Making Bitcoin A Currency People Use

of bitcoin. Yeah, pretty much, pretty much exactly that. You know what's funny, Like a like a year and a half ago or a couple of years ago, when bitcoin and other cryptocurrencies were like surging to the moon all the time. I remember people complaining to us, They're like, oh, you should do more bitcoin episodes, because we actually didn't do very many in uh, and now bitcoin and others are, you know, in the toilet price wise, the bubbles over

and now we have two in the rows. So maybe we're contrarians, or maybe our sense of timing is just completely off on what the market wants. Maybe having done the podcast for two years almost at this point, we are simply running out of ideas. Yeah, that's it's just gonna be bitcoin, Bitcoin, episodes from here on out, But this time I think it's gonna be a little different.

So last time, last week, we talked to a trader who wrote the bubble all the way up and then all the way down, And this time we're going to be talking to someone who's also still very active in it, but more on the development side and some of the interesting technological innovations that are happening in the bitcoin world, even amid uh the Bitcoin winter, so to speak, the

Bitcoin winter. I like that. But the general theme is similar to the last episode in that we are talking to someone and who still very much believes in the future of bitcoin and who is in fact actively working to make bitcoin work. Is that right? Yeah, exactly, So another die hard bitcoiner who has been with it a long time. And one of the things I want to explore on this one is, you know, people, even during the ups and downs, people are like, when are people

actually gonna use bitcoin? When will people use it to spend? When will it become a medium of transaction? And that is something that our guests UH this week is working on directly in terms of building out the technologies and the layer on top of the sort of core bitcoin blockchain to actually make it a useful currency for spending. So it should be an interesting conversation. Great, I'm looking forward to it all. Right. On that note, our guest

this week is Pierre Rochard. He is at Bitcoin Advisory, which is a firm he launched to help investors do their due diligence when buying bitcoin, and he is also involved in bitcoin development. So, Pierre, thank you very much for joining us. Thanks for having me on, Joe and Tracy. So, before we get started, how long if you you know, I follow you on Twitter. I have for a long time. You're one of a hardcore bitcoin maximalist. You don't double

another cryptocurrency. You've had a consistent pro bitcoin message for a very long time. You weren't just someone who got in the party in seventeen. So tell us a little bit about your history and background with bitcoin. Sure, So late two thousand twelve, I was wrapping up my master's degree and accounting at the University of Texas at Austin. Hook Them, Hook Them, and at that point I was I was hanging out with crazy libertarians, as you know,

Michael Goldstein and Daniel crewis there on Twitter as well. Uh, and we were. We were debating fractional reserve banking as libertarians do. Uh, and I at the time, I was a gold bug, sound money, a hundred percenters are banking type person. Hopefully we won't get into that debate today. And to get skip nail fast forward and I as part of our debate, bitcoin came up. And I had heard about bitcoin in the context of the Silk Road,

but I didn't really think much of it. But in this context we started we were talking about bitcoins, you know, twenty one million bitcoins, it's a monetary policy quinquin, and that that captivated my imagination and I went down the rabbit hole at that point. So Joe described you as a bitcoin maximal list, which means that you sort of don't believe in other um cryptocurrencies or coins. What's the

attraction for bitcoin? Is it a sort of first mover adoption advantage or is it something about the underlying technology what attracts you to it? Yeah? So, uh, at first, it was really that I had in high school. I'd been interested in Linux and open source free software, and when I opened up bitcoin, I realized that this is in the same vein as as that, and it really spoke to the authenticity of it, essentially, which was that the person who created this was a not someone trying

to get rich quick. They were actually trying to build a piece of software that would lead to a money in payment system that was decentralized. And that I found to be fascinating because that's kind of the only guarantee that we have for for for bitcoin maintaining its properties. It has to remain decentralized. If it becomes centralized, then all bets are often will either get shut down or it'll change its properties in terms of its monetary policy

or censoring people or whatever it is. And I'm deeply skeptical that other cryptocurrencies that are being promoted will be able to maintain their their properties and be remained decentralized. So let's just let's explore that a little bit further. We talked about maintaining their properties. So you mentioned the

