Lets Talk Bitcoin! Episode 2 Transcription Participants: Adam B. Levine Host (AL) Andreas M.

. Antonopoulos Co-Host (AA) Stephanie Murphy Co-Host (SM) Daryl Ex day-trader at BitFloor (D), relevant to second segment at 07:08 David Perry Journalist at Codinginmysleep.com (DP) relevant to fifth segment at 24:00 Peter Dushenski De-geekifying Crypto (PD) relevant to seventh segment at 53:54

AL: Hi and welcome to Lets Talk Bitcoin, a show for users new and old of cryptocurrencies and the current king of them all: Bitcoin. Coming up on todays show: Project Talk!; listener Daryl takes the first Horrible Warning of the Week Award with his story about Bitfloor; the Anti-Gox we talk about everything Buttercoin; Promises promises: Paypal weighs in on Crypto and the latest great miner gear does anybody buy the hype?; I sit down with David Perry of Codinginmysleep.com for a heart-to-heart on Butterfly Labs; is Bitcoin the way out of government corruption for third world countries? Mesh Networks for rural cryptocurrency use fact or fiction?; and finally, Correspondent Peter Dushenski checks in on De-Geekifying Cryptography. To subscribe for free to our twice-weekly show, please visit us at Letstalkbitcoin.com. We havent really talked about this yet but Lets Talk Bitcoin runs entirely on donations and my out-of-pocket expenses. We have started accepting advertisers but thats not really a place, based on listener numbers, thats bringing in any money. If we can hit one bitcoin of listener support per show, well be able to bring on a fulltime associate who will join me in my task of hunting stories and conducting interviews, which means more and better content and more frequent releases of extra interviews on off-show days. So far, weve received 0.8 bitcoins from a total of six donors for Episode 1. Thank you very much. These larger donations are great, but it would be better if we had 100 listeners donating 0.1 bitcoin, than 10 listeners donating 0.1 bitcoin. So even if the amount you donate is only a little, please remember that with Bitcoin theres no such thing as too small to matter. Were also looking at a membership or subscription model for extra and early content. The Saturday/Tuesday show will always be free, but were looking for others ways to help the show support itself whilst giving listeners value for their value. If you have ideas or suggestions about this, please email adam@letstalkbitcoin.com.

And finally, if you cant support the show financially, you could still help us out quite a bit by sharing with anyone you think would or should be interested in the future of money. Lets Talk Bitcoin is released under an open-source license, which allows for the non-commercial clipping, remixing, and posting in any format and to any site you want so long as you include a link to our site Letstalkbitcoin.com. Were also actively recruiting both on and off-air talent for this and other shows to come. Once again, if youre interested, please contact me at adam@letstalkbitcoin.com. AL: My name is Adam B. Levine. I am a writer and speaker who likes to explain complicated topics in understandable terms. Thats really what were doing here taking the complicated topic of cryptographically-secured money, and helping people see what it could mean in their own lives. Joining me in our quest for clarity are Andreas M. Antonopoulos an expert in centralized networks and secure systems. AA: Hi. AL: And Dr Stephanie Murphy, a scientist and radio host. SM: Hi. AL: Thanks for taking the time out of your Saturday, everybody. Lets talk Bitcoin. One thing that I have definitely seen as weve gotten to know the Bitcoin community more is that everybody has a project. This is not something where people get involved and theyre like oh great, Ive got a couple of bitcoins now so Im done with it - most people who have been viewing this as an opportunity are building services and have really neat things that theyre doing. I wanted to set up a per-show instance of us talking about the projects that were involved with, both for disclosure purposes and so that people can figure out the other stuff that were working on. Stephanie, I know youve got some projects: whats hot on your list right now? SM: Yeah, I have a ton of different projects, but the one I wanted to focus on today is [that] Im a host of a nationally-syndicated radio show called FreeTalkLive, and Im hosting the show on Sunday nights, but its heard actually on every single night of the week. Its on terrestrial radio as well as XM and on the internet. You can check that out at Freetalklive.com. They talk quite a bit about Bitcoin actually, especially when Im on the show. AL: And Andreas, youve had a couple of open-source that have opened in the last couple of weeks. Which one do you think is your favourite right now? AA: The one thats getting a lot of traction is Open Bitcoin Store, which is on Openbitcoinstore.com. Its a community effort to help people create retail stores that buy and sell products and services in Bitcoin. Since its a technically-difficult area to work in, what weve done is created a simple store launch wizard, where you just give a store name, an email address, and a password and thats all no credit cards, no personal information. You hit launch and twenty seconds later [you have] a

full e-commerce store that takes Bitcoin. You can just use it and its hosted for free and has technical support online for volunteers. That sounds like a pretty good proposition and in fact we got sixty store launches in just the first week and more than 140 applications so far, and about 10 stores are launched every day on that platform. Im very excited with the growth. SM: That sounds great to me, Andreas. Id like to make one! [laughter] AL: I actually already did. My project this week is actually Bitcoin packaging. My background before I got into this space was in the sale of industrial and institutional packaging supplies, which is not a super sexy topic, but as far as meeting the needs of businesses, thats something thats gonna need to pop up. I have relationships with brokers and things like that, so were gonna be offering all kinds of packaging for business needs, exclusively for Bitcoin. And at below market prices, because were brokers so we have the ability to get quite low prices. SM: Thats exciting, and it could be sexy if you think about some of the dresses that Lady Gaga wears. [laughter] AL: Thank you Stephanie for trying to help with the packaging pitch. I dont think that everybody was planning on going, but I know that now were all planning on going to the Bitcoin conference coming up in San Jose next month. Im giving a brief talk called YouTube is Broken, rethinking content monetisation with Bitcoin. I know that you guys are doing some things too. SM: Yeah, Im going to be there and as I mentioned Im involved with FreeTalkLive theyre gonna be casting live from the conference and Ill be doing a live broadcast with FreeTalkLive on Sunday night, almost as the conference is ending. Im also moderating a panel discussion, about non-profits and the Bitcoin world. Theres gonna be several non-profit organisations talking about the intersection between cryptocurrencies and how they can benefit charities and non-profit organisations, and how non-profits can benefit the Bitcoin community and the Bitcoin world. There was recently a survey about Bitcoin users, and they said that the most common use of Bitcoins was actually for donations. But yet, theres this reputation that people are just buying drugs online and obviously thats not true, so we want to really play up the donation angle and talk about it some more. AA: That sounds superb Stephanie. I would agree with your premise that this is a gift economy more so than anything else and thats an interesting topic perhaps for another discussion. Ill also be at the show, and Ill be talking about Bitcoin neutrality - one of the prerequisites and necessary conditions for Bitcoin to be ready, when that event happens. Ill be talking about what that means because I believe there will be

