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- [00:01]
A
Welcome to Galaxy Brains.
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B
An infinite amount of cash.
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A
Cash. I'm your host, Alex Thorne. The US banking system is sound and resilient. Bitcoin made a new all time high.
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C
If you're not long. If you're not long, you're short.
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D
Satoshi is going to come on there, laugh hysterically, go quiet. All bitcoin's gonna be erased. Bitcoin. Bitcoin's the best crypto. Bitcoin is going to zero.
- [00:26]
A
Welcome back to Galaxy Brains. As always, I'm your host Alex Thorne, head of firmwide research at Galaxy Bitcoin. Not zero. We have a great episode for you today. Matt Carollo from Spiral, that's Block Inc's bitcoin dev shop, is our guest. Matt was contributing to bitcoin core in 2011 when Satoshi was still around. One of the more prolific, I think by commits on the bitcoin GitHub. He's the 17th most prolific Bitcoin core developer. Not contributing much to Core now working mostly on lightning. We have a great conversation with Matt about a simmering intern dispute inside the bitcoin community about how to handle spam, whether there should be a fork to reduce spam on the network. I think I'm very opposed to that. So is Matt. But we're going to get into that bip110 and knots and crucially, Matt has done a lot of work and is very public talking about bitcoin mitigating the threat from quantum computing. We'll talk about Quantum with Matt. He disagreed with me. My take from the bitcoin conference that I posted on X a couple weeks ago and we'll get into that disagreement a little bit. Of course, we'll check with our good friend Bimat, a BB from Galaxy Trading, as always, to talk about markets and, and why. Things look pretty good right now, but the future is still very uncertain. Inflation high expectations for rates are that they go higher, not cuts. And we'll talk about that with BIM. Net. Before we get to that, I need to remind you to please refer to the link to the disclaimer in the podcast notes. And note that none of the information in this podcast constitutes investment advice or an offer recommendation or solicitation by Galaxy or any of its affiliates to buy or sell any securities. Phineas, my friend, we are back here in the Beacon of Liberty and Free Markets New York City after a bunch of traveling here you. You were with me in Miami. That was fun.
- [02:10]
B
Miami was fun. We have a bunch of content we're going to be rolling out on this feed in the coming weeks and potentially months.
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A
Executive from T Row and Robin Hood and Anchorage and Animoca and a bunch of really good interviews.
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B
Really just like an amazing gathering of of folks who are about the future of finance on chain and a whole bunch of other things and that's really exciting. Today we are not going to talk about clarity.
- [02:36]
A
Yes, big, big week this week for the Clarity act markup in the Senate Banking Committee. But we released this podcast on the day that that will occur. So we will follow up next week with very substantial reactions to what's been happening. And obviously if you've been following our content, this podcast, but also me and my team's written content, we've covered clarity ad nauseum. We'll just have to wait and see what happens later on Thursday. We'll cover that next week. Instead we have this great interview with Matt, who's one of the most involved and longest involved developers in the bitcoin world. What do you think about that interview? It's pretty long, I will say, but it was good the whole way through.
- [03:13]
B
It's long. I mean in the bitcoin community there are these sort of mini celebrities. And you described him as sort of one of the most relevant bitcoin developers in the history of bitcoin. I listened to it through that lens and it's fascinating. It goes a lot of places.
- [03:28]
A
And he works at Block Inc. Which of course the company behind the Square Merchant Payment Terminals, one of the biggest payment companies in the world that now accepts bitcoin on every single terminal. Also Cash App, one of the better and and biggest bitcoin places you can buy bitcoin. And they also have their own bitcoin wallet, the Bitkey, and they make an Asic miner and they fund a giant team at Spiral, building a lot of stuff to enhance bitcoin's usage for payments. Matt works a lot on the Lightning network stuff which we talk about. It was pretty good too with Bimnet. Also, very thoughtful Bimnet today. Very you know, what do you think about Bimnet?
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B
As always, Bimnet bringing the heat.
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A
He's great as always. Well, let's hop right into it with Bimnet ab. Let's go now to our friend Bimnet Abibi from Galaxy Trading. As always, Bimnet, welcome back to Galaxy Brains.
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C
Thanks for having me.
- [04:21]
A
I don't know what to feel about this market. We had some equity down days, but it's been on a ripper. So like that's normal. And bitcoin is Kind of just pinned around. I guess we're a little below 80 now, but we've been basically between 78 and 82 for a week.
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D
Right.
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A
You know, we're going down a little now, but not much. What's your take on it? What's happening? Why are we, are we chopping?
- [04:43]
C
So I think there was a lot of anticipation for potential stretch issuance this week. Because the ex div date is this week.
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A
It's Friday.
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C
Right.
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A
Like the 15th Friday.
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C
So in theory Wednesday and Thursday are the last two days for you to purchase stretch in this dividend window, correct?
- [05:04]
D
Yeah.
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C
Because it's T plus one settle. So you need to have a settled position by Friday. But during the last period in April when he was issuing, he issued between stock and stretch like over $3 billion. Right now as of today, the corresponding date on stretch in April versus today, volumes are running about 70% lower.
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A
Oh wow.
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C
And the issue this time is there's been a lot of, I would guess pre positioning in anticipation of significant buy pressure from Saylor. And so from the short term tactical community, the fact that Bitcoin isn't trading well and the volumes on stretch are
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B
down
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C
means that the risk reward of trying to play from the long side
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A
is just not there in the short term here.
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C
Yeah, I think what you're seeing today, even though stocks are up, is folks de risking that short term tactical trade position.
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A
That makes sense.
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C
And then there's some optimism around clarity. I think that optimism has decreased a little bit just because of the amendment
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A
process and the never ending machinations in dc. There's a lot of uncertainty as well.
- [06:21]
C
A lot of uncertainty. And so I think what you're just having is a correction. And then in terms of the broader equity market, I think if you think about what's been driving the performance of the S&P 500 and NASDAQ, it's basically this AI theme, right. You had companies report about 85% of companies reported beats on earnings. The top performers in terms of a P and L attribution standpoint for the S and P returns are names like intel and Micron, the big manufacturers of the hardware. The hardware and the prices of that stuff are going up. So their profit margins are going up. They're still somewhat cheap on a forward earnings basis. Then you also have some strong MAG7 performance that's contributing to the overall rise of the S and P, which is around 7%. But the issue is now, yes, these companies are reporting good earnings, good earnings growth, but in terms of how they're Using their cash. There's a bit of a shift I think the data suggests somewhere on the order of 60 ish percent decline in share buybacks in Q1 of this year. And in terms of like total share buyback issuance that's been announced or authorized for this year, it's around 700 billion of which 40 some odd percent is information technology, which is mainly Mag7. But if they're going to start using all this cash for data centers, then that means they'll have less cash flow to purchase shares. And so if this trend continues, I think folks are probably waiting the share buybacks a little too heavily.
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A
Yeah. How important? I mean the share buyback trend is a many years trend that. Yeah, probably multi decade at this point. Right. But one of the arguments is that it's kind of like dumb. Right. Because if you're a company, you're supposed to be taking that capital that your shareholders have given you or your customers have given you and reinvesting into grow the business. Right. It's kind of like you have all this extra money you just don't even know what to do with. So you'll buy back your stock. How important though has share buybacks been to stock performance?
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C
Overall? It's. We'd have to go back and qualify it but. But it's been very important.
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A
Yeah.
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C
And so you know, because I would
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A
almost say the trend you're talking about sounds healthy to me. Take the cash and reinvest it in your business. Grow your.
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C
It's very good.
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A
But it might. It's not clear what it will mean for stocks.
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C
Correct. Yeah. Because at the end of the day it's like, you know, it's supply and demand for the stock.
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A
Because the reality is most investors, sure, they want the business to do well, but really they want the stock to go up. That's really what they actually want.
