Loading summary
Transcript70 lines
- [00:00]
Podcast Host
Bitcoin went from a cypherpunk experiment to Wall Street's newest obsession and now even the OGs are wearing suits. In this fascinating conversation, Adam Back explains why institutional adoption may still be in the early innings.
- [00:14]
Adam Back
Institutional adoption is still early. The actual allocation to these model portfolios I think is yet to come. So there may be a tailwind ahead of us yet.
- [00:22]
Podcast Host
Why bitcoin's core value is still widely misunderstood and why quantum computing could become crypto's next major challenge.
- [00:29]
Adam Back
When there is a security factor, when things are dealt with in a more pragmatic way and there aren't that many
- [00:38]
Podcast Host
choices actually back breaks down ETFs, BlackRock allocation, stablecoin self custody defi collapses and why he believes many crypto yield models are fundamentally flawed.
- [00:48]
Adam Back
In a lot of ways these systems are like fiat. Right. There's money printing underneath it all. Like that's. Where does the yield from staking come from? It comes from airdrops and ICOs and so effectively it's privatized seigniorage.
- [01:01]
Podcast Host
He also reveals what Blockstream is building behind the scenes from next gen hardware wallets to post quantum security upgrades designed to protect bitcoin for decades. Along the way, he shares sharp takes on staking rehypothecation, AI powered hacks and why bitcoin's simplicity may ultimately be its greatest strength. Let's go, let's dope,
- [01:35]
Interviewer
Let's. Do you know that bitcoin's come a long way when you're dressing up now?
- [01:40]
Adam Back
Yeah.
- [01:41]
Interviewer
Last time we talked we were baseball hats. Now we're now we're guys in suits.
- [01:45]
Adam Back
Right.
- [01:46]
Interviewer
I mean I think it's interesting to see how far bitcoin has come. I would love to just start at the beginning. I mean maybe talking about what it was like, how you handicapped the odds that we would actually look like this down the road and where we've landed.
- [02:03]
Adam Back
Yeah, I mean it's bitcoin came from, I guess. Well, I mean early days of community project. Right. With probably a profile of the earliest users were technical guys interested in technology. Probably. Right. As the meme goes, we're here for the tech, right?
- [02:24]
Interviewer
Yeah. Are we still?
- [02:26]
Adam Back
Well, I mean I think a lot of people are here for the asset class or for the use case. Right. The inflation resistant hard asset, censorship resistant, the bearer unseizability, all these things.
- [02:44]
Interviewer
Yeah. So seeing it now obviously in institutional wrappers and somewhat eating the world. Do you have any? I'm sure you have two minds. One is the only way that bitcoin becomes a global reserve currency is it has to go through Wall street and institutions and through governments. But seeing it actually happen, are there any concerns that you have during the process?
- [03:05]
Adam Back
Well, no, I mean, I think the way I look at it is it's a form of access, right. So for a lot of people, the way that they interact with their investments is through a broker or financial advisor. And so until Bitcoin was available in the spot ETFs and things like that, it was kind of hard for them to get access to it. And also it's a question of tax efficiency sometimes. Right. So in some countries it wasn't possible to put Bitcoin in a tax efficient savings, retirement savings plan like that. And say the advent of the ETFs and new sits and things like that enables it. So I think it's accessibility. And then I think the next stage is, you know, the institutional adoption where professional money managers will put Bitcoin into a mutual fund or a pension fund. Because for a lot of people, the average person is not self directing investments, they're not making investment decisions. So it may be the only way that they get access to Bitcoin economically at least is through the institutional adoption in managed assets. And of course, most of the money in the world is actually professionally managed. Right. So that's the way it goes.
- [04:18]
Interviewer
That's interesting because you talk about why people were there in the early days, it certainly wasn't to have Bitcoin as 5% of the portfolio because it improved your Sharpe ratio. Right. So it's kind of interesting to see where I'm not saying that it's a bad thing, by the way. I think anything that brings into people, into Bitcoin is great, but I can't imagine that you were thinking about that.
