Nic Carter: Bitcoin Core Values, Layered Scaling, and Blocksize Debates

Lex Fridman (02:12.200)

patient, to learn, to listen, to humble myself with knowledge, and to

Nic Carter (02:17.100)

help with knowledge for the sake of knowledge itself.

Lex Fridman (02:20.500)

Grad school was an example of that.

Nic Carter (02:22.900)

The PhD means nothing, at least to me.

Lex Fridman (02:26.300)

I never call myself an expert or at least try not to because that would

Nic Carter (02:30.300)

be dumb because I know how little I know.

Lex Fridman (02:34.400)

I'm not a influencer or a thought leader or whatever else silly self

Nic Carter (02:40.000)

aggrandizing label people put on their LinkedIn.

Lex Fridman (02:43.300)

I try to be the opposite of what I was mocked for.

Nic Carter (02:46.200)

I try to think deeply about the world, to look for the beautiful ideas

Lex Fridman (02:49.700)

and the minds of others, and to be inspired by them.

Nic Carter (02:53.200)

I wanted to say all this because psychologically, it struck a bit of a blow.

Lex Fridman (02:58.400)

It made me realize that even when I approach things with love, I may be

Nic Carter (03:02.500)

mocked, I may be derided, I may be taken out of context or even lied about.

Lex Fridman (03:08.500)

But the growing platform, this is sadly only increasing.

Nic Carter (03:11.100)

I now have learned that there's people who are waiting for my missteps

Lex Fridman (03:15.800)

so they can point the finger, laugh, and say, see, I told you so.

Nic Carter (03:20.500)

That guy's a joke.

Lex Fridman (03:21.800)

He's a fraud.

Nic Carter (03:23.600)

As a fellow human being, the knowledge of this is painful.

Lex Fridman (03:27.500)

Yes, I know people tell me to toughen up, and my life has been about

Nic Carter (03:32.500)

strengthening my mind in the face of my limits, but I refuse to not be

Lex Fridman (03:36.500)

fragile and wear my heart on my sleeve.

Nic Carter (03:39.200)

It's who I am.

Lex Fridman (03:40.000)

In some sense, this is the immune system of the internet, but let us

Nic Carter (03:44.100)

be careful not to destroy the good ones in the process.

Lex Fridman (03:48.300)

The Bitcoin community had to endure many years of attacks from

Nic Carter (03:52.000)

quote unquote experts and also fraudulent cryptocurrency efforts

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that scam people out of their money.

Nic Carter (03:58.000)

This created a powerful immune system that fought the attackers

Lex Fridman (04:02.000)

and the scammers.

Nic Carter (04:03.400)

I understand this, and I also understand that one of the beautiful

Lex Fridman (04:06.900)

aspects of Bitcoin is its community of humans is decentralized, but

Nic Carter (04:12.300)

some small part of this community has come to enjoy the us versus

Lex Fridman (04:15.900)

them battles, sometimes for the sake of the battle in itself.

Nic Carter (04:20.700)

This happens in political discourse as well.

Lex Fridman (04:23.400)

I understand this, but to my limited mind, it sounds like group

Nic Carter (04:27.900)

think, which has powerful defense mechanisms against bad ideas, but

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has dangerous consequences if taken too far.

Nic Carter (04:35.500)

As in many periods of human history that I often talk about, where

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the us versus them thinking has led to the suffering of many.

Nic Carter (04:44.500)

Again, I understand the value of this as many Bitcoin has explained

Lex Fridman (04:47.900)

to me, but it's not the way I, as a sovereign individual, choose to

Nic Carter (04:52.400)

walk in this life.

Lex Fridman (04:54.200)

By the way, none of this podcast should be treated as financial

Nic Carter (04:57.000)

advice. Before Nick kindly gifted me with a hundred dollars worth

Lex Fridman (05:01.300)

of Bitcoin in hardware form, I didn't own any.

Nic Carter (05:06.000)

I'll probably buy some Bitcoin on Cash App, Coinbase, and other

Lex Fridman (05:10.100)

platforms, and also transfer to a hardware wallet just to learn

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how to do it.

Lex Fridman (05:14.600)

But other than that, I don't necessarily make wise investment

Nic Carter (05:18.100)

decisions. Money is not a motivation for me personally.

Lex Fridman (05:21.500)

I try to avoid it actually.

Nic Carter (05:23.200)

I'm grateful for every day I'm alive, no matter how much money is

Lex Fridman (05:26.500)

in my bank account. For long stretches of my life, that number

Nic Carter (05:29.700)

was very close to zero, and I was always fortunate to be free and

Lex Fridman (05:34.100)

happy. So I encourage you to listen to people much smarter than

Nic Carter (05:38.100)

me for actual good financial advice. Here, I'm just exploring

Lex Fridman (05:42.800)

ideas. And as if this has not already gone on too long, let me

Nic Carter (05:47.500)

please make another comment on the style of discourse among some

Lex Fridman (05:50.900)

Bitcoin maximalists on platforms like Twitter, that in my humble

Nic Carter (05:55.800)

view, I may be wrong, but I believe is not conducive to the

Lex Fridman (06:00.100)

nuanced empathetic exchange of ideas I very much look for and

Nic Carter (06:04.100)

enjoy. Again, I appreciate their style of discourse.

Lex Fridman (06:07.500)

I think I understand the value of it, but it's not my thing.

Lex Fridman (06:10.800)

So I don't want to engage in it.

Lex Fridman (06:12.800)

I want to hear the quiet voices in the room.

Nic Carter (06:15.100)

I look for people to inspire each other, and when we disagree,

Lex Fridman (06:18.600)

I look for disagreement that is grounded in respect and empathy.

Nic Carter (06:22.500)

I think that mockery and derision destroys the possibility of

Lex Fridman (06:26.200)

those nuanced conversations.

Nic Carter (06:28.000)

It drives away the quiet, thoughtful, empathetic voices, and

Lex Fridman (06:32.000)

I try to give those voices space to be heard, to shine, to

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exchange ideas, whether we agree or disagree.

Lex Fridman (06:39.800)

So, if I happen to block you on Twitter, I block you with love.

Nic Carter (06:45.200)

Honestly, I will never speak poorly of you or even think poorly

Lex Fridman (06:49.200)

of you. I would love to hang out in person, give you a big old

Nic Carter (06:52.600)

hug, and talk about life over some beers. If you see or hear

Lex Fridman (06:57.000)

me say something stupid, which I'm sure I do often, or something

Nic Carter (07:01.500)

you disagree with, and you still respect me as a human being,

Lex Fridman (07:04.600)

please show your love, as I always do to you, but also send

Nic Carter (07:08.100)

me some links to blogs, books, videos, podcasts, where people

Lex Fridman (07:12.700)

describe why my stated idea may be totally wrong.

Nic Carter (07:16.200)

I love this kind of long form disagreement. I humble myself

Lex Fridman (07:19.600)

every day by reading books and blogs by people much smarter

Nic Carter (07:23.300)

than me. Sometimes it strengthens my ideas, sometimes it

Lex Fridman (07:27.200)

totally changes them, but I always learn. This is a too long

Nic Carter (07:32.000)

way of saying that I'm here trying to walk with grace and

Lex Fridman (07:36.100)

with an open mind, a bit of patience, and always love. If I

Nic Carter (07:41.200)

make mistakes, cut me some slack. Like you, I'm here trying

Lex Fridman (07:45.500)

to love. Like you, I'm only human. Allegedly. This is the

Nic Carter (07:51.700)

Lex Friedman podcast, and here is my conversation with Nick

Lex Fridman (07:56.000)

Carter. What philosopher or philosophical idea had a big

Nic Carter (08:00.900)

impact on your life, not just in the space of cryptocurrency,

Lex Fridman (08:04.100)

but in general?

Nic Carter (08:05.400)

Oh, so we're going now. We're rolling. We're going right in.

Lex Fridman (08:08.200)

We're rolling. Because you majored philosophy. I did. I majored

Nic Carter (08:11.000)

in philosophy. I didn't know what to do with my life, and my

Lex Fridman (08:14.500)

parents said, do whatever you find interesting. It's like,

Nic Carter (08:16.900)

okay, philosophy, great. I find that interesting. And it had

Lex Fridman (08:21.300)

way more of an impact on my career, actually, than I thought

Nic Carter (08:25.500)

it might. Typically, I guess, if you do philosophy, you go into

Lex Fridman (08:28.700)

law or finance, so it sort of makes sense. But there are a number

Nic Carter (08:33.800)

of philosophers I really admire. One of my favorites would

Lex Fridman (08:38.000)

be Descartes, probably the notion of skepticism. It's sort of

Nic Carter (08:42.200)

a rabbit hole. It's kind of hard to pull yourself out of it.

Lex Fridman (08:45.700)

Basically, the brain in the vat theory, pulling yourself out

Nic Carter (08:48.000)

of that. But yeah, I really like epistemology, you know,

Lex Fridman (08:52.100)

questioning what it is to have knowledge. So Descartes was

Nic Carter (08:56.800)

one of my gateways to that.

Lex Fridman (08:59.000)

Do you think everything is knowable? Like, we humans can

Lex Fridman (09:03.000)

can know fully the objective reality?

Lex Fridman (09:05.900)

Oh, definitely not. No, I mean, reality is very much processed

Nic Carter (09:10.600)

through your own, you know, subjective lens.

Lex Fridman (09:13.900)

So how much do you think do we understand about this world?

Nic Carter (09:18.800)

Because a lot of your ideas, a lot of things we might talk

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about today are kind of trying to figure out human civilization,

Lex Fridman (09:25.300)

how humans, how human behavior works at scale, all those

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kinds of things. That kind of assumes that we have it or

Nic Carter (09:33.200)

we're able to somehow figure most of it out, right? So in your

Lex Fridman (09:38.800)

sort of when you step way back, how much of it have we really

Lex Fridman (09:42.300)

figured out?

Lex Fridman (09:43.700)

Well, I think that's the conceit of economics is thinking

Nic Carter (09:47.000)

that you can model human behavior in these unbelievably

Lex Fridman (09:50.400)

complex systems. And then I think that's the modern critique

Nic Carter (09:54.600)

of economics, like the sort of Taliban critique is that you

Lex Fridman (09:58.200)

can't have true knowledge, and they're much less predictable

Nic Carter (10:01.700)

than we think they are. And, you know, we behave according

Lex Fridman (10:06.000)

to our accumulated assumptions, and we're using tiny sort

Nic Carter (10:09.000)

of data sets trained on the last 50, 100 years, and they turn

Lex Fridman (10:13.200)

out to be horribly askew. And that's when we have our gray

Nic Carter (10:16.700)

swans and our black swans. So I'm much more on the sort

Lex Fridman (10:21.900)

of, you know, reality is much less noble than we think side

Nic Carter (10:25.500)

of things. But it is nice to have very concrete things like

Lex Fridman (10:28.800)

Bitcoin, that's for sure.

Nic Carter (10:30.200)

Oh, so you think so most of it is shaky ground, but there

Lex Fridman (10:33.500)

are some things there's like islands of stoniness.

Nic Carter (10:36.900)

Yeah, Bitcoin is one of them.

Lex Fridman (10:38.400)

That's a good way to put it.

Nic Carter (10:40.000)

Yeah, I mean, like look at the dollar system, not to pivot

Lex Fridman (10:42.700)

this into the dollar right away, but the dollar is like

Nic Carter (10:46.400)

shaky ground.

Lex Fridman (10:47.200)

It's the most who truly understands the dollar system.

Nic Carter (10:50.600)

I mean, the totality of it, the Euro dollar system, the

Lex Fridman (10:55.000)

way that monetary policy interacts with the economy is

Nic Carter (10:58.800)

monetary issuance inflationary.

Lex Fridman (11:01.100)

What's the relationship between unemployment and inflation?

Nic Carter (11:04.100)

Even policymakers don't understand these things.

Lex Fridman (11:06.600)

Economists don't seem to understand them.

Lex Fridman (11:08.600)

What is inflation?

Lex Fridman (11:10.100)

How do you define inflation?

Nic Carter (11:11.100)

None of these things are really known or knowable.

Lex Fridman (11:13.700)

So a lot of people kind of make a claim that there's a

Nic Carter (11:17.100)

lot of manipulation possible with the dollar with those

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currencies. If you couple that with the fact that people

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don't understand it, and yet there's claims that being

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manipulated by centralized power, how do you bring those

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two ideas together?

Lex Fridman (11:33.900)

If no one understands that, how can you manipulate it?

Nic Carter (11:36.600)

I think what we don't understand are the long term consequences

Lex Fridman (11:39.700)

of our structures.

Lex Fridman (11:41.600)

So like the Fed's mandate to target unemployment and

Lex Fridman (11:46.800)

steady, you know, exchange rates or low inflation, you

Nic Carter (11:51.700)

know, what we don't understand is okay, what is the result

Lex Fridman (11:54.900)

of doing that continuously for 40 years?

Lex Fridman (11:57.000)

What is the net effect of that?

Lex Fridman (11:59.200)

What is the consequence of the long term accumulation of

Lex Fridman (12:02.700)

debt and, you know, basement interest rates?

Lex Fridman (12:06.200)

What is the net effect of that on society?

Nic Carter (12:08.000)

We might understand there's much short term features of

Lex Fridman (12:12.900)

the system, but I think it's the longer term features

Nic Carter (12:15.800)

we don't understand.

Lex Fridman (12:16.500)

Do you think there's like malevolent people with people

Nic Carter (12:20.600)

that don't have good intent in central banks like in the

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system, you know, when you have centralized power in any

Nic Carter (12:29.800)

forms, it's susceptible to somebody hacking the system,

Lex Fridman (12:35.900)

taking the power, and in the shadows, this is where conspiracy

Lex Fridman (12:39.600)

theories come in, right?

Lex Fridman (12:40.900)

In the shadows, be able to, you know, act out things that

Nic Carter (12:48.900)

have a lot of negative impacts on a large percent of the

Lex Fridman (12:51.200)

population in greedy self interest.

Lex Fridman (12:54.600)

Do you think there's people like that?

Lex Fridman (12:55.900)

Or do you think fundamentally most people are good, even

Lex Fridman (12:59.300)

those associated with the sort of central banking?

Lex Fridman (13:03.800)

I mean, I don't villainize those people.

Lex Fridman (13:06.200)

I think everyone is the hero of their own story, right?

Lex Fridman (13:09.000)

So they all believe that their force are good in the world.

Nic Carter (13:12.300)

You have to.

Lex Fridman (13:13.900)

Are there any true villains?

Nic Carter (13:15.100)

I don't think so.

Lex Fridman (13:15.800)

I think they get socialized into a world where they believe

Nic Carter (13:20.000)

there's particular skills and their mandate is, you know,

Lex Fridman (13:24.400)

what they should be doing.

Nic Carter (13:27.100)

I think they might be presumptuous or arrogant in some cases.

Lex Fridman (13:33.400)

And, you know, I think it's more of a systemic issue where

Nic Carter (13:36.300)

you have a small handful of very homogenous types of people

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with PhDs from the same institutions that are brought up

Nic Carter (13:45.500)

in the same cultural context that, you know, set policy and

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wield a tremendous amount of control over society.

Lex Fridman (13:53.500)

And I think they have this notion that you can tinker society.

Lex Fridman (13:57.500)

You can play with a few key variables and tinker society

Nic Carter (14:00.500)

into a state that is desirable or good.

Lex Fridman (14:04.200)

And that's what they're trying to do.

Lex Fridman (14:06.500)

And I think the consequences of that can be pretty bad.

Lex Fridman (14:09.500)

But no, I don't think it's born out of malevolence.

Nic Carter (14:12.900)

There's an interesting idea.

Lex Fridman (14:14.500)

I think Michael Malas brought it up as a test whether you're

Nic Carter (14:17.500)

on the left or the right.

Lex Fridman (14:21.200)

The question he asks, which is, do you think some people

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are better than others?

Lex Fridman (14:27.700)

If you say yes, he claims you're on the right.

Nic Carter (14:31.000)

If you start answering, if you start like saying a lot of

Lex Fridman (14:34.700)

things, like you're on the left.

Lex Fridman (14:39.900)

So if you start explaining yourself, well, it's a good term for it.

Lex Fridman (14:44.000)

I was really, so in this test, I suppose I would be on the left

Nic Carter (14:51.000)

because I'm uncomfortable with the idea that some people are

Lex Fridman (14:54.500)

better than others as a basic feeling, as a starting point in

Nic Carter (14:59.200)

the way you think about the world.

Lex Fridman (15:00.500)

Because as we're talking about, everybody's a hero of their own

Nic Carter (15:04.500)

story. When you start to think some people are better than

Lex Fridman (15:08.200)

others, as a starting axiom, it's like a slippery slope to

Nic Carter (15:15.000)

where you think you're way better than others.

Lex Fridman (15:20.900)

And then you start to like, basically, it's okay to take

Nic Carter (15:25.700)

advantage of a large percent of the population for the greater

Lex Fridman (15:29.200)

good. And then you go into Stalin mode and Hitler mode where

Nic Carter (15:33.800)

it's okay to murder a larger part of the population for the

Lex Fridman (15:37.600)

greater good. So it's like, it's this very dangerous slippery

Nic Carter (15:41.100)

slope in my mind.

Lex Fridman (15:42.100)

So I try to not, yeah, I was always uncomfortable with that

Nic Carter (15:46.000)

kind of test or even that kind of thought. And yes, the same

Lex Fridman (15:48.700)

applies and suppose in government, in central banking is if

Nic Carter (15:54.300)

you think some people are better than others, applying your

Lex Fridman (15:58.000)

idea of what is good can have large scale detrimental effects.

Nic Carter (16:03.700)

Of course.

Lex Fridman (16:04.400)

Yeah.

Nic Carter (16:04.900)

I'm glad you didn't pose me the question. I mean, I think it

Lex Fridman (16:09.900)

maybe not the left right axiom isn't the disjunction isn't the

Nic Carter (16:14.700)

way I would sort of put it. But you know, to me, it's just if

Lex Fridman (16:20.200)

you reason in a consequentialist way, you know, that lends

Nic Carter (16:23.700)

itself to authoritarianism. Yeah, where whereby you think

Lex Fridman (16:27.300)

you can shape society and only you can shape society in a

Nic Carter (16:30.500)

positive direction according to your, you know, specific objectives.

Lex Fridman (16:35.600)

So let's step onto the land of sturdiness that is Bitcoin.

Lex Fridman (16:39.900)

What is Bitcoin and in your view, what are, you know, the

Lex Fridman (16:45.700)

principles, the philosophical foundations of Bitcoin?

Nic Carter (16:48.600)

Well, Bitcoin the term I think refers to two things specifically.

Lex Fridman (16:54.100)

So one is the protocol for conveying value through a communications

Nic Carter (16:59.300)

channel. So just a set of rules that we collectively opt into

Lex Fridman (17:03.100)

in order to transact online or just at a distance.

Lex Fridman (17:08.000)

And then the other thing is the name of the asset, the sort of

Lex Fridman (17:13.400)

monetary unit which circulates within the system and that always

Nic Carter (17:17.900)

confuse people a lot because it's like, well, you got uppercase

Lex Fridman (17:20.700)

Bitcoin, lowercase Bitcoin, why didn't Satoshi just give them

Nic Carter (17:24.400)

different names? Like in Ethereum, you've got Ethereum, the system

Lex Fridman (17:28.600)

and then Ether. Although people don't really talk about Ether very

Nic Carter (17:31.900)

much, but they, you know, chose to distinguish them. In Bitcoin,

Lex Fridman (17:37.100)

for whatever reason, they're not distinct. So the two Bitcoins

Nic Carter (17:41.600)

get commingled all the time in the explanations. Did you find

Lex Fridman (17:45.800)

that's a problem that confuses things? I mean, what's what's

Lex Fridman (17:48.600)

really a distinction between the protocol and the currency?

Lex Fridman (17:51.100)

Well, they are sometimes distinguished practically, like you can

Nic Carter (17:55.700)

transact with Bitcoin outside of the Bitcoin protocol, for instance.