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C
Yeah. And in theory like the CEOs are compensated based on like share performance.
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A
Yeah. Not how efficient the business is.
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C
They're correct.
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A
Yeah. And we hope though of course in a good capitalist society and healthy markets that highly performant business will translate fundamentally to the stock. And they do. But yeah, there's some buffer room there of.
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C
But ultimately I think what you've seen happen is a really strong structural bull market that's a function of AI. And in terms of what's happening underneath the surface though, like taking a step back from equities, the macro picture is very concerning.
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A
Yes.
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C
You've got energy prices, especially on longer dated energy contracts, staying super elevated if not making Fresh highs. So December contracts for Brent and crude. And then on top of that you've just had some insanely strong inflation data. PPI came in today, 1.2% on the month.
- [10:19]
D
Oh my God.
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C
And then headline CPI came in yesterday at 0.6% and core it was also elevated, super elevated. And core CPI also came in at 0.4 which is higher than what was expected. And so basically in the last two months your headline CPI annualizes to a 9% rate. And what you've seen happen as a function of these elevated. It's not just by the way, it's not like stuff that's just energy sensitive. It's like the super core, like the services inflation like all of it is increasing in price.
- [10:57]
A
Wow.
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C
And you still haven't had enough time for companies to actually pass through the higher costs to end consumers. I'll give you one anecdote. Like Uber for example, has not raised their rates yet. And if you're talking like you know, the petrochemicals of the world, like stuff you need for basic plastics and stuff, normally the suppliers they give their customers advance notice of, hey, we're gonna raise prices in May or June.
- [11:26]
A
Right.
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C
So there's some lead time to give consumers the ability to plan. And so you still haven't seen the.
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A
They haven't even done that is what you're saying. And obviously Uber has gotta be one of the most like energy sensitive. Right. I mean it's literally gasoline. Gasoline has gone up so much.
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C
Yeah. So the AAA national gas average is you know, a little over $4.50.
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D
Wild.
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C
Insane. Right. And diesel is like, I think like
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A
5 60, but it's like a 50% increase from the low threes.
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C
Yeah.
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A
That's crazy.
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C
Absolutely crazy.
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A
Well, and that's a lot of that of course is a function of the straight of Hormuz situation. And that's going to take a long time to fix even if we magic wand fix it tomorrow. Right.
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C
Yeah. And so right now my thesis, you know, I've been a little bit wrong on like my timing. I was a little bit more optimistic. But realistically I think the path of least resistance right now is for escalation because it does not seem like the nuclear terms that the US wants and needs to be quite frank because to have gone in and not concessions.
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A
The whole reason stated for going in. Right, Correct.
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C
And so they basically need the Iranians to come to the table in a more meaningful way. And I don't think that happens without like a further re escalation.
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A
It hasn't happened in the last month really.
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C
Right.
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A
We haven't. Even though they've had the ceasefire and stuff. Right.
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C
So and I think you know, the prevailing logic is that an escalation was unlikely to happen while the China meeting was still happening. Right. And so you know, they're on Air Force One now. You know, they're expected to meet with President Xi, a bunch of these CEOs, blah blah blah. And so in theory like you don't want an escalation to overshadow this meeting that we had delayed, blah blah blah. And so I think escalation is more likely after they return from China. And I also think escalation is likely in a period when the market isn't open.
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A
And so I think they've been very cautious about and consistent about like you know, attacking on Friday night, Saturday trying
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C
to have it 4:01pm, 5:01 after futures close. But the point being is the likelihood of escalation if there's no deal already by the time he gets back from China increases. And I think if you get an escalation, energy prices will go even higher. But the main story that I, I think folks have just completely ignored at least equity investors bond markets are breaking down. The US bond curve is now pricing in front end curve is now pricing in like over an 80% chance of hikes kind of by early in early 2027.
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A
We've been trending towards no cuts in
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C
early Q1 of next year. There's 20 bips of hikes priced into the US hikes.
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A
Yes. And this is still with Warsh who I believe, I think his vote, final vote in the Senate is tomorrow.
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C
Yeah, so his first meeting is in mid June. But it's really funny, some banks are
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A
still saying he's going to cut just like he'll deliver at least one cut because that's like his mandate.
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C
I'm telling you he will lose all credibility. Yeah, you can't be the Fed president that comes into a core CPI, core CPI print of 0.4, a PPI print of 1.2 and cut and at the same time, did you look at the last non farm payrolls? It was a huge beat. Provisions higher. The unemployment rate is 4.3%, the AI apocalypse hasn't occurred, has not happened and wages are still increasing. And so the labor market is very tight and so you've got tight labor market, you've got really high inflation and you've got equity markets ripping. And so what's the case for cut? There is no case for cut. Yeah, There is a definite case to be made for hikes and it is, it's really glaring to see that, you know, for example in the US Curve there's not really any like significant probability of a hike baked in pre election. So basically all the meetings out to, you know, like November.
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A
Yeah, Yeah, I think November 5th usually.
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C
Yeah.
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A
So there's a October day in November,
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C
but essentially like the hike pricing picks up after the election.
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A
So the markets are pretty confident that he won't hike. Like that'll be the mandate can't cut, but also will. At least they'll wait to hike until after the election. Which is, you know, politically decently smart for the Fed generally speaking. They really don't. I mean obviously if their hand is forced, they'll do what they've got to do. I think Jay Powell showed that plenty of times. Yeah, but in general they prefer not to have any impact on any election.
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C
Correct.
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A
Yeah.
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C
And so I do think that it's probably like a fair pricing, but in theory you could hike tomorrow.
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A
That would be decent policy.
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C
Decent. You could. But again the argument is do hikes actually do anything to a supply driven inflation shock? A demand driven one, yes, but to a commodity supply shock.
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A
Hiking rates doesn't make oil flow faster from the Middle east molecules.
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C
Correct.
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A
Yeah.
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C
And so there's an interesting dynamic happening there. But at the end of the day, the lack of a response will ultimately impact you in the back end. Because in theory if you're looking at long term debt anywhere gears out, you're doing it to one, structurally to manage assets versus liabilities. But two, you want to preserve purchasing power for a long period of time. And if inflation average is really hot for a huge period of time, what's the point of owning the bonds at the current levels? Right.
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A
They should be paying you more.
- [17:32]
C
And there's no term structure really to the curve. The difference between the two year point and the ten year point, just off the back of my head, I'm guessing it's about 60 basis points right now.
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A
You think it should be much wider?
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C
It should.
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A
Especially you should be getting paid a lot more on those 10s is what you're saying, given what the inflation picture looks like. Yeah.
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C
And just historically what that term premium looks like. And the same thing with like the 30 year point, there's about a hundred basis point difference between the two year point, I mean between the two year point and the 30 year point. And it's like you're paying me 1% more for 28 extra years of duration. Risk doesn't seem.
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A
Doesn't seem that good. Should get paid a lot more.
- [18:22]
C
Why would I go out that far? Right, right.
- [18:24]
A
But we need people to so right. I mean the government needs. This is one of the things I. One of the ironies is the stable coins. I think we, we project significantly enhanced T bill demand but that's all short, short end of the curve. Like if only there was some way to make it stable coins be able to buy 30 years now of course they can't because it's an incredible duration risk for payment. They can't work. No but I mean just you know who can buy this long dated debt? Please someone emerge. Maybe the UAPS will buy it when they, the aliens are here and they are going to buy our debt. We gotta leave it here. Let's leave it here.
- [19:04]
C
I was about to go on a run.
- [19:05]
D
No, don't.
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A
We can't.
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C
We've already done a good job but like bond market.
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A
Yeah don't worry, that's. Yeah. The President's going to come out. He's going to announce that extraterrestrial life is here and they're going to pay off the national debt. My friend Bim from Galaxy Trading, thank you so much.
