Giacomo joins me again in this episode to explain for newbies why there is only one Bitcoin. We cover common points of confusion that newbies and outsiders to Bitcoin may not grasp:

Forks of Bitcoin

Semantics and word games

Traps to avoid

Giacomo link:

Podcast Transcript (Sponsored by GiveBitcoin.io):

Stephan Livera: Welcome to the Stephan Livera Podcast, focused on Bitcoin and Austrian economics. This is episode 75, and my guest is Giacomo Zucco. Just a fair warning, for my intermediate and advanced listeners, this one is a little bit more of a newbie episode. It’s targeted towards those newbies who might be a little bit more unclear on why there is only one Bitcoin. So if you’re already quite clear on that, maybe just share this episode with a newbie friend, episode 75. Otherwise, if you’re a newbie, listen on.

Stephan Livera: Also, one quick note. Apologies, I accidentally recorded the audio just from my side, it’s coming out of my webcam microphone, as opposed to my normal podcast microphone. So, apologies about that. I’ll make sure I fix that up for next time. It is just a one off. But it also won’t be a big factor, as I don’t do as much of the speaking this episode anyway. With that said, let’s go on to the interview.

Stephan Livera: Giacomo, it’s not been that long since you were on, but I’m very happy to welcome you back again for another episode.

Giacomo Zucco: I’m very happy to be back again as well. I mean, this show was already great before, getting some incredible scoops like Twitter CEO, and now it’s one of the best shows around.

Stephan Livera: Thank you, Giacomo, you’re too kind. Thank you. So look, as we were discussing I think today, again, not an attack about the way other people talk about it. I think it’s more just a way of trying to help newbies who get confused. Because genuinely, many newbies might come to coinbase.com, or Con Base as I like to call them, and they would, quote unquote, see multiple Bitcoins. The way it’s presented in some of the nocoiner media, they might also present it that way and say, “Oh, but there’s multiple Bitcoins.”

Stephan Livera: I think, as more experienced Bitcoiners, we have different ways to answer that, but I think the key one is essentially there is only one Bitcoin. So, why is that, at a high level?

Giacomo Zucco: First of all, I have to say that we are not dismissing, while explaining that there is just one Bitcoin, we’re not dismissing the fact that the reason there is this kind of opportunity for misleading newbies, or just kind of confuse them is that in Bitcoin, terminology is somehow ambiguous still. So, there are some terms that are a little bit ill-defined. For example, if you think about technical terms, like a fork, they have a very, very contradictory and inconsistent definitions across different topics.

Giacomo Zucco: For example, you have a repository fork when you fork a software project and you create another project. In this sense, Litecoin for example, is a fork of Bitcoin. Then there is, for example, the UTXO fork, where you fork the… You still in time the distribution of property of a coin into another clone of the same coin. In this sense, Bitcoin Private, Bitcoin Gold, or even some other altdrop altcoins, like I don’t know, Bytecoin, or Lumen, they are a Bitcoin fork.

Giacomo Zucco: And then there is the technical terminology about hard forks and soft forks in Bitcoin. The nice thing about, and the crazy thing and the funny thing about this is that when you have a natural hard fork in Bitcoin, and a natural soft fork in Bitcoin, it doesn’t produce any other chain or any other coin. So, a successful hard fork in Bitcoin, has output, just one Bitcoin. So, there is a lot of confusion.

Giacomo Zucco: This confusion also includes words like consensus. There is the social consensus about which software is Bitcoin about, and there is the chronology consensus about which one, between several value transactions, is the first to spend some output? And also, and then there is a scam conference in New York, the consensus conference. There are a lot of consensus. This kind of ambiguity also impact the word Bitcoin.

Giacomo Zucco: So, what is Bitcoin? Bitcoin can be one idea, so the idea of having a purely peer to peer system in order to transfer value in a censorship resistant way. So, an idea which is closely related with the purpose of Bitcoin, so in order to understand what is Bitcoin in this sense, you have to think about all the cypherpunk history of people searching for a perfect digital equivalent of gold. So you have to think about the history of e-gold, how it was censored, and then Hash cash, and reusable proof of work.

Giacomo Zucco: You have to understand history in order to understand what is Bitcoin as an idea of fulfilling some purpose. And I will try to argue that this kind of idea is pretty specific, is basically the idea of having a form of digital equivalent of gold, some kind of money which is a hard money, and which is a dark money, meaning that you can use it without a need for an identity. If Bitcoin is this idea, fulfilling some kind of purpose, then there is only one Bitcoin for filling this idea, which is basically the Bitcoin we are going to talk about.

Giacomo Zucco: But then again, you can use the word Bitcoin to indicate an idea as a structure. Think about cargo cults. You have these primitive people living in a jungle. I know that primitive people in a jungle is probably not very politically correct way to describe them, but let’s face it, they are primitive people, living in a… Let’s say, they are differently evolved civilization. They look at a plane.

Giacomo Zucco: This plane is flying over the jungle. They see the shape, and they see that the thing is powerful, and strange, and mighty, so they build something with the same shape, with wood. They start to think that reproducing the shape and the structure, they are actually reproducing the power of the same idea, which is not the case actually, because their cargo cult is just a cult. It’s not really cargo, it cannot fly, it cannot do anything.

Giacomo Zucco: So, you can have the Bitcoin idea as a purpose, which is just fulfilled by a single implementation, or the Bitcoin idea just as a structure where you copy the structure, thinking that you’re also copying the properties of Bitcoin, like decentralization, the immutability, censorship resistance. All this kind of property, you think that if you just copy the codes, the software, then you copy the property as well.

Giacomo Zucco: Then, you can also imagine Bitcoin as a protocol, so a set of rules that if you follow this set of rules, then you are in a rule consensus with other people, and you can basically transfer the same kind of value. If we think about Bitcoin as a protocol, then there are a lot of software implementation, but just one Bitcoin protocol.

