LETS TALK BITCOIN

Episode 114 The Scientist and the Scourge

Participants:

Adam B. Levine (AL) Host
Patrick Byrne (PB) CEO, Overstock.com
Gavin Andresen (GA) Chief Scientist, Bitcoin Foundation
Jon Matonis (JM) Executive Director, Bitcoin Foundation



Today is May 31
st
, 2014 and this is Episode 114.

This program is intended for informational and educational purposes only.
Cryptocurrency is a new field of study. Consult your local futurist, lawyer, and investment
advisor before making any decisions whatsoever for yourself.

AL: Welcome to Lets Talk Bitcoin, a twice-weekly show about the ideas, people, and
projects building the digital economy and the future of money. [0:31]

My name is Adam B. Levine and today, weve comped your airfare and saved you a seat
right up front at the Amsterdam Bitcoin Conference. [0:36]

Patrick Byrne, CEO of Overstock.com and the Scourge of Wall Street, has become a
big name in the bitcoin space. The majority of todays show is occupied by his
keynote, where he relates the experience and opportunity of cryptocurrency and his
long battle with the masters of the universe.

PB: I went to NASDAQ, the SEC, the Senate Banking, the House Financial
Services, and the New York financial press, trying to alert them and explain to
them their systemic risk being created by this. We could explain this, had all
this data we got nowhere. I found it was just turtles all the way down.
[1:12]

But first, long time core developer Gavin Andresens State of Bitcoin talk isnt quite
as long but its important. He talks the past, present, future, of the first and largest
cryptocurrency Bitcoin. [1:24]







On an unrelated note, if youve been following my work on early user created assets,
Im happy to announce the first to launch will be TatianaCoin, on June 3
rd
. If you are
interested in learning about this project, and user created asset process, dont miss
episode 18 of John Bushs Sovereign BTC, coming up tomorrow, on the LTB network.
[1:42]

Ladies and Gentlemen, Gavin Andresen. [1:46]


_______________________________________________


Gavin Andresens State of Bitcoin 2014 presentation:



GA: Hi, everybody, thanks for being here. Im really excited about being in the Netherlands,
being here, in this beautiful place. Im really excited its not raining. [1:57]

Im going to be talking today about the state of Bitcoin. I think the first thing to say about it
is we are still all early adopters. I know, people think about Bitcoin as this thing thats been
around for a while. You know, you think about the really early Bitcoiners who got involved
with it, just a couple of years ago, but really, we are at the beginning of something thats
just getting bigger and bigger. [2:24]

Theres a question of, you know, were early adopters but what are we adopting? Are we
adopting a laser disc? I dont know if any of you remember those huge laser discs that were
supposed to revolutionize the way we use movies. Or watch movies. [2:38]

Or, is this the beginning of the Internet? Right? This is Yahoo, in 1997, I think. Right. This
was state of the art internet. I tend to think that we really are at the Internet beginnings
of the Internet. You know, Bitcoin, as a protocol and Bitcoin as a platform, is what its all
about. [2:59]

I want to get one thing out of the way at the beginning of this talk. I just hope we can forget
February ever happened. There are all sorts of bad things that happened with Bitcoin in
February I think are part of growing pains. Any new technology is going to have growing
pains. Bitcoin has certainly had growing pains in the past, and I expect it will continue to
have growing pains in the future. [3:25]

The one thing, I think, thats really surprised me about Bitcoin is a just how resilient it has
been. I think if youd have asked me two years ago, if what used to be the worlds largest
bitcoin exchange suddenly went bankrupt and disappeared would Bitcoin be able to
survive, something like that? I might have said no. It turns out we can survive we have
survived were moving on. I think that just goes to show you all of us early adopters
really want Bitcoin to succeed and were all working towards making it succeed. [4:00]



Ill get into the meat of this stuff, this is what I do in the State of Bitcoin address is whats
going on with the Bitcoin Core project? When I say Bitcoin Core, I mean the code that
Satoshi left to us the original code that he wrote that bootstrapped the Bitcoin network.
Its still most of the core network is running. [4:22]

I recently stepped back from the lead developer role. Vladimir has taken over as the core
maintainer. Were taking the core maintainer title from the Linux project where they
dont say someone is the lead theyre just the lead organizer. [4:44]

I have been asked a lot about why I did that? Its really part of a progression. I first heard
about Bitcoin in May of 2010 and I got a lot of hats put on my head. You know, at one point,
I was a bitcointalk forum moderator, I was also one of the people who used my personal PC
to back up the bitcointalk forum machine, so if it ever got down, we would have a backup of
all the conversations. [5:15]

I used to run the bitcoin press mailing list, so if any press inquiries came in, it would actually
hit my inbox. As time goes on and Bitcoin gets bigger, I just start taking off all these hats. If
anybodys worked at a start-up, you know when a start-up has four people, those people
are doing all sorts of things. As the project gets bigger, it makes sense to specialize and have
different people do different things. [5:39]

Im going to be spending a lot more time talking to academics. Spending a lot more time
thinking about where Bitcoin should be two, three, four, six, eight months, a year from now,
and less time worrying about should we accept this pull request to Bitcoin Core. [6:01]

Part of that growing up is more resources. Im happy to announce Cory Fields is being
paid by the Bitcoin Foundation to work on Bitcoin Core full time. Cory Fields has done a lot
of great cross-platform work. Hes going to continue to do that. [6:26]

The first thing he is going to do is one thing that takes something off of my plate, which is
to make the math builds deterministic. Its not actually me compiling the OS X release on
this old laptop I have, that happens to be running OS X 10.6, so we have compatible
releases. Corys cleaning all that up and doing it in a way theres not one central point of
failure for that. [6:48]

The general idea with core is still slow and steady progress. The number one job is still
going to be making sure the core Bitcoin network processes transactions as reliably as
possible. Dont expect huge, wild changes to Core just because Im no longer lead developer
and Vladimirs now taking on that role. [7:14]

There are a couple of core changes that you should probably be aware of. Part of what
weve been doing over the last year or so, is trying to modularise the code more. Satoshi
gave us a little bit of a hairball this code that was windows only, way back when, that was
a wallet, the consensus code, was the peer-to-peer network it was everything, all
bundled up together. Slowly, over time, were teasing apart the different pieces of
functionality, again, because as you grow, you want to specialize. [7:45]



For example, the most recent implementation of the core daemon, you can compile it
without any wallet functionality at all, to save a little bit of memory if you just want your
Bitcoin D to be an edge router. Well be continuing stripping out more features, probably
the core consensus code is going to turn into a library, and we may even drop some
features. If youre now using the accounts feature of Bitcoin D beware, it may go away, in
the next year or so. [8:23]

I put this slide in here, Boring is good, because I think there are some things weve done
really well that are really important that dont get talked about a lot. For example, we have
a process for improving Bitcoin the BIP process. That seems to be working really well. Im
really happy to see people, other than the really hard-core, core developers participating in
the BIP process. Weve seen BIPs for wallet implementations, were seeing BIPS in other
pieces of functionality, and thats actually working rather well and mostly drama free. [9:06]

The core release process is actually working pretty well. Not a lot of people know we have a
pretty innovative way of actually building the binaries you download. The binaries are
actually compiled on multiple peoples virtual machines, in such a way, they are bit-for-bit
identical. We can be darn sure the source code you see on GitHub actually does correspond
to the binaries youre downloading. Theres a security chain all the way down weve got
working really well. [9:45]

Download security we have a lot of belt and suspenders around this. The downloads
recently moved from SourceForge, where they werent secured by https to bitcoincore.org,
which does have an SSL certificate, which protects the downloads. They are protected
again, at least on Windows and OS X theyre code signed. Once you run them, you can be
sure youre actually running the code that was signed off on. Thats another drama free
part of the whole process we could have a lot of drama there but you really dont hear
about people trying to fool people to download imposter versions of the core code. It just
doesnt happen. [10:33]

