Randomness & Probability 101 | True North Podcast | Ep. 75

Summary

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True North Podcast – Ep. 75: Randomness & Probability 101

Date: August 6, 2026
Panel: Jeff Walton (Host), Soleil, Dan Hillary (VP of Credit)

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Episode Overview

This episode dives into the recent "cold card" hardware wallet security fiasco, its market implications, and how the Bitcoin community responded. The panel explores the evolving landscape of Bitcoin self-custody, the math and probability underlying crypto security (with a deep dive into entropy and seed phrases), and provides a detailed update on key corporate balance sheets and credit instruments in the digital asset sector. The hosts also discuss the upcoming BIP110 event and reflect on what’s at stake for the ecosystem.

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Key Discussion Points & Insights

1. The Cold Card (Hardware Wallet) Security Crisis

[03:27–24:27]

• Event Recap: Massive losses occurred from cold storage wallets using Coldcard devices (especially MK3 & problematic entropy on MK4), marking the "largest single theft on sovereign Bitcoin cold storage in history" (Jeff Walton, 06:05).
• Community Response:
  • "The Bitcoin community has responded... helping people move funds, custodians pitching in, mining companies providing transaction support, and relentless security upgrades." (Jeff, 04:00-05:30)
  • Notable mention: "Rob Hamilton at Anchor Watch... slamming monster energy drinks, improving the security." (Jeff, 05:11)
• Tracking Stolen Funds:
  • "I'm hopeful that every single one of these transactions is going to be watched like a hawk... I'm relatively certain somebody will slip up at some point." (Jeff, 06:00)
• Price Response Reflection:
  • "The price of Bitcoin has shifted a little bit higher since the initial theft... a pretty good sign of the bottoming." (Jeff, 06:50)
• Market Psychology:
  • "It was a huge wakeup call – I assumed the only risks were my own stupidity, but even trusting a wallet's random number generator can bite you." (Soleil, 15:01)
  • "Single sig cold storage security assumptions have changed; trusting hardware wallet RNG is now a risk vector." (Jeff, 10:49)

Notable Quote — Dan's Personal Ordeal:

"I had someone break into my house... open and sign from that wallet. So it's very stressful for everyone involved. But multisig saved me... moving forward, you're going to need two providers on multisig. That was my mistake."
— Dan Hillary, [07:09–09:45]

• Recommendation: "Everyone should be looking at multisig custody... three of five is probably an even better setup, and having an institutional partner like Unchained really helped me out." (Dan, 13:53)

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2. Hardware Wallet Entropy & Probability Theory

[19:29–59:56]

• SHA256 & Seed Phrases:
  • "These are 64-digit hexadecimal codes... protected by math. If you do entropy right, brute-forcing a Bitcoin wallet is practically impossible." (Jeff, 19:29–22:32)
• Probability Model Walkthrough:
  • Using the T North website tool, the team visualizes the minuscule odds of hacking good entropy wallets.
  • "Probability of one breach, with every computer on the planet guessing wallets for 100 years: 1 in 10⁵². Massive numbers. The difference between 10²⁴ and 10⁷⁷ is 50 orders of magnitude!" (Jeff, 45:00–49:00)
  • "If everyone on earth had two wallets: still 1 in 10⁴² after 100 years of brute-force attacks." (Jeff, 48:36)
• Single Sig vs Multisig:
  • "Even single sig, when done right, is astronomically secure... but multisig is exponentially more so." (Soleil, 51:32)
• Entropy & Responsible Ownership:
  • "If you actually have good entropy in your seed phrase, being hacked is less likely than being dealt a royal flush nine times in a row, or calling 174 coin flips." (Jeff, 55:16)
  • "The biggest problem in self custody, in my opinion, is people understanding the math and actually doing the work... average person is not math literate." (Jeff, 54:02)

Notable Quote:

"Math is your protection. If your math is good, the math is your protection. And it's beautiful."
— Jeff, [60:48]

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3. The Market & Balance Sheet Update

[24:27–44:43]

• Strategy (Corporate) Update:
  • "Strategy’s Bitcoin holdings: 842,138 BTC (~$54B), plus a $4B USD reserve." (Jeff, 24:52)
  • "They’ve paid out the STRC dividend, added $250M to the USD reserve, bought back $80M of STRC, improving their credit quality." (Jeff, 24:52–25:55)
• Capital Structure Dynamics:
  • STRC and STRF yield spreads, preferred equity, buybacks, and future refinancing of convertible debt—all dissected with focus on balance sheet strength.
  • "Their net capital could cover 32 years of interest payments at current Bitcoin prices if they stop raising capital today." (Jeff, 24:52)
  • "STRF will be, once the converts roll off, potentially 4x overcollateralized by cash. That’s a really creditworthy instrument." (Dan, 27:47)
• Market Sentiment:
  • "The market needs some clarity on how aggressively strategy will issue or buy back STRC when it trades below or above par." (Dan, 34:41)
• Volatility & Product Maturity:
  • "Moderate duration instruments; as liquidity and market structure mature, volatility will likely decline over time." (Jeff, 39:28)
• Buyback vs. Dividend Philosophy:
  • "Buybacks are a much more effective mechanism than raising the dividend; you avoid long-term cost of capital ratchet, and it's like a variable rate dividend increase." (Dan, 37:55)

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4. "Your Slice" of Bitcoin—Distribution & Perspective

[60:46–66:01]

• Global Average:
  • "If Bitcoin were split among the global population (8.3B), each person’s share would be 252,000 sats, or about $163 today." (Jeff, 61:00–62:30)
  • "Among U.S. population: 6 million sats/person, or $3,886." (Jeff, 62:30–64:43)
• Perspective:
  • "Bitcoin is more life-changing for those who can only accumulate a little, than for those already wealthy." (Soleil, 64:43)

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5. Suits vs. Sovereigns & Industry Maturation

[72:14–80:07]

• Division in the Community:
  • "We say don't trust, verify, but most of us are trusting others to review the code... now, companies are the main eyes on hardware wallets." (Soleil, 74:23)
  • "Transparency is key—our company’s filed 55.8Ks; that kind of openness really rings home." (Jeff, 80:07)

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6. BIP110 Rollout – Big Week for Bitcoin's Governance

[84:28–90:47]

• BIP110 Status:
  • The signaling period for BIP110, a highly-anticipated soft fork proposal, ends Saturday. Confirmation of its activation (or failure) will shape Bitcoin governance narratives.
• Potential Lessons:
  • "If it succeeds, we learn that ignoring a large grassroots movement in Bitcoin isn’t viable without a user-rejected soft fork. If it fails, we learn six mining pools can dictate rules—scary!" (Soleil, 86:12)
• Game Theory:
  • "For mining pools, it’s not just about self-preservation—it’s also about saving your customers. The red-button, blue-button thought experiment is a good analogy here." (Soleil, 90:18)

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Memorable Quotes & Moments

• On Cold Storage:

  "If my citizens keep their bitcoin in self custody, nothing else matters."
  — (Bukele quote via Soleil, 53:32)

• On Entropy:

  "I've learned more about entropy and dice rolls... entropy has been the word of the week."
  — Jeff/Soleil, [91:08–91:41]

• On Community Response:

  "We're in the middle of a civil war, but it was like everybody was hands on deck... that's really commendable."
  — Soleil, [15:01–16:30]

• On Corporate Bitcoin Security:

  "Custody is the main thing that we do. If we do anything good, it better be custody."
  — Jeff, [68:39]

• On the Power of Math:

  "You can ask why does this work, and you say math, and you can point to the math and that's super interesting."
  — Jeff, [68:39–69:20]

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Timestamps for Important Segments

| Timestamp | Topic / Segment | | ------------ | --------------------------------------------- | | 03:27 | Cold Card Hack: Overview & Community Response | | 07:09 | Dan's Personal Cold Storage Experience | | 10:49 | Sovereign Bitcoin Risk & Institutional Custody| | 13:53 | Multi-sig, Security Lessons | | 19:29 | SHA256, Probability Theory, Entropy Basics | | 24:27 | Strategy Balance Sheet & Credit Update | | 27:47 | Dan on Capital Structure Dynamics | | 45:00 | Website Tool: Visualizing Brute Force Odds | | 51:32 | Single Sig vs Multi-Sig Security Analysis | | 55:16 | Real World Comparisons—Odds of Wallet Hacking | | 60:46 | Your Slice—Per Capita Bitcoin Distribution | | 72:14 | Suits, Corporations & Industry Maturation | | 84:28 | BIP110 Activation: Stakes, Predictions | | 90:18 | Mining Game Theory—Red/Blue Button Thought Exp|

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Closing Notes

• Panel Reflection: A time of immense challenge and hardening for Bitcoiners—both sovereign and institutional. The mantra: "Proof of work isn’t just for miners. It’s for every Bitcoiner, forever." (Soleil, 71:12)
• Looking Forward: Eyes on BIP110’s outcome for future network governance.
• Continued Learning: "Entropy" is the word of the week; continuous security education and vigilance encouraged.

