LET’S TALK BITCOINE pisode 124 – Coast to Coast

Participants:

Adam B. Levine (ABL) – Host (speaking @ San Francisco Bitcoin Meetup)Stephanie Murphy (SM) – Co-host (speaking @ Bitcoin in the Beltways)

ABL: Today is the 5th of July, 2014, and this is episode 124. The following program is not an endorsement for any service, product, act, or anything. In the words of Arthur S. Falls, “bury your money in the ground. It's the only safe thing to do.”

Welcome to Let's Talk Bitcoin, a twice-weekly show about the ideas, people, and projects building the digital economy and the future of money. We're off and running with LTBcoin, and a lot has happened in the last week since we launched. If you added your LTBcoin address into your profile at letstalkbitcoin.com, check your wallet. If you've had a piece of content published in the front page in the last week, check your wallet. If you have LTBcoin and you don't want them, you can trade them at the melotic.com exchange against bitcoin. We don't endorse or encourage any particular acts or uses for LTBcoin, but the reality is you can do whatever you want with your tokens. They're your property, we encourage you to act your own best interest, but even if you don't want to act in your own best interest, do what you want, because we have no power to compel you do anything.

With that out of the way, my name is Adam B. Levine, and today, we are coast to coast. Andreas recently spoke at the fabulous Bitcoins in the Beltway event, and, thanks to Patrick over at Coinsider This, we've got the talk. Andreas talks value, regulation, consensus, and more.

First, I recently spoke at the San Francisco Bitcoin Meetup about using tokens in unconventional ways, Coinpowers, crowd-funding, and LTBcoin. Thanks to the people over at Money & Tech for the recording. I'll hand the show off to myself. Enjoy the show.

ABL: My name is Adam B. Levine. I am the editor-in-chief of Let's Talk Bitcoin and the LTB network. I'm also the Chief Visionary Officer of a couple different companies, notably Coinpowers.com, which I'm gonna be talking about a little bit here today. Chief Visionary Officer is a really cool title I really like. I didn't know what to call myself when I started getting involved in these projects. I talk a lot. I can riff on peoples' ideas, and I can help them iterate, and I can help them take their dumb idea and make them less dumb. -But that's another story.

Today, we're gonna talk about something I've been working on, now, for – I think it's about seven months. I've been working on the solution for about seven months, but the problem is something I first ran into in 2005 when I first started my podcast, Gamer Andy, which is a show I did a long time ago. This is somewhere we achieved – this was in 2005 – where we achieved somewhere in the range of 10,000-20,000 weekly listener to my little uncensored yelling about video games with friends. -But we were never able to pay anybody. I was in the situation where, at one point, I had twenty people working for me, writing for me, and doing

[sort of farming?]. We were getting invited to events and flown all over the place, but there was never any money in it, and it was always very bizarre to me that that was possible.

Today, we're not talking about that specific problem – we're talking about bootstrapping. What that means is the chicken-egg problem that all new ventures face when they first start, which notably is that, just as you can be too big to fail, so too can you be too small to succeed. If you started a forum or company that relies on users and social networks and you're starting a social network, the first 100 users, the first 1,000 users – those are the people who are your absolute saints, and it's not because they're awesome, it's because they're there and they're there first, and that's what matters. They'll be the people who bring in the people who come after that.

Bitcoin faced this problem fairly early on, and it wasn't the only one. Reddit was an interesting example of this. Reddit, when it first started – again, this huge problem: no content and all this empty space – so what they did is they went, the founders, went and made about 25 accounts and talked to themselves. It's cheating, but it solved the problem. That's what's so interesting about Bitcoin, is that Bitcoin, when you think about it, at its core level, is incentivizing make work. The ASIC industry is incentivized make work. SHA256, which is what miners are actually doing – this processing transactions is not verifying, it's [inaudible] not doing anything – the only thing it's doing is fairly generating a common metric, measurement stick we can all compare ourselves against. That's not a bad thing. I say that, and people say, “oh, you don't like that” - it's fine. It's not perfect, but it's not bad, but what it is is really effective. Bitcoin, starting from nothing when there were no miners, there was no value to bitcoin. Starting from nothing, Bitcoin managed to take make work and make it the fastest growing computational hardware industry in the world through the ASIC industry. It's been fascinating to watch. One of the interesting things about it is now that Bitcoin's solved that mining bootstrap problem, how do you get a transactional network that can do all these things we want? We don't really need to solve that problem, anymore. That was a realization I came to about... back in December, November.. I wrote my first paper on it in November. I didn't publish any of them just because, again, this stuff is hard to understand and I don't really [inaudible, voice trailed off], which is funny because I run a website that publishes new ideas and then I don't feel comfortable publishing some of my own.