Lex Fridman (17:59.600)

So, you know, you can transact with Bitcoin on Ethereum or I have

Nic Carter (18:06.100)

Bitcoin on Opendime here. This would be a Bitcoin transaction.

Lex Fridman (18:10.300)

It wouldn't settle on the Bitcoin network. Do you mind explaining

Lex Fridman (18:13.000)

what you have on the table before us? Yeah, so I brought you some

Lex Fridman (18:16.400)

presents. This is awesome. This isn't a bribe. This is just a proof

Nic Carter (18:20.700)

of concept. So this is basically a Bitcoin bearer instrument.

Lex Fridman (18:27.100)

So I put a hundred bucks of Bitcoin on here. And to spend it,

Nic Carter (18:32.100)

you have to basically physically destroy part of the device.

Lex Fridman (18:35.100)

You have to poke a hole and, you know, poke off one of the little

Nic Carter (18:38.600)

transistors on this. So it can only be spent once. And you can't

Lex Fridman (18:44.800)

extract the private key from this device. So the private key was

Nic Carter (18:48.100)

generated on device, always stays on the device. So what it means

Lex Fridman (18:52.600)

without breaking off, like a small part. So this basically is a way

Nic Carter (18:59.900)

to physically instantiate Bitcoin. So it's basically gold.

Lex Fridman (19:06.100)

Yeah, effectively. So here. Thank you so much. This one's limited

Nic Carter (19:10.300)

edition. It's orange. So what is it called again? Opendime.

Lex Fridman (19:15.100)

The point is, if you wanted to settle a Bitcoin transaction

Nic Carter (19:18.700)

instantly, the kind of same way that a cash transaction is instant

Lex Fridman (19:22.800)

final settlement, right? You would do it with a device like this.

Lex Fridman (19:27.100)

So if I was buying a house from you, you know, you might prefer

Lex Fridman (19:32.300)

to do it with a physical bearer instrument as opposed to waiting

Nic Carter (19:36.500)

for confirmation on the Bitcoin blockchain. So the moment I hand

Lex Fridman (19:40.900)

that over to you, goes in your possession, you're the owner.

Nic Carter (19:43.600)

There's no way for me to have retained the private key. Like I

Lex Fridman (19:47.700)

could have created a Bitcoin paper wallet and given that to you,

Lex Fridman (19:50.400)

but you have no assurance that I didn't copy down that, you know,

Lex Fridman (19:54.100)

the key elsewhere. So this solves that problem.

Lex Fridman (19:57.100)

So this is a physical instantiation of the Bitcoin transaction

Nic Carter (1:00:04.000)

which it does appear that most of our societies is based on the fact that we're all,

Nic Carter (1:00:09.000)

most of us are honest, is like stuff is not going to go wrong when you do the transaction.

Lex Fridman (1:00:15.000)

And you only need like the base layer, whether it's Bitcoin,

Nic Carter (1:00:19.000)

whether it's, I forget the terms you use for the credit card version,

Lex Fridman (1:00:24.000)

but you need that just to verify, just to like resolve any disagreements or shady shit.

Nic Carter (1:00:33.000)

Yeah.

Lex Fridman (1:00:34.000)

And that's a really rare occurrence.

Lex Fridman (1:00:37.000)

So it's okay for that to be handled in a small block debate,

Lex Fridman (1:00:43.000)

handled at a rate that's much, much lower than the rate of the transactions.

Nic Carter (1:00:48.000)

That's a really interesting idea that when we spend money,

Lex Fridman (1:00:52.000)

we didn't actually exchange the money most of the time.

Nic Carter (1:00:57.000)

Yeah, most of the time you're not getting final settlement when you do a transaction.

Lex Fridman (1:01:01.000)

And oftentimes that causes, there's pluses and minuses on the plus side of huge efficiency

Lex Fridman (1:01:08.000)

if you use a credit network like Visa, but it's in the name credit, right?

Lex Fridman (1:01:12.000)

Visa is extending you credit, right?

Nic Carter (1:01:15.000)

They're kind of guaranteeing your reputation to the merchant.

Lex Fridman (1:01:18.000)

But fraud happens all the time, right?

Lex Fridman (1:01:20.000)

There's always fraud because you have this reversibility, right?

Lex Fridman (1:01:25.000)

And so you can engage in fraud against the merchant.

Nic Carter (1:01:30.000)

If you have a final settlement, there's no possibility for fraud.

Lex Fridman (1:01:34.000)

So that's one reason merchants kind of like accepting Bitcoin

Nic Carter (1:01:37.000)

because once you receive an inbound Bitcoin payment and you deliver some good or service,

Lex Fridman (1:01:44.000)

that payment can't be reversed.

Lex Fridman (1:01:46.000)

But frankly, most of the transactions we undertake on a daily basis

Lex Fridman (1:01:52.000)

do not require the strong assurances of final settlement.

Nic Carter (1:01:56.000)

There's one exception, which is physical cash.

Lex Fridman (1:01:58.000)

With physical cash or the open dime, a cash like product,

Nic Carter (1:02:02.000)

you actually are getting final settlement.

Lex Fridman (1:02:05.000)

But most online banking transactions, most P2P digital wallet transactions

Nic Carter (1:02:14.000)

in the dollar system, they're not really final at all.

Lex Fridman (1:02:18.000)

You mentioned Lightning, Lightning Network.

Lex Fridman (1:02:21.000)

What is it? What are your thoughts on it?

Lex Fridman (1:02:24.000)

And what are your thoughts about any kind of alternatives?

Lex Fridman (1:02:27.000)

So Lightning is one potential payment solution built on top of Bitcoin

Lex Fridman (1:02:34.000)

where you have different assurances, different transactional assurances,

Lex Fridman (1:02:38.000)

but ultimately it's very proximate to the base layer.

Lex Fridman (1:02:41.000)

So if something goes wrong, you can always basically settle to the base layer.

Nic Carter (1:02:44.000)

Just layer two.

Lex Fridman (1:02:45.000)

Yeah, layer two, you could say.

Lex Fridman (1:02:48.000)

And basically the intuition is it's kind of like opening a bar tab.

Lex Fridman (1:02:52.000)

So you go to the bar and you might drink a dozen beers over the course of the night,

Nic Carter (1:02:57.000)

maybe half a dozen.

Lex Fridman (1:03:00.000)

And well, I guess nobody goes to the bar these days,

Lex Fridman (1:03:02.000)

but let's say you did.

Lex Fridman (1:03:05.000)

You open a tab and at the end of the night you settle up once.

Nic Carter (1:03:09.000)

You're not necessarily paying each time you get another beer.

Lex Fridman (1:03:14.000)

So it's the same idea.

Nic Carter (1:03:15.000)

You're opening a channel, an ongoing relationship with your counterparty.

Lex Fridman (1:03:19.000)

And so Lightning has you open a channel with the counterparty

Lex Fridman (1:03:22.000)

and you're sort of sending back and forth these cryptographic commitments saying,

Lex Fridman (1:03:26.000)

you know, I agree to send you some Bitcoin,

Lex Fridman (1:03:29.000)

but you don't necessarily settle each time you make a transaction.

Lex Fridman (1:03:31.000)

So you can do hundreds of thousands of transactions in a channel.

Nic Carter (1:03:35.000)

The other thing Lightning proposes is saying, okay, well,

Lex Fridman (1:03:38.000)

now that we have channels established,

Lex Fridman (1:03:41.000)

what if we interlocked a number of channels together?

Lex Fridman (1:03:44.000)

So if you and I have a channel and, you know, me and my buddy have a channel,

Nic Carter (1:03:48.000)

my buddy can now pay you because you have a relationship through me basically.

Lex Fridman (1:03:53.000)

And so Lightning is this network, this overlay network that sits on top of Bitcoin

Lex Fridman (1:03:58.000)

and allows people to transact in a much faster and less frictional way

Lex Fridman (1:04:03.000)

without the need for Bitcoin's kind of slow periodic settlement,

Nic Carter (1:04:08.000)

assuming that everything sort of goes well.

Lex Fridman (1:04:12.000)

Do you see any downsides to this?

Nic Carter (1:04:14.000)

Like, have you seen flaws in the whole system from a security perspective,

Lex Fridman (1:04:17.000)

from a scaling perspective, any of that?

Lex Fridman (1:04:20.000)

Or is Lightning working well?

Lex Fridman (1:04:23.000)

It works.

Nic Carter (1:04:24.000)

I use it.

Lex Fridman (1:04:25.000)

When I initially sold those dice, I sold them on Lightning.

Nic Carter (1:04:29.000)

I was one of the first merchants to use Lightning back in the day,

Lex Fridman (1:04:33.000)

the first edition of the dice.

Lex Fridman (1:04:35.000)

So people could buy these dice somewhere?

Lex Fridman (1:04:37.000)

Well, they used to be able to.

Nic Carter (1:04:39.000)

I haven't made a new edition recently.

Lex Fridman (1:04:41.000)

They're very scarce and very special.

Nic Carter (1:04:43.000)

They're like physical NFTs.

Lex Fridman (1:04:45.000)

Physical NFTs.

Nic Carter (1:04:47.000)

Yeah.

Lex Fridman (1:04:48.000)

I mean, the flaw with Lightning is really that you, you know,

Lex Fridman (1:04:51.000)

and this can be remedied in a number of ways,

Lex Fridman (1:04:53.000)

but you have to kind of prefund these channels.

Lex Fridman (1:04:55.000)

So it's a weird concept to have to inject liquidity into a channel

Lex Fridman (1:04:59.000)

in order to accept a payment, you know.

Lex Fridman (1:05:02.000)

So I'm sure those user experience problems can be solved,

Lex Fridman (1:05:06.000)

but it's still in a state of relative immaturity.

Lex Fridman (1:05:10.000)

So we'll see.

Lex Fridman (1:05:12.000)

In terms of other ideas that are sidechains or soft forks of Bitcoin,

Nic Carter (1:05:18.000)

you've mentioned something about Schnorr and Taproot.

Lex Fridman (1:05:22.000)

What are your thoughts about this update to Bitcoin

Lex Fridman (1:05:25.000)

in terms of its promise to improve privacy and scaling and so on?

Lex Fridman (1:05:30.000)

And what other things are you interested, excited about

Lex Fridman (1:05:33.000)

in terms of the development of Bitcoin?

Lex Fridman (1:05:36.000)

Well, Schnorr and Taproot,

Nic Carter (1:05:38.000)

that's the first new protocol upgrade since SegWit in 2017,

Lex Fridman (1:05:43.000)

which was what laid the groundwork for Lightning to be developed, basically.

Nic Carter (1:05:49.000)

Schnorr and Taproot is really the first protocol change

Lex Fridman (1:05:52.000)

in three, almost four years now.

Lex Fridman (1:05:55.000)

So we're very excited about it.

Lex Fridman (1:06:00.000)

I mean, is there something interesting to say technically

Lex Fridman (1:06:03.000)

about what are the things it's actually going to improve?

Lex Fridman (1:06:06.000)

And maybe on the politics side,

Nic Carter (1:06:10.000)

bringing a protocol change on Bitcoin,

Lex Fridman (1:06:15.000)

what does that actually involve?

Nic Carter (1:06:17.000)

Yeah, I mean, it's a huge deal because the last time

Lex Fridman (1:06:19.000)

we tried to make a change to the protocol,

Nic Carter (1:06:21.000)

we had a whole civil war over it,

Lex Fridman (1:06:23.000)

and it was incredibly difficult to get SegWit activated in 2017.

Lex Fridman (1:06:28.000)

And it took all this brinksmanship and threats

Lex Fridman (1:06:31.000)

and all these campaigns, and it was this whole thing.

Nic Carter (1:06:35.000)

Luckily, I think things have quieted down

Lex Fridman (1:06:37.000)

and there's much more consensus that Schnorr and Taproot

Nic Carter (1:06:39.000)

is a good change to Bitcoin, and everyone generally supports it.

Lex Fridman (1:06:43.000)

But everyone kind of has PTSD over the last time.

Nic Carter (1:06:46.000)

When we tried to change Bitcoin.

Lex Fridman (1:06:48.000)

And so we're sort of really dithering

Nic Carter (1:06:50.000)

over how we actually want to implement it.

Lex Fridman (1:06:52.000)

So it's taking forever because we're trying to set the protocol

Nic Carter (1:06:56.000)

for how do you change Bitcoin itself.

Lex Fridman (1:06:58.000)

And all of our assumptions went out the window last time.

Lex Fridman (1:07:01.000)

So we're trying to reset and decide what is a legitimate way

Lex Fridman (1:07:05.000)

to institute a change to Bitcoin.

Lex Fridman (1:07:07.000)

So that's actually the big question right now.

Lex Fridman (1:07:09.000)

It's not, should we implement these changes?

Nic Carter (1:07:11.000)

We basically all agree that we should.

Lex Fridman (1:07:13.000)

It's a meta question is, what's the valid way

Lex Fridman (1:07:16.000)

to implement new changes to Bitcoin?

Lex Fridman (1:07:18.000)

What's a way that is scalable in the long term

Lex Fridman (1:07:21.000)

and will last and people will consider credible?

Lex Fridman (1:07:24.000)

Even if this one isn't controversial at all.

Lex Fridman (1:07:26.000)

So that's where we're at.

Lex Fridman (1:07:28.000)

We're basically debating over how do we implement this change

Nic Carter (1:07:31.000)

that we all want.

Lex Fridman (1:07:33.000)

To get a feeling of how slow Bitcoin governance is

Lex Fridman (1:07:36.000)

and how deliberate it is,

Lex Fridman (1:07:38.000)

everybody collectively wants the change.

Lex Fridman (1:07:40.000)

But we haven't fully agreed on how we're going to put it into Bitcoin.

Lex Fridman (1:07:44.000)

So it's a classic sort of Bitcoin situation.

Lex Fridman (1:07:47.000)

But what it is, I mean, Schnorr is an alternative signature scheme.

Lex Fridman (1:07:51.000)

I think it was encumbered by a patent.

Lex Fridman (1:07:53.000)

And it had only just been unencumbered

Lex Fridman (1:07:57.000)

when Satoshi created Bitcoin, I believe.

Nic Carter (1:07:59.000)

It's a better signature scheme than Elliptic Curves,

Lex Fridman (1:08:02.000)

which is what, than ECDSA, which is what Bitcoin uses.

Lex Fridman (1:08:06.000)

And so it's been long enough that we now trust it.

Lex Fridman (1:08:11.000)

Kind of in cryptography, it's meant to be Lindy.

Nic Carter (1:08:14.000)

You want to test it over time,

Lex Fridman (1:08:17.000)

and then it's considered safe to use.

Lex Fridman (1:08:19.000)

So Schnorr has been around for long enough

Lex Fridman (1:08:21.000)

that we've decided to rip out ECDSA and insert Schnorr,

Nic Carter (1:08:25.000)

which is just a different signature scheme,

Lex Fridman (1:08:27.000)

which is more efficient.

Lex Fridman (1:08:29.000)

And it has better properties.

Lex Fridman (1:08:31.000)

Like if you want to do a multi signature transaction

Nic Carter (1:08:33.000)

where many people collectively sign

Lex Fridman (1:08:36.000)

in order to permission a spend,

Nic Carter (1:08:38.000)

that would be more efficient in a bytes sense

Lex Fridman (1:08:42.000)

than ECDSA, for instance.

Lex Fridman (1:08:44.000)

So it's pretty incremental.

Lex Fridman (1:08:46.000)

And then Taproot is all about having transactional conditions

Nic Carter (1:08:53.000)

that are sort of withheld from final entry onto the blockchain.

Lex Fridman (1:08:58.000)

So it's kind of a way to have more private conditional transactions on Bitcoin.

Lex Fridman (1:09:07.000)

So both of them, I would say, are incremental changes.

Lex Fridman (1:09:11.000)

Is this an over exaggeration that Schnorr and Taproot

Nic Carter (1:09:15.000)

might improve privacy and scaling,

Lex Fridman (1:09:17.000)

which is like at the high level things that people mention?

Nic Carter (1:09:20.000)

Is that just like a dramatic way of trying to frame

Lex Fridman (1:09:24.000)

what's fundamentally an incremental improvement?

Lex Fridman (1:09:27.000)

Yes, but incremental is the word, right?

Lex Fridman (1:09:29.000)

We're not going to get an order of magnitude enhancement

Nic Carter (1:09:32.000)

to either privacy or scaling,

Lex Fridman (1:09:34.000)

but we will get a considerable enhancement.

Lex Fridman (1:09:37.000)

But privacy and scaling are actually two sides of the same coin

Lex Fridman (1:09:40.000)

because you get more transactional privacy

Nic Carter (1:09:42.000)

by removing data from the ledger

Lex Fridman (1:09:45.000)

so that there's less metadata for people to surveil and analyze.

Lex Fridman (1:09:49.000)

And that's also how you scale

Lex Fridman (1:09:51.000)

by compressing and being really space efficient with transactions.

Lex Fridman (1:09:56.000)

And the more parsimonious you are,

Nic Carter (1:09:58.000)

the more economically dense each byte that everyone has to retain on the ledger is.

Lex Fridman (1:10:04.000)

And so those are very closely allied concepts.

Lex Fridman (1:10:09.000)

So do you mind if we go through some potential criticisms of Bitcoin?

Nic Carter (1:10:16.000)

Totally. I spent the last five years tackling these every day.

Lex Fridman (1:10:22.000)

Are the dice the same?

Nic Carter (1:10:24.000)

Those two are the same, yeah. There are three editions.

Lex Fridman (1:10:26.000)

So let's go with the dice.

Lex Fridman (1:10:31.000)

Silk Road. What does that mean?

Lex Fridman (1:10:33.000)

Silk Road. Classic. Classic situation.

Lex Fridman (1:10:36.000)

So that was the darknet marketplace set up by Ross Albrecht

Lex Fridman (1:10:40.000)

in the early days of Bitcoin.

Nic Carter (1:10:42.000)

That's one of the first killer apps for Bitcoin

Lex Fridman (1:10:45.000)

was being the payments network behind this darknet marketplace

Nic Carter (1:10:50.000)

where you'd go to buy drugs and things.

Lex Fridman (1:10:53.000)

And so that became associated with Bitcoin,

Nic Carter (1:10:55.000)

if you remember the press coverage from back then.

Lex Fridman (1:10:58.000)

But over time that faded and it became less of a critique.

Lex Fridman (1:11:02.000)

So like the critique is that Bitcoin is something you would use

Lex Fridman (1:11:06.000)

for illegal activity, for drugs, for crimes, all those kinds of things,

Nic Carter (1:11:10.000)

as opposed to for any kind of legitimate transactions and merchant transactions.

Lex Fridman (1:11:15.000)

And today Bitcoin settles $10 billion a day

Lex Fridman (1:11:18.000)

and the vast, vast majority of it is completely legitimate.

Lex Fridman (1:11:22.000)

It's just a useful alternative system.

Lex Fridman (1:11:25.000)

But back then a huge fraction of all Bitcoin transactions

Lex Fridman (1:11:28.000)

were related to the basically illicit marketplaces.

Lex Fridman (1:11:32.000)

And if you're just tuning in, this incredible tall sighted guy

Lex Fridman (1:11:36.000)

has 11 common criticisms of Bitcoin that Nick,

Nic Carter (1:11:41.000)

in a genius way, has put together.

Lex Fridman (1:11:44.000)

Maybe you could do a couple more.

Nic Carter (1:11:47.000)

It was Satoshi something, Satoshi Coins.

Lex Fridman (1:11:52.000)

Satoshi Coins, we touched on that earlier in the episode.

Lex Fridman (1:11:56.000)

What if Satoshi returns and sells all of their coins?

Lex Fridman (1:12:01.000)

So we don't know for sure how many coins Satoshi actually mined or produced

Nic Carter (1:12:05.000)

because there's a degree of probabilistic analysis that you would do.

Nic Carter (1:12:10.000)

There's a few thousand blocks that were mined by what we think is a single entity

Nic Carter (1:12:17.000)

in sort of 2009.

Lex Fridman (1:12:19.000)

And so if you add them all up, you get to about a million.