Finally, the P2P network has been pretty darn stable, which is fantastic! That seems to be
working pretty well. Mike would probably quibble with that, about denial of service attacks,
but they seem to be under control. [10:47]

I want to talk a little bit about communication, because as we scale up, this is actually a
really big problem. What are the places where people can talk about changes to Bitcoin,
what are the processes? I said the BIP process works pretty well it does work pretty well.
Larger changes to Bitcoin theres not a good forum for having these discussions and I
really want somebody solve the internet troll problem. I dont know, maybe there is no
solution. [11:13]

Its hard to find a constructive place to talk about potential changes without people for
whatever reason attacking people for talking, attacking people for thinking about ideas. I
dont know, I want somebody to solve this problem for us. [11:33]




Beyond Core, whats happening in the Bitcoin world technically, Ive said before and its
absolutely true this is the year of the multi-signature wallet. Were going to see some
really exciting innovation happening with wallet security, with wallets controlled by multiple
people, for corporations. I think theres a lot of innovation happening here, which is
fantastic! [11:58]


Privacy is improving. Projects like Dark Wallet are happening that take existing functionality
thats in Bitcoin already. Increasing peoples privacy by leveraging things like CoinJoin and
other ideas we have for making privacy better. Harbor wallets is something that really
excites me theres another way of getting more secure way for people to hold their
bitcoins. [12:27]

I think it remains to be seen whether will your phone be your wallet, or will you have a
separate device, or maybe will you have both? I dont know, its going to be Interesting to
see how that plays out, itll probably be different in different markets and different people.
[12:40]

Other full implementations of the Bitcoin protocol are maturing and I think thats fantastic
and I want to go into that, a little bit more, in depth. When I think about other
implementations, one true implementation is okay, but its kind of sort of evil. Just
one piece of code is not the ideal place you want to be, because whoever is controlling that
one true implementation is evil, then bad things happen. Like Middle Earth is destroyed.
[13:20]

Two is probably even worse than one because you run into consensus failure. Half the
network is running one, and half the network is running the other, and there is some
disagreement between them which happened last year, with 0.7 release thats bad!
You get a consensus failure and Bitcoin is all about consensus. [13:42]

Ideally, you want three or more, where any one fails, its okay. You have two or three or
four or eleven others that continue to work, then its obvious which is correct the majority
is correct. [13:58]

The question is how do we get from where we are today which is we have this one piece
of code, that is the consensus to multiple implementations, all of which are implementing
the same protocol, and then we can evolve the protocol by having all those
implementations move along. Thats a hard problem I think were just going to have to
struggle through it but I think we can get there. [14:22]

Ill talk a little bit about mining Ill say overall, I still dont care about mining. At the very
first State of Bitcoin address I think I got myself into a little bit of trouble saying I dont
care about mining. [14:36]





Its still kind of true mining is a zero sum game. Theres a certain number of bitcoins
created over time. I dont really care who gets those bitcoins. From a kind of a high level,
technical point of view, it doesnt really matter if one miner is more efficient than
another theyll get more bitcoins okie, dokie! Thats fine. [14:56]

I do care about mining in the way that it affects users experiences. One thing Ive been
really concerned about is the number of transactions miners put in their blocks. We had a
lot of discussion about the one-megabyte block size. Im worried about even getting up to
one megabyte. Right now, I think the average block size is about 250 kilobytes. [15:20]

We recently changed the reference implementation to build bigger blocks by default. We
havent yet seen block sizes rise. Its a little bit of a mystery why why are miners
choosing, apparently, to build smaller blocks? [15:35]

I think its because larger blocks take longer to propagate around the network and miners
are very concerned about orphan blocks, where they lose thousands of dollars if their blocks
are not accepted by the network. [15:48]

I think there is technical work that needs to be done to optimize the communication of
blocks across the network. Im thinking a lot about that. [15:57]

Once we get to one megabyte, weve got to make blocks bigger. I think we just have to. If
we dont, transaction fees will just rise and rise and rise to a point where only rich people
could afford to transact on the Bitcoin network. I personally dont want to see that. I think
thats a bad world to be in. [16:17]

How is going to be tricky bit. Its going to be hard to get consensus on exactly how far we
should raise the block size, if we should have rules for increasing the block size in the future
Ill be thinking and talking a lot about that. [16:32]

I think multiple solutions are possible, so there are some ideas out there maybe we wont
increase the block size, maybe we decrease the ten minute per block make that smaller.
We can have more blocks that are all one megabyte and increase transaction volume that
way. [16:48]

I think these are all discussions we need to have. I think we should all keep in mind I like
simpler, I think simpler is better. Also, multiple solutions may be possible. If we can do
more than one, then fantastic! We should embrace things, and not fool ourselves into
thinking there has to be one true answer. [17:08]

Ill talk about mining ASICS. A lot of people are worried about ASICS. I really do see the
whole mining ASICS hardware thing is being like the old cell phones only rich people
could afford. I think tomorrow it will be more like cell phones today, where even babies can
afford to get cell phones. [17:30]




I think the whole who is mining is going to go in waves. I think were in a centralization
period where were seeing huge mining farms in places where electricity is cheap. I could
definitely see that turning around to where you get a USB miner and plug it into your
computer because you can make a tiny little bit of money, and maybe youre more efficient
because you dont need to worry about cooling the damn thing. [17:56]

Well see I dont know, I may be wrong. I get asked a lot about what about
Mastercoin, Counterparty, MaidSafe, ethereum all these things either built on top of
Bitcoin or are being touted as Bitcoin 2.0. [18:09]

I think theyre interesting but writing secure code is really hard. And there is a bit of a
chicken and egg problem in that you dont know if your code is secure until its securing
something thats actually valuable. [18:27]

We went through this with Bitcoin I basically have seen it. Satoshi released Bitcoin in
January 2009 and it was completely worthless. Nobody knew if it was secure or not. We
didnt find out it was not secure, it turned out, Bitcoin, the very first version of Bitcoin, was
horribly insecure. We didnt find out it was insecure until Bitcoin started to get a value and
it became an interesting to attack. [19:00]

You have this chicken and egg problem, I think, with any new project, in that you are not
going to know if it is really is secure until it has some value. You really dont want to
promise things and have people invest money in it, if it is insecure. That is going to be the
first hurdle. [19:20]

Some of these systems will bootstrap pass that. If the incentives are correct and there is an
incentive everybody using these systems to make them better, I think they could possibly
bootstrap themselves like Bitcoin did. [19:37]

The other hard bit I think a lot of these projects are ignoring is identity and reputation
is really hard. You can talk about things like distributed autonomous corporations and smart
contracts and for me, thinking about it from a high level perspective usually it comes down
to do I have to trust somebody or some piece of code? [20:05]

Im okay with trusting a piece of code. I trust Bitcoin because I can read the code and
understand it. Some of these systems, when I think about wait, you are going to write
this really complicated contract and do I actually have to read the code to know thats going
to be doing what I think its going to do or do I trust the person who issued the contract.
If I am trusting the person who issued a contract, well then why bother with some
complicated piece of code. I could just trust them, to begin with. [20:36]

I think cryptography really doesnt help this problem. You can create a cryptographic
identity and maybe build some trust up around that. I think with some of the dark market
places, weve seen, kind of, how far that can go. In that, nothings stopping somebody from
building up something with a lot of reputation, thats very valuable, and then deciding,
okay, there is enough value there, Im just going to take it and walk away and betray all that
trust that I built up. [21:10]