What I want to talk about today is user-created assets. A user-created asset, at its core, is exactly that – it's a token just like bitcoin that doesn't require mining. Because it doesn't require mining, you don't need to solve the problem of mining. Because you've solved the problem of mining, you can use the token for something else. What you use the token for is what I'm going to spend most of my time talking to people about, because there's an infinite number of ways you can use these things. Bitcoin uses computational mining, right? All mining really is – again – is making that metric we compare against everyone else in the network – how valuable am I compared to everyone else in the network? In different networks, that doesn't look like mining at all – computational mining, anyway. In a different network it looks like – for some things, money is the thing required. The project can't happen without money. If somebody gives you money, and then you give them back a token you'll then make valuable using the money they gave you, then honoring the token for the service. One can imagine the distributed dropbox which comes up – this is it. You pay for the creation of a distributed dropbox, you get back some distributed dropbox tokens, and then when distributed dropbox is finished, you can use those tokens, and because the network is more valuable when the product actually exists than beginning when the product doesn't exist and it's totally speculative, you've probably appreciated because more people are interested in a

product they can actually use than one they can just pour money into. That's the basic math behind these things, is that any project that goes from having nothing to having something should be more valuable when it has something than when it has nothing. Again, this doesn't eliminate failure. You can still fail with projects – doesn't change any of that, but by adding a token into the mix, you essentially give yourself a lot better options – and options in general, not just for you, but users in general, too.

Before I got into Bitcoin, I was really, really into crowd-funding, really into Kickstarter. I backed like 27 different projects, and wound up the community manager on 2 or 3 of them, and the reason why I wound up as community manager is – a lot of times, people would propose these projects and get them funded – like there was this 3D printer, this dually-distributed 3D printer, it was gonna print with – Idunno if there's a lot of crossover here – but it was a really cool one. It was supposed to take about six months, and it was one guy doing it, and he spent all the money – and he was a smart guy, an engineer designing this 3D printer- spent all the money buying supplies and didn't outkeep anything for actually doing the labor, so he had to fabricate 500 machines with like 200 or 300 custom parts each. It took like an extra year, so what happens is over time, when the project goes like this, people start to defect. Even though this is a donation and you're not getting your money back, and that's the deal when you sign up with Kickstarter, people ask and people have terrible stories. They're like, “I need this money to graduate,” and again – this is a [inaudible] – again, the thing that was really emphasized to me was that once you've made this commitment, you have no choice. Even if you did have a choice – even the creator's willing to break the rules in order to give you your refund so you can do the things you need to do – it's a terrible outcome for everybody because there's money being drawn away from completing the project, and you can actually have a run on the bank in this situation where it collapses the whole thing.

There's another problem with Kickstarter. You can only get someone to support your project if they like what you're doing, believe in the work, want the thing you're offering as a reward and agree with the project you're asking for it, and, of course, finding [that person]. -So you're targeting a niche of a niche of a niche of a niche of a niche, and it's hard because, again – crowd-funding's gotten really popular. In the beginning, there wasn't a lot of competition, but now, there's a lot of competition. You can fix all of these things by adding a token into the mix. For the reason I've talked about, these tokens are valuable if the project succeeds. Again, if the project fails, you can't do anything about that – but you actually have more options, because if you perceive that a project is failing, you can sell it. You can sell the token that would be useful for it otherwise. With Kickstarter, you couldn't do that. You might be selling at a loss, but when comparing it to the current option of Kickstarter, having the option of being able to make the decision for yourself if you need that money, it might be worth it to you – or if a project is failing, it might be worth it to you. On the flipside of this, of course – an example is a game called Star Citizen that funded on Kickstarter maybe a year and a half ago. [It was] a very high-profile space game, and what they did was they offered these really cool ship packages, maybe $500, $600 unique ships, or ships that were limited edition only during the crowd-funding campaign, and of course, people who discovered the game after the crowd-funding campaign was over – they wanted those – so what they eventually did was make it so you could actually trade these packages. -But again, if you just have a token in the middle of there, it's so – the way this works is that I want to create a project, I want all of you to give me money, I essentially tell you the rules we're going to use to distribute these things, and then at the end of it, if I raised that much money, we create the tokens – the project funds - and essentially the tokens store the wealth. I have my money to develop the project – I have

my bitcoin. If you want to sell your token that gives you access to my project, you can totally do that. It doesn't affect me at all. Again, there's this interesting interplay where, by giving control where there was no control to users, those users now are – the responsibility is on them. The responsibility's entirely on them, and really, that's what you want from people who are donating to support you. You want their donation, and you want to give them back a token that represents a token their donation bought in. If the project fails – again, nothing you can do about it.