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For a deeper dive into balance sheet analytics, risk math, and the mindset of high-conviction Bitcoiners, this episode is essential listening—especially if you care about security, self-custody, and where corporate finance meets crypto.

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Transcript

[A]

Sa. Ladies and gentlemen, what you are about

[B]

to hear may be amazing, but it is not financial advice.

[A]

It is for informational and educational purposes only.

[B]

Nothing in this discussion should be considered investment advice or the offering of any security or other investment product. Please consult your own investment and tax advisors. And now I'll hand it over to

[A]

the True north team for your regularly scheduled programming.

[C]

Whoa.

[B]

Welcome back. True North Episode 75 we are back. We are going to be talking about several things today, but man, a lot has happened as always and we're going to dive right into it. So the agenda for today, we're going to talk a little bit about the cold card situation, anxiety in the market there, suits and bitcoin and just kind of this entire marketplace. We'll talk about the strategy balance sheet, how that's evolved, how that's changed over the last week. I think it's, we're starting to see really good advancements there. The price of STRC is trading up. MSTR is continuing to do well. We are seeing the digital credits start to elevate as the buybacks are kind of floating through the market. We'll talk through that a little bit. We'll look at the balance sheet. We'll do the classic balance sheet update. We get a pulse on the market and then going to get into some math and probability theory, some new tools that we put on the T North website so you can check it out and start to think about relativities and start to visualize math a little bit more. Because some of these math components with bitcoin and how companies are managing bitcoin are some of the things that drew me to bitcoin in the very first place. And so what we tried to do is visualize that so it's a little bit easier to see and start to understand and wrap your head around the probability theory associated with bitcoin. I think it's off vastly overlooked. I think it's really difficult to communicate as a single person. So if you have people that are interested in learning about the math associated with bitcoin, this is a meant to be a resource so you can think about it, communicate it and you know, share it, share it with people. So first off, we've got, we got a nice panel today. We got myself, Jeff Walton, we've got Soleil, and then the new VP of Credit, Dan Hillary with us today. And we are going to jump right into it. So first off, let's start with the cold card situation. Tragic, horrible situation. For those that have lost funds in the cold Guard dynamic. My heart goes out to anybody that had to deal with the stress and anxiety of, you know, getting on an airplane and moving and going to check your funds or like losing funds or having to deal or move with funds. It's just a completely horrible situation to have to think about. The and there's a few things that come to mind here. The one I'm incredibly proud of the bitcoin community and the bitcoin community has responded. The people from all corners of the bitcoin world had been communicating with folks that had cold card helping people move funds. There were custodians that were helping move funds through the network. There were mining companies that were providing like a slipstream to avoid some risk associated with moving funds. They're like Rob Hamilton over at Anchor Watch was pushing Kimmy K3 through the security platforms of all bitcoin companies. And he's been working six or seven days in a row now, just slamming monster energy drinks, improving the security of the network. You got Alex Thorne that's tracking all of the funds that are going through all of the funds that have been stolen and kind of developing a case profile of all of the funds and where they're, where they're being tracked to. And I'm hopeful that every single one of these transactions is going to be watched like a hawk for however long it takes for somebody to try to move these things. And somebody will slip up. I'm relatively certain somebody will slip up some point along the way within the next five years or 10 years. And I think, I think we will potentially find who, who had stole these coins and how they have moved. I think that's one of the beauties of bitcoin relative to dollars. Like if you had, you know, a hundred thousand dollars under your bed and your house got broken into and somebody stole those dollars, they're gone forever. You're never going to track them. It's not like you had the, the codes associated with each individual dollar and you'd be able to track the person that used it. They are gone now. The great part about the bitcoin network is we can watch those funds and, and people will be watching them and there will be a bounty on those funds into the future. I'm sure the FBI is plugged in. This is the largest single theft on sovereign bitcoin cold storage bitcoin in history. And it will, it will be high profile and it will continue to be high profile. The a couple very fascinating things. One, the proud the price of bitcoin has responded from this event as well. The price of bitcoin has shifted a little bit higher since the initial theft of the coin, which I think is a pretty good sign that we're seeing really bad news happen. And yet the price of the underlying commodity is relatively unchanged. I think that's a pretty good sign of the bottoming. You've got strategies sold, I think about 1600 coins in the last week. And so you've got two things that would typically be a negative narrative on the market. Yet the price of bitcoin is relatively unchanged now. Can that move in the future? Absolutely. But I think that's a really good indication of where the market is at. And there's been a lot of support here in the low 60,000s. So maybe I'll pass it over to Dan, because, Dan, you had a bit of a stressful weekend flying back and forth on the east coast, trying to understand what was going on with your custody situation. If you don't mind sharing a little bit of kind of the stressful situation you had to go through as a. Just so people can understand that maybe weren't connected to it.

[A]

Sure. I had a bunch of coins on an unchained multi sig with two MK4s, which are the cold card version. Obviously the MK3 had worse entropy. It was like 2 to the 32. And I think the MK4 was. It had better entropy. It was reported initially at 2 to the 1 out of 2 to the 72, but it wasn't even that good. So there have been single SIG hacks on MK4s. There have been also passphrase hacks on MK3s. And I think the biggest takeaway, Unchained did a great job. The multisig, if it had been a single sig, it would probably be gone. So the multisig saved me. And, you know, one of the. I'll just go through the list of all the things I learned real quick and then we can kind of dissect it from there. But with Multisig, obviously your public keys aren't transacted or aren't displayed or on the blockchain unless you. You receive at an address you previously sent from. And I had never done that. And Unchained is very good about making sure that's kind of the workflow for their wallets. So theoretically, I couldn't have been, you know, brute forced unless those were exposed. And so the problem is when you broadcast a multisig transaction, a total sweep of the wallet, you would publish those public keys to the blockchain and What Mara, in working with Unchained initiated was a slipstream transaction where you send the transaction directly to Mara and they include it in the next block, which they mine. Therefore, it's never in the mempool and it's never broadcasted to the network. So there can't be a brute force attack while it's waiting to be confirmed in the chain. So I know there's probably still people out there who may have not moved their funds yet. There are no confirmed kind of attacks on a mempool transaction yet. So if you don't have access to slipstream, I would recommend, I would say put a really, really high fee on your transaction and broadcast to the blockchain and get it off your MK4 immediately. Especially if your public keys are exposed. If your public keys aren't exposed, what you want to do is probably initiate through a slipstream transaction and Mara even opens slipstream to the public. You can broadcast your transactions directly there. So I would recommend doing that. That saved me a lot. I mean, obviously I was here. I was up all night on support with Unchained. I had someone break into my house, which is in a different location, and open and sign from that wallet. So it's very stressful for everyone involved. But, you know, I think moving forward, you're going to need two providers on the multisig. That was my mistake. I shouldn't have used a single provider for both wallets. You know, I thought Coldcard was quite frankly the golden standard of security. I didn't really like Trezor, I didn't like really any other offerings. But, you know, that's, that's how it works.

[C]

So.

[A]

And one thing, the final point I want to make on all of this is there was a lot of, there's a lot of heckling about Saylor and about these other CEOs who haven't said anything about Coldcard, yada yada. All I have to say is Unchained, Coinbase, mstr, Strategy, metaplanet, everyone, Fidelity, they all did their job and secured the Bitcoin for all their clients amidst one of the greatest hardware hacks or hardware defects in Bitcoin history. So I just give them a lot of credit, give everyone a lot of credit. And ultimately that's the most important thing. It's not what you say or what you do, it's securing the Bitcoin for your clients. And, you know, that's been done across the ecosystem. And so clearly we've grown up a lot since ftx.

[B]

Yeah, there's, there's so much responsibility with holding your own Bitcoin, being a sovereign holder of Bitcoin. You, you, I said this on the hurdle, right? You have to be your own bank. Being in your own bank means you've got to protect and come up with the security protocol for your own coin. That takes time, that takes effort, that takes brain power, that takes risk. And I think one thing that's become very clear this weekend is the risk surface of single sig cold storage has changed. There is now a loss scenario and a risk vector of random number generators not having enough randomness, which impacts a computer's ability to potentially take funds. So there is a element of trust in the randomness generation. If you are trusting a hardware wallet provider, you are trusting their randomness generation. If you do not roll dice to build your entropy and your true randomness, you are trusting the creator of that wallet that they have created enough disorder and randomness in how they calculated that code. Now, the reason that's a vector, a risk vector, is because now if you're using an algorithm to generate randomness from that, that's a decade old or 20 years old, that algorithm to generate randomness might, it is an algorithm that somebody created so that you might be able to reverse engineer the randomness and maybe that's only capable of capturing a, a certain number of outcomes and not the two, the true total randomness in the sea of options. So the, the beauty, the beauty of this is this is mathematical theory. It gets into probability theory. Some of the stuff we'll talk about later with the, the website tool that we put together, we can start to visualize some of these things. But I agree, Dan, this is shout out to the institutions. The institutions have figured this out. They've been, they've been pushing forward on this forefront for a very long time. The, they are providing an avenue for those that don't want to go through that entire process of having to trust somebody, having to be your own bank, and having to go the sovereign route. That being said, I love cold storage bitcoin. I love if people have the opportunity to do that. I love people potentially learning to do that. But it is not for everybody. And I think that risk vector changed this weekend. Now for the Bitcoin network. Jump in there, Dan. Oh, you're on mute. You're on mute. You're on mute.

