Adam Back and Preston Pysh: Swan Signal Live E12

This week we are joined by Preston Pysh, cofounder of The Investors Podcast Network and Dr. Adam Back, cypher­punk legend, co-founder and CEO of Block­stream, and author cited in both the Bitcoin and Tor white papers.

They discuss the pre-history of Bitcoin, today’s macro­eco­nomic landscape, and the cause and conse­quences of the March 2020 Bitcoin price crash.

Subscribe to the Swan Signal YouTube channel and Swan Signal podcast.

Transcript

Brady:

Welcome to the Swan Signal podcast, a produc­tion of Swan Bitcoin. The best way to accumu­late Bitcoin using automatic recur­ring buys at Swanbitcoin.com. I’m Brady, head of educa­tion at Swan. And every week we invite two Bitcoiners to join us for a discus­sion hosted by myself and variously joined by Swan founder Cory Klipp­sten and sometimes co-founder Yan Pritzker or creative director Jason Don, or AK Brekky from Bitcoin joins us. It’s a unique format in the Bitcoin content space to pair up bitcoiners who have never or rarely seen or heard from together. It makes for some great discus­sions. We broad­cast these live and then we publish the audio here on this podcast feed. We call these sessions Swan Signal Live.

Brady:

This week we are joined by Dr. Adam Back, a cypher­punk legend who is cited in both the Bitcoin and Tor White papers and is co-founder and CEO of Block Stream and Preston Pysh co-founder of the Investors Podcast Network and a Bitcoiner. Be sure to follow at @SwanBitcoin on Twitter so you can tune in live whenever you’re able. We also broad­cast on YouTube, Facebook and Twitch. The links to all of those are in the show notes here. But if you can’t do it live, you’ll be able to catch all the Swan signal conver­sa­tions here on this podcast, glad you found your way here. Hope you enjoy it.

Brady:

All right. Welcome to Swan Signal Live, a really exciting edition here. We are live at blocks 632 092 with Dr. Adam Back, co-founder and CEO of Block Stream and Preston Pysh, the co-founder of the Investors Podcast Network. Welcome, guys. Thanks so much for taking time to join us.

Adam Back:

Sure, good to be here.

Preston Pysh:

Great to be here, guys.

Brady:

All right. So I’d like to start, since we very fortu­nate to have with us here a man who’s really been around from the begin­ning, really since the ideas that became Bitcoin were being hashed out on forums like the cypher­punk mailing list. So, Doctor Back, can you place for us, like in the broader arc of Bitcoin’s history, what it’s like to see this incred­ibly improb­able project that had been worked on for decades by you and others come to fruition and evolve into what it’s become today. Just 11 years on since Genesis passed the third having and obviously making an impact on the global scene.

Adam Back:

Yeah, I mean, there were previous electronic cash system in the mid 90s by David Chaum. And he had a startup called DigiCash and people were pretty excited about that at the time. But I think Bitcoin just amped things up a whole other level or too. The previous electronic cash systems were largely like staple coins, right? They were just trying to achieve one dollar that you can meet electron­i­cally, maybe with a little bit more of a bearer feel and some privacy. So that kind of direc­tion right? Where Bitcoin intro­duces the whole asset class. Digital gold kind of concept. There were discus­sions about that, going back to the late 90s, like 97, 98 onwards, where people were trying to think about how to do this, but they were sort of gaps in the design. They didn’t get imple­mented. So I think in some ways, Satoshi, whether or not he actually read those things is not clear, but managed to fill in the gap.

Adam Back:

But to my mind was about how to deal with infla­tion in this environ­ment. I think people were thinking about it in slightly the wrong way or had to design that involved sort of partially human involve­ment like human markets or human race saying about how much work you’d have to do to get a coin in this time periods, or Nick Szabo had the idea of a collectible market where you just create as many stamps as you want and somebody would collect together. And if there were not many stamps in a period, you consider those to be rarer, a little more valuable. And somebody’s task would be to collect sort of standards, set of rarity of stamps. So like a stamp book that has a certain value because you’ve pieced together stamps of different rarity, and that would be your coin. So it’s kind of indirect, right?

Adam Back:

Bitcoin, sort of simpli­fied all that stuff and made it automatic and so pretty much fixed the diffi­culty and just let the market deal with the rest. So that was when you see it after the fact. Having been part of the discus­sions and kind of grappling with how can we make this work? It looks simple, but it clearly wasn’t because we, we never managed to find like the people involved, how funny and we die mix up. And people didn’t quite get that last piece put together. But they were thinking about mining, they were thinking about doing it decen­tral­ized. Even small contracts were a part of the discus­sion saying… Of course the final thing is like very exciting because it brings all those things together and it has a lot of interest for as an asset class now and given its release in the midst of the 2008 finan­cial crisis. And now of course, we have a whole new cyber crisis which is thrusting Bitcoin into the limelight again. Bitcoin’s kind of made for this environ­ment, so I’m pretty inter­ested to see what’s going to happen in the next period.

Brady:

Yeah, I feel like it’s got to be extra impactful to see Bitcoin in this moment since it was born in the finan­cial crisis. And you’ve been watching this happen, working on it for 30 years. And now we’re, witnessing the problems on a global stage that Bitcoin was designed to solve. I mean, are you… What are you feeling about watching Bitcoin right now? Must be a bit surreal I’d imagine.

Adam Back:

Well, I mean, I think it’s just a return to the excite­ment. The people were pretty excited about DigiCash. But it was central­ized and it failed for that reason. The company went out of business and then you couldn’t verify the coins you had because the database wasn’t avail­able anymore. So the level of interest globally and I think you could see that the previous electronic cash systems were solving one problem, which is sort of privacy and trans­ac­tion­ability and barer proper­ties. And Bitcoin brings another dimen­sion to it, which is a kind of finan­cial asset.

Adam Back:

Bitcoin has a lot of inter­esting proper­ties and people get involved for different reasons and then they become inter­ested and learn things about what, let’s say, monetary economics or money itself, which they wouldn’t neces­sarily would have thought about before. Of course, there are a whole new set of people thinking about these problems when they see massive amounts of quanti­ties easing discus­sion of what a modern monetary theory and a feeling like, well, why do we need to pay taxes if govern­ments can just print more of them? What differ­ence does it make? Whether we give to the govern­ment some money and it increases the number in the database or they just change a number in the databases. It’s more the same thing ultimately. Well, I mean, it’s not exactly the same thing because there are different side effects but it does question. This cause you to question the value of fiat money.

Brady:

So, Preston, let’s bring you into the discus­sion here. From your perspec­tive, compared all of us compared to Adam are relatively new to you. But as your perspec­tive, as an investor, you have a long history in business and investing here in United States and abroad. I’m sure that you… Can you bring that perspec­tive to bare like how do you feel as a person who is kind of grown up in this fiat age, Keyne­sian age, as an investor, kind of have the script flipped and have this sort of alter­na­tive money really kind of ready to maybe flip the US dollar and change the economy fundamentally.

Preston Pysh:

I mean, I feel pretty small having a conver­sa­tion after following Adam, who is doing this two decades before I even came onto the scene two and a half decades before I came onto the scene. So I’m honored to be here with him talking about this stuff. I approached it initially from way different perspec­tive. Adam is extremely technical. He under­stands the monetary policy. He under­stands, like all these different facets that surround it, where I kind of came at it from a very specific angle, which was the finance angle and the global macro kind of vantage point.

Preston Pysh:

And so for me, in 2015, having been a market partic­i­pant through the 2008 crisis and then kind of seeing how central bankers responded to the 2008 crisis and saying this is not sustain­able, what’s happening here? This is not a free and open market when you’re going and you’re creating a bunch of money, you’re then inserting it in through the bond market and then just drasti­cally bidding the prices of those fixed income securi­ties. Like that’s not a free and open market. And so by around the 2015 timeframe for me, I was saying just this is just not sustain­able. Like, what in the hell is going on? How is this going to… They just can’t keep doing this. And so it led me to “Well, what are some of the alter­na­tives out there to gold?”

