Welcome back everyone. I'm Bennett Tomlin and I'm
joined as usual by my partner in crime mr.
Caspian Sea cats. How are you doing?
I'm doing fine. We have a little background
noise but other than that, I'm good.
How about you Bennett? How are you?
I'm doing pretty well. Today, we're joined by a very
special guest dr. Michael Warren.
A professor of mathematics at the University of Oregon and the
author of the recent textbook Bitcoin a game theory.
Dick analysis. How are you doing today?
Micah do it. All right, we brought you on
here today to talk a little bit about what makes Bitcoin secure
and what makes Bitcoin not secure.
So let's start with the first half of that.
What helps keep Bitcoin secure. Well I guess if you're going to
answer that question, you have to ask what is attacking
Bitcoin. It used to be that.
I think people thought the biggest Threat Vector was people
doing double spins and this was like in the early days.
Is when, you know, you could mine a few blocks on your
laptop. It was very possible that you
could go you know sell somebody some some bike parts on
Craigslist and then go home and then line up all your laptops
and maybe try to do a double spend or something.
And you get the get the $50 back somehow but those days are long
over and now it's very hard to do a double spin this.
So I think the major thing that Bitcoin has to worry about is
miners clewd. Being or, you know, somehow
acquired in lots of hash rate and is taking over the whole
network and then basically owning the network.
So less perhaps about like directly trying to profit from a
double spend. And more about trying to either
like, take on a censorious position in the network or gain
some other type of advantageous position in the network in that
vein. What do you think is the least
appreciated weakness by most Bitcoin Advocates?
Like what do you think is most commonly missed when they're
thinking through like bit. Insecurity and how it works.
So I think they'd believe that it's impossible that there.
It's impossible to 51% attack the network because it just it's
impossible because 51% is too much.
But the thing about 51% is it's less than a hundred percent.
So, you know, the the entire to the hash work of all the hash
rate is 100 percent. 15 percent is in e is a subset of that.
Like all you need is those miners to agree and most people
believe this will not happen but But over time, I think the
security considerations are going to change and it will be
more advantageous for minors. Who are, you know, really just
fighting over over scraps to start to make collusive,
agreements to kind of like forms sort of soft trusts and start to
work towards more of a collusive, monopolistic type of
security. Well and when you say the
incentives are going to change what we're Mostly talking about
is like, the fat is the happenings, right?
Is that every four years, the amount of new Bitcoins available
to the minors goes down and because of that, the incentive
start to change around that, right?
This is one of the most obvious ones but there's also going to
be other other factors. Like the fact that it's not a
new thing. And the miners aren't like kind
of like early adopters that are trying to boost the technology.
Like if you go out 20 years from now Bitcoin if it's around will
just be another thing. Like email and you won't have
people like, you know, basing their lives like around with a
personality or you know that they are excited about email or
something. And if it's just another way to
make money and if your business comes or goes, it's I think less
of a I still think we're kind of in the in the early stages where
people are trying to get us to get to the point where it's got
Mass adoption and it's and it's credible and it's viable.
And and if it if it never crosses that point where you no
longer, Trying to make his case to the public that it does work.
Then the miners can kind of look at each other and start going
after each other is profits and things like that.
Haven't the miners already done a meeting like in the past where
they like had to discuss how I don't remember if it was a
mining pool or if it was miners themselves where they had to
like discuss that they were controlling too much of the hash
rate and like to Tamp it down, I thought that happened already
and my there was imagining that it was one event.
I don't know if The same weather is a mining pool back in like
2014 g, hash where they, they had claimed over 55% of the
blocks or something like that and then everybody kind of
freaked out and left the pool. This is a pool, so it's not the
same thing. And of course that was 2014 I
think which is like, Bitcoin was five years old and like it was
still very much a small hobbyist thing and so people would would
look at that - lie back then it wasn't you didn't have Michael
sailor holding like Millions of dollars of its public Company's
stock in this thing. So I think they said of
incentives were a little bit different back then, so and I
don't. So I guess I'm saying I'm think
they would necessarily run away, they would see this as this.
This horrible nightmare as they did when it was understood you
know ten years ago. The Bitcoin was kind of an
experiment. I think once people no longer
think of it as an experiment to think of it as a functioning
thing, they're less, they're more likely to kind of go after
the little you know, that's a profit here and there that they
can. And where they might not have
done 10 years ago. One thing that I think you've
actually changed my mind. Done more recently relates to
like the market fragility hypothesis and like conceptual
failures of Bitcoin. Can you talk a little bit about
what those mean in this context? Yeah, so probably the main
security assumption that most people make is that miners will
never collude to attack the network because that would be
the end of Bitcoin like and this is definitely like it was true
10 years. If all the miners would have
said, okay, we are just taking over the network monopolizing,
it it would have been a matter of months before it was just it
was history, right? Like nobody would have put up
with that, but over the last 10 years, where we've had all these
people stepping up and selling this is like a long-term store
of value, it's a hedge against inflation.
It's this useful way to, you know cut out the credit card
companies fees using lightning. It's a useful way to send money.
He oversees, it's a, it's a weighted to, you know, that
dissidents, you know, fighting dictators in foreign countries
can like, you know, collect money can move it around and you
know, all this, these great properties.
A lot of these properties don't 100% require a non Monopoly.