[A]

Sorry about that. Yeah, when I got started, I mean, I was a single sig guy. I think in this day and age there's absolutely, unless it's, you know, small, negligible negligible amounts. There should be no single sig custody firm, you know, if you personally should not have any single sig custody. And I mean, Fred Krueger's talked a bit about, you know, one of the most secure setups is actually a two of two setup. Statistically or mathematically, that's one of the most secure setups. You know, I, I do like the option of, of having a third party key. But yeah, everyone should be looking at multi, multi sig custody in a really, really, you know, in a meaningful way. I think three of five is probably an even better setup. It depends what kind of platform you use. But I do have to say having that institutional partner in this case, for me it was unchained. Really, you know, saved my neck and really helped me out. So as long as you retain a majority of keys, I think I recommend that to anyone. I pay, I pay $250 a year. And they were having private seminars and the guys were working through the weekend helping me do all of this. So I mean it's, you know, very, very, it's very worth it.

[B]

Very cost effective.

[C]

Yeah, I think it's, I think it's going to be directly proportional to the size of your stack probably. Like, you know, I think the rule of thumb when I got my first cold storage device was if it was larger than an amount you would carry around in your wallet, you probably might want to think about, you know, getting it off the exchange and getting it into cold storage. But this was a huge wake up call for me because I, I just kind of assumed that the only risks for me in cold storage was my own stupidity. Like did I let someone find my seed phrase or did I not lock the doors or not hide it well enough and somebody comes in and is able to get it from me somehow or I click on the wrong link and get hacked. But it didn't occur to me that you have to distrust even the random number generator. And so there's a risk that you are going to take on when you use any of these vendor made products. But of course I think we've all been going down entropy rabbit holes and all kinds of stuff lately and there's actually a bunch of good resources. And so even if you decide to roll the dice, you still have to verify that the device is generating an accurate seed from the dice rolls there. And, and what you said about everyone coming together, I think it really needs to be really applauded because, you know, we're in the middle of a civil war. But it was like everybody was hands on deck. Like, no matter how you feel about spam, like everybody was trying to help everybody over the last week. And I think that's really commendable. And one of the guys videos that I found is his name's Wicked and he's got a tutorial on if you want to actually make sure that the seed finder, I guess, like if you do the hundred dice rolls and you plug that all in, like you can actually verify to make sure that that device is giving you the correct seeds as well. So there's tons of resources out there. And it was, it was definitely a big wake up call for me thinking that all of the assumptions that I had made about, you know, the one, two, three things that I needed to do to make sure that I was safe was, was not even close to the, the number of steps that I needed to take. We lose Jeff.

[B]

No, I'm, I'm here. No, I'm here. I'm. There we go. No, I'm here. The.

[C]

Yeah. And I guess I'll. I'll tell my story. So I also, I had a cold card queue and I, I made a bunch of just really bad assumptions and so I really liked the idea of it being air gap. So I ordered the micro SD cards and I'm like, okay, I'll do that in the future if I need to do a really secure transaction. Like if my stack gets big enough I needed to move a bunch of Bitcoin or something, I would, I would do that. But for me, just connecting it to my device I kind of felt was fine. But when they came out with the firmware upgrade that everyone needed to download, I. I'm like, okay, I have to hurry up and update my firmware. But I didn't actually have a micro SD reader on my laptop, so I couldn't even upgrade my device. My, my cold card Q is actually still sitting there, not upgraded, which is fine because I don't need to generate a new seed with it. I actually got very lucky that I had reused my old seed that I generated on a completely different vendor's wallet. So I kind of dodged that bullet. But it just, you know, it really just revealed the, the rookie mistakes that I had made and the assumptions that I had made. And I legit was not prepared to deal with this emergency. So it's, it's, it's, it's crazy times.

[B]

Totally, totally crazy times. Can you hear me now? Solely. I'm back. Okay, Dan. Dan can, Dan can hear me, but solely can. Okay. Okay.

[C]

All right.

[B]

So while Soleil is doing a refresh here. I did want to share my screen and talk just about sha256 here for a moment because this is fascinating. I had a coworker share this with me and this is kind of what's happening. If this is the encryption of SHA256. So any text that you put in here has a, has a hash associated with it. So you could put in any letter and you could see that any letter that you type it changes a new encryption. There's a new SHA256 encryption for it. So for any letters that you type, you can get a SHA256 hash out of it. But the 256 hash, you can't, you can't. There's no way to back into the things that you typed. You can put any amount of text in here and it's going to give you a hash for that specific text. So for example, we could type in Strive, the Daily Dividend company and that gives you a sha256 hash. Now that if I put that into any encryption, SHA256 calculator. So I'll just copy this and paste it, you'll see that the 256 hash is exactly the same. We got 3, 8 aef and you've got 3, 8 aef. All of these, all of these other letters. So it's like this is, this is some of the encryption in the design associated with it, right? These are 64 digit hexadecimal codes that associated with every single seed phrase. Which again, we're going to get into the math a little bit later. But yeah, this is, this is where we're at. We're in a place where we got through a very large event in the bitcoin network. This is going to bring people in the bitcoin industry together. Everybody is going to sharpen the pencil. People are going to be using AI, people are going to push their custodians, people are going to push the boundary and protect their funds. Like for example, just even you. So like your example of sharpening the pencil and making sure that you're protected. Dan moving and doing his changes to his custody solution, that's going to happen everywhere. And I think that is a good hardening event. Just as, you know, post the FTX Celsius BlockFi collapse, that was a hardening event for the market. The companies that survived that continued to plow forward and utilize bitcoin in different ways and start to build and grow the network in different ways. So Every single bad thing that happens to the market makes it stronger. And I think this event is one of those times where the market will get stronger from this particular thing.

[C]

Yeah, the best way that I heard that described was this guy's channel Age of Abundance. And he said that in fiat you privatize gains and you socialize losses, but in bitcoin, you privatize losses and you socialize the gains. So the people who lost bitcoin, it's heartbreaking, but everyone else is now going to go back and tighten up their security and make sure that they're diversified if they need multisig and know, diversify vendors and things like what, what Dan said. So I will say one more comment though. I know some people have said that this isn't as bad as like an ftx and the price of bitcoin hasn't really crashed because of this. But from a privacy perspective, this is probably the worst disaster that we've had because what did people end up doing? Like a lot of times people would just rush to put their funds onto an exchange. And so let's just say you had some non KYC bitcoin, that maybe you mined it and no one knew that you had it. There was no identification associated with you. And now you've just hurried up and you've consolidated all your UTXOs on a KYC vendor. And so the anonymity that steps that people have taken has been really destroyed. And, and a lot of things can be tracked. And I know it's, it's a, it's a good thing about bitcoin because now we can track the, the SOB that did this. But the victims have also kind of exposed themselves and commingled maybe some kyc bitcoin and non kyc. So that was another unfortunate kind of result from this. Yep.

[B]

Okay, let's, let's pivot. Let's go to strategy. Balance sheet was a big week. A lot of capital raising this last week. And no, I think Dan is going to jump here after we get through this section. And we're going to start with the strategy balance sheet like we do nearly every week. This is as of 8526. So strategy. Well, is that Bitcoin count?

[C]

Right?

[B]

That's 842,138 Bitcoin. Bitcoin price as of right now, about 64, 700msdr price about 98, $54 billion worth of Bitcoin, $4 billion USD reserve. The amount of debt on the balance sheet is unchanged $6.7 billion. The preferred stock is going down. Over the last two weeks they've done $100 million of preferred stock buyback. That preferred stock number is going down. Net capital on the balance sheet about $51 billion and the annual dividend obligation around 1.7 billion. So the net capital, if you were to back out the debt on the balance sheet, the net capital would cover around 32 years of interest obligations, assuming the price of bitcoin doesn't move at all and the debt to asset, the leverage ratio is continuing to drop and now at 5%. So some really good action from the strategy team this last week. Really I think they raised, what is it? 290. I've got it here actually. On the 8K, they raised 290 million. On the MSTR common stock, they sold 1,638 Bitcoin and they raised about $100 million. So in last, in the last week they paid out the dividend on STRC, they added $250 million to the USD reserve and, and then they bought back about $80 million of STRC. And I think we're continuing to see that in the market here as the price of STRC is trending higher. Last I looked it was around 94. A few weeks ago it was around 72. The X community was running around with their heads cut off saying that it was over and it was never going to go back up. And this was a death spiral. And here we are a few weeks later. The balance sheet is bolstered. They have more cash on the balance sheet than they've ever had. They've got a longer Runway with the capital than they've ever had. They've sold a little bitcoin in order to do it, but the capital vehicle is stronger than it has been in the past. And yeah, I like the setup here. I think the setup looks very interesting. They've got multiple years of USD reserve on the balance sheet basically until the next presidential election in 2028. If they didn't raise another dollar of capital, they'd be able to pay out the dividends until the next presidential election and not touching the bitcoin at all. Obviously we know that they have the ability to sell bitcoin. I bet that isn't high on the list, but they can always do it. And they've continuously had access to the capital markets well and above what the dividend obligations have been in. Despite being in the summer doldrums and the markets being relatively light on a total volume basis and large capital activity still happening in the market. So pause there. I'm gonna kick it over to Dan. You, you've always got thoughts. You're looking at this every day. You're now the VP of credit. What's. What are you thinking about?