several precipitating events that will lead to sudden and massive adoption of Bitcoin, at least in certain geographies. And so the topic is: how do you prepare for that? How do you make sure that Bitcoin is ready to be adopted in any culture and any economic system and in any geography anywhere in the world? AL: So if youre going to be at the San Jose conference and you want to talk with us, absolutely send us an email at adam@letstalkbitcoin.com.

AL: After last weeks BitFloor closing, Daryl reached out to me. Not trusting Mt. Gox, he had moved his trading to BitFloor, and when things fell apart he was caught in an awkward situation. He told me about it this morning. D: Basically, I moved to BitFloor because of the problems with Mt. Gox and I wanted to find a more domestic place to trade. Unfortunately, I made the mistake a lot of nerds do as theyre getting into Bitcoin in thinking [that] suddenly I can be a daytrader, which actually kind of worked out fairly well initially. The problem was [that] I had done a sale and I was waiting for the buy order to fill, and just as it was about to fill, BitFloor went down for about three-and-a-half hours and when it come back online it instantly shot up [by] twenty dollars which sucked. I started getting a little gun-shy about the idea of day-trading. One success and multiple failures were not making me happy, so what I did was I put in a limited order that was fairly high at the time it was about ten dollars over what it was actually trading at. So what my thought was if it spikes up and fills that order, then spikes back down (because it had been very volatile) I could just turn around and buy it back. Then as I was watching it, suddenly the order filled and then trading stopped, which was weird. It turns out the reason that the order filled is because some of BitFloors customers had been emailed, indicating that they were going to shut down. Not me, but others had [been emailed]. So what happened is the people who got the email immediately turned whatever cash they had at BitFloor into Bitcoin selling through my sell-order because they can take Bitcoin and move it without anybody elses intervention. For my part, I wound up with a lot of cash that I cant do anything with. The bank shut down BitFloors accountAL: And now its just kind of frozen there. Have they given you any sort of timeline on when thats going to change? D: What they have announced is that the bank has mailed them a cheque. The problem [with that] is if they cant find banking services to open an account with, deposit the cheque, and then turn around and disperse funds, I dont know when or how Im going to get any of my money back - or if. Now, from all accounts, the person running BitFloor is an honest operator, and I will probably get my money back but I dont know when because the banking system has decided to make that very, very difficult for him. For me, this underscores that Im likely to get my funds back sometime, but the problem is that because they mailed the cheque to BitFloor,

BitFloor has to find a way to deposit the cheque because presumably the cheque is written out to BitFloor and you cant deposit or use a cheque to a company without opening an account under that companys name. If he cant open an account anywhere in that companys name, how can he do anything with it? The last thing I heard was from April 20th, where publically displayed on the website was a message saying that theyve mailed the cheque and expect it within ten days, then well figure out how to get the money to you. At that point, hopefully he can open an account somewhere wait for that cheque deposit to clear, presumably its certified funds [which] wont take long and then find a way to get the money back to all the student banking system. That will take 3-5 days to clear back into my account, and then another 3-5 days for me to get it to, say, Dwolla, and then another 3-5 days from Dwolla to some exchange rate account where I can actually use it. All-in-all, its basically meant that I have no access to my money for (by the time this is done, say) a month. AL: Assuming everything goes well and to plan, as they have it right now. I mean, if things change then that could even stretch [it] out longer. D: Right. Meanwhile, everybody who had converted their funds to Bitcoin has them now. Theyre immediately liquid. To me, [this] is just a story that underscores two or three times how Bitcoin is so much better than our current banking system. AL: One of the things thats been a theme and I think is going to be a theme moving forward is that in this unregulated environment and by unregulated I mean the rules are subject to change at any time, not of the currency itself but how the currency is being handled and how the businesses are handling it and things like that if you cant be a shining example then at least be a horrible warning. [laughter] AL: So what do you think the take-away is for somebody who is hearing this and what mistakes would you do differently next time knowing what you know now? D: Well, my plan going forward is to take what funds that I have from this, what I can recover, and probably move them to an exchange where I can turn it back into Bitcoin, or possibly just use LocalBitcoins to do it although the prices there tend to be wildly varied from actual market price. Take my Bitcoins home and hold them. I dont see much of a reason to trust either exchanges or the banking systems, in between us and the exchanges at this point. AL: Do you think that day-trading is something that youll do again in Bitcoin? D: No, no. Its the common nerd mistake to think that youre good things intellectual and day-trading is sort of an intellectual exercise in some respects, but Ive found that it doesnt...Ive found that Im not good at it. AL: Yeah, it just doesnt translate that well. Im familiar with this too.

