← THE Bitcoin Podcast
THE Bitcoin Podcast
From Coffeehouses to Cyberspace: How Bitcoin Fixes Insurance | Aaron Daniel
01:14:56
Loading summary
Transcript231 lines
- [00:00]
Aaron Daniel
The first level analysis is like, how does our current regulatory environment address this new digital currency slash, digital store of value? But going like one step deeper, like, well, how is this new form of property rights, which to me is like an attorney also is like, it's an immutable form of property rights. Like there is nothing stronger than Bitcoin when it comes to preserving. Like that's this, that's just it. It's the end all be all right now of property rights. You don't need a court to enforce it necessarily. So what does that do, right, to, to society? Like, how does the law change around something like that? So as bitcoiners, we want to kind of say, well, here they're in money, in state or here to, you know, fight the system, right? Which is true. Like that's all, that's all important. But insurance sometimes gets lumped in with the existing system just because the fiat system is degrading the insurance industry like it's degrading everything else, right? FDIC is the analogy for bdic, but BDIC is totally private. It's totally free and open to anybody to join it. Just like Bitcoin, right? It's not mandated by the government.
- [01:10]
Interviewer/Host
Right.
- [01:11]
Aaron Daniel
The amount of capital that's sitting in bitcoin in these bitcoin treasury companies is so massive right now, they're going to want to find ways to create bitcoin yield on that. I just love that story because I think in my mind, like bitcoin can be this like stimulant, like coffee to commerce. And it is, we're seeing it, right? It's, it's shortening trade lanes to, through, through digital space, right? All these treasury companies get the question, like, what are you going to do with the capital, right? Like you're just going to sit there, run the arbitrage play that MicroStrategy is doing, right? He pointed to insurance. He said, we're actually looking at insurance. And if you go to the Caribbean markets, you can get bitcoin denominated insurance. And that presents interesting opportunities for yield. The challenger of bitcoin treasury companies will probably move into this space.
- [02:03]
Walker (Podcast Host)
Greetings and salutations, my fellow plebs. My name is Walker and this is the Bitcoin podcast. Bitcoin continues to create new blocks every 10 minutes. The value of one bitcoin is still one bitcoin. And if you're listening to this right now, remember you are still early. If you're not already, go ahead and subscribe to this show wherever you're watching or listening and share it with your friends, family and strangers on the Internet. If you want to follow me in the show on Nostr and X, just head to the Show Notes to grab the links. If you're enjoying the Bitcoin podcast and want to support it by becoming a paid subscriber, you can download the Fountain app, search for the Bitcoin podcast and subscribe. By paying with Bitcoin via Lightning or Fiat via Card, you'll get access to ad free episodes and early releases of select content. Plus you'll help support this show. Head to the Show Notes for product discount links. Go to walkeramerica.substack.com to get episodes emailed to you. And head to bitcoin podcast.net for everything else. Without further ado, let's get into this bitcoin talk.
- [03:14]
Co-host/Interviewer
Well, Aaron, glad to have you on here. Excited to dig into a few different topics today. Thanks for coming on the show.
- [03:20]
Aaron Daniel
Yeah, thanks for having me. Yeah, thanks for having me again. It's a pleasure to be here. Kind of like I was saying a little bit earlier off air, you know, I've been aware of what you and Carlo have been up to for a long time since like the 2021 Bitcoin conference in Miami, which was a total scene. Felt like a music festival compared to the other ones that we've had since then. But yeah, to see the journey you guys have both been on, you know, and how you started this podcast, you know, what was like a year ago or something like that, almost through Noster is kind of where I saw it first taken off and experimenting there and just really pushing that medium forward has been, has been really cool to see. So pleasure, pleasure to be here with you today.
- [04:03]
Co-host/Interviewer
Yeah, no, it's, I've been, I just really, I love Nostr and I do still say nostr. I know a lot of folks say nostr. I'm an acknowledgment bucking the trend. But it's such an incredible medium and I think that it's one that's gonna be viewed as increasingly important in the years to come. Obviously it's right now being used primarily as a social media copycat, but there's just so much that can be done on it and even if only the only thing it did was censorship resistant social media.
- [04:33]
Aaron Daniel
That's right. Still be, that would be enough.
- [04:35]
Co-host/Interviewer
That would be a win in and of itself. But it can do so much more. And so I'm, I'm really excited to see what happens in the years to come. But yeah, let's, let's start out just because I actually don't, I don't really know your story. Can you just kind of give me a little bit of a background and kind of, you know, who you are, how you got here today. You work in a number of different areas in and around Bitcoin. So just kind of. Yeah, walk me, walk me through that.
- [04:56]
Aaron Daniel
Yeah, sure. So, Aaron Daniel. I have been a bitcoiner since. Yeah, about 20, 2020. And you know, my, my entire career has been as an appellate attorney, licensed attorney. And so I discovered Bitcoin, you know, that time period when a lot of people did, you know, post pandemic or during pandemic, you know, looking at investing and came at it from that angle first as just an investor. I actually trying to think the first. I think I started learning about it on like SoFi, you know, that kind of like Neobank platform. They had like these little explainers about all the different cryptocurrencies and like, I didn't know anything about any of it. So I read about Ethereum and I was like, oh, okay, like daps and like, you know, kind of the, the infrastructure for technology or world computer or whatever. That sounds interesting. I'll do something there with Bitcoin. And then I read Lynn Alden had this like, I think it was like a seven point, like just epic takedown of Ethereum. Yeah. From like 2020 or something like that. And I found it and read it and then immediately was like, oh, I made a mistake like, and just sold all the Ethereum, went into Bitcoin and so luckily came along at a time when, you know, I was not really swayed by the rest of the crypto verse. I didn't have to make those hard decisions and learn those hard lessons that others made primarily because of advocates like Len and, and others who had come before.
- [06:25]
Interviewer/Host
Right.
- [06:25]
Aaron Daniel
So standing on the shoulders of those giants. Um, but as an attorney kind of always thinking through like, well, what is this? Not only like, okay, the, the first level analysis is like, how does our current regulatory environment like address this new, you know, digital currency slash, you know, digital store of value. But going like one step deeper, like, well, how is this new form of property rights?
- [06:54]
Interviewer/Host
Right.
- [06:54]
Aaron Daniel
Which to me is like an attorney also is like, it's an immutable form of property rights. Like there is nothing stronger than Bitcoin when it comes to preserving. Like that's, that's just it. Like it's the, it's the end all be all right now of property rights. Like you don't need a court to enforce it necessarily. So what does that do right, to society? Like how does the law change around something like that? Some, you know, just novel species that, that has come in. Like how does, how does the law adapt around that?
- [07:27]
Interviewer/Host
Right.