Lex Fridman (1:12:21.000)

So people think that Satoshi mined a million coins

Lex Fridman (1:12:24.000)

and then they're worried that Satoshi would return

Lex Fridman (1:12:27.000)

and market sell all the coins, thus crushing the price of Bitcoin.

Lex Fridman (1:12:33.000)

So looking at some of these, no CEO, I think we touched on that.

Nic Carter (1:12:39.000)

We did, we see, we've already hit on the dice.

Lex Fridman (1:12:42.000)

No merchants, that's no longer true.

Nic Carter (1:12:49.000)

There's a scalability one, and I think that one has addressed

Lex Fridman (1:12:53.000)

the idea that you're mentioning with the block size debates

Lex Fridman (1:12:56.000)

and the lightning network that by adding extra layers on top,

Lex Fridman (1:13:00.000)

you can achieve scalability.

Nic Carter (1:13:02.000)

That's my vision, that's my theory.

Lex Fridman (1:13:06.000)

And you can do it in a permissionless and a permissioned way.

Nic Carter (1:13:09.000)

Like Coinbase is a big Bitcoin exchange.

Lex Fridman (1:13:12.000)

They provide scalability.

Nic Carter (1:13:14.000)

They're a financial institution.

Lex Fridman (1:13:16.000)

You can settle up internally on their own database

Lex Fridman (1:13:19.000)

and then periodically settle to Bitcoin.

Lex Fridman (1:13:22.000)

So they do something like the lightning network internally,

Nic Carter (1:13:26.000)

something like this similar kind of mechanism.

Lex Fridman (1:13:28.000)

Well, honestly, I'm not sure exactly how it works.

Nic Carter (1:13:30.000)

They might have that built in, but just generally speaking,

Lex Fridman (1:13:34.000)

institutional scaling is a model for scaling, right?

Nic Carter (1:13:38.000)

Where you could have banks holding Bitcoin

Lex Fridman (1:13:40.000)

and they issue notes against Bitcoin,

Lex Fridman (1:13:42.000)

and those are your payments,

Lex Fridman (1:13:44.000)

and then the base layer is the settlement layer.

Nic Carter (1:13:48.000)

I think that's what you're getting with the boiling oceans,

Lex Fridman (1:13:52.000)

is this is like the impact on weather,

Nic Carter (1:13:56.000)

I suppose, on the environment.

Lex Fridman (1:13:58.000)

So, you know, that is a concern that people have

Nic Carter (1:14:02.000)

in terms of like the proof of work requires

Lex Fridman (1:14:04.000)

that there's a lot of computational resources being used

Lex Fridman (1:14:07.000)

and that requires a lot of energy

Lex Fridman (1:14:09.000)

and like some large percentage of the world's energy

Nic Carter (1:14:13.000)

is used to mine Bitcoin.

Lex Fridman (1:14:15.000)

How would you respond to that criticism?

Nic Carter (1:14:18.000)

Yeah, I mean, that's been the loudest critique of Bitcoin

Lex Fridman (1:14:21.000)

this year in the press.

Lex Fridman (1:14:22.000)

This year, really?

Lex Fridman (1:14:23.000)

Yeah, so, I mean, it's not like a new criticism,

Lex Fridman (1:14:26.000)

but Bitcoin is consuming more energy than ever.

Lex Fridman (1:14:29.000)

So, as the price rises, the electricity consumption rises,

Lex Fridman (1:14:34.000)

and so we've heard renewed, you know, bellyaching over this,

Lex Fridman (1:14:40.000)

for sure.

Nic Carter (1:14:41.000)

I mean, if you don't believe that Bitcoin is useful,

Lex Fridman (1:14:44.000)

then you're inclined to think that all the energy consumption

Nic Carter (1:14:47.000)

is a waste.

Lex Fridman (1:14:48.000)

So that's, you know, it's something that's sort of unrebuttable

Nic Carter (1:14:53.000)

if you fundamentally contest the validity of the Bitcoin system.

Lex Fridman (1:14:58.000)

So if Bitcoin is like a thing that will take over,

Nic Carter (1:15:04.000)

it will become like the main mechanism of financial transactions

Lex Fridman (1:15:09.000)

or transactions period in the world, then you say,

Nic Carter (1:15:12.000)

well, the cost of energy use is actually quite low

Lex Fridman (1:15:15.000)

relative to the benefit it provides.

Nic Carter (1:15:17.000)

If you think it's not going to be,

Lex Fridman (1:15:19.000)

if it's just a volatile way to make a little money in the short term,

Nic Carter (1:15:25.000)

then you see the energy use as really wasteful.

Lex Fridman (1:15:28.000)

That's totally spurious, yeah.

Lex Fridman (1:15:30.000)

So then there's no really response, I suppose.

Lex Fridman (1:15:34.000)

That's, so I can totally, you know, get into the details

Nic Carter (1:15:38.000)

of Bitcoin's energy mix and things like that,

Lex Fridman (1:15:40.000)

but that's like at a high level what the debate is.

Nic Carter (1:15:43.000)

It's this normative question, like, does Bitcoin have an entitlement

Lex Fridman (1:15:46.000)

to consume any of the world's resources?

Lex Fridman (1:15:48.000)

And that's actually where the debate should end much of the time

Lex Fridman (1:15:52.000)

because a lot of people fundamentally dispute the validity

Nic Carter (1:15:57.000)

or usefulness of Bitcoin as a system.

Lex Fridman (1:16:00.000)

And so, of course, they're going to consider the energy usage illegitimate.

Nic Carter (1:16:04.000)

Now, there's a lot of mitigating factors if you, you know,

Lex Fridman (1:16:08.000)

think the Bitcoin is potentially a useful system,

Nic Carter (1:16:11.000)

which is Bitcoin consumes energy in a very peculiar way,

Lex Fridman (1:16:15.000)

which virtually no other industry does,

Nic Carter (1:16:18.000)

which is that Bitcoin is a geography independent buyer of energy,

Lex Fridman (1:16:25.000)

which is not how we humans typically consume energy.

Nic Carter (1:16:29.000)

Like, we need energy to be produced near to population centers,

Lex Fridman (1:16:33.000)

and we need it to be produced at the, you know,

Lex Fridman (1:16:36.000)

corresponding to the peaks and troughs of our consumption, right?

Lex Fridman (1:16:40.000)

Because we have to 100% match the demand and the supply at all times, right?

Nic Carter (1:16:44.000)

Otherwise, we'd blackouts.

Lex Fridman (1:16:46.000)

So, Bitcoin doesn't care about any of that.

Nic Carter (1:16:50.000)

It just buys energy on a constant basis.

Lex Fridman (1:16:54.000)

And so, it's, you know, indifferent to where it's being produced.

Lex Fridman (1:16:57.000)

And so, the consequence of all that is that Bitcoin will buy energy

Lex Fridman (1:17:02.000)

that's otherwise being wasted, basically.

Nic Carter (1:17:05.000)

So, it will buy so called stranded energy assets

Lex Fridman (1:17:09.000)

that would not make it to a population center.

Lex Fridman (1:17:11.000)

And in fact, most energy produced is, ultimately,

Lex Fridman (1:17:16.000)

does not sort of make it to, you know, your socket in your wall.

Lex Fridman (1:17:21.000)

And so, this is why so much Bitcoin is mined in China, for instance.

Nic Carter (1:17:26.000)

It's not because, you know, Chinese industrialists had a special affinity for Bitcoin.

Nic Carter (1:17:31.000)

It's because the Chinese grid had a massive overabundance of energy,

Lex Fridman (1:17:36.000)

and particularly in four provinces, Sichuan, Yunnan, Inner Mongolia,

Lex Fridman (1:17:40.000)

and Xinjiang.

Lex Fridman (1:17:41.000)

So, in those four provinces, those are all pretty distant

Nic Carter (1:17:45.000)

from major population centers.

Lex Fridman (1:17:47.000)

So, because of that, you can't really transport the energy that easily.

Lex Fridman (1:17:51.000)

And so, huge amounts of energy are curtailed

Lex Fridman (1:17:54.000)

or basically wasted in all those provinces.

Lex Fridman (1:17:57.000)

And so, miners set up shop there

Lex Fridman (1:17:59.000)

because they could mine Bitcoin with the excess energy.

Nic Carter (1:18:02.000)

They could monetize this thing that otherwise was going to go to waste.

Nic Carter (1:18:05.000)

So, you know, there's things like that which, you know, I think mitigate the reality.

Nic Carter (1:18:11.000)

Bitcoin is not really rival with our consumption of electricity.

Lex Fridman (1:18:16.000)

It's not depriving anyone of electricity.

Nic Carter (1:18:18.000)

It's mostly these stranded assets that are going into supporting the Bitcoin network.

Lex Fridman (1:18:24.000)

So, maybe let's do a last one since you mentioned China.

Nic Carter (1:18:28.000)

This is China control.

Lex Fridman (1:18:29.000)

So, if so much mining is happening in China,

Lex Fridman (1:18:32.000)

how do we prevent nation states from controlling much of Bitcoin?

Nic Carter (1:18:39.000)

Yeah, that's the flip side of a large portion of the blocks being mined in China

Nic Carter (1:18:44.000)

due to this energy feature which I discussed,

Lex Fridman (1:18:46.000)

which is that there's a lot of Chinese miners for sure.

Nic Carter (1:18:50.000)

Now, the question ultimately is,

Lex Fridman (1:18:53.000)

what degree of control do miners have over the Bitcoin system?

Lex Fridman (1:18:57.000)

And that was part of the block size debate.

Lex Fridman (1:19:01.000)

I mean, the miners, when we implemented subgraded witness in 2017,

Nic Carter (1:19:06.000)

the miners just didn't want to do it.

Nic Carter (1:19:09.000)

Eventually, the users, the regular folks running nodes rebelled and basically said,

Nic Carter (1:19:15.000)

look, we're going to implement this whether or not you do it.

Lex Fridman (1:19:18.000)

And it was a threat to the value of Bitcoin because if this threat had gone through,

Nic Carter (1:19:22.000)

it could have split Bitcoin and it would have been really messy.

Lex Fridman (1:19:25.000)

So, the miners sort of capitulated.

Nic Carter (1:19:27.000)

So, I think the current consensus is that miners do not have unilateral control over Bitcoin

Lex Fridman (1:19:34.000)

and that governance is more poised between people that run nodes, developers and miners.

Nic Carter (1:19:39.000)

It's sort of a triumvirate where neither of them has, you know, total control.

Lex Fridman (1:19:44.000)

So, that's my current model for controlling Bitcoin.

Nic Carter (1:19:48.000)

I think if you asked a miner, they would tell you they didn't feel

Lex Fridman (1:19:52.000)

that they had sort of unilateral control over Bitcoin either.

Nic Carter (1:19:56.000)

Almost as a thought experiment, can I ask you to think about if some of your predictions,

Nic Carter (1:20:03.000)

some of your analysis, some of your understanding of Bitcoin is wrong in the following sense

Nic Carter (1:20:09.000)

where it will not have the impact that you have a vision for it,

Nic Carter (1:20:16.000)

that you will not have the scale of impact and perhaps in terms of value will go to zero

Nic Carter (1:20:21.000)

to something very low and other cryptocurrency or other financial systems will overtake it.

Lex Fridman (1:20:25.000)

What would be the reason for that in your mind?

Lex Fridman (1:20:29.000)

Like, why might you be wrong?

Lex Fridman (1:20:32.000)

If you look back at it in the future, what did you not understand about Bitcoin that will result in that?

Nic Carter (1:20:41.000)

Yeah, that's a great question.

Lex Fridman (1:20:43.000)

I think for that to happen, one of two things would have to obtain,

Nic Carter (1:20:48.000)

one of two things would have to happen for Bitcoin to just be irrelevant basically.

Nic Carter (1:20:53.000)

Either central banks totally clean up their act and stop engaging in rampant money printing,

Nic Carter (1:21:01.000)

which I don't expect that to happen anytime soon.

Nic Carter (1:21:04.000)

I mean, it looks like we're normalizing this new regime of inflation, pro inflation,

Nic Carter (1:21:09.000)

just to remediate the debt issues we have.

Lex Fridman (1:21:12.000)

So that would be one thing that would make Bitcoin cryptocurrency much less relevant

Nic Carter (1:21:18.000)

as if everyone becomes totally assured of the soundness of sovereign currencies basically,

Lex Fridman (1:21:25.000)

namely the dollar, like the dollar being the main one.

Nic Carter (1:21:29.000)

It seems like we're going in completely opposite direction.

Lex Fridman (1:21:33.000)

Most people seem to be noticing the stirrings of inflation in society.

Nic Carter (1:21:37.000)

You might have noticed that too.

Nic Carter (1:21:39.000)

It's showing up in commodity prices, lumber prices, in food, obviously in financial assets.

Nic Carter (1:21:45.000)

It'll show up in consumer prices generally soon.

Lex Fridman (1:21:49.000)

So that would be one way for Bitcoin to basically become irrelevant

Nic Carter (1:21:53.000)

because it's a dialectical thing.

Lex Fridman (1:21:56.000)

Bitcoin is held in opposition to the established monetary regime.

Lex Fridman (1:22:02.000)

So if they completely reform themselves and the dollar becomes super sound once again

Lex Fridman (1:22:09.000)

and the Fed stops tinkering the way they constantly do, then we wouldn't need cryptocurrency as much.

Nic Carter (1:22:18.000)

The other thing would be if a completely superior design for a new sort of state independent monetary system emerged.

Lex Fridman (1:22:28.000)

But it's really hard to even imagine how that would come to emerge.

Lex Fridman (1:22:32.000)

And there's good reasons to think that Bitcoin, the conditions of its launch were extremely favorable and hard to replicate.

Lex Fridman (1:22:42.000)

Can you speak to some of those conditions, why it's a unique timing wise moment for Bitcoin to emerge?

Nic Carter (1:22:50.000)

Yeah. So obviously Bitcoin was born in the depths of the financial crisis, which gives it a nice historical element.

Lex Fridman (1:22:58.000)

But that was kind of a coincidence.

Nic Carter (1:23:00.000)

Honestly, we know that Satoshi had been working on it earlier in 2017.

Lex Fridman (1:23:07.000)

The really special thing about Bitcoin was that it was launched anonymously

Nic Carter (1:23:12.000)

by an entity that did not seek any glory or credit for what they did and apparently never monetized it at all.

Lex Fridman (1:23:19.000)

So they never really moved any of their coins.

Nic Carter (1:23:23.000)

Satoshi sent one test transaction to Hal Finney, who is one of the earliest Bitcoiners.

Lex Fridman (1:23:29.000)

Aside from that, as far as we know, Satoshi never spent any of their coins.

Lex Fridman (1:23:33.000)

So you have this wonderful Promethean quality whereby it's almost self sacrificial.

Nic Carter (1:23:39.000)

I mean, it's like this borderline godlike figure in terms of their restraint finds this monetary technology

Lex Fridman (1:23:48.000)

and releases it to the world and pays the price.

Lex Fridman (1:23:50.000)

They never took advantage of their filthy lucre.

Nic Carter (1:23:53.000)

They never recognized any of the $50 billion that they made from Bitcoin.

Lex Fridman (1:24:00.000)

And Satoshi also didn't assign themselves any privileged access to the coins.

Nic Carter (1:24:06.000)

Satoshi could have just written in the code, I own 10% of the coins.

Lex Fridman (1:24:11.000)

But they didn't. They just mined in the open free market competition like everyone else.

Nic Carter (1:24:15.000)

It's just that Satoshi is an early miner to support the network, accumulate a lot of coins for sure.

Lex Fridman (1:24:21.000)

But they didn't have any privileged special access.

Lex Fridman (1:24:24.000)

So that's one thing that's extremely special about the launch is that we had a founder

Nic Carter (1:24:29.000)

that was truly committed to the monetary protocol and didn't seek either recognition or financial spoils.

Lex Fridman (1:24:36.000)

And then also left. Satoshi left in 2010, 2011 and hasn't really been heard from since.

Nic Carter (1:24:42.000)

It's a very George Washington gangster move where he didn't want power and once he got power, he let go of it.

Nic Carter (1:24:49.000)

Precisely.

Nic Carter (1:24:50.000)

That was a key actually move. That was probably one of the most important moves at the founding of this country.

Nic Carter (1:24:58.000)

That's right. George Washington could have been a king, probably if he'd wanted.

Lex Fridman (1:25:02.000)

And Satoshi could have been Jerome Powell if he'd wanted.

Lex Fridman (1:25:06.000)

And Satoshi could have held on to power indefinitely but chose to leave.

Nic Carter (1:25:11.000)

The other thing is that Bitcoin circulated for a long period of time from January 2009 to about July 2010 without really having a financial value.

Lex Fridman (1:25:23.000)

So there weren't really any marketplaces. It didn't have a value.

Lex Fridman (1:25:27.000)

And so that gave it this really great distribution among a broad set of stakeholders.

Lex Fridman (1:25:33.000)

And there were no venture funds or hedge funds trying to aggressively buy up all the supply back then.

Nic Carter (1:25:40.000)

Now when you have new cryptocurrencies launched, they're aggressively pre mined and some gigantic Silicon Valley venture fund is going to own 30% of it.

Lex Fridman (1:25:50.000)

And so it's impossible to conceive of how that could become a global money because how could a Silicon Valley investment firm own 30% of the money supply?

Lex Fridman (1:26:02.000)

That doesn't make sense. That's just so oligarchical. It's unbelievable.

Lex Fridman (1:26:07.000)

So Bitcoin by contract is a very bottom up thing. It was the early enthusiasts, people that were really excited about the technology.

Lex Fridman (1:26:19.000)

They're the ones that obtained those early coins.

Lex Fridman (1:26:22.000)

And so there was a real element of fairness and just an organic nature to its launch, which would be incredibly hard to recapture today.

Nic Carter (1:26:30.000)

Let's say Satoshi came back and they said, OK, I made Bitcoin 2.0. I'm going to release it.

Nic Carter (1:26:37.000)

There would be the most aggressive land grab ever by gigantic pools of capital to sort of get favorable allocations of the new system.

Lex Fridman (1:26:48.000)

Can Satoshi with Bitcoin 2.0 build in a resistance mechanism or a prevention mechanism for the land grab?

Nic Carter (1:26:58.000)

It would be hard to because if you have capital and resources, I mean, if it was a proof of work chain, you just have people that would invest a ton of money in mining, for instance.

Lex Fridman (1:27:07.000)

But most new blockchains, cryptocurrencies are just sold, basically. They're issued in token offerings kind of thing.

Lex Fridman (1:27:16.000)

So it's hard to enforce through the protocol the decentralization of control power.

Nic Carter (1:27:22.000)

It'd be challenging to and people have tried to do airdrops where they distribute coins to a large number of people.

Nic Carter (1:27:29.000)

Basically doesn't work. Most people don't care about the airdrop. So it's hard to have an equitable distribution.

Nic Carter (1:27:36.000)

I think the conditions of Bitcoin's launch were so lucky and favorable that they're very unlikely to be replicated.

Lex Fridman (1:27:43.000)

So I do think it's going to be a real challenge to ever have a new competitor that's as decentralized, as leaderless, as dispersed, sort of distributed as Bitcoin is, has its credibility.

Lex Fridman (1:27:55.000)

I don't know how you could overrule it on those important features.

Lex Fridman (1:27:59.000)

What about Bitcoin's comparison to other current cryptocurrencies? So Bitcoin versus Ethereum, for example.

Lex Fridman (1:28:06.000)

Why is it possible that Ethereum overtakes Bitcoin?

Nic Carter (1:28:12.000)

It's certainly possible. Yeah, I'm not ruling it out.

Nic Carter (1:28:15.000)

Ethereum leadership is sort of wise enough to understand that they shouldn't compete with Bitcoin on those most profound qualities.

Nic Carter (1:28:26.000)

Ethereum doesn't really aspire to be more sound from a monetary perspective than Bitcoin.

Nic Carter (1:28:33.000)

In fact, the Ethereum leadership are sort of constantly tweaking the monetary policy.

Lex Fridman (1:28:37.000)

So they went for a completely different trade off.

Lex Fridman (1:28:41.000)

They also don't compete to be as decentralized from a governance perspective, right?