Preston Pysh:

I had heard Bitcoin, didn’t really under­stand the fact that it was this fixed monetary baseline type currency. And as soon as I had heard that through encryp­tion, proof of work and all these wonderful things that Adam has been so aggres­sively involved in for a long time. I started wrapping my head around some of those things and I was like, there is something here. And this could offer a major solution to every­thing that we’re seeing. And all this manip­u­la­tion that we’re seeing playing out by central bankers in order to prop up the global economy through these liquidity inser­tion straight to the top in the fixed income market. So that’s kind of the angle that I came from. I like to learn about the technology and things like that but compared to Adam, I mean, it’s a joke what I under­stand from a technical stand­point on how the protocol functions.

Brady:

It is a really amazing thing. I actually was just speaking with a friend a couple hours ago, Daniel Prince is talking with him on his podcast. We spent half an hour just kind of basking in the glow of a bitcoin. Right now at this partic­ular time it’s just, it’s amazing. It’s kind of a gift, right? That we have this lifeboat as an option in this just credible time, like if we didn’t have it. I think a lot of us would would feel a lot less hopeful and I would like to hear what you guys both think about that. Let’s start with Adam. Has Bitcoin or the presence of Bitcoin affected you as an individual in any way in your kind of world view?

Adam Back:

Well, I did a panel discus­sion with Nick Szabo and David Chaum, at a confer­ence a few months back, and it was inter­esting to see the different opinions, not opinions, but the different direc­tions people came at things. I think, origi­nally with the electronic cash systems, I was thinking it’d be pretty cool to have barer and anony­mous electronic cash and the fact is bare was like very impor­tant, inter­esting to me. That’s sort of more self sover­eignty. And nobody can seize it, nobody can tell you to have it, it’s like these kind of things, right?

Adam Back:

And it seemed like Nick Szabo was maybe coming at a bit more from a digital gold perspec­tive. I mean, he called his proposal Bitgold. So he was more thinking about from that point of view and it seemed like David Chaum was more inter­ested in the privacy, but less in the hot money. So I think Nick Szabo and myself were inter­ested in very hot money that can’t be seized, can’t be frozen or that kind of thing. And David was more thinking about it as… Well, the videos is online finally after a while, but without putting words in their mouth.

Adam Back:

But anyway, that was the way that the view seems to break down. But all the ways that people got into it, I think the combi­na­tion is more powerful than the individual pieces. So if it both has the digital gold and the bearer money, that’s even more inter­esting. Say there was there was a slight shift for me. If I’d had that combi­na­tion of views and a few other people had maybe people would have figured things out faster because, of course, people were inter­ested to build something you just couldn’t quite figure out how to make it work. So 10 years before Bitcoin, I would say.

Brady:

when did you realize that something like Bitcoin was impor­tant? I mean, way back when before you guys started talking about… What led you to the Cypher­punks mailing list and like inspired you, like you realize, hey, something like this needs to happen. I want to live in a world where this exists?

Adam Back:

I mean, it was about sort of… So the vibe of the Internet in general is sort of changing the balance of power. The individual can self publish, so, a lot of these things become taken for granted now, but there is still kind of battles between mainstream media and govern­ments wanting to control media output. So in some countries. And so Internet was very liber­ating from that point of view. But you could see that it’s also very monitored. The ISPs were tracking subscriber street addresses and bank infor­ma­tion based on IP addresses and keeping logs of it. So clearly, you didn’t have that much privacy unless you weren’t careful. Cypher­punks were inter­ested to assert rights in a digital realm by encrypting things. So doing things like Tor, this was a little bit before Tor, but building anonymity networks, building and running anony­mous mailers and it it was clear the big missing part of this was… Okay, you could browse online, you could download free things but if you couldn’t pay for anything or as soon as you paid for something you’d identify yourself, that’s not very inter­esting when you did electronic cash to transact online.

Adam Back:

And so people had theories about reputa­tion and pseudo­nyms and began to transact pseudo­ny­mously, say, wait, ISP money stops talking about the ability to physi­cally conduct commerce based on pseudo­nyms with no resort to courts and the threat of impris­on­ment for contract viola­tion and things like that. It was all sort of volun­tary trade based on reputa­tion and pseudo­nyms and electronic cash. I think those things are pretty inter­esting to see and Bitcoin brings a lot of them together.

Brady:

Preston, how about you? Has Bitcoin changed your world view anyway?

Preston Pysh:

I try to think about what it would be like if it wasn’t in place. And I think what you would continue to have around the globe is this compet­i­tive deval­u­a­tion of currency in order to engineer GDP growth among all the nations. I mean, it’s almost like you have a tragedy of the commons among nations in order to devalue their curren­cies fast enough in order to prop up their organic and local GDP. So if you take Bitcoin out of that equation and you think about how much longer would that persist? I think now you’re stepping into the point where you just can’t do the quanti­ta­tive easing route. Now you have to be doing the universal basic income as well in order to keep the social unrest from breaking apart, because we’ve pretty much only been using globally quanti­ta­tive easing, so if you didn’t have something like Bitcoin that could poten­tially step in and provide a solution to this mess, this compet­i­tive deval­u­a­tion that you’re seeing, I think what you would do is you just get too much more of an extreme than what we’re already seeing today.

Preston Pysh:

And for my social unrest stand­point, that would be a really kind of scary scenario to think about where that would go. Because in my opinion, it’s just going to drive the polar­iza­tion between the wealthy and basically every­body else even further apart as you now are trying to teeter between UBI and QE as the inser­tion point for liquidity. That balancing act that they have to manage without something like Bitcoin in the equation just gets to the point, right? I don’t even think it’s manage­able. And I think you get into a very scary social unrest scenario.

Preston Pysh:

So for me, when I see Bitcoin now offering a solution to that in a manner where you’re redis­trib­uting the wealth because I mean, that’s that’s what’s in my opinion, going to play out here, is you’re going to have one of the biggest redis­tri­b­u­tion of wealth that we’ve ever seen on a global scale. And that’s what needs to happen in order to adjudi­cate a lot of this social unrest, polar­iza­tion of social classes that you’re seeing. It’s pretty exciting for me to see that there’s a solution in place that could maybe alleviate some of that from playing out. If that solution wasn’t in place.

Brady:

Absolutely. Cory did you want to weigh in on this one?

Cory Klipp­sten:

No, I’m actually just browsing the chat. We’ve got a lot of questions from the crowd and I actually wanted to pull in one from Daniel Prince, who you were on with earlier. He’s in there and had a question for Preston. I actually know Adams talked on this before as well, and it fits right into this conver­sa­tion. So we’ll start with Preston, I guess. For value investors or even just for stock market investors gener­ally or macro investors that, tradi­tion­ally have had stocks as part of their portfolio. When you look at listed compa­nies today, large cap stocks like where’s the value? What’s the ratio­nale? And just kind of break­down how that’s different today, in this current environ­ment than it may have been even a year ago, let alone, 15 years ago or something like that.

Preston Pysh:

I love this question. So, what I find fasci­nating, because for me, when I’m doing a evalu­a­tion on a business, I’m looking at the past perfor­mance of the free cash flows, saying, hey, here’s what the trend was histor­i­cally. If I’m assuming that the enduring compet­i­tive advan­tage of the business is going to be sustained into the future, will then I make an estimate of what I think those future free cash flows are going to look like. I do a discount cash flow based on that, and I come up with a price, right? So when you now have Bitcoin as a unit of account and you go back 10 years, let’s just say we’re pulling up Amazon, for example. And I go back and I re-denom­i­nate their previous revenues and their previous free cash flows into Bitcoin.

Preston Pysh:

So I go back. Let’s just say I’m looking at a 2015 number. And I have to use the price of Bitcoin at that point time in order to read denom­i­nate those revenues. And I do this for, let’s just say, 10 years of period. What you see when you look at it in Fiat terms is that the revenues are going up. That the free cash flows are going up. But if you go back and you re-denom­i­nate all these things in Bitcoin, guess what? Guess what the trend looks like? The trend is going down. You’re exactly right, Brady.

Preston Pysh:

So now if I’m doing a discount cash flow on something that has a downward slope on the free cash flows. Well, guess what? I’m getting a much different price at today’s valua­tion than what I’m getting whenever I’m using it in fiat terms. And so what I think is going to be really surprising for a lot of people, especially as we go into this next four year cycle, when you start to see the price run, is some of that math that very few if nobody’s doing this kind of math today for under­standing the value of a company in terms of Bitcoin being their unit of account, when you start going back and you do that math, all of a sudden these valua­tions are way out of whack to the high side, like they’re being bid way higher than their value is as long as fiat’s still being used as their unit of account inside the business.