Might it's like, if there were four companies that were coded,
there were sort of, like, kind of, like colluding to, to mine
and kind of, you know, had some sort of trust Arrangement where
they were keeping Hash rate slow or something.
You know you can still you can still send money to to somebody
in some other country. You could still do all these
things, you can still store your value and watch the number to go
up and then sell everything. So I don't think it's the same
situation where if, if someone started, if some Corporation
decided to move in and took sort of a heavier and heavier,
portion of the hash rate started, selfish mining started
forming some degree. Pants with other mining
corporations, I don't think everyone would run for the
exits. So that's that's what I call the
Market fragility. Hypothesis, and it's what people
used to believe, but I don't think it's true.
What's the incentive that these miners would have to collude at
that, at that point, like, what are they doing?
That is making this a profitable Venture for them.
Well, so, in theory, my name is a very competitive industry,
right? It's supposedly like somewhat
like a perfectly competitive. And in all the hash, you know,
the hash is basically fungible and you're just Everybody's
fighting for these, the small margins.
So if you're spending, you know, say globally.
If the this pinned to try to get Bitcoin by minors is 10 billion
dollars, in a year, they might be getting like, eleven billion
dollars in return. And so, these are sort of, ain't
it might be much less. They're getting some very small
profit margins, but if you can conclude if 51% of you decide to
do this, you Spend five point three billion dollars, and you
can get that same 11 billion dollars in Revenue.
So your, your profit margin is just like jumped by an order of
magnitude or two. So and it goes beyond that.
Like once you have a monopoly, like once you are, you get to
say, you can actually do other things like differential
pricing. You can make.
You can insist that. If someone's going to send a
million dollar transaction, they include a 200 dollar fee.
Like that and you can kind of make your own rules where you
couldn't do that in the way. It's a it's a much more
favorable to the, to the trans actors in the current landscape.
So if they're able to do this and collude to compromise that
in these ways that make it much more profitable for them.
What's to keep people using it at that point?
Like why would people want to stick around on the Bitcoin
blockchain? So this is something which I
mean you think about why do people use Twitter?
Why do people use Facebook? Why do people use Google?
Why do people use a lot of things?
Why do people use GrubHub? I recently heard this term that
Cory doctorow came up with called and shit application and
it's this process happens to almost everything on the
internet where it starts out as kind of a useful thing.
You know, it's useful like Facebook like you know when you
know, 15 years ago is kind of nice.
You You just kept up with your friends, kept up, you know met
up case and with people in other states that you realize we're
like one town over that kind of thing and like it was kind of
cool. I like Facebook 15 years ago
then a decade later. It's like I'm arguing with I do
some guy didn't go to high school with about gun control or
something and watching my family members go down like you and on
rabbit holes and it's become like a really shitty place and
you look at what happens to lots of.
Network Internet phenomenon like like uber was actually kind of
convenient and cheaper like 10 years ago it was that.
I mean recently is actually not like I recently have used cabs
and found that like actually much more cheaper and convenient
than Ubers. There's a lot of things where
the whole model of a lot of the the internet business over the
last 10-15 years is to like capture some sort of network
effect. Make sure that everybody's using
the network they don't really have any viable.
Herbs, which fill that role and then just let it kind of
deteriorate to the point where they're capturing all the
Surplus. So don't you think though and
and you know, maybe you'll tell me I'm absolutely wrong here.
But like don't you think that the stickiness of these networks
is maybe not as sticky as Uber and Lyft like uber and Lyft were
able to in a sense monopolize, the taxicab customer base and
taxicabs kind of disintegrated that industry industry.
Integrated and now people don't even think about using cabs as
an alternative anymore. I am like, I'm curious what
would keep people on the Bitcoin Network?
Like why would they be sticky? Why would they want to stay on
the Bitcoin network? If it felt like it was
compromised, if there was clear like collusion between miners or
something along those lines? Well this is the, you know,
there can be only one like you know, that's what that's what
the Michael Sailors are trying to create, is this?
There is one store value. It is.
Has been going, you're either off it or you're on it and if
you're you know, you're not long at your short.
It's like we all have to agree that this is a store of value
and if we all agree that to that then you know where do we go?
If someone decides to defect that you just sell it and then
go home or we can just agree that it's still working like the
numbers still going up. The number, you know, all these
things are still happening. Like it's it's a slow process
where like like, you know, you're sort of rational in this
overtime. You're like, okay, To slightly I
mean, you know it's like you know, Facebook, whatever.
At some point you eventually dumping but like a lot of
people, it takes them five or ten years or Twitter you use it.
You keep using Twitter even though like it's run by someone
who's like actively and shit Define it like speedrunning this
whole thing but you know that like at some point it might not
be there but you're still using it because you get more
engagement. You know I tried using Mastodon
and kind of kind of crept back over to Twitter a little bit
because like, like I Just there's just not the same level
of Engagement and so it's a network people use it.
There's that's inertia, is going to last for a while.
It might Last 5 Years and might last 10 years, so this could be
the same thing with Bitcoin, you go in and if you got ten years
of like, decent profits before the whole thing.
Collapses, you don't care. That's pretty good.
That's better. That's better than eking out.
These tiny, these tiny profits. You're fighting very
competitively with all the other Miners, and like, Cass.
