WEBVTT - Automatic transcript; recognition may contain errors. Reviewed for technical wording and speaker labels. Times match the published episode. 00:00:08.980 --> 00:00:14.680 Live from Oranjestad and Utrecht, this is the Van Wirdum Sjorsnado. 00:00:15.580 --> 00:00:15.940 Hello. 00:00:16.600 --> 00:00:17.060 Hey Sjors. 00:00:17.180 --> 00:00:18.840 Welcome to this remote session. 00:00:19.120 --> 00:00:25.040 We're doing it remote. I'm on my way to Miami, my long trip to Miami. 00:00:25.040 --> 00:00:29.220 I'm in Aruba at the moment. And you're still in Utrecht. 00:00:29.540 --> 00:00:34.400 Yep. Yeah, I'm enjoying, well, cloudy skies, rain and cold. 00:00:35.010 --> 00:00:37.150 And you're going for a swim in the tropics. 00:00:37.170 --> 00:00:37.930 Have fun with that. 00:00:39.080 --> 00:00:40.960 Exactly. Have fun staying cold. 00:00:41.220 --> 00:00:46.980 Have fun staying cold and wet, Sjors. So, yeah, the audio quality is not as great 00:00:46.980 --> 00:00:51.680 as usual, but hopefully it's good enough. Today we are going to discuss miner 00:00:51.680 --> 00:00:55.700 censorship and OFAC compliance more specifically. 00:00:56.830 --> 00:00:57.350 Yes. 00:00:58.150 --> 00:01:03.830 Sjors, oh, I don't have my notes at me. Can you explain the context here? There 00:01:03.830 --> 00:01:05.030 was a new mining pool. 00:01:06.280 --> 00:01:10.220 I think they've been around for a while, right? I forgot their name. But they 00:01:10.220 --> 00:01:15.220 basically have been bragging on press releases and social media that they are a 00:01:15.220 --> 00:01:19.900 compliant pool. They comply with all U.S. regulations, which is quite amazing 00:01:19.900 --> 00:01:24.620 because you have no idea how many regulations the U.S. has. But in particular, 00:01:24.640 --> 00:01:27.300 they want to be compliant with sanction lists. 00:01:27.760 --> 00:01:33.560 It's Marathon Digital Holdings. And I think, is that also the name of the 00:01:33.560 --> 00:01:34.460 mining pool? 00:01:36.720 --> 00:01:37.740 Maybe, maybe not. 00:01:40.100 --> 00:01:41.580 Mara Pool is the name of the mining pool. 00:01:41.600 --> 00:01:42.700 Mara Pool, that sounds familiar. 00:01:42.740 --> 00:01:47.160 Yeah, that's the one. I think there are two mining pools that are doing this now, actually. 00:01:48.670 --> 00:01:52.810 I think there might be another one. But anyways, yeah, Mara Pool is one of them. 00:01:53.210 --> 00:01:58.950 And they mined their first. We're recording it on Thursday, May 00:01:58.950 --> 00:02:03.430 6th. And they recorded their first clean block today. 00:02:04.570 --> 00:02:08.090 Yeah, well, I mean, the only thing that technically happened is there was an 00:02:08.090 --> 00:02:11.630 OP_RETURN message in the coinbase saying OFAC compliant. 00:02:12.580 --> 00:02:18.520 Right. Okay, so let's talk about this. What does this mean? What can 00:02:18.520 --> 00:02:24.280 miners do to be compliant? Should we consider it censorship? How should we look 00:02:24.280 --> 00:02:26.720 at this? So let's first start with the facts. 00:02:28.490 --> 00:02:32.430 Yeah, miners, of course, include transactions in blocks. 00:02:35.500 --> 00:02:39.700 How can they actually, let's just call it censorship. Sjors, what do you think? 00:02:41.010 --> 00:02:46.910 I mean, sure. In this case, let's consider what they could 00:02:46.910 --> 00:02:49.170 censor, right? Not what they actually did censor. 00:02:50.630 --> 00:02:56.330 So a block consists of transactions, and transactions spend an existing 00:02:56.330 --> 00:03:01.950 UTXO, and they usually create a new UTXO. And so you can censor either, you can 00:03:01.950 --> 00:03:07.410 say, well, we don't want these UTXOs to be spent. So you censor based on the 00:03:07.410 --> 00:03:13.170 input of a transaction, or you can censor based on where the funds are going, the 00:03:13.170 --> 00:03:17.310 output of a transaction. So you can say, well, if it goes to this address, then 00:03:17.310 --> 00:03:20.650 we don't mine it. Those are the two possibilities. 00:03:21.270 --> 00:03:25.530 Yeah, so a transaction is sent over a network, and then usually a miner... 00:03:25.530 --> 00:03:30.220 will pick, you know, it's mining pools generally that are actually creating 00:03:30.220 --> 00:03:35.700 blocks. And usually they will just create the set of transactions. 