[A]

Yeah, I think the most important thing is looking out at the, you know, put date maturities across all the converts and then looking at the 4 billion of cash they now hold and how they're going to use that moving forward. Because you know, with the Stretch unwind we saw that institutions are really looking at the future dilution associated with the converts rolling off the balance sheet at non convert prices and that being paid by selling MSTR common equity. So it seems like the cash is now at least helping to arrear some of the convertible debt into the future. And I think Strife is the one instrument that really hasn't traded off its par value in any significant way. Excuse me, Strife, I don't know if I said that right, but throughout this whole crisis or whatever you want to call it, clearly either those holders are a little bit more strong than the rest or the market recognizes the credit quality of an instrument that will be atop kind of a mountain of bitcoin and cash collateral. And I think the most important thing to look at is the fact that Strife will be once the converts roll off, potentially forex over collateralized by cash. So if you have a pref equity that's essentially you get your capital returned every 7 1/2, 8 years and you have 4 years, you have 4x the cash on the balance sheet relative to the liquidation preference of Strife, then that's a really credit worthy instrument and there's no reason that yield won't pull down to 7, 6% I think over the next two, three years depending on what they do with the converts. And I think it's unlikely they refi the converts and in that scenario it just means either they'll be cleared by equity issuance or they'll be cleared by bitcoin sales. And once that occurs, the credit quality of all these instruments improves dramatically. So I think that's the real market outlook and I think Strife and Stretch really have nowhere to go but up with regards to credit quality, especially with the new sort of 12 month guidance of board mandated cash reserves, which I think was massively important and will be refined over time. Flood, who's like a notorious bitcoin podcaster, whatever ex celebrity, he said Stretch is effectively a four times levered s gov, but everyone tells you you're going to lose all your money Every day. And I think that's a pretty applicable statement. And the fact that stretch is trading up I think is a, quite frankly a result of both the cash buffer, but also MSTR coming in and essentially putting a put floor in. Right. If they're saying we're going to back this thing via buybacks with the good faith of our however big their balance sheet is with their bitcoin and cash, then you understand that strategy is a buyer of last resort. They ultimately bailed themselves out of this stretch debacle and the only way they were able to do that was because they have such a collateral base on their balance sheet. And that's why this whole Ponzi argument falls flat, is because these return of capital dividends are paid out explicitly by assets held on the balance sheet.

[B]

Yep. Assets and capital held on the balance sheet. Yep. The. Yeah, that's a great point on looking at STRF here. If you're looking at the BTC rating and thinking about the total coverage over and above the notional value, which is kind of what you're alluding to Dan, right now, as of today it's 13.6x and once you go down to stretch, which is the largest with the notional outstanding, that drops pretty significantly from 13.6 down to 3.8. So it's I think from a mathematical credit quality you can see going from the BTC credit spread of 13 basis points to 123 basis points. I think it makes sense why on a relative basis it's continued to perform pretty well and trade near par. But to your point, putting a put floor on STRC that does give that guidance and confidence for market to come back in here. Obviously having the cash reserve is incredibly helpful. The composition of the balance sheet is changing. The relative proportion between cash and bitcoin held on balance sheet is becoming significantly heavier on the cash side, which is the entire goal of pushing toward a better credit quality on the balance sheet. Now I'm going to disagree with you on the refinance of the convert and I think they will refinance using STRC proceeds if, if that does get back to par and they are able to continuously issue on STRC, maybe in Q3, Q4, I wouldn't be surprised if they are using some of those proceeds to retire some of the convertible debt. Now that could be a straight up conversion, that could be a negotiated conversion. There could be shares for shares and if we look at the debt maturity, the ladder maturity that you were referencing, the 2028, the nearest put date on the 2028 convert is 9, 15, 2027 with a conversion price of $183. So you know, thinking about where the price of the Stock is today, $100. If there's any tailwind in the price of bitcoin, I would suspect that if one is trading in the money it'll be the 2028 convert and potentially the 2030 convert and on a notional outstanding basis, about 1.8 billion part of the 6.7. So a good thing to be on the radar and be watching is the relative, the relative put dates of the convertible bonds that will, that will be something the company will be managing. But they do have tools in their toolkit. Obviously they've got the MSTR common stock, they've got strc. If it's trading at par, they've got cash that they could use potentially the buffer over and above 12 months. But we know that the credit quality is very sensitive to how they manage the cash and we'll see how that goes.

[C]

Yes, I think it's funny that people always make fun of strategy for buying the bitcoin tops and then they sold some bitcoin they tax loss harvested, but it was like, okay, well we sold some high cost bitcoin at a loss. But with the buybacks for strc, if you think that you can sell this thing at 100 and you can buy it for under 90, like that's, that seems like a no brainer. So you know, maybe they don't always buy the bitcoin dip and sell the top, but if they can do it with STRC at least makes financial sense. I think.

[A]

Yeah, I have a comment on that and I think it's something the market's going to really be looking at over the next 12 months is simply that, you know, they can't repurchase STRC with the same velocity as the price increases. So they'll likely be more aggressive buybacks at prices below 90 and then less aggressive buybacks at prices above 90. And you know, I'm curious to see what they're going to do with regards to the ATM sale. And obviously they've been just hammering the ATM sales. When Stretch hits 100, I think they should have kind of a, a volume weighted average price ladder of ATM sales as well to stabilize that price at 100. Because if you know, strategy is going to be on the sale at a 100.00, it's difficult for, you know, any rational participant to be a buyer at that exact price unless they're trying to rbx div date, which clearly hasn't been a profitable trade over the past, you know, five months. So I'd be curious to see if they let it float above par, even just buy a $1amount and then, you know, match that with the tiered buybacks as the price gets lower. And I think in that world they could probably stabilize the price within a five to $10 band and that's, that's probably as good as you're going to get over a long, long time period. I think that would be actually more beneficial with regards to growth of stretch than just hammering it as much as possible at 100 than waiting for it to recover because the market needs to mop up the new inflows of shares regardless if it's sold at 100 or 101. Etc. So. And that was initially, I know SATA's prospectus mentioned a trading range of, I think it was 95 to 105. And I'm curious to see if strategy actually readops that sort of thinking with regards to, you know, prices over the long term.

[C]

What that 95 to 105, was that just the range that they were trying to get it to trade in, but they were only going to atm it at 100 or can they atm anywhere in that band? Because I agree with you, Dan, that was one of the things that I thought they should do is instead of saying, oh, it has to be at 100, like, okay, I can sell it anywhere between 99 and 101 or between 100 and 101. And maybe sometimes you let it run to 150 cents and like kind of keep them guessing like you don't know where I'm actually atming it at.

[B]

Yeah, the, the original thought with the 95 to 105 was flexibility to issue between that band. The, the feedback from the market is, you know, if you're, if the price floats up to 105 and then you issue all the way down to 100,

[C]

lose me or do we lose Jeff?

[B]

It probably lost you, Soleil. Okay, well, we're, we're both there.

[C]

All right. So I, as soon as I saw the, the price going down, I just knew they were going to bump up the dividend. So they didn't. And I, I guess, I guess they thought adding the s. The USD reserve would be enough or they're just going to wait for bitcoin to go up. But anybody got any thoughts on why they didn't raise the dividend?

[A]

Well, yeah, I can speak to that and I think it's something that, you know, we've talked about together in private a lot too is you know, you could keep raising the dividend. Raising the dividend. But if you get to this circumstance where your cost of capital keeps ratcheting up higher and higher, you, you know, strategy, a month ago these prefs and strategy was trading like a distressed issuer. And if you just keep ratcheting up the cost of capital to 13, 14%, you're not really fixing the problem. And so as far as rebuilding the cash reserve would fix the problem and so de risking the balance sheet in the eyes of institutions I think is more important than increasing the future return of the security. And divoting out cash to shareholders in the form of buybacks is effectively a temporary variable rate dividend increase. It's the same way Apple has retired shares for the past 10 years. So I think for those reasons, buybacks are actually a much more effective mechanism than raising the long term cost of that instrument. And it's something I think strive should, you know, seriously consider and look into, considering that SEDA can't be, excuse me, the dividend on SATA is contractually not able to be decreased unless the prior 30 day VWAP is above $99. So you know, once you hike that rate, you don't really have a mechanism to decrease that rate in, you know, market conditions that are not favorable to you.