Nic Carter (1:28:47.000)

Because there's leadership. There's an ETH foundation. There's a charismatic leader, Vitalik.

Lex Fridman (1:28:52.000)

And Ethereum has this policy of hard forks. So in Bitcoin, hard forks are extremely rare.

Nic Carter (1:28:59.000)

In Ethereum, it's the default way to change things.

Lex Fridman (1:29:02.000)

So it's a much more adaptive system and it changes more frequently.

Lex Fridman (1:29:06.000)

But that also means that it's sort of they're incurring more risk when they introduce those changes.

Nic Carter (1:29:11.000)

There's much more complexity. So Ethereum is smart because they sort of understood Bitcoin as the top dog when it comes to a sound money, a digital gold type thing.

Lex Fridman (1:29:23.000)

And they went for all of the different trade offs. They wanted to be more of a platform.

Lex Fridman (1:29:29.000)

They wanted to have more complexity of the transactional layer.

Nic Carter (1:29:32.000)

They wanted to take on more risk in terms of changing the protocol. They wanted to change more quickly.

Nic Carter (1:29:38.000)

They wanted to make the monetary policy more mutable. So Ethereum takes that completely different tack.

Nic Carter (1:29:46.000)

Of course, you know, I'm not ruling out that it could take over Bitcoin from a market cap perspective.

Lex Fridman (1:29:51.000)

It's just a very different system.

Lex Fridman (1:29:53.000)

And I tend to think that Bitcoin is the most disruptive one because it's the most equipped to challenge sovereign currencies in the grand scheme.

Lex Fridman (1:30:03.000)

Do you think they can coexist? So like in the future, do you see a world where, you know, Ethereum captures some large percent of the market but nevertheless the minority?

Nic Carter (1:30:18.000)

A hundred percent.

Nic Carter (1:30:20.000)

Bitcoin has already been tokenized and put onto Ethereum. Many units of Bitcoin, I think over a billion dollars worth.

Lex Fridman (1:30:28.000)

So not only do they coexist, they are actually mutualistic. So they're like two creatures that have this, you know, it's like the rhino and like the bird that packs the parasites off the rhino's back or whatever.

Lex Fridman (1:30:43.000)

Yeah. Right. So I don't know which is which in the analogy.

Lex Fridman (1:30:46.000)

But yeah, I don't know who the parasites are.

Nic Carter (1:30:51.000)

Or, you know, the alligator and the teeth cleaning fish or whatever. Right. So, you know, I always wonder why the alligator doesn't just eat the fish, but I guess they're brushing its teeth basically.

Lex Fridman (1:31:02.000)

So Ethereum is it gives you more transactional flexibility. There's much more experimentation happening there. It has this whole decentralized finance element.

Nic Carter (1:31:14.000)

There's a huge number of Bitcoins that circulate on the Ethereum protocol, right? Because Ethereum is open to other asset types, basically.

Lex Fridman (1:31:22.000)

So I think that's actually accretive to both systems because Ethereum gets to have this good form of collateral Bitcoin on the system, which is good volatility characteristics.

Lex Fridman (1:31:34.000)

And then it's a supply sink for Bitcoins, which are sort of now they're injected into this third party protocol. And that, I think, reduces the velocity of Bitcoin overall, and it's probably good for the valuation.

Lex Fridman (1:31:48.000)

So you see it quite possibly could be a symbiotic relationship. That's really interesting.

Lex Fridman (1:31:53.000)

I think so. I think so.

Lex Fridman (1:31:55.000)

What are your thoughts about Vitalik, Buterin? What are your thoughts about some of the other figures in the space outside of Bitcoin?

Nic Carter (1:32:07.000)

I think Vitalik made some mistakes with Ethereum ultimately. Like, I disagree with some of the decisions that were made along the way.

Nic Carter (1:32:15.000)

Like, there's this infamous case of this bailout where 14% of Ether was lost in the smart contract, or really this smart contract that a lot of Ethereum leadership were sort of backing and supporting was hacked.

Lex Fridman (1:32:29.000)

And then the foundation with Vitalik's support chose to make a change to the underlying protocol to undo the hack, right?

Lex Fridman (1:32:39.000)

So to me, that was not the most prudent approach, because you're basically violating the core protocol rules in order to undo, you know, to bail out a specific contract, which has failed.

Nic Carter (1:32:56.000)

Granted, there was a lot of Ether in there. But I think that shook the credibility of the Ethereum system that happened back in 2016, I think.

Nic Carter (1:33:05.000)

That was one reason why I became disenchanted with Ethereum.

Lex Fridman (1:33:09.000)

So basically, even if in that case that might fix an important problem that opens the door to centralized, like, manipulation of the protocol in the future.

Nic Carter (1:33:22.000)

Yeah, it basically demonstrates that there's certain elites at the protocol level that can exercise specific control over the system. And, you know, a lot of people have lost money in hacks on Ethereum, a lot of contracts have gone south, huge amount of value, but they didn't get a bailout.

Lex Fridman (1:33:42.000)

And it was just when, you know, this specific contract called the DAO was hacked, that, you know, the leadership intervened.

Nic Carter (1:33:53.000)

And, you know, to their credit, they haven't had a significant intervention or bailout since then. But it did normalize the practice. And I think it weakened the social contract.

Lex Fridman (1:34:04.000)

So I would prefer that you sort of bite the bullet in that situation, and you accept the failure of that contract.

Nic Carter (1:34:12.000)

There'll be a ballsy move to bite that bullet.

Nic Carter (1:34:15.000)

Yeah, I mean, and then you would have had like, what they thought was a malicious entity in control of a lot of coins.

Nic Carter (1:34:21.000)

I think the real reason they sort of felt that they had to undo it was because they'd always planned to move to this proof of stake world, where your political control over the system is a function of your wealth in the system.

Lex Fridman (1:34:34.000)

And they didn't want this attacker, which would have inherited all this significant wealth, to have influence over that future proof of stake version. That's sort of my theory.

Nic Carter (1:34:46.000)

Yeah, I mean, that makes sense. It kind of reminds me of the bailout of car companies. You know, this is difficult. There's a lot of people that criticize the bailout of these large companies, you know.

Nic Carter (1:35:01.000)

Yeah, creative destruction. I mean, I was critical of the bailouts that happened during COVID. I mean, I generally think that it's healthier for society for bad firms that aren't making money to fail or be reorganized under the various forms of bankruptcy.

Lex Fridman (1:35:19.000)

And you saw what happens. You see the, you know, the corporate sector in Japan in the 90s, there was this like slow motion insolvency where basically firms weren't allowed to fail.

Lex Fridman (1:35:32.000)

And the Japanese corporate sector lost competitiveness because bad firms did not fail. And so, you know, the process of actual capitalism for the market clearing didn't occur.

Lex Fridman (1:35:44.000)

So I'm always in support of, you know, of the free market being allowed to clear for non profitable firms to fail.

Nic Carter (1:35:53.000)

It's complicated, man, because creative destruction seems to be in the long term a positive. But human civilization is such that short term pain has real impact on people, you know.

Nic Carter (1:36:10.000)

Yeah, policymakers don't ever want to incur that short term pain because they have a short term outlook and term limits often.

Lex Fridman (1:36:19.000)

And also just it's short term pain. Forget policymakers, forget politicians. It sucks to lose a job for an individual.

Nic Carter (1:36:29.000)

You know, you could say the company, you know, creative destruction of a company means the company was inefficient and that's going to have a ripple effect of teaching everybody else what an efficient operation looks like.

Lex Fridman (1:36:41.000)

But like there's jobs that are being lost. There's families that have to suffer because of that.

Nic Carter (1:36:46.000)

I mean, that's the tension we live in society is having a basic safety net for our world because there's a level beyond which, like if through creative destruction,

Nic Carter (1:37:01.000)

you have some percent of the population that dips below a certain level that you would call like suffering.

Nic Carter (1:37:08.000)

We don't want that. And that's a difficult thing to live with. Like, yes, in the long term, you want inefficiency to be destroyed and efficiency to be rewarded.

Lex Fridman (1:37:21.000)

But there does seem to be a base level of like quality of life that we want to uphold. That's a difficult thing to think about.

Nic Carter (1:37:29.000)

I think about that a lot. There's a doctor called Paul Farmer that, you know, there's like in Haiti or in Africa, there's a child who's dying.

Lex Fridman (1:37:41.000)

And as a doctor, you want to give everything you have, all the money you have to save that one child. And you do, actually.

Lex Fridman (1:37:52.000)

But that's a very human action. It's not a rational action from a game theoretic perspective because there's no way you can take that action for every child who is suffering.

Lex Fridman (1:38:07.000)

But there's something deeply human about doing that for that one particular child. In that same sense, creative destruction is an economic principle.

Lex Fridman (1:38:16.000)

But it's not necessarily that same kind of human principle. And there's a tension there.

Nic Carter (1:38:23.000)

I see it. I mean, I think that's the issue with modern central banking, really, is that the central bank always has an incentive to lower interest rates.

Lex Fridman (1:38:34.000)

And they've been doing that from the 70s towards today on this, you know, well, 80s, really, on this slow march down. Because whenever there was a hint of a crisis in the economy or financial asset prices started to fall, their reaction is, okay, we'll inject more capital into the economy, we'll save it.

Lex Fridman (1:38:52.000)

But my view is that these palliative short term measures cause the buildup of a huge amount of fragility in the long term. And then the ultimate collapse is much worse than the counterfactual situation where you raised interest rates, you took your medicine, and the economy was healthier.

Lex Fridman (1:39:11.000)

So and that's sort of, that's why, you know, people like Ray Dalio point out that you have these long term debt cycles. And we're sort of at the end of one now, is because we couldn't take our medicine, we couldn't, you know, let interest rates clear, we constantly wanted to ward off any difficulty, and we didn't ever want to de leverage truly.

Lex Fridman (1:39:34.000)

And then when the when the debt crisis happens, and it hits, it's, you know, horrendously bad.

Lex Fridman (1:39:41.000)

So do you think Bitcoin might reach a million dollars in value? It's, it's having a current resurgence, a crazy one in 2021, in the recent months of over 60,000, I guess it is now. Do you think it's possible it goes over 100,000? Do you think it's possible it goes to a million?

Nic Carter (1:40:03.000)

You can't rule anything out with Bitcoin. So I mean, I'm not, you know, wanting to put price targets on it. But one way it could reach a million dollars is Bitcoin's value stays unchanged in real terms.

Lex Fridman (1:40:15.000)

And the dollar depreciates. Not that I expect hyperinflation. But yeah, I mean, like Bitcoin is worth about one 10th, slightly under one 10th the value of all the gold in the world. And, you know, gold is worth 10 trillion, 11 trillion dollars in the aggregate. Do I think Bitcoin can be more culturally and economically salient than gold in two decades time? 100%. Bitcoin was unknown.

Nic Carter (1:40:44.000)

12 years ago, and today 100 million people worldwide own Bitcoin. So just extrapolate that what is the level of penetration you think we'll get 500 million a billion? You know, you can easily tune these adoption curves, however you like. I don't think it's done, you know, monetizing and being adopted globally.

Nic Carter (1:41:07.000)

You think it can become like the base layer for a lot of our financial operation, like become the main base layer for all our transactions. So like, even banks will use Bitcoin, essentially, and like Visa would use Bitcoin as the base layer, like it would actually operate very similarly at the surface layer, but at the base layer would all be Bitcoin.

Nic Carter (1:41:29.000)

That's precisely what I expect. And banks and Visa are already using Bitcoin. So Visa has embraced Bitcoin in a really big way, actually. And it's always funny to the people saying Bitcoin has to change in a certain way so it can compete with Visa. No, Visa adopted Bitcoin, right? PayPal adopted Bitcoin, Square adopted Bitcoin. Obviously, they're not tearing out all of their existing infrastructure, but they're totally engaging with this thing.

Nic Carter (1:41:58.000)

Banks have now begun, they got the green light to provide custody for Bitcoin for their depositors. That's the first step. Eventually, you know, it'll happen one of two ways, either Bitcoin native financial institutions will become banks, that's already happening. There's Bitcoin exchanges that have gotten banking licenses, or banks themselves will start to engage with Bitcoin as a reserve asset.

Nic Carter (1:42:23.000)

It'll converge either way. That's totally happening. And yes, I mean, I don't think Bitcoin is going to power every financial transaction, I think it'll coexist alongside sovereign currencies. But I think it's a great reserve asset. It's a very powerful asset to build a financial system on top of because it's highly, highly auditable.

Nic Carter (1:42:45.000)

It's something that you can take physical delivery of very cheaply. And those are great qualities. If you're a depositor in a bank, they can prove to you how much Bitcoin they have. They can't really easily prove, you know, in the old system, how much gold they held on deposit. And you can easily conduct a run on the bank, you can hold them accountable, because you can withdraw it.

Nic Carter (1:43:07.000)

Because, you know, making Bitcoin transaction is pretty easy at the end of the day. Unlike fiat currency, it's like kind of, you can't really withdraw your dollars from the bank. I mean, you sort of can, but you're not going to want to take delivery of pounds of cash or anything like that. So it's a good modern asset upon which to build a financial system, basically.

Lex Fridman (1:43:30.000)

You mentioned Square and Visa sort of investing in Bitcoin. What do you make of probably one of the higher profile big investments in Bitcoin, which is Tesla and Elon Musk? But there's also a few billionaires like Chamath and all of them investing. What do you make of this whole movement? Why do you think they're doing it? I mean, Tesla is an interesting case. Why do you think Tesla is buying so much Bitcoin?

Nic Carter (1:43:54.000)

I honestly don't know. And I would love to truly know Elon's genuine thoughts on Bitcoin. Because he's kind of sending us mixed messages, honestly, with his embrace of Dogecoin, which is sort of playful, not exactly sure what point he's trying to make there.

Lex Fridman (1:44:11.000)

So you were involved with Dogecoin, you mentioned offline a little bit in the early days, or at least played around with it. What do you make of Dogecoin? What do you make of Elon and Doge? What do you make of this particular meme coin? Is it one, like a legitimate cryptocurrency? Or is it two, like a funny internet way of saying F you to the man?

Nic Carter (1:44:36.000)

Yeah, it's a good question. I mean, so I wasn't like a figurehead in Dogecoin or anything. But that was totally my introduction to crypto was mining Dogecoin in my dorm room. And then tipping people online in Dogecoin, which I just thought was the funniest thing. So I guess that was really easy to entertain back in 2013.

Lex Fridman (1:44:58.000)

But it was very playful at the time, there was a culture around Dogecoin. And the people liked it, because it was in opposition to the Bitcoin culture, which was really serious and involved lots of Austrian economics, and Rothbard and Hayek and stuff like that.

Lex Fridman (1:45:15.000)

So that was my introduction to cryptocurrency was because I thought the Bitcoin people were pretty lame. Yeah. And they were like, way too serious about all this stuff. And I was like, okay, I'll just be a part of the Dogecoin community. And they did all these funny publicity stunts, like, they paid to send the Jamaican bobsled team to the Olympics.

Nic Carter (1:45:35.000)

You know, like, great stuff. Like they put the Dogecoin logo on top of a NASCAR car. Yeah. And I just that tickled me so much because it's like this made up internet coin. This was back when crypto is pretty novel and still like kind of funny and stuff. And that was really entertaining. Fast forward seven, eight years.

Nic Carter (1:45:55.000)

Dogecoin is way less entertaining now, frankly, because it's the leadership left the community spirit evaporated. The meme didn't persist. I mean, Doge itself is not really a contemporary meme, right? I mean, it's an old meme.

Nic Carter (1:46:10.000)

Although that new refresh of the meme, like Doge, I haven't heard that name in a long time. Like, or Doge is like in a hat smoking a cigarette. I mean, there's some sense where Elon is reinvigorating the meme. And it's funny, because like one influential figure could do just that, which just speaks to the tension that you're talking about.

Nic Carter (1:46:30.000)

Like Tesla is investing Bitcoin. And yet, Elon, he also tweets about Bitcoin. But yeah, he's, I mean, who am I to question the meme, right? Like, yeah, I can't, you know, dissect internet culture and penantically sit here and tell you it's an invalid meme.

Nic Carter (1:46:47.000)

You know, if people believe in it, then it's real. Is there a space for meme coins at this time? Like Doge or somebody else to almost like, you know, it does serve a lot of purposes, which is, like you said, it pulls in people into this whole space of digital currency, into cryptocurrency, allow them to explore, allow them to have fun as opposed to taking everything very seriously.

Lex Fridman (1:47:16.000)

Is there still space for that?

Nic Carter (1:47:18.000)

Yeah, yeah. And I mean, the crypto landscape is very broad today. So whatever, you know, cultural element you seek to find within crypto, you will find. It was a bit different in 2013, because Bitcoin was kind of the only game in town, there were a couple altcoins. And so Dogecoin made a lot of sense as a counterpart to Bitcoin as a less serious counterpart. Today, crypto is just like gigantic cultural and economic trend.

Lex Fridman (1:47:46.000)

So it's, you know, very multifaceted. Dogecoin is one of the many, you know, ways that people have to engage with it. I think a lot of people that buy Dogecoin based on Elon's implied guidance are going to lose money, because fundamentally, there's nothing enduring about Dogecoin.

Nic Carter (1:48:04.000)

It's an ancient fork of Bitcoin. It's unmaintained. There, you know, it's probably at risk, actually, from a protocol perspective. It's merge mined with Litecoin, I think. If there was an inflation bug on Dogecoin, it's unclear who would sort of be able to remediate that, you know, so it's not technologically very sound. So I wouldn't recommend that anyone stores wealth in it, you know.

Nic Carter (1:48:31.000)

Yes, it's funny because cryptocurrency, like my interest in cryptocurrency is in the exploration of technical ideas. But cryptocurrency is also, like in the case of Dogecoin, like for LOLs, at least originally, like a meme coin, but it's also a mechanism for investment.

Lex Fridman (1:48:56.000)

And so those are sometimes a tension. And it's unclear, sort of like, yeah, you know, there's the meme with Doge has almost become to take it to, I guess, to a dollar, trying to drive the price of the value up to a dollar. But, you know, implied in that is like this overlap of the meme coin and like legitimate investment.

Lex Fridman (1:49:20.000)

And so you have a lot of young people, I think, who almost start getting greedy and want to make money, like as opposed to having fun. And that becomes a different beast then because you're essentially making financial decisions that can have a long lasting, like, you know, money is freedom.

Lex Fridman (1:49:42.000)

And if you make stupid financial decisions, you can remove freedom from your life. And that's, it can be detrimental in that sense. So I don't, it's difficult. I don't know what to do with that set of ideas because a lot of cryptocurrency, including Bitcoin, is very volatile because it's new.

Lex Fridman (1:50:03.000)

So you're trying to figure out the space of like, what's actually going to be a large part of, like you speak of network effects, like what's going to take over the world. And through that process, there's going to be a lot of volatility. And if you're talking about cryptocurrency as an investment mechanism, then it can have a real detrimental effects on people's lives.

Nic Carter (1:50:30.000)

Yeah. And that's really the challenge with operating in the crypto space, talking about it, overlaid on top of everything that's interesting politically or culturally about it is the financial incentive. And so, you know, it's not all fun and games because there are literally billions over a trillion dollars at stake now.

Lex Fridman (1:50:53.000)

So if you buy Dogecoin, because some influencer on TikTok said so, you've now made a financial decision, right? So I'm not going to scold any Dogecoin buyers or any crypto asset buyer for that matter. But be aware that there are like billions of dollars of really elite hedge funds that are trying to front run all of your decisions and evaluate social sentiment, things like that. So it's a waterfall of sharks, basically.

Lex Fridman (1:51:22.000)

And by the way, if you're listening to this, don't take this podcast or anything I ever say as financial advice. That's definitely not my interest or expertise level. The interest here is to explore different ideas.

Lex Fridman (1:51:36.000)

Speaking of which, you've written a little bit about NFTs. I'd be interested to hear your opinions on this space of ideas, these non fungible tokens. They seem to have a cultural impact currently, but do they have a long lasting technical, financial or cultural impact or is this just a fad? What do you think of NFTs?

