LETS TALK BITCOIN

Episode 05 The Regulatory Question

Participants: Adam B. Levine (ABL) Host Andreas M. Antonopoulos (AA) Co-Host Stephanie Murphy (SM) Co-Host Jack Byer (JB) - Founding member, Let's Talk Bitcoin Community Roundtable Charles Hoskinson (CH) - Director, Bitcoin Education Project ABL: Coming up on today's show:

The Watchdog Coalition Bitcoin Media Center Bitcoin 2013 Conference plans Listener mail: Who's the artist behind our intro music? Rob writes in, and we talk exchanges "Much Ado About Dust" with Jack Byer Open-source projects, Bitcoin and the inevitability of corporate integration, with Charles Hoskinson of the Bitcoin Education Project E-sports bitcoin mining trojan is blowing up, at least some guy's graphics card Looking to educate yourself on the future of money? Check out www.letstalkbitcoin.com/learn for your connection to the Bitcoin Education Project. [0:57]

ABL: Hi, and welcome to Let's Talk Bitcoin, a show for anyone interested in cryptocurrencies and the future of money. My name is Adam B. Levine. I'm a writer and speaker who likes to talk about complicated topics in understandable terms. Let's Talk Bitcoin is my attempt to do just that, and in doing so improve the understanding of cryptocurrencies and why they represent the future of money. Joining me in our ongoing quest for clarity are my comradesin-arms. Andreas M. Antonopoulos is an expert in secure systems and decentralized networks. [1:26] AA: Hi. [1:27] ABL: Dr. Stephanie Murphy is a scientist and a syndicated radio host. [1:31] SM: Hey, who you callin' a comrade. That sounded a little militaristic. (Laughing) [1:34] ABL: Oh well come on. It really is a quest, you know, we're trying to figure out how to take these abstract concepts and present them in a way that people can understand even if they don't understand necessarily what cryptography is. [1:46] SM: Right on. [1:46]

ABL: For today's episode, we're going to jump right in to project talk. We've got a lot of listener mail to get to, so we want to kind of get rolling. The project that I want to focus on is a brand new one that I've been working on for the last 24 hours but have gotten a lot of traction with, that I'm calling the Bitcoin Watchdog Coalition. This is all happening because of an issue we're going to talk about later. It was a relatively minor change that the development team is making, but because it wasn't really talked about in advance with anyone outside the development team there has been a really negative backlash to it. The problem is expectation management. It's really important when it comes to communities; people don't like changes, and if they don't understand why it's happening or if they seem arbitrary, then they really, really go nuts. So that's what The Watchdog Coalition is trying to do. We're saying to the development team - OK, when you have something that's going to change the code and affect everybody, it seems appropriate that before that be made into code - assuming it's an elective change and not a security patch or something like that, but something that improves the situation for everyone who's using the currency - it seems like it's worth the time for everybody involved if one of the developers, or someone who can speak that language in the same way, can essentially come to, not just us, I'm working with a number of other different Bitcoin media outlets in order to make this happen in a kind of pervasive way, and explain the changes, and say - This is what we're doing; this is why we want to do it; this is why we think it's necessary. Then the media can ask kind of the obvious questions and any follow-ups that naturally occur from that, and in doing so, kind of help the community as a whole to understand why things are happening. On the other hand, it also gives us a chance to say Okay community, what do you think of this change? Is there anyone out there who's very educated on this topic and says that this is a very bad change and can articulate their reasons? If they can, then we'll give them a platform too. It's my goal to assuage some of the confusion that seems to be all over the community, because even minor changes - the real problem is that people can't understand if a change is small or large, and they can't understand if a change is good or bad, because nobody's bothering to explain it, so everybody just freaks out. So anyways, that's a project I'm working towards; if you'd like to be involved with that either on the media side or the contribution side, adam@letstalkbitcoin.com gets me. We're setting this up over the next week. [4:02] SM: Yeah, I like that a lot. It seems to go along really well with the open-source nature of Bitcoin. [4:06] AA: Yeah, you can make a good decision and communicate it; you can make a bad decision and communicate it; or you can make any decision, and if you don't communicate it, by default, it's a bad decision. [4:15] ABL: My real concern with the way that things have been going is that regardless of if it's a good or a bad decision; they're all being viewed as bad decisions by a certain decent amount of the community just because they don't understand. [4:27] AA: And in fact, the decisions are actually really good. We're blessed with a development team that generally makes very good decisions, maturely, and for the good of the community at large, so that's not really the problem, is it? It's just communication. [4:38]

ABL: In this world we live in where appearance almost is reality in a lot of circumstances, people really take things at face value, so it's important to get out there and make sure that your message is clear and that you're addressing concerns. [4:48] AA: I'd like to talk about another project I have launched, which is the Bitcoin Press Center. This is going live in the next couple of days (www.bitcoinpresscenter.org). It is a resource for press, media, journalists, TV journalists and anyone else who wants to get an expert opinion, a quote, a TV interview, a live radio show interview, or any other form of interview, and is looking for suitable members of the community who can talk intelligently about that topic. It's built to allow for extensive filtering, so if what you're looking for is someone who speaks German, is a miner, has expertise in economics, and is in the same timezone as you, you can just put in all of those parameters and you'll get the few people who fit that criteria. That's going live in a couple of days, www.bitcoinpresscenter.org. I should also mention, anyone can join and nominate anyone; it's a completely open and inclusive process. The only criteria is that the information is accurate and that the person listed actually wants to be on the list. Other than that, everyone's welcome, and let the filtering figure out who's right. [5:52] SM: That sounds really useful Andreas. I'm glad that you're putting that together. Now, does there happen to be a backstory to this, do you want to get into that? [6:00] AA: The current press center that has been initiated at www.bitcoin.org is a static site. As a result, it can only really fit eight people without having to have discussions about who should be first and who should be listed. My approach is to make that a dynamic and dynamically filtered site, so that the question of how many people should be listed can be answered in the hundreds. The question of who should be listed is no longer an issue. Just throw it all in and do it the Internet way filter, output. [6:31] SM: I nominate Andreas. [6:32] AA: Well I... certainly you can do that. I have not nominated myself, but I actually did nominate you, Stephanie. [6:39] SM: Oh, thank you! [6:40] AA: This is the basic idea. It's not really a reward, it's a job. So anyone, really, who has the willingness to answer questions should be up there. Let the journalists, who are very intelligent about these things, figure out who's a good resource and who isn't. [6:56] ABL: I think why www.bitcoin.org went the way that they did with their press center was that they wanted control over who's being exposed to the media, essentially. Do you have any... you're talking about moving from a system that has maybe ten people on the official site, to the Bitcoin Press Center, where you're talking about hundreds of people. How do people figure out who are good interview subjects versus not good interview subjects. Is there any sort of mechanic for that? [7:18] AA: Well the first installation is really focused on filtering by topics and things like that. What we're doing over time is adding the ability for people to endorse specific speakers on specific topics, so they can say; this person is really good at TV interviews; this person provides great quotes, etc, etc. It's not going to be a plus-or-minus, we're only going to allow positive

