[00:02:00] Very generically, and then if you want to go deep after that generic definition, take it away.

[00:02:06] Calle: Well, first of all, that is a great way of starting a conversation so we don’t get lost in useless thinking, basically with Cashu, we’re trying to solve a very real problem, which is the issue of privacy for custodial Bitcoin services.

[00:02:20] Whenever you’re using a custodial system, maybe it, well, it’s a Satoshi, or you could also include all the different exchanges that people use or other payment services, how you use your Bitcoin. All of these systems are typically built on custodial databases, and with Cashu, we’re replacing those custodial systems that people already use with a much more privacy friendly and useful, more efficient system of building payment systems.

[00:02:49] And that is what we are trying to achieve today with Cashu. But I think this question also allows us to go back in time and ask, why was eCash invented in the first place? So what was the problem that eCash The original invention, the underlying technology that we use in Cashu. Why was it invented?

[00:03:11] And so this technology is super old. It was invented in 1982, 1983 by David Tom, a cryptographer. And in the eighties, the problem at hand was to enable online payments in the first place. This sounds like a very foreign problem to us today because online payment services are ubiquitous. However, back in the eighties, they have come up with this design by inventing literally eCash as the first cryptocurrency system in history to enable people to to make online payments.

[00:03:46] And that’s basically the simple goal that they wanted to achieve in the eighties. And coincidentally, they started working on this extremely privacy preserving technology because they already understood that once a life transitions into a more online internet based life, that especially online privacy and especially payments privacy will be of permanent importance for democracy and free societies and so on.

[00:04:12] Preston Pysh: Love it. It’s interesting to me that you immediately started talking about privacy because I’m probably exposing myself and maybe what I’m always looking at, which is the scaling of Bitcoin. To me, I’m looking at the challenge of running your own full node and opening channels and doing all these types of activities.

[00:04:33] And it seems like if you’re going to take Bitcoin, you’re going to use layer two, that there’s technical burdens for a lot of people to do this in this solution. This Cashu solution that you have seems to make it a whole lot easier for people to conduct micropayments or just layer two payments by using this type of technology versus running your own node and using lightning.

[00:04:55] First of all, would you agree with that? And second of all, is eCash a way that helps Bitcoin scale? In addition to the privacy benefits.

[00:05:04] Calle: I see. So out of intellectual honesty, I will say no. And I will answer no to that question because my diagnosis of the situation is a little different. The reason why we’re using custodial services today in Bitcoin and mind you, that number is extremely high.

[00:05:21] Most people have experienced Bitcoin only through custodial services and especially for smaller payments. There’s been very famous statistics about, for example, the use of Bitcoin Zaps and Nostr and how much of that relies on custodial services. So we’re already starting off with a situation where many people are using custodial services in a sense.

[00:05:44] If we remain intellectually honest, we’d have to also admit that custodial services are a way of scaling Bitcoin. So we would have to say that Wallet of Satoshi or Coinbase are ways of scaling Bitcoin. I think that is an argument that you can make. I think it’s not a very strong argument, at least It seems that using custodial services scales Bitcoin in a, let’s say, economic way.

[00:06:07] It enables more people to participate in the Bitcoin system. However, to be a full Bitcoin user, you’d have to run your own infrastructure, your own node and your own lightning node and so on. So in that regard. I’m very strict there. And I wouldn’t say that any custodial service really scales Bitcoin. It allows more people to use Bitcoin, but not by scaling the underlying technology.

[00:06:30] I think another example I can make here to make this more tangible is as if someone would say scaling, you could scale gold by issuing paper certificates for gold. I wouldn’t say that really scales gold. What could scale gold, for example, could be better transportation technology or better ways of custody in gold, having your own safe at home and so on and so forth.

[00:06:51] So these are little technological advances that make it possible for more people to use gold, the actual underlying asset. But as making a certificate on paper, sending that around doesn’t really make the gold move faster. And it’s very similar to Bitcoin itself. So building custodial systems on top of Bitcoin doesn’t make Bitcoin move faster.

[00:07:11] And that’s why I think there are only a very small number of projects that can call themselves as true scaling solutions for Bitcoin. In fact, right now and today, only the lightning network itself can really be I considered a scaling solution or a layer of Bitcoin and systems likeCashu, although they heavily rely on lightning and by some people also are called layer three solutions because they built on top of lightning.

[00:07:39] I want to remain extremely pedantic about this and say, no, it doesn’t have the properties that are required to make it a true scaling solution for Bitcoin.

[00:07:48] Preston Pysh: Very interesting. That was not the response I was expecting. What percent would you say is custodial solutions that are being used on Layer 2 right now?

[00:07:56] Like, I use Nostr. I use the Primal Client. It has a wallet. It’s using Strike backend integration, right? So this is all, I have to trust that Strike has the coins and that they’re conducting this routing on my behalf. I’m not running that through my own node. What percent, if you just had the guess of people out there that are using lightning today or are using it in that manner, that is custodial, just to help people understand that mapping.

[00:08:22] Calle: So if you just count the number of zaps and try to map those apps to different entities and whether they’re custodial or not, the number is in the realm of 90%. So it’s an extremely. Large number. And that’s why it makes sense to care about this group of users, which normally we’ve basically stopped innovating custodial systems after the invention of double entry accounting, so to speak.

[00:08:44] So nothing really happened there except for eCash. That gives us another way of building custodial services with, a system of an eCash mint, hands out eCash as. A piece of data to their users, which they can then use like physical cash to transact with others. And using that system, you increase the privacy and efficiency.

[00:09:06] You can do all sorts of different, very interesting cryptographical things with a custodial system, but there. But one more thing I think makes sense to mention right here is most custodial services as we think of them today are in the hands of a small number of companies. So you were mentioning strike, which is an excellent service.

[00:09:26] In my mind, there are a couple of other really good Bitcoin services that you can use in there for the custodial systems with Cashu. We don’t have a company running server. We don’t have an entity that offers the service. On the contrary, we’re building open free software such that everyone can run this infrastructure.

[00:09:45] And that’s why we’re already seeing many different means being rolled out, many different integrations for specific use cases that us developers weren’t even thinking about, where people take this protocol and apply it for their own use case. So in that sense, we are in a way decentralizing the custodianship process.

[00:10:04] And putting it into the hands of the plebs and giving them the best custodial technology out there at the same time.

