The Decrypt Daily: Bitcoin & Cryptocurrency News Podcast - Oct 19: Jameson Lopp on CEX's, BITMEX, DEXs, Bitcoin Taproot, When ETH 2.0, Elections

Centralized exchanges, BITMEX, Decentralized exchanges, Bitcoin Taproot, When ETH 2.0, Elections. Follow The Decrypt Daily Twitter: @decryptmedia Website: Follow me on : Twitter: @TheDecryptDaily IG: @TheDecryptDaily Jameson Lopp Twitter: @lopp Music: Say Good Night by Joakim Karud Creative Commons — Attribution-ShareAlike 3.0 Unported— CC BY-SA 3.0 Free Download / Stream: Music promoted by Audio Library https

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For the crypto Ico. This is the current daily and my name is Matthew Aaron today. I invite mr. Jameson lopp to talk some the biggest stories of 2020 in the show for the past couple months. I've spoken in many many topics and some of them still kind of elude me. I spoken people that either a shield or pumps or colored the news.

And it still lets me with some questions. Guys. I have spoken to pray about it over a half dozen times. I've met him in New York City for consensus. I videoed with them and I have spoken with I'm already three different podcast and I keep reaching out to Jameson and he keeps talking to me. Why don't know why you keep talking to me, but I keep reaching out the Jameson because he's one of those kind of guys that are just Straight Shooters how it is without any shell without any fun without any color. Just this is how it is tonight basketball's some different topics that I've covered the past couple months to give me some sort of grounding if you will hears my conversation with Jameson. Enjoy it.

Give me some love. How you doing, man. Welcome to the show. Not bad the space always somehow manages to stay exciting lot to talk to you about today. I've been doing this new show for about two and a half months and it's a lot on my plate and I'm trying to struggle to figure out which way to which way to go which way to think about some of these things. If you know what you're a very attractive person when it comes to the space, you're never going to be moonshot and coins are stealing any project. So I ate your kind of like my my grounding person. So I don't ask you about a couple of these questions a couple of these different news items. I've been popping up over the past couple months and I just want you to just kind of like biggest brain dump your opinions about them. All right, I'll do my best. First one Defy is the number one Deadliest Catch word of 2020 in crypto defy this defy that are just coming up a project all over the place.

2017 Ico type Market money grab it my right with that and what do you think about Define? What do you think about the current state of defiant? Do you think it just a poses with 2017? I mean things change and yet things stay the same right? I mean history Rhymes. It doesn't necessarily perfectly repeat. But you you tend to see patterns in these things. And one of them is that when we're talking about innovating in the financial space. The truth of the matter is the vast majority of financial products and services are just thinly masquerading types of gambling, you know, you're making bets about different things. And so it made a lot of sense to me to see The Cutting Edge Innovation if you will in various permissionless crypto projects,

End up tantamount to different types of gambling in many cases what unfortunately it seems to happen is that they kind of fish of the risks under the hood and hide them in a way so that it's not obvious what the risks actually are and then people get really excited and it looks like everybody is making money. Everybody is getting rich and then eventually, of course the risks get revealed the rugs get pulled out from under people and people's expectations get reset and we were going to continue to see these type of hype Cycles happen where there's Innovation and Euphoria and then eventually people have to face reality technical reality economic reality and we dropped back down, but somewhere along the way there has been some interesting new progress made and then the cycle will eventually repeat. So it's it's more of the same. It's certainly interesting in terms of making new.

Types of products and like ability to swap liquidity and different ways and then try to create new exchanges that exists outside of centralized infrastructure. You know, that that type of progress is certainly interesting but you know it it's par for the course that a lot of these things end up being outright scams. And so, you know, it's risky to play these games. Do you feel that defy? Your centralized Finance is actually a good idea in general. I think that any attempt to try to further distribute power away from centralized entities or small numbers of people is a worthwhile Endeavor. I certainly am in favor of trying to figure out how to reproduce Financial Services in a way that gets rid of middlemen. The trip thing is with a lot of these quote-unquote defy services.

