S15 E64: David A. Johnston on Bitcoin 2.0 & Decentralized AI

0:46Vlad CosteaHello there and welcome to the Bitcoin Takeover Podcast. This is Season 15, Episode 64. Will you still need me? Will you still feed me when I'm 64? That's a good question. And we are live with David Johnston, David A. Johnston. He is the creator of Johnston's Law, which is something that says that everything that can be decentralized will be decentralized. And nowadays he's working on decentralizing AI. He is a Bitcoin OG who has been around since the early days and watched a lot of stuff happening and has some opinions on some of the protocols that were being built for Bitcoin back in 2012-2013.

1:28Colored coins, Omni, Counterparty, I think Omni was called Mastercoin at the time. And we have quite a few stories to tell and I guess bring back into the conversation because people forgot what was being built for Bitcoin and how the community at large was reacting to builders at the time. You are of a very interesting opinion about toxicity and how nothing much has changed, I guess. But I talk too much. Also, before I let you introduce yourself and talk, I gotta thank the sponsors who are LayerTwo Labs, building Drivechains.

2:05We also have StarkWare who are doing something very cool with ZK rollups for Bitcoin and also SideShift.ai and Hodling.ch. This was my long intro. Welcome.

2:22David A. JohnstonGood to be here, Vlad. Thanks for having me on the podcast.

2:27Vlad CosteaSo where do we begin? Let's talk about Bitcoin 2.0 and what that one meant and how that one somehow failed. But we still see, I guess, small pieces of those ideas coming back with ordinals and stuff.

2:46David A. JohnstonSure. It's a good place to start. So I got into Bitcoin in 2012 and I really loved the decentralization, the peer-to-peer nature, the fact that it was all open source. It sort of just reflected all of my interests and ethics. I'd been reading about free market economics with Mises and David Friedman and Rothbard and all these influential writers. I'd already come to the conclusion that this is how we increase human prosperity. We need free markets for not just goods and services, but for money. The idea that there was non-governmental money controlled by math and not by politicians, I was pretty excited about that.

3:35So 2012, early 2013, I basically leaned in to work on Bitcoin full-time. I spoke at a lot of the early Bitcoin conferences, the first foundation conference in May of 2013. I was one of the speakers on how to build stuff on Bitcoin. It was a crazy time and a lot of the early questions were like, okay, what can Bitcoin do? Because there were all these cool proposals, like you said, for colored coins, which was like, okay, we're going to add data to Bitcoin that changes a Bitcoin transaction from just sending and receiving Bitcoin to including some information.

4:13This was done at the time by kind of shoving that information into the UTXO set or other methods. Eventually, it ended up being included in OP_RETURN as a hash. So you had this little memo field, if you will, which is just big enough. It went back and forth, but 80 bytes, 40 bytes to include a hash, which is 32 bytes and a little extra data. You could say, hey, this isn't a normal Bitcoin transaction. This is tokenized gold. It's a tokenized dollar, whatever. And there were all these proposals floating around for how to do that. But I realized over time that it wasn't a technical barrier. The more I dug into it, I realized it was an ideological barrier. A lot of the developers were very concerned about the edge cases. They didn't know what it meant if there were digital assets on Bitcoin. Was there some attack vector there? And so people were very cautious. It wasn't until J.R. Willett wrote the white paper for Mastercoin. He was like, hey, I'm actually going to launch this thing.

5:25And it was basically, he basically did that first ever ICO. He said, hey, if you send some Bitcoin to this address, I'm going to use the funds and issue this new coin, and I'm going to use it to build out digital assets on Bitcoin. And the more I dug into it, I was like, yeah, this is really powerful. Bitcoin can be the root of trust with all of its hash power, and you can extend that security to these other assets. Yeah. And so I wrote a research report on Mastercoin during their token sale.

5:58There wasn't even the term ICO yet. And I was like, this is cool. Let's support this. And so a bunch of community members ended up supporting Mastercoin, and they ended up bringing in $5 million worth of Bitcoin, which is a lot of money at the time. That really shocked people that there was so much support and excitement for digital assets on Bitcoin. And a bunch of developers started coding it up. And by April, so the token sale was in August of 2013. By April of 2014, the software went live, and that's where we got the initial tokens like Tether USDT was launched shortly thereafter.

6:44And so people started experimenting and putting all sorts of things onto Bitcoin. And then you had Counterparty, and NXT, and all these other groups come out and say they were going to do something similar along the same lines. But what I would say is it evolved into people that wanted to extend Bitcoin into generalizable scripts and people that wanted to preserve Bitcoin as focused on being digital gold. And if I were to steel man the arguments and present it in the best light, I would say the people that were being conservative were really concerned about government attack vectors and state actors and like, hey, let's just succeed on decentralizing money.

7:39And these other things can come much later. Whereas there was a lot of enthusiastic engineers that just wanted to build something on Bitcoin. And that's where this concept, we used the word Bitcoin 2.0. I think I spoke on one of the first ever conferences and panels. It was me and Vitalik and Adam Levine and a guy from the NXT protocol. And they called it the Bitcoin 2.0 panel. And we talked about this concept of like, what does it look like to extend Bitcoin? And that's where Vitalik's proposal originally, as an idea of doing scripting on Bitcoin, as part of the Mastercoin protocol, came from.

8:21But he got a lot of pushback from the developers that were very conservative and said, this is out of scope. It can't really be supported by Bitcoin yet. Go somewhere else, kid. He ended up taking those ideas and eventually releasing them as the Ethereum paper. And that was sort of, I think, the solution that the community came to is, this is open source. We can fork these ideas, these different approaches into different projects. And so if you look at the early Ethereum community, they're all Bitcoiners. Vitalik was writing for Bitcoin Magazine.

9:01He was writing about these ideas of how to extend Bitcoin's technology. But it just came down to a fundamental ideological difference. And so I ended up writing an article in 2016. "It's Time to Embrace the Coming Bitcoin Fork," which would come eventually in 2017, the next year, because I could see even then that there's irreconcilable differences between those that want to be Bitcoin to be extensible and upgradeable and digital cash, and those that wanted this more conservative track with Bitcoin being a store of value. And that's fine.

9:41That's one of the things I love about open source is, you can have different ideas, you can have a marketplace, you can have different implementations, and people can go and build what they think is most important. But as a freedom maximalist, I've tried never to get tribalistic with a single project. I love Bitcoin because it decentralized money. And I love Ethereum because it gave us smart contracts, and decentralized finance. I love Morpheus because it's decentralizing AI. I want all of these things. I think we need all of these things.

10:20Vlad CosteaYeah, I agree with you. And when we were talking about doing this interview, we briefly exchanged a few messages. And I was telling you know, back in the day, the culture was not this toxic. And you told me it was always like this. Developers and builders were always discouraged out of Bitcoin. But where I was coming from was that, for example, at one point, Peter Todd, who nowadays is cynical and says that everything doesn't scale and is not good enough, was actually the chief scientist of Mastercoin at one point. It was more collaborative, you could find these people who today are high priests of maximalism, collaborating on all sorts of ideas and projects to see if they can potentially work, you know?

11:07David A. JohnstonRight. Well, yes, Peter, you know, collaborated for a bit, though, with the others that were developing what became Bitcoin Core, because you have to remember, it wasn't Bitcoin Core at the time. It was Bitcoin-Qt. Right. And you had Gavin and Mike and other early contributors. And then you sort of had this new group that came in much later in 2014. Right. And they didn't have the same sort of free market approach to thing was much more like there's one coin to rule them all in any, you know, deviation, or, you know, having multiple implementations, even if the software is bad.

11:51And, you know, one of these core developers told me, you know, in person at one point, you know, we think what Peter is doing with Mastercoin is bad, but you know, we'll forgive him. Right. And it's like, there was a, there was still this general sense that, you know, creating anything outside of the orthodoxy was very, very negative. I remember, you know, at one point getting, you know, summoned to IRC, and to, you know, explain, you know, to the core developers, you know, why I was supporting, you know, a project like Mastercoin.

12:27At one point, Luke Jr. released a patch to some mining software that he was maintaining that literally blocked all Mastercoin transactions on the blockchain. Still to this day, one of the only examples I know of somebody doing on-chain, what amounts to censorship, right, but he feels very strongly that, you know, anything that isn't a Bitcoin transaction, you know, is spamming the network. And so eventually, people realized what he was doing, and people stopped using his mining patch, and it was only blocking about 10% of the transaction.

13:03So, you know, sort of didn't have the effect, but there was this very hostile kind of environment where they're, you know, well, we'll change the code and block OP_RETURN and, you know, prevent, you know, these digital assets and, like, all that gets into the UTXO set. Right, which is the nuclear option.

13:33Vlad CosteaDavid, I think I lost you. Maybe your connection is slow or something, because there's also a delay between your video and your audio. Do you hear me? I think you dropped out for about 10 seconds.

13:52David A. JohnstonOkay, can you hear me now? Is that better? So yeah, I was I was just saying there's a lot of that back and forth. But, you know, what I always said was, you know, let people try different experiments, right? So, you know, ultimately, those that were attracted to that idea of generalizing scripting, you know, split off and focused on Ethereum, right, because it was encouraging, you know, of those ideas, versus, you know, Bitcoin stayed very focused and, you know, has done very well, right, as a as a store of wealth, right? It was just different than what a lot of early people sort of imagined when they read the white paper or initially wanted to see it, you know, compete directly as a as a payment rail and, you know, as an alternative to, you know, electronic cash, right.

14:44And so I think that was sort of the heart of it. But, you know, I try to take everything on good faith, right? I think the developers had their reasons, and I understand their reasons. And so, you know, I again, love Bitcoin and wanted to succeed and see it as this amazing, successful, decentralized project. But as somebody who's a freedom maximalist, I need more tools than just decentralized money, right? I want decentralized smart contracts and all of the rest.

15:16Vlad CosteaTo me, it's fascinating how you can't win, you know, if you're building something on Bitcoin that adds data to the blockchain, they call you a spammer, and they say you're creating shitcoins on Bitcoin or whatever. But if you do it somewhere else, you're a scammer because you're doing something outside of Bitcoin and you're creating competition for Bitcoin. You are not being pure enough, I guess. That's the way in which they describe you. And it's a culture where there is no actual way to win. If you do it on a sidechain or whatever, it's still horrible.

15:53David A. JohnstonWell, you know, that's the ironic thing is I think the proliferation of other projects has massively benefited Bitcoin, right? You know, Bitcoin became, for many years, the common trading pair to everything else. So, you know, if you wanted to support Ethereum, guess what people did? They bought Bitcoin and they contributed it to Ethereum, right? Many of the early token sales, they were all raised in Bitcoin. And so if you wanted to support development, even outside of Bitcoin, you were still in the Bitcoin economy, you were still using it as a store of value.

16:29Many of those early projects used Bitcoin as their primary treasury, right? They held Bitcoin, not dollars. They held Bitcoin, right? And so, you know, if I look at sort of how the markets evolved today, if Bitcoin is over a trillion dollars and you have another trillion dollars of other assets, I think that's hugely healthy, right? Because you've ended up with lots of protocols and even DeFi that use Bitcoin as a store of wealth, right? Which ultimately contribute to the value of Bitcoin. So, you know, as somebody who people can decide, you know, what they want to support.

17:18Vlad CosteaI'm not sure if you dropped out or you stopped talking. Your connection is a bit unreliable. Can you hear me?

17:30David A. JohnstonI can hear you. Let me try switching networks one more time.

17:35Vlad CosteaOkay, so while he is switching networks, let me present you today's sponsor, SideShift.ai. If you have stablecoins or something that you should not be holding, especially during bull markets, you can swap it without registration on SideShift.ai. It's pretty convenient. They have a lot of liquidity. So even for large amounts, you can get it through and the fees are not so high. So check it out. Swap that CBDC wannabe for free market money and use SideShift.ai for it. And also, I want to present LayerTwo Labs.

