let's talk bitcoin - ep 64
TRANSCRIPT
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8/13/2019 Let's Talk Bitcoin - Ep 64
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LETS TALK BITCOIN
Episode 64Millibits and Mastercoin
Participants:
Adam B. Levine (AL)Host
Stephanie Murphy (SM)Co-host
Andreas M. Antonopoulos (AA)Co-host
David Johnston (DJ)Executive Director of BitAngels
Ron Gross (RG) - Executive Director of the Mastercoin Project.
AL: Hi and welcome to Episode 64 of Lets Talk Bitcoin, a twice weekly show about theideas, people and projects building the digital economy and the future of money. Visit us at
www.letstalkbitcoin.comfor our daily guest blog, all our past episodes and, of course,
tipping addresses. My name is Adam B. Levine and this show is about the inevitability of
change. In the months and years to come, I suspect well be talking about distributed
applications more and more. If David Johnston and Ron Gross have it their way, itll be built
on Mastercoin, which is itself built on Bitcoin. The bulk of todays show is my talk with Ron
and David about this major evolutionary step from cryptocurrencies to cryptoequities, and
beyond. First, the gangs all here. Stephanie, Andreas and I, finally get a chance to talk
milliBits. Is it time to change? What even is a milliBit anyways? Its another long one.
Enjoy the show!
AL: I recently listened to the first episode that we, actually, ever did of Lets Talk Bitcoin and
one of the conversations that we had on that first episode was about whether or not it was
time, at the time the price was $100 per bitcoin or so, to move from the Bitcoin as the
primary unit that people trade to something thats smaller. Bitcoin, even though there are
only 21 million coins that can ever be created, each of those coins is divisible so, you have
the ability to get really granular with how you look at this currency. The question is: does it
make sense to do that yet? Now were here and the price is up above $1000 and, I think,
its worth having that conversation again, guys. Do you think its time to move away from
using bitcoins as whole units or do we still have a way to go? [2:12]
SM: Absolutely. I think that the current price of Bitcoin is an impediment to mainstream
adoption. I dont mean into imply that people are dumb, or cant do math or anything, but
they see it and they get intimidatedwell, I have to divide this... how much is it? Its just
much easier to use something like mBits but, actually Adam, now there are people talking
about directly switching to microBits, or even just Satoshis. [2:38]
AL: OK. So if I have one bitcoin, what does that look like in these other denominations?
What does one bitcoin look like in micros and what does it look like in nanos? What do we
even call them? [2:47]
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AA: Right now, weve got a really good and easy touse exchange rate because one milliBit
is, basically, a dollar. If you have a bitcoin, you have thousand milliBits and at current prices,
thats about $1 per milliBit. Now, if you go to microBits, that simply means you have a
million per bitcoin and that means that each milliBit has a thousand microBits, which are
worth a thousandth of a dollar. [3:13]
AL: One bitcoin is a thousand milliBits or a million microBits. OK, so then at $1000 again, I
went back and I listened to this episode and I, basically, said at that point that I thought
$1000 was about the point where it made sense for us to make this change because like you
said, one bitCent or 0. .... Wait, no its not b itCent, its0. ... Man, (laughing) ... [3:34]
SM: See, its confusing. (Laughing) [3:36]
AL: I guess this is kind of the problem, yeah. [3:37]
AA: Yeah, exactly. milliBits is $1 and that makes it a lot easier to handle and even if it risesand a milliBit is $2, or even $3, sorry if it... if it, er... if it falls... (laughing). If it rises in
value,.... [3:56]
SM: (Laughing) Its confusing. *3:56+
AA: ... we can keep going that way, so its easy to grasp as a milliBit. Its much harder to do
as a bitcoin. To Stephanies point, the other big issueright now, is that the vast majority of
people I talk to, who are new to Bitcoin, dont understand that you can buy fractions of a
bitcoin. They think you have to buy a whole bitcoin and they cant afford that. In fact, you
dont. You can literally go out and buy a dollars worth of Bitcoin. If you have a buy and holdstrategy, which is a strategy I follow - every Monday, I buy Bitcoin whether the price is up,
whether its down, whether its sideways, I dont care. Every Monday, I buy Bitcoin. I buy as
much as I can afford based on the spare dollars I have. Sometimes, thats a whole bitcoin
when Im doing ok, or when the price is low, and sometimes its only 0.1 of a bitcoin or 0.01
of a bitcoin. Thats fine too, because it adds up. (Edited out first word) shift this perception
that you have to have $1000 just to get in and thats absolutely not true. *4:56+
SM: To quickly address your previous point, Adam. The price of Bitcoin is now at US$1000,
1 US$ = 1 milliBitwhen the price of Bitcoin goes up another three orders of magnitude,
then its going to be $1,000,000 per bitcoin and 1 US$ will equal 1 microBit, is that mathright? [5:20]
AA: That math is correct, but it doesnt have to be Bitcoin that goes up. Dont forget that
the dollar is also going down. [5:28]
SM: Its all relative but it matters how we describe these things. Like you said, Andreas,
people think that you have to have $1000 just to get into Bitcoin and its just simply not
true. I think that, actually, relates to the popularity of certain altcoins that really dont have
a lot of infrastructure. What happens is, people hear about Bitcoin and they sayoh jeez,
$1000 for a bitcoin? I cant afford that. I better get something less expensive. Im going to
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look at Litecoin, Im going to look at Feathercoin, Im going to look at PPCoin. As a result,
were seeing a big altcoin rally right now and I think this is the reason why. *6:05+
AA: A bitcoin can be divided to 8 decimal points after the point. That means there are 100
million subunits, which are called Satoshis. One bitcoin100 million Satoshis underneath
that. The reason this is important is because throughout the Bitcoin network and protocol,what is being transacted is, in fact, Satoshis not Bitcoin. The units are always expressed in
integer values, not floating point values. As integers, they are denominated in Satoshis
because most financial systems can take very large numbers but they cant take too many
points after the decimal, in terms of floating point numbers. When you transact one bitcoin,
on the network it actually appears as a 100 million Satoshi transaction. Whats interesting is
that another way to look at the exchange rate is as the purchasing power of a dollar. Right
now, a dollar can buy you 100,000 Satoshis and a couple of weeks ago, a dollar could buy
you 300,000 Satoshis. If you were paying attention, effectively, youre looking at your dollar
losing purchasing power against Bitcoin. At some point, its going to buy you a lot less than
100,000 Satoshis. I would very much like to see inverse tickers, that instead of showing youthe price in US$ per bitcoin, they show you the price in Satoshis per dollar, so that you can
actually see the vanishing power of your dollar. [7:37]
SM: Actually, theres an app called Bitcoin Paranoid that I use on my phone because Im
Bitcoin paranoid about the price. It, actually, shows the inverse price against US$ so, if you
pull it up, it will say $1 = 0.9 [inaudible] mBits, or something like that. [7:53]
AA: Right. It really needs to be in Satoshis because its a lot easier to view. Yeah, thats
exactly the point. We need to start thinking about the inverse because, after all, that
represents the fact that the dollar and other currencies are losing value, not as fast asBitcoin is appreciating right now, but the sentiment goes both ways. People are flocking to
Bitcoin because its attractive and new and different and because of all the media, but
theyre also escaping from national currencies for the inverse reason. [8:24]
SM: Do you think people would be freaked out though? If we started talking about bitcoins
in terms ofwow, with $1, you can get (how many Satoshis would that be?) [8:37]
AA: 100,000 Satoshis. [8:38]
SM: 100,000 Satoshis. (Laughing) If we started saying with $1, you can get 100,000Satoshis, wouldnt people start to say hmmm, I dont know, this sounds like a scam. I
think its funny money, or playing with the accounting. I mean, the psychological stuff is so
important, even though its completely irrational, right? Its so important when were
talking about the future of money. [9:01]
AA: Yeah. I would say that the best way to do this is to keep within the psychological
parameters of daily spending. If you have a currency, then buying a single, inexpensive meal
or a cup of coffee should cost between 1 and 10 units of that currency. That makes sense to
people intuitively. What that says to us is that we need to go to milliBits right away. If
were smart about this, we should, actually, even be thinking about microBits, otherwisewere going to run into the same problem next year. *9:37+
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SM: The Bitcoin QT Client has had built into it, for a whiletheres a little box you can
check that says Show the prices in milliBits. As far as I know, it doesnt have microBits built
in yet, but thats a great point. Do we go directly to microBits? To start talking about
bitcoins, instead of whole bitcoins but as microBits, that requires a little bit of PR and a little
bit of people adjusting their frame of mind. Ill say, it was strange for me when the pricewas rising rapidly, Andreas, like you, I also purchase a little bit of Bitcoin every week.