Preston Pysh:

Well, you start changing that. You start using Bitcoin. And I would imagine if you go into a miners business and you start looking at how they’re denom­i­nating their unit of account inside their business, they’re heavily denom­i­nated in Bitcoin. And so if I was going to do a valua­tion on a company like that that has free cash flows, its managing their risks at certain points in the cycle through deriv­a­tives or whatever, in order to have a nice projected free cash flow because they’re they’re well managed. All of a sudden, the valua­tions on businesses like that look a whole lot different. And so I think you’re going to see your smarter investors that under­stand what this is, under­stand that we’re having a huge adjust­ment. And what people are saying is the unit numero for measuring value. And when they do that, they’re going to start getting way different valua­tions than they’re seeing today. So that’s my point of view. I’m curious to hear how Adam thinks through it.

Adam Back:

Well, I mean, I guess you could say that Bitcoin is pretty volatile, though, right? But definitely repricing things in Bitcoin is almost nothing else you could have invested in would have held onto value or seen value appre­ci­a­tion in the same way that you have to have a stock for the five percent pullbacks to get the 100 times upside. I guess some people are starting to look at it as a portfolio alloca­tion, like Paul Tudor Jones, the hedge funds investor with a few billion dollars under manage­ment. Sounded like he bought 100 million dollars worth of Bitcoin, repre­senting about two percent of his assets and the manage­ment. Now, the average sort of consumer investor person is looking at the market, doesn’t neces­sarily think about asset alloca­tion and doing things with different risk profiles.

Adam Back:

But if you put two percent into something with a poten­tially big upside and you’re wrong and it falls drasti­cally, well, you can’t lose more than two percent, clearly. So it’s not that painful. Now, person­ally, given our views, we’re probably inclined to go a lot heavier than that. But, for anybody, I think that the two percent alloca­tion makes sense, they don’t have to believe in it even. Just to see a lot of people find it inter­esting and look at the price history of it.

Adam Back:

And the other thing with the quanti­ta­tive easing is it’s really messed up economic environ­ment in my perspec­tive, because there’s so much quanti­ta­tive easing and every­thing you might normally invest and diver­sify into is looking really shaky, right? The stock market pulled back a low and it’s almost back to the previous levels, but it doesn’t really quite make sense because now presum­ably all of these compa­nies are not going to do very well for the next year or two. Maybe some of them won’t even survive. But never­the­less, the stock indexes are almost back. And then what else are you going to invest in? Your bonds are looking pretty bad. The interest rate even the long term govern­ment bonds, real estate. It gets people thinking a lot people will work remote, so the property prices in more expen­sive cities residen­tially might fall. So real estate investing is looking bad. Presum­ably rent defaults are way up. I think it’s what’s causing a number of people to start talking about Bitcoin actively as an asset to invest in, who’ve normally been talking about other things.

Adam Back:

The Richard Kotite famous sort of lever­aged real estate investor is now talking about Bitcoin and gold as well, for example. So more people are starting to realize that something’s different in this environ­ment and they’ve got to be defensive.

Preston Pysh:

Yeah. And Brady, it’s gonna be inter­esting if these people do take a two percent position, because I know from the last cycle, if you start out with a two percent position and you into the bull portion of the curve and you’re still in the game, call it four or five months later, you’re two percent alloca­tion has turned into maybe three or four percent alloca­tion. Not by choice, it’s by perfor­mance. And so that creates a very inter­esting dynamic where even if you’re an investor and you’re not very specu­la­tive at all in your approach, it has the ability to bring out some animal spirits that I don’t care who you are. It’ll bring out the animal spirits in your approach.

Adam Back:

I mean, big winners have become very strong in resisting those animal spirits. And the only thing I think they can really overcome, and it’s just absolute convic­tion in what’s happening here. So shout out to all the strong hands and the Hodlers of last resort out there. And Satoshi had the original and only invest­ment advice. You might as well get something in case it catches on. Just get a little. And that still holds true today. So we’re giving it out right now.

Preston Pysh:

Brady, I want to just add one other thing to what Adam said. You know, he was talking about he doesn’t think a lot of people are going to be looking at it from a unit of account stand­point and at least where we’re at right now. And I completely agree with him. I think most people are looking at it from, hey, let me just put one percent of my portfolio into this. What I’m talking about is more if this thing goes to some of the levels that Plan Bs model is suggesting it could go and if it even runs further than that, then I think you’re gonna start getting into what I was describing, which is this shift in how you think about your unit numaire of how you’re measuring value. And when that happens, it’s just going to… You’re now stepping into a whole different level of adoption than where we’re at today.

Adam Back:

So what do you think about the Goldman Sachs investor report? So people were kind of wait and see what happens. And it wasn’t very compli­men­tary is like no investible or something. But the comments seemed so off base or confused, like, “Oh, it’s not scarce because there are lots of copies or…” There’s some sort of pretty confusing analysis that wouldn’t have looked out of place like five years ago when people were getting to grips with it.

Adam Back:

So, I think some people were a bit put off by it but person­ally, it made me much more confi­dent in Plan Bs kind of next having projec­tions, never mind this having, because it says that basically we’re much earlier than we might’ve thought. Which is even the cream of the profes­sional investors just don’t get it at all. And usually those guys are the smart money and a couple of years ahead of the curve and they’re like way behind the curve.

Preston Pysh:

Those weren’t even 2017 arguments, those were 2015 arguments.

Brady:

I mean, Goldman Sachs is well behind JP Morgan at this point.

Preston Pysh:

Yeah. That when I saw it and the only thing I could think is, “Hey, you got some 22 year old kid that just gradu­ated from some Ivy League school who had to slap a slide deck together and it got out.” I don’t know, it was beyond laugh­able, though.

Cory Klipp­sten:

The funny thing is you kind of hope that, that’s who put it together but it’s not.

Preston Pysh:

I think it was Adam that had a tweet like, we need these people to be in the dark because they’re going to be the ones that are buying it at a hundred and t-

Adam Back:

I was sort of re-posting something that Alster Milan wrote, so he’s a crypto fund manager in Europe. I thought that’s an inter­esting perspec­tive, basically because there’s part of the story is… If you’re early and people still don’t under­stand, once they do under­stand the markets, they’re going to be forced to under­stand by the market and then the price is higher at that point. So just as there’s a lot more and it’s the infor­ma­tion asymmetry thing. We thought of that catching up, the infor­ma­tion asymme­tries became better. Now it’s kind of reset, now the asymmetry is enormous. It’s a long way to go.

Preston Pysh:

So I think your Goldman Sachs and a lot of your Wall Streeters are going to have a couple of key inflec­tion points when you’re going to have a lot of them start onboarding. The first is when you go through your previous all time high of 20 K. That’s going to be a huge wake up call where the markets then telling them I’m wrong. I think your next inflec­tion point is when the total market cap in USD terms goes over a trillion, which I can’t remember where that’s at. I think it’s like 86 000 a coin or somewhere, 60 something.

Brady:

55-ish, 55-ish

Preston Pysh:

Something like that. That’s going to be your next big inflec­tion point. And then I think when the price per coin in USD terms goes over 100 000 and also on the euro side when it goes over that amount, I think that’s going to be another third really huge wake up call where your high net worth individ­uals are going to start saying, “All right. I’m clearly missing something here. How in the world can something like this run like that for this many years?” And I think that you’re going to have each one of those three points are going to be really key for the for the protocol and for the community.

Brady:

I’ve heard you talk about this before on the idea of escape velocity. And we’re all familiar with techno­log­ical adoption S‑curves. And the phenom­enon, when you hit exponen­tial growth is that it takes a long time. It’s really slow on that curve. It seems super early the whole time until, boom, you hit the elbow of the asymp­tote and then it’s just gone. Do you think we might reach escape velocity if we hit those like one, two and three kind of stages?