Are still middle men in their there are still administrators that can control things but sometimes it's just made a opaque and people don't realize that until it's too late the decks decentralized exchanges kind of like the Holy Grail of get away from or to have security with your coins. Not your keys. Not your Trader crypto as needed a swap it out and everybody was looking forward to it, you know Texas this year have come really into their until late because of volumes which kind kind of our bacon bullshit. They are rivalry decentralized exchanges when it comes to how much crypto is being flown through with liquidity and volume. Do you think that the decks has taken on a life of its own that is outside of what we kind of wanted it to be back back in the day and it's evolving to be more of that middleman to what we just said about defy as a way to either incentivize a certain small number of people and kind of I guess

I can travel away from what we are really hoping to achieve with the space kind of I mean some of the issues here are your who is actually developing the code what level of control or Administration do they have over these smart contracts? And then what we've I think seeing happened more recently is perhaps instead of having just like a single entity or exchange that is behind a decentralized smart contract there might in fact be a group of insiders that is getting an early or perhaps putting in liquidity putting in tokens and they end up getting a sort of outside Advantage later down the line that I think there was some kind of fishy stuff going on with some of the recent airdrops. For example with that even though they seem to be done in a way that was trying to skirt around various Securities laws.

I suspect that the vast majority of the airdrop tokens ended up going to insiders that were essentially part of one logical group. So like I said history doesn't repeat but it does Ryan like I do think that there will continue to be things like this and it's going to potentially become harder and harder to discern exactly what is going on. And that's kind of a good thing from a privacy perspective, but it can it can make it tricky or four people to figure out in what is a legitimate project in what is actually a scam or if not an outright scam a project that has been built in a way that is weighted towards basically paying off a small group of people when it comes to centralized vs. Decentralized exchanges for me. It's like somebody said you sent a centralized exchange. I'm going to look to see if it is compliant with certain.

Kyc AML, if it is complying to government regulations within where I live the United States Sue know that I have that security when it comes to the decentralized exchanges. What do you think are some of the boxes that should be ticked? And I don't know if that's your opinion about centralized exchanges. You can please, you know, tell me what you think about essential oil change as well. But what do you think are the boxes that should be ticked when looking into which one you say use because me unit swap Sushi new food decentralized exchange that they're going to make taco McDonald's Big Mac these chickens to know that. Hey, yeah, I could use it when it was very simple before a decentralized exchange smart contract plug in your Ledger you go now it's very convoluted and complex. What's your criteria welder? There's no hard-and-fast criteria. What we're really talking about is a reputation. You could have some criteria that your first Central

Best actors says they appear to be complying with local laws and regulators and I place you some faith in the existing framework. That's not really something that I personally care about. I would and Ann have before you used exchanges that were essentially run by Anonymous people and they were still centralized but they had built up a reputation over many years which made it fairly unlikely that they were just going to exit scam with everyone's money fairly unlikely that they were going to get packed and lose everything but the real problem when you're working on The Cutting Edge and when you're playing around with the smart contracts that are only hours or days old there is you just don't have enough time to build reputation lyrics in many cases there have not been any good audits of the code and so regardless of if you're looking at a centralized exchange or decentralized

It's an it's really a question of can you understand what they're actually doing or is it just a black box and when it comes to centralized exchanges, they're generally going to be a black box and the only thing that you can go by is your how long they been in business and what's really the existing users and Community have to say about their own experiences with it when it comes to using a smart contract that has not been around for very long. You have to scrutinize the code extremely well, and I think the tricky thing now is that it's not necessarily just like looking at that one smart contract, but also trying to figure out what the ramifications are of that smart contract in the context of the greater ecosystem because now we have all of these different type of protocols that are interacting with each other like on a Siri. I'm creating you're much more complexity to the point.

That I can't tell you that I understand a lot of what's going on. I think it would be a full-time job to really understand the intricacies and interactions between the different pieces of running code in the ecosystem now, so it it's like anything else you have to do your due diligence and I think the the downside to operating in a really fast moving Innovative environment is that your people are going to cut corners and they're not going to do the due diligence because they're simply Pho Mowing and they're afraid that if they wait too long to do the due diligence and they will have missed their opportunity to make a lot of money. So risk and reward for you. I have fell victim to phone for twice in my crypto career that you said due diligence. If Jameson lopp doesn't understand. I really pity the average consumer coming in to try to do their due diligence.