- [19:16]
C
Thanks for having me.
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A
Let's go now to our guest Matt Corallo, Bitcoin developer at Spiral. Matt, thank you so much for coming on Galaxy Brains.
- [19:23]
D
Yeah, thanks for having me.
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A
I followed your work a long time. I know many others have as well. I was looking on GitHub, I guess you're. Are you still a bitcoin core developer?
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D
Well, no, I don't contribute to bitcoin core. I haven't in a long time. But I was I guess the 10th known person to work on bitcoin core to try to contribute to bitcoin core. Did that for the better half of a decade these days just do lightning stuff.
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A
Even still on if you go to the GitHub.com/bitcoin/ bitcoin, you'll see that Matt, I think is the 17th most number of commits on the bitcoin core GitHub repository.
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D
Yeah, well they add up when you do it for the better half of a decade.
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A
I mean how many of those were just like you know, adding a comma to like an MD file or something?
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D
Probably many, but that's, that's normal.
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A
Well, I want to talk with you Matt about Bitcoin and Bitcoin core, the software and some of the. The latest controversy about. I say latest because it's been never
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D
ending so many controversies.
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A
Disputes over this open source software, which is very common in open source software, actually.
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C
Right.
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A
There's plenty of disputes. I guess this is what happens with a. An open governance model, quote unquote. So we're going to talk about that. I also want to talk with you a bunch about your work at Spiral and on Lightning. And then probably the meatiest part, we're talking about Quantum and Bitcoin. I've been doing some work on this and I know you have as well. You've given some good interviews. I've seen about it. I know Steve Lee, who's at Spiral still. Right. I guess he didn't run it, but he invited me to go and he was there at the Presidio last July, I think it was. There's a big Quantum and Bitcoin conference that was pretty good where mitigation pathways were discussed. So let's talk about that. But let's start with Bitcoin core, first of all. I mean, you said you were the 10th known contributor. How long ago was that that you first contributed to Bitcoin core?
- [21:20]
D
Just over 15 years now.
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A
Wow.
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D
Just over 15 years. Yeah. It's been a ride.
- [21:25]
A
So 2011, early 2011. Wow. Satoshi was still around in 2011.
- [21:31]
D
Not by the time I started working on bitcoin. He wasn't publicly or they weren't publicly posting, but they were still responding to emails to some people unbeknownst to me at the time.
- [21:41]
C
Right, right.
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A
I guess some of that came out in litigation. Craig Wright, Litigation. I think some of his emails with Amir Taqi and others came Mike Hearn.
- [21:51]
D
I think Mike Hearn's had been published previously.
- [21:53]
A
Yeah, previously. I guess just this might seem like a silly question, but how much has bitcoin and bitcoin core changed since then?
- [22:03]
D
Yeah, I mean, no, it's definitely true. I mean, I think it's funny because, you know, I've been doing this for so long, but at the same time, every, you know, I always feel like there's so much more to be done. There's so much more. We could, we could be winning so much more. We could be having real usage in many more different places. But at the same time, I think Back to like 2011 and what we thought we could achieve and it was nowhere near this.
- [22:29]
A
Wow.
- [22:29]
D
Right. Like there was no. I mean, there were a few crazy people, but certainly most of the people I interacted with did not think that bitcoin would be a topic for conversation in national politics, for example, let alone international relations.
- [22:43]
A
Yeah, I mean, I wasn't involved or interested in it as early. But 2013, I found out about 2015, 16, I'm still blown away that it's even a $1.5 trillion asset that the world's asset managers are debating about and launching products for. Do you think like the institutionalization of Bitcoin changes Bitcoin or is it bad for Bitcoin?
- [23:09]
D
Yeah, I mean potentially it depends a lot on concentration of ownership. I think that's really damaging. And when we get into the Quantum discussion, that's going to be a big question. Centralization of ownership and does that already exist? Is that already bad? I think that is a material concern, but at the same time it's good that people are saving in bitcoin, including through more traditional Rails. It's good that companies are saving in Bitcoin and investing in Bitcoin. So yeah, I mean, I think at a high level it's good. But there are definitely some very, very major risks there, including custody. Like everybody uses Coinbase custody. Yeah, we got to have more custodians here.
- [23:54]
A
A lot of the ETFs use it, I think MicroStrategy uses it and some of them use more than one. An enormous amount of Bitcoin held at one custodian. Not good. We might get more now. I think the OCC is giving out these National Trust Charter licenses which would make them qualified custodians. Although.
- [24:10]
D
Yeah, I mean what I was told is a bunch of the ETFs just wanted to get the approval and Coinbase looked like they had the stamp of approval and so they just wanted to do the same thing that everybody else was doing and they didn't want to risk it. But hopefully there'll be a little more diversity there going forward.
- [24:25]
A
There will be over time.
- [24:26]
D
Yeah.
- [24:27]
A
You know, water likes to flow on pavement type of thing if there's more options. And Coinbase at the time too was like a one stop shop. It was like they'll, you know, do the create redeems for you can buy and sell it there and they're the biggest custodian already. I think that was a good point. I'd forgotten that point. Let's talk about one of the many controversies. I don't even know if it's the latest. I feel like Quantum is an even more recent if it is a controversy. But I guess towards the sort of. About a year ago, a new faction of dissenters on Bitcoin core development sort of really started to emerge and I guess catalyzed, I would say by the release of Bitcoin Core version 30, which I guess I'm kind of an OG guy, I might want to say, like version 0.3.0, that version removed the limit on the opreturn arbitrary data field for nodes when they transact, they relay transactions to each other. Not a change to consensus. Some people are very upset about that. Before we talk about that, what was the change?
- [25:30]
D
Yeah, so nodes, there's a separate historically and going back a long time, there is this separation between relay policy, which is what a default node software will accept when relaying transactions and when building its own block, and consensus, which is obviously what is allowed to go in a block by some other miner. There are many reasons for this. There's a few great posts on kind of going into the details of every single difference in rules and what the reason for each one is. But for the most part, the original reason was just, well, we're not 100% sure everything works great. So we want to limit what people will actually use and not necessarily disable the opcodes, but we want to limit what people can actually use. That isn't true anymore. I mean, we have much higher confidence in the quality of the software powering the network than we did 15 years ago or 10 years ago. So it doesn't really make sense to have that difference. And then there's a few things that were what I think developers now call paternalistic, which is the developers of the software saying, well, this is a bad use of Bitcoin, you shouldn't use this and we're going to try to prevent you from using it, and that's fine. I mean, certainly developers have opinions about which uses of Bitcoin are more or less legitimate. But it doesn't actually work that miners today actually want their money. They actually want to optimize for returns. And so they're going to accept the transactions that pay the highest fee. Or at least some miners will. Maybe some miners are more idealistic, some miners less. So, that's fine. But bitcoin core developers can't decide that anymore. Miners do patch it, do remove these things. And so the net effect of it actually is it harms the miners who are idealistic, the miners who are trying to select transactions in one way or another, they end up leaving fees on the floor. This is not a good thing for Bitcoin. If some miners get paid more per block than other miners. And so it was removed. This, this one of the last, or maybe the only last remaining paternalistic relay rule. Where we were saying, where developers were saying, no, no, no, this is a bad use of Bitcoin. Don't use it this way. We're not going to allow you to have this. These transactions relayed by default, even though
- [27:55]
A
they're valid, if they get into a block some other way.
- [27:57]
D
Right. Even though a miner could totally mine them. And some miners were totally mining them.
- [28:01]
A
Yeah.
- [28:01]
D
And in fact, the fact that they were harder to mine was increasing the fee these miners could charge for it, smaller supply, so.