18:14I'm a big fan of the work of Paul Sztorc. In recent months, he came up with the CUSF process through which he's trying to create soft forks about which Bitcoin Core does not have to agree. So it doesn't go through the BIP process. It goes directly to the miners and needs a majority to enforce it. And he's trying to bring two-way pegged sidechains to Bitcoin to have pretty much every possible use case from a layer with big blocks for cheap transactions to an Ethereum layer where you can port contracts one to one to Bitcoin and a Zcash sidechain for privacy and all sorts of stuff.

18:55And the only request from Paul is that you get the software. Go to layertwolabs.com/download. And you're going to find the latest version of the Drivechain software so you know exactly what this is about and how it works. So thank you, SideShift and LayerTwo Labs. And now I got to ask you, sir, because you've been around for such a long time and you have worked on so many interesting projects. And why do you think that of all the Bitcoin 2.0 protocols out there?

19:26Because you had Mastercoin, which became Omni Layer, and it was, I guess, only famous for being the place where Tether was born. And you had Counterparty, which was initially conceived as an idea to build decentralized companies and stuff like that to issue shares and pay dividends. And it ended up becoming the home of Rare Pepes. And you also had NXT, which was... I think it was trying to be exactly what Ethereum is today. It was proof of stake. It was entirely made for smart contracts. And it was very promising and well funded, but somehow it did not get traction.

20:07But of all of these ideas and projects, it was Ethereum that ended up getting more liquidity and more success.

20:16David A. JohnstonA lot of it I would accredit to the very egalitarian approach and the wide distribution of the tokens to as many developers as possible. So people often forget Ethereum had this period between the whitepaper and the Genesis launch. In the whitepaper, the draft started coming around in November, December of 2013. It was announced. Officially in January at the Bitcoin conference in Miami, January '14. But it wasn't until the fall of 2015 that the network went live. And during that period, everybody that contributed to the GitHub ultimately got an airdrop of Ethereum.

21:04And so they went out of their way to reward hundreds of developers all over the world that wanted to build things in this smart contract context. And so, you know, compared, you know, people focus on the token sale. And that was a good way to bootstrap. I think they had 17,000 participants. And people donated about one Bitcoin on average. That gave them a large network effect. And they had miners. They wanted to do proof of stake, but they weren't ready for it. And so they started with traditional proof of work mining.

21:42So you had these three communities all working together. The developers ended up getting a large reward. The proof of work miners securing the network until you could eventually get to proof of stake. But then also the people that had provided the capital. And I often refer to that as the golden trinity. That's what you need. You don't just need capital. You don't just need compute. You need the developers and the builders to be excited about it. Those are the people holding the meetups and doing the hackathons and showing up and holding DevCon and things like this.

22:19And so there ended up being a critical mass of brainpower in the Ethereum context. And it wasn't easy. And it was messy. And a lot of the ideas took a while to figure out. But because all these developers had their incentives aligned towards Ethereum's success, they kept working on it. And so if I were to pick out one factor, I think that was sort of the critical factor. The other thing I would push is, even with NXT and others, many people had built things in the context of, okay, here's the protocol and it's going to have XYZ features.

22:58Versus Vitalik's paper was like, no, no, no, Ethereum is just going to be a platform. Build anything you want. We're going to give you execution and consensus. And here's an EVM, Ethereum Virtual Machine. Here's Solidity. We're going to give you all the tools, but we're not going to compete with the developers who want to build on Ethereum. We want them to be successful. Versus, in my mind, every protocol before that, it's like, oh, we need a DEX. And the core team was going to build the DEX.

23:29And, oh, there needs to be assets. And the core team is going to figure out how to build the assets. The problem is, there were five or 10 developers at a foundation versus this army of developers of hundreds of people coming up with ideas and constantly iterating and constantly building. And ultimately, that gave Ethereum a much larger network effect with the developers. So those are the kind of things I would really chalk up the success to.

23:55Vlad CosteaI do like to say sometimes that Ethereum is a Bitcoin maximalist project and maximalist in the old school sense, not the conservatism that is proliferated today on Twitter. Because basically, Vitalik is a hardcore Bitcoiner. He started working in, so not too many people know about this, but when he first started out in 2011, he was getting paid five Bitcoins per article to write about Bitcoin. And then when the guy who was paying him for this shut down the operation, he started his own magazine, which is still active today, and it's called Bitcoin Magazine.

24:33And it was around the time that he worked on colored coins, which was a way to do assets on Bitcoin. And it was basically an early idea for today's ordinal inscriptions. It was a way to present Bitcoin units as dedicated assets, and you could trade those on the Bitcoin blockchain. And it was very much ahead of its time. It lacked the EVM and the smart contracting features that Ethereum has today, but it was still very ambitious. And when you look at stuff like Counterparty or Omni, they feel like ghost towns, but they are filled with good intentions.

25:16They're geeky, they're cumbersome to use, they're not very intuitive, but they are super cool. And on the topic of Vitalik being a maximalist, still, he produced a lot of useful research with Ethereum that we can take to Bitcoin if we want that. We can build sidechains with that. He created a standard. A lot of people complain that Ethereum smart contracts are not great and that Solidity is not the best programming language, but everything out there that was built did not get the same amount of traction. And I guess it's for the reasons that you described, that you have hundreds, if not thousands of developers working to build stuff, and then someone else says, let's invent a new language, Simplicity or whatever by Blockstream.

26:01And you have 10 developers working on that one. So of course, it's not going to get much traction. And that's not going to become the standard across the industry. And guys like Saifedean, for example, will call Vitalik maybe the grandfather of all shitcoins, you know, because he described Ethereum as the toilet from which all the shitcoins are coming. And I disagree to the extent that it was necessary. If you think about a cypherpunk world where anyone can issue their own currency, where people can issue stocks or tokens or something to signal that it represents the possession of something, you do need these decentralized exchanges and platforms.

26:50And I think stuff like Uniswap is impressive. The fact that it got built and you're able to trade like that, it's really cool without any trusted third party, without any ability to censor in a self-custodial environment. I wish Bitcoin had something like that. It almost had it with the DEXs that were built for Omni and Counterparty. But still, I think Ethereum has produced a lot of useful research and Bitcoin can just take it for granted and say, OK, well, we'll get the best of it and add it to our network.

27:29David A. JohnstonYeah. You know, it's funny. I remember testing the decentralized exchange on the Omni protocol. And I think one of the things that really prevented it from taking off is you had to move at the speed of Bitcoin blocks. Right. So, you know, I would initiate a bid and wait 10 minutes. And sometimes it was 20 minutes. Right. There's a lot of variability there. And did the bid get in OK? Was it successful? Right. You know, I would spend an hour basically trying to go through a couple of steps to use the DEX.

28:06And like you said, having 12 second blocks, having a lot of other work that's been done on shortening block time, you know, was a game changer. And you really could get, you know, DEXs like Uniswap and others to execute in the type of timeframe that people are willing to engage in. Right. But I think that's a fair assessment. Like there's an enormous amount of research that's been done via the Ethereum community. And, you know, Bitcoin and other blockchains can all benefit from that. Right. It's all open source.

28:40And one thing that I see happening today is people crossing the two together. Right. It's part of why I'm such a big fan of THORChain. Right. It's the first multi-chain DEX that lets me take native Bitcoin with no bridge, with no wrapping, you know, with no secondary token, just native Bitcoin and be able to swap it into all these other currencies. Right. And I think that achievement is really important because people are reconnecting, you know, Bitcoin as a store of value with all of this other infrastructure, DeFi and smart contracts that it's evolved on these other chains.

29:20And that came out of the Cosmos ecosystem, is what THORChain is built on. Right. And that's part of why, you know, I think Erik Voorhees was so supportive of their efforts and why he rebuilt ShapeShift based on THORChain. Right. So you could rip out all the custodians, you could rip out all the KYC, you could rip out, you know, all the middle steps. Right. And just create a self-custody DEX, which is really amazing. Right. He did so much early work to sort of pioneer even before Uniswap was Uniswap.

29:51You know, people are using ShapeShift in a very similar context, but it wasn't until we had those more advanced tools that you could rip out all the custodians. Right. And, you know, move it across chain. So it's getting there. I'm fairly optimistic. I see other projects by Bitcoin OGs like, you know, Jeff Garzik. Right. And, you know, his new project Hemi, H-E-M-I, is a layer two across Bitcoin and Ethereum. Right. And I think that's really powerful. Right. So people are building now the infrastructure to bring all these pieces together.

30:28So, you know, even though the communities diverged and went in different directions, I actually think that's really healthy. And if you care about it from a cypherpunk type of perspective, it also protects the community from different attack vectors. Right. It's very easy to know where the proof of work miners are. Right. Their energy footprints are very obvious. And so, you know, if you're worried about censorship in that regard, having a parallel system with proof of stake, which has a much smaller footprint, right, it's just a validator, it's just a server, you know, having that diversity of approaches, you know, that's not an attack on proof of work.

31:08Proof of work has been amazingly resilient. But it's complementary to have a different type of approach in case one is targeted in the future. Right. So, you know, again, I think of these more like programming languages. They all have tradeoffs. Right. There's a context in which it makes sense to use C++ or Go or Rust in a very different context, where it makes sense to use Python and JavaScript. Right. And you meet engineers from time to time who will tell you there's one language to rule them all, but they tend not to be the more sophisticated developers.

31:44Like most developers are very pragmatic, and they'll use the tool that makes sense in the context of what they're trying to build. And so if you think about crypto in that type of framework, you can say Bitcoin is great for this, and Ethereum is great for that. And here are these other projects that can give me other tools.

32:02Vlad CosteaYou mentioned the name of Jeff Garzik, and he was one of the first Bitcoin developers. I think Satoshi listed him on the Bitcoin.org website, and he was also the original big blocker. Back in 2010, he proposed the version of Bitcoin, which had, I think, six or seven megabyte blocks. And Satoshi said, you know, it's too early for this. Don't run the software. You're not going to be in consensus. You should not do this. I think nowadays he gets a bad reputation for being known as the developer behind SegWit2x.

32:35And there is some controversy and I guess some leftover drama, some, how should I put it, resentment regarding that. But I think he understood something very well when he saw that Bitcoin is not following a path towards scaling, and people prefer to experiment with layers, which maybe he was not very optimistic about. He started thinking about bridges, and he was one of the first people to think about this concept that what if you're going to get these other networks and instead of building layer twos that have different trade-offs for Bitcoin, you can use these other networks and their features to perform different tasks.

33:16And I think what he's doing today with, you said it's called Temi. It's not Temu, the website where we buy cheap stuff. It's Temi.

33:27David A. JohnstonH-E-M-I.

33:29Vlad CosteaOkay. Sorry. I'm thinking about Chinese crap. Anyway, it's very cool what he's doing. And there are also projects like BOB, Build on Bitcoin. It's doing something similar with bridging, basically getting the best of both worlds. You get Ethereum, smart contracts and Bitcoin. And also there is Citrea, which is doing something different, but with ZK rollups, and Alpen Labs and so many teams working exactly on this idea, because I think the Bitcoin maximalist dream is to have the entire economy using the 21 million Bitcoin. But if that's not possible or not possible yet, you can have, I guess, like 200 million coins across multiple chains that are useful in one way or the other.

34:22And in hindsight, that's fine. It will not be 21 million. You're going to have more networks that interact with each other. That's still pretty good. It's much better than having a fiat system. It's just like scaling Linux. You know, you make multiple distros and you're going to have a distro for gamers. You're going to have one for security. And there is some interactivity between them.

34:48David A. JohnstonYeah. Well, and that's a really good framework to think about it as well. You know, it always struck me that Bitcoin effectively picked the Microsoft approach, right? Where Microsoft would value reverse compatibility above all else, right? Because that was their audience. It was corporations who were slow moving. They didn't want to upgrade their software. They just wanted it to work, right? So they would support reverse compatibility, you know, at a very high cost, right? They couldn't innovate as quickly. And they had to do a lot of work.