[00:10:11] Preston Pysh: Help me with the name. Why Cashu? Why did you choose Cashu? We’ll start there and then we’re going to get more granular on what it is.

[00:10:19] Calle: So, okay. It’s a very simple reason. Nuts are atomic, small little pieces of food with high energy density that you can pass from one person to a person.

[00:10:29] And coincidentally, the best nuts of all the nuts, the cashew nut also has the word cash in its name. So since we’re building an eCash system, it looked like the best choice of name. And it has also proven itself as the best choice for naming the project because so many other projects around in the Cashu system have adopted not based names.

[00:10:52] And we also have our protocol specifications are also called. Nuts, the documents are numbered from not one to not 16 for example these individual documents and when you implement them, you typically also implement them with a lightning system. So you can call them nuts and bolts at the same time. So it’s all about the jokes, but there’s also some underlying rationality.

[00:11:13] Preston Pysh: I mean, this is totally nuts. Okay. Okay. Help us with the tech and really take us very simply what’s happening and maybe even use a analogy or something to start off to help people really kind of wrap their head around because they’ll hear ash and they’re saying, well, hold on. Isn’t like lightning zaps or isn’t that eCash? Like, what is the terminology behind this? And then like, how are you guys doing it from a technical standpoint?

[00:11:38] Calle: Yeah. So the full technical name of it would be Charmian eCash referring to the original inventor, David Charm. And Charmian eCash is the technical definition would be, it’s a cryptographic bearer asset token in digital form that you store on your device and can send to other people.

[00:11:56] Well, that sounds complicated, but that’s the technical definition. How you can think about it is there are many good analogies for it. I think one of the most intuitive ones is one from my friend Randall. He said a charming eCash system is very similar to a casino that issues chips for their players.

[00:12:14] And I think that’s a really good analogy. So let’s go through this example together. Imagine you’re going to a casino and this casino now in our example is an eCash mint, but just think of it as a normal casino. And you entered the casino as a customer. And at the door, you give the guy, let’s say 10 bucks USD, and in return, you’ll get casino chips for it.

[00:12:35] And these casino chips, they are the equivalent to eCash. So what you do is you go to the mint, you give the mint some form of money, that could be something like a deposit. And in exchange, you receive eCash tokens. These are these casino chips that you then put into your pocket. You now go into the casino and you can play games in the casino.

[00:12:52] So you can play all the different games. You can pay with your chips. You can earn other players chips. And everything that’s happening inside the casino is fully blinded. So the mint itself, the casino operator itself, just like in a normal casino, doesn’t know which games you’re playing. It doesn’t know who you’re paying, doesn’t know from whom you are receiving payments and also cannot really stop you from doing that because the chips are physical and no one is able to block you from giving your chips to someone else.

[00:13:20] Very similar way we do very similar things with digital tokens basically. So at the end of the day, When you’re done with your games, you can now exit the casino and at the entrance, you go to the same guy and now you hand over these casino chips and what you get in return is again, let’s say 20 bucks because you made some profit while playing.

[00:13:39] And the important and striking difference now here, which is something that is harder to represent in the physical world is when you receive those chips. And when you give them back at the end, they don’t look like the same chips to the casino operator. That means the casino operator doesn’t know that you’re the same person who entered the casino in the beginning, giving them back the chips when they want to withdraw.

[00:14:03] So this is the physical analogy, but obviously we’re not interested in gambling and casinos is just to make you imagine how things work. What you can now imagine is something like a website, for example, where you want to charge a balance. So imagine a simple website where you go and you can click a button and make a donation to a different options, for example.

[00:14:25] So on that website, you would first deposit a little bit of Bitcoin, let’s say 10, 000 Satoshis onto that website. And then you can make donations on the website. And the way you would do that is you deposit Bitcoin and you receive eCash for it. And then on the website itself, You now can donate these pieces of eCash to the individual projects that you want to donate to, and they would receive the eCash.

[00:14:48] And at the end of the day, they would then go to the operator of the website and say, Hey, website, I’m this organization, XYZ. I received this amount of donations in eCash. Could I please, please withdraw to my Lightning node. And all the principles that I just said, where the operator doesn’t know from whom they got the donation and doesn’t know when it happened and so on and so forth apply in this digital space as well.

[00:15:11] So at the end of the day, it allows us to build custodial services, financial services, or even Bitcoin banking with excellent privacy and security and all the other things that you can do with cryptocurrencies or smart contracts and so on. Things that we can go into, if you like. Which are not really possible in a normal ledger based accounting system.

[00:15:34] Preston Pysh: I just want to tell this story to help people kind of understand where this is at. So I was in Riga for the conference that they were having over there in Latvia and they had food trucks outside and they had just the portable terminals, like the tap for pay that you would see anywhere. And this is through BTC pay server that had these given to the people that were providing the food.

[00:15:54] I doubt the people running these food trucks. Cared how people were paying all they knew that they were getting the local currency or they were getting euros on their end. And it was interesting because some of the organizers of the conference handed out cards, like, like a debit card and there was Cashu on these cards.

[00:16:12] And so we went and like, there was 20 worth of Bitcoin Cashu tokens on these cards. And we went and we tapped them and it went through instantly. And so I’m paying with this technology and the end user, I don’t know if they wanted to retain it in Bitcoin or they wanted euros, but it didn’t matter.

[00:16:31] However, they wanted to receive their payment. It immediately came through. And so from like a user standpoint, this experience was, I think it was faster than tap to pay through traditional Swift system, because I mean, I tapped my card. It was instant. It went through immediately and it’s kind of fascinating.

[00:16:48] So Calle, can you talk as I’m describing this, what’s happening in the back end for that end user? If let’s say they wanted to receive euros, I don’t know if that’s what it was, but if they wanted to receive euros, what is happening in a chain of sequence for, so people can kind of wrap their head around all of this.

[00:17:05] Calle: Yeah. So first of all, it’s important to note here that eCash itself is something completely separate from Bitcoin. As I mentioned earlier, eCash came 1982, which is three, almost three decades earlier than Bitcoin. So it is in its first designs. It was supposed to be a, something that you can use in normal fiat banking.

[00:17:27] So Bitcoin wasn’t even around obviously. And that’s why. You can build eCash systems for any currency out there. The original idea was, as I briefly mentioned, is to build a digital payment system for the internet based on eCash and credit cards and PayPal and all the other things that we use today only came in the late nineties really.

