts through to anywhere near completion. Either, by the way, well go a bit further than so. So

Max Hillebrand 2:21:50
you know, I painted a dummy picture. And

Timothy Allen 2:21:54
there’s no but I think it’s funny. I mean, it the free market never gives it gives you what what what the consensus once never gives you what you want personally, you know, and the free markets we we’ve all agreed? Well, we haven’t most ume have agreed the free market is the best thing we can do. And Bitcoin is a free market. There’s a free market there, you know, so whatever transpires, I’m going to just love it, I’m going to accept it, because it’s what everyone who’s joining into this thing once. And like you say, companies will spring up to deal with the so called problems that are arising and create all kinds of weird things. But

Max Hillebrand 2:22:38
yeah, and I’m Becca bullish on humanity’s creativity, like she’ll stuff like payment trends, Lightning Network in audits, like wow, absolutely crazy. So again, we had no idea that stuff like this was possible at the beginning of Bitcoin. And, well, at least with me, the longer I’m in Bitcoin, the more creative and like inspired I get by this, and the more I changes as people and I’m thinking, hey, if we’re to like the second or third generation of people who just grew up on decline, like what type of ideas will they have? What type of creative improvements can they come up with? So I’m, I know the, the constraints of the reality of Bitcoin as a system. And it’s important to know to know the constraints, but we can get a lot better at playing our games within these constraints. Right, like Lightning Network was was just getting smarter about about using it coin joints the same, I adore transaction batching these are things that when we actually want to solve it, and put our mind to it, I’m sure we can make incredible leaps of progress forward. And it might be something like, you know, the like the internet, like it’s been failing to scale since the very beginning, people said it’s not scalable, this this won’t work. And yeah, the first version of the internet when it was announced, in its protocol in its in its in the companies that were rounded, etcetera. It didn’t scale. And but with with end users just kept coming in because it’s such an incredibly useful tool. Obviously, everyone wants to use the internet. I’m just like, it’s as obvious that everyone will be using Bitcoin questions, just how if you’re not your own ISP provider, and it could be an old people who have their own ISP service just because they can. But that’s not how the average person is interacting with the protocol. Ultimately,

Timothy Allen 2:24:23
what I’m thinking though, is when you look at why people like us want to use Bitcoin unsensible self custody with these kinds of things. If that’s not what the general public is going to get from their Bitcoin, why would you get hyper Bitcoin ideation? Like why would it happen? Because it’s, it’s definitely driven by adoption is driven by people accepting it. Give me an example. Like when I go to El Salvador, it’s easier to pay with Bitcoin than it is to do something else. Yeah, right. So there’s a good reason. Okay, I’m gonna use Bitcoin But most of the other times I use bitcoin is because I really believe in it. You know what I mean? And, and so but but I’m probably going to be getting the the things out of it that I want, I want to be able to have confiscated more money. My mom doesn’t my mom’s happy to have her money in the bank. So why would it scale? Sorry? Why? Why would it? Why would why would we reach hyper bit quantization?

Max Hillebrand 2:25:24
Well, you know, already now bitcoin is better, easier to use than a bank account. And with all its monetary inflation, resistance, etc, it’s just a better user experience already. Now, I’d like with the Lightning Network, you can send like fractions of a penny million times a second back and forth. Like, that just wasn’t possible with with Fiat,

Timothy Allen 2:25:46
there is the problem of volatility, though. And theoretically, it’ll sort itself out. But currently, it’s a bit of a kind of a funny situation to be in you. People don’t want to adopt it. Because they because of the volatility, but the volatility is an inherent part of adoption.

Max Hillebrand 2:26:02
Yeah, exactly. And you have volatility. The other thing is, money is a network effect. And there is a strong winner take all scenario. And we’re, and that’s, there’s multiple reasons for it. One is, of course, because the money is that with which everyone, every merchant wants to get paid. And so you just have that money and you get whatever you want on the market. That’s, that’s already, that’s good. And then a result of that is that every merchant denominates their prices in that money, which is kind of the next step. And that makes calculation a lot easier to to have multiple different currencies on your balance sheet and on your cash flow. And to try to do financial planning and like future predictions is utterly complex. And having one currency is way, way, way easier and cheaper. So there is definitely the incentive for, for merchants to consolidate their balance sheet at the end of the day to a single currency. And I think that the cost of having multiple currencies, especially when these other currencies are shit, and hyper inflating, will get ever and ever more apparent to people.