Usually, on the order of about $100 worth of Bitcoin, no matter how much the price is and I
remember, a couple of months ago, $100 was getting me about one bitcoin. It was really
strange to look at that and see - Im only getting 0.1, actually, Im getting less than 0.1 this
week with $100. Its just weird to adjust your frame of mind. It does take a little while to
rebalance your attitude towards how you think about bitcoins and their value, in terms of
how much some amount of Bitcoin can get you. [10:43]
AA: We dont need a large centralized campaign, though, although, we do have to adjust to
this new reality. Every one of us can change the clients, whether its an online wallet, likeblockchain.info or its, basically, a full Satoshiclient. You can change it to milliBits, right now
today, and start getting used to it. I did that several months ago and mentally Ive been
operating in milliBits and its been a lot easier to handle this sudden increase in value
because it seems more intuitive to me. I would urge our listeners to just go and flip that
setting to milliBits. The bigger question is whether that should be the default setting on, at
least, the Satoshi reference client. Thats a discussion thats been ongoing on the
developers list now for a couple of weeks. I expect we will see some changes in the next
release. [11:32]
SM: Yeah. I mean, just seeing it on a daily basis seems like the best way to get accustomedto it and get used to it. Is this the opposite of what happened in Zimbabwe with the
hyperinflation? Its almost like hyperdeflation. Were having to adjust our units by orders
of magnitude in the matter of just a few weeks. [11:52]
AA: I wouldnt call it hyperdeflation because this is not driven by deflationary forces
themselves. Its really being driven by adoption, so its hypergrowth of the currencys
economy. Thats whats happening is the Bitcoin economy is growing with leaps and bounds
right now. I think almost $8bn has been fuelling into Bitcoin over the last 6 weeks. $8bn
added to the Bitcoin economy and the result is the price where we are today. Yes, this is
exactly the opposite of what you see in Argentina, what you see in Zimbabwe, what you seein countries that are dealing with hyperinflation. This is hyperdeflation. It leads to hoarding
and thats the other thing weneed to be concerned about. [12:35]
SM: Thats a big philosophical question because whats the difference between hoarding
and saving? [12:40]
AA: It depends on whether youre a Fortune 500 consumer-oriented corporation or a saver.
You call it hoarding if theyre not buying your product, basically. *12:49+
AL: I think that this is, actually, a myth that... I dont know, I feel like were going to bustover time because again, this is one of those personal statements: I think that Ive never had
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a problem with the currency being deflationary. Ive had a lot of different income levels in
my life and the times when Ive been most willing to spend are the times when Ive felt like I
was most able to spend because I was confident in my financials. As the value of Bitcoin
goes up, I think that there are a lot of people out there who are holding it, who are now
more comfortable spending it than they were when it was worth less because they have
more. I mean that, right? [13:22]
AA: Unless they expect it to rise another 10 fold, or 100 fold within the next couple of
years, and thats the risk. That kind of extreme growth, which comes from rapid adoption,
wont last. It will last only for a couple of years and if, for the beginning period of Bitcoin, it
becomes really a deflationary store of value rather than a fluid means of exchange, were
only going to see half the benefits of adopting this currency. Thats ok because then, the
rest will follow once it stabilises in terms of growth. [13:57]
AL: Im curious. Have either of you, since the price has gone up to over $1000, made
purchases within the Bitcoin economy? [14:04]
SM: Yes, absolutely. [14:06]
AA: I continue to pay contractors, buy services, buy products. What I am doing increasingly
is whenever I can, if I do have to make a purchase in Bitcoin, I try to immediately do a $ to
Bitcoin conversion to keep my Bitcoin reserves at the level they were before. Im reluctant
to reduce my Bitcoin reserves. I am hoarding a bit. Im doing that by, essentially, buying
more while Im spending it, not by stopping the spending. [14:36]
AL: Thats, basically, what Im doing too, Andreas. Its really interesting that you shouldmention that because as the price has gone up, it didnt used to be that I would replace the
Bitcoin but now, more often than not, Im using Bitcoin to spend it for the discount Im able
to achieve by doing that and then buying the Bitcoin back through my normal means and
actually, saving a bit on that but not, actually, having the reduction in my Bitcoin holding.
Thats an interesting point. *14:58+
AA: Its something else different. Something has changed for me, in the last couple of
months. Ive gone from about 10% of my income being Bitcoin to about 30% of my income
being Bitcoin last month and by the end of this month, 75% of my income will be Bitcoin, by
January, 100%. I am, basically, not making dollars anymore. I will be making all of myincome in Bitcoin, as of next month. That is a really radical change for me. It puts me 100%
in the Bitcoin economy on both ends and that, I think, will change my hoarding behaviour. If
Im able to earn it in Bitcoin, then Ill be less reluctant to spend it. Who knows if Ill have any
surplus US$? I may end up not having any at all, soon. [15:45]
SM: Im with both of you guys in my purchasing habits. I tend to replace the Bitcoin as soon
as I spend it, too because I dont want to decrease my reserves. Now, what you just said,
Andreas, made me think of... theres a famous book called... [15:58]
AL: You mean, Your Money or Your Lifeby Vicki Robin and Joe Dominguez. [16:02]
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SM: Basically, the concept of intensive saving. Joe grew up in a poor neighbourhood. He
was from New York City and what he did was have a high paying job, he saved 75% of his
income, or even more. Some people do intensive saving with 90% of their income, if they
can. What you do is you just live like a student or a very simple lifestyle for a couple of
years, even though you have a high paying job and save most of the money. Over time,
youre getting a return because youve invested your savings into assets that grow overtime. Pretty soon, you can retire after... some people say the formula is: if you save 75% of
your income, you can retire after about 8 years of working this way and doing this. Its
definitely a strategy that people use to attain financial freedom. With Bitcoin, if youre
making 75% of your income in Bitcoin and the way that you treat Bitcoin is to treat it as
though its a savings account, or something that youre saving and that youre not really
dipping into, youre effectively doing that. *17:06+
AA: I wont be able to do that for very long. I still have expenses and Ill have to either dip
or find ways to source dollars separately, or Ill have to convert. My landlord will not take
Bitcoin for rent but even if they did... [17:22]
SM: Not yet. [17:23]
AA: ... yes, not yet. I would have to spend some Bitcoin to do that. Heres the other
calculation I recently made. Just a few weeks ago, I purchased a motorcycle and thats a
fairly large expense for me. Its a one-off expense and its not something that Id had
planned and saved for. One of the questions in my mind was do I buy with Bitcoin,
essentially, converting Bitcoin to dollars to pay for this. I could have paid for it 100% cash to
purchase it, or do I finance it? I looked at the finance deals and basically, for US$ I could
finance it at less than 5% a year, over 60 months. Meanwhile, my Bitcoin return is currently5000% a year. It would be absolutely foolish for me to spend Bitcoin when I can finance
something at a very low percentage rate on US$ that dont really give me any return.