endorsements and let the people, who get educated positive endorsements, bubble to the top. [7:44] SM: For my project talk today, I just want to talk about the upcoming conference that's going to be happening in San Jose, CA, it's May 17th-19th, and all three of us are actually going to be there. I just want to put it out there that if anybody is going to the Bitcoin 2013 conference in San Jose coming up, we'd love to meet listeners and talk to you. If you want to do an interview, that's something we can set up as well, but mostly I just like to connect with people so, we'll be there all weekend. I don't know if we have anything official planned as far as like meet-ups to specifically meet us, do a live show, but we've been talking about that. I think there'll be plenty of opportunities to get in touch with us, and if you want to know what we look like you can check out our bios on the www.letstalkbitcoin.com website. [8:28] ABL: At the very least I think we're going to do a meetup. It's really easy to set aside an hour of time and say - Hey, we're going to be at this place for this hour. If you want to come meet us, do that there. So I think that'll definitely happen. We're going to be recording a show at the conference but it's probably going to be before the conference so we can focus on coverage at the event. But again, everything is subject to change. This has all been happening very fast and so we're kind of just figuring it out as we go. If you have any input on what you think we should do, again just email. [8:50] Listener Emails: ABL: So over the last couple of days we've got a bunch of listener emails, and really appreciate all of them. I've again responded to, I think everything, so if I missed you please send me another note saying I didn't respond to you. We're going to do a show coming up that's going to be basically all answering listener questions because we've been getting so many, and frankly most of them are really good and worth talking about, but for the purposes of today's show we're just going to answer two. So, the first email comes to us from Herman, who says: Hi Adam, I love your intro/outro song. Who is the artist, and where can I get it? This is a question that I've been getting a lot, and I agree, it's a great song. I've been really enamoured with it since I discovered it about two months ago. The artist's name is Jared Rubens. He has a profile on Soundcloud, but if you want to get a direct link to him you can go to www.letstalkbitcoin.com/music. You can find not only Jared, but also the other artists who we use in constructing the show as well as links to many of the songs that are there. That will eventually become a database that fills out. You'll be able to download songs directly from that, but that's not really ready yet. Thanks for that email. [9:53] The next email, and this one is the long one that has several questions in it, comes to us from listener Rob. Last week Andreas mentioned how he only keeps a minimal balance on a Bitcoin exchange. That sounds great in theory, but how do you do that if you're a speculator or trader? If I want to buy Bitcoin after it falls in price, I need cash in my account so I have the flexibility to buy at the right moment. Given the delays moving cash into an exchange, how do you stay safe while being able to take advantage of opportunities? [10:18]

AA: That's a great question, Adam. Although it is a bit of a contradiction in terms, staying safe and being a speculator in Bitcoin. That's the fundamental problem. It's a risky endeavor. In order to be a successful speculator, you do in fact have to keep a balance around. Some of my most successful speculation was simply having cash in an account, so that when the priced dipped, for whatever reason, I could jump in and buy at a low price. That was a great strategy, but it exposes you to a lot of risk, especially risk of closure of the exchange, freezing of the accounts, or things like that. So I don't really have an answer other than, try to find the exchange that you feel is most trustworthy, which is a very difficult question to answer right now and is going to be a continued topic on this show; discussing exchanges and the various options. [11:04] ABL: We're going to add a twice-monthly segment with Pete Earl, who's going to be talking about Bitcoin market movements, and just in general kind of trends and what's going on with that. So we are going to be adding some financial aspects to the show, in the form of a correspondence segment that'll show up regularly. Stephanie, do you trade? Or are you more of an accumulation style - that's basically what I do. I don't really trade. I tried once maybe a year and a half ago, and I didn't really feel like I was very good at it, so I decided to just buy and hold what I was going to buy. [11:32] SM: I do a minimal amount of trading myself, but I do sometimes do a little bit of Forex style trading, into and out of other cryptocurrencies, and for me, that actually mitigates some of the risk, because it's super easy to transfer bitcoins, or litecoins, or whatever, into and out of certain exchanges like BTC-E, or Vircurex. That happens pretty much instantly. You only have to wait like, at most, maybe 20-30 minutes for it to confirm. Put the liquidity into the exchange really fast and then pull it out really fast, and that's exactly what I do to expose myself to as little risk as possible. When I do do buying and selling, I usually do it from other individuals that I know. I've also experimented with mining a little bit, and I accept bitcoins for my services and as donations for the podcasting that I do. [12:21] ABL: When you want to speculatively buy bitcoins, but you don't want to hold it in cash because of that concern, instead you hold it in an alternative cryptocurrency, something like Litecoin, that doesn't necessarily correspond to Bitcoin's price movements so it'll probably stay relatively stable, you know, relatively, versus what you think Bitcoin will do, is that right? [12:41] SM: I more just watch exchange rates between certain other coins, like bitcoins and litecoins, or you know ppcoins or terracoins or whatever, will exchange for instance litecoins to bitcoins or something like that when I see a good exchange rate. That, to me, is like the level of risk that I'm comfortable with. It's a little bit of like fun; you can play with it and speculate without using cash or without taking huge risks because you don't have to keep the coins in the exchange. [13:08] ABL: Where do you trade the altcoin chains? Because I know that Mt. Gox doesn't support any yet, right? [13:12] SM: Yeah, I use BTC-E and Vircurex. Sometimes there'll be quite a spread between those two websites which is kind of interesting. You can sometimes have arbitrage opportunities on

there. You have to watch it kind of closely and it's not always something I have time to do or I'm willing to do, so I've only done a little bit of that, but it can be interesting to play with. [13:33] ABL: So the next part of the question is: What are the best methods to fund your account on the exchanges? What works best? What's safest, fastest? Many of the methods seem shady, slow, or more difficult to set up than they're worth. [13:51] AA: I found it a lot easier to use local services to buy Bitcoin, and the main reason is that when I need the exchanges the most, is when there's high volatility and I either want to buy in a great opportunity in the price that I identify, or because I'm a bit panicked and I want to sell. Hopefully that's not happening very often, but when you need the exchange the most, that's when they fail, because of volume problems. How do we overcome that problem? Mostly, I do LocalBitcoins, or use BitInstant, or other services where I can do cash, through a money order or MoneyGram. Rather than doing a big transaction, I do lots and lots of small ones. Most of my Bitcoin I've purchased at $50-100 increments, just by dropping in to a 7-11 or a CVS Pharmacy every few days and buying a small amount of Bitcoin. That has worked very well. It also allows me to do dollar cost averaging, basically, buying small amounts. As the price changes, those changes don't affect your order in bulk. [14:50] SM: I've done a little bit of buying, myself, with cash. I have used BitInstant, but Ive used Dwolla, through BitInstant and I already had a Dwolla account set up so it was easy enough to do that. The problem is, you had to have money in Dwolla in order to send it to BitInstant. It couldn't just pull directly from your bank account, so that takes 3-5 days to get money into Dwolla. What I used that for was mostly setting aside some percentage of my paycheck each week for buying bitcoins. I knew that I was going to purchase no matter what the price was, I was doing dollar cost averaging. That's one option, to use BitInstant, but just buying from individuals, doing kind of small transactions. There are now Bitcoin meetups springing up all over the place; you can use LocalBitcoins to find people who are willing to sell, or even buy. Pretty soon you'll develop a network of Bitcoin friends. There are some groups you can post online, if you trust people in those groups, where you can offer bitcoins, buying or selling, for PayPal. There are lots of things you can do and I think, on a more decentralized level is probably your best bet, and that seems to be what works when the exchanges are failing. [15:59] AA: The somewhat geeky but canonical approach to decentralized trading is the Bitcoin Web of Trust, the OTC approach, Bitcoin over the counter, where you can trade online with people, but essentially you base the trust on PGP keys, and digital signatures, and a reputation built around that identifier. You can, say, take your IRC or Bitcointalk ID, associate a PGP key to it, post it on the web of trust, and then from there gradually build a reputation as a trustworthy person. The nice thing about that is it's been going since the very beginning; it's a way to build trust that can be used in other areas; a lot of identifying mechanisms and verification mechanisms support using the Bitcoin Web of Trust. [16:49] SM: That sounds really cool but I don't think I'm the right kind of geek for that. I don't think I'd understand how to set it up. [16:54]