- [04:36]
Adam Back
Well, I mean the cypherpunks were generally what they would call anarcho capitalists, so radical free market thinkers. Right. And so they were actually not that many people are interested in capital markets who are interested in Bitcoin. But capital markets are a large part of what drives the economy, drives the standard of living with human progress, development of, you know, the capital formation to produce products and services. So a huge part of the progress of the world for the last 100 years, 150 years. So I think for people with that mindset that Bitcoin does fit into the capital markets and capital markets and companies organized by shares and IPOs and things are useful and positive things in the world. So I think with Bitcoin, for a lot of people, it's their first experience investing in shares or in an ipo. So a lot of people will say, pardon the French, you know, anything that's not bitcoin is a shitcoin, whether that's a dollar or a euro or an IPO or shares in a company that manufactures something. But you know, ultimately the stock market is a big part of the global economy. Right.
- [05:47]
Interviewer
I've got to imagine those people are becoming a bit more few and far between though. Right. You don't get many new people coming in that think that way or it takes a while for them to go down that path.
- [05:57]
Adam Back
We have the different makeup of investors coming in. A lot of the ETF holders presumably are people that are reallocating within a share portfolio, either directly self directed or via their advisor on request. And I guess over the midterm with the model portfolio recommendations from BlackRock, bank of America, Merrill and Marvel Stanley are so on that once that takes action then they will start to get exposure without self selecting just as part of a managed fund, which is I think still to come.
- [06:29]
Interviewer
Do you think that any of these people that come in as investors and just, you know, for the money, do you think that many of them will find their way to the original ethos of bitcoin?
- [06:42]
Adam Back
Yeah, I mean I think people get interested in bitcoin for a lot of different reasons. So I think you got the technologists, people who stumbled across it and they walked into a coffee shop and you got to pay in bitcoin which is case in a few places or they were debanked like unrelated to bitcoin or trying to use something in industry that's gray market. Like they're poker players and it's, you know, the poker sites got cut off from other forms of payment at times. Right. So some poker players that came in for that reason, but for whatever reason they come in or the route they come in through. I think bitcoin is, has its own theme and people will learn about it, get fascinated and then they get down the bitcoin rabbit hole and they really get into the bare nature of it. And in some cases they start for a different avenue but end up setting up a hardware wallet and putting some bitcoin in it that way as well.
- [07:43]
Interviewer
Do you find some irony in the fact that stablecoins have become so incredibly popular being that obviously bitcoin was somewhat created as a hedge against the dollar and one of the killer use cases of the technology obviously has been hyper dollarization.
- [07:59]
Adam Back
Right. I mean it's of course, you know, the stable coins Collectively have more dollars than some major currencies, major countries in terms of foreign cash reserves. Right. But now, ironically, the earlier electronic cash systems like Digicash was actually a very private stablecoin. So one of the innovations of Bitcoin itself was that it had, you know, what people were trying to work out how to do after Digicash failed was how to make it decent, you know, how to make an electronic cash system decentralized. And so there were attempts to figure that out going back to the mid-90s, including the proposals like Bmoney, BitGold and later how Finney's Arpal and finally Bitcoin, which ultimately start using proof of work in the design, maybe not specifically to create hard money, but because a peer to peer protocol can't open a bank account, basically. So was it sort of technical solution to that? No, he was speculating as to people's motivations for doing that. And some of the cypherpunks were interested in hard money and gold and things like that. But yeah, so effectively quite a reason. Bitcoin is both the bare nudge run of cash and the hard money which makes it more investable and more attractive and got adoption much faster than let's say something like Digicash likely would have if, if cryptocurrency started with a private, relatively unseasonable stablecoin. It's a different thing. Right. If you can't invest in it and investment is investment and speculation is another adoption driver.
- [09:47]
Interviewer
Let's talk about blockstream. So now in this new world where bitcoin has become institutionalized, has become, I think universally known, how do you adjust your business and start to create things that exists in that bridge between sort of retail and institutions as you're building? Because I know that it seems like you've had to shift.
- [10:09]
Adam Back
Yes, I mean, we're still accelerating in the consumer space. We announced during the Vegas conference a few weeks ago the Jade Core, which is a new entry in the lineup of consumer hardware wallets. And the previous year we announced also the Vegas Bitcoin conference, entering kind of enterprise wallet space, so more role based access control and entering the technology space like HSMS and the technology that custodians use. That's nice. So you know, we're an infrastructure company and we're here to provide technology for different entrants. And there are new entrants here. And of course with the traditional finance world, typically their interface to assets is through custodians. And so providing technology for custodians is a good way to interact with Bitcoin, with stablecoins, with tokenized securities and things like that.
