Stephan Livera and Andreas Antonopolous, on Bitcoin Maximalism - SLP53

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Stephan Livera and Andreas M. Antonopoulos - On Bitcoin Maximalism


Andreas M. Antonopoulos (best-selling author, speaker and bitcoin educator) joins me in this episode to talk about his views on Bitcoin Maximalism as contrasted with a multicoin view. Andreas and I disagree and present clashing visions. We also discuss other points such as whether Bitcoin challenges central banking more specifically, or banking generally. Andreas M. Antonopoulos links:


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Stephan Livera links:



Hi and welcome to the Stephan Livera podcast focused on Bitcoin and Austrian economics.

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On to the episode for today, Andreas M Antonopoulos is one of the world’s best-known Bitcoin educators having written seminal books such as Mastering Bitcoin and having delivered many electrifying talks as well as having appeared as an expert witness in hearings around the world. In this episode Andrees and I respectfully disagree, and present clashing visions of Bitcoin. Bitcoin maximalism contrasted with a multi coin vision.

I had a lot of listeners request Andreas, and many specifically wanting me to talk about maximalism.. so here it is:

Interview W Andreas

Andreas it’s a pleasure to welcome you to the show.

Thank you so much Stephan.

Yeah, so look, I’ve been very very influenced by your thinking, and by the way you presented Bitcoin. Particularly, when I was first getting involved, so I have to say a big thanks for that and so today there was some discussion on Twitter that we thought it might be an interesting one to have. It’s this discussion around Bitcoin maximalism as contrasted with more of a multi-coin world view.

What is Bitcoin Maximalism?

Andreas, if you wanted to start with your thoughts on what does Bitcoin maximalism mean to you, and what are your thoughts on it.

well I mean the term was coined by Vitalik return who used it to criticize the position that only Bitcoin matters or only Bitcoin will survive and I think that might be perhaps overstating it. but it was very quickly embraced by quite a few people who who found it to be a very comfortable position to take, and didn’t see that as a provocation by Vitalik.

He meant it in a mocking way, or at least in a critical way, and yet it was readily embraced by a bunch of people.

I think the other component as one of my friends Pierre Rochard pointed out is that people mean different things when they’re talking about maximalism. One way to delineate or distinguish those is to think of it like there’s platform maximalism, meaning everything should just be built on top of Bitcoin, and then there’s other ideas more like monetary maximalism.

What about Monetary Maxiamalism?

I think most, at least in my view, most of the people who were identified as maximalists tended to be ones for monetary reasons. So I suppose then that brings the next question: what are your thoughts on this idea of monetary maximalism?

I think even even the idea of monetary maximalism I think is going a bit too far. To me it’s not a matter of do I believe in it, or not, because I don’t think belief systems are really relevant to this conversation. We’re talking about technology and its implications in the real world, and its impact in the real world, and how it will evolve in the future, which none of us can know, right?

so then the question is do I believe in maximalism or not? it’s not really a matter of belief system. The hypothesis is, at least in monetary maximalism, that there will be one reserve currency of the world, that will be Bitcoin, and as the hardest soundest money no other money can compete. If you have the ability of an open market where money can compete on its monetary characteristics the hardest money wins and it wins resoundingly and essentially replaces everything else that nobody wants to hold because it’s not as sound as the one they can hold quite easily, right?

Would that be a good characterization of the theory?

I think that’s mostly accurate I think that you would find some people who disagree slightly on the edges, obviously there may be some disagreement around whether it’s a winner takes most market, and maybe Bitcoin is the 80 percent, to use that Pareto idea and that perhaps there are other things like gold and other things floating around in that other 20% but I think on the whole that’s a reasonable summary

Pareto Distribution and the Long Tail

I wouldn’t call a Pareto distribution maximalism. I’ve talked about a Pareto distribution among hundreds of thousands of currencies in terms of a long-tail phenomenon, where you have things that have very little monetary importance but they have other characteristics that are desirable, which might go even down to simply popularity. Like a team or an artist, and people expressing popularity by holding a token.

I think we’re gonna have a very strong longtail distribution of these things which means that, yes maybe one of them has got a significant percentage, but it’s one among hundreds of thousands and I don’t think that’s compatible with maximalism.

I don’t think that is a maximalist position but who knows maybe it is. I think the term itself is weak. Maximalism doesn’t describe a singular ideology. It’s a label applied, in this case by a critic, in order to bundle everybody into a single perspective which I don’t think is true. All I can tell you is I’m not one.

yeah although I suppose you get accused of being one quite often, right?

I think very few people think I’m a maximalist and then they get disabused of that notion very quickly because there’s a record there. I started talking about a multi currency environment in 2014, and I’ve been very consistent in that, and here’s the thing…

there’s a very big difference between what I want, and what I see coming. This is not about what I want or what I believe is best and that’s a very common misunderstanding, as in “you want a multi currency future” or “you believe that’s an immoral perspective”..

I’m simply calling one I think is going to happen. I’m not saying that’s the best outcome, I’m just saying it’s a likely outcome. For that hypothesis, the likely outcome being that we will have a Pareto distribution with a very very long tail… a hypothesis I first posed in 2014.