AA: Definitely not a mainstream thing and it's not that easy to set up, but if that's your thing you can definitely do that. [17:02] ABL: What does PGP stand for, Andreas? [17:03] AA: Oh, PGP is Pretty Good Privacy. It's the first open public/private key encryption system that was released in the early '90s. You can also find GPG, which is the Gnu Privacy Guard, which is the open source equivalent of that, but most people refer to it as PGP, as the brand name. [17:20] ABL: The next question is: Have any of you actually funded an exchange with cash, other than Mt. Gox? You seem really unhappy with Mt. Gox but what alternatives are there, and how difficult are they to fund? I think that you guys kind of went over this in your previous answers. Are you funding anything with US dollars, or with really any other currency, non-cryptocurrency, besides Mt. Gox? I have not. I have used BitInstant to get in, but I haven't done it in probably about six months, so I don't really have a good answer here. [17:46] SM: There were a lot of people buying coins with Coinbase, which at least in the US you could set up and link to your bank account, buy coins that way, but the problem with that was they had a ceiling of how many coins could be purchased overall on Coinbase every day, and a lot of times they were sold out. I'm not sure - that definitely has its own problems. Also, there was Bitfloor, right, that was letting people transfer money really instantaneously, if you had a CapitalOne peer-to-peer 360 transfer, but of course, we all know what happened with them; their bank account got seized and shut down. That had its problems too, and yeah I don't think there are a lot of super-great alternatives. I mentioned BTC-E a little bit earlier in the show for kind of other cryptocurrencies. You can send money into it, but it looks really shady and I've been afraid to try it. They use a service called AurumXChange, where you have to basically wire money to this bank and I just wasn't really comfortable with that, so I've never done it, and I think it's interesting because it's often reflected between the spread in the price of bitcoins on Mt. Gox versus other exchanges. The BTC-E price is always a little lower than Mt. Gox, and I think it's because it's more difficult to get US dollars into BTC-E, and so not as many people are there to buy, so that's why the price differential between the two. Yeah, I don't really think there are many great alternatives. The market is desperate for them, but again they keep coming up against these regulatory hurdles, so that can be a real challenge. [19:22] AA: I'm very happy with the service I've received from Coinbase. I think it's one of the good examples in this space. It's a US company; it's based here in San Francisco. It's very public, clear in ownership and how it's set up, and yes they have the limits so they won't allow you to buy Bitcoin unless they have stock available. I think that's a good practice because, instead of allowing the demand to overwhelm their service, they've put limits on it. As a result you may spend a couple of hours, as I have on occasion, hitting refresh and resubmit until the limit rolls around, but I've never had any problems with the transactions, always reliable, I've linked bank accounts to that and I've bought just with simple direct debit from my bank account. [20:07]

ADVERT: If I showed you a website where you could easily purchase electronics from the world's largest distributor with bitcoins at 0% mark-up, would you think it was too good to be true? Good news: it's real, and it's at www.bitcoinstore.com. Choose from half a million different items; save money over Amazon and Newegg; and convert your bitcoins to real-world items. You can even buy with privacy. All they need is a shipping address. But don't take my word for it, see for yourself, at www.bitcoinstore.com. [20:38] ABL: Last question from Rob: How often do you check the price of Bitcoin? Hourly? Daily? I trade with limit orders, so I cannot check the price so often for the sake of my sanity. I don't know about the rest of you guys, but I don't check the Bitcoin price really at all. I did, I think the last time I intentionally checked it was probably about a week ago, because it just doesn't really matter that much to me. [21:03] SM: I check it almost constantly. (Laughing) I have an app on my phone called Bitcoin Paranoid and you can set it even to refresh like every 15 seconds, or every 1 minute. That's a little too paranoid for me. I have it set to refresh every 10 or 15 minutes but I definitely do watch it throughout the day and I just kind of keep an eye on it. It's easy, you know a good way to kind of get a pulse on the Bitcoin market, although you can see it and kind of go nuts because you'll spend so much time thinking about it, and thinking about what the price is going to do, and - Oh, should I buy, should I sell, should I hold. I've mostly been holding for the most part anyway, so it doesn't really drive me too crazy in that way, but I am a Bitcoin Paranoid person. [21:47] ABL: Is that for trading reasons, or is that for... why do you pay attention to the price every 10 minutes, are you looking for arbitrage opportunities? [21:56] SM: Mostly it's just curiosity and wanting to keep up with what's going on, and I also in my mind am trying to develop a sense of being able to correlate the Bitcoin price to events that are going on. I pay attention to Bitcoin news and I think - Oh, I just saw a price increase; that must have been because of that news piece that came out in China recently that was talking about bitcoins. I'm just basically trying to get my finger on the pulse, and watching the price is part of that I guess for me. [22:24] ABL: How's that working? [22:25] SM: Ah. [Laughing]. I think pretty well, I think I've been able to balance it. I do want to avoid the idea of going nuts over it and having it take over my life, and I don't feel that real sense of overwhelm you know, and even when they drop, when they have a huge drop or when they have a huge increase, I think I've kept a pretty healthy sense of perspective. I haven't done really panic-buying or panic-selling. Yeah, so it's worked out pretty well. [22:54] AA: I solved this problem by building a service called www.BTCPrice.info, and what it does is you register your phone number and you tell it to alert you any time the price goes up by 4, 5, 6, whatever percent, and you can set it between 6-10%, and then you can tell it how often you want to receive messages. [23:15]

SM: It's going to be texting you every five minutes. [Laughing] [23:17] AA: Well the minimum is 6%, and the minimum frequency is once an hour. The service is completely free. I built it and it can scale to up to 10,000 SMSes per minute; it sends the text messages instantly, and so since I built that service, I can just ignore it. I get up in the morning and sometimes I have a text that says the price went up by 6%, the price went down by 4%, whatever, and then I know to look at it and otherwise I don't bother. [23:48] SM: Right. The Bitcoin Paranoid app also has an alert in it. By the way, Andreas, I think it's really cool that you have like, a tool for everything, to solve every problem in Bitcoin; it's really cool that you're like - I have a website for that. AA: Well I'm taking the "scratch my own itch" to the extremes. Every time I find a problem I need to solve, I just build a website over a weekend to solve it, and then launch it to the community. It's been quite a good way to do it. [24:11] SM: Yeah. You're a real doer; I admire that. [24:14] ABL: That's all for listener mail today. We're going to play an interview now with Community Roundtable member Jack Byer who... actually Jack comes on your show, Porc Therapy quite a bit doesn't he, Stephanie? [24:25] SM: Yeah, actually just recently he talked to me for quite a while about Ripple, which I still am not sure if I understand, but he grasped it really well. Very smart guy. [24:34] ABL: Yeah, and we're actually going to be talking about Ripple on the show, that's totally on my list. I know I've gotten a number of emails from people who are interested in learning about it. We have to learn about it a little bit more first before we can sort of speak to it from authority, and I'm looking for someone who can come on the show who already is an expert or involved with the project, and who can make that sort of presentation. [24:52]