- [11:09]
Interviewer
In your mind, what is still missing from wallets to keep people from self custodying? I still think we're at the point where grandma can't necessarily use it to use sort of the old meme. Right. The private keys are complicated or scary and people don't know how to transact. So what are you building into the future to make those universally usable?
- [11:31]
Adam Back
Yeah, I mean just continuing to iterate on usability. The Jade Core that we released last week comes with some improved usability, improved user interfaces and support for a companion app from Blockstream, but also companion apps or Hallets on a mobile and desktop from a number of and software vendors.
- [11:54]
Interviewer
And what else is Blockstream working on?
- [11:57]
Adam Back
So we've always been quite active in Bitcoin protocol space. So we did a lot of the work on Taproot and Schnorr, quite big in cryptography and security. And so our research team since you know, earlier last year has been working on the post quantum question. And so we were, you know, well placed to bring out some of the first concrete proposals of how to do the post quantum signatures. So concrete proposal with shrinks and then shrimps, which brings the size of a signature down to a manageable level where that can be practical and also in a framework of doing it within taproots. So that you could continue to spend using compact Schnor signatures today, but you add the option to be able to spend using a post quantum secure signature like shrinks in the future if and when the post quantum procures get powerful enough to be a concern.
- [13:02]
Interviewer
Do you view these as initial proposals for solutions or final proposals for the solution? Do you think that with more time and more information perhaps the solutions will evolve as well?
- [13:13]
Adam Back
Well, I do think that there's an interesting situation which is the post quantum signature research is relatively early stage and so you know there's been a NIST National Institute of Standards of Technology publishes cryptography standards or classical cryptography and after the multi year design process with submissions from international cryptographers, they issued a hash based signature scheme called SLHDSA as a NIST standard October 2024. So that's relatively recent. But they're also active research in more compact and flexible signatures. Unfortunately it's premature in my view to have them be standardized or for bitcoin consider using them. So I think what could happen actually is that the advantage of those is they may be more convenient, smaller, faster, more flexible, but they're not ready today. And so I think the convenient thing to do is to have an option to use the shrink signature once there's agreement about how to do that, you know, today, and then as the post quantum signature research improves in the next five or 10 years to have a second, possibly better post quantum signature, because we can't really, you know, it's not a conservative thing to do to just wait for that to converge. Right. So you may actually end up having, you know, a post quantum signature scheme that generally never got used.
- [14:52]
Interviewer
Right.
- [14:53]
Adam Back
So it got upgraded before the quantum computers arrived, for example. Right. But I think that's fine. You know, it's all about mitigating the long tail risk.
- [15:01]
Interviewer
How confident are you that the Bitcoin community can come together to actually find a solution? It's interesting because many will say, but the most powerful thing about bitcoin is arguably the decentralization. There's no single founder, but when it comes to making a decision on how to deal with something like quantum, it becomes much more difficult because it's decentralized and there's no single entity that can make that decision.
- [15:24]
Adam Back
Yeah, I mean, I think that when there are changes that are optional, like they don't impact security, where there are many design choices, I'd say something like Covenants, then the conversation can take a long time because there are multiple competing covenant proposals. They're somewhat similar. The trade offs are subtle, it's very specialized, so not many people understand and can look at the programming differences of them. But when there is a security factor, then things are dealt with in a more pragmatic way. And there aren't that many choices actually, to my mind, because the other signature scheme that was proposed by NIST or that are available are harder to get confidence in. So the optimized NIST scheme, so the shrinks is an optimized version of that. But the NIST scheme dates back to a 1979 paper by Leslie Lamport. The same academic researcher had proposed the Byzanterhum generals problem. In fact. A busy guy, right? Yeah. So anyway, that signature has been around for so long that people had a lot of confidence, a lot of, you know, it's a very safe and simple type of signature. So I think that that is a good conservative choice. And there aren't many other options really. So it's just around the, you know, the optimization parameters and let's see if there's support for that. But, you know, so far we've put out a paper, other people have looked at similar things. I think that's the most probable choice. And of course it takes a few years for Bitcoin to like work out the details, you know, the BIPs and things like that.
- [17:04]
Interviewer
So it's good that we're talking about it now.