Giacomo Zucco: Then there is Bitcoin as a software, and this is what people are misleading folks about when they talk about Bitcoin Core. Bitcoin Core is not a different protocol. Bitcoin Core is one of several implementations, which are all consistent and compatible with the only one Bitcoin protocol, which is also the only one instance of the Bitcoin idea as a purpose, as a goal.

Giacomo Zucco: So, there is this protocol, there is a set of different softwares, for example, Core, knots, libbitcoin] Bitcoin. I mean, the go language implementation, the JavaScript implementation, they are all trying to follow the same rules of the same protocol. And then there is a network. This network is the network of all the running software implemented in the protocol, and this is called Bitcoin as well. Then there is the asset, so the arbitrary division of the digital gold, which we call one Bitcoin. It’s a little bit confusing, because I think it was Andreas Antonopoulos pointing out first that the idea of using the same word to describe the idea, the protocol, the software, the network, and the asset is a little bit confusing.

Giacomo Zucco: For example, in scam coins, like Ethereum, they address this problem, because there is the Ethereum network and protocol, and then there is the Ether asset, the unity token.

Stephan Livera: Token.

Giacomo Zucco: I think this is going to solve a little bit, because one very lucky circumstances, that the Bitcoin unit is a super large if Bitcoin is going to succeed. Only billionaires will probably own a whole Bitcoin. So, normal everyday life nominal values will probably be 0.0000 Bitcoin. So, people are starting to switch, for example lightning network, people are starting to switch to using Satoshis, or Sats, which are the actual minimum technical unit inside the Bitcoin protocol. So, probably we will not have this kind of ambiguity anymore between the asset and the software.

Giacomo Zucco: But still, as we have seen in this very long, let me say, typology of things that can be called Bitcoin, there is room for confusion. And then there is a question if we want to ride the confusion in order to promote some kind of scam, or some kind of ripoff, some kind of clone, or if we want to try to clarify a little bit, and to reduce the confusion and the entropy.

Stephan Livera: Right, yeah. Excellent points there Giacomo. I think one way that people can think about it, rather than thinking, “Oh, there are many Bitcoins,” is to understand how that one Bitcoin could change in slight ways. So, with certain upgrades to the technology that have occurred over Bitcoin’s history. I think one point, you know, someone like Pierre Rochard might make, and I think you and I would agree on that, is that when people say there are more than one Bitcoin, that in some sense is a misconception of Bitcoin as this peer to peer intersubjective consensus. Can you articulate a little bit around that point?

Giacomo Zucco: Yeah, so basically if we think about Bitcoin as the idea of a digital equivalent of gold, then there is basically a logical argument for which there cannot be an indefinite number of this kind of digital gold instantiation. If there was… I mean, gold cannot be easily reproduced, because there is a chemical characteristic of reality that is you cannot take an atom and change it into another atom very easily. So, gold is hard to reproduce, it’s hard to replicate, it’s hard to clone. Unless you believe to alchemy and the philosophical stone, you cannot reproduce gold.

Giacomo Zucco: While, software things can be infinitely reproduced. They can be cloned, they can be forked, they can be changed. Especially open software, like Bitcoin, where you can look at the source, change it, and produce a new variant. So, if we don’t assume that there is some kind of social consensus of economical consensus around one specific instance of this software, or of this protocol better, then there are infinite potential instances, and we have infinite supply, and we know that the value cannot work, and money especially cannot work if we have infinite supply.

Giacomo Zucco: Because if something is valuable, and there is no cost into producing more of it, then everybody will be incentivized to produce more of it, and you will have infinite inflation, which will destroy the value. This is what, for example, in the very good book, The Bitcoin Standard, Saifedean Ammous called the money trap. So, if there is money, but money is not difficult to produce, everybody will try to produce money, and money will become useless as a store of value, because everybody will inflate the supply.

Giacomo Zucco: So, if any kind of protocol which tries to reproduce the characteristic of the Bitcoin protocol is also called Bitcoin, then we cannot but assume that there is an infinite supply of Bitcoin, because everybody can… I mean, literally everybody could create a clone of Bitcoin software in their PC. A few years ago there was even a website where you can go, put your name, put your random valuables, and create essentially a Bitcoin clone. I mean, there is thousands, tens of thousands of them, and there is not a cap of how many Bitcoins can exist in this sense.

Giacomo Zucco: But there is only one where there is such a consensus, that is what is called in economics and in game theory, it’s called a Schelling point, so a focal point. If we have to go to a city, and we agree to go to that city but we don’t agree about a specific place, then there is… For example, the center of the city is usually the focal point, the involuntary coordination point, where everybody without communicating can basically agree that everybody else will agree.

Giacomo Zucco: So Bitcoin, the first implementation, and the only true decentralized implementation of Bitcoin, of the Bitcoin network and of the Bitcoin protocol is actually the only Bitcoin which make any sense. Because any other clone, first of all, is not decentralized, and it cannot reach the same level of censorship resistance, because for example, it’s created by very centralized teams, and is managed by a very centralized group of people. Also, it doesn’t have the historical salience, the historical Schelling point that can get everybody as agreeing to the original Bitcoin.

Giacomo Zucco: The Bitcoin software stack can exist in infinite variances. You can create different Bitcoin node software, you can create different layers, different wallets, but Bitcoin as a network, as a protocol, and as an asset must be just one, by definition, basically.

Stephan Livera: Yeah. Okay, that’s a great articulation. I was going to ask one question, but I think you basically answered that. So a newbie, an outsider looking in they might say, “Oh, you Bitcoin people, aren’t you just trying to shout down every other Bitcoin, and there’s many other Bitcoins, why is this one special?” I think you’re getting to that with this idea of the Schelling point, that really people are still coalescing to the best one, right?

Giacomo Zucco: Yeah.