Much Ado About Dust ABL: I'm here with Jack Byer, one of the foundational members of the Bitcoin Community Roundtable that we started here at Let's Talk Bitcoin. We were having our first discussion about a topic that I wanted to get input from a lot of different stakeholders in the community on, and Jack had a really interesting perspective on this. What we're talking about here is a recent change made by the Bitcoin development team. Basically, the way it's been presented in the community is that it's removing the ability to conduct micro-transactions. That's what I originally understood that it was, uneconomical dust is the word that's being used by the developers, but really that means that below a certain US dollar value; you're not able to send transactions on the network using the default client. You explained this to me, and I think there are a lot of other people out there who don't understand this, what exactly does this mean, and is it a good thing or a bad thing? [26:10]

JB: Up front I think it's a good thing. It's just not obvious to somebody who doesn't know the full history of what's going on. You need to understand where we're coming from, that we've had a set of rules: priority rules, minimum transaction rules that have been in the Bitcoin client since 2010, that have been hard-coded and set by the developers. As the value of Bitcoin has gone up, they've been adjusting these periodically, and each time there's been a little bit of controversy about it, but what's happening now is they're moving away from hardcoded rules that they've set, into configurable parameters that all of the users can set to whatever they want. [26:48] ABL: It's actually giving more control to users about what they want to do. [26:51] JB: It is. There's a default setting that honestly, a lot of people just aren't going to be motivated to change, but for those who do find the change - they don't like the default value, they will be able to change it in their own installation, encourage others to do the same. What's effectively happened is the developers are giving up a lot of power to the community, and it's up to the community members to actually take the initiative to use it. [27:16] ABL: If I, as a community member, wanted to change this so that I could send smaller transactions that are allowable, what would that work? I mean are we talking about going into configuration files, or is there a setting where I can change this? [27:28] JB: Right now it's not exposed in the UI. If you read further into the plan, this is actually only supposed to last for a release or two. Then they've got a more robust method coming down the pipe. Yeah, right now you would open up the Bitcoin.conf file and change the settings to the values you want. If you're a person who wants to do very low micro-transactions, then you might want to find other people who are willing to do the same and explicitly set your nodes to connect to each other so that your transactions would propagate, and then find miners who are willing to accept the transactions. [28:01] ABL: Would that create a parallel network, or would it just be like a lower tier of the network that dealt with less lucrative transactions? [28:08] JB: I would think of it as like separate channels within the same network. What we're moving to is a network where every node is going to have their own policy as to which transactions they relay, what gets priority and what doesn't. Ultimately this should be something automatic that the users would set very basic parameters and the software would figure out the details, but in this intermediate step it's a matter of explicitly configuring it. [28:33] ABL: Let's assume that this change goes into effect and someone wanted to take a current client and change the default on the client to deal with lower transactions. Is that possible under what's being proposed? [28:43] JB: Like I said, you just change your Bitcoin.conf file, and you change the value down to say, 1 satoshi, and now your client will broadcast those transactions to anyone it connects to. Now what may happen is, depending on how well-connected your node is, only a fraction of the nodes that you connect to might accept these micro-transactions. You know there's still a lot of people who don't upgrade every release. There's going to be older clients out there with different rules about what they'll forward. There'll be people with newer releases who are

running the default settings, and there'll be people running the newer releases who have changed the default settings. Depending on how close your policy is to the policy of the nodes you connect to, will depend on how widely your transaction will propagate. It will ultimately be up to the miners to either accept or reject the transaction. [29:33] ABL: To summarize what we're talking about here basically, this is a change where it used to be that the rules were just set, hard-coded, and what we've moved to is a system where it's the default. It's a default but if you don't like the default, then you can change the default, whereas before, if you didn't like the hard-coding, then you could not change that. [29:50] JB: Right. Not without patching the source code and recompiling your own client. [29:54] ABL: Right. Is there anything else about this particular change you think that people do not understand or don't have the context to really appreciate why it's important? [30:01] JB: Well I think the last part is where the developers are talking about taking it in the future. Their goal, and Gavin has stated, his goal is a market between miners and users. Miners want fees as high as possible; users want transactions as low as possible, depending on how quickly they want their transaction to go through. The goal is some kind of system that looks at which transactions are being accepted by miners and which arent; so that your client can give you a good feedback about what kind of fee will get your transaction in, in the amount of time that you're looking to get it put in a block. That's where they're trying to take this. That it'll be a how quick do you want this transaction confirmed. If you can wait a few hours, then it'll suggest the appropriate fee. If you want it right now, then it'll tell you the fee that'll get it in priority. [30:47] ABL: This is basically a move towards a free-market system for determining what transaction fees should be and how fast they should get where they are relative to their cost. [30:55] JB: Exactly. That's something I'm very happy to see; I like the direction they're going with that. [31:01] ABL: Yeah, that sounds like definitely a positive move. Anything that we can move more towards market-based mechanisms, that seems like it's really the strength of Bitcoin. Jack, thanks for taking the time to explain this topic to the listeners today. [31:11] JB: Thanks for having me on. [31:12] ANNOUNCEMENT: ABL: Let's Talk Bitcoin is funded by your donations, with a per-episode support goal of 1 bitcoin per show. Episode 4 so far has received a total of 0.83233 bitcoins from a total of 19 donors. Thank you very much. Please remember that even if the amount you would donate is small, with Bitcoin and a growing audience, it adds up fast. If you're brand new to Bitcoin and would like to learn how it works in more detail, please visit www.letstalkbitcoin.com/learn to be directed to the Bitcoin Education Project (which I highly recommend). If you're wondering what the hosts look like, want to correspond directly, or would like to learn more about either myself, Andreas, or Stephanie, please check out the Meet The Hosts section of the site. Hosts have individual tip jars on their page, so if youd like to make sure you're rewarding the right