Nic Carter (1:52:02.000)

Yeah, I think the current enthusiasm for NFTs and the financial metrics, you see the growth there in that sector is partially a function of where we are in the actual credit cycle. So oftentimes, when inflationary events occur, you have correspondence speculative manias that occur at the same time, because people intuitively feel that the fiat currency that they hold is being debased.

Lex Fridman (1:52:30.000)

And so they frantically look around for other places to put it. So stocks, property, commodities, and then other asset classes, NFTs are an asset class. And this is a case with any inflation you look at in history, you saw these correspondence speculative manias, basically, speculative episodes.

Lex Fridman (1:52:53.000)

So a lot of us feel that inflation is occurring, whether it's in CPI or not, that basically lots of dollars are being injected into the economy. We've all seen stocks massively appreciate even as GDP contracted. And so a lot of people sort of got caught on to this notion that, wow, is the Fed, you know, lowers interest rates, and Congress spends a huge amount of stimulus dollars into the economy, financial assets going to go up, so I better have exposure to all that stuff.

Lex Fridman (1:53:22.000)

And so you see, virtually every asset class is awash with cash right now, people are investing like their lives depend on it, investing, trading, whatever, whether it's options, volumes, on Robin Hood, you know, like kind of retail brokerages, things like that, whether it's stocks, whether it's crypto, and then other collectibles, baseball cards, their valuations have been skyrocketing.

Lex Fridman (1:53:46.000)

And so I think NFTs are part of that. It's a new asset class. It's basically an opportunity to invest in sort of art or collectibles, in game items, things like that. I think that explains a large degree of the enthusiasm, the excitement is that it's a novel asset class that people can trade.

Lex Fridman (1:54:07.000)

And right as you know, these inflationary tailwinds pick up. Now as for the sort of virtues of the actual technical phenomenon, NFTs are actually not a new idea at all. So you've had NFTs, I didn't call them NFTs, but in 2016, built on Bitcoin, for instance, so it's been around for a while.

Lex Fridman (1:54:29.000)

What it is, is a serial code, basically a string of data that is inserted onto a public blockchain, and then circulates as a unique token. And then the question is, okay, well, what does that data refer to? What's the external reference?

Lex Fridman (1:54:45.000)

And that has to be defined, there has to be some entity which says, oh, yeah, this unique string refers to like this piece of art or digital content, or, you know, trading card or whatever. So NFT, the concept itself is like an incredibly broad idea.

Nic Carter (1:55:00.000)

It's just, well, what if we took, you know, barcodes, and put them on chain so that they could be traded. And so they could circulate freely on a peer to peer basis and plugged into exchanges and things like that.

Lex Fridman (1:55:12.000)

So that concept is super valid, clearly has protocol market fit, right? People are using it for a really wide array of purposes, it's completely going to exist.

Nic Carter (1:55:25.000)

May the valuations contract of NFTs in the aggregate? Definitely possible, probably likely. But I think the notion of creating enduring collectibles or artworks that have accompanying signatures, basically autographed art on the blockchain, that has totally been validated.

Lex Fridman (1:55:48.000)

I think that won't go away.

Nic Carter (1:55:50.000)

I wonder if there's ideas, like BitCloud, for example, I don't know if you saw that, if there's ideas built on top of this concept, it doesn't have to be like Ethereum NFTs, it could be just the concept of non fungible tokens, whether those kinds of things can take hold.

Lex Fridman (1:56:07.000)

And they, it's less about financial transactions, and more about almost like, I don't know how to put it, but like staking identity in some way, whether it's BitCloud or identity of objects, like there might be some way of connecting physical reality and digital reality in some interesting ways.

Lex Fridman (1:56:33.000)

So just the financial aspect is a way to put some validity behind the identity. I wonder if there's ideas there that are yet to be discovered, or ideas that are yet to take hold. Like BitCloud seems interesting, seems shady as hell, seems a little scammy.

Lex Fridman (1:56:56.000)

I don't know if I like the idea that you can bet on people, essentially.

Nic Carter (1:57:01.000)

Yeah, I think my market cap on BitCloud is like $90,000, and I haven't done anything there, so.

Lex Fridman (1:57:09.000)

Did you take, did you like take, like verify yourself or whatever?

Nic Carter (1:57:13.000)

I have not. I think people would yell at me on Twitter if I did, so.

Lex Fridman (1:57:17.000)

And it's unclear whether it's a scam yet or not, right? It's unclear where it's coming from.

Nic Carter (1:57:22.000)

Well, there is some details about the, you know, investors. It's backed by some pretty big name investors, so I probably wouldn't use the word scam to describe it, but it's got Ponzi like dynamics, like everything in crypto.

Lex Fridman (1:57:36.000)

So there's very questionable, and then also is it using people's likeness without their permission, which is, I think, a legal question, you know, so there's open questions around it. But, you know, is our public blockchains and, you know, that sort of architecture, is that going to be useful for decentralized or alternative forms of social media?

Nic Carter (1:57:58.000)

100% yes. You know, I'm super, super bullish on that idea. Basically, creating open protocols, open namespaces, ways to organize without the dependence on a single node effectively in Silicon Valley, you know, the Twitter node or the Facebook node.

Nic Carter (1:58:19.000)

I think it's a matter of urgency that we create, you know, digital gathering spaces where you have strong property rights, you know, you have a claim on your identity, you have a claim on your data. And open architecture is our way to do that.

Nic Carter (1:58:32.000)

I don't know if it'll be a blockchain, but certainly I think the general, you know, concept introduced by blockchains is a good template for how to, you know, organize these systems.

Nic Carter (1:58:46.000)

Yeah, value freedom, value decentralization of power, whatever the mechanism. Let me ask you about love. So there is a Bitcoin maximalist community that sometimes, so those folks in general have a strong belief that Bitcoin is good for the world.

Lex Fridman (1:59:09.000)

And it's almost an ethical imperative to sort of help Bitcoin succeed, which I think as a member of any community, I think is beautiful to believe in the vision of the community.

Lex Fridman (1:59:25.000)

Right.

Nic Carter (1:59:26.000)

There does seem to be some properties of what some may call like toxicity or derision and mockery and those kinds of things. You know, some folks have criticized this, right, that Bitcoin maximalism is not necessarily good for the world, even if Bitcoin is good for the world.

Lex Fridman (1:59:50.000)

What are your thoughts about this kind of approach philosophically or practically to the spread of Bitcoin? And is there a way that we can add more love to the world while we add more Bitcoin to the world?

Nic Carter (20:03.100)

outside the Bitcoin protocol.

Lex Fridman (20:04.800)

That's right.

Lex Fridman (20:05.400)

So this is, you're transacting the currency outside of the protocol.

Lex Fridman (20:08.200)

So it's analog Bitcoin. We're running it analog, which I was like,

Nic Carter (20:13.000)

because Bitcoin is this immaterial thing. And so it's nice to have

Lex Fridman (20:16.300)

physical totems.

Lex Fridman (20:17.500)

How much does it cost to manufacture this, do you know?

Lex Fridman (20:20.600)

Like 15 bucks or something.

Lex Fridman (20:22.300)

So this is just kind of almost like a philosophical statement

Lex Fridman (20:27.100)

versus something that's scalable for use. Like, you know, the point

Lex Fridman (20:33.900)

of Bitcoin is to be in the digital space, right?

Lex Fridman (20:35.900)

But this shows like Bitcoin can be anywhere.

Nic Carter (20:38.900)

It's useful for gifts.

Lex Fridman (20:40.200)

But yeah, I mean, I don't know if it would be a suitable foundation

Nic Carter (20:44.600)

for a physical Bitcoin economy. In theory, these would be like

Lex Fridman (20:48.100)

cash like instruments that you could use to transact.

Nic Carter (20:50.400)

Well, I just mean post apocalypse.

Lex Fridman (20:52.400)

Yeah, yeah. But you still need to plug it into your laptop to

Nic Carter (20:57.100)

actually verify that there's coins on there.

Lex Fridman (20:59.800)

So you still need the internet.

Lex Fridman (21:01.800)

So I have to take your word for how much money is on here.

Lex Fridman (21:06.300)

No, I mean, you can plug it into your laptop and check.

Nic Carter (21:10.100)

Yeah, but to transact, to extract Bitcoin from this, I need to break.

Lex Fridman (21:15.000)

Yeah, you have to poke a hole through the little hole and that

Nic Carter (21:18.900)

renders it spendable, basically.

Lex Fridman (21:21.400)

So, you know, that's protection against you spending it and then

Nic Carter (21:25.800)

representing that it's still loaded.

Lex Fridman (21:27.500)

That's fascinating. Cool.

Nic Carter (21:29.100)

Yeah, so that the other thing I brought here, basically dice,

Lex Fridman (21:32.300)

12 sided, they don't have any Bitcoin on them.

Lex Fridman (21:37.400)

So they just have a bunch of different critiques of Bitcoin on

Lex Fridman (21:41.200)

each side. We'll go through them then.

Nic Carter (21:44.900)

This is awesome.

Lex Fridman (21:45.700)

I don't know if we have time to do all 11 because there's one

Nic Carter (21:48.900)

with my funds logo on it.

Lex Fridman (21:50.700)

But it's just basically a tongue in cheek joke that the critiques

Nic Carter (21:55.600)

of Bitcoin are so formulaic at this point that you can just

Lex Fridman (21:58.300)

put them on dice.

Nic Carter (21:59.200)

Yeah, it's silly.

Lex Fridman (22:01.800)

Well, some of them might be topics for interesting conversations.

Nic Carter (22:06.900)

Oh, yeah. We could even arrange the conversation that way.

Lex Fridman (22:10.100)

You can roll the dice and see what you got.

Nic Carter (22:11.700)

All right.

Lex Fridman (22:12.600)

But first, the philosophical foundations of Bitcoin.

Nic Carter (22:17.400)

Like, how do you see Bitcoin outside of just a basic protocol

Lex Fridman (22:21.500)

and a basic currency?

Nic Carter (22:22.700)

It seems to be, like you said, it seems like sturdy ground.

Lex Fridman (22:27.400)

So what do you mean by this?

Nic Carter (22:28.400)

Yeah.

Lex Fridman (22:28.600)

Yeah.

Lex Fridman (22:29.200)

So it's not just any protocol for moving value around.

Lex Fridman (22:32.000)

It's not just any currency.

Nic Carter (22:33.100)

It's got specific rules and values that are embedded in it.

Lex Fridman (22:37.700)

And this is an important point is that Bitcoin is the encoding

Nic Carter (22:41.400)

of certain values, which are often misunderstood or not acknowledged

Lex Fridman (22:47.800)

necessarily.

Lex Fridman (22:48.500)

And so it's sort of impregnated with values.

Lex Fridman (22:52.600)

And what they are specifically is a topic of debate.

Lex Fridman (22:55.300)

And there have been civil wars fought over the values inherent

Lex Fridman (22:59.900)

in Bitcoin.

Nic Carter (23:00.500)

One of them was, should Bitcoin be this cheap, scalable, the base

Lex Fridman (23:05.700)

layer, low fee payments system with an emphasis on P2P payments?

Nic Carter (23:10.400)

Or should it be more of this gold like digital commodity that

Lex Fridman (23:16.300)

would eventually settle infrequently and mainly between institutions?

Lex Fridman (23:21.200)

Right?

Lex Fridman (23:21.500)

So that's fundamentally a conflict of visions.

Lex Fridman (23:24.100)

Right?

Lex Fridman (23:25.000)

So keep in mind that this is just one man's opinion.

Nic Carter (23:30.500)

I don't speak for Bitcoin.

Lex Fridman (23:31.600)

Right?

Lex Fridman (23:32.500)

So I would say the key number one value that's embedded in

Lex Fridman (23:38.000)

Bitcoin is the notion of nondiscretionary monetary policy.

Lex Fridman (23:41.300)

So algorithmic monetary policy as opposed to human based

Lex Fridman (23:45.800)

monetary policy.

Nic Carter (23:46.700)

Satoshi was very clear about that.

Lex Fridman (23:48.800)

Bitcoin is an alternative to modern central banking where you

Nic Carter (23:52.900)

have constant tweaking, constant intervention, which Satoshi felt

Lex Fridman (23:57.700)

leads to credit bubbles and so on.

Lex Fridman (23:59.800)

So Bitcoin proposes a completely nondiscretionary monetary

Lex Fridman (24:04.700)

policy, sort of decays over time.

Nic Carter (24:08.600)

50% of the coins were issued in the first four years and then

Lex Fridman (24:11.800)

the next 25% in the next four years, then 12.5% in the next

Nic Carter (24:16.100)

four years until you get to 21 million units.

Lex Fridman (24:18.800)

And none of those numbers really matter.

Nic Carter (24:21.000)

Like it could have been 25 million units and it could have

Lex Fridman (24:24.300)

been a more aggressive slope or more gradual slope.

Lex Fridman (24:26.700)

What matters is that this schedule was proposed even before

Lex Fridman (24:31.500)

the code was public.

Nic Carter (24:33.500)

The schedule was proposed and then we all collectively agreed

Lex Fridman (24:37.600)

to stick to it.

Lex Fridman (24:38.300)

And that is kind of a first for monetary system.

Lex Fridman (24:41.800)

I mean, gold kind of has that property, right?

Nic Carter (24:45.600)

Because the supply of gold above ground only really increases

Lex Fridman (24:49.300)

at 1% to 2% a year. So it's sort of inhuman, which is a good

Lex Fridman (24:53.700)

feature, right?

Lex Fridman (24:54.300)

You don't want to give humans that much control over it.

Nic Carter (24:56.600)

Bitcoin is a much more, you know, fastidious approach to that.

Lex Fridman (25:02.500)

It really is super concrete about what the supply schedule

Nic Carter (25:06.600)

is and the fact, crucially, that it can't change.

Lex Fridman (25:09.600)

So we can't have a bailout of debtors.

Nic Carter (25:13.400)

Let's say a lot of people had debts denominated in Bitcoin

Lex Fridman (25:17.900)

and we needed loose, accommodative monetary policy to bail them

Nic Carter (25:21.200)

out. That's not possible.

Lex Fridman (25:22.700)

We couldn't have a jubilee denominated in Bitcoin because the

Nic Carter (25:26.900)

social contract we've all bought into and committed to is that

Lex Fridman (25:32.500)

it's nondiscretionary. So that's sort of one of the first things.

Lex Fridman (25:36.400)

And I think ultimately that comes back to basically a strong

Lex Fridman (25:41.700)

respect for property rights because if we were to have unanticipated

Nic Carter (25:46.600)

inflation, let's say a really charismatic leader somehow commandeered

Lex Fridman (25:51.000)

Bitcoin and convinced everyone that we should have 30 million units

Lex Fridman (25:53.900)

and not 21 million, that would basically be dilutive on everybody

Lex Fridman (25:58.800)

that held Bitcoin and had opted into the 21 million set of coins.

Nic Carter (26:05.100)

An additional 9 million unanticipated would have a dilutive effect

Lex Fridman (26:09.100)

on everyone else.

Lex Fridman (26:09.800)

And that would be a covert way of effectively stealing their

Lex Fridman (26:13.000)

purchasing power through inflation.

Lex Fridman (26:14.800)

Is that possible, that kind of thing?

Lex Fridman (26:16.200)

I mean, what's the mechanism of Bitcoin that resists that kind of

Lex Fridman (26:20.700)

charismatic leader?

Lex Fridman (26:21.500)

Well, we've had people that have had a lot of influence in Bitcoin

Nic Carter (26:26.700)

in the past and they've tried to make changes to the protocol, not

Lex Fridman (26:30.200)

as dramatic as that, but Bitcoiners have generally resisted those

Nic Carter (26:36.100)

individuals, institutions, and Bitcoiners have a good track record

Lex Fridman (26:41.100)

of sort of staying true to those core values.

Lex Fridman (26:44.200)

So you mentioned values and sticking to the monetary thing, but

Lex Fridman (26:51.000)

there's bigger values.

Nic Carter (26:52.000)

There's almost like psychological values that are instilled in

Lex Fridman (26:56.600)

Bitcoin. You make a point that Bitcoin for many is a vessel, quote,

Nic Carter (27:01.100)

for their expectations, hopes, and dreams.

Lex Fridman (27:04.300)

Can the Bitcoin protocol support this kind of complexity of the

Lex Fridman (27:11.000)

human condition?

Lex Fridman (27:11.800)

So, like, there's ideas of freedom that seem to be spoken about.

Nic Carter (27:17.200)

There's a sort of ideas of, I mean, even love.

Lex Fridman (27:23.300)

Yeah.

Nic Carter (27:24.300)

I mean, some people kind of use it as a meme, like, you know, Bitcoin

Lex Fridman (27:28.500)

is love or something like that, you know, mostly to troll me because

Nic Carter (27:32.600)

I talk about love all the time.

Lex Fridman (27:33.800)

But, you know, these bigger ideas than just the exchange of

Nic Carter (27:39.900)

currencies.

Lex Fridman (27:40.500)

Yeah, I mean, Bitcoin itself is very simple, I would say.

Nic Carter (27:45.300)

Like, ultimately, it doesn't, you know, pretend to do very much.

Lex Fridman (27:50.400)

It really just settles transactions.

Lex Fridman (27:52.200)

But people do superimpose their own views on it, for sure.

Lex Fridman (27:57.900)

And Bitcoin's qualities give rise to these perceptions of it having

Nic Carter (28:05.100)

censorship resistance or giving you transactional freedom or a measure

Lex Fridman (28:09.900)

of transactional privacy.

Lex Fridman (28:11.200)

So because anyone can operate a node and join the consensus process

Lex Fridman (28:18.400)

and because mining is a competitive free market process, that means

Nic Carter (28:22.900)

that it's likely that you can't be censored by the miners.

Lex Fridman (28:28.100)

So that means you have transactional freedom.

Lex Fridman (28:30.000)

So you have these computer science technical features of the system

Lex Fridman (28:34.000)

that cause it to have these political qualities, which is it's very

Nic Carter (28:38.200)

hard or impossible to censor a specific individual.

Lex Fridman (28:41.500)

So it's interesting to see that flow.

Lex Fridman (28:45.900)

So that's one of the core values, for sure, is the censorship resistance.

Lex Fridman (28:50.400)

Then you have the fact that it's a cryptographic based system and you

Nic Carter (28:56.000)

can hold value in your brain by memorizing 12 words, for instance.

Lex Fridman (28:59.500)

That gives it seizure resistance, which is, again, a political concept.

Nic Carter (29:04.600)

If you wanted to desert your jurisdiction with your wealth intact in your

Lex Fridman (29:09.800)

brain, that cryptographic feature of the system, the fact that it's

Nic Carter (29:15.400)

built on public key cryptography and that you can encode a Bitcoin private

Lex Fridman (29:20.100)

key in 12 words, that gives it this political salience that you're now

Nic Carter (29:27.400)

empowered relative to a despot, basically.

Lex Fridman (29:30.200)

Yeah, I mean, there's so many beautiful concepts behind cryptocurrency,

Nic Carter (29:35.300)

behind Bitcoin, that stand for sort of freedom, some of the basic

Lex Fridman (29:40.800)

things at the founding of this country.

Nic Carter (29:42.300)

The one thing I don't like personally behind Bitcoin and cryptocurrencies

Lex Fridman (29:48.500)

that money is involved and it's like people's life savings sometimes are

Nic Carter (29:52.700)

involved, so there is naturally a kind of fear, a self preservation, like

Nic Carter (2:00:05.000)

That's a great question. I mean, you know, Bitcoin is sort of what you make of it. So you can define your own path as you advocate for Bitcoin or don't for that matter. So my chosen approach is the approach you see here, which I try to minimize the amount of sort of harshness or mockery, although I've been known to be mean on Twitter too, you know.

Nic Carter (2:00:30.000)

Well, Twitter is a specific, sorry to interrupt, is a specific medium where this takes its worst form. So I'm learning, listen, I'm actually because of this podcast, but in general, I'm part of different communities. And some are full of like unabashed love. And some are like, what I experienced on Twitter, the Bitcoin community at first, I was off put in terms of the intensity, the mockery.

Lex Fridman (2:00:57.000)

I bet.

