TRANSCRIPTION

Peter McCormack: Yeah, actually it was funny, I mentioned something the other day to Mr Hodl, there was just something going off about Bitcoin and I don't think I'd ever said it to people before, but I was trying to make the point that I don't make my show for Bitcoiners. The more Bitcoiner you are, the less it's for you. You might listen to it, I mean I'm pretty sure when my Szabo interview comes out like...

Pierre Rochard: And your Pieter Wuille interview, like what Bitcoiner would not listen to that!

Peter McCormack: Yeah, but I don't make it for Bitcoiners. My ideal person is someone who's a no-coiner but intrigued and wants to learn maybe, but that's who I make it. I think if you're like a hardcore Bitcoiner, you listen to your show or Marty or Stephan and I like to test Bitcoiners.

Pierre Rochard: Yeah, I've been thinking about starting a Lightning podcast, just to talk about Lightning, ditch Michael Goldstein! I love Michael...

Peter McCormack: But he's holding you back, man.

Pierre Rochard: He's more interested in beef than in Lightning, so that's where the conversation goes.

Peter McCormack: He could do a beef podcast!

Pierre Rochard: Yeah, he should! Just straight up do a carnivore podcast, there's an audience for that.

Peter McCormack: I thought of doing a once a week Lightning show, "What Lightning Did". But I've just got too much on now. I've got this, I've launched Defiance...

Pierre Rochard: It's also just quickly becomes much more technical than Bitcoin does in some ways, because it's so early.

Peter McCormack: Yeah, you're entirely right and actually, well it is a technical component of Bitcoin. Whereas what I do, I can get away from a lot of the technical stuff and discuss bigger ideas. I know I've already got What Bitcoin Did and Defiance, but I've got a third show, which is just going to be like a McCormack show. It's just every now and again I've got an interview that doesn't fit into either, that I want to do.

So I interviewed the guy called Rich Roll, the vegan athlete who introduced me to podcasting and I was like, "well, it'd be nice to put it on What Bitcoin Did to tell people how I got into this, but I think I'm just going to do this other one, probably no sponsors and just every now and again... Like for example, I'd really like to interview Naval, but I don't want to interview him about Bitcoin and it's not really a Defiance show as such.

You could probably make into one, it's just a general one. I'm going to end up having like five shows a week to make, it gets a bit much! Anyway, how are you man? Good to see you.

Pierre Rochard: Great, doing well!

Peter McCormack: Joined up at Kraken?

Pierre Rochard: Yes, the mighty Kraken! It's funny because it's something that I'd thought about a lot, over the long-term of like... There's two kinds of different things that Bitcoiners talk about. One is, how much Bitcoin is going to accrue value and so that's like "the number go up", get rich quick, however you want to view it. So from there, there's been different theories among VCs about the ways that utility tokens could also go through this monetization process and accrue value and so we saw a bunch of interests go into that, like from the worst types of thing, to things that are almost respectable in Bitcoin maximalist eyes, for example Blockstack.

Personally I'm not a huge fan of just the economics of it. They seem like nice people, I haven't met them in person, but everything I've heard about them is good. But in any case, the idea there being that these utility tokens can accrue value. So I think that got busted up during the past bear market where we saw a resurgence of Bitcoin's "dominance" even though there's all sorts of problems with that metric. But in any case, really the question is like, "all right, where does value accrue outside of Bitcoin and outside of just holding Bitcoin" and the answer has been the exchanges.

All of the VC success has been in financing exchanges and exchanges are the only ones that actually employ people at scale. Kraken I think is above 600 people now, maybe 800? Obviously we have other large competitors as well. So the reason that is, I think actually is the answer to what was going on in 2013 and 2014, when I joined the first Bitcoin company I worked at, called BitPay. BitPay made sense to me because it was a fiat on and off ramp and so they provide merchant payment processing.

The problem in general with that area is just that there's not a lot of people using Bitcoin for purchasing goods and services, where the merchant wants to receive fiat, is kind of the twist there and you have to sell this product to the merchant.

So it's like this bizarre conversation about, "okay, so people have to go buy Bitcoin to come on my website for me to then sell those Bitcoin and pay 1% along the way in every direction" and it led to the acrimonious scaling debate, of like, "all right, we want to use this for coffee." "oh okay, but there's not really product market fit there, it hasn't taken off and we also have these engineering constraints in terms of keeping the system decentralized". But really what was going on all along was we had the first big exchange with Mt. Gox.

They were printing money and for some reason I think that the Bitcoin community was like, "okay, we're going to tolerate this." I remember back then, to me it was super sketchy and the only... Well the first exchange I used was even more sketchy arguably, it was BitInstant with Charlie Shrem, which in hindsight, I got my coins out immediately when I bought them through Erik Voorhees' coin product at the time and had to use a red phone at Walmart and all this.

But in any case, the fees there were like, I think I paid like 10% fees to buy Bitcoin and then Bitcoin's price went up 10% the next day, so it was like, "all right, we good!" it just paid for itself! So there's always been a lot of value accruing to the conversion between fiat currencies and Bitcoin. I think that that's only going to continue to increase and increase more quickly than the merchant adoption, because Bitcoin is going for the King, it's going for the US dollar.

I don't even think it's going for like Venezuela's currency or other bad currencies around the world, because what they end up doing is they go for the dollar, because that's the next step up for them. So to me, it really is a one-on-one battle between the US dollar and Bitcoin and that's going to happen on the exchanges. So I want to have exchanges that have top notch security, that are scalable, that are going to not choke under pressure when the market is like in 2017 when we saw a lot of people going offline.

Obviously Kraken has not been perfect about that and massive engineering improvements have been happening. So across the board, I think that we want to have exchanges where it's very easy to get in and out of Bitcoin and getting out of fiat by extension. That's actually a huge challenge because of governments! They really do control the fiat financial system completely. No one escapes their grasp unless they let them.