individual, that's your destination. Of course, the show is nothing without an audience. Please share Let's Talk Bitcoin with anyone you think would or should be interested in the future of money. Let's Talk Bitcoin is released under an open-source license that allows for non-commercial clipping, remixing, and posting in any format or on any site you want so long as you include a link to our site, www.letstalkbitcoin.com. We're also actively recruiting both on-and off-air talent for this and other shows to come. Once again, if you're interested please contact me at adam@letstalkbitcoin.com. [32:22] SM: I have to admit I was confused about this topic. I tried to read a Reddit thread, and it was turning into a real, you know, contentious debate. People were complaining about, this was done in secret, it sounded like there were some people who thought this was basically trying to pull the wool over their eyes. As Jack explained, it really sounds like this is a move toward a free market in determining those transaction fees, and I think that's really important because no other payment system has that built in. That's something that's unique to Bitcoin, and it's something that you can do with Bitcoin which is really cool. [33:01] AA: This is a great example of poor communication, unfortunately. This is not just some minor code change. This is a 1.7 billion dollar economy. Minor code changes have implications, sometimes not immediately visible implications, and sometimes those implications are misunderstood. When you're making changes that will affect an economy of that size, your motives will be questioned. Expectations have to be set accordingly; f the developers decide to make changes like this, and they seem to be well-motivated and making the right choices, but not communicating them well. As a result, people assume the worst, and it's not surprising. Their money is riding on this, and they have skin in the game. If these changes affect the Bitcoin economy in general, and bring even the possibility of disrupting someone's business, someone's livelihood, someone's new business idea or start-up, and killing it while it's still in the cradle, if you like, that's something that will really upset people. Even if that's not the case, it needs to be communicated clearly. [34:10] SM: Yeah, there was a thing about Satoshi Dice, that this was specifically aimed at getting rid of Satoshi Dice because they have a lot of these tiny transactions; people blame them for swelling up the blockchain. As I understand it, Satoshi Dice has already kind of like changed their system to avoid having a lot of tiny Bitdust-transactions so this isn't really going to affect them, right? [34:34] ABL: What we were able to figure out in the Community Roundtable when we were talking about this, was that Satoshi Dice has not already taken that step, but that the only thing that they would functionally have to do in order to get around this change, is to increase their transaction fees to whatever the minimum level is. It's still a relatively small amount of value, so they should still be able to continue forward with their model, is how it was explained to me. But again, I'm not an expert on that. [34:58] SM: One thing that I had never considered before was that to include a basically Bitdust transaction in the blockchain or in the block, there's a cost to the miner to do that, so you have to kind of make it worthwhile for them. The cost of including some of these tiny transactions is more than 1 satoshi, or whatever; it's not like insignificant. [35:21]

AA: It's also instructive to look at the real world, if you like, and how these kinds of decisions are made and how they're experienced by those who have money riding on them. In a prior life, I worked at a hedge fund doing IT, and I got to watch a lot of things from the inside. One of the most fascinating things I saw was just before the Chancellor of the Exchequer, which is the equivalent of the Federal Reserve board here in England, and the Chancellor of the Exchequer would come out and announce new interest rates. Well they had a panel of experts watching the video feed with dials in front of them to indicate to the traders "buy" or "sell," and what they were looking for was slight inflections in the eyebrows, or slight movements of the head, or posture, or whatever. So they could actually make a judgement as to whether the rates were going up or down before the first word came out of that person's mouth. Well developers, that's the level of scrutiny you're going to get, whether you like it or not. Better get used to every word you say being parsed a hundred ways from Saturday, just because - 1.7 billion dollar economy and growing. [36:29] SM: I guess that's a good sign, because people are being sceptical, they care about Bitcoin, and they're going to do what it takes to make sure everything is scrutinized and they're not just going to trust that everybody has their best interests at heart, especially when there's a lot of money at stake. I think that's just an indicator of a passionate community and a smart community that can understand the issue enough to care about it, and is willing to do something about it. [36:53] AA: And can do something about it. I mean that's the exciting thing because when Bernanke comes out and says the interest rate is "blah," well the interest rate is "blah." You can't fork the country, right? [37:05] SM: [Laughing]. No, you can't. [37:06] AA: It would be great if you could. I would be putting in a pull request right now. [37:09] SM: Me too. [37:13] AA: I have some changes in mind, I'm sure we all do, and that's the whole point, right? It's the power. We have voice here; we have power, and not just radio hosts. I mean every single user of Bitcoin has an opinion and has the ability to go in and suggest changes to the code, and even fork the whole thing. This is a very different situation in many ways because the developers operate only at the pleasure of the consensus community, and so we do have a lot more accountability than we may feel at times, and that's a great thing. [37:41] ABL: Do you feel like this matters more now than it did, say six months ago? Because I've definitely noticed that the pitch of things has really gone up. These little changes, they're smaller and smaller changes, and even when they're good changes they're still getting all kinds of negative attention just because, you know, they're changes. [37:57] AA: Things have changed because the economy has grown, because a lot of outsiders who don't necessarily do Bitcoin for the ideology, for the early adopter status, for whatever reasons all of us came in at an earlier time. More and more people are doing this because it's a great utility; a great way to participate in a new economy. These people will judge Bitcoin

and the changes that are made, purely on objective criteria that affect their wallet. There's a lot more scrutiny now. [38:30] ___________________________________ ABL: While Bitcoin has been around for a few years now, few know its history better than Community Roundtable member Charles Hoskinson of the Bitcoin Education Project. I caught up with Charles during lunchtime at the Metropolitan State University of Denver to get up to speed on where we've come from, and where we might be going. [38:45] CH: In terms of my comments with Gavin, it's kind of interesting. In every open source project, it almost always starts with some guy who has an interesting itch that he has to scratch; like Matz when he developed Ruby he said - Gosh, I really like some parts of Perl, I really like some parts of Pascal and other languages, but it's, none of them really fit my desire. They kind of descend into the basement for a little bit, play around with it for some amount of time, and then they start sharing the project with other people. Satoshi Nakamoto was no different. He just kind of talked to a bunch of people anonymously and patched together what eventually became his white paper, and then people said - Gosh, this is a really cool idea, we really like this. The first step of that experiment was really saying - Are the assumptions that we made in the white paper, and the assumptions that we are making about pseudoanonymity, transactions actually working, it being cryptographically secure, are those things actually good, or are they bad assumptions? For the first part of the project, that was really what they were doing. Over time it kind of evolved into the next phase of all opensource projects, which is - who's in charge? Is this going to be kind of a democracy, or is it like Linux with Linus who owns the trademark, and he's going to kind of stamp out things that he doesn't like? For the most part, Satoshi kind of pushed everything forward but other guys, like Hal and Gavin, had a significant and meaningful role. When Satoshi left, he kind of left slowly, and he sent out emails. I've been trying to archive all of Satoshi's emails, but from the emails I've seen, he mentions to Mike Hearn, I think, that the project's in Gavin and other people's hands, and I don't think he like, anointed a specific successor because it's a decentralized cryptocurrency. Even if he did so, I don't think anybody would completely rally around any one particular person. From a technical standpoint, it became pretty clear, especially around 2011, that Gavin is really the front man there, and he's going to have the biggest say of what goes into the protocol, what software is considered good, what software is considered bad. Of course, with all decentralized projects, over time that influence tends to deteriorate a little bit. What we've really gotten to in the Bitcoin community right now is, we're right at that cusp of mainstream acceptance. The first stage is, see if it works; the second stage is, who's in charge, how will power be shared for the time being; the next stage is, okay now you're a billion dollars in value, people and the media are taking you seriously, how many people are going to live in this ecosystem? Is this forever going to be a small elite 1980s style internet, or is this going to be a very big thing, that's very global with millions of people in it? The way I see it right now, the biggest impediment for us growing any larger is a lack of understanding and a lack of relatability amongst the mainstream. The mainstream has a hard time wrapping its head around complex topics like Elliptic Curve Digital Signing Algorithm and things like that, or, what is a blockchain?, What is a block?, What is mining? These are all very alien concepts and they do require some specific knowledge. If we've been in Bitcoin for a while, they seem like second nature but for most people, they have difficulty using their email, much less

