 There has never been a crazier time in bitcoins history than right now Bitcoin Bitcoin cash hard forks soft forks segwit segwit 2x mining censorship Decentralization we're gonna try to cut through some of the confusion on the 72nd episode of Patterson in pursuit Hello my friends and welcome to another Bitcoin edition of Patterson in pursuit If you are a Bitcoin fan, then you're gonna love this episode If you're not then go pick up a copy of my book What's the big deal about Bitcoin and learn why you should probably become a Bitcoin fan? There is so much confusion and uncertainty in the Bitcoin world right now some of that confusion comes from Intentional misinformation some of it comes from accidental misinformation if you're new to the Bitcoin space Be wary of the source of your information because there are a lot of channels of information online right now that are very heavily Regulated and censored and sometimes downright Propagandized and if you've not been in the space long enough you might not know how to recognize it one excellent example of this type of censorship Is the very popular subreddit r slash Bitcoin which presents one very Strict point of view and closely monitors and sensors dissenting opinions But you're gonna hear more about that with my conversation with mr Ryan x Charles who is a longtime bit coiner the CEO and co-founder of the company yours and Interestingly enough if I'm not mistaken He stopped pursuing his PhD in a physics program because he was so enamored by Bitcoin and Decided that he needed to work in the Bitcoin world before we start our conversation I want to give a special shout out to all of the patreon supporters who have been supporting my work online Thank you guys so much for making this show possible Not only are you helping me? But you're demonstrating to the rest of the world that there is a way to be an Uncompromising independent intellectual and still make a living if you can find you're a group of supporters create value for them There's a new path available to let's call them Entrepreneurial intellectuals and if you're listening and you also want to help support the show head over to patreon.com Slash Steve Patterson you can sign up to chip in just a couple of bucks whenever a podcast like this is released And in addition you get a free copy of all the books that I've written including what's the big deal about Bitcoin? Which is very relevant to this episode and square one the foundations of knowledge my most recent book about philosophy All right, so I hope you guys enjoy and learn for my conversation with mr. Ryan Charles Mr. Ryan Charles, thanks so much for coming on to Patterson in pursuit It's great to have an old-time Bitcoin or on in what is probably one of the most exciting times in Bitcoin history so far Yeah, thank you very much for having me on I agree with you. It's extremely exciting right now It's exciting and it's very confusing and I've gotten in the past week or two I've gotten more messages from people who are like Steve what the heck is going on like Steve You know, I'm confused all the Bitcoin Bitcoin cash stuff So I know there are a lot of people that are trying to follow along but they're very confused and for good reasons So what I wanted to do while I've got you on the show is just lay out kind of the basic Framework for what's happening in the Bitcoin space. We'll talk about Bitcoin and then the new Bitcoin cash So people have some context maybe a little bit of the history And I think if anybody has a confident prediction of they know exactly what's gonna happen in the future I think they're confused as evidence just by every single day if you follow the space closely There's twists and turns that is to it's it's exciting and it's a little overwhelming. I'm sure absolutely Yeah, it's very hard to keep track of I mean even being in this space full-time So many things are going on that Even just within Bitcoin. It's very difficult to just stay on top of what's happening, right? So let's start just at the the beginning with some historical context for people that are Familiar with Bitcoin, but they're not really into it. So Bitcoin's this beautiful online currency system that was developed about eight years ago now something like that and For many years, there's been questions about scaling How do we scale the Bitcoin network to include more than just a few transactions per second? because that's kind of the speed limit right now the Bitcoin network and Correct me if I'm wrong But there's the one part of the Bitcoin protocol called the block size has been known to be a cap on the transaction Speed of the network for many years and it was up until fairly recently assumed that the block size Was just going to be raised as the Bitcoin network grew the block side was just going to be raised. Is that right? Correct. Yeah, I mean that was that was certainly my assumption for most of Bitcoin's history that that the cap would be removed Or at least increased and that we would scale on chain. Okay, so What happened? Yeah, let me let me just fill in. Yeah, let me fill in a little bit of background information as I see it And just for context, I got involved in Bitcoin in 2011 Bitcoin was launched in early 2009. I think it was something like January 3 2009 and You know, so it was invented by Satoshi Nakamoto. Nobody knows who Satoshi is whether it's a person or a team Plenty of speculation out there about who that person or team is But you know, so Satoshi wrote a bunch of stuff on the forum and the cryptography mailing list and some emails back and forth with a number of people some of which are public and One of the properties of Bitcoin is that it has this Maximum block size so blocks occur every 10 minutes blocks are what contain transactions and it has a hard cap Depending on how you look at it because actually Segwit just activated within the past 24 hours as we're talking right now But the base block size is still limited to one megabyte So that means transactions as traditionally defined in Bitcoin are limited to a theoretical maximum of about seven transactions per second Seven transactions per second is pretty low compared to Systems like like visa Bitcoin gets compared to visa a lot Which if I'm not mistaken as somewhere in the neighborhood of more like a hundred thousand per second at least at certain times So the limit is is really low by by global standards But if you read the writings of Satoshi and this is this is part of the debate is that Not everyone takes Satoshi seriously like well Satoshi left the community in late 2010 Or early 2011 and so what does Satoshi matter anymore? But Satoshi, you know, nonetheless was a very Brilliant, you know Bitcoin You know engineer and scientist of course because he made the whole thing possible and the idea was originally that well Bitcoin will scale on chain. That is, you know, we'll just increase this limit In fact Bitcoin didn't even have the limit when it launched the limit was added later on I think it was I think it was 2010 I'm not exactly sure the timing of that but it was added later on because when Bitcoin was extremely small You know Satoshi and others in the community were worried that someone could attack Bitcoin by Broadcasting huge volumes of transactions. So that was true