I think it's possible that like, when you and I think about
Bitcoin, the first thing we think about it, We most relate
to with Bitcoin is its value as this censorship resistant medium
of value, transfer rate, you can send transactions that no one
else can stop a lot of the Bitcoin ethos.
At this point is oriented around like number go up store value,
all of these things. That may be tangentially related
to censorship resistant, but are somewhat distinct.
And so you wonder if some of those people might be willing to
tolerate some loss of censorship resistance and this really kind
of came into Focus for me. Mike and I recently did a panel
together with the publisher of his textbook to talk about some
of this types of things and one of the other panelists mentioned
that they'd heard from a staff member of a politician who is
asking, what would it take to get minors to agreed to like the
most simple of censorious requests?
Like, let's say you never, again, do a transaction to any
of the ofac addresses. Let's start with that.
And like the idea I think is This type of take over this type
of conceptual failure. Would happen, kind of slowly,
and in the smallest reasonable step each time.
Oh no, we're just no longer going to let you transact with
ofek addresses, but anyone else in the world you can still send
your Bitcoin to. Okay.
Now it's ofac addresses. Plus this list of addresses that
are known to be related to child sexual abuse material, right?
And eventually you keep pushing that until well, if we only have
this many miners, does it really matter if we start like cranking
up the block size and making it? Unfeasible for like a home user
to verify the blockchain and gradually eventually you get to
the point where portions of the community of stripped off along
the way, but there was never like a single Schism event.
And so there was never like a true viable alternative until
Bitcoin is captured. So I've heard ten years, five
years. So, some sort of metric where
there's like a sustainable amount of time that they're
still volume. They're still users, they're
still trading going on on bitcoin.
But I'm just curious like we already have a lot of competitor
chains in in essence, right? Like, I think mon Arrow has
taken over when, when Ben and I think about like, oh, censorship
resistant, like, privacy money that isn't nation-state built.
Like, I think most people think about mineiro more who were like
super into that stuff, I think there's other chains that are
more used for transact ability. Probably when I would hate to
admit it is like think people use Tron Cuz it's cheap and fast
like I think there's there's actual movements Alana and stuff
like that so I think they're like they are already capturing
some of these these people who were previously using Bitcoin.
Are we already seeing this happen?
Then in real time like without without nation states or minors
needing to do anything at all? Well I guess a good question is
like what what percentage do you have this huge market cap?
You know half a billion to a trillion dollars in supposedly a
Right. How many of these how did this
comes from? These people that would leave it
immediately, go to mineiro and how about how much of this is,
you know, these people that just want number go up and they don't
really care. If this is a significant portion
that, you know, shedding a few of these people over to the
narrow overtime or or the people that just need a quick means of
transaction overseas. That's not going to have a
significant impact and it's might not be something that like
a possible minor collusion. Group would would be afraid of
well. And what's interesting to me is
there's even kind of an argument that at a certain point if
number go up. If the value of your investment
is your primary driving thing, censorship resistance, could
actually work against that, right?
If your Cohen token investment starts, getting the reputation
as being the funding mechanism of choice.
For all these societally, undesirable things.
The value of your investment is likely to suffer and so there's
kind of these points of Divergence.
Would potentially these competing interests of these
different people who all considered themselves bitcoiners
threatened kind of like we're sticking Strictly To One
threatens the interest of this other group.
Yeah, I mean if there's a strong collusion that can actually
could kill two birds with one stone and that they could
actually drop the hash rate like significantly and that could you
have to worry about these? You know billions of dollars
spent on electricity if you have three or four corporations who
are controlling the hash rate that's now No longer concerned.
These corporations are also protected us from the really bad
people at the same time and then the rest of the, you know, the
rest of everybody could just put their money in there and watch
the number go up, which might be appealing to enough people that
you don't have to worry about this whole thing clap.
See ya. And so I just haven't thought
more about those types of conceptual failures over the
last several weeks as we're working through some of that.
I have founded and increasingly kind of compelling and
interesting vision of Bitcoin failure as opposed to just the
more direct Look this minor could make more money by double
spending this one transaction. One other thing you recently
wrote Was A Treatise, an essay a piece where you decided to
respond to some arguments about whether or not Bitcoin ends
Wars. So what do you think does
Bitcoin end War? Yeah, pretty skeptical about
that. I don't know, I don't exactly
know, the mechanism by which it would So it's hard.
It's hard to formulate a good response to that but that is a
thing that has been argued by certain bitcoiners is that as
hyper Bitcoin is a shin occurs. It eliminates her severely
reduces the amount of hot Wars that would occur in the world.
Right. And that's a popular argument.
This is okay, this there's a real argument there, like like
Alex glad signs made this argument and just the the
ability to print money and spend it.
It means that you're always going to be spending it on
things like the military and this could be, this could be bad
it. So I guess that's that's there's
a reasonable arguments there. I don't know that.
I mean that's an argument for why Fiat and war is go together,
but it doesn't mean that like removing or adding bit code to
the, the situation will completely remove the ability of
the government to somehow incentivize people to create
weapons that they could use to attack their adversaries with
There's other ways besides lend Aid, which governments can are
borrowing the brother. The government's can use to
create weapons and there's some versions of the argument where
Bitcoin almost becomes like the Battleground where these nation
states will fight. What do you think of those
arguments or what? So, this is you would never like
you would never want to go into a battle where you know that you
are going to lose. It's like, I'm going to play,
you know, the game where you pull out what's it called?