I would argue that the evidence is accumulating towards a theory much faster than any maximalist hypothesis we have more and more and more and more tokens many of which are actively traded and seem to have some monetary value, in a very long tail. I don’t think that’s necessarily a good thing or bad thing I just see that it is that’s what the data is telling us.

SoV - Medium of Exchange - Hyper-Bitcoinization

I totally appreciate your comments there around it being it reflecting what the actual behavior has been over the last few years, but then I suppose the question is more what do you see happening 20-30 years down the line? If Bitcoin becomes more adopted would there be more of a tendency towards people wanting to store their value in the most marketable of those cryptocurrencies?

I think they would want to store it in the most hard of those currencies. So I think there, it’s really a matter of the soundness of that money, and how hard it is and Gresham’s law says that that’s gonna be used to store value but it’s not going to be used as medium of exchange because nobody will want to spend it.

In that particular scenario you swap it for something else that you use for medium of exchange. which is a very particular perspective of where bitcoin ends up in terms of how it’s being used by most people. I don’t know if it will end up that way this is not a matter of how its designed. We’re just basically predicting, or trying to predict, how the market will respond to this invention, and what it will find it useful to do visa vie all of the other things that might be out there.

even in that scenario that’s not necessarily a maximalist position. Again we’re talking about a portfolio of hard assets some of which are more flexible than others. I think the fundamental premise of maximalimism, if I may paraphrase, is given completely free markets and open frictionless protocols for exchange where all other factors being equal the hardest money wins, then you end up with one money and you effectively get this phenomenon of hyper Bitcoinization — you will trigger Gresham’s law — you will trigger a flight out of weak currencies that become weaker in an endless cycle until eventually everybody only wants the hold hard money for any period of time other than instant.

Hyper-Bitcoinization follows from the maximalist position if you take the premise that you have free markets and frictionless commerce. The problem is in the real world we won’t have free markets, and frictionless commerce, so you’ll end up with a very different scenario

I think one potential idea there is just around the observation that people continue to buy Bitcoin and yes it is a speculation but I guess the theory is then that people would adopt Bitcoin spite of those government controls, and in some cases it may be that those government controls are what drives them towards the hardest and soundest cryptocurrency.

I’m not so much concerned about only the legal barriers. There’s also other barriers to adoption and friction between currencies. There’s availability of exchanges, liquidity, localized trade, there’s technical barriers, uncertainty caused by protocol changes, there is capacity and fee concerns. There’s all of these other bits of friction, no system is perfect.

So what do those bits of friction due to the idea of maximalism and hyper-Bitcoinization? In my opinion, what they do is they express a Pareto distribution. Which means that you don’t end up with that degree of maximalism you end up with a much more long-tailed distribution.

Opposing Forces and Terminal Velocity

okay so I think the other thing though is having many many different coins could also be considered another form of friction, as well. because you’ve got to find a liquid market for each of these to trade amongst them. Wouldn’t it make more sense to have one that is the most liquid or most marketable?

yes it would, and so what you’re going to have in that scenario at least that’s my conception of this, Stephan. You have two opposing forces, and one force is the pressure to move into the soundest money and stay in there for as long as possible, in order to maintain store of value. The other pressure is all of the technical political and legal frictions in both directions that are that change that equation…

and so perhaps in one scenario you have hundreds of thousands of tokens, the other scenario you have one and those frictions and pressures are pulling in both directions what you end up with is an equilibrium somewhere in the middle and where is that middle is closer to one or is it closer to a hundred thousand?

I don’t know but what I think is you’re going to end up at neither extreme. What you’re going to end up is finding the natural point of which the equilibrium of friction in one direction versus friction and the other equalizes. It’s like hitting terminal velocity..

gravity plus the air friction against you, you’re gonna max out 200 miles per hour, that’s it. So the velocity at which you move into the sound money is tempered by friction and there’s an equilibrium point. So maybe that means we have 80 percent dominance, or 60 percent dominance, or 50 percent dominance of the soundest money, but not a hundred.

I would think of it more like it could be anywhere in that range of 80 to maybe 95 percent dominaces, let’s say. Obviously we all know the problems with the so called Bitcoin dominance index, but just using it as a concept. I think most most maximalist types would believe that it might fall somewhere in that 80 to 95 and maybe some people do truly believe it’ll be literally 100, but then that’s the other question…

even with the 80-90… I would say that perhaps that is one scenario. If that’s your hypothesis then I would argue that the evidence is moving against you in that. One of my favorite authors Douglas Adams wrote the trilogy The Hitchhiker’s Guide to the galaxy and his fourth book was called the fourth book of the increasingly inaccurately named trilogy The Hitchhiker’s Guide to the galaxy. and I love this idea of increasingly inaccurate so the idea that you’re going to achieve 85% 90% maximalism or dominance…

even if you’ve managed to somehow reform the dominance index so it really counts actual market cap of actual liquid over the actually available distribution of coins so it means something you still don’t get to eighty to ninety percent. the market has moved away from that over the last three years, and again I’m not saying that’s a good thing, and I’m not saying it’s a desirable thing.