D: Ive spoken to other people in similar situations, like yeah Ive tried day-trading a little bit and found out very quickly that...its not good for me. AL: I think a lot of the time people try to look at it they try to apply logical standards to the markets, and I think thats where at least Ive run into problems personally. I day-traded very briefly maybe a year ago in Bitcoin and that was the problem I had that if you have an unpredictable market then its very difficult to predict the market. You can predict volatility but thats a dangerous game to play if it goes against you. D: Exactly, exactly. My ability to predict how code works and how systems work does not translate well to how markets work. AL: Right. Daryl thanks for taking the time to sit down with us and share your experience with this BitFloor mess. I really appreciate it. D: Thanks for listening. -ADVERTISEMENTFEMALE VOICE: If I showed you a website where you could easily purchase electronics from the worlds largest distributor with Bitcoins at 0% mark-up, would you think it was too good to be true? Good news: its real, and its at Bitcoinstore.com. Choose from half a million items, save money over Amazon and NewEgg, and convert your Bitcoins to real-world items. You can even buy with privacy all they need is a shipping address. But dont take my word for it, see for yourself at Bitcoinstore.com.

AA: One of the things I find fascinating about Bitcoin is a lot of the people who join are really idealists, and sometimes they have this naive audacity. They try to solve problems that people believe are not solvable, and thats how you succeed. One of the latest projects that exhibited that kind of attitude that I really got excited about is Buttercoin. Buttercoin is an attempt to build an exchange that performs a ton better than the existing exchanges, that is completely open-source, and that can handle an order book and order capacity volume in the tens of thousands of operations per second rather than the current tens of transactions per minute [which] seems to be the ceiling. This is an effort really to right the stock exchange it started with an individual saying Ive had enough of all of these problems, meet me in my apartment tomorrow and just waited to see who came. Lots of people showed up. That started a project where teams of people working 24-hours a day round the clock, swapping from geography from geography as people were finished here, people from Germany were waking up and then people in Japan were waking up after that. Work has continued for almost two weeks non-stop. The results are pretty impressive, and were going to be doing some interviews in following shows to talk about performance, results, and where this project is heading. Its a very, very exciting project.

SM: Andreas, can I ask you a question? I made a post about Buttercoin in one of the Bitcoin groups that Im a part of online, and somebody responded Is that when you see a woman that youre interested in and you think everything about her is attractive except her coin[laughter] AL: Thats terrible! SM: It was! But Im seriously wondering why is it called Buttercoin? AA: The transactions flow smooth as butter. The idea is to make it frictionless, right frictionless commerce, frictionless transactions and to have an exchange that just flows. So soft, silky, smooth and no friction. AL: Even this early in the project, theyve had pretty incredible results in terms of just the amount of trades that theyve been able to execute in their test markets. The rate, like you said were talking hundreds of thousands of transactions per second versus tens of transactions per second with the current status-quo system. [Do] you think that Mt. Gox is going to survive this if an open-source architecture is released that makes them look like a horse-drawn carriage compared to this new Fiat? AA: I think they will survive, in fact three days after the initiation of this project I downloaded the sample code and ran it on my Mac Air laptop and achieved about three hundred thousand transactions a minuteAL: Wow. AA: -on my laptop. Obviously thats not the whole system but its an indication that they started on the right foot with no optimisation just from the architecture you have an emergent scale that is 2-3 orders of magnitude higher than that of the existing exchange. Whats exciting about Buttercoin is not the idea that someone will take this and build one exchange. Whats exciting about it is that with this a hundred exchanges can be built in a hundred different countries and that will create a broad base of high volume, capable, resilient exchanges. So people will move on to solving the problems of regulatory compliance and banking walls, instead of trying to build an exchange on PHP and MySQL we know how that is. SM: So Im wondering what features, if any, are built into Buttercoin to provide security or to protect against DDoS attacks? AA: The main concept behind it is to create a resilient architecture which scales out horizontally, where different components can be separated. Theres a very big effort to do a separation of concerns that means that if you attack the front ends, youre really taking down the front ends. Its not related to the exchange-trading engine or the order matching engine of which of course there are many collaborating instances. So the whole idea is that you have an architecture where, sure you could

take out on piece of the system with a DDoS but it would just spawn another. Its applying whack-a-mole from the moles perspective.

AL: So theres been a lot of talk in the Bitcoin community recently about comments made by the CEO over at Paypal. Theyve said theyre looking at Bitcoin and its very interesting and so people have taken this as well that means theyre going to adopt it. And thats not really how I read the situation Andreas what do you think about the Paypal comment? AA: Im not too sure what to make of it at the moment. They were really talking about using it as a funding mechanism more so than anything else. It would be interesting to see if they exchange Bitcoin within that funding equation, because that would make them an exchange and a robust one which would be an interesting entry into the market, but again, I dont think thats what they were talking about. I think really its just hey this is interesting, we heard about it, we may look into it and beyond that, who knows. The other part of this thats interesting is that were looking at Paypal now as a legacy banking institution even though its only 15 years old. SM: So many people who use Bitcoin [are] excited about it because it allows them to get around some of the worst things about something like Paypal. Paypal was wonderful 15 years ago when it came out as a way to send payments online and is relatively secure - people use it. But with Bitcoin, you dont have to pay these high fees that Paypal has, nobodys going to lock down your account or confiscate it which can happen with Paypal, and you dont have the risk of charge -backs which is also a big problem for people who sell with Paypal. So if Paypal integrates Bitcoin, are they going to integrate all those features that people dont like about Paypal into Bitcoin? Does it kind of defeat the purpose? Although, I guess Im a little bit mixed on this because I know that if Paypal adopts Bitcoin, it will probably be a great promotion for Bitcoin and it will get people more comfortable with using Bitcoin that werent [comfortable] before. AL: I think the advantage that Paypal brings to the table when it comes to online payments is that its an online payment system that interfaces well with the US Dollar, and it interfaces well with a couple of other currencies too. Bitcoin is, on its face [value], a competitor to Paypal not something thats complimentary because everything that Paypal does, Bitcoin does better except that interface with the US Dollar. When I see anybody talking about something like this, [I say] put yourself in their perspective - clearly it would be a bad thing for Paypal if adoption of Bitcoin became pervasive around the world. I have to think that this something where theyre acknowledging it so that at a later point they can say we looked into that and its just not for us, its just not safe for us. However they want to portray it, if you think about it strategically thats the way I think that you would want to approach this if you were a competitor of Bitcoin.