fact that there will only ever be twenty one million bitcoin. Now, theoretically that could change, the code could change, but what you say is that it's pretty unlikely given the origin and the community, but that other coins where there may be a specific founder who faces political pressure or ideological pressure, those properties could change over time, and so in your view, the bitcoin maximalist view is Bitcoin has the best chance of essentially staying what it is forever, right, And you

you hit the nail on the head when you said that the code can be changed, because the code can be changed, and lots of people have changed the code and either released it as their own version of bitcoin, you know, giving it a different name, or the an all coin, or creating new code from from scratch. But ultimately you have to have other people run that code and run it on their computer and consider that code to be Bitcoin. And that is the biggest challenge is

persuading others to run your code. And the code is UM. You know, it's called a node, a Bitcoin node, and this node is going to communicate with this peer to peer network and essentially the lower the cost of running a node, the more likely it is that people will run one and thus make it decentralized. So let's talk about the current price slump in bitcoin. What actually has accounted for that fall? And you know you're talking about this idea of UM replicating the code and the Bitcoin forks,

do you think that played into it at all? Honestly, I don't. Uh, there's the people have been creating knockoffs of bitcoin for years now. Um, I think that what accounts for the fall is that the price went up a lot, and uh, it went from the bull Sorry, the previous bear market bottomed out about two dollars and from there it rocketed up to twenty dollars in a period of eighteen months or a little bit longer than that. But um, essentially you can't have a go straight up

like that and not expect a severe correction. Uh, it was not at twenty dollars long enough for me to get used to it. So four thousand dollars still feels very rich. But there's differing views on that. All right, let's talk about one of the biggest criticisms of bitcoin, and it's something you're working and others are working on to address. As they say, Okay, obviously it's a mode of speculation and people like to trade it, but no one actually uses it, and if they do want to

use it for a typical purpose, it's very difficult. It's cumbersome, it's slow. It takes a long time to confirm that a transaction has even gone forth. If the network is busy, then fees can be very high, which places many everyday purchases completely out of reach. Um that existing payment systems do very well for most of the things we want to buy. Um, you so are all the first of all, are these criticisms in your view? Fair? Absolutely? And Uh.

In response to those criticisms, Uh, there's they're in a kind of a bifurcation. On the one hand, if there's there's a lot of bitcoiners who entirely can see those criticisms and say, bitcoins a store value. Uh, And so it's it's more like holding gold, right was So you're not transacting in gold day to day, you know, shaving off scraps of gold to pay for your coffee. Um, it's a store value. And so I think the and that's essentially a narrative because I don't think that it

matches up to uh, the whole reality. It's certainly a part of the reality, which is that there are a lot of people who hold bitcoin in the same way that they would hold gold, and they're not actually even remotely interested in in finding out whether it's easy to transact in or not. They just understand that they are able to receive bitcoin and send bitcoin. Uh. To an exchange, and and then the speculat sation certainly exists and it is a big part of the market as well. Um

of essentially momentum traders seeing it going up or down. UM. Now there's a growing sense that there's a group of individuals who want to transact with bitcoin and UM part of it is people who they see the price go

up to x and they want to essentially cash out. Uh. And you can cash out by going to an exchange, or it might be more convenient for you to cash out when you're, for example, using an e commerce website and you're buying something and they have the option to pay with bitcoin, so you say, well, I already have too many bitcoin, let's lighten up my bags here and I'll use that option. So that's kind of on the

demand side for for making payments. On on the other side, you have merchants that maybe they want to be accumulating bitcoin, and accumulating bitcoin by accepting it in the course of commerce is has more privacy and possibly a lower cost than going out to an exchange and buying it, so that that's happening. On top of that, we have this phenomenon of existing payment processors censoring individuals based on either

political reasons or they're they're just de risking, right. Uh. And because they're they're complying with k y c mL regulations and they don't want to be on the wrong side of the regulators, so they're cutting people off even though they don't have uh you know, the person has

not done anything wrong, you know. And it's across the ideological spectrum, right, because we have people who are running marijuana shops in Colorado and you know that's probably more democrat, you know, left leaning, and then on the other side, you have people saying politically incorrect things on the Internet

and getting shut down, and that's sheneringly more on the right. Uh. So I think that across the ideological spectrum our our politics has gotten so polarized that the corporations get dragged into it and they get lobbied to kick people off their platforms. Uh. And that opens up an opportunity for

