LET’S TALK BITCOINEpisode 89 – Goxcoin and the Meta Lair

Participants:

Adam B. Levine (AL) – HostStephanie Murphy (SM) – Co-hostTim Swanson (TS) – Author of ‘Great Chain of Numbers – Guide to Smart Properties’David Johnston (DJ) – Board member at Mastercoin Foundation & Managing Director of BitAngelsPeter Earle (PE) – Economist, author and traderJohnathan Turrell (JT) – Founder of MetaLair decentralized exchange

The following program is for informational purposes only. Cryptocurrency is a new science so do your homework before putting money on the line.

Today is March 5th 2014 and this is Episode 89.

AL: My name is Adam B. Levine and today, yes, it’s still about Gox but less about the problems and more about solutions.

Decentralized exchanges have been a hot topic in this space for years and MtGox was always the primary reason why people understood they were so vital to develop. It turns out, that’s exactly what John Turrell has done in their upcoming meta exchange altcoin, MetaLair. Earlier this year, he and Stephanie caught up about the project and, although some time has passed since the interview, it’s incredibly timely. We end today’s show with this.

But first, what is Goxcoin? Why would anyone want to use it? How would it work? Tim Swanson, author of the recently published ‘Great Chain of Numbers – Guide to Smart Properties’ sits in as moderator for our panel discussion, featuring David Johnston, Pete Earle and myself, on the Goxcoin project.

Enjoy the show! [1:06]

___________________________________________

Panel guests: Moderator:

Adam B. Levine Tim Swanson

David JohnstonPete Earle

TS: Good afternoon everyone. My name is Tim Swanson and we’re here with a special episode of Let’s Talk Bitcoin. We’re here with Adam B. Levine, who’s obviously the editor-in-chief and we’re also with David Johnston, who is the managing director of BitAngels as well as a board member of the Mastercoin Foundation. The last member of this panel is Pete Earle, who is probably most famous for his economics articles written in the last couple of years. Today’s topic is about Goxcoin which is a new project that, I think, David could probably explain best. David, could you explain how this fuses in with the Mastercoin protocol? [1:45]

DJ: We’re looking for ways to leverage the new technologies that Bitcoin gives us to help the people that are sort of stranded, as part of the whole Gox process. The core concept is to issue a coin that can track people’s claims around the coins that they’ve lost from Gox, meaning that if you had an account, which you had ten bitcoins in, right now sort of those records are all held by Gox and the idea is for the community to encourage Gox to release those records so that they can be converted into these coins, in order to be able to trade around that as an asset. We all know that the process... there are a lot of legal cases around this and the process is probably going to take a very long time to work itself out; there are a lot of question marks around how the Japanese legal system is going to treat bitcoins. This seems like an interesting way to help the people that had funds at Gox, in order to track their ownership. If they’re not optimistic about Gox recovering any of the funds, then maybe they sell this ownership and whoever holds the claim when the whole Gox situation resolves, gets the Bitcoin proportional to the amount that they held. Where the Master protocol comes in is we’re not interested in creating another blockchain, we’re not interested in creating something that people have to mine and so, we can use the Master protocol in order to issue these coins and using Bitcoin as the ledger that keeps those records. We sort of avoid all the complexity of having to have miners or a separate blockchain and we’re simply using this as a way to record these assets and then move them around. [3:33]

TS: Looking at the amount of bitcoins that have disappeared from MtGox, which is around 750,000 plus maybe 100,000 of their own, how many of these do you think you can legitimately track? How does that process take place? How do you know who’s lost stuff? How do you keep track of that kind of database? [3:50]

DJ: There are a couple of ways this can go. Either Gox can release the records to a third party or they could issue these coins according to their records. Either way it goes, basically, you have to have had a verified account with Gox. It’s going to be based on data that they have from the last moment at which they were in operation. There are already groups collecting claimants that have thousands of people that are making claims and so this sort of offers those people a way to track it. We would think of this as an opt-in type of system. We’re not going to force anybody to participate but if you wanted to track your ownership in this way or trade your ownership in this way, then you could opt-in to this type of system and prove that you had this balance and you would be issued those coins, in proportion to the amount of your balance. We’re thinking of 1:1 ratio, so if you had 10 bitcoins then

you’d be issued 10 goxcoins, or recoverycoins, or whatever makes sense for this project. [4:54]

TS: That’s really interesting and I understand that Humint is tied in with this and Adam, you are kind of spearheading that group, I think, as an advisor, right? [5:03]

AL: I’m actually the chief visionary officer with the Humint Group and in our normal day job, when we actually deliver our product because we’re talking to a lot of customers but we haven’t actually come out with anything yet, we deal with brands and try to help them understand the potential of cryptocurrency as it, basically, exists for them. There are a lot of opportunities for... David brought up a really interesting point with regards to Mastercoin and the problems that it doesn’t need to solve. We don’t need a blockchain for something like this Goxcoin. We don’t need mining for something like this blockchain. It’s not proof-of-stake, so you don’t want to go down that road. These metacoins... Mastercoin was a later addition to the project. We realized that we needed a platform like Mastercoin because we didn’t want to spin off a new blockchain and we didn’t want to manage all of these things. Really, we don’t want to do anything. We’d prefer that this be the plaintiffs handling it for themselves. Essentially, what we’re doing is developing a proof-of-Gox’d protocol that will let any plaintiff group or private recovery effort come to Humint with claims, certified by the Japanese courts. That will then mandate Humint to create the verified amount and distribute it back to the group who just submitted the claims. That means that you can have one big recovery effort or a bunch of little ones but they all use the same token, so anytime any coins are recovered, they’re split between all holders of Goxcoin. With regards to Humint, yeah, Humint has been looking at these problems because there are a lot of different projects that we’re working on that all surround these user-created assets because they let you, essentially, take all of the advantages of cryptocurrency and apply them to any sort of problem without having to worry about all of the other stuff. [6:31]

TS: What kind of time frame are you guys looking at with 1) releasing Goxcoin 2) actual getting the plaintiffs involved with this? Do you think this is a multi-year process or is this something that is just going to be a short six week kind of project? [6:44]

AL: The project itself, I can see something like this continuing for a hundred years, because if you think about it, we don’t really know how many bitcoins are even missing, we don’t know if they’re lost, we don’t know if they’re stolen. Those are things that could take years to work out and the reality is that even if it’s discovered that all of these were stolen and somebody else has them, this is a huge amount of value that’s, essentially, going to be sitting there on the blockchain and people will be watching it. All of this stuff that happened on the blockchain is going to be untangled, just because there’s such a huge financial motivation to do so. From a project perspective, I can see this rolling out in something like three weeks, once we have the information that’s necessary. This is another interesting point is that there are people who are concerned that a solution like this could never work because MtGox won’t or can’t work with us. This is something we’ve talked about a lot too. As was mentioned, you could do this through a private recovery effort. You could have people who have claims in MtGox band together and say – We’re going to seek recovery on these bitcoins that we verify that we have and then they can create these tokens. You could

have multiple, different, essentially class-action law suits or recovery efforts. The process really works whether or not MtGox is onboard and it can happen very fast. It’s important that the coins be given to the right people. That’s the most important part and it is a tough problem right now. [7:59]