Timothy Allen 2:27:13
What about Oh, Jesus, I’ve just completely forgot, I’m thinking about 6000 things at one time.

Max Hillebrand 2:27:23
I had to the VidCon rabbit hole I

Timothy Allen 2:27:25
ever had a really good question just then. Well, multiple currencies, what was it? Oh, my God, I can’t remember. I’ve lost I’ve completely lost my starting around too much trying to grasp I like I said, there’s been a few new concepts here for me. And as a result, they’re not fully integrated yet. So I keep wanting to keep wanting to build on top of them. And I can’t really get there. I know, well, this is something completely different. Which is, have you ever heard of something called urbit? What do you think of it?

Max Hillebrand 2:28:01
It’s, it’s really nice. So maybe to give a quick intro I. It’s a operating system based on a functional programming language. Now, what exactly the functional programming language does? It’s not I’m not qualified to answer that it was a bit too

Timothy Allen 2:28:16
deep in it. Anyway, before you go on in El Salvador, I met a guy at a party, who’s an urbit developer, they will live in our cell. They live in San Salvador in this big house. And I had a three hour conversation with him about many things, including hallucinogenic drugs, and we went all over the place for three hours. But I originally went up there to talk to him about urbit. Because it did sound pretty interesting. My take was a decentralised operating system, kind of, you know, kind of, but there are there are apps that it’s a fully, you know, it’s a thing, but he, I mean, he’s someone a bit like yourself, because he knows a lot of stuff about some some things that I don’t know much about. And he was convinced not only of Bitcoin, which made me feel at ease, but about urbit, too, and about how urbit is the future as much as Bitcoin is. But yeah, I was just wondering if you knew what it was, because a lot of people don’t is amazing how many people have never heard of it? It’s been been around, like, over 10 years, I think,

Max Hillebrand 2:29:20
yeah, it’s quite an old project quite advanced. And you know, the, again, the, the big question is Who controls the computer? And if if you don’t control the computer, like the physical hardware, you know, and the software that runs on it, then anything that you build on top of that is fragile. And if it’s someone else’s computer, for whatever reason, they can shut you down. They might see everything you do, they can spy on you. They can manipulate you by sending you wrong answers to or like wrong solutions to the programmes that you’re running, etc. This can be very manipulative, very dangerous environment. So a lot of these things that we build, including Bitcoin only works if you have access to a good computer that I like actually owning it actually having a secure environment here. And I think they have a couple of 100 years, if they look back on how we did computing, now, they’ll probably laugh as well, of how bad it is not just for probably the hardware could be a lot better. And then the software, especially as well. So I think urbit is a is an interesting approach to kind of try to make the computing infrastructure more more secure and more reliable, which, which is great. I’m sure this is not the perfect solution. But it’s getting us towards the direction. The important thing, the high level thing I understand about orbit is just the concept that it becomes a lot easier and more secure to run a server, right. So a computer that’s available for you to do computation, basically, that and you can access the computation from another device.

Timothy Allen 2:30:58
And also, I think they have one protocol that’s under that everything speaks to each other in a common language. Whereas at the moment, you know, if you’ve got a bit of software on your computer, made by one company, it’s very difficult to integrate it with something else. Whereas I think on urbit, it’s a I just remember a lot of planets and constellations and weird videos. I mean, it was a really trippy conversation has to be said, I haven’t never published it yet. It’s taking so long to edit because I keep listening to it back. But but you’d like to say he was he was, what’s your Have you got any unusual takes on other coins? Aetherium? Whatever, I don’t know, anything that I’m expecting? I mean, I know roughly what most Bitcoiners think about everything else. But and I think they’re that, you know,

Max Hillebrand 2:31:49
so and in terms of our previous conversation, I think Manero or Z cash or other quote unquote privacy coins are extremely interesting computer science projects. But I think ultimately, wrong, a wrong approach on the architectural layer. Again, Bitcoin is a consensus system, we need to verify every transaction of everyone else. And know that that is fundamental in its design, and trying and then trying to obfuscate the or like in the protocol itself, adding complexity to the base monetary protocol itself, like fancy cryptography, or yeah, basically fancy cryptography, etc. adds a lot of vulnerabilities to, to that software

Timothy Allen 2:32:45
that well, Mineiro is base layer. complication.