Preston Pysh:

So I think the thing that is often lost in this discus­sion where we’re talking about these key price points is like if this was a picture or a painting. So like that’s the focus or the subject of the painting is those key points that we were saying. But if you were going to look at the landscape in the backdrop of the picture, you’re having central banks bailing out munic­i­pal­i­ties. You’re having central banks just printing at levels that are not even under­stand­able in today’s terms, like all of those things that they’re going to have to be doing are now also playing out in the background as you have this thing, Bitcoin, blowing through these crazy price points that had this enormous amount of marketing and branding power. It’s being played on CNBC and all those things. So I think it’s the combi­na­tion of both of those things that your high net worth individ­uals that are going to be buying at one hundred, two hundred and every­body else at that point, because the onboarding with through like GBTC and some of these other things are crazy with the kind of power that pushes into the price?

Preston Pysh:

I think when you combine all of those aspects in harmony with each other. Yes, I think that that that is definitely a real possi­bility for this incoming cycle, way higher than I think it’s good that it’s given credit for.

Adam Back:

Appar­ently, GBTC is, just the users of GBTC have been owing over one and a half times the freshly mined coins. However, I saw somebody saying that is partly people moving Bitcoin into it because there’s a arbitrage you can do with GBTC because it trades above now and what have you. They may not be completely buying it, some of it is existing bitcoin moving into the fund, which then isn’t a net purchase, right? It’s just a kind of tax planning or arbitrage thing. But never­the­less, it shows the net because before the halving, we had the usual death spiral story that people come up with every time.

Adam Back:

Or more recently, some concerns about, well, who’s going to buy all the mined coins? It doesn’t look to be a problem like no, it doesn’t. If there’s not, just just a few places that have a lot of retail buyers seem to be absorbing more than that as net buyers. Because there’s always a seller for every buyer. But, you know, when when retail people are buying and just holding anything, I think that’s a pretty healthy situa­tion that they’re buying all of the new stock, which basically means that there is very little supply to be bought.

Preston Pysh:

And there’s always a lag, or at least there has been on the couple of data points we have of previous halvings. There’s a little bit of a lag. And I think the reason you see the lag is because when you look at the balance sheet for these miners, their treasury of Bitcoin that they’re sitting on is based on the previous reward flow. So is as you adjust that reward flow post halving, that treasure chest of Bitcoin that’s sitting on their balance sheet that they’re being paid in is denom­i­nated in Bitcoin, is they chew through that in order to sustain opera­tions for their variable costs and their fixed costs that they have as they chew through that and they wind it down. I think then their new treasury is based on that new reward flow. And so if I was just going to put a time stamp on that, you’re talking 30 days to a quarter that’s playing out that you’re having a little bit of selling pressure that’s causing that price to not immedi­ately start jumping based off of the new reward flows.

Preston Pysh:

But once once the new hashing comes in, then I’m very curious to hear Adam’s position, because I know you guys are mining and you’re probably much more well versed on this than I know.

Adam Back:

Well we’re watching what happens to the diffi­culty, because we do a couple of things. One is we mine on our own account, and I’m person­ally mining pretty heavy, too. And my approach to mining is to mine and keep the coins like no sell any of them. Of course that kind of drains your cash flow. So it’s effec­tively similar to a dollar cost buying or something, but hopefully with a discount. So in terms of watching the halving, so the halving fell halfway between a two week diffi­culty period. So the first adjust­ment, which took place a little over a week after­wards, was minus six percent on difficulty.

Adam Back:

And the current one, which is still a week away from completing it, is… We would assume it would be bigger because you wouldn’t be averaging like I think the diffi­culty before halving was like a 120x a hash. And then you are looking at a much lower hash rate. But you would only get the average for the second part because the first part was unaffected by halving. So now that we’ve had in a week or so we’ll have a full period exposed to the reduced reward.

Adam Back:

And there is a website that gives you a projec­tion and it looks like it’s going to be about 15 percent full. First one was a six percent full. So combined, that’s a pretty big fall. And the prices picked up a bit since the halving. And of course, it wasn’t that long before the halving price was much lower than now. I think the price swings and the hash rate adjust­ment is more than having actually. And the equip­ment is getting more efficient too. So the older gener­a­tion equip­ment is about 100 joules, that’s our hash. It’s just a way to talk about how much mining you can do per kilowatt hour kind of thing. And the newer equip­ment is, there’s 50 joules and now 40 joules, a little bit below 40, like 30 something.

Adam Back:

If people replace their equip­ment, that could see the hash rate grow. So really what matters is in terms of the economics of it is how much is the electricity costing you? So if you replace the equip­ment with equip­ment, that could be just twice as much hash rate on the same electrical cost then the hash rate is going to look higher. So I think really what matters is how much money is being spent on electricity. So, I mean, we’ll see what happens in a week, but I think the new equip­ment is pretty profitable. A lot of people were kind of strate­gi­cally waiting for the halving and diffi­culty adjust­ment before deciding making their final decision on adding some more hash rate or buying some equip­ment to get hosted. So we’ll see how it plays out. But it doesn’t look like it’s going to be quite dramatic.

Adam Back:

Different people doing different things in terms of keeping the coins versus selling the coins. So you never know about what portion are sold for electricity. It’s hard to say how to estimate exactly.

Preston Pysh:

Adam, I’m of the opinion that the price drop that we had in March was a huge part of that was just the liquidity on the macro side that caused this. And I think because it was so deep and so unexpected, I think it sucked a lot of those bitcoins off the balance sheet of a lot of these miners much earlier than they had antic­i­pated. Sucked them dry, and then you come up and then you now have the halving event, which then took the remaining bit. So, I guess my opinion is I think we’re going to see the price get a little bit more bullish earlier on post having than we have seen histor­i­cally because of that event that preceded it.

Adam Back:

That’s possible. There a quite a lot of variables so it’s hard to tell. But the delever­aging in the regular finan­cial system, of course, is pretty drastic because the low finances lever­aged when people are borrowing against portfolio to do more things. And so, if you’re a 50 percent lever­aged and the price falls, you start getting nervous real fast and then people will sell. Sometimes, so the quality asset because it has the most remaining value, right? So, you saw some pretty weird stuff like prices on low risk bonds with negative yields and stuff, it didn’t really make sense. But it was just because there’s more sellers than buyers. Nothing wrong with those assets.

Adam Back:

But people were delever­aging and bitcoin saw a bit of that. I mean, presum­ably a little bit Bitcoin was sold to rescue the leverage on regular portfo­lios. But, of course, Bitcoin itself has its lever­aged platform. That makes partic­u­larly was, it was saying that, that wiped out 270 000 000 dollars worth of liqui­da­tions on Big Macs in a very short period of time where the market… it actually took the market offline briefly. So it’s a bit disor­derly. So I think you’re right, that caused a… It takes a little bit for the markets to rebuild confi­dence after things like that. But I think actually some of the size of this market shrunk a bit like the leverage bank… if the volatility get super high, people get a bit burnt and less inclined to do that again. So probably that changed the dynamic a bit.

Brady:

So Adam brought up the bond market earlier. Well, 15 minutes or so, and I made a note to ask Preston about this concierge’s boating accidents on Twitter. Ask Preston to expand on his thoughts surrounding the implo­sion of the bond market as it relates to Bitcoin.

Preston Pysh:

So this one I think a lot of people in tradi­tional finance, partic­u­larly Wall Streeters, don’t see eye to eye with me on this one. So my point of view is you’ve got every central banker stepping in, adjusting the govern­ment bond rate, the yields on it, bidding the price to the moon and the yields are collapsing down to zero percent pretty much all around the world. So as you get to zero collec­tively on a global scale, not only does it just totally mess up your mecha­nisms for doing discount cash flow models in order to deter­mine the value of every­thing on the planet. But you get to a certain point where if you drive that price into the negative terri­tory, what’s stopping somebody from saying, “Hey, I’m just going to go to the bank, I’m to take out a bunch of money. I’m going to stick it in a safety deposit box because that’s going to give me a higher return than owning this negative yielding bond.”

Preston Pysh:

And what’s really fasci­nating now as they’re contin­uing to print is now they’re saying, well, we’re gonna have this cap on yield because the govern­ments cannot allow interest rates to go up because of the debt that they have to continue to issue. And they just can’t allow interest rates to go up. So now they’re saying, well, we’re going to pay the interest rates at half a percent or whatever percent that they’re going to say. And then they’re going to step out into a longer duration of the curve and they’re gonna say we’re not only going to do that with short duration bonds, we’re gonna do with long duration bonds and we’re gonna peg the yield at once.