35:25But, you know, you could still be running Microsoft XP 20 years after it shipped, right? And that kind of stability was valuable to a certain user set, right? Whereas, like you're saying, with Linux, you could roll any flavor you wanted. You could move very quickly. You could iterate, right? And having both, I think, is valid. I don't think one model has to be used for all context, right? And also, if you believe Bitcoin is money, you need things to buy with money.

36:01I want decentralized storage. I want decentralized AI. I have to, you know, have a counterparty. I have to have another side of the pair to trade Bitcoin for something else, right? And so if you believe in Bitcoin, you know, hyperbitcoinization, in the Bitcoin maximalist dream of everything using Bitcoin, you still need the other half of the economy, right? Money is only ever half of the equation. You have to be buying something on the other side, right? And so, you know, and that's sort of what we've seen, right? About half the market is Bitcoin, and about the other half of the market are things you can use Bitcoin for, right?

36:40So whether that ratio persists or not, I don't know. Depends if Bitcoin maintains its, you know, store of value and, you know, sort of preference as a trading pair and a medium of exchange, you know, and a unit of account. We'll see, you know, Ethereum has gained a lot of those characteristics in its own context, right? People use ETH as the common trading pair for things in DeFi, right? And so, if that context continues to grow, then it may well take on those characteristics of money, a unit of account, a medium of exchange, and so forth, right?

37:18But again, those are very complementary, you know, and I don't, I've never bought that it has to be one or the other, right? I don't believe in monopolies in general, and monopolies are very vulnerable to regulatory capture and to corruption and other things, right? And so, having an open marketplace, I think, is much more healthy.

37:39Vlad CosteaYeah, and ultimately, there are only two ways to scale Bitcoin. You actually scale it by increasing the block size or building layers and stuff like this, or you create interoperability with forks of Bitcoin. You're going to have Litecoin, you're going to have Monero, you're going to have Ethereum, and all of this stuff that people find useful. And of course, you either protect monetary inflation or protect against monetary inflation by trying to maximize what a network can do, but that can come with trade-offs and decentralization, or else you're going to create more networks and you're going to trade between them.

38:21And I think the people who are visionaries and built bridges are really reaping the rewards right now and are going to get very much rewarded in the next few years. It seems like this is the direction towards which we're heading, as there is not much enthusiasm in Bitcoin right now to either scale or add privacy, but other networks have been optimized to do it very well. I wish Bitcoin was like Zcash today when we had all of this cool cryptography, but I understand why developers were reluctant to add it because it's very avant-garde.

38:57There's the risk of inflation bugs and stuff like this, but it's cool that there's so much interesting stuff being built.

39:07David A. JohnstonYeah, 100%. And what I continue to ask myself in the context you brought up, Johnston's law, everything that can be decentralized will be decentralized. I continue to ask myself, what's the next thing in the tech stack that we need to build in order to further human freedom? So, okay, great. Now we have decentralized money. We have decentralized smart contracts, data storage, and all these things. And I really started shifting my focus last year and even in 2022, when the advent of AI really got to a tipping point of sophistication and accuracy, where it made sense to focus on it and say, can this be a tool for adoption of crypto?

39:57Can this be a tool for furthering Web3 payments and the use of Bitcoin and everything else? And I came to the conclusion. That if we had decentralized AI, it could remove all the complexity for using crypto, right? Because if I can just tell the machine, what do I want to accomplish? I want to send my friend Bob some Bitcoin. Great. It can, you know, set up the transaction, it can prompt me to approve it, you know, on my MetaMask wallet or whatever, right, and send the transaction.

40:31And all of a sudden, you've opened up, you know, Bitcoin and crypto more generally. To billions of people instead of millions of people, right? Because I remember this from the early days of the web. People were very dismissive of the Internet. It's just for engineers. It's just for technical people. They didn't take it seriously until there were search engines. When you could just tell the search engine what you wanted to find. And it magically showed you the best website on the Internet for that. You're not typing IP addresses anymore.

41:05You're not navigating directly. All of a sudden it opened up, right? And everybody came online, right? From 1999 when there was 100 million users of the Internet to a few years later when you crossed a billion. That's what made that leap possible. It was simplifying the user experience and the user interface. And so I'm very optimistic that that's what AI is about to do for crypto, right? There are 400 or 500 million Web3 wallets. And I think if we can upgrade the UI, we can get across a billion, right?

41:39And then you're really going to start to open it up to everyone, regardless of their technical ability, right? And if they know what a smart contract is, or how to manage their wallet and all these things, you know, but the key for that is that I want it to be non-custodial. I want it to be your personal AI controlled by your wallet, with your data, with your prompts, right? Reflecting your will, not some company or some government, you know, deciding what is best for your AI.

42:13And so I think people are going to tend towards having a personal AI. For the same reasons, you ended up having a personal phone and a personal computer, right? Neither of those technologies started there, but they all ended up there. Because ultimately you need individuals expressing preferences and assigning tasks and acting as oracles and just expressing what they want to accomplish, right? You're not going to have some collectivist dream where, you know, all the world's needs are going to be figured out by the supercomputer. I don't buy that for a minute, right?

42:44I think we need personal AIs. And so I've been very encouraged to see the open source models quickly catch up with the proprietary models for AI. And that's really just happened in the last few months. And so now we're sort of at the cutting edge of the technology, and in a position, you know, where open source peer to peer AI can really exist. And so, you know, I've been very inspired, you know, when I read the Morpheus white paper, when, you know, started collaborating with Akash, and, you know, people have probably heard of Bittensor, but these are all different building blocks of what we need to really have decentralized AI, but it's live today and it seems to be very popular.

43:27So it's, I think, growing very quickly.

43:31Vlad CosteaSo when you say AI, do you only refer to large language models or do you think about something else?

43:40David A. JohnstonLarge language models are a good starting point because you can detect intent, right? What is the user trying to accomplish? And you can use that as almost think of it as a delegator agent, where somebody expresses what they want to accomplish, and it can be directed towards a specialized smart agent that accomplish that task, just the way you have an operating system. But ultimately, you have a bunch of different apps on your phone to accomplish specific tasks, right. So I think there'll be something very similar here.

44:11And that's what's happening is there's this Cambrian explosion of smart agents that do all these different tasks. But if you have a large language model, even on the edge on the device, right, the models have become very small, you can run them now on a phone, they're only a couple of gigabytes, they sit in RAM, and you can query it, then you can call out to a network, a peer to peer network, if you need, you know, some more computationally intensive task, like using a GPU to generate an image or a video or something like that.

44:41And so that's what's going to happen. But I'm speaking generally, I'm talking about diffusion models for images, I'm talking about using large language models for writing code, there's all these use cases that have opened up. And I usually point people at Venice.ai, another Erik Voorhees project, right, that really taken off and gone viral, because it's free, and open source and permissionless and uncensored. And the prompts are stored on your local device, right, it's private to you. And the traffic that goes to the GPU providers goes on to a decentralized network and is encrypted end to end, right, and they mix together all the prompts.

45:24And so there's no connection between an identity and all of the traffic that's going through. And so, Erik, and, you know, Teana, and the folks there have done an amazing job of, you know, building this first personal private AI. And I have it on my phone, I use it literally every day, you just go to Venice.ai, and you could pin it as, you know, a progressive web app on your home screen, and you can use it for coding or images or text. And so I think that's sort of just the tip of the iceberg.

45:56But I think it's likely to go viral in Latin America, in Asia, overseas, where people have a phone, and they don't want to pay Microsoft $300 a year to use ChatGPT, right? That doesn't work for the guy in India or the guy in Brazil, right? And so for the same reason things like WhatsApp really took off in the developing world, that's what we're seeing with personal AI and open source, is it's the same people, same reason people prefer Android or Linux is it's free and permissionless, right?

46:30And so there'll always be this room for this premium tier of people that are willing to pay for, you know, the corporate approved version if they're in that context. But most people, they're just gonna want to use the free open source one, right, which is just as good as the proprietary one these days.

46:48Vlad CosteaSorry, I was responding to someone in the chat. I gotta let you know that there's a small glitch that happened with this live stream. And in the beginning, I was thinking, should we stop it and restart it? Because the title on Twitter was not changed from the previous episode. So right now you're David Bailey talking about Donald Trump. So I hope you don't mind that it's an honest mistake. It did not update on YouTube. It's all good. On Spotify, it's gonna be all good. I apologize to the people on Twitter watching this.

47:18And being confused, but I did mention it in my subsequent tweets after this.

47:25David A. JohnstonNo worries. It's all good. David's a good guy. We're friends.

47:29Vlad CosteaYeah. What do you think about this situation where Bitcoin has become a political subject and a Bitcoin conference held so many politicians who got on stage and spoke about their ideas about what Bitcoin is, which of course are super wrong because they just discovered it and probably they just wanted to fundraise for their campaigns. But I don't think at any point in history so far we have seen so much attention. And it's like we have become a significant part of the electorate. We cannot talk about what's it called?

48:11Regulation without representation. No taxation without representation. We cannot talk about that anymore because we're being taxed and it seems like we're going to be represented in one way or another.

48:24David A. JohnstonYou know, it's interesting. I think it was inevitable that as Bitcoin and crypto went mainstream, you know, people will try to associate themselves with it. Right. They're, by some estimates, 50 million Americans that hold Bitcoin and crypto in general. Right. And so, you know, that's a lot of people. Right. And so, you know, the state and politicians, you know, want to associate themselves, you know, and sort of campaign towards that demographic. Right. But I think the important thing to understand is Bitcoin operates outside of the state.

49:07Right. It doesn't know the state exists. It operates based on mathematics. Right. And, you know, it's important that we maintain those principles. Right. And those have been hard fought principles. Right. That, you know, self sovereignty, the fact that you can, you know, self custody. You know, if Bitcoin were to get to a point where you can't self custody, that's sort of, to me, the end of Bitcoin. Right. Because then it's just digital gold. And, you know, what happened in the 30s is they seized all the gold.

49:42Right. And you're back to trusting some bank that is holding, you know, you've got some paper receipt to a real asset somewhere else.

49:52Vlad CosteaYou're speaking as or like a paranoid crypto anarchist. I think that's the term nowadays.

49:59David A. JohnstonI do identify as a crypto anarchist, as an anarcho capitalist. I saw an early survey, I think it was back in 2012, of the OG community, and there's something like 40% ancaps at that point, which is amazing considering we're maybe 1% of the general population, or at least we used to be. It's amazing to see Argentina has an ancap as president. The concept has come so far. People are seeing inflation for what it is. It's a government-caused problem.

50:31Some of these things have really grown in adoption and understanding. But there was a subset of people that were looking for an alternative to the dollar. That's the ironic thing. I turned my dollars into Bitcoin, and people say, oh, wasn't that so risky in 2012? I was like, no. The dollar was always going to go down. They just kept printing more. That was the risky asset. I was doing something conservative, at least financially, in the fact that I converted all of my money out of dollars and into Bitcoin.

51:08I was lucky to marry a free market economics girl. She was very supportive and was like, yeah, why would we hold any dollars? They're inflationary and only lose value. Obviously, you should buy Bitcoin. This is economics 101. I was like, God, I love you. That's the reaction one would hope for when they tell their spouse about Bitcoin or crypto. But I had filtered for free market economics knowledge. It wasn't a surprise, but a very good one. Those principles really matter. We're dragging some of them into the general discourse that people are having.

51:53I try to remind folks, don't put your hope and salvation into politicians. There's not a high correlation between what they say before the election and what they do after the election. I would just remind people that the goal here is to opt out of the state, to get away from systems of violence and into systems of mathematics that are peaceful and voluntary and consensual. The more you can do that in your life, the better off you will be.