If it's say, HSBC doing money laundering for politically connected whatever, like they can do that. For some reason that can occur within the financial system and then they get fined billions of dollars after the fact or something. But anything that's not involving insiders from the state is heavily controlled. So the Bank Secrecy Act here in the US makes it so that you got to do KYC on everyone who's trying to use US-based exchanges.

So there's obviously that verification component of verifying people's IDs and that's a massive cost in terms of onboarding thousands of people a day, which is what happened or tens of thousands or hundreds of thousands, which is what happens during these Bitcoin bull markets. You got to be hiring people, training them to do all of this stuff and then there's all of the customer support that happens afterwards where these people are frontline onboarding people into crypto, the support staff at these exchanges.

Historically there have been exchanges in the US where basically they don't have any support. You'll submit a ticket and you just won't hear back for weeks or months.

Peter McCormack: Well Coinbase during the bull run...

Pierre Rochard: I don't want to name names.

Peter McCormack: I can! But Coinbase during the bull run and I don't hold it against them, but it was just notorious that you would wait weeks for a response and they had the problem of scaling up the staff because a real issue, if a bull run just suddenly hits, you've suddenly got to scale up a team and then that's a team that you might be letting the majority go 3 months later or whatever. So it's not a criticism of Coinbase, it's a challenge that every exchange had. I just remember it was Coinbase because that's who I was using at the time.

Pierre Rochard: It's crucial to have that support because otherwise people feel like, "oh, all right, this is not for me because I just lost money trying to send my Bitcoin to this address and I didn't understand what I was doing" or "my account is locked and I can't unlock it because I can't contact support." So that just immediately leaves a bad taste in everyone's mouth and is going to repel people during bull markets.

So there's that component to it and then the amount of liquidity that exchanges can provide is unparalleled as well, because I have a soft spot in my heart for the crypto anarchist solution of Bisq, of doing things peer-to-peer and the problem with that, is that it just doesn't scale to size. So I think that it's crucial to have it as an option because God forbid the government becomes tyrannical and wants to shut down centralized parties and we have to rely on decentralized non-KYC solutions.

But today, the economics of it just work against it for any amount of liquidity that you're trying to get. Maybe that'll change, but in any case, the liquidity component is to me the most important part for any money, because these VCs talk about utility tokens for money and the only utility is its liquidity because you're trying to exchange it for something else because you can't eat your money and you can't live under it. If it's paper, you can light it on fire, but obviously that doesn't even work with Bitcoin.

Peter McCormack: Or you can make handbags with bolivars!

Pierre Rochard: Yeah, exactly. So there's maybe some ancillary utility there, some salvage value. So in any case, that's why I think exchanges are strategically important and I think that Kraken does really well across all of these metrics and is really well positioned for continued growth in the underlying asset or the wider crypto universe if we want to obviously be more inclusive.

Peter McCormack: Well yes, there's a couple of things to unpack there. So the maximalism thing is quite interesting, I've been on my whatever journey.

Pierre Rochard: I got some grief for working for a shitcoin casino.

Peter McCormack: Of course you will. It's funny, I keep a list of shows I want to make and one of them I've got is a Bitcoin purist and actually trying to figure out how you can be a Bitcoin purist. But the thing on maximalism, the conclusions I've kind of come to is that I think it's very useful as a personal goal to focus on Bitcoin. Just to say, "I'm just dedicated to Bitcoin, I'm going to focus on it." I think it's unhelpful when we call every single thing a scam because not everything can be a scam and you meet people with different views.

I did the Szabo interview and in there he talks about Monero and Zcash and even Dash, which surprised me. But he says he's got an interest in privacy coins and this is Nick Szabo! Also you talk about Blockstack, I've got a mild interest in that. I'm looking at what they're doing and I was like, "well this sounds kind of interesting. Oh fuck, it's got a token, therefore everyone must hate them and we can't pay them any attention."

I do personally think tokens would have been a lot better if they were all stablecoins, because the problem I've got with the tokens is essentially they are trying to be money. They're trying to be the money you need right now, whereas Bitcoin is trying to be a better money. So Bitcoin can kind of be volatile, but all these things that are using tokens, they don't make any sense being volatile if they are used to transact with.

Pierre Rochard: So you mean like in the sense that if you got a gift card from a supermarket and its value was not fixed in dollars or pounds or euros, it was just like supermarket coin, it's freely floating, good luck!

Peter McCormack: Yeah, it's bullshit! But if you want to use a service and it's got a token, which is annoying as it is, but if it's a dollars pegged token or pound pegged, at least it makes sense, right? You're just getting a different version of a dollar. So that to me would excuse some of it. But also I think just sometimes you've got to, just sometimes keep a bit of an open mind and I know Giaccomo hates that and he's like, "that's bullshit!"

But I think sometimes you have to, because what if Blockstack are doing something interesting? Forget about the token, what if they are building something that's interesting? If we just start at the point that everything is a scam, it's really difficult. On the second point of working for a shitcoin casino is that, they're exchanges that I like and there are ones I don't.

But if you do not have the shitcoins, you are immediately going to lose liquidity to the other exchanges. I think Coinbase lost a lot to Binance at some point. I think you're obliged to do it. So it's a tricky thing! The more interesting thing I want to add in that, so you talked about gunning for the dollar, which Bitcoin is and which is I think is great and I think you're right. You talk about the exchanges, I think the other really interesting area is BlockFi and Unchained Capital.

Pierre Rochard: Using Bitcoin as collateral?

Peter McCormack: Well here's where I'm definitely going to say "crypto" and I'll tell you why. So firstly, yes, using Bitcoin as collateral…

Pierre Rochard: Let's just say here on that, if I say Bitcoin, I might be talking about crypto, but it's just the word that's in my lexicon.