I've gone way off track with my notes... The thing I found as we were coming and going – I've been trying to scratch my own itch on this stuff for so long, I kind of vision myself as a chief user, because we keep building systems because I keep running into problems. We've been building, on the Let's Talk Bitcoin platform, this thing that's called an asset distributor, or we're calling it “asset drop,” actually. Basically, what it is is – these user-created assets are all created on top of Bitcoin. They're a variety of protocols, basically different rule sets you can use to embed your token into Bitcoin, and then it uses the Bitcoin network. You can use Mastercoin, you can use Colored Coins, you can use Counterparty. They're different and have different capabilities in each one. What I realized when I was looking at these was they all do the same things, they're not cross-compatible, and they all have different advantages, so the thing really missing is the unifying platform to tie it all together so people can pick whatever the heck they want, educate them on the stuff they want to know about, and then do all the actual creation very easily, and have a common place to communicate with the people supporting them. This's the other thing – trying to find people who are invested in a given point in the cryptocurrency space – it's pretty [pats?], you can't do it. They're everywhere, on all these different forums. You need this kind of centralized place where the communities can come together.

I got sucked into a project called Coinpowers, which is pretty much that. It's part crowd-funding platform and part coin social network. Again, I met the – I wrote an article about Kickstarter – I'm going off into the weeds here, we have limited time, and I'm not going to get into this too much – the problem is what I'm building with Coinpowers is a combination of a platform and a tool kit. The platform, again, is about trying to express yourself, get your message out there, make it very easy to do this, and tie together all these disparate coin communities, and frankly, the creator of these coins to the communities, which is important. We've noticed a lot of fund creators drift off. With user-created assets, you can't do that. With a network like Bitcoin, you have the ability – you want to be neutral. You want it to be neutral because it's a transactional network. When you're talking about user-created assets, the user that creates them is exceptionally important unless, again, it's intended for some neutral purpose. I often faux pas in saying to people, “well, if you die, your coin will be less valuable, but if you don't die, you don't necessarily have to worry about that.” It's not a fail-safe, necessarily... whereas with Bitcoin, if a Core developer died, it wouldn't really matter that much. The value isn't tied to individuals. With user-created assets, for better or worse, it is. With Coinpowers, we've gone down the rabbit hole looking at different models that're available for doing these coins. There're ways you can set the price and amount of time it's gonna be, but not set the number of coins that'll be created at the end. There're just a variety of business models you can go into.

Specifically, though, I'd like to talk about rewards programs in what time I have left. I think creating LTBcoin, which is a rewards program for the Let's Talk Bitcoin network – but you can imagine a more simpler example would be like trying to start a new chat or IM client. If you've ever tried to get friends onto an instant messaging client, these days it's pretty hard. It's

pretty hard because there are good options out there and there's no really good reason to change, usually. If you were going to create a chat interface or some sort of chat program that had this type of token built into it, you could essentially say, “okay, now there's a really good reason for you to be an early group who makes this jump over. We're gonna take 10,000 chatcoins, and every day, based on people chatting with each other on our network, we're going to reward them equally for their contribution to the value of the network.” This would be user-based or whatever... the example doesn't matter. By creating this sort of incentive structure where when you participate and where there are fewer people, you get more people participating when there're fewer people. It doesn't disincentive from participating when there're lots of people, that's just the network effect taking over, but it means, again, so long as you keep doing this, if the numbers drop low again, you have reason for those numbers to go back up, so it's sort of this guarantee of minimal levels of activity.

Let's Talk Bitcoin is a content network. We started out in April of last year as a single [?? blob] and in December, we added four or five new shows to the network and just upgraded our website to a completely custom platform with cryptocurrency baked into it. Very excited about that. I have to tell you I first started talking about these cryptocurrency-enabled platforms last year, and the cool thing about it is we've now got Let's Talk Bitcoin to the point where each user can associate an address with their account. Then, we can send user-created assets to each of those users, and it goes to their actual wallet they control. We don't have to have control of any of it – we have to have ability to get into it. Again, user-created assets...... I go too far... (laughing) This really is... it's hard to shut up about this stuff. LTBcoin is launching in seven or eight days, now. You can't buy it. The only way you can get it is by either creating content for Let's Talk Bitcoin or participating in our audience or the platform you [inaudible] right now. Basically, with LTBcoin, the first thing, it's proof-of-publication. Proof-of-publication basically means over the course of a given [inaudible] – right now, I think it's somewhere between seven or ten types of posts hit our front page. I'd like that to be a lot more. What we're going to do is we're going to take LTBcoin, and we're going to award to people who submit posts to us who meet our criteria and actually hit our front page, so if you write a story to us, and we're a totally open platform – anybody with any perspective, so long as it's not a lying one, can use our platform, and if you meet our quality standards and make it onto the front page, you qualify for this disbursement of LTBcoin, so you are, in effect, a miner in the LTBcoin ecosystem. There are two layers of compensation. There's one for getting on our front page and another a month later for performance based on how you've done relative to everyone else at that time. It's important to note that, again, with all these metrics, everything is relative. Everything is not about – it has to be 100 or it's not sufficient – it has to be the best of everybody that submitted something that day that meets the criteria. The audience participates in a different way. The audience adds value by consuming the content, so you earn a minimal amount of points – points are how we compare – we do these distributions every week, so you're constantly earning LTBcoin when you're on our web page. When you visit a story for the first time, you're earning LTBcoin. When you send a tip to one of our authors, you earn LTBcoin. Again, all of these metrics are compared relatively, so if you're the only one who donates on a given day, you're going to get the entire donation allocation.