[00:17:48] And I grew in the early two thousands everywhere and permeating the entire online space. So we could have ended up in a situation that you just described by sheer coincidence for the fiat world as well. However, all this didn’t happen. And there are many reasons why this didn’t happen. And we chose now that we have Bitcoin as a underlying assets that we can build on without permission.

[00:18:12] We chose to build this, rebuild these old systems on top of Bitcoin again. So I think if the competitors like credit cards and PayPal weren’t around, then we might even see something similar for the fiat world. However, there is no open source competition going on in the fiat world. There is no really, no real innovation outside of Bitcoin.

[00:18:33] The banks and the financial institutions happening. This is all very different in Bitcoin. Because we’re an open community of many deaths out there who just can start building whatever they want on top of the system that invites everyone to innovate whatever they want. So now coming back to your example, as I said in the beginning, in this casino chip example, when you deposit into a Cashu eCash mint, what you receive in return is eCash as a barrier instrument.

[00:18:59] And you can imagine this as a little piece of data that the mint. Hands over to you that you can then put into your phone. That also means that when you have a balance, let’s say you have a cash wallet in, in which it says you have 20,000 Satoshis. That balance display in the wallet doesn’t come from asking the server, Hey, server, how much money do I have?

[00:19:20] Like in any other traditional custodial system, it would be. It doesn’t use the service information. It counts the number of eCash tokens stored in your wallet, basically very similar to opening your normal physical wallet and counting the bills. So that’s how you get a eCash balance by counting the individual eCash tokens.

[00:19:39] Now, obviously you can not only store these tokens on your phone, you can also store these tokens on a card. As you just mentioned, NFC cards, we can put data on them and because we can put any kind of data on them, we can also put eCash. So that’s what I guess the organizers did in your example. And now when you go to a terminal that accepts eCash, what happens is you tap this card onto the terminal.

[00:20:03] The terminal can now like with a normal card payment, take the eCash from the card. And then either choose to keep the eCash and withdraw it later with the mint. Or if the card’s terminal owner chooses not to trust your mint, because they don’t want to go into a relationship with this mint who issued this eCash, they could immediately take the eCash and withdraw to their own Lightning Node.

[00:20:26] So that’s what’s happening in the background. In the second case, you still have the speed of Lightning. So you need to wait until the Lightning payment is complete, which can be super fast. Which can also in the worst case, take two weeks in the worst case, lightning can be extremely slow, but usually it’s fast in the best case.

[00:20:45] Lightning is reliable, but sometimes it gets stuck. So there are a couple of problems with relying on lightning itself. I think it’s also one of the reasons why so many people use custodial systems. They don’t have these problems. So that’s the second option. You withdraw immediately to lightning. But if you’re a operator of this payment terminal and you got the permanent terminal, for example, from the conference organizers, so the organizers put up everything and you kind of trust them to offer a stable service.

[00:21:12] You could also just keep the eCash and then withdraw at the end of the conference, basically. In that case, what happens is they take the eCash and to prevent the double spending of the eCash, they send it once to the mint, to the server. The server says, this is eCash that wasn’t spent yet. So that’s all fine.

[00:21:29] Puts it into a database in which it stores all the spent eCash. And gives you a new eCash. So this is the, this is what happens when we two would make an eCash transaction is I take my eCash, I give it to you now because I could double spend the same eCash to someone else. What you do is you talk to the server once and say, Hey server, is this eCash spent?

[00:21:50] If not, everything is cool. And then it marks this eCash as spent and gives you a new eCash. So what the server or the eCash meant is that. Essentially does is it prevents double spending and that’s about it. The transaction itself between us happens in the physical world. I can just hand it over to you, but you need to ask the server.

[00:22:09] If the eCash you received is already spent or not, and if it wasn’t spent is put in a database.

[00:22:14] Preston Pysh: I think that’s where all of this goes really quickly for the listener is that they’re hearing, okay, it’s like a casino. And I know that you could come up to the casino operator, you could hand them a hundred dollar bill, and then they could hand you the tokens.

[00:22:26] And the control, that person who’s managing that swap becomes the trusted agent in this scenario. And so everybody in Bitcoin is familiar with rug pulls and, nefarious actors that could be running a mint. Help us understand vulnerabilities there and help us understand the protections that are there from the user’s perspective when you’re talking about these mints.

[00:22:49] Calle: Yes. So this is a very, very important point. And I really want everyone to understand this. We mentioned this many times we’re talking about custodial services here, and there is only one gold standard of holding Bitcoin, which is non custodial in your hardware wallet or on your own Lightning node. So this is Strictly better way of holding Bitcoin is non custodial.

[00:23:09] You manage your own keys. So if you have made the step to use a custodial system already, which is due to all those reasons that we already mentioned, first of all, you should only do that with a very small amount. That should be your spending amount. So it should be the same way you treat your, let’s say, balance on your Chase bank account or your retirement account versus what you carry in your purse, in your wallet, when you walk around, right?

[00:23:36] It would be, let’s say, a hundred bucks that you’re willing to lose in case you lose your wallet. And that’s the same kind of caution that people should take. when they use any custodial service. Now, in comparison to other custodial services, eCash doesn’t really make it easier or more dangerous to users.

[00:23:55] So in that sense, the custodial risk is basically the same for any user. If you use Y2S Satoshi, you trust them with your Bitcoin. If they would run an eCash mint instead of their database normal database data system, it wouldn’t increase the risk for you. However, we would like to be better than that.

[00:24:15] And so in my mind, there are two major risks for custodial systems. I call them the fast rock and the slow rock risk. The fast rock risk is I run a big service and then one day I choose to just vanish from the earth, take all the Bitcoin with me and go to Cuba or something like that. This is the fast rock risk and none of those services really protect you from it.

[00:24:42] So if you have a normal custodial services service where either, you know, One person or multiple people can control the Bitcoin underlying Bitcoin. So this applies to a single SIG custodian. It also applies to a multi SIG custodian. The same way they could come together and decide we take the Bitcoin and we run away.

[00:25:01] So that’s the fast rock risk and none of the systems really solved it. I want to mention pediment and liquid pediment is a federated ecosystem. It’s similar to Cashu, but federated liquid is a federated side chain and other federated side chains. That’s Where multiple people would have to collude in order to pull off the fast drug.