I’m just looking at the data and saying you’re forecasting one thing and the data is forecasting another maybe maybe over the long term things change but again look at look at human society it’s not as if people don’t have information about the relative strength and soundness of different Fiat systems, and yet the markets don’t act perfectly rationally or in a frictionless way to to create the scenario so you were talking about with maximalism

The Question of Time-Frames

I think maybe it’s a question of time-frames, then. I think many of the, let’s say, monetary Maximalits would argue then that really what we’re seeing today is just this very speculative bubble and that is driven by the this speculative excess, and that what we’re really thinking of is more like a longer term forecasting idea that 30-40 years out that is where that 80 90 percent dominance aspect would come into play. Look at these last few years, we’ve seen a lot of alt coins come up. Is that is that what’s going to become the most, which of these is going to become a money in 30 or 40 years time?

who knows? some of them, maybe. I think there are good reasons why some of them are able to, and may be able to differentiate sufficiently with Bitcoin in order to occupy a parallel niche that maybe isn’t as sound money, but has other properties that it’s desirable. A very good example of that would be privacy. Bitcoin privacy at the base layer, at the moment is weak, its poor, and we hopefully can fix that. but again there are other capabilities and other features out there.

I’m not advocating for any of specific privacy coins we have today, but that doesn’t mean we can see something that doesn’t have as much hard money soundness, perhaps, but has more privacy and so it will occupy a slightly different niche where people who are optimizing for a different set of features will find it more useful, for their use cases, and again we can’t really predict this stuff, but I would say that the data speaks otherwise.

On the one hand we’re playing this no true Scotsman fallacy where it’s the no true maximalist fallacy. We believe in maximalism, but it’s not platform maximalism it’s its monetary maximalism, and by maximalism we don’t mean a hundred percent we mean 80 percent, of the Pareto distribution, and not now in ten twenty, eighty a hundred years. well we’ve moved the goalposts significantly, at this point.

A Maximal Objection

I’m arguing every day on Twitter with people who call absolutely everything except for a Bitcoin a shitcoin, believe in platformer maximalism as a corollary to monetary maximalism, and you can’t run a platformer at all unless it is the hardest of hardest, and there are no other applications than money that matter, and everything is money in the end and finally the that have a much tighter time frame for hyper-Bitcoinization.

I object to that maximalism maximally i find that I find that thinking to be limited and uninspiring and especially when it demands the ideological purity where I’m a traitor because I wrote a book or was interested in a technology other than Bitcoin and that’s a cardinal sin. Somehow I shouldn’t be reading about, learning about, or writing about technologies that are not consistent with the maximalist view.

I’m sorry but that’s ridiculous I’m still very much committed to Bitcoin, 90% of my work is in Bitcoin and I don’t have to prove my purity of ideology or thinking to anyone, and I can write and read and think about other things other than Bitcoin. I didn’t sign up for a monogamous relationship with Bitcoin and I’m a bit annoyed with all of the maximalists going “why are you looking at that blockchain, what does it got that I don’t?” we’re not gonna play those games.

anyway so if you define maximalism, Stephan, as the mildest possible Pareto distribution with a long tail, perhaps in 80 years, if everything is a free market, sure I mean I can buy into that but that’s the mildest less doctrinal maximalism and it’s like a cafeteria version of religion, it’s like yeah okay, but but I’m not dealing with those dudes.

I’m dealing with the fundamentalists online and they’re sending me threats, literally. I’ve been threatened numerous times by people who take this Maximalist position who think that the mere act of being interested in, or reading about anything else, or speaking about anything else is a violation of every principle that supposedly Bitcoin supports… and then challenged me and threatened to hurt me for saying these things

Andreas, I totally appreciate, I mean you’ve got half a million followers across your Twitter and hundreds of thousands of subscribers.. so obviously

you’re gonna tell us that 5,000 of those are going to be sociopath just because of probabilities

Absolutely, I grant you all of that, and I think… look so yes I think there are definitely a lot of crazies out there but I think maybe, the way I would I would think of this is many of these projects, they’re not necessarily going to become a money and so in that sense for someone like me who’s into it for the monetary component of it, I’m only interested in Bitcoin because I think that’s the most interesting thing, and that’s the best thing that we can be working on and thinking about.

On the Chances of a Better money than Bitcoin

Obviously, I would not mandate that you must only you must be faithful to a Bitcoin and so on, and I would also suggest that we don’t have to say everything must be built on Bitcoin, but I would just suggest that if somebody’s trying to make a monetary token then they should really be thinking long and hard about why they believe they could somehow displace the network effects and the liquidity that exists in Bitcoin compared to just any other coin. I mean if you just look at the number, at the amount of buy support, it’s crazy there’s no chance. Okay not no chance, but there’s a very low chance that any other coin could just come through and become more of a money…

yeah but we’re setting a very high bar here which is this idea of displacement, which is, I think at the core of many of these positions is this zero-sum mentality that says that one system can only win at the expense of another, and by carefully carving out the pie into specific segments so it’s about percentage of pie, and if something else comes in it’s a threat, is going to displace or even replace the granddaddy of the crypto currencies…

here’s the thing I don’t believe this is zero-sum game i believe we’re talking about a drop in the ocean, of a very very big ocean, that this technology could radically transform society.. and quite honestly bitcoin has nothing to fear from competition, and differentiation across a variety of features. not all of which a monetary.. because the vast majority of people do not act purely as rational actors on monetary characteristics. they act for a variety of reasons with a variety of motives, and so yes you may think very well that monetary is the main application, the most important application. I happen to agree with that.