But moving a little bit from decentralized exchanges to centralize exchanges the indictment of bitmex the other day was big news about people removing their cryptocurrency and we'll finally off these chains. They should have any way but if we do something about that and you said now we get to see if it makes his multisig setup is a nation-state resistant to questions is what do you think that the bitmex indictment is going to do for the other centralized crypto exchanges that most people use I mean ever talk about Finance Kraken Gemini coinbase Mueller in different leaves. You can explain that and second. Do you think with that statement with that sweet that bitmex should fight the government for with the requesting? Yeah. So these are at the very least two different classes of centralized exchanges. I would I would throw coinbase Kraken and Gemini into the we're going to play by the rules as much as possible ends and

actively worry about protecting ourselves legally buy a working with The Regulators in the existing system coinbase and Gemini seem to do that mostly by having a really close ties with existing Regulators including in New York state and whatnot, which is really the most stringent of all the states when it comes to the financial services but a kraken is interesting because they're still

they're still kind of aloof. Like they didn't take the direct obvious route rather, you know, they've spent a ton of time in Wyoming helping craft new regulations and in statutes and massage that are actually favorable for moving forward as a kind of new hybrid business that can operate as a bank but can also operate in the cryptosphere. They're doing an interesting thing kind of like straddling Both Worlds, but trying to do something more Innovative on the legal side, whereas from my understanding, it seems like binance and bitmax take more of the approach of your let's do everything that we can to steer clear of all United States regulatory stuff and try to operate in a completely outside of that sphere and it's an interesting tactic which is it's risky because he Team America World Police tends to extend its reach

Around the entire world and so it's very hard to steer clear of US policies when it comes to the financial stuff. So I would be surprised if we don't see similar type of thing happened to binance. I know that Finance has an American arm which day perhaps we'll use as justification that they are complying with the laws there. But if there's any way for American citizens to use their non-american surface than I would expect her going to have some legal issues eventually bitmex is I would say a unique case in the sense that you know, they've only ever actually dealt with Bitcoin. So like they've never touched Fiat rails there there seems to be a strong argument that they shouldn't have to be compliant with a lot of traditional Financial regulations. But of course now various US agencies are coming in and saying, you know what everything that you're doing

It's still going to fall under US Financial guidelines. So that's going to be a very interesting legal battle to play out from a technical standpoint what my tweet was referring to a seems to have played out pretty well where I think only one of the three bitmex founders was in the United States and there was actually a post that came out just a day or two ago from think it was coinmetrics. That was analyzing the use of the multisig keys for bitmex cold storage and that it looked like they had made a pretty good job of guessing of like which key is belong to which founder because like during the time. That I Samuel read the CTO was under custody that key stop being used but the other Keys kept being used and it's my understanding is going to the other Founders are basically on the other side of the world in Hong Kong or who knows where else so

It does seem like at least for now bitmex is able to steer clear of at least having their service completely shut down then get into all of the sort of legal intricacies of the relationship between Hong Kong and America which apparently has soured recently. So that actually might be a good thing for bitmex if they're looking to the continue operating. I'm going to jump straight into Netflix. They have no clue how to Segway it but Bitcoins code update that is scheduled to be a really big change. I did not read into that today because that's just dropped today. I decrypt I was just wondering if you could just walk us through what is the changes and why why make the changes? Oh, well, I mean, I think the expectation is that the next version of Bitcoin core should be coming out in December if everything goes to plan and there's going to be a ton of code changes in that but what you are referencing I'm assuming is the merging of the

Fruit code and this is something that has been long time coming. I think it's a good two or three years of work essentially to try to get this next major change and the Bitcoin protocol and really what we're looking to do is once again improve the on Shane privacy and scalability of being able to do like more complex Bitcoin transactions. It's certainly difficult to describe this simply without getting too technical. But the idea is that we're going to be able to leverage a couple of different cryptographic tricks to do more of the computation you outside of consensus outside of the actual blockchain data structure and network itself. And one of the the things that is going to be leveraged is

For signatures, which is essentially a way to do multi Sig in a way that happens off chain. So that anyone who is validating it. It only looks like they're validating a single signature that is helpful for both the privacy and amount of on chain data that you're using because it's just a smaller amount of data pure actual like on shade signatures.

