00:00welcome to the a 16z podcast I'm Michael
00:02Copeland for an arcane protocol bitcoin
00:06has more than its share of drama there
00:09is of course the mystery surrounding
00:10it's anonymous founder or founders
00:12Satoshi more recently there's the battle
00:16over whether the size of Bitcoin blocks
00:18need to grow to account for more
00:20capacity or if it's just fine the way
00:23Satoshi left it the drama creeps in
00:26because there isn't much time left to
00:28make changes before Bitcoin blockchain
00:30capacity runs out says core Bitcoin
00:33developer and security expert Mike Hearn
00:36and running out of blockchain capacity
00:39could spell disaster he says worst
00:42things break quite badly and but even
00:44the best even if things don't break some
00:46users won't be able to use Bitcoin right
00:48they will be kicked out of the system
00:50effectively there won't be enough
00:51capacity to handle them Hearn joins a 16
00:54Z's Chris Dixon on this segment of the
00:57pod to discuss the current state of the
00:59Bitcoin project Hearns own lighthouse
01:02creation which is a Bitcoin based
01:04crowdfunding app and what it will take
01:06to move the Bitcoin protocol into the
01:09mainstream if you're in the Western you
01:11have access to you know credit card
01:13payments and so on it's not always clear
01:15why you would want to use Bitcoin but
01:16that's not because there aren't good
01:17reasons that's because we're not doing a
01:19good job of like telling people about
01:20them Chris Dixon kicks it off Mike
01:24thanks for being here thanks it's great
01:26to be here so let's start off talking
01:27about the state of Bitcoin there's a lot
01:28of debate going on right now about the
01:29block size issue I guess could you first
01:32kind of explain that and then and then
01:34talk about your views on it yeah so a
01:36long time ago when Satoshi was still in
01:38charge of the Bitcoin project he added a
01:41quick hack to the code basically kind of
01:43a clutch which limited bitcoins capacity
01:46to process transactions and at the time
01:48that he put this limit in Bitcoin was
01:51nowhere near even close to this limit he
01:55imposed a maximum one megabyte block
01:57size and as one block every ten minutes
01:59on average that's you know you can
02:00calculate a maximum transaction rate
02:03from that and at the time you put it in
02:04we were around you know less than 10
02:07kilobytes per block so a long way from
02:08that and we're now at more like half of
02:11that block size and it
02:13you know as traffic is growing it looks
02:15like we might start hitting that limits
02:17sometime next year so Gavin has proposed
02:21that Gavin is the is the main Bitcoin
02:24maintainer he was actually so when
02:27Satoshi left he nominated Gavin Anderson
02:31as the as his successor and Gavin was
02:35maintained a Bitcoin core for a while
02:37and then he delegated that again to
02:39vladimir van der Laan so Gavin has
02:42suggested increasing the block size and
02:44I've been suggesting this for some time
02:46as well this is a debate that's been
02:47going on for several years and it's
02:49never triggered any action but now we're
02:51sort of out of time so it's now moved
02:54into a new phase of this debate and
02:56that's that's what this sort of current
02:58drama is about it's about whether the
03:01limit should be raised and by how much
03:03can you can you give like a quick
03:05summary of the two sides and then why
03:06you support increasing it well Gavin has
03:10been writing about this on this blog for
03:11some time the the argument for
03:14increasing it is fairly straightforward
03:15it's that if we don't Bitcoin will run
03:18out of capacity and running out of
03:19capacity is bad news right that's that
03:21means worst things break quite badly and
03:25but even the best even if things don't
03:26break some users won't be able to use
03:29Bitcoin right they will be kicked out of
03:31the system effectively there won't be
03:32enough capacity to handle them and that
03:35would be bad and the simplest way to
03:36increase capacity is to increase this
03:38limit and then the arguments against
03:41some work varied and I find them to be a
03:43little bit vague but they're they
03:45basically boil down to concern that if
03:47Bitcoin grows then you know if the
03:50hardware requirements were running a
03:52Bitcoin node go up then it's sort of in
03:54some sense less decentralized so those
03:57people would would rather have Bitcoin
03:59be decentralized and not work then then
04:02working and slightly more so yeah I mean
04:05that's that's how I would characterize
04:06it some of them would characterize this
04:08saying well people will invent other
04:11ways of moving money around that don't
04:13involve making Bitcoin transactions then
04:16they believe still be off chain as they
04:18say like they'll be done through other
04:20services that that don't record every
04:23transaction on the blockchain
04:24yes services are the networks of a
04:27systems basically some of these some of
04:28the things they propose would integrate