TS: Speaking of that, maybe you guys could answer this. How does the KYC work with that? I know that’s probably at the bottom of the list of things to do but let’s say these people... you want to help out everybody but what if you have people who could be held liable for various illicit activities, how do you handle handing out different Goxcoins to people that you don’t have a KYC on? [8:20]

AL: Everybody who is trading at Gox really should have at least basic KYC. Again, this goes beyond my area of expertise and we’d have to pull in somebody who is on legal to talk about this too intelligently but I can tell you that anybody who has a verified account at MtGox should have gone through KYC or they wouldn’t have a verified account. That’s really the type of people that we’re talking about right now because it is easier to do that. [8:39]

TS: I see, so kind of like tranches. You want to start with somebody who could definitely verify who their identity is; that they actually had it. This is, in a way, what we had six years ago where you had these defaults on CDOs, these different instruments, you had different tranches of debt repayment, so you would say the first level of bond holders would be these verified customers, is that what you’re saying, Adam? [9:00]

AL: Yeah, but the difference is that in a recovery like that, you’re talking about people being paid back at different rates, whereas here, we’re just talking about people chronologically. People who are harder to verify or take longer to verify, will simply take longer before they get back the token but the token itself is a claim on one bitcoin, whether you got it at the very beginning of the process or at the end of the process. Now, of course, this is a recovery, so there is almost certainly never going to be one full bitcoin given back to each of these Goxcoin holders, it will be some fraction of that. The point is that because it’s in a deflationary currency, instead of an inflationary currency, that’s actually OK. You might wind up with more money at the end than you had at the beginning just because of that. [9:37]

TS: I see. It’s sort of interesting and speaking of inflationary and deflationary, Peter, I’ve got to bring you in here. The article I know you best for is your discussion on inflation and economics and how faucets and sinks work in a digital world. What are your thoughts on this whole process with Goxcoins and the entire Gox fiasco? [9:58]

PE: One of the things that struck me immediately was that this would probably be impossible to do in the world of hard money, securities and derivatives. The flexibility of the cryptocurrencies allows you, not only to put in place the sorts of sharing features that the cryptocurrencies do, but also it has to do with, essentially, the network effects and that the rules around and the system that value these types of assets, these cryptocurrencies, essentially, make them more valuable, in and of themselves. It would be very difficult to accomplish this kind of recovery, the so called fiat currency denominated with a paper

instrument. It’s a very hybrid type of thing we’ve got going on here that has some features of the recovery rate that you might find in a creditable swap. It’s similar, in some ways, to a convertible bond, that sort of thing, which I think makes it extremely compelling but we may be creating here, a sort of a way or the future of an example of how these types of things, when they occur in the future, if they occur in the future, will be handled. [10:56]

TS: Kind of a like a secondary clearing house, a secondary market. Is that what you’re thinking about doing? [11:00]

PE: Yeah, that’s essentially what it comprises. One of the things that I’ve been saying for a while now, for a couple of years now I’ve been following the growth of cryptocurrencies in particular, not only Bitcoin is that it’s great that the Bitcoin economy has all these things happening in terms of places to consume Bitcoin and things to do with it but one of the things to really make the economy, of what I call the unstate of Bitcoinistan, really vibrant and sort of anti-fragile would be we need things like auditors, specialized auditors, we need reviewers, we definitely need raters and people who fill a role like, something like S&T would in the debt issuance world outside of the virtual currency world. Also, what we need are strong venues, voluntary venues to arbitrate, mediate controversies. States with their fiat currencies and their brick-and-mortar courts are not really going to be terribly sympathetic I think in most cases, to controversies which arise of the cryptocurrency world. Those are things that we have to be thinking about as this process goes forward. [12:00]

TS: Interesting. You’re talking about maybe independent arbitrators and outside auditing and insurance. I know that’s been kind of like the (??) [12:07]

PE: Absolutely. [12:08]

TS: I remember reading an article recently about some company in Boston that’s apparently insuring their bitcoins. Does that kind of tie in to... [12:16]

PE: Absolutely. That would make a very sound accoutrement to what we’re working on here. Not only do you have a way of helping make economically injured holders whole, but also they have the right of recourse and they have some way of, like I said, mediating or arbitrating, as the case may be, the controversy. [12:33]

TS: I see. David, I know you’ve been working, kind of as a side project, with I think it was general governance, was one of your other projects. How can something like that tie in to this process of giving a framework for Goxcoins being both legitimate and be considered, I guess you could say, a tradable asset on other exchanges? Do you see that, not only could you have a legal framework built with it but that you could, maybe, convince other exchanges to allow these to be exchanged on them as well? [13:01]

DJ: Sure. When we first started this process, there were a couple of exchanges that expressed interest in trading these Goxcoins so that users have an ability to trade them for Bitcoin. I think it’s important to emphasize, like Adam mentioned earlier, we don’t want to give people the false expectation that one goxcoin is going to equal one bitcoin. It’s clear that MtGox has lost, or had stolen a lot of Bitcoin and so these would be coins that trade at

some substantial discount to the regular price of Bitcoin and it would really depend on how that recovery process is coming, either for the lost keys or the stolen funds. People would, over time, speculate it and the price would fluctuate based on how well those recovery processes are going or how poorly those processes are going. I just want to set expectations that this would be something that would likely trade at a very steep discount to regular bitcoins. I do think it’s important, like Peter and Adam have mentioned, that this is a bad situation and this is sort of the least bad option. This isn’t a perfect solution and there are rough edges... [14:12]

TS: Something is better than nothing, right? [14:12]

DJ: Right. There are rough edges around how you issue them correctly and getting Gox to cooperate by providing the data or issuing them unilaterally, as Adam mentioned, by a group that’s, basically, doing a class-action law suit. It’s not a perfect solution but it’s probably the best solution that we’ve been able to come up with or think of and waiting for the courts for years to hash it out and, as Adam emphasized, they’re going to do it at some price that’s probably a lot lower than the real value of Bitcoin over time. This solution avoids a lot of those issues. I think it’s a really interesting opportunity to leverage the technology the community has here, in order to do what we can to make the best of a bad situation. There has even been talk of the logo for this project should be Lemonade, right because you’re making... (laughter)... you know. It’s not funny because a lot of people have lost a lot of funds and it’s a very serious matter but add a little levity to the fact that we’re trying to make the best of the situation that we can. I mean, certainly, the project is still at an early phase and we’re looking for the community to give us input and for the community to continue encouraging Gox to go down this route versus some other route that would lock up everybody’s funds for a very long time and sort of presenting this as a solution. That’s the frame that I’m thinking about it. [15:38]

_________________________________________

ADVERT:

KryptoKit is the world’s first Chrome browser Bitcoin wallet. It’s the easiest, fastest Bitcoin wallet payment system with a simple one click install, it takes just seconds to get your wallet set up and because KryptoKit finds the address and payment for you, there’s no more fussing around or tab switching. KryptoKit is more than just a wallet. It comes with a pre-loaded PGP encrypted social network, newsfeeds from Reddit and Google and up to date charts from exchanges. Finally, KryptoKit directory allows you to make two click payments with any of the BitPay merchants. Once you install KryptoKit, you won’t need anything else. For more information, or to download KryptoKit, visit www.KryptoKit.com. [16:32]