[00:25:24] So that increases your safety by that in that you can trust that collusion is unlikely. The slow rug risk dough is a bit more tricky and the slow rug risk is basically hidden inflation. So how do you prevent the operator of this financial service? It, the same thing applies to banks and the fiat world.

[00:25:49] How do you prevent them from giving out more liabilities, handing out more liabilities to their users than the reserves that they have over a slow or long timeframe. And if you do it over a long timeframe, it’s even harder to detect. So what you can imagine here is a mint that holds, let’s say, one Bitcoin in total from all of their users.

[00:26:11] Okay. but it has issued 1. 1 Bitcoin in liabilities to their users. That means if everyone were to withdraw at some point, someone would be standing in the rain and couldn’t withdraw because the Bitcoin isn’t actually there. This is a major problem of all custodial services and all exchanges out there.

[00:26:30] We see proof of reserves being very popular for exchanges, especially. However, there’s one side of the, of this coin, which is proof of reserve. And the other one is proof of liabilities. That’s a much harder problem to solve. Proof of reserve is super easy in Bitcoin. You just point to the chain and everyone can see the Bitcoin.

[00:26:50] So that’s your reserve. Proof of liabilities means proving how much you have in reserve. given out to users. And with normal financial institutions, such as also classical exchanges, what you have is an auditor coming in, looking at the databases and say, trust me, bro, I’m from KPMG. They didn’t print more liabilities than reserves that they have.

[00:27:12] So that’s the traditional way of doing proof liabilities. That’s obviously not useful for anonymous online systems. So what we come up with is a scheme in which The Mint essentially publishes its database regularly and users of that Mint can check these published databases regularly whether their eCash was included in these, in these publications and that way users can In a certain range, make sure that the mint hasn’t printed more eCash than the Bitcoin it has received.

[00:27:46] So we’re trying to get to a point where we can build safer mints and allow also some kind of auditing from the users of the mint itself. Apart from that, so this is the cryptographic way of increasing the safety of mints. On top of that, We’re seeing things like rating of mints. There are websites where you can rate mints with your Nostra client.

[00:28:07] So some type of web of trust systems are emerging where you can see online, which of your friends is using which mint. And then based on that, decide which means you’d like to trust and which you’d like to avoid in case something goes wrong. So there are multiple different ways we’re trying to make it safer.

[00:28:26] However, it’s still important to mention. We’re talking about custodial services. That means you give up control over the Bitcoin that you send into the mint. And this is very different from let’s say a lightning channel, where even if you put it into a channel. You always have the ability to unilaterally exit the contract.

[00:28:46] And as long as something doesn’t offer that kind of protection, unilateral withdrawal from the protocol, it always, it’s always important to remember. And to make sure that you’re using a safe service out there.

[00:28:58] Preston Pysh: So this quickly turns into banking the way that we think of it today, as far as there’s required trust.

[00:29:06] And there’s a required brand that’s associated with that trust with the bank. So I saw on Nostr, this was maybe a couple of days ago, Brad Mills had a question and he said, are there any successful Bitcoin bank as a service apps using Fetaments, eCash or similar? And you responded, Calle, to this question.

[00:29:26] You said Koinos wallet. And can you just elaborate more on this idea? Like five, 10, 15 years from now, how do you see this kind of evolving from a services standpoint? Are we going back at the payments level? And you said it very clearly. If you’re dealing with a hundred dollars in your wallet that you’re walking around with, that’s what we’re talking about here.

[00:29:45] We’re not talking about Requiring trust to store 5 million. If you’re doing that, you’re on layer one. You can do that completely on your own. You can do that in a very trustless way where you never have to trust the bank ever. But when we get into payments and doing it in a way that is quick, reliable, it seems like this is going to be how a lot of this space emerges is having bank like services.

[00:30:08] I’m curious if you agree with that. Help us understand this idea of bank services.

[00:30:13] Calle: So I wish Bitcoin would scale infinitely. It would be the best of all worlds if we could take this blockchain and scale it to 7 billion people making 100 transactions a day. But that is so far from what we can achieve based on everything we know today.

[00:30:29] It could be that there’s some miracle technology that we cannot really predict today comes up in the next five years and everything changes. I’d be very happy about that. But what we have today is a very simple situations. Blockchains don’t scale. Everyone knows that. And that’s why we’re using custodial services.

[00:30:45] In my mind, achieving something similar to that, what Visa or MasterCard or PayPal has achieved on the internet today, de facto requires custodial services. I don’t know of anything else that has the same speed and reliability ease of use. And low amount of fees that makes it so attractive to users at the same time.

[00:31:05] I want to mention that since privacy is truly a very important thing for our societies and democracies, small payments are the payments that hurt your privacy the most. That means when you go online, you pay for an article that costs 10 cents, or you make this small little purchase in the cafe. Or you go for your groceries and so on.

[00:31:27] This is the financial activity that is valuable to advertisers that is being sold without your consent to anyone who wants to bid on it. And this is what hurts your privacy the most. So coincidentally, The payments that we can scale, the payments that we can do many fast and cheaply are also the ones that need the most fixing in terms of privacy.

[00:31:50] So that is where I see eCash truly come in and shine. I believe in five to 10 years. We will see many already classical custodial services offering a cash like product on top of what they offer today because eCash allows you to transact. Well, first of all, privately, but also super fast and super cheap.

[00:32:13] You can transact while you’re offline. We didn’t mention this, but your example with the card payment made this apparent. You don’t need internet on that card to make the payment. So that is super important. Again, something that Visa and MasterCard has solved for a while already, but in cryptocurrencies or in Bitcoin specifically, we don’t have an answer to that yet.

[00:32:31] So eCash also allows you to that. All those nice UX properties of eCash will make it a very strong argument for these companies to rethink how they can improve their products in the future. And I know this by talking to. Many people who run businesses, who run these services, I won’t mention any names here, but similar to Koinos, who are looking into eCash because they see that’s the next thing that I can add to my service to make it more valuable.

[00:32:58] I like to compare it to a transition from The web, when we were using HTTP unencrypted, clear internet to HTTPS, which we’re using today, the secure encrypted version of HTTP. And you’ll notice every website today only uses HTTPS and using HTTP is a big no go. If you see a HTTP website, you turn around and don’t use it basically.