- [17:06]
Adam Back
Yeah.
- [17:07]
Interviewer
Interestingly, I mean, I was one of the dismissive of quantum people years ago. You know, people would talk about it and I would make the flipping jokes about the nuclear codes and the banking system and all those things, which I do think are still true. But it seems like in the last six months even the people who kind of dismissed it have said it's serious enough that we have to talk about it just in case. And then there's a lot of people who are fully sounding the alarm.
- [17:31]
Adam Back
Well, I mean, I think it's probably premature to sound the alarm because the current crop of hardware, you know, the state of the art is to factorize the number 15 while kind of cheating because there's no error correction. So really, you know, it's below the power of a calculator from, I don't know, 50 years ago or an abacus or a mechanical calculator even.
- [17:55]
Interviewer
Right.
- [17:56]
Adam Back
But you know, there is something most likely there in the physics. It may eventually be possible to make something scalable. That does become problematic for cryptography and so those used in life systems. So I think rather than getting stuck arguing about the timeline and the rate of progress, the simple thing to do is be ready for it and then we don't have to hear about quantum advancements in the news all the time. Now, of course, the people doing the research, they have to raise a lot of money to do this kind of fundamental physics research that has been going on for 25 years actually. Right. With very slow progress. So it's got to be tough to raise money for that. And some of it's sponsored by very large companies with a research budget, but they're also startups and public companies. So I think basically what you're looking at is they found the way to get the most marketing bang for the buck is to add Bitcoin to the conversation and say, well, it could be threatening to Bitcoin. So I think most probably, you know, not this decade, let's say, or maybe not even this decade.
- [19:02]
Interviewer
You definitely don't buy into the Google 2029 paper.
- [19:05]
Adam Back
No, I don't really. But you know, I think ultimately it doesn't really matter because, you know, people care about the long tail risk, the fiduciaries, the, you know, the custodians, the ETF operators. They are, you know, professional Money managers or asset managers with a fiduciary obligation have to consider the tail risks too. Right. And so it's hard to quantify what's the tail risk. Is the tail risk 1%? Does something could happen in, you know, in a decade or is it 0.1%? They still want to consider it. And so the way to consider it is to have an upgrade path and upgrade. Right.
- [19:46]
Interviewer
What's the worst case scenario? I mean, it's that the tokens become unlocked and sold. Right? I mean that's really the worst case scenario. Well, I mean, tokens hacked and put on the market at the same time.
- [19:57]
Adam Back
I mean, I think some of the thinking about it is a little bit simplistic in the sense that they look at the system. You know, there's the phrase that Bitcoin is antifragile. Right. And so, but ultimately the antifragile antifragility comes from all of the activists, investors and technologists looking at it. So if something, you know, black swan, you know, sort of lightning strike one, one in a million weird thing happens. You know, they have this kind of game that, well, in, in the game of chess, the person's just not going to move the piece out of the way. Of course they're going to react. Right. And there are lots of things you can do to react. Even if they are reactive, you can generally address things. So now in practice I think there's probably plenty of time to do something. And you know, as I say, we've been working on it for a couple of years now and so have others. So it's not, you know, not that nothing is being done, it's just that it gets a lot more media attention to talk about, you know, long term research that is it basically negative new cells. Right. So we didn't get much output for fear, fear, fear saying, oh, we're working on, you know, here's a massive survey paper that took us six months to write. Nobody noticed, right? Oh, here's shrinks. It's a candidate. A few technical people noticed. Yeah, but you know, a big company said their marketing department got busy with an incremental improvement in an algorithm or in some hardware and it's all over the news. Right. So that's what you're looking at.
- [21:33]
Interviewer
I mean you get a name like Google, you put a year 2029 and all of a sudden it's a huge narrative. I mean it makes sense, right?
- [21:42]
Adam Back
Yeah, yeah.
- [21:43]
Interviewer
Be wild. Does AI concern you at all in that arena? Could it accelerate quantum in any way or any Other threats to Bitcoin?
- [21:52]
Adam Back
Well, I mean, only in a sense of being a kind of new analog of computer aided design or computer aided Algebra.
- [22:00]
Interviewer
Right.
- [22:00]
Adam Back
That you can use it to help researchers organize or automate certain lines of inquiry. But I think ultimately it doesn't change the fundamentally hard mathematical problems that all of these systems rely on.