Nic Carter (2:00:58.000)

The layers of lol, like the layers of not taking anything seriously. And I think there's power to that. There's freedom to that. I appreciate it. I have respect for it. But it's not my thing on Twitter. It's just not the way I enjoy communicating on Twitter.

Nic Carter (2:01:19.000)

I retired from Twitter. I hit 100,000 followers and then I retired. So I'm free now. I don't have to tweet anymore. It's great. But I totally can see the point. I wish that Bitcoiners were gentler in their approach. Not all Bitcoiners are like that. Of course, there's, you know, 50 to 100 million of them worldwide, and a few 10s of 1000s on Twitter. So I'm not going to claim that they're necessarily representative.

Nic Carter (2:01:46.000)

The toxicity, though, is kind of a learned habit, because Bitcoin has had so many episodes where strong willed institutions, billionaires, the dice are pretty toxic, you could say, right? I'm basically mocking critics of Bitcoin.

Lex Fridman (2:02:04.000)

But at the same time, you're saying that the criticism has been predictable and repeatable, and it's been the same throughout.

Nic Carter (2:02:12.000)

Yeah, and that's a pretty dismissive thing to say, right? That I can reduce you to an algorithm with 11 permutations. But the thing to remember, I guess, is that some of the best funded companies in the Bitcoin space, the most powerful miners, billionaires have tried to change and coopt and alter Bitcoin to shape it to their liking.

Lex Fridman (2:02:41.000)

And without these incredibly hardcore sort of high priests of the Bitcoin protocol, it would have been hopeless, hopelessly malleated in all number of ways. And so there is a reason why someone would be incredibly protective of Bitcoin.

Nic Carter (2:03:00.000)

Does that justify immense toxicity on social media? Probably not. But it's a leaderless protocol. So the whole point is that it's money for enemies. And, you know, some of the Bitcoin maximalists came for me too, when I made suggestions that they didn't like.

Nic Carter (2:03:19.000)

But, you know, I'm happy to use it, the protocol, because I know that that transaction will be final, regardless of how odious my counterparty is, or how, you know, politically disfavored their opinions are.

Nic Carter (2:03:33.000)

See, I mean, and this is where there could be disagreements, but I think you have to think about what's effective as a defense mechanism of strong ideas. And I personally think that, like, kindness and thoughtfulness is much more effective because it lets the idea shine.

Nic Carter (2:03:58.000)

As opposed to the personality of the individual humans overriding it. But there's debates on this, you know.

Nic Carter (2:04:07.000)

I mean, I take your side on that. I think a patient and careful approach is the way to go. Now, do all critics deserve good faith engagement? No, I would say.

Nic Carter (2:04:18.000)

A lot of critics of Bitcoin operate in extreme bad faith. And the reason why is because we're not just talking about technical questions. In fact, most of this conversation has not been technical, it's been political.

Nic Carter (2:04:30.000)

Because Bitcoin is an intensely political idea. And so a lot of people are predisposed to totally hate it, and to wish, you know, death on Bitcoiners. I mean, there's a professor at GW, I saw earlier this week, that was musing about getting all the Bitcoiners on a boat and sinking it.

Nic Carter (2:04:49.000)

Like, in what other context would a, you know, upstanding professor muse about mass murder? But in the context of Bitcoin, it's sort of okay, you know, within his peers, because you're talking about something that most people don't like.

Nic Carter (2:05:04.000)

You know, it's a concept that's alien to them, that doesn't jive with the way they see the world. And so because it's so, you know, pitched from a political perspective, there's a lot of critics, as well as defenders that operate in bad faith, I would say.

Lex Fridman (2:05:21.000)

But that's the nature of the beast. It's because we're proposing a very disruptive thing. And there are people that would be disrupted by it.

Lex Fridman (2:05:29.000)

You wrote a blog post titled On Writing. You're, I think, an excellent writer. So let me ask, what does it take to be a good writer? What does it take to write some of the blog posts you've written?

Nic Carter (2:05:48.000)

Sort of condense set of ideas in your head, the mess that's probably in your head and putting down on paper in a way that communicates the idea clearly and powerfully.

Lex Fridman (2:06:00.000)

So that was basically the point of the blog post is that being an impressive writer is different from being an effective writer. You know, so I think the answer to your question is humility, basically. So I think if you let pride and vanity seep into your writing, then you risk creating a very noisy signal.

Nic Carter (2:06:25.000)

You know, creating a very inefficient channel for communicating literal neural arrangements from your brain to someone else's brain. And that's what I think about when I write is like, wow, I have the power to, at scale, change the literal physical composition of people's brains, right, to rewire them.

Lex Fridman (2:06:44.000)

If I make an idea that's so persuasive, that's so sticky, if I coin a phrase that is so pithy, then I can alter their brain. That's crazy. I mean, you're letting someone reach into your head and like, mess with it a little bit. That's unbelievable. And that's like a superpower. And if you could do that to 100,000 people at once, how powerful is that, right?

Nic Carter (2:07:07.000)

You mentioned Descartes, I think, therefore I am. That's like literally rewired millions of brains throughout history.

Nic Carter (2:07:14.000)

I mean, that's one of the most powerful, like, cogito urgo sum, one of the most powerful phrases ever written. And that sent a zillion philosophy undergraduates down a rabbit hole of skepticism that some of them didn't make it out of, you know? And they're convinced that, you know, the brain in the vat theory is true, and there's no way to know, you know, what our tangible experiences.

Lex Fridman (2:07:38.000)

But yeah, so that's the beauty of writing. And the thing that interferes with that is our pride, our desire to, you know, impress people and, you know, look good to them and show off our vocab and stuff. And that was the point of that piece is that I went on this journey where I eventually realized that I don't know if I'm any better of a writer for having realized it, but I think that is a necessary condition.

Lex Fridman (2:08:07.000)

So does that mean there's a value to striving for simplicity in the words, as opposed to, I mean, complexity?

Lex Fridman (2:08:19.000)

I think so, for sure. And we deal with complex topics all the time in crypto. And that's always a huge red flag for me. I mean, if you can't explain something simply, do you understand it, you know?

Nic Carter (2:08:30.000)

Yeah.

Lex Fridman (2:08:31.000)

So if you're talking about something that complex, if you can't find simple ways to discuss it, my presumption is that you're actually obfuscating the truth. And this is what Orwell railed against with political language. You know, he really hated political language, because he felt that its authors were using deliberate obfuscation.

Nic Carter (2:08:53.000)

And, you know, he hated euphemisms. And I hate euphemisms, too. You know, I much prefer, you know, forthrightness and clarity of thought. But most people when they write, don't really endeavor to be particularly clear.

Nic Carter (2:09:08.000)

They might be writing to show off their startup, or, you know, to demonstrate to people how cool they are, or how well read they are, you know, they're displaying, it's like a peacock style display. What fraction of people write to actually communicate meaning? Small fraction.

Nic Carter (2:09:29.000)

It's especially difficult because what I've detected is something in us humans as readers assign more credibility to people that obfuscate.

Nic Carter (2:09:42.000)

So, like, simple, clear communication of an idea is not, like, the immediate reaction is not one where we assign credibility to the person. Like, that was brilliant.

Nic Carter (2:09:59.000)

There's a lot of people that I kind of listened to without really understanding what the heck they're talking about, but it sounds musical and smart. And then I see a lot of folks assigning credibility to that person.

Lex Fridman (2:10:13.000)

And it's unfortunate. It's unfortunate that there's that tension as a reader, that we appreciate the beauty and power of, like, complex weaving of words without assigning as much value to, like, actual clear communication of an idea.

Lex Fridman (2:10:37.000)

And I'm always skeptical in speech as well. When someone will describe someone as articulate, I'm always immediately skeptical of the value of what that person is saying. Because if you articulate, you can make bad ideas sound very acceptable and great.

Lex Fridman (2:10:54.000)

And Noam Chomsky has said this before, as a way to defend the way he speaks. He said that, like, he's suspicious of charismatic people because they can basically sell any kind of idea.

Nic Carter (2:11:08.000)

He speaks in a very monotone and boring way so that whatever the value his ideas have, they'll shine through. There's something to that.

Nic Carter (2:11:17.000)

I love that. But it's a difficult journey. It's a difficult path because then, I think it's the right path because ultimately you focus on the quality of your ideas and in the long term that wins.

Nic Carter (2:11:28.000)

I agree.

Lex Fridman (2:11:30.000)

Just by way of advice, is there, if people are interested in Bitcoin or cryptocurrency, in your work, what are good books or resources on Bitcoin from you and from others that you can recommend that in your own journey helped you or you've seen help others?

Nic Carter (2:11:47.000)

Well, it's very easy. It's much easier today to make the Bitcoin journey because the quality of content is so much better than it was when I started. I mean, when I learned about Bitcoin, there was the Bitcoin Wiki and the Bitcoin Stack Exchange and the subreddit and that was kind of it.

Lex Fridman (2:12:05.000)

And you had to just pick up everything. The economic theory hadn't really been worked out very much. So you had to pick everything up from scratch.

Nic Carter (2:12:13.000)

The good news is that there's a huge abundance of content. And that's actually one of Bitcoin's greatest strengths is that people are totally inspired to write about it.

Lex Fridman (2:12:22.000)

And it's almost a rite of passage at this point if you're like a Bitcoin thinker to have your book. I don't have a book yet. I would love to recommend my book. I haven't written one.

Lex Fridman (2:12:33.000)

Do you think about writing a book?

Nic Carter (2:12:34.000)

Yeah, I think it's my duty. 100%. Everyone that has created a lot of Bitcoin content probably should condense it into a book to give it an enduring status.

Nic Carter (2:12:45.000)

It's interesting because you mentioned block size wars and you've written on a lot of different topics. So you could both write like a big like sapient style book about Bitcoin or cryptocurrency, right? But you can also write a book on each like a specific thing.

Lex Fridman (2:13:08.000)

And now that you put pressure on yourself and talk about simplicity, right? Where do you lean on those different book journeys that you might take on? Do you have in you eventually like a Bitcoin book?

Nic Carter (2:13:23.000)

I mean, I tallied up the words that I wrote in the last couple years on Bitcoin. It's like over 100,000 words a year. So that's two novels there. But yeah, I think I do. I think there's so much underexplored space in Bitcoin. I mean, a systematic interpretation of Satoshi's writings, for instance.

Lex Fridman (2:13:44.000)

And a lot of people don't want anyone to do that because they don't want it to have these religious overtones where you're engaging in interpretation. But that's something that should be done. There's a lot of Bitcoin histories that haven't been written.

Nic Carter (2:14:00.000)

There was a great Bitcoin history recently published that's this is one of my recommendations is on the block size war by Jonathan beer, who runs probably the best research desk in the industry. So there's huge amounts of history that has transpired that hasn't been chronicled.

Lex Fridman (2:14:20.000)

And some of the accounts are indifferent. You know, they're often written by outsiders, you know, journalists that maybe don't fully engage with the Bitcoin system. But if you think the humans are interesting in the story to, of course, they're the most interesting thing.

Nic Carter (2:14:37.000)

You know, I mean, Bitcoin itself doesn't really change that much. It's kind of this cold, you know, protocol that just sort of takes along with the characters are just fascinating. I mean, and there's so many unbelievable characters in the Bitcoin story. Unbelievable.

Lex Fridman (2:14:52.000)

Yeah, that's the cool thing about Bitcoin and cryptocurrency and just internet is like the weirdos, the brilliant weirdos, like, all the people in in the stuff that's already established are boring. Like economics professors are all boring, right?

Lex Fridman (2:15:09.000)

But the interesting people, the wild ones are, are the ones that are innovating on in the crypto space, which is, you know, that's where the dangerous weirdos are, and the exciting, brilliant weirdos.

Nic Carter (2:15:22.000)

Well, you had to be kind of crazy to adopt Bitcoin in the first sort of five years of its life. So there's an adverse selection element there. I don't know if that's an uncharitable way to put it, but like, some of Bitcoin's earliest evangelists are not the evangelists I would have chosen, but they're the ones that we got.

Lex Fridman (2:15:42.000)

It's the one we got. But is there is there resources? You're basically saying, just throw a dart. And most books are going to be good? Or is there something that stands out to you?

Nic Carter (2:15:52.000)

I mean, your average book is, you know, terrible, for sure. But not on Bitcoin, specifically, but just in general. It depends whether you like the computer science, the economics, or the history. But my recommendations would be, you know, obviously, the Bitcoin white paper, that's, and Satoshi's complimentary writings, that's very important is to try and understand the intentions behind the system.

Lex Fridman (2:16:17.000)

And also to understand the system without having your view colored by some third party's description of it. Most descriptions of Bitcoin are really bad. So just go to the originals, go to the Hal Finney's post, Satoshi's post on Bitcoin talk, there's a huge amount of lucidity there.

Lex Fridman (2:16:35.000)

And actually, most of our questions about Bitcoin today that we have a decade later were really answered in those earliest days. People just don't know it.

Nic Carter (2:16:44.000)

The canonical economic work relating to Bitcoin, a lot of people don't like it. I think it's fine, would be the Bitcoin standard.

Lex Fridman (2:16:54.000)

A lot of people don't like it. I just read it. It's good. I like it.

Nic Carter (2:16:57.000)

I think it's a good description of sort of the Austrian perspective, and then how it relates to Bitcoin. There isn't that much about Bitcoin in there. But I think the point is, once you've understood, you know, Saifedean's view of monetary policy, Bitcoin makes a ton of sense, you don't actually need to argue for it that much.

Lex Fridman (2:17:15.000)

So the Bitcoin standard is a good introduction to sort of the orthodox thought in Bitcoin. There's a more recent book called Layered Money, which I liked by Nick Bhatia, which goes into more depth about what I was talking about early in the conversation, the layered approach to scaling.

Lex Fridman (2:17:35.000)

And that's a really critical thing to understand. Then technical books about Bitcoin. I like Grokking Bitcoin, which is a very computer science heavy one.

Nic Carter (2:17:46.000)

There's a good textbook called Bitcoin and Cryptocurrency Technologies by Arvind Narayan. I think he's a Princeton computer science professor, which is really good at building intuition.

Nic Carter (2:18:02.000)

Antonopoulos's books, Mastering Bitcoin are good. Then there's like simpler intuition building books that aren't hardcore on the economics or the protocol design.

Lex Fridman (2:18:14.000)

So you have like Inventing Bitcoin by Jan Pritzker, which is good. You have Bitcoin Clarity by Kiara Bakkers. As you can tell, I have like a, my bookshelf is like mostly Bitcoin books.

Lex Fridman (2:18:25.000)

Well, that's a good selection. And of course, like you said, your writing and your book that comes out this year or next year?

Nic Carter (2:18:33.000)

I think I'm going to need 18 months. But most of the good Bitcoin content is just online, on Medium, on Twitter. So it's a decentralized consensus kind of thing.

Lex Fridman (2:18:49.000)

What about book recommendations that you could give people who love these outside of the world of crypto that maybe had an impact on your life? Fiction, like sci fi, maybe technical, philosophical. Is there something you would recommend that people might read?

Nic Carter (2:19:05.000)

I really liked the three body problem. But that's a really hackneyed recommendation. But it really made me think and I like the hard sci fi, you know, the commitment to science and science fiction. So I thought it was very clever.

Lex Fridman (2:19:19.000)

Is there one? Is there something that really annoys you? In terms of the opposite of hard sci fi, like that doesn't get stuff right movies?

Nic Carter (2:19:30.000)

I mean, I have issues when I watch like, ostensibly sci fi or fantasy films that are not consistent about this, the rules for the universe that they've laid out, or where there's impossible to comprehend, like Christopher Nolan's latest film.

Nic Carter (2:19:48.000)

Oh, yeah. You needed like a spreadsheet to understand that. Yeah. I trust that maybe he was consistent about the rules of his universe. I just did not understand it at all.

Nic Carter (2:19:58.000)

In that sense, I really probably one of my favorites is 2001 Space Odyssey. It's so obviously it's many, many decades ago, but it's quite brilliant in both its consistency and the depth of thought put into like, what the technology would actually be.

Nic Carter (2:20:22.000)

Not in like visually, not in kind of silly graphical ways, but in terms of function and its impact on humanity. So, but that takes care. That takes a lot of work and that takes genius actually, which is why Kubrick is regarded for what he is.

Lex Fridman (2:20:48.000)

What advice? You've taken an interesting journey through your life. You were at Fidelity, a philosophy major. You're now one of the seminal minds in the world of Bitcoin and cryptocurrency. Who the hell knows what the next 5, 10 years looks for you.

Lex Fridman (2:21:08.000)

If you were to give advice to somebody young today, making their way through life, making a career, what kind of advice would you give?

Nic Carter (2:21:19.000)

See, the problem with advice is that in a world where so much of success is defined by luck and serendipity is that the advice givers often don't know why they've been successful, right? And so they might say, you know, I was wearing a green tie on the day of my job interview and so you should go out and wear green ties.

Lex Fridman (2:21:41.000)

And so they might just get the causality completely wrong, right? I mean, I'm not going to claim that I'm super successful yet, but see, that's the problem is that I don't think my journey is replicable necessarily. So, you know, who am I to give advice?

Nic Carter (2:21:59.000)

Although the one thing I will say is that the thing I did right was to become completely obsessed with a domain I found really interesting and held promise. Like if I had been really interested in like Magic the Gathering, I wouldn't have been able to like do much with that aside from build like a killer, you know, card pack or whatever.

Lex Fridman (2:22:22.000)

And I wasn't afraid to, you know, really put myself out there and, you know, float my thoughts online and see how people reacted to them. Even if I said stuff that was completely erroneous or wrong all the time, the rewards to writing and just publishing content are immense, as you know, obviously, it's the most high leverage activity I think most young people have available to them.

Lex Fridman (2:22:48.000)

And I was very lucky and I benefited from a lot of favorable coincidences, a lot of people that took a chance on me. And if I had more time, I would sit here and name them.

Nic Carter (2:23:03.000)

Is there something in your actions that made you more open to the benefits of luck? Sort of, you know, luck can bring you a lot of positive and negative things. So saying you're lucky means you were able to ride the wave of whatever positive stuff luck brought you.

Nic Carter (2:23:23.000)

Well, that's right, you have to put yourself in a position to be lucky. And most people don't. So you just have to get as many shots on goal as possible. And, of course, luck plays an undeniable role in any career path, for sure. But you do have to make yourself available to it.

Lex Fridman (2:23:43.000)

And you have to take a ton of chances. But yeah, that's the problem with advice. It's just so hard to replicate it. So I find it illegitimate most of the time.

Lex Fridman (2:23:58.000)

You heard it here, kids, don't listen to anything Nick just said.

Nic Carter (2:24:01.000)

Exactly.

Lex Fridman (2:24:02.000)

Wear a green tie to your interviews, it'll work out well. Do you think there's a meaning or reason to any of this, this existence, this life?

Nic Carter (2:24:12.000)

Well, we make our own meaning, for sure. I find a huge amount of meaning in what I do. I find it beautiful, I feel very lucky and blessed to be in the line of work that I'm in, you know, to have your hobby and your passion and your job just be a completely integrated thing. So that's where I find meaning.

Lex Fridman (2:24:34.000)

But you're just a bag of like cells and bacteria that eventually dissipates, dies, and it goes into the ground and disappears back into the universe. I mean, that doesn't make any sense.

Nic Carter (2:24:50.000)

Well, that may be true. But I find the sublime in things like Bitcoin. I find it incredibly inspiring to work on it. I believe it's 100 year plus project. And, you know, it stirs those aesthetic emotions in you, as I'm sure your work does.

Lex Fridman (2:25:08.000)

So you find it beautiful?

Nic Carter (2:25:09.000)

Absolutely. Absolutely. And inspiring more than just beautiful.

Lex Fridman (2:25:14.000)

So you have hope for human civilization and Bitcoin as part of that hope?

Nic Carter (2:25:18.000)

Yeah, it's a very optimistic view. And people accuse us of being pessimists and saying that we are, you know, rooting for the collapse of civilization. Completely false. Bitcoiners are wildly optimistic, because they believe that you can monetize a completely new system from scratch and compete with the strongest superpower in the military and the dollar and everything that goes with that.