then we're in a different situation now But the context here is that for those of us that either go back long enough or have went Back in red the writings of Satoshi the vision for Bitcoin was extremely clear The block size limit will be removed and Bitcoin will scale on chain We'll be able to see not just seven transactions per second But 70 or 700 and so on as the scale of the economy grows. I Think I got in around the same time as you I think it was around 2011 Maybe I think I might have heard of it maybe in 2010 But I like everybody who was around back that time I was like, I don't think this is gonna go anywhere and then the price started accumulating people started talking about it more and You know, here we are But what happened in that time frame because I I think I remember at one point there I think this was last year in The beginning of 2016 there was what's called the Hong Kong agreement, which is at the time It was an agreement that there was going to be a a block size increase in addition to this segwit protocol And we could talk about segwit in a minute But that was the community agreed at the time that okay, this is this is gonna be the way forward for scaling But that didn't happen why why why is the case? There's been such inertia for raising this block size and continuing the scaling progress Yeah, well, let me provide even more context there because I think a little bit more history is also Interesting. Okay. So, you know, the the block size debate probably started as best I can tell approximately 2013 because from 2011 to 2013 is best I can tell it was the general assumption in the Bitcoin community that the block size limit would Just be removed and no one I talked with at that time Thought that it would be a good idea to keep a one megabyte block size limit I mean no matter how you run the numbers. It's extremely low by global standards. It just wouldn't scale With such a small block size Roughly 2013 you started to see a few people You know making comments about well, it's important for decentralization that the block size limit stays in place so that's roughly speaking the time when people started talking about keeping the limit in place and Let's see another piece of context was by 2015 Bitcoin had grown enough that Gavin and Dresden who I don't remember if he was at the time still the lead developer if he had Passed off to Vladimir But Gavin and Dresden for some time was the lead developer of what's now called Bitcoin core and Gavin and Dresden sent a mail to the mailing list The Bitcoin development mailing list saying okay guys You know, we've removed all the soft limits It's clearly time to start figuring out how to increase the block size with a hard fork Because otherwise we're going to hit that limit and it's going to be a problem So that was early 2015 that actually kickstarted Again like and this is my point of view so take it for what it's worth and I don't know everything but you know it seemed like Some of the people that wanted to keep the limit in place kind of got into high gear or trying to figure out how to keep it in place So that was when we started to see things like you know The many of the Bitcoin core developers really didn't like this idea at all about increasing the block size so You know my current actually created a different implementation of Bitcoin called Bitcoin XT and Gavin and Dresden thought well Maybe we'll just implement a hard fork in Bitcoin XT and maybe people will use that instead of Bitcoin core And that was when we started to see things like the censorship in R slash Bitcoin and the Bitcoin talk forum because as soon as there is an implementation of Bitcoin that had a larger Block size or larger maximum block size Themos the guy who controls all these forums decided well, this is a A an altcoin this is not Bitcoin because you're changing the consensus rules and just started deleting all of the discussion about Bitcoin XT From r slash Bitcoin and Bitcoin talk and so there is a little movement in 2015 to create a Bitcoin XT Subreddit that was moderated by James and Lop That was like okay. Well, we're kind of being Censored from the main forums. Maybe we can find some other place to talk So that sort of stuff started happening in 2015 this the censorship and you know, that's sort of the vitriol started It started being a bit like this is kind of weird. Why are people? So opposed to raising the block size, right? So in 2016 the debate had already been It had gotten, you know Pretty serious at that point. In fact in late 2015 there is the first scaling Bitcoin conference that was put together sponsored by Blockstream and a number of others And they discussed the print I was there in Montreal The first scale in Bitcoin conference was about finding every way to scale Bitcoin that isn't raising the maximum block size And I shouldn't maybe maybe it's not quite that extreme I do remember Peter Risen was there and he gave a presentation and I sort of pushed to raise the block size when I was there But most of the talks were more about the Lightning Network and about other things About other ways to scale Bitcoin. So then fast forward to early 2016 and Then we have the Hong Kong agreement So there is another scaling Bitcoin conference in Hong Kong and I don't remember the timing of this or what meetings occurred or whatever But somehow the miners and I was not at that conference But the miners ended up The miners and the core developers basically had a meeting and decided, okay Look, here's what we're going to do that the core developers announced Segwit Segwit was a way to soft fork in a Roughly speaking two times capacity increase in the block size by changing The way that the the transactions are structured and it's called Segwit because Segwit stands for segregated witness and the Witness the signature is segregated. So it changes the the structure of a transaction in a block And it's able to soft fork in a larger capacity increase. So but the miners wanted a hard fork They're like, we just want to increase the chain so that more people can use it. So They pushed for a hard fork. So the agreement ended up being well What we're going to do is it's gonna be Segwit plus a two times hard fork increase So that was called the Hong Kong agreement in early 2016 Fast forward a little bit more So that was the agreement. This was the assumption that the core developers were going to implement Segwit and a two times Hard fork a two times increase in the base block size But but the vitriol and the debate continued and basically Bitcoin core ultimately decided We're just not going to do a hard fork at all. We're just moving forward with Segwit We want to do Segwit first and indefinitely delay any hard fork. So I'll just leave it at that So that's 2016 More stuff happened now, but I'll let you you know comment or ask questions if you have more to say about that okay, so yes, let's let's address then the concept of Decentralization in relation to the block size because if if people are not Following this and I have this thought has crossed my mind many times What in the world is the hesitation for raising the block size even to two megabytes when it is right now one megabyte Which is a tiny increase? What what is the best version of their argument for why we