Max Hillebrand 2:32:49
Yes, it’s a base layer complication. Exactly. And it gives you very, it gives you little additional privacy, like, it doesn’t make you perfectly anonymous, because the fundamental problem that everyone needs to verify the transactions of everyone else is still there. And that’s not being addressed by Monaro or, or Z cash. And so we still have a global consensus system. And now we make it a lot more complex, for the sake of gaining a little bit better privacy. And I think that’s, that’s not good, it starts falling apart a lot because even Bitcoin, as simple as it is, right now, it’s already hitting scaling limits. And if we have a more complex, underlying, then it’s more difficult to build on top of it. Because bitcoin is so simple, we can make elegant solutions on top of that, like you can make the Lightning Network in Bitcoin, you cannot do that in Monero because of its fundamentally different architecture and, and different actors, just a bunch of different nuances.

Timothy Allen 2:33:47
If if the privacy, additional privacy on Monero isn’t that much as you say? Why do why does everyone say that criminals use Mineiro and not Bitcoin? Yeah, I mean, is that that’s true.

Max Hillebrand 2:34:05
There’s way more usage of Bitcoin and Monero you think I mean, so like in total amounts of transactions or economic volume? becomes way bigger, right.

Timothy Allen 2:34:15
But what about illicit use in terms

Max Hillebrand 2:34:16
of illicit use right now the question is, what’s the percentage of illicit use in Bitcoin and what’s the percentage of illicit use and manera? I don’t know maybe I’m gonna narrow has a higher percentage point but in absolute numbers, because be conscious has way more users naturally there’s going to be more criminals.

Timothy Allen 2:34:33
But you can but there are chain analysis companies watching Mineiro is that right? Can they see? I don’t know if they can see much of you. Probably. I heard if you go on the dark web now or you go on, wherever, you know, you can’t No one wants Bitcoin they all have manera. Is that just me hearing what that seeing? entails me or whatever.

Max Hillebrand 2:35:01
I think there’s definitely there’s there’s a couple online marketplaces that only accept Monero. For some obvious reasons, I’d like to make things clear. If you naively use Bitcoin, and you naively use Manero, you’re gonna get way more privacy which will narrow Okay. All right, a naive usage of Bitcoin is fully transparent. A naive usage experience of Monaro is at least against some outside providers a lot more difficult to trace, where my main coreless istead, that that, that doesn’t mean that Bitcoin is bad, and that we need to change Bitcoin. And then we need to add more complex privacy cryptography on the base layer to make a better protocol. It just means we have to get smarter about how to use this very simple protocol. And the coin joint is exactly that. Right? We increase the ambiguity of what’s going on in this transaction substantially like 300 inputs, 300 output coin joins, are way more private than than the default material transaction of like 12 inputs and outputs Ring Ring signatures, like there’s just a lot more actual ambiguity by having a large coin join than by having a default size Monero transaction. And, well, that that just means like we can we can get more privacy, then by having the default layer of privacy that Manero has, however, we did not increase the complexity of the protocol. We did not add any cryptographic assumptions with this fancy zero knowledge cryptographic cryptography. And we did not at all increase the verification cost of the blockchain system that a blockchain is a verification system. It’s not a system of making transactions. It’s a system for verifying transactions. And using coins on Bitcoin does not increase the verification cost using Manero compared to using Bitcoin increases the verification cost substantially in like a lot a lot a lot. And I think that’s why ultimately, it’s it’s it’s the wrong approach and why I think it’s basically a show coin. It’s not a scam. I think it’s very honest and good developers working on it and some awesome technology. I just think that Bitcoin has the economic power and the game theoretical advantages, and because of the elegance and simplicity of bitcoins protocol, we can get smarter about how we use it and get substantial amounts of privacy in it already without any changes.

Timothy Allen 2:37:28
Something that the the urbit guy I spoke to said was he he worked on Aetherium in the past and one of the things he said that I remember that struck a chord was that Bitcoins, inevitability is not it’s not inevitable. And he said he said I mean he’s a big he was a Bitcoin maximalist itself but but newer, but knew about other protocols. And he said, Yeah, you know, theorem is direct competition to Bitcoin, not in the fact that they do the same things, but in the fact that the current system that we live under is probably going to co opt Aetherium so it is competition, because if they can get that going, they have you know, what do you think about that? Is that true? Do you think Bitcoin is inevitable?