Stephan Livera: Or in their mind, what they believe the best one is. Now I guess the next question is, a newbie might think, “Well, how do you measure that? And can we measure that?”

Giacomo Zucco: So, I’m skeptical about the fact that you measure that as something that is defined by variables that can change over time. There are ways to measure some kind of supremacy. For example, we can measure hash rate. There was this meme going around during the big block wars. This meme was promoted by companies pushing for the New York agreement attack, and it went something like, “Bitcoin is the one where there is more hash rate.”

Giacomo Zucco: Which is actually not true, because the way that a Bitcoin client work, the way Satoshi’s Bitcoin client, or your Bitcoin client, or my Bitcoin client works as a protocol, is that it will validate transactions, and it will only consider valid Bitcoin transactions respecting the rules of Bitcoin. Only among the valid transactions, it will follow the transaction included in blocks with more cumulative work.

Giacomo Zucco: So, the thing is that the Bitcoin software, and the Bitcoin protocol, as it’s designed today, does not follow the hash rate. If I create a transaction which is invalid, for example, I steals Satoshi’s money, and then somehow I get to reach 51 percent, or 60 percent, or 70 percent of hash rate, that’s not going to be accepted by your software, the way Satoshi designed it, and the way we are using it.

Giacomo Zucco: So first of all, the transaction must be valid, following the rules. And only in order to clarify which valid transaction come first, then we use the hash rate as a purely chronological device. So, the hash rate is a way to assess the chronological priority among valid transaction. So, it’s not hash rate divining validity. It is hash rate defining confirmation inside the pool of already valid transaction. It is basically people running software that defines validity, not hash rate.

Giacomo Zucco: So, the argument about Bitcoin is the one protocol with more hash rate is completely bogus. Also, there is the argument about price of market cap. Of course, market cap is a terrible metric, because for example… You were quoting before Goodhart’s law. Once a measure becomes a target, it can be gamed. So, if we establish any kind of metrics, people will find ways in order to game the metric.

Giacomo Zucco: The typical example of that is actually market cap. Market cap is the supply multiplied by the price. But if I create a coin of which I own 99.999 percent of the supply, I sell one of these very, very tiny fraction of a coin, 0.0001 percent of the supply on a market at a very high price, for example I sell for, I don’t know, 1000 dollars to myself maybe. Then, if an external website is monitoring that price multiplied with the nominal supply that the software is telling people there is, which is actually not the market supply, because I’m owning all the supply, then I can easily game market cap.

Giacomo Zucco: And indeed, what ICOs, and tokens, and scam coins did in the last year were to take the market cap metric, and to game it in order to become more relevant, and to challenge each other to who was better at gaming the market cap metric. So, that’s not a good metric in general. But even if you find a better metrics, like you multiply market cap for volume, so you can find some kind of liquidity, buy support, even there you don’t really define Bitcoin.

Giacomo Zucco: I mean, Bitcoin was created in order to resist censorship of very powerful entities, like nation states, the same adversaries that shut down the early attempt to create digital gold, like e-gold. So, this kind of adversaries, not only they can easily, if they want to, at one moment in time reach a majority of the hash power, they can, but our software will just not accept invalid transaction. The only thing they can do if they get the majority of hashing power, is only double spending valid transaction, or reorging the chain using valid transaction, not invalid ones.

Giacomo Zucco: So they cannot change the rules with hash rate, but they should not be able as well to change the rule with market cap. I mean, if tomorrow the US government, or Google or whatever, they put a lot of money into their scam coin… I mean, let’s frame it this way. If market cap defines what Bitcoin is, then US dollar is Bitcoin. Because if you compare US dollar with Bitcoin, US dollar has a higher market cap. So, if Bitcoin is the one coin in which more market cap, then Bitcoin is the US dollar, which is clearly paradoxical.

Giacomo Zucco: Bitcoin is Bitcoin, and even if some kind of big powerful entity can put a lot of money into an alternative thing, that alternative thing is still not Bitcoin. Also you can measure, I mean, Bitcoin has a lot of metrics where it has the clear dominance. Like infrastructure, you have software infrastructure, tools, libraries, open source software. You have hardware infrastructure, so ASICs created only to mine Bitcoin, satellites in space beaming down Bitcoin blocks, mesh networks transmitting Bitcoin transactions.

Giacomo Zucco: So, you have a stronger software infrastructure, and a very strong hardware infrastructure, and also a very strong financial infrastructure, because you have futures, so you will soon have ETF, and so on. But none of these is a specific metric which defines what Bitcoin is. I mean, once we know what Bitcoin is, we can actually observe that Bitcoin has, and is probably going to maintain, the strongest network effect of all these kind of metrics, because of the way dominance works in protocols, and especially in money.

Giacomo Zucco: But, it’s not these kind of metrics defining what Bitcoin is. Bitcoin is what fulfill the idea of Bitcoin, which is basically right now by definition only the specific Bitcoin implementation and network.

Stephan Livera: Right, yeah. I think the other thing that can confuse newbies this is some of the lies that they get told. There are different misconceptions that get sold. For example, they’ll say things like, “Oh, Bitcoin was the one that forked away from the real true vision,” or they’ll play semantic games with language and framing. They might call it Segwit coin, or Core coin. What do you say about those kinds of things?

Giacomo Zucco: First of all, as we said before, there is… This whole discussion is about words, basically. Words are just placeholders. You can use words in very different way. There is no reason to get mad at people using some words in a different definition. But in some cases, there is people which is basically using some kind of strategy in order to spread some lies, or to take advantage of people, misusing definitions and words in a way which can be easily detected.

Giacomo Zucco: For example, they can try to redefine some words arbitrarily, in a way that also carry along some kind of unconscious or implicit meaning, or they can use some choice of words which are objectively inconsistent, logically inconsistent. For example, if somebody says that Bitcoin Cash is one Bitcoin because it’s a fork of Bitcoin code… I mean, eventually we can accept, in the context of the argument, we can accept the definition. But then, we have to say that Litecoin is also Bitcoin, and that Dogecoin is also Bitcoin.