using bitcoin in in actual transactions. So here's my question, Like, if we back up to the moment when bitcoin was created and you were talking about the underlying technology, if it wasn't supposed to be a store of value or

a tool for speculation. Then why didn't we sort of have a process embedded into it from the very beginning to make transactions easier, Because it's not like people didn't see this idea of database sprawl or you know, a really long ledger sort of hanging back and forth and really bulking up transaction time is coming, right, that's correct, and Citaian Documento had a he had included a feature that wanted to be lightning, but uh, he didn't have

it fully thought through, and so his his first iteration on essentially and well, let's let's get into this right, which is that bitcoin is a a global broadcast system where you are having all of the nodes agree on the ledger and that imposes a huge amount of cost on the nodes, where essentially it's a negative externality. Every transaction is adding data to the ledger that everyone has

to verify, so that doesn't scale very well. It's uh, essentially, what the result is that fewer and fewer people run notes and then it becomes centralized. So we needed a system that allowed us to send payments without globally broadcasting and that's so so Tocia had had this in mind, but uh, the way he clemented, it just didn't work. Before we get further, I just want to sort of make sure people understand this concept of global broadcasting and

why it's so cumbersome. Because we blockchain technology. You often hear people say, oh, it's really efficient and it's gonna, you know, reduce all these costs. But it's inherently, at least in this version, very inefficient in the sense of you imagine I was sending you a text message during email. I think people could imagine a system in which the only way I could do that is to then send a copy of that email to everyone who has ever gotten an email ever, so they can all see it.

We can all see why that's just insanely inefficient. It happens to be necessary so that uh, for the decentralization purposes, that there's no centralized database. We all have degree on the emails we've sent. But as uh, you know, as a system that just accumulating data, extraordinary negative externalities exactly, and thankfully there there's an opportunity here to solve that problem.

With a paper that was released back in two thousand fourteen describing what's called the Lightning network today and the Lightning network essentially says Okay, let's let's use this global broadcast system as a a system of last resort, essentially as a supreme court. And when when you're doing business, uh, you don't take your contract to court every time that you are relying on that contract. UH. You only take

it when there's a dispute uh to the court. Uh. And that's otherwise it would be a completely unmanageable uh judicial system. So that's the idea behind lightning, is that you only go on chain when there's a dispute about

the state of your what's called a lightning channel. And UH, this lightning channel, you you open it up by doing an on chain transaction and once it's open, now you can send value back and forth and you can be routing value around without having to trust your counterparties and while maintaining a lot of the same properties of of bitcoin. There are trade offs, but we can get into it, well,

so what are the tradeoffs exactly? And you know, if I could be cynical about it, it sounds like you're sort of creating an additional layer on top of a system that has at various times already been criticized for being sort of unwieldy in various ways. Yeah. Absolutely. So the main trade off today is that you have to keep your bitcoins online, and there's been a lot of user education about not keeping your bitcoins online and putting them into what's called cold storage, right, which is either

a hardware wallet. Uh. There are a few popular ones, including a treasure and ledger, or just printing it down on a piece of paper, writing down your mnemonic seed and putting it into a bank safe deposit box, which is also a little uh iron But so with with Lightning, you're you're asking users to keep their funds on their computer or on their phone, and really there it's just about managing ricks. So it's I think of it as

a checking account. You wouldn't put your entire fortune on it. Uh, it's just so a way of being able to have some walking around money. Um. Now, in terms of the complexity from the user's perspective, that's a fair criticism. And I think that there's there's a lot of energy within the Lightning community into having a very seamless user experience, so that you don't even know that you're you're on Lightening. It's all abstracted away, so it feels like you're on

on Venmo or on a square cash app. Does that exist currently or is that what you're working on? Essentially, Like I know that the Bitcoin core software is probably unrealistic for most people to download and run on their computers. Is the software to run eatening so that I could theoretically one day go into a Starbugs and pull up my phone and scan a QR code and make a payment for a two dollar coffee and it would instantly take it out of some bitcoin wallet that I have.