Peter McCormack: Well I'm sticking to Bitcoin a lot now, but the reason I see "crypto" in this instance and in this instance only is say, for example, we have BlockFi, I might loan them some Bitcoin and I get my interest, which is great and I know not everyone's keen on this. But also, they've got people who want to borrow money and these people, some want to borrow Bitcoin, some want to borrow dollars, some just don't care.

I might want to lend dollars, say I've got a surplus in my business account of $50,000 every month, maybe it fluctuates what I need, but there's $25,000 that just never gets dipped into. I might as well lend that if I can, and if I can get 6%, surely I should lend it. I don't want to have to then convert that to Bitcoin, to then lend and it fluctuates. I run my business on dollars, but if I can just go on and buy $25,000 a stablecoin deposit, but I can get my interest in Bitcoin, wow, that's pretty cool!

Pierre Rochard: If we assume that markets are efficient, then the amount of risk that you'll be taking on by lending your dollars to this crypto company and earning 6%, should be the same as earning 6% lending it to anyone else in the bond market let's say, because it's the same sort of thing. Now to me, I think that the crypto companies are able to...

I don't think there's going to be a lot of people lending US dollars to them. It really is about their need to borrow crypto specifically, not fiat currencies, because fiat currencies have these well-developed debt markets, you can get a bank loan, all these other things and the growth is also coming from on the other side of people sending crypto to them, to hold as collateral and then borrowing dollars against that.

Then there the issue is, the Unchained Capital or BlockFi, I'm speaking generally about their businesses, I don't know the specifics of what's going on behind the scenes, but they can't really hold those loans on their balance sheet, because they're earning 12% let's say and that's just not the right rate of return for a startup. People don't invest in startups to earn 12% a year and so they have to get those loans off their balance sheet.

So they have to find investors who are simultaneously okay with a Bitcoin backed loan, they're okay with Bitcoin and they don't think it's going to zero and they're okay with a 12% return, they're not just going to go buy Bitcoin instead. So that's a very small demographic of people, so it's going to be a challenge to develop that.

Peter McCormack: What I mean is that these companies are for me, a bridge between crypto and the real world, more so than e-commerce, because the problem with e-commerce is you've got to have the crypto and you've got to want to spend it and the retailer has got to accept it. I don't really do it, the only way I spend Bitcoin is I pay people in my business, like I might pay a supplier and I invoice in Bitcoin to some people just because it's easier. But I don't really use it for retail. Even if I was going to buy a Trezor or a Ledger and they accept Bitcoin, I'm still going to pay in dollars and actually do.

But I think there is a bridge here between these companies, they're almost like a bridge from the exchange to the financial services and it's not going to be as big as the exchanges, but I do think that's an interesting area of growth. My expectation is they're all doing pretty well, none of them are struggling to raise money.

So I think that's almost like the layer below and then I think the next one that is really interesting, is the hardware and the software wallets. So what I feel like this... I mean someone better than me would do it, but I think somebody could map out the infrastructure that's being built here and I think retail is really low down on the priority list.

Pierre Rochard: Yeah, I think that what the borrowing and lending has going for it, is really thinking of Bitcoin as like a savings asset and a savings technology because everyone's been talking about payments technology for so long and I think it was just like a really misleading thing to... Obviously Bitcoin is also a payment technology, I'm not saying that it is not one or not the other, I'm saying it's both. For very long people who have not recognized the savings side of it because there's this disdain for volatility.

So anytime you say to someone, "oh you should put a little bit of your savings into Bitcoin", "well it's really volatile, so it's not even savings, it's just like pure speculation, it's gambling" is their response there. But 10 years in, we just have all of this price history behind us, which you might argue is like noise and that we should ignore it. I don't think it is, I think that it's a record of human psychology basically.

What it tells us is that Bitcoin has been etched into this percentage of humanity's brain and there's no way of undoing that. So that's why when I look at, the fact that if you put Bitcoin in on your 0, on your 4, you're definitely up across Bitcoin's history. So all right, if you just hold Bitcoin as savings for longer than 4 years, which seems totally reasonable, then you're going to be good.

That to me is something that is going to be true going forward. Now I'm probably going to catch a lot of grief for it, if we have an extended bear market and it takes longer than 4 years, but it changes the paradigm of savings because we're used to thinking of savings in very short term because you don't want to hold dollars. You want to be buying bonds or buying stocks, you don't want to be accumulating dollars in your bank account. These days you don't even earn any interest. You used to earn a little interest.

Peter McCormack: Well, I think one of the challenges this time for the next run, because people are talking about the mythical bull run, is I think the psychological barrier of the price. I think that's the biggest test now. When people talk about a $100,000 Bitcoin, I think a lot of people would be turned off just psychologically. I'm very keen on that psychological barrier being taken down and exchanges going to sats pricing.

I think it's a better psychological barrier for people. Someone put on Twitter yesterday, "oh I just bought a Bitcoin for $7,300, this tweet will age well." I was thinking, you did just spend $7,300! Most people don't have that money. I try to encourage friends, I'm like, "just buy one, hold it for 10 years, you'll be fine!" But yeah, most people, if they've got that kind of money, they're going to have a holiday, it's a big psychological barrier.

Pierre Rochard: Then you have people on Twitter saying "get 6.15", which is like a really high number for a lot of folks.

Peter McCormack: Where did that come from? Was it just that American Hodl guy?

Pierre Rochard: He pulled it out, so that's the number now. It's funny, when I was getting interested in Bitcoin, the number was 21, which now is like, "wow, that's really tough to get to!" I'm not even at it myself, I'm still working on that. Now the other part is that there's all of the old holders dumping their coins. It sounds bad because you're like, "oh man, this is a pyramid scheme". When we hit like $30,000... I remember there was a statistic about how many billions of dollars of Bitcoin were sold in 2017 by old coins essentially that were moved.