Giacomo Zucco: Again, if you define Bitcoin as anything which has the same UTXO Bitcoin and at some point in time, then if I created Zuc-coin, and I give away for free Zuc-coin to anyone owning Bitcoin, then my coin, which maybe is completely different as purposes and as implementation, is also Bitcoin. The point is that many of these word choices are logically inconsistent. And also, it’s a very big red flag when people uses this kind of word choices in a way which is inconsistent inside the debate itself. So they change the meaning of the words during the debate.

Giacomo Zucco: A notable example of this kind of behavior are, for example, where people start to call Bitcoin, Bitcoin Core. If somebody is calling Bitcoin ,Bitcoin Core, so if somebody’s using the name of one implementation of Bitcoin in order to refer to the general protocol, or the general asset, that’s a very, very big red flag. Or if there are more obvious attempt to manipulate the meaning, for example calling it Segwit Bitcoin, Segwit or stuff like that. Basically one of the strongest narrative among people lying about Bitcoin is about Bitcoin changing its…

Giacomo Zucco: So, some people basically developed an idea of Bitcoin very, very early on in which Bitcoin was something super cheap to use, like free, you can have your cake and eat it, free lunches for everybody, there are no technical limitation, there are no technical trade-offs. Bitcoin is something miraculous, where everything is free for everybody, and there is never a choice, a sacrifice to make. Which is something that is never true for reality in general, and for software in particular.

Giacomo Zucco: So these people, they built reputations around this idea of Bitcoin, and they also built some businesses around this idea of Bitcoin. For example, assuming that the validation costs that were not in trade-off with the transaction cost, or assuming that block space can be infinite, without actually becoming a threat of fee pressure to sustain the security. So, they were ignoring some trade-offs, and they built a reputation and business around this ignorance.

Giacomo Zucco: When this ignorance actually faced with reality, they had either to admit it, giving up their broken business model, or apologizing for their reputations built on top of mistakes, or they could just try to change the protocol in order to adjust to their broken conception, and to subsidize their broken business model. Some people, notably the people participating to the New York agreement attack, and other kind of attacks on Bitcoin, they actually choose the second road. Instead of adapting to the reality of Bitcoin, they tried to change Bitcoin in order to adapt to their early misconception.

Giacomo Zucco: But the one rhetorical trick that they pulled… At the beginning, they were just, “We have to change Bitcoin, otherwise Bitcoin is doomed.” I remember some of these people saying, “Bitcoin is going to die in two weeks if we don’t change the block size.” Gavin Andresen was tweeting in 2015, I think, “Bitcoin will basically die if we don’t change the block size and few months,” and it was false, of course.

Giacomo Zucco: So the first rhetoric, the first narrative was, “Bitcoin has to change in order to adapt to our initial misconception of Bitcoin.” But then they started to use a very quite smarter narrative. Instead of, “Bitcoin has to change, because otherwise we are doomed,” they started to say, “No, wait, we don’t want to change Bitcoin. People who was adjusting to the actual realities of Bitcoin trade-offs, they want to change Bitcoin, and we want to change the code in order to get back to the original vision, or to the original economical protocol.”

Giacomo Zucco: So, there was this rhetorical trick in which basically accepting Bitcoin trade-off is changing Bitcoin, while changing Bitcoin in order to subsidize broken business model is getting back to the original vision of Bitcoin. This is done also using some kind of, I think, very, very inconsistent, very, very easy to debunk misuse of the word cash. If you think about that, a lot of people promoting altcoins as the real Bitcoin, they’re using the word peer to peer cash as somehow supporting their idea of increasing validation and centralization in order to reduce on-chain transaction costs.

Giacomo Zucco: I think there is nothing to support this kind of use of the word cash. Because if you think about that, cash in the normal word, in an everyday word, if we say that some transaction is cash, that means that is final, that is settled, that is not based on debt. That is basically… Sometimes we use cash in order to indicate privacy. So for example, you are a fugitive, you are on the run, so you cannot use credit cards, because that would be traceable, so you want to use cash. This was the main meaning in which cypherpunk people were using the word cash. Digital cash means that some kind of digital mean of payment, which is not as traceable as credit cards or PayPal. But, there is no actual reason to associate the word cash to something which is very cheap or very fast to move across long distances over the world.

Giacomo Zucco: If you think about that, if you are going to send a PayPal transaction to somebody from Asia to California, then that’s very cheap, and that’s very fast. Because that’s not cash, that’s just a debt with the counterparty, which is PayPal. But if you try to send actual cash, physical cash from China to California, that’s the opposite of cheap and fast. Cash, since it is more private, more fungible, more final as a settlement, cash has some advantages over [inaudible 00:31:43] money, for example a bank transfer, but it also has some disadvantages. These disadvantages are usually that cash is more expensive and more slow to move across big distances.

Giacomo Zucco: So, it’s crazy that people started to use the word cash, used by Satoshi Nakamoto and other cypherpunk pioneers in order to make people believe that the original conception of these guys were that there are no trade-offs, no technical trade-offs, and we can have a system which is both censorship resistant and able to resist to state censorship, but also super cheap and super fast to move across big distances.

Giacomo Zucco: Ironically, the real Bitcoin, the actual Bitcoin, the only Bitcoin serious people is working on is also going there, is also going to be very, very cheap, and very, very fast to move across distances. For example, with the layer 2 and lightning network, and other kind of layerized technologies and stack. So, we are getting there, Bitcoin is cash, and Bitcoin is kind of easy and cheap and fast to transfer. But that’s not the point about the cash word at all. This narrative was basically a collection of terminology abusers, basically.

