Preston Pysh (00:01:38):
Well, I’m pretty sure at the end of this conversation, people are not going to buy that. Here’s what I want to do. I want to start off, and I want to hear the story of Blockstream in the founding days when Adam was standing it up, the other key and instrumental people that were there, what timeframe are we talking? And most importantly, what was the mission of Blockstream when you guys first started it?

Samson Mow (00:02:03):
Blockstream was officially founded in 2014, but I think that gestation of it happened probably a year or two earlier than that, just on the Bitcoin talk forums where Adam, and Greg Maxwell, he was the founding CTO, they started talking about things like sidechains, and how you could scale Bitcoin using this technology. And the founding team was largely Bitcoin developers, a lot of them have since moved on to join sister, or related companies like Chaincode, they do a lot of R&D. Basis of Blockstream is really to advanced sidechain technologies and to scale Bitcoin. And I would say our company focus is very much privacy-centric, like we want to enhance privacy for everybody, and make Bitcoin more robust. So you can also say, we tried to augment Bitcoin. A lot of the projects that we undertake, we’ve listed it in your agenda, like satellites, wallets, explorers, all these things help to make Bitcoin more antifragile.

Preston Pysh (00:02:57):
So when Adam, and Greg were standing it up, they went out and they started pitching to people out in Silicon Valley to raise money, I’m assuming. I just really don’t know any of that history. How long did they go through that process? What kind of funding did they secure in those initial rounds? I’m just curious of the size, and then how many people were brought in?

Samson Mow (00:03:16):
Right. I think the first seed round was 14 million. And then we raised another 50 some odd million. And you know the total amount of funding right now stands about 91 million. But I think for that time, it was a massive injection in capital in backing Bitcoin development, a time where there was really no supportive Bitcoin development. I think MIT was just starting to support some developers, like [Pofeldts 00:03:42], and others. Chaincode was not stood up yet. But it was a very different era back then. And I think some of our investors are really actually hardcore Bitcoiners, but they don’t get a lot of airtime on that front. Reid Hoffman, he was a large seed investor in Blockstream. And he likes Bitcoin. He’s a strong believer in Bitcoin, but he doesn’t get out that much to talk, and advocate for Bitcoin like, say Michael Saylor does. But a lot of the companies backing us do have a strong belief in this technology, and where it can take us.

Preston Pysh (00:04:12):
That’s the one guy that I was going to bring up, because when I was reading up on Blockstream, and the beginning and then I saw Reid was one of the seed investors. Is he still taking an active part in really understanding the direction, the strategic direction of where you guys are going? Because you’re right, he does not talk about this a lot. He’s on CNBC all the time. I don’t ever really see him talking about it very much. It surprises me.

Samson Mow (00:04:36):
Yeah, but he’s written a few blog posts and one of his blog posts I believe, is hosted on our blockstream.com site. It’s just explaining why he invested in Blockstream early on, and what he believes that we can do. But he still is involved. He sits on our board of directors. He’s also on the board of Microsoft, and a number of other companies. I think it’d be cool if he went out the Michael Saylor style and start doing a lot of podcasts talking about Bitcoin, and advocating for Blockstream too.

Preston Pysh (00:05:02):
Yeah, it’s interesting. I don’t know why he isn’t more vocal about it. But based on his investment, and the fact that he’s sitting on the board there, obviously demonstrates… and I mean, this is a guy who’s titan in Silicon Valley, as far as I’m concerned, it’s hard to find a bigger name than Reid’s. Fascinating stuff. One of the things that when I look back at the first big monumental shift, where I saw Blockstream, and many others, I’m not just saying it’s Blockstream, many others came to the table, was the 2017 fork. I find this fascinating, on Twitter, I think very few people, especially the people that have just come into the space in the last two years, I don’t think they understand any of this background from the 2017 fork.

Preston Pysh (00:05:43):
So for the people that have been in this space for a while, this might be a little slow pace for us to talk about this, but I think it’s really important for people that aren’t familiar with what we’re talking about for you to give a little bit of a history on it. And then we can get into the nuances of the engineering behind what’s taking place since that and how exciting some of this stuff is. So explain to them what happened in 2017. And I mean, get into all the nitty gritty detail.

Samson Mow (00:06:10):
All right. I guess that episode of Bitcoin’s history, it goes by a few names, there’s the scaling debate, the fork wars, the Bitcoin’s civil war, which one do you think is more suitable?

Preston Pysh (00:06:21):
All of them.

Samson Mow (00:06:22):[crosstalk 00:06:22].

Preston Pysh (00:06:22):
All and above. Yeah.

Samson Mow (00:06:23):
Yeah. So it was a very interesting time. And I think it culminated in 2017. Or maybe… yeah, I think culminating in 2017. But it started, the genesis was probably even earlier. So Pete Rizzo, and Aaron van Wirdum, recently released the post about P2SH, and that little mini war. I think that was the beginning of the schism, where Kevin, and Jason and other developers started beginning this little conflict. And I think it heated up when Mike Hearn, and Gavin tried to push Bitcoin XT as an upgrade. And that was probably mid to late 2015. And idea behind that, I think is largely them trying to get rid of the other developers based on disagreements, and not seeing eye to eye.

Samson Mow (00:07:06):
Gavin’s off often presented as a very good developer, but that I don’t believe is actually the case. And that is a source of that friction between him and the other developers. So the beginning of this, the genesis is really an effort to fork off Bitcoin and tell everyone that we’re upgrading. I forgot if it was Gavin, or Mike, one of them contacted me back then. I was the COO of BTCChina, or BTCC, which was one of the largest exchanges and mining pools, and they were contacting me because they said, “We’re upgrading now, it’s time for you to upgrade to Bitcoin XT. And this is supported by all the developers.”

Samson Mow (00:07:42):
And at the time, the channels of communication, people being accessible and making their opinions heard, it was very, very different from what you see today. Everyone is vocal, they’re on Twitter, Adam is out there. He’s got 200,000 some odd followers. But back then there was no Bitcoin Twitter, or even Crypto Twitter. Discussions for Bitcoin development, were largely on the mailing list, and in IRC, and I think the general populace just had a very poor understanding of everything that was going on. And it opened the door for them to try to throw this upgrade up there, or “upgrade,” and say this is it.

Preston Pysh (00:08:19):
This upgrade that you’re referring to, was all about being able to do more transactions, per block?

Samson Mow (00:08:24):
Yes.

Preston Pysh (00:08:24):
That’s what this whole thing was about. Everyone was looking at it, and they’re saying, “Well, how is this thing going to scale, because…” I might get this number wrong, what’s the number that Bitcoin can do per second?

Samson Mow (00:08:33):
Seven to 10.

Preston Pysh (00:08:34):
Seven to 10. And then when you look at Visa, and MasterCard, it’s like 10s of 1000s, like 20, or 30,000. Is that correct?

Samson Mow (00:08:40):
Yeah, something like that. Upwards of 10s of 1000s, 20s of 1000s.

Preston Pysh (00:08:45):
So people were looking at this and saying, “All right, well, this clearly isn’t going to work long term because it can’t scale for the number of transactions that are going to be needed if this tries to take on a global presence.” All the engineers that have been involved to date were like, “How do we solve this?” And so Gavin, who you were talking about was coming with… What did you say the upgrade that he was calling it?

Samson Mow (00:09:05):
Bitcoin XT.

Preston Pysh (00:09:05):
Bitcoin XT, so you’re working in a mining pool, and you’re saying, “What in the world is this?”

Samson Mow (00:09:12):
Yeah. Well, there’s two ways you can look at that. The optimistic way is that these guys wanted to scale Bitcoin. And they’re coming out with the best of intentions that they want higher TPS, and they want to scale it to the point where a billion people could use Bitcoin on chain transactions for pennies on the dollar. And then the more nuanced approach is it was a power play, because of this struggle with the other developers because of disagreements, and possibly their lack of ability. And then the even more darker way is this was the first attempt to co-op Bitcoin to centralize it to basically hard fork it, and exert control over at the protocol level. Because once you do that, then there is really no going back. You’ve set yourself down this path where you can upgrade it at any time and then you become like Ethereum, which is willy-nilly upgrades, anybody can change the number and it’s largely meaningless. There is no immutability.