So you have this wealth effect where like on paper you're now worth X amount and your wife is like, "let's buy a bigger house. Let's buy a second or third car," or "you want to go on a vacation? You want to redo your wardrobe?" So there's this wealth effect where now you're selling Bitcoin or whatever it is onto the next wave of buyers and whether that next wave of buyers can absorb it or not is going to determine the amplitude of the bull market and how many people are like you, because if you're the only person who is not... Trace Mayer is like a holder of last resort, so he never sells.

He's buying all the time, obviously looking at the Mayer Multiple, but if all the OGs were like Trace, Bitcoin's price would be going up way quicker than it is, if no-one was actually selling Bitcoin. But I actually think it's healthy to have that turnover and that's what's going to make it so that the price is, I agree not just going to go to $100,000, because there's going to be people selling all along the way taking gains and essentially redistributing the Bitcoins.

Peter McCormack: Yeah, I think that redistribution is a good thing. Also, I guess in my mind, I mean I don't know if this is fact, but I think an even spread will probably reduce the volatility because I can imagine some of the big dumps could come from a single buyer, dumping a significant amount of Bitcoin. Have you looked into that at all?

Pierre Rochard: No, I haven't.

Peter McCormack: Yeah, I wonder if it, but yeah, I'm with you on that. Okay, so Kraken is your home now. So what is it you're actually doing there? What's your focus?

Pierre Rochard: So when I was brought on, the interview process ended with, "well we don't really know what you're going to do here, but we're going to hire you and you can just figure it out because you can probably figure it out." So it was really nice to have that level of trust in my ability to figure it out! Really the thought is that, my view is any company that is in this space is building on top of open source protocols, all of them.

We haven't even seen a proprietary distributed ledger technology, right? R3 is open source, Ripple is open source, it would be really odd if someone came out and said, "in 2019 we're launching a proprietary Blockchain, that you don't access as far as code and it's not available to the community." So I think it's clear among all of the technologists that everything needs to be open source in this and part of it is just the peer review process of like, "is the cryptography good? Is this secure? Is it actually doing what you're telling us it's doing?"

Then also just getting improvements from random people on the internet. So I think that all of the companies in this space should be emphasizing the importance of open source. Now that doesn't necessarily mean that they're going to open source their internal platforms, because there's a huge competitive advantage they get from that. But in terms of the open source protocols that we're all using to actually send value around and exchanges are some of the biggest users of the Blockchain.

So they are sending arguably more value than anyone else around and so I think that they especially have a special role to play in terms of investing in them and maintaining them and continuing to improve them and continuing to innovate. So that's the role I see for myself at Kraken and then having the ability to take all of that to benefit Kraken frankly, because I think that Adam Smith's "invisible hand" applies here, where if exchanges get better at using Bitcoin, then that benefits Bitcoin.

We kind of saw that during the scaling debate of exchanges trying to adopt SegWit or not. So I think that if they were leading the charge on that, we would've had a different conversation, rather than, they were very quiet and standoffish and dragging their feet with it. So I think that it's time to turn the page and just have better relationships between the open source ecosystem and these companies that are really benefiting from these protocols almost as much as the holders of the underlying assets.

Peter McCormack: Yeah, of course! Well that sounds like a really interesting role, just to write your own role. I mean that's like the ideal scenario, right? You just draw up a sheet of paper and say, "right, I'm Pierre, I'm going to do this. All right cool!" Well listen look, there is something else I want to talk to you about, because this week's been another interesting week on Twitter, shut up and code!

Pierre Rochard: Honestly the transition is exactly what we're talking about, right?

Peter McCormack: I actually thought that was quite a funny meme to begin with. Okay, so let me tell you my thoughts and the background to what happened. So I was obviously aware of Hotep Jesus, because he did the Rogan podcast and I listened to it and I didn't agree with everything and some things sounded crazy, but I was like, "this is an interesting guy."

A tweet came out about him, where he was trying to understand the difference between BSV and Bitcoin and he wanted to host a debate and who should it be? Someone asked me and I was like, "no, I'm terrible at debates, I'll ask the questions." But then I just wanted to insult Craig Wright, so I was like, "okay, I'll come on." But I said, "I want you Shinobi with me because I want somebody who's actually technical who could actually have the debate."

Pierre Rochard: Shinobi's fierce!

Peter McCormack: Yeah he is and my relationship with him has come full circle. He was very critical when I did the Rizun interview, we had a bit of a falling out and then recently he wrote to me just privately, it might embarrass him, but he just said "I really like the work you've been doing recently, you've done some really good interviews. Thank you very much." I was like, "yeah, I appreciate it!"

We're going to make a show again at some point, but I thought he was for me the ideal person on the technical side because he's kind of savage and tough. So we did it and it was fun and whatever and then I've obviously noticed Hotep is becoming interested in cryptocurrency and he's getting a lot of things thrown at him by different people. The cultists are coming in and trying to lead him and everyone is seeing him as like, "oh here's another figurehead who can help support our cause."

Pierre Rochard: So essentially that didn't really exist a few years ago, where if you have a following, I don't even want to say if you are a celebrity, an A-list or whatever it is, if you just have a following on Twitter and you tweet out like "I'm getting interested in Bitcoin", you get this massive amount of inbound from everyone pulling you in all directions between XRP, Libra, Bitcoin Cash and Bitcoin Satoshi's Vision. So it's a very different... You are getting mobbed and this is very new, so I think we're still trying to figure out what do we do with this kind of situation?

Peter McCormack: Well, so I guess one of the things on my side, it's like most of the people I talk to, I'm newer than them. So I haven't been through all the tiring experiences of dealing with scams and dealing with scammers. I was one of the people that we were shouting at one point. So I was seeing Hotep and I was like, "okay, this is interesting, I want to talk to this guy." I'm actually meeting up with him tomorrow. I was like, "okay, I want to talk to you and I want to help you" and for a couple of reasons.