Essentially, I get a much better rate to return in my Bitcoin and I finance with US$. I made
that choice not to purchase with Bitcoin, but instead to do financing. I think youre going to
see that, as well. Its currency arbitrage. *18:34+
SM: Oh yeah. At this point, what makes sense to do and this is funny because people
havent really had these incentives, I think, in the lifetimes of people who are our age what
makes sense to do now is to take out a line of credit and buy bitcoins and then a year later,
sell 10% of them and pay back the loan, or something like that. [18:51]
AA: Right. Its incredibly risky to do that, of course. *18:55+
SM: Yes, absolutely. I know people who did it last year and theyre looking pretty good
right now. [19:00]
AA: Yes, exactly. [19:02]
AL: I, actually, have a similar story on this vein. I have a poor internet connection which
sometimes causes problems for the quality of the recordings, so I have very limited optionsas far as internet access is concerned. One of the things that I do have access to,
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AL: The peak of efficiency. OK, great. I think Im down with that, too. I think the
milliBitcoins makes sense for me and maybe that will increase our donations. Man, we
should talk about donations, at some point. We havent even talked about that in, like, 30
episodes. [21:50]
SM: Yeah. Maybe people could send us a few milliBits, or one milliBit. We would reallyappreciate it. [21:55]
AL: Yeah. Thats, actually, been a really interesting (??) Let me just mention that, real
quick. Again, Bitcoinif you have a short term time frame, its really, really volatile but if
you have a long time frame, then its not so much. One of the really interesting things is
that the common amount of Bitcoin donations that we receive on a per/person basis has
fluctuated fromit started off at about 0.01 and then went down to 0.07. It took me a long
time to figure out why that was; I think it was $140 for a while there. Whatever the price it
was, that was about a dollar. Now, the average amount that were getting is 0.002 or 0.001.
Im, actually, really OK with that because those tips that we got in the first days that were0.01, are now worth $10 each. Again, the multiplier here is so good, that if we dont need to
spend it, that its just so worth it. Even if youre talking about donating a very small amount,
the only real consideration, as far as Im concerned, is to whether or not its worth your time
to do it for us, is yes it is, but if the transaction fee is large. Thats the thing; I think that the
transaction fee issue is really going to be forced by this price increase. I think that there has
to be an adjustment coming to that with 0.9 because they cant not, at this point. Its very
expensive. [23:09]
SM: The other day, I went to see if I could edit a Wiki page on the Bitcoin wiki. It was
about, something like merchants who accept Bitcoin. In order to do that you had to, as ananti-spam mechanism, they use this thing called Bitverifier, or something like that, where
you send a small amount, ostensibly, of Bitcoin to an address to prove that you are a human
being. The small amount that they wanted was 0.01. Back in the day, that was a small
amount, but its not anymore. Its $10 just so you can edit a wiki, so I said, no. *23:42+
AL: That was something else that... its hard to price in Bitcoin. I just had this conversation
with one of the editors that we work with. Weve been, basically, updating the price as the
price has been going down and it started at 0.5 bitcoin, then we went to 0... When that was
$50, then we went to 0.25, then 0.125 and it kept getting lower. We finally just agreed on
just a US$ price at $100 per episode worth of material, which is a great price, incidentally,paid in Bitcoin. Its just really crazy right now trying to do commerce, trying to conduct
business on anything other than a right now... OK, I can see the prices that are making the
exchange right this second. Those exchanges are still easy but anything that has any sort of
time element to it is really crazy. [24:27]
SM: I just dont think were there at the point until we get a little bit more stability, where
people can price their goods and services yet. I want that to be true. Ive been wanting to
price my voice over services in Bitcoin for the longest time, but its not practical yet. *24:44+
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AL: Yeah. It costs you customers is the other thing. It makes it more confusing. I think, in
the New Year, lets make that adjustment and from January 1st
on, lets aim to talk about
this in the milliBitcoin sense, as long as we stay above $1000 per bitcoin. [24:57]
SM: By the New Year, we might be using microBits. (Laughing) [25:00]
AA: Does that mean the show changes its name to Lets Talk MilliBitcoin? [25:05]
AL: No, it means weve become a much more exclusive and expensive brand. (Laughing)
[25:09]
SM: Exactly. [25:12]
______________________________
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ANNOUNCEMENT:
Happy holidays from Lets Talk Bitcoin. If you like the work were doing, we appreciate
Bitcoin tips of all sizes atwww.letstalkbitcoin.com. Just as importantly, share the show with
your peers and review the show on iTunes. Dont be kind, be honest. LTB reaches nearly
10,000 listeners but has less than 50 reviews anywhere I can find. Id very much appreciate
your help in remedying this situation. Thanks for listening. [26:16]
______________________________
AL: I used to think that cryptocurrency had room only for one. After all, with borderless,
cheap to use, transparent yet still private and very divisible internet cash, there isnt much
you can do to improve money besides that. It turns out crypto isnt just about currency and
it can be more than cash, if we have the vision to see the future and then, bring it into
being. Today, were joined by David Johnston, Executive Director of BitAngels and Ron
Gross, Executive Director of the Mastercoin Project. Gentlemen, thanks for making the
time. [26:47]
DJ: Thanks for having us. [26:48]
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AL: Our listeners have heard about Mastercoin before. I spoke with project founder, J. R.
Willett towards the end of the fundraising period. Before we talk about that though, a few
days ago, you sent me a Whitepaper that you both are co-authors on, along with some
other people called The Emerging Wave of Decentralized Applications. Using Bitcoin as an
example, can you explain how Bitcoin is a decentralized application? [27:08]
DJ: Sure. This is, basically, a framework that Ive been trying to develop with Ron, and other
people at BitAngels, to explain what this new entity is. People have different names for this.