Those four metrics are starting out – that's the basic idea, that once we've got these tokens out there, the thing that gives them value is they're all we accept for sponsorships and all we accept for advertisements. Once LTBcoin reaches somewhere between 10,000-15,000 people in the Bitcoin ecosystem, and it's a very, very specific 10- or 15,000 people. That's a very

valuable thing. In the past, we've been able to effectively monetize it, but I hate selling advertisements. It's the most irritating thing I've ever done. The only thing I want to work on is content. What I've done with this – the reason, really, why we're doing this is exactly because of that. I don't want to be the seller anymore, I don't want to hire a salesman to be responsible for him doing a commissions system or anything like that. I want to turn everyone into a sales rep for us if they want to be. Essentially what we're doing is we're not selling sponsorships for LTBcoin, we're selling sponsorship tokens for LTBcoin. We auction off these sponsor tokens to the highest bidder. Again, we never want to have no activity – it's all relative. Everybody bids LTBcoin, we might have eight sponsorship slots per month, so the top eight bids get those sponsor tokens. Then, those sponsor tokens can be redeemed for like the next month. When you redeem, you're essentially locking in your sponsorship, and whatever message so long as it complies with our published standards is okay, and you go from there, basically... published standards... lost my place.... anybody?

Audience question (AQ): How're you getting paid?

ABL: How am I getting paid? Thank you. That's it, basically, because not everybody's going to participate in the LTBcoin ecosystem. We're asking people to jump through hoops, and really, I don't think not only people who are not fans or aren't incentivized by the type of system we're putting together are gonna be that, so what it means is somebody who's just a listener or whatever can take some of the LTBcoin they earn through normal activities on the site or creating content, or they can buy it on the market who we've given it to first through those methods, and go on to essentially take the LTBcoin by the sponsor token and sell it to somebody for bitcoin or whatever, and that person can [inaudible]. It stretches it out so that rather than me having to make the decision, or us having to make the decision – instead, the whole community can make the decision, and if you wanted to have a group of people get together, pool their LTBcoin, and just have community ads or something like that – again, with this sort of system, it's very possible.

This is really an ongoing journey for me. It's definitely not over yet. I'm kind of – this's been a really wild year. Things've moved so fast... I wanted to launch four months ago. The reality continues to be that it just takes forever to do anything, and again, forever in this space is four months. That's the hilarious part – this has all come together in the last couple of months. The real big push that's gotten us to this point has been bringing on more people to help me. That's something I encourage people to do. I have a horrible time delegating – very, very difficult. Since I've been able to do that more with LTBcoin, we've made much faster program. If you'd like to learn more about Let's Talk Bitcoin, you can just go to letstalkbitcoin.com. I'm all over the place, adam@letstalkbitcoin.com if you want to email. Thanks for the talk.

Ad: Today's episode, in addition to our LTBC sponsors, is brought to you by KryptoKit. KryptoKit is legitimately my favorite web wallet because it installs a plugin to your Chrome browser and just works. To do the stuff we're doing with LTBcoin, it takes a lot of small amounts of bitcoin, and while I love Armory for how safe it makes me feel, KryptoKit is so fast and simple that it's easier to just top up my KryptoKit from my Armory and only bust out the big wallet once every few weeks. You can find out more and get your free KryptoKit at KryptoKit.com.

With a high bid of 10,500 LTBcoin, long-time LTB writer Brian Cohen is our patron of the day. Brian is one of the most entrepreneurial people I've ever met, and true for me, is the first

I've known to offer a bridge service as LTBcoin moves from the “huh?” stage to mainstream. Basically, if you'd like to sponsor Let's Talk Bitcoin but don't already have LTBcoin, create content, and your time is more valuable than your money, you can contact Brian, agree on a rate, and he'll handle bidding for you, pay for the spots you win with LTBcoin he's earned from creating his content for us. You might remember Bitcoin Megaphone sponsorship on the last episode. Brian was the one who made this happen with this service. To learn more, visit Brian's website at BitofThis.com and find LTB under the Bitcoin menu.