That is a really hard problem. Becoming mainstream is really hard. Certainly, Bitcoin is not
there. You can have really cool technology I think Segways are really cool. I am tempted
to go down and rent one at the Segway a place here but they are not mainstream. Right?
You dont see people zipping around on Segways. I dont think you ever will. I dont know if
you remember when Segway was being hyped in coming out and the vision really was we
would all be zipping around on these Segways and they would replace cars and all sorts of
other crazy predictions. [21:45]

But it really is hard to become mainstream. It doesnt mean you are a complete and utter
failure. Right? There is a place you can rent Segways, downstairs here, to zip around. I
dont think anybody would have predicted policemen and tourists are the two main markets
for the Segway scooter. [22:04]

A lot of these Bitcoin 2.0 projects, I think, we might find the same thing. It is some odd,
little, weird niche market that maybe they take off and we dont expect. Thatll be fun to
watch. [22:16]

Im going to end just talking about where I think Bitcoin will be next year. If I do a State of
the Bitcoin address next year I think Bitcoin will be bigger and better looking. [22:28]

I think the wallets will be nicer. User interfaces will be polished much more secure. I
think multi-signature will go a long way for that. I think it will be more diverse. I am hoping
by this time next year, we will actually have other implementations to the core consensus
code that people are comfortable running. I think it will be more mainstream. We are going
mainstream when I see Bitcoin comic strips show up in my local newspaper and my kids
come to me and say, Hey Dad, did you see Bitcoin in Dilbert? Thats cool. That is going
mainstream. [23:09]

I think we will be more regulated. I dont think Bitcoin itself will be regulated but all of the
infrastructure on top of it. I think we will see more regulation. I think that is inevitable I
think that can happen with any technology. Im hoping it will be less volatile. I hope the
price will calm down. That may be a false hope that I am a least confident of, because I just
dont know what will happen in the next year. [23:37]

Thanks a lot! I think we might have time for one or two questions thanks! [23:40]

[Applause] [23:51]


Someone from audience: I have a question regarding the mining fee. Its frustrating to see
so much confusion about it. Its essentially just proportional to the latency in the network
and the reward. When the reward goes down, the fee will go down as well. But not a direct
function of the block size you hard code into the client. Its not really related to anything
there. We had some discussion [inaudible] about that. I think its something to spread the
word. [24:24]



GA: OK, I see transaction fees as being pure supply and demand. Right? There is a limited
supply of blocks space. Maybe we should talk offline and you can convince me Im wrong.
It is possible to convince me I am wrong. I think anybody who has worked with me knows
thats true. [24:43]

Someone from audience: Thanks for the talk. My question would be you talked about
regulation and it might increase next year to some degree. And also some problem of
anonymity within the core, the Bitcoin wallet, as it is right now. My question would be what
do you think of these efforts, like Dark Wallet, to increase anonymity, like Darkcoin or
whatever is coming out right now? Will the Bitcoin core development team work on these
kind of solutions, maybe make regulations difficult, or will you try to be more regulator
friendly? [25:25]

GA: I think we will be more regulated, but also, more private. As for the question of core
we are splitting out most of the wallet code, ideally to have a separate project. I would
imagine, once that is done, teams will arise to implement CoinJoin, implement some of the
privacy enhancing techniques ideas that are out there. I think that will happen and I
think thats fine you asked specifically what I thought of dark wallet its fantastic!
[26:02]

I think more privacy is better. If you talk to regulators concerned about consumer privacy
and consumer protection, theres another set of regulators concerned about law
enforcement, investigation theyll different opinions whether technology is good or bad.
On a high level, it doesnt really matter because technology is what it is. Regulations evolve,
the software will evolve. [26:36]

Someone from audience: Gavin, increasing the block size is probably a hard fork change,
probably. If you ask any Bitcoin core developer what hard fork changes they would like,
youll get a list a mile long. Do you see a possibility of working on a select, small, subset of
people to get consensus on in preparation for future hard fork?
[26:58]

GA: I think that will be part of the conversation. There are bugs that we should just clean
up, right? Whether we should do that as part of a hard fork or not, we could talk about. I
have my own pet peeve bug list of things I would love to change in a hard fork. I think there
is a danger doing too many things at once. Obviously, do too many things at once, and you
have increased risk there is some awful bug and one of them causes the whole network
to fall down. We will just have to be very careful about it. [27:32]

I think that is all the time we have thanks a lot. I will be at the conference all day today,
all day tomorrow. Thank you. [27:40]

[Applause]

[Music] [28:04]



Ad: KryptoKit is the world's first Chrome browser Bitcoin wallet. It's the easiest, fastest
Bitcoin wallet payment system. With a simple one-click install, it takes just seconds to get
your wallet set up, and because KryptoKit finds the address and payment for you, there's no
more fussing around or tab-switching. KryptoKit is more than just a wallet. It comes with a
pre-loaded PGP-encrypted social network, news feeds from Reddit and Google, and up-to-
date charts from exchanges. Finally, KryptoKit Directory allows you to make two-click
payments with any of the BitPay merchants. Once you install KryptoKit, you won't need
anything else. For more information, or to download KryptoKit, visit KryptoKit.com [28:39]

AL: Hi listener, here at Lets Talk Bitcoin, were building a global network of correspondents
to be able to contribute on the ground perspective when Cryptocurrency related
information comes across their filters. If you would like to join our global conversation,
send an email with your name and geographic or cultural niche to
apply@letstalkbitcoin.com. Just like Bitcoin, the only barrier to entry is your time and good
work. Thanks for listening. [29:07]

_______________________________________________


Patrick Byrnes Keynote Bitcoin 2014 presentation:

JM: Our keynote speaker today is a liberal in the classical tradition. He considers himself to
be from the Austrian school of economics and a leader in exposing Wall Street corruption.
He has triple degrees from Dartmouth, Cambridge University, and Stanford University. The
CEO of Overstock.com, he took the company from one million dollars in revenue to over 1.3
billion dollars in revenue. He is a true pioneer and he made history in the Bitcoin world
when overstock became the first major online retailer to accept bitcoin. [29:50]

Ladies and Gentlemen, I would like to take this opportunity right now to introduce our
keynote speaker Mr. Patrick Byrne! [29:58]

[Applause] [30:00]

PB: Thank you, Jon, for that overly generous introduction. Members of the Bitcoin
Foundation Board, ladies and gentlemen, cryptographers, computer scientists, finance
geeks, quants, Austrian economics, theorists, I think there are a couple of gangsters in the
room, journalists who are trying to make sense of it all it is a surreal honour to be invited
to speak with you today, both because who you are and because this is taking place in
Holland, in Amsterdam, in the Netherlands, I should say. [30:44]

I would be remiss, if I did not take a moment, to acknowledge a debt that historians
generally overlooked in my country the United States and in other commonwealth
countries. A debt owed to the Netherlands. That is the creation myth in the United
States, we had these founding fathers, the constitution was written, declaration of
independence. Those who know something, know the founding fathers read a lot of an
English philosopher named john Locke, who was a social contract theorist, who wrote a
book called Two Treatises of Government. Maybe we know there were these people, the


pilgrims, who came to our country with some notions of religious toleration and such. We
see the intellectual history of our country as coming from these two sources. [31:37]

What is generally overlooked in this story, is the enormous contribution our hosts, the
Dutch, made to that process. Its a story generally overlooked but Ill be touching on it later.
[31:53]

First, I want to thank them for hosting this. For a moment, Ill spend a moment about, who
I am. A few months ago, WIRED did a large story about me and Ill just point out they
called me the Bitcoin Messiah. Just to be clear, Im not the messiah of anything. And as
much as I favour Bitcoin I love Bitcoin Im about the crypto revolution. Im about the
cryptocurrency and other missions for this technology. [32:37]