04:31with the blockchain in some sense but
04:33yeah it would it would mean a sort of
04:35different sort of infrastructure for
04:37routing of payments okay and so now
04:40switching over to Bitcoin as a you know
04:42just one of the the broader applications
04:44what's your take on sort of what's going
04:46on there and I know and you're the
04:48creator of what I think is a very
04:50interesting project called lighthouse
04:51and we could talk about that but I'm
04:53just curious sort of broadly what what's
04:55your take on kind of Bitcoin adoption
04:56and applications Bitcoin adoption is
04:59going okay if you plot the graphs of
05:01transaction traffic it is growing and it
05:03settled into a fairly standard seasonal
05:06growth pattern this is pretty standard
05:08online services I've seen this sort of
05:10pattern many times in the past so that's
05:13quite reassuring that we're seeing this
05:15at the same time I would like to see it
05:19grow even faster you know Bitcoin
05:21doesn't have unlimited one-way in the
05:23speech so I'm quite interested in
05:26finding ideas that could help increase
05:28usage and really find some sort of
05:30killer app or you know kill a reason to
05:33be using Bitcoin in people's everyday
05:34lives yeah and so and so and you created
05:37this new application called lighthouse
05:38which i think is one of the most
05:39interesting Bitcoin apps I've ever seen
05:41yeah can you describe what that is yeah
05:44so lighthouse is a decentralized Bitcoin
05:47based crowdfunding application like
05:49Kickstarter effectively or IndieGoGo or
05:52similar sites like this the idea is you
05:54can create a project that has a goal
05:56target amount of money that needs to be
05:59raised for the project to go ahead and
06:00then people can pledge my bitcoins
06:02towards that goal and unlike other
06:04attempts at this where you know you
06:07actually have to deposit your Bitcoin
06:08with a trusted third party lighthouse is
06:10a completely peer-to-peer and
06:12decentralized approach so you can
06:14actually pledge money to a project in
06:18such a way that it stays under your
06:19control until the moment that the
06:21project's is raised to full amount and
06:22at that point it moves into the wallets
06:25of the project creator but you don't
06:26have to you know that the money is never
06:28in some kind of strange state where it's
06:30controlled by someone else but
06:32theoretically still owned by you and how
06:34does that work technologically it uses
06:36features in the Bitcoin protocol that
06:38Satoshi put there right from day one
06:40we don't know exactly how he intended
06:42them to be used because he didn't talk
06:44about them much but they can be used for
06:46crowdfunding one of the features that
06:49lighthouse uses is a way of signing
06:51transactions so they can be merged
06:53together so you can actually create a
06:54kind of partial Bitcoin payments that
06:57won't be accepted by the system until
06:59it's merged with other similar payments
07:00to create a final valid contract it's
07:04what we call it I mean this is one thing
07:05people I think an overlooked fact of
07:08Bitcoin is that there's a scripting
07:09language involved or embedded rather
07:11inside of the protocol which you know
07:13which you are one of them or one of the
07:16experts on yeah for a long time you know
07:19the for a long time it wasn't very well
07:20known because satoshis whitepaper didn't
07:23mention it and he didn't talk about it
07:24and you know his mailing list post
07:26either it's actually quite astonishing
07:28that he built such a complex system and
07:30then just left it there for people to
07:32find you know it's it's one of them one
07:34of the most staggering cases of missing
07:35documentation I've every one so you
07:37could only you could only find a
07:38scripting language through the code
07:39itself yeah yeah everything that's known
07:42about scripting languages actually with
07:43this engineered out of the code I mean
07:45there was all this talk about things
07:46like aetherium which was a Bitcoin with
07:48scripting yet Bitcoin itself had this
07:51already at least at least some version
07:52of it you know had this since day one
07:56yeah and I think things like aetherium
07:59came out of a desire to have a more
08:01powerful scripting language actually
08:02although it's a bit strange because
08:04we've never really fully used the
08:06capability of even coins fairly limited
08:09language yeah you'd think the step one
08:11would be to use the existing let's run
08:13into limits and then expand as necessary
08:15with the obvious caveat being that as
08:17you expand it you might run into
08:19security issues and things right I mean
08:20if you have it if a turing-complete
08:22scripting language presumably there's a
08:25ton of vulnerabilities as well right I
08:28mean I think one reason that the Bitcoin
08:30scripting language hasn't been expanded
08:32is that you know we keep finding
08:33interesting ways of abusing the existing
08:35one yeah yeah designing these sorts of
08:38things is something of a new research