- [28:10]
A
And miners have gotten so much more sophisticated too. They can write their own software. Right. I know Marathon is running Slipstream like a private mempool where they have all their own tweaks. Obviously they have to be consensus valid. But that is really interesting. You know, before we go deeper into the controversy that the harmonizing of the relay rules with the consensus rules here with operturn led to. You wrote the MEV, the MEVL, the MEV hole of relay policy in May 2025, and you were arguing that the restrictive standardness rules push transactions into such proprietary relay channels and that that was bad, like Slipstream, that was bad for the network overall. What was the high level that could lead to centralization?
- [28:55]
D
Yeah, I mean, we've seen this in Ethereum and other chains where MEV has driven incredible centralization in the entities selecting the transactions that go in the block. There's some structural issues. There's a lot of structural differences. Obviously the types of contracts running on Ethereum are very different than the types of ways people transact on Bitcoin. But the same things, the same trends can start to happen on Bitcoin where MEV means that some miners, some pools are making more money. And thus miners want to use those pools because they get paid more. And this drives centralization very significantly. And that's really bad for the network, obviously bad for censorship, censorship resistance, bad for security, bad for all kinds of things. So in any case, where some miners, some pools are going to make materially more than other pools, that's bad because it can drive the centralization. And in here, by default, if you just naively spin up a pool or you're solo mining or you are just using the default software in any way, all of a sudden you're going to get paid less. And that can drive the centralization where miners select the pools that are writing custom software, doing integrations with people. Because remember, if these transactions don't relay, you have to have some API. The transactors making these transactions have to select to use your API and not, you know, some default something that exists anywhere. And so even if you were to run a pool and say like, oh, I also accept these transactions, you might not get that transaction flow because people might not use your API. So if these grow to a sufficiently large amount of revenue, it's really important that these be available for all pools and not just some pools.
- [30:39]
A
Yeah, that makes a lot of sense. And we've seen that explicitly with block builders and Flashbots and I guess the Ethereum public mempool is basically dead now.
- [30:48]
D
You have to, it doesn't exist.
- [30:50]
A
Yeah, so I mean, is that centralization's one reason you mentioned censorship, resistance, you know, is this like a core long term belief of bitcoiners and bitcoin developers that the public mempool should be preserved and available and also viable?
- [31:07]
D
Yeah, I think very much so. I think bitcoin core developers, at least in my experience, are very worried about long term viability of the mempool and making sure that the bitcoin public peer to peer mempool is a sustainable way to publish transactions, get them included in the block and find every reasonably high fee paying transaction. As a miner so that you can just run a node in solar mine, you don't have to invest a lot of money hiring a bunch of engineers doing marketing of your mempool API, whatever it is, or you know, paying someone who has a private mempool API and losing some of your profits to them. I think that's seen as a very important feature of Bitcoin that that remains functional.
- [31:50]
A
So in service of maintaining that Bitcoin core developers removed the limit on opreturn that did not exist at the consensus level, but was, in your words, paternalistically still existing in the core node software. And an alternate, I guess it had already existed, but an alternate node implementation called knots K, N O T S knots started to gain popularity, I will say. I mean it's been reported I don't have a good crawler checking the relay network to see how many nodes, but I've seen estimates as high as 20% of the nodes currently on Bitcoin are these knots nodes. Those knots nodes do a couple things, but primarily they reject. They do not relay opera turns that are, I guess probably beyond 80.
- [32:37]
D
Oh, they do a lot more than that. I wouldn't say primarily. They do a lot of different things.
- [32:41]
A
Yeah, well what else do they do then?
- [32:43]
D
I mean they have a lot of different rules around transaction relays. So they have a bunch of arbitrary, well, I would say arbitrary, but they have a bunch of pattern matching on all kinds of different protocols that I didn't even know existed. Where they try to pattern match and ban certain classes of transactions, many of which might very well be legitimate transactions. Some of the patterns are very broad.
- [33:03]
A
So. But at the relay level.
- [33:05]
D
At the relay level.
- [33:06]
A
So they, they're saying there's types of transactions we won't rely. They're. They're tightening the, the relay rules. Does that work if they're only at 20% or not at all?
- [33:17]
D
It does absolutely nothing.
- [33:18]
A
Yeah. So it. Would it work if they were at 95%.
- [33:21]
D
I think what it would do is it would drive these transactions to do private mempools.
- [33:25]
A
Yeah.
- [33:25]
D
These transactors to use private mempools.
- [33:27]
A
And it also has some janky things like an auto update feature. I saw that.
- [33:31]
D
Or that's frightening.
- [33:32]
A
An expiration. Yeah. Well, it's just. I mean, why is that frightening?
- [33:38]
D
Yeah, I mean I think auto update Bitcoin core has always taken a very principled stand that auto update should not be like automatic. You know, maybe you can tell someone, they might consider updating, but it should never be automatic because that would allow the Bitcoin core developers to set the definition of the consensus rules. You know, it has to be. If the consensus rules change in an update, it really is very important that people explicitly opt in to. Those are the new consensus rules I want to follow and not just blindly accept whatever it is.
- [34:08]
A
Yeah. It also potentially presents a cybersecurity risk if somehow the Bitcoin core repo or developers themselves maintainers were compromised. Right. So another step beyond knots has emerged as well, which is. But from the same cohort bip 110 which proposes a one year soft fork that would cap outputs at 34 bytes. I guess it's been now a couple of months. I probably. I was more interested in this debate like maybe six months ago and I've sort of forgotten. But my recollection is that they framed this as a temporary.
- [34:42]
D
Right.
- [34:43]
A
Measure so we can figure out what's going on.
- [34:45]
C
Right.
- [34:45]
D
Right.
- [34:46]
A
What's Your take on BIP110?
- [34:48]
D
I would call it a joke, I guess. I mean there's so many issues with it. From the actual list of things they ban is again too broad a set and they end up banning a bunch of legitimate transaction use cases that are just normal, that are. That are financial transactions. Right. Their whole view is you shouldn't embed data in Bitcoin, you should only use it for financial transactions. And I mean I happen to agree with that. It's just not much I can do to Enforce it. And there are a bunch of their rules limit a number of things. People have pointed to a number of different things that you might want to do that are financial in nature. Locking up coins, having different weird security policies with more custom scripts that are now banned by 110. So yeah, I mean, first of all, it's absurd to talk, to even engage with. Oh, we're going to disable all these different types of scripts that people might very well and in some cases are legitimately using for financial transactions in order to prevent non financial use cases of bitcoin. But then more generally the temporary thing is questionable. You know, they've said some of the proponents of it have talked about how it needs to be more long term and not just temporary, but the actual BIPS is temporary. So it's unclear what the actual intent there is. And just generally, and I'm sure we'll get into this a lot with Quantum.
- [36:13]
A
Yeah.
- [36:14]
D
The concept of, of disabling some coins and coins that exist on chain and having some group decide even, Even if it's 95% of Bitcoiners and everyone says actually we're going to do a fork and we're going to seize those coins, we're going to disable them so that you can't have those coins is totally antithetical to the concept of bitcoin. Yeah, I mean I, I can't, I can't think of anything else more antithetical to the concept of bitcoin than doing something like that.
- [36:44]
A
One of the things I've been very heartened to see is that the open source nature, but also open nature of bitcoin. It seems the tide on this has receded a bit. They got to a pretty big fever pitch though on, on X Online.
- [36:58]
D
It was like just before bip 110 because you know, when it was a debate about relay policy, I mean it's not, it's harder to say. This is like some huge antithetical to bitcoin thing. You're not seizing coins. It's just my node. Yeah, I mean I still think there's many issues with it, but it's a little harder to just say like, no, that's absurd. Once it was bip110, once it's like, no, no, no, let's soft work this stuff out. All of a sudden there were a number of people who were supportive of much more restrictive relay policy who were like, ah, no, that's too far. That is actually not good for bitcoin.