understanding something like Bitcoin. There has to be some sort of effort in the community to remove those barriers to entry and kind of mainstream the interface. Just like in the 1980s, the Internet was very complex, it was a little hard to use it, there was a limit of stuff you could do. In the '90s, they started working very hard to mainstream it. With respect to Bitcoin, until somebody finds a way to remove that barrier to entry, the mainstream is probably not going to get involved. The second big hurdle is a lack of relatability. Let's say for the sake of the argument, that people can get a pretty keen sense of how Bitcoin works, how to spend money, how to use them; why would anybody in their right mind still want to do that? Well, there has to be some sort of effort to say - By the way, there's advantages in social entrepreneurship; this can really help overseas charities, especially with currency transactions. You can cut out the middlemen. If you look at privacy concerns, like for example, in China where commerce is highly regulated, it's monitored, and if you buy things the government doesn't like, then you might have people show up at your door. Bitcoin can really help people in China be able to enjoy some modicum of liberty. That's the relatability component, and there has to be some sort of effort in the community to do that. Then the other two problems with our PR issue, with the mainstream adoption issue, is: first, misinformation, miscommunication by the media, which is usually something that tends to resolve itself once people understand what Bitcoin is, especially journalists, who shouldn't be expected to be computer scientists on a part-time basis. The other issue is misuse by criminals, which causes regulatory problems and it causes a lot of concern and fear amongst government actors. That's where we're at right now in terms of Bitcoin. Now, Gavin doesn't really have an active role, nor should he have an active role, in mitigating those four things. Where his role really becomes important is, let's say that the mainstream adopts Bitcoin and there's many, many people just flooding into the network. We see exponential growth, and now we have 5 million, 10 million, 20 million people inside the ecosystem. What's going to happen is corporations, especially the Big 5, like Microsoft, Google, Amazon, Facebook, and Apple, are going to say - Gosh, we can probably build some products and make some great money, using Bitcoin. It's something that could seamlessly fit into, let's say Google with their NFC endeavours, or maybe you can start buying applications off the android marketplace using Bitcoin, or Apple with their marketplace, or let's say Facebook, now every single Facebook account has a Bitcoin wallet tethered to it and you can turn Facebook into basically a gargantuan Kickstarter / donation engine, or commerce engine. The integration of these guys into Bitcoin is kind of dicey, because what's going to happen is the corporations are going to kind of look at two alternative paths. One is going to say, do we treat this like the internet of the 1980s, where we're just going to build stuff on top of it until it's perfect, and people like it, and we have a legitimate model, or are we going to treat this like Myspace versus Facebook, where Bitcoin just proved that a peer-to-peer cryptocurrency has intrinsic value, but Bitcoin in its current iteration and form, is really not sufficient for their business needs and it's time to fork it, build an industry alliance, and basically kill Bitcoin off. You know, and we in the community say - Oh well, who cares if they hard-fork it, you know, we'll stick with Bitcoin. Well, I kind of have some experience with something similar. I campaigned for Ron Paul back in 2007 and 2008, and we had this big wonderful Tea Party movement, which was very decentralized, it was extremely libertarian, but it actually had a pretty big diversity of politics. We had as many Democrats as we did Republicans in the movement, and we never thought for a moment that somebody could just come on in and take over the Tea Party and hijack us, and so we kind of like arrogantly dismissed any attempt to do so. Then what we saw in 2009 and afterwards, very quickly, some very wealthy people came in and they hijacked the

movement and it soon became just a vehicle of the Republican Party. Corporations could certainly do that with Bitcoin, and they would do it in a spectrum. What would occur is, let's say Gavin goes to Google, or Google calls him up or comes to him, however that happens, he talks to them and then they're convinced that the community in its current form, Bitcoin in its current form is unworkable, they would say - We're going to create our own version. What they would do is first talk to everybody else in the business community who feels like they could benefit from this, and create their own foundation, so kind of like supplanting the Bitcoin Foundation, but this is now Bitcoin 2.0. They would choose a particular feature to omit from this new Bitcoin, for example anonymity; that's kind of the low-hanging fruit that they could choose to omit. That gives them a backdoor to regulate Bitcoin, because what they can then do is use their lobby money, which is quite significant, if you think about just the Big 5, that's over a trillion dollars of market cap. They have a lot of money and a lot of power. They could go to Washington and say - You cannot convert any cryptocurrency into American dollars or any other sovereign currency legally, unless identity is tied to a Bitcoin address. That's something that certainly that they could do, and it wouldn't really be that hard to push, because from a Republican side you could say - Hey, it helps us fight the War on Terror, it prevents terrorists from using bitcoins and you could probably find something on a liberal side to advocate that. It seems like something that could slip its way through very quickly, and then all the sudden what intrinsic value does a bitcoin have? How do you conduct commerce with a bitcoin if you know you can never convert it back into your sovereign currency? Abstracted a step further, they can simply use international trade agreements to enforce the same regulations that would be passed in America. That's kind of a hard approach of killing Bitcoin if they build their own standard. A soft approach is where a corporation would open up its massive IP portfolio, like Microsoft for example does this with android. HTC has an android tax; it would just open up its portfolio and anybody who uses Bitcoin vanilla, they would just sue, and say - You're violating something that we own. Whether it has merit or not, if you're a small business, if you're a small entity, fighting such lawsuits is incredibly difficult and very expensive. The other issue is, again we have that mainstream problem where mainstream may start understanding Bitcoin but there are some tangible problems. Even Peter, from the Foundation, acknowledges that Bitcoin has issues from a merchant's perspective. You can't reverse transactions for example, without using some sort of escrow service. For e-commerce, that's not necessarily the most desirable feature for both parties; it's great for merchants, it's terrible for consumers. Those weaknesses can very quickly be exploited in a marketing campaign which wouldn't really cost that much money, to cause the mainstream as a whole to kind of move to Bitcoin 2.0. That essentially would de-democratize Bitcoin, it would centralize it behind a hegemony of very powerful companies, and that's really not something that we as a community probably should aspire to. Instead, the preferred aspect is if we have as strategy. Once the mainstreamification (if that's a word we can use) occurs with Bitcoin, to simply just have a strategy for - How are we going to convince Google to build on top of what we have and accept the current power structure and start contributing developers to our project? As opposed to kind of like - Oh, who cares what they do, who cares if they fork. That's kind of the way that I see the future. We've grown up, we've become a legitimate tangible movement, we've kind of figured out what the power structure's going to be for right now. We have to handle the next hurdle, which is mainstream adoption and integration of corporations into Bitcoin, which will inevitably come if Bitcoin is going to survive and become profitable. [49:33]