I think we we have to finish building a fungible private global borderless neutral censorship resistant money, that is the currency of the internet, that is a robust store of value. because on top of that we can then build a lot of freedom applications, which do other things which are not monetary necessarily in nature, but can give us a lot of other application. you can’t build a lot of those until you have the broad base of money I totally agree with that but the idea that nothing else can can compete or should compete…

Sufficient Differentiation

absolutely there will be other things that compete and they will compete by differentiating and the trick here to realize is that if they don’t differentiate sufficiently Bitcoin eats their lunch every single time, and they have to differentiate very strongly because of the things you talked about network effect branding and all of the other strengths that the coin already has and then that’s the conundrum because if they differentiate enough then they’re no longer competing with with Bitcoin head-on, because they make design trade-offs and these design trade-offs will make them less and less in direct competition with Bitcoin.

A perfect example of that is Ethereum which does not compete for the sound money position at all. I can hear the maximalist cackling at that statement, because it doesn’t have sound money. Its very simple, it doesn’t, but what it does have as a design trade-off its flexible turing-complete smart contracts that can do interesting things other than money… and Ethereum maximalists, who I get plenty of those too, will tell me Ethereum can do everything that Bitcoin can do and we don’t need it. I disagree with that too.

These two systems have differentiated sufficiently. I speak of these two because I’m familiar with these two and I’ve done my research in my reading… but at least these two systems, I did a talk about the lion and the shark they can be apex predators in their respective domains, and the respective domains don’t overlap because each has made design trade-offs that automatically exclude the other domain, and so there’s nothing wrong with having two apex predators in two different evolutionary niches.

In fact, they work very very well together. One feeds the other in terms of applications, users knowledge, research and network effect. so I don’t think we’re going to end up with just one money.. I don’t think the markets will lead us in that direction, and I’m okay with that. It still doesn’t mean that Bitcoin isn’t the most important, it absolutely is.

Defining Money

okay and I think the other question I would bring here is also the question on, if something is a money this is something just being functionally the equivalent of a fifty dollar target voucher or a Kmart voucher or whatever shop… if it’s something is just a gift voucher then is it really a money? or is it more like some token of value that you can spend on something?

ultimately the money would be the thing that we denominate things in and that would be the dominant, coming back to that idea that some of these tokens really that they they have a value but I guess if the monetary maximumlist theory turns out to be, then really we should be denominating the value of that those tokens in Satoshi’s not US dollars what are your thoughts there?

so I think that argument is the idea, to paraphrase a bit just to see if I understand it correctly. What you’re saying is that the money is really the unit of account function, and because that’s the pinnacle. you have to achieve store of value, or medium of exchange, roughly in parallel, but you don’t get to unit of account until the store value and medium of exchange functions are so strong the volatility is ground down to almost zero and you have the stability you need to do pricing.

yeah I think that’s a fair summary yeah

so and that’s the only thing that is really money and everything else is just play tokens. That may be the case I think the unit of account function itself is fascinating because it’s the culmination of, the pinnacle of money, but I also think that at the moment one of the problems we have is that we’ve defined these three functions: store of value, units of account, medium of exchange, and we think of them as parameters that emerge from the design of the currency… features or attributes that emerge and some monies do some of these things better than other monies because of the way they’ve been designed

Designing Money

I think we should start thinking about it the other way around and think about how do we engineer these as properties rather than watch them emerge as attributes of design. how do we tweak them? Which is the difference between picking three metals and making an alloy because you think that alloy will have the strength and brittleness characteristics, versus going in at the nano scale and engineering a crystal to have the specific characteristics you designed it for.

you don’t take what you have and just mix it together you instead go in and change its nature. I think we’ve now created a form of money where we can actually engineer the properties of units of accounts medium of change and store value and I think we’ve added a couple of properties that we haven’t thought about, meaning that it’s also the first money that also has the property of universal ledger, which we didn’t have before. So this money acts as more than those three things and we can actually engineer the trade-offs and ratios of those capabilities in the money.

so I think we’ve got a lot of experimentation to do and in that experimentation I think we’re going to see many different alternatives to the various ratios of medium of exchange store value and units of accounts as well as other capabilities that we invent and discover, and I think we need to broaden our concept of money.

I think the artificial barrier the gatekeeping barrier between the thing that’s used as units of account versus is the only real money and everything else is just loyalty points and tokens is fine from a theoretical perspective, it doesn’t give us any actionable results though because I think in a social context among people the way people behave with different forms of money isn’t as clear-cut, and the way they choose to treats different forms of money from mileage accounts with your airline carrier, to chuck-e-cheese tokens to subway cards to dollar bills to physical gold to whatever… it’s not as clear-cut and the human behavior doesn’t easily slice these things into distinct categories.

so I think we are going to see a very interesting tapestry of monies emerge. I do think units of account as a key function that might be held by one, but there are other possibilities including the unit of account being a basket. That’s something that was even pursued by the International Monetary Fund in the beginning before the Bretton Woods Agreement where the dollar took that place most of the other discussions were about using a basket of currencies.