AA: I think that they have 3 or 4 years during which they could continue to say that, but in the end I think this announcement is actually more akin to Blockbuster getting into the business of digital video distribution they had to because they had no choice and in the end it made no difference. Bye-bye Blockbuster! SM: Bye-bye Paypal. AL: So 250 gigahashes per second is the new gold standard for mining speeds. Do you guys even think this exists? I mean, were still waiting on the 5 gigahash ones to come out from Butterfly Labs. AA: Im coining a new term called fanware. Thats where you have a box of fans, nothing much more lets see if its fanware or not. SM: Theres a company called KnCMiner. Theyve announced that they have these units that are called the Mars and the Venus or something like that theyre named after planets, [might be] Jupiter? Mars and Jupiter? The Jupiter one goes up to 250 gigahash per second. That would blow the current technologies even the ASIC which hasnt yet shipped out of the water. But the question is, is this real and will it be able to live up to their promise? Or are they just talking big? I am super, super sceptical every ASIC that weve seen come out so far has been different than originally planned. It seems like there are a lot of unforeseen things but who knows? Maybe KnCMiner has already done some testing, they just arent talking about it and they really do have the ability to deliver this. AL: I just hope that people can take away some lessons from the people who are stuck in BFL products and make sure that if you want to buy something, you dont pre-order it with Bitcoin. If youre going to pre-order it, pre-order it with dollars; if you just want to wait to pay with Bitcoin until its actually available then do that. Preordering is a bad idea because in a volatile currency youre going to wind up feeling really stupid either way. AA: Lets look at what Moores law tells us about this situation. If you assume that people who are building ASICs know how to build the algorithms and theyve squeezed out most of the optimization they can get out of that, then essentially were tied to Moores law. So, if youre building 6-10 gigahash per second rigs today, in 18 months we should expect the same level of chip technology to have either decreased in price by half or doubled the capacity for transistors. Essentially, we are at 12-20 gigahashes per second. I dont see a 6-250 rise in that period of time so what that tells us is either theyve found a better way to implement the algorithm in an ASIC its a revolutionary technology upgrade rather than a simple capacity upgrade, due to Moores law. SM: There hasnt been too much detail about these Jupiter units, only that they cost $7000 on the pre-order. People are really putting a lot of faith into these things. I can understand Im kind of tempted to fall prey to wishful thinking essentially and not

apply the proper scepticism because the evidence weve seen so far with Butterfly and other companies is that they just havent shipped. I can see how a lot of people are going to get really excited about these miners, but the proof is in the pudding and they dont have it yet. AL: Its these painful experiences that are going to teach the community whos real and whos not. Its a very painful experience that has to teach us whats going on. Its a good thing and a bad thing about Bitcoin. I actually talked with David Perry the first guy to get his hands on one of the BFL units who did not pre-order one incidentally. They sent it to him because he had been unbiased in his coverage of them which I thought was really interesting. We had a good conversation about this. [musical interlude] AL: Were here with David Perry - the first man on Earth to have his hands on a BFL unit. David, what do you think? DP: I think technically the people inside BFL had their hands on it before me but to my knowledge the only ones that have ever been seen outside of BFL are the ones that they shipped [to] Jeff to write BFGMiner around. I dont know, I think he might have actually gone into their facilities to do that so you might be right. Its been hashing along just fine 5-5.5 gigahash on average. Its not nearly as noisy as the video made it out to be. I just have a cheap camera and it picks up certain frequencies more than others. AL: Lets talk [about] a bit of background for a second. How long have you been mining not on ASICs? DP: My extremely patient wife allowed me to have a mid to large scale...it was 14 Radeon 5830s[appreciative whistle from AL] DP: -back when Bitcoin was climbing up to 30. We kind of wiped out in the crash and I ended up selling my GPUs off to get an FPGA unit just because... at that point it wasnt necessarily the most intelligent move going to FPGA, Im very glad I did it in retrospect but that was still when everyone was saying no FPGAs arent really worth it unless your electricity is very expensive. I live in Las Vegas, weve got Hoover Dam the electricity is very cheap here. But I went to FPGA just to appease my wife and Im very glad that I did because thats the way that everything went. Now everythings going ASIC Im very surprised at this point to actually hear my wife saying so when is Butterfly Labs going to ship you the next one? [laughter] AL: So when were talking about the crash, youre talking about not this latest adjustment or crash-

DP: No, the crash from 30. AL: Right, the crash from 30. So were talking about last year last year you sold all your units and converted to FPGA, is that right? DP: That is correct. AL: In the amount of time youve been mining do you have any idea of how many coins youve mined? DP: I bounced around a little bit here and there but Im saying about 140 or so. AL: OK thats pretty good. You mined for a year, year and a half? DP: I did, I mined for about that. AL: Now that youve got this ASIC unit ASICs are supposedly the pinnacle of computing power thats targeted towards the mining process. Is that about right? DP: That sounds about right. Basically what were talking about is were moving from the least specialized to the most specialized hardware. In the very beginning it was all CPUs it was just your computer processor thats built to do things, then it went to GPUs that are built to do slightly fewer things, then FPGAs that are like a chip that you can program to pretend to be any other kind of chip. We programmed them to pretend to be Bitcoin ASICs essentially, but they were never even close to being as efficient as an actual ASIC, and now weve moved on to actual ASICs. The more you specialize the more efficient you get and this is as specialized as it gets. Its a chip that does two rounds of SHA-256 hashing and thats all it does- thats all it will ever do. If something happened to Bitcoin I could probably tear them off the board and repurpose them for real-time video effects or something, but that ASICs only good for the one thing but it is really, really good at it. AL: With that in mind, has it been different mining with the ASIC versus mining with your conventional equipment like the general purpose stuff? Is there a difference in process? DP: Not from the FPGA. Moving from FPGA to ASIC [is] basically identical. Moving from GPU to FPGA [is] a little bit different if not other reason [than] just because a lot of the super user-friendly graphical interface-type software doesnt support FPGAs and ASICs yet. I would suspect that in the near future they would, but a lot of the pretty front ends that newer users who are just mining on graphics cards maybe on a computer they already owned are comfortable with...but if youre going from FPGA to ASIC [there] is zero friction. It is the exact same process from the software side, its the exact same process from the hardware drivers - the exact same USB serial port drivers that were in use on the FPGA are also in use on the ASIC.