ADVERT:

Would you like to buy Bitcoin? Cash Into Coins provides the fastest, easiest and safest way to buy Bitcoin in the United States. Simply place an order online, deposit cash at any supported bank and relax. Cash Into Coins will verify your deposit and send out your Bitcoin within 24 hours. Join tens of thousands of people who have purchased from Cash Into Coins. What are you waiting for? Buy your Bitcoin today. Go to www.cashintocoins.com. [17:10]

_________________________________________

TS: Adam, I know the last week or so, you’ve been having several interviews with various insiders and people who have contact with MtGox. Have you been able to talk to these individuals, or Gox itself, to find out how open they are to using something like Goxcoins or using an outside system like this to provide liquidity and maybe even some kind of funds for these people, some kind of recompensation? [17:47]

AL: I have no proprietary information from MtGox. My impression is that they are in full on bunker mode and that they’re just, again, I think that there’s a criminal investigation going on. I think that they’ve got the bankruptcy proceedings going on. All of those things, basically, say that it almost doesn’t really matter what Gox wants to do or Mark Karpeles wants to do. They’re going to shut up and they’re not going to say really much of anything because they can’t. To David’s point, I wanted to quickly mention one of the earlier concepts that was kicked around for this idea and why we didn’t go with it. One of the ideas has been to take MtGox, and everybody who has coins in it, and turn those into equity and then a new exchange that would be run by the community and would be run as a for-profit exchange that would pay fees back to the shareholders. In this way, if the new Gox succeeded, then it would pay back shareholders over time and they would potentially profit because they would still own the shares, even after they were paid back with the dividend. The problem with this is that it requires MtGox to actually be a functional exchange and I don’t really think that that’s ever going to be a good solution. It doesn’t really matter if they rebrand, it doesn’t really matter if they completely change their team. I think that in any scenario, where they relaunched as a community run exchange, they would have a completely new team and all that stuff would be true, but it’s just not that good a solution. It’s better, instead, to focus on the things that we can control which is that they have this huge problem that we don’t understand the depth of and very, very few people, even people who should know, apparently don’t understand the depth of. It’s going to be confusing for a long time. Rather than going down this hole where we say – OK, we’ll just say, all these people who lost funds, they’re shareholders and then we’ll bring in new money and then they’ll capitalize the business and then they’ll be shareholders along with everybody else – that is so many moving parts and requires people to make bad economic decisions in order to invest in it in the first place. You do that because you feel bad. You do this because this is real. This reflects real value and the value is whatever is going to wind up being recovered. Like I said before, that value is out there in the wild and it’s in the wrong hands. It’s in the hands of people to whom it does not belong. Those situations will rectify themselves in Bitcoin. We just haven’t really seen a good enough reason to develop the tools yet but I bet you this is it. [19:52]

TS: That’s a very powerful statement there. Out of curiosity, what kind of... for the listeners out there, what kind of talent or skill, or human capital is this team of yours looking for right now? Are you guys looking for lawyers, accountants, people who specialize in digging through big data? What can people talk about or how can they bring resources to you? [20:12]

AL: That’s a really good question. I think, at this point, we’re not looking for that much help. We’re just trying to finish getting the plan in order and then seeing if Gox is willing to work with us and if not, then we’ll proceed in ways that don’t require them to work with us. [20:22]

DJ: Yeah, I’d say that’s a good way to summarize it. Really, the ball is sort of in their court. The goal for this week is to raise awareness about this proposal so that the community can encourage Gox to go down this road. If they don’t, then this is going to go forward one way or another, probably as something issued unilaterally by one of the groups running the class-action. That’s the road forward – either Gox is going to do the right thing and provide the information about everybody’s accounts or they’re not and then the community sort of has to do this unilaterally. It would move faster, it would be cleaner if Gox participates and I really do encourage them to seriously consider this and if they don’t, it’s going to take longer and the account information is going to have to come out as part of court proceedings and law suits and things like that. Either way, I think Peter made a good point, this is a new technology that we can use for this purpose and it’s a lot better than the existing options. One way or another, this technology is going to get used for this type of application into the future and this is sort of just the most pressing need that our community has at the moment and so, it seems like a really good use case for something like this. [21:36]

TS: The technology, like you said, just this secondary protocol didn’t exist to allow it in the first place. You guys have been around for what, six months so Peter, I have a question for you with respect to the history of this kind of thing. How does this kind of recovery happen in the traditional brick-and-mortar world where you have these different investigations and you have these different lawyers and litigators and you have this whole process of interaction? How does that usually take place in the real world? [22:01]

PE: Typically what happens is where you have this kind of thing happen is when an issuer, a company, has debt outstanding and it either defaults on that debt, this is one of the areas where attorneys tend to get involved, any company that has debt outstanding is going to have some definitions as to what constitutes a default. It could be a late payment, it could be no payment and, in some cases, it could be something somewhat more exotic. Generally speaking, what constitutes a default would be not making a dividend payment, that sort of thing. You know, sometimes they can go up for review if their credit rating drops. It’s interesting because one of the things that David said that I was chomping at the bit to jump in on is (and this is the same, by the way, as with debt defaults) almost nobody is going to be made completely whole and likely, the amounts are going to be probably somewhat on the low side. An example I have is from when I was trading during the financial crisis in 2007/08/09, suddenly there were a record number of firms which were... it travels in cycles

and we have bad economies and suddenly there is a rush of firms which default on their debt and then, all of a sudden, all these things go into play and there are hearings and then the companies, either they come up with a restructuring plan or sometimes they are liquidated, or that type of thing. Anyway, I remember that the estimate that was used... sort of the default estimate, and by the way, this was considered pessimistic, in most of the credit/default swaps were sort of serviced as a barometer of the likelihood of default on publicly traded debt was about $0.40 to the dollar. One of the first deals, (I don’t remember the exact firm but I do remember the number), once the proceedings were done, it turned out that the actual recovery was not $0.40 on the dollar but $0.08 on the dollar. I certainly don’t know what’s going to happen in this case but I would say that it’s probably something to be sanguine about. More to your question, it’s a much messier process than this, involving not only attorneys but also, like I said, sometimes there’s a dispute about what constitutes a default. Usually, it’s pretty straight forward whether you’re a secured creditor or a general creditor or so on. Sometimes, there are controversies about who should be paid or who is at fault and that sort of thing. This is, by comparison, much cleaner, much more straight forward. Better yet, it’s really going to be defined by the market. It’s going to be market driven rather than a result of litigation to exhaustion. [24:11]

TS: Wow! 40% on the dollar – that’s actually... seems quite high compared to what I remember seeing Bitcoin Builder, that was like $0.04 on the dollar. (Laughter) [24:18]

PE: Yeah, the estimate was $0.40 and the actual number winded up being $0.08. I remember people telling me that $0.40 was probably on the low end and that the number would be much higher. Actually, as it turned out, the number was vastly lower. [24:29]

AL: Where did that number come from? I think that’s a really important question because here we have the market saying – OK, there’s a $0.04 on the dollar recovery if you’re buying at this exchange. I mean, I think that that kind of proves the point that you’re making, right Peter? [24:42]