- [07:27]
Aaron Daniel
And how is it going to change in different ways? So I was writing about Bitcoin for a long, long time just from that perspective and you know, had a little blog and then really, yeah, NOSTR came along and I was reading and writing about Nostr and how, you know, it's this combination now of you've got almost like property rights infused with freedom of speech, right? You have, you know, cryptographic keys that attest to every note that's going out. You know, you associate those keys with someone somehow you know that they're, you know, either someone who has possession of those keys at least is authoring these notes, right? And so I just said, yeah, this is like we were saying at the top of the pod, like, this is just really revolutionary, especially when it comes to like the other stuff, right? Like we've got notes, we've got social media, but the other stuff is where it can get so interesting so fast. So what I was trying to figure out was how to bring all these technologies together to, to like fix kind of the justice system at first, right? And I had some designs through nostr, like a bounty board. Like if you remember early, like there was a lot of bounties on Noster, like people wanted to see. Well, the, the big famous one was Jack Dorsey, right, Put out. I forget how large of a bounty it was. It's still out there. I think that can be claimed for a nostr based GitHub basically. But then the problem came where it was like, okay, so you put up a bounty, somebody puts up a bounty, a developer goes out and fulfills the bounty. And then the poster of the bounty says, yeah, but you didn't do this other feature I didn't tell you about or I don't think it actually meets my criteria. That actually happened with like HRF with a bounty they put out. And there was a little bit of like controversy around, you know, that. And they ended up giving like half of the bounty to one developer and half to the other. I was like, okay, this is interesting. This is like an area where like you do kind of need some assurances, some kind of adjudication system maybe around this and like, is there something we can do? So I had some designs around like a Noster based bounty board that had kind of like dispute resolution built in and then, you know, following various developers on Noster, kind of pinged them because there was a hackathon that was coming up at the end of 2023, the Bolt Fun Hackathon Legends, Legends of Lightning. And I had also been. So I was trying to recruit, like people to help me build this thing, right? And somebody pinged me, who's now my co founder of insurtech company Resolver that I founded. And he pinged me because he heard me on Peter McCormick's podcast talking about this bounty board system and other legal issues. And so this is why you need more bitcoin podcasts, so you can facilitate more and more company formations, right? And capital formation. So never enough bitcoin podcast. So my, my co founder pinged me, just cold DM me was like, hey, I'm chief product officer of a legal tech company. Like, let's do something together. I don't know what it is, but let's, let's build something together. So we did, we built, you know, a very early prototype of this, this bounty Board marketplace dispute resolution system with, you know, obviously lightning payouts for bounties and stuff, and got, you know, runners up in that, that hackathon. And then got to the point where we said, well, we've got this amazing team which is still with us at the company that is Resolver. Now what are we going to. Let's keep building, right? And let's see what we can do. So that was my essentially long nutshell journey of bitcoin, finding bitcoin to founding a bitcoin company. And all the while, just every incremental step, it seems like there was either a podcast or something, right, that, you know, like Lyn Alden's pieces, you know, Nostr, this new technology coming out that really helped kind of shape and guide my journey.
- [11:31]
Co-host/Interviewer
I love that that NOSTR was such a kind of instrumental part in putting together this initial team. But then it's amazing that team is still with you guys. Okay, so talk to me about Resolver a little bit. What, what, what do you guys, what do you guys do? How is it different than what exists in the market today, if such a thing does exist?
- [11:48]
Aaron Daniel
Yeah, absolutely. So Resolver, we're a insurance technology company. Primarily it's bitcoin native. So what does that mean, insurance technology? So to position where we are within the ecosystem, you've got insurance companies, right? That's the ones you think about that issue your policies, right? Then you've got, you know, the brokers. Those are the ones who represent your Policyholders and you know, know, get you that your quotes and, and work on getting the, the quotes down or coverage is larger.
- [12:19]
Interviewer/Host
Right.
- [12:20]
Aaron Daniel
You also have reinsurers who are the insurance companies for the insurance companies. Right. And that's a, that's a whole different huge sector of the insurance industry that like is very broken and resolver is actually building tools to fix right now. So we're none of these.
- [12:37]
Interviewer/Host
Right.
- [12:37]
Aaron Daniel
We are the, the insurance technology providers. Right. So you've got fintechs, you know, for finance, ag tech for agriculture.
- [12:45]
Interviewer/Host
Right.
- [12:46]
Aaron Daniel
And where you know, insurance has its own, you know, SAS system. So we're filling that niche. And you know, the best, you know, example I can give is our first product that's coming to market is called bdic. It's the FDIC for Bitcoin. And it is a marketplace of many different insurance providers that's embedded with custodians and wallet providers. So the example is you go onto your, you know, let's call it your collaborative custodian, right. That is holding one of the keys and you've got two keys of your multi sig setup. Our embedded software will be right there when you go in and look at your Bitcoin and allow you to go and find a policy.
- [13:32]
Interviewer/Host
Right.
- [13:32]
Aaron Daniel
You just click through. Just like buying travel insurance policy on airfare when you check out.
- [13:37]
Interviewer/Host
Right.
- [13:38]
Aaron Daniel
And the key differentiator for us here, besides being, you know, not an insurance company, we're distributing, helping them distribute their policies directly to the policyholders. You know, we're creating that marketplace, right, with bdic. BDIC is bitcoin denominated insurance collaborative. So we are prioritizing insurance policies that are denominated in SATs.
- [14:05]
Co-host/Interviewer
Okay, so that, that's fascinating to me. Help me understand too because I've had Becca from, from Anchor watch on the show. Yeah, how, how is that what you guys are doing? Kind of similar, but like how is that different?
- [14:17]
Walker (Podcast Host)
You guys are at a different layer than Anchor watches.
- [14:19]
Co-host/Interviewer
Is that fair to say?
- [14:20]
Walker (Podcast Host)
Hello friends, you may notice that there are no sponsors for this episode and that is because this is a pure value for value episode. So if you find this episode valuable, consider giving value back.
- [14:32]
Co-host/Interviewer
You can do that by becoming a paid subscriber on Fountain.
- [14:36]
Walker (Podcast Host)
You can send me a zap on Nostr, a boost on Fountain, or if.
- [14:40]
Co-host/Interviewer
You don't feel like doing any of.
- [14:41]
Walker (Podcast Host)
Those, one thing you can do that is totally free is just to share this show with your friends, family and strangers on the Internet so that it reaches more people.
- [14:50]
Co-host/Interviewer
If you are listening on A podcasting.
- [14:51]
Walker (Podcast Host)
App like Apple Podcast. You can also give this a five star rating so more people find the show and you can subscribe on YouTube, Rumble or wherever else you're watching. But again, I always recommend that bitcoiners check out Fountain. You can also go check out the big print audiobook which I narrated.
- [15:09]
Co-host/Interviewer
You also of course, do not have.
- [15:10]
Walker (Podcast Host)
To do any of those things. Bitcoin does not care. But I sure do appreciate all of.
- [15:15]
Co-host/Interviewer
Your support, so thank you.
- [15:18]
Aaron Daniel
Yeah, so go back to the, you know, the ecosystem of different providers. So anchor watch, who, by the way, OGs in Bitcoin insurance. Like, we're thinking about this back in the clubhouse days, right, when nobody else was talking about insurance and bitcoin and you know, it was still, still very nascent, right? And then they went, and then they went to London and they went to Lloyd's of London and they got a syndicate there to, to back them, right? But so what they do is they're an MGA managing general agent. They are issuing policies on, you know, right now it's their specific stack of, you know, collaborative custody tech, Trident Vault. But they are not the capacity, like they don't hold the backing for those policies, right. So they have to work with their syndicates to issue those policies. And you know, it's, it's directly with users, right. And specifically on their, their piece of technology. For right now, again, we're not issuing policies, we are working with the anchor watches. You know, like that type of MG could come on to BAIC and offer policies through BDIC if they were going to ensure different, different custody providers, different wallets, different platforms, right? So that's like the main, the main differences. We're not trying to be insurance company, we're not trying to be regulated like an insurance company. We just want to help bridge the insurance world, right? The small nascent bitcoin insurance world, but also the larger traditional world to the bitcoin economy. Because, you know, we're talking about basically insurance on your bitcoin where you're holding it, right, in case of loss, just generally. But you know, there's a lot of other risks in the bitcoin economy. You think of mining and like any kind of interruption in a mining facility, how do you ensure against that without doing it? Denominated bitcoin, right. It's hard to model out if you have a hurricane that goes through like Helene, you know, and knocks out a bunch of sinners for like a few months, right? They've lost not just revenue, but blocks, right? And like, how do you get those blocks back and that and those block rewards back? You need something that's denominated bitcoin to do that. So there's a lot of different tools that we think and use cases for bitcoin denominated insurance beyond just, just that initial use case. But that's kind of where we are versus, you know, our vis a vis the other players in the insurance ecosystem.
- [17:46]
Co-host/Interviewer
Sure. I'm curious too. I mean, what are there, like, why do the bitcoin denominated insurance, like, is there a unique benefit about that when we're talking about this? Because I know if I'm remembering correctly from like my conversation with, with Becca, they have kind of a slightly different approach to it or it's something that's in their pipeline, but that's not actually like their, their primary use case at this moment. So how do you guys think about that? What's the, what's the rationale basically?
- [18:13]
Aaron Daniel
Yeah, the main, the, the primary main benefit you get, especially as an insurance company who is providing the capital is you're matching the risk to the liability.
- [18:22]
Interviewer/Host
Right.
- [18:23]
Aaron Daniel
The risk of lost Bitcoin. You've got to pay out a bitcoin amount and you're backing it with fiat. Right. That's scary. That's why it's, that's why they basically don't exist.