AL: What about the difference from someone who isnt mining at all going in? I thought that part of the advantage of the ASIC, as offered by BFL, was that they were plug-and-play units. Is that an inaccurate assessment that Ive made? DP: My understanding is that in the extreme near future, theres going to be plug and-play units. Butterfly Labs, when they sent me this ASIC at the time, the version of BFGMiner that supports this particular piece of hardware was so brand new that they had explicitly send me an experimental build. And that software is the back end of a lot of the friendlier pieces of software. Once that software is perfected it should be a pretty trivial process for them to roll it into things like EasyMiner and CGMiner and all the pretty, friendly, graphical front ends that the newbies will be more comfortable with. A lot of this stuff is probably going to be a little more difficult than was intended but I think a lot of that is just the incredible newness of all of it. Aside from Abelon, no-ones really done this before, so there are a lot of stumbling blocks that you wont know youre going to hit until you hit them. AL: Now you said that you went from your conventional mining which is to say general purpose computers to FPGAs. Did you pre-order any Butterfly Labs products? DP: Actually, I was too flat broke to pre-order any products from anyone. I would have if I had had the money and I probably would have pre-ordered from Abelon as well if I had the money. I would have pre-ordered from everybody if I had the money. Im just in the process of buying a house now and when you buy a house all of your free money disappears. AL: Yeah I know how that goes. So you didnt order any product from BFL but youre one of the first people out there with an actual working unit. How did you wrangle that? DP: Honestly, at this point they probably feel like they owe me a little bit for all of the flack that Ive taken for the crime of fair and balanced reporting. [laughter] DP: Ive written a few pieces on them over the last year or two. Specifically there was one I wrote about Sonny Vleisides who is one of the people on the board hes not the head guy but hes up there. It came out that he had a little bit of a chequered past and I just did an interview with him. I tried to keep the interview fair and balanced and I posted everything that he gave me permission to exactly as it happened in context with the questions. An amazing flame-fest ensued. Ive been accused of being Sonny, Ive been accused of being a shell Ive been called all kinds of lovely names and it absolutely has not stopped since. To this day I am still accused of these things and I feel like its a combination of [Butterfly Labs] feel bad for me and also they know that I am going to give a fair and balanced story no matter what happens in the comments section afterward.

AL: It seems like youre on the sidelines on this one. You have the advantage of not being involved with it because like you said you couldnt afford to pre -order at the time. Let me ask you this: if you had pre-ordered would you still feel the same way about BFL that you do now? DP: I dont know. As a journalist I keep everything as compartmentalized as I can. I dont let anything affect my writing at the very least. My feelings are a more personal matter I dont know if I would feel the same way if I had had a dog in this fight. Id probably be a lot more upset about the delays than I a m, Ill totally admit to that if I were actually waiting this whole time for an ASIC and especially watching the price of bitcoin rise this whole time, Id probably be a lot more upset about the delays than I am. Thats purely an emotional thing I really try not to let that bleed into anything professional. AL: Having seen how this has gone, I think that theres a larger lesson to take from this the advisability of pre-orders with regards to bitcoin purchases Im wondering whether you have any thoughts on that. DP: I think it depends on the mindset of the person who is placing the pre-order. If youre the kind of person like me who [tries their] best to think of the contents of my wallet in terms of the coins themselves and not necessarily in terms of their US dollar or Euro or whatever value because that helps actually spend it like money. If you always think what could happen tomorrow, the price might go up then youll never spend your coins, youll just end up hoarding in this big experiment that were all participating in - from your perspective at least youll fail because youll just have this store of value that you never actually use. That said, I think equally, [it is] just as plausible that you could spend bitcoins on a pre-order and then their value could tank. It can go both ways. If youre the kind of person who is going to spend a bunch of coins on something now and then if the price doubles before you actually get the thing, youre going to feel bad about it and feel like you spent t wice as much [on] the thing yeah dont pre-order or youre just going to make yourself crazy. AL: Isnt it kind of a lose-lose situation though, because like you said, if the price tanks the customer wont be upset but the vendor might not be able to do their project. I mean if they were relying on a certain amount unless theyre literally cashing them out as soon as they receive them it just seems like youre setting yourself up to lose in so many situations especially since youre talking about something that you dont really know the release date of. I understand what you're saying about [how] you need to spend bitcoins like money, but at the same time, I think theres a differentiation between spending money on something youre going to use pretty immediately with bitcoin. That makes sense to me because then the value that you are receiving is tied to the value that you are giving at the time that its happening. But when you talk about pre-orders, youre talking about value given in advance that might be worth something later or might be worth something completely different. And the longer [that takes], the more certain you are that