Some people would call them decentralized, autonomous corporations. Some people would
call them cryptocurrencies, but I was trying to get at what the actual function is. Most
people, at the end of the day, are going to end up interacting with this as a piece of
software, right? Its something that they download onto their computer, an IT professional
loads it onto a server and at the end of the day, I use this as a software application. I really
do think that the most useful frame for this... and of course, decentralized is the big
differentiator from a typical application. In the Whitepaper, I really go into detail and try to
offer some useful terminology on; how these decentralized applications have to be built onopen source; how they have to operate autonomously without one person controlling the
majority of their tokens. I propose that they ought to all have records maintained in
cryptographically stored decentralized blockchain. Its a pretty broad definition but as we
see more and more of these type of entities, I think its helpful to have that language to
really describe how they work, how they issue their tokens, how they operate. Im excited
to explore today the possibilities I see. Like you say, going beyond just Bitcoin, which I see
as the base-line protocol layer, Im mostly interested in building applications on top of
Bitcoin. You mentioned Mastercoin and we can get into that in more detail later but I see it
as a great first example of the protocol thats getting built on top of Bitcoin. Using it,
essentially, as a back-end for time-stamping and universal token system and the ability tosend these tokens around and adding new user layers and functionalities. I describe in the
Whitepaper the idea of describing this as a Type 2 decentralized application because its
building on top of these base-line proof of work you have for blockchain. Thats a base-line
Type 1 decentralized application. We can build on top of this, right? We can store
metadata in the blockchain, which is, actually, a lot of what inspired me to write the
Whitepapers. We had this great update as part of 0.9. I dont know, Adam, if you caught
the No. 5 update that Gavin did to the Foundations blog that covered provably (inaudible)
outputs? [29:31]
AL: Yeah. I did catch it. Before we go into that, lets take a step back real quick and talkabout tokens, for a second, because you mentioned tokens a couple of times. This is a really
important differentiation, I think, that a lot of people dont really understand. When you
talk about Bitcoin, or bitcoins, when you talk about it with a lower case b, youre talking
about the tokens, right? Youre talking about the actual bitcoins but when youre talking
about Bitcoin, upper case B, that is the Bitcoin network or the Bitcoin protocol and the
tokens are, essentially, theyre tokens that travel that infrastructure. Ultimately, theyre
called the same thing, but they, actually, are very different, right? [30:06]
DJ: Exactly. Theres two sides of the operation and a lot of people get confused when they
first enter the ecosystem and think the network is the same as the tokens that transverse it.[30:15]
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AL: If the tokens, bitcoins, are different than the network, Bitcoin, are they both distributed
applications or is the Bitcoin network the distributed application and the bitcoin tokens are
the things that are redeemable and, essentially, power the network? [30:28]
DJ: Thats a really good question. I would probably lean towards saying that the distributednetwork that underlies Bitcoin is the decentralized application and, as you said, you have
this token that is used to access the features of this particular type of application. When
you create a new layer and a new protocol, you have a different application. Again, you
have an associated token that can access its features, sort of like you need a specific token
to access any other type of application on the internet. Its just here we have a finite
number of tokens. [31:02]
AL: OK. When youre talking about layers, with regards to these protocol layers, that can
be thought of like the base-level of the internet is TCP IP. Thats the base communication
level thats essentially going on at any given time and then theres the HTTP layer thatsessentially built on top of that and that is where we find the modern internet that... you
know, you have Facebook and modern web applications built on. Theyre not built explicitly
on top of TCP IPthe layer that theyre built on exists and runs on top of TCP IP and then
theyre built on top of that layer. By this definition, could you call something like Facebook
a Type 3, built on top of a secondary layer of TCP IP? [31:38]
DJ: Yeah. Thats a really good way to think about it or you could also say a browser is a
Type 3, right? You have TCP IP, you have HTTP and then weve built all these things on top
of HTTP; browsers, search engines, social networks. They all exist at that same level.
[31:55]
AL: Are these additional levels, or are they more levels? Are they just all Type 3s? [32:00]
DJ: I think of them all as Type 3s and so thats the analogy that I use in the Whitepaper. If
we thought of the operating system as my Type 1, right, heres the base-line. We use that
operating system as the base-line, then you have all these companies that operate in
different text stacks, right? Theres the Google and Amazon and Facebook, right? They all
have their own individual text stacks and then on top of that, most of the applications
people interact with are inside the marketplaces of those text stacks. Thats just another
example of sort of layered operating systems and protocols that work together - anoperating system of a particular text stack and then, lets say its the Apple text stack. You
have hundreds of thousands of user applications that are offered on their marketplace.
Thats, sort of, all Level 3. You can think of Apple as at Level 2 and the operating system in
which theyre operating as Level 1. [32:50]
AL: OK. Tying this back around to Bitcoin, taking Mastercoin as an example here, Bitcoin
would be the layer 1. It would be the Type 1 because its built on top of nothing, its just an
edifice out there in space that people can use, for what its used for. Mastercoin, which is
the project that you guys are working on right now, is a Type 2 built on top of Bitcoin, and
then youre hypothesizing that Mastercoin is the equivalent of the web browser, in this case
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and youll have additional applications built on top of that thatll use Mastercoins
infrastructure, which uses Bitcoins infrastructure. *33:20+
DJ: Right. Thats a good way of thinking about it. The reason I think it makes sense to build
on top of Bitcoin, instead of creating a separate blockchain is: theres a couple of reasons.
You have the security advantage. Immediately, being on top of a network which hasenormous hashing power and thus, doing a false transaction, double spend is impossibly
costly. I remember it, just recently, cost $1bn (??) calculation to do, to a false spend on
Bitcoin. You get that immediately. If I was creating another Type 1 decentralized
application that had its own blockchain and were mining at day one, you dont have that
security advantage. I think thats, probably, really important to build on top of thats a big
advantage. That gives you a lot of stability on which to build on top of it. You dont need to
do mining again, now that you already have this base layer and so, versus proof of work,
Mastercoin, and similar applications, are working on a proof of stake. Based on the number
of coins and tokens somebody holds, they can vote on protocol changes and things like that.
Instead of rewarding hashing power and confirming transactions, which are really positivevalue added behaviors by the users, when it comes to a Type 1, you can incentivize different
behaviors by users for a Type 2. For instance, with Mastercoin, its, basically, incentivizing
two different behaviors. First, there was the kickstarter period; you can call itthe Thirty
Day. Those that want to support these particular features can add in funds to a particular
Bitcoin address and they will get part of the initial tokens that are generated and then
theres the second pool, which most people forget about, which is the developer pool. Its
rewarding anybody that provides open source contributions to the project with Dev
Mastercoins. So, theres these two different pools and youre incentivizing two different
behaviors. One is to initially provide the funding and so all of these things can be developed
and implementations can be built, then second in the long term, its a controlled algorithm,where 50% of the devcoins are handed out the first year, and then 25% the second year,
and then 12.5% the third year, and so on and so forth, sort of emulating that Bitcoin
distribution over time with the devcoins. I think those are different buckets you can think
about these incentives. [35:37]
AL: Is there any difference between Dev Mastercoins and actual Mastercoins? Were they
created differently, or are they just.... were they allocated? [35:43]
RG: I think David and I and a few other board members have a different perspective about
the functionality and the division between these types of mastercoins. At the end of theday, these are both mastercoins and they are both fungible and interchangeable, right? The
only difference is that the normal mastercoins were created by sending money to the
Exodus address over at the investment (??) in August, and the dev mastercoins are
generated throughout the rest of the project lifetime and the exponential decay that David
described. The dev mastercoins are currently managed by the group of people known as
the Mastercoin Foundation and they are managed by us with the explicit purpose of being
used in order to develop the protocol but technically and from a financial perspective, the
two types of coins are the same. [36:36]
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AL: I, actually, kind of followed the Mastercoin project and Im not that familiar with the
devcoins. Is there somewhere, in particular, where I could find more information about
how that allocation happened or what the rules are there? [36:45]
DG: Yeah. The rules for that allocation were there in the original spec, in the original
Whitepaper. They were called reward mastercoins back then, but we renamed them to devmastercoins and then Willett described the original allocation algorithm. We are finding
that, right now, with David, the (??) the exact semantics but nothing has basically changed.