Preston Pysh (00:10:08):
And just for the non technical folks that are listening to this, when you try to put that many transactions into one block, the problem that pops out of this is it requires a huge amount of hard drive space for anybody running a full node. Because you have such a massive amount of hard drive space required to run a full node, you’re pretty much pushing into servers, and only a few people can run the servers, and it becomes centralized. And then those few people that are running the servers basically control any, and all updates that happen in the future.

So there’s this trade off that Samson’s getting, that he’s describing here, where if you keep the blocks small, so that anybody, and everybody can run a full node, the whole protocol continues to be decentralized, and no one can take it over. But the problem with doing that is you keep these small transaction size, five or six transactions per second, which clearly doesn’t work long term. So talk to us about how the solution that ultimately took place, how did all that unravel?

Samson Mow (00:11:02):
It’s a very long story. There were several different upgrades that came out, “upgrades” that came out, and there were sides, lines were drawn in the sand of who was a big blocker, and small blocker. So there’s this division of people that wanted to block small because as you were saying, it is important, and I think even today, I don’t think people fully understand the importance of why you want anybody to be able to sync up a full node. Because once you become a centralized service there, you can’t really decentralized yourself. If every Bitcoin node is in a server farm, well, that’s really no different than the legacy financial system where you trust the bank. You ask the bank, “How much money do I have?” The bank tells you, “You’ve got 1000 bucks.” That’s it. End of discussion.

Preston Pysh (00:11:40):
Whether it’s right, or wrong.

Samson Mow (00:11:42):
Yeah, whether it’s right or wrong. This was like an ongoing conflict. And once Bitcoin XT failed to get traction, another one came out, Bitcoin Classic, Bitcoin Unlimited, and then SegWit2x. But all of these were efforts to change the block size, and change the protocol, and change things that were already set. A common theme during this era was the Bitcoin developers, and Blockstream extension, because Blockstream often gets conflated in all of these arguments with Bitcoin development, because there were a lot of developers that Concord developers at Blockstream, but the argument was like, “You guys don’t want to compromise.” But it wasn’t really the point. That was never the case. You can’t really say the developers don’t want to compromise because as we learned, at the end, at the culmination of the scaling civil war, it’s the users that matter.

Samson Mow (00:12:28):
So this was a false argument saying, those guys, those developers, they want to control the protocol, they don’t want to increase the size. They don’t care about people living in third world countries being able to transact for free. It’s all their fault. But at the end, we saw, we had lots of companies band together into this big alliance, Coinbase, BitGo, a number of companies under DCG. And they formed this coalition that was pushing SegWit2x.

Preston Pysh (00:12:55):
I just want to provide my point of view from 2017, because the argument that people didn’t want the transactions to be able to occur for all the unbanked, were really the Roger Ver argument, right? That’s a strong argument. But what I think it fails to do, it’s putting the priorities out of whack. They had their priorities not in the correct order. And from my vantage point, the number one thing, the number one priority is having a fixed number of units inside the protocol that cannot be manipulated. And it has to be decentralized, right? Like that is priority number one, because if you don’t do that vital thing, you’re not fixing the problem, because the problem is that we don’t have a peg for any currency in the world right now. And so we have to get that perfect.

Preston Pysh (00:13:41):
We cannot even have a blemish on that particular mission. And then anything else that we can do on top of that as a second tier spin off, as far as transactions to the unbanked and all that stuff, like that’s the icing on the cake, as far as I’m concerned. And it seems like the market agreed, and went in that direction. But a lot of people listening to this might say, “Well, I don’t understand why one thing was more important than the other.” But I can see by the way you’re nodding your head, you completely agree. It seems like everybody else there, Blockstream agreed, right?

Samson Mow (00:14:09):
It’s about the evolution of money. I think it’s commonly accepted. Nick Szabo has written a lot of papers about this. Money is first of all as a collectible, then it becomes a store of value, then you have the medium of exchange phase, and then unit of account. And I think you’re mentioning Roger Ver, he’s argued very publicly that it needs to be the medium of exchange first, and the store of value second. Common sense dictates that that’s not the case. You could use anything as a medium of exchange, but it won’t necessarily be a store of value. And as an example, you can look at the hyper inflating currencies of some failing countries, like the Venezuelan bolivar. That’s a great medium of exchange. Everyone in the country uses it, but it’s not a store of value, and you can’t go backwards.

Preston Pysh (00:14:52):
When I was coming to Bitcoin, I was coming to Bitcoin because I was coming out of this finance background. I was looking at what was happening in the bond market. And I was looking at this 80 year Treasury curve, and saying this is a disaster, like this is being completely manipulated, and we’re going to zero, and then after it goes to zero, people are going to be taking cash out of their bank account and putting it into underneath of their bed, because that’s going to give them a better return than a negative interest rate. And so when I was looking at it from that lens from the finance lens, I was like, “We’ve got to fix the money, we don’t have issues with going to Starbucks and paying, that’s not the fundamental issue here. The fundamental issue is we’ve got this race to debase.”

Preston Pysh (00:15:33):
And man, what an important step four Bitcoin at this particular point in time back in 2017. Having not known anything that the research that I know now versus back in 2017, I was very concerned with this fork. And once I learned… This is going to sound really basic for a guy like you, but when I learned that when the fork was going to occur, that I was going to get both coins, it was like, “Okay, well, there’s no risk here. I’m just going to let the market decide which one is right. And then it’s not really a risk to me.” And I think that’s a really important point for people coming into the space for the first time. They might hear like, “Oh, my God, they can fork the code. Well, what does that mean?” But you get both points and the fork, and then you just let the market decide on which one is going to win. We all know which one won.

Preston Pysh (00:16:21):
But anyway, I’m sorry, I’m going off on a tangent, I want you to keep describing this because this is so important for people that are coming into the space right now to fully understand how we got here.

Samson Mow (00:16:30):
I think the crux of that whole thing was, can somebody come in and change the code? Can companies band together and dictate a change? Because when Armstrong was leading this charge, Brian Armstrong of Coinbase, he was basically saying, “This is an upgrade. And we companies have decided.” And there was a lot of power behind that. They had the mining pools to Jihan Wu from Bitmain was backing this heavily. Coinbase was a huge player at that time, blockchain.com.info, those guys as well. But this was a question like, “Who controls Bitcoin? Who dictates the future of Bitcoin and where it goes?” And that question was answered, it’s the users, ultimately.

Preston Pysh (00:17:08):
It’s the full node operators.

Samson Mow (00:17:10):
Exactly. Even the people that use it, just transacting and holding Bitcoin, even if you’re not a full node, you will still decide because you are that economic might, that gives it value. So similar to how some miners misunderstood originally, so during the first halving, when Bitcoin’s suppliers half, some of the miners said, “We’d like 50, Bitcoins per block reward, we’re not going to go with 25.” And they ran a different fork, and nobody cared. Because with build… we don’t recognize your change of the protocol to give yourself more rewards, it is pre determined, and that is the path forward.

Samson Mow (00:17:42):
But this is a very slippery slope, if you can change the block size for reasons, no matter how good your reasons are, then you can change the supply of Bitcoin from 21 to 42, or whatever you like. And there’s always a good reason to do something, there’s always a palatable reason for the masses, like there are not enough Bitcoin for everyone in the world to have one full Bitcoin. And that kind of argument will resonate with a lot of the populace, because it sounds nice. When someone’s offering you something for free, it’s not always a good thing. There’s always some costs involved. And I don’t believe it during this period, this time period of Bitcoin’s history that everyone understood that dynamic or those trade offs. But it’s very difficult to understand, I was actually a big blocker at first.