I will also mention, I was called the Scourge of Wall Street. I could spend hours telling you
about how this came about but I just want to give you one amusebouche, out of a decade
long story. Just to give you an idea of who you are listening to, maybe you dont want to
listen. [32:57]

In January 2007, a very well known and actually a well regarded hedge fund manager in New
York, an elder statesman of the industry not himself a bad guy, a fellow I had known at a
distance for some time years asked me to come see him. I went to sit with him. There
was a witness there and this has all been actually vetted by this journalist this is all true.
This very well known hedge fund guy sat me down and his opening words were, Patrick,
you need to know, you are the most hated man, I have ever known in my entire life.
[31:31]

You used to be kind of a golden boy, here on Wall Street, but now, you could kill people
and you wouldnt be hated, like we hate you, in this town. Of course, to me and, I assume
to you, thats high praise. They can carve on my tombstone on January 2007, I was the
most hated man on Wall Street. And how why got that way actually ties, in rather a deep
way, to what brings me here today. [33:59]

I should apologize now if this talk isnt what you were expecting. If you were expecting a
guy to talk about blockchains and stuff, Im not the guy. [34:15]

I want to talk about the historical context in which I see the Bitcoin revolution, the crypto
currency revolution. Alas for you, I cant really do that without talking a lot about history. If
you didnt expect to come to a lecture this morning that included a lot on history and
philosophy, I hope you can get your money back. Thats what Ive brought. [34:37]

Im going to start with discussion of two books that invite us to view civilizations as
operating systems. One, known to many people here, is snow crash. Now, snow crash is
kind of a cyberpunk bible, came out about 92, 91 and for one thing its known for being
quite visionary about the direction the Internet would develop. What they call the
metaverse. [35:09]





What we came to know as they World Wide Web, even Facebook the idea of distributed
republic, this is kind of the bible for anarcho- capitalist, if there are any of those here.
Memes, the concept of the meme, actually comes out of this book many other things.
The real value of this book, is it invites us to view civilization as operating system. [35:33]

Nobody gets all excited there is UNIX and DOS and Windows and Mac and Linux
nobody kills each other, which is the right operating system. There are other virtues than
truth, when you talk about operating system. [33:50]

He invites us to view history the same way but this is really Judaism, Christianity, Islam,
Hinduism, East Asian Confucianism these are operating systems. History is an enormous
petri dish where these different organisms are in a Darwinian struggle to figure out what the
best operating system is. [36:16]

Taking that a step further, a book that came out a couple years later by Francis Fukuyama,
Trust. Fukuyama wrote another famous book called The End of History . He is the last
Hegelian of the 20
th
century but his point of trust you can view different cultures and
civilizations as operating systems to solve a one central problem. [36:42]

And that problem is how far does trust extend in a society. If you are in a low trust
society family based society China, Taiwan, Italy his argument is, you dont trust
people outside your family. Which means you dont get businesses bigger than something a
large family can run. And that means you are limited, you give up economies of scale, was
his argument. [37:10]

As opposed to high trust institution based societies, where you can trust outside of your
family, you can trust institutions, you can trust things like the government, and you can trust
shareholder corporations and all this plumbing and mechanism that underlies the modern
world. Because you have that trust in a high trust society, you get efficiencies of scale, etc.,
etc., thats his argument. Ill be circling back to that. [37:34]

Now, history. George Orwell said you can imagine the future as a boot stepping on a human
face over and over, forever. I dont think thats true. I dont think thats going to be true
because of folks like you. Thinking of that as an operating system, that was in fact the
family of operating systems throughout all of history until about 500 years ago. Were more
or less some variation of that operating system. [38:09]

Then, something really odd happened. 500 years ago, here in Spain. Of course, the
Europeans among you, do not need to be reminded. Once, 500 years ago, Europe was a sea
of Spain, with an island of France in it. This was Spain. In these northern provinces all this
was part of the Spanish territory, as was England the co-monarchs Ferdinand II.
Whenever I see Game of Thrones, and I see Joffrey, I think of Ferdinand II. This strange idea
started developing in the north and it was a collection of ideas. Philosophers called
liberalism that basic common DNA of them all was the consent of the governed
mattered. It started off in two places in the Spanish empire one was here in the


Netherlands, where ideas like tolerance, pluralism, constitutional federation of free states
and peace emerged. [39:17]

It is hard to imagine some scientists somewhere proved somehow that fish dont know
that they swim in water. I dont know how they prove that but they dont know that they
swim in water. [39:31]

We live in a modern world its hard to remember what the world looked like before these
ideas came along but this was not at all intuitive to people. Erasmus the great catholic
theologian, the University at Rotterdam is named after he introduced these concepts like
religious toleration, political toleration, and pacifism. [39:53]

Baruch Spinoza, the great one, from right here. If you have time here, you should visit the
national museum and learn a bit about him. Spinoza came up with the idea of the self the
modern idea of the self as an agent from whom consent mattered who was capable of
consent that mattered in a political system. [40:17]

Maybe, these ideas emerged here, of tolerance, of pluralism and constitutionally protected
freedom, emerged here, perhaps, because of the middle class, the merchants. I should also
mention, generally historians consider a large factor the expulsion of Jewish people from
Spain and Portugal. They came here, the best ones the Portuguese ones came here. The
synagogue is here in town, which I also suggest you visit. They spoke Portuguese into the
20
th
century because they had such an influence. [40:51]

If you are a Marxist, you might also say windmills, the invention of windmills here gave
this society a great deal of cheap, abundant energy, gave it a huge advantage, competitive
advantage over everyone else. [41:07]

Everything else I just mentioned is this ideological superstructure that came with this
economic development, technological development. [41:14]

These ideas emerged here and interestingly, a group of separatists that would be English
Protestants, who didnt believe they could reconcile with the Church of England they
came here. They came here, the beginning of the 1600s and they lived here for about two
decades in Leiden. They finally got fed up. They actually loved it here and they learned
these values, learned a society modelled on these kinds of principles could work. [41:48]

They were discouraged, though, quite literally, by the effect on their young that was had by
Amsterdam the licentious and wicked ways of Amsterdam was corrupting their young.
They picked up and they sailed to North America, where we know them as the pilgrims. We
think of England as the cradle of liberty but in fact it was all conceived here. [42:18]

Also, John Locke, who I mentioned, who had such an effect on our founding fathers he
came here, sitting out some English civil war spent three years here, went back, and
wrote this famous book Two Treatises of Government that became the founding inspiration
for the U.S. revolution and much that came after it, at least for the British commonwealth.
[42:42]



These ideas owe such a profound debt to this country the cause of freedom, U.S.
constitution. Thats one side. The other thing that was going on in Spain, about 400 years
ago very interesting at the University of Salamanca, a group of scholastic Jesuit and
Dominican friars became the first economists. They discovered notions kind of lost but
Re- discovered after 300 years. [43:17]

Things like the subjectivist theory of value, we now equate with Marshall and the Cambridge
school of economics, 1880s. That was actually first developed by Jesuit and by the
scholastics at Salamanca. Impossibility of socialist calculation a main theme of the second
half of the 20
th
century economics quantity theory of money, the equivalence of cash
deposits, demand deposits, why fractional reserve banking isnt a good idea the value of
entrepreneurship value of property and contract again, peace and anti-imperial
platform that was quite critical in the days of Spanish imperialism from within Spain.
[44:05]