08:40area the Bitcoin language is simple but
08:42you know it can still do quite a lot
08:44actually if you create it with it a
08:45lighthouse took you of like I think you
08:48told me like seven months or something
08:49to build like yeah it feels like there's
08:53perhaps there's opportunity to build
08:54infrastructure on top of the Bitcoin
08:57scripting language to make other
08:58applications like lighthouse easier to
09:00build yeah lighthouses used the
09:04scripting system is actually pretty
09:05basic so it's the complexity there
09:08wasn't really imposed by script or its
09:10limitations the the complexity was
09:13primarily around you know designing the
09:16user interface to make it simple so you
09:18don't even though behind the scenes
09:19these signatures and scripts and
09:21transactions flying around you don't
09:23want the users to see that though the
09:25complexity was in things like you know
09:27how do you distribute an app such that
09:31right but without blowing your
09:32development budget by writing the app
09:34multiple times there were lots of issues
09:36that came up there how do you move the
09:38data around through people's firewalls
09:40not stuff that isn't really specific to
09:42cryptocurrency or Bitcoin but it's just
09:44the plumbing needed to make all this
09:46stuff happen and a lot of this code that
09:50I wrote with lighthouse was intended to
09:51be reusable and so you know it will be
09:54easier next time right if someone wants
09:56to build a lighthouse style app because
09:57they can if they choose to they can
09:59reuse that code and what's the benefit
10:01of distributed kind of crowdfunding as
10:04opposed to a centralized one in your
10:05mind I mean cuz like this the cynics I
10:07don't agree with him but the critics
10:08would say you know a centralized service
10:11works just fine you you know only people
10:14who you know want to get around
10:16regulation or something would want to
10:18use this decentralized service like what
10:19what are the benefits in your mind I
10:21think that sort of arguments is quite
10:23common it's an arguments of privilege
10:25right so these services like Kickstarter
10:28IndieGoGo very very often they're
10:30restricted to certain countries for
10:31example like a it's very hard for
10:34someone in the middle of India for
10:35example who maybe doesn't even speak
10:36English to create a project and
10:38successfully run it on one of these
10:39platforms the whole thing is credit card
10:42based the fees can be very high I
10:45usually say the fees for using these
10:47platforms can be around 10% of the money
10:49raised that's not quite fair that
10:51includes banking fees as well as the
10:53fees levied by these companies but it's
10:55all a part of the same infrastructure
10:56and by using Bitcoin you can bypass all
10:59of that right you're left with that most
11:00the exchange fees into your local
11:02currency if you don't have a supply
11:04chain that you can use with a Bitcoin so
11:06there's actually not only huge monetary
11:08savings you can make but it's also you
11:10know simpler in many ways it's more
11:14flexible and it works all over the world
11:16just just to disclose I'm a personal
11:18investor in Kickstarter from back in I
11:20don't know when it was 2008 or 9 so I
11:22love Kickstarter and I think it's a
11:24great service yeah that's it I think
11:26that there's my own belief is this room
11:28for both what I would call services and
11:29for protocols and so services are things
11:32like Kickstarter which are great and
11:33they serve a purpose but the great thing
11:35about open protocols is that they invite
11:37developers and entrepreneurs and
11:39investors to build on top of them in a
11:42way that they know they can do so safely
11:44and not sort of get booted off later the
11:46way that corporate controlled platforms
11:48tend to do and so if you just compare
11:50for example like you know the amount of
11:52innovation that's happened on top of
11:54SMTP the email protocol you know there
11:56have been thousands of great companies
11:58created on top of it and services Gmail
12:00and you know outlook are the obvious
12:03ones but there's anti-spam services and
12:05there's compliance services and there's
12:07you know whatever services for helping
12:10people do more creative kind of emailing
12:11et cetera all sorts of interesting
12:13things with having on top of SMTP HTTP
12:16obviously as well it was the protocol
12:18underlying the internet which is
12:19unlocked an incredible way of innovation
12:21and so you know my feeling is what's so
12:23great about these protocols like what
12:25happens the cycle of these things
12:26whenever you create a protocol is the
12:27critics say oh that's only for criminals
12:29they said that about SSL for example
12:31there was a big debate in the 90s about
12:33encrypting you know web traffic because
12:35the argument was only criminals would
12:37want to encrypt their traffic they said
12:39that about the VCR the VCR why would you
12:40want to cut tape a movie you know it's
12:42only for piracy the reality is it's it's