[37:07]
AL: Weve talked kind of around Mastercoin for a while here and Id like to, actually, focus
on that, for a second. At a really basic level, can you tell me what the purpose of the
Mastercoin project is, and has been? What is the goal that you guys are working towards,
actually, solving? [37:21]
DJ: One of the things that got me really excited about this is the Bitcoin community, as longas Ive been in it the last year and a half, or sotheres been a demand for: we need a
decentralized exchange, where we can buy and sell all these digital tokens. Weve seen,
throughout time, all the centralized versions, whether its ETCT, or others. They come and
they go. If you offer smart property tokens, these exchanges dont stick round very long and
thats because they are run as centralized entities and they cant manage the regulatory
burden globally. Its been recognized by the community for a while, we really, really need a
decentralized exchange. When I saw that that was, basically, the first feature and it was
pretty straight forward technically to implement that with Mastercoin, thats what got me
really, really excited. I cant emphasize the importance of that enough because once you
have a decentralized exchange that is completely open source and the records are kept inthe Bitcoin blockchain, those records arent going anywhere. Theyre secure, theyre safe,
you dont have to worry about another centralized exchange closing down and from a
regulatory perspective because theres no entity, because theres no centralization. The
burden goes to those users particular jurisdiction to sayOK, I can use these smart property
features, I can use these tokens and this decentralized exchange in this way, in my
jurisdiction. It doesnt have to be a global solution. You can come up with unique solutions
just like in Bitcoin, theres no Bitcoin company, so people have been free to set up
exchanges in their particular jurisdictions however they have to do that. Its different in
United States than it is in Canada, than it is in Germany, than it is in Japan. That diversity is
really, really key, I think, to making this work. Decentralized exchange, to me, was one ofthe very first featuresthats what the current bounty of $250m 300 BTC bounty is focused
on, is the decentralized exchange. I think its under testing right now. People can go and
check out the developer thread; they can check out whats going on with that and test it
out; download the wallets. Thats really exciting to me because it gives us a whole new
range of capabilities as a community. [39:31]
AL: When you say decentralized exchange, the problem were talking about here is the one
trading dollars, or yen, or whatever your local currency is, for Bitcoin, right? Is it an
exchange for Mastercoin or is it an exchange for Bitcoin, or is it just an exchange? [39:43]
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RG: What David said about all this smart property features on top of Bitcoin, or Mastercoin,
thats very much correct and true. I just want to say that back at August, we didnt even
imagine these features. J.R. Willett, for the last year and a half when he worked on the
protocol, only focused, at first, on the currency and commodity exchanges. He described
the protocol, where people can issue their own currencies and be it either US$, or yen, or
euros, or gold and the same unified exchange platform handles all of these exchanges, all ofthese currencies and assets. It was only one or two months ago when we added the smart
property feature and we are now discovering its a very important part of this ecosystem.
Before we were more like a Forex platform, now were also a stock exchange. People can
issue these tokens, this smart property and just exchange any type of financial asset and we
keep imagining and coding and defining new types of assets from the financial system into
this system. Once weve covered the basic ground, now we can move on to futures and
options and various other types of contracts, and bets. If I make a bet on top of the
Mastercoin protocol, now this bet is a financial asset and I can sell this bet off to someone
else, if Im not satisfied with it. The exchange is like the unifying Holy Grail here that just
binds everything togetherits like the force. *41:14+
DJ: This is more about tokens being traded for tokens. I can sell Bitcoin for Mastercoin.
Once I have Mastercoin, I can interact with any of these user currencies that have been
created on top of the Mastercoin protocol, which is really, really exciting. Though, I do want
to make one clarification. We talked about, earlier, the dev mastercoins and their being
invested to the programers, I want to point out that this is one point of centralization that
we really dont like about the current implementation - this process needing to be managed
by the Mastercoin Foundation. What were striving to do is: 1) weve put a bounty system
in place, where anybody can compete for this 2) were working on a proof of stake system,
so that all those that are in the Mastercoin community can vote with their proof of stakebased on the features and the bounties that they won. Our goal, over the coming months,
is to have a distributed bounty system and completely remove Mastercoin Foundation from
the equation and have the entire process with the bounties, using proof of stake, run by the
community as a whole. We see that as one of our really, really important objectives in the
coming months. Ron could talk more about that. Hes the one that originally proposed
proof of stake and is a big advocate of this distributed bounty system. [42:31]
AL: Before we get into that, proof of stake is in place because you dont have the incentive
structure of mining, right? Youve bypassed this by using Bitcoin as your infrastructure.
They do mining on Bitcoin, so youre secured by that. Is there anything youre trying toaccomplish with a proof of stake system besides giving people a way to give you feedback?
Thats what youre using it as primarily as, like the more you have, the more your voice
counts. [42:51]
DJ: Its a way forus to control what versions and new protocol updates are made to the
clients because in Bitcoin, if a new update 0.9 is pushed, a majority of the nodes have to
accept this new version, otherwise theres a hard fork. We need the same kind of function
because we have an update to the protocolhow do we know all the stake holders want
this update? Were using proof of stake for that. *43:16+
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RG: We said the phrase proof of stake a lot of times, so far so its important for me to
make it clear that proof of stake isnt, necessarily, the very same concept as proof of stake
as its used in Peercoins, or in other currencies. In Peercoin, proof of stake is used as an
actual mining device. You commit your coins and you generate new coins by proving your
stake. Were just inspired by them and maybe well incorporate some of these same ideas
later, but right now, were using proof of stake as just, literally, proving your stake in theprojectthe users prove that they own coins but they dont generate newmastercoins out
of that. Instead of generating new coins, the users can affect the protocol in two key ways.
Right now, we have our funds, both Bitcoin and Mastercoin and were holding them. The
Mastercoin Foundation is holding these coins and were allocating them, in order to develop
the protocol and promote it and develop the websites and various other leads. Instead of
us doing this allocation manually by board vote or in any other way, our goal is to move all
this decision process into the users themselves. Users will see all these kinds of votes for
budgets, or bounties and they will be able to approve or deny any bounty that they see.
Thus, they can control all the funds that are locked away in the protocol. This is the one
aspectmanaging the funds. Another aspect is just managing the protocol and decidingwhat Mastercoin is. David talked about how miners in Bitcoin sort of vote with their hash
power and decide how the protocol goes. Thats part of the equation thats not the
complete story. For example, if all miners or if 75% of miners in Bitcoin decided to keep
minting new blocks, which each of them have (inaudible) instead of the current 25 points,
that change wouldnt have happened because there is an economic majority here and users
have to accept this change, as well. The good thing is that mining is still a very important
part of the decision process and that defines what Bitcoin is. If theres a new patch that is
maybe controversial, like Gavins patch last year, so miners can use their hash power to
decide this. In Mastercoin, the equivalent is voting with your mastercoins so, if you own a
certain amount of mastercoins you can say which protocol changes are coming up and youcan choose which ones you like or dislike and vote on this accordingly. [45:57]
______________________________
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AL: If mining is an attempt to do an equitable distribution of decision-making authority
based on how much work or money youre willing to invest through the mining process,
then this is, essentially, the same thing, except instead of having to make a continuous
investment, you just have to acquire (??) mastercoin? [47:26]
RG: Yeah. Its sort of equivalent to mining but were not generating any new mastercoins in
this process. Its just a decision-making process. If a Bitcoin miner can decide, for example,
which fees they want and what sort of transactions to accept, though a Mastercoin user can
decide how the protocol evolves but they are not trying to generate any new mastercoins.[47:50]
AL: OK [47:51]
RG: The amount of mastercoins that will ever exist was generated in August and there is no
reason to generate any more. [47:56]
AL: How many total mastercoins were generated in August, including the dev mastercoins
and the ones that were funded in? [48:02]
RG: The number is about 600,000. Maybe David can remember the exact number or its in
our FAQ. Thats about the amount. I think about 9% of that goes to dev mastercoins and
(??) those will just be distributed to the community.