Nic Carter (2:25:42.000)

That's the craziest, most ludicrously optimistic proposition imaginable. So I think Bitcoiners are the most optimistic people out there.

Nic Carter (2:25:52.000)

I don't think there's a better way to end it on that hopeful vision of human civilization. Nick, I've heard a lot of amazing things about you. I was binge watching your interviews, binge reading your blogs, fell in love with your work. You're a good dude. Inspiring, brilliant. Thank you so much for wasting all your valuable time with me today.

Lex Fridman (2:26:18.000)

My absolute pleasure.

Nic Carter (2:26:20.000)

Thanks for listening to this conversation with Nick Carter, and thank you to The Information, Athletic Greens, Four Sigmatic, and Blinkist. Check them out in the description to support this podcast.

Lex Fridman (2:26:32.000)

And now, let me leave you with some words about freedom and beauty from Stephen King.

Nic Carter (2:26:38.000)

Some birds are not meant to be caged, that's all. Their feathers are too bright, their songs too sweet and wild. So you let them go, or when you open the cage to feed them, they somehow fly out past you.

Lex Fridman (2:26:52.000)

And the part of you that knows it was wrong to imprison them in the first place rejoices. But still, the place where you live is that much more drab and empty for their departure.

Nic Carter (2:27:03.000)

Thank you for listening, and hope to see you next time.

Lex Fridman (30:01.100)

instinctual kind of dogmatic thing that comes in where you're not the best

Nic Carter (30:07.400)

of human nature.

Lex Fridman (30:08.100)

You stop being a George Washington and you lose touch of the foundational

Nic Carter (30:14.000)

principles, which I think are beautiful, just like the founding principles

Lex Fridman (30:17.100)

of this country.

Lex Fridman (30:17.800)

So that's just like, so I like staying on the level of like the

Lex Fridman (30:23.000)

philosophy versus the level of like all my money is invested in Bitcoin

Lex Fridman (30:29.300)

and that becomes very tricky territory to have principle discussions

Lex Fridman (30:35.600)

about ideas.

Nic Carter (30:37.300)

Well, it's an interesting tension.

Lex Fridman (30:39.500)

I try to stay balanced despite being very exposed to Bitcoin.

Lex Fridman (30:43.100)

So let me ask the ridiculous question, just in case, who is Satoshi

Lex Fridman (30:48.300)

Nakamoto and is it you?

Nic Carter (30:50.300)

We don't know.

Lex Fridman (30:51.100)

It's probably not me because I was like 17 when Satoshi mounted Bitcoin,

Nic Carter (30:59.800)

16, so unlikely and also not really a programmer.

Lex Fridman (31:04.700)

So there's a lot of theories, but honestly, it's one of the greatest

Nic Carter (31:09.500)

mysteries of all time because even Bitcoiners that have been around

Lex Fridman (31:13.300)

since day one, really, you know, people that were around before Bitcoin

Nic Carter (31:19.000)

came out, they're on the mailing list, they're active in the cypherpunk

Lex Fridman (31:21.700)

community, you ask them and they sincerely will not know and they may

Nic Carter (31:26.400)

not even have a good guess as to who Satoshi is.

Lex Fridman (31:29.000)

Is it important to know or is it like actually important not to know?

Lex Fridman (31:32.500)

Do you think that's a feature or bug that you, we don't know?

Lex Fridman (31:35.500)

Some people don't like the uncertainty, especially, you know, folks on

Nic Carter (31:39.700)

Wall Street, they really want to know.

Lex Fridman (31:41.400)

And if you read the Coinbase S1, their disclosure pre IPO, that's a risk

Nic Carter (31:48.200)

factor that Satoshi could come back.

Lex Fridman (31:50.200)

So the risk management crowd wants to know because they want to know

Nic Carter (31:56.000)

if maybe Satoshi had, you know, undesirable political opinions or

Lex Fridman (32:00.400)

something that would forever taint the project.

Lex Fridman (32:02.700)

Do you think they were just trolling with that risk with Satoshi's

Lex Fridman (32:06.800)

identity being a risk factor or is that like actual, like, was there

Lex Fridman (32:11.800)

an actual meeting and a discussion of that being a risk factor?

Lex Fridman (32:14.800)

I think in the risk factor sections of the prospectuses, it's really

Nic Carter (32:18.300)

just the lawyers doing a total brain dump to cover absolutely everything

Lex Fridman (32:21.500)

they can think of.

Lex Fridman (32:22.200)

So it's just lawyers.

Lex Fridman (32:23.200)

It's not like, you know, it's like, I think Elon was somewhere in the

Nic Carter (32:29.000)

legal documents for SpaceX mentioned that like Earth governments have

Lex Fridman (32:34.800)

no jurisdiction on Mars.

Nic Carter (32:36.300)

Like they threw that in there and it feels like, yeah, that could be

Lex Fridman (32:39.800)

lawyers, but it could also just be Elon trolling.

Nic Carter (32:42.300)

Yeah.

Lex Fridman (32:42.700)

So I wonder if it's like the Coinbase folks trolling or if it's lawyers.

Nic Carter (32:48.900)

I hope it's the trolling, not the lawyers.

Lex Fridman (32:51.000)

The Coinbase leadership, they're not as big trolls as Elon is, but I

Nic Carter (32:56.800)

mean, it's a risk for sure from their perspective because let's say

Lex Fridman (33:01.100)

Satoshi returned, doesn't seem likely, and let's say they decided to

Nic Carter (33:04.300)

spend all their coins, which also seems very unlikely.

Lex Fridman (33:07.300)

That's, you know, rumored to be or estimates have it at 1 to 1.2

Nic Carter (33:14.100)

million Bitcoin, which is like 50, 60 billion dollars worth.

Lex Fridman (33:19.900)

So some people consider that to be a risk.

Nic Carter (33:23.300)

You think it's, you know, this is almost like a topic of leadership.

Lex Fridman (33:27.600)

It doesn't feel like anybody, any one person speaks for Bitcoin.

Nic Carter (33:32.400)

There's not even like prominent figures.

Lex Fridman (33:38.200)

Like you have for like Ethereum, you have Vitalik Buterin.

Nic Carter (33:41.800)

There's a lot of like top minds talking about it like yourself, but

Lex Fridman (33:48.800)

it's not like one or two.

Lex Fridman (33:50.200)

Do you think again, is that a feature or a bug?

Lex Fridman (33:53.100)

Like, do you think for effective, for Bitcoin to effectively have a

Nic Carter (33:58.400)

role in society that like is as large or larger than the dollar, there

Lex Fridman (34:04.700)

needs to be like leadership that represents it, almost like democratic

Nic Carter (34:10.100)

kind of thing.

Lex Fridman (34:10.600)

Well, that's a real counterintuitive point because most Bitcoiners,

Nic Carter (34:14.600)

including myself, would say, no, the lack of leadership is a great

Lex Fridman (34:18.300)

quality to have because if you have a charismatic leader and a foundation

Nic Carter (34:22.700)

or corporation that controls it, maybe they can control the features

Lex Fridman (34:26.700)

of the protocol and maybe they can expropriate holders of the coin

Nic Carter (34:31.400)

or, you know, build in an endowment that pays them off and gives them

Lex Fridman (34:37.500)

privileged access to the units of the coin, for instance.

Nic Carter (34:40.700)

So, you know, we call people that have privileged access to the money

Lex Fridman (34:45.900)

spigot Cantillon insiders, which is there is this economist that pointed

Nic Carter (34:50.800)

out that as you know, I think Richard Cantillon that as money enters

Lex Fridman (34:55.500)

the economy has an uneven flow, right?

Lex Fridman (34:58.200)

So you see this in last last decade or so before that to the consequence

Lex Fridman (35:04.400)

of money printing in this country is people that own financial assets

Nic Carter (35:07.900)

made a lot of money and people that didn't didn't.

Lex Fridman (35:10.300)

So you see that Cantillon insider Cantillon outsider effect and it's

Nic Carter (35:15.900)

the same with a cryptocurrency in many other alternative cryptocurrencies

Lex Fridman (35:20.300)

that do have these corporate entities or these leaders and CEOs.

Nic Carter (35:24.900)

They're able to make specific decisions regarding the protocol and the

Lex Fridman (35:29.700)

currency of the asset the benefit themselves the cronies, etc.

Lex Fridman (35:33.100)

And that's not a good feature to have.

Lex Fridman (35:35.800)

I mean, it does grant you, you know, the ability to orchestrate decisions

Nic Carter (35:41.800)

in a faster and more efficient way.

Lex Fridman (35:43.500)

But long term what you're trying to optimize for if you're creating

Nic Carter (35:47.800)

a money is monetary credibility and soundness so you don't really

Lex Fridman (35:52.000)

want it changing all that often and you don't want to have the

Nic Carter (35:55.600)

appearance of you know, these elites that are engaging in rent

Lex Fridman (35:59.900)

seeking or anything like that.

Lex Fridman (36:01.000)

So there's definitely people that are influential in Bitcoin this

Lex Fridman (36:04.500)

core developers that people listen to because it's I would say

Nic Carter (36:07.600)

meritocracy largely and they're sort of self appointed high priest

Lex Fridman (36:11.600)

of the protocol.

Nic Carter (36:12.300)

I write a lot about Bitcoin people listen to me but is a completely

Lex Fridman (36:16.600)

free market of ideas, right?

Nic Carter (36:18.800)

I don't have any authority within Bitcoin whatsoever.

Lex Fridman (36:21.800)

I'm just a scribbler, you know, so was Aristotle and Socrates and Nietzsche.

Lex Fridman (36:30.300)

Okay, at the high level, technically, how does Bitcoin work?

Lex Fridman (36:36.300)

Is there interesting things you could say?

Lex Fridman (36:38.800)

Like what are miners?

Lex Fridman (36:39.900)

What are nodes, full nodes?

Lex Fridman (36:41.900)

What are blocks?

Lex Fridman (36:42.800)

What's proof of work?

Lex Fridman (36:44.500)

Is there a nice way to wrap up a clean explanation of the protocol?

Lex Fridman (36:50.300)

Oh man, that could be a whole, that could be another five hours.

Nic Carter (36:54.300)

Is there interesting because I'd love to talk to you about block

Lex Fridman (36:58.000)

size wars and sort of the politics psychology, the principles

Nic Carter (37:02.700)

around that, but sort of building up to that.

Lex Fridman (37:04.600)

It'd be nice to talk about how the thing works.

Nic Carter (37:06.900)

That's fair.

Lex Fridman (37:07.800)

I mean, and the block size wars are really fascinating discussion

Nic Carter (37:12.000)

of how governance debates intersect with technical features.

Lex Fridman (37:16.000)

So I guess we can, yeah, so basically at the highest possible

Nic Carter (37:23.000)

level, Bitcoin is a globally shared.

Lex Fridman (37:26.400)

It's really a replicated ledger that any participant that wants to

Nic Carter (37:32.500)

be an equal peer on that ledger, they want to maintain that ledger

Lex Fridman (37:37.200)

and they want to stay up to date with the global state of the ledger.

Lex Fridman (37:40.700)

And really any monetary system is just a ledger with physical

Lex Fridman (37:46.700)

cash. We benefit from the physical instantiation of the money.

Lex Fridman (37:52.600)

So the physics is the ledger.

Lex Fridman (37:54.400)

The physics is a ledger, right?

Lex Fridman (37:55.800)

Same with gold, right?

Lex Fridman (37:57.200)

You can't just produce new units of gold.

Lex Fridman (37:59.100)

So we trust that gold atoms are hard to create, although not

Lex Fridman (38:05.600)

impossible, right?

Nic Carter (38:06.600)

You could find a bunch of protons and whatever is the adjacent

Lex Fridman (38:12.300)

metal and create gold atoms would be expensive.

Lex Fridman (38:15.200)

And the same with dollars, you know, we trust that it's hard to

Lex Fridman (38:18.600)

counterfeit a dollar.

Lex Fridman (38:19.400)

So we trust the physical analog world to help maintain the state

Lex Fridman (38:23.900)

of that ledger with digital money, like, you know, the money in

Nic Carter (38:28.400)

your bank account, your checking account.

Lex Fridman (38:30.500)

We basically trust our institutions or banking institutions to

Nic Carter (38:34.800)

keep a faithful record.

Lex Fridman (38:36.600)

And then ultimately we trust the central bank to administer that

Nic Carter (38:39.800)

system. So there's kind of a handful of nodes.

Lex Fridman (38:42.600)

In Bitcoin, we trust that the economic incentives of the system

Nic Carter (38:46.600)

are carefully poised, basically.

Lex Fridman (38:49.200)

So we trust that the free market mining competition will lead to

Nic Carter (38:54.500)

the miners assembling transactions into blocks in a faithful and

Lex Fridman (38:58.800)

correct way, and that we are going to converge on a global state

Nic Carter (39:03.000)

of the ledger continuously.

Lex Fridman (39:04.500)

Which updates every 10 minutes or so with some variance.

Lex Fridman (39:08.300)

And then the miners aren't the sole entities that control the

Lex Fridman (39:12.700)

system. To really participate, if you are a merchant and you're

Nic Carter (39:17.000)

accepting Bitcoin, you really want to run your own full node and

Lex Fridman (39:20.700)

check the whole history of transactions.

Nic Carter (39:22.500)

Sort of something like, I want to say, five to six hundred million

Lex Fridman (39:26.100)

transactions that have ever occurred on Bitcoin.

Lex Fridman (39:28.100)

So full node contains all the transactions ever transacted on

Lex Fridman (39:33.100)

the Bitcoin blockchain.

Lex Fridman (39:34.800)

And that's, I saw it's like 200 gigs or something like that.

Lex Fridman (39:39.300)

Like 350, something like that.

Nic Carter (39:41.400)

It's doable on a regular consumer laptop and that is going to be

Lex Fridman (39:45.600)

really key later on in the discussion.

Lex Fridman (39:47.700)

But so, you know, that's really the ultimate trust models.

Lex Fridman (39:53.000)

First of all, we trust that the miners that assemble transactions

Nic Carter (39:55.700)

into blocks and they are the archivists, you know, they inscribe

Lex Fridman (39:59.900)

those transactions onto the ledger and they have an economic

Nic Carter (40:03.700)

incentive to sort of behave correctly because they're getting

Lex Fridman (40:06.100)

paid in no units of Bitcoin.

Nic Carter (40:07.700)

That's part of it.

Lex Fridman (40:09.600)

But then really you are also, you're not fully trusting them.

Nic Carter (40:13.900)

You're actually, if you want to run a node, you replay every

Lex Fridman (40:16.500)

single transaction in the history of Bitcoin from the beginning

Nic Carter (40:19.900)

to the current day and you arrive at the present state that way.

Lex Fridman (40:23.300)

So you don't really have to trust too many people or entities.

Nic Carter (40:27.400)

You can validate the correctness that all the rules have been

Lex Fridman (40:31.800)

followed, that all the Bitcoins that were created were done so in

Nic Carter (40:34.800)

the valid way, that the inflation rate was adhered to and that

Lex Fridman (40:39.900)

there's no covert inflation, you know, that if you're spending

Nic Carter (40:44.000)

50 units of Bitcoin, you had that Bitcoin to spend in the first

Lex Fridman (40:49.000)

place. So it's sort of delicately poised between node operators

Nic Carter (40:54.100)

who, you know, engage in this validity checking kind of anti

Lex Fridman (40:58.500)

counterfeiting checking and then also the miners which are an

Nic Carter (41:01.700)

industrial entity and they basically produce block space and

Lex Fridman (41:06.400)

assemble transactions in a box.

Lex Fridman (41:08.500)

And everybody, so the miners are incentivized to not mess with

Lex Fridman (41:12.900)

the system because they're getting value from the system.

Lex Fridman (41:15.300)

So if they mess with it, it's going to decrease the value of

Lex Fridman (41:20.200)

their physical work investment.

Nic Carter (41:23.100)

Yeah, so they have to incur a real physical cost to produce a

Lex Fridman (41:27.500)

block, right?

Lex Fridman (41:28.100)

So right now you get 6.25 Bitcoins in a block at a minimum

Lex Fridman (41:34.200)

and then maybe some fees as well.

Lex Fridman (41:35.900)

How hard is it to produce a block now?

Lex Fridman (41:38.400)

Well, challenging.

Nic Carter (41:39.600)

I mean, you need, so 6.25 Bitcoins and a Bitcoin is worth

Lex Fridman (41:44.800)

$55,000 or so.

Lex Fridman (41:46.400)

So it's probably going to cost you about that amount to produce

Lex Fridman (41:50.700)

it because it's a free market competition and miners have

Nic Carter (41:54.400)

very thin margins.

Lex Fridman (41:56.100)

So it's like if I auction off a dollar, you would pay up to

Nic Carter (42:00.500)

$0.99 to buy that dollar from me.

Lex Fridman (42:02.700)

Exactly what happens with miners.

Nic Carter (42:05.000)

They're, you know, basically competing for the right to obtain

Lex Fridman (42:10.700)

new units of money.

Lex Fridman (42:11.600)

So logically speaking, they would pay up to the value of that

Lex Fridman (42:15.200)

money in order to earn it.

Lex Fridman (42:16.500)

And for people who are not familiar, the process of mining is solving

Lex Fridman (42:21.300)

a difficult cryptographic problem that's a computational problem.

Nic Carter (42:25.000)

I would say it's not like people sometimes represent it as like

Lex Fridman (42:28.600)

a really challenging puzzle.

Nic Carter (42:30.000)

Like the individual puzzle is very simple.

Lex Fridman (42:32.600)

Like you can do it with pen and paper if you wanted, you know,

Nic Carter (42:35.400)

like SHA256.

Lex Fridman (42:36.600)

It's just that you're searching through the big mathematical

Nic Carter (42:40.100)

space to find the needle in the haystack.

Lex Fridman (42:42.300)

You're just doing lots of iterations of a simple puzzle.

Nic Carter (42:45.900)

It's just brute force.

Lex Fridman (42:47.100)

Hence, like the stability of the whole idea of the proof of work.

Nic Carter (42:50.700)

If there was a shortcut, it wouldn't work.

Lex Fridman (42:55.100)

Exactly.

Lex Fridman (42:56.100)

So let's hope nobody solves SHA256.

Lex Fridman (42:59.700)

Yeah, there's a lot of discussions from the quantum computing

Nic Carter (43:03.300)

space, but everybody I talked to, all my colleagues that work in

Lex Fridman (43:08.400)

quantum computers say that we're quite a long way away from that

Nic Carter (43:13.800)

being an issue in cryptography and certainly an issue in cryptocurrency.

Lex Fridman (43:18.700)

That should have been one of the sides on these dice.

Nic Carter (43:22.200)

It should have been quantum because I don't think it is.

Lex Fridman (43:25.100)

I forgot to put it on this edition.

Nic Carter (43:26.600)

People should check out Scott Aaronson.

Lex Fridman (43:28.900)

There's a lot of people that are kind of selling quantum snake

Nic Carter (43:36.000)

oil, so you should be very careful.

Lex Fridman (43:38.700)

I think it is a really exciting space that might change the

Nic Carter (43:43.100)

world in the next decade or hundred, couple hundred years, especially

Lex Fridman (43:49.000)

for simulating quantum mechanical systems, but in quantum machine

Nic Carter (43:53.400)

learning, people should check out TensorFlow quantum.

Lex Fridman (43:56.300)

It's a nice way to sort of educate yourself about the space.

Lex Fridman (43:59.900)

And actually, if you're pragmatically minded to, you know, through

Lex Fridman (44:05.100)

software engineering, explore how you simulate quantum circuits, how

Nic Carter (44:09.200)

you run machine learning on those quantum circuits.

Lex Fridman (44:11.000)

The main point that Scott makes, Scott Aaronson, people should check

Nic Carter (44:15.600)

out his blog too, is that like, there's not yet a single machine

Lex Fridman (44:21.100)

learning application that doesn't do almost as well in a classical

Nic Carter (44:25.800)

computer. So it doesn't like, yes, the dream is somehow quantum

Lex Fridman (44:31.100)

computers will change the nature of artificial intelligence, but

Nic Carter (44:35.600)

there's yet to be an actual algorithm or problem set or data set

Lex Fridman (44:42.900)

where that would be the case.