Stephan Livera: Yeah. Fantastic. I think one more point that might be really good to hit as well is that some of the people promoting this whole Bcash idea, they throw confusion, they throw this sort of doubt there and say, “Oh, well you don’t need to run a node. There will be enough other big nodes, and you just run a non-validating wallet.” What are your thoughts on that, and why is that inadequate?

Giacomo Zucco: Yeah, this is, again, consequence of another lack of terminology clarity in Bitcoin. For example, we discussed the words Bitcoin, consensus, fork, cash. But also the word node is very, very ambiguous inside Bitcoin, yet I think eventually it will clarify, it will basically ossify around some kind of definition. But so far, it’s still very ambiguous.

Giacomo Zucco: When Satoshi Nakamoto started with the idea, everybody was basically running the same kind of software. There was not any kind of differentiation, there was not any kind of basically division of labor across the network. So, everybody was running the Bitcoin software. And the Bitcoin software was doing a lot of things. It was running as a wallet, so allowing you to sign transactions, and to keep your private keys. It was running as a validating node, so allowing you to validate if transactions in Bitcoin are valid, so if they are validated as signature and rules. And if they are confirmed, so if they are valid as, let’s say, inflation control, and anti-double spending.

Giacomo Zucco: Also, the same software were used also to produce new blocks, so to also increase the block chain, and build the block chain, and generate new blocks including transaction, and also distributing the supply of Bitcoin via the coinbase of the blocks. This last function of a node back then was also itself a collection of two very different function. One function is to set the relative chronology of transactions, in order to prevent double spending. The other function is to generate and spread around the new monetary supply.

Giacomo Zucco: For example, these are not the same things. They have been done together, and it was very smart idea by Satoshi to unify this function in the mining process, but eventually, for example, when the new supply will stop growing, when the block subsidy will go to zero, and the coinbase would only consist of block fees, then the function of distributing coin will disappear, and only the function of building the block chain avoiding double spending will remain.

Giacomo Zucco: So, there are very different functions, and the word node at the beginning was indicating a collection of all the function. Then the system evolved, and the first miners stopped using the same Bitcoin software of the others, and what Satoshi was calling generating nodes. This kind of specialized use started to basically being moved to mining farms, and mining pools, and ASICs, and stuff like that.

Giacomo Zucco: While everybody continued to run a validating node in order to be sure that you have been paid, the only way in Bitcoin where you can be sure you have been paid is to run a Bitcoin validating node. Right now, in the technical consensus of basically all the unknowledgeable developers, when they say note, they don’t mean generating node, so somebody running the mining software with the mining [inaudible 00:37:16] in order to build up the block chain, and to distribute new coins. They mean people basically validating incoming transaction in order to understand if these transactions are valid, or they are double spend, or they are fake, or they are may be producing inflation against the rules of Bitcoin monetary policy.

Giacomo Zucco: So right now there is, unfortunately, no way to validate an incoming transaction, unless you run a node which includes downloading all the block chain, everything, and validating all the block chain. That’s the only way in which you can be sure your payment is valid from a technical point of view. Otherwise, you have to trust somebody. If you use a mobile wallet, except for a very few exceptions, like AB Core, which is a Bitcoin Core implementation for Android, but except with very few exception, when you run a Bitcoin wallet on your cell phone, you are using the wallet function. You are storing the keys, and you are signing with your keys. But you are not using the node function, so you are not validating what you receive.

Giacomo Zucco: Sometimes you are trusting some companies to tell you that you received some money. For example, if you use a Ledger wallet software, Ledger Live, the Ledger company will tell you that you received money. If you use Mycelium, the Mycelium company will tell you that you received money. Which means that you are trusting them, which means that if the government wants to subpoena them to tell you a lie, they can. If they get compromised with a rogue employee, they can lie to you, or the company can do an exit scam.

Giacomo Zucco: Of course, these big company I just named would probably not exit scam on you, because there are reputational and legal check and balances. But technically, they can. Or even worse, some wallet, they followed something that basically there is yet another terminology misunderstanding, which is about SPV. In the white paper, Satoshi was designing the Bitcoin structure. Very incomplete back then. I mean, the white paper is incomplete, it doesn’t talk about supply cap, it doesn’t talk about implementing details, it doesn’t talk about a lot of stuff.

Giacomo Zucco: But it also imagine new features called simple payment verification, or SPV, in which basically you only download and check the headers of the block, and not the blocks themself. And then you check if a transaction that you want to validate is inside, is committed to inside the marker root inside the header of a block. If that’s true, it means that majority of hashing power accepted that transaction as valid, and if that’s true it means that probably the transaction was valid.

Giacomo Zucco: So, this is a smart trick, in order to use game theory, you assume that the majority of hashing power is honest about valid transaction, and then you can just ask them, you basically just ask miner to validate your transaction. So, you trust miners. Which is, I mean, Satoshi Nakamoto, in the white paper itself, he was recognizing that this is potentially very bad, because if you use this kind of trust model, then the majority of hashing power cannot only double spend or reorg, now they can also include the invalid transaction. For example, inflation, they can steal money from people, they can… I mean, you can have a hashing majority stealing all the money from the wallet of WikiLeaks because the government said so, or creating 200 percent inflation, because the government says so.

Giacomo Zucco: So, it’s very bad as a model. Instead of having the hashing majority only capable of reorgs, which is already… I mean, reorgs are a threat, but they are not a total threat. They cannot do anything, they can only double spend money. Instead, if we switch to this SPV model, they can do basically everything. Hash power majority becomes all-powerful, and they can change all the rules of Bitcoin, inflating and stealing.

Giacomo Zucco: In order to counteract this, Satoshi Nakamoto were imagining this kind of solution in which we use cryptographic fraud proofs, in which if somebody with a full node is detecting a fake transaction, they can spread around some kind of alert, which is cryptographically provable by anybody, and everybody will be alerted that the miners are trying to scam them, and they will exclude and not accept these fake invalid transactions.