That is actually being rolled out in conjunction with this thing called Taproot, which is a new way to use the existing Bitcoin scripting logic construct of those scripts in a way that you don't have to reveal the entire script when you go to spend. So one of the problems right now with Bitcoin both privacy and scalability is that

If you are doing something more complex likes a doing a script that requires multiple signatures, maybe it has different time locks built into it the the logic and the amount of data that that script takes up grows larger and larger as it becomes more complex. And also when you go to spend it, you have to put the entire script on the Block shame. This is this is not great at even for a casa. For example, we provide a multi signature bass wallet, that means that our users are having to spend more in fees for their transactions than people with single signature because it's just more data going on the blockchain and it also creates a more uniquely identifiable fingerprints, which is not great for privacy, but with taproots instead of having to put the entire script on the blockchain we're actually able to use another cryptographic mechanism.

Call the Merkle tree which essentially allows you to break up the script into many different logical branches. And then you only have to reveal the specific set of logic that you were using when you were going to go spend. So now you can have a potentially infinitely complex set of different possible spending conditions, but you don't have to throw them all on the blockchain when you want to go spend that money instead. You can only put in, you know, these three or four logical branches that you actually want to use to say. Hey, you're this Bitcoin belongs to me. And this is proving that is a valid spending condition for me to be able to move it now out of this address. So even that was a fairly I think complex explanation, but that the short version is better privacy better scalability. I'm hoping to see improve things like coinjoin.

For example is one type of mechanism that could potentially gain improvements from this because now you'll be able to to hide more of the transaction Center or more of these signatures that are happening. You don't when you're creating these large transactions basically pulling people's money together.

Does it have to anything to do with stale blacks? Look, I don't know. What made me think about a stay of like I was the big news over on around September 30th. If you could what is a steel block does this upgrade have anything to do with the most rare occurrence of Tuesday brought blocks. So close to each other and will the hotter the Bitcoin House of the average person have to do anything. Once this is upgrade like the new wallets update in seeing what do we have to do or do we just kind of like just let it roll out and we're good person blocks are stale blocks. If you will that's a completely separate type of issue. It's more of a like I'm Network propagation of block data a problem, which is completely tangential to all of this. I suspect that was probably like some bitmex research should I cook because they have a service that is constantly monitoring that the main story behind orphan blocks. Is that over the years the improvements to the like fast?

Relay networks that have mostly been done by Matt carollo have increased the speed at which blocks propagate through the network so much faster that we used to see orphan blocks on basically a daily basis. And now I think we always see the every few weeks. So Orphan Black just happens when two different minors find a block at almost the same time and they both put their block out onto the network in that basically results in a propagation race throughout the network in eventually only one block can make it into the the permanent blockchain because every block can only be connected to one previous block and it's at a substandard type of thing to happen because you might believe that you know, you have a confirmation on your transaction for example, but then if that block is orphaned and it's possible that is especially the confirmation

I'm done in most situations where that happens. Recently. Your your transaction will just get put into a future block pretty soon anyway, so it's not something that users really even notice anymore. So the taproots and Associated stuff that's going to be happening with that. The address format was actually already rolled out with segwit2x the best 32 style addresses. So this will all be negative segwit scripting and it that's been out for several years and I know there are still a few services that complain and don't allow you to like withdraw to best 32 addresses, but I think it's pretty rare and then we already got pretty widespread support at least on the sending side of things from a a Bitcoin wallet or Bitcoin service development perspective.

Changing your validation to be able to send or withdraw to new types of addresses is really trivial. It's usually just a few lines of code on the other hand changing your logic to construct new types of receive addresses is a lot more work. You have to you have to basically implement the whole new scripting logic and an address creation. So that is what tense to roll out a lot slower and from the user perspective. It'll really depend on how the services do this. So I would expect a lot of wallets will probably end up displaying it as a a user option of saying like do you want to enable this type of address and your switch over to using it? Because that's what I think a lot of wallets did for the segwit rollout on the other hand your wallets that are already doing.