PE: If I remember correctly and, in this case... I’m usually not, but in this case I’m quite sure that $0.40 was the number that was derived from the past cycle of defaults which is really quite a specious basis because you’re talking about different companies and the different state their balance sheets are in. Certainly, the nature of the financial crisis in 2008 was very different than what we had between say 1990-1992 or so, where we could go into a whole discussion about past information and its bearing on the present day or in the future. That’s where that number came from. The $0.40 number that was used as pretty much standard in many of the credit/default swaps, at the time, turned out being, like I said, much, much higher than it actually was. I have a feeling that in the next crisis, when it inevitably comes, what we’ll find is that the numbers being used from this time are probably on the low side, but who knows. Again, who knows and I think that’s the point. [25:36]

TS: Adam, since you guys are looking at the first application as Goxcoin, what other companies do you think this could help out with? Do you think this could... even if you have a firm that’s not working in conjunction with a crypto-ledger or a crypto-protocol, maybe for example, like RIM that make Blackberrys and so on. They’re supposedly going to be going bankrupt. Is there a way you could create a Blackberrycoin to help them organize their own

bankruptcy if they end up going through a horrible mess or is this only being able to be applied to organizations that have completely gone... like you said, into turtle mode, this barricade mode? [26:07]

AL: I think that it’s partly about the barricade mode and mostly it’s about... it’s just about if it’s crypto or not. I think that really has a lot to do with it. You could have a Blackberry do something like this but everybody would have to agree and having that happen seems kind of unlikely. It’s better that these solutions... once these are more developed and people have seen them successfully succeed then, yeah, I think this will be viewed as a preferable option to a lot of other options that are out there, simply because it never traps you. That’s really the thing here. We’re trying to give people options so that even if they’re not great options, they at least have some options because there’s nothing worse than being trapped in a situation where you know that you’re not only screwed but you’re going to be for years. Some people would just rather completely get out of that, even if it is just a couple of pennies on the dollar so they cannot have that stress in their life. Again, I’m not saying that’s right or wrong. The point is that we don’t know what’s going on now, we don’t know what’s going to happen in the future and this is the only solution that doesn’t require us to know either of those things in order to still make a good decision. [27:04]

TS: Basically, all you can do with this nebulous framework. Speaking of which, David, maybe the listeners would like to know a little bit more about how the protocol actually works with this. I understand you guys are issuing one-time only Goxcoins. How does your protocol keep track of these? The transparency side might be something listeners may be interested in. [27:25]

DJ: Let me give you a little background on the Master protocol. Master is actually an acronym for Metadata Archival by Standard Transaction Embedding Records and that’s literally exactly what the protocol does. It’s embedding records using standard transactions into the Bitcoin blockchain. These are actually Bitcoin transactions but they’re not regular Bitcoin transactions. They’ve got a little bit of metadata attached and so the software, when you download Master protocol wallet or client, can say – Oh, that’s not a regular transaction, that’s a Mastercoin, or that’s a Goxcoin, or that’s a Storagecoin or whatever user currency a person is identifying. Basically, we’re using Bitcoin as a cryptographic ledger and that sort of adds a lot of value to Bitcoin in itself. Right now, the two major values for Bitcoin are the payment network and a store of wealth but it’s also a great cryptographic ledger to store records of valuable financial assets. This is sort of a really good example of that. The way that the Master protocol works is people can issue user currencies on top of it and basically, what they’re doing is they’re just getting an identification number for this particular currency. Let’s say this gets issued as the 3rd user currency on the Master protocol. The beginning of that metadata would identify it as a number 3 user currency and so it could be identified as this is a Goxcoin. This can be done without any changes to the Bitcoin protocol. This works within the standard transaction architecture for Bitcoin and I think this is a really important use case for Bitcoin because I think it adds an enormous amount of value to be able to transfer financial assets on the ledger and not just things over the payment network and not just holding bitcoins as a store of wealth. I think that’s sort of the third great use case that we’re going to see for Bitcoin, is this general ledger that stores this information. The Master protocol – all it’s doing is interpreting that data. It’s a

standard by which we’re interpreting that information. All of the records are just as transparent as the Bitcoin ledger so you can see the coins moving back and forth from different addresses, as people move them but, just like Bitcoin, it’s pseudonymous where there’s no personally identifiable information attached to the transaction. It’s just numbers going back and forth. It’s transparent in the sense that we can see funds moving around and we can see what people are trading them for. If they’re using the Master protocol distributed exchange, they can actually offer these tokens for other tokens, for Bitcoin or for Mastercoin or for other cryptocurrencies and trade them on the Bitcoin ledger itself, then you don’t have any third party, or other exchange that you have to trust. Those are records that are all kept on top of Bitcoin. That’s sort of just a general overview of how it works. It’s still in the early stages. The protocol was launched about six months ago, the distributed exchange is in testing right now and will be launched later this month and the user currencies are in development too. This is all sort of just becoming possible, on the technology side and I think that’s why we’re seeing this as the first time people are proposing to use it. [30:55]

AL: That was why we pulled in Mastercoin is because there are several other protocols that are all going to offer similar options but the reality is that Master protocol has the stuff ready, they have white label wallets, so if we’re ready to go on this from the Gox side, then we’re going to be ready to go on this from the technology side and that wasn’t true of any other protocol we were really looking at. [31:15]

TS: You’re right. My own research is that I understand that with who’s ready and who’s not. Peter, how do you think the adoption and the financial industry would be towards something like using this in a financial institution? For example, some people I’ve spoken to think you could use a crypto-ledger internally to track assets of large financial institutions. If you did have some kind of bankruptcy like this or some kind of horrible failure and maybe combining with what Adam said, the reason this can work in this situation is because MtGox was using cryptocurrencies. Do you think, in the future, if financial institutions would accept this kind of ledger system internally, it could be used this way? Or, do you think they’re too conservative for that right now? [31:57]

PE: To be honest, I think that this is a much better fit for financial institutions; better than what seems like the straight forward use which is as a currency. I don’t see many big banks wanting to replace fiat currencies for any number of reasons (I won’t get into all of them) – wanting to replace those with cryptocurrencies. However, I do think that there is a potential application as an accounting tool and as a way of keeping track of contingent liabilities and that sort of thing. [32:23]

TS: Going along this line just for a few minutes, if we could speculate with Lehman or Bear Stearns, I know it’s obviously a long... six years ago, so it’s hard to gauge whether or not they would have done something like that. If they had used a... their back office was using something like this to keep track of... would that even have prevented the ‘explosion’ of these assets or would it have allowed them to liquidate better? Is there any advantage of using this internally? [32:48]

PE: With respect to Bear Stearns and Lehman Brothers, it was two different situations. Bear Stearns collapsed because of a crisis of confidence and I don’t think there was anything, whether in the fiat currency world or in cryptocurrencies that would have saved them. With Lehman Brothers, the problems came about... there was also a crisis of confidence but also, they were unable to roll their paper, their financial paper and because of that, they faced a liquidity crisis. To the extent that cryptocurrencies might, for example, help them to, I guess, gauge their credit worthiness on the street, if it was more responsive than say credit/default swaps or something like that, it would be helpful. I think, for right now, cryptocurrencies are probably a better fit, in terms of accounting than in terms of use as an actual currency for big banks and large financial institutions but, in this particular case, it’s more after the fact. I think this is much cleaner and more straight forward than, say, the going to courts and all the different types of claims that have to be filed and all that sort of thing. [33:57]