Is that going to be easier and less cumbersome? Yes, we have a very clear path to that, and it's just a matter of executing on it. So at this point in time, you do need to be running a Bitcoin node that then connects that you're lightning, so you're running two notes, a Bitcoin node and a Lightning note. And that's the software I've been writing to to help

with that. And uh, the software I have called the node Launcher works on desktop and laptops And essentially the main drawback there is that you have to download two gigabytes of data. You don't necessarily have to store it, but you've got to download it. And here in New York city. That's fine because we have fiber and everyone has a good internet connection, But once you get into rural parts, even in America, uh, that that's just not

even an option. They can't download transer giarbytes. Thankfully, we have a an innovation that has been worked on for a long time now that's going to be out this year. It's called Neutrino, and Neutrino allows you to not have to download the entire two untrigearbytes uh. And it will make it so that you can use lightning on your

mobile wallet without using a bitcoin note per se. So I have a sort of existential question which is, let's assume that you you figure out a way, um, you know that this way of transacting and bitcoin is more efficient, it is easier for people to use. Does that end up solving the speculative problem which we've seen for bitcoin um And by that I mean, you know, a reluctance of people to use it in day to day transactions because they think that the price is going to shoot

up to the moon at some point. And there's a specific example that I have in mind, which is, of course, um, the infamous pizza a. You know, like I think it was eight or nine years ago or something when we had one guy who paid for pizza using a bunch of bitcoins that, you know, a year ago would have been worth millions of dollars, and it's kind of funny, but people also sort of made fun of him about it and said, Oh, I can't believe you did that, and you wasted so much money. How do you overcome

that problem? So I think Lightning is going to make that problem worse because ultimately people's anticipation or their projection of where the bitcoin price is going is based on the technology and the fundamentals that are going to be driving the adoption that would cause the price to go to that level. And so if if we with Lightning, if we demonstrate that it's going to be a very efficient system that's going to attract a lot of adoption, then we can expect the price to to go up

even more than it otherwise would. So I think that it makes the problem worse in that regard. And really I think that the solution is just going to be time. And what I've seen is that people who have owned bitcoins for a while, they are essentially overexposed to bitcoin,

and they're always looking for ways to spend bitcoin. UH. So I think that will will see essentially, the people who bought it twenty thousand dollars in two thousand seventeen, they might be in the hottele mindset for another decade UM. But people who who bought it five dollars or a thousand dollars, uh, they might be thinking about how how to uh you know, buy a hard drive on on online to um or. And the other aspect of it is that, um, you people who even who are buying

it today, UM, they want to experiment. They are fascinated by the technology, uh, and they they're very bullish on the price, but they're also interested in educating themselves and improving their under standing of bitcoin. And uh, I have a lot of people who are very new to bitcoin who um want to learn more about lightning because they just find the idea of a decentralized payment system to

be fascinating. So I think that you'll have people who both are hoddling bitcoin and also transacting in it in an experimental way but on some level. And I think it's kind of implicit in what you're saying and when you describe the people who use it now using bitcoin isn't a way as a means of transacting, even if it were really smooth, it's still a sort of um,

kind of a medium of exchange of last resort. In other words, if all you're doing is going to Starbucks and buying a coffee, even if it were incredibly simple, Uh, you know, just scanning your phone across a thing, and it's still like, there's not much reason to do it for transaction like that, even in the most simplistic scenario. No, there isn't. You could make arguments about privacy. For example, you know, do you want visa knowing that you go

to Starbucks every day? I think that most people don't care about that at all. Um, And yeah, that's that's exactly right. It is a I think that the most underrated aspect of bitcoin is optionality, right, and owning a little bit of bitcoin and having a little bit on your phone gives you an extra option. Uh. And it's it's that it's kind of a form of insurance from

a payment system perspective. I want to go back to something you just said about You say, people are um who are getting into bitcoin now it feels like obviously interest in bitcoin is significantly less than it was a year ago. I think it's safe to say. But in your world of people who are super into the technology and hacking away at lightning and building this out, do you still see growth in that community? Yes, to my surprise,