should avoid block size increase? Sure? I mean, I'll do as best I can I mean I'm not really the best person to pitch their argument because I don't agree with them But so take take everything say of course with that in mind But the argument is basically look if you increase the maximum block size that means the blockchain is gonna grow faster and That means it's going to be more expensive to run a full node And so that's going to mean that's fewer people are going to run full nodes And so that makes Bitcoin more centralized. That's their argument Of course, I would I would disagree with that, but I'll just leave that for a moment There's you know, that's that's a high level view of their argument about why it's bad to increase the block size Okay, so when you say full node, is that not a legitimate concern because it's at least in the way that they phrase how the Bitcoin network works They claim that the nodes and not whether there's a distinction between miners and nodes and they claim that Nodes really are the ones that are securing the network arguably even more so than miners because if you have miners that are nefarious The the nodes might protect us for some period of time So maybe they could hard fork to a new look a new hashing algorithm or something It's supposed to be that nodes have this key function when they're not mining. Is that a Correct way to understand how the Bitcoin network works. I Mean in short, I don't think so You know, it is I'll start by saying that I think it's a valid concern I mean it is true that if the maximum block size is raised And then assuming of course Bitcoin actually gets higher Transactions, you know higher transaction volume when the maximum block size limit is raised Then it is true that running a full node will become more expensive It will be it will consume more disk space and more bandwidth and more of your computational resources So that's true. It makes it more expensive to run a full node I'm not sure that That I believe that full nodes are anywhere near as important as they seem to think I think the miners are incredibly important I think the miners are what actually secure the network the miners are why it's difficult to reverse transactions It's all but impossible to reverse a transaction that's confirmed on Bitcoin Miners have a much much larger role to play than than full node operators. Okay, so the way the way I think about this is more in terms of Why are you doing what you're doing and what are your incentives? So the miners are mining Bitcoin because they earn money for mining full node operators. Well, look I mean you're processing, you know, you're validating all transactions on the network if you're running a full node So who would want to validate all transactions? Well Miners want to because they want to be sure that when they mine a block they're mining valid transactions because if they mine an invalid block Then that block will be rejected and so they lose money So they want to be sure that they're mining the real blockchain so to speak So they're gonna run a full node another category of Sort of user that would run a full node are large businesses that process a lot of money If they receive large payments, they want to be absolutely sure that those payments are valid So you can imagine a business well like bit pay that receives, you know a huge volume And I don't know what the numbers are but they receive quite a lot of money in Bitcoin every single day from you know People purchasing things with Bitcoin or paying invoices or whatever it is They want to be absolutely sure that those transactions are valid So they're gonna run a full node but bit pays a business So the fact that a full node is extremely inexpensive to run Is not really a factor for them the bigger factor for bit pay is transaction fees A transaction fees are vastly higher for bit pay than it is that the cost of running a full node Casual users people that send in receive small amounts of money Almost certainly just don't need to run a full node and it you know a concern here is that people will say things like but I I'll have to trust people if I want to run if I don't run a full node But you don't really have to trust people very much the trust is extremely low You can validate your transactions very very well You can validate the individual transactions you receive you can query transactions that they come from make sure those Transactions are valid You can look at the proof of work on the blockchain and see which one's the longest chain without necessarily Validating all the history of transactions casual users probably do not need to run a full node. It's just not necessary To validate, you know all of Bitcoin's transactions if you're not receiving huge amounts of money So your conception then of how the Bitcoin system could operate is One that's the infrastructure is provided by business Rather than just individual users all over the world who are trying to maintain the network and run full nodes. Is that right? Absolutely, and we can we can dive into that because that that thought terrifies a lot of people That's definitely how I see this playing out over time So do you how then do you respond to the claim that that is a centralization worry that oh well if it's businesses that are providing this service what happens if they become corrupt or what happens if they want to change the Code or if governments get involved if you if the if the centralization is Not down to the level of the individual users, but of businesses. Isn't that a bigger target for like catastrophic failure of the network? I Don't think so for the same reason that I don't think that it's a problem in the market as a whole The way I think about this is the market and when I say the market I'm talking about You could look at really any individual market or the world global market the market is Decentralized not because everyone does the same thing, but because everyone does different things Specialization is okay, and it's a good thing the market is extremely Decentralized and robust because people specialize. This is what allows the market to achieve such high levels of growth This is what allows people to win at their specialty to earn money and fund themselves for what they're doing They don't have to do everything they can do their part and they can earn money from doing so So I don't see that as being a threat at all I see it as being the greatest Ally to Bitcoin the market is how Bitcoin is going to achieve global adoption Allowing businesses to win is how Bitcoin will achieve global adoption. This is how the value increases This is how the utility of it increases. It's not bad at all, and I'll just remind anybody who's listening to this I mean of course you can just run your own business. I mean what you know It's it's not like Google is gonna run all of the businesses of the world I mean run your own business and do what's in your own interest if it's in your interest to run a full node Then you're running a full node, but you're only gonna do that if you're earning enough money from your business That it makes sense to do so but good. I mean, that's how it should be would you say that it's fair to claim that the likely original vision of the people that got involved in the space and maybe