Native segment using Bosch 32 addresses for anything. They could potentially roll this out in a way that the user doesn't even notice and interests you switch the logic that they're using under the hood because the user still going to continue seeing the same type of address and your as a as a ux focus company, for example, that's certainly the type of thing that we would prefer for us to be able to offer to our users and foremost services to do is want to keep that friction as low as possible like a lot of the stuff that we've been talking about today is not really things that I think the average Bitcoin users should need to concern themselves with so the more of this complexity that we can you keep abstracted away from people. I think the better it is for Bitcoin agreed agreed the recent couple months with as we just spoke about a defy and decentralized exchanges Sushi swap.

Swap one thing that we did see through this whole thing. And now that we're talking about Bitcoin update is that if there any from is being stressed very much. So and their fees are becoming astronomical. Do you feel that one? When do you think they're going to see a new version of app that can handle what's happening with that protocol with the network and to do you think that the limitations of aetherium is slowing down the whole industry and maybe hindering it because of me because of the lack of usable cheap quick infrastructure that makes people kind of take a step back and go maybe this isn't the future so that two questions when went at 2.0 and do you think that not having a 2.0 is hindering the growth of the industry. I think a lot of people are going to have to do some hard thinking and come to terms with exactly how long it's going to be before the F 2.0.

Vision is fully realize that mean it's going to be years. I think metallic is mentioned something to that effect recently where this is a multi-stage process that they have laid out and I've seen so much hype around UF 2.0 Fazio's going live soon. And it's like these people don't even understand that there's going to be no user facing consequences to that. It's not going to actually enable any scaling improvements. It's only like Step 1 of who knows how many steps I can't even keep track of it either because I mean the plans are constantly changing and I'm trying to keep my focus mostly on bitcoin, but I think a more short-term plan is we're seeing more people talk about optimistic Roll-Ups, which is its. It's a different type of scaling. I would consider it more of a vertical scaling your eBay sleep anymore.

The in the blockchain you're just using the blockchain more than it has been before you could potentially say it's kind of like segwit. This is going to be an ongoing issue. I believe in any public permissionless popular Network and I think it's interesting to look back over the past 3 or so years, you are since the end of what I would call the scaling Wars to really see what happened and what happened to the networks that prioritize keeping validation costlow at the potential expense of having higher transaction cost and what happened to the networks that did the opposite and prioritize low transaction cost at the potential expensive High validation cost of the entire network. Really what we've seen is

All of these networks that have been pitching themselves as being basically free / really really cheap to transact have not gained that much adoption. I was actually kind of hoping the sum of the woods so that we would get to see some like real world stress-testing of of what would happen to these networks. But I think that this is a narrative that is being proven false at least currently and today is that this cutting-edge technology does not really seem to be getting adopted by the people who are extremely price-sensitive. I think there's some obvious explanations for that which is the people who are extremely price-sensitive probably have more important things to be doing like figuring out how to put food on their table and keep a roof over their heads. They're not going to be playing around with this.

These crazy a speculative games that seem to be attracting more of the wealthy Elite nerdy type at least currently in and that's fine. I mean, that's how technology progresses it gets adopted by wealthier people who have free time and have disposable income that they can throw at these things and that that is always been the case when it comes to technology. I just think that we're a bit too early to be pitching this technology as like the Savior for the third world. For example, I I do hope that we will get there eventually, but I think it's still going to be a number of years. So I don't think that these higher fees are necessarily turning a ton of people off, you know, obviously they're going to be pricing some people out the system but this is part of what we're going to have to continue to monitor in every popular network is the trade-offs of

Who are we empowering and who are we disenfranchising your as the attributes of the Network's continue to fluctuate, but I want to kind of like get away from crypto for one second and talk about one of your other favorite topics of the United States government. What do you think about the upcoming election? I guess in general, but I'm talking more about voting security trust as we are both inside a well hopefully trustless a system of blockchain decentralisation. We are putting a lot of trust into this next election November 3rd, when it comes to absentee ballot mailing in-person voting the risk associated with that and the fact that our two party system might be doing a kind of note unsavory business. I had both sides to try to restrict the vote or a one way or the other two, maybe one side to the other.