Giacomo Zucco: The problem is that Satoshi Nakamoto never implemented this fraud proof model, and there are strong theoretical arguments that this theoretical fraud proof model cannot even be implemented, because there are a lot of false positive, let’s say, sybil-attacks so that you can basically have an attack of denial services, in which everybody tries to create fake fraud proofs. So, this model never worked.

Giacomo Zucco: Some wallets started to promote the function that they called SPV, I think it was Mike Hearn, the guy that declared Bitcoin in 2015 and moved on to work for a bank block chains. Mike Hearn, he created the first model in which basically you stop validating, you just trust random mining majorities, and instead of validating the transaction, you trust that the mining, that the hash rate majority is not honest only about chronology, but is also honest about majority. Which is, I mean, with the current centralization of ASIC production, under Bitmain for example, we have seen this completely not something to take for granted. So yeah, nodes is also a word that we should be very careful about.

Stephan Livera: Excellent stuff. I think one more area that can drive confusion for newbies is just around the way journalists present this question of, “Are there multiple Bitcoins?” And they might also present it in a different way, so that they might sort of present it from a nuance and balance kind of doctrine, or they might try and think of it like, “Oh, I need to present the other side,” as though it’s equal weight. But in reality, we know that Bitcoin’s value, and BCash value… BCash is like three percent or less of Bitcoin, so they’re not even equal. Or another example might be on chain scaling versus off chain scaling, presented as though they’re equal. Do you have any thoughts on that? Or ways for a newbie to protect themselves, or be wary?

Giacomo Zucco: Yeah, so it’s very difficult to protect yourself if you’re a newbie, because eventually you will… I mean, right now, when you enter this kind of debate, you are not just hearing two people disagreeing about one technical things. You basically have two people, or two groups disagreeing about the honesty of the other group. So, what is usually called the Bitcoin Core side of the debate, which is a misrepresentation, as we said, because Bitcoin Core is just one implementation of the Bitcoin protocol, these people is not just telling the newbie that other people are wrong about, for example, scalability.

Giacomo Zucco: So, let’s open a parentheses here. Scalability is a term which doesn’t mean that we, for example, we double the number of transactions. Scalability is a specific technical term, and there is basically no… Technically speaking, if you speak it with an engineer, which knows what scalability means, there is no way that a global consensus system where every transaction must be recorded by everybody forever.

Giacomo Zucco: So in Bitcoin, layer 1 in the Bitcoin block chain… The Bitcoin block chain is great to bootstrap Bitcoin. It was a great technical achievement. But, it is a global consensus structure. That means that when you buy a coffee with your Bitcoin, your coffee purchase will have to be recorded, downloaded, and validated, even in year 2130, by everybody. So, every peer of the network will have to download that state change forever, and to validate it in order to be sure, and not to trust somebody else.

Giacomo Zucco: Which is very bad for scalability, which basically prevents scalability in a technical term. Of course we can reach a better scale of transactions on chain, but scale is not the same of scalability. Scalability means something that can scale and a certain way, at a global consensus system cannot technically scale at a certain way. So, when we have this kind of debate, one side of the perceived debate is not just telling you that the other side is technically wrong. It’s telling you that the other side is actually misrepresenting terminology. It’s basically lying to you.

Giacomo Zucco: So, they’re saying, “Look, everybody which has any knowledge about this technology knows that the global consensus system cannot achieve scalability without layerization, and everybody who is telling you otherwise is not just wrong, is basically lying to you about some fundamental trade-offs in technology.” And if you switch to the other perceived side of the debate, they are not just telling you, I don’t know, “This Bitcoin developer is wrong,” I don’t know, “Adam Back is wrong, Luke Dashjr is wrong, Peter Wuille is wrong, or Greg Maxwell is wrong.”

Giacomo Zucco: No, they are telling you that these guys are lying, and that there is a conspiracy. This is a typical populist conspiracy theory. So, when there is some kind of scarcity in life, some kind of trade-off, some kind of sacrifice to make, for example you cannot have your cake and eat it too. Then there is this tendency, this social tendency, this social dynamics in which people tend to create conspiracy theory. So, it’s not that food is scarce, or life is scarce, or health is scarce, because that’s how reality works. These things are scarce because somebody, some elite of evil reptilians is creating a conspiracy in order to artificially take it away from us.

Giacomo Zucco: So, the typical populist approaches, there is money for everybody, free money for everybody, work for everybody, girlfriends and boyfriends for everybody. The only reason you suffer in life is because some conspiracy is artificially taking it away from you. You can see that in movies as well. For example, if you look at science fiction movies, like In Time, or Elysium, you find this typical conspiracy theory. Everything is free for everybody forever, there is no suffering in life, there is no sacrifice, there is no trade-off, but the only reason it appears to be a trade-off is because some cabal of conspiracy reptilians are taking it away from you.

Giacomo Zucco: So, the two sides of the, quote unquote, debate here, is not just people disagreeing about technical stuff. One side is telling you that the other errors are actually technically incompetent and liars, and basically frauds, and the other guys are telling you that the other sides are part of a secret conspiracy in order to create a trade-off, a technical trade-off that doesn’t exist, for some kind of very obscure reasons of conflicts of interest.

Giacomo Zucco: So when you as a newbie, which can be like a reader of news, or a journalist itself, because many journalists are not able since the beginning to address this very complex topic. So, you have just one choice. You have to understand that somebody is lying to you. Because logically, maybe they’re both lying. Maybe one is lying, A, or maybe the other one is lying, B. But, is logically not possible that they are all in good faith. So, when you’re not just witnessing to a technical disagreement, but you are witnessing to actually a mutual accusation or being dishonest, you cannot just pretend that… I mean, you are just exposing two sides of a technical truth.