Now with fiat currencies there are a lot of big disadvantages and counterparty risks, but the idea of using a basket or index as your units of account across multiple different monies that have different mixture of store value and medium of exchange I think is fascinating so I’m not ready to close the door on that and say, hey it’s done it’s over Bitcoin is it I’m not interested in anything else.

we’ve opened the doors of so many other possibilities. I don’t see why we have to close those doors.

Medium of Exchange as the Primary Characteristic of Money

okay so a couple points I might just raise there Andreas so first of all I think the Austrian view is essentially one around marketability or saleability and I think one area where an Austrian might critique this basket idea, is that ultimately that entire basket considered together as a whole could never be as saleable as the most saleable component from that basket.

I think that’s one point and the other point is I think maybe we’re trying to distinguish or split apart these different functions of money: store of value, medium of exchange, unit of account, but I think ultimately (this partly comes back to the debate around what’s the best money) but ultimately it’s more like, which one is the best medium of exchange? that is the ultimate form of money, and then these other characteristics, so store a value unit of account, I think of them more like they just come alongside.

The main reason we even use our money is the fact that it is a medium of exchange, and in my more maximalist view, it’s really more that you would have at least one best overall one, maybe that’s only 80% but yeah I suppose that that’s the way I think through it what do you what are your thoughts there?

i think that we have moved past the concepts of money that Austrian economists analyzed in the past, and I think programmable, completely digital, borderless, neutral, censorship resistant money… especially when linked together in an ecosystem of cryptocurrencies, with programmable logic above them, with intelligent wallets that are doing routing with layer 2 technologies that allow frictionless instantaneous exchange from one to another creates completely new monetary characteristics where we’re in unexplored territory, and I think that we are going to discover more about money that we didn’t know in the past and we are going to discover more complicated and interesting ways of managing these questions..

so I don’t think medium of exchange is the be all end all in fully digital programmable online money. I think the one of the fascinating things about tokens in general, and this includes Bitcoin but any cryptographically secure token, is the fact that it is a multi-dimensional thing it can act as a medium of exchange, you can represent shareholders equity, it can represent voting rights, it can represent ownership, attestation, it can represent access to resources, it can represent loyalty token some earnable thing it can represent many different things. not all of which are money, but they coexist in a single token and that multi-dimensional token, I don’t think can simply be abstracted down to medium of exchange and everything else is irrelevant, in its saleability, or its nature and behavior.

So i don’t know what we can do with a basket and I don’t know if the parameter that matters the most is the most saleable item in that basket is better than the salability of the basket as a whole. I don’t know if other characteristics matter in that, but we’ll see we’ll find out. I think it’s really interesting the possibility that we can actually disaggregate the three functions.

Emergent Characteristics vs Engineering

One of the fundamental characteristics of Austrian economics which i think is bound very much to the physical nature of of our past money is the idea that these three characteristics are emergent characteristics which are predetermined by the physical characteristics. For example, stock versus flow in the case of gold, or things like that. These innate intrinsic characteristics of the form of money we use basically inform what characteristics it will have as medium of exchange store values units of account - whether it will be suitable for those functions and how strongly it will be suited to those functions.

The difference between having an intrinsic characteristics that cause the behavior of money to emerge versus engineering the behavior money and perhaps disaggregating it and being comfortable with the idea that you can have a different thing for unit accounts than you have for store of value and or medium of exchange, possibly three different things which may be very strongly related and tradable… but operates differently. I don’t know.

Cambrian Explosion

I think we are going to find out so I’m not ready to close the door on that and say, listen this question has already been answered, we answered it twenty thirty years ago, and this is gonna behave exactly like the things we knew in the past. well I’m sorry, it’s not. I would say once again, the data that I’m seeing in the market validates my initial hypothesis that we’re not going to see consolidation into one thing but rather the opposite were more likely to see a very long period of fragmentation experimentation an explosion, Cambrian explosion as some people have called it, have different projects all of which explore different niches some of which are Dodos and dead-ends and platypuses they’re the weirdos of evolutions and just die off, and some which are very successful in an unexpected way…

I’m not gonna start calling shots on something that is evolving in a very chaotic nature and interacting with society as a whole and is subject to many many more variables than a simple academic analysis would suggest.

okay so I think probably a couple things I might disagree like the main one is I think you can’t really separate store of value medium exchange unit of account but look I think we’ve almost done forty minutes just on maximalism…

so I think yeah when you say “you can’t” there’s someone out there who is saying “let’s see, maybe you can” and when it comes to things like that i think I don’t have the certainty to make a call like that i don’t have a basis to say you can or you can’t the fact that we haven’t before it’s very difficult because when you say you can’t you’re you’re trying to prove a negative and you only need one counterfactual to invalidate that hypothesis one demonstration of but maybe you can at least just a bit and your arguments is gone so I’m not gonna make I don’t think we can make strong statements like that I don’t think we have enough knowledge at this point in the game to make strong statements like that and I don’t see why it matters anyway we’re all going to find out sooner or later

true true oh look I think you could do it maybe in certain small examples but not unlike a broad scale, that’s more what I was getting at

there well you just invalidated your can’t.