I do. I hope stay podcast the noted Bitcoin podcast, and uh, I joked that we're not getting any new listeners, and then on Twitter the next day I got a d M of Hey, I'm a new listener, so keep it up. Um, So there's definitely there's new developers and new users coming in all the time, and I'm still

accumulating followers on Twitter to my surprise. But um, I think that there's a a sense, you know, we just had Bitcoin's tenth birthday, and uh, there's a growing sense that like this isn't going away, and this is here to stay and it will at least be here for another decade. So there's a surprising amount of continued interest in it, even at the depths of what people see as a bear market, even though I still feel like

we're in a bull market. So what would it take for you, as a bitcoin believer, bitcoin maximalist in fact, what would it take for you to sort of lose faith in bitcoin and change your mind. Yeah, I think the if h if bitcoin became um centralized enough to the point where people were making changes to it that I thought were unwise, and um that that almost happened in two thousand seventeen. We almost had a hard fork

that I thought was misguided. Um. And if if that hard fork had succeeded, then I I would have likely lost faith in in bitcoin. Uh. Thankfully it did. It failed miserably, So Uh, that was a moment of victorious joy. Um. But that's not a guarantee that it won't happen in the future. So there's that aspect of it. Um. And then from from the price perspective, I think that I would question, uh, my, my understanding of what is driving adoption.

If the price got down to you know, below a thousand dollars for an endless period of time, you know, for a couple of years or something, then I would I would question if the adoption drivers that I had analyzed had disappeared or I was under you know, a euphoric case. Well, uh, we'll come back and have you back on the podcast. If bitcoin is stay, does stay for under a thousand dollars for a while and uh,

we'll see if you've reassessed your euphoricques. Pierre Rochard, thank you very much for joining us, Thanks for having me out. Thanks Pierre. That was great, Tracy. I really like that conversation. And you know, what I felt was my favorite part was actually the analogy between contracts and the court system.

I've never really thought about that before. That all businesses, all transactions have some sort of contract, and the there is the implicit backing of the court system saying yes, this is who's on the right and wrong side of the contract. But if we had to actually have the courts adjudicate every contract, um, it would never work. And I thought that was a really interesting analogy that I that makes a lot of sense in this context that I just never thought about before. Yeah, I really like

that one too. But I guess my the one question I have having listened to that conversation is there's so much effort being put into bitcoin and other crypto related projects, either you know, to roll them out in terms of adoption or to make transaction easier, And sometimes I just wonder why, right, Like, why why put all this time and energy and money into a project to create a decentralized form of money, and you know, Pierre sort of

touched on the libertarian arguments there, and then I start wondering, well, you know, if bitcoin did actually take off, is there not a point at which governments do actually revolt against it and crack down anyway? Anyway, those are my thoughts,

shower thoughts on crypto. Yeah, on the flip side, I do think it's very interesting that I think when a lot of people, and I would say certainly the media and speculators and Wall Street in particular, have sort of given up on bitcoin or lost interest, and you certainly don't hear very much about institutions wanting to buy in anymore these days, that there is this community that continues to grind away at the core project of building out the technology and making it more usable and making it

more decentralized. And I think that it's sort of very um and I don't I don't mean, not bullish in the price sense, but bullish in the longevity of the project, since that regardless of the price swings, they're just the people who are still building it out. Yeah. Absolutely, I mean that this is basically what we've been talking about for two episodes now there are very dedicated crypto believers,

and there's a very dedicated crypto community. And you and I both remember at this point, I think twice now, two thousand eleven and two house and thirteen, we did have a big run up in the bitcoin price on a relative scale and a big drop, and each time we had a bunch of people saying, Oh, this was the end of it, this is the end, It's going to die, and yet it continues on and people still

really really have faith in it. Yeah, And to your question about, like, well, one, what happens when there is the real government crackdown and they really get aggressive about trying to stamp it out. In theory, the technological work that's being done now to make it more robust and more decentralized and more able for people to run their own nodes will make that that eventual crackdown even harder to execute. Yeah, Joe, do you have bitcoins that you can use to buy me pizza? Uh? Why would you?

Why would you want to have pizza? But um, there's got to be something better to buyan pizza? Right, that's true, That's very true. When I'm in New York next Okay, all right, well, this has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi isn'hal. You can follow me on Twitter at the Stalwarts, and

you should follow our guests on Twitter. Pierre Rochard, He's at Pierre Underscore Rochard, and you should follow our producer on Twitter tofur Foreheads. He's at foreheads T, as well as the Bloomberg head of podcast Francesco lead at Francesco Today. Thanks for listening.