TS: I see. The whole accounting issue is really interesting, not an accounting coin but you use it as a third party ledger that can’t be abused. Adam, I know, part of the Humint project, you are using different types of tokens, different types of issuance. How can you see financial institutions, particularly exchanges or fiat banks of some kind, using some of these kind of technologies internally? Do you see them have any motivation or incentive to adopt something like this so that way they could interface with this growing cryptocurrency eco-system? [34:30]

AL: I think that what we’re going to see is that cryptocurrencies provide transparency, pseudonymous transparency in a way that we’ve never had a financial technology be able to do before. Literally, you can completely open the kimono and see all of the flows, without seeing the specifics of it and therefore, being able to ascertain the exact business practices. The potential for companies to embrace this and to demonstrate solvency, essentially, by putting themselves out there but yet not exposing their private business, just exposing how the flows are going and then, in fact, they do have the amounts of money they say they have - I think that’s a huge opportunity. The first companies that opt to do it, it’ll be hard but the dividends will be there for them. There will never be concern that they are insolvent. There will never be concern that money is being spent in a way that doesn’t make sense with what their reported uses are because the flows are right out in the open. [35:20]

TS: Yeah, true transparency for the first time, right? Well, it was great having all three of you here today. Listeners, if you’re interested, be sure to check out the Humint project as well as the Mastercoin protocol – Google those. I look forward to talking to you guys, thanks a lot. I appreciate your time. [35:34]

AL: Thanks Tim. [35:35]

DJ: Thanks Tim. [35:35]

PE: Thank you. [35:36]

______________________________________________

ADVERT:

This is Chris Joseph bringing you news on Nxt, the first true second generation cryptocurrency for March 4th 2014. One month earlier than planned, the Nxt project has gone fully open source. An early version of the source code was released on January 3rd but since then, the code for Nxt has been completely refactored and rewritten. This announcement makes the current development stream completely open, including code for transparent forging, asset exchange, aliases and the arbitrary messaging features. All of the source is hosted on Bitbucket and you can access it through this shortened URL – bit.do/Nxt. In other news, keep an eye out for Nxt at the Texas Bitcoin conference. The community has several pairs of boots on the ground and would love to chat. For more general information on Nxt, head to www.Nxtcrypto.org or www.MyNxt.org and stay tuned for more news on Nxt in the next Let’s Talk Bitcoin broadcast. [36:45]

____________________________________________

Stephanie Murphy interview with Johnathan Turrell

SM: This is Stephanie Murphy for Let’s Talk Bitcoin and I’m here today talking with Johnathan Turrell. [37:07]

JT: Hi there. [37:07]

SM: Hey Johnathan. [37:08]

JT: Hello. [37:09]

SM: Welcome to Let’s Talk Bitcoin. You’ve got a company called MetaLair and you’re working on a decentralized cryptocurrency exchange, not just for Bitcoin but for some other cryptocurrencies and fiat. Can you tell me about that? [37:21]

JT: Yeah, it’s coin agnostic so any coin that uses a blockchain-like data structure, we’re ultimately hoping we can support then will be able to be transacted on the exchange. It’s a two-stage development. At this stage, we’re looking at the crypto to crypto side of things so you’ll be able to exchange cryptocurrencies cross blockchain. The latest development of it is going to be aimed at a decentralized part of the system, whereby you can get fiat onto it, via an open interface so anyone turn up as a reseller or an escrow and then enact Bitcoin transactions for fiat or any other cryptocurrency for fiat on the decentralized exchange. [37:53]

SM: OK and you are based out of Brighton, UK but it sounds like what you’re talking about with MetaLair, this is going to be a global thing? [38:01]

JT: Absolutely, I mean, once the exchange is launched, we’re not in charge, I mean in the way that Satoshi is not in charge of Bitcoin itself. We’ve got offices here at the University with which we’re loosely affiliated but once it’s actually launched as a product, it will be totally open source and it will be its own entity that sits on the internet. So much so, that in the distant future when new cryptocurrencies are launched, we don’t have a say in which ones get selected on there. There will be a proof-of-work mechanism whereby those are added to the MetaLair exchange itself, or indeed selected off if currencies become unused or become very quiet over a period of time. [38:34]

SM: How do you accomplish a totally decentralized exchange where there is nobody even in charge deciding what kinds of things are exchanged on the exchange? [38:43]

JT: The exchange itself deals with cryptocurrency or fiat. There is a proof-of-work mechanism whereby new currencies are... whether they be cryptographic or fiat, are added to the exchange. When it launches, it will be seeded with (I’m picking some coins here) Litecoin, Bitcoin, the most popular ones and US Dollars, GBP, Euros and things like that. [39:01]

SM: What is the proof-of-work? [39:02]

JT: Say I’ve launched a new coin, Johnathancoin and I want to get it on the exchange, I would have to pay in a currency that’s specific to that exchange, to have it added onto the exchange and then once payments have reached a certain amount, that’s then added onto the exchange and it’s selected on to it. Like I’ve said, if it becomes that the volume of that currency that’s been transacted is low, it will selected off of the exchange in the distant future. [39:24]

SM: Oooh. [39:24]

JT: There needs to be a cost to prevent that, to prevent people... for example, if I wanted to DDOS the system, I could just put hundreds of spurious requests onto the network and say – I’m going to add a thousand different coins now and it would completely attack the system, basically, and bring it to a halt. It’s a way of mitigating Sybil and DOS attacks that can be launched against the system. We’ve been very careful about making sure, the way it’s designed, that there is a cost in doing everything. A bid/ask has a cost, transactions have a cost, adding a new currency – if you want to get your currency elected on, that has a cost. Indeed, in fact, logging on as an escrow to transact fiat has a cost. We’ve been very careful about making sure that the network itself is set up correctly using proof-of-work so that there aren’t the ability to Sybil attack it, basically, or DOS it. [40:09]

SM: Would the cost for different operations on the exchange, such as adding a currency pair, or logging on, or creating a bid/ask, are those determined by a market mechanism? [40:19]

JT: We haven’t decided at this stage but it will probably be a float, so it will be based on the volumes being transacted because you’re paying in, effectively, a currency to enact things

on that blockchain so it will be a percentage, say, of that currency that’s currently in circulation. [40:32]

SM: Is there going to be somebody deciding that, basically, there’s not going to be a group of central planners? [40:38]

JT: It will be an algorithm that decides it... [40:40]

SM: Right. [40:41]

JT: ...in the way that the blockchain... the Bitcoin network itself, adjusts its difficulty. [40:45]

SM: Right. [40:45]

JT: The MetaLair exchange will decide what the cost of adding a coin, at any particular point in time, is. [40:51]

SM: Give me a picture of how you see this working. You said, in the beginning, that this could allow, basically, merchants and different points in the physical world to... [41:01]

JT: Yeah, I’ve probably started in slightly the wrong place with this but I think the best point to start would be to get an understanding of how one would transact cross blockchain. At the moment, I don’t know if you know what a double-spending attack is? [41:12]