well i meant more in the sense of, like if we’re talking like global money here, because you could probably come up with some example where people use a different method of payment but it’s actually denominated in something else but that might be localized to a certain area whereas what we’re talking about is the global what’s likely to happen in the long-term aspect is what I had in my mind

yeah with that because we simply don’t know and we’re going to find out

Does Bitcoin Challenge Banking Generally or Central Banking?

yeah sure okay well look I think we’ve done enough on the maximalist idea I think another idea i was keen to get your thoughts on, because obviously there’s some slight differences in the views of bitcoiners.. so those of us who come from the Austrian viewpoint tend to believe and want Bitcoin basically to challenge central banking and government monetary intervention..

Andreas in your view does Bitcoin challenge banking generally or does it more specifically challenge central banking?

it maximally challenges central banking, it maximally challenges the pre-conceptions of money that we have, the nation-state money system we have, in its entirety… but as a trickle-down effect it most certainly also challenges retail banking.. or way down the line from how we do payments.. clearly I think as a payment network it obliterates the existing payment networks within short term and it also will start filling roles such as lending and reputation building and many other things that traditional retail banking offers.

we are going to see the deinstitutionalization of banking. Banking will turn into an app, it will turn into software, it will turn into a routing algorithm that banks for you and makes decisions… to optimize your payments, your lending your assets, whatever that may be… so retail banking and central banking both get disrupted majorly.

but I suppose in my eye, I see a case for banking still existing, but just Bitcoin compatible. You might have a Bitcoin lending we would still see a function for credit intermediation.

no i think disintermediation is the strongest effect here. For banking to continue to exist that means that we have needs for intermediaries, and yes there will be cases there will be narrow narrow domains where slivers of banking will survive because we haven’t sucked the oxygen completely out of that. we haven’t replaced everything with a Python script on day one, but payments is first to go. with payments comes a very big problem because unless you’re using the bank for payments you’re not going to need to store most of your values there. For many people their cash flow accounts is the majority of their net worth, sad to say.

what that means is if you remove the payment function of banks you’re also taken away the depository base which severely damages their ability to do lending and then you offer better alternative lending systems and down the line we go and all of these things get disintermediated the banks get moved into more and more niche bespoke custom regulatory bounds government-related things. Like a fax machine, they still exist they lurk in the shadows of bureaucracies and hospitals and tax offices surrounded by intranet devices including a few emulators pretending to be fax machines on their behalf but they’re still there.

So yes, banking will be disrupted but that doesn’t mean banks go away it simply means they atrophy and shrivel into tiny niches that they can barely defend for a short period of time and eventually software eats them just like it eats everything else.

What about a Bitcoin Bank?

I can agree more so on the payments side, I suppose, but wouldn’t you believe then that… okay an example might be what if say Zapper becomes a new bank, a Bitcoin bank.. something like that?

Well again, the point is what is the purpose of the intermediary? The purpose of the intermediary is to offer security services, really that’s one of the unavoidable uses of an intermediary. Pretty much everything else we can remove the intermediary whether its order book creation, market matching, market making, reputation management, identification, kyc… all of these functions can be done in a variety of other ways that are not institutional and can be done more effectively by algorithms. so what does that leave?

What it leaves is the desire of people to have a third party be responsible for their security, the desire of people to say “listen I can’t deal with this I can’t do the 24 English words on a piece of paper in a safe-deposit box… and just listen I’ll just give it to you you hold it for me” that function is going to continue to exist. It’s our job to make that as narrow as possible by giving people great tools that are easy to use with great security so they can become first-class Bitcoin users with full control over their own keys and hopefully a validating appliance in their home that does block validation for them..

but there will still be people who want the face coins of the world and the Google coins and even the custodial Bitcoin. those will exist but hey we’re talking about taking a hundred and forty trillion dollar industry and shrinking it down by two orders of magnitudes and removing all of its most powerful capabilities and what is left is a shriveled little thing so it’s a bit like saying “but the dinosaurs don’t go away” no they turn into chickens and we sacrificially eat one of their children every day for breakfast.

revenge of the mammals, the dinosaurs are still here they’re now just our feathered slaves and we eat their children to punish them for six hundred and fifty million years of dominance. Thing is the banks are still going to be around but they’re gonna be about as scary as a chicken

Algorithms Consuming the Financial System

I think I might take a slightly different view. I think obviously I agree with your points around the ability to use algorithms to do some of those functions but I think there might still be a need for somebody to to code that to tune that to be the owner of that system would not the owner of that system be considered the credit intermediary? so a quick quick example. I agree that in a, obviously the Austrians believe, that in a sound money world we would have a lot less credit. but we still believe there would be some credit, and who is the one best place to do credit assessment and credit like to check somebody to assess credit worthiness?

the crowd, definitely the crowd. crowd-source is a thousand times better in terms of the quality of data you get. Our credit reporting and credit rating system sucks completely sucks top to bottom. It is rigid, centralized, corrupt and it doesn’t produce good data, as evidenced by every single round of defaults where gold rated platinum rated credit falls over as if it’s made of papier mâché and because it is

i can’t imagine that we can’t build better systems of reputation, scoring, and rating, and metrics that we can collect on the decentralized blockchain without putting someone in charge of telling us who is worth sending money to. The other thing is our existing rating system also fails completely to account for risk and which goes to your point of who gets disrupted first that’s why we need to disrupt the central banks.