[B]

Yeah, that is a credit protection that's built into seda. And I'll hit on a couple of these things. Originally when we came out with a 95 to 105 band, the thought was having flexibility of issuance between 95 and 105. Some of the market feedback was that if you let the security float up to 105 and then you issue all the way down to 100, you just chop somebody in the knees on 5% of their portfolio. They got to hold that for an extended period of time in order to get that capital back from the dividend associated with it. So having a tighter band vastly increases the interest in the potential instrument. Again, you're thinking about the holy grail of securities in the design. How do I get low volatility, high yield and. Yeah, low volatility. What is it? Low volatility, high yield and liquidity. Oh gosh. Is liquidity high liquidity? Yeah, the trilemma. It's like high liquidity, low volatility and high yield which, which breeds a market to build on top of it. We saw leverage being built on top of it. We saw products being built on top of it and it creates a trading surface that's super interesting in the capital markets. Now it might not be for retail. We saw retail had significant interest in it and I think retail will continue to have significant interest in it. But the large scale capital is going to start to wrap their head around what this means and how it impacts their portfolio and how to build it in. I think this preferred equity sleeve, this part of the market has been vastly underused through throughout the last 100 years and there's now innovation happening in the preferred equity space and think things can be built on top of it. And the, we were talking about the, the change in the interest rate. I'm not surprised strategy didn't increase the interest rate to 12 or, or higher than 12. The reason being is going from 12 to 12 and a quarter or 12 to 12 and a half wouldn't necessarily increase the marginal capacity on the transaction. So we kind of got to a point where the marginal capacity was just a function of the increase in the credit quality of the balance sheet. So in analyzing this event and why it occurred, you were able to get data from the market and the data from the market is don't like the changes with the cash reserve, don't like how you handled I guess the balance sheet construction at that point. So it's like okay, let's change, change that, let's attract those buyers back to the market by improving the perceived credit quality of the balance sheet by increasing the composition of cash. So you think about the construction of the credit. The credit is a construction of the underlying capital and the underlying cash on the balance sheet and how that relative proportion. And so I'm not surprised they didn't increase the interest rate if they got to a situation where, you know, this doesn't necessarily move the needle that they could be in a position to do that. But I, I wouldn't be surprised if it doesn't change, change much from here because still you're thinking about a 12, 12 yield on this type of instrument in and we have a 13 yield on our instrument. I think that relative yield relative to other things in the market based on the assets that are already on the balance sheet, I think we are going to experience a little bit of volatility. That's why I've always thought of these as moderate duration instruments. As they mature, as they grow in size, grow in size and grow in scale and grow the liquidity pools, they will continue to mature and the volatility should reduce over time. Just like Bitcoin, you get off the ground super volatile. As we've gone over time, the volatility of bitcoin has come down. I think these securities will follow a very similar path as they continue to mature. Okay, I was going to jump into some bitcoin math. Dan, I know you're to jump off, but you're happy to hang on here if you want to walk through some of this stuff.

[A]

Yeah, I'll jump off. Guys, I got my feet under me here. I'll. Great session. And I'll talk to you guys later.

[B]

Cool. Thanks Dan. Bye, guys. Okay, Soleil, you ready to do some math?

[C]

Oh, yeah.

[B]

Okay, so this is on the T North website. This is the seed phrase math one key, two to the 256 possibilities. There's four different sections in here. There's a breach, impact and odds engine, the scale and your slice. And we'll kind of go through each one of these. So what, what I wanted to do is kind of conceptualize like a corporate balance sheet and like a risk profile of a corporate balance sheet thinking about construction. So I, I put some examples in here. You've got strategies. Balance sheet 842, 000 Bitcoin. You can make an estimate here. This is a little slider bar on how many bitcoin they hold per wallet. Let's just crank it to the top. Let's just say for example, they had 500 Bitcoin per wallet. And we wanted to see what is the probability that a single wallet is breached mathematically and effectively if these are true good entropy wallets, what is the mathematical probability of guessing that specific wallet that's got 500 bitcoin in it and the funds being drained out of that. So Based on this calculus, 842,000 bitcoin divided by 500 bitcoin, there's an estimated 1,600 bitcoin wallets in the fleet of wallets. And if one wallet were breached, the share of the bitcoin holdings exposed would be 0.059%. So 5.9 basis points of the entire stack. So the dollar value exposed would be 32.3 million. Here on a visual representation of that. This is the representation of one wallet as part of the broader amount of wallets. 0.059% exposed. Okay, now that's, that's wallet construction. Now let's think about the odds and the probability associated with the energy and compute that is necessary to brute force or break into a specific bitcoin wallet. So how this works, so there is an attacker assumption. So you can select different attackers. There's a cracking rig or every computer on the planet, which represents every computer on Earth, which is about 2 billion devices guessing Bitcoin wallets at 1 million guesses per second each. There's all of the mining power on the planet, and then a Dyson sphere, which is effectively the entire, harnessing all of the entire sun's energy and output at the Landauer thermodynamic limit. It's like just trying to grab your head around how much energy that is. And then you can select the time horizon so how long the attacker is. Is running this guessing mechanism. So right now I'm going to select every computer on the planet. So 2 billion devices at a million guesses per second each, and they're going to guess for 100 years straight. I wanted to run the probability of every computer on the planet guessing bitcoin wallets for 100 years straight. What is the probability that they crack one wallet? And so that probability, in this scenario, the probability of one breach here, Let me see if we can make it a little bit bigger for those that are trying to check it out. Probability of one breach is 1 in 10 to the 52nd.3 power. You're like, jeff, that doesn't make any sense. It's just a big number, huge number. So what I tried to do is put this into perspective. So in that horizon of 100 years, so the. Every computer on the planet is going to try 10 to the 24th of 10 to the 77 that are possible of the wallets that total wallets that are possible. So this is the percentage of the key space that is searched for every computer on the planet running for a hundred years. They would have searched this many zeros. What is that, 50 zeros? 0.55. 50 zeros. 5. 5.

[C]

So you're saying there's a chance, like

[B]

the, the relativity here is like, while. While 10 to the 24th looks very close to 10 to the 77th. The, the power, the exponential power, like the numbers are 50. The numbers are so huge. And so I'm trying to put that into perspective now you say, all right, well, Jeff, that's one wallet. What if every person on the planet had a wallet? Actually, let's assume every person on the planet had two wallets. So you've got 16 billion wallets on the planet. What's the probability that every computer running on Earth would breach one wallet? Well, you can do that.

[C]

And we're assuming that everyone's created their seeds with the proper amount of entropy, like 100 dice rolls or whatever.

[B]

Correct. Yeah, yeah. So in that scenario, every computer on the planet running it for 100 years and there's two wallets for every person on the planet. The, the difference, what is this? This goes from 10 to the 52nd to 10 to the 42nd and the difference goes from. Oh yeah, the seeds within the, in the key space don't, don't change. This is the only thing that changes. The probability of one breach goes from 10 to the 52nd to 10 to the 42nd. 16.6 billion wallets on the planet. Okay, now what if you ran it for a thousand, two thousand years? If you look at the probability of one breach and just watch how it changes, like it doesn't change much, you can run it for a thousand years. You could run it for 250,000 years. Like the mathematical compute is, it's so vast. I think that was one of when I realized how vast the pool space was. For a perfectly random number that's generated in the vast pool space, it's just so big. And if you use the Dyson sphere, so if you had all of, if you were able to use all of the energy from the sun on the planet and you ran it for 100 years and there's two wallets for every person on the planet, the probability of a single breach is 10 to the 10 power. And the share of the key space searched is 18 zeros, 3, 5.

[C]

You know, I know they've been dragged enough, but when you do this right, it's so mathematically impossible to screw this up. It's like the own, like, you know, you have one job. Like this is literally the main thing that needs to be done. So I think that's what caught everybody by surprise, is that this is so critically important. And then it was, it was the flaw that was exposed. Yeah, it is kind of crazy.

[B]

And, and so that concept being a single signature, you have a single point of failure that is, that is a risk vector. You now have a trust vector of did you create true randomness? Can you back into true randomness? Is there a probability that your randomness is not good? And you can, that can be, that reduces the total key space that is a probability. So that's the, that's the concept of moving to multisig is you eliminate that probability of single point of failure and the, the actual risk surface goes from, you know, these magnitudes to it, it actually goes to an exponent. I think it's like 30 times more secure with a multi sig solution than a single Sig solution from a mathematical perspective. So if you, if you truly wanted.

[C]

But even this kind of proves how safe single sig even is when you do it right. This is kind of like really good to emphasize that if people are now can't sleep at night because oh my God, I'm signal single sig and I'm going to get hacked. No, if you actually have good entropy in your seed phrase, it's 1 in 10 to the 42nd power that every computer on Earth for 100 years would actually hack you. So if you just do the whole don't trust verify thing, which it's funny because we throw those words around and you know, not your keys, not your coins, we throw around and it's just 12 words, bro. Like it's. We make it sound so simple. But if you do just go through a certain level of, you know, proof of work, I guess really to, to ensure that, that your seeds are created randomly, you really do get all of this protection. You get 10 to the 50 second power protection. And yeah, I think single sig is fine probably for most people's solutions and hell, even like, you know, I convinced my dad to buy some bitcoin and but like at his age and the size of his stack, like I haven't hounded him to get it off the exchange. It can stay on freaking strike. Or actually I think he's buying on river. But like it's fine. I mean there's, I think the one lesson I think is it reminded me of something that Jeff Booth said when he met with Bukele and they were kind of discussing like, you know, was he a little bit worried that they were taking some money from the. I think it was the IMF or whatever. And Bukele said something along the lines of, look, if my citizens, you know, keep their bitcoin in self custody, nothing else matters. And so I think that's true here too. We only need a certain percentage of the network to be the hardcore bitcoiners that move things to cold storage. And there has to be that core bunch of hardcore zealots that keep the whole network secure for everyone. But in certain situations it's fine to not do the three of five and just go to the ends of the Earth to secure 0.01 Bitcoin.