Big wallet, or something, or big thing, where you, you, you open
up your wallet whoever's got, has a big has a most money.
The wallet gets to keep everybody's wallet.
I don't have any was actually played this game but you know,
people have challenged me to it, like no, like if you somebody,
if you are somebody who likes being a party and they're like,
hey let's open up our wallets and whoever has the most money
gets to keep everybody else's money.
Like, why would you do that? Why would you agree to that
game? You get to take take, you know,
the 58 dollars in your wallet, so you can get home.
So there's no reason anyone would ever put themselves in
position where they would be vulnerable to someone who's
going to outspend them as some sort of an auction situation.
Like this just doesn't. It's complete.
Complete nonsense. No one with no one would go for
this and so they would just opt out of this whole game entirely.
I think that's the sure. Feel like one of the the one of
the tether Executives has suggested that the like the
first country that decides to just start buying up Bitcoin
like weather like with whatever their currency is like just your
currency and keep buying Bitcoin.
Maybe it was Samson now and just like that that that would be the
win the country that wins in the end and I was just like, this is
so this is so absurd. And it also just flies in the
face of the suggestion that it can end all wars or anything
like that. It's like, oh well on one hand.
They're suggesting you just print money and just keep buying
Bitcoin. And then on the other, they're
suggesting that it's going to end all wars, and it's going to
stop spending, and it's going to like It sounds like no, it's
going to keep spending going. Just in one Only One Direction.
Yeah, people are kind of having their own competition for the
most bullish hypothesis. And so scenarios in, which like
nation-states are foma. We need to bitcoin is kind of
like the top level of that. So I think that's the goal
there. I mean, we're seeing it on, on
some small level, at least, right?
We're seeing it with El Salvador and I just looked it up.
I hadn't checked. On this in a while but Central
African Republic. They abandoned it.
Yeah, they gave they gave it up which I'm but I'm curious why
they decided to give up on that. Well, they were very, I mean,
these are very low countries on the international totem pole.
So they have a little bit more I guess less to lose.
So if they get, they put a little bit of their wealth and
everything goes up. It looks good for them.
It's not, it's asymmetric risk that if you just have a little
bit to put in, it's not, you know.
So I completely horrible, stupid move.
Central African Republic. They had their part of this, you
know, French system. I forget how it works but it's
kind of it's not great for them and it seems like they were
pressured. I don't know, I'm hearing this
for probably the Bitcoins, but it's like they were pressured
through economic means to like, rethink their movement towards
Bitcoin interesting, which, well, I mean, that's what we saw
with El Salvador, as well. Like there is the attempt by
kind of the IMF and everyone else to you.
Use their access to loans and funding to convince them this
experiment with Bitcoin was not worth while there's something a
Bitcoin doesn't fix. This is only which I realized I
came into this, you know, like the first heard about it either
2011 and I was kind of hopeful about it.
I thought maybe, you know, there is some way that people
organizing around the Shelly Point somehow we could, you
know, maybe come up with systems that would kind of claw back.
Some of the power from from corporations.
And after you know, kind of wrestling with this for a while,
I realized like it's really hard to use surf, you know, power
like you can't like if you don't have the power to do what you,
you can't do it. So they can always just use
other economic incentives to to beat you.
And so it's a really narrow roundabout long path by which
this could actually lead to something and something I guess
sustainable. And the actually accomplishes
what people wanted to do which was just kind of like take some
of the power back and I think if it ever gets to their it's still
right for someone to come and take over the whole thing.
We have Rob green on a long time ago, who did some marketing for
cryptocurrency companies back in the day and he said he also I
won't forget it just because he was the first person I heard say
something like this, but it was like that he, he was kind of
Board with some of the messaging of cryptocurrencies in general
and then the more he thought about it and the more he
considered the enemies that like the people that Bitcoin was
supposed to be going up against which aren't just it's not just
nation-states, right? Like you said it's corporations,
its banks. It's like it's the entire
Financial system. And when you think about the
trillions and trillions and trillions of dollars of
resources available to All of that.
And all of the people employed by that industry and like, yeah,
just what you're up against, it's unless you have a really
good plan. It's pretty much insurmountable,
right? Yes, I remember that.
Was a good one. The last 10 minutes I think he
went on very, very nice rent, which explains very clearly.
If I remember that correctly. It's a point.
You make I think in limp or as well when you compare the
security spend on bitcoin to various like to the amounts
currently spent on defense And things like that.
And I think you raised a similar point in our panel when someone
talked about, like, Bitcoins role in the energy industry.
And again, you're looking at an industry where like the total
spend is so many orders of magnitude more than Bitcoin, you
can just kind of embroiling Bitcoin, in those types of
things, makes your protocols subservient to those interest.
It doesn't necessarily strengthen your protocol.
Yes, yeah, I mean, it's just like it can be picked up by some
multi-trillion dollar Corporation.
It just sort of said wing of it and it's you know part of Of any
of their interest like they can, they can drop the whole mining
Wing if it's not profitable or they can sell it off, bundle it
to sell it to the Saudis or whatever like it.
You know, you can just it's nothing compared to hundreds of
trillions of dollars in other energy budget.