Samson Mow (00:18:25):
There’s an article in Bitcoin Magazine, where I opined about it. And I said, “We should increase the block size, it’s not a good idea for the fee market to price people out at this time.” And that was before I really understood it. And I had a long chat with Adam for a good couple hours, and he explained a lot of it to me, but the workings of Bitcoin are just counterintuitive. There’s nothing like it. Nothing has existed like Bitcoin in history before Bitcoin. And it just takes a lot of time to wrap your head around those mechanics of why it works this way, and why things are important. Like, “Why do I need to run a node?” It doesn’t make any sense at first. But when you really dive in, and figure it out, then it makes perfect sense.

Preston Pysh (00:19:02):
For people that are traditional investors that listen to the show, they understand corporate governance, and they understand voting rights. And the easiest way that I would describe running a full node, it’s like having a voting right to which protocol wins, and which one you’re going to… So if we have a bunch of miners from China that say, “We don’t like this protocol, we’re going to upgrade the software, and we’re going to try to do this.” Everyone who’s running a full node is saying, “Well, you can do that. But this is the one that we’re saying and we’re voting for, that everyone’s using.” And if they want to mine on a version of software that’s not compatible with what all the full node operators are saying is Bitcoin, well, they’re just wasting their time, their energy, and their money. I want to hear your opinion on… I hear a lot this idea that mining in China is centralized, and this poses a threat to Bitcoin. I want to hear your response to that based on what we were just talking about.

Samson Mow (00:19:58):
Back then, during the fork wars, it was a scary time. There were all these mining pools saying, “We’re going to do something. We’re going to upgrade to SegWit2x.” The thing that people don’t understand about mining is the pool operators are communicating. But the individual miners are still regular people. They could be a small operation, they could be a big operation, but they don’t have that same voice. So it’s the pool operators, in some sense, taking advantage of the hash rate they have under their command, which is not their hash rate, for the most part. Like some pools might own their own miners, but for large part, they’re just providing a service to their customers. And during that time, they were actually misrepresenting a lot of the intent.

Samson Mow (00:20:39):
So being in China, and knowing a lot of the individual miners, that was not the case, like they didn’t want this thing. This was just somehow politicized, like Bitmain, and Jihan just got it into their heads that, “We want big blocks.” And he didn’t really ask his customers, “Do you want this too?” But he made a lot of bold statements at the time. So that is one common misunderstanding of how mining works. The pools are often can represent views of their own. But say we have all this hash rates supporting it. I think Slush was an interesting one, they actually let their miners vote and say what they wanted. I think that’s a interesting way to go about it.

Samson Mow (00:21:12):
But the big thing about mining is like, well, first of all, mining is not as China centric as people will make it out to be these days. I think some numbers have been thrown out there, like 65% of the hash rate is in China, I think it’s lower than that, I think it’s probably down to like 50% now, just because there’s been a great deal of expansion out into North America, Russia, and just all over the globe. Blockstream has contributed to some of that too, when we started our mining ore. But it ultimately doesn’t matter. The miners are providing a service, they get paid through block rewards, and the [inaudible 00:21:45] award to extend the blockchain, and that’s it, end of story. So if the user say no, then the miners can only say, “Well, okay, then I will follow my beliefs, and I just won’t get paid.” And that’s fine. That’s free market behavior.

Preston Pysh (00:22:00):
Recently, you published a chart. It was like a little video. And it was really fascinating because you were showing how the transactional value per second compared to other Altcoins in the space. And what I think would be really fascinating is to see, and I think I tweeted this at you, the transition from this 2017 timeframe until now. But describe what it is you were presenting in this quick little video, and why it’s important?

Samson Mow (00:22:28):
Bitcoin’s, often compared based on transactions per second. So a lot of Altcoin marketing is centered around, they’re always misleading in some way. I think it’s the high TPS coins, they like to say, and we have 1000s of transactions a second. And look at Bitcoin, it’s like a small trickle, it’s only seven or 10 transactions a second. So what we did was we crunched some data on chain transactions for various coins. And we just showed like Bitcoin has $486,000 transacted every single second, so close to half a million dollars a second. And some of the other chains with very high TPS, or transactions a second are transacting maybe $2,000 a second. It’s just illustrating very simply what the value proposition of Bitcoin is.

Samson Mow (00:23:14):
And it’s just countering misleading advertising. I think it’s a common Altcoin MO to… you know that graphic where there’s an elephant… It’s a cartoon, and there’s several blind men touching different parts of the elephant and they’re saying, “Well, this is a tail, it’s a snake. This is an ear, and it’s a wing.” Or something like that. So all coin marketing is doing the same thing. It’s just zeroing in a small part of Bitcoin and comparing themselves to that small part of Bitcoin. So I think there are other chains out there that say, “We have 100,000 nodes.” But those are probably running servers and centralized they’re not distributed all over the world like Bitcoin nodes.

Samson Mow (00:23:51):
There’s just a lot of misleading stuff. And I’m hoping to counter that with this graphic. And your idea is great, I think we’re going to crunch some of those numbers and figure out historically what that value transacted per second is or VTPS. The key thing here I think, the valuable properties of Bitcoin are multiplicative. So hash rate, security, value of Bitcoin, like how much does a Bitcoin cost? Liquidity, Lightning Network, Liquid Network support, mining, what else? Satellites. All these things add up together to make Bitcoin far greater than the sum of its parts. So there is really no comparison for a lot of these other projects that are largely centralized, and they like to market themselves dishonestly. But Bitcoin is really the only one that matters.

Preston Pysh (00:24:34):
Let’s go back real fast to the 2017 piece because we forgot to cover what the solution was in order to increase the amount of transactions per second. Like what popped out of it from an engineering solution that now enables more transactions per second?

Samson Mow (00:24:52):
Ultimately, with SegWit2x that was a compromise. It was a brokered compromise from DCG, or Barry, Barry Silbert. And basically it did a block size increase with SegWit. So I think his intentions were good, but I think misguided as well, because you can’t really compromise on Bitcoin’s ruleset. Otherwise, you can also compromise between the number of coins. So let’s increase the supply cap, not the 42, but 30. It’s a nice number, right? But ultimately, the scaling solution there, but there’s also a bug fix was SegWit. And that did increase the block size to four megabytes of weight versus one megabyte in size. So it changed it a bit. And we can have more transactions a second now because of SegWit.

Preston Pysh (00:25:36):
Which is through the Lightning Network. Is that what you’re getting at?

Samson Mow (00:25:40):
Yeah, so SegWit is a bug fix, it got rid of malleability. So that’s the ability to basically sign something and have it changed later. So with that, you could have Lightning Network, which the theoretical throughput of Lightning Network is millions of transactions a second, because it’s not being broadcast, and locked into a blockchain where every transaction is recorded for all history. It’s largely peer to peer, and there is no upper bound to how much you can route through this network.

Preston Pysh (00:26:08):
So we’re getting into the second layer. So you have Bitcoin Core, which we’ve been talking about, which has, it’s super secure, a few transactions per second. And then on top of this, we’re talking about a second layer that is pegged into the primary Bitcoin, layer one, and in the second layer with Lightning, we’re now able to do 10s of 1000s of transactions per second. Talk to us how that’s possible in the easiest way that you can describe it? Maybe IOUs would be a good example to use.

Samson Mow (00:26:42):
Right. Actually, before we get into that, it’s important to talk about why transactions per second are important. If it’s for retail payments, then your transactions a second are important. So you said Visa earlier with 10s of 1000s of transactions a second, yes, because you’re buying coffee with it, you’re buying your newspaper, or your bagel, or tacos, or whatever. So you need to process a lot of transactions a second. But if you’re digital gold, or basically money, transactions a second are less important. So even though Bitcoin has 10 transactions a second, what is being moved during those transactions. You can visualize in your head. You’re moving a bar of gold, and each bar of gold is worth half a million dollars. So you’re moving that.

Samson Mow (00:27:26):
But if you’re some Altcoin, with 1000s of transactions a second, but you’re only worth like 10 cents, or 20 cents, and you’re centralized, they can print more of it at any time. It’s like you’re moving toilet paper. You can move 2000 rolls of toilet paper, and if we run out of toilet paper, you can make more toilet paper. So incomparable, you can’t compare the two things. Bitcoin is in a league of its own. All the Altcoins that are high TPS, it’s just irrelevant.