- [18:34]
Interviewer/Host
Right.
- [18:34]
Aaron Daniel
And, and I know Becca and Rob have been, you know, advocating for a change in, like in the states around the treatment of Bitcoin as an insurance reserve, as part of your regulatory capital as an insurance company that will help to unlock Bitcoin denominated policies at scale. So that's, that's one that's, I mean, really the main benefit as a insurance company, as a user.
- [19:03]
Interviewer/Host
Right.
- [19:04]
Aaron Daniel
Of, or a buyer of the policy. When you buy the policy, you're buying it to protect Bitcoin, not necessarily the value of bitcoin at the time you buy the policy. Because if you're insuring bitcoin, you probably think it's going to go a lot higher over time and you're doing it for the long haul. So you want to be sure that you can get coins back when those coins are lost. That's just fundamentally a massive win for, for everybody. The, the problem comes in when, you know, if you are a policyholder and it's, it's like you've got this dilemma. You're like, well, I want a bitcoin denominated policy. Let's just, you know, let's say they're ubiquitous, right. Which they're not. So that's something worth solving for. We can get into that, but let's just say they're ubiquitous. You've got this dilemma. I want to get, you know, my policy denominated in Bitcoin so I can get bitcoin claims if I lose them. The premiums thus will be also in Bitcoin. But I don't want to pay necessarily to my bitcoin away.
- [20:11]
Interviewer/Host
Right.
- [20:11]
Aaron Daniel
And dilute my stack. Why can't I just pay dollars on it but still get Bitcoin in return?
- [20:17]
Interviewer/Host
Right.
- [20:18]
Aaron Daniel
That's like the dilemma that is faced right now. Well, we built a platform called the Resolver Premium Manager and it actually solves this problem. So our platform is a real time insurance payment processing platform and crucially it splits everybody's commission like if you're a broker or your premium amount if you're the carrier out of a single policy payment, but splits it out and pays it in different currencies. So. And you can pay in different currencies too.
- [20:51]
Interviewer/Host
Right.
- [20:51]
Aaron Daniel
Even though you have a denominated Bitcoin, our platform, when you go to pay, you can pay with dollars if you'd like and have that transmitted over the Bitcoin blockchain or Lightning network and pegged out to the various parties in any currency. And we partner with different Lightning service providers to do this in different jurisdictions, on and off ramps to make sure everyone gets about the equivalent and it's real time. So there's not too much slippage in terms of the conversion costs there.
- [21:23]
Interviewer/Host
Right.
- [21:23]
Aaron Daniel
And you always have the contract right currency, which is Bitcoin, that is the reference currency. So if you deviate from that, you take on a little bit of risk. But the risk is, you know, if you're using Lightning Network, it's minutes right. At the most of, of slippage. So we've, we've got a system in place now where if you are a user, you can basically arbitrage that, that, that difference there with you know, paying in dollars every month if you want for a bitcoin denominator policy there, there's some trade offs there to that too because you know, I know this is something that you get as a, as a policyholder in a USD or you know, fiat denominated policy is that certainty of the USD amount every month.
- [22:09]
Interviewer/Host
Right.
- [22:10]
Aaron Daniel
So if you have a USD limit policy you're paying, it's always going to be the same every month.
- [22:17]
Interviewer/Host
Right.
- [22:18]
Aaron Daniel
But if it is Bitcoin denominated, obviously Bitcoin's volatile in the Short term. So what it's going to do is you'll have, you know, a discrepancy, you know, sometimes maybe 20% every month or more.
- [22:29]
Interviewer/Host
Right.
- [22:30]
Aaron Daniel
Of what you're paying. So if you are a individual or a company that has all of your liabilities and dollars, that could be a little bit difficult to square as well. But at the end of the day, this is why we're building a marketplace so that we can offer all of these different options to bitcoiners, Right. Because we just fundamentally believe, I think most bitcoiners do, in freedom of choice, freedom of contract.
- [22:56]
Interviewer/Host
Right.
- [22:56]
Aaron Daniel
Give everybody the tools that they want to contract for and let the market place decide and then we'll see what the best is for the most. But, you know, it's not going to be one size fits all.
- [23:09]
Co-host/Interviewer
Are you guys, are you guys fully live right now or when, when can, like, what's the timeline for all this? Because obviously there's a lot of moving parts in terms of, like, you, you need their, you, you have to build the tech for people to use the tech, but you need also like the, all of these people that are going to be actually issuing these policies as well.
- [23:27]
Aaron Daniel
Oh, 100, 100%. This is where the, you know, the fact that it's a collaborative.
- [23:31]
Interviewer/Host
Right.
- [23:32]
Aaron Daniel
Means, you know, it's not quite like herding cats because, you know, bitcoiners were all pretty aligned.
- [23:36]
Interviewer/Host
Right.
- [23:37]
Aaron Daniel
And most of the parties we're working with here are all bitcoiners to start. But we're, we're aiming over the next few months, you know, sometime in the new year, maybe faster if we, if we, if we get our ducks in a row, we'll have a couple of different partners. Hardware, wallet software, wallets, multisig and single sig. Self custody, some form of collaborative custody coverage as well. That's what we're aiming to have in the next few months. And again, bitcoin denominated, we're prioritizing having those covered. And there'll also be some fiat options too. Fiat denominated coverage. Yeah, exactly, exactly. And some of that has to do with regulatory and jurisdiction because we are trying to, you know, America's where you know, will probably be America, Europe first to start. But it, we could be, we could be global pretty quickly depending on the regulatory, you know, always caveat the, the regulatory navigations there. So it is something we're, we're actively building with our partners. You know, some of the partners we can be a little bit more explicit about than others. I mean, I'll one I'll tell you is because they're super transparent and open source anyways is Wizard Sardine and Liana Wallet.
- [25:02]
Interviewer/Host
Right.
- [25:02]
Aaron Daniel
So they have a multi sig miniscript powered system and we're working with them to onboard them into BDIC and get coverage for users there, you know, from the retail level up to the enterprise level too. So we're not just targeting retail, although we will offer retail and that's going to be a huge component of it. But you know, enterprise as well.
- [25:27]
Co-host/Interviewer
Where, where do you guys see like the biggest potential for this in terms of like the, the retail usage? Is it in you know, people who have these collaborative multi sigs, Is it protecting people on exchanges? Is there like an area that you guys think is going to be like the most fruitful potentially?
- [25:46]
Aaron Daniel
Yeah, I can say we're starting, you know, we're starting kind of in this collaborative custody area and also you know self custody as well is, is where we, we see starting exchanges. Yeah, I mean it from an exchange's perspective, you know, you have to find an exchange that understands the value that it's going to bring to its customers.
- [26:12]
Interviewer/Host
Right.
- [26:13]
Aaron Daniel
And there is value there to the platforms. Like the platforms are businesses too. They have to make decisions, you know, and if they're Bitcoin companies, they have a bitcoin hurdle rate to be right. With any new feature or product that they're bringing to market. So this is where you know, by being part of, by being an affiliate partner platform with bdic, they earn a share of the premiums, right. From all the policies that are sold on their platform. So you're giving your customers peace of mind, you're making their Bitcoin more secure on the flip side, right, because you have to get underwritten and pass stringent security requirements before the underwriters that will actually issue policies on your platform. But then there's also a monetary incentive there. There has to be. You have to line everybody's incentives in a system like this. So I think you know, finding, finding good exchange partners like that, that have that mindset is crucial. But long term, like where I see this in five years, like bank this is. Banks are going to offer insurance, right? On, on Bitcoin. Banks are going to start custodying insurance or bitcoin, right. The US regulators have all come out over the last few months with guidance saying yes, banks can provided you, you know, follow your standard prudential, you know, frameworks. You can custody for your clients and you can purchase or you know, outsource with server Providers that custody. Well, if you're a bank now and you have, you know, I have my FDIC covered dollars right. In my checking account for my customers. I have SIPC coverage, which is the organization that covers for, like, brokerage accounts. Right. Securities. Then you got to do something for bitcoin.
- [28:02]
Interviewer/Host
Right.