Giacomo Zucco: The same thing is going, for example, think about the flat Earth hypothesis. Some people think that the Earth is flat. They’re not just disagreeing about a technical detail. The experts in geology, they are telling you that there is overwhelming evidence that the earth is round shaped, like kind of a sphere. They are telling you that the other guys are not just disagreeing, they are telling you that the other guys are basically fraudsters, trying to sell something which is absolutely impossible or discredited. And so they are either incredibly incompetent, or liars.

Giacomo Zucco: The flat Earthers will not tell you that they just disagree about the earth being flat. They will tell you that there is a giant conspiracy in order to fake space photography’s, to fake flight routes, two fake textbooks of geology. So, there is a strong, let’s say, total accusation of mutual dishonesty here.

Giacomo Zucco: So, if you’re a newbie, I’m sorry, but you cannot pretend to stay equidistant. The only way you can settle this stuff is to stop being a newbie, to start to verify the argument that each side is promoting, and then you have to enter into details, and you have to verify yourself who is lying and who is not. I’m sorry, there is no other way around. I know that division of labor is the pillar of society, so a journalist may think, “I’m not technical, so I’m not supposed to understand the trade-off between validation and transaction, and not supposed to understand what is the propagation delay, what is orphan rate. I’m not supposed to know this stuff.”

Giacomo Zucco: But, if you want to clarify things, I’m sorry, but you are supposed to. Either you choose to just refrain from any judgment, and stop arguing about this stuff, and shut up basically… So, you have to choice. Either you shut up, and then you cannot enter into details, and you shut up, and you let other people to figure out. Or, if you want, especially if you want to help people to clarify, to study, to talk about something, then you have to, let’s say, become a little bit more technical in order to be able to understand which, quote unquote, side is lying.

Giacomo Zucco: My take, but you don’t have to trust me… If you are a newbie, you should verify. My take is there is no actual debate here. There is one group of technically and economically educated people, who understand bitcoin. And this group of people, they are not agreeing about everything. They are disagreeing strongly about a lot of stuff. For example, they disagree about stuff outside Bitcoin.

Giacomo Zucco: Right now, everybody in Bitcoin Twitter is insulting each other about inclusion, and all this kind of social justice theories and stuff like that. But, they also disagree about things inside Bitcoin. For example, Luke Dashjr and Nicolas Dorier and Peter Todd thinks that neutrino validation for lightning are a dangerous thing, while great developers, very competent developers, working with lightning network, they think that it’s a great thing, it’s a very positive thing that can help the network.

Giacomo Zucco: So, there is a strong disagreement there. There is also disagreement about, Rusty Russell is scared that the long-term security of bitcoin is somehow not great, because of some kind of dynamics, and other people completely disagree with him. So, there is one side which is not about people agreeing about everything. They disagree a lot, but some of them will be right at the end, and some of them will be wrong. But they are not actually being dishonest, and they are not lying about factual things.

Giacomo Zucco: Well, there is another group of people that are not disagreeing about technical things, they are lying. For example, these people, they were telling people that Segregated Witness had some kind of tragic vulnerability. This was a lie, provably so, because nobody was ever able to exploit this fake vulnerability. They were saying people that Segregated Witness was patented by Blockstream secret society. Which was a lie. The typical example of a liar which is a professional con artist is Craig Steven Wright, the pumper of the BSV version of BCash, is the archetypical example of a liar. He lies about everything constantly, continuously, because that’s his job. I mean, his job is to be a con artist. That’s actually how he makes a living.

Giacomo Zucco: But, there are other people which are just as dishonest as him. Roger Ver… I mean, you don’t have to take my word for it, but if you check facts about what Roger Ver is saying, you will say that he’s lying. Same goes for Brian Armstrong, or other people in this space. Sure, some of these people are famous, powerful, rich, but that doesn’t mean that they are honest. You can actually verify the lies.

Stephan Livera: Yeah, exactly. Great points, Giacomo, very well articulated. I think perhaps we could leave for the newbie listeners, just tell them what are some resources, or things in your mind that you think they should be wary of, that might lead them the wrong way. For example, Bitcoin.com.

Giacomo Zucco: Yeah, Bitcoin.com is a typical example of something which is called cybersquatting. You have to know that, for example, back then there was a website called whitehouse.com, then unlike whitehouse.gov, which was bringing you to the website of the White House, they were bringing you to a porn website. But then they understood that it was even funnier to bring you to a political website that was basically insulting the current president in the White House.

Giacomo Zucco: Or there is, for example, somebody basically registered the MartinLutherKing.com website, sorry, MartinLutherKing.com, creating a fake website. Now it was taken down, but back then the content of this website was a fake official Martin Luther King website, which has some kind of fake quotes and fake sentences miss attributed to Martin Luther King, in order to make him look bad. It was created by anti Martin Luther King people.

Giacomo Zucco: So, this is not news. In the Internet, you can register a website, and you can use that website either to support something, or to fight that something, spreading misconception and lies about that. There are a lot of other example, including like Paris.org, about Paris Hilton and Jennifer Lopez. You can find a lot of example of cybersquatting. So, Bitcoin.com is actually such a thing. It’s a website where you go, you think you are learning about Bitcoin, but these guys are actually selling you Bitcoin Cash, and a lot of lies about how Bitcoin works, and about what Bitcoin is. You should be very wary of that.

Giacomo Zucco: Also, the CoinBase exchange has a very long history of being anti-Bitcoin in his ethos, and ethics, and business behavior, and they’re also spreading lies. I mean, you were calling it ConBase, instead of Coin Base, which I think is a very appropriate joke. It’s very interesting to think of that, with some exception, every company that use a technical term inside Bitcoin as the name of the company, that’s a typical red flag. Coinbase is a technical term, invented by Satoshi Nakamoto to indicate the first transaction of a block, the one creating the new block subsidy and collecting the fees. So, the CoinBase company is registering and using commercially a technical term.