Preston Pysh (00:27:52):
Because at the end of the day, the only way you’re able to keep the pay is through decentralization, period. That’s like the end of all discussion points. So when you’re talking about Altcoins, and they’re able to do all these transactions on the base layer, they’re doing that through a less secure model. And they’re doing it through a model that cannot be decentralized, because the amount of data is going to be centralized on the servers like we were talking about earlier.

Samson Mow (00:28:17):
Now I’ll get into the thing. Lightning is for retail payments, it’s meant for small payments, and effectively opening up channels. So a good analogy here, it’s from Adam Back is a bar tab. It’s a little bit outdated analogy now, but for your average person, I think it’s a simple explainer. So when you go to the bar, you give them your credit card, that’s like opening up a channel, and then you have beers or wine all night. And they’ll try to 100 bucks at the end of night for all the drinks you had with your friends. But you don’t need to go and pay every single time with your card, and sign, and tip, and everything. You just do it all in one batch. That’s a good example of the Lightning Network.

Samson Mow (00:28:53):
So Bitcoin is digital gold, and the Lightning Network, and its channels are bar tabs, you open the channel and you can route through the network. You can send payments through other nodes on the network and get to your final destination. And because it’s a network like this, and it’s routed through your peers, then there is no upper bound because you’re not registering everything into a block on a blockchain. Does that make sense?

Preston Pysh (00:29:16):
Absolutely. And I’m thinking of it from a use case, what organization that exists today, do you see this being the biggest use case for?

Samson Mow (00:29:27):
I think a lot of merchants are accepting Lightning payments now, and basically anyone selling something that is not very expensive, should be able to use Lightning. So there are issues with Lightning Network, which is large payments have trouble routing through because you’re pushing it through these pipes, for lack of a better analogy, you’re pushing through pipes and there is capacity in the pipe. So imagine some Liquid in the pipe, you’re pushing it through. And if there’s not enough capacity in the pipe, you won’t be able to route your payment through to the destination. So you can fail when you’re paying a couple $100, but if you’re buying coffee, you could use it.

Samson Mow (00:30:01):
You can use it to buy small things like stickers, pens, pencils, you could buy digital goods, songs, you could have iTunes supporting Lightning and pay for a song. So anything that’s small is good for now. But as Bitcoin becomes more valuable, I think we’ll see increased capacity in the channels, and also more rollout of bigger channels. We call them [inaudible 00:30:24] channels.

Preston Pysh (00:30:26):
Is there going to be any type of incentive for large holders of BTC to basically charge these channels like you get some type of interest, or to basically load up the channel so that there’s more throughput amongst the various nodes?

Samson Mow (00:30:40):
Yeah. I believe you can do that already by opening up channel capacity and letting people use your capacity, you can earn some sats on those transactions. And I recall, Alex Bosworth, he’s a developer at Lightning Labs, he’s earned like a decent chunk of change doing exactly that. And they recently launched a pool, Lightning Pool, which is a service that lets you basically earn defy type staking yields off of your Lightning channels.

Preston Pysh (00:31:06):
Talk to me about that, because I find that really interesting. And it’s completely decentralized for people to do this, or is there some type of central entity that you’ve got to stake your coins into? Talk to us about some of that stuff.

Samson Mow (00:31:18):
I haven’t actually played with it. I only saw it in passing and skimmed the article. So I’m not sure I can dive into their product. But even without their service, you can already do that just by opening up channels, and routing for other people and earning sats on every routed payment.

Preston Pysh (00:31:34):
Fascinating. Okay, so that’s a little bit about Lightning, and the second layer. Now talk to us about Blockstream because you guys are working on… I don’t think Adam refers to it as a second layer, he calls it like layer 1.5 with Liquid… talk to us about what Liquid is, how it’s different than Lightning what it is you guys are trying to achieve with this? Fire away.

Samson Mow (00:31:58):
All right, so I guess the first starting point is liquid. Liquid is an inter exchange settlement network. It’s a sidechain. So it’s a separate blockchain anchored to the Bitcoin blockchain by a federation. So it’s not decentralized like Bitcoin. There is a federation of members. And a subset of those members are running these functionary boxes that essentially serve as the miners. So these members are extending the Liquid blockchain and they are geographically, and geopolitically dispersed. So if you wanted to compare to Ethereum, I would say Liquid is more decentralized than Ethereum is because you have this Federation around the world, versus one hosting provider Infura.

Samson Mow (00:32:40):
But the initial goal with Liquid was inter exchange settlement. And this was actually how I first learned about Liquid. I was at BTCC at that time, and we were one of the first members to join. I saw this technology, and I thought this has huge potential to improve liquidity between exchanges, and being able to issue assets too. The other thing is that you can issue assets on the Liquid Network, like stablecoins such as USDt, we have L-CAD from Bull Bitcoin, and a JPY stablecoin from Crypto Garage. But it’s basically a way to move Bitcoin quickly from place to place. So the block times in Liquid are one minute, and you have full settlement in two minutes. And you have confidential transactions as well as confidential assets. So that means every transaction in Liquid is private.

Samson Mow (00:33:26):
So if you’ve seen on Twitter when people send a large amount of Bitcoin to an exchange wallet, it’s broadcasted out saying someone has sent $100 million to this exchange, and that allows you to front run, or potentially trade against them. And that’s the same case for stablecoins too, because they’re all very transparent and public. But in Liquid, it’s all encrypted, so nobody can see what you’re sending to someone else, all the different transactions, whether it’s Bitcoin, or a stablecoin, they look identical from one another.

Preston Pysh (00:33:55):
And I think this is a really important point, the native currency or the native token that’s associated with Liquid is Bitcoin that’s through an atomic swap peg into Liquid, correct?

Samson Mow (00:34:08):
It’s just a peg. Liquid does not have a token. There’s a lot of projects out there they have their own token, but the native currency of Liquid is Bitcoin pegged into the network. So what you do is you create a peg in transaction and the Liquid blockchain watches the Bitcoin blockchain for that. So let’s say you want to peg in 10 coins, you create a transaction to the Liquid wallet, Liquid detects that and then it’ll issue you on the Liquid side 10 Liquid Bitcoin and that’s what you would transact in a network. The Liquid Bitcoin pays for the fees of Liquid network as well. So that’s the native currency it is Bitcoin, is a Bitcoin sidechain.

Preston Pysh (00:34:45):
Now, whenever I look at the purpose of why Adam, and team have gone about this, to me, it seems like Adam’s trying to provide a solution to market makers between exchanges. So if you’re trying to move very large sums of money between exchanges in order to be a market maker, which is a vital aspect of markets. This seems like this is probably one of the best solutions, and one of the fastest solutions to do it without somebody front running it. Would you agree with that, or is there some other type of use case that I’m missing?

Samson Mow (00:35:18):
I think that’s the primary use case. Or even if you’re a trader, and you don’t want to keep your coins on exchange, like you’re done trading for the day, you can take it off and put it back on. Like one apprehension that people have is if I take my coins off exchange, then I need to pay potentially high fees on the mainchain, and I need to wait for a confirmation. Because block times on Bitcoin are not set, it’s usually every 10 minutes, but it is not deterministic. Whereas in Liquid, it’s like clockwork, every minute there is a block because it is a federation signing those blocks. So you’re guaranteed to be able to move on and off exchange quickly, or between exchanges quickly, which you cannot do with Bitcoin’s mainchain.

Preston Pysh (00:35:58):
It seems to me like Adam strongly believes that if you’re not using Bitcoin, or basically pegging Bitcoin into whatever protocol you develop, in the long game, and in the long run, it’s going to be cannibalized, or that some other protocol is going to step in, that’s going to provide some type of solution that uses Bitcoin as its native currency for processing purposes, I think is probably the best way to describe it. Talk to us about that idea. Am I right about that, or would you describe it differently?