52:30Vlad CosteaYeah, on the topic of ancaps, to me, it's fascinating that Ron Paul is getting so much recognition these days. Elon Musk tweeted something from him. It seems like they're friends right now. He generated this image of him and Ron Paul basically running this interviewing session where they ask government employees. So what do you do here? Why is your job important? He's created this DOGE meme, right? Department of Government Efficiency, which is supposed to be this minarchist idea of minimizing the state and trying to maximize individual freedom and incentivizing the private sector to step in.

53:11And all of these were ideas that Ron Paul has been evangelizing for decades now. And it's so cool to see a resurgence of these ideas and realize that the people who listen to Ron Paul are now wealthy enough to make a change. And that's really beautiful.

53:31David A. JohnstonIt is very great to see. I was part of the 2007 Ron Paul revolution. I volunteered with the campaign. He taught a lot of people about Mises and Hayek and Rothbard and these ideas of economics that were based on freedom. And he did an amazing job of that. And you got to see the inside of the machine. If you volunteered in any of those campaigns, you saw how corrupt the political machine was. He won all these caucuses and half the time they wouldn't give him the delegates.

54:09And so you came to realize that, okay, this is rigged. And I'm going to go spend my time on something that can't be rigged. I'm going to go spend my time on Bitcoin. So many of the early Bitcoiners were Ron Paul people. It was at a meetup with a bunch of Ron Paul guys in Louisiana that somebody first told me about Bitcoin. And I was like, wait, there's a non-governmental money that will never be inflated by politicians and it's controlled by math. Yeah, I like to take my green pieces of paper and switch for that.

54:42That sets you down the rabbit hole. But I already had the mental framework where I wanted to go in that direction. And I wanted to do it because of these principles. So yeah, Ron Paul is, I hope he has his day. And in some fever dream of imagination that will get rid of the Fed and cut trillions out of the federal budget, we'll see. But it's cool to see it finally becoming something that people realize is not a fringe idea, but rather practical and sustainable because the trajectory it's on right now, 35 trillion of national debt and the interest increasingly being the only thing taxes actually go to, that's not sustainable.

55:33Right. You're headed for a USSR, you know, like economic collapse and everybody will say in hindsight, well, of course that was unsustainable. Nobody thought that was a good idea. Here we are. We've been telling people for 20 years, you know, we've got to change course. But I'm much more optimistic about opting out and building alternatives than I am about reforming a monopoly. I don't think monopolies are reformable. The state cannot be reformed. Right. So the best thing we can do is create these alternative systems and scale them as quickly as possible.

56:10So inevitably when the pyramid scheme of the state collapses, once again, people have a real mature alternative that they're already using and opting into, and you could have a smooth transition and we're not quite there yet, but we're getting there. Right. We're definitely getting towards that outcome.

56:31Vlad CosteaSo basically you're applying Johnston's law when it comes to nation states and government apparatus, and you're saying that that one can potentially be decentralized also, but I can argue that the US is already decentralized because of the federal system. And you can have local governments that enforce certain laws, which are on top of the existing constitution and framework. But you do see, I guess the federal government stepping in and creating monopolies much more than you would see this maybe a hundred years ago.

57:06David A. JohnstonWell, you went from a federated system to a centralized bureaucracy when you introduced the income tax right before the income tax, there were enumerated powers, right? And the federal government could do a small set of things, right? It could, you know, raise an army, it could, you know, manage interstate commerce, right? There were a set number of powers and central government had, but what happened when you introduced the income tax is it became the vehicle by which the government could regulate everything. There was nothing beyond its power.

57:43Now everything could be regulated as long as it was a tax regulation. And so, you know, even something as absurd as, you know, Obama's, you know, healthcare law was a tax law. What was the penalty for not doing it? It was a tax penalty. Right? And so that became the loophole that all centralization was shoved through because the Supreme Court would say, well, it's a tax law and look, it's a constitutional amendment, therefore it's valid. And so you had this explosion of centralized power, right? From a relatively small federal bureaucracy, you know, pre-1913 to the behemoth that you see today.

58:26And it, like you're saying, really reduced the competition between the states because once the vast majority of regulations and laws and taxes were set by the central administration in Washington, it really reduced the competition between the states, right? Like how extreme would the competition be between California and Texas if those were the main taxes and regulations you'd have to follow? I mean, people are already fleeing California for Texas and Florida, you know, because of the 16% capital gains in California and the state taxes and all the crazy regulations that have come out in California.

59:06But it would be even more extreme, right, if it were no federal bureaucracy. So I think the only solution is you get rid of the income tax. You get rid of, you abolish the IRS and you would have, you know, real competition between the states, right? And you would have a decentralized federal system a lot closer to something like Switzerland, right, where the cantons still maintain many of what people would think of as national or federal powers at the local level, right? And that's created the most prosperous society in human history, right?

59:42That's a pretty good indication we should go.

59:44Vlad CosteaBut also the least productive. I gotta bring up a quote from Orson Welles from the movie The Third Man, where he said that in Italy for hundreds of years, they had bloodshed and struggle for power and worse and a lot of horrible events, but they produced Michelangelo and they produced the Renaissance and they were able to have all of this resurgence of ancient culture, which brought modernism, you know? But in Switzerland, they had maybe 500 years of brotherly love and peace and quiet and the best invention that they created was the cuckoo clock.

1:00:27David A. JohnstonWell, I would say Switzerland is an example of what prosperity and stability over time attracts...

1:00:37Vlad CosteaTo my Swiss followers and listeners, I love you guys. No offense.

1:00:42David A. JohnstonWell, it attracts storage of wealth, right? It's the Bitcoin model. Switzerland is the Bitcoin model, right? They've maintained strong property rights for hundreds of years. And so I think it's something like 60% of the world's physical gold. It's held within 20 kilometers of Zug, right? Just outside of Zurich. Because if you want to put your gold anywhere, it's going to be the place that doesn't have wars and doesn't have alliances and doesn't take random political actions, but rather is stable over a long period of time.

1:01:13But I would say that's fair that innovation and risk taking and entrepreneurship is largely rooted in the United States. One, it's a much larger market, right? But also, there's a much higher tolerance to failure, right? You can take risk and you can be an entrepreneur, you can fail, you can try again, right? And that's encouraged, not discouraged. And some of that is cultural. But for a nation of 8 million to maintain their independence, even surrounded by much larger states, you can just chalk it up to the mountains and the amount of energy it would take an aggressor to enter Switzerland.

1:01:55But they maintained a great amount of prosperity. But a lot of it has to do with that competition, right? Why did Ethereum end up in Switzerland? It's because they can just sit down with the regulator. After one meeting, get a letter says follow these rules, and you're good to go. And they can set up their foundation in Zug. And because Zug had enough independence, it can attract all these foundations from the industry where they could actually get regulatory clarity they couldn't get in the United States or other places.

1:02:24So yes, it would be refreshing if some of that clarity came to the US. But you know, I'm not holding my breath. But you know, we'll just keep building in the decentralized context. And it'll keep pulling in capital over time, right? To quote Erik Voorhees, you know, man is a capitalist animal, right? And capital will flow where it may, like water, indelibly to the sea, right? And so if you have strong property rights, which we have in smart contracts, and in cryptography, money is attracted to that over time, it's like a gravity well, it's just going to suck it all in.

1:02:59So that's the big picture, right? There's 2 trillion of crypto assets today. There's 400 trillion of global assets. It's just a process of transferring all those assets from an old ledger to this new ledger. And I think it's as inevitable as the internet was. And it's for the same reasons.

1:03:19Vlad CosteaMan, you're really making me want to interview Erik Voorhees again. I realize this guy has so much more to offer. I think I got him three or four years ago. And he spoke about the KeepKey hardware wallet. Because I was doing a series of interviews about hardware wallets, and I decided to get him on as the representative for KeepKey, which at the time was no longer being supported too much. It was not the state of the art hardware wallet anymore. Even though at one point it was the coolest, most expensive, most fashionable item to have for a Bitcoiner.

1:03:58So no, the Trezor One when it came out, it was one Bitcoin. So I got to take that back. Anyway, I got to present two more sponsors. And then I want to ask you about something controversial and something with regards to the future. So basically a step back and a step forward. I think that's a good approach to have. So the first sponsor that I want to present is StarkWare. These guys are building something very cool with STARKs. And they are zero-knowledge proofs that require no trusted setup.

1:04:30I don't know how else to describe it. It's basically Zcash without the trusted setup, which functions right now on Ethereum. They have their own layer two, and they want to bring that technology that brings some scalability and privacy to Bitcoin. In order to do that, they need some sort of covenant soft fork, ideally OP_CAT. But right now they're also researching ways to do it without that. And I think that's cool. And you should check it out. You should look into it because it's very nice technology. And it's something that Satoshi would have wanted to be in Bitcoin.

1:05:04And there's actually a Bitcointalk post where he mentions that if he had more time, he would look into zero knowledge technology to help scale and make Bitcoin more private. So it's nice that we're heading in that direction. And the other sponsor is Hodling.ch, which is based in Switzerland, and they specialize in self custody. So if you're part of a company that's buying Bitcoin or you are a whale who hoards, who not hoards, but holds a large amount and doesn't know exactly how to avoid the $5 wrench attack.

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1:06:15So thank you very much for sitting through my ads. And now I got to ask you, what did you think during the block size wars?

1:06:27David A. JohnstonSo long before the block size wars, there was sort of a lot of tension in the community over censorship. Because before block size became a debate, the first debate was whether you could have multiple implementations of the Bitcoin software.

1:06:48And there was a group of people that thought you could only have one implementation of the Bitcoin software. And they started discouraging developers. I remember the developers of btcd, which I think was the Golang implementation. You know, we're kind of told, you know, get out of here. You're not welcome. Right. And it became a topic of debate on, you know, r/Bitcoin. And a lot of people were using Bitcointalk as the primary forum back then. And a decision was made by the, you know, administrator. I think his name is Thermos or something like that, that they would not allow.

1:07:29Vlad CosteaYou call him Thermos?

1:07:31David A. JohnstonI call him Thermos. He decided that, you know, all discussion of different implementations were altcoins. Right. And he sort of, I remember in one fell swoop, banned and moved all the discussion implementing these improvements on Bitcoin to the altcoin forums. Right. And, you know, that ruffled a lot of people because like, we were all Bitcoiners, like, we all wanted to see Bitcoin succeed. We all, you know, thought we were, you know, discussing something that would benefit Bitcoin, you know, having these different implementations and all the rest.

1:08:07And so, you know, people go where they're welcome. Right. And long before the 2017 fork, what happened is the people that wanted that type of openness just followed Ethereum. Right. And so I like to point out to people, the first fork of Bitcoin was in 2014. It's when Vitalik, I don't know if you were at the Bitcoin conference in Miami in January of '14. In January '14, when Vitalik presented Ethereum for the first time, physically 400 people followed him out the door at the end of the speech.

1:08:49Like he had never seen this. He was basically mobbed right after his talk because there was pent up desire by the community to build things on Bitcoin. And here was a Bitcoiner saying, we're going to do exactly that. Right. We're going to create a generalized protocol for generalized scripting or to do smart contracts. And it was like watching the network effect of developers leave Bitcoin and go somewhere else. Right. And shortly thereafter, you know, when Ethereum was, you know, Genesis block in 2015, it sort of came into reality.

1:09:23But people that intellectually left before that. Right. People that had been working on the Omni protocol left and worked on Ethereum. Right. And that was true of many other people. And so, you know, there was a lot of us hardcore Bitcoiners that stuck around for years after that. You know, no, no, no, we're going to solve this. We're going to figure out scaling. We're going to do all these things. I actually really enjoyed Adam Back's proposal, which was to scale blocks according to the average increase of bandwidth globally every year, which is like 30% a year.

1:09:57There's a law similar to Moore's law, but for bandwidth growth every year. And I thought that was very reasonable. Right. It could balance decentralization. Right. The same amount of, you know, cost on bandwidth as you had had the, you know, one year you'd still be spending the next year, but you'd support an increase in block size over time. So there were reasonable proposals, but it became very political and very polarized over time. And so I mentioned my 2016 article on "Embrace the Coming Bitcoin Fork." And I wrote a series of those and sort of tried to fairly characterize the goals of both groups and what they were trying to preserve, what they were trying to accomplish.