[00:33:22] And I see a very good argument for that is that all these services, small little custodial services, a website where you can charge a balance, a website where you can tip someone, a website where you can pay for an article, all of these can transition to a better system that gives their users more agency, more privacy.

[00:33:38] And that’s why I predict that many services that we’re using today already will add some type of eCash on top of the products that they’re offering today already.

[00:33:49] Preston Pysh: Talk to us more about offline payments and how you’re able to like, what’s happening technically there that’s allowing this to happen, that you don’t need an internet connection.

[00:33:57] Cause I think that’ll blow a lot of people’s minds.

[00:34:00] Calle: Yeah. So offline payments are truly fascinating with this. So as I said before, the state of your wallet means that the eCash that you have stored on your wallet, that’s your balance that you carry around with you. So there are three different ways of making offline wallets.

[00:34:14] I want to go through all of them. One is the sender and the receiver is offline. Both of these parties are offline and you want to make a payment that can’t be double spent. Now, unfortunately the answer to that is it’s not possible. You cannot make a digital payment where two parties are offline and be sure that it cannot be double spent.

[00:34:32] That’s just the way it is. I take data and I give it to you. And since you cannot check whether I send it to someone else, I could just send it to someone else while you’re offline and no one would notice. So that’s not possible. We can try to achieve some kind of fully offline payment by, for example, making my app prevent me from cheating on you and so on.

[00:34:54] But on a technological foundational level, it’s not possible. We can try to hide some aspects about it to make it possible. So, okay, that’s fully offline. Now we have two other cases where one case is sender is offline and the receiver is online. And the other one is the opposite. The receiver is offline and the sender is online.

[00:35:12] Let’s start with the first case. Sender is offline, receiver is online. This is a case where, for example, you go into a bar. The bar owner has a terminal that is online, and you’re a user with your credit card or with your phone, and there is no internet. You have no internet connection, or let’s say you just don’t want to use the internet because it’s way faster to not use the internet.

[00:35:31] So in that case, you just walk into the bar. And the bar owner would present you with a QR code or some NFC thing that you can tap your device on. And the only thing that’s happening is literally eCash flowing from your device directly to their device. And then they take the eCash, swap it with the mint once to prevent you from double spending, similar to what we just explained before.

[00:35:52] So in that case, I didn’t need to come online to pay someone. And the other case where the receiver is offline and the sender can be online is something we call pay to pub key. It is very similar to how we make Bitcoin transactions today. For example, in Bitcoin, if I’d like to send you Bitcoin, you just give me a Bitcoin address, but you don’t need to come online for you to receive the Bitcoin, right?

[00:36:13] You can stay offline as long as you like. I just need your address. And that is similar. We built something similar for eCash. Let’s say again, in this example, you’re the receiver and you’re offline. I have internet, I’m the sender, and you give me your eCash address. It’s a public key that looks like a QR code, and I can scan this with my phone.

[00:36:32] And what happens when I scan it with my phone is my phone takes the eCash in my wallet and then sends it once to the mint. That’s why I need to be online and adds a smart contract to that eCash. That makes it so that the eCash that I will receive back from the mint in that operation can only be spent by someone who has a private key to that public key, which is you.

[00:36:50] So me as the online sender can produce eCash that is locked to a private key. And now you’re still offline and I can now hand you this locked eCash and you can look at this eCash as the offline receiver and see it’s locked to your key and see that the signature from the mint is valid and then the transaction is complete.

[00:37:11] That means it’s kind of magical because the moment you see the eCash as a receiver and you store it in your database, the moment that happened, the transaction is complete because you know that you didn’t receive it before and you know that no one else can receive it. So the transaction cannot be double spent on you basically.

[00:37:28] Now, what can you use this for? This is very, very interesting, but in the offline case where the receiver is offline. Isn’t the most typical situation, but what’s much more typical is that we’re both online. Let’s say you’re a server and I’m a user, but I want to send you, let’s say a thousand transactions per second because I want true micro transactions that I don’t know.

[00:37:49] For example, by watching a YouTube video and I want to pay for the YouTube video every second for every single second that I watch now making an online fully online transaction every second. It’s super fast with eCash, but it’s still maybe not fast enough. And in that case where I want it to be extremely fast, you can just share your public key with me and I can pre lock, let’s say a thousand sets each with one Satoshi tokens, and I can just lock them and put them in my pocket.

[00:38:18] And then for every second of video, I watch, I just sent you a Satoshi with it. And you look at it and put it in your database and the transaction is complete. And with that, we can build a payment protocol between you and me where I can pay you literally thousands of times per second, because there is no internet activity going on.

[00:38:35] You look at the eCash, you check at the signature and you’re done. And so that’s why we’re very interested in this flow for high frequency transactions, for machine to machine payments.

[00:38:45] Preston Pysh: Wow. Wow. Is that fascinating? Hey, so you’re pretty active on Nostr, I suspect you are placing a lot of value in it and you find that it’s going to be useful moving forward.

[00:38:55] There’s a lot of people, the naysayers, that look at the Relay network and they’re saying this is going to be very data intensive, it’s going to consolidate and get somewhat centralized. I’m curious, Because I respect your technical opinion so much. How do you see this? Do you see this as a concern in five, 10 years as far as how robust the relays are going to have to be for consolidating a lot of the useful information that’s posted there?

[00:39:19] Calle: So for me personally, Nostr doesn’t have to mimic what we’re using today. I’m not the biggest fan of the systems that we’re using today, so I’m okay with trying something different. I think most critics who haven’t spent time, much time with Nostr still assume that Nostr is trying to become a central large hub for social media like Twitter is where everyone sees the same thing and you can be sure that everyone has the same thing.

[00:39:49] Feed and so on and so forth. As long as if you throw this assumption away and bring it back in later, but if you throw this assumption away, all your problems suddenly vanish because you see that Nostra can scale infinitely horizontally. That means there can be many sub communities, for example, that are all using their own relay, let’s say a thousand people per relay, and you can just put as many relays as you want.

[00:40:12] If every one of them services, a thousand people, you can scale this. to infinity. No problem there. So obviously some people will use more than one relay and then you will have these interactions between relays. And this is the way that we’re using NOS today. So in my mind, I don’t think that centralization is the issue there.

[00:40:29] I rather think that things like internet use and traffic use storage for these machines will be something that could be costly for the operators of these machines. That can also be a centralization pressure. We see this with Bitcoin. We’re trying very, very hard to keep Bitcoin low demand such that you can run it on low, cheap hardware, but for internet services like Nostra for with very high data throughput, I think that’s not really achievable, but it’s still in the realm of that anyone could run a relay today.