I really want to understand him coming in, what is he experiencing? What are you seeing? What do you see from the Bitcoin community, the other communities? What's going through your head? Because I think there's a couple of things I take issue with. Some people I think expect someone new to just suddenly understand Bitcoin. "Why do you not instantly understand why Bitcoin is better than BSV and all this other stuff?" I think it's a ridiculous expectation. I think some people are tired and if you're tired handover the baton.

But I want to talk to him, I want to spend some time with him because I think he will, ignoring the fact that he might be like an attention seeker, which a lot of us are online, but I think he will signify what will happen to a lot of people as they come in. I mean even Mike Cernovich was asking about BSV today. I think this could be quite a common thing, so I don't want to ignore it and push it away. I do it at the expense of a couple of people have unfollowed me this week, made a very clear point about why they've unfollowed me and so be it.

I still want to do it because... Especially also the other thing is when Bitcoiners tell me I can't do something or shouldn't do something, I then really want to do it, I really want to fucking do it! "You shouldn't talk to them", okay, I'm going to do it! It goes back to that thing where I'm saying, I don't make my show for Bitcoiners, I make my show for someone like Hotep, because I want him to learn. So anyway, this is what I'm going through right now, pissing off Bitcoiners again!

Pierre Rochard: Yeah, I think that ultimately, from my point of view, if Bitcoin's success can be damaged by things like this, then Bitcoin is going to fail. It's the same argument I have for the folks who've been giving me grief for working in a company that lists alt coins, is that, if we don't think the monetary economics and the technology are going to make it so that Bitcoin can compete with the US dollar, which is a massive undertaking and that these alt coins are going to undermine that, this is over now because there's no way that success could ever be conceivable.

Really, if you look at it in terms of the price discovery mechanism, that's the other part of it, even if Kraken didn't list any alt coins, everyone else is still going to list alt coins and there's no way that Pierre is going to get hired at every exchange and delist all of the alt coins one by one. As much as I would like to do that, that would be a lot of fun, but that's just not a realistic thing that's going to happen. So ultimately it has to depend on the monetary economics and to me, Bitcoin's advantage is the liquidity that it has, far exceeds all of these other alt coins and obviously, the technology arguments we've been having for a decade now.

So onboarding someone who is trying to figure things out and trying to understand it, that should not damage Bitcoin's prospects, if we actually think censorship resistance, seizure resistance, all of this stuff, is actually worth value.

Peter McCormack: Well, so one of the things I did when I prepped for my Szabo interview, is I listened to the one with Tim Ferriss again and I forgot he said about this, he said, "we're in this strange world where there are people debating the technical side of scaling, who shouldn't be debating this" and I think he's entirely right. I brought it up again when I interviewed him and he referenced the fact that, you don't want the guy next to you on the plane telling you whether the flaps should be up and down for landing it, you want the pilot.

He said that this stuff should be solved by the engineers. But what we've got now is the expectation that people should really understand these technical side of things and it's a lot! It's really difficult...

Pierre Rochard: So I'll come out strongly against that point of view. When I started arguing about scaling, I was an accountant. I had a graduate degree in accounting, I worked at BitPay as a staff accountant there. Now obviously I was very interested in Bitcoin, I had learned a lot about it and I knew some Python at that point too, but I was not a protocol engineer, I was not Greg Maxwell or Pieter Wuille. I argued about the block size limit with Gavin Andresen, who was the chief scientist at the time and if there had been gatekeeping of like, "well Pierre, you're not qualified to be arguing with Gavin Andresen."

I think 100% of people would agree with the fact that in January 2014, I was not qualified on paper, but we had a really interesting conversation about scaling and I think that it's withstood the test of time and in fact it's relevant to this day and it's published online, we can put it in the show notes. But that's where I think that anyone... That's the point of open source, is that anyone can talk about it, anyone can debate about it.

Peter McCormack: Fair point!

Pierre Rochard: It's also the point of these platforms, where on social media, there's platforms where you can't really respond to the poster and on Twitter, anyone can just jump into a conversation and reply and there's nothing you can do about that. Now obviously there's muting and blocking and now you can hide replies!

Peter McCormack: You can hide replies, although the UX on that is a nightmare!

Pierre Rochard: I think it does more damage to you when you hide the reply, then when you don't.

Peter McCormack: Well the first time I saw it and I think most people, was a Nic Carter post and yeah, it appeared in one and he hide some replies and I looked and I was like, "oh what have you hidden?" The other thing is, once you hide them, they're the ones I want to read! It's like the ones at the bottom, I want to read those ones, "oh yeah, you're calling me a fucking loser. But I still want to read it." So they're the ones you want to read, but the UX is a bit of a nightmare, it just doesn't work for me.

Pierre Rochard: So even Bitcoin's development mailing list, anyone should be able to send an email to that. Anyone can go on IRC and talk with the Bitcoin core developers and that's where my conversation with Gavin Andresen happened was on IRC. Same thing on Twitter, you can add Pieter Wuille or a lot of these Bitcoin core developers and they'll respond to you. There was just a conversation going on about quantum computing, so it's fantastic that there's such a level playing field and anyone can join in the conversation.

So I disagree with that point of view. The point of view that I would kind of see in that, is that there are people who make the same arguments over and over and we have cases where those arguments were directly debunked by actual facts of things happening in real world or they made a prediction that didn't come true and we knew it wouldn't come true because they didn't understand Bitcoin.

So those examples, part of the problem is that as waves of new people come in, that knowledge of bad predictions that people made, gets lost over time and so then reputations can get whitewashed or glamorized. But also, I just don't think that's happened even very much. I don't think like Jeff's Garzik's reputation has repaired itself since 2017.

Peter McCormack: Yeah, but the thing I always come back to, is I try and imagine the person coming in and the things they're going to hear. I got so much shit for that two Bitcoin thing, but I still stand by the point! I had a phone call in the morning, someone phoned me up and they said, "oh Pete, I'm going to get into Bitcoin, the price has dropped." I was like, "cool!" He was like, "which one should I buy?" I was like, "what do you mean?"