- [37:35]
A
And it would probably. They, you Know, they've tried to design it as a soft fork, but it would probably result in a chain split most likely. It was my take back then, so even. Yeah, I think that's fair. But also it got, yeah, maybe you're right. Right before 110, which was in the fall, I think, if I recall it did get really heated and personal from some of the Knots and Bitpoint 10 supporters online has that there were personal attacks on bitcoin core developers. And many of these people are, I mean most of them, well, all of them really are volunteers. Some of them may also be compensated in a job that includes letting them work on bitcoin core. How does that affect bitcoin core developers?
- [38:18]
D
Yeah, I mean there were a number of allegations of various forms. I think a big one was people just, you know, there's a tendency these days on the Internet. Of course, whenever there's a new boogeyman, you, everyone turns everything into the boogeyman. And so it was, DEI is the current boogeyman. And so it was like, oh well, Bitcoin core is clearly making hiring decisions. Okay, who, I mean there's a bunch of different companies who are all competing and apparently all of them are in cahoots to, to discriminate in hiring decisions and prefer women over men. And, and this is bad. I, I haven't actually ever seen any evidence of this like that. I, I don't know of any bitcoin development group that has ever hired on anything but qualifications not based on discrimination. Even if it's, you know, DEI loves to, it's a new boogeyman. But also probably you shouldn't discriminate against white men either. That's also actually bad, especially something as
- [39:19]
A
meritocratic as open source software.
- [39:21]
D
But yeah, I've seen no evidence for this. But of course that's the boogeyman. And so now everything is Bitcoin core is now all DEI and whatever. And yeah, I mean it got very vicious for, for some people who they pointed to and said like, oh, she was hired because DEI people were nasty. And I think that is bad for bitcoin. It did cause some people to reconsider whether they want to work on bitcoin. And I know actually many people who looked at those discussions, those attacks, even from well known bitcoiners who are personalities and strong supporters of bitcoin. And I know a few people who concluded like, you know what, I'm not gonna, I might still work on bitcoin, but I have no desire to engage on X anymore. I have no desire to go to bitcoin conferences. I know some people who skipped Vegas because of this who said like, you know, that bitcoin conference stuff, I'm done with that. I'm gonna go focus on building useful stuff and ignore that. And yeah, some people also reconsidered whether they want to work on Bitcoin. I think that's a massive loss. I mean, it takes at a minimum five years, probably closer to a decade to train someone from knowing nothing about bitcoin, blockchain, whatever, to useful contributor for bitcoin. And you know, sometimes you can short circuit some of that if they've worked on other blockchain tech, if they actually have some knowledge that is transferable, if they've spent a long time being a hobbyist around it, even if not necessarily a software developer on it. But it takes a long time. And so any loss is a huge setback for the amount of talent we have going into improving the security of bitcoin.
- [41:06]
A
Yeah. And bitcoin has no pre, mine or foundation to pay for this stuff. So there's. It's not necessarily the most glamorous financial decision to become a bitcoin core developer too. And you pile this onto it.
- [41:19]
D
No. Yeah, I mean it's, it's improved over history. It's not terrible. But you are still nowhere near going to make the kind of money you'd make. But working at Nvidia right now or OpenAI or in fact some other blockchains
- [41:31]
A
that have, have much larger budgets, this is very insightful. Matt. Let's talk about Quantum. It's the, I guess I'm going to say it's the topic du jour, but I've been, we've been hearing about quantum for so long, I guess, and I'll just set the stage. There have been some academic papers that show primarily on the mathematical and software side, significant improvements or reductions in the amount of time it might take to run Shor's algorithm on a quantum machine. I've seen much less, by the way, yet of proven development of the actual quantum hardware. But I think the atomic and Google papers from, I guess now, a couple months ago, I think did increase the temperature, but it had been increasing for a year or two.
- [42:18]
D
Sure, it's been a very slow burn.
- [42:20]
A
Yeah, it's one of those things that's like, it's. Honestly, I remember in Clubhouse on clubhouse in 2020, we ran the bitcoin club, me and some people and we just do an open bitcoin meetup every Wednesday night. And like this was Just on the docket someone would ask about like, how do I protect my hardware wallet? And someone would ask about like, what about, you know, mining centralization? And someone would ask about Quantum. And it was so far away then, it feels less far away now, but perhaps still quite far away. You told Unchained in February that the post quantum roadmap is two steps. Commitments to post quantum public key first for Bitcoin, I should say, and then later decide what to do with the vulnerable coins that aren't in a post quantum address. Right. There's two steps. What are those two steps in your mind or what's the state of post quantum? Maybe as a start.
- [43:17]
D
So I mean, first of all, and I think there's much less controversy about this, we obviously have to add some kind of post quantum signature scheme to Bitcoin that people can use today that they can start migrating coins to even the people who view Quantum as a total pipe dream. And it'll never happen. It is entirely possible that EC gets broken in some other way or weakened materially in some other way and having more options, at least more options that we're more confident in are secure than EC is good. And so I think there's some loose agreement on some form of hash based signatures. Jonas Nick at Blockstream Research has been doing good research on how to design hash based signatures a little more targeted at a blockchain environment. And so we have to form some consensus on. There's been a lot of discussion around address format for IT and output format. There's some more conversation to be had there, but we need to get to consensus there and then add that. And that's a standalone thing. You know, once we figure out what color to paint the bike shed, it'll should. I imagine it'll happen. Like I don't see a lot of pushback there.
- [44:34]
A
We've added other, other address formats and
- [44:37]
D
I mean at least address formats. Yeah. Cryptography. No.
- [44:41]
A
Right. Yeah, that's maybe the one. Is that the one?
- [44:44]
D
Yeah, it's not new cryptographic assumptions. But. But nor is, nor is hash based signatures.
- [44:48]
A
Right.
- [44:48]
D
We're not talking about, you know, some,
- [44:50]
A
some more esoteric or novel in the NIST recommended or. I mean that's probably even too harsh. I don't think they're outright. But the sort of NIST standards for BQ are also super nascent. Right.
- [45:03]
D
Like yeah.
- [45:04]
A
And they've run challenges or I don't know what we call them, contests and many of them have been broken with classical computers. Right. So that's the challenge with a new crypto no matter what type, Right?
- [45:16]
D
Yeah. And so I think that's why you see most, not all, but most blockchain systems looking at hash based. There's no new assumptions whatsoever. If you, if you assume that SHA 256 is secure for reasonable definitions of secure, then hash based signatures are easily provable, provably secure. So that's why people are looking more at that than some of the more novel cryptography.
- [45:42]
A
I'm going to table the what to do with vulnerable legacy spend paths for a moment. Some critics have said that bitcoin developers are sleepwalking asleep at the wheel, not doing enough, etc. You pushed back on that from maybe not currently actively contributing to bitcoin core, but certainly in the bitcoin developer community. Are bitcoin devs asleep at the wheel?
- [46:07]
D
Yeah, I would say no. I think obviously bitcoin development can sometimes be a little opaque. Hard to see exactly what people are doing, especially for stuff like this where the shorter term, you know, the process of a soft fork doesn't necessarily start with a ton of back and forth in public. A lot of it is people having conversations about, well, here's one way we could do it, here's another way we could do it, let's discuss that. And some of that of course will show up on the mailing list and some of it won't. And so there is, at the same time there's also of course many developers who aren't focused on things, they have other things they're interested in, other features they're working on and limited time. And so it's not kind of a. It is never the case that a soft fork is kind of all hands on deck in the sense that literally everyone is working on that one thing. And so it's not necessarily always super clear what's being worked on, but there is a bunch of work being done. I would point to Jonas Nick, but also other people at Blockstream Research have similarly put effort in on how to design post quantum signatures for bitcoin. There's also like local host research just announced a, I guess in Vegas. So a few weeks ago just announced that they're going to fund a number of cryptographers to work on post quantum problems that are very specific to a blockchain context. And then, yeah, I mean there's a number of conversations in the bitcoin dev list. I think the Presidio Bitcoin also just
- [47:45]
A
released a paper, like a live working paper.