Max Hillebrand 2:38:19
No, I think that you could make or break Bitcoin. I don’t think it’s inevitable at all. And I think if we wanted to we we can destroy Bitcoin, surely, like,

Timothy Allen 2:38:32
look, how, what’s the biggest threat to Bitcoin?

Max Hillebrand 2:38:37
People not caring to use it.

Timothy Allen 2:38:40
Spend it or use it as huddling, using

Max Hillebrand 2:38:43
huddling seasoning, getting paid in it, and and saving it for and making the future payment with it. Like those are kind of the three uses of money, right? So no, I like,

Timothy Allen 2:38:55
but it’s never going to not exist, is it? I mean, it’s going to take a lot for people like you and me to just not use it. I mean, there’s no alternative is that if you want to decentralise money,

Max Hillebrand 2:39:08
that’s by the way, another way that Bitcoin could could end or at least drift into irrelevance of there’s something better. I hope there’s something better it’s because pretty shared, if you look at it would be nice if we have something better. I didn’t find it yet. But

Timothy Allen 2:39:22
well, yes, it would be great if there was something completely decentralised that instantly transferred. If we could

Max Hillebrand 2:39:29
if we could have double spending protections without global consensus so that not everyone has to verify every transaction of everyone else, if that ever comes out.

Timothy Allen 2:39:38
But how does way better? How is that a even a problem like how how is that even like I understand that the Byzantine generals problem that is is that even a problem? The one you just described? Does it have a name like double spending problem the double spend, but it’s an but we’ve kind of solved the double spend problem didn’t we with with for, well, there’s work,

Max Hillebrand 2:40:01
there’s lots of different solutions to the double spend problem, right? Like a central database is a solution to that. Right. And just because Satoshi figured it out how to have the double spend protection in the sense of we get consensus over a certain database blockchain by allowing the ability for everyone to add messages to the blockchain, but and everyone to verify those. So we have a user verified system, and with open access, so that anyone can write to the system, and in order to limit the the speed at which new data is being added, which would mean, so the more data gets added to the blockchain, the more people have to verify it, obviously. Right. So in order to keep up with verification, we need to have a rate limit of how often can we write my data there and at the site’s limit of how much data can be written there. And that’s the 10 minute block time and one gig of one megabyte

Timothy Allen 2:41:02
block. And isn’t the Tim isn’t the 10 minute block time also to do with the speed of transfer of data around the world? Exactly. Because either way, then there is a problem there. Because if we can’t, you can’t take Bitcoin, too far away from the Earth, can you because you will have to increase either the block time, which is dangerous, I suppose. I mean, I suppose you could increase the block time, but you need you need enough time for everyone to have consensus. But okay, so something better than Bitcoin will exist. Does that mean, the digital scarcity thing can be solved again? I think so. Yeah, you can solve it again, like so you can? Because the the one thing that a lot of people say about digital scarcity is it’s kind of like a one time thing. Because because people would try and preempt. If you tried to create a another decentralised money. You people would front run the market when they like the only reason that Bitcoin evolved to be decentralised money was because no one really knew what was going on at the start, and everyone was organically opting in. And the value then sort of created itself is like the Immaculate Conception, wasn’t it? And can you could do that again?

Max Hillebrand 2:42:22
I think so. You can. Yeah. I mean, is it going to be as successful as Bitcoin was? Probably not, it’s not going to be the same as Bitcoin was, but that that it is possible.

Timothy Allen 2:42:34
So what’s the big thing that needs to be? Like, for

Max Hillebrand 2:42:37
example, like Litecoin? You know, is like it works. It’s it’s the scarce rival the risk commodity? It came after Bitcoin is a pure copy. It changes a couple of variables, but it’s fundamentally it works.

Timothy Allen 2:42:50
It works, but it’s not being adopted. Sure, but it doesn’t

Max Hillebrand 2:42:53
Bitcoin didn’t start working. After 100,000 people used it. Bitcoin worked with one user.

Timothy Allen 2:43:00
Yes, I agree. But bitcoins utility, yes, needs 100,000 users or whatever it needs really is a lot of users. Otherwise, it is nothing like Litecoin is irrelevant, and nothing because no one uses it.