One thing that sometimes kind of surprises me, I'm trying to talk
about these things like some of these potential risks to
bitcoin, which I find interesting, mostly
academically. Theoretically, I don't own any
Bitcoin, it doesn't in much of a meaningful sense.
Matter if Bitcoin gets attacked or not.
But I just find these questions interesting.
But when I talk to bitcoiners about some of these issues and
especially when I start to get close to search and touchpoints,
they tend to recoil like if I were to whenever I bring up
that, I think it is likely at some point there will be a
version of Bitcoin with more than 21 million coins.
And I think that there's a good chance that that when retains
the ticker in a lot of the mass, there's a tendency to kind of
ignore it and not just, Just ignore it, but kind of deny the
things that would lead to that state, like deny the need for
growing transaction fees for that type of demand for blocks
base, for the types of things that are kind of inherent in
their protocol. What do you think kind of leads
to that tendency in the Bitcoin Community?
Well, I think there's a belief that we just need to get past
like the next stage. The next level.
We need to push through this. That were always just like one
cycle away from this like Mass adoption as one cycle away from
whatever the price. It is that we need to like have
everybody believe that this is real and and make all the
Skeptics cry and we're just almost there.
And we just need to ignore this stuff because once we can push
through, once we get to that level then we can solve all
these problems and sort of thinking about this problem.
Before we get, there is just going to stop us from getting
that we're never going to make it if we're running around when
Bitcoins 30. Thousand dollars worrying about
like the security budget in ten years.
You know that's that's not going to help us.
It's not going to it's not going to it's not going to serve the
mission. So I mean, that's what I think
makes people not with think about it is.
It's there's a, there's a positive positive probability
that this is actually bad for for the long-term security of
Bitcoin. So there aren't really good
answers. Yeah, yeah, no.
I think that's absolutely true but like, for me specifically
watching some of the mainstream bitcoiners.
Actions to ordinals recently was really fascinating to me,
because you saw a bunch of individuals who had advocated
for turning on seg wit, who had advocated for turning on
Taproot, who suddenly saw these parts of their protocol used and
innocence driving demand, and raising transaction fees and
showing like more demand for Block space than there.
Had been since like 2017. I think and yet they they were
horrified that that was a thing that was Is occurring and in a
sense that supports the aims of their protocols, that's aligned
with all these things. They claim to be in supportive,
but once it actually started happening, they were against it.
Do you think there's like, what do you think?
There's a mistaken belief that a lot of bitcoiners hold that
leads to that so I don't know exactly about, I mean, Taproot
was kind of funny. I didn't hear anybody opposing
Taproot like I don't know, like everyone is like.
Yeah, it's great. Um, I mean I didn't look into,
It too much but I mean it seems like the way people are
describing it as like. Oh you know you could do more
smart contracts things like okay is that really what we want?
Okay, but everybody loves it. Um, But, you know, as far as
this, like, ordinals think, I think a lot of people think it's
okay. It's Bitcoin, you know, it's
supposed to operate as this this fee Market.
It's a fee Market, you know, they're supposed to be a
competitive market to get, you know, get your transactions on
the train, on the the chain. And over time, we need the fees.
So, this is kind of good. But there's always this tension
between fees and the other Alternatives.
And this, this is an interesting point, because if we want the
fees to go, Go up to replace, and they got to go up by orders
of magnitude, to replace the Lost fees from the Block
subsidy. Then you're going to have to get
into the situation where people might start to leave if they're
using it for all these other reasons, like you know,
cross-border payments or something.
If you could just easily do this with Tron, you might as well
just do this with Tron, right. If you're going to it's going to
cost you $200 to send this or two thousand dollars like they
say, it's going to happen in 10 to 20 years in the future.
Of course, you're going to use your going to use salon at the
Toronto cardano, or, or tether or whatever, or or us CBD.
See like, why not? If you're not, if you're if you
want them to think that you're buying, you know, a snowboard
off Amazon, and you don't care that.
Anybody knows that like, you might as well do that in the
u.s. CBC and like, what's really kind
of interesting to me about this? Here's I think this connects
right back to kind of what we were discussing with optional
failures before and ways Bitcoin can kind of be taken over in
that like the need to replace the new issuance with these
transaction fees is directly related to some of the hard
money aspects that the store of value fans of Bitcoin propagate
and is like a central portion of their thesis for wipe.
It clean with succeed but like as we're talking about here, the
closer we get to that point, the larger and larger portion of the
population, you price out of trustless Lee and sense.
Chip resistant transactions, using that protocol.
Like if you're going to insist on transaction fees need to rise
to this point to ensure security.
You are basically admitting in that that many people will never
be able to use the protocol for censorship resistance.
And so I think when it gets down to his kind of the tension there
is Bitcoin has been promoted as a way to bank the unbanked and
provide everyone worldwide. With this new way to send value
in this censorship resistant way, but the current design
decisions of the protocol including some that are seen as
sacred Sacrament, fundamentally make that more challenging to
achieve. And like, I think that at least
in part could contribute to an eventual, like kind of
conceptual Schism where Bitcoin would be vulnerable to the kind
of like takeover you were discussing, right?
I did, I mean, if you have to ask what happens if the fees go
up? Like let's just say that, you
know, ten years from now, people are paying On average $250 a fee
or you know say times 1000 or 2000 block.
So you know you're getting this 200,000 dollars in fees for a
block or something like that. This means that there has not
been a viable alternative for most people like nothing like
there's no reason people would kind of continually over time.