DJ: Sure. I can give you the numbers on that. There were a total of 619,478 mastercoins
put into existence between August 1stand August 31st. Now, most of those were through
people contributing funds to the Exodus address. Specifically, that was 563,061 mastercoins
were bought via the Exodus address. Im just pulling these numbers off ofwww.mastercoin-
explorer.comandhttps://masterchest.info. Theres lots of links onwww.mastercoin.orgto
all the different (??) and explorers and wallets. The difference between those two numbersthe 563,000 and the 619,000 is 50,000, or so devcoins. The way that the protocol works,
if you read the protocol, basically, when anybody sent a bitcoin to the Exodus address, they
generated 100 mastercoins. It was completely open. Anybody could send as many bitcoins
as they wanted to the Exodus address and generate these coins. Its an open process.
Protocol also details that for every 10 coins that were generated, one devcoin was
generated and that would be set aside and distributed, using this algorithm over time: 50%
the first year, 25% the second year, 12.5% the third year, and so on, in order to incentivize
developers. Those are the two pools, as Ron said earlier, that are interchangeable, theyre
fungible but they were all generated at the time of the Exodus address and thats the cap.
Therell never be anymore. *49:49+
http://www.mastercoin-explorer.com/http://www.mastercoin-explorer.com/http://www.mastercoin-explorer.com/http://www.mastercoin-explorer.com/https://masterchest.info/https://masterchest.info/https://masterchest.info/http://www.mastercoin.org/http://www.mastercoin.org/http://www.mastercoin.org/http://www.mastercoin.org/https://masterchest.info/http://www.mastercoin-explorer.com/http://www.mastercoin-explorer.com/ -
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AL: Its amazing to me weve gotten as far into this interview and I havent, actually, asked
this question yet. What can I do with a mastercoin? [49:54]
DJ: The immediate thing and the very first feature is the distributed exchange. Thats what
is getting built at first. As Ron was describing earlier, thats kind of the base-line function
that makes most of the other functions of Mastercoin work. If I wanted to sell mastercoinsfor bitcoins, I can now do that with this distributed exchange. Now, thats interesting but it
becomes really useful as soon as people begin issuing tokens on top of Mastercoin, using
the user currencies. Now, all of a sudden, I can use my mastercoins to buy into APIcoin and
Hostcoin and Computecoin. I, literally, know of more than a dozen planned decentralized
applications already that are planning to operate on top of Mastercoin, as the smart
property and the user currency features come out in the next few months. In fact, I had a
lot of fun this weekend. I went to a 72 hour hackerthon, called Startup Weekend. Its,
actually, a global event hosted in 100 cities and I worked with a team of developers this
weekend to build APIcoin, which I used some software from a company that I built and run,
called Engine.co and we open sourced a bunch of the code we had done around APIaggregation, data normalization, basically, making it really easy for developers to use a lot of
different APIs. Thats a service that exists out there. There are companies, like Singly and
MashApp, and others, but they are all using a centralized network type of approach. I have
to pay them per call; its not open source so, if theyve got bugs, I cant fix it; if they dont
support the APIs I want, Im out of luck. What weve said is we can use this new token
system, this new user currency system that Mastercoin gives us, to issue a token for APIcoin
and anybody who wants to access this new API engine application, can use APIcoin to do it.
Its completely open source and its completely decentralized. Anybody can download the
code and offer the API and compete on price for the market to offer this API to people that
want to use it for developers to build applications. It was an incredible weekend. We builtthe API layer. Anybody can go to apiengine.co, check out the Whitepaper, check out (??) all
that kind of stuff. Weve moved quickly enough that people are building applications on top
of API Engine this weekend. We, actually, ended up, Im very excited to say, we won the
competition. There were about 100 people there, ended up forming into about 13 teams
and the judges thought this way of monetizing, creating this token and using it for the
operations of the application was so novel, that they gave us the winning ticket. It was just
an incredible weekend but theres a lot of those applications. I know people doing protocols
and Whitepapers for a Hostcoin, where you have this coin on top of Mastercoin and people
are providing hosting power and competing to do that and theyre using this token system
to offer that service. I know people working on Computecoin, which is a little more complexand difficult to offer compute power for something similar. I know people doing
Arbitrationcoin and Insurecoin, and so theres this incredible variety of applications. Thats
why I titled the Whitepaper The Emerging Wave of Decentralized Applications. No joke,
were going to see a lot of these type of applications come out in the very near future, as
the Mastercoin features get flushed out, debugged and really scaled up, first with the
decentralized exchange, then right after that, with smart property and user currencies.
[53:26]
AL: You guys arent the only people working in this space and the other competitor in the
arena is Invictus Innovations, with their distributed autonomous corporation concept. Itseems like you guys have very similar projects just with different approaches towards,
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basically, the same thing. Am I correct in identifying these as very similar, except that it
seems like they view everything as a Type 1, and you view that as inefficient because then
you have to reinvent the wheel each time. In your designs, its preferable to start from a
Type 2, built on top of a Type 1 and then have all of these other individual coins be Type 3s
on top of the Type 2. Is that the logic here, why thats the preferable way to go? [54:03]
DJ: We know Dan, we know the team at Invictus. I have a lot of respect for them. Its
funny, I was, actually, written my Whitepaper at the time in which they released theirs and I
thought they did a really good job of describing a lot of the ethics and a lot of the possibility
around this. Where we differ, exactly, is really just implementation. Its a question of OK,
we ought to build this on top of existing blockchains, therefore, we dont have to reinvent
the security wheel, and there are other advantages. Its also, I think, a really important
question of language. I put this in the paper, I put it in the appendixthe biggest word in
their terminology that I really cant agree with is the idea of a corporation. Corporation
its a useful framework but it has so much legal baggage, it has so much historical baggage,
it has so much legacy meaning for the state incorporated version of what theyre talkingabout. Im really very reticent to use that term because I think youre going to drag in,
without meaning to, a lot of regulatory and compliance issues that dont exist if were just
talking aboutthis is a computer application. Theres no company, theres no employees,
theres no profit, theres no revenue. None of that stuff exists. All of that is legacy of this
old corporate structure. If we can build an entirely new model, using these tokens, then I
dont think we run into nearly as many regulatory issues, as if were trying to recreate the
corporation with this old vestiges of how it used to work. [55:36]
RG: I, personally, am not a big legal guy or politics guy and I know David is focusing on the
differences between our approach and their approach and maybe the terminology but, all inall, I think both of us, we have roughly the same goals of fighting centralization, or providing
an alternative infrastructure to build decentralized application of operations, or whatever
you call them. Personally, I was really inspired by them because at first, when Willetts
started working on the Paper, and even later on when he started adding new features, I
thought and we thought, I think that Mastercoin is an exchange platform. Thats its primary
function, just being a platform where people can exchange types of value but then, we
started adding these new kind of features of voting on spec changes, and voting on budget
allocation, and various other features. I also, concurrently, with them at the same time, I
started looking deeper into what Invictus is doing. I realized that they have this vision of
decentralized autonomous corporations and they are sort of building that top down. Theyknow where they want to go and theyve identified a few key components of that
infrastructure and theyre building those components one by one. I think that we are,
actually, doing the same thing but from the bottom up direction. We are already a
decentralized application. As David described, we were doing all this sort of stuff and then
we have the mastercoin tokens, which are useful and used for the Mastercoin application.