SM: Yes. [41:12]

JT: I would put a spurious transaction that I don’t intend to honor onto the network. I would secretly mine on a separate network with more hashing. What this network does is it looks at a transaction that’s gone onto... when two users meet, who want to enact a bid/ask to say – I’m swapping Litecoin for Bitcoin, we would agree a certain number of confirmations that were going to take place. The network then locks each transaction into an MofN transaction. You and I can agree that gets locked away. The network acts as the escrow, in that instant and it watches to see how many transactions we’ve agreed on. Say it’s twenty for Bitcoin and forty for Litecoin - when those confirmations have been met it then releases the funds to each party. If a double-spending attack occurs, it refunds them to each party so it can reverse... obviously, you’re not reversing on the blockchain but you are refunding that balance back to the individual. Yeah, it’s a secure way of proofing against double-spending and enacting a transaction crypto to crypto cross blockchain. There are actually a couple of other ways we’re doing this but they’re a bit complicated and I don’t want to go into them. Effectively, that’s the first mechanism. It lets you transact crypto to crypto. [42:14]

SM: With that multi-signature transaction feature, most exchanges right now that are centralized do this but they don’t do it in the same way that you do it, right? With yours, it’s pretty much built in to the... [42:27]

JT: Yeah, there is effectively, you could almost call it, an agent or an algorithm that’s running on the network that does that. In that, say, Gox or someone like that holds your funds and has the promissory that they will pay you Bitcoin or Dollars when you come to withdraw, that doesn’t happen in this instance because your coins are held on the blockchain and then released. No one is holding your coins; they’re locked on the network. You can’t lose your coins. In fact, worse case, if there was, say, a nuclear war or something like that, in the middle of doing a transaction because it’s MofN, you can actually find the party you were transacting with and recover your coins at a later point, even if the network itself goes down. It’s quite a well-designed redundant system that we’ve got here. [43:02]

SM: Yeah, that’s amazing. I think that brings up a great point because with centralized exchanges, there is this tendency to say – Well, we’re going to, basically, create an interface that shows something to the customer that looks like you have this amount of bitcoins, or this amount of dollars, or litecoins in your account but you really don’t. It’s really being stored kind of behind the scenes, perhaps... perhaps in cold storage. [43:28]

JT: Absolutely. It’s not transparent and it could be even fractional reserve behind the scenes, you don’t know that. You don’t know that the promissory that you’re seeing on that screen is actually something that you’re going to get out at the end of the day. [43:37]

SM: Exactly. There is, I think, a big temptation once an exchange starts to do that, it’s not too far off for them to think – Well, we can just do some fractional reserve stuff. With MetaLair, this is not possible, is that right because every... [43:49]

JT: Absolutely, yeah. [43:50]

SM: ...everything is completely transparent? It’s all happening on the blockchain and there is no central authority to, actually, take any of those coins and do anything with them that nobody can see. [43:59]

JT: Exactly. You can see all the transactions that are occurring across the two blockchains that you’re using and everyone involved in that transaction can see it, so it’s totally transparent. [44:07]

SM: Does MetaLair make any kind of profit off of this or does that come from... [44:12]

JT: There is kind of an altruistic element to this in that once it’s launched, that product... in fact, the design of it can’t work unless it is completely open source. We’ve not shot ourselves in the foot, so to speak, but there has to be another revenue model that sits alongside that. The way we’re working it, at the moment, and this is very much dependent on the investor that we go to market with, is that the wallet itself is an interface to multiple balances that you may hold, so it’s a multi-currency wallet. We’ve also talked to another couple of other companies who’ve come to us. When we first went in the media, quite a few people came up to us and they said – Well, we’re actually looking at offering futures contracts or other financial products using alt currencies and cryptocurrencies. What we would provide, on that interface, is the ability to download a module. You then get that, say, a futures contract service and by buying through us, we take a percentage cut of it.

That’s the business model of it on the side. At the same time, the wallet software is totally open source so other people can go and take it and do their own thing with it. We’re hoping that we will become a large and fairly economical wallet for multi-cryptocurrency transactions. As a result, we’ll have a large user-base and that’s where the business model is. [45:15]

SM: Right. The value I see in this is that it sounds like it’s simple. You’re doing something that a lot of other people have tried to do or said that they’re going to do but they want to do all this extra stuff on top of it too. [45:28]

JT: There’s an awful lot of... and this is just human motivation... everyone’s launching their own cryptocurrency. They say it’s a decentralized exchange but, actually, all of these different exchanges are just doing Coloredcoins locally on that blockchain, which is, again, it’s linked to an asset or something like that. Also, there’s an element of pre-mining. Everyone sort of needs to go – Well, how do I make a profit out of this. We’ve been very careful about making sure that there is no pre-mining in our system. Once it’s out there, we’re not benefitting from the system itself, we’re benefitting from the wallet that links to it. [45:53]

SM: I could imagine that there are a lot of savings in the potential security costs if you’re not having a centralized exchange where you’re storing people’s coins somewhere, or storing people’s fiat somewhere and then, of course, you’ve got to secure that against governments which isn’t always possible. If you don’t have to worry about any of that because you are not, actually, holding anything and it’s all being held on the blockchains, then that really kind of... sounds like it frees up your resources to concentrate on some other things. [46:21]

JT: Absolutely. We’ve purposefully kept our business footprint, if you like, small. The development team that’s needed to support this and the wallet, once it’s launched, is not going to be many developers at all. In fact, I dare say we will probably have more people involved in marketing and pushing the stuff around and doing the website than we will in the actual development of the software, once it’s up and running. It’s a deliberately small footprint and it reduces, currently, all kinds of issues around legislation, holding funds etc. All of that is then down to the responsibility of the individuals using their wallet. It keeps the business itself quite streamlined. [46:50]

SM: Just a multi-currency wallet, by itself, is a really cool thing. Would this be like a web interface or would it be something that somebody could download to a computer? [47:00]

JT: At this stage, the wallet is... there are many ways we can cut it. There could, potentially, be a web interface but again, you’d be looking at a central party who’d be hosting that which may (??) [47:09]

SM: Right. [47:09]

JT: There is certainly going to be a software client, depending again on the kind of investor we go with, we’re looking at it for Android, tablet, laptops, desktops and things like that. I

mean, one of the things that we’re very keen on, as well as (?? whole) web wallets, I think, ultimately, you can’t get true security on wallets, per se, until they shift to the hardware level but that’s sort of a few steps away from us. First of all, we need to get the exchange up and running and then we’ll look at moving to, possibly even partnering with some kind of hardware wallet provider. [47:38]

SM: You’re thinking really big there. [47:39]

JT: Well, that’s further off. Right now, we’re concentrating on the crypto to crypto side of things. The crypto to fiat and also the wallet side of things as well, which we have derested in the last year. [47:50]

SM: To make a multi-currency wallet – that’s something that hasn’t been done before on a software level. There have been web interfaces but it’s really not what you’re talking about which is something where you, actually, have full control over all those wallets with different cryptocurrencies that are included in there. How do you even begin to code something like that, that’s adaptable and can add and drop different cryptocurrencies based on these market mechanisms of whether people add them or take them away from the exchange? [48:19]