Well, something funny happened to this school. They bounced these thoughts, bounced
through Spain, Italy to the eastern edge of the Spanish empire of that time, the eastern
edge, the eastern reign, the Oestreich, i.e. Austria. They went into hibernation for about
250 years. About 150 years ago, they came out of hibernation, in the form of the Austrian
school of economics. Those who I met here last night and this morning, who think of
themselves as Austrian school guys it actually didnt start in Austria, it started here,
started in Salamanca. I consider this, generally, the heart of liberalism of liberal, political
philosophy, of pro-freedom I like to call this way of thinking. [45:06]

People always object sometimes, people object to me, maybe not in this crowd you
cant hijack the word freedom. You cant say youre pro-freedom and other people arent,
well there are people among us who call themselves in our society, who call themselves
progressives and if they hijack the word progress, I think I can hijack the word freedom.
[45:25]

This to be understood in opposition to, the great philosophical mistake and this all circles
back in one more slide, I promise, it circles right back into Bitcoin and which you are doing.
I need to describe this great philosophical mistake. [45:39]

Basically, a virus was introduced into the operating system of liberalism. Authoritarianism.
If the key element of the DNA of liberalism is consent to the governed for
authoritarianism, its submission. [45:57]

The great enemy of mankind Jean Jacques Rousseau introduced it. His version of his
social contract, written in answer to Locke, makes this very extraordinary claim. Basically,
the control freaks knew that they had lost, the enlightenment comes, and they had lost their
grip on history, so they subverted it. [46:25]






With this idea okay, its consent that matters it is consent to the governed but not the
silly way that John Locke understood it. We, intellectual French, understand it in a much
deeper way. I, Jean Jacques Rousseau, understand there is something he terms of the
volont gnrale the general will of the people and that is important. That is what
matters, but is not to be determined by silly voting or something, in fact, there may only be
one person among us, in a nation who understands what the real will of our people is.
What the real will of the nation is and that person is the sovereign needs to give no
guarantee to subjects, no constraints, there need to be no constraints on it. His will is, or
should be, nothing but the law. [47:22]

This Robespierre, when he forces everyone to obey his will, it just looks like tyranny, said
Rousseau. But it isnt tyranny because he is forcing people to be free. True freedom is
found in submission, to this force that understands the general will, that understands the
real historical mission of our nation of a nation and thats true freedom. [47:51]

Voltaire read this and wrote a famous response to Rousseau, where he said, I have
received, Sir, your new book against the human race, and thank you for it One longs, in
reading your book, to walk on all fours. [48:08]

I love Voltaire. Bertrand Russell was once asked, did he have a bible, and he said Yes, I
keep it over there, under my Voltaire. [48:17]

Voltaire was correct but, unfortunately, he did not win. This became a really dominant
strain in modern political philosophy, starting with Rousseau, led to Kant. Kant was a pietas,
working away in Kronenberg, famously never left the city. In his bare, pietas study, he had
that one adornment a portrait of the Jean Jacques Rousseau. In his Teutonic way, he
worked out the implications of this theory, in this grand and Teutonic way, develops the
idea of ain folk. [48:55]

A mission of a people. Freedom. Freedom is found in subordination to this mission. Thats
true freedom. Not the freedom the phenomenal self looks in, which is just what you or I
want to do, the pursuit of happiness. Life, liberty, the pursuit of happiness, is how Locke put
it is this superficial form of freedom. True freedom is understanding your historical
process youre part of, and through submission to that, Hegel comes along I never got
anything from Hegel other than late stage Kant and suppression stuff. [49:33]

Marx who takes Hegel and famously says, Im going to take Hegel and turn him over and
stand him on his feet. Meaning he is going to take all the dialectic of Hegel but apply it to
economics and this is the real historical process that matters. Mankind has a story, has
chapters in the final chapter, the ultimate triumph of the proletariat, and such. [49:54]

Freedom, again, is defined as submission to that process or commitment to that process. It
is a very different definition of freedom that had emerged in Holland, England and Scotland
and in the Americas. [50:09]




Nietzsche, who reads like hes an individualist, cares about the individual he doesnt care
about the individual. He is all about the Zarathustra, the individual in a capital I kind of
way. Nietzsche famously dismissed this whole other tradition saying, only an Englishman
cares about happiness. Thats his answer to John Stewart Mills and Jeremy Bentham,
utilitarians, John Locke, life, liberty and the pursuit of happiness. He says only an
Englishman cares about happiness. I, Nietzsche, I understand the real historical mission and
where freedom is to be located again, some sort of submission to that Lenin, of course,
for him its not the masses. The vanguard, the masses, the party, freedom. [51:01]

I used to live in communist China and I used to debate these things with intellectuals there,
who actually maintain these points of view. What you think of bourgeois, western freedom,
real freedom is submission to, in our case, the communist party. [51:18]

Of course, the third Reich. Over the gates at Dachau and Auschwitz, the signs read Arbeit
macht frei work will make you free. Work for the German state, work for the Reich.
Again, this idea of submission, properly chosen submission, real freedom is found. Mao,
again, I lived in China in the early 80s under Deng Xiaoping and we used to have these
conversations. I was in Cambodia in the late 80s and speak with French educated
intellectuals. Its amazing, everybody knows their Rousseau, Kant, Hegel, Marxist cannon, of
course, but the three western philosophers they always knew, especially Rousseau. [52:03]

So that is, as Voltaire said, mankind walking about on all fours. This idea, this is how you
define freedom. The great corruption occurred from Jean Jacques Rousseau. [52:17]

Going back to this issue of trust, where does that leave us? The one vision, the vision that I
think is fundamentally authoritarian believes we need central institutions. It argues for
centralized institutions in one form or another. Its uncomfortable with institutions that are
not centralized. It all comes out of that authoritarian tradition. [52:47]

The problem, its funny this fellow himself who wrote this is considered a conservative
Fukuyama hes arguing, you want a high trust society, you want to live in a high trust
society, where you can have robust centralized institutions. Taking for granted, of course,
we can trust those institutions. Whats neglected in his analysis is the whole problem of
regulatory capture. [53:16]

Regulatory capture is an extraordinary field in itself. It was invented in 1972 by Stigler,
friend of Milton Friedman. Society sets up regulators to protect us from certain industries
and certain forces. Sometimes those regulators have a tendency to get captured, to get
owned by the industries its supposed to be defending us from. [53:45]

There is a Marxist at Harvard named John Hanson, who argues an even deeper theory,
called deep capture. It isnt just the regulators that capture the bad guys its regulators,
congressman, and police, and journalists, and judges, and academics. Capture goes very
deep. [54:05]




I started a web site eight years ago called Deep Capture that explores it has won various
awards on the best website on corruption in the United States, best economic investigative
journalism in the United States, where I explore the capture and corruption of our
centralized institutions. [54:25]

The great problem comes down to if Im right and there is more capture occurring then
generally recognized? What happens is what John Kenneth Galbraith called, the bezzle.
He spoke of the bezzle. The bezzle is in a modern society, if you could freeze time and
ask every single person: whats their stake in the financial system, what do you own? You
could add it all up, you get this much, but you look and theres only this much there. [55:00]

And any given time, there is this difference. He calls that difference the bezzle, which is the
amount that has been embezzled from society and none of you know it. At any given time,
there is the bezzle that is growing at a fast rate or a slow rate. I became convinced about
ten years ago, there was an enormous bezzle in the financial system. [55:27]

The two centralized institutions that I think are the sources of it I think 2008 lot of
different causes for 2008. One of the causes is some of this bezzle bubbling to the surface.
The two centralized institutions that are to blame central banking and central
counterparty clearing. The reason I am so committed to Bitcoin and crypto is because
crypto can solve the problem both of these organizations are presenting to society. [56:16]

The case of central banking once you have fractional reserve banking fractional reserve
banking, started, legalized in 1844, Robert Peel in the UK. By the way, there is a wonderful
Spanish economist, who writes about the Austrian school and central banking that people
here, may be like his name is Jess Huerta de Soto and he has written on this subject.
[56:40]