Continue to pay these high fees for something.
It lists that really was like, really the top dog, it really
was the only one. Everything else was garbage.
Isn't isn't this the classic container ships argument from
Nick Carter? It's related to it.
Yeah yeah. And so I mean but like yeah it
could be that like this is the major thing that.
I mean you need to get your lightning Channel setup in this
end of the chain. So you're willing to pay 500
dollars to set up your lightning channel, so you can service
everybody. D.
That is this real. There's a real built-in Network
effect there that the, you know, could lead to this situation.
And at this point if this is the main container ship, then all
you have to do is buy the container, ship shipping company
or whatever and now you own everybody which is I guess
precisely the argument I'm trying to make is like if
everybody's shipping their stuff to one ship and you buy the ship
they like they don't have it either other options they've
already they've already Abandoned other other little
ships that they used to carry stuff with.
So you're just they're just stuck with whatever shipping
company owns the ship well and just I think bitcoiners love to
portray Bitcoin is antifragile which means something that when
it's stressed it becomes stronger but I think in many
kind of respects like we're talking about here, some of the
feedback loops inherent year fight against that like if you
assume the security budget needs to stay roughly the same or
increase and you need fees to go to this certain level.
Then you're going to like, as you're trying to get to that
point, continually be pushing regular trans actors on the
network to look for Alternatives and to consider alternatives,
like it fights its own like path to that point, right?
Yeah, I don't I mean, there are points where it is kind of anti
fragile, where you, you know, kind of on a local level like
you think about it? Hey, a ball which isn't a valley
of the top of a mountain right? Like you know yeah exactly go
back and forth a little bit. It's going to roll down to that
little Valley, but if you push it too far, the whole thing is
going to end. The ball is going to roll to a
down to the seats. A metastable.
State isn't the argument against this like the classic argument
against any of this? That it's been around for a long
time now and this hasn't happened that nobody is trying
to do this seemingly. What could be like a pretty
profitable move like, nobody is doing it?
It clearly is able to protect itself against that and this is
sort of a paradox because once you say, like, once everybody
believes is that, we've got To this point, I still think people
believe we're like a, not quite there like it's still the next
cycle before we get to that point where it's actually, you
know, set in stone and no one can mess with it.
So, it's a bit paradoxical and that, if once we believe this,
then someone that's what makes it vulnerable.
So, yeah, it's still a lot of people still think that we're,
we have another order of magnitude or two to grow before
the, the bowlers sentiments will not be as strong, but of They
say once we get to a million dollars then that's what
everybody knows. It's secure which is of course
there is no point like that which we do it secure I think
it's best when it's just kind of, you're not using it to store
value. Why do you think why do you
think it hasn't been attacked in any meaningful way and up until
this point? Well I think a lot of the miners
are there their Bush and so they are part of the ecosystem and
actually what one thing About minors.
And this probably could persist for a while.
This is this kind of actually stabilizes.
It is that going into a competitive industry is actually
like a horrible idea. Like if you're an entrepreneur a
businessman like if you have a great family Pizza, rest recipe.
You don't want to be like I'm going to go start a piece of by
the slice restaurant in Brooklyn.
Like this is like like it's just not a bright idea.
Like you would you just started somewhere else build up.
There's actually a great I watch this great talk recently by
Peter teal, who's maybe not your favorite you know everybody in
the audience favorite person, but he says all the quiet Parts
loud, it's great, it's called competition is for losers, it's
a great talk. He gives it to, I think a
Stanford CS group and he just explains the way to make money
is to go find an industry where you can wipe out the competition
and then suck up all the profits.
Like the last thing you want to do if you're smart.
Person is to go into an extremely competitive industry
because there's no way you're going to make a lot of profit.
And if you screw up just a little bit, you're going to end
up losing a ton of money. So this might be somewhere where
where Bitcoin is actually being helped because the people that
are that are running into that the mining industry, they're
actually there because they're somewhat supportive of Bitcoin.
They're not just trying to make a quick Buck because you you
can't really make a quick buck and it and historically from
everything I've heard. Great miners, usually lose money
in Bitcoin terms. They made a lot of profits over
the years because they've been on the good end of a bull market
but they've actually lost money. Like if they had to, instead of
invested in Bitcoin equipment, they would be buy Bitcoin.
They would have been a much more successful in business.
So there is a lot of probate court ideology and I think they
are not really willing to go and do these things.
They're not to cannibalizing each other yet.
Like I think there's a point in the future would They could
start to look at each other and say okay if we don't collude and
start selfish mind into something then these are the so
the group over here is going to do it and then we're going to,
our profits are going to go to zero, really got to sell all our
equipment and go bankrupt. And I don't think we're there
yet, but this could happen if we don't get another huge Bull Run.
I mean, we like we still had, you know, cycle to cycle.
It's gone up by multiple. If we go a cycle where It
doesn't go up by multiple. Like, if we don't reach 60,000
in 2025 things could get kind of testy with, because they don't,
they can't just rely on sitting around and waiting for the bull
market, to make sure that they're all, they're all rich.
Well, and I mean, we saw that already kind of a little bit.
I think, with course scientific right.
They over levered against their machines.
Going into the, like, during the last Bull, Run didn't sell when
it was like peeking and we're still holding to.