of the creator of the network is that The actors in the network are going to be responding to their economic incentives So it was not it wasn't part of the original vision to have the network Supported by nodes that don't actually have a financial interest in being nodes It was created so that those with the economic incentive would then have the reason to secure the network explicitly Absolutely, absolutely. That's a hundred percent correct. That's exactly how Bitcoin is designed That's the economics of Bitcoin the economics of Bitcoin are Bitcoin very very thoughtfully incentivize the every actor in the space to do what's in their own interests for the survival of the Network as a whole the miners are incentivized to do it's in their interest the The businesses the users and so on if you just act in your own self-interest and Use Bitcoin as money Everyone wins it makes the Bitcoin economy grow It is the best thing for Bitcoin as a whole that people simply act in their own best interests Now I'm gonna make a claim here. I don't want to put words in your mouth But from so here's my perspective of this kind of conceptually that it seems like what the the small block block proponents have done is Find a feature of the Bitcoin network that is unimportant or relatively unimportant, which is the full node count and Claim that that feature of the network is now some critical and important Part of the network and that if it's that they found a flaw in the Bitcoin network because it would be a catastrophic flaw in how the network is supposed to operate if the if the nodes Perform an essential function and they're not economically rewarded with it So it's it's like they've found a genuine flaw if it's the case that The the nodes are as important as they claim they are but from my perspective I don't think the nodes are as important as the claim there So they've they've kind of created a problem and then try to solve the problem that they've created Which might not actually be a problem in the first place Yeah, that's an interesting interesting way of looking at it. I mean, I think you know, I think that's true I mean, I think that they have a philosophy they being and I'll be careful how I say this because I at no point Am I trying to offend any of these people? I'm not trying to say anything bad about them right most people in that camp are Are good people? I know many of the people we just disagree about this issue and that's fine But it does seem to be the case that they have latched on to You know sort of the wrong metrics here, you know like node count and block size are You know the you know the the way we win this is that you know people use Bitcoin as smart money, right? That you can it's it's sound digital money. It's peer-to-peer money You can send and receive it to anyone in the world. It's permissionless. The sound part of it is so important I mean Satoshi absolutely nailed the money property of Bitcoin. It leads up to a finite Ultimate amount. That's that's a that's like the master stroke of Bitcoin It means that all the incentives align to make Bitcoin the money of the future I think that I think that you're right that these people are looking at the wrong metrics that node count is not The most important metric. I think yeah, well, so so What about then mining centralization? So let's say it's the case that well, maybe no Nodes that aren't mining. Maybe they're not as important as they've been made out to be But what about the concern of the centralization of mining because if it's the case you have bigger block sizes? Let's say they're very large block sizes to try to accommodate a large amount of transactions The the ability to to mine then does become more centralized because it's more expensive for the reasons that you pointed out Couldn't that then be a legitimate centralization concern? Well, okay, so there are a couple issues here First of all the way I look at this is mining centralization is is is a problem if it happens So if it is the case that a single miner has greater than 50% of the network, that's definitely a problem However, I think this is completely unrelated to the maximum block size the reason why it's hard to mine is because you have to have specialized Computing hardware that's expensive to develop and to end to to acquire and you have to have a huge amount of electricity To do the mining mining is what's expensive not running a full node I mean running a full node you can do it on a desktop computer In fact, I think I'm not sure if this is still true But it was the case that you could run it on a raspberry pi as the block size increases that will get more expensive But it's it's vastly lower than the cost of mining Mining is is what's expensive to miners not running a full node Now doesn't that mean though that as those costs increase There's going to be fewer and fewer people that can afford to undertake the process of mining that it's only going to be these These mega companies like Amazon that can afford the kind of bandwidth and electricity costs costs to mine I don't think that's correct because in order to mine what you have to have is You just have to have margins you have to be able to earn enough money for mining that you're more than covering your expenses So it's not like there is a single giant upfront expense It's more like it's just a business and you have to operate your business efficiently like you word with any other business There are some upfront capital expenses I don't know how that will play out over time But the upfront capital expenses. I mean you can buy mining hardware I'm not sure how expensive it is I'm not a miner myself, but it's not like you have to have a million dollars to buy mining hardware You can be a very very small miner with a you know a Small amount of money the the the tricky part is you just have to be sufficiently Efficient with your business operations that you earn more than you spend on it. So I don't think that's true I don't think that the rising costs necessarily exclude New players because the gains also rise you can earn money from it And if you just earn more money than you're spending it doesn't matter how big you are, right? That's a good point So I want to ask one more Technical question and then we'll get into some just the recent events This is the important preface that I think a lot of people miss is the kind of history and backstory But the current events are even crazier But the technical question has to do with simple payment verification or SPV is some people will claim That one of the ways that you can that you can scale on chain is by using an SPV System and then there's a lot of small block proponents. They say no SPV won't actually scale This is this is confused Can you give a little just a brief overview of what SPV is and what your perspective is on whether or not? It can actually scale Sure, so SPV is something that was described in the original Bitcoin white paper By Satoshi Nakamoto. It is it was literally in the white paper and the white paper was released before Bitcoin You know launched, you know on in code and in practice SPV is just It's a way of using this this fancy Merkel tree structure in a block that lets you Find and assure that your transactions are in a block without necessarily having