1:10:40And so that was sort of the end of the war was, you know, '17, you know, when BCH split off. And, you know, to their credit, they've done a lot of great stuff. You know, they've implemented a ton of improvements to the protocol. They, you know, pioneered some of the recent improvements went on BCH before they went on BTC. And that community focused on payments and, you know, scaling has continued to, you know, build over time, right? Which I give them a lot of credit for, you know, they're sort of derided by some maxis because, you know, the price hasn't outcompeted BTC, but for their vision, they've built what they thought needed to exist in the world.

1:11:23And so I'm glad to always see that. But the truth is what I realized much later is the fork had already happened. It happened with Ethereum, right? Ethereum had taken the intellectual capacity on the developer side years before the scaling wars resolved in the forking of the chain, right? And so, but again, I don't think that's a bad thing. Like, I think what ended up happening was the best outcome, which is you allowed the communities to separate and go pursue their own visions, right? That's been much more healthy since '17 than trying to, you know, fight each other inside the same walls of the same protocol, right?

1:12:11And having the same discussions over and over again, and sort of the toxicity that built up with, you know, every time you tried to bring it up, you got kicked off r/Bitcoin, or off of Bitcointalk, right? And so, you know, it pushed the ecosystem to grow, right into new communication channels into new protocols into new implementations. So, you know, I think it was probably inevitable. And you tend to always have these things, you know, if you think about it, like Bitcoin, right? Like in a religious context, you know, Bitcoin is Catholicism, right?

1:12:44And there was an orthodoxy and if it didn't fit in with that orthodoxy, you know, you join the Protestant camp, right? If you weren't a fan of indulgences, and all the rest, you know, you went over here with Martin Luther and everybody, right? And so the fact that you've got an open, you know, community, you are inevitably going to have differences of what is Bitcoin and what, you know, do you want to accomplish because that reflects the diversity of the people that were involved. So again, I tend to try to take good faith, you know, even with the people I disagreed with, and say that they were trying to accomplish what they thought was best, you know, to increase freedom.

1:13:26And so it's a difference in tactics. It's not necessarily a difference in philosophy.

1:13:32Vlad CosteaYeah. I like the diplomatic approach that you pursued. You didn't say that there was a side that was right or another one that was wrong. In hindsight, I think you mentioned the proposal of Adam Back. I'm not sure if it's BIP 103 or 104. There's one of them that basically says, how about we double the block size after every halving or something like this. And that's also a reasonable framework to think about. But right now, I don't know. For some reason, it became very political and somewhat religious, this idea that Bitcoin is never going to do a hard fork to increase the block size.

1:14:15But then again, you have extension blocks that can be pulled off with a soft fork. And then you have side chains that you can create with nothing but soft forks like Paul Sztorc is trying to do. And I hope that one day this whole Bitcoin family is going to get reunited somehow. There's way too much division. And I think this year I participated in a Twitter space, which was the first time ever when a bunch of Bitcoin Cash developers sat down with Bitcoin Core developers and they discussed their differences.

1:14:47And they said, yeah, this is what we're doing right now. And this is what we want to do. And how did you guys do that? We want to understand some stuff. Maybe there was some private communication previously. I did interview Amaury, the maintainer of Bitcoin Cash for a while, and he was basically the guy who forked Bitcoin to create Bitcoin Cash. And he told me that he was aware of the inflation bug that happened in 2018 and was one of the first people to find out about it. And there was no sense of pettiness or hatred or anything. He actually collaborated with the Bitcoin Core developers to fix it, because he said he's a security professional.

1:15:31That's his job. He's not going to compromise his reputation. By exploiting something that he's supposed to fix. That's what he does. And it doesn't matter which flag he's waving and on which camp he is. Never mind stuff like this. But for some reason, there's this tribalism which goes too far. And people cannot accept the fact that the other side still exists and is more or less successful. And they still discuss some parameter changes that they believe are optimal. And to me, it's funny that all of these conversations and concerns about, you know, the Internet in Africa is still very slow and you don't have much bandwidth and these parts of the world and the average Internet connection is so bad.

1:16:16All of this is getting obliterated by the existence of Starlink. And once we have competition for this and we have lots of private satellite Internet providers, it's going to be insane because you're going to be able to access the Internet with very high speed from anywhere around the world. And I think this whole argument that, you know, it's going to take too long to sync a block and maybe you're not going to be able to download eight megabytes in 10 minutes, which is a bit ridiculous today.

1:16:47But still, it's funny to think about that. You can actually do this with technology, except that right now Bitcoin in the way that it's being promoted is more of a religion. And every parameter that Bitcoin has is sort of sacred. You're not supposed to think about touching it or changing it. And it was not like this.

1:17:17David A. JohnstonYeah. You know, I agree. I think, you know, it's much healthier to, you know, think of these things practically than religiously. But, you know, that's unfortunately sort of leftover scar tissue right from the Civil War is, you know, how people, you know, fell on one side or the other and, you know, decided to sort of alienate or demonize those that were on the other side. So, you know, like you said, I think, ultimately, we're seeing, regardless of, you know, what some developers, you know, still holding those views, we're seeing practically it come together, right, between THORChain and the second layers, and all the tools that are bringing them together.

1:18:07That's what a billion people will experience. They're not going to know about the inside baseball politics of, you know, some ancient Civil War on the Bitcointalk forums 10 years ago, right? They'll never, they're never going to hear of it. And, you know, they'll see some of the history maybe in a podcast like this. But I think practically the tools that are going to impact people are the ones that work. And the ones that scale. And the ones that they can use, you know, and, you know, Bitcoin has been able to achieve that, and Ethereum has been able to achieve that, you know, and all these people that are working towards, you know, greater human freedom, I think are ultimately headed in that same direction.

1:18:47So, you know, for example, you know, one of the things I want to see is continued decentralization of Bitcoin mining, right? And Lumerin protocol has done a huge amount of work on how do you continue decentralizing, you know, Bitcoin hash power, right, and create a free market for that. And they built their smart contracts on Ethereum. Great, like, you know, Ethereum is benefiting the decentralization of Bitcoin.

1:19:13Vlad CosteaI think it's on Arbitrum or something. I did have Ryan from Lumerin. Lumerin, Lumerin, I'm not sure how you pronounce it, but it's a pretty interesting concept. And basically asked him, are you trying to get DeFi traders to invest into mining Bitcoin? And he said yes. And that's pretty much the whole business pitch.

1:19:36David A. JohnstonYeah, and it's brilliant, right? You know, Arbitrum is one of the most used second layers on Ethereum, and has super cheap fees, and it moves very fast. So it's a logical place to build a marketplace, right? And yeah, you know, so those are those are beneficial tools benefiting everyone, right? And just go back to the decentralized AI aspect, it's the same thing, right? You know, crypto programmable money is the perfect fit for digital intelligence, right? You know, these AIs, these smart agents aren't going to have a bank account. It's hard enough to get a bank account as a real person.

1:20:18Right? The thing that makes sense for them is digital money. Right? So all of a sudden, we're going to have this wave of smart agents that is going to increase the demand for Bitcoin, and all of these different digital currencies. So yeah, I think the movement is winning. And, you know, we're making enormous progress. It's the old adage that, you know, you see less progress in the short term than you expect, but there's far more progress in the long term than you expect.

1:20:47Because if you're going up an exponential, you know, here we are at, you know, two three, four or 5% of global adoption, but it keeps doubling every year. And you're not that many doublings from 5% to 50%. Right? You're a couple years away from mass adoption as we go up that exponential. And so all the people that have done the hard work the last 15 years from zero to 5%, you know, is an incredible achievement. And it continues to grow at that same pace.

1:21:18So, you know, I try to encourage people to be optimistic and take heart, we are definitely making an enormous amount of progress very quickly.

1:21:30Vlad CosteaYou mentioned something about search engines, enabling adoption of the internet, and allowing everyone to work around the complexities of what it was like to access web pages at the time, because it was hard to know what is out there. And you had to know specifically the name of the website, and you have to actually type www dot, it wasn't like the browser was intuitively doing that for you. So you could only type the URL like x.com, or whatever. But in the case of AI, and Bitcoin, it's not very obvious.

1:22:08Because of course, we don't have the benefit of the hindsight perspective. So what are the ways in which AI you believe is going to help with transacting Bitcoin, like maintaining some sort of address book for yourself or making recurring payments whenever you want? Or what are some of the ideas because honestly, what comes to mind right now is just market making bots or something just to keep them to manipulate market prices or something?

1:22:39David A. JohnstonI think it's gonna do literally everything for you. Right? If you have a personal AI that you think of as an extension of yourself, right? And I have some task, I want to send money to somebody. Yeah, right now it's a pain, right? I'm copying pasting some long string of digits. And all of a sudden, you know, I can easily keep track of all those contacts, right? And you have a human readable name, like those have been the UI improvements, like the Ethereum Name Service, the ENS, right?

1:23:10You know, you can send it to DJohnston, right, instead of some long series of numbers and letters, you know, that's a huge improvement for most people. Right? That's the reason billions of people use email, right? They can just type in something human readable. And this is taking that to another extent, right? And so if I want to pay for some subscription, if I want to use some smart contract, to your point, people have never even heard of Arbitrum or Lido or Uniswap, they know the intent of what they want to accomplish, right?

1:23:44They want to do some trade, they want to make some payment, they don't care how it's done. They don't care the database that uses at the server, right? It's the same for the internet, is the same for decentralized AI, is it's going to abstract all that complexity away. And so a lot of what the Morpheus community has done is build tools that bridge the world between largely JavaScript and Solidity, which is used in the Web3 context and Python, which is 90% of what's done in AI and get those two to talk together.

1:24:18Right? So you can download on your local machine right now and go to mlr.org. And you can download a local copy of Morpheus, connect your MetaMask and tell it what you want to do. I want to send a transaction, right? And it'll confirm the amount and how you want to do that. And ultimately, you as the user hold the private key. You're not giving your private key to the machine, right? You're holding the private key and ultimately you authorize what it does, but it can set everything up.

1:24:48It can grab the smart contract, it can connect to the API, it can set up the transaction, and it can confirm the amount. It can ask you questions, right? It can answer your questions about the transaction, but ultimately at the end of the day, the user pushes a button. Right? And that was the user flow that made sense for search engines, right? You expressed an intent. I want to see a sports website. It curated the entire internet, right, using PageRank and gave you the top results. But ultimately, as the user, you clicked on the link.

1:25:19Yep, that's the one I want. You know, that's the sports website. I want you clicked on it and you went the place you intended, right? And it created trust. You weren't getting phished or scammed or something else. It already curated what it thought were the best, most reliable websites. And so it also added a layer of protection for the average user because people were afraid to use the internet. They thought they would lose their money. They didn't trust any website where they had to enter their credit card.

1:25:51But one by one, you have these tools emerge like PayPal, you know, which ultimately just made payments safe on the internet or search engines, which made it easy to find everything. And you increase that trust people could have with the interface. And so we need the same thing, right? If you want Bitcoin to go mainstream, you have to make it easier for the average person to send Bitcoin and do it safely and not get tricked or scammed along the way. Right? And so having a personal AI that's controlled by you, I think is one of those key things.

1:26:26Vlad CosteaBut why don't you say that if you have this basic mobile wallet that also has NFC functionality and you just tap to pay, is a much better user experience as opposed to or scan to pay or something like this. And you only have two buttons, send and receive. Isn't this a much better experience than trying to type to an AI? Because this is limited by your ability to actually type on a keyboard or maybe send a vocal message to the AI, which is going to interpret your message and eventually generate a result for you, solve your problem.

1:27:03But I think the amount of time that it takes for you to hit, send or receive on a phone and copy an address or scan an address is much shorter than the amount of time it takes for you to express into words what you want to do.