JT: This is why we need to be very careful about what currencies get added to the exchange. Like I say, when it launches, it will be seeded with certain currencies and again, the part of it, the specifics of how the software wallet will actually work, or work in progress but we believe, at this stage, it’s going to be a module you would download per currency, for example. Your wallet is, basically, as large as it needs to be to support a relevant currency. There is also a way, certain ways, to keep the actual blockchain data size that you need to locally reduce. We’re looking that as well. Like I say, I think the majority of these are reasonably well solve problems, at this stage. It’s more the exchange side of things that we’re focusing on. [48:53]

SM: Does the Bitcoin blockchain or the Litecoin blockchain need to be pruned before this can be accomplished or do you think you could do it at this stage? [49:00]

JT: I don’t know but I know it’s a solve problem but, in terms of how we would address that locally on a wallet, there are a number of ways to do that. [49:08]

SM: It sounds like there is some pretty serious coding going on in this. [49:11]

JT: Yes, in fact, it seems tautological but the cross blockchain exchange stuff was fairly difficult but a proof-of-work mechanism for selecting which cryptocurrencies are brought onto the exchange was reasonably straight forward. The hardest part is actually not coming up with a bid/ask mechanism, whereby users can’t maliciously span the network with bid/asks they have no intention of completing. Again, we’ve come up with a solution to that. [49:35]

SM: As far as getting fiat into this decentralized exchange, can you paint a picture of how you think that might work? [49:42]

JT: Yes. The second part of the exchange... the fiat to fiat side, I think I’ve covered enough but in terms of a fiat to crypto side of it, there would be an open interface whereby users can sign up – there will be a cost entailed in that, which we haven’t quite finalized, again, paid for through proof-of-work. Once they’re on there, they would receive a rating – a bit like an EBay seller rating and there is going to be a web of trust system in there as well. You would be able to use recommended sellers, so recommended escrow, with a rating, to handle your fiat when you’re exchanging on the exchange itself. As everyone knows, you can transact Bitcoin very easily on the blockchain as it doesn’t involve a third party but whenever you transact in fiat, you have to go via an escrow. [50:21]

SM: I know the escrow is mediated by the decentralized exchange itself but what about the data that tells people who is trustworthy, who’s a trustworthy seller or whatever? Is there some way to incorporate that into the blockchain? [50:38]

JT: There may be information that people can provide about themselves but as you know, in the world currently, there is no cryptographic proof to show that somebody’s scan of a passport is genuine. [50:46]

SM: Right. [50:48]

JT: The way that this mechanism actually works is there is a cost in signing up as an account and then the account becomes more valuable the more transactions you’ve enacted on it. Nobody would want to spuriously go and damage an account based on the costs for them to getting that account to the status that it’s in. Basically, you’ll end up with a system where people in their bedroom in India to large, well known household trusted names will be signing up and acting as an escrow service and then you’d take your pick of those based on their current rating that they’ve got on the network. [51:12]

SM: Does this effectively mediate fiat to fiat exchanges as well? If somebody wanted to... let’s say, I’m in... [51:20]

JT: That we’re not supporting. (Laughter) [51:21]

SM: ...but you’re not supporting. [51:22]

JT: We’re not supporting that, no. We may but, at this stage, it’s not on our development path. [51:26]

SM: What’s to stop somebody... if I’m in Argentina and I’ve got some pesos that I want to exchange into dollars, if I go to a merchant and I buy some bitcoins and then I immediately sell those bitcoins for dollars... you know. [51:40]

JT: Yes, yes. You could do that indirectly but... sorry, I should be more specific. The exchange itself won’t support a fiat to fiat transaction but in a two-step stage, you could indirectly go fiat to fiat. Yes, you could definitely do that. [51:51]

SM: How close is this to launching? When do you think that some of the functionality might be... [51:55]

JT: At this stage, we’re talking to investors. We are talking to some who I won’t name because we’re actually under non-disclosure but if we get the right investors onboard, it could be very big for us in terms of, it’s a good matching of a relationship between two parties. The entire development is derest at this stage, we’ve got modules that work, we’re ready to produce an alpha cut which I reckon is probably three to six months work, something like that, depending on the development team we get onboard. We are (?? bottleneck) investors, as ever, I don’t know if anyone’s gone down the path of investment – it can slow things down just talking with investors. We were hoping to go the donations route but it’s not been... the donations weren’t as strong as we’d hoped they’d be. We’re very much reliant on investors and our partnerships with other companies, at this stage. [52:35]

SM: Can you say any of the other companies that you’re partnered with? [52:38]

JT: We’re not actually partnered with anyone specifically yet but we are in negotiations with a couple of entities who could be very interesting if they come onboard. [52:46]

SM: Are you looking for people to join your team or development team? [52:49]

JT: Absolutely, yeah. We’re looking for developers, particularly people who are strong in cryptography and who, actually, understand Bitcoin, Merkle trees, proof-of-work and things like that, to quite a high level. If anyone’s out there who’s interested, please do contact us. As ever, we’re looking for investors and donations as well. [53:03]

SM: I’m just kind of thinking about all the implications of the first decentralized exchange because, to me, it seems like you could, potentially, be the first because this might be happening in a couple of months. [53:14]

JT: Yeah. [53:16]

SM: If you get the investors. [53:16]

JT: If things go right, it could definitely be happening – an alpha and possibly even a beta could be out there soon if things move as smoothly as I hope that they will. [53:22]

SM: If there’s a decentralized exchange going on, how does aggregate price data come out of that? I think we could see, pretty easily, what crypto to crypto trading... what prices were coming in for that but what about fiat to crypto trading? [53:40]

JT: The way the data structures are stored in the system is it’s ratios of what currencies were exchanged to what per and then they’re blocked off in units of time. There are direct relationships between... say I swap bitcoins for dollars, I know, in a transaction that actually happened. That many bitcoins were swapped for that many dollars and if that formed, say, two sides of a triangle, Bitcoin/Litecoin and Bitcoin/Dollars, you can then infer a cost

between Litecoin and Dollars. The exchange logs information of exchanges that have actually happened and also it can then infer secondary information of the exchanges that have happened. There are several ways to pull information out of this decentralized system to get an idea of how price is varying with time. [54:18]

SM: This data could be really interesting because with a decentralized exchange... I think anybody who’s looked at Bitcoin prices over the lifetime of Bitcoin has noticed that with different exchanges, the exchange rates with fiat are, actually, different because there is a difficulty and a cost of getting fiat money in or out of the exchange and there is a difficulty or a cost of using the exchange and so, the prices end up different. I think if there was a decentralized exchange that was truly decentralized, maybe we’d see a little bit more truth in the data that tells us... [54:56]

JT: I mean, a dollar on Gox is worth less than a dollar on BitStamp and we all know why that is because of the withdrawal times. [55:01]

SM: Exactly. [55:02]

JT: Yeah, you’re absolutely right. There is a discrepancy between it and the Bitcoin community can treat the MetaLair exchange prices as another benchmark or the benchmark. I don’t know, I guess it’s another exchange that’s in the mix. [55:12]