the entire block So if you you can see the proof of work you can identify which chain is the longest chain by looking at the proof of work and you can then query Anybody who has this data to see if your transaction is in there and the amount of data You need to do this is extremely small like it's basically the size of your transaction Plus, you know another data structure that roughly speaking is also the size of your transaction It's a very small amount of data. It's you know, it's it's trivial. You could do something like this on a a You know a feature film. I mean, it's not a lot of data So the idea is that you can send and receive money this way without running a full note And you can still know with confidence that your transactions have been confirmed Without validating every transaction on the blockchain Now that sounds That sounds great, but what it what's the objection and why would people say that that can't scale? Well, there are a number of objections, so I'll start with I'll start with the most serious objection which is the way that spv clients are currently implemented rely on something called bloom filters to query other nodes for your transactions and Bloom filters let you basically the idea is that you you don't want the other nodes to know which Transactions are actually yours. So you set up a filter that sort of randomly selects Other transactions including yours and you query those and the way this bloom filter You know You know system is implemented in current full node implementations It's pretty inefficient when you add a new bloom filter in order to actually know every single transaction You have to scan the entire blockchain You know to to do that which is extremely, you know, it's like just incredibly inefficient So that's the objection now that objection however is just because of the way that the things are currently implemented It's true that if it's implemented that way forever That you know doesn't scale very well. It's a very poor property It's a huge burden on full nodes to service the spv nodes, but there are vastly simpler ways to do this that don't require Bloom filters, so it sort of depends on exactly what properties you're looking for in a wallet How private you want it to be and so on Jameson off wrote an article recently sketching out just how expensive it was to To you know to run a full node that services spv nodes using this, you know, this algorithm But I responded to him and sketched out an alternative solution So any of your, you know listeners you're curious about that could go read Jameson's lot Jameson Lops article and my response to it There's a very simple way to completely solve all of the problems Which is when you are paying someone you just give them your transaction directly So instead of having them query the blockchain to try and find your transaction you just give it to them I mean if you're gonna pay somebody It ought to be pretty straightforward to just hand your transaction to them I mean whether it's a merchant on the internet or it's in person or whatever it is You probably know the person that you're paying and you can communicate with them and hand them the transaction directly And if you do that, they don't need to use any of this fancy bloom filter stuff They can just query for that transaction directly. So, you know problem solved again like there are privacy concerns here So, you know it you'd have to sketch out, you know exactly what your privacy concerns are But there are ways to solve all these problems like it is a software problem Not a protocol problem in my opinion SPV absolutely can and will scale to billions of users Billions, okay, so that's a perfect segue because I think Given the nature of the censorship on online, which a lot of like new users are maybe unaware of The voice the voice is about on-chale scale scaling have been Silenced and so people genuinely think that the way that they're Approaching the problems in Bitcoin is by looking at note count by thinking that SPV actually can't scale and they don't hear any other voices Which are trying to say hey actually we can probably solve these problems. So the So there we've got these two camps. They've gotten they've become impassioned and emboldened and then I Think the next historical step to set up the the immediate events that are going on is the UASF So what what was that all about and then what did it lead to in the beginning of August this month? Sure So UASF was a movement that was initiated by someone named Shaolin Fry Shaolin Fry is an anonymous figure in the Bitcoin space who just had an idea who is like, okay the miners want to Increase the block size. Well, we want segwit So he put together an idea. I don't know if it's a he or she but they put together an idea for UASF it stands for user activated soft fork and the idea was that on August 4th first They're just going to fork Bitcoin to start activating segwit with no Corresponding hard fork to increase the block size and what they're going to do is they're going to start ignoring Blocks generated by miners that don't support segwit So the idea was that the users could force the hand of the miners into accepting You know segregated witness That was the idea of UASF now what happened there is, you know, so so part of this, you know, whole situation is Confusion around who actually has what power here? Is that even possible for the full nodes to like force the hand of the miners like You know, so they just start ignoring the blocks from the miners But so what I mean it mattered like what are the businesses running? I mean like, you know Who's actually running these nodes because if you're just running a node by yourself and you just start ignoring blocks from the miners Well, that has no impact whatsoever because you're just going to you know delete the miners nodes, but the economy goes on So it would only matter if UASF happens like if a business supported UASF because they could fork off their business onto a different chain So part of it is just like it was unclear exactly and although I think the miners have a lot more power in this situation. It genuinely wasn't clear like what actually could happen here I mean what will happen with UASF? Will that actually cause a fork? I mean, I'm you know, I wasn't really sure But so that started I think it was in February and so there was a movement for UASF and all of a sudden you see like a bunch of people You know changing their Twitter handles to include UASF in it and declaring their support for UASF and attacking the miners Which is a whole other story But there is a lot of vitriol against the miners accusing Jihon of you know being you know the the central leader of Bitcoin and things like that And you know this the sort of UASF movement being very extremely in favor of just forking off from the miners with with their own chain So what then happened in response to that was? Bitmain which is so so Jihon is the you know the CEO of bitmain. They're the largest miner based in China And they're like okay. Well, you guys are gonna fork off. I mean, this is potentially a disaster for the network What we're gonna do is we're gonna create UAHF Which is user activated hard fork and the original idea of UAHF was if UA SF actually happens then what they're going to