- [28:03]
Aaron Daniel
It's just. And banks are going to have the size to just offer it like the fdic, like a default level of coverage. And so that's where, I mean, it's. We're going to get there and it'll. If you're doing it at scale, you do it bitcoin denominated to match, you know, the assets and liabilities there. So, yeah, that is, I think, you know, I know, you know, Latin American banks are really starting to, to push and explore this area. You know, the big, the big banks in America, too, are as well. So this is where we want to, we want to be working to, to solve this problem and not just for them, but for, you know, the existing bitcoin on ramps and brokerages that have been out there serving their customers and, you know, fighting the good fight to get everybody onboarded on to bitcoin.
- [28:50]
Interviewer/Host
Right. Yeah.
- [28:51]
Co-host/Interviewer
It's going to be really interesting to see how the banks kind of jump into this arena, obviously now that they are legally able to do so. But at the same time, I think their customers are maybe going to be not as much the people who are already bitcoiners, but the ones who are.
- [29:07]
Walker (Podcast Host)
Going to become bitcoiners.
- [29:09]
Co-host/Interviewer
I feel that maybe that's just my perception. I don't know what you think, but it seems like, for one, I'm not letting Jamie Dimon anywhere near myself. That's right. It's just not going to happen. Certainly not. But if you're new to bitcoin, you know, you know, JP Morgan is a name that you trust, like. Okay, yeah, that's. It's what you're used to, right? It's your, your already accustomed this. I don't know if you have the same kind of vibe.
- [29:32]
Aaron Daniel
Yeah, this is, this is what I consider, like, you know, my stepdad, you know, he's the archetype for this. It's like he's got, you know, he understands property. You know, he's invested in property. He understands, you know, dollars. He's got FDIC coverage there. But, you know, when you start talking about bitcoin, like, he knows what I'm doing. He sees the value it's bringing to the world.
- [29:50]
Interviewer/Host
Right. He.
- [29:51]
Aaron Daniel
He has that mindset, like, but he's just like, what am I going to, how am I going to do this? Like, how am I going to, you know, onboard how. But if I have an insured solution right, right there with my bank account, yeah, that's a huge boost to, on ramping a lot of new customers that you can eventually get into like self custody.
- [30:13]
Interviewer/Host
Right.
- [30:14]
Aaron Daniel
Over time, maybe not, you know, a large selection of, you know, older population, but if you're already an insured account, you know, that's custodial with a bank, then if you see that there's a self custodial or collaborative custodial solution that's a little bit more, you understand now. Like you've, you, you have to kind of own bitcoin before you start to really have the incentive to understand it.
- [30:40]
Interviewer/Host
Right.
- [30:41]
Aaron Daniel
It's kind of this chicken or the egg type dynamic. You got to have skin in the game. Then you start to understand it, you understand the power that, that immutable property. Right. Has and you're like, well, okay, I want to, I want to access that power. I don't, I don't want to infuse, you know, counterparty risk into the first asset that humans ever made that doesn't have counterparty risk.
- [31:00]
Interviewer/Host
Right.
- [31:01]
Aaron Daniel
So how am I going to do that? Well, now I see, you know, there is some hardware solutions that are insurable. There's collaborative custody accounts. Like that shift becomes a little bit easier. You've got a safety net, right, to make that shift. It's, it's a lot, it's a lot better. And if platforms can also start bundling insurance options from the BDIC within their existing concierge White glove services, their support services, you teach people how to self custody, you teach people the best practices of bitcoin. It makes them better risks to ensure too, by the way, because now, you know, as an insurance company, this collaborative custody platform is really good at educating its users on security best practices. So like, you know, if we can certify that they've done all of the, the best practices, we'll give them a discount on their insurance.
- [31:56]
Interviewer/Host
Right.
- [31:56]
Aaron Daniel
So there's those kind of pricing incentives that come into play when you start bringing insurance into an industry like bitcoin. Right Into a, to a new technology.
- [32:08]
Interviewer/Host
Right, right.
- [32:09]
Aaron Daniel
Not only just the policyholders get better and the risk reduces, but the ecosystem as a whole just gets safer and safer. So as bitcoiners, we want to kind of say, well here to end money in state, we're here to fight the system.
- [32:25]
Interviewer/Host
Right.
- [32:25]
Aaron Daniel
Which is true. That's all Important. But insurance sometimes gets lumped in with the existing system just because the fiat system is, is degrading the insurance industry like it's degrading everything else.
- [32:40]
Interviewer/Host
Right.
- [32:41]
Aaron Daniel
And so insurance is, it's a private contract between you and it's highly regulated by the, you know, various jurisdictions. But it is a private contract.
- [32:51]
Interviewer/Host
Right.
- [32:52]
Aaron Daniel
Between you and a company.
- [32:54]
Interviewer/Host
Right.
- [32:55]
Aaron Daniel
That you have entered into of your own free will. And you've said, I'm going to create a safety net.
- [33:00]
Interviewer/Host
Right.
- [33:01]
Aaron Daniel
Through this company. And I, this company seems to have a good track record. So it's a, it, it takes the place of, I mean, FDIC is the analogy for bdic, but BDIC is totally private. It's totally free and open to anybody to join it. Just like Bitcoin.
- [33:18]
Interviewer/Host
Right.
- [33:18]
Aaron Daniel
It's not mandated by the government.
- [33:21]
Interviewer/Host
Right.
- [33:22]
Aaron Daniel
And I think that's a, it's a crucial distinction and something that insurance as a whole has been great historically at creating safety. So you go to as an example, like city, city fire events used to be just utterly catastrophic.
- [33:42]
Interviewer/Host
Right.
- [33:42]
Aaron Daniel
Before building codes. You know, great Fire of Chicago was massively destructive, you know, fires in San Francisco after hurricanes, because there wasn't a standard set of best practices for building. And so the insurance industry slowly started to engage with building practices. And like in England, one of the first, one of the first examples of this was the insurance companies would put like a plaque on a building to certify, like, this is a solid building that we've underwritten and we think it's, you know, using best practices. And they would even like have their own fire brigades. Like the insurance companies would like actually go out and like put out the fires for, for their company, their buildings that they've insured.
- [34:26]
Interviewer/Host
Right.
- [34:26]
Aaron Daniel
Which is kind of a funny, you know, very anarcho capitalist thing to do.
- [34:31]
Interviewer/Host
Right.
- [34:32]
Walker (Podcast Host)
Who's going to put out the fires?
- [34:33]
Aaron Daniel
Well, the insurance companies.
- [34:34]
Interviewer/Host
Right.
- [34:35]
Co-host/Interviewer
I mean, yes, it's. Yeah. Who's going to build the roads?
- [34:38]
Aaron Daniel
Yeah.
- [34:39]
Co-host/Interviewer
These things tend to fix themselves in, in the absence of government. Shockingly, people, you know, you, you don't need to give half of everything you've ever earned to the government to have to have nice things, it turns out.
- [34:49]
Walker (Podcast Host)
Who knew?
- [34:50]
Aaron Daniel
Exactly. And that's, and insurance is a great example of that because over time they helped develop the best practices for buildings.
- [35:00]
Interviewer/Host
Right.
- [35:01]
Aaron Daniel
And so the incidences of these catastrophic fires just decreased drastically over time. And a lot of that was like pricing mechanisms too.
- [35:09]
Interviewer/Host
Right.
- [35:10]
Aaron Daniel
It wasn't just like a flat rate that insurance companies would charge to all their Policyholders, regardless, no, like they would get very granular over time in what, you know, we're going to build with stone, you know, we're going to eliminate that. Roofs and things of that nature then created market signals, like you're saying, like market pricing to drive best practices, right? Another great example of that is like electricity, right? Everybody was like, oh my God, this is hyper dangerous. Like you know, by the way, they've got, you know, uncovered flames in their, in their houses and they think that's more safe, right, Than electricity, but just a lot of fud on electricity when it, when it came out. And then over time, the insurance industry started to engage with this risk because they saw the, the potential it had for, for humanity, right? This, to harness this really powerful tool, right? This technology. And they created underwriter's lab. You ever pulled your smoke detector off the wall to change the battery and you know, underwriter lab, you know, UL on the back, like that's from the insurance industry, right? They created these mechanisms and these collaborative systems that help to understand risk and price it better and make things safer for new technologies. This is why as bitcoiners, we need to bring insured, we need to put the red carpet out for insurers to come in and start engaging with our industry. Because if you do it on the front end and have market based pricing and market based research around what is safe and what isn't, then you take that to the regulators and you say this is what works empirically, right? And this is what the building codes should be. So it wasn't the other way around. It wasn't that regulators came up with building codes with just sua sponte out of their brains, right? No, they just, we're like, all right, well what's working? Well, the insurance company seems to have figured it out. So like let's, let's, let's engage with them and pass regulations that standardize what they've already done through a market.