[00:41:00] So in that sense, I’m not really afraid of centralization. I think Nostra will scale a lot on a horizontal layer and a horizontal axis, how we will manage to build systems where we can show that everyone receives the updates and so on, if necessary. is I think a very hard problem to solve indeed though.

[00:41:19] So in also we don’t have mint. I say mint relay to relay communication, for example. So posting something on one relay doesn’t mean that it’s available on another relay. Some people come in into North star are surprised by this and say like, wait, that’s weird. I don’t see the post that you’re seeing, but again, I think we don’t really need that level of concentration anyway, but if we want to achieve that, that is indeed a bigger problem that I don’t know if anyone is able to solve right now.

[00:41:47] That has to do with synchronization between relays and making sure that everyone sees the same data. But as you said before, I’m a big fan of Nostr, not Only because it’s scaling properties, but it’s an open system. It allows anyone to build anything they like within the boundaries of, scaling and the tech that supports this infrastructure.

[00:42:09] So if you want your application to have access to a social network with minimal effort right now, there is basically nothing other than Nostr that you could use with a simple library included into your application and boom, you’re let’s say cash rewarded. Suddenly sees all your friends that you’re connected with or Nostr, and with a simple click, you send them eCash.

[00:42:30] This is something that now, as an example from the Cashu ecosystem, we could have never built in order to achieve that kind of UX. We could have never achieved that at all. But Nostr is this open platform that is already A large network of users that follow each other can be used to build a webs of trust that you can just take and put into your application and boom, suddenly you have a social layer inside your application.

[00:42:57] And that’s why it’s such an insanely useful and immensely powerful tool for Bitcoin and the larger exchange of information on the Internet. I believe that Nostra is here to stay. It’s going to. Grow steadily as it has right now, because with every day, people will realize that it’s a source of data and publishing communication between people and also communication between computers from machine to machine that has this beautiful properties that everyone can join.

[00:43:29] Everyone has the same authority. There is no hierarchies in Nostr, so I’m pretty sure. That it will stick around there, at least, similar to Adam Beck, who says, I will buy you a Bitcoin for 21 cents, even if the price falls, there’s a bottom that Adam Beck guarantees. And I think there’s also a strong core of infrastructure and software already being used today that guarantees a bottom for Nostra use, even if everyone stops using Nostra as a social media client, there’s enough software out there already that needs Nostra in order to make coin joins, cash transactions.

[00:44:04] Lightning zaps and all these things possible.

[00:44:07] Preston Pysh: What’s interesting. So we had dinner there in Riga. There was probably 10 or 14 people at this dinner. And at the end of the dinner, they never want to give everybody their individual bill. So they’ve collected the bill and the one, one person was like here, I’ll pay it.

[00:44:20] And if you guys got cash or whatever, just give it to me. It’s no big deal. Well, of course I don’t have any euros in my wallet and I was able to just go on the I found this person and I paid this person 50 worth of Bitcoin right there on the spot. And they had no choice whether I was going to give them the money or not.

[00:44:40] I was able to pay them even without their permission. I was able to find them instantly. I mean, I did all this in like, I don’t know, 20 seconds, 30 seconds. I was able to find them immediately clicked on their wallet and then just, send over that. And what was great is people that are, well, I can just Venmo that here in the U S or I can useCash app that will, you have to have the same application.

[00:45:01] I’m in Europe. They don’t, I don’t think they have Venmo, in Latvia. And so it was just, I don’t know, it was just pretty fascinating to see how quickly all of this could happen. And it’s in this open source, open network kind of way that I didn’t even have to talk to the person. I didn’t have to ask them their bank address or any of that kind of stuff.

[00:45:20] It happened in literally 20 seconds. It was wild.

[00:45:23] Calle: Well, that’s beautiful because I mean, Nostra as an index for people to find them and reach them is insanely useful. And to add a more nerdy point on top of that is that it also gives us public private key pairs so that you’re not only able to find someone and communicate with them, but it also already is useful for making sure that something is authentic.

[00:45:46] For example, if I’d. Release a statement as Kelly, which I don’t do often, but let’s say I release a statement. The best way of making sure that this is indeed for me would be to sign it with my Nostra private key. Even if that statement has nothing to do with Nostra, the most trust to one of my private keys.

[00:46:05] Is on my Nostra private key because so many people have communicated with me on Nostra already. So I think that is an insanely useful thing. PGP has tried to achieve this also with key servers and so on. Like people from back in the 2000s and 90s and earlier will remember all of this and it never really caught on.

[00:46:23] We needed these servers where we upload public keys and make sure, I’m present. This is my email address if you want to reach me and so on. All of that is not necessary anymore because we have keys that are already backed by some social credibility to use or not. Sir, there’s one more thing that I wish was stronger than it is today, which is the Bitcoin conversation itself.

[00:46:45] I’ve been following Bitcoin conversations from the days of Reddit and then when Reddit started to slowly die. Everyone moved to Twitter and today most of the important Bitcoin conversation happens on Twitter. We also have the mailing list and that mailing list has turned into a Google group. Now there’s delving Bitcoin, another platform that is more form like.

[00:47:07] So I would say these are kind of the most important communication media that we’re using for Bitcoin itself. And Bitcoin is so important that it is also very important what medium we use to communicate with each other to talk about. Soft forks to talk about changes to Bitcoin, dangerous or best practices and so on and so forth.

[00:47:28] So I’m very sad about the fact that all Bitcoiners have decided collectively to use Twitter as the most important communication platform that has to do with Twitter because Twitter is so successful. But I wish we would all see the benefit of using something that is not controlled by a single entity.

[00:47:46] It is truly dangerous to use. Something like Twitter for Bitcoin discussions, because we know how rallied up and political and emotional discussions about Bitcoin can also become, especially when they’re important, especially when it’s about security, safety and changes to Bitcoin. So these conversations can be manipulated by the operator of these services.

[00:48:07] And with Nostr, we always have a. Safe haven for our communication in case everything goes nuts and breaks or is being manipulated under us. And we can always use Nostra for a true censorship resistant communication, especially for Bitcoin. So my wish would be that the Bitcoin community itself more and more sees this value of Nostra and would move on their discussion to a place where their speech cannot be manipulated, like with an open network like Nostra.