Much when the market crashed and like ended up in bankruptcy
because of it is I think the broad Strokes of their
bankruptcy. I haven't covered it much
specifically so go read coverage before you take that is like a
detailed series of events. But broadly I think we've seen
miners like throughout the history of Bitcoin mining end up
in that kind of position because it's capital-intensive to get
started. You have ongoing costs, your
returns are delayed at least until you can get set up in the
machines running. And like you mentioned because
like the market for Bitcoin mining is global and Is global.
You're competing with whoever has the lowest possible energy
costs and so if you don't have the lowest possible energy
costs, you better hope that Bitcoin increases in dollar
terms. Yeah, this could happen.
I mean, this is something where an entirely this could happen to
the entire mining industry at some point.
If there's a kind of nasty in a trip down during a bear Market,
this could be really nasty, especially with the hash Market
with a hash rate is going. Going up.
Like I looked at it yesterday was like 370 million, Tara
hashes per second or something. This is like the this is really
big like you know, relative to the to the price, we're about a
year away from a having. So like the the price that I
mean, that the profit margins are going to be really tiny
coming up. Yeah, especially around the
having, but I think a lot of the recent increase in hash rate is
probably due to bit main filling some of the back orders they've
had for their most recent machine.
Because they had long back orders during the bull market in
her finally filling some of those out.
So my get like so we're seeing the efficiency of miners go up.
So like in terms of hashes per dollar have gone up?
Yes Michael would you like to explain what selfish mining is
and how it changes the commonly accepted 51 percent?
Number that bitcoiners keeping their head?
Sure yes I'd love to. So it's selfish mining it's
something which it was there's a paper that came up like 2013.
Someone describe this if A - it was a mean gun sewer?
Yes, yours. I mean, consider of a Avalanche
was yes, yes, he was in an avalanche then, but if a minor
is to keep certain block secret or write a blog, keep them
secret and then publish them at the right time, there's a
process or you know, they can buy pumps and these are the
right time. They can actually destroy more
blocks and their competitors proportionally than they are
losing of Their Own by risking them by keeping them secret.
And so You know, it's the math is like a Markov chain and you
can you can figure this out. It's kind of a polynomial,
divided by polynomial. But you look at this function it
and it shows you that once you get to one third of the hash
rate you see you by increasing your hash rate a little bit and
doing the selfish mining, you get more proportionally of the
blocks in return it. So this kind of abuse is a
difficult adjustment, a little bit.
So this means that once someone starts selfish mining at 33%,
they can start to bring in other M and it's always going to be a
profitable investment to take hash away from the honest.
Mining pool over to the selfish gene pool because you're getting
more, you know. Just it just Arbitrage
opportunity more bang for your buck by moving over the surface
mining pool. And so this creates a situation
where things could snowball where, you know, one day.
It's 33 percent next day. 34 35 36 and pretty soon.
You have a 51% attack and then you're just Monopoly money.
So this is one of those things where R.
It's interesting. When you consider this Market
fragility hypothesis and say, okay?
What if a corporation just decided to start doing this like
tomorrow? What everybody would everybody
just kind of is at the moment they would they would like run
away and go, you know, buy us. Treasuries or like what do you
have to get to like 40% of the mining before before they did
that? Or what if they had 45 percent
and we're controlling most of the And what if they just
actually had, like, full control the money?
But they promised to, like, stay true to Bitcoins core principles
and they were going to censor anybody because that's, you
know, and this was all good because now they can, they can
kind of ease down the hash rate and we don't have to worry about
the environmentalist fun anymore.
There's a lot of on-ramps for this for this centralization.
I think selfish mining is one of the easiest ones, because you
just start at this at this level and you, You can see it
happening at first but it can, it can slope.
They can snowball different. Nobody freaks out and leaves.
Like everybody says it's going to happen.
You can try it. I mean, you could just starts
off as Mining and then nobody the price doesn't go down.
Well you just keep doing it, this can work its way up to a
full centralization attack. Well and I think what you
pointed out there is like your only real other option in an
attack like that is to leave and go somewhere else to change the
consensus algorithm. And And most of the Bitcoin
community that. Now this coin is the new Bitcoin
and we all agree on that. So it's true but that's like and
like that layer zero that social consensus is fundamentally, what
drives a lot of this. And like, I think what you
pointed out, we're at what point do you decide we need to leave
and, and like, change this. Because it's a pressing concern
is kind of what makes this challenging because perhaps some
folks as soon as they see someone get to like 30% or Gonna
be like this is a serious issue. We need to take steps but if
they can't convince enough of that massive enough stays in
like the primary one, it can kinda trundle along to that
point and like, yeah, and so largely, I think that's what it
kind of comes down to with a lot of these types of attacks and
why I like the Bitcoin cultures interaction with these ends up.
Fascinating to me because there is a portion of Bitcoin culture
that treats the protocol itself is some like sacred thing with
Many features that are never to be changed that to even talk
about changing them is, like committing some type of heresy,
against Bitcoin. And there are some of these
situations we're talking about where you end up in.
Like this selfish mining attack where you need to decide, which
part is most sacred. Is it like staying on this
historically, longest chain that is followed this algorithm that
everyone knew described and hand it out to everyone, or is it
changing that and preserving some other more vague aspect?
To bitcoin that's important to you.