- [37:18]
Co-host/Interviewer
It's funny because, you know, you brought up like insurance kind of gets lumped in with general fiat shenanigans. I think that's, it's so true because for me, at least I guess an American, when I hear insurance, the first thing I think of is health insurance, right? Just catastrophe and a racket that is, and just like that, that is not a free market at all, right? That, I mean, it's just like we could spend hours going into just how corrupt and awful all of that is. But that's what you think of, right? But it's like Something isn't necessarily bad just because Fiat has found a way to really screw it up because the incentives are so broken. It's like. And I think for me at least, I think for a lot of bitcoiners, like the number one fear you have is like losing some, screwing something up.
- [38:01]
Interviewer/Host
Right.
- [38:01]
Co-host/Interviewer
And losing your bitcoin, you know, maybe through no, no fault of your own or some fault, whatever. But like that's the main thing that people have. And like, yes, you can, you know, I mitigate that with like with multi sig as a start. But you still, you know, you still just worry. You still just worry. And so I like, I, I get it because it's like having some kind of a fail safe essentially where you say, look, even if you screw something up or somebody else screws something up or whatever, there's a way for you to be made whole.
- [38:29]
Aaron Daniel
Exactly.
- [38:29]
Co-host/Interviewer
And it's done in bitcoin. So that makes a ton of sense to me. I wanted to push a little bit deeper too because we were mentioning this just before we got on air, but just about a little bit more of the kind of the actual history going back even a little bit, like farther about insurance, if you want to get into that a little bit.
- [38:44]
Aaron Daniel
Yeah, it is an interesting, I mean, at least to me, you know, people are like, oh, insurance, not interesting. But when. So there's, there's kind of two. I like to say that insurance was like birthed from, through coffee.
- [39:00]
Interviewer/Host
Right.
- [39:01]
Aaron Daniel
Which is. So how that happened was. This is going to be a little bit roundabout, but I'll bring it back eventually. So in like the mid-1700s, maybe 1650 something, this guy, this scholar named Canopius brewed like supposedly the first cup of coffee in, I think it was Cambridge or one of the universities in, in the uk. And now there's an insurance company called Canopius. Okay, so there's, there's a connection here with coffee. I'm not just making this up, but Canopius was like a Dutch scholar. So he came from the continent over to England to study. And so he would have brought that coffee with him. England wasn't importing it at the time because the trade lines were, I mean it was basically in Yemen was where coffee started. And that the only way you could get it was like overland, kind of like through Istanbul and then, you know, through like Eastern Europe. So that's probably where he brought it with him. And then pretty shortly thereafter, you know, the following decades, coffee houses started to pop up around England and kind of migrated into London. And you know, more and more of them began to pop up because technology was increasing the ability to, you know, like make longer shipping lanes, right. And more consistent shipping voyages. So you have this like little cycle where now coffee was even being transplanted now from Yemen into like Suriname and you know, areas of like Asia, right? And being cultivated there where we think of as like typical, some typical coffee growing area, Sumatra, right? Coffee. And then much easier for the English to start importing from there once that happened. So, you know, better technology, better trade, brought coffee. Then the coffee houses became the collaborative spaces where commerce started to happen. Because coffee's a stimulant, right? So every, you know, instead of being on ale and you know, dulling your senses, everybody was on coffee. And, and they were, you know, basically doing deals all night long, right? And these like commerce hubs. So there was one that was called, you know, Lloyd's Coffee House. So that eventually became Lloyd's of London, but there was another one, I think it was Edwards maybe. And that became the stock exchange. The London Stock Exchange, right. So these two major coffee houses became, you know, the financial centers of London. And it would just be, you know, in the insurance, you know, at Lloyd's you'd have essentially ship build. You know, ship owners were going to have a voyage, but they wanted to spread the risk around because, you know, they pull all their capital into one ship, right? And then that ship gets lost at sea, they're toast, right? You're, you're bankrupt. So they would underwrite. So meaning, like the, you know, insurers would like, know, have a slip of paper and would literally write their names underneath the, the slip that, that said who was insuring and backing the voyage. They would pass that around the coffee house and you know, pitch, you know, there would be like proto brokers who would take it around, you know, agents and, and, and hawk this great voyage. And oh, look at this ship stay, you know, top of the line ship. Look at these masts, you know, from wherever, you know, new world masts, like super strong, you know, great rigging. You know, this captain's done three voyages already. Like this risk is, you know, is great. You could just imagine this with like coffee stains on the, on everything, right? Like that's the. And that created like this virtuous cycle again where you now you had this diffusion of risk, this risk transfer right in the marketplace that allowed more risk taking to happen, right? And better voyages and more progress, right? And more commerce. So I just love that story because I think in my mind, bitcoin can be this stimulant like coffee to commerce. And it is, we're seeing it, right? It's shortening trade lanes through digital space. And if the insurance industry, like we talked about insurance, it's good for Bitcoin to bring insurance. And if the insurance industry starts bringing and harnessing Bitcoin and it's like that's twofold, right? It's one the payment reels, right? Like it's a medium of exchange and it's instant and it's real time, right. And it's borderless, permissionless. And if I, when I tell you that a reinsurance contract takes 180 days to settle, like money to the premium to get into the reinsurance bank account, reinsurance bank account, like that is a conservative estimate. Like it is. There's so much, you know, AR at the end of the year it's, it's like 68% of the Lloyds of London marketplace, like 68% of the premiums that are written that year are still not paid at the, at the end of the year. Like it is so broken. And if you just put that on Bitcoin now and use bitcoin as the rails to settle like boom, your efficiencies as an industry have just gone down. So that's one, one place where the insurance industry really needs to, to address their payments issues. And you know, we built rpm, the premium manager to, to offer that service, right? And to be an easy on ramp to the bitcoin network. You don't have to run nodes, you don't have to even really custody just you know, we're using, we're swapping out swift and correspondent banking with the Bitcoin network basically. But then store value, right? And like you were saying earlier, the investments just you know, not keeping pace with the level of risk and the price of risk increasing. Just put a little bit of Bitcoin in that, in that regulatory capital and you've got a huge, a huge boost and that's going to take a little bit of time, insurance industry can start settling over the bitcoin network. Now there's a little bit of regulatory maneuvering you have to do, but ultimately if an insurance company gets a bank deposit in their statutory trust account that they're required to have like that, that solves the regulatory problems, right? Whether it came over the bitcoin network at one point doesn't really change things. It will take time to get Bitcoin as the asset in the regulatory capital.
- [45:34]
Co-host/Interviewer
Okay, first of all, that is fascinating. I did not know that about the coffee house. I didn't know they actually. The coffee houses actually became the institutions which is.
- [45:42]
Aaron Daniel
Yeah, because we think tea. Right. For England. But like coffee actually predated, you know, tea being ubiquitous in England.
- [45:50]
Co-host/Interviewer
That is fascinating. Okay, that's. I need, I need to like go down this rabbit hole because I feel like this is like a whole nother rabbit hole I just found out about. I'm curious, you know, you mentioned. Okay, yes. The insurance industry and a bunch of other industries could start settling on bitcoin right now, like as bitcoiners. You know, within our kind of bitcoiner bubble, which is expanding no doubt, but is still its own bubble, we say to ourselves, well of course they should do this right now. This just makes, this makes sense. Like you should be doing this. You know, Bitcoin is the perfect tool for this, the perfect payment rails for this. It's, you know, it's perfected money and it's a, you know, it's a medium exchange and a store of value and there's so many different things you can do. How, how long do you think that actually takes? I'm not going to hold you to like a specific year, but like where do you think we're actually at in this? Have we kind of. Because I think we're still firmly in like the, the innovators stage of the tech adoption curve. I don't even think we're to the early adopters yet. Are you there? Are you kind of with me on that?