Max Hillebrand 2:43:16
But you’re not Litecoin is like now at the size that Bitcoin was eight years ago or something, right? So if Litecoin now is a scam that doesn’t exist, then Bitcoin eight years ago is a scam and doesn’t exist, you know,

Timothy Allen 2:43:28
correct. But Litecoins adoption curve is completely different to Bitcoins. Yeah. And that’s what I mean, I think that’s what I’m trying to say is bitcoins adoption curve is a one off invention or a one off discovery.

Max Hillebrand 2:43:44
The UTX o set certainly is right, like the the current UTX o set that we have is a unique history. And if you will change anything about the history, then it will be very different. But that doesn’t mean that you can’t find consensus on on on the on the on the blockchain again, right? I mean, so like the you know, you can start a new career a new blockchain based currency right now, right and, okay, maybe with the biggest problem with we’re starting over again, we’ll probably be the proof of work, right that there. If you have little users, you have very little compute power, so you produce little hashes per second. But then you can write specialised or build specialised computers that only do hashing for this specific hashing algorithm that you chose. And that is incredibly more efficient. And if you have a lot of existing hash power for your certain hash function, and only a small subset of this existing hash power is used actively in being hashed on on this project. Then you have big problems. And what can happen is like with with B cache, so Bitcoin and B cash were had the same hashing algorithm The vast majority of the total of this hashing power was in the Bitcoin network. And a tiny minority was in the B cash network. But because there was potential of new miners coming into B cash, well, if like a miner that has 1% Hash power on Bitcoin goes to B cache, all of a sudden he has like 60% or something, and he can reorg the chain, he can, you know, mine empty blocks like crazy, he can do a bunch of shenanigans that would disrupt the use of the money. And that did happen. There were actual attacks by large Bitcoin miners to make the beacon chain unusable for all intents and purposes. And that could happen again. Right with Bitcoin. The the cool thing is that, well, Bitcoin was kind of the first time where Sha 256, hashing was really proposed to be used at a large scale. There’s a bunch of computers like everyone’s laptop could be doing Sha 256. So there’s a huge amount of potential hashing power, but nobody noticed Bitcoin early. So it took a while until this hashing power was actually dedicated to Bitcoin. And, and then the specialisation of computer producers came in to, you know, produce ASICs that specialise in just as hashing. And all of a sudden, we’ve, we’ve we started building more and more efficient hashing algorithms that directly went into mining Bitcoin. So the the hash size of Bitcoin increased, versus the potential of hash power outside of Bitcoin state kind of roughly the same. And because ASICs are way more efficient than any laptop, by now, the vast majority of SHA 256 hashing power is dedicated to Bitcoin. So there’s very little available hashing power that could be dumped into bitcoin occasionally to mess around with things. And that what gives Bitcoin its its huge stability in the block rate production, like 10 blocks per 10 minutes per block is pretty accurate and vetted, the changes up and down are very small, considering all things. And if you would start over again, and people know about all of this, you know, everything that we’ve learned with big concerns, then they could probably start doing shenanigans on the mining side. But the code only thing that that would do would just mean that okay, instead of needing to wait for one or six blocks, you need to wait for 50 blocks or something like this, you just increase the time that you wait for confirmations until you consider that transaction valid. And if you increase that and your stability increases, so

Timothy Allen 2:47:40
So okay, then we’re over three hours made, I’m gonna have to stop because my head is about to explode. But I was interested in what you said about Bitcoin, improving on Bitcoin, it’s not something that it’s not, not something that a lot of Bitcoiners would say. What about is Bitcoin? Money? Is Bitcoin good enough money? Is there a better? Is there better money than Bitcoin? Ah,

Max Hillebrand 2:48:11
it’s a tricky question. So let’s let’s define money. Money, according to the Austrians is the most liquid medium of exchange. So it’s a good that you hold not for consuming it or for producing something with it. It’s not like a steak or piece of wood it’s a thing that you trade with the quote unquote only reason why you have it is not to eat it, but it’s to give it to someone else, so that he can give you something to eat. And to use it as a trading good and the most liquid means that everyone the vast majority of people in your market are using are demanding to get paid and that money. And so for the question of is Bitcoin money first and foremost? Is it the most liquid medium of exchange? Right now? No, objectively not the US dollar is a way more liquid medium of exchange. Because right now is if we measure liquidity based on market capitalization, it’s like the top eight or top seven currency. So it’s it’s very liquid, but not as liquid as others. So, they are quote unquote better monies that are more liquid. Now, why do certain things get more liquid than others? Why do certain commodities become better monies than others are more likely to be used as money and then we have things like you know, durability, the visibility of the transfer it you know, transferability etc, all of these attributes of good money and if we neutrally look at them, Bitcoin is probably winning by a landslide like the the money nests of Bitcoin is substantial, it has a lot of attributes that are very important for a new for new commodity to be established as a money. So Bitcoin is is theoretically Great. Practically speaking. Yeah, we’re getting there.