[B]

Right.

[C]

It's fine. The rest of us will kind of pick up the slack for you.

[B]

Yeah. Now the biggest problem in self custody, in my opinion, is people understanding the math and actually doing the work. The average person is not math literate. And I Think that's going to be the biggest uphill battle for, you know, cold storage here in the future and moving forward, I think it's going to be a difficult equation in my opinion.

[C]

But in my, I mean, when my grandmother was in her 50s and 60s, I was like 10 years old and I had to help her with the VCR remote. You know what I mean? Like, yeah, everyone's not going to be doing this and even me thinking, oh, you know, I'm not a complete tech idiot. I still screwed it up with the, you know, with the cold card and not having the micro SD reader and, you know, basically getting lucky because I wouldn't have used the dice to confirm, I would have had a low entropy seed phrase if I didn't move and use my old seed phrase.

[B]

So

[C]

it's humbling to think that you've been a bitcoiner for whatever, seven, eight years or something, and then you get slapped in the face that you don't even really understand that you didn't set up your single sig correctly. Yeah.

[B]

So I put on this website so you can understand the gravity of this too. So if every computer on the planet is running 2 billion devices of a million guesses a second each for 100 years, one wallet, it's 10, 110 to the 50 second power. That's the probability of a single breach. So your math is your protection. Now here's the odds of guessing even one bitcoin seed and I try to put it in perspective so you can generate this comparison card. So it's the odds are the same as being dealt a royal flush. Nine hands in a row, finding one marked ant amongst every ant on the planet 3.2 times in a row. Or like finding one marked snowflake in a full year of global snowfall, 2, 2.2 times in a row, calling 174 coin flips correctly without a miss. So I, I think that's, that's good perspective on the, the probability pointing out to a specific cell in the human body 3.9 times in a row, a Powerball jackpot, 6.2 times in a row on single tickets. So it's like the relativity putting it into actual things that people can try to compare it to because it's difficult, it's difficult to wrap your head around vast space.

[C]

And it looks like the same odds as me guessing the correct covered call strike for this Friday. Yeah, not going to happen.

[B]

Not going to happen. And so this next tab here, this is the scale. So this is showing a relativity of an atom. So Every possible seed phrase is an atom. So you can put that in your brain like one atom on the planet. Okay, so then you, you've got this, you could click here, you can go one bigger so you can understand like the relativity. So a protein is about a thousand atoms. That's 1,000 times larger than an atom. A virus is 2 to the 30. The cold card MK2 MK3 flaw was 2 to the 40. Okay, so that's roughly larger than I guess a virus in terms of total atom size. So you think about the amount of atoms in a, in a relative virus, about a trillion possibilities. Or a single bacteria, about a trillion possibilities. A computer can actually calculate that incredibly quickly. Now going bigger, you go from 2 to the 40 to 2 to the 60. That goes from the size of a bacteria to a grain of sand. Okay, getting better, getting better. And then you go from 2 to the 60 to 2 to the 72. And that's the cold card mk4 mk5 flaw. So that's the randomness difference was that they were different between the mk3 to the mk4 and mk5.

[C]

And so that's why you were, you had a little bit extra time.

[B]

Correct.

[C]

To get your stuff together with this one.

[B]

Correct.

[C]

Okay.

[B]

And so, so that's going from 2 to the 72. Well, 2 to the 93 is a human body. So roughly 10 to the 28 atoms. It's beyond every computer on Earth working for centuries. Two to the 126 is all the sand on the Earth's beaches and deserts combined. So right, we go from 2 to the 72 is the mk4 flaw and 2 to the 128 or 2 to the 126 is all of the sand on the Earth's beaches and deserts. Just to put that, put that in perspective. And so a 12 word seed phrase is 2 to the 128. So a ton of entropy, right? It's like guessing a single grain of sand in all of the sand in the desert deserts and beaches on the planet. Okay, the 2 to the 155 is, is a single water molecule in every ocean. So every ocean on the planet, it's guessing a single water molecule, every atom on the planet. So all of the core, the mass, the mantle, the oceans, every, like every piece of mass on the planet is 2 to the 166 power. So it's like identifying a single atom in the entire Earth. Okay, we're going to keep going bigger. Jupiter is 2 to the 180th, which is 318 times larger than Earth. I think this is the part that the Bitcoin Policy Institute missed. They just kind of went like straight from a virus to Jupiter. And people can't wrap their head around how big Jupiter is. Jupiter is 318 times larger than the Earth. So it's like guessing a single atom in something that's 318 times larger than Earth. Like, it's just kind of hard to wrap your head around how big that is.

[C]

I was going to say when. When do we get to the Sun?

[B]

The Sun. The sun is. Which is 99.8% of the solar system's mass. Huge. The Milky Way, two to the 225. So every atom in 100 billion stars and everything in between them.

[C]

Wait, so if I. If I do a dice roll 225 times, I can get entropy of the entire Milky Way?

[B]

Yes.

[C]

Is that what we're saying?

[B]

Yes.

[C]

That's cool.

[B]

And then 2 to 256 is guessing a single atom in 2.1 billion Milky Way galaxies.

[C]

Nice.

[B]

Which is a large portion of the observable universe. Like finding a specific atom in the large portion of the total observable universe.

[C]

It's pretty slick.

[B]

So I think that's helpful perspective, right? Like the math is. The math is protect. If your math is good, the math is your protection. And it's beautiful. Honestly, it's one of the things that drew me to bitcoin. When I first saw it, I just kept digging deeper and I was just like, wow, this is. Cryptography is super cool. It's all protected by math. The last thing I want to jump into here is your slice. So one thing to think about, and Matt brought this up on Hurdle Rate this week, is he views cold storage bitcoin as an insurance policy. So he has given cold storage bitcoin to some of his friends and family. And it's like 0.05 Bitcoin. And it's like, here, have this. Store it away. Put it in your safe. This is for just in case the world goes to hell. At least you have this. And the framework was that amount of Bitcoin would be more than if it were split evenly amongst everybody in the United States. Just like protecting the relative comfortability of his friends and family relative to the average American. So what I've done here is show that if bitcoin were split evenly between the global population. Global population is 8.3 billion. Your slice, if it were split evenly, would be 252,000 sats. 0.0025 Bitcoin per person, that would cost you $163 today to get that exposure. So if, if you just wanted to be average, if you wanted to have the amount of bitcoin that would be average to the global population, if it were a sport, split and divide it equally, that would cost $163 today. That's a pretty cheap insurance policy if you want to have your relative wealth compared to the globe. Now, that amount changes as you compare to different places. So I'm going to focus on the United States because I live in the United states. There's about 350 million people that live in the United States. So if you were to Split all of 21 million Bitcoin, we know that only 19.92 million have been mined. But if you were to split all 21 million equally amongst the United States population would be about 6 million SATs. So that cost today is $3,886. Again, you're thinking about an insurance policy of your relative wealth compared to the rest of society if all, all hell breaks loose.

[C]

Yeah.

[B]

And like, having this amount in cold storage, I think seems like a, a relatively comfortable place to be. And this is like, obviously there are people that have way more than this. And I'm sure the OGs are going to say you should put your store, your entire wealth in bitcoin. Well, it's not realistic for everybody. And this is a good example to think about relative your relativity compared to the rest of the population. Now, obviously, what do we know about bitcoin? Bitcoin is a global asset. So while I've got this $349 million figure as the denominator in this calculus, the reality is bitcoin is a global asset. And there's 8.3 billion people that are running for that amount of bitcoin. And you've got corporations that hold a significant amount of bitcoin, you've got Satoshi that holds a significant amount of bitcoin. And you know that there are large holders and it's not equally distributed. So I would argue that this amount of Bitcoin today, $3,887 worth 0.06 Bitcoin would be a significantly larger portion, and your relativity compared to the rest of the population would be significantly larger than the actual distribution of the coins globally.