what is European all that in do you think that when we're going to have a an election that could be that we can trust with results that we can trust and if not, what do you think could happen on a text died that we couldn't help push a trust list system through for the US government to conduct elections in the future. The whole thing is a shitshow and it's potentially worse than it has been previously but I think that we're seeing more of the same when it comes to politics politics is a dirty game where people who play the game tend not to be too hung up on doing what it takes to win because you're playing for power is this is like the ultimate form of of money right has actual power over not just money, but all of the resources of a Nation

And so the difference I think is that now with the information age. It's harder to keep things secret. And so we're we're just being bombarded with more of the shenanigans that are going on. We're also seeing the results of your what the information age enables which is massive disinformation campaigns and really being able to sway people sentiments in a way that wasn't really possible before I mean the age of your broadcast media certainly change the ability of the speed at which politicians could sway public sentiment and now with the internet and social media is just kicking it up into hyperdrive. So it's more of the same but just overload such to the point that I think people who get sucked into it.

Are potentially in a wasting a lot of their lives just worrying about this stuff. And you know, I a kind of watch it from the sidelines. It's impossible not to hear anything about the political situation of what's going on. But when I sit down and try to think about well, would I prefer to live under a Republican or a Democrat control your president or other body of governments are for me. They they both have their own unique downsides and so it doesn't seem to make a lot of sense for me to worry about which particular downside. I'm going to have to deal with because eventually I'm going to have to deal with something. So it's it's crazy and I think that the most productive thing that people can do is not worry about it too much because it's mostly outside of your control now, we could try to Institute better systems near one of the the problem

With voting and I think one of the reasons why a lot of people don't trust it is because when you cast that vote whether you're putting it in the mail or touching a screen on a electronic machine, you don't really know what happens to it after that, you know, you never get any sort of follow-up or feedback that ensures that an audit happens that your vote was actually counted towards something. So, you know these type of strong auditing systems that blockchain type data structures can enable would certainly provide some better transparency for that while we need to build a whole lot of infrastructure around it. Certainly not going to happen for this election cycle, maybe in a few election Cycles the government or at least the the private sector will have caught up to the possibilities of what blockchain style databases can actually

Ensure for people I don't see a whole lot changing anytime in the near term even even when it comes to thinking more optimistically about that stuff. I have to assume that a lot of the incumbent politicians would probably push back on it because they might perceive better auditing of votes to actually be against their interests. And I mean, that's that's why we see things like gerrymandering that's why we see things like political battles over which ballots get to be thrown out for whatever stupid reasons and the whole process is corrupt because everyone is just buying to do what is in their best self-interest to gain as much power as possible at black teen Tech Casino Hammers and Nails. You have a hammer everything looks like a nail. Do you really think that the blockchain Tech Hood?

Help create a more trusted system of voting and governance if implemented properly. Well, that's the key word if implemented properly and so I certainly believe that it could but I'm a highly suspicious that you could get a a neutral body or a new sufficiently bipartisan body of people together to build it in a way that I would consider a verifiable and trustworthy and so there any such system I would say would need to be built in the same way that public permissionless networks are built where it's all done in the open. Everyone can audit the source code everyone can view and the entire public database of the votes. Like they're there can't be any potential exploits where your shenanigans could occur because there is some level of lack of transparency in in in

Any part of the whole process, so that's why I'm pessimistic about it, you know, obviously optimistic about the technology and its capabilities but still pessimistic about the humans that would be passed with building it on their own incentives solution to that that pessimism then it didn't the human aspect. I mean, what's the reason that I think Bitcoin work is because this is this is a concept that transcends borders and nation states. And so you can have people in from completely different cultures who live in completely different environments who are all sharing the common goal of building your optimal form of money. But when you start to try to build a project that is limited to your certain locality ascertain jurisdiction, then politics inevitably comes into play and becomes a lot harder to extricate yourself from all of the complexities that come with it.

And Jameson, I want to say thank you very much for your time today. And for helping me some fries my last two and a half months of crypto news. Thanks for having thank you for listening to this episode of the decrypt daily tomorrow Bitcoin gold or silver. Can Bitcoin unseat take the place of our precious metals. That's the question. I want to get too and for that I invited on David Morgan author of the silver Manifesto of which I have three copies to give away after tomorrow. So not tell you how to do that. I'll see you tomorrow Happy Holi.
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