do is they're going to hard fork off without Segwit to a larger block size and that that would also occur on August 1st But slightly later than UA SF to make sure UA SF actually happened before the hard fork happen So so originally UAHF was like a backup plan in case UA SF Happened now leave it at that. There's of course more of the story But maybe you have comments or questions about that before I finish the story. No, do you keep going? So, you know, what then happened is there's another miner called via BTC also based in China and Bitmain is a minor investor in minor minor as in, you know, less than 50% investor in but they do have financial ties In via BTC via BTC decided, you know what? We're we're sick of dealing with core and the small block people We're just gonna fork off anyway We're just gonna do UAHF on August 1st no matter what happens with UA SF So they they named their Initiative Bitcoin cash and they use the same code base that bitmain was going to use for UA HF Which is called Bitcoin ABC Bitcoin ABC is a new implementation of Bitcoin. That's a fork of Bitcoin core Created by Dettelniks and free trader the two primary developers on that on that Software and they actually did it and I also a number of other developers from other implementations like Bitcoin unlimited Bitcoin classic And a Bitcoin XT all collaborated on the spec for this and they all ended up adding support for this So they're actually at least four different implementations of this But anyway via BTC decided to just do it anyway. So that was in like the middle of July Via BTC announces, okay, we're doing Bitcoin cash. That is UA HF We're just going to go ahead and do it whether UA SF happens or not So they announced that and then two weeks later it happened and now all of a sudden We have a new version of Bitcoin called Bitcoin cash That has more than ten billion dollars in value and I'll go check right now But it seems to vary between being the third largest and the fourth largest cryptocurrency in the world and at this rate It's only like three weeks old. So at the present time it has a market cap of ten point six billion dollars and Today is August 24th It only, you know Was created on August 1st So here it is 24 days later and it's a it's a ten billion dollar system. I mean, it's absolutely shocking And other stuff happened. It's so ridiculous how fast this is happening. It's unbelievable I mean even being involved full-time. It's it's very difficult to keep track of everything But we've seen some really really major impacts from the existence of Bitcoin cash So we've seen the mining profitability. So originally a Bitcoin cash launched It was not more profitable to mine. It was less profitable So via BTC mined it for themselves for a while But they added a very key change to the protocol along with the hard fork aside from just increasing the block size They added this emergency difficult adjustment algorithm that if blocks aren't found fast enough The difficulty adjusts downward more rapidly. And so what that means is it becomes profitable Uh quickly if there is if there is less mining power So what happened is the mining power was very small Eventually it it did the emergency downward adjustment a few times It achieved a sort of stability point where it was not profitable But via BTC kept pushing it kept mining it anyway And then somebody in south korea bought a huge amount of bitcoin cash Sending it from $200 to $800 and then all of a sudden it became profitable And that was right before another downward difficulty adjustment. So it became profitable Then the difficulty adjustment Adjusted downward one more time decreasing the difficulty by 41 and rapidly raising the profitability of bitcoin cash versus bitcoin So all of a sudden it was something like 150 more profit to mine bitcoin cash So a huge fraction of bitcoin miners something like 30 or 40 percent All switched over to bitcoin cash for about two and a half days and mined bitcoin cash And this sent bitcoin fees up significantly Because the a large fraction of miners left for a different coin This then and all this happened in a very short period of time. So the difficulty adjustment occurred on Saturday and so many miners switched that look normally the bitcoin the difficulty adjustments are supposed to take two weeks So many miners switched to bitcoin cash raising the the hash power so much That the next difficulty adjustment occurred just two and a half days later And so then it became very hard again then for a couple days there The blocks are coming in very slowly and then all of a sudden then the price was somewhat stable The price is currently about 643 dollars for bitcoin cash So then what happened is the difficulty adjusted downward then the miners did it again miners switched over again We're currently in a period of very high block generation on bitcoin cash because so many people have switched over again So it's just crazy. I mean, you know, so so bitcoin cash has had a giant impact On the space because it's created a huge amount of new value Depending on how you look at it. You could say maybe it's taken value from bitcoin. It's unclear How to look at that, but it's also shifted the mining power. So we're in an unstable state right now Where it's unclear what's going to happen. I mean, you know, are we going to reach an equilibrium where Bitcoin cash stays at its current value and then a certain number of miners just pick one or the other and it stays there Or if the price changes significantly on one or the other It really changes the the the difficulty equation and the profitability equation for the miners So they can they can switch and they can switch in an instant I mean they can switch just as soon as one is more profitable than the other they instantly switch So it's very unstable. Now, doesn't that seem like that? That's a problem that needs to be resolved because if you've got the this huge difference in the time it takes to generate blocks Doesn't that mean it's going to also affect how long it takes to confirm transactions? I guess that's not a a good circumstance No, it's not it's it's a very weird circumstance So the length of time it takes to confirm a transaction on bitcoin cash can change quite a lot It can take something like two hours if you're in one of these, you know The miners have left situations or it can take one minute if the miners have piled in And have started mining bitcoin cash. So I wouldn't say that's a good thing at all But it's also just not surprising like i'm not really sure it's bad either What it is is just a sign That this is a very dynamic and unstable situation Now if that weren't crazy enough, there's another piece of the puzzle here, which we we didn't even mention Which is the segwit 2x proposal that the bitcoin community a large part of the bitcoin coin community agreed to earlier this year so I'll I'll try to to summarize it and then if I make a mistake, please correct me So I don't exactly know when the this agreement was but there was another agreement like the hong kong agreement at the beginning of 2016 It's called the new york agreement. The new york agreement is essentially a new version of the hong kong agreement. It says, okay, we're going to Implement segwit and we're going to also have a