12:45so that you can then take what was what
12:47was otherwise be a corporate silo and
12:49make it into a protocol which less
12:50people build on top of it now that's my
12:52own bias and that's why I think this is
12:53so exciting yeah and I agree in light
12:56house sort of the design explicitly I
12:58think recognizes that dynamic as well so
13:00you know the light house app doesn't try
13:01and do everything right it it's happy to
13:03outsource some things to third-party
13:06services like like Kickstarter and
13:08IndieGoGo whereas those services were
13:10all together the movements of money and
13:12the hosting of projects and the
13:13marketing of the projects and reviewing
13:14and Quality Assurance and all these kind
13:16of things like how some models and so
13:18there's actually a web
13:19site called late lists dot IO which is
13:21an online web gallery and they actually
13:25they host projects they provide project
13:28discovery they provide comment saying
13:30they're doing some ID verification of
13:33fundraisers and things like that so they
13:35are going ahead and then building
13:37services on top of the lighthouse
13:40protocol but there one there there one
13:43service but but yeah there can be
13:45competition someone else could critical
13:46service so you get all the all the
13:48wonderful things about capitalism you
13:50get you get true competition on top
13:51instead of kind of a you know socialist
13:54controlled corporate silo that would be
13:57my yeah I think contrary to the
14:01caricature that people like like me who
14:04and you I think who support open
14:05protocols as being kind of socialist do
14:07good or something I think it's I think
14:08it's actually the opposite which is we
14:10we are actually the the ones who want
14:12true free enterprise and competition
14:14right and wanna you know create the
14:17tools for people to do that yeah I mean
14:18having these protocols is like having a
14:20standardized road signs and things like
14:22we're having standardized measurements
14:24for other things it just smooth it just
14:27greases the wheels of trade and helps
14:29everyone do better business I think so
14:31where do you see the the current state
14:33of consumer adoption for Bitcoin and
14:35what mobile it take to to help that
14:37continue to grow um it's pretty good I'm
14:41sort of surprised every time I encounter
14:43people using Bitcoin it's always a nice
14:44surprise but it happens more and more
14:46often these days I think the one reason
14:49I'm surprised is you know right now
14:50there isn't if you're in the Western you
14:52have access to you know credit card
14:54payments and so on it's not always clear
14:56why you would want to use Bitcoin but
14:58that's not because there aren't good
14:59reasons it's because we're not doing a
15:00good job of like telling people about
15:02them I'm really keen on seeing us get
15:06like driving merchants discounts through
15:08the whole ecosystem for example so
15:09people can save money with Bitcoin and
15:11see they're saving money and then they
15:14can show their friends hey look you know
15:15look what's happened here look at this
15:17money that I've saved tipping has been
15:19really great for this as well because
15:20you know people can receive a tip
15:22without even really expecting it and
15:23then suddenly they feel like hey I've
15:24actually got some money I could go down
15:26to a local cafe and buy myself a drink
15:28and it's a nice feeling you know though
15:31you wouldn't get without Bitcoin so I'm
15:33interested in trying to push some of
15:35these ideas through things that can
15:37touch everyone's lives in a small way
15:38and hopefully we can you know get more
15:41Bitcoin adoption through some of these
15:42techniques so clay Christensen who you
15:45know who coined the phrase disruption
15:46disruptive innovation he has he defines
15:49two kinds of disruption the first he
15:51calls kind of low-end disruption which
15:53is basically something in coming in and
15:54costing less for an existing behavior
15:57and the other one he calls I think he
15:59calls it non computing its non
16:01consumption and that is new technologies
16:04that that allow things you to allow for
16:07you to do things you couldn't do before
16:08so I I personally am much more excited
16:11about the latter kind for Bitcoin in
16:13other words I'm more excited about new
16:16ways that you can use Bitcoin and pay
16:19for things that you couldn't before so
16:21for example micro payments machine to
16:23machine payments versus save whatever
16:26the one two three percent credit card
16:28fees that you pay you know paying for or
16:31whatever online merchants just because
16:34one is the credit card you know the
16:36credit card system is done a very good
16:37job of effectively hiding those fees so
16:40you basically everyone's paying those
16:41fees and the merchants you know it's
16:43hidden from the consumer and basically
16:45the way it works right is Target gets
16:47all of their credit cards stole and
16:48everyone has to you know socialize the