[00:48:40] Preston Pysh: I’m going to mess up this terminology, but I know that this stuff is really, really important. So help us understand why this is important and then help us understand what’s happening. And what I’m talking about is a domain name server, DNS, and also HTTPS connections over Nostr. I know that there’s people working on this.

[00:48:57] You being one of them, help us understand what this is and why it’s so important that it’s happening over Nostr.

[00:49:04] Calle: So the domain name system, this is. DNS, something that everyone knows, even if you don’t know the name of it, which is the way that we type addresses today to reach a website, www. google. com.

[00:49:17] This is a human readable address. And in order to reach the server where Google offers the services, what your computer does is it goes to a server additional service run by someone you don’t know, probably that’s called a DNS server. And you ask that server, Hey server. I would like to know what’s the IP address of the server corresponding to www.

[00:49:40] google. com. So a DNS service is there to convert a human readable address to an IP address that is, a couple of numbers and dots in between that tells your computer how to reach another computer. And so we have built this DNS system that is widely used. It’s working quite okay. However, it’s important to realize that this is a highly controlled.

[00:50:01] In large parts, also centralized system. That means there are only very small amount of groups that can access these DNS servers, can make changes to these DNS servers. You need permission to register a domain. You need to identify to register a domain legally. And once you have the domain, in case you do something that the domain operator, DNS server operator, or the government doesn’t like, they can always just press a simple button that is already there for them to turn your website off.

[00:50:30] And we’ve seen this happen with so many examples, I really can’t even start counting them. It’s it’s too many websites have been turned off because they have done something that someone else doesn’t like. Of course, this can also be important in case of true crime and fraud and so on. You also want a mechanism to prevent that.

[00:50:48] But what you can always do is to walk up to the server and just turn off the server instead. So this is a domain name system. It is a centrally controlled, very official. And political system. Now in Nostra, what I said before is we often use Nostra also to connect machines to machines and in Nostra, you don’t really need domains.

[00:51:10] What you need is in order for me to reach you, for example, I just need your public key and you can give me your public key. via, send it to me via signal, for example, and what I need additionally to that is a relay on which you are reachable, which you check sometimes for your inbox messages, for example.

[00:51:28] So once I have these two pieces of information, the public key and the relays that you like, I can send you messages, we can communicate. And the same goes also for machine to machine communication happening on Nostra. So one machine would try to communicate with the other machines public key. And this is what we’re building.

[00:51:44] But as a replacement of the domain name system on Nostra directly, we call this Nostra web services. And this allows operators of any service, this could be a website, this could be a Coinjoin coordinator, a cache mint, or whatever API system that you want to host, a large language model or whatever it is, you can basically take this existing software that you already have, and you can plug it into Nolster, such that another application on the other end can reach your server.

[00:52:13] through Nostra without having to rely on DNS. And this is super useful and especially for low bandwidth applications where you don’t want to put too much pressure on the system. This is super useful for especially eCash mints. I have seen this already in reality. People, someone has built a wallet and a mint backend that also supports this.

[00:52:32] Works completely over Nostra. So you have a eCash wallet and mint that communicate not through the normal web with DNS, but instead with Nostra in between. And this is amazing because it, first of all, it allows anyone to run a service without having to run it on a server that is reachable by anyone. So it’s like opening ports and redirecting and firewalls and all of this technical stuff that you need to take care of to run a service.

[00:52:59] So you don’t need all of that. And the second of all is you don’t need to share your IP address or domain name as well with your users. So your users don’t even know that the machine that they’re talking to runs at your home, for example. But instead, the only thing that the user sees is the relay through which they communicate with you.

[00:53:20] And this really gives us more resilience. For these services, we can run them without anyone being able to rock us from our DNS names and also protect the people who run these services such that they can also do this privately.

[00:53:34] Preston Pysh: I think this is such a huge deal. I think this is a massive deal that this centralizing force, which is the DNS is completely undone in the way that you just described, because now you’re basically able to.

[00:53:48] Have your own private key that’s associated with your pub key that can then be tied to an IP address. It’s so simple, but so insanely profound to protect the integrity of anybody being able to list a website or a service online without effectively the government coming in and saying we don’t like this IP address or we don’t like this person that has this website and we’re going to shut it down through DNS if that was the attack factor.

[00:54:13] Did I say all that correctly? I feel like I said that correctly, but I, maybe my technical.

[00:54:17] Calle: Yes, you did. But it would make sense to also mention that and no sir, itself is not the best privacy tool. So if you’re looking for true privacy, then the services like Tor I2P that are more suited to that because they add multiple hops between you and the server that you’re trying to reach.

[00:54:35] So just keep in mind that if your requirements are extra high and you need extra care, then it’s better to use well established software or projects or tools that are recommended by, for activists and so on.

[00:54:49] Preston Pysh: So yeah, I’ve got one other one just because I was going to wrap there, but I have one other one.

[00:54:54] So I’m talking with people about this hole punch technology, which seems to be for direct messages. And this is the folks that are the tether folks are the ones that have put this protocol out. I guess the protocol itself is fully auditable. My understanding from talking to them that the. Proprietary pieces on the application that they’ve designed and the UX that interfaces with this protocol.

[00:55:17] I’m curious if you have played around with this at all. And the reason I’m curious is because if you’re using Nostr for call it identity. So you and I have a connection on the Nostr protocol. So I follow you. I follow you. I think you follow me back. I’m not sure, but we can find each other very quickly.

[00:55:34] And then if we’re using, and right now Nostra has its own way of conducting direct messages between us, or if we wanted to create a group chat that I don’t know that we were there with the group chat yet, but we don’t necessarily have to use DM, Nostr’s DM protocol, we could set up another type of protocol, call it hole punch, that’s using Nostr for us to identify each other, to set up our own social graph, and then we can use these other protocols that may be better or may be worse to connect, and it’s completely up to the client provider.

[00:56:07] To orchestrate these different protocols and these services for us to interact in what we think is the best way to do it. I’m curious, have you played around with this whole punch? Cause I know you can also do video this way and it’s serverless. So there’s no data sitting on anybody’s servers in between.

[00:56:22] What are some of your thoughts on this? If you have any at all.