Preston Pysh:

So what that effec­tively means is if anyone tries to sell beyond that one percent level because it’s inversely corre­lated. If anyone tries to sell beyond that, half a percent level will be a buyer no matter what. So what you’re doing is you’re warping the entire risk profile of every security liter­ally on the planet through this model. And so I think it’s going to continue to persist. And I think from outsiders that maybe aren’t nearly as dialed into the market, they’re looking at the bond market and they’re saying, “Well, there’s there’s not a lot of risk here. The volatility on the yield isn’t going anywhere. It’s really stable.” That’s how they’re looking at the risk. They’re saying, “Oh, well, the the yields been half a percent. It hasn’t moved. So it’s not risky.” And there’s solely focused in on the volatility of the yield. But if they could look behind the curtain as to what’s actually taking place in reality. In reality, you’ve got central bankers out there shoveling the money out the door as fast as they can in order to suck those issuance off the market and replace it with liquidity.

Preston Pysh:

I think you get to a point, especially when you have something in the backdrop, call it Bitcoin, where the price is going crazy and it’s going up in a major way like we expect to see here in the coming 12 months. Where people who are holding those securi­ties are starting to say, I just need to remove one or two percent of my exposure to this thing that doesn’t move in price because it’s being pegged at whatever yield. And then it starts flowing into other markets. And when you have that, then you have that erosion of trust, because that’s really the key word here, where it becomes a quali­ta­tive thing opposed to a quanti­ta­tive thing.

Preston Pysh:

That’s when it when the selling starts to accel­erate and these central banks are halving the shovel the money out. They work faster and faster and faster because there’s such an aggres­sive selling and there they are trying to sustain that half a percent yield or that quarter percent yield on the bond market. So that’s how I see it breaking down. And once it gets to be at such a ridicu­lous level, then it goes boom and it happens all at once. So people that are actively involved in these markets today, they’re going to look over there and say there’s nothing wrong with it. What the heck is that guy talking about? The yield continues to be not volatile at all.

Preston Pysh:

But I think you get to a breaking point. And then when that happens, it’s going to be like a dam breaks and the water comes flying out of it. It’s gonna be all at once. And who knows when that’s possibly going to happen, because being able to predict that moment is impos­sible, in my opinion. But that’s how I foresee it kind of playing out.

Cory Klipp­sten:

Can I take that out of corpo­rates and into sover­eigns a little bit, because some of these corpo­rate debt loads are signif­i­cantly large. Country economies and what they have outstanding and now you’ve got the IMF forecasting that countries are going to move from, what is it, six trillion of debt to sixty-six trillion in debt over the next few years.

Preston Pysh:

And that’s why you have Black­rock to go in there and buy up these corpo­rates, because if they didn’t do that think about what the impact in the market from a psycho­log­ical stand­point would be. Is everyone would be showing the split in yield between corpo­rates and govern­ment bonds. They’d be saying, “Hey, what’s what’s causing this discon­nect? This doesn’t make any sense. Why is this selling off at epic propor­tions and yields blowing out to 10 percent plus when the when the govern­ment bonds are at a quarter of a percent?” So you would see that discon­nect on the charts. And so I think the govern­ment stepping in and saying we can’t allow that disparity to occur or else it’s going to signal to the market that there is something very seriously wrong in the bond market. And so that’s this… I mean, you’ve seen it the last couple months. They’ve stepped in and they’ve liter­ally started buying the debt for corpo­rate junk bonds. It’s crazy.

Cory Klipp­sten:

Yes, they started off buying bond ETFs, and they legally weren’t allowed to do that. But somehow jerry rigged some sort of… Well, they basically did like Raptor nine, like Enron used to do. Almost created an SPV to hold this thing. And somehow that’s not on their balance sheet. So the Fed is doing off balance sheet purchasing of bond ETFs.

Preston Pysh:

And the thing that’s crazy, when you really pull back and pull on the thread of what really means is you got zombie compa­nies, you’ve got compa­nies that are not adding value to society that need to fail so new compa­nies can step in and replace… Capitalism, I guess I’m describing capitalism, right? You need capitalism to occur and when you are manip­u­lating the debt market in the manner that you are, you’re basically signaling to the market, “Hey, just go out and borrow. Just assume more risk. I don’t care that your income state­ment is negative. Go borrow more. Take more risk. Do do these things, you zombies and stay alive. We’ll let you stay alive.” That’s what they’re effec­tively saying to the market­place right now.

Brady:

It’s the subprime mortgage crisis for the entire economy.

Preston Pysh:

Exactly.

Brady:

Yeah. So, OK. Let’s let’s skip back a little, because this crack crackup boom scenario, the what we assume is probably the inevitable end at some point, maybe nearer now than it was before this COVID epidemic. So let’s assume that we have this escape velocity in the next few years for Bitcoin, given the these pressures that we’re seeing on it now. Adam, what do you think about scaling in the next few years if we don’t have, like, three more cycles to work an engineer and build this thing out? Do you think we’re ready now with no liquid and light­ning and other scaling solutions off chain?

Adam Back:

Well, we are in a much better position than in 2017, let’s put it that way. I think light­ning is now there’s lots of pretty easy to use wallets, including ones that take very short cuts to set you up faster. It’s channels or pre-funded channels and then migrate behind the scenes. Well, it’s a lot easier to use. I think that helps with usability and like force trans­ac­tions onboarding more scalable trans­ac­tions and cost. The light­ning routing fees are a lot lower. So, I think there’s room for more layer to tech, but it takes time to build tech and it similarly takes more time than people would expect to see technology adopted. I mean, it’s just businesses and exchanges, for example, segre­gate witness, I think is maybe about 50 percent adopted or something like that. So, you get more scale if that was earlier adopted.

Adam Back:

The thing people wonder about is the if the Bitcoin price goes parabolic late this year and next year, then what’s going to happen to the fees? Already last week, the fees got up one hundred, two hundred Satoshis per byte depending on your priority of how quickly you wanted to complete your trans­ac­tion. It’s relative, right, though, because it’s still way cheaper than a wire transfer but compared to wants one Satoshi you buy it sounds expen­sive. And I think that’s where liquid helps… Because the way I view it, it affects different things. So light­ning is just a kind of more scalable fast way to use Bitcoin to store Bitcoin, but make some security trade offs. But, you know, it’s fine for general use.

Adam Back:

And when you get the big spikes in fee pricing, it seems that it’s due to traders. Basically traders, if they get into trading frenzy, they want to trade quickly and they’re not going to, put a low price on it and see how long it takes. They’re just going to look on and estimate what’s the fee that’s needed and let’s say it’s a dollar, then he’s going to stick two dollars on it just to be double sure the trans­ac­tion is in the very next block. And in isola­tion, that could be okay. But now, there are other people doing the same thing. And then there’s an awful lot of software that just copies what the average fears.

Adam Back:

Say between the software, which acts like a trading bar to just copy what other people are paying. It doesn’t take much until the fish show up and you can sort of see a indica­tion of the effect from the Bitmax effect. So Bitmax does cold storage of the typical average trading platform. They do cold storage. They do pay out once every 24 hours. And it’s at the same time of day. And at that time of day, they drop a lot of trans­ac­tions on chain and it causes the fees to go up. And even that they finished sending them, it takes a few hours for it to come down again. And that’s just because all the software’s copying fees were higher. So the software thinks it should pay a high fee. So then it keeps paying a high fee. And there’s not that much to push it down again.

Adam Back:

So I think liquid could help in the sense that it’s not… I mean, people use things for what they want to use them for. You could use it for lots of different things. But basically what it was designed to help with is to make a different security off so it can handle larger values and different assets like staple coins for trading. And then if it provides a better security model than storing assets on one exchange, so it supports atomic trades, you can take funds on and off exchange within a couple of minutes and you can move funds between exchanges. And the funds you’re moving could be stable coins or bitcoins or other things. It’s good for traders basically given that it offers them advan­tages. I hope is that if they can be enticed onto that then they will not cause these fee spikes. And that will give a more pleasant experi­ence for people who are just trying to go about their use case for Bitcoin.