Samson Mow (00:36:30):
You would think so, but I think it’s far easier to print your own money, like some of these other chains or protocols, and have your own token, and then wrap Bitcoin on your chain, because then you have your own war chest of your printed money out of thin air that you can use to incentivize adoption. So it’s been a challenge for us to push for Liquid adoption, because a lot of these other protocols out there, they have their war chest and they can say to an exchange, “Well, integrate this thing, and we’ll pay you a couple million bucks.” And then they can push their adoption through essentially by force. And then they can wrap Bitcoin on their protocols like, say on Ethereum. But those are not decentralized in any way. It’s like a single service provider. So wrapped Bitcoin, or WBTC is BitGo. They’re the custodian of that.

Preston Pysh (00:37:17):
But I guess my point, and I completely, obviously, I agree with what you’re saying. And I can see how that can be very frustrating for you guys. But does it win in the long term? So like if we’re looking at this with a 10, or 20 year lens, don’t they always just revert back to manipulation, and debasement of their own protocol token? And does that end in their own demise? Meanwhile, somebody who’s been doing something like what you guys are doing, which is using Bitcoin as your native token, it wins in the long run, even though it’s the tortoise in the race?

Samson Mow (00:37:48):
Yeah, I think in the long run, this will win out also because of better technology. A lot of the other protocols out there are more like science experiments, whereas Liquid, and like Elements, which Liquid is based off of is a fork of Bitcoin. So you’re always moving lockstep with the coin development. We can actually roll out new features on the Liquid Network first, that would come out later on Bitcoin. So for example, we had SegWit first in Liquid, and we’re working on getting Taproot on Liquid. So I believe technologically, it’s more reliable, more robust, and more secure, than a lot of the other options. But right now, security doesn’t almost… it almost doesn’t matter. Like if you take Ethereum as an example, looking at it realistically, you think after so many hacks and security issues and failures, that people would not support it, or buy their token. But that’s not the case. It’s almost like the more they get hacked, the more the price goes up. So I don’t believe the market is rational.

Preston Pysh (00:38:47):
Talk to us a little bit about, you had talked about Infura in the that they have one hosting node. Go into detail on that for people listening to this that might own Ethereum to talk to them about the centralization from your point of view?

Samson Mow (00:39:01):
Going back to some of our early discussions about Bitcoin full nodes and why it’s important to run it. Ethereum is essentially the opposite. So it’s very difficult for someone to run an Ethereum full node. And if you remember the run the numbers stuff earlier this year, the lexicon of what they call a full node is always in flux. And I don’t even think they have a full agreement on what a full node is. So I was talking with Derek on the podcast on McCormick’s podcast, and he was saying, “I run Ethermine node.” I think a couple months after that Ethermine nodes failed. But like I said, it’s like a science experiment. And because they-

Preston Pysh (00:39:36):
Play on terminology.

Samson Mow (00:39:38):
It’s a plant terminology, but it’s also very hard to run a full node. So talking to a lot of exchange operators, it’s a constant battle for them to be able to run an Ethereum full node, and a lot of them probably just default to using Infura. So that is the full node as a service provider that essentially powers most of the Ethereum network. So everyone’s just querying Infura, and getting the data versus running their own, and verifying their own. But it’s a dangerous game, I think because if Infura were to go down, Ethereum goes down.

Samson Mow (00:40:06):
Actually, we saw that I think there was an Amazon outage, which affected Infura. And a lot of services were broken on Ethereum because it’s largely centralized. And I think a lot of people take it for granted. You hear their marketing, and you just buy it. I was on another discussion panel with some academics, and they were talking about Ethereum saying, “Well, it’s decentralized.” They drank the Kool-Aid, that Ethereum is decentralized. And they’re just talking from that point. I tried to correct them and explain that it’s not decentralized. It was a centralized pre-mine, and it is centralized service.

Preston Pysh (00:40:39):
What do you say because any Ethereum person who’s hearing this right now is going to say, “Well, it’s a spectrum, Samson. It’s a spectrum of decentralization.” How do you respond to that?

Samson Mow (00:40:51):
I think there is a spectrum of decentralization. If you look at Liquid, it’s federated. It’s still centralized. But it is somewhat decentralized. But the problem is with Ethereum, it’s not on that spectrum. It’s not even anywhere close to being decentralized too. They changed their… they have, what was it? Their Ice Age bomb, or whatever, difficulty bomb. And that was supposed to be something to force the transition to proof of state, and they just keep moving it.

Preston Pysh (00:41:15):
Explain to people what you’re talking about, because I know what you’re talking about, and it’s hilarious, because if they’re really decentralized, you just couldn’t keep kicking the can down the road. So explain this.

Samson Mow (00:41:25):
They have this, a bomb in their code, which sets I guess, certain block height, that they will essentially stop, slow down transactions and block times to the point where it’s almost stopped. And that’s why it’s called Ice Age. And that is meant to force them to transition to proof of state. But over the past few years, they hit that deadline, and they just punted down the road. So effectively, anybody can modify that deadline and change the protocol. And in fact, they screwed it up once. So they had a double hard fork where they forgot to punt the deadline. So they did a hard fork for some reason. And then they did another hard fork right after, but hard fork is basically rebooting the whole network. It’s not decentralized at all, you just rebooted everything and told everyone switch to this thing, but pretend it’s the original.

Preston Pysh (00:42:08):
What percent of their full nodes is running on Infura?

Samson Mow (00:42:11):
I don’t know, is I had to harbor a guess I would say 90%.

Preston Pysh (00:42:15):
90%. And then everyone else is just a client referencing that?

Samson Mow (00:42:20):
Yeah.

Preston Pysh (00:42:21):
If there was one other thing that I think for me as a problem, whenever I think of Ethereum, is what we were talking about earlier, which is the hard cap of in Bitcoin you know it’s 21 million. And the whole reason I came into this space, is because the world needs a peg, and the world needs real money. And without that, this insanity that we’re seeing from policymakers, particularly on the central banking side, and fiscal appropriators that are basically forcing central bankers to make these decisions, you have to have that hardcoded peg of money. And with Ethereum, you don’t have anything close to that. They can’t even tell you what the total number of units are in the code, right? There’s none of that.

Samson Mow (00:43:05):
Yeah, we had that whole thing where we were running the numbers and a lot of Bitcoiners, were running scripts on their full node to determine the supply of Bitcoin, and we can all tell you which block, what supply is. But there’s nothing like that in Ethereum. And even though Vitalik accepted my challenge that they would run their numbers, he never actually did it. And it’s not important for them, I think, because at the end of the day, they printed 72 million Ethers out of thin air, and everything that you’re mining today is a pittance to that. It doesn’t matter. Or you’re buying an ether for 400, $500, it doesn’t matter because they already lined their pockets with 72 million of these, way before you bought your one Ether.

Samson Mow (00:43:43):
So it’s not really relevant, and a lot of these coins, or chains, or protocols, they’re more companies than a decentralized network. Is a company behind it. There’s a lot of decentralization theater, they set up a foundation somewhere, and say, “Oh, this is the foundation.” And this is the protocol. But at the end of the day, it’s like a company like Ripple is a company.

Preston Pysh (00:44:01):
They’re jobs programs. They’re engineers, they’re software engineers that are creating jobs for themselves by offering tokens with some new innovative idea. And they market it, they sell it, and then they have jobs that they pay themselves with the funding round that they were basically able to do via… and I’m doing air quotes “decentralized.” It’s interesting. Now this is a caveat that I would say, when I look at this cycle we’re about to go into. And the number go up technology that we both understand is baked into this with the four year having the difficulty adjustment, how they work in harmony to drive the price through proof of work, all that kind of stuff.

Preston Pysh (00:44:37):
Bitcoin is driving these bursts that we see in market capitalization every four years. When I look at the type of person, and the institutional investments that are coming into the space, the way Wall Street looks at this, as they say, “Well, there’s a lot of nuances to this that I clearly don’t understand. There’s no way that I can fully understand all of it. So here’s how I’m going to approach this, I’m going to look at the market cap of all these different coins, and I’m going to look at the top five. And if Bitcoin makes up 70% of the market cap, or 60% of the market cap, well, 60% of my money is going to go into Bitcoin. And if 20% of it makes up Ethereum, more than 20% of my money is going to go into Ethereum.” Because they’re looking at it as a venture capital investment that’s got tremendous upside. And if they get a couple of them wrong, and they get one of them, right, they win.