[00:56:25] Calle: So I haven’t tried it, but I think I have a at least vague understanding of what it’s doing there. Just to summarize my understanding, and hopefully that’s not wrong, a hole punch technology itself is something very useful, and it helps to connect two computers directly to each other, peer to peer.

[00:56:44] And why is that so hard to achieve most of the time there is at least multiple other computers between your computer and my computer that could be a router, for example, at your home. So this is a very basic thing that prevents you and me to connect directly to each other. That’s why we’re seeing the client server scheme being so dominant on the internet.

[00:57:05] We have a clear distinction between what is a server and what is a client. The server is always reachable. The client is usually not reachable by anyone. Client then connects to the server. And then we do some, something with that. And for a normal messaging service like telegram or a signal or something like that, what you have is we have one server in the middle and both of us connect to the server and we exchange messages through that server because both of us can reach the server right now, what hole punch or generally this is also referred to as not punching is achieves is that this gives us a protocol or a way to build a direct.

[00:57:43] Communication channel between your computer and my computer, even if there are other your router and everything preventing us from doing so easily. So this achieves that, and this is really a hard problem to solve, and I’m really happy that they’re working on this. As far as I understand, it still requires another server to actually make us find each other.

[00:58:06] So it’s not completely serverless in the sense that we need someone to help us connect, but once we’re connected, we don’t need that server anymore. And the entire communication is then peer to peer. So in that regard, I think it’s a fantastic idea what you just explained to use Nostr again, to find people, then to establish a secondary protocol on top of that.

[00:58:25] And in a sense, that’s exactly what we’re doing also with lightning and also with Cashu, right? We’re using North star as an underlying social graph to find someone, then make our machines talk to each other. And then we can execute a payment on top of that, for example. So similarly, it would be the same thing for hole punched.

[00:58:43] I would find you, then our machines would talk to each other through the nostril relay first, and then find a common protocol. protocol to then connect directly to each other. And then we could leave the NASA server behind and communicate directly peer to peer. I think there’s a great benefit in that.

[00:59:01] However, again, some privacy concerns that might be important to mention here. Again, if I connect to you directly and you connect to me directly, then I know your IP address. That means I know. The city that you live in, maybe even the neighborhood block in which you live in, because I can basically map from that IP address to your location.

[00:59:21] And anyone who can directly connect to your infrastructure is able to do that. This is something that we’re trying to prevent with Nostra web services, the thing that I just explained before.

[00:59:30] Preston Pysh: And this is all if you, on that comment, this is if I want my public profile to be, no, what’s the word? I’m like proof of work behind my social so like, if you go to Nostr and you look up Preston and you can see like, okay, this is Preston cause he has a hundred thousand followers and he has all these posts and it looked like, that looks like him, right?

[00:59:51] So if you and I wanted to conduct direct messages, I could just create another pub key that basically nobody else knows I could go there. I could follow a couple accounts. It gets listed into the various relays and then you and I could have DMS and that would be masked at that point because it’s an anon account that I created, correct?

[01:00:09] Calle: Yes, it is an anonymous account that you can create as many as you want in Nostra and doesn’t cost you anything. However, how would I know that this is actually your account? So it could be anyone in someone, an imposter, but that is still separate from the IP level privacy that you lose once you connect to someone directly.

[01:00:28] So these are two different things. One is your public key and Nostra identity. The other one is after we’ve established contact. Now, basically imagine we would do the same with telephone numbers, right? I find you on no, sir, I write you a DM and say, Hey, Preston, give me your phone number. I want to call you on the phone line.

[01:00:46] So you sharing your phone number with me is obviously, you’re giving away some part of information about you and which country you are. And with that phone number, I could probably locate you if I’m the police and so on and so forth. So this is once you level up the communication onto a new protocol, you have to ask yourself again.

[01:01:03] What are the privacy properties of this new protocol that we’re engaging in?

[01:01:07] Preston Pysh: I’ll tell you what, talking about free and open private money, talking about free and open speech at a time like right now, I’m sorry, folks, there’s just nothing more exciting and mixing in all the engineering. There’s nothing more exciting in my personal opinion that you can talk about.

[01:01:22] And Calle, you make it accessible. Not only can you do it. But you can also make it accessible, which, there’s not too many engineers out there that can do that kind of stuff. So I can’t thank you enough for coming on and having this conversation. This was very exciting for me. I’m learning a ton from you.

[01:01:39] If you want to point people to cash you or anything else that you’re working on, please tell folks where they can find you. I know you’re active on Nostr and Twitter and whatnot. So go ahead.

[01:01:48] Calle: First of all, I completely agree with what you just said. This is extremely exciting. We’re living through the best times that we had, and we have so much more to do.

[01:01:57] The internet itself was truly, it’s not the best internet that we could have had and everyone. Basically knows this and it’s only up to us to improve our own situation there. We cannot rely on large corporations or governments to build the internet infrastructure that we want to have in our lives.

[01:02:16] So I completely mirror your enthusiasm there and i’m also very excited to be able to work on these things I want to as a Last message out there, especially you want to direct this to developers or maybe listening into this right now. And I know there are so many people out there who know programming or doing stuff with computers who are working for companies and having a normal job.

[01:02:38] Who would like to do more open source work because it’s. They know it’s a good thing to do and it’s fun thing to do. So my shout out goes to the devs out there who are listening to this and who are thinking, I really like to contribute to Bitcoin. We really, really, really need you. Bitcoin’s lifeline are the engineers and developers.

[01:02:58] It’s very important that people do podcasts and education and courses and so on and so forth. But what we never can miss is the engineers building Bitcoin open source software. So please, if you’re hearing this, and if you feel enthusiastic and inspired, then just look into projects that you’re already using.

[01:03:21] Look into the code, start pull, make pull requests, open issues on GitHub. And if you are interested in working on Cashu and contributing to our open source project, then just hit me up on any of the socials. You’ll find me as @callebtc on Twitter. You’ll find me as Calle@Cashu.Me Nip five on Nostr.

[01:03:40] If you want to find me, I’m sure you’ll be able to, and just hit me up and I’ll show you around the code base and it would be an immense help for people to join. But again, even if you’re not interested in Cashu, please consider contributing to Bitcoin. We need everyone we can get. And I hope we can grow our open source community and build on this monumental foundational project that will take decades and decades of work.

[01:04:08] And with your help, we can get there. So thank you so much for having me, Preston.

[01:04:12] Preston Pysh: Thank you so much for making time, Calle.

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