Were building all this infrastructure components for ourselves. The natural extension of
this would be to allow other companies, or other ideas, or entrepreneurs, or developers,
whatever you call them. You allow all these people to use the same infrastructure that we
build for ourselves to run their applications. Were doing the same thing; were just
approaching it from two different directions. [57:42]
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AL: Right. I mean, it seems like this is really the direction that cryptocurrency... I mean, do
you call it cryptocurrency anymore? I guess, its just cryptoassets, at a certain point.
Something like Bitcoin is cryptocurrency but something like the futures markets, or the
betting marketsits not the same, is it? *57:56+
RG: Yeah, well, its technically a cryptocurrency like, everything you run on top of theinternet is TCP IP and at some level its lower protocols but the currency aspect sort of
blends into the other decentralized token system aspect. As I said, Im not a big semantics
guy, you can look at it from different aspects, maybe its both a currency and an application
and tokens. Its up to the user and the specific use case to decide. *58:22+
AL: One last point about the Invictus to Mastercoin comparison. One of the words that
they put a lot of emphasis on is autonomous and, I think, that based on our conversation,
you guys also... the Mastercoin project is also moving towards very autonomous operation
but I notice that thats not something that made a distributedapplication... it doesnt say
autonomous, explicitly, in it. Is there a reason for that? [58:42]
DJ: Its really just a question of were trying to come up and coin a term that can be used
by a broad enough audience and so, if its three words, it really just becomes an acronym, it
becomes a DAC, very quickly. If you think of terms that are widely used and understood,
and this was a lot of contributions by Steven, hes really the branding guy, and you think of
something like social media. Thats a term that emerged to describe a certain set of
applications, and you had one word as the anchor word everybody understood what
media was, and the new characteristics is the social media. That became to describe the
Facebooks and the Twitters of the world. Thinking about it in that framework, how do we
speak to a broader community with an easy to understand term? We thought aboutapplications as the good anchor word. Everybody knows what an app is, right? Thanks to
Apples commercials, right? *59:38+
AL: Right. [59:38]
DJ: Theres an app for everything, right? Everybody knows an application, they use
applications, they use software. Very familiar word, good anchor word but you want a
second word that is the descriptor. I think decentralized can encompass autonomous and,
actually, in the Whitepaper, I explicitly included autonomous as one of the things it has to
be, in order to qualify as decentralized. It has to have a token system, it cant be controlledby a central entity, and thats sort of the definition of autonomous. It has to have work on
top of these blockchains that are, themselves, distributed. Yeah. Absolutely, I love
autonomous, I love distributed, I love decentralized. I think we agree on all those aspects.
[1:00:18]
AL: Right. Its just about making it into a marketable term that can, actually, catch on.
[1:00:21]
DJ: Right. Things like crypto dont have a lot of currency, pun intended, outside of the
Bitcoin community. (Laughing) Crypto sounds like something scary, its something to dowith cryptography, I dont understand this and so, I dont necessarily know if its the right
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thing to go out to the mainstream with. Were trying to really... how do we coin the term
for what these things are? Decentralized applications are simply distributed apps, or
distributed applications and, for shorter, for informal use. I think its a good way of
describing the concept were all talking about but in a way that people can understand. Its
an application. Its not just a regular application, its decentralized, its not controlled by a
central company, which means its built on open source and it has these tokens and no oneperson controls it. I think thats a really useful frame to explain this in and thats really easy
to get your head around. [1:01:16]
AL: I think that in Bitcoin and in cryptocurrency, broadly speaking, theres a temptation to
solve problems because they are problems that would be better if they were solved. That
doesnt always necessarily jive with our legal system around the world. Satoshi Nakamoto,
the anonymous creator of Bitcoin disappeared, I believe, at least partly because standing
beside such a disruptive creation can only conceivably cause trouble for the individuals who
did the creating. In your Paper, you talk about open source as a legal model to follow. Do
you think that this would have offered enough protection for Satoshi? Are there anyscenarios where you dont view open source as enough protection for starting something
disruptive? [1:01:48]
DJ: Thats a really good questionand this is a really important question to what were doing
at the Mastercoin Foundation. Were, actually, assembling a team of legal experts as an
advisory board and a legal director. Weve already initiated the search. Were reaching out
to different legal experts in currency, in cryptocurrency, on different regulations and our
goal is to really set the tone and really lead this conversation proactively, not reactively after
something happens, and saylook, heres our view from a legal perspective and we think
its well founded. I do think open source is a really good model from a legal and regulatoryperspective to follow for these things. For Satoshi, he was doing something incredibly new
and he was doing it, essentially, starting just as one guy and he got the cryptocommunity
excited and then the broader hacker community excited. I think we have a much broader
base that were starting on because of the existing Bitcoin community. Everybody involved
in Mastercointheyre Bitcoiners. They get the terminology, they understand whats going
on so, we have a much broader base. My hope is we can do this in an open and transparent
way. We ought to be smart and we ought to do things according to rules and we encourage
everybody at the Mastercoinknow your jurisdiction, know what you can and cant do,
dont do things that arent acceptable in your jurisdiction. We think that this gives people a
toolset, having this new protocol gives people a toolset to build it however they need tobuild it in their particular jurisdiction. Thats, I think, the real key is you have a centralized
solution and then you have to do compliance everywhere, or block IPs, or this and that. This
is just a set of open source software and anybody can use it to build it in a way that works
inside of their jurisdiction. Some jurisdictions will be very friendly like Germany has been to
Bitcoin, and China has been to Bitcoin but some jurisdictions will be less friendly. Thats
inevitable but having that diversity of implementations, I think, is really, really important.
[1:04:01]
AL: We talked about a couple of Type 3 distributed applications that are in development, or
that are coming and they were all, kind of, technicalComputecoin, APIcoin, all thesethings. I think I have an OK understanding of them but I know a lot of our listeners wont.
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These feel, almost, like they are also layers of infrastructure that will have things built on
top of them. Are there any end user products that are actually being developed, that
somebody like me, who isnt necessarily building a website or anything, would have a use
for? Is there anything really interesting up front, right now that doesnt need to be built?
[1:04:32]
RG: Im not aware of any group trying right now to develop this but I can see this coming
very quickly. Thats the ideaof a social coin. There are a few other groups doing
infrastructure but this is something that every user can understand. Its the decentralized
version of Facebook can be built on top of Mastercoin and then these other layers. It would
have a decentralized application, the centralized social network, where you would need a
social token, in order to create an account, in order to log into your account to use it.
[1:05:06]
AL: Are there applications where once theyre built, theyll be something that a normal
person would want to use, as opposed to a service would want to build on top of. LikeComputecoin, youre going to build on top of that, right? Someone comes along and they
build on top of it and create something, right? [1:05:19]
RG: Yeah. Thats correct but I have the vision of one key userfacing application that could
be built on top of this, is Socialcoin. A decentralized social (??) social network. Weve seen
already, in the last few years, decentralized social networks, such as Diaspora and tried to
come up and bootstrap themselves. I think the key difference that tying a currency, or
tokens, into that system can help, is to just build in the monetization model, just like
Mastercoin got the funding required to develop the protocol by issuing the tokens,
mastercoins, the future of social network could get the funding required to build theinfrastructure and build and maintain the infrastructure components by tying itself to a coin.