He's like, "well there's two Bitcoins?" Because he was on Coinbase and I was like "BTC" and he was like, "well I want to get that Bitcoin Cash because it's cheaper." Typical argument and I bet that's gone through a lot of people's minds. I think that needs discussing, raising it and getting attacked for it, to me is nonsensical. It's just absolutely nonsensical, because it's confusing ideology with usability.

Pierre Rochard: Right, and well the other part is that I've criticized the listing of Bitcoin Cash using the argument that it's confusing to people. I do think that it is, and I think that there should be... At this point now that we've seen that Bitcoin Cash or BSV are not really going anywhere in terms of their competitiveness with Bitcoin, that they should probably be delisted if their volume doesn't pay for their fees or the cost of actually running a Bitcoin Cash node or whatever. So that would reduce user confusion right there.

But the bigger problem I think that people have to grapple with is that because Bitcoin is decentralized, it doesn't have a trademark, it doesn't have legal protections that we would expect for a Kleenex or Coca-Cola and so the imitators can get shut down and they can protect their brand. So if there isn't really a way to protect Bitcoin's brand legally, how is it actually protected in practice? So I think the way it should be protected, is the same way that the word "laptop" is protected.

So if you buy a laptop online and you get shipped a pile of bricks, the person can't just say, "well to me a laptop is a pile of bricks. Sorry, we had a misunderstanding there, I guess you should have asked more questions because that's just in my ideology what's going on with bricks." So it should be the lay-person jury saying like, "all right, well this is Bitcoin and this is not", but that again, just relies on the state, so isn't that a bit hypocritical as a libertarian.

I think that even in a purely anarcho capitalist society, you would have the same thing, where what does a reasonable person consider to be Bitcoin? Today I think it's pretty clear that the reasonable person would consider BTC to be Bitcoin. Maybe that'll change in the future, maybe there'll be a really contentious hard fork and it'll muddy the waters even more.

Peter McCormack: But I think we come with a bias. Again, I try to be fair and go, "okay, if I'm coming in, what am I thinking? I want to make money." That's the starting point for everyone, they want to make money. Of course there's the kind of goal of hyperbitcoinization and taking over the dollar and making the world a better place. Yes, I support and I'm completely behind that, what I'm saying is most people, they're just trying to get through life, they want to make a better life for themselves and they want to make money.

They want to buy Bitcoin at X and sell it in the future for Y and hopefully that's increased. But in doing so, someone new coming in is conflicted with different messages. So I'm trying to think of the messages that they are coming in with, again like Hotep will come in and he will see, "right, I'm interested, but what's this Bitcoin SV" and he's going to have a bunch of people say, "oh well this scales better and it's going to perform better because of X.

Also this is the original vision and the other one's been taken over by a group of cultists." I think it's ridiculous that people have an expectation for someone to be able to decipher those messages and go, "you sound like a scammer. No, it must be Bitcoin BTC, the original, oh I understand this straight away." I think that expectation for people is really unrealistic and also I can see therefore how they get misled. For everyone just to suddenly start... I understand and respect people like Mr Hodl and DanDarkPill very well.

But just to go, "oh block him, he's a scammer, he's noisy, he's annoying." I think that's the wrong approach. I think actually spend some time with them, help them understand, and then I think they could be a very important person to support Bitcoin. That's my view and like I say, the more people tell me I shouldn't do something, I want to do it.

Pierre Rochard: You know Coinicarus on Twitter, he told me at one point... Well when I went on his podcast. I argued with him, he was a BCasher and I argued with him on Twitter and he changed his mind and now he's a Bitcoiner. So I think it's definitely possible and it's just because he, or I've heard others as well say that they just went on r/btc and they just thought that that was correct, because that's what they were reading on the internet.

Then they found out, "oh wait no, there's actually another side to this" and then they laid them both side by side and were like, "okay, well I think BTC makes more sense." So I think that if BTC is better than BCH or BSV, we shouldn't be shy about explaining why, because the facts support it. So the problem I think is the patience level, right?

Peter McCormack: Yeah, but hand over the baton then! If you've not got the patience, step aside, give it to someone who has, but what I think you do by insulting that person or dismissing them, is you miss an opportunity and look, he was doing it back, he was trolling back. I thought it was quite funny. I actually thought it was kind of funny how some people got triggered by him.

It was funny in their world they say, "oh he's so disrespectful of developers." Well why are you putting the developers up on a pedestal? That was the thing with Satoshi about walking away! I respect them hugely, but I just found it a little bit contradictory for me.

Pierre Rochard: Yeah it's funny because I've definitely seen companies, not Kraken, past companies and other companies, where the engineering team is just not aligned with the product team or with other parts of the organization.

So I understand that from a business person's perspective, like when you look at BTC, you might have that view and the thing is that that's because it's an open source ecosystem and they're just doing whatever they want or they work for Blockstream and they're simultaneously building their decentralized commercial products, Liquid and also Bitcoin development.

So I think that the solution to that is for business people who see that gap, to also contribute to open source, because there isn't a third option, it's either status quo or you start contributing to open source. There isn't like a, "well, we're going to berate them on Twitter until they do what we tell them to do." That's not a third choice!

Peter McCormack: Well we've got to therefore just give a shout out to Square Crypto what they're doing and supporting open source because that is amazing. Also there is kind of this, I said it to you before, it's not obviously official, but it feels like a Bitcoin club and it's hard to get in. It's really hard to get in, but you've got to get to a certain level of understanding and I think that's really tricky for people. I think that's kind of scary and I think some of these personalities can be intimidating.

I definitely was intimidated by certain personalities at some point, like "fuck, what if I say something wrong", like, Mr Hodl, I found him really fucking intimidating at one point! I don't now, but I just find that maybe that's a good thing. Maybe again, this goes back to the toxic side, maybe we need this to keep the…

Pierre Rochard: I think that's a Twitter thing. That's something that since joining Kraken I've realized. We have millions of customers at Kraken and Bitcoin Twitter is like 5,000 people. It's self-selected, the craziest of the crazies and the people who want to speak out with a megaphone to the world. It's like The Life of Brian, the preachers that are standing at the soapboxes and that's like what Twitter is at scale, amped up 100x.