- [46:45]
Aaron Daniel
You know, actually I think, I think we. So it's resolver wouldn't exist when I started my bitcoin journey. Like it, the, the infrastructure just wasn't mature enough and the, you know, market capitalization of bitcoin wasn't deep like it, it was. I don't know when it was. Now it's a $2.4 trillion market. Like the liquidity is deep. You can move large sums. You know, because when we're talking about large enterprise premium payments or reinsurance payments, we're talking half a million dollars at a clip.
- [47:20]
Interviewer/Host
Right.
- [47:20]
Aaron Daniel
Like we need, you know, and lightning sure couldn't do that in 2021. Right now it actually can. Those channels have gotten pretty, pretty girthy there. The lightning network. So you can, you can move a lot of funds. Yeah, there's some big ones for sure. So for sure we're hitting the right time where the actual just technological advancement in bitcoin and around Bitcoin is hitting as well as the market development is hitting a crucial inflection point. But you are seeing insurance, maybe early adopters starting to come. Maybe we're still in the innovator phase. We're right on the cusp there of that, of that transition. And it's exciting to see. I think what's, what's going to happen is you're going to have like a few, I think, traditional insurance companies that start to start to get it and adopt it, and they probably won't be the ones at the top, right? They'll be like the hungry challengers that come in first and they're looking for the edge, right? So it's like, oh, well, I can get my, you know, if I'm a broker, um, I can use, you know, the bitcoin network to settle the premiums and I can get my insurance companies their premiums, you know, six months faster, right? Like that's, they're going to keep giving me business, right. If, if I can do that, like the. They'll. They'll want that edge. But it is, we're, we're. We're close there. What we're seeing out there is, is some early adopters are, you know, the payment side, they'll get there. It also, you know, the bitcoin is a great source of, you know, emerging risk. So insurance companies, while they are conservative, right, they want to find new risk that doesn't exist on the market that's not saturated yet, right? And they want to be the first movers, a lot of them do, into these emerging risks. And so bitcoin offers that opportunity, right, to harness a new emerging risk and create new premium flows. So again, it'll be those kind of challenger parties from the traditional insurance sector. And then I think you're going to have homegrown bitcoin native insurance companies like Anchor Watch, but beyond Anchor Watch, I think the amount of capital that's sitting in bitcoin in these bitcoin treasury companies is so massive right now. They're going to want to find ways to create bitcoin yield on that and insurance, like if you go. I think it was in. Back in July. Sean Bill, who is a chief investment officer at Blockstream, also chief investment officer of BSTR, which is like the $5 billion bitcoin treasury company that Adam Back helped to fund, right? He was on Bloomberg saying, you know, he. All these treasury companies get the question, like, what are you going to do with the capital, right? Like, you're just going to sit there, run the arbitrage play that MicroStrategy is doing, right? He pointed to Insurance. He said, we're actually looking at insurance and if you go to the Caribbean markets you can get bitcoin denominated insurance and that presents interesting opportunities for yield.
- [50:38]
Interviewer/Host
Right.
- [50:38]
Aaron Daniel
So the smart, you know, again, the challenger of bitcoin treasury companies will probably move into this space. And just to give an example of where we could go if someone like BSTR did that. So I think in terms of the amount of regulatory capital that exists to back bitcoin dominated policies, right now there's a handful of insurance companies that are licensed to do it, that have raised funds to do it in bitcoin. I'm going to conservatively say it's like 250 million worth that's exist to settle or to, to back policies. Which you know, I think that's like the master policy that Coinbase has, right? Yeah, but, but you also get, you also get a multiple on that. So like insurance companies don't have to keep one to one, they can go up to sometimes like 10 times, they can write 10 times the amount of policy risk that is being backed by that amount. Probably not going to, the regulators probably aren't going to allow a 10, 10x on Bitcoin, but let's just call it that. So we're talking like you know, 2, 2000 bitcoin out there, right? In the bitcoin denominated world backing policies. If BSTR put like 10% of their, whatever it is, over 300,000 Bitcoin into insurance, like they immediately dominate the market, right? It's, so that's, that's the kind of interesting inflection point that we're getting towards and like floodgate that could open and then you've got like bitcoin companies that can actually are really incented, you know, and are mission aligned with Bitcoin to do insurance the bitcoin way and put it on their balance sheet and back policies. And, and then even what gets really interesting is again as a store of value, not just backing bitcoin denominated policies, but backing fiat denominated policies. Because if you're using Bitcoin for like a long tail risk, like meanwhile, right, they're, they're backing, you know, they're a life insurance company, they're also bitcoin denominated, but like they have a lot of capital that you know, if you're paying out a life insurance policy that's denominated dollars, for example, you know, over the course 20 years from now, right? And using Bitcoin to back it, like your ratios are going to Be great over that time period.
- [53:03]
Interviewer/Host
Right.
- [53:04]
Co-host/Interviewer
It is going to be super interesting to just see how much bitcoin, like, we have more acknowledgment now. I think it's still, again, on a small scale, like, there are still a shocking, shocking number of people out there who just either think bitcoin's a scam or whatever. It's still just magic Internet money for computer nerds. But there is a growing realization, I think, and it's, you know, it's gradually then suddenly that, oh, look, bitcoin is this kind of, you know, it is. It is money perfected as close as we can get to it.
- [53:31]
Aaron Daniel
Right.
- [53:31]
Co-host/Interviewer
And it is this store of value unlike anything we've seen before, that you also happen to be able to transfer, you know, at the speed of light across the world and no one can stop you. And you don't need an armored truck and a giant, you know, tanker ship to be able to do it. Like, which is, you know, gold. Gold is great. Gold's been great money for 5,000 years, but gold's not built for the information age. It's just plain and simple. It's not. And, you know, not. Not to knock. Not to knock the gold bugs, like your. Your heart is in the right place with it.
- [53:57]
Interviewer/Host
Right.
- [53:57]
Co-host/Interviewer
And it still serves.
- [53:58]
Aaron Daniel
They were just too early and. And had, you know, the.
- [54:01]
Co-host/Interviewer
Yeah.
- [54:01]
Aaron Daniel
The technology hadn't come around yet.
- [54:03]
Interviewer/Host
Right.
- [54:03]
Aaron Daniel
Yeah.
- [54:04]
Co-host/Interviewer
But we're getting to such a. A fascinating time. And I was. It's going to be amazing to see what happens in the next few years, in the next couple of decades, because I think the companies that are embracing bitcoin and what it can do for them, either as a store of value to be able to, you know, essentially, well, allow them to arbitrage the guaranteed depreciation of the value of fiat currency.
- [54:28]
Aaron Daniel
That's right.
- [54:29]
Co-host/Interviewer
Or as a medium of exchange, like, and thereby, you know, you're also. If you're doing it both of those, you're also thinking about it as your unit of account. It becomes your, you know, your hurdle rate is how you're denominating everything else. You are going to have an incredible advantage. And I think that's very interesting to think about. The bitcoin treasury companies, I mean, they're getting absolutely hammered right now. And I didn't realize BSTR had that many bitcoin. I just checked. Yeah, it's over 30,000 Bitcoin they have now, which is.
- [54:56]
Aaron Daniel
Yeah, I think they raised a lot. I also think they raised like another billion. That's earmarked to purchase more bitcoin or something like that. Like they're going to be, they're going to be a big player now.
- [55:08]
Co-host/Interviewer
Yeah. It's wild to see this happening and I think again we're in the very early stages of this where companies are starting to figure it out and right now it's like a lot of bitcoiners running these companies starting to figure it out because they already grock it. But that's going to permeate into the larger financial ecosystem I think and it's going to be quite interesting to watch.
- [55:30]
Aaron Daniel
We got to go through some pain first though because you know now you've got the Solana treasury companies that are trading publicly ethereum companies. We got to, we got to go through some pain and, and some told you so the crypto company, you know crypto and treasury companies are a scam fud for a little while but I think we'll get through it as we always do. Or bitcoin. Well, bitcoin doesn't care.