Then, these social coins would be required to use the network, just like any other
decentralized application. This is not something that a specific group is working on right
now, its just an idea out there but I think its really powerful and that someone should pick
this up and just run with it. [1:06:25]
AL: For an example like that, again, going back to this idea of whether or not its more
efficient to use an existing infrastructure, like Bitcoin and Mastercoin, or to create an alt
that does something entirely different. Isnt part of the reason whymining is powerful,
from an incentive point because the users get something for, essentially, free? Theres nobuy in, its just about attention and devoting your hardware to something, as opposed to, if
youre talking about a social coin built on top ofMastercoin, someone, actually, has to buy
the portions of Mastercoin in order to use the network, right? [1:06:56]
RG: I dont see mining as free at all. I think youre devoting your software to it. Its a proof
of work and then the work doesnt comefree and then today it doesnt even come cheap,
right? You buy these dedicated hardware boxes and use them. [1:07:10]
AL: Well, for Bitcoin, you do... [1:07:11]
RG: Yeah. [1:07:13]
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AL: ...but thats different for every coin that comes out. *1:07:13]
RG: Yeah. Every coin has their own issuing mechanism but the issuing is never free. You
either give some stake, or some CPU power, or some hardware but its always tied to a
physical resource. Todays social networks, their monetization model isexploiting theirusers, basically, or their data then selling that to advertisers. Thats pretty much explicit.
There have been relatively few attempts at building products that really cater to the user
but with such a social network, such a Socialcoin, a user could simply buy a coin that would,
maybe, give him a lifetime supply, or lifetime access to this network. This is simply an
alternative way to fund this effort. [1:07:59]
AL: Does everything trade against Mastercoin then? Do all of these user coins trade against
Mastercoin and then Mastercoin trades against Bitcoin? [1:08:06]
RG: Yes. [1:08:07]
AL: So there are not fixed prices for user currencies. User currencies float against
Mastercoin, which means that everything stays in balance regardless of price. [1:08:13]
RG: I think one thing that we should emphasize, its important to understand that
mastercoins, per se, are not required to issue any of these smart property, or decentralized
applications. You dont need to own a lot of mastercoins, or any mastercoins to do that.
You just issue them and then you send them away and you just pay the Bitcoin transaction
fees that are required, but the new currencies are just created. Then, you trade them in
exchange for mastercoins, or whatever the right currency you want but you dont have toown mastercoins to do that. [1:08:47]
AL: You accept mastercoins from other people who want it, right? [1:08:51]
RG: Yeah. You can accept mastercoins. You can either... you can also accept bitcoins in a
way that like... mastercoins can be the bridge between Bitcoin and all the other currencies.
[1:09:02]
AL: Right. That makes sense to me. The bridge... Mastercoin is the bridge makes sense to
me. Im trying to figure out if Mastercoin is, actually, necessary or if you can just tradeBitcoin for something else. I mean, I guess theres not really a reason why you couldnt,
there just needs to be an exchange that supports them both. [1:09:13]
RG: Yeah. Were not aware of a way to build a decentralized exchange without the
Mastercoin token. There are ways but they are theoretical... [1:09:23]
AL: Right. [1:09:23]
RG: ...and they havent been built. Mastercoin also serves an important function in the
contract for differences which we havent discussed. *1:09:30+
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AL: Right. Thats the prediction market, right? *1:09:33+
RG: No. Thats even before prediction market. Predictionmarket is taking a certain bet
and then waging off or selling that bet off. The contracts for difference is just you and I, or
any two players in the system can make a contract that, basically, means that both of these
players take positions on whatever asset they want, right? Thats really totally unrelated tothe smart property feature thats an entirely new area of Mastercoin. Mastercoins have
value because they financially secure this contract. Its sort of circular logic but it works.
[1:10:09]
DJ: Its pretty incredible. Ive been an entrepreneur for 12 years and Ive built 6 technology
companies. I have never seen something grow as fast as Mastercoin and I mean the number
of developers that are getting involved. Before the fundraiser was done, somebody built
www.buymastercoin.comand had an exchange... a private, manual exchange to buy
mastercoins at. Before I could go and set up the Twitterfeed, three other people had set up
the Twitterfeed because theres no central plan. All these stakeholders participated andeverybodys just doing things that benefit this. Its just pretty incredible to participate in
because people are adding, sort of, all different types of value all the time. Contracts for
difference is an incredible example. The original spec talked about escrow back to
currencies and one of the more experimental and maybe this will work, maybe this wont
kind of features of Mastercoin. It was one of the people that was providing criticism to that
that suggested contracts for difference, which we realized was a really, really good, already
proven mechanism to do what we wanted and it ended up and got it included in the spec
because that was community feedbacklike heres a better way to do that same thing. The
pace of evolution of the protocol and all the improvements that have been made, its just
been pretty incredible. Were less than 100 days in and weve paid big bounties todevelopers, building the distributed exchange, were adding new features and new
technology based on a lot of input from the community and dozens of people are already
building new tech on top of it. Its really cool to participatebecause its the fastest growing
project Ive ever been a part of. *11:11:58+
AL: Its conversations like these that lead me to believe that Bitcoin is the foundation of the
cryptocurrency movement rather than its crowning achievement. If listeners would like to
learn more about either Mastercoin, BitAngels or the broader classification work that either
of you are doing, what are the best ways to do that? [1:12:11]
DJ: There iswww.mastercoin.orgfor all the information about that project. There is
www.bitangels.cofor the BitAngels group and if you want, its now up on GitHub to read the
decentralized application paper and itsall open source so, give me pull requests and help
me improve it. I welcome input on the idea. [1:12:35]
AL: Youll be able to reach that bywww.letstalkbitcoin.com/da,which will direct you to the
Whitepaper. David Johnston, Ron Grossthanks very much for your time. I look forward to
seeing your continued progress in this space as we move forward towards this future of
decentralized applications. [1:12:51]
RG: Thanks for having us. Its been a pleasure. *1:12:53+
http://www.buymastercoin.com/http://www.buymastercoin.com/http://www.mastercoin.org/http://www.mastercoin.org/http://www.mastercoin.org/http://www.bitangels.co/http://www.bitangels.co/http://www.letstalkbitcoin.com/dahttp://www.letstalkbitcoin.com/dahttp://www.letstalkbitcoin.com/dahttp://www.letstalkbitcoin.com/dahttp://www.bitangels.co/http://www.mastercoin.org/http://www.buymastercoin.com/ -
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DJ: Thanks, Adam. I really enjoyed it. [1:12:55]
______________________________
CREDITS:
AL: Thanks for listening to Episode 64 of Lets Talk Bitcoin.
Exploring Distributed Applications was produced by Adam B. Levine, edited byMatthew Zipkin and featured David Johnston, Ron Gross ad Adam B. Levine
The MilliBit Moment was produced and edited by Adam B. Levine and featuredStephanie Murphy, Andreas Antonopoulos and Adam B. Levine
Music was provided by Jared RubensQuestions or comments? [email protected]
Have a good one! [1:13:25]
mailto:[email protected]:[email protected]:[email protected]:[email protected]