Preston Pysh (00:45:27):
And so I think, because that’s the mindset, I personally think in the short term, we’re going to continue to see Ethereum go up, we might even see Ethereum outperform Bitcoin, because it’s a much smaller market cap, and you have this way of investing coming into the market. Do you agree with that?

Samson Mow (00:45:44):
I agree, I think with Bitcoin’s rise, and it will continue to rise, I believe in 2021. I think next year, we’re just going to see a wave of Altcoins pumping, and a frenzy. Another guilty party here as the mainstream media. They release things like saying, “Oh, this Altcoin, pump 200% and Bitcoin’s only up this percent.” But they just gloss over the fact that it’s a very low cap, low liquidity coin. The other thing that compounds The issue is unit bias. So I’ve known people in the past that have bought Ripple XRP. And they just said, “Oh, so cheap, is 25 cents.” I said before Bitcoin rewards people that understand math. And I believe your network of listeners can do the math, like you’re buying some of these coins… I’ve done a talk before, and I’ve presented, this is a couple years back, by actually calculated everything out.

Samson Mow (00:46:30):
And if you reduce the supply of those coins to 21 million, you’re paying like maybe $1,000 for a Ripple or some other Altcoin because of that unit bias. So it’s not cheap. It’s actually very expensive. And people just don’t do basic math, calculate it. And I think the other point you just touched on is dominance. Bitcoin dominance, but Bitcoin dominance, it’s a really bad metric. If you look at Bitcoin, it has a very unique properties. It has a virgin birth, there’s no corporation behind Bitcoin, manipulating it, and promoting it. It is decentralized, and censorship-resistant. So you could compare it to being a nuclear proof fortress, or bunker of some sort, and all these other Altcoins they’re cardboard boxes, and they’re stacking them next to this nuclear proof bunker. But when that nuke drops, they’re just going to be blown away. They’re not going to survive this thing.

Samson Mow (00:47:24):
But they’ll stand outside this bunker with some cardboard boxes stacked up next to it and say, “Oh, look at the dominance of Bitcoin is only 60%.” Because of all these cardboard boxes next to it. But Bitcoin is, no, that those things don’t matter. It’s a different league.

Preston Pysh (00:47:40):
Samson, I’m curious for a guy who’s so dialed in on the technology, and the engineering front, what are you most excited about moving into the coming five years? Not just this year, but literally, if we could jump fast forward five years into the future, what’s this world that you see we’re moving into?

Samson Mow (00:47:59):
Near term, I’m very interested in security tokens, and I’ve steered Blockstream in the direction where we’re working on products and tools that can enable that, but five to 10 years out, I hope that we’ll see more privacy becoming the norm. So we hope that with Liquid, it’ll normalize that idea of confidential transactions, and having full value, privacy, and confidentiality. And I think if you look at a lot of stuff that Blockstream is doing, we’re trying to re-architect financial markets, and make everything compatible with Bitcoin. So Liquid is a step in that direction. Lightning is a step in that direction.

Samson Mow (00:48:36):
You mentioned earlier about Adam saying, Liquid is there 1.5. The reason for that is because Liquid is its own chain. So it’s not a layer two like Lightning. But we can also have a layer two on top of Liquid. This is where it gets tricky for people to conceptualize, because you can have Lightning on top of Bitcoin. But you can also have Lightning on top of Liquid, on top of Liquid Bitcoin, and on top of Liquid assets. So imagine any stablecoin, you can have a Lightning Network for that stablecoin. And once you have that, you have enough TPS to service the world that you could use that to buy your coffee, and there’s no barrier to that.

Preston Pysh (00:49:16):
So what you’re really getting at, and I want to see if this is what you’re saying, if I own stock in Apple, and Apple actually tokenize their stock certificates. So I didn’t have to go through whatever to own at E*TRADE. But I’m now buying my Apple stock on Liquid as a security token. And then you run Lightning on top of that security token, I can now transact, if I go to Starbucks, I can literally transact with my Apple stock certificates. Is that what you’re getting at?

Samson Mow (00:49:47):
Theoretically, yes. The question is, do they accept that as payment? But you could have a middleman [inaudible 00:49:53] out, or swaps it with something else, for a different asset. But yeah, in theory, what you just said is possible, but I guess you could say the goal of Blockstream is that we would make the entire market into a dark pool. So nobody knows what anyone is trading with anyone else, and that would really democratize a lot of things. At first security tokens, I think, democratize a lot of capital formation and financing, you can tokenize, your company’s equity and offer it out. And I think the way that the winds are shifting now, we’re starting to have the perfect landscape to be able to do this.

Samson Mow (00:50:25):
So security tokens first started coming out a little bit in 2017, but they fizzled out. But I think there were missing pieces. So the first big piece is the regulatory environment. And I believe the regulatory environment has shifted to become favorable for the issuance of security tokens. I have a game company, Pixelmatic, is issuing a security token for Infinite Fleet, our game, and we’re working with [Stalker 00:50:49] out of Luxembourg, to do a security token for Europe. And the whole regulatory process is not that cumbersome, and not that time-consuming. So within probably six to nine months, so we can get a prospectus out, and it could be publicly offered.

Samson Mow (00:51:04):
In the US you have… You must have heard this one, Reg CF was changed to allow up to five million in fundraising, but you also have Reg D, and Reg A, Reg A+ filings so you can do. And those are not that cumbersome either. And the cost is not that extreme. So I can see a lot more companies going this route of regulated token issuance, or security token to raise that capital. And with a Reg A+ filing, it’s tradable by anybody, there’s no limits on trading, you’re not bound to only accredited investors. So that is one piece of the puzzle.

Samson Mow (00:51:37):
The other piece of the puzzle is technology, which I believe that we can provide with Liquid, and Blockstream AMP for the issuance, and management of these tokens. And then the final piece is venues. And [inaudible 00:51:48] the news a couple days ago, Bittrex announced that they are going to support tokenized stocks, or trading of stocks. But there are many other exchanges working on being able to support the trading of security tokens, if not the issuance, then at least secondary markets. So with these three pieces, you have the perfect recipe for security tokens getting big. And the other part is tokenizing traditional equities, like you said, Apple stock, I think that is coming too. Plus some bigger companies will allocate a portion of their stock to become security tokens.

Samson Mow (00:52:21):
The reason why I’m excited about all this is because the environment has changed. And it’s like what led to Tesla being able to dominate. It’s the battery technology catching up to the point where Elon Musk can say, “Okay, now I can make electric cars cheap enough for the mass market.” And then you put together a plan, you start with the Roadster first, and you sell a limited amount. And you can go to another lower end vehicle, not that low. But then you have the Model S, and then you have the X, and then you get to mass market with the Model 3, and Y. So it’s just a path to the goal you want is now open because technology has enabled that.

Samson Mow (00:53:00):
Same for Apple with the iPhone, capacitive touch, and better processing power means you can have a tablet that is now the size of a phone, and it’s responsive. And the battery life lasts more than a couple hours. So it’s a game-changer. I think for security tokens, we’re seeing the same thing, which is the environment is now permitting them to flourish.

Preston Pysh (00:53:23):
If I’m a regulator, and I’m hearing you talk about all of these things, I mean, I’m on edge, I’m scared to death. I’m saying, “Oh my God, they’re doing it in this permissionless way. I can’t track who’s doing anything.” It might cause this overreaction to a 180 like, “Well, if this is the direction this is going, well, we can’t allow any of it.” Is that what you’re hearing? Is that what you’re seeing, or are you actually seeing them do the opposite, which is embrace it?