1:27:19David A. JohnstonLet me say that often as early adopters, we take for granted what we know. And for the average person, what we take for granted as easy, they don't know. And they don't know if it's safe and they don't know if they're doing it correctly. Right. But I would also say I'm using the example of a payment as a simple example. But most things are multi-step processes. And where agents are going to get really interesting is where your agent is interacting with other agents. Let's take a more realistic example.

1:27:53Like I want to go out for dinner and I can tell my agent, go book a great Tex-Mex restaurant for tonight. Right. And if it knows my preferences, it knows my geography, it knows all these things. It can go do the five steps. Right. And they're starting to do that. Right. The other day I was using Google and there was a little button that said, book this reservation. And the AI called the restaurant, found a time slot, talked to the person, confirmed it with my name and sent me a text message that said it's been booked for 6.30.

1:28:29Right. That's what we're getting to is I can give it a more complex task and I can leverage intelligence on my behalf a hundred X. So take that into a family vacation. Today I go to the website, I book the flight, I find a hotel, I check all the dates, I do all these steps. And it might take me an hour to figure it all out. Whereas I could have an agent do that in a few minutes. Right. Organize it in a few seconds and then actually take action.

1:28:58But ChatGPT and all these proprietary systems can only give you information because they don't have a wallet. They don't have money. They can't take economic actions. Right. But a smart agent, an AI connected to smart contracts can actually take actions for me. That's the big difference. Like people are getting used to the fact that you can ask an AI about anything. Okay. Great. It ingested the entire internet and now it can give me good reliable information. But now that's table stakes. Right. The next step is this agentic behavior where the agent can take some action on my behalf.

1:29:37And you need to be able to take an economic action to do any of those interesting use cases. And more than that, you want to string these together as building blocks. Right. Once it can book travel, once it can book me a restaurant, once it can do these things, I can set it up. So it does that on an ongoing basis. Finds me opportunities. It looks for products they want. You know, you effectively open this up to an unlimited universe where you can then take as many actions as people like people build an app for everything.

1:30:08There's going to be a smart agent for everything. And it's just going to programmatically interact with your agent. Right. And that's what you want to solve for. So, you know, the simple payment use case aside, you know, the reason I have 100 apps on my phone is they're all doing some niche task for me, right, interacting with a particular company or a particular product. Right. And that's what we're about to see. But I really do believe speech is the ultimate interface. People just want to talk to something.

1:30:40And that was the magic of the early days of search engines is you could just tell the machine what you wanted. And to your point, it solves discoverability. You didn't even know there were these 50 sports websites that existed. You had heard of, you know, one of them. But all of a sudden, the internet opened to you if you just asked the question and you got all these results and you could go explore. Right. So I think it's discoverability. I think it's payments. I think it's composability that you can connect a bunch of these different pieces together, where the behavior is going to get really interesting.

1:31:16Vlad CosteaYeah, I was just looking at my wallet right now because a couple of days ago I got myself a Nintendo 64 from XMR Bazaar, which is this Monero marketplace. I never had a Nintendo 64 as a kid. I grew up in Eastern Europe. It was hard to find, expensive. I could only see that in magazines. And I saw this for like 120 euro. And I said to myself, you know, maybe it's the time for me to try GoldenEye. But my point is right now that I was using this Cake Wallet on my phone

1:31:46to make the payment. And for some reason, it was not routing. And I was thinking to myself, what's wrong? Why doesn't my transaction work? And what I discovered basically is that Monero, just like Bitcoin, has UTXO management. So you have to pick a UTXO large enough to be able to make that payment. And for some reason, my wallet did not select that automatically. And I had to input it manually, choose the right UTXO for the transaction. And I think this can be a good use case for AI, because, of course, it was my brain fart moment when I realized I don't know how to use UTXOs, which I should.

1:32:24But I expected the wallet to do that for myself. I can imagine this automation of picking UTXOs in a way that removes any thought process or decision process from you actually doing this and maybe choosing the UTXO, which is closest to the amount that you want to pay so that in networks that are open, and you can see all the amounts, you don't leak any private information. Like if you have 100 Bitcoins in one UTXO, you're not going to pay for coffee with that one. You're going to pay with the very tiny one.

1:32:59And something else that I realized can become a use case for AI. While talking with you, I was looking at my Zashi wallet for Zcash. And that one can actually be used as a messaging platform. I think it's a pretty cool idea that you can send messages with a transaction. And you don't know where it comes from unless you actually identify yourself and you say, hi, I'm this guy. I just sent you a tip. And I can also imagine if these protocols get built to a larger scale that you're going to hold your phone and say, hey, send one coin to this guy and write this memo and make sure you send it after midnight or something like this.

1:33:41You can actually time the moment when it's going to happen.

1:33:45David A. JohnstonYep. No, that's a great example. Most people don't know UTXOs exist. And if they encountered that error, they would probably just become discouraged and not do the thing they tried to do. That's 99 out of 100. So yeah, you have an edge case like that. If the AI has already ingested the information, the code, the ABI related to that smart contract or that wallet, it can solve that problem. And if it's your personal AI, I don't have a problem connecting it to the other applications that I use because it's acting on my behalf.

1:34:26And that's ultimately what I want. And so people that have a personal AI are going to become 100, a thousand times more efficient than people that don't have them. It's like going to be the difference between having a phone and not having a phone. There are still people that don't have a phone. They just don't matter economically. They don't have the capacity to talk to thousands of people or to reach across the ocean. They can talk to their neighbor. And that's fine. There's nothing wrong with being Amish.

1:34:59But if you're going to compete in a free market and try to be an economic actor, you're going to need a smart agent. And you're going to need access to intelligence that scales. Because otherwise the complexity of these things is just going to become unmanageable and you'll be able to do a thousand times, maybe a million times less than somebody using AI. So I can't emphasize enough how important decentralized intelligence is and having that power pushed out to the edge of the network for the individual to be the one expressing the intent.

1:35:36The worst outcome is if all of this ends up centralized and controlled by a few actors because they're going to be so sophisticated and so capable, it's going to reflect their values and their whims and their wishes and not ours. And so we've come a long way in the last year. I was very concerned last year. The regime passed an executive order that said there would be limits on model size and KYC for data centers. And you need a license from Homeland Security if you want to do that AI model, Mr.

1:36:16Model Trainer. All these absurd 1990s style, like when they tried to get rid of encryption, the crypto wars of the 90s, like Zimmermann fought, it was absurd. And so the community has rallied to this idea of building an alternative, and now it exists. Right. So I'm very optimistic that we're pushing back the tide of all the centralized regulators that are trying to grab up this new power for themselves.

1:36:51Vlad CosteaYeah. Speaking of Phil Zimmermann, I actually do have an interview with him. It's from the previous season. You'll find that on YouTube, for the 645 people watching this right now. Check that one out after you're done with this, because there's a lot to learn. And there's so much mystique behind Phil Zimmermann. He was the first person. No, he was not the first person to hire Hal Finney, but Hal Finney was the first employee at PGP. And I don't know, maybe when he says that he didn't have time to look into Bitcoin in the early days when he heard about it.

1:37:26He's not entirely telling you the truth because he knows a lot more than you assume that he knows. It's just a shame that he changed over the last few years. I spoke with him this year and he is very concerned about the democracy crisis in the USA and believes that if a certain candidate, which I'm not going to endorse right now, but he will most likely win. If that guy is going to win the elections, then it's going to be the end of democracy in the U.S.

1:37:56And he says that with a straight face, knowing that it's going to be the second term for someone who's been in office and has been much more controversial the first time around. Now he's more presidential. I don't know. It's strange that you get this guy, but he was always a leftist. And that's something you can find out in my interview, that he was always this Democrat who was protesting and lobbying. And for him, it was this. So trying to fight the federal government on encryption for him, it was more like a human rights attempt.

1:38:32It had nothing to do with geopolitics or all of the meanings that we basically project right now when we look in retrospect. But I agree with what you said on the topic of AI. And I spent too much time getting sidetracked by Phil Zimmermann. And my iPhone got this update. And right now I have Apple Intelligence on it. And I'm afraid to use it, honestly, not because I'm afraid of the tech per se, but I see this as a way to feed information into some sort of data giant that's surveilling me and is going to know everything about myself.

1:39:10And I do agree it's convenient to talk to Siri and see what you need and he or she or it is going to solve all of your problems. But I'm very skeptical that this closed source approach with OpenAI, which is not open at all, is going to actually work. And I also don't like too much what Elon is doing with Grok, which is not open source, as far as I know. But at least it's more, how should I put it, permissive or less restrictive. It doesn't limit your ability to generate content as much as ChatGPT does.

1:39:47And maybe that one of the open source ones is going to one day get integrated or at least become an option. Just like I guess initially when you got search engines on your phone, you could only use Google or maybe. What was the other one? Yahoo.

1:40:06David A. JohnstonYeah, I remember AltaVista. There were a bunch of them. Ask Jeeves. Yeah, back in the day. I have good news. Grok has been open sourced now. So Elon released, at least for Grok version 1, the weights. And he said very clearly, I was at an event recently at xAI, and he said very clearly they're going to open source Grok 2. And his strategy is they're going to train a model, use it on X, and always open source the last generation. So when they release Grok 3, they'll open source Grok 2. Also...

1:40:44Vlad CosteaJust like John Carmack with the Quake engine for video games. I'm not sure if you're into that, but he was always open sourcing the previous version of it.

1:40:53David A. JohnstonYeah, which I respect as a strategy. It creates a reason for people to subscribe to X and access the latest intelligence, and it can be integrated directly, Grok with their X account. But then to offer all of that benefit to the rest of the open source community as it grows. So I'm really excited to hear that he's headed in that direction, because ironically, he was the one that funded OpenAI back when it was a nonprofit foundation doing open source. And eventually they sold out to Microsoft for 30 billion, and closed sourced everything, and the community has had to rebuild everything from scratch.

1:41:36But the irony to see Mark Zuckerberg now pushing forward open source models with Llama, and Llama 3.1 is the one that's reached the same accuracy as ChatGPT 4. That's a bit of irony, but he's open sourcing it for his own reasons, which is he wants to compete with Google and Microsoft and these other players. And so he's going for the Linux play. He wants to make Llama the standard. And it was funny that the history of how this happened. You saw Llama originally was leaked, the very first version.

1:42:13And he got a lot of praise for this model had been released. And so Llama 2 came out, and they put a proper open source license around it. And they got even more attention. And then Llama 3 they've released, and you can even fine tune the model. And now that's permissible. So they've sort of opened up progressively. And we'll see if that continues to be the case. But the decentralized community can train its own models. Right? The number of GPUs that were mining Ethereum before the switch to proof of stake is 50 times more than train ChatGPT 4.

1:42:50There's no shortage of compute in the crypto world. Like Bitcoin and Ethereum, all these other protocols have proven that if you offer an incentive, there's plenty of global compute that will show up and compete through that incentive. So you've got Bittensor and Akash and all these protocols that have come out to train the models. Right? And what Morpheus has been focused on is creating the demand side of that equation, using those models, using that compute to power the smart agents. So you sort of need all of those pieces.

1:43:21But together, we have decentralized GPUs. And decentralized models and decentralized smart agents, ultimately owned by an individual. Right? And so that's what's happening is, you know, people have in their mind that a couple of companies own all the GPUs. They don't. The open source community owns far more computation than a couple of large corporates. Right? And so we need to sort of reclaim our own optimism and say, you know, we got this. Right? You know, we can build these alternative systems. They can be better than the closed source ones.

1:43:57And that's exactly what's happened last year.

1:44:01Vlad CosteaSo applying Johnston's law to hardware, do you believe that we're going to have more decentralization for these machines that are running AI, which are mostly GPUs, and also for hopefully Bitcoin ASICs, which seem to be manufactured by the same two companies? It's been such a long time that we have set industry standards. I think Nvidia had this edge from building rigs for video gamers, and then they discovered that they have the computation to do something else, too. In the case of Avalon and what's the company that makes Antminers?