It's censorship resistance, the distribution of its mining or
whatever and what's especially interesting to me, is there have
been many attempts throughout Bitcoins history to, like there
was at one point, I think even Luke Dash, Junior suggested
adopting like manero's, Asic resistance, where they hop
between different algorithms at some randomly determined pace
and that that would help decentralized Bitcoin mining and
prevent it from like centralizing into a six.
There. Been other people have suggested
like switching bit. Into like wholly different
consensus algorithms that use like there was one that wanted
to use, like lasers reading discs or something that got some
brief support but like none of these have ever been able to get
like anything approaching what I would call serious consideration
in the Bitcoin community. And I think that kind of
highlights how Insidious this type of attack or how effective.
This type of attack could be because it's really hard to
build that type of consensus in the Bitcoin community.
And I guess, obviously any Any, you know, effect to counter this
by going to new algorithm. How long is it going to take for
that new algorithm to be, you know, swamped by the same forces
or completely new ones, right? I mean, and I guess if you're
thinking a little more cynically, how do we know that
the like Luke Dasher hasn't like doesn't have like already talked
to some people who have built this thing and it's ready to go?
I mean we can trust him and maybe he's not out to do that.
But what if we do not supposed to trust him?
He's already had some of these machines ready to go.
And next thing you know, he's going to have he's going to be
selfish mining on these on these laser discs or whatever.
You know. I don't think he was related to
that weird Optical like Spinning Disk consensus algorithm, but
I'm pretty sure he did at one point.
When you adopt like the Monaro for a while, had one where they
switched between like a random set of algorithms at random
times in the hopes, that it would never be worthwhile for
someone to accumulate like enough of the different Asics to
cover that. That but like Monet was also far
smaller than Bitcoin and the rewards are far smaller and so
the incentives and up a little bit different like there's less
people willing to develop custom chips for a smaller Market.
I haven't looked at that algorithm but in general when
you combine things you get a nonlinear relationship between
like input and output are like input and like how many blocks
you get? And the nonlinear is really bad
for centralization. The nice thing about like
Nakamoto consensus is if you're if you're contributing 15% of a
hash rate, you expect to get 15% of the block rewards.
But if it's nonlinear, like, there's all sorts of incentives
for centralization. That was back in, like, 20, like
middle of 2018 that I remember more narrow, having a bunch of
issues surrounding these 86 and trying a bunch of different
things for while they were just like, regularly, hard forking to
new algorithms with like a month's notice or something like
that, then I thought they change it to something else where
switch between several but doesn't particularly matter.
The important Point here is like it's hard to get consensus for
that kind of thing and like it's hard to get consensus to change
the Bitcoin Supply cap. They tried to get consensus to
change the Bitcoin block size. They got many of the most
important like companies and people in the Bitcoin ecosystem
together at consensus and had them all, sign a piece of paper
and still that ended up not being enough consensus for
Bitcoin, duchy change, those things.
And so like I think that like escape to that layer, zero
social Escape ends up Really challenging in a culture like
Bitcoins. Yeah, that they are block size.
Words is interesting in that I think people have tried to clean
a lot of like Universal wisdom is from this and then like,
maybe maybe it's true, you can't change it.
Maybe smaller blocks are better. Maybe the miners are always the
bad guys or will always lose and the nodes always win but this
this is one of the like it's sort of built into the the whole
mythology of Bitcoin. Now, That that the nodes are
always going to have the final say.
And I don't really notice. I said, I tried to like figure
out what exactly precisely that means and how that would make
sense, but it's this, it's kind of part of the, the
understanding now is that the nodes would be able to soft Fork
away, anything that they did like, and I don't actually
believe this is something, which I think requires a lot more of
an argument, then what about 2017?
So, if this happened to give you the future happened, twenty
years, Future and the - that don't listen, we're going with
this hard Fork. These are, you know, 20, you
know, the the night having or whatever will be the last,
there's no more having's after that.
That's a hard Fork, get aboard. It's not clear that that the
same, you know, it's weird. We litigated the block war.
Again, it's like the block size where it's, like, whatever is
going on in the world, and 2041, or whatever.
It's completely different situation, completely different
dynamic. X and if it could is the thing
which people are using every day, they need to rely on it,
then they don't want to challenge miners who have, you
know, will at this point be working with all these major
Financial corporations to to, you know, set up lightning
channels for, you know, Wells Fargo and all that kind of
stuff. They're all good to go with the
mic. That's right there.
They're not going to like let their nodes fight and cause a
soft work, which is going to destroy the world's Financial
system when everything's on. And so I think these Dynamics
could become completely flipped once we get to this magical
place where Bitcoin is like in disposable and adopted by
everybody. I think there's lots of
assumptions that were made around 2017, which over the
coming decades, people will find we're not true.
Thank you very much for joining us today.
Micah anyone who wants can check out his recent textbook Bitcoin
a game theoretic analysis, which has more Detailed information
about different attacks, Bitcoin security, how to think about it,
how to model it and like, really how to understand these
different things. I should want to, thank you very
much for joining us. Yeah, it's a math textbook.
It's a graduate level math textbook.
To be clear. So if you're interested in a
graduate level math, textbook about the game theory of
Bitcoin, it's the best. Yeah, it dominates that
category. Yes, yes, yes, I competition is
for losers. Well, thank you very much.