- [55:59]
Co-host/Interviewer
It's crazy to me that it doesn't seem that a lot of these folks running these crypto treasury companies have thought too deep about the game theory of what happens when you centralize a vast amount of proof of stake tokens.
- [56:10]
Aaron Daniel
Yeah.
- [56:10]
Co-host/Interviewer
In a single entity. And like I don't know, I think those of us who have maybe thought about it a little bit are like yeah, I know exactly what's going to happen here but it seems like a lot of other folks haven't or maybe they have and that's exactly what they want. I don't know.
- [56:24]
Aaron Daniel
Maybe.
- [56:25]
Co-host/Interviewer
I don't know. Yeah, I wanted to being conscious of your time here because I know, I think we have a stop here coming up in a few minutes but we didn't get a chance to talk yet just about some of the stuff you do on sort of the open source freedom tech legal side of things. Do you want to talk a little bit about that? Because I think it's. That's a really important part.
- [56:41]
Aaron Daniel
Yeah. And there's, there's a pretty timely. So again I'm appellate attorney by training, practiced full time for 13 years and for those who are unfamiliar with you know, appellate as especially like I was hardly ever in front of juries like I would, you know, accompany trial counsel to trial and help you know, preserve records, et cetera but then once a judgment existed or a disposition disposition happened then that's where I would come in and take it to the next level. Take it to the you know, Federal appeals courts. I didn't make it to the U.S. supreme Court. I have argued in front of the Florida Supreme Court, though. So that was, you know, not. Not too bad, little ways to go to get the U.S. supreme Court from there. But. So that's what I did and did happily for 13 years. I still love the practice of law. I also think that's an institution that is broken by fiat. And that's a whole different conversation. We can talk about how the incentives have been really perverted within the justice system in a lot of different ways. So I still practice the occasional case. I still have my license, and I'm actually our general counsel at Resolver too. But one case that I'm working on right now, I'm not primary counsel, but I have helped draft specific arguments in the appellate brief. Is Roman Sterling off was convicted of running Bitcoin Fog, which was a custodial bitcoin mixing service. And that was really, I mean, like from 2011, 12, 13. Like, we're. We're going back to like bitcoin ancient history here, right. And was convicted and denies having ever run it. There's no direct evidence that he built the, you know, built this marketplace, built the code, built the service. The only. I mean, there's really no direct. FBI, IRS searched all of his. His servers didn't find anything related to Bitcoin Fog.
- [58:51]
Interviewer/Host
Right.
- [58:51]
Aaron Daniel
The only evidence connecting him is the forensic evidence from chainalysis. Then that isn't even really connecting him directly to these transactions, but clustering all the transactions that Bitcoin Fog ever made to get this ginormous number for conspiracy to commit money laundering. And then some really untested, unproven IP overlap analysis that one of the agents did, where basically they just said, well, he at one point used an IP address that was used. Same IP address that was used by whoever ran the mixing service.
- [59:30]
Interviewer/Host
Right.
- [59:30]
Aaron Daniel
And so thus one to one overlap match.
- [59:32]
Interviewer/Host
Right.
- [59:33]
Aaron Daniel
But of course, everyone could be sharing, you know, we could be sharing an IP address right now if we're sitting in the same room.
- [59:40]
Interviewer/Host
Right.
- [59:40]
Aaron Daniel
Or if you're sitting across the street from me or if we're using the same vpn, Right. Like that in and of itself was. Was not a. A link.
- [59:50]
Interviewer/Host
Right.
- [59:51]
Aaron Daniel
And so basically, he was a proponent of privacy. He knew that you needed to use something to obfuscate your activity on chain if you didn't want your grocer, if you were buying, you know, groceries with Bitcoin, knowing that you donated to, you know, a Chinese dissident group.
- [60:09]
Interviewer/Host
Right?
- [60:11]
Aaron Daniel
Like that's that's what we're talking about when we're talking about financial privacy, right. Is the ability to, to protect yourself and shield yourself from authoritarian regimes.
- [60:20]
Interviewer/Host
Right.
- [60:20]
Aaron Daniel
That's, that's what it's all about. He knew you needed to do this and was an advocate of the service and used the service but by doing so put himself in jeopardy of, of you know, being fingered by technology. And chainalysis is a proprietary piece of software that the company, you know, through the reactor software licenses to the federal government want to talk about incentives being, you know, kind of out of whack. Chainalysis gets government contracts, right. So you know, then they're going to provide reports to the government and you know, assist in law enforcement. Like, you know, you wonder how often you're going to get matches there. And so at trial, Roman's counsel and Roman, he challenged the reliability of chainalysis reactor reports of the actual chain, the on chain data analytics.
- [61:16]
Interviewer/Host
Right.
- [61:16]
Aaron Daniel
And the so called tracing of the funds is unreliable. Chainalysis admitted there is no testing, no peer reviewed testing on it. It's black box software. No one can see the code.
- [61:31]
Interviewer/Host
Right.
- [61:31]
Aaron Daniel
To see if it's compiling and executing properly they stuff in a bunch of different heuristics that are outside of Bitcoin that are just data that has been scraped from outside sources that helps with this clustering technique that they do. So an example of how that might skew a report from a chainalysis. A competitor's software was used to run the same tracing and to cluster the Bitcoin fog transactions, the mixer's transactions and came up with something like 400,000 fewer transactions than chainalysis. So chainalysis clustering was yeah order it just totally over inclusive compared to this other software. And at the end of the day there's nowhere no real way to verify it. No false positives are on record are known, no false negatives. Like there's just no testing that has been done of this software. And under the federal evidence code you actually do have to prove these things to get it in as, as forensic evidence, expert evidence.
- [62:43]
Interviewer/Host
Right.
- [62:43]
Aaron Daniel
You have to prove that it's reliable scientific evidence and meet those thresholds of peer review, you know, the safety records.
- [62:53]
Interviewer/Host
Right.
- [62:54]
Aaron Daniel
Which just weren't done here. So that's primarily what we're challenging and it's a case that often gets overlooked because there's tornado cache and the other Roman Roman Storm and that is a non custodial mixer of Ethereum. And then of course in Bitcoin Samurai Wallet and The developers of that tool were prosecuted and had to take a plea, otherwise they were going to spend 20 plus years in jail for creating code. So all of this is bad. But, yeah, our client Roman Sterlingov's case often gets overlooked because it's from an older time period. He wasn't the developer of the software. He was just a, an advocate of privacy and a user of this tool. But it's extraordinarily frightening to me as a Bitcoin user that if I use these tools like Samurai Wallet, Right. Or something else that comes along, I might get fingered as the one who created it. Like it. And there's no way to, to, you know, verify that because the government's using black box evidence. That's it. It's. It can be frightening. But that's, that's why we're out here. And thank God that, you know, Roman, you know, all credit to him for, for taking it to trial and, and standing on his rights, you know, to be presumed innocent until, until convicted otherwise and then continuing to fight right through sentencing and, and on appeal. So it takes a lot of bravery to, to face the justice system.
- [64:32]
Co-host/Interviewer
What, what happens next in this process for him?
- [64:36]
Aaron Daniel
Yeah, so the brief should be filed this week, actually, and that'll be filed in the District of Columbia Circuit Court, which hears cases out of the trial court, the District of Columbia specifically. And yeah, just a great team of attorneys that I came on right towards the end and was able to assist as much as I could, but a great team that put together a lot, a lot of arguments. There's a lot of things that went wrong in this case, but it'll go to briefing now. Brief will be filed this week. The government will have their responsive brief in a few months. Roman will get one final reply brief. And then, so we're, you know, maybe there'll be argument in, call it June of next year and then the court will decide, you know, whether to vacate his conviction or at least his sentencing and send it back down. But this case has been going on since. I don't remember exactly when it was filed. Maybe 2021, 2022. And he's been incarcerated pretty much the whole time.