As long as money costs zero to acquire the credit risk problem continues to amplify because there is no incentive to properly risk investments if they go to shit you get bailed out by the taxpayer, and in the meantime the risk you took was zero because the interest rates is near zero so with with money like that risk management stops existing because the only risk you have is the feds raising rates or lowering rates. That’s the only customer you have, that’s the only risk you have.

It’s not capitalism anymore. If you disrupt that then the incentives to create good risk management, because if you default you eat that loan and no one’s bailing you out, and there’s no layers of insurance up to AIG. Then we have a market for risk management at which point, I can’t imagine we can’t build better applications than three private companies.. the privacy rapist all over the web in order to extract data that doesn’t even predict risk. well I’m sure we can do better than that

okay so yeah fair points on the privacy and so on the only point I would… look i think i holistically agree that there might be a potential to turn some of these things into algorithms and to crowd source and crowdfund some of these sorts of mechanisms for doing things however I think it may not be accurate to paint the current ratings model as though that would be what would exist in a truly free market. like in our view in the Austrian a free-market view the way those ratings agencies were driven was again a function of central bank excesses

absolutely we agree on that and but the thing is I really start seeing fewer and fewer niches for banks, even with the current state of technology… and given the massive imbalance innovation and creativity they’re in deep deep trouble here Stephan. I mean given just what lightning network can be demonstrated, today, to do… payments are done it’s just a matter of polishing that up to production. It may take 15 years, but I mean there is a point at which systems like this will be able to do trillions of transactions per second, At which point the entire payment system has scaled five orders of magnitude greater than visa.

That’s the thing about exponential innovation here, is that one day we can do half a visa, but the day we can do all of visa, were six months away from doing 10 times visa, one year away from doing a hundred times visa and the exponential curve keeps growing we’re talking about treating this technology on a different scale. They’re only going to do 10% more each year because that’s what a centralized system can do. You turn it into a peer-to-peer system which is decoupled like lightning Network, there is basically no limit to how much that can scale both in terms of time granularity, payment granularity, and settlement time. Now that demolishes payments.

There’s no comparison, we can start doing applications that are unthinkable today, on a scale that’s unthinkable, and then the opportunity to do lending intelligently through various things including some of the things that are already happening with smart contracts on Ethereum, I think are fascinating. I’m not gonna mention specific products because I don’t like endorsing projects. Especially if I haven’t studied them very very carefully.

The thing is already people are building dApps that allow you to collateralize and build stable coins backed by some cryptocurrency or basket of cryptocurrencies including potentially Bitcoin and then use that to have collateralization and leverage and lending there’s no reason why that can’t at least compete with traditional financial institutions… but I think it can out-compete. Not this iteration, but 20 iterations down the road.

Banks haven’t changed how they do lending for a century and a half, and this technology changes every every two months. So at that pace I fail to see any niche that banking can maintain other than the custodian third-party security role.

okay yeah look I mean personally I’m more of a skeptic of Ethereum… but I think… the jury’s out on whether something like that could exist in a long time, a long time away from now.

Ossification and Private Transactions

I think just one more topic I was hoping to just get your views on just around this concept of bitcoins protocol ossifying, and that potentially the so-called window, let’s call it, to get confidential transactions on-chain maybe closing, but then the other component there is the aspect around having more assurance on the 21 million cap which so for many is part of why they invested in Bitcoin to begin with. so can we have your comments there Andreas?

Yeah that’s a that’s a troubling topic. I think I’m the person who coined the term ossification in relation to Bitcoin. I started talking about this window closing… I started expressing these concerns as far early as my first talk at the San Jose conference in 2013. When I talked about how these protocols would gradually ossify and we would have to make some very important choices about preserving fungibility, neutrality, and privacy, as core principles and you’ve identified a really big problem which is that privacy comes with a trade-off… and as we’ve seen recently with the Z-cash bug one of those trade-offs may be more exposure or more attack surface for inflation bugs in the base layer that are not detected ever, or not detected soon enough, before they cause damage

so to explain to our listeners the idea here is that if you have a technology that allows you to encrypt the values.. even if that technology says “listen, I can ensure you that the value in all of the inputs this transaction minus the value in all of the outputs is zero, so it’s all balanced” there may be bugs in that calculation, and if there are bugs in that calculation, what you can do is you can start sneaking new currency into each transaction and it basically it’s like having a leak. Like a memory leak, and you basically are inflating the supply slowly, transaction by transaction.

This is obviously a big risk. I don’t know how we resolve that. I think we’re actually far from implementing confidential transactions, because that technology isn’t standing still. Some of the latest innovations around bullet proofs which are much shortened ranges for doing the cryptographic proofs that allows you to show that the side A and the side B of the equation, the inputs and the outputs, add up to zero, so therefore it’s a valid transaction… that range proof has now been improved with bulletproof but we don’t know the security characteristics of that. We’re gonna have to look very carefully at that, and it’s the technology that needs to be tested a lot more.