Once you have fractional reserve banking, you always have the elites who own the banks
overleveraging themselves. They overleverage themselves, go kaput they need a
bailout. They need a lender of last resort. Once you have a lender of last resort, you have
somebody who thinks you have a central bank, and they think they can start directing and
guiding and fine-tuning the economy the tinkerers. [57:10]

There is a fellow at the London school of economics who says their vision is, the economy is
an enormous engine and they are like a workman with a screwdriver. They think they could
just fine tune it, and get it just right. Thats their vision. The problem is, the problem with
this way of viewing the world is we laugh at the Soviet Union, those of us old enough to
remember it for trying to run a country without prices, without real prices. [57:41]

They had 23,000,000 prices being set by apparatchik, in a bureau in Moscow called gazprom
or something. They set 23,000,000 prices how much the screws costs that would go in
this bracket that would go into this bookshelf. 23,000,000 prices for everything in society,
being set by apparatchik. We say, how ridiculous what a crazy way to try to run a
country. [58:09]



In our society, the most important price we face is the price at which we discount the
future against the present. Which is to say, interest rates. Interest rates are being set, both
in Europe and the United States, in central institutions called central banks, with names like
the Federal Reserve of the United States. [58:33]

We laugh at the Soviets for it but were doing it with the most important and fundamental
price in our society. Central counterparty clearing. This sounds so dull but I think, it is an
enormous opportunity for you cryptos here, for Bitcoin or some Bitcoin like technology, to
emerge this is what Im talking about. [58:59]

When you watch a movie, youre not conscious of the grips and the gaffers and the lighting
guys you watch the movie. When you trade in the stock market, its the same thing. You
just assume, underneath it all, theres some plumbing that makes everything work when
you buy 100 shares of IBM, its getting your account, so forth. [59:21]

We went public in 02, our company. When youre a public company CEO, youre right there,
in the mix. Im out there with hedge fund guys, prime brokers, banks, and all these kind of
people. I quickly became aware, there was a bunch of criminality going on. Didnt take a lot
of genius I was asked to take part in it. By 04, I had it pretty well mapped out. I know just
who was doing it. The network of hedge funds there was a network of about 15 hedge
funds. America centered on a guy named Steven Cohen that were the center of a huge
stock manipulation scheme which included insider trading. [1:00:01]

I started talking about them publicly, naming them by name. I promise no one will ever sue
me because none of these guys can take discovery. Incidentally, Cohen later this whole
network, came under investigation, became the target of the largest federal investigation
on Wall Street in history. Eighty odd people have been sent to jail. Cohen himself paid a
billion eight fine. Its the tip of the iceberg. I think the criminality goes far deeper than
anything you yet imagine, even in this audience, on Wall Street. [1:00:33]

The real thing that was going on that I got arguably a bit obsessed with is the whole
question of clearing. Clearing is settlement. You assume there are those, that plumbing
underlying the financial system, making everything work. Let me promise you, I got into this
very deeply its way too arcane to go into here, unless I get the right questions. [1:01:01]

There is far more slop in the systems that underlie the transfer of property and title in our
society than you would possibly think exist unless you were part of it. Let me repeat that,
the systems by which property rights and title gets transferred, have gotten lots and lots of
slop. [1:01:34]

There are some academic reasons for it that they thought was okay but basically property
rights have gotten digitized, securitized and hypothecated and re-hypothecated and netted
and pre-netted, sliced, diced and circumcised and the systems lose track of who owns what.
[1:01:57]



I was making some very public criticisms of this 05, 06, 07 I was dismissed as a nut
when 08 happened. First thing the SEC did, went, and plugged several of the loopholes that
I was talking about. Theres much more there. [1:02:14]

For example, the mortgage backed security crisis. The American Banking Association
estimated in 2009 of the mortgage backed securities which is when somebody like
Goldman Sachs, takes 1000 mortgages, package them into a bond and sell that. In general,
the American Banking Association said 18 to 30% of the mortgages that were stuffed into
the mortgage-backed securities, didnt exist. [1:02:45]

What was happening was, Lehman Brothers, Morgan or somebody, was getting ready to
issue a bond, they had expected to have a 1000 only the paperwork had been done on
750 of them. They would go ahead and issue the mortgage-backed security anyway and
stuff replaced the missing 250 with IOUs, with the intent of replacing them later.
[1:03:11]

Everything got so far behind in the whole mortgage-backed security industry, before the
crisis, that when everything Chernobyled, the ABA said 18 to 30% of the stuff was just
phantom. Thats how much slop there was, in that system of chains of title. [1:03:33]

People didnt know who owned what. I think this has gotten Secretary Geithner,
famously, privately made this awful comment about we need to foam the runway for the
big banks. In other words thats what the U.S. Treasurys done. They foamed the
runway, they made it so the banks could fill an all these potholes course, at the expense
of the taxpayer. [1:03:56]

You may have heard of MF global scandal. A large company that melted down two billion
dollars was missing. Those two billion dollars in securities had been hypothecated and
re-hypothecated to London for some tax arbitrage. And when it melted down no one
could tell who owned what. [1:04:16]

That is going on and thats the essence of why I got, ten years ago, so super fly TNT about
Wall Street. Because Wall Street was doing this openly. You didnt have to scratch too hard
to find out where it was going on, how much of it was going on and they were saying
well, its okay, its okay. Because of efficient market hypothesis and stuff, everything comes
out of the wash its not okay theyre wrong. They turned out to be wrong. [1:04:42]

That brings me to the answer. The problem is if crypto is the answer, whats the
question? I will close on this. What system respects the consent of its participants, while
undermining of the centralized institutions we have come to distrust. [1:05:06]

To me, it is the technology that is being built, here, by people like you, which I see as the
fruition of this 500 year old effort that started right here, in Amsterdam. [1:05:19]

Thank you for your attendance, hope you have a good conference I would love to take
some questions. [1:05:25]



[Applause]

PB: Thank you.

JM: Thank you for an excellent presentation. I feel like I have an honorary degree in
philosophy just by listening and attending. I could listen to philosophy all day long.
[1:05:48]

PB: Good.

JM: Bitcoin audiences are famous for asking great questions. We have people with
microphones in the back, if you want to ask any questions. I want to start and ask a
question of my own, after listing to your presentation. I was wondering if you could explain
for us and the audience here, how did your business change at Overstock? When you
started accepting Bitcoin? Give us an idea, in a day-to-day way what were some of the
things you experienced through customer support questions? Did you get new media
attention, for instance? [1:06:28]

PB: Yes. The story is worth telling. On December 19
th
, a journalist called me and said, in a
long interview on other subjects, do you think youll take bitcoin? I had been keeping my
eye on bitcoin for a few years. By the way, I did my doctorate in philosophy, but along the
way, I studied computation theory at Stanford. Gdel, and the math that underlies crypto.
When Bitcoin first came along, it sparked an interest I recognized it as being based on the
stuff I had studied 25 years earlier. [1:07:07]

I had this affection for it. I was waiting to see what the Feds were going to do. They
seemed green lighted around November, at least they said theyre not going to red light it.
[1:07:16]

On December 19th, a journalist calls me on an interview on some other subjects, says, Are
you going to take bitcoin? I said, maybe by the end of 2014. I just said it off the top of my
head. That mention started showing up in Korea and Japan these newspapers all over
the world were reporting I said we might take bitcoin. So I called Coinbase, just looked
them up. They sent someone out. We had one or two conversations on the phone, they
sent someone out. On January 2
nd
, they sent someone out. On January 9th, we were live.
[1:07:52]