With a high bid of 6,500 LTBcoin, Andrew [waiting on PM so I don't butcher this...] wants you to know about the upcoming Crypto for Change blog. Andrew's looking for writers who find the big picture of Bitcoin's disruption and change more fascinating than its investment merits or its potential to upset The Man. Real change will impact areas of law, democracy, economics, finance, and will empower marginalized societies. Crypto for Change is going to be one of the first new blogs releasing on the LTB network. Basically, posting on one of these blogs is your ticket to getting on the front page of LTB and getting your share of LTBcoin rewards. If this sounds interesting, Andrew's looking for talented writers who're excited about the possibilities and eager to help those who can't see this future yet lift the veil just a bit. Ideally, you'd be submitting one piece a week. If you'd like to learn more, head over to the forms. If you'd like to apply – no resume required – email to join the team at CryptoforChange.com. Back to the show.

AA: It is such a huge pleasure to be here today. I've been following Jason's work for Sean's Outpost, this homeless outreach and support charity. If you don't know what Jason's been doing for the last several months, he ran from Miami to San Francisco in order to raise money for Sean's Outpost, which is such an incredible thing. I'm a geek, so I don't run unless there's a bear chasing me, so I can't imagine not only doing 30 miles a day, but doing one mile a day is a bit daunting, so it's quite remarkable what Jason did for charity, and he continues to do that every single day. I'm really happy to be here.

I wanted to talk today about the future of cryptocurrency, and I want to start by talking a bit about regulation and new ways of doing regulation. I think this is the town to talk about it, right? There's this ongoing conversation these days about whether Bitcoin should be regulated. There're really two broad camps in this space. Some people who believe we need more regulation in Bitcoin in order to protect consumers, in order to provide more certainty, in order to reduce risk. There're people who are philosophically opposed – fundamentally, philosophically opposed to regulation of Bitcoin. On their basic moral principles, they think Bitcoin should operate entirely as a free market without any regulation, and see regulation as an alien enemy force, as a force of corruption. I fall in neither of those camps. I'm opposed to regulation on purely practical terms. Let me tell you why, and then we'll talk a bit about what we can do next.

The reason I'm opposed to regulation is quite simple: it doesn't work. It didn't work before the financial crisis in 2008 when banks and other financial industry players took enormous risks with other peoples' money despite all the frameworks there to prevent exactly that from happening. It didn't work during the financial crisis when the response of regulators was not to investigate, but to instead cover up so as not to spook the markets, and to feed these behaviors with more money in order to not let them destabilize the entire economy. Regulation most certainly didn't work after 2008 when we discovered the mortgage market that was hopelessly corrupt and an absolute casino of greed was just the tip of the iceberg,

because that behavior then translated into fraudulent foreclosures, fraud-closures with robo-signing, and nobody was punished for that. Then, we discovered the London interbank overnight rates were rigged, and the gold markets were rigged, and the high-frequency trading – algorithmic trading markets were rigged, and the S&P 500 was rigged, and the future markets were rigged, and the hedge funds were rigged, and of course, then, there was the big backlash where, finally, the prosecutors woke up and said, “this **** has to stop,” and thousands and thousands of bankers landed in jail. Oh, wait, that didn't happen.

Regulation didn't work. It didn't protect consumers, especially the most vulnerable consumers at a time when they needed protection from parasitic capitalism and greed. It didn't protect consumers or the market during the crisis and it didn't cause any repercussions for those who were exhibiting this behavior. In fact, if anything, one could argue the behavior of the regulatory agencies after the crisis, where they imposed fines that were less than the profits made by fraud, was an incentive scheme. It rewarded that bad behavior, so here we are today, and the too-big-to-fail banks are bigger, and none of them went to jail, and twenty-five trillion dollars of economic activity after 2008 has gone to less than 10% of the population while the rest of us are led to believe there is no inflation, unless, of course, you buy food, or energy, or a big proportion goes to, you know, surviving, in which case you can't meet ends meet because of the horrific inflation that's actually taking place. Regulation doesn't work.