Adam Back:

And it’s a bit annoying, right? I mean, I’m in both camps because I like trading, but I also like Bitcoin, the asset class. I like to ask, well, why are people buying Bitcoin? Because I think it’s a fantastic tool for people to use. But when they trade it too heavily, they make it less usable. Say that presents an argument for special­iza­tion of players. And you see that in other networks, like most networks have, players. I think that could be part of it as well. And then the other thing which people may not be as aware of is you can… Light­ning actually works on top of Bitcoin or liquids so you can do that too. Or you can poten­tially bridge them, but… So it is this possi­bility float players and the technology could be used to make different layers. Now, of course, every every time you use a layer, it’s always making some trade off. And it’s not going to be quite as good as being on chain, because if there was some technical method to make something better than Bitcoin would already be doing it.

Adam Back:

So you would sort of defin­i­tion­ally giving something up to get the advan­tage. But never­the­less, like light­ning is better for its use case, which is faster and it’s cheaper and it’s more scalable. Liquid is better for its use case, which is it’s also faster but can handle larger values and multiple assets for trading. Hopefully we get some further adoption. I mean, it does seem like the phenom­enon that traders and exchanges are somewhat price insen­si­tive fights against people preemp­tively doing anything about it. People don’t tend to fix the roof when it’s not raining. And the exchanges can and do just pass the costs onto the users. And if the users ultimately are price insen­si­tive because they’re already paying 30 or 40 dollar wire transfer fee and tens of basis points, like 0.1, 0.2 percent commis­sion on the trade, then paying 10 cents versus a dollar versus one cent, they don’t really care because like maybe they just paid a hundred dollars for the trade.

Adam Back:

Whether it’s a hundred dollars and ten cents or a hundred and one dollars doesn’t really change the shape of the trading. That’s what it is. And I think people need to adopt technology and choose businesses that adopt technology, I guess, that will help people use Bitcoin in efficient and useful ways.

Preston Pysh:

So, Brady, Adam is too humble here. I’m just going to throw that out there. So his green app, anybody who has concerns about usability of Bitcoin has obviously they’ve never used the Green app on their smart­phone. That’s just point blank. You go on the Green app, you select what network you want. You want to be bitcoin. Boom, I push, send, you push, receive trans­ac­tion over. If we want to go on the liquid, I choose the liquid network, I push send, you push receive, trans­ac­tion complete no fees. It’s freaking simple. It doesn’t get any simpler from a usability stand­point than the Green app. So when I’m looking at why do we see the adoption rates that we’re seeing, it comes down to one thing, man. It’s taxes. It’s tax implications.

Preston Pysh:

Today I have a friend is named Steve. I owed him 20 bucks. If there was no tax impli­ca­tions, I would have had money in the liquid network. I would have gone onto my green app. He would’ve pulled up his. And I would’ve push send, he would’ve pushed receive. And I would’ve given him his 20 bucks, boom trans­ac­tion over. The reason I didn’t do that today is because I don’t want to deal with the tax impli­ca­tions and all that crap. Not to mention I’m of the opinion that my bitcoin is going to perform extremely well in the coming 12 months. And here’s the thing that so a person who hears that, they’re saying this is a bunch of crap. The govern­ment is preventing this.

Preston Pysh:

No, the govern­ment, in my opinion, the taxes across the globe are doing Bitcoin, probably one of the biggest services that it could possibly be doing. And here’s why. Because the govern­ment has these tax impli­ca­tions for a sale. Guess what, I’m incen­tivized to hold my Bitcoin. I’m incen­tivized to not use it in that manner. I’m incen­tivized the hold on to living crap out of it. Well, guess what that does for the price? It causes the price to go up. They are incen­tivizing the price to go up through the tax implications.

Preston Pysh:

And from where we’re at right now in the adoption phase, the really big picture, that’s what we want. We want that incen­tive to be in place. And you know what? When the time comes for me to go to Starbucks and buy something on the liquid network, I’ve already got that. I’ve got the app. Adam and his team expertly designed it. It works flawlessly as far as I’m concerned. It’s freaking simple. When that day comes, it’s built. He did it. He’s just way too humble. It’s like I just want to scream, like while he’s talking there. Dude you crushed it, you crushed it. You did it. It’s in place. It wasn’t there in 17. But it’s there now and it’s amazing. When I see bitcoin cash, rock heads out there doing there doing their bigger blocks and usability stuff, I just smirk. I’m like, this is such a joke. Like, these guys don’t get it. So anyway, sorry I had to. I get excited and emotional.

Adam Back:

I hear you, man. I hear you. I’m with you.

Adam Back:

You’re right about the tax impli­ca­tions that’s depending on when people bought coins. If they’re doing last in, first out, they’ve got to consider that they create a tax hit by using it. I think sometimes there are like a deminimis limits. So if it’s below some dollar amount, then you cannot account for it. And then there is the fact that you mentioned that while people don’t want to spend Bitcoin because they don’t want to be the pizza guy or every­body got a story about they put a router or they put a buck or a t‑shirt. How many thousand dollars it is now that they wish they hadn’t done that?

Adam Back:

I mean, the other thing you can do is just go to Swan or Square or something and just buy some more Bitcoin right after or right before and buy a bit more just in case. I mean, because it doesn’t it doesn’t help with the tax impli­ca­tions. But if it’s under the cash limit, you’ll figure out what that is and I guess put all those trans­ac­tions out of your reporting. But buying more is good because that’s what I started doing at one point. So I realized that I don’t really want to use up the coins, so I guess I better buy some more.

Brady:

I mean, you’re gonna spend the money anyway. Right. So if you can get the tax impli­ca­tions. I hadn’t heard that analysis before, Preston about sover­eign tax is actually incen­tivizing Hodling and that makes such great sense. It’s a this is good for Bitcoin and that is good for Bitcoin scenario because, if they don’t tax it and we start using it more then that’s also good for bitcoin rate in its own way.

Preston Pysh:

Anti fragile, man.

Brady:

Anti fragile.

Cory Klipp­sten:

I want to pull forward a quick discus­sion we had with Bitcoiner Tina, from a few weeks ago, who had a really good point about cap gains taxes on Bitcoin and why that may make… Basically it’s just kind of like one of the great factors that may lead to this being either this cycle or the next one being more of like a super cycle where we don’t have to drop down 80 to 90 percent. And it’s basically like as this thing spreads and just goes nuts, people around the world kind of have friends who are credible that they believe talking about Bitcoin. And it just kind of spreads like that.

Cory Klipp­sten:

If there’s a blow off top each time where it goes up, another hundred percent probably below or higher than where it probably should. And you don’t really know when that is. And you think that you’re going to sell the top, but then you miss the top and then it only goes down 50 percent instead of 85 percent. Well, this whole thing that’s worked a few cycles in a row of really smart OGs selling the top, it’s not going to work for a lot of people either this cycle or the next one, because once you factor in cap gains taxes and the fact that you missed selling the top, you’re going to lose a lot of Bitcoin and then nobody will ever do that again.

Adam Back:

I think it’s a lot of people find out the hard way, which is that they get to thinking it might be fun to day trade Bitcoin and then maybe they don’t have a lot spare cash at that point because they’re quite heavily into Bitcoin, so they sell some on the hope they can buy it back. And it often doesn’t work out because. Like, basically, statis­ti­cally, most of the gains price appre­ci­a­tion of bitcoin comes from like a dozen days per year. Your biggest risk is actually being out of the market during one of those days. It just feels like you’re safer to just hold onto it, because if you miss one of those rallies, like you just undid all of the possible gains that you would be statis­ti­cally likely to get from being able to buy back a bit lower. So, if all the gains are concen­trated in the short period of time, safest thing is you just keep it.

Preston Pysh:

Buy a put option as an insur­ance policy, if that’s one of your concerns, that you can put it back on the market at 200 or three 300 000. I mean, you’re going to effec­tively guarantee yourself that you’re going to lose 10 percent to 15 percent of your position. But I mean, that’s if if you’re trying to limit and lock in that gain, I guess that’s something a person could do if they just want to keep holding their bitcoins.

Adam Back:

So to take some profit by selling a market long put options. Yeah, that’s inter­esting. And there are a few platforms for doing that. Because you do sometimes give up custody by doing that but it’s definitely an alter­na­tive to outright selling. And then there are people that sometimes I’ve seen people use borrowing money against Bitcoins instead of selling because something would trigger their capital gains and they need access to money they borrowed. I mean, I guess it can be risky due to the volatility stand­point. Then don’t borrow too much I guess.