a two times hard fork increase after the implementation of segwit That was agreed to but I think at the time it was like 95 of the Hashpower of the entire bitcoin network and this was before the bitcoin cash split So now We're in a period as of today or yesterday where the segwit Has actually been implemented on the main bitcoin network, but the hard fork has not been implemented And so now there's a great amount of controversy. Is the hard fork going to happen or is it not? So so far is that correct? Yeah, that's correct. And I I'll just provide a little bit more context there, but all that's true So there is a initiative by dcg That ended up being called the new york agreement, which is where dcg so dcg is a large venture capital firm in the space They've invested in many many bitcoin businesses and other blockchain businesses They're probably the biggest, you know firm that invests exclusively in blockchain businesses They basically reached out to all of their businesses, which includes our business yours.org They reached out to us and basically asked if we would be willing to sign this agreement and we thought okay Well, this is a good idea. We'll do segwit and a 2x hard fork. This is a good compromise. Why don't we just do this? It's basically the same thing as a hong kong agreement as you said This is a way to reach, you know consensus with the community We agree to this if Other people agree to this like that's a perfectly valid path forward So we sign the agreement and we're on the list of of the supporters of what's now called the new york agreement It's called the new york agreement because dcg arranged this before the consensus conference in new york in may and then in new york There is a meeting amongst the various parties that did not include us Included more of the major businesses like bitpay and and bitgo They you know just basically affirmed This this sort of idea the bitcoin core developers were invited people like matt corralo and eric lambroso, but they didn't go So it ended up being Basically a bunch of businesses That you know businesses and I think miners were there. I'm not sure what miners But basically a large chunk of the industry decided let's just do it this way. This is going to work So that became called segwit 2x And or the new york agreement it goes by different names And the idea is to have segwit You know launched which it now has on bitcoin and then to have a 2x hard fork And you know increase in the base block size in november and so that's still moving forward and the plan for segwit 2x is That there's going to be another hard fork of bitcoin in In november and so there's tremendous uncertainty here over exactly how this is going to play out and what's going to happen Are we ultimately going to have three different bitcoins? You know, that's it's that's a very peculiar thing that that no one wanted to happen But that might happen now with that so The the one of the pieces of the puzzle that Is very frustrating for me as somebody that's been in the space a while. I'm rooting for bitcoin. I think it's totally world changing Why wouldn't it be the case that we we could have let's say two chains? I get why bitcoin cash exists and I get why we would have the segwit 2x chain Why would there be a third one? Why wouldn't it be the case that? The the small blockers are on board with segwit 2x the actual difference between Segwit and segwit 2x is tiny So why would it why wouldn't that be the solution that we all celebrate and come together and say hey? This is it. Why would they insist on one megabyte versus two? Yeah, good question. So first of all, it's definitely a fact that Bitcoin core and what I call the core followers absolutely do not want segwit 2x They just want segwit and they do not want the 2x in hard fork Why they want that is a different question. I mean again, I'm not the best person to ask so I'll do the best job I can to phrase the arguments as I see them but anybody out there should take this Take this with with my own opinion in mind, which is that I personally prefer larger blocks But what they they just do not like the way that it happened They don't like that industry came together and agreed to this. They do not want bitcoin to be governed that way And furthermore, you know, so that's part of it They don't like the precedent that this sets for governing bitcoin via consensus of a bunch of businesses They don't like that. They also just don't like changing the protocol They seem to not favor any change to the protocol at all They really like soft forks instead of hard forks and again They're also really worried about the increase in cost of a node Although as you say, I mean like it's such a small difference It really makes an absolutely negligible difference in the actual cost of running a node as far as anyone that actually uses a node is concerned A 2x increase is nothing. I mean, it just doesn't matter. It doesn't significantly raise the cost at all But those are their concerns and they have declared, you know They've already merged the change into bitcoin core that they're going to disconnect from segwit 2x nodes The thing is like it's different with bitcoin cash because in the case of bitcoin core They don't have any mining power. I mean, there are no miners. Well, I shouldn't say none There's they certainly do not have anywhere near as much mining power as bitcoin cash or segwit 2x will have So it's very unclear whether their fork Could even survive they they would have to add a emergency downward adjustment Just like bitcoin cash did in order to survive either that or change the proof of work function So but in any case the the facts are they are definitely going to separate But there's an open question over whether that chain even could survive if they don't have any mining support so Here's another theory since I'm I don't work in the bitcoin space. I don't have to be quite as diplomatic But here's a theory for why a lot of these individuals don't support segwit 2x And I think it might have to do with future development Who actually controls the future development of the actual bitcoin software because if segwit 2x goes through Then the main github repository Changes ownership for Who can develop bitcoin so One way that I try to understand This phenomena of why would it be the case that You would have this group of people not support segwit 2x is is kind of like power. It's like developmental Control of the network. Do you think that's fair or it's okay if you don't want to answer it We don't make a public answer on that. No, I think that's fair I mean the way I look at it is just look at their incentives There's a company called block streams that funds many core developers and there are a couple of other companies That are smaller that are very aligned philosophically with this this point of view They are pushing forward with a path that is in their business interests They want to control the repository and they would they would disagree with that because it's an open source repo And it's not like it's just block stream employees that contribute to the repo, right? However, it is At a sort of cultural and social level It is definitely the exact same as the philosophy of block stream So they control it not necessarily by literally employing