whatever youre getting, youre either getting way too good of a deal or not good enough of a deal. There are all these reasons to not ever accept pre-orders unless you absolutely one million percent know exactly the day its going to release. DP: I think that might be a pretty valid lesson. I will say thought that on the business side of the fence, you have to be a little more pragmatic and guarded than on the client side. My advice just then was more for the end-users. I totally understand businesses needing to avoid that volatility and cashing out the moment the coins come in. Theres a reason thats basically the default option in Bitpay. AL: In October of last year BFL, when it was becoming clear that they werent going to hit their release date, made a statement saying that they were going to donate 1000 bitcoins to charity if, when they finally did release, they did nt hit their power goals. I watched your video and it looked like they didnt hit their power goals. Do you think that its even fair for the community to hold them to that standard? DP: I dont really know that much about this entire thing. I know that a bet was madeAL: Well it wasnt a bet. It wasnt a bet. It was that they said were sorry, we failed, so what were going to do is this. It wasnt a bet; it was more like a statement that they volunteered. DP: So it was more like a pledge than a bet? AL: Yeah, it was more like a pledge than a bet, thats correct. DP: If you make a statement like that you should probably own up to it. I dont know all the details surrounding it but if those were the actual words as they were uttered then yeah, I think they should be held to that. Don't make promises that you wont keep. AL: Do you think that true even if it comes at the cost of them being able to do business? Im just trying to figure out where the winning scenario is in any of these relationships that BFL has started up. It seems like they keep doing things that are shooting them in the foot the longer that they go. DP: I think what were seeing with BFL is its the same sort of curve at each release, but it gets a little bit steeper each time. This is just Round 2, I dont know if you were around for the FPGA release for their original product. It was a very similar story they showed up and everyone including the people who were currently making the then very experimental FPGA miners said all the same sort of things that they said about the ASICs; this stuff doesnt exist its going to be vapor-aware it breaks the laws of thermodynamics (thats my favourite by the way). Just people saying it would never be a product. Basically the exact same thing happened. They missed their release date, they oversold a bit, they underdelivered a bit, and in the end once they got past all those little stumbling blocks and shortcomings, they had a decent product that a lot of people bought and were totally happy with. I see that as the future for the

ASIC I think Butterfly Labs makes their money, keeps their customers happy, and has a decent public image in between product releases. [AL: laughter] DP: They have really good products that everybody loves and buys and enjoys. It just seems to be something about that initial release process that theres something in there that they havent quite nailed down yet. AL: If theres one thing that people can take away from the Butterfly Labs experience it would [that] expectation management is super-duper important. Youre right, Butterfly Labs has succeeded in releasing product and they probably will release these ASICs. I mean, youve got one in hand so youve got to imagine that theyre going to be releasing them some time soon. They have a success - theyre the first ones out with a user-targeted product that is to spec as theyve said, and yet its kind of viewed as a failure by a lot of people just because theyve blown the deadline that they set for themselves so many times. So again, you shoot yourself in the foot. What do you think about the rush of pre-orders because the pre-order process has now gone on for almost a year, the amount of units that are going to be going out that have already been paid for is a pretty huge amount. The estimates that Im seeing put the initial run at something like 10-20x what the network hash rate is right now. Thats obviously a huge increase. It seems to me that if they had stopped accepting pre-orders or released on-time and then sold units after that then this wouldnt have been that big of a deal because people who bought in early would be getting their units and theyd be able to mine forward with them and the difficulty would go up but it wouldnt be that bad the situation we have now where there are almost 10 months or 11 months worth of pre-orders stacked up, doesnt that mean that as soon as the mass release happens pretty much everybody is going to have terrible returns because the hash rate will go up so much? DP: I have always said that the safest view to take in any investment youre going to make is the most pessimistic one. The missing link that keeps the real most pessimistic view from quite meshing [with] what you just described is that Butterfly Labs does not have infinite production capacity. AL: Right. DP: If they were able to get all six wafers that they burned in then ship out six wafers worth of products the next day all at once, youre absolutely right it would just crash everything and everyone would be screwed who ordered their products. They dont have that kind of production capacity. They can churn out a lot of these things but not at that rate. Its going to take quite a while for them to actually reach people, get plugged in, start hashing, [and] saturate the network. I expect that were in for a pretty dramatic increase in hash rate in the near future but I dont think its going to be quite as fast as everyone imagined. I know were going to max out the factor of

four that the network can adjust for anyone retarget I know were going to see a lot of those factor of four retargets. AL: I didnt realise there was a factor of four limitation in there, I thought it was just the difficulty divided by the amount of power, right? DP: It is that in most circumstances, but there is an upper and lower bound that the client wont break. It wont adjust upwards or downwards by more than a factor of four so you cant do anything more than multiply the current difficulty by four or divide it by four. AL: Oh, well thats an interesting check. DP: If you double the hash power that also means that blocks are happening every five minutes instead of ten, so that 2016 blocks between retargets is going to fly by in a week instead of two. AL: Now that youve had the unit for a week, do you have any idea of what your daily rate is, in terms of how many bitcoins youre generating with it? DP: Theres a little bit of variance, there always is with bitcoin mining, but it seems to be between 0.25 and 0.3 coins a day. AL: 0.25 and 0.3 bitcoins a day. Were going to check back with you two weeks after BFL releases and were going to see what that rate is then! DP: I fully expect it to nosedive, and ImAL: I expect it to nosedive too but the question is does it go from 0.25-0.3 to 0.0250.03 I dont know what the multiple is going to wind up being by the time all of thi s sorts out but Im super curious to see. This is totally an experiment and as more of this mining equipment gets out there, were distributing the hashing power out more into the networks so there are more players. From an infrastructure standpoint its actually really exciting; its just from an individual miner reward standpoint Im wondering how much people are actually going to be making given the role out of ASIC. I guess were just going to have to wait and see. DP: I will make one minor prediction though every time we switch technology there seems to be something very much resembling a bubble with that hash rate. You see it climb at a ridiculous unsustainable rate, it gets to a certain point, it crashes, overcorrects dip, a bunch of people pack up and go home, and it restabilizes to an actually reasonable hash rate. AL: Well that makes sense; thats just the network doing what it does. People get excited and then realise oh man theres not enough reward in this, what the heck am I doing and then they quit and it goes back up. Its a great system, I love it. To see more of David Perrys work, visit him at Codinginmysleep.com.