Brady:

So, Adam, I wanted to ask you a bit about that, and we had some questions from Twitter also on this. You guys kind of made a splash with the satel­lite, get updates. And, this is like kind of cyber­punk nerd, kind of, I guess, toys for those wannabes among us who kind of want to feel like we’re beaming the blockchain down from space and how rad and cypher­punk that is. It’s really cool. So can you tell us about the upgrades to the kit and some feedback you’ve heard about it?

Adam Back:

So, I mean, the previous version was broad­casting only… You basically had to sync your node first on the regular Internet and then connect it to the satel­lite. And as long as you didn’t lose connec­tivity, as long as you did that within 24 hours. It would gener­ally keep up and it could tolerate a power cut for a few hours and things like that. So it could tolerate up to 24 hours of power disrup­tion and things. But the new version has four times the frequency spectrum. So it was 300 kilohertz, now 1.2 gigahertz. So 1.2 megahertz like four times as much spectrum alloca­tion, but then a lot of other optimiza­tions on top of that to bring it to over 25 times the roar, like the usable bandwidth, basically. So with that massive increase in bandwidth, we were able to support full download.

Adam Back:

So you can basically be in a cabin in northern Canada with a gener­ator or solar powered and battery packs or something and pretty much sync your node from scratch. And it takes about 20 days. But there are three different areas of the world that have two satel­lite dishes covering them. So you’ve overlaps in the coverage areas. And if you’re in one of those areas, you can get two dishes and receive both data streams and then you can get a full sync in about 10 days. And then there’s a little bit written for optimiza­tion. So we can probably make it a bit faster.

Adam Back:

So you go for full sync, which is pretty nice. And for some parts of the world it’s expen­sive to get enough bandwidth to sync a Bitcoin node or to stay synced even. It’s maybe 10 gigs a month or something like that. So it’s quite a bit bandwidth for most people. Initial sync is, I know it’s always growing, but it’s about 250 gigs at the moment. We have some compres­sion say it comes down to I think about 215 with a lossless compres­sion which is nice. That’s kind of save some bandwidth. And then the other thing we changed is in selling while we increase the coverage bit. So having another coverage and we’re selling equip­ment. In the previous one, you had to buy… got to buy parts from instruc­tions on Amazon. People were a bit nervous about like, “Well, what if I got the wrong part? Will it be compat­ible?” And you had to install your own software. So it wasn’t quite as polished. It’s more for somebody with maybe some amateur system admin­is­tra­tion on the next kind of experi­ence. That was the kind of bob before. But now there is actually, we changed the coding standard so that it works with a standard called DBP.

Adam Back:

As to the previous was a kind of ad hoc protocol that we devel­oped in-house. So this new standard means does more accel­erate hardware you can buy. There’s two kits, so basic kit and pro kit and they do the hardware accel­erate decoding. So the Pro kit has support for two dishes, so it can decode the streams of both dishes at once. And you connect it using Ethernet, so you can connect it to like a home network or small office and it broad­casts using UDP multi­cast, which is this kind of streaming kind of Internet protocol. So that’s restricted to your LAN. So it basically broad­cast through your LAN. All the data. So you can have multiple nodes on your LAN. And the basic one is USB connected and one satel­lite dish. So, I mean, people have been buying lots of them.

Adam Back:

We had to order a couple more batches of equip­ment and the pro kit is selling in a bigger ratio than we expected. So I guess people, as you say, like these cyber­phunk toys.

Brady:

I definitely want one. The stick this take to Canada cabin scenario and I can sync my node up. How can I broad­cast transactions?

Adam Back:

So you do need a way to send your trans­ac­tion. And there are a few options. It doesn’t include that. It doesn’t include the send back feature at this point. We’re inter­ested to fill that function­ality gap.

Brady:

So that is possible?

Adam Back:

Not with this satel­lite today. But there are indepen­dent satel­lite commu­ni­ca­tion equip­ment you can buy with services that can do that. One of them is, I think, called an Iridium Go, which is a kind of battery powered Wi-Fi hotspot that runs on the same network as the satel­lite phones. So it’s actually really, really slow. Like 2400 boards. So it’s incred­ibly slow. But it’s enough to send a Bitcoin trans­ac­tion in a few seconds. You can buy these things. They’re like 300 dollars. They have a service plan. You basically got the equiv­a­lent of a satel­lite phone service plan that’s going to monthly cost.

Adam Back:

Another one is the Huse began, which is a bit faster. 384 kilobits, bi-direc­tional Internet. So it’s enough to get by on. But you wouldn’t want to sync a bitcoin on it because it could expen­sive. You can you sort of combine things basically. So we’re inter­ested to be able to support bi-direc­tional as well in a later product version.

Brady:

It’s awesome. I love it. I love it. All right, go ahead Preston.

Preston Pysh:

Couldn’t you go H.F. radio as well on the trans­ac­tions side?

Adam Back:

Yeah. People have been doing that, Rudolf Novak, who’s one of the Canadian bitcoiners, has been exper­i­menting with high frequency low rust stuff and succeeded in sending a trans­ac­tion down to somebody in California, so it can be done. It’s very low bandwidth. It takes a while to send not many bits, but it’s okay for trans­ac­tions. So this is different type of equip­ment. But I think the idea of having kind of instant and indepen­dent bitcoin is inter­esting. So we’re in Malta that was named the Arab Spring. The revolu­tions in Egypt’s south of here and Tunisia and different places. In Egypt they turned off the Internet connec­tion and GSM and things like that until the revolu­tion was done. And then it all came back on again.

Adam Back:

At that point in the country the local economies disrupted, the local currency is probably not looking very attrac­tive. And you’ve got some global hot money, you need to transact it. A point where it counts for you it’s your insur­ance policy. Then you want your sat phone and your bitcoin and you will now be transact your Bitcoin. So this gives you a way to do that, it’s like a kind of insur­ance policy. It’s sort of attrac­tive to have indepen­dents, it’s something that works globally without relying on infra­struc­ture. And of course, it’s relying on satel­lites, which is another kind infra­struc­ture, but it’s not local infra­struc­ture. It’s something that one govern­ment does is unlikely gener­ally to have any effect on it.

Brady:

Absolutely. So I love that work person­ally and I’ll be picking one up as a summer project. I’m excited to try it out. I will obviously be talking about it on Twitter. Thanks so much, guys. We kind of reached the end of our time. And I’d love to ask you, if you guys have any final words or something you want to say to the audience out there before we sign off?

Cory Klipp­sten:

I have one final question for these guys, too. If you guys want to just like, finish that way. Which is the most likely country around the world to adopt Bitcoin as an officially accepted state currency, and let’s limit this to like top 30 or top 50 economies so like the Turkey’s and arounds and Argenti­na’s of the world. Which one do you think is the most likely to do that and why?

Brady:

Great question.

Preston Pysh:

Adam?

Adam Back:

I don’t know. It’s a very inter­esting question. The first one of those will be inter­esting because they’ll have an advan­tage, right? They can accumu­late quietly before doing it. So that’s been people’s… I’ve talked to people who have been trying to seat this idea in central banks like you should do this, quietly go buy a billion dollars worth of bitcoin and don’t announce that you’ve done it. But I’m not sure which ones would. I think there are sover­eign wealth funds that presum­ably have Bitcoin positions or mining positions at this point. It may it may happen sort so in stages that way. I couldn’t say which.

Preston Pysh:

I think the ones that you named are going to be at the top of the list because I think from their vantage point in the way that they’re seeing the price charts, it’s much more obvious to the countries that you named that there’s something here than the ones that do have strong curren­cies in the face of this. So they might be the first ones to see it simply because the charts are so 1920s Germany gold chart looking type environ­ment to them. So I don’t neces­sarily know that you’re going to have somebody that a country that comes out and says, “All right, decla­ra­tion, we’re now a Bitcoin type country.” I think what you’re going to find is it’s going to be this just like on the individual level where you have people dipping their toe in the water with a one percent or two percent alloca­tion. As they get more comfort­able with it, it then slowly starts to become a much more signif­i­cant position size, even at a sover­eign level. So it’s interesting.