ABL: The picture you just painted about corporations is not exactly a rosy one. Is there any scenario here where corporations adopting? Like, if Amazon wanted to get involved, that's a topic people bring up sometimes, is that if Amazon started accepting bitcoins, you'd see mass adoption, because suddenly there's this outlet where you can buy anything, and it's already commonly accepted and everybody's already used to using it. Is that a positive scenario, or is Amazon getting involved actually a negative because of these things that you've said? [49:58] CH: Well it really depends upon how you sell it to them, and if they believe what we currently have is sufficient for their business model. It really does require somebody to go and lobby on behalf of Bitcoin from both a technological perspective and a business perspective. I wouldn't really imagine Amazon just vanilla-adopting Bitcoin. Rather what would probably happen is let's say, PayPal buys Bitpay, and then PayPal goes to Amazon and says - Hey, you guys really need to somehow, someway integrate Bitcoin into your service, and we can reach some sort of cross-licensing deal to do that. The reality is, we need somebody to serve as a liaison to convince businesses, that the decentralized nature, where there really isn't any one controlling entity and this highly Libertarian element of contributors, would be not a threat to their business model. Corporations generally get scared when they cannot control things, or when they don't understand the balance of things. They also generally get scared when the government hasn't really taken a serious position on something. You need somebody to convince them - Hey, everything's going to be alright. I can make you a lot of money. Honestly, I think the best person we as a community could reach out to, to lobby on our behalf would be Peter Thiel from Clarium. If we could create a campaign to bring him into the movement, I think he probably would be amenable, because he owns bitcoins, probably several million now. He's the co-founder of PayPal, he owns Clarium Capital, a wonderful venture capital firm, most famous for investing in Facebook. He has all the business connections we'd ever need to be able to make corporations comfortable with the configuration of Bitcoin as it stands, as opposed to just throwing it away, saying - Bitcoin is Myspace and we need to build Facebook - is kind of the analogy. [51:36] ABL: I understand the need for advocacy. I think that you're right; Peter Thiel would be a very good candidate for that because he has a foot essentially in both, or all three, worlds depending on how you want to look at it. [51:45] CH: Hell of a lot of money if Bitcoin became more valuable. [51:47] ABL: Right, exactly. I mean he's definitely got some self-interest in it too. I guess the part that doesn't make sense to me is, part of the reason why Bitcoin is interesting is because, you know as an open-source entity, and as something that's very easy to integrate, I don't really see why you would need to have a situation where, if Amazon wanted to integrate they would have to, it would be PayPal coming to them buying Bitpay like you said, and then saying - We have a solution. Wouldn't Amazon just, you know, someone in engineering, or someone in marketing say - Hey, this looks like a solution. Their profit margin is so low anyway, it just seems like it would be advantageous for them if they could use this, even if it was just for internal use: people paying in, then they could also pay out, they work both sides of the table. [52:29] CH: Right, absolutely. Amazon could roll their own solution, and they have some of the best engineers in Silicon Valley, so there's absolutely no doubt in my mind. [52:38]

ABL: But you don't think that's the way it would go? [52:40] CH: Because Jeff Bezos tends to be a very systematic person and he tends to not get super involved in things until he's absolutely certain that they have a strategy to dominate the market. [52:51] ABL: It seems like they take steps aggressively to cut costs anywhere possible. [52:55] CH: Yeah absolutely. If they found a way that accepting Bitcoin transactions would definitely be profitable for them, they would certainly do something like that. The big issue is the money regulation side, right now. Amazon doesn't want to go ahead and start accepting bitcoins if, let's say FinCEN, or some other agency says - Yeah, this is actually not legal. I know FinCEN's made some recent statements, but no law has been passed and many things are subject to change. If a company, like PayPal, absorbed Bitpay, it would mean to a guy like Jeff Bezos - Okay, there's going to be more than just one player in this space that would lobby for pro-Bitcoin laws and pro-Bitcoin regulations. Also, it handles the Bitcoin storage dilemma; because right now we don't have legitimate banks most people would consider 100% trustworthy to store your PayPal points in. There's like the Blockchain wallet and things like that, but they're not a major player in the space, whereas PayPal's trusted with billions upon billions of dollars. A signal, like PayPal, purchasing Bitpay, for example, would say to the market and to the mainstream consumer that bitcoins are safe to transfer your money into and big companies are going to protect you and secure you. That would be a signal to Amazon to build out their own infrastructure, whether they do a partnership with PayPal or not, it might not necessarily happen. You might absolutely be right, Amazon simply builds out their own infrastructure, but I don't think they're going to do that until an entity, like PayPal, or like Google, decides to move into the space. I think they're going to be a later player, but a very significant one. [54:22] ABL: The hurdles basically that you're talking about are regulatory rather than technical? [54:26] CH: Exactly. You don't want to accept a currency that, at some arbitrary point, might get regulated out of existence as a merchant, because your margins are very low. Whereas an entity like Google can kind of dip their feet into it a little bit and say - Gosh, Bitcoin makes a heck of a lot of sense. Especially what they're doing with their Google Wallet, their Near Field Communication endeavours, and so forth. If an entity like Google, or PayPal decided to get involved, then they say - Okay, we have a bit of cover now, because we can call them up, our lobbyists can meet with their lobbyists, and now we can make sure that no laws are made that would hurt our bottom line. [54:57] ABL: Well that sounds like a path forward. Thank you for providing some of this context. I don't think that there's really a very good appreciation of these issues within the community, about the both positives and negatives of the corporate involvement that we're inevitably going to see if Bitcoin is successful. Charles Hoskinson, of the Bitcoin Education Project - if people want to check you out and see the free course that you have available. Are you the only lecturer so far, or have you added any guest lecturers yet? [55:19]

CH: We have one from Jon Matonis, which is a podcast, and we have a large series of lectures coming through from an economist on Bitcoin deflation. We're trying to get David Schwartz from Ripple to go ahead and do a lecture on Ripple, and then we're going to get some people from Litecoin to do that too. [55:33] ABL: The Bitcoin Education Project is going to get to be really, really big. [55:35] CH: We're trying, we're trying. [55:36] ABL: If anybody wants to check you out, take a look at www.letstalkbitcoin.com/learn. [55:40] _____________________________________ ADVERT: www.Foxycart.com is a better checkout experience, empowering developers to create flexible, powerful, custom e-commerce in less time, while equipping merchants with the fastest checkout flow available to their customers. Foxycart is built for web professionals. It can serve as a foundation for advanced custom e-commerce deployments, or for quick and easy single-product online stores. And of course, Foxycart supports Bitcoin. Visit www.Foxycart.com to learn more. [56:10]