-ADVERTISEMENTFEMALE VOICE: Foxycart.com is a better check-out experience, empowering developers to create flexible, powerful, custom e-commerce in less time, while equipping merchants with the fastest check-out flow available to their customers. Foxycart is built for web professionals it can serve as a foundation for advanced custom e-commerce deployments or for quick and easy single product online stores. And of course, Foxycart supports Bitcoin. Visit Foxycart.com to learn more. SM: So guys, the other day on Facebook I saw that somebody I knew of in a Bitcoin group was posting about a liberty and entrepreneurship cam p thats going to be going on in Africa, and the goal is to teach people about entrepreneurship and try to get some economic uplifting going on through teaching people to start their own businesses. It a lot of parts of Africa right now there is this really popular payment system that works on cellphones called M-Pesa, and it works by text messaging I think. It doesnt require smartphones or anything but its super common because everybody has access to these cellphones and they often use it to make small payments. So Im really wondering if Bitcoin could catch on in Africa, and if it could be a way to help people get out of poverty, to develop their businesses and if this could be something that is totally ripe for Bitcoin. AL: I think that especially in a third-world situation theres a lot of opportunity there because the problem with small currencies in a lot of these African countries you have small currencies is that they are easily controlled. Mostly, they are backed against the US dollar but ultimately, if the government decides that they want to do something then you have a situation emerge like Zimbabwe where they just say OK well rather than control our finances were just going to start printing and devalue the money. In that circumstance, I think that Bitcoin offers freedom from that sort of financial tyranny where it doesnt really matter what your local government does, it doesnt really matter if theyre in trouble and so they think its important to devalue the currency ultimately nobody can devalue the currency. I think that theres a lot of room there but we have to get to a point where the usability is a simple as being able to operate on an old-style cellphone, and have it just be easy. SM: If M-Pesa is working for a lot of people in places like Africa then maybe they will keep on using it unless they are persuaded that Bitcoin is somehow better, and maybe that comes in because its not of yet a currency and its not controlled by these centralised governments that are often corrupt and a huge barrier to people getting out of poverty. Theres also this idea of mesh networks I dont know if you guys have ever heard of this but its the technology [where] you can create a local internet; the nodes are connected to one-another and they are not necessarily connected to the greater internet. This could be really useful in areas where access is not very widespread and so that could be a means of trading Bitcoin or exchanging bitcoins in areas that are very rural without much internet access. Im

picturing people downloading the block chain from the Bitcoin-Qt client in a place in Africa where their internet is really spotty or non-existent, and it just doesnt seem to work to me - but maybe mesh networks could take care of some of that or other solutions [we dont] know about yet. I think its really important for us as people who are interested in Bitcoin in places like the US to try to help other people around the world see the value in Bitcoin. They could even use it for their own empowerment. AA: Several years ago I heard Nicolas Negroponte from MITs Media Lab discussing mesh networks and he provided a really nice visual, which was these operate in the way a lily operates in a lily pond. Essentially, if you look at the lily pond you have a thats covered with these leaves of the lilies and what you dont see underneath is that only a few of those actually have stalks that go down and get nutrients from the bottom. You could traverse the entire surface of that pond just jumping from lily pad to lily pad. The same thing applies here if you had a mesh network to support Bitcoin, you would only a couple of strategic points that sink back into the block chain that enable full-node clients, and the rest of the network in that closed economy could operate on lightweight clients. I think that the mesh networking idea has a lot to offer. SM: Thats a really great analogy; I can understand it better actually just from hearing that. AL: Mesh networks have been a hot topic for the last two or three years. What made a lot of people think about them was the Arab Spring where internet was shut down in a variety of areas and so there was no way to coordinate on social media because there was no social media connection. It situations like that where you have no other option, mesh networking makes a ton of sense. What Ive seen in general is that when people try to enact these situations and create these circumstances for mesh networking in the first-world scenario, people just arent that interested to it tends to not happen. I watched the FreedomBox Project for a number of years and they were all about building a simple box you could just plug into a wall and it would be its own little base station and it would connect to all other base stations within its range and create this ad hoc mesh network. But things fall apart the idea is there but the technology to enable it for whatever reason is apparently hard to achieve because I dont think its been done successfully yet in any sort of pervasive fashion. SM: I wonder if any of these alt-coins could be more appropriate for certain situations. Im thinking of one in particular, Ive been looking into a lot of the alt -coins because I think its interesting, but a lot of them have these built-in economic principles that I dont necessarily agree with. For instance theres one which is a demurrage currency which means theres a fee if you dont spend it and so its meant to quote prevent hoarding but what that means is that it discourages saving. The people who made this coin are associated with the Occupy movement and they seem to have these explicitly Marxist economic ideas. Maybe something like that might suit certain places better, maybe another alt-coin could solve some of the