Adam Back:

I mean, there are a number of countries that have in the last decade maybe run into trouble repatri­ating gold. So now there are people who have… I think Germany had some gold in the U.S. and it took them years to get it back. And there’s a country at the moment that suing the U.K. to get their gold back. I guess the U.K. disagrees with the regime so they’re not giving it to them. But it’s a kind of our gold, not your keys, not your coins. If you’ve got gold in other countries, it doesn’t do you any good. So people are saying that they need to take posses­sion of their gold. So maybe countries will start to hold foreign currency reserves that hold gold reserves. Maybe it’s time to stop building up that Bitcoin reserve.

Preston Pysh:

One of the things that I’ll add on top of that idea is I think in the world right now, everyone looks at the dollar and they’re saying it’s so strong, it’s only getting stronger. And they’re seeing that as a good thing. But I think what will transi­tion here in the coming two years is that they’re going to find out that the dollar is getting so strong is actually a snake eating the tail of itself, because it’s so strong now, it has to start to devour itself. And I think that’s something that has not entered the Wall Street narra­tive whatso­ever. Is that through the dollar strength that could actually cause major, major problems down the road? And I think it’s not being viewed that way at all.

Adam Back:

Well, I mean, there’s something like what happened with the Swiss Franc. Their currency also tends to get used as a hedge, so people will buy Swiss Francs when there’s uncer­tainty. So I saw the dollar go up and the Swiss Franc go up. I think Swiss franc was one of the major curren­cies that is especially up against the dollar slightly right now. And this is some years ago. But there was a point at which they decided enough was enough and they devalued it because it was hurting their exports. People were holding their currency. And it made their domes­ti­cally produced… It’s that they’re exporting too expen­sive. So they started printing money and buying foreign stocks with it. So I don’t know, the U.S. currency valua­tion is a bit harder to predict because it has the world reserve kind of advan­tage. But it is going to hurt exports. And it seems artifi­cial too, right? The dollar goes stronger and then for a period there, like earlier this year. But it starts to pull backward, so it’s getting closer to where it was compared to a number of currencies.

Cory Klipp­sten:

Well, I’ll go ahead and answer my own questions so selfishly, because I spend a lot of time there and have family in Turkey and I’m really hoping that, that’s one where I mean, it’s already Bitcoin crazy. I think they have the highest per capita owner­ship or something like that. There’s Bitcoin stores every­where, BTC Turk is kicking butt. And there’s a reason that Binance has employees and offices there and stuff like that. So I’m kind of hoping it’s Turkey. And obviously they have the experi­ence with the 40 valua­tion’s and kind of a week Lira right now and insta­bility in the region. So it kind of does makes sense that that might be one.

Cory Klipp­sten:

If I were going to pull a wild card and this is on the sover­eign wealth fund angle and also a small country that actually is in a meaningful geopo­lit­ical location and has made lots and lots of inroads into Silicon Valley, so I would assume probably it’s had lots of exposure to people talking to them about Bitcoin. It would actually be Malaysia and the Khazanah Sover­eign Wealth Fund, which is like sixty to sixty-five billion. And they seem like somebody that to me, maybe there’s somebody that just gets red pills and has some alloca­tion out of that 60, 65 and pulls the Malaysian sover­eign wealth fund version of the Paul Tudor Jones and starts allocating. So that’s my wild card.

Adam Back:

What about Switzer­land? So there’s something similar about so… Switzer­land was one of the last major curren­cies, to… I mean, it’s a smaller country, but it has a lot of offshore wealth packed in there because of the banking sector. So its currency is more signif­i­cant than the sort of the popula­tion of that country would suggest. But it was partly strong, I think, because low infla­tion and it was the last currency to go off a partial gold peg. And they had a refer­endum a few years ago to try to reintro­duce the gold peg. So I thought it’d be inter­esting for them to… They have a direct democracy.

Adam Back:

People can put forward a proposal and if it gets enough votes it’s hard for the govern­ment consti­tu­tion­ally to turn it down. Well, it saying like let’s have a refer­endum in Switzer­land to reintro­duce the gold standard, but make it a Bitcoin standard this time, like a partial peg. That could be interesting.

Preston Pysh:

So much of it’s going to come down to the leader­ship of the people managing those partic­ular sover­eign wealth funds or economies. And if that person­ality at the top of that organi­za­tional struc­ture is a deep, critical thinker, somebody who goes and dives into this, under­stands the technical pieces of it. You could have a country that you’re not even expecting kind of start taking a much more signif­i­cant position than ones that you are expecting simply because of that leader that’s in that position. I think that could be some of your wildcards that maybe people aren’t even expecting.

Brady:

All right, gentlemen, really appre­ciate your time. This was a ton of fun.

Preston Pysh:

I just want to say I’m a huge fan of Adam and I just want to thank him publicly for all of his contri­bu­tions to the space. I’m a firm believer that proof of work is an instru­mental part of the incen­tive struc­ture of why Bitcoin has been so successful. And I mean, he’s the guy. So, Adam, it was really an honor to be doing this with you.

Adam Back:

Oh, thanks. I mean, it’s a long time ago for me, right? The proof of work thing was in 97, but it seemed like people were quickly thinking about it as digital gold. It took a long time till somebody like Satoshi figured out some of the missing bits of the design to make it actually work as a currency. And here we are. So that’s great. It’s been a lot of fun hanging out.

Brady:

Thanks, Adam

Cory Klipp­sten:

And if anybody wants to buy some Bitcoin, sign up at swanbitcoin.com/Preston. And you’ll get ten dollars of free Bitcoin when you sign up.

Brady:

All right. Thanks, guys. Take care. Thanks to Dr. Back and Preston for joining us. You can follow Adam @Adam3US, at A‑D-A-M‑3 number three U‑S on Twitter. And follow Preston @PrestonPysh at P‑R-E-S-T-O-N-P-Y-S‑H. You’ll find Block Stream online at blockstream.com and the Investors Podcast Network at theinvestorspodcast.com. On behalf of the Swan team, thanks for joining us. We hope you enjoyed the episode and found it useful. Join us live next time if you can. Jump in to our Swan Signal Telegram Chat Room. We have a lively crew in there, the chat during our conver­sa­tions or broad­casts and ask questions of our guests. We, of course, are talking in between episodes as well about Bitcoin and macro­eco­nomics and much more. You can find that chat at t.me/swansignal.

Brady:

Swan Signal is a produc­tion of Swan Bitcoin at swanbitcoin.com. The best way to accumu­late bitcoin with easy recur­ring buys. Step one, we auto fund USD from your bank accounts, step two we automat­i­cally purchase bitcoin for you. And three, you can set up automatic withdrawals to your wallet. So that’s the full process. We turn USD into Bitcoin and put it back into your wallet if you choose. Other­wise, it’s stored safely with a licensed and regulated custo­dian, all at the lowest fees for recur­ring purchases in the industry, up to 80 percent lower than Coinbase, up to 57 percent lower than CashUp for automatic recur­ring purchases. We are forever Bitcoin only, laser-focused on helping you stack sets. Follow us on Twitter @SwanBitcoin and subscribe to this podcast, if you’re not already, at swansignalpodcast.com. That’s it for this week. Thanks for joining us.

Other Episodes

Episode 8 –Andy Edstrom and Ansel Linder

Episode 9 –Rockstar Devel­oper and Jeremy Rubin

Episode 10 – Bitcoin TINA and CK Snarks

Episode 11– Gigi and Knut Svanholm

Episode 13 –Alex Gladstein and Matt Odell

Episode 14 –Robert Breedlove and Tuur Demeester

Episode 15 –Isaiah Jackson and Max Keiser

Episode 16 –Gigi and Udi Wertheimer

Episode 17 –Aleks Svetski and Jimmy Song

Episode 18 –Stephan Livera and Marty Bent

Episode 19 –Mark Moss and Ben Prentice

Episode 20 –Samson Mow and Parker Lewis

Episode 21 — Lyn Alden and Jeff Booth

Links

Preston Pysh

The Investor’s Podcast

Preston Pysh on Twitter

Preston Pysh on Linkedin

Adam Back

Adam Back on Twitter

Adam’s Personal Website

Adam Back’s Wikipedia

Block­steam –Adam’s Company

Swan Bitcoin

• Swan Bitcoin — the best place to buy and invest in Bitcoin
• Swan Bitcoin on Twitter
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• Swan Signal Podcast
• Swan Signal Telegram Chat Room