- [22:14]
Interviewer
Outside of Bitcoin, there's been a lot of problems of late. I have curious your opinion on all of the defi hacks and Lazarus groups activities and the new novel ways that they're finding ways to hack defi that are not necessarily even code and smart contract, but social engineering and utilizing AI. Do any of those attack vectors? It seems like Bitcoin's been predictably immune to most of it.
- [22:38]
Adam Back
Right. I mean we never like to say told you so, but the VM based smart contracting I think is just too complicated to secure. There's a phrase kiss keep it simple stupid, which is if it's simple and robust and does one thing, it's much easier to secure something. But if you put a general VM into there, it's very hard to secure. And that's been the problem over the last decade really. There's been a kind of ongoing smart contract compromise over the years. And I think there the AIs are helping the attackers because they can more systematically explore the weak points and help find them. So, so, and of course, you know, I mean, people have seen the reports that basically with staking and liquid restaking, there's a lot of contagion between the protocols. So all it takes is one element in that chain to have a problem,
- [23:37]
Interviewer
which nobody seemed to have seen that until two weeks ago.
- [23:40]
Adam Back
Yeah, well, I mean, you know, it is a common pattern in finance that people build up excesses of leverage on what they think is a sure thing. And then you have a long term capital management event where, you know, something wobbles and a lot of things blow up.
- [23:55]
Interviewer
Yeah, it turns out rehypothecation is bad.
- [23:57]
Adam Back
Yeah, yeah. Well, I mean in a lot of ways these systems are like fiat. Right. There's money printing underneath it all. Like that's. Where does the yield from the staking come from? It comes from airdrops and ICOs. And so effectively it's privatized seigniorage. You know, so it's sort of. Bitcoin doesn't have that economic effect because it's hard money. The only way to get it is to mine it or buy it. Right. So I think that's part of the picture ultimately.
- [24:28]
Interviewer
Do you think that the world is taking notice and that it will largely funnel back to Bitcoin. I mean, the capital flight from Defi is astounding in this period. I think a lot's coming back, but.
- [24:40]
Adam Back
Yeah, well, I mean, I. Presumably people will want to have some confidence that it's not just going to happen again, right?
- [24:48]
Interviewer
It is, it is going to happen again though. There's no way it won't.
- [24:51]
Adam Back
Yeah, I mean, I, I don't touch that stuff myself. So I think, you know, the conservative thing to do always is buy bitcoin and cold store it or you know, go for a reputable custodian or a big etf, something like that. And there are a number of good providers in the market. So. Yeah, I mean it's. It's a speculative type of thing to do. Right. To apply that kind of leverage and take stakes in effectively airdrops that are providing a staking yield.
- [25:23]
Interviewer
Right, yeah. None of it makes much sense to me. And listen, I'm not dismissive of any of it, but it seems like if you're taking yield and taking something out to earn more yield, but you take out to earn more yield, like that's a tale as old as time that's literally never ended well at any point in history.
- [25:40]
Adam Back
It's an intense amount of leverage which probably hasn't really been quantified, and a lot of contagion risk. Right. And here we are.
- [25:48]
Interviewer
Before I let you go, I think we had two minutes. What are you most excited about right now?
- [25:52]
Adam Back
Well, I think it's a really good time for Bitcoin. More open for business environment. The kind of retail technology, the hardware, wallets, the smartphones, the new layer 2s and actually some surprising innovation at layer 1. They'll find some pricing ways to squeeze extra interesting things out of layer one with bitvm and some of the new things there. And you know, I think the. Of course the price has recovered a bit over the last month, you know, since the 60k bottom and the institutional adoption is still early. So, you know, across about 30% of the BlackRock ETF is by looking at the filings, seem to be institutional at some level. Probably some of it basis trading of course, but the actual allocation to these model portfolios I think is yet to come. So there may be a tailwind ahead of us yet.
- [26:52]
Interviewer
I agree. Well, Adam, I don't want to take too much of your time. Thank you so much. It's always really an honor to speak with you.
- [26:57]
Adam Back
I could speak for you.
- [26:58]
Podcast Host
This podcast is sponsored by Weeks and was recorded live at consensus 2026. You can find out more about what they have to offer by clicking on the link down below in the description. Thanks to Weeks for sponsoring.