What I see in Bitcoin and in Bitcoin's consensus algorithm and its consensus mechanism is not something that's ideologically superior; is not something that's principally perfect; is not something I find to be the morally better choice. I just see something that works in an environment where the alternative doesn't work. While we're having this great ideological conversation; should Bitcoin be regulated, should we regulate financial markets more or less, and there's two opposing camps – the statists and the anarchists, and big 'ol juicy labels that're scary on both sides, and try to divide this opinion down the middle. To me, this is like a discussion between physicians in the middle ages. On the one side, you have antibiotics and they work, and the opposing view is bloodletting – let's bleed our patients – and that doesn't work, it just kills them faster, so why're we doing it? That's not a big ideological or moral discussion – it's like – this bit works, and this one ******-******* doesn't. It's simple. I'm opposed to regulation because it doesn't work. It's not that it doesn't work because it's not done right. It's not that it doesn't work because we're not trying hard enough. It doesn't work because of the very nature of incentives in the human society, and the nature of incentives in human society when it comes to centralized organizations, whether you're looking at centralized financial organizations or the financial regulatory infrastructures built upon them, is built such that power corrupts.

-So why do we have regulations in the first place? The reason we have regulations in the first place is because power corrupts. This is not a new lesson. This is a lesson who my ancestors, the Greeks, have been telling us since 3,000 years ago with great philosophical treaties on how power corrupts, and absolute power corrupts absolutely, and there is no more absolute power than control over money, and control over money is the power that corrupts fastest and most deeply. We know that power corrupts, so why doesn't regulation work? Because it cannot solve that fundamental problem, because those who need to be regulated the most are the ones who have acquired great power over the system, and those are the ones who absolutely cannot be regulated because their power affords them the possibility to be above the law, to be above regulation. The very organizations that need to be regulated the most – not little run-away penny stock ponzi schemes, they don't need to be regulated: they're rank amateurs – we all know the truth. The biggest criminals in our economy today are sipping

coffee, sitting next to each other in [Da Fas?] and congratulating each other on the great increases of the S&P 500. It's not the little penny stocks that needs to be regulated, it's Goldman ******* Sachs, and we all know that, and they're never going to be regulated. They can't. The reason they won't be regulated is their great power affords them the ability to be above the regulators. Regulation is a solution to a centralization problem, the problem of control over peoples' money.

We know very simply, if you give someone control over other peoples' money, sooner or later, usually sooner, they steal the money. It's as simple as that – they steal the money, they run away with peoples' money. You let someone control your money, they will take your money. Your best friends, sitting next to you, your business partner – you get $100M in funding, wake up one morning, your best friend has moved to Aruba with $100M of your funding. It happens every time. The story is the same. Sometimes it's greed, sometimes it's covering up for a mistake, that's also a very common story. We bet a bit on the casino stock market, it wasn't going well, so we tried to hide it and double-down on the bet and that didn't go so well, so we quadrupled-down on the debt and that didn't go sp well, so we octupled-down on the debt, and before you know it, we got Nick Leeson all over again, or Mark Karpeles. Same story, same exact story: covering up for a mistake by increasing the odds until it all collapses in a pile of ashes.

If you have that problem, the understanding that control over money leads to theft, the way we solve it is by creating another centralized institution, a hierarchy, an organizational system of committees and individuals to watch over the first centralized system of organizations and committees and individuals to make sure they don't steal, and they're just as corruptible as the first bunch, maybe not directly. Maybe they can't be bribed. In some countries, yes, you just stick a big, fat, juicy envelope in front of them, full of cash, and suddenly your license is approved, your proposal is accepted, your grant is granted, and all goes smoothly. In this country, we do things a bit more subtle. In this country, we use influence and persuasion. “Yes, but if you send us to jail, it's gonna collapse the entire economy, so how 'bout we use prosecutorial discretion and pump some more money in it, and don't worry, it's all gonna work out.” In our country here, corruption of regulators is subtle. It's indoctrinating them in the idea that what is good for the giant institutions is good for the economy, and that applying the rule of law or justice to protect consumers will hurt consumers in the long run, and if they buy into that idea, they're in your back pocket forever. Regulation doesn't work because it's a centralized solution to a centralized problem.

-And then there was Bitcoin, and Bitcoin offers us this really simple, elegant solution; the consensus algorithm. The consensus algorithm works by aligning the incentives of the participants directly with the incentives of the broader network by ensuring, not through regulation, not through rules, not through institutions, not through committees, not through infallible beings, but instead through the elegance of mathematical theory applied to game theory to incentives in a complex structures. The blockchain consensus algorithm ensures cheating doesn't get you the reward. That simple, elegant solution shouldn't work. It's the kind of thing that doesn't work in theory, but only in practice, like Wikipedia, or the Internet. If you look at it on a piece of paper, you think, “eyyah, that can't possibly work – what do you mean anyone can edit the articles? It's going to be a clusterfuck. Let's stick with Encyclopedia Brittanica.” [transcriber's note: no, I have no idea why “clusterfuck” is okay, but “mother-fuck” is not.] -And yet, in practice, it does works. In practice at scale, the simple, elegant alignment of incentives without comes through game theory works, and it worked when Bitcoin was tiny in 2009, and it keeps getting better. It's actually more effective as time goes