- [47:49]
D
Oh yeah. On the state of bitcoin Quantum and they had a fun chart in there that shows the number of discussions on Bitcoin dev over the years that are quantum related. And it's just like up into the right.
- [48:00]
A
Yeah, yeah, I've seen a lot of activity and just as I know it's not actually like post quantum crypto but thoughts on bip360 which would what, disable a vulnerable spin path and taproot and create a new output type?
- [48:16]
D
No. So bip360 only is a new output type. It then would assume kind of that something like a hash based signature is added. Opcode is added at the same time
- [48:28]
A
but it gives you a semi shielded.
- [48:30]
D
Yeah. So there's still some non trivial amount of debate around how to which address format to use for a hash based signature. There's big concerns around Hash based signatures get very, very large, very easily in cases where you have no address reuse. They're not too bad, but that's very rare today. People use reuse addresses for all kinds of reasons. Security, whitelists, usability. You know a lot of people are used to address reuse coming from like the Ethereum ecosystem or other address based
- [49:06]
A
cryptocurrencies, hot wallets at exchanges or businesses.
- [49:09]
D
Yeah, sometimes they use a fixed address for their cold wallet so that everyone can see how much they have. There's all kinds of reasons for it and that's probably not going to change sadly. And so there's a number of questions around. Well, depending on how much address reuse exists, should we do bip360 which is like a hash based output type, should we have some kind of opt in later seizing pay to taproot address? Should we do neither? So I think there's still a non trivial amount of debate there. But I mean we'll, we'll pick something.
- [49:46]
A
All right, let's get in a little bit to the the satoshi coins or otherwise vulnerable coins. I moderated a panel with Alex Pruden from Project 11 and Hunter Beast, a BIP360CO author. Both I would say proponents of working on Quantum and Bitcoin and then also James o' Byrne and Brendan Black who are mostly opposed to the idea of working on it. Even I was saying in this thread, in recapping my sense from talking to people in Vegas and to your point by the way, not that many bitcoin core developers at that conference, not as many as in the past that I've seen. So take my non scientific sample size with a grain of salt. I was saying that because even on that panel, both Brandon and James seem to agree that, well, surely we should actually be working on post quantum crypto, at least on the. On the side. Right. I think James made the. Both of them made the point that you made, which is that, I mean, for all we know, elliptic curve crypto could become vulnerable for classical reasons at some point. So always good to be working on better crypto. And that to me, I thought, well, wow, that seems actually like you guys just spent the whole time arguing with each other. But maybe that's something everyone agrees on, that working on post quantum crypto is a good idea. And then, I mean, I asked the panel, I've spent a lot of time on this, so we can. You've already sort of addressed that. So the second thing that I said was that, well, on that panel, I said, what do people want to do with Satoshi's coins? Like, you can freeze them, maybe with some recovery method as yet to be determined in the future, you can burn them or you can do nothing, or maybe a middle ground. You could do something like Hourglass, which. Which would slow their spending to trickle. Everyone, I think, agreed that on that panel and many people I've talked to have come around to the idea of doing nothing might be the best. I mean, Hourglass, fine, where do you stand on this?
- [51:47]
D
It is binary, but those are not the only implications.
- [51:50]
A
Yeah, you said explicitly the problem in response to me, the problem is we can't simply choose freeze or not.
- [51:55]
D
Right. So there's a lot more that goes into it. Right. So I think. First, let me step back because I think there's also something that gets lost in conversation here a lot, which is that there are people who are proposing. So like bip361, for example, is proposing to disable insecure spend paths, so frees Satoshi's coins sooner rather than later. So on a fixed schedule, not based on some urgent, imminent, actual, provable, cryptographically relevant quantum computer, but just based on like, well, we think it's going to
- [52:30]
A
come the risk of it.
- [52:31]
D
Right?
- [52:31]
A
Yeah.
- [52:32]
D
And I think there has been an understandable response to that of fuck you.
- [52:37]
C
Yeah.
- [52:38]
D
And I don't entirely disagree there. Yeah, I don't think, you know, we were having the conversation earlier that or pointed out earlier that disabling coins kind of for any reason is largely antithetical to Bitcoin. And I think that's true, and that certainly applies there. However, in the case where it is unambiguous that these coins are going to be stolen. So imagine not even don't even imagine, like a quantum computer is about to be built. I mean, like Google comes out and says, we have a cryptographically relevant quantum computer. Look here, we've taken some public keys that were, you know, created 50 years ago, and the private keys long since been lost. We factored them. Here's the answer. You know, we've taken these other keys from that other people created. We factor them. We can prove that we have this quantum computer. Now what do you do? And I think that's a very different question because now it's not, oh, you know, we think a quantum computer is going to happen. It's, it's here. They know how to build it. Other people probably are close to building it too. And, and also the grad student intern who runs the lab at Google, the like, secure the night security guy could now go steal Satoshi's coins. Ignore whether, like Google, the company wants to do it. Like the night security guard could do it. Now, right?
- [53:58]
A
Vulnerability. Now, right now you think of it like a bug.
- [54:01]
D
So now, so now it's like, these coins are going to be stolen. It's not a. Well, you know, are we freezing these coins or not? These coins are going to be stolen. Maybe not today, but certainly in the next few years, unquestionably. And so now the question is, you know, there's this like, kind of philosophical property rights question or is like the bitcoin, I think people will often phrase, like Bitcoin is strong property rights. And if you have the key, you have the coins and that's it, full stop. And I think that's. That's true. That's a very important piece of the value of Bitcoin is that no one can take your bitcoin. Well, now someone can take your Bitcoin. And so depending on, it's interesting because really depending on how you phrase that property rights question, like, no one can take your bitcoin. Well, now someone can take your Bitcoin. And so we should freeze the coins and give you the ability to get your bitcoin back by proving it's your Bitcoin. But if you phrase it as if the keys equals ownership of the coin, then no, we shouldn't freeze your Bitcoin because they also have the keys too. They just, they kind of stole it from you. Right? Yeah. So it depends a lot on how you phrase that kind of philosophical definition.
- [55:08]
A
Yeah, it does. Would you favor something like in that hypothetical where you. I don't, I forget what they call this, but using this, your bip 39 seed phrase to maybe prove.
- [55:17]
D
Yeah.
- [55:17]
A
So after it's been frozen to prove that actually.
- [55:19]
D
So there's a few things. So right, there's two options, right? Do nothing, let these coins be stolen. We know they'll be stolen eventually at some point or. And the other option is not freeze the coins. The other option is do the maximal set of things we can to give the owners of the coins, allow them to retain their coins. And that's a few things, right? It's not just one thing, it's so bip32 proofs and bip39 proofs. So if you have the seed phrase, you can prove that you have it. Or if you have a derivation that uses this hardened derivation path in BIP32. This is basically every wallet that has been built since bip32, right? So this is with the exception of some of these kind of large corporates who have very custom designs, they're going to migrate their coins. They're not a problem, right? This is basically every wallet that has been built since bip32 was written. I don't remember when bip32 was written, but it was like crucially 2013, 2016.
- [56:13]
A
Crucially though, it's after Satoshi's coin.
- [56:14]
D
After Satoshi's coins.
- [56:16]
A
But it's most everyone else's.