1:44:41Bitmain. They had the first mover advantage. Actually, no, it was Butterfly Labs that was first. But they seem to have this monopoly on hardware that's being used. And I don't think that's super convenient or competitive or fair. A lot of people buy devices that have previously been used. And also the issue of shipping from China is still here. If we're going to get a certain guy elected as president, he's going to add tariffs.

1:45:19So do you believe that there could be decentralization in this or chip manufacturing is more efficient to get built in China or Taiwan?

1:45:31David A. JohnstonWell, the question is largely one of scale, right? To build a foundry is billions of dollars. Right? And so it's been a question of like, when does the industry get to the point where there's enough incentive, right? And today, miners of Bitcoin are earning billions of dollars a year. So we may be getting to that level, where it makes sense that the industry is going to see its own foundries, right? Because right now, it all bottlenecks into a couple of Samsung, TSMC, Intel, a few others.

1:46:07But there's sort of a renaissance in foundries being built in the US the last few years, right? Because of geopolitical risk around China, is all of a sudden people care about that. And maybe we shouldn't have 90% of the world's chip manufacturing a couple of miles away from China. Right. And so you're seeing this diversification, this decentralization of foundries in Japan, in the US and Europe, all over the world. You know, I think that can lead to more equipment producers, and some of them have already moved out of China.

1:46:44Right? You know, beyond Bitmain, you know, their main competitor, I believe is Malaysia. Right. And so we've already seen sort of some of that move. And there's no shortage of chip talent, in the US, especially with these new foundries, it'd be really interesting to see more ASICs coming out of the US and other jurisdictions. But I don't think it's necessarily critical, because it's become very much a commodity. Right? These, these are highly commoditized producers at this point. And, you know, the commodity really flows to the people that have the cheap power.

1:47:27And that's as much a critical piece as anything. Right. So you had a huge concentration in China before they kicked the miners out. And most of them have moved to Texas. Right. So I helped fund some of the largest Bitcoin miners in the world, and they're an hour east of Austin. Right. And they're using power that's, you know, two cents a kilowatt in Texas, those solar and wind and nuclear, right, have all scaled here. Right. And so I think, the power location, I would love to see more diversification of chips, there are some cool efforts to do more open sourcing of the hardware.

1:48:07But I think it's a question of scale. It's sort of like the last thing, right? Like, when the industry has achieved $50 trillion, $100 trillion, absolutely, like there'll be foundries, and it'll make sense and a couple of billion dollars will be a rounding error. Right. But it's think of how far we've already come, right, from CPUs to GPUs to ASICs was a huge evolution. And you had Avalon and some of those early players, like you talked about early on, and then over time, you know, now we have millions of ASICs, but the same thing's happening for AI too. It started with GPUs.

1:48:46And now people are going towards building ASICs to do nothing but large language models or diffusion models. They're building it into the hardware itself, like Extropic. Beff Jezos is leading one of the most interesting startups, trying to use thermodynamic noise in order to, you know, solve for basically AI ASICs. So, you know, as that industry matures, it's going to go through the same evolution that we saw with Bitcoin mining, and specialization takes over. But, you know, specialization and scale tends to lead to a couple of players.

1:49:23But the key is it still free for anybody to enter exit the market, because the moment one of those players fails, somebody will step up to replace them and take their market share. Right. So we don't need 1,000 ASIC producers necessarily, we need a free and open market, where anybody that, you know, fails to compete or be fair or to sell at reasonable prices is going to be replaced by somebody in the world.

1:49:52Vlad CosteaI did not want to interrupt you, but did you call him Beff Jezos?

1:49:58David A. JohnstonYeah, Beff Jezos, not Jeff Bezos, but Beff Jezos. So the character, the anon, the pseudonymous handle for Guillaume, who's now been doxxed by, I believe it was Forbes, one of the authors, took it upon themselves, did launch an investigation about who this guy promoting effective accelerationism was, who's behind this e/acc thing. And it turns out it was a quantum scientist and ASIC entrepreneur, Guillaume, who's originally from Canada and now lives out in the West Coast. But he's created this movement, this idea of techno-optimism and wrapping it together in a philosophy most people refer to as e/acc.

1:50:52But yes, if you're not following his X handle, Beff Jezos, it is highly entertaining and sort of aligned with a lot of the things we talked about. But it was funny meeting him and talking to him. He didn't come from the free market economics perspective. He came from like a first principles physics perspective and arrived at a lot of the same conclusions about you have to have variance, you have to have the ability for innovation. And he derived them from an entirely different direction around engineering and physics and not from free market economics like a lot of the OG Bitcoiners.

1:51:29But it was really refreshing to hear. And he's kind of really launched this effort to sort of unite the tribes. Decentralized accelerationists, effective accelerationists, like people, if you see e/acc or d/acc, like people are using that same kind of name and that memetic idea to express like, yes, we can actually build things and be optimistic about the future and let's go do it. And get away from this doomer philosophy that you can only achieve something through restricting and reducing and eliminating your carbon footprint or whatever. It's like, no, we have technology.

1:52:06We can solve these problems. Let's go do it. Right. And that's been very refreshing.

1:52:13Vlad CosteaThat's very cool. I just followed Beff Jezos, which is actually @BasedBeffJezos on Twitter. I was not aware of his work. Now I got to really catch up and see what he's up to. Yeah, maybe you should, too. It's an exciting field out there and there's so much to discover. I was going to ask you've been in Bitcoin since 2012, so that's almost 14 years were in November. I guess it will be a long time, 13 years next year. And I want to ask you, where do you see Bitcoin in the next 13 years?

1:52:52Because you've seen all of these events. I guess we got so big, so fast. Nobody expected this to happen. We are a political subject right now that's being discussed by at least one of the major political parties in the US. And I expect as time passes for this to become a trend around the world with candidates praising Bitcoin and saying they're going to defend self-custody and they want to protect miners and keep them within the borders of one country. It's an interesting dynamic, but where do you see it going in the next decade or so?

1:53:31David A. JohnstonSo I think Bitcoin will emerge as one of the reserve currencies of the world, right? Because if you look outside of the context, you know, one second, I got a sick kid.

1:53:59Vlad CosteaOK, so he left to take care of his kid. I was not aware that he was going to get up, but it's fine. I'm going to just speak and mention something about the sponsors once again. Thank you guys for being around in such a large number. 761 viewers live right now. It's pretty impressive. Check out SideShift.ai and LayerTwo Labs and StarkWare and Hodling.ch. They are the ones that are enabling this episode to exist and they're basically paying me to travel and do interviews and spend all my day on Twitter just looking for guests, looking for interesting ideas, different perspectives.

1:54:43And if you enjoyed what you have heard today, and I think it's pretty impressive, this guy, David A. Johnston, he's an OG and he has worked for the Omni Layer. And at the time, there was this hope that everything is going to get built on Bitcoin, even if there were concerns about scalability. Now the vision is more clear and you are back, David. You can take it from here. You can say where you see the future of Bitcoin. I had to fill in for people watching this live.

1:55:17David A. JohnstonYou're good. I've had kid number six, so I'm in dad mode right now and just working from the house. So life is good. More life is better. So, yeah, I think it's going to end up being this reserve currency for the world. You look at the reserve currencies today and you have the dollar, the euro, the yen, yuan and the British pound. Those are the top five and number six is Switzerland. But outside of that, most currencies are trash. They basically devalue to the value of the paper that they're printed on.

1:55:53Over in my office in the other room, I have in frames 100 failed government currencies and most of them were printed in the last 30 years. So keep in mind, the average fiat currency lasts about 23 years. And there are about 200 of them in the world. So at any one time, there are four or five government currencies failing somewhere in the world. They're just not in the country you live in. So we take for granted this financial stability, but most places average between 10 and 20 percent inflation per year.

1:56:29Add on a bunch of capital restrictions and everything else. So where do we see the mass adoption of Bitcoin and crypto? We see it in Nigeria, in Turkey, in Argentina and places like Vietnam and Indonesia. It's in places that have, let's say, a functional economy, but a really high inflation rate. And people are looking for an alternative. Those are the places that are quickly approaching 50 percent adoption. And they're going to get there long before the Western countries do. And so I think El Salvador is an interesting test case, because here you have a country that doesn't want to be holding the dollars, but doesn't want to be beholden to the yuan either.

1:57:13Right. They want financial independence. And I think the IMF was charging them something like 12 or 13 percent, these predatory interest rates. And all of a sudden comes along the Bitcoin community that will lend to them for six percent. Wow, that's really interesting. If you are a country that's in that category outside of the big reserve currencies and you don't want to be beholden to China or the U.S., all of a sudden you have an independent monetary option that is reliable and steady and doesn't have these inflationary problems.

1:57:49And so one by one, I think we're going to see all these countries, whether from top down, like in El Salvador, where you have some leader who sees the value, or bottom up, like we're seeing in Nigeria and other places. And it's just become the de facto thing everybody uses, whether the government acknowledges it or not. Right. That's what's happening. That's what's driving the adoption. That's where the first billion, two billion, three billion users are going to come from is where they actually feel the pain point.

1:58:16So that's the thing I see for Bitcoin. And those are the things we dreamt about back in 2012, 2013, talking on the forums, you know, one day countries are going to use Bitcoin and here we are. Right. And so it's amazing how far it's come. We've got a ways to go, but I think we're halfway there. Right. So to go back to the exponential curve, we're only two percent, one percent of the way of converting the world's assets. On to Bitcoin and these decentralized ledgers, but it keeps doubling every year and it doesn't take that long and an exponential to get halfway.

1:58:56So I encourage people. It's taken 12, 15 years to get here, but I think we're going to get to mass adoption in the next five to seven because that's when you get to 10 percent becomes 20 percent, becomes 40 percent, becomes the majority of the economic activity, just like we saw with the Internet. Right. It took a long time from Tim Berners-Lee in 91 to, you know, the 2000s to reach the first billion users. But then very quickly it popped over the majority of the world.

1:59:25Right. And I think we're in the same trajectory with Bitcoin.

1:59:31Vlad CosteaYeah, I like your optimism and the fact that you haven't mentioned anything about price. Right. You don't think about valuation against USD. You think about adoption. And on the topic of adoption, aren't you disappointed that right now the trend is to onboard people with stablecoins as opposed to using Bitcoin or something else? Seems like from a free market point of view, we are failing and we're using this technology that was built to issue these free market currencies to actually denominate everything in USD. And support the US government that's trying right now to export inflation around the world.

2:00:15Basically, there are countries like Venezuela. And I was in Argentina last year and I tried to pay someone with Lightning on Bitcoin. And they said they're not interested in anything Bitcoin, they just want stablecoins. And if I have Binance, I can send that to them. And I said, you know, I never registered to Binance. I don't know how that works. But we can't trade here. And that was a bit disappointing. But I realized that this is the reality, right? Stablecoins are not for the developed world.

2:00:47They're for the developing world that wants to access the US dollar. And I'm disappointed that the adoption for Bitcoin hasn't reached the point where people would rather have Bitcoin than US dollars.

2:01:00David A. JohnstonWell, you have to think about it in the context of its relative. If you lived in a place where inflation was 20 to 50% a year, right, I think the Turkish lira the other year was 70% inflation. And you look at the US and maybe the real inflation rate in the US is five or 10%. But it's a hell of a lot better than their local currency. And Bitcoin and these things are still new to them. So they don't fully understand them, you know, and it's a different use case.

2:01:30If they want to just make a payment, and they're not worried about 5% annual inflation to them, that's nothing compared to their current inflationary environment, they're making a huge step. And then you've got them in the wallet, and then you've got them using the technology. And they'll learn over time, the benefit of a real savings mechanism, like Bitcoin or Ethereum, I would say are getting into that category where they can be thought of as money, because they're used as a store of value, a medium of exchange and the unit of account.