Timothy Allen 2:50:06
But so is but, you know, a lot of people think bitcoins here for 1000s of years. You’re you’re not in that you’re not in that category. I mean, as you said unto it, like, for your grandchildren’s, grandchildren’s grandchildren,

Max Hillebrand 2:50:24
I act as if that were true. I think that it has the potential of being a very stable asset throughout centuries. There’s definitely no given app at all right? Like there could, there’s a million scenarios that could happen where Bitcoin fails, and it’s completely forgotten. And so there’s no certainty into the future at all. I’m, if you if you study the theory of money, and if you study the qualities that that money needs to have big contracts, a lot of boxes, if you then look into the past and present, and see how Bitcoin is being used by people, then it checks a lot of boxes. And if you see how Bitcoin changes the behaviour of people, it behaves like a really good money. If it will continue to do that in the future. Nobody can say that. I’m I’m pretty confident.

Timothy Allen 2:51:30
I think that’s a good place to leave it. I’m not sure my brain can take on anymore. To be honest. I got I got a VR last question. I think I probably know what your answer might be. But it’s the sabbatical question. One year sabbatical. Money’s no object. What do you do?

Max Hillebrand 2:51:52
That’s a really excellent question. I, I would probably try to fix the money. Like that’s very broadly speaking. That’s like the number one number one thing right now. I mean, if in lieu of sabbatical, you mean you can do things that

Timothy Allen 2:52:13
you can you can take, you can take time off, you can do anything you want. The point is during that year, you’d have to worry about funding whatever it is you want to do. You know, like, Could you could you fix the money in a year? Who knows? But you could build a hospital? Yeah. Could you could do you know, there’s lots of things you could do.

Max Hillebrand 2:52:33
Yeah, give me 1000 great engineers, and let’s fix the money for the next year if I have unlimited.

Timothy Allen 2:52:40
What do you mean by fixed the money they’re increasing

Max Hillebrand 2:52:43
sort of thick? Stick to Bitcoin, it’s the best chance we have increase the fungibility, meaning removed transaction history from from units. That’s to conjoin. Lots of work there. Then the other thing is the portability, make it fast and cheap at transfer. And that’s basically lightning. And we need both of that together. We need to have great privacy in lightning. And well, yeah, 1000 engineers in a year could maybe get like 0.1% done. So I will take it that the type of funding?

Timothy Allen 2:53:17
Sure, I’ll just write you a check. Now give us give us a QR code, and I’ll send you some bitcoin. Well, thanks, Max. Great, great conversation. I’ve got a lot to think about now. I’ve got loads more questions as well, but I’m literally it’s dark outside. And, yeah, wow. I get to digest it all. I’m really gonna think some of these things through but thanks for talking me. I really, really appreciate it. And I hope I hope that someone else gets as much from this conversation as I did. Because it’s it was a pretty personal bunch of questions that I was asking just for me, it’s probably not the best way to

Max Hillebrand 2:53:59
think it’s the best way you get to scratch your own itch. You know? Yes, that’s one of the rules of free software development too. Right? It’s like you’re the user of the software you know how bad it is, you know where it’s broken. So go fix it. You don’t have to ask other people of how bad is the software where does it need to be I

Timothy Allen 2:54:16
know but I’m I’m here as an ambassador for the Free Cities foundation and we talked in depth about very technical Bitcoin things which I’m all certain lots of people are interested in but I don’t know how many Free Cities people are.

Max Hillebrand 2:54:31
So big question, right. But I mean, money is required to build a city and to live in a city and good money makes the city a lot better. So any free private city organiser or enthusiast? It has to you know, get smart about the money and get better about building it and using it especially? Yeah, great. Well, thanks a bunch Tim for the for the invite.

Timothy Allen 2:54:58
No problem. See next time, bye bye bye