by. Now, we're looking at a multi-billion dollar economy where miners do not cheat. Have we discovered the most honest people on the planet? No, we haven't. Is the pie not big enough to steal? Of course it's big enough to steal. The shenanigans you see in the county committee to steal a few million dollars of waste management budget are legendary, and here we have a multi-billion dollar economy, and the miners are not stealing, and the reason they're not stealing is because the system makes it in their best interest to play by the rules rather than against the rules. We're not trying to build the system that asks you to not be evil. We've built a system where you can't be evil because it doesn't pay, and that is a better system. That is as better than centralized regulations as antibiotics are to blood-letting, and it's time to say, “it's not that we don't think regulation is the right solution for Bitcoin. We don't think regulation is the right solution for anything because it doesn't ******* work.” -And you can see that around us, every day: it doesn't work. If it worked, I'd be all for it. -And maybe it does work on a tiny scale for a very big scale, it doesn't work. This isn't just a matter of philosophical or political differences because when regulations fail to work, millions of people have their lives destroyed. This isn't just a matter of, “hey, it didn't work,” - yeah, it didn't work and half of America's middle class ended up in poverty, a third of home-owners lost their homes, your college education is worth shit, and nobody can find a job. That's not just a little “oops.” That's twenty trillion dollars that disappeared. That's 250,000,000 people who are in dire straits and have been for years, and are seeing no possibility of things getting better. That's not a little “oops.” I'm not opposed to regulation for Bitcoin, I'm opposed to solutions that don't work.

Let's look at this consensus algorithm, because I think we need to realize the future of cryptocurrency is the future of consensus algorithms. It's the future of scalable consensus systems that align incentives with the outcomes we desire, and we can take this and run with it. We can actually create better solutions for a much broader set of problems than simply, “don't steal the money.” We've already shown it works for “don't steal the money,” and now we can show it works for a broad variety of other systems. I'm most excited by the startups we see in this space that're taking the consensus algorithm system of Bitcoin and applying it to novel problems, not the Federal Reserve minting of currency problem, but problems about allocation of resources in a social environment, and even social interactions themselves. Proof-of-work is just the first step. One of the more interesting developments we're seeing now is other forms of consensus algorithms like, for example, proof-of-resource. There're a few companies working in this space, and with proof-of-resource, what you do is take resource that is currently under-utilized or completely unused, like, for example, the disk space that's free on your laptop, the bandwidth available on your access point that's not being used, the CPU capability of your desktop computer or even your mobile phone. -And they're saying, “how can we take that resource and share it?”

I can share that today. We have the protocols, we have the software to take resources that're under-utilized on personal computers and share them with others to create scalable, peer-to-peer cloud computing systems. How many of you here share your excess computing, storage, and bandwidth? There's a lack of alignment of incentives with outcomes. You don't share them because an abundance of altruism is not a good-enough reason for human behavior. That's a simple fact. It doesn't work. It works in very narrow scenarios, it works in very small, local communities, it works at local scale. You can create mesh networks. You can create communes, co-ops, and collaboration environments, but it doesn't scale. Consensus algorithms actually give us an opportunity to take incentives that only work on the local level and scale them up so they work on the global level. If you were able to share your WiFi and, as you're sharing it, the very act of sharing mined coins in a proof-of-resource consensus

algorithm and gives you a token that has value; a token you can then use while you're traveling, so at Marriot Renaissance, to pick a random example, asks you for $14.99 for 100kbps of WiFi, you can say, “**** off, I'll use the shared network instead,” and use some of your precious resources you've mined by being altruistic with incentives to now use the resource that is common. You mine coins by sharing your network at home, you go traveling, you use those coins to use somebody else's network, and suddenly, an incentive structure that'd only work if everyone was being absolutely altruistic, meaning it wouldn't work on a large scale, would work on a very large scale. Suddenly, in 2014, mesh networks that have been a glimmer of possibility, just on the edge of horizon for the last two decades, suddenly seem like they could be real, and they could be happening on a massive scale pretty soon. That is incredibly exciting, the idea you could take cloud computing resources from thousands and thousands of under-utilized PCs and set up cloud computing networks by proof-of-resouce mining.

The reason this works, or I think it'll work, is because consensus algorithms take an incentive structure and, through the use of mathematics and game theory, they align it with the outcomes you want to achieve as a community. If what you want to do is increase the capacity of a shared resource like WiFi bandwidth, and you align the incentive of a currency with that, it happens. If it's on a transparent blockchain like Bitcoins, you don't need to regulate it. I don't need to worry about whether the FCC is going to destroy net neutrality yet again on a proof-of-resource sharing network because there is no FCC.