- [65:41]
Co-host/Interviewer
It just seems like such a perversion of justice to use this black box unproven technique when there's actually no hard evidence linking someone to a purported crime. That's without even debating the merits of whether or not that even is, is a crime in the first place. Just like. Yeah, taking that aside, how can you possibly convict a man and send him to Prison when you don't actually have any evidence, the only evidence that you have, you're not going to actually share how that evidence is in any way meaningful because there's no way for anyone to test it or look through this in a meaningful way beyond like, like trust me bro, basically like yeah, that's just crazy to me.
- [66:19]
Aaron Daniel
Yeah, I mean it's overused but I think it's apt. Here is a Kafka esque is like this is, this would be almost, you know, too, too unreal for a Kafka to write about, right. To, to satirize. It's, it's too on the nose and you know, it's, it's not just, it's not just bitcoin really or cryptocurrency where this kind of black box evidence is used. It's act. It's pervasive in the justice system now. So there's actually some pretty decent precedent, which gives me hope. There's some pretty decent precedent on exactly how you need to go about verifying proprietary software. And a lot of it does involve disclosing the code under confidentiality orders that are not. That was also an issue in this case. The confidentiality orders that like oh yeah, you can see the code but any of your experts has to basically certify that they can never work for any kind of blockchain tracing company ever under this non compete and it wasn't that broad. But subjecting themselves to significant civil liability if they were to just look at the code of chainalysis and provide an expert opinion within the scope of this trial. So this is pervasive across the justice system. There's DNA testing, there's certain probabilistic DNA tests that can be done if you have kind of a compromised DNA specimen that can kind of reconstruct the DNA. And that was heavily litigated. There were like two main companies that had just basically there was a. The founder of that company was going out and trust me bro, ing in his testimony all over the place. There's no peer review but trust me bro, it works. Here's our system and how we've tested it, right? And courts said that's not enough. Like they had reversed convictions on that and said you actually need to show peer reviewed testing, you know, reliable, you know, the statistics from them. Incidence of false positives, right. You need to have that data so that the, so that the jury can actually weigh it and determine. Well first, first of all whether or not it even goes to the jury, right? This is like if it's so unreliable the jury can't consider it.
- [68:31]
Interviewer/Host
Right.
- [68:32]
Aaron Daniel
That's in the federal evidence code. That was one. There's another one that's actually pretty scary too, called shotspotter. And this is something that police departments use. There's like microphones. A company puts up microphones up high, like all around high crime areas.
- [68:49]
Interviewer/Host
Right.
- [68:49]
Aaron Daniel
Which is generally code for black areas in the United States. Low income areas. Put them up all around. And if there's a shot, like a blast that sounds kind of like a gun shot, then that immediately gets sent to the local police department and sent out for investigation.
- [69:12]
Interviewer/Host
Right.
- [69:12]
Aaron Daniel
So this now becomes like, oh, the only evidence we had was that the shot spotter said there was a shot fired when this guy was in the neighborhood over here.
- [69:21]
Interviewer/Host
Right.
- [69:22]
Aaron Daniel
And that's, you know, I know folks who work with the police departments in their like IT department and they're like, this stuff is not reliable. It is. The, the cops have actually stopped using it as like their primary source of reasonable suspicion because it's just not. It's black box technology. It's hyper sensitive to, you know, you think about like a car backfiring or something like that.
- [69:50]
Interviewer/Host
Yeah.
- [69:50]
Aaron Daniel
You know, setting it off. So like this is sentencing software too. Like if you want to get really like Minority Report, there was some software that was used to help set sentencing guidelines to help judges understand like what the sentencing should be and like recidivism rates based on, you know, factors of the case and factors of the defendant and you know, what would be the appropriate amount of sentencing in this case. Right, that's that. That's why, you know, I think there's some countries, and don't quote me on this, but there's some countries I think that are leaning towards just mandating Any kind of forensic evidence in court has to be open source, especially if it has to do with liberty interests.
- [70:32]
Interviewer/Host
Right.
- [70:32]
Aaron Daniel
Just make it open source, have it available for everybody to test.
- [70:36]
Interviewer/Host
Right.
- [70:37]
Aaron Daniel
And as we know, open source software is the safest.
- [70:41]
Interviewer/Host
Right.
- [70:41]
Aaron Daniel
It's constantly being tested. And at least if it's a sufficiently used open source technology, there's a lot of eyes on it all the time.
- [70:52]
Interviewer/Host
Right.
- [70:53]
Aaron Daniel
And testing it, probing it and making sure that it's accurate.
- [70:56]
Co-host/Interviewer
I'm glad you brought that up because I was literally just thinking that it's like, it seems like the only way you can possibly have any sort of trust in a justice system is if it is transparent. And so if you are using technological tools that obfuscate that process, you cannot possibly have faith in that. Justice is being done fairly. Like, you need to open source it. You don't necessarily must. I mean, that one would think that that would be like kind of a common sense prerequisite, but apparently not. I'm sure there's a lot of lobbying that goes into that as well to say, look, we have to keep it closed source for, you know, it's the incentives.
- [71:32]
Aaron Daniel
It's. It has to be closed source because if we disclose it, and this is literally what, you know, chain analysis and the government argued and in Roman's case is that, oh, then, you know, this is a cat and mouse game.
- [71:44]
Interviewer/Host
Right.
- [71:44]
Aaron Daniel
And so then the money launderers are going to be able to know how to trick our system and know exactly how to structure their transactions to avoid capture through chain analysis. So it must remain closed source.
- [71:58]
Interviewer/Host
Right.
- [71:58]
Aaron Daniel
Which if you think about it, also is like, okay, well, now you're presuming the defendant not only guilty of money laundering to begin with, but that he and all of his attorneys are going to disclose the code and disseminate it beyond the trial.
- [72:13]
Interviewer/Host
Right.
- [72:13]
Aaron Daniel
Confines like, you know, that's multiple horrible assumptions that are, you know, one of which is unconstitutional. Right, right. But yeah, the incentives are there nonetheless to keep, to keep the software closed. The financial incentives are there.
- [72:28]
Co-host/Interviewer
And there's a bunch of different rabbit holes we could go down there. But I do want to be conscious of your time.
- [72:33]
Aaron Daniel
Save it for another one.
- [72:34]
Co-host/Interviewer
Yeah, looking forward to it. Well, hey, this is a great chat. Glad to have you on here. Where do you want to. Where do you send folks or anything else you want to leave people with.
- [72:41]
Aaron Daniel
With? Yeah, absolutely. So you can just go to, you know, Resolver's website. Resolver IO and there's no E at the end before the R because we're trying to. Again, we came from Noster, so, you know, no unnecessary vowels. Yeah. So just check out the website for updates on when BDIC is coming live. You can find me on, you know, Nostr. You can tag my inpub on X as well. You know, I'm out there on LinkedIn too. You gotta, you gotta stay in that universe as, as a, as a founder.
- [73:17]
Co-host/Interviewer
Yeah, fair enough.
- [73:18]
Aaron Daniel
Fair enough.
- [73:19]
Co-host/Interviewer
Well, hey, great having you on here. Looking forward to seeing what the next few years hold for you guys. And yeah, wishing the best of luck to you and the team and Roman Sterling of as well, because, yeah, let's hope there's some justice that can actually be delivered there.
- [73:34]
Aaron Daniel
Yeah, yeah. From. From your mouth to the, the, the judge's ears.
- [73:39]
Interviewer/Host
Right.
- [73:39]
Co-host/Interviewer
Let's let's hope, you know, common sense may prevail still. There may still be hope. All right, yeah, great talking to you and we'll talk again soon.
- [73:47]
Aaron Daniel
All right, good talking, Walker. Talk to you soon.
- [73:56]
Walker (Podcast Host)
And that's a wrap on this Bitcoin Talk episode of the Bitcoin Podcast. Remember to subscribe to this podcast wherever you're watching or listening and share it with your friends, family and strangers on the Internet. Find me on noster@primal.net Walker and this podcast@primal.net Titcoin on X, YouTube and Rumble. Just search at Walker America and find this podcast on X and Instagram at tcoin Podcast. Head to the Show Notes to to grab sponsor links. Head to substack.comwalkeramerica to get episodes emailed to you. And head to bitcoin podcast.net for everything else. Bitcoin is scarce, but podcasts are abundant. So thank you for spending your scarce time listening to the Bitcoin podcast. Until next time, stay free.