[C]

Yeah, this is. This, I think, proves a good point. And it's one of the reasons why I never really liked when podcasters will say, oh, you got to get to one Bitcoin. And now the new one Bitcoin, is like, you got to get to 0.1 Bitcoin. But if you would accept that that is true, then you're basically saying that bitcoin can't be good for everyone because everyone's not going to get to one, and everyone's not even going to be able to get to 0.1, because if it's evenly distributed, what did you say was like a million sats or something? Actually 250,000 sats. So you only have to get to that to be as wealthy as the average person on the planet. And I just think this puts it all into perspective that bitcoin is actually probably more valuable to the people who can only afford a small amount than it is for the people who can afford 10, 20, 30, 40 Bitcoin. Because at that point, if you've got 20 Bitcoin, does the 21st Bitcoin really even change your life? Not really. But when you can barely scrape together $163 and then you do, and then that becomes 10 times as valuable in a few years, that could be life changing. So I, I, I really love the way that this frames bitcoin.

[B]

Yeah, I, I, I've always kind of looked at it this way. I've, I always felt like I was late to bitcoin. So, like, for me, getting exposure to it was like, I should have bought it in 2014, and I didn't. And, but you know what I'm, I look at, if it were split evenly between the United States, you're like, okay, that's a, that's a unique, or that's a, that's a good frame of reference, right? It's like, okay, If I've got 250 times more than what the average person would have if it were split up, you know, you start to put some relativities around it and you're like, okay, half y', all, like, that's, that's comfortable, right? And, and then for me personally, I, I think of it this way and then I focus more towards some of the equities and obviously the stuff that I'm working on because I'm, I operate in this space and I, I think these companies are going to be around for a long time. I think they're going to be the leaders of the, of the new world, the new digital age, and I want to be exposed in that direction. I, I don't think, you know, the, the, the dollar is just going to completely fail. It could, that is a, that has a risk factor But I don't think the dollar is going to completely fail overnight. And we'll be in a situation where a fully denot, you know, bitcoin denominated world, that would be complete chaos. You better have other things than bitcoin. You better have whiskey and cigarettes and guns and ammunition. Right. It's a different equation. Like you try to compare tail risk to tail risk, and I think some of the, the, the bleak tail risk that many of the sovereign OGs think about is a little bit more, more, more bleak than good.

[C]

Yeah. So anyway, I, I thought the, the other screen that you showed, which was like the likelihood of having like one wallet taken. If anybody is one of the sick puppies that actually does valuation models for stocks. I mean, I think this kind of puts it in perspective. Like, what is the risk to that stock's share price if they lose one wallet with 500 bitcoin in it? You know what I mean? It's like a very, very, very tiny percentage of the share price. Right. If they got hacked and lost 500 bitcoin, what would that do to the value of their balance sheet? And it's almost nothing.

[B]

How does it change the credit? Yeah, how does it change the credit? How does it change the value of the corporation? How does it change the balance sheet view? Custody is the main thing that we do that is if we do anything good, it better be custody. It better be custody, the bitcoin, because our entire business relies on the strength and the security, the math associated with the custody and the protocols that are put in place because of the, to protect the bitcoin that is goal number one over and above anything and everything else, the credit relies on this and this, this type of stuff, like this website, I think will be helpful for traditional finance people to wrap their head around the math. Like what? Back when I was in my reinsurance gig and I was going to like London and Bermuda and talking to people about this math stuff, like, the moment you start talking about exponents, their eyes gloss over. They just, they're interested in underwriting. They're not necessarily interested in math and cryptography. Obviously the word like crypto has got a very negative connotation just in the last five years. But the math is really cool. The vastness of math and the probabilities associated with it. I feel like many traditional underwriters or traditional capital people, they take off their underwriter hat when, when it comes to crypto. Well, like you, you can keep your underwriter hat on and look at the math. Like the math is actually really that there's. You can ask why, why does this work? And you say math and you could point to the math and that's super interesting. Now quantum does throw a wrinkle into some of these probabilities and there's different types of quantum and how, how that changes the math and the probabilities that that is a risk vector on the horizon. But you could theoretically go from SHA 256 to SHA 512. You could just crank, you could crank the numbers larger and you make the amount of energy necessary to crack into a single code that much more difficult. And I know there's a lot of power and energy being focused and harnessed directed towards quantum, quantum risk right now. And I think the market is addressing that very seriously.

[C]

Yeah, I know it's a good point about your number one job is custody. And I think that's actually true for every single bitcoiner. And I walk my dog every day, and I usually like to go barefoot in the beach and just get some sandwich in my toes. But one of the things that I do every single day that I go is pick up shards of glass because people will come and break beer bottles or whatever. And I'm barefoot, right? Like, I want to be barefoot. But it just kind of reminded me of the proof of work that you have to do with bitcoin because you don't just buy it, put it in self custody and you're like, oh, now I got this thing licked. Like, proof of work isn't just for the miners. It's for every bitcoiner forever. It's not something that you just do one time and you're like, oh, now I'm safe. No, you have to be doing this every single day. And it's something that you have to, I don't know, kind of ingrained into your life. I wish it was easy and I wish it was comfortable, but it's, it's, it's actually takes work to be a sovereign individual.

[B]

Yeah. And man, I feel for any of the, the bitcoiners that, you know, got sovereign with a cold card and stepped away. Right? Like I'm, they're like, I'm cool, man. I'm gonna go live my life. I'm not even on X. I don't need to. I'm sovereign. But the market is evolving and the market's changing. AI is accelerating. AI risk surface is accelerating. And so like, the world changes every single day and you kind of have to pay attention. That is a, that is a risk factor. Where, where like you think about what does it mean that the suits are now in bitcoin? You've got a Bitcoin ETF. So, okay, so now you've got a company like BlackRock with an enormous balance sheet, $600 billion company and they're, they're putting all of their firepower towards their custodian solution. They've got more money than an individual trying to find the right custody solution. They've got a team of people that are working on it. Like our company. Right. We've got 31 people that work at our company. We've got a four fleet of people that are analyzing custodians, custodian solution, talking with our custodians, interacting, interfacing. It's, it's not just one person like that. That's our, that's our entire company's job. We got a fleet of people that are doing that work. That's, that, that's different than you, than an individual doing that work. That's time, that's effort, that's headspace, that's money, that's there, There are things associated with that and, and what I've loved and many have hated, but I think there should be some cohesion within the bitcoin market here is that these, these companies are stewards of capital. It's in their best interest to protect the, the bitcoin. They are working with the custodians, they are supporting the entire network and they're doing the work. And that's, that's a necessary thing for the market to get exposure to bitcoin. Like it is truly better for everybody to have corporations that are involved in holding treasuries of bitcoin.

[C]

Yeah, there's one thing that I think one good thing that could come from that is I kind of got slapped in the face of we say don't trust verify. And bitcoin's an open source project and a lot of these cold storage devices have open source code. But I can't review it. So I'm trusting that other eyes are on it and the eyes that were on cold card were either reporting things and they weren't getting fixed. So it's almost kind of like, okay, it's open source, but if you're not paying attention to the people who are reviewed it and said hey, there's this vulnerability, then you know, it, it kind of defeats the purpose. And so there is a little bit of trust that you kind of have to do. Unless you know, at my age, am I going to go teach Myself how to code and then just start digging into bitcoin's code. I mean, I took a semester of C because I thought I was going to be a video game designer. And I quickly realized that it's not as fun as actually playing video games. And I was like, no, screw this. I'm done. So I. To a certain extent, you have to kind of trust. But if the bitcoin treasury companies can start throwing analysts and developers at the code, and we can start getting a bunch of more eyes on the. On the. On the code, I think that would be great. All right, so I don't know if I'm the one that got lost or if it's Jeff. He might be refreshing. But as. As far as the suits in bitcoin are concerned, I guess with the civil war, I'm kind of having a little bit of an identity crisis, because I feel like I made myself subordinate to the stock market when I quit my job, and the only source of income is the stock market. So it was kind of like, am I still sovereign, or am I kind of like a slave to the market? Was I gone or were you gone, Jeff?

[B]

Sorry, guys.

[C]

Yeah, so. Oh,

[B]

I think we're still live.

[C]

Yeah. So, Jeff, I was. I was basically just saying that, you know, with the suits entering bitcoin and with this kind of civil war that we have, I was doing a little bit of soul searching, because one of the questions that I have for bitcoin treasury companies and a challenge really is, can you remain sovereign and can you remain good for bitcoin, or do you become subordinate to credit? Like you guys, I've called you guys a continuous capital raise company, Right? So do you become subordinate? Because now you have to satisfy whatever you need to do in order to continue to raise credit. And I feel like I had to do a little bit of soul searching because I felt like I subordinated myself to the market when I quit my job, and now I have to make money in the stock market or I don't eat right, you know, I don't pay my bills. And that was a little bit of a little. I had to kind of look in the mirror and say, you know what? At the end of 2024, I could have sold my whole portfolio, just yoloed into bitcoin itself, and gone to the little retirement calculator that they have and like, okay, this is my budget, and I probably could have just dusted myself off and like, okay, I'm out of the stock market, but if I had. If I had my entire Life savings swept because I was on a cold card. Like, you know, there's a little bit of diversification. I think that kind of makes sense a little bit. And I know it's, I know it's kind of dirty to say like keeping anything in fiat, but that would have been, I don't know, that would have been pretty crushing if I had, if I had lost at all. But yeah, so it's. Yeah, I have that question and that challenge for bitcoin treasury companies in general, but I'm also not immune from that. Like I have to be asking myself that same question and making sure that I'm aligned properly with bitcoin.