I would like to believe regulation works, because then the fact that seventy-five percent of the Internet is against destroying net neutrality would be perfectly enough for the FCC to do its damn job, but they're not going to because they have many, many paid lobbyists whispering into their ear, “this is about greedy Netflix trying to get more money.” Well, guess what? I already paid for that Comcast connection, and if I choose to download Netflix, that's my money. Netflix doesn't need to pay again – I paid. You advertised 50meg down. Where's my 50meg? It's already paid for. The FCC is destroying net neutrality because it's suffering from regulatory failure, and if I had a proof-of-resource sharing mesh network, I wouldn't need to worry about that because net neutrality would be ensured by the combination of a consensus algorithm and a transparent blockchain. I wouldn't need regulation because the system is self-regulating. I wouldn't need to ensure one player can't dominate the environment because one player can't amass the resource to dominate the environment, and if they did, the incentive would be for them to share that resource for reward rather than use it to destroy the environment.

It goes a lot further than just allocating resources. One of the interesting experiments we're beginning to see, now, which I find fascinating, is the concept of proof-of-publishing, and the use of consensus algorithms to incentive behaviors on social media – positive behaviors that build community, positive behaviors that enhance conversations, the discussion. One of the organizations I work with – disclaimer here – Let's Talk Bitcoin is launching an ambitious project. I have no idea if this is going to succeed, and I certainly wouldn't suggest you buy into it, but I think it's worth looking at just to understand what Let's Talk Bitcoin is doing with this experiment, because whether Let's Talk Bitcoin succeeds or not in this experiment, I think the experiment tells us a lot about where consensus algorithms are going, and somebody else will eventually succeed here.

What Let's Talk Bitcoin is doing is creating a currency for content producers and content distributors that allows people to be rewarded by mining through publishing concept, so

proof-of-publication. If you write a good article and that article is read by many people, you earn currency. You earn currency by creating conversations that're valuable to other people, and it goes one step further. If you comment and enhance that discussion by commenting, you earn credits. If you provide reviews and editorial input by highlighting, upvoting if you like, the good stuff, and downvoting the bad stuff, and your editorial criteria are matched by others, so you all upvote things that other people consistently find good and also upvote, then you're contributing to the conversation and you earn more points. This is going way beyond just micro-payments and the ability to use currency to monetize content creation. We're talking about tying the very incentives of social participation and quality of content directly to the consensus algorithm, so using the consensus algorithm to incentivize exactly the behavior that makes for a good community. It's not just about throwing a coin behind Reddit, it's about changing the fundamental mechanism by which we organize social behavior on social media.

Yes, it would be very cool if Facebook announced they're adopting bitcoin as a payment mechanism, but if you look at this broader vision, it's actually be boring. What'd be really cool would be if social media companies paid you mediacoins for blocking trolls. I'd be able to supplement my income quite nicely because I have a lot of trolls, and currently, I'm blocking five or six of these trolls per week for free. Imagine if I could do that as my job and get rewarded because I'm removing negative influences from the conversation, and promoting positive influences, and I'm getting rewarded simply by the consensus by the rest of the community that what I'm doing is useful. That is a powerful form of regulation. That is a system of regulation that can work, that will align the varying incentives of individual behavior with the desired social outcome for better conversation. The vision I see for cryptocurrencies is so much bigger than currency because I see this as a way of creating self-regulating, dynamic feedback loops that allow us to achieve predictable outcomes in a fully transparent environment where you can see exactly how the behavior leads to the outcome and to the incentive structure, and where people don't behave well because we told them to or because we threaten them with punishment, but because the incentives to do so are overwhelming, and the disincentives to behave badly in the environment are also overwhelming.

That's why I'm opposed to regulation, because it doesn't work. That's why I believe strongly in the Bitcoin consensus algorithm, because it works. Thank you.

ABL: Thanks for listening to episode 124 of Let's Talk Bitcoin. Content for today's show was provided by Andreas M. Antonopoulos and Adam B. Levine. This episode was edited by Adam B. Levine, and produced by Coinsider This and Money & Tech. Music for today's show was provided by Jared Rubens and The New Time. Visit letstalkbitcoin.com to see our latest articles, hear the latest episodes, and of course, earn your share of LTBcoin dedicated to members of the audience just like you. If you have LTBcoin, you can do whatever you want with it, but a good use is to sponsor this show. We not only take advertisers, but also community sponsors who want to get their resume out there, publicize a job vacancy, or generally get a message out. From the front page of letstalkbitcoin.com, you can click “Sponsor and Spend” to see your options. These are still very early days. We appreciate your help in testing these theories. Have a good one!