SM: Yeah, exactly. Right now, we sort of have these aggregators that pull data from all the different exchanges and weight it by the volume on each exchange but with MetaLair, that might be the gold standard in terms of price discovery because there are not those extraneous factors to worry about with centralized exchanges. [55:32]

JT: Yes, yes. That would be a very nice thing for us to have if it did become the gold standard. The key thing is here that there is no absolute pricing that’s relative to the exchanges that were made, at any given instance in time, and that’s what logged to the system. [55:43]

SM: Yes, absolutely. [55:45]

JT: Again, that comes down to proof-of-work because you’re only logging the transactions that have been paid for. Anyone can spuriously make up some costs but it’s only once there has been a cost entailed and the transaction has actually happened and fees have been spent on doing that which can’t be got back, then that’s logged as an actual valuation. [56:00]

SM: I was just wondering if any of the fees that a user would pay to do something on the MetaLair network, do any of those fees... kind of like Bitcoin mining and transaction fees... [56:11]

JT: Yes, there are a system of miners on there that are doing something a bit like mining that is securing the network and making sure transactions happen. They are also receiving a reward on that process and it’s securing the network cryptographically from a proof-of-work

point of view. Yes, there is a process within that and that will all become clear when we launch. The key thing about designing this is it’s got to be, from a proof-of-work point of view and cryptography point of view, it’s got to be sound under the bonnet. It’s got to be very, very simple to use on the surface. All financial systems, going back to the 1600s, if you look, they had... in fact, they used to use shipping chits for the East India Company and they were very easy to forge but they were very convenient. Selection has always favored convenience with financial systems so we’ve made sure that, like Bitcoin, our exchange system, when people come to use it, is very simple to use and under the bonnet it’s as complex as it needs to be but it’s also secure as a result of that. [57:00]

SM: Could anybody participate in contributing to the MetaLair network? [57:04]

JT: Absolutely. I mean, we’re going to have, basically, for want of a better word... we’re going to have miners and stuff like that come on the network and they can use different types of hashing algorithms and they are going to be enforcing. There is a blockchain data structure that logs a lot of the transactions that are happening and they will be involved in making sure that that’s kept up to date, for each block that’s generated and for the transaction records as they’re kept on the exchange. They will be receiving rewards for doing that. [57:27]

SM: Oh, great. That’s what I wanted to know. [57:29]

JT: Yeah. I’m trying to skirt around it a bit but that’s basically the gist of how it works. Again, there will be miners, for want of a better word, on the system; people enacting things and other stuff on there that doesn’t look too dissimilar to Bitcoin in some respects, but is also an exchange. [57:44]

SM: Johnathan, I really appreciate how you’re able to talk about this in a way that I can understand without a technical background. How did you get this idea and why did you decide to do this? [57:54]

JT: My background is artificial intelligence and computer science. I run a company that does a sort of high-end networking for government and institutions like that. A good friend of mine, who works in the University, runs another company. He, in fact, set up a virtual world company to do economics in virtual worlds and we struck up a conversation about this in December 2012. We were looking at meta approaches to dealing with different blockchains and aggregate and we both went away and came back and said... we both met each other and we both had an idea and we talked and realized we both had a fairly similar idea, actually. Obviously, seeded by the conversations we’d had previously and after quite a number of technical discussions, this emerged and it’s been quite a lot of work and actual coding to check that our functional ideas to implement well. [58:37]

SM: Yeah. [58:38]

JT: We’ve got to a stage now where we’re saying – Yes, this works and has legs and we’re now looking for investment and we want to implement it. It’s been the work of myself and, in fact, this chap is called Kerry Fraser-Robinson and you can see him on the website. We’re

looking for investment, at this stage. We think we’ve got it to a point where it’s been worked through sufficiently. We’ve both got backgrounds in computer science that it’s a robust design. [58:55]

SM: I don’t doubt that you have a background in AI but what was your motivation for it? Do you want to free the world with a decentralized exchange? Tell me about that. [59:03]

JT: I don’t know. I guess I get irritated by the way governments treat their currency and they have the issuance of fiat and things like this. In a kind of nerdy way, I’ve always been very interested in fractional reserve banking and other systems. In 2009, I briefly dabbled in writing a sci-fi novel and I came up with a form of centralized currency but it had a system of mining and it had a system of network difficulty to adjust the rate of coin generation based on the current rates of interest in that environment, at a given time. This kind of... when I discovered Bitcoin, a few years later, I was thinking this is the idea I had but so much better and, in fact, the time I found out about it, I took all my savings account and moved into Bitcoin and I ran around and told my friends and family about it and they thought I was nuts. Here we are, a couple of years later... [13:56]

SM: (Laughter) They’re not saying that anymore. [59:48]

JT: I have an altruistic bent. I think, this is very much in line with stuff I’ve always been interested in so it just sort of fits naturally with me, I guess. [59:54]

SM: This is a big enough project, right? You’re doing a decentralized exchange and a multi-currency wallet and combining those two but do you have any other pie in the sky ideas that could, potentially, be things that interface with the decentralized exchange, or like other layers that could be built on top of it? [1:00:10]

JT: We’ve got some sort of improved 2-factor authentication ideas for software wallets and things like that but they’re still a work in progress. To be honest, I have to be quite disciplined with myself and focus on one project at a time. This has, very much, had my attention for the last couple of months and I’m trying to make sure I don’t get distracted with other ideas. [1:00:28]

SM: Yeah, that makes sense. [1:00:30]

JT: Yeah. I’ve been fairly strict in that respect and I’d say that this has been my main focus. [1:00:35]

SM: Right and you did mention the hardware idea and I think that’s a cool idea too. [1:00:38]

JT: I think we probably will be working with a hardware manufacturer or supplier as and when we get to that stage, if we get to that stage to develop a hardware wallet because I think one of the last security problems with Bitcoin is that all software wallets, it doesn’t matter where you put them, are fundamentally insecure in that people can just log your

keystrokes and see what’s going on. I think the hardware wallet is a step change in mitigating that. [1:01:02]

SM: Johnathan, any else you want to add? [1:01:05]

JT: At this stage, no. I mean, please everyone come check out the website. If you want to donate, do and I’m hoping we’ll have some news in the next couple of months for investment and will be able to, actually, make an announcement when we’re launching. [1:01:17]

SM: Your website is www.MetaLair.org [1:01:23]

JT: That’s it, yeah. [1:01:24]

SM: You can also follow MetaLair on Twitter which is how you and I met. Check it out. I’m very excited about your project and I can’t wait to hear an update, hopefully in a couple of months. Good luck with everything Johnathan and thanks for chatting with me today. [1:01:36]

JT: OK Stephanie, thanks very much. [1:01:38]

__________________________________________________

CREDITS:

Thanks for listening to Episode 89 of Let’s Talk Bitcoin.

Content for today’s show was provided by David Johnston, Tim Swanson, Pete Earle, Stephanie Murphy, John Turrell and Adam B. Levine

This episode was produced by Adam B. Levine and edited by Denise Levine, Matthew Zipkin and Adam B. Levine

Music for this episode was provided by Jared Rubens and General Fuzz

Any questions or comments? Email adam@letstalkbitcoin.com.

Have a good one! [1:02:05]