We had a fantastic experience with Coinbase I also happen to know BitPay. I hear the
same kind of stories about BitPay. I dont want to disrespect anybody here. I know those
are both excellent organizations with great backers. [1:08:08]

They got us live so quickly and the truth is, after we got it live, there were two phases. One
was just getting it live, the second phase theres three phases: getting it live, being able to
issue returns when a customer buys a podium and they return it, you want to give them
their money back, if they paid in bitcoin and they want it back in bitcoin. That was the
second phase. The third phase is having our international checkout process being able to
accept Bitcoin. [1:08:38]



Well we got the first phase live in a week. We got the second phase live, a month or two
ago. We can now issue refunds in bitcoin. I think were still a month or so away from
international orders, being able to pay in bitcoin of course, distresses me.
[1:08:52]

Since we got it live, its been so seamless havent had to give it a second thought. No
problem, I know I sound like a commercial. Its required no work for many of us. Weve
had to retrain some customer service agents on how to issue bitcoin refunds but its just a
few minor things like that. [1:09:14]

We have so far, I think were coming up on two million dollars worth of sales. Which is nice.
Well do a billion and a half this year. I expect well do tenish in bitcoin. Thats nice, its
growing steadily each month. [1:09:33]

JM: Did you get any new press from the branding? [1:09:37]

PB: Once we did it, once we went live it paid for itself the implementation 1one
hundred times over, just by the press. I really want to express my gratitude to the Bitcoin
community, what apparently happened was, as I hoped would happen, the early adopters
out there, the Bitcoin users, started coming to our site. Just as a show of support, buying a
set of pillows or buying a bed. We sold a few hundred thousand, just in the first two days
after getting live. People wanted to show their support. [1:10:13]

JM: Excellent. Excellent. Lets see if we have any questions in the audience. Well start
here. Do we have the microphone? [1:10: 24]

Someone from audience: if Bitcoin does undermine these centralized institutions you are
talking about, whats the best possible scenario? What does your rosy picture of the future
look like? [1:10:38]

PB: Well, my rosy picture of the future would be the bezzle get squeezed out of society,
like the toothpaste out of a tube of toothpaste. Slowly, steadily, with no major dislocations.
Everything gets filled in. That would be my rosy picture. My guess is its hard to imagine,
this technology is so disruptive its hard to imagine it doesnt disrupt something deep
along the way. But it couldnt happen to nicer set of people. I know if would be bad if it
happens but anythings better than the system, at least in the United States the system
of knuckleheads we basically live in an oligarchy now in the United States. [1:11: 22]

There is a wonderful economist Simon Johnson, was chief economist at the IMF and now
professor at MIT. He has said publically, Look, what I used to deal with at the IMF, going to
Argentina, or Russia, or Indonesia and sitting across from some young, bold leader. And its
always a new, young, bold leader. These oligarchies always get themselves the elites
leverage themselves up too much, they crack and the government bails them out. The IMF
comes in and the government wants more money and they say: we need to figure out
are you in Argentina, going to use this money to fix things or are you going to keep bailing
out your elites? [1:12: 05]



Well, I, Simon Johnson, says he, Im telling you thats all thats happened in America and
youve become an oligarchy. The history of the United States can be told as a war between
two factions Wall Street and Washington. [1:12: 21]

I can personally attest, having been on the front lines of this, and I knew this ten years ago,
long before it became common knowledge Wall Street has Washington under its thumb.
To the extent I am actually surprised we didnt get outlawed a few years ago by Washington.
Obviously, Russia and China and other autocratic states, are going to do it but Im surprised
in Washington, maybe it just got away from them. [1:12: 46]

I think their days are really going to be ruined, if bitcoin or crypto takes off. If we start
seeing cryptographic ways of transferring securities there are people here, like NXT,
working on that. There are other organizations working on creating taking this
technology and applying it to capital markets not just currency. Capital markets.
I, because I believe the bezzle, is so enormous and is so much worse a problem than is
generally understood, I think this kind of alternative technology is going to have a more
dramatic effect, than is generally understood. Cause people dont recognize how big a
problem is there. [1:13: 33]

Someone in the audience: My name is David Orban. I believe what you said is very true,
regarding distributed systems that are substituting centralized systems. Cryptos is just one
component of this. Energy, produced by solar, is distributed. 3D printing and
manufacturing, food production, health, learning all are part of the same process. And
the nation state is being undermined by this. But the nation state is also reacting as any
[inaudible] system trying to protect itself. You seem to be an optimistic revolutionary
revolutions are always started by optimists and then, they become bloody. [1:14:20]

PB: Bolsheviks takeover. [1:14:22]

David Orban: And what comes out of it at the end, is impossible to control. The well being
of the billions of people is at stake here. [1:14:33]

JM: Whats the question? [1:14:34]

David Orban: What can we do, concretely, to stop policymakers from making it bloody and
taking over the revolution? [1:14:44]

PB: Well, I think youve analysed it right. I think youve analysed it right and listen I have so
many scars from trying Ive sat there in the halls the answer is nothing. I think the
answers are not going to do anything to stop. Youre not gonna gain anything to make
government make the right choice. Let me tell you, in 04 and in 05, I had concrete data,
proof. I had people involved I had hoodlums from Staten Island. Another Dutch name,
Staten Island. [1:15:20]




Who were going and willing and talk to the SEC with me, to NASDAQ and explain what was
going on. To the senate banking committee and the House financial services, and financial
journalists in New York. Im reminded of another Bertrand Russell story. Bertrand Russell
was once in India, and he was lecturing on Einsteins relativity, and a Hindu cosmologist
stood at the back of the audience, and said, Professor Russell, you have it wrong. The
universe rides on the back of the turtle. Russell said to the Hindu professor, Whats the
turtle ride on? The guy says, The back of another turtle. And Russell says, Okay, whats
that turtle ride on? The fellow says, Im sorry, Mr. Russell, but its turtles, all the way
down. [1:16:15]

We had clear proof, there were these flaws in the settlement system, they were brokers
wildly misrepresenting fractional reserve banking without a reserve requirement. We had
participants, and we had data, we had economists. We went to NASDAQ. We went to the
SEC I was warned, if you keep pushing this Byrne, youre going to be the target of a
federal investigation. I said, you have got to be kidding me. This isnt some schmuck
country. I pushed it, I became the target of six federal investigations, over ten years, all of
which went nowhere. Which cost millions of dollars fought. They gave up, they dropped,
they give me a letter saying they were wrong, and three months later, start another
investigation. [1:17:03]

We later used Freedom of Information Act request later to find out there were Wall Street
I digress. I went to NASDAQ, the SEC, the Senate Banking, the House Financial Services,
and the New York financial press, trying to alert them and explain to them their systemic
risk being created by this. Theres deep, latent derivative risk that people dont understand
because when you have unsettled trades its kind of a contract, its a type of derivative
its called a contract for difference but one with this pernicious circular effect. We could
explain this, had all this data we got nowhere. I found, it was just turtles all the way
down. [1:17:42]

Its turtles. All the establishment that you think is overseeing the centralized institutions in
the US, its called the DTCC and expecting them to provide to be doing their job. Theyre
not doing this. Im reporting from the front line, I spent 04 to 08 in this battle, and
millions, it became my hobby. This is how I became the Scourge of Wall Street. Trying to
expose this stuff. I could give you some happy talk that says if theres this disruption, this is
what you can do to convince the governments you cant. They dont care. The people
youre up against you got to remember, the people youre up against all have senators
on speed dial. [1:18:27]

I face this myself. I used to go in and talk to senators and they would say I would explain
everything, and I would bring economists, explaining stuff and I would finish, the aid to the
senator would tell me on the way out what you say, it makes sense for every time
youre here, Goldman Sachs is here ten times, telling him not to listen to you. [1:18:46]