I think what we’re going to see in the next year to year and a half is the introduction of two or three important technologies at the same time, including Schnoor signatures with the possibility of signature aggregation across transactions, and perhaps even across the whole block as well; as taproot, and or graft-roots which are obfuscation technologies that allow you to create a scriptless script that looks like a public key payment.

You minimize the privacy leak of scripts, and bumped the Sewit version and introduced MAST which is Merkelized Abstract Syntax Trees that gives you another level of privacy between those three technologies. We can really move the needle on privacy and fungibility in the base layer even without confidential transactions, and they set the stage for confidential transactions a bit later, with another Segwit version bump. I think that’s still further out

Strength of Open-Source Ethos

one one little added thought on that. Aren’t we lucky that Z-cash exists? The thing is, that because of the existence of the five or six privacy focused currencies that emerged after 2014, from Monero, Dash… the various crypto notes, derivatives, and of course then Z-cash and other ZK snark implementations. What we’ve seen is a massive amount of research, as well as applied research in a production environment… with real adversarial conditions and real money at stake.. which is the only research the matters in this kind of security.

What that’s given us is a whole bucket of bugs that have taught us a lot about the security of these things, which have been not only fixed but have taught everybody else who follows what things to be very careful about. So we’re now having this conversation about Bitcoin, that to me summarizes the entire value of the cryptocurrency ecosystem, and why it’s important to not just put all your focus on one system, and why it’s important to explore other feature sets and other approaches and learn the lessons in those.

I think Bitcoin benefits from that competition and also very synergistic innovation that happens in open-source communities.

look I think it’s a great point you make that we want to try and learn the mistakes and not make the mistakes made by other teams or other projects, and in so doing, even other projects and teams and other people can learn from the mistakes that you or I make, that thing it’s a good idea..

the open source ethos and it works great and it’s actually one of the strongest tools we have to compete against the central banks and the banks. That’s the differentiation, that’s the one thing they can’t buy. We’re competing with the biggest concentrations of money in the world. We’re not going to beat them just with money. They can buy more we can. what they can buy is creativity. What they can’t buy is passion, what they can’t buy is the principle commitment of people in this industry who are, like I am, committed to this because I understand the underlying principles because I’m defending those underlying principles because I believe this will empower people and give them freedom and choice and independence in their lives, and as long as people like that to exist, and I count you as one of them Stephan. I hope I represent on that fact, to talk strongly about privacy.

As long as we have that and we have the creativity that comes from this vibrant open source environment. I mean that’s what tells me ultimately that the banks are screwed. That’s why software eats the world, because it has a superior methodology, scientific culture, and execution, than closed corporate systems. That’s why we win. It’s not just a monetary policy you can do monetary policy and fuck everything else off, and it wouldn’t get adopted, by anyone.

Closing Words

yeah no look I think that’s it’s been, a it’s been a very fast hour. so I was really hoping to get through more topics but honestly it’s been a very interesting and really fascinating discussion obviously we disagree on many points but a fascinating discussion nonetheless.

Andreas perhaps you you just want to tell the listeners, if you’ve got anything coming up that you would like them to look out for. Any products or anything else

yeah all of my work is a creative commons license and so you can find everything I do is available for free, it’s available to share, and in many cases also to derive and commercially reuse. That includes my books my videos my presentations my articles and you can find all of that on YouTube on my channel as well as on my website on twitter @aantonop and yeah thank you all for your support.

it’s really quite amazing how this community’s creativity and passion can support so many different vibrant projects and I count myself among those, as running a free education project for the entire cryptocurrency environment, and I couldn’t do that without the support of hundreds and hundreds of volunteers who are contributing work who are editing and polishing and fixing. As well as translating and even sometimes mashing up with music.

If you want to hear, not your keys not your coins, to dubstep there’s a channel on YouTube that has that.

That’s fantastic. Andreas I just wanted to say again thank you very much for all the work you tirelessly do to educate people, particularly on Bitcoin. You have a particular skill and talent in your way of inspiring and motivating people to want to learn more about Bitcoin. So I just wanted to say thank you for that and thanks for coming on the show.

That’s very kind of you Stephan. Thank you for your kind words, i’ve really enjoyed watching several interviews you’ve done in the past. So keep up the good work. I hope I’ll be back hopefully one day soon.

So what did you think of that do you believe in a tendency towards one most marketable good or money do you believe that Bitcoin ultimately challenges central banks more so than banking generally or do you think Andreas’s position is more likely? These are good questions to consider.

Let me know your thoughts via Twitter direct message my handle is at Stephan Livera, or via the contact page on my website stephanlivera comm you can also find the show notes there even though we disagreed I think Andreas and I got on reasonably well as it was a respectful disagreement

let me know if there’s more topics you’d like to hear me cover with Andreas and I can get him on the show again in the future.

If you enjoyed that subscribe to the podcast by searching Stephan Livera podcast on your podcast platform Apple, pocket casts, podbean, Spotify etc.. don’t forget to share it around with friends or on social media that’s it from me thanks guys and I’ll speak to you soon