- [56:17]
D
But it's most everyone else's coins. So what do you do for early coins? And so the best you can do is you can allow for pre commitments. So you can say look, if you, before the quantum computer is built, if you commit in an op return. Yeah, time stamping basically to a merkle root that has like look. No, no, no, this is the public key. I know the private key now before the quantum computer exists. And here's the post quantum public key I want to use. And you just build a big merkle tree of all these commitments and you put it in an up return before the quantum computer is built, then you would be allowed to spend your coins later. And importantly, this also saves time locked bitcoin, right? So if you have time locked bitcoin and I know a lot of people do this for like security reasons, right? They might have, oh, I have like all my really secure keys with this like 10 of 10 multisig. And then also if I lose my keys, because I'm probably going to lose some of these keys, I have a time lock for 10 years and then I'll be able to get my money back and use this insecure key or something, you know, so there might be bitcoin like that there's also bitcoin for proving commitments like join market does this right. Where you have bitcoin that's time locked potentially for five or 10 years and you can't. There's no way to migrate to a quantum computer. How do you save this bitcoin? You know what if Satoshi time locked their coins and said I'm going to create a time lock transaction, throw away my keys and now I can only spend my coins in 10, 15, 20 years. I guess 10 years has already passed, but maybe they retime locked it, who knows? Right? Yeah.
- [57:47]
A
Right.
- [57:48]
D
The only way you can fix this is you can say, okay, you can do a TX ID commitment. So like you could do a public key commitment. You could actually commit to the spending. TX id. You say this TX ID is valid. I know it's not quantum safe, but like allow me to spend this transaction.
- [58:03]
A
Right.
- [58:04]
D
So there's a bunch of things you can do. Right. That add up to hopefully allowing the kind of maximal covering set of coin owners to retain their coins in the face of quantum computer. And I think that that's. Those are the two options. Right? Either we help as many people as possible retain their coins or we allow them all to be stolen. It's not we allow them all to be stolen or we freeze them. Because that was never the. Some people want that, but those people are crazy.
- [58:31]
A
We could go on and on this. I think it's really well articulated there why it's not a binary choice but between freeze and don't freeze. Very complicated situation. One of the other points I wanted to make though was that. And that I did make. So one of the things I was saying is that the markets routinely absorb a million Bitcoin. I think James Check pointed out that 2 million BTC, well, 2 million BTC has moved from old hands to new hands just since October on chain or old addresses.
- [59:01]
D
Yeah. Is that actually that. I'm very, very skeptical that that is a change in net position of individuals and companies of 2 million.
- [59:11]
A
It may not be.
- [59:12]
D
There are a number of people who've talked about how they sold their bitcoin to buy MicroStrategy stock or sold their bitcoin to buy ETF bitcoin. That is not a change in net position of Bitcoin held. Right. That is not something where the market can absorb additional supply.
- [59:29]
A
That's a fair point. And I would point out too that that fear of not doing anything to Satoshi's coins, I feel like it really emanates from the institutional crowd that I Talk with. Because they're worried about supply overhang, like with Mount Gox or Silk Road or the German government or whatever. But I do want to point out that you made, I think, a very compelling different argument about property rights. Not just that we shouldn't or that in the case of the quantum cryptographically relevant quantum computer was built, that the reason to seize or freeze or do something with vulnerable coins. Your point was not that point. Your point was more a different.
- [60:04]
D
Yeah, but you also disagree with this
- [60:07]
A
point, which I think is.
- [60:07]
D
Yeah, I mean, I sympathize with the people who saw this discussion of like, oh, well, it's bad for the market, so we have to freeze the coins and responded with like, no, that's not. That is not how we make decisions in Bitcoin. Property rights are more important. And this like, claim that it's bad for the markets while hurting property rights is worse. And I totally agree with that argument. However, my conclusion was originally driven by property rights, not by the market. And I think the market, I mean the market is important to analyze because it decides the resolution. Right. There's no Bitcoin core doesn't decide. There's no set of developers, no conglomeration that decides. They don't.
- [60:46]
A
Ultimately Dr. Evil's lair or something.
- [60:48]
D
Sadly not. It wouldn't. It would be easier.
- [60:50]
A
Yeah.
- [60:51]
D
But the market, there will be a chain split around this and the market will decide which one is more valuable. And even if there's not a chain split, there will be a futures market to predict the chain split which will determine whether there's a chain split and the futures market will determine what the resolution here is. And so it's important to look at the market as part of the process of making the decision. But I totally agree with the people who note that the important part is property rates because the market can and probably can, should and probably will value property rights more than just supply overhang. But I think property rights is maybe you could call it a wash and then the supply overhang does kind of matter.
- [61:32]
A
Yeah. And your point being too, that although the market should value the property rights more and will the outcome, the decision may actually be the same as if you solely cared about the market impact versus the property rights.
- [61:45]
D
Right.
- [61:46]
A
We could go on and on about quantum. Very interesting. I want to ask before we wrap about your work at Spiral and while you're not contributing actively to bitcoin core today, what you are working on, One of the interesting things I think is so interesting and this has emerged and Satoshi, I Think, if I recall, speculated about this, who would develop Bitcoin in the future? And he, they wrote that, well, hopefully the companies that run Bitcoin will also help develop it. Spiral's probably the most deeply doing so of a, well, certainly of a publicly traded company, which is Block. There are other for profit companies who do a lot as well. You mentioned Blockstream earlier as well. It's very unusual because Block funds it. But Spiral ships open source code for the network. What is the operating model? Who decides what gets worked on? What is the relationship, your relationship with Steve or how involved is Jack Dorsey in caring about what Spiral works on? All that type of stuff about Spiral, how does it work?
- [62:50]
D
Yeah, I mean, so we're totally independent. Jack was very clear about that from the beginning. He told all of us very explicitly like, no, no, no, you decide what you think is good for Bitcoin and build that. I think his goal is maybe more charitable, but I think in practice a lot of the software we built is actually used by Block internally as well as used by many others. And we support others as much as we do Block internally, but it is used by Block internally. And ultimately our one and only goal is to make Bitcoin better, make bitcoin usable and used by more people. And the result of that action is that Block's other investments in bitcoin will grow up hopefully dramatically because of our actions. So you know, I think we, we do hopefully help the net bottom line of the company, but we are treated totally independently. We decide what to work on and we drive a roadmap around. How do we make, I mean, I guess that's now our tagline, right? The company's tagline is now make bitcoin everyday money.
- [63:53]
A
Yeah.
- [63:53]
D
So that's always been our roadmap from day one for six, seven years now. But that continues to be our roadmap. And I think we're, we're having good success because Block now has looked at bitcoin and said actually no, we should use this more as transacting money. Yeah, Square didn't turn on bitcoin payments out of the good of their hearts right there. They did do an analysis and said actually this, this might work very well now. So we're going to invest the time and resources to build this out and do it. And so we think we've had an impact there and we're hoping to continue having an impact there.
- [64:28]
A
Yeah, it sounds like a lot like what Satoshi had envisioned. Not Satoshi's vision, because cash app bitkey, they got The ASIC miner and they've got the Square terminal. Now I remember last year at the Bitcoin conference, I don't recall who. Maybe was it Michael Rouhani that gave the presentation. It might have been about all this data from Cash app's Lightning node and it was amazing. Probably one of the biggest, if not the biggest lightning routing node.
- [65:03]
D
I mean they're making real money on it and I think it is the case that it doesn't scale up. Right. They're making a. I forget what the ARR number was, but it was. I mean they were making like 5% a year on the Bitcoin and the Lightning node or something. I mean it was very high, but it also, I mean it doesn't scale.
- [65:18]
A
Not everyone can do that.
- [65:19]
D
Arbitrary, you can't just add arbitrary amounts of Bitcoin to that node and continue making that percentage. So it's not.
- [65:25]
A
I can't just spin up a node with a couple channels and make sense either.