2:02:02Right. But you need those economies to be bigger before they're relevant to that person on the street. Right. And today, stablecoins are a great entry point for those people to get a self custody wallet, and to move into this new universe. Like it's like saying, I'm disappointed because all the internet users, you know, don't really understand the internet, they don't understand the protocols, they don't understand, you know, the value of the academic research that's being done, or things like that. It's okay, that a billion people got on the internet, just because they wanted to see their sports team.

2:02:38And just because they wanted to use it for, you know, some other purpose. That wasn't, you know, that research and development of the early users, like most of the early internet users were engineers, right, they came out of universities that are building things, right. But to go mainstream, it has to reflect the needs of the average user. And, you know, for them, if they're just trying to get by, and they're just trying to send money, and they're just trying to do that faster and cheaper, it's okay.

2:03:08But that's the way that they onboard. If Bitcoin is a good store of value, they'll find their way there. Right, the same goes for Ethereum, the same goes for any of these technologies. But you got to go from zero to one, and the stablecoin is a really compelling way to go from zero to one. And it started on Bitcoin. Right? Tether started on Bitcoin on the Omni protocol, and it spread to Ethereum, it spread to all these other chains, I think the largest volumes now are in Solana.

2:03:39That's okay, right? It's a way to get the masses into this technology and into this new framework. So I'm not discouraged by that. And there will always be a gap between people that are willing to spend the time understanding technology and learning investment and learning, you know, why they should save money and build. But that's a big transition, right, that we have to take people from and think about the context that they're coming from. If you live somewhere where inflation was that high, you're just trying to survive, right?

2:04:16You're trying to go from, you know, desperation to something stable, let them take that first step, right? And anything that gets them to take that first step, it's like the people that deride Coinbase, which I think is so silly. They've done so much to onboard people into crypto, and continue to do so much to push people towards self-custody, right, of having a Bitcoin wallet that is separate from your exchange account. You know, Brian and, you know, to their credit, they've continued putting people in that journey.

2:04:48And yes, they're basically a bank, and they do KYC, and they held custody. You can think of them as the world's friendliest, warmest bank, or you can think of them as a Bitcoin company. But the question is it benefiting people and getting them closer to use something where they have self-sovereignty? I think the answer is yes, unequivocally, yes, right? And so, you know, again, if I'm aligned with somebody philosophically, and we're trying to accomplish the same thing, I accept that it will take different tactics, different methods to get by.

2:05:27Vlad CosteaI'll ask you one last question and then let you go to take care of your sick child. So in retrospect, if you could turn back time 10 years and do something different for Omni, and what was getting built on it to prevent the rise of Ethereum, to basically turn that into the dominant layer where everything gets built, do you think it was possible? Or do you think this was the outcome that was meant to be?

2:05:53David A. JohnstonI think it's the outcome that was meant to be. In a lot of ways, you know, again, to credit J.R., he's the one that coded it up and built it, you know, I wrote a research paper about it, I encouraged its adoption. But in a lot of ways, it inspired Ethereum, it validated the fact that there were a bunch of people who wanted to build things on top that you could, you know, collect Bitcoin and offer a new token. And you could use this model. You know, in a lot of ways, it laid the groundwork, right.

2:06:25And so many of those early guys ended up and worked on Ethereum, right. And I've sort of advocated for it, I wrote a research paper about Ethereum during their launch, right, but I tried to do a research paper and publish it for basically the launch of every early protocol, and I helped with the first second layers, you know, to give credit to Paul Snow, right, who created Factom, which is now called Accumulate, they built the first second layer on both Bitcoin and Ethereum, right. Seeing way into the future, five, 10 years before people realize that, that you were going to need to scale through layers, right.

2:06:59And now, billions of records are secured on Bitcoin and Ethereum, using Accumulate. They create these Merkle trees, and they take the hash, and they put it into a transaction that extend that root of security from Bitcoin and Ethereum to all these other records, right. So there's so many people have contributed to that journey along the way. You know, I think of Gavin Andresen, right, who took the reins from Satoshi and really shepherded Bitcoin into a real thing from a very experimental project. You know, I don't think Gavin gets enough of credit, right for his early work.

2:07:36And so, you know, I think we're still early, but it's come a long way. I don't think you could have done it differently. Right. You know, it's easy to say in retrospect, oh, maybe J.R. should have written a paper closer to Vitalik's where it talked about generalized scripting. But, you know, he was just trying to take the first step, which was to put a digital asset onto Bitcoin and prove it can be done, right, the first implementation of colored coins, right, which had been discussed since 2010.

2:08:07Right. There was a four year gap between when people had proposed the idea to when somebody actually implemented it in April of '14. And so there's a lot of credit to him and all the guys that wrote about colored coins before that, and had the concepts and ideas, but he really put it into action, you know, credit to Craig Sellers, right, you know, he became the CTO of Omni protocol, and then later of Tether, right, and did the hard work of evangelizing this idea that you could use, you know, dollars on Bitcoin, and the first billion dollars of Tether was on Bitcoin, long before it expanded to Ethereum in 2019.

2:08:47You know, it lived and grew on Bitcoin, there were more assets on Bitcoin for years after Ethereum launch, because of Tether, right. And, you know, guys like that, that did the hard work. So, you know, I don't think you really ever you could play that game of Oh, I wish I did XYZ. The biggest thing that I've learned is the only real property rights are the ones you have in a private key. Right, because I've often tried to build these bridges between the decentralized world and the legacy world.

2:09:22Every time I try to build something in a legacy context, it gets destroyed by the state, right? gets regulated, it gets prevented, it gets bottlenecked. You know, there's 100 lawyers that want to tell you why you can't do it. And I keep coming back to just building decentralized things. And so a few years ago, I've sort of said, that's it. I'm only doing decentralized systems. I've realized I've finally come to the point where you can't build a bridge back to the legacy world, or at least it's extremely difficult.

2:09:56There's only a few examples like Coinbase, where anybody's pulled it off at scale, right, to connect that old world to this new world. Mostly, I just want to build this new world. And it will pull in all of this value and talent over time, because it's a better, faster, cheaper, more logical system to use. And we're not going to be able to reform a lot of the old systems. The best thing we can do is help people exodus from those old systems to these new systems.

2:10:26So that's the big conclusion I've come to, is courts and countries and states are such poor representatives. Such poor ways to secure property compared to a private key, compared to cryptography. And so I want to spend the rest of my life just transitioning from those systems of violence in the state to systems of mathematics. And I think that's the best thing I can do with my time.

2:10:54Vlad CosteaI forgot to ask you this, and I feel like kicking myself because it's been two hours. I'm not sure how many people will hear this. And I have this dilemma in my head. I was not around at the time. There was the 2014 bear market, right? And that's when you had Counterparty. That's when you had Omni. And I'm trying to figure out if these ideas of putting other types of assets in the Bitcoin blockchain came out as a response to the bear market. And the idea that maybe Bitcoin was not coming back or was a response to the previous bull market, which made a lot of people wealthy and gave them some ideas and aspirations about what Bitcoin can potentially be.

2:11:37Or is it both? Because after the 2014 bear market, you had this narrative of blockchain, not Bitcoin, you know?

2:11:48David A. JohnstonI think it's very much the latter. People were inspired that Bitcoin had come so far. I mean, you have to remember, it was 2012. It was $10. And 2013, it gets to $100. It gets to $1,000 briefly. That was 100x appreciation. The fact that in 2014, it corrected to $800 and $600 and eventually $250 was not on anybody's mind when they launched these projects during the bull market. Because they really started during the bull market, right? August of 2013 is when J.R. did his token sale.

2:12:23Vitalik was circulating his white paper in the end of 2013, long before the bear market hit the next year. It just took time to then code and build those systems between when they were proposed and when they were implemented. And people were already very much in the mode of, not only is it coming back, but it's going to come back in force. Like, we had crossed that threshold, right? You could make that argument maybe in 2011, right? When it went from nothing to $30 to $2, right?

2:12:57That was the first real sort of run and correction in the market, that 2010, 2011 run up and collapse. But by 2012, it had already rebuilt from $2 to $10, right? And then went from $10 to almost $1,000. You'd already seen this cycle, right? You'd already said, wow, it expanded. It built. It grew. You had a big correction. It got ahead of itself. But that's when Draper got involved, when he saw the collapse in 2014 of Mt. Gox. And you have to remember, 90% of all trading was on Mt. Gox

2:13:36at the time. Like, it was the exchange. And the fact that it collapsed and Bitcoin didn't go away, he concluded nothing was going to kill Bitcoin. If that didn't kill Bitcoin, it was eternal. So that's when he bought all those Bitcoin from the U.S. Marshals, right? It was funny. I met him at his office at one point. He told the story of when he had bought the coins from the Marshals. They had forgot to include a transaction fee in the transaction. And so when they sent him his Bitcoin, it got stuck on the blockchain.

2:14:10But it was still early enough where a lot of the blocks were not full. And so eventually, it went through. But he sort of had this nervous moment when he bought them, sent the money, they sent him the Bitcoin, and it didn't clear because they hadn't understood they needed to include a Bitcoin transaction fee. So there's so many interesting stories from the early days like that. But I think this is the way it had to happen. You had to have people build each piece one by one to run an experiment.

2:14:41And that's what I often encourage people with. Entrepreneurship, it's not like you have a thesis and it perfectly comes true. There's all this iteration, there's all this failure. Where you're running an experiment and it doesn't work, but then, okay, you've learned a way that didn't work, and you end up trying something new that can work. It's the old adage from Edison. They asked him, how come he didn't quit after 2,000 ways to make the light bulb failed? He said, failed? I was learning all the ways you couldn't build a light bulb so I could learn the best way you could build the light bulb.

2:15:21And that's an idea that I think is really important is if you're going towards a valid objective, you're just in that process of iterating as fast as you can and trying different things. So people were running a lot of experiments and now we've seen the results. But keep running experiments. That's how we learn.

2:15:41Vlad CosteaAnd that's a beautiful takeaway. So David A. Johnston, I got to suggest that you change the picture on your website. You're a different man now. You look entirely different. I'm happy I did not design a thumbnail using that from your website because congratulations on the weight loss. Honestly, you look so much better.

2:16:02David A. JohnstonThank you. Ozempic is a hell of a drug. I should have done it years ago. So I consider it the first longevity treatment. So yeah, check it out if you have a similar... Well, it's a form of semaglutide, or semaglutides, as some people pronounce it. It's one of the weight loss drugs that's come out the last few years. It's incredibly effective at basically simulating the same effect your body has when it's full and so you don't feel hungry anymore. And it doesn't really have a lot of downsides.

2:16:33Ozempic is the brand name that most people recognize. Don't pay for the brand. Just go get the generics. And yeah, it's hugely transformative. But thank you. It's been great. I feel very healthy and energetic and I want to be around my kids for a very long time. So, you know, almost 42. So I grew out the beard. You know, I lost all the weight. You know, it's not quite a midlife crisis, but I'm having a lot of fun.

2:17:00Vlad CosteaSo where can people keep up with your work? And where do you recommend that they check out your latest ideas?

2:17:06David A. JohnstonSure. Well, I spend the most time on X. So follow me @DJohnstonEC, which is my handle. So DJohnston, Echo Charlie. And yeah, I post most of my articles, my research. I'm exclusively doing contributions to open source projects at this point. And so Morpheus has been my big focus. I'm one of the repo maintainers for the open source, the smart contracts over there, which I really love that it's fully decentralized. There's no company. There's no foundation. There's no DAO. It's just hundreds of open source contributors building this as a community.

2:17:46That's been really refreshing last few years. It's really the honestly the thing since Bitcoin and Ethereum that has sort of struck me as most philosophically aligned with how I think how I think things should get built and how to build a broad neutral platform that everyone can use. And so, you know, go follow MorpheusAIs, is the X handle for the one of the community profiles for Morpheus. And yeah, that's where I post most of my thoughts these days on how to build decentralized AI. How do we each get a personal AI and why that's so important?