Peter McCormack: Where are these other Bitcoiners then, where are they hiding?

Pierre Rochard: Well, they're just not crazy about it, whilst we're crazy about it. So my wife works as a financial planner and she's had people come to her or existing clients who are completely normal people with totally normal backgrounds, lawyers, doctors, whatnot, who are asking about Bitcoin. But they're not going on Twitter tweeting about it, they're just looking at CNBC and they're like, "well, I should diversify my portfolio a little bit, so let me go on Coinbase.com."

Peter McCormack: Well, so they're potentially even riskier ones then, who aren't even asking the questions and just going and blindly buying!

Pierre Rochard: Yeah arguably! There's also people who just bought a bunch of XRP because they thought it was going to get listed on Coinbase during the last bull market!

Peter McCormack: It did get added finally and dropped, hilarious!

Pierre Rochard: That's my argument with the liquidity of altcoins, actually the more liquidity they have, the lower their value because you have all of these centralized holders that are just dumping, like the Ripple Corporation is just dumping on these poor XRP holders.

Peter McCormack: All right, well listen look, a couple of other things I want to cover with you before we leave. I do want to talk a little bit about Lightning. So I've always had mixed feelings about Lightning, but I think I get it now. I didn't use to get it, but I now understand the importance of the base layer protocol and the stability of that and I now understand the importance of building layers on top of it for people to interact. I'm kind of there loosely. One of the things that's quite interesting is that, one of my sponsors is a wallet.

Pierre Rochard: Dropbit yeah?

Peter McCormack: So the thing about Dropbit is that they've got a non-custodial Bitcoin wallet, but a custodial Lightning wallet and it just works for me and it's just so easy to use and the usability is brilliant. But Jack Mallers, when I interviewed him, rightly said, "this isn't Bitcoin, this isn't the ethos" and I get split in this world where I'm like, "yes, you're right, not your keys, not your Bitcoin", but I only keep $20, $30 in there and it's really easy to use. So I'm kind of in this world where I'm a supporter of non-custodial wallets in a limited capacity, worrying I'm going to get backlash.

Pierre Rochard: One of the other issues I think with Dropbit is even on the non-custodial side, you're not running your own node. So you are kind of giving away your privacy to them. So definitely, as the creator of the Node Launcher, I'm in Jack's camp of, let's go non-custodial. But also I work at one of the largest custodians of digital assets, let's call them. So one of the questions I've been really thinking about from the perspective of an exchange is, how do we do Lightning and why not set up a custodial Lightning wallet and just basically immediately have millions of people on the Lightning network?

That seems like a huge win to me. Now I also want the biggest users of our custodial Lightning solution to know about the Node Launcher and to know about Tor and how to make things private if they want to kind of split off, because then they have better privacy and then better custody obviously. So in any case, I think that from the perspective of an exchange, there's going to be that question. Now the other challenge is that Kraken doesn't want to be a wallet, that brings on a lot of customer support and so it makes things a lot more expensive.

So I think that maybe Dropbit would be, or any number of these others, are going to be competing for custodial wallet solutions. There's definitely going to be companies competing for that and that's something that the Lightning network should be resilient to. If it's not, then okay it will fail, that's just the argument that it is. So I think that the optionality is the most important part.

Peter McCormack: I always think in terms of my friends like, "how's Bitcoin?" Every time I see them and go down the pub, you really just get into it and they're like, "okay, well how's it work?" I said, "well, firstly you need to buy some. You also really want to get yourself a node and you want to have a non-custodial Lightning solution and you want to sit up Tor." They're not going to do this, they're just not. But if I say, "oh download this wallet, I'll drop you some Bitcoin on here and this is how you flip between Bitcoin and Lightning and this is how it works", I've got a chance.

So I just think that the reality of onboarding lots of people, is going to require something like Dropbit, but at the same time we are going to need the hardcore Bitcoiners who do use things like Node Launcher, who use Zap, who do run nodes and I think it will be a mix of the two. I've heard people say, "well if they're not willing to learn all this, they don't deserve it" and I'm just like, "well come on man, get in the real world." Bitcoin doesn't care! Everyone deserves a chance.

Pierre Rochard: I think long-term the non-custodial will catch up and so I see this with Breez on mobile, like you're running a Lightning node on your phone, the issue is just the channel management and stuff like that. That's all going to get automated and we'll get there. It's just going to take time and as we like to say, "18 more months".

Peter McCormack: What's going on in the technical side, because I saw, I think it was Jameson Lopp put something out and there was like a failure rate of, what was it, I can't remember, was it 10%?

Pierre Rochard: It's higher than that and it depends. So one of the challenges with Lightning is that channels have a maximum capacity and you can't stack that capacity. You can't add it all up across your channels and so when you're trying to route payments around this network, right now it's really inefficient and eventually you're going to be able to, if you've got three channels and you're sending one payment, you can split it up between those three channels.

So that's atomic multipath routing and so that would immediately make the liquidity on the network much more efficient than it currently is and dramatically improve I think or dramatically reduce the failure rate. But there's always going to be problems with Lightning and development work around it to mitigate those problems.

I just look at how far it's come since I started getting involved a short year ago and it's just astounding the velocity that they have and ACINQ just raised millions of euros for their startup and they're one of the three major, there's Blockstream and then Lightning Labs as well, implementations of the Lightning protocol.

So I think that there's going to be massive improvements on the non-custodial, but also, we can go to market with custodial and really grow the Lightning network overnight just by having companies that, whether it's an exchange like Kraken or like Unchained Capital, where anyone who is doing KYC, if their customers can already onboard them, because that's what is required for a custodial solution, otherwise you're going to get shut down in the US at least.