I think I can give you some happy talk, saying youre going to make a difference with the
government youre not. I think the one thing that happened to our benefit is this got
away from them. Its normally aggravating how slow the U.S. federal government can be to
see something and understand something and respond. For once, it helped our side. This
came along and really if everybody had been on their game, they would have stopped
Bitcoin two years ago. Its gotten away from them its too late now. [1:19:19]

I dont think they can but I dont think that theres anything youre going to be able to do, to
bring this in for a soft landing. If the system is really at the cores corrupt as I believe it
is, then as Bitcoin gets adopted, it will cause severe dislocations. [1:19:37]

I think what youre doing, though, is creating a robust, parallel system to which people can
quickly switch. I think thats really about all you can do. [1:19:46]

[Applause]

JM: Do we have another question? [1:19: 56]

Someone from audience: Thanks for a great speech. I think you expect of Bitcoin use a
stable currency. Bitcoin is fluctuating very much for the moment. Im from China and Ive
seen Chinese government has not been very supportive of this currency and the trading
volume is big in China. My question is how do you see the fluctuations of the currency in
the future and how do you think the government policy is going to affect the currency and
your business. Thank you very much. [1:20: 33]

PB: [Speaking in Mandarin] First, I thought they outlawed it but then I keep seeing these
indications that its not really outlawed, I dont understand. The fluctuation risk theres a
saying on Wall Street: liquidity begets liquidity. Once you start having liquid enough
exchanges, there are network effects. There are network affects that come to play. The
problem is you dont have liquid enough market now and thats why there is this volatility.
Its hugely ironic that Im the guy that saying this, but anyway. [1:21: 29]

We ourselves, at Overstock, dont expose ourselves to much of it. We started out, trading
out instantly, from 100% of our bitcoin transactions. Then I felt that was kind of cheating. I
wanted to accumulate some bitcoin. So now, we accumulate about 10% of all of the bitcoin
spent on our site. Were accumulating. [1:21: 55]

The fluctuation problem is a real problem for businesses. I was just speaking to someone
earlier today when the price of Bitcoin comes down, fewer people come and a sign up for
new wallets. When it goes up, more people come in and sign up for wallets. That maybe
Im sure thats true. On balance, all the volatility is probably discouraging people. [1:22: 23]

However, the only way were going to get there, is eventually, enough early adopters adopt,
and there starts to be enough liquidity, and then the liquidity begets liquidity. Things should
start you shouldnt have the kind of volatility you have now in bitcoin. I dont follow it
like I probably should but my understanding is the last couple months, the volatility has
somewhat smoothed out. [1:22: 46]



I would imagine as more people buy into it, youll see thatll happen. When somebody
develops I dont know if its been developed yet we would use it if it were a service, a
way to hedge your bitcoin risk. You dont trade out of it so much, as buy various puts and
such. You buy forward contracts. [1:23: 05]

Im trying to indicate areas that would be good business for entrepreneurs to develop. One
would be, and I know there are people working on it bitcoin version of a stock market.
Another is a bitcoin, a derivative market a good derivative market where businesses
could hedge out of, hedge through options, out of their bitcoin risk. [1:23:28]

Third, incidentally, is micropayments. I think bitcoin could solve the publishing industry
has been wrecked in the last 15 years. People want to charge subscriptions, they want to
charge for content, and they go to advertising based models. There are very few
publications who can really am I singing your song here or something there are very
few publications that can really charge online subscriptions. [1:23: 56]

What I imagine is a world where you go to a newspaper to read some article its 3 cents
to read it and if they did that, it could save the publishing industry. [1:24:10]

Those are the three areas that if I were interested in getting or starting another company,
thats what Id be doing. The point is, as more participants come in, the volatility should
smooth out. [1:24:22]

JM: Okay, we need a microphone up here, please. We have time for one more question.
Right up here, Im sorry. Can you stand up, please? [1:24:38]

Someone from audience: Hi, Im Brian Crain of Epicenter Bitcoin. You talked a lot about
dismantling of centralized organizations. Now, Im curious, is there a role, in some context,
where some centralized organizations are superior to centralized systems? Are you worried
that Overstock, being a large, centralized organization as well, will be dismantled or
replaced by decentralized applications of the future? [1:25:12]

PB: Fair question. Its not that Im against all centralized institutions. I think there are
efficiencies that come every corporation, by its nature, is a top down economy. There
are problems when organizations get too big, they are not subject to market pricing
internally. No, Im not an anarchist, like some of you. I think there is a role for government,
I think there is a role for centralized institutions. [1:25:39]

Just as the left when I was in academia the left tended to be obsessed with the idea of
market failure. Paul Krugman, Joseph Stiglitz good guys, well, Stiglitz is. They love
exploring the ways markets can fail. Markets do have natural tendencies to fail. There are
certain types of goods that are not best left to the market. You always got to ask the
question, Compared to what? [1:26:09]




Governments have ways of failing, too. There are certain standard ways, that government
choice fails. One of them is through capture. Im a small L liberty guy. Im not right wing
or left. When people on the left talk about the need to have a robust, muscular
government, that can stand up to these powerful corporations, like Goldman Sachs, they fail
to consider the possibility what happens when your muscular government becomes a
wholly owned subsidiary of Goldman Sachs? Now you got the worst of both worlds.
[1:26:52]

Im not against all centralized institutions, I just think in the design of intuitions we have to
take more consideration of the risk of their capture. All else being equal, you want
peer-to-peer institutions, where consent plays a role, rather than submission. [1:27:15]

Thank you, Jon. [1:27:16]

JM: Thank you. Can you take one more question? One more question here? [1:27:20]

PB: Sure, absolutely. Ill stay here all day. I know you got a schedule. [1:27:22]

Someone from audience: Hi, my name is John [inaudible]. Im really curious, when is
Overstock going to move their shares over to the blockchain? [1:27:31]

PB: Funny, you say that. If I say this, its going to be reported then three days from now,
Ill have guys locked in a room eating pizza making it happen. [Laughing] I said to some
journalist, we put 40 people in a room, slid pizza under the door, they got it done in a week.
Funny you say that I want to be the

[Applause]

PB: I would consider issuing a security, just to get the first bitcoin security, or blockchain
security out there. Im also exploring the possibility were listed on NASDAQ, but can we
be dual listed? Its possible in the states, you can be dual listed on more than one exchange.
Listed on NASDAQ, its listed in Berlin, its listed in the Bahamas exchange not me, but
someone in the Bahamas went to the trouble to get it done. [1:28:40]

I believe we could list on a blockchain kind of exchange. I have some lawyers, in the stages,
they are talking to two different parties. If anyone here has the technology, has the solution
call collect. I would love to be, at the very least take our current NASDAQ traded
security and dual list it. I would also be interested Im going to get escorted by the
lawyers, but in issuing a bond or something that we could list. Be the first to list this kind of
security. Call collect. [1:29:20]

[Applause]





I noticed some people in their blogs, when I first came out and did this, some people said,
this guy just did this stuff with bitcoin for publicity. Im hoping, if nothing else, this talk
dispelled, you understand, this is a deep part of my life what you folks are doing. [1:29:41]

JM: I think thats an excellent note to end on lets hear it again for Patrick Byrne!
[1:29:46]

[Applause]

PB: Thank you, sir, thank you. [1:29:48]

AL: Thanks for listening to Episode 114 of Lets Talk Bitcoin. Content for this episode was
provided by Gavin Andresen, Patrick Byrne, and Jon Matonis. Music for this episode was
provided by Jared Rubens. Any questions or comments, email adam@letstalkbitcoin.com.
Have a good one. [1:30:09]

[Music]