[B]

I think the answer to that will evolve. I mean, seeing how these get integrated into the broader capital ecosystem. And I think it's a little bit TBD on that.

[C]

Yeah, well, I really like, I think it's probably an underrated interview, but Tim Kotsman has had Julie Millard on his show. I think it was a couple of times probably on that marathon where he did like 12 or 24 hours of, of just interviews.

[B]

Great.

[C]

Yeah, yeah. And one of the things that she studies, I believe she teaches marketing and she talked about different. The way that you want to look at treasury companies is their authenticity. You know, how transparent they are about their strategy and, you know, different things along those lines. And I think that's probably going to be one of the keys going forward. I know we like to look at the M Nav and the KPIs and the Bitcoin per share and all that other stuff, but I really think her framing things around the authenticity is, is probably an under. Underutilized metric.

[B]

Yeah, yeah. I just looked yesterday. We, we have filed 55.8ks since we've started and there are companies that have been around for a decade that haven't filed 55. 8 case. So that transparency really rings home. And we do think that's an incredibly important part of the building the credit market here. Especially in an economy where there's a general desire and shift to doing things less frequently. I think having a incredibly transparent business and a capital structure is just important for the market to.

[C]

Yeah.

[B]

Digest.

[C]

So you guys got more 8Ks per share than anyone.

[B]

8Ks per share. Yeah. Strategy. They've got, they might have more. They've got more 8ks per share.

[C]

Their AKs are getting diluted because they had to buy back some stretch.

[B]

All right, yeah, we'll share buyback. So final thought here is. Or just to add. I'll add and do a final thought is I don't think I've ever worked harder in the bitcoin ecosystem. And it's, I'm having the time of my life working here. There's so much opportunity to integrate this stuff into finance and that like I feel like I can, for the first time I feel like I can see the future and it feels really good. So one of the, one of the interesting things I heard recently was there was a insurance company that is allowing reinsurance capacity in crypto. And it's one of the first times I've said that actually sounds like an interesting yield opportunity on Bitcoin or crypto because for, for it's now matching a duration to a certain type of asset that doesn't have liquidation risk. Like almost all of the other yield generation scenarios you have liquidation risk if you sell covered calls on your Bitcoin to generate yield. Like if the price of bitcoin runs, you get your bitcoin called away. Okay. If you've got, if you take out margin debt on Bitcoin to go buy more Bitcoin, if the price of bitcoin falls or moves, you get liquidated, it goes away. So most of the borrow scenarios borrow against your bitcoin scenarios or yield generation risk taking scenarios have liquidation features. That's one of the beauties about perpetual preferred equity is there's no liquidation feature. It's this perpetual leverage that you have without you're matching the duration of the asset to the duration of your liability. And this is the first time I've seen a potential structure where that's possible or there's a duration leverage like effectively how reinsurance works. Again I've talked about this a million times. Insurance companies borrow capital from reinsurance companies balance sheet and there's thousands of different types of risk taking that you take in the reinsurance market. You could take volatility risk, you could take tail volatility risk. So the duration liabilities you could take tail volatility risk, you could take attritional risk, there's stability risk that you could take on and this could be sliced and diced. This is literally what I did my entire career was slicing and dicing different types of risks and identifying different pools of capital that were, that were interested in different types of risk and like bringing the right piece to them. And I think that that capability is now starting to be explored in the insurance and reinsurance market. So that's the concept of collateral. Like Bitcoin or other digital assets can be used as collateral in different types of transactions. And it's a super fascinating marketplace. And yeah, I'm excited about the future here. I think there's a lot of things to be excited about.

[C]

Oh, yeah. So final thoughts for me. I know the hacks have taken center stage, but I can't let us close the show without talking about bip110 because that will conclude on Saturday. So there was a little bit of, let's just call it lying going on. And I guess some, some guy posted that bip110 was delayed and that was absolutely not, absolutely not true. But I guess his account was large enough that the, it fooled the algorithm and people were actually seeing the, like the news saying, oh, bip110 delayed or something. And no, it's right on schedule. The block for mandatory signaling will happen sometime on Saturday, depending on how, how fast we find blocks. And I probably, I probably want to get this on the record because whether it succeeds or fails, we are going to learn something. Yeah. So, you know, next week I'm sure we'll be talking about what did we learn? Because it's either going to have failed or succeeded. And we're gonna be like, okay, let's,

[B]

you know, talk about it, dissect it.

[C]

Yeah, exactly. So, but I want to, I want to get it on record now what I think we will learn if it succeeds. I commend you for running a node. We're running different versions, but I was also motivated to run a node because of this event. I'm running bip110 because I'm supporting it. And so if you're not supporting it, I guess I should say if you're opposing it, you're going to run what? I mean, some other version, I suppose. Right?

[B]

Yeah.

[C]

Except that that is not true. If BIP110 succeeds, what we will have learned is that actual opposition is running a user rejected soft fork. If BIP110 succeeds, I think what we will learn is that you have to oppose a soft fork that actually has some support. Right. There's 15 to 20,000 people running bip110 nodes. That's a real movement. Right. If you think you can just ignore that, I think that's the lesson that we will have learned if BIP110 succeeds is that you cannot just ignore that size of a movement and that the only way that you can oppose something of that size is with a user rejected soft fork. So in that light, you could argue there is absolutely no opposition to BIP110 whatsoever. Because the market share for nodes running a user Rejected soft fork is 0%. No one is opposing this soft fork with a user rejected soft fork. So that's, that's my statement. Now I'm going to get on the record before this happens. If BIP 110 succeeds, I think that is the lesson that we will have learned. And if bip110 fails, unfortunately, I think the lesson that we will have learned is that mining centralization has gotten to, gotten us to a point where six mining pools can basically decide the rules for Bitcoin, which is a scary proposition. So that's why I'm still hopeful and, and bullish that, that it activates on Saturday. But anything can happen.

[B]

What time on Saturday? Ish.

[C]

When I checked a couple of days ago, it was around 3pm But I think we're finding blocks a little faster than anticipated. So it may be earlier. I know some people are talking about doing watch parties, you know, so I'm sure people will be on spaces, people will be on live. And the fireworks I think could start like if I was a company and I wanted to flip the bit, I would do it like right at the end of the day on Friday, at the end of business hours, and then just stop answering the phone or maybe just do it sometime Saturday morning just to avoid having to deal with people calling me and cussing me out or whatever. I would literally wait till the last minute if I could. So, yeah, I don't think if, if it really starts to happen, I don't think it'll happen until Friday or Saturday. But I would be more than, I would be ecstatic if they just all flip the bit tomorrow. And that would be cool with me too.

[B]

Yeah, I'm looking at the mempo right now. I mean, the, the fees are still just incredibly low. It does look like blocks are being mined pretty quickly.

[C]

Yeah.

[B]

And you remember.

[C]

Yeah. I will ask you one more question because I, I, I failed to do this. Remember when we talked about the red button, blue button debate, the mind thing? Yeah. And so the way that it's framed is like, okay, do you press the button to save yourself or do you hope that everyone on the planet presses blue? The correct way to frame this, I think is actually you can press the red button for someone you love. So would you press the red button to save your wife or your child and knowing that the other people pressing buttons for their loved ones are your sworn enemies, would you press blue and trust that your enemies will save you? Or would you press red and flip the bit to save, you know, to save Someone precious, because that's what a mining pool has to think about is their customers. So they're not just trying to save their, their own jobs. They. They literally have to think about what this is going to do for their shareholders and the people mining with them and thinking about the game theory of the other people that are about to decide whether to flip or not are not my friends. They want. Right.

[B]

Right.

[C]

So I think that's a little bit more accurate metaphor of, of the way to frame this. So that's why I'm pretty confident that, that they'll flip Friday or Saturday at some point. But we'll be watching. Wrong. Yeah, I could be wrong. Now I will say this, and this is my final, final thought. I don't mind being wrong. Like that's kind of okay. It doesn't really bother me that much. But man, I love being right. I really would prefer to be right.

[B]

Yeah.

[C]

Yeah, we'll see.

[B]

The satisfaction gap of, of being right is. It's good.

[C]

Yeah, it's a good. I prefer that if given the choice.

[B]

Well, we'll be watching. A lot, A lot to pay attention to here. I've been reading things until my eyes bleed the last seven days, so just, we'll just keep the train going.

[A]

Yeah.

[C]

I've learned more about entropy and dice rolls. And I even saw this guy from physics and he's like, you can literally make a die of almost any number of sides. But like if you want to like a three sided die, you've got like two flats, like a coin. But then if you make the round part of the penny wide enough that it could actually land on that edge, now you've got a three sided coin. There's all kinds of weird, weird crap I've, I've been learning about.

[B]

So entropy has been the, the word of the week.

[C]

Yes.

[B]

Yeah, for sure.

[C]

For sure. Most search term for sure.

[B]

All right, well thanks everybody for the time. Episode 75 True North we will, we will catch you soon.

[C]

Yes. See you all.