Peter McCormack: Yeah, I'm with you on the pace of change as well. Some of the things that have come out in the last like two or three months alone, I mean the work that Jack just released for Zap was incredible. Like I say, the implementation I've just seen with Dropbit, the UX is great. So we've got to remember what Lightning's three, four years...

Pierre Rochard: It depends like when you measure. From the white paper, yeah four years.

Peter McCormack: Bitcoin has had 10 years and see how far that's come! I think it's used as an attack vector for people who are anti-Bitcoin and they want to say, "well you promised this three years ago and it's still not here". I am pleased with the progress, but I do see a use case for the custodial side for the moment.

Pierre Rochard: And it's really important that we make progress because I think with the next bull market, we're going to be hitting that block size limit way more often than we were in the last one. Median fees got up to $35 in December 2017, that drove a lot of people away and that drove them into alt points. If we don't have that problem in the next bull market, then it'll be a very different cycle with different narratives and so I think that it's really important to push ahead with Lightning with haste.

Now I'm not saying that the current contributors are not contributing enough, I'm saying we need to have more contributors and companies across the ecosystem. If you're like in college, start studying about Lightning, maybe you can do an internship at one of these companies and whatnot. So I think there's a role for everyone.

Peter McCormack: All right, so one thing to finish off on is to talk about Libra and Mark Zuckerberg, because obviously he was in Congress yesterday. I haven't seen it because I was at the Human Rights Foundations Freedom Forum all day, so I don't know anything about it, but I saw one interesting tweet this morning where somebody said, "I trust Mark Zuckerberg and Facebook way more than I trust the government." What happened? Have you watched it?

Pierre Rochard: I saw some clips from it. I didn't watch it because it seemed torturous and really it is torturous because these politicians are just there to grandstand and they're not really trying to solve a problem. Now some words of truth did get said, which is that the US dollar is strategically important to the United States and that Libra is messing with it.

They can talk about how, "oh we're going to have a basket of currencies and the dollar is going to be one of the currencies in the basket for Libra, so it's not a threat to the dollar." That's nonsense because that's how the dollar started, it was pegged to gold and then you break the peg! So Libra would just do the same thing where it would be pegged to a basket of currencies today, but eventually they would just break the peg and because they have billions of people on their platform, Libra would become the global reserve currency and Facebook would be in control of the world's monetary system.

That's a real threat! It's not science fiction by any means. Now, I don't think that Libra could ever compete with Bitcoin, because it wouldn't have the sound monetary policy, but maybe it would change the dynamic.

Peter McCormack: How do you think it's going to play out? Because my expectation is that they're just going to eventually launch a stable coin or a suite of stable coins to get around this.

Pierre Rochard: Yeah I think that the government is just going to really shut down... I think they're even going to go after the stable coins eventually, because from their perspective, they want to be the ones issuing a stable coin, because you get that seigniorage revenue. So if they can create a digital cash system, then they benefit from it way more than the current setup where Tether is creating a digital cash system for US dollar and they're not.

So I think that it's going to be a really tough competition between the stable coins and the government. Especially as Tether is not really a threat to the government, although they've gotten into legal troubles obviously, because they don't have the distribution that Facebook has. Facebook is in lots of countries that have a crappy currency, that probably Tether's will be better then, but they just don't have the distribution to get there.

Peter McCormack: Can they stop them creating and setting up Libra in foreign countries?

Pierre Rochard: So the Libra Association, they want to base it in Switzerland, which during the questioning it was funny, it was like, "why are you putting it there?" And David Marcus was like, "well, I'm from there." It's like, "okay, but that's not really an argument for why you would base the Libra Association there. Why not base it in the US?" He was like, "well, the World Health Organization is there." Also true, but also not an argument for why you would base the Libra Association in Switzerland.

So obviously there's a regulatory arbitrage going on, right? They want to try to be outside of the long arm of the United States and they think their best chance is in Switzerland. That may be true, it maybe not, but it sets them up for an adversarial relationship from the get go, because it's transparent what they're trying to do with that.

Peter McCormack: So my expectation was that there's going to be a compromise here. There's going to be some kind of compromise whereby they're going to be allowed to do some kind of stable coin and with that, they will have some kind of informational data partnership with the government and just give them all the transactional data.

The other funny thing about it, I was thinking about it and I wonder if this is all a massive red herring anyway. I wonder if people are really going to care, if they're going to use it. I barely use Facebook anymore, I know very few people who do. When I go on, the engagement seems pretty low now. I just wonder if it's a massive red herring and people actually won't be using it!

Pierre Rochard: Yeah and in terms of Facebook's growth and the valuation of its stock, maybe they're kind of desperate in that regard and that's why they're doing this moonshot project and they kind of see it like, "all right, what's the next largest market we can go after? Payments and money!"

So yeah, they might not get users and there have been product launches from Facebook, from Google, from all these major companies from Amazon, that people were like, "oh man, this is going to take over" and then they just don't really get that many users.

Peter McCormack: Google Wave! Do you remember Google wave? That's the one for me! The world stopped to watch the launch of this and then no one used it because it was shit. All right man, well listen, what's coming up for you?

Pierre Rochard: So I'm going to continue to iterate on the Node Launcher, working on some data projects as well to really take a close look at transaction fees, I think that it's not been looked at enough. That's kind of wonky though and then there's also just the Lightning roadmap for Kraken and just for the wider ecosystem as well, trying to figure out how to onboard more people.

Peter McCormack: All right, awesome! My hard disk is nearly full. That's amazing, as I hadn't even checked and that's come up a couple of times. So when I was doing the Szabo interview, I noticed that it was about to run out, but it doesn't warn you when it stops! That would have just been my luck, to do that interview and then lose half of it! All right man, it's always good to talk to you Pierre, I love having you on, so appreciate it man and see you soon.

Pierre Rochard: Thanks for having me on!