every single core developer But by controlling the philosophy and the communications channels around this stuff And you know controlling the narrative around it And it's very important to them that they can continue to have that control So I definitely think that's true and I don't think that's a conspiracy theory or something like that I mean it just strikes me that it's the case. They've clearly sketched out a business plan for themselves That involves having exactly that type of control over the main bitcoin repository And if they lose that control, it's a disaster for their business So it's very possible then that because of that incentive with those particular developers and that company and and the There's also a very tight connection between those individuals and online forums Because that that's where we've seen a lot of the censorship come from is those who who have the The segwit 1x vision. So it's very possible or even Very likely that come november we're going to have the bitcoin cash chain We're going to have segwit 2x, which is what the businesses and community large parts of the actual A bitcoin community have decided on and then a third Chain which would be something like the segwit 1x or the bitcoin core chain All of which are going to be competing for Being called the real bitcoin, which one of these is real bitcoin. They're all going to be competing for Business usage is so do you have any idea of what we can expect when november comes around if it's true that we're literally going to see three Three chains trying to compete at one time Yeah, well, it's extremely difficult to say what's actually going to happen I think that you know It does seem very likely that we'll see three change in some form or another It's very unclear what the respective prices and mining power if that's going to be I would say that the the bitcoin core version or segwit 1x almost certainly will have Low mining power and the mining power will probably be split between bitcoin and bitcoin cash But let me add this to that. You know our business we decided just a few days ago We're going to go on chain bitcoin cash bitcoin cash solves a huge problem for us It's just so critically important that we use bitcoin cash because the fees are extremely low You can actually broadcast zero fee transactions on bitcoin cash I don't think zero fee will last but because they're so Pro on-chain scaling I see very low fees lasting and for our business That's a very very critical property That allows us to and this is a long story about you know the history of our business and so on but We developed a payment channel technology for bitcoin And I won't tell the story just because it would take far too long to explain the whole story But it ended up being the case that even with payment channel technology on bitcoin Bitcoin's fees got so high we couldn't use it anymore So we've basically shifted gears and realized that bitcoin cash Solves the problem for us in a way that doesn't require that we use payment channels We can just do on-chain bitcoin cash transactions and have even lower fees than with payment channels on bitcoin So from our business's point of view bitcoin cash is perfect. It's exactly what we've been waiting for So what we're going to do is this is august We have august september october november between now and then we're going to launch our product We're going to iterate as quickly as possible What our app is it's a way to earn money for creating and discovering good content on the internet We think this is the killer app for bitcoin and we're going to be on bitcoin cash instead of bitcoin And we're going to try to drive adoption of bitcoin cash If we are successful, we're going to see you know the the scenario here and again This is unstable and i'm not trying to predict the outcome. I'm just saying sort of where we're replacing our bet We're placing our bet on bitcoin cash being the dominant chain by november That would be a best case scenario for us and I think it would be a best case scenario for basically everyone involved in bitcoin I think everyone would win in that scenario. I'm not saying that scenario would happen But that's what we're pushing for and so I think it's going to be extremely interesting To actually see how this plays out between now and november now for people that are hearing about bitcoin and bitcoin cash It's very tempting to throw your money at crypto right now because the market's very hot But what I've I've shared this with a few people kind of in private that it's From a financial perspective, it's either wise to One wait out the market and see what the heck is going to play out because it's very possible that Any one of these three chains will die and then all the money invested on that chain turns to nothing Or two head your bets if you want to get into the bitcoin market right now And you want to buy some amount of bitcoin buy it on both chains because there's so many factors Somebody variables at play here that it's pretty much impossible to predict what's going to happen Yeah, I think that's good advice and I agree with you and like I couldn't even tell anyone to buy Any one of these unless they hedged and bought multiple right now The best time to buy bitcoin was before the fork with bitcoin cash people who own their private keys Before that fork are going to own every single one of these things and they can just ride The this this you know the situation and and ultimately, you know, one of them will survive Definitely will have at least one But right now is a very weird time to buy unless you are very very clued in and are placing your bets Very very wisely and you know what you're getting into your money actually could go to zero I mean any one of these chains actually could literally go to zero and you lose everything So it's a very important risk Well, thanks ryan for this conversation. I appreciate that that caution And I'm going to repeat it if people want to learn more about you and the business that you've created. Where can they go? Sure, so you can I'm big on twitter so you can visit my twitter profile twitter.com slash ryan x charles Our business is called yours. It's available at yours.org And uh, yeah, we're launching our beta uh tomorrow as of this recording I don't know when you're gonna publish it, but uh people will probably be able to try at our beta Either during or soon after they listen to this podcast and they'll have a use case for bitcoin cash Awesome. Thanks so much ryan. Okay. Thank you very much. Steve. This was awesome. Thank you All right, that was my conversation with mr ryan charles. I hope you guys enjoyed it We could have kept talking for probably another three hours just on this topic And I think I'm going to try to get it back on in november So we can have a recap of all the events the crazy events that are sure to have taken place And we'll get an update on where the bitcoin network is. So that's all for me today I hope you enjoyed this episode Like I said at the beginning of the show if you want to help contribute because you appreciate work like this Please head over to patreon.com slash steve patterson You could also donate bitcoin or bitcoin cash at the address that's in the description of this podcast. Thanks everybody. Have a great week