ABL: www.Games.on.net is covering the incident over at the E-Sports Entertainment Network. Basically, this is the kind of gorilla in the room when it comes to competitive e-sports. There are a few other associations out there but this is one of the larger players. What happened is they have an anti-cheating software that has to be installed in order to participate in their system, and what happened is that a "rogue engineer" inserted a GPU miner into the software. It blew up somebody's graphics card and it, before people figured it out (it took about three weeks) and over the course of that time it generated about 30 bitcoins. In general, it's caused like this total PR nightmare for this particular part of the e-games scene, because there's all kinds of questions about whether or not these kinds of companies can be trusted. This was a very reputable player. It was a bad breach, someone actually had hardware damage. The company seems to have been doing the right thing about it; they've donated the amount of money that they earned from it, plus I think double that again to some charity, and they've taken proactive steps to compensate anybody who had their hardware damaged by it. It seems like as the price goes up, stuff like this is kind of inevitable. There are so many computers out there, especially gaming computers, that are functionally set up to be miners. You know, that's going to be less true about Bitcoin in the future because we're moving to ASICs and that kind of makes the graphics processors a little bit obsolete in terms of their power, but at the same time if it's not your computer and it's not your hardware and it's not your electricity then maybe that doesn't matter. Do you think that this is the future for Bitcoin malware? SM: Yeah, and it's potentially a ton of computers and so it doesn't really matter at the end of the day if they're not like super-efficient or designed for mining, it's just that there's no cost to

you, and you can mobilize this huge amount of computing power potentially by just pooling everybody's together. I actually saw, there were a couple things this reminds me of: you know obviously this person was smart to go for gamers because they have kind of specialized rigs with like hot GPUs ready to mine. I saw a Skype malware a while back. It was basically going around on Skype and people would click a link and it would basically turn their computer into a Bitcoin miner for somebody else. They never tried to make up for it, they never gave to charity or anything, and they just walked away with the bitcoins as far as I know. Also, Ive seen on certain websites, I've seen code that says - Hey, let your website visitors mine litecoins for you; just insert this code into your website and all your visitors will be mining litecoins for you. (Laughing) [58:45] ABL: Really early on actually, one of the earlier podcasts that I started in this space, one of the things that we were looking at for monetization, and we actually enabled it and totally disclosed and said - Hey, you're on our website, if you're listening to the thing on our website then you can click this button and it'll enable... we were using CPU miners at that point, but man, we got such a bad response from the community. It was just unbelievable. Even though we were up-front about the disclosure, even though we turned it off as soon as we figured out that people just hated it, even at that CPU level it was such an issue because people felt like we were exploiting them. [59:19] SM: When you think about it, it's really a trespass. It's an unwanted use of your computer, and it's analogous, I think, to physically somebody coming on your property, or somebody violating your body even, and doing what they want with it. I think people view that as really invasive, and I don't blame them. I can see why people don't like these botnets. [59:42] ABL: What if you took this concept and you simplified mining with it, right? Because this is software that people installed that they did not know was mining, and yet it was mining. Mining is kind of easy to get in to, but like we talked about before, if you're doing it then you need to be tweaking it, you need to be playing with the settings and making sure that it's alright. I'm just wondering, maybe this is like a shared mining thing, maybe there's a shared mining model in here where there can be someone who designs essentially assisted mining software and it's all automated and all you do is download it, and then you split the profit. [1:00:16] SM: Right, yeah. If it was consensual, that sounds like a great idea. [1:00:20] AA: I'd like to talk about the darknet pools (laughing) because out there right now, there's an estimated 50 million machines compromised by bots. This is not just a small number of machines. Botnets are huge; some of the largest botnets that have been found, exceed 5 million hosts in one single botnet. In some cases, botnets have gone unnoticed and operated in the shadows for three or four years before anyone notices them, and then discovers that they're 2 million strong, or 3 million strong. At that point, it doesn't really matter if you're doing CPU mining, or even low-level CPU mining, you multiply it by a couple million bots, that's a viable mining opportunity. Here's the real rub: the problem is that this has already turned into a multi-layered economy. Previously, it was a one-stop kind of vertically integrated thing, where the person who figured out to exploit the vulnerability installed a Trojan and figured out how to monetize it. Same person, right? Not many people like that. Nowadays, it's really a distributed economy. Someone discovers vulnerability, they sell it,

someone builds an exploit on it, they sell it, someone builds a botnet and then they rent out these botnets. The most common way of monetizing botnets today is spam and phishing emails. People pay a couple hundred dollars to rent several tens of thousands, or hundreds of thousands of computers to then run spam campaigns. This is a much better monetization principle; you don't have to do the money laundering afterwards. For hackers, this is obviously very exciting; there are very high incentives to join. That's bad news for the economy as a whole; not necessarily bad news for Bitcoin because it increases the mining pool, but it's obviously bad news for the reputation of Bitcoin. Just like any other thing, it's a very powerful tool; criminals are also, of course, going to use the most powerful tools at their disposal. They're going to use cars for getaway cars, they're going to use phones to do conspiracies, and theyre going to use Bitcoin to make money. [1:02:18] SM: Related to that, Andreas, do you ever think it might be possible that somebody could somehow amass such a giant botnet that they could do a 51% attack on the Bitcoin network with the botnet? [1:02:28] AA: I think the 51% attack is really a red herring; practically, getting to 51% doesn't really achieve you much unless you can do double spends. You can only do that in a very limited way right now. Honestly, people would really, really very quickly notice if that was happening and simply blacklist that entire group. [1:02:49] SM: Oh, that's good to know; I feel better. (Laughing) [1:02:50] AA: Well I mean, the good news is that we've actually tested this hypothesis quite a bit because as BTC Guild, which is the most successful and respected and very well-run organization, Mike Marsee, Eleuthera, actually runs that, and he's voluntarily set limits on BTC Guild so that if those limits didn't exist, BTC Guild would already be over 50%; the only reason it's less than 50% is because he shuts down registrations any time it gets close. What that has done has brought the topic to the forefront, and so everybody's watching that percentage. There's now charting sites and statistic sites that alert you if it goes above a certain percentage, etc. It's good. I mean, it's not a really big problem, it's more of a theoretical issue, but it's already being watched carefully. I'd be more worried about people who have passwords like password123. Those are the mundane risks that people don't think about that really get their wallets lost. [1:03:46] ABL: We're talking about these Bitcoin botnets, and just botnets in general. Is there any easy way to avoid exposing yourself to the danger of being infected with something like this, or are there any easy ways to figure out that you have been? Because I mean, I run virus protection software, I do checks periodically and stuff like that, but I don't really know what's necessarily going on. [1:04:07] AA: Yeah, I can tell you as a security expert who did penetration testing and work on malware before, even security experts cannot guarantee that their machines are clean. That's why it's recommended if you want to do cryptography and things like that, you take the machine offline, you boot off a live cd, a trusted CD, and you do your work in an environment that's pristine. You can't really guarantee it; although I would say that there's a major discrepancy between operating systems and the level of infection, so the simplest answer is don't use Windows. [1:04:37]

SM: Well if your computer is running in overdrive and you're not doing anything, then that might be a sign that you're infected. [1:04:43] ABL: Unfortunately that's all the time we have for today. Thanks for tuning in to Episode 5 of Let's Talk Bitcoin. Whether you liked, loved, or hated the show, we want to hear what you think. Please send all listener feedback, comments, or questions to adam@letstalkbitcoin.com. If you're like me and you just can't get enough information and perspective on Bitcoin, check out our daily newspaper at www.thatdailybitcoin.com, where you'll find the best news presenting articles and arguments from all sides of the issue. Thanks to Andreas M. Antonopoulos, Dr. Stephanie Murphy, Jack Byer, and Charles Hoskinson for providing content for the show. Music for this episode was provided by Jared Rubens and Steffen Frost. You can find links to the songs that we use and the open-source artists who make them at www.letstalkbitcoin.com/music. Stay tuned for Episode 6 of Let's Talk Bitcoin, releasing late on Friday the 10th of May, featuring an interview with Michael Hall who gives us the inside story on Cyprus, and the bailout that broke the world. [1:05:33]