problems that might be inherent with Bitcoin like the larger blocks or the confirmation time on something like a mesh network. I guess were just going to have to see, and were going to have to see which coins emerge and which ones meet the need of people the best. AL: I think thats a really good point. We havent talked about alt-coins yet but I think that were going to for Tuesdays episode if you guys are into that. Weve been getting a lot of requests to talk about them. Basically, if you dont know what an altcoin is, bitcoin is a cryptocurrency [and] there is a whole bunch of other cryptocurrencies. The difference is that each one has its own set of rules and its own block chain again the block chain is just this long ledger essentially that keeps track of who owns what for everybody. Each type of cryptocurrency has its own block chain and because of that we call them alt-chains or alt-coins. SM: The alt-coins are all based on the Bitcoin source code because its open-source and anybody can check it out. Usually somebody changes something or tweaks something to create a difference in whatever alt-coin theyre interested in creating that will maybe add something or have a different characteristic than Bitcoin. A lot of the alt-coins maybe have different sizes of blocks or the blocks are generated more frequently or less frequently or the difficulty of the network adjusts more frequently than Bitcoin or they have some other feature built in, like this demurrage fee with the coins that I was talking about before. Theres even a coin where the network is created based on proof of stake rather than proof of work, so instead of doing these calculations to create the network like Bitcoin does, the people who hold the most coins are creating the network. There are all kinds of different changes. Honestly at this point, not many of them have seen a lot of widespread interest and adoption. I think there are a lot of people who are regretful that they missed the boat on Bitcoins and they didnt get into Bitcoin soon enough; they wish they had invested more energy and perhaps capital into Bitcoin when it was first coming out and they were really cheap - so they are looking for an alternative like the next Bitcoin essentially. Maybe there are also some people who are open to the idea even that Bitcoin is not ideal, maybe there is another coin that has better characteristics that would make it more widely usable and people would like that coin more than Bitcoin. That remains to be seen because so far Bitcoin is definitely the most popular but I think its something that the market has to work out nobody really knows the answer to that, well just see as time goes on. AL: So when somebody creates a new cryptocurrency basically what theyre doing is theyre saying OK well I like the concept behind Bitcoin except for this one thing. Are there currencies out there right now that are changing a whole bunch of things or is it in general that they identify the one thing that they dont like about Bitcoin and change that? SM: In general I think there are a few things but theres one major thing thats different with each of these coins. Often theyll play with the number of coins; theres

21 million bitcoins and there might be 10x as many coins on one of the alt-chains or one of the alt-coins. Sometimes they play with the block size or the time to adjust the difficulty. Usually theres one big defining feature thats how I look at it anyway. AA: One of the things I love about alt-coins is that they represent essentially an equal system, and that equal system is evolving. Its evolving to certain fitness functions. Right now, the fitness function is alternative currencies that are more popular or as Stephanie said solve a specific problem. What would be really interesting is if the fitness function changed and it became survivability from government shut down or survivability for government intrusion that fitness function was applied very effectively over the last decade in the gradual evolution of P2P. As each service was slapped down or knocked down, the next service solved exactly the problem that allowed the previous service to be shut down. Until, of course, BitTorrent which now is pretty much unstoppable. I love that because what it means is that every time you cut of the head off of one part of these of these solutions, something else pops up so you have this real-time evolution that is driven essentially by a fitness function that could be government intrusion. That makes alt-coins the most resilient aspect of the Bitcoin ecosystem. SM: The existence of so many alt-coins that utilise this P2P function that, like youre saying Andreas, protects against government shut down and intrusion I think that an indication that the Bitcoin concept handles that pretty well. Nobodys really changing that particular feature. AA: Theres no need. In times of crisis, things work differently. Back to the discussion we were having about mesh networking, its very difficult to apply that in the first world until you have a hurricane situation or something like that. Weve seen very successful implementations of mesh network cellphone services with the lily pad phenomenon again, you have most of them jumping between towers and only a few of the towers are actually connected because of a crisis. A crisis always precipitates rapid evolution and innovation to overcome it, and thats where you have opportunity for new things to arise. AL: Well I look forward to continuing our conversation on the next episode about the alt-coins. I think that we should definitely make some time in Tuesdays episode to talk about that. If you as a listener have ideas or a favourite alt-coin that you think that we should talk about, definitely email us at adam@letstalkbitcoin.com. AL: So I think that about wraps up the time we have for today. Thanks for joining me and both Stephanie and Andreas. SM: Thank you, this was so much fun. AA: Thank you.

AL: So a new correspondent to Lets Talk Bitcoin, Peter Dushenski joins me. When you talk about de-geekifying crypto, are you talking about breaking down the terminology or are you talking about how we need to take the software side, the side that people interact with every day to use it, and add usability? PD: Its both, its both of those - de-geekifying crypto as we enter Phase 2 of Bitcoin. The post geek era, you might call it. Its about user experience and its also about communication. The popular acceptance thing is ultimately whats going to drive the regulatory thing. These pieces are all interconnected so as much as we need to engage with security and exchange commission and elect representatives, they are ultimately responsible to and ultimately influenced by the general public. The general public needs to have this communicated to them in a clear and concise way as we bring this forward. That will come to be a matter of familiarity as Bitcoin continues to build momentum as the media exposure increases. I think that this can only go forward but it can go forward in many different ways it can go forward with a real sense of fear. We have an opportunity and responsibility to clarify the message. Taking this very complex, very amazing, very incredible revolutionary idea and making it so that your 13 year old niece and 80 year old grandmother can get their heads around it, without sitting down and watching a lecture series in a university lecture theatre. This can be made to be simple and accessible how do we make our cellphones easy to use and feel safe? If our cellphones are essentially going to be our wallets and our banks, how do we keep our bitcoins safe? How do we keep our cryptocurrencies secure? definitely an avenue that needs to be pursued and explored as well. AL: Thanks for tuning in to Episode 2 of Lets Talk Bitcoin. Whether you liked, loved, or hated the show, we want to hear what you think. Please send all listener feedback, comments, or questions to adam@letstalkbitcoin.com. If youre like me and just cant get enough information, check out our daily newspaper at Dailybitcoin.com where youll find the best news and articles presenting arguments from all sides of the issue. Stay tuned for Episode 3 of Lets Talk Bitcoin, releasing late Tuesday 30th April. Thanks to Paul Hughes, Andreas M. Antonopoulos, Dr. Stephanie Murphy, David Perry, and Peter Dushenski for providing the content for this show. Music for this episode was provided by Jared Rubens and Nathanial Castro and Owlsley. Youll be able to find links to their work once we built the site a little bit more should be next week. Well see you next time on Lets Talk Bitcoin. [musical interlude]