Lex Fridman (44:44.400)

So skepticism is good in this space.

Lex Fridman (44:47.600)

Anyway, that said, so you kind of explained how Bitcoin works.

Nic Carter (44:53.100)

You also wrote a blog post recently, giving a shout out to the

Lex Fridman (44:58.400)

new book, The Block Size Wars.

Lex Fridman (45:00.500)

What is a block size?

Lex Fridman (45:03.500)

What are the block size wars?

Nic Carter (45:05.800)

It's history, it's importance, it's philosophical foundations.

Lex Fridman (45:10.900)

Yeah, I mean, Bitcoin, at this point, we have our own civil wars,

Nic Carter (45:15.300)

if you're wondering about how politically intense it gets.

Lex Fridman (45:19.000)

It's currently not hot, it's cold.

Nic Carter (45:21.200)

Oh yeah, we're in a detente right now.

Lex Fridman (45:23.400)

There's no tanks or missiles, at least not yet, hopefully.

Nic Carter (45:28.600)

It can get a little violent, I guess.

Lex Fridman (45:31.000)

I think one of the Bitcoin core developers or one of the participants

Nic Carter (45:35.000)

in the war got swatted at one point.

Lex Fridman (45:37.500)

What swatted means?

Nic Carter (45:39.000)

When someone does a fake phone call saying that you're holding

Lex Fridman (45:43.000)

someone hostage at your house and the SWAT team goes,

Nic Carter (45:46.000)

it's pretty scary.

Lex Fridman (45:48.000)

Internet warfare tactic, yeah.

Lex Fridman (45:51.000)

But the block size war, I would say, effectively ended, although

Lex Fridman (45:56.000)

we're definitely going to have more civil wars in Bitcoin, for sure.

Lex Fridman (46:00.000)

But basically, the core argument was a technical one on its surface,

Lex Fridman (46:05.500)

but a very deep political one at its core.

Nic Carter (46:09.000)

The technical question is, how many megabytes should be

Lex Fridman (46:13.000)

in each successive block?

Nic Carter (46:15.000)

So, Satoshi basically installed a limit of one megabyte per block.

Lex Fridman (46:20.000)

So, we should backtrack.

Nic Carter (46:22.000)

There was no limit in the beginning, and it seems like Satoshi,

Lex Fridman (46:26.500)

what is this, 2000, the war started in what, 2017 or something like that?

Nic Carter (46:32.000)

I don't know.

Lex Fridman (46:33.000)

2015 was when the battle cries began.

Lex Fridman (46:38.000)

What was the first battle in the Civil War?

Lex Fridman (46:40.000)

I don't remember.

Nic Carter (46:41.000)

But, Satoshi, I don't know if you can comment on it.

Lex Fridman (46:45.000)

Why did Satoshi set the limit to one megabyte all of a sudden,

Lex Fridman (46:49.000)

almost secretively, and in the beginning, there was no limit whatsoever?

Lex Fridman (46:55.000)

Yeah, I mean, we can get into, and people have spent thousands of hours

Nic Carter (46:58.000)

poring over Satoshi's writings to find which side Satoshi was on,

Lex Fridman (47:03.000)

and you can find, like any textual exegesis, you can find evidence

Lex Fridman (47:08.000)

for either side, right?

Lex Fridman (47:10.000)

But, yeah, I mean, effectively, when Bitcoin was launched,

Nic Carter (47:13.000)

there was a block size, because if you made a block over a certain size

Lex Fridman (47:17.000)

with the first edition of the code, it would have crashed nodes.

Lex Fridman (47:22.000)

But then, yeah, in 2010, Satoshi added the one megabyte limit

Lex Fridman (47:25.000)

in a covert way with no comments or anything, and that stuck, basically.

Lex Fridman (47:31.000)

And then Bitcoin blocks filled up, and people that had been socialized

Lex Fridman (47:37.000)

into this vision of Bitcoin as an effectively free transactional network

Lex Fridman (47:41.000)

were like, why pay a transaction fee if you're not at congestion?

Lex Fridman (47:45.000)

If the block isn't full, the miner will mine your transaction for free, right?

Lex Fridman (47:50.000)

And people that had been brought up in that status quo from 2009

Lex Fridman (47:56.000)

to kind of 2015, they noticed the block started to fill up,

Lex Fridman (48:00.000)

and they're like, okay, well, let's just remove this arbitrary limit, right?

Lex Fridman (48:03.000)

What could possibly be the harm?

Lex Fridman (48:05.000)

And then a whole other faction said, no, you need to cap the data

Lex Fridman (48:11.000)

throughput of the system, because if you increase it,

Nic Carter (48:15.000)

it's going to be highly exclusionary, and ultimately, regular folks

Lex Fridman (48:19.000)

are not going to be able to run a full node.

Lex Fridman (48:21.000)

So there's a fixed number, there's a fixed frequency of blocks,

Lex Fridman (48:26.000)

and so if you want to increase the number of transactions per second,

Nic Carter (48:30.000)

you want to increase the size of the block.

Lex Fridman (48:32.000)

So huge blocks allow you to shove in a lot of transactions.

Nic Carter (48:36.000)

Small blocks don't, so that's what you mean like constraining the system.

Lex Fridman (48:40.000)

So what's the benefit of a small block size where transactions,

Nic Carter (48:46.000)

you can squeeze in only a small number of transactions,

Lex Fridman (48:50.000)

and what's the benefit of a huge block size where you can squeeze in

Lex Fridman (48:53.000)

a lot of transactions?

Lex Fridman (48:55.000)

Well, it really comes down to the way that you think about the system.

Lex Fridman (48:58.000)

So a lot of people wanted Bitcoin to be Visa scale,

Lex Fridman (49:02.000)

so to have blocks sufficiently large that you could accommodate

Nic Carter (49:06.000)

a Visa level scale of transactions.

Lex Fridman (49:10.000)

Which is many orders of magnitude more transactions.

Nic Carter (49:13.000)

That's right, I mean, preposterously larger in terms of data throughput.

Lex Fridman (49:17.000)

Then, you know, Bitcoin offers up, or at least it used to,

Nic Carter (49:21.000)

144 megabytes of space per day, and your average transaction is 350 bytes.

Lex Fridman (49:26.000)

So, you know, you could, at a push, do four or five hundred thousand

Nic Carter (49:31.000)

transactions a day, which is not many.

Lex Fridman (49:34.000)

So if you wanted to get to Visa scale, you'd have to increase blocks

Nic Carter (49:38.000)

obnoxiously large.

Lex Fridman (49:41.000)

The small blockers claimed that this would overwhelm the ability

Nic Carter (49:45.000)

of any regular person to ingest that data and stay current

Lex Fridman (49:49.000)

at the state of the ledger, to replay all those transactions

Nic Carter (49:54.000)

to ensure that the protocol rules were valid.

Lex Fridman (49:57.000)

So basically, the small blocker contention is that you eliminate

Nic Carter (50:01.000)

the trustlessness of the system by pushing a ton of data

Lex Fridman (50:05.000)

through the system, because only one or two industrial heavy duty

Nic Carter (50:09.000)

nodes would ever be able to run the protocol at that point.

Lex Fridman (50:14.000)

So, by the way, in the Civil War, the two sides, as you're calling them,

Nic Carter (50:18.000)

the small blocker and the big blocker sides.

Lex Fridman (50:23.000)

And so that takes us back to the thing that you mentioned,

Nic Carter (50:27.000)

that a regular computer could be a node.

Lex Fridman (50:30.000)

And with big blocks, that's no longer going to be the case.

Lex Fridman (50:36.000)

So just the number of transactions is going to blow up the size

Lex Fridman (50:41.000)

of the blockchain that every full node has to store.

Lex Fridman (50:45.000)

And so then, as opposed to a regular mom and pop type of node,

Lex Fridman (50:50.000)

you're going to have to have data centers.

Lex Fridman (50:53.000)

So they're going to have to be owned by large organizations.

Lex Fridman (50:56.000)

There's going to have to be very few of them.

Lex Fridman (50:58.000)

And that's how you centralize the control over this whole operation.

Lex Fridman (51:03.000)

So the big blocker, yes, it allows you to be Visa

Lex Fridman (51:08.000)

and do a huge number of transactions, but it becomes centralized.

Lex Fridman (51:12.000)

And then the small blocker is, you cannot actually do kind of

Nic Carter (51:16.000)

merchant style transactions, but you get the decentralized benefit.

Lex Fridman (51:21.000)

Well, I don't even think the big blocker approach would allow you

Nic Carter (51:24.000)

to be Visa, frankly, because there's effectively one node

Lex Fridman (51:28.000)

in the Visa network, right?

Lex Fridman (51:30.000)

So you don't really need to maintain this peer to peer architecture at all.

Lex Fridman (51:34.000)

And the amount of data you'd have to push through the network

Nic Carter (51:38.000)

to reach Visa scale is a really preposterous amount.

Lex Fridman (51:41.000)

And we have now evidence for what happens when you try and scale up

Nic Carter (51:46.000)

as a blockchain and do 10 million transactions a day,

Lex Fridman (51:49.000)

which is still not Visa scale, right?

Nic Carter (51:51.000)

I've seen what it's like to operate those nodes, and it's not pretty.

Lex Fridman (51:58.000)

So there are totally genuine computer science physical limits,

Nic Carter (52:04.000)

because it's a broadcast network.

Lex Fridman (52:07.000)

Everyone has to be aware of every transaction.

Lex Fridman (52:10.000)

And that model, which gives you the trustlessness, the nice guarantees

Lex Fridman (52:15.000)

where everyone's an equal peer on the network, everyone has audited

Nic Carter (52:18.000)

the full history of the transactions, that model falls apart under stress.

Lex Fridman (52:23.000)

So the small blocker vision is that ultimately you would scale

Nic Carter (52:29.000)

in a layered approach, with the base layer transactions

Lex Fridman (52:32.000)

being settlement style transactions, and payments happening

Nic Carter (52:36.000)

at the other layers, basically.

Lex Fridman (52:38.000)

Is that universally agreed upon, or to a large degree agreed upon

Lex Fridman (52:43.000)

that the small blockers have won in this debate?

Lex Fridman (52:47.000)

Where would you put the current state of affairs?

Nic Carter (52:51.000)

There was a wave of competing Bitcoin implementations,

Lex Fridman (52:54.000)

starting in 2015 with Bitcoin XT.

Nic Carter (52:57.000)

Actually Gavin Andresen, who was the guy that Satoshi handed the reins to

Lex Fridman (53:02.000)

when Satoshi left, Gavin supported this large block proposal.

Lex Fridman (53:07.000)

And so that didn't achieve consensus, and then there was Bitcoin Unlimited.

Lex Fridman (53:13.000)

And then later on, there was a genuine hard fork,

Nic Carter (53:18.000)

where the large blockers couldn't push through their proposals

Lex Fridman (53:23.000)

on Bitcoin itself, so they just created a competing version of Bitcoin.

Lex Fridman (53:27.000)

So by the way, maybe you can comment on, but sort of hard fork

Lex Fridman (53:30.000)

versus a soft fork, a hard fork is when it's no longer compatible.

Lex Fridman (53:35.000)

What's the right way to put it?

Lex Fridman (53:37.000)

They can't operate on the same blockchain, with the same protocol.

Nic Carter (53:41.000)

Yeah, so there's a few ways to define them, and it gets controversial as well.

Lex Fridman (53:47.000)

One way to define it as a hard fork is an expansion of protocol rules,

Lex Fridman (53:54.000)

and a soft fork is a shrinking of protocol rules.

Lex Fridman (53:57.000)

That's an interesting way to find it.

Nic Carter (53:59.000)

It's not very intuitive, so I don't like that way.

Lex Fridman (54:02.000)

Another way is that a hard fork is backwards incompatible,

Nic Carter (54:06.000)

whereas a soft fork is, in theory, backwards compatible.

Lex Fridman (54:09.000)

So in August 2017, basically the large blockers had had enough,

Lex Fridman (54:15.000)

and they said, we're going to hard fork Bitcoin,

Lex Fridman (54:18.000)

we're going to create a clone, an alternative version of Bitcoin,

Nic Carter (54:22.000)

which has a shared history as Bitcoin itself,

Lex Fridman (54:27.000)

but you completely fork it and you create a new future.

Lex Fridman (54:31.000)

But everybody that had a balance on Bitcoin at the time

Lex Fridman (54:35.000)

also had a balance on the alternative coin, Bitcoin Cash.

Nic Carter (54:39.000)

That's what it's called, Bitcoin Cash is the hard fork.

Lex Fridman (54:43.000)

That was one of them, there were more actually.

Lex Fridman (54:45.000)

What the heck is Bitcoin Satoshi's vision BSV, Bitcoin SV?

Lex Fridman (54:50.000)

So this is all talking about increasing the max,

Nic Carter (54:53.000)

the limit of the block size more and more and more.

Lex Fridman (54:56.000)

Yeah, that was one of the changes they wanted to push through.

Lex Fridman (54:59.000)

But BSV was a fork of Bitcoin Cash.

Lex Fridman (55:02.000)

Hard fork of Bitcoin Cash.

Nic Carter (55:04.000)

Yeah, so now there's multiple big blocker blockchains floating around.

Lex Fridman (55:09.000)

What are your thoughts about them?

Nic Carter (55:11.000)

These are pretty popular, sorry to interrupt.

Lex Fridman (55:14.000)

Are they popular?

Nic Carter (55:15.000)

I mean, if you look at the metrics, they're not.

Lex Fridman (55:17.000)

And they don't trade,

Nic Carter (55:19.000)

I think each trade below 1% of the value of Bitcoin itself.

Lex Fridman (55:23.000)

I see, so measuring popularity is like how much they actually,

Nic Carter (55:26.000)

oh, value of the frequency of trade.

Lex Fridman (55:29.000)

Oh, no, no, I mean, they do like a fair number of transactions,

Lex Fridman (55:32.000)

but there's no way to know that that is genuine or just contrived.

Lex Fridman (55:37.000)

So ultimately, the true measure I think in my mind is just where the market

Nic Carter (55:42.000)

prices these protocols relative to Bitcoin,

Lex Fridman (55:46.000)

because that's like a prediction market.

Nic Carter (55:48.000)

If Bitcoin Cash was being priced at 50% of Bitcoin,

Lex Fridman (55:52.000)

you could say the market has given it a 50% chance of unseating Bitcoin, right?

Lex Fridman (55:58.000)

But both Bitcoin Cash and Bitcoin SV,

Lex Fridman (56:01.000)

which was a hard fork from Bitcoin Cash itself,

Nic Carter (56:04.000)

are well, I believe at this point, well below 1% of the value of Bitcoin.

Lex Fridman (56:08.000)

And in like the ranking of different cryptocurrencies,

Lex Fridman (56:12.000)

what is it, Bitcoin, Ethereum?

Lex Fridman (56:14.000)

Is Ethereum in value second?

Nic Carter (56:17.000)

Yes, number two.

Lex Fridman (56:18.000)

And then Bitcoin Cash is in the top five, right?

Lex Fridman (56:21.000)

But it's just a fast drop off?

Lex Fridman (56:23.000)

You know, I haven't checked lately, but I think it's reached kind of morbidity.

Nic Carter (56:27.000)

You know, it doesn't really have much traction.

Lex Fridman (56:30.000)

The blocks aren't full.

Lex Fridman (56:32.000)

So the whole value proposition was, you know,

Lex Fridman (56:34.000)

we will get all this merchant adoption if we increase the block size.

Nic Carter (56:38.000)

That just didn't materialize.

Lex Fridman (56:40.000)

In my view, they had a flawed vision of how adoption works

Lex Fridman (56:44.000)

and what blockchain should optimize for.

Lex Fridman (56:48.000)

Maybe you get a Bitcoin Cash supporter on the show,

Nic Carter (56:51.000)

they'll give you a different answer.

Lex Fridman (56:53.000)

But yeah, full disclosure, you know, I have my sympathies.

Lex Fridman (56:55.000)

And I think the small blockers won that skirmish for sure.

Lex Fridman (56:59.000)

So at this time, there's no merchant adoption and so on.

Lex Fridman (57:02.000)

So it's kind of its vision, the whole reason for existence,

Lex Fridman (57:06.000)

at least for now, hasn't materialized.

Lex Fridman (57:08.000)

And so that's an indication as possible that, well,

Lex Fridman (57:13.000)

it's a sign that perhaps that's the wrong way to accomplish the scalability.

Nic Carter (57:18.000)

Well, you know, first of all,

Lex Fridman (57:20.000)

I think the layered scaling model is definitely, definitely correct.

Nic Carter (57:24.000)

I mean, that's absolutely the way these things have to work,

Lex Fridman (57:27.000)

given the constraints of blockchains.

Lex Fridman (57:29.000)

What is the layered scaling model?

Lex Fridman (57:32.000)

It's really how all payment systems scale, blockchain or otherwise.

Lex Fridman (57:36.000)

And I think a lot of people don't understand this,

Lex Fridman (57:38.000)

is that there is no equivalent to scaling of the base layer

Nic Carter (57:43.000)

in the regular payment space.

Lex Fridman (57:45.000)

That totally doesn't happen.

Nic Carter (57:47.000)

All of them are built on layers.

Lex Fridman (57:48.000)

So Visa is like the fifth layer in the payment stack

Nic Carter (57:52.000)

that ultimately depends on these utility scale settlement systems,

Lex Fridman (57:55.000)

like Fedwire, CHIPS, ACH, basically interbank settlement systems.

Lex Fridman (58:01.000)

So you've got these slow moving but high assurance settlement systems.

Lex Fridman (58:07.000)

Fedwire is probably the number one, you know, like when you send a wire,

Nic Carter (58:11.000)

that's using the Fedwire system typically.

Lex Fridman (58:13.000)

On top of that, you know, you have banks and then you have payment processors,

Lex Fridman (58:18.000)

and then you build up these layers and layers and layers,

Lex Fridman (58:21.000)

and then you have these fast payments, you know, Venmo PayPal,

Nic Carter (58:24.000)

credit, debit, Visa, you name it.

Lex Fridman (58:27.000)

Those payments are not final when they occur.

Nic Carter (58:30.000)

You know, a credit card transaction will not be final for 90 to 120 days.

Lex Fridman (58:36.000)

So you've decoupled the payment, the financial message, and the settlement.

Nic Carter (58:42.000)

Those are distinct concepts.

Lex Fridman (58:43.000)

And the settlement happens on a deferred basis.

Lex Fridman (58:46.000)

So that's how you get scalability, is you have lots and lots of messages,

Lex Fridman (58:51.000)

but they don't settle for a long time.

Nic Carter (58:54.000)

They might settle on a net basis, on an end of day basis.

Lex Fridman (58:58.000)

But so that's really how it works.

Lex Fridman (59:00.000)

And then you have Fedwire where your average transaction is in the millions of dollars,

Lex Fridman (59:04.000)

and there's only a few hundred thousand transactions a day.

Nic Carter (59:07.000)

It's sort of an interbank settlement network.

Lex Fridman (59:09.000)

So that's my vision for how I think Bitcoin will develop too.

Nic Carter (59:15.000)

Bitcoin itself on the base layer is the slow moving high assurance final settlement network,

Nic Carter (59:20.000)

where if you're sending money to the other side of the globe to someone you don't trust,

Nic Carter (59:25.000)

where you want that payment to be final in a short period of time,

Lex Fridman (59:29.000)

and both counterparties know it's final, then you would use that.

Lex Fridman (59:33.000)

But if you wanted to buy coffee, you could do it on a second layer.

Lex Fridman (59:37.000)

Lightning would be one way.

Nic Carter (59:39.000)

There's a bunch of side chains now.

Lex Fridman (59:41.000)

Or you could use a more centralized solution if you wanted.

Nic Carter (59:46.000)

It's kind of a profound idea that in the space of transactions,

Lex Fridman (59:50.000)

when you're buying coffee or buying anything really from a merchant

Nic Carter (59:53.000)

or exchanging goods and all those kinds of things,

Lex Fridman (59:57.000)

that most of the time, like basic honest behavior, human behavior,