16:51losses you basically it's one of these
16:52systems where they privatize the gains
16:54in the credit card companies a merchant
16:56processors Visa MasterCard etc but they
16:59socialize the losses you you pay for it
17:01through chargebacks and decline
17:03transactions and getting cents a new
17:05credit card and having to change
17:06everything and so they've done a good
17:08job kind of obfuscating the fees I would
17:11argue and so it's a hard thing to
17:12compete against whereas if we can cut
17:14you know sort of brand-new things that
17:16you couldn't do before because we now
17:18have a system where you can push a
17:20button and pay someone without any kind
17:22of prior trusting relationship yeah I
17:24think is it's not exclusive right so if
17:27you look at the the web you know things
17:29like YouTube and Facebook for example
17:31were undoable without the web that was
17:33like totally new market so it created
17:35social networking and so on that
17:36couldn't have happened without the
17:37internet but then a lot of people today
17:40even now they use the internet to read
17:42newspapers and you know send the
17:44equivalents of you know electronic
17:47doing the same things they were doing
17:48before just faster and cheaper so I
17:50don't think it's exclusive and focusing
17:52on you know I mean I would love it if
17:54there was a sudden killer app that made
17:55it from a1cs Bitcoin that was totally
17:57new that would be fantastic and this is
18:00why I'm exploring some of these ideas
18:01with lighthouse but you know it I would
18:05like to see as pursue both equally
18:06vigorously almost here hedging bets and
18:08we'll see what happens
18:10yeah so it's especially for expensive
18:11things like flight tickets the credit
18:12card fees are often not hidden these
18:14whenever I book flight tickets inside
18:16Europe you know I see that there's an
18:18eleven twelve dollar equivalent card fee
18:21and if I can avoid us and in some cases
18:24you can't avoid that with Bitcoin and
18:25that's you know a significant saving how
18:27do you feel about the the I mean the use
18:29cases in the developing world seem like
18:32they might be more pronounced than in
18:36the developed world I agree yeah I think
18:38if you look at the debate around a pacer
18:40for example in Kenya it's been hugely
18:43successful there you know Mobile Money
18:44and Kenya has been massively successful
18:46and a lot of countries and you know it's
18:48it if you're the financial conferences
18:50and so on if they're not talking about
18:51Bitcoin a lot of them in the past have
18:53been talking about impatient saying why
18:55is this so successful how can we
18:56replicate that but that success has been
18:58replicated almost nowhere else and one
19:01reason is that's kind of painful for a
19:03lot of Western financial types to admit
19:05is that you know mpesa was partly
19:07successful because it sort of ignored
19:09all of the Western anti-money laundering
19:11requirements and so on like you can just
19:13have a SIM card and start sending money
19:15right with em paying and you don't need
19:17to have a passport and you know an
19:19electricity bill to prove where you live
19:20which is out of reach for many people in
19:22these countries and so many these people
19:25are saying we want the benefits of
19:26empezó for poor people we want to see
19:28these systems become widespread but
19:31they're not actually quite willing to
19:32actually build a digital cash system in
19:34the vein of MPs or Bitcoin and so
19:36Bitcoin itself you know can sort of
19:38bypass they're sort of you know they
19:40want they want everything at once in
19:43some of these cases and Bitcoin can
19:44offer the same value proposition that
19:46Empire has to Kenya but in every country
19:48where people want to use it and I think
19:50that's tremendously powerful I mean the
19:51number we think about a lot here is
19:52there's now approaching three billion
19:54people with smartphones that will
19:56probably go to you know five or six
20:00now you know just reading article about
20:02a $34.00 Android smartphone in India
20:05these things are getting down to to the
20:07price points where they'll be you know
20:08almost every human on earth will have a
20:11the vast majority do not have bank
20:13accounts yeah so those people either
20:15need I need some way to participate in
20:16the economy or not you know I think you
20:18and I would both think they should they
20:20should participate and and if the
20:22banking systems not gonna figure out how
20:23to do it you know we're gonna try yeah
20:25absolutely and it's very difficult for
20:27the banking system to serve these people
20:28just due to structural reasons and the
20:31moment they want to trade across borders
20:32systems ICANN pays the don't even work
20:34either so there's a real niche the wild
20:36not even a niche right there's a real
20:38serious need for many people the Bitcoin
20:40can meet there yeah ok great I think
20:42we're out of time thanks Mike thanks bye
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