Samson Mow (00:53:50):
Well, I believe they’re embracing this otherwise, they wouldn’t change the regs, CF regs or allow for a Reg A+, I think they want you to register and they want you to be compliant. And they’d rather you do it this way, than run an ICO, and then run away with people’s money, which is what we saw in the past. So this is preferable. I believe that they’re not worried about it because if you are doing these filings, you need to comply. You have to KYC your customers, you’re a security. Ultimately, you can’t just sell it to anybody. But once you’ve set it up, this is what Blockstream AMP enables, you can issue the token, and if the regulations change, you can change the rules that are applied to your token. So you can tighten the whitelist. You can freeze, you can reissue, you can manage these cryptographic tokens that are representing equity. And it’s a very powerful thing. So you can evolve as a regulation evolves with this toolset.

Preston Pysh (00:54:43):
So there’s this really clever app that’s called do not pay, and it’s basically like having a lawyer in your pocket where it does all this fancy filings, and paperwork on your behalf to make it really easy to use. I’m very curious if you guys are looking at, in addition to all the [inaudible 00:55:01] stuff that you’re doing, to make that process of somebody filing completely automated, or in somehow some way more user friendly, or ease of use in order to conduct one of these filings?

Samson Mow (00:55:15):
I don’t know if that’s something we will focus on. But I know our partners are working on that. Stalker, they have their platform to raise capital. And a lot of this is the legal side. And I don’t know how much you can automate of that. But I think we’re moving in the right direction. And for their end users to be able to buy these security tokens, they’ve made it pretty streamlined. You can register, and complete your application in a couple minutes, and then you’re good to go.

Preston Pysh (00:55:42):
One final question on Liquid. I’m curious if you’ve had any sovereign nations, smaller nations that have reached out to you to do Central Bank digital tokens on Liquid? Is this something that you’ve seen, heard?

Samson Mow (00:55:57):
Yeah, that’s an interesting one. We’re not directly engaged with them. It’s a [inaudible 00:56:02] house, one of the Liquid members, but they’ve been working with the government of Bermuda to do a stimulus token. And they’re using Blockstream AMP. And they’re using Blockstream to do this. So it’s stimulus token meant to pave the way for potentially a Central Bank digital currency. So what this is right now is you can spend at certain merchants, because they’re giving you this token that can be paying for certain things like food, but they don’t want you to use it everywhere. But it only works in certain places. And the way you can do this is with Blockstream AMP issuing this managed asset.

Samson Mow (00:56:32):
And we’ve also talked to some other people that want to do a Central Bank digital currencies on top of Liquid. So it’s very possible down the road that you might see this happen, or they might set up their own Liquid Federation. But it would be… like that doesn’t really matter because it’s all Bitcoin based tech, everything is a fork of Bitcoin. So it’s compatible with Bitcoin. And in the end, that’s what matters.

Preston Pysh (00:56:55):
Wow. And so would they be using the Aqua app in order to conduct transactions, send, receive these tokens? Would that be the most likely outcome for users?

Samson Mow (00:57:05):
Potentially. Like the Green is open source, the back end is not, but with Aqua the back end is Electrum server, so it’s all open source. You could totally use Aqua, you can take the code, re-skin it and just only support your own Central Bank digital currency and use this for your country.

Preston Pysh (00:57:25):
Changing gears again, one of the other initiatives that you guys have at Blockstream is now mining. I think this announcement came out probably a year and a half, two years ago. Why get into this space? It’s very competitive. I wouldn’t suspect the margins are… Well, I guess I don’t even know. I just know, it’s super competitive. So I guess I’m not fully understanding why you would step into this space.

Samson Mow (00:57:46):
I think it has a lot to do with Bitcoin being counterintuitive. People don’t think that they need to run a node. And people think they don’t need to mind either. But for the security of the network, it’s better that there are a lot of stakeholders with skin in the game that are mining, because mining is ultimately securing the network. And you also want mining to be dispersed as much as possible. So again, like Liquid geopolitically, and geographically dispersed. And having a large mining operation in North America, like Blockstream has, we’re at 300 megawatts now, of total capacity. It is good for Bitcoin, because then that means hash rate is not all centralized in one region. And I also think it’s important that a lot of companies do mine.

Samson Mow (00:58:31):
So what we actually offer is, we do some prop mining, proprietary mining, mining our own Bitcoin, but we’re primarily a hosting and service provider. So what we allow is for other companies to start mining. They can buy their equipment, or they can contact Blockstream, and we use our network to procure for them, but it’s like a end to end solution. We can get your equipment, set it up, mine for you, and you can mine with any pool that you want to. But it’s opening the door for people to easily get access to Bitcoin mining that otherwise may not mine.

Samson Mow (00:59:04):
One of our customers is Reid Hoffman. I don’t think he would go and set up his own mining operation in his garage, but he’ll host with us and put his miners here. Another one of our customers is Fidelity [FKA 00:59:15]. So there is demand for this, institutional demand for mining and having this setup, it opens the door for more people to get involved.

Preston Pysh (00:59:24):
One of the things that for anybody that’s new to the space, and they hear this for the first time, I think it’s eye opening. Blockstream has satellites in space that are broadcasting the blockchain, that anybody can set up a satellite receiver on the ground and tap into this feed that’s being transmitted by one of the six satellites that are going around the Earth. I’m assuming that you guys are licensing this bandwidth off of these satellites. These aren’t like… you don’t own the satellites. You’re just licensing a certain portion of the bandwidth that’s coming off. I don’t suspect it’s a lot of bandwidth. So the costs isn’t like if you’re streaming video, right? But talk to me about the ROI. Blockstream’s ROI for something like this.

Samson Mow (01:00:07):
Right. I think it comes down to it’s augmenting the Bitcoin network. So the biggest benefit to the network of there being these Bitcoin satellites in space is that you can prevent network splits. So if an undersea cable is cut to some country, or region, and there’s a decent amount of hashing power there, you can potentially be split off for the rest of network. And you might say a transaction is valid when it’s not. But as long as one person in that region is running a Blockstream satellite dish, then they can keep that whole area in sync with the rest of the network. And I think that’s valuable, especially when we are spending, and investing so much money in building on top of Bitcoin, if there are splits in the network, that will impact your peg in transactions on Liquid. That’ll impact a lot of things like Lightning. And if we have securities issued on the Liquid Network, that will impact those too.

Samson Mow (01:01:00):
So we want to make sure we’re stable all through the entire stack. And that is the main benefit. But for… actually it benefits everyone else too. So a lot of people don’t understand how all the different parts of what we’re working on at Blockstream, how they all fit together. But you can also use the Blockstream satellite service for mining. So if you have access to cheap power, and someplace with poor internet, or even no internet, let’s say there’s a solar farm installation in the desert, there’s no internet, you can still mine there, you can broadcast the block you find over cell phone signal, and you can get the entire Bitcoin blockchain through satellite.

Samson Mow (01:01:38):
The cool thing is, we’ve recently upgraded to Blockstream satellite version 2.0. With this version, you can go into the middle of desert, set up a dish, download the entire Bitcoin blockchain from the Genesis block without any internet and keep in sync with the Bitcoin network through this service. So that’s actually really cool. So it opens up the door for mining in various parts of the world that you probably would not consider mining in previously.

Preston Pysh (01:02:06):
And this is really important because you can tap into energy sources that are very low cost that weren’t being tapped into, and being used in a productive manner that now you can. All right, we’re getting near the end here, and I’m real curious about this one. So simplicity. This is simplicity is code. It’s not a lot of code. It’s actually just a couple lines. And it assists in making Bitcoin non Turing complete. Tell us why that’s important?

Samson Mow (01:02:37):
Right. So simplicity is a smart contracting language. And it is a very, very low level. So the entire language will fit onto the back of a T-shirt. And we actually have T-shirts in our store with the simplicity on it. But what it does is it allows for smart contracts in Bitcoin. It might be the same as a smart contracts in other protocols where they have a lot of complex logic, but it allows you to do very powerful things. So you can create volts, limit orders, and you can do asset based lending. So lending USTT for another asset, this is important because it adds more functionality to Bitcoin, but it’s still not very accessible yet. We’re working on some ways to basically get it into the hands of end users. And one of these avenues is with Miniscripts.