- [65:28]
D
It's very much driven by the fact that Cash app also does a lot of payments and Square now does a lot of payments through those nodes. But they're making real money on it and paying for the teams that develop and maintain those Lightning nodes very easily.
- [65:41]
A
And it's really quite amazing what they've done obviously like in this. Basically this year they did roll out bitcoin payments as a default option on the Square payment terminals. Not New York apparently because of the New York Department of Financial Services.
- [65:55]
D
Thanks Loski.
- [65:56]
A
One day. Yeah, one day. PubKey I think still uses their custom solution that's and Zeus helped build. So they're self. They're running their own nodes basically.
- [66:07]
D
But you could take the ferry to Jersey and copy it with Lightning.
- [66:10]
A
Yeah, New York will figure that out eventually. I have confidence, I hope.
- [66:14]
D
Yeah. Well you're optimistic.
- [66:15]
A
Ye on wood. So you started working on a Rust lightning project in 2018 which is now the Lightning Developer Kit. What is that? Briefly. And also why a modular SDK and not just a full blown implementation?
- [66:29]
D
I mean so lightning. I started this to learn Rust and Lightning but then the LDK team kind of looked or the Spiral team. Then Square crypto looked around when we were starting and we're like how can we have the biggest impact on improving bitcoin? And the thing we concluded was like more lightning. The reality of taking transactions from 10 minutes to instant, under 2 seconds or whatever you want to call it, improving privacy as a side effect, improving just all of these just way better UX like payments clear. And the other Side has it. One big issue in crypto generally is like you send the payment and then you have to talk to the other side. Like, did you see it yet? No. Did you see it yet? Are you sure? Have you seen it yet?
- [67:14]
A
Trading desks like Galaxy do all the time, right? Oh, we send a test transaction. Did you see that?
- [67:19]
D
Right, yeah, they did see that. It's awful, right? So lightning, if the sender sees a check mark, the recipient has already shown the check mark, guaranteed. That's how the protocol works. So there's just so much better ux, better privacy, all these things. And we looked around, we said, how can we have a big impact here? And at the time and kind of even today, there was no way to take Lightning and actually run it in a normal wallet. All the software was built around being these big routing nodes for whatever for people who want to run a routing node, not for people who just want to pay and receive money. And so we said, well, we can take this, we can adapt it, we can make it work super great on mobile, which we've done. It took way more years than we thought, but we're actually super proud of where it is today. And then also it just so happened that when we built out this kind of modular DEV kit, some enterprises looked at it and said, oh yeah, that actually adds really important features for us. So for example, LightSpark uses it to power their Lightning Node product, which Coinbase uses. Cash app, uses it internally with their own custom failover logic. It has ended up being very useful for large enterprises, enterprises where they actually have an engineering team who wants to work on this specific problem. And then also for kind of smaller edge nodes between LightSpark and Cash App, plus a few other integrations. You know, we think we power 20 to 30% of and I'm kind of just throwing out a number, but we think we power a fairly large percentage the lightning transaction volume, even if not lightning routing nodes. And so we think we've had a big positive impact there on availability of lightning in different kinds of setups.
- [69:00]
A
Non custodial tools, including the ldk, which I guess is farther down in the stack from like a front end lightning node or wallet, but are key to Bitcoin. You've talked about this. The Save Our Wallets campaign, the Clarity act is being debated in Congress right now and it has within it the Blockchain Regulatory Certainty act, which has protections for non custodial software developers and also clarifies that they aren't money transmitting when they only release open source software. How important Is that to your work at Spiral or Bitcoin developers work?
- [69:41]
D
I think it's critical for bitcoin for every blockchain platform. I think that I appreciate the simplicity of the protect open source developers narrative. I don't think that's quite accurate about the most important part, you know, just writing software and running no services, not if you're just publishing software. It is still the case that you have a very strong First Amendment argument in the United States. However, that's not all that you do for modern blockchain tech. There's, you know, for any kind of layer two, there's something being run, there's some server somewhere. This is no longer just publishing software. You can't make that strong First Amendment claim there. In the same way, whether it's lightning, where you have a routing node, whether it's a layer two where you might have some kind of roll up, where you might have roll up operators, signers, different participants in the network who do tasks, you're not just writing software anymore. There are services. These services aren't necessarily custodial. They necessarily have the ability to prevent, slow down or stop transactions from happening. Maybe they can slow it down a little bit, but they can't stop it. They have no ability to steal the coins. They can't do anything like that. They just exist to kind of grease the wheels. And there were very legitimate hairy questions, or there are very legitimate hairy questions around the legal status of these. I think in practice, if you just look at what the law was intended for, these shouldn't be regulated as money service. It doesn't make sense. But the DOJ has stretched those arguments a bit to make these things questionably legal. And this means that basically any kind of layer two in any blockchain system is questionably legal to operate. That's not a good thing. And that that really has slowed down the development of lightning materially. Other ecosystems are maybe a little more willing to take legal risks. But I think in Bitcoin a lot of companies have not been and that's really materially slowed down the development of some of these technologies. And so getting a law passed that clarifies that says no, no, no, look, if you aren't custodial, if you can't take the money, if you aren't even really you're not able to stop the transaction, you can't take the money, it's their money and you're just kind of greasing the wheels a little bit. We're not going to call you a money transmitter, a law that was written on the assumption that you are actually a custodial intermediary for the transaction. That doesn't make sense. We cannot apply this law. We'll figure it out some other time. So it's absolutely critical for the development of any of this stuff.
- [72:24]
A
All right, last question here, Matt. I read that you started contributing to Bitcoin in 2011 from a bedroom in Germany while you were in high school. You said it was in 2011 earlier in this interview. Satoshi was still around then and this is a heretical question. I think I might know the answer, but I'm going to ask you anyway. Given the recent documentaries that have been out, who do you think Satoshi is and does it matter?
- [72:50]
D
I don't know. And it doesn't matter. I really don't know. A lot of the basically all of the new exposes and documentaries are. They don't present compelling evidence in any way, shape or form. But yeah, I don't think it matters. My best estimate is that the keys were either lost or destroyed deliberately. It is almost certainly the case that no one alive has access to the keys or at least knowingly has access to the keys. And yeah, I figure we should just pin the blame on some dead cryptographers who were actually great people. Pin the blame on HAL and doesn't matter whether there's evidence, whatever. Hal's great. HAL contributed a bunch to bitcoin even before the software was released. That's known. Probably after the white paper came out, but before the software was released. Contributed a bunch after. Great cryptography, great cypherpunk. Sure it was hal, whatever, but that'd
- [73:52]
A
be a great answer.
- [73:53]
D
It's a clean answer. It's possible it's a clean answer. Fran clearly doesn't have access to the coins. Before people start going harass, harassing Fran again, try to steal coins from her. But whatever. But yeah, I don't think it matters. I really don't know either.
- [74:09]
A
I think it's part. I think it's best if we never find out. I would say too for bitcoin, it's one of the truly sci fi, like civilization quality sci fi mysteries that makes bitcoin so unique. The Blue Matt bitcoin developer@ spiral thank you so much for coming on Galaxy Brains.
- [74:27]
D
Yeah, thanks for having me.
- [74:29]
A
That's it for this week's episode of Galaxy Brains. Thank you to our guest Matt Corallo at thebluemat on Twitter and our good friend Bimnetta BB from Galaxy Trading. Everyone have a safe and happy weekend and we will see you next week. Thank you for listening to Galaxy Brains, the weekly podcast from Galaxy Research. I'm Alex Thorne, head of Firmwide Research at Galaxy. Follow me on x@Intangible CO. Follow Galaxy Research on X at GLXY Research. Read our written reports at Galaxy. Com Research. And don't forget if you like Galaxy Brains to like and subscribe on your favorite podcast platforms like YouTube, Spotify, Apple Podcasts and more. We'll see you next time.