Giacomo Zucco: The same goes for Bitcoin.com, a company using the Bitcoin word as the brand of the company. Let’s imagine somebody using Internet.com as a name for a company, spreading lies about the Internet. That’s crazy, right? But also, blockchain.com, it’s another example of that, which is basically invested by the same people. It was a great wallet back then, in 2013, and then it degenerated into being one of the worst technical wallet ever. It’s terrible from a technical point of view, and also participating into campaigns to discredit Bitcoin and to promote shit coins.

Giacomo Zucco: I mean, this rule of the thumb, if you use a technical term in order to indicate your company doesn’t always apply. For example, when I talk about this rule of this thumb, people from Ledger criticized me like, “Wait, Ledger is also critical term, but we are not scamming.” Also, there is BitPay. BitPay is a typical company which was promoting, spreading lies. BitPay people and Coinbase people, they sent an email to all the users saying that there was a required upgrade of the Bitcoin protocol in order to push for the BTC1 implementation by Jeff Garzik, which was the same implementation that was completely broken, and if adopted, it will have killed the network overnight.

Giacomo Zucco: So, an actual broken implementation that could have destroyed Bitcoin if adopted was sold by Bit Pay and Coin Base as a mandatory upgrade of the network. So these companies, the CEOs of these companies, they never apologized, they never rectified, they never did the postmortem. So, this is not just about digging in the past and being resentful for past attacks. Sure, I mean, we don’t forget, and we may forgive if at least people was apologizing for what they did, and explaining their behavior. But since they didn’t explain, we have to assume that people behind Coinbase, and behind BitPay are still highly adversarial people, trying to hurt the Bitcoin project.

Giacomo Zucco: Of course, there are also other kind of entities, like Coin Desk, it was… I mean, Digital Asset Holdings was participating to the New York agreement attack, so Coin Desk is right now not really, is not at all a trusted source of news about Bitcoin stuff. First of all, they mostly talk about shit coins, and private block chain, snake oil, but also when they talk about Bitcoin, they have a past of spreading lies about Bitcoin, like the lies we were telling before. And also, you have a lot of…

Giacomo Zucco: Now, I will be very wary, and I will be very, very cautious to listen to people that use ambiguity and misconception in order to get visibility and attention. For example Andrew Desantis, Chris Derose, these are smart people, these are not stupid. They know what is going on. But they know if they play with the misconceptions, and they play with ambiguities, and they try to create confusion, they can profit visibility from this kind of confusion.

Giacomo Zucco: I’m sorry to say, I’m not naming names now, because I don’t want to put more fuel on the fire, but there are some major podcasts that are kind of scarily going into that direction right now about Bitcoin. So, if you see some kind of confusion, the ethical thing to do is to try to study and to clarify the confusion, not to boost the confusion, not to spread the confusion in order to profit visibility from that.

Stephan Livera: Fantastic, Giacomo. Excellent explanation. I think that’ll really help the newbies to Bitcoin. So, if you’re a newbie listening, make sure you follow Giacomo, he’s a really good guy to follow. He’s very funny, and he also puts out a lot of good info as well. So, Giacomo, just give the listeners a quick update on yourself, and where they can follow you, what you’re doing, that kind of thing.

Giacomo Zucco: So, what I do is right now mostly education. In the past years… So, in 2013 I got involved in Bitcoin, and started to participate to some startups. For example, I work for the Green Wallet, and others, more start ups. Many of them has failed, rightfully so, because they were bad ideas, but some of them were made pretty good.

Giacomo Zucco: Then I started to do two things, consultancy to institutional and financial incumbents, and support for open source development. We created a blockchain lab in Milan, it was a place for developers, Bitcoin developers to stay for free, and to work together. We helped the launch of some common standards, like Bolt for Lightning Open Time Stamps, RGB for Assets, and so and so. So, what I mostly did in my life was to support Bitcoin open standards, and to use the knowledge I was gathering from that activity in order to sell consultancy.

Giacomo Zucco: Right now, I am switching from consultancy to education full time, because consultancy is getting boring, and education is better for me, it’s more satisfying. So, I joined a company called Bcademy, and with my network, with my previous network, BHB network, I am basically joining this education effort, together with other friends in the Bitcoin sector, in order to provide courses and stuff like that.

Giacomo Zucco: I’m trying to unify my nonprofit open source support effort with other people, with something called The B, which is like a foundation in order to gather donation and to grant bounties to Bitcoin developers. We started this effort almost one year ago, and it’s proving super difficult, so I still don’t know what this second kind of effort, where it will lead me. But if you want to follow me, as Stephan say, you can follow me on Twitter. I can be triggering and offensive on Twitter, so I mean, warnings, and parental advisory, I can be triggering. But, I tried to also be honest and informative.

Giacomo Zucco: Right now, unfortunately, I’m not really curating my online presence, so I don’t have an updated website or stuff like that. So, Twitter is right now mostly the center of my online presence. But from there, I mean, you can find me on Telegram in different chats, so you can find me, yeah, some GitHub or Slacks, and stuff. But mostly Twitter is the center of my presence right now.

Stephan Livera: Fantastic. Well, look, I think that’s pretty much going to do it for this episode. Once again, thank you for coming on the show, Giacomo.

Giacomo Zucco: Thank you for having me, and congratulations for the show.

Stephan Livera: I hope you guys enjoyed those explanations by Giacomo. I think he’s really good at explaining some of these things. He’s definitely a must follow on Twitter as well, so make sure you go find him there. And if you’re a newbie, make sure you also listen to my earlier episode, 71, The Intro to Bitcoin Austrian Thought. I think that’s a really good one for anyone new to Bitcoin, or who hasn’t necessarily heard it from that perspective. You can find my podcast on all the major podcast platforms, Apple, Spotify, Breaker, etc. Also, you can find me on twitter. My handle is @StephanLivera. My DMs are open, so you can ask me questions there as well, happy to help. That’s it for me for this one. Thanks, guys. See you next time.