Samson Mow (01:03:24):
The idea is that you can compile Miniscript, it’s a Bitcoin scripting language into Bitcoin opcodes, and then also into simplicity as well. So it just makes Bitcoin more powerful. Things like vaults. So a vault is… [inaudible 01:03:40] analogy is a vault, you can put your Bitcoin into this vault. And when you devault it, there’s a time period, and somebody can cancel the devaulting. So if you’re using, I guess, let’s say a Bitcoin multisig, to store funds for your company, you can have someone externally cancel the devaulting, in case there was a security incident. Like let’s say, someone compromised it, and they got… your employees took two of the three of the keys and they can withdraw from the vault.

Samson Mow (01:04:10):
Well, somebody else could stop that withdraw process from happening. So that that’s an important part of how we can evolve the security model of Bitcoin. The other thing is limit orders. So right now, atomic swaps in the Liquid Network, it’s like the either the atomic swap is executed, or executed. An atomic swap is where there is a trade that happens all at once or not at all. So it’s like Bitcoin for Liquid UCT. And it just swaps and then that’s it. But with limit orders, you can do a partial atomic swap, so to say, so I think simplicity just opens the door for a lot more cool things you can do with Bitcoin. But for the average user, I think it’s still some ways away, but it is there and it is coming.

Preston Pysh (01:04:52):
And I just want to highlight at the start of this conversation, Samson told you he’s not an engineer, and all that kind of stuff. I think I’m proving you wrong, that although you might not, “be an engineer,” I think we got pretty engineerly there for a little bit.

Samson Mow (01:05:09):
The Blockstream Engineers would tell you that I’ve got it all wrong.

Preston Pysh (01:05:14):
Samson, one of the things that I think a lot of people in the Bitcoin community might not know about you is that you do a lot of product for gaming, and software for gaming industry. And you have a team, and that team of people that you currently have, they’ve worked on projects that have generated over a billion dollars in revenue in the gaming industry. And you guys are getting ready to release a new game. But what I find fascinating is, you’re leveraging all the tech that we just talked about on this entire episode with utility tokens, security tokens, the game itself, it’s intertwined. Talk to us about what’s going on here, and just educate us. This sounds fascinating.

Samson Mow (01:05:55):
The game we’re working on is called Infinite Fleet. It’s an MMO strategy game. And for those that don’t know, MMO stands for massively multiplayer online game. So these are games like World of Warcraft, EVE Online, they have a 10 to 20 year shelf life. And at their peak, they can generate hundreds of millions of dollars in revenue per year. And the development team we have behind this game is amazing, we’ve got top tier triple A talent. I personally have worked on company Pyros, Dawn of War, a lot of our other developers have worked on top titles for Sega, Nintendo, EA. And we’ve actually got one of the developers from Ultima Online, the original MMO game. This is a top talent team here putting this together.

Samson Mow (01:06:37):
And tying it all together, we’re using a lot of the technology that Blockstream has been building, you could say we’re commercializing a lot of the things. So it’s running on a dual token model, there is a security token for raising capital. And there is a utility token that is replacing the in game currency. So like World Warcraft gold, it’s replaced with a crypto asset that is portable for the players. So for the security token side, we’ve already raised 3.1 million, and we’re going out to raise another 12 million, eight million is slated for the EU, and four million for the US. So this is taking advantage of that change in the regulatory landscape that I talked about where it’s much easier, and much more efficient to go the regulated route now.

Samson Mow (01:07:22):
And by having this dual token model, we’re not mixing it up, we’re selling a token that we say is utility, but could be construed to be a security down the road, it’s just much more clean and well defined.

Preston Pysh (01:07:35):
Let me ask you this, I think I know the answer. Why not use Liquid satoshis in the game? Is it because you want to create your own currency, and then you guys get to basically pre mine, or have a portion of that as a kicker, in addition to the funds that you’re raising on the utility side? I’m assuming that’s the answer.

Samson Mow (01:07:54):
We could use like satoshi is like go out the Lightning games and reward players that way. But I think it takes away from immersion. So for MMO games of this genre, part of its role playing, you want to be immersed in the universe, immersed in the story in the lore. And if you’re playing this game and earning sats, which we could do, you could we could sell advertisements, and then get money from sponsors, and then distribute in sats but then I think that takes away from the whole experience.

The other part is that we want to run this as an experiment to see what happens because typically MMO games don’t embrace any portability for their players. They don’t want you to take anything out of the game. They want you to buy a premium currency and it’s locked up forever. So my theory is that the freest money will win. That’s why Bitcoin will win. And I believe the freest game that is open to secondary markets, open to letting players basically do more and trade freely, will win too.

Preston Pysh (01:08:48):
So you get the tokens inside the game, and you want to bring them out of the game, you can then swap them into satoshis, Liquid satoshis at that point?

Samson Mow (01:08:57):
Yeah, so this could be listed on an exchange because it’s just a Liquid asset, like USDt, or L-CAD or anything, or the players can trade peer to peer, because it’s all in the Liquid Network. It’s freely movable. And you have the benefit of confidentiality too. You don’t really need it for a game currency, but I think it is good because you don’t want people watching what you’re doing. And the interesting thing here is the application to gaming. So in a lot of MMO games, like we hear about crypto hacks all the time, but there’s also hacks in MMO games too where someone will join a guild. And they infiltrate the guild and they steal money from the guild. This has happened a few times in EVE Online.

Samson Mow (01:09:34):
But with a crypto asset, you could actually create a multisig that would prevent someone from stealing it. The reason this happens in games now is because it’s bound to an account and you generally give access to that account to somebody that’s how you manage the guild Treasury. But this brings a little bit of the crypto security element to the game. And you could even put this on a hardware wallet, like a Trezor, or Ledger, or Coldcard down the road too.

Preston Pysh (01:09:57):
I’m just listening to this and my mind is just exploding. I just can’t even believe this is real. For somebody who’s hearing this, and they heard you say that you’re going to be issuing security tokens, which is a fundraising round to build this game out with all the engineers that you said you had. If a person wants to buy one of these security tokens, how… is this a publicly issued IPO for people to buy this? And if it is, how would they buy it?

Samson Mow (01:10:25):
We’re filing for a Reg A offering in the US, with the SEC. So once that is done, it’s effectively an IPO. They call a Reg A+ a mini IPO. And it’s really cool, because then your tokens are freely tradable, and there’s no need for accredited investors. In the EU, we’re working with Stalker, they are a platform, like kickstarter, but they support security. So you can just go to stalker.io register, and you can invest if you’re a non-US resident. And if you’re in the US, you can contact us directly, we can do a surf before it’s open. But once the filing is done, and we’re Reg A approved, then you’ll be able to buy on an exchange, like buy an exchange like INX, or tZERO, or any other security token exchange.

Preston Pysh (01:11:10):
What a way to end this, and to wrap all the technology all in one. I’ll tell you, I really enjoyed this conversation, we definitely need to do something like this again in the future.

Samson Mow (01:11:20):
Sure.

Preston Pysh (01:11:20):
Give people a hand off to where they can find you if they’re listening to this, and they’re just amazed at some of the stuff they’re hearing. Where can they reach out to you? Talk to us about some handoffs to Blockstream, whatever you want to promote. Hit us up.

Samson Mow (01:11:34):
You can find me on Twitter, my handle is Excellion, E-X-C-E-L-L-I-O-N. Blockstream is just @Blockstream. We’re also on Facebook, and LinkedIn, and everywhere else. If you’re interested in Infinite Fleet, and the security token, and the utility token, you can find out more at @InfiniteFleet. All one word. That’s about it.

Preston Pysh (01:11:53):
Samson, thank you so much for making time to come on and just talk about some of this fascinating stuff, and where the future is taking us is just wild. Thank you for your time and coming on.

Samson Mow (01:12:04):
Thank you, Preston. It’s been a great.

Outro (01:12:07):
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