00:03:35.940 --> 00:03:38.540 They'll pick the transactions that pay the most fees. 00:03:39.560 --> 00:03:41.360 Right, that would be the default way to do it. 00:03:41.440 --> 00:03:46.460 Assuming there are more transactions in their mempool than fit in a single block, 00:03:46.620 --> 00:03:51.700 they can't fit them all in, so they'll select the transactions that pay them the 00:03:51.700 --> 00:03:55.700 most fees. It's a little bit more complicated than that. We've discussed that in 00:03:55.700 --> 00:04:01.040 a previous episode where the transaction selection is actually based on how they 00:04:01.040 --> 00:04:05.240 can make the most aggregate fees. But that's not the point here. We're not going 00:04:05.240 --> 00:04:09.990 to get into that. Usually the default way is a miner just picks the transactions 00:04:09.990 --> 00:04:15.830 that pays them the most fees. However, in this case they can exclude 00:04:15.830 --> 00:04:21.370 certain transactions for particular reasons, in this case because they want to be 00:04:21.370 --> 00:04:26.590 compliant with what is called the “oh fuck” list. It’s yours. 00:04:27.630 --> 00:04:31.270 Yeah, and I think you're pronouncing it in a very specific way that suggests a 00:04:31.270 --> 00:04:36.210 slightly different spelling. But it stands for, you know, the Office of Foreign 00:04:36.210 --> 00:04:37.990 Asset Control or something like that. 00:04:39.770 --> 00:04:43.970 So this is interesting because in the promotional material of that particular 00:04:43.970 --> 00:04:48.130 pool, they were bragging about complying with all U.S. regulations, including all 00:04:48.130 --> 00:04:53.930 anti-money laundering regulations and OFAC. And for the legal nerds, 00:04:53.990 --> 00:04:57.890 which I'm not, but I find this stuff somewhat interesting, the OFAC is a very, 00:04:57.890 --> 00:05:03.430 very narrow thing. It's about basically blacklisting foreign dictators 00:05:03.430 --> 00:05:08.130 and whoever the U.S. doesn't like. And most of the people in the U.S. doesn't 00:05:08.130 --> 00:05:13.570 like, nobody likes. But in this case, a couple of years ago, the OFAC published, 00:05:13.710 --> 00:05:18.650 I think, a list of Bitcoin addresses saying, well, these addresses are associated 00:05:18.650 --> 00:05:23.870 with bad people. And so my guess is, but we don't know because all we've got is 00:05:23.870 --> 00:05:29.050 this OP_RETURN message. My guess is that they made sure that this particular 00:05:29.050 --> 00:05:33.040 block did not contain a transaction to or from that address. 00:05:33.420 --> 00:05:38.290 Yeah, I think there were like two addresses, right? You say a list, but it was 00:05:38.290 --> 00:05:40.750 really this two, if I'm recalling correctly. 00:05:42.330 --> 00:05:46.950 Yeah, last time we checked it was two. Anyway, the point is the odds that those 00:05:46.950 --> 00:05:50.710 addresses were used at all are practically zero. So they could have just 00:05:50.710 --> 00:05:55.270 published this OP_RETURN message randomly in some block without even checking 00:05:55.270 --> 00:05:55.750 anything. 00:05:57.360 --> 00:06:03.320 And as far as we know, for example, on forkmonitor.info, you can click 00:06:03.320 --> 00:06:08.460 on a block. If you know the hash, you can still look at an old block too. And it 00:06:08.460 --> 00:06:13.220 tries to track what transactions should have been in a block based on the fees, 00:06:13.440 --> 00:06:17.200 the sequence of fees, and then which transactions were actually in a block. And 00:06:17.200 --> 00:06:21.080 the difference between that might be censored or might just be random, like some 00:06:21.080 --> 00:06:25.370 timing problem or whatever. and as far as I know there was nothing censored and 00:06:25.370 --> 00:06:28.510 there was definitely nothing censored that would be on the OFAC list. 00:06:28.510 --> 00:06:30.010 Right. Yeah, so right. 00:06:30.010 --> 00:06:32.330 They didn't actually censor anything as far as we know. 00:06:32.330 --> 00:06:36.630 Right. So right now, as far as we know there or last time I checked anyways there 00:06:36.630 --> 00:06:40.930 were like two addresses on this OFAC list so these two addresses you can send any 00:06:40.930 --> 00:06:46.250 coins to or from but of course this could be expanded over time and over time 00:06:46.250 --> 00:06:50.290 there are more and more addresses on this list and that would mean that at some 00:06:50.290 --> 00:06:55.510 points they might actually censor transactions that include relevant addresses 00:06:55.510 --> 00:06:56.570 that are on this list. 00:06:57.860 --> 00:07:02.100 Yeah, or it could be much worse, right? For example, I think there was a 00:07:02.100 --> 00:07:07.400 settlement between BitGo and some U.S. department, 00:07:07.680 --> 00:07:13.240 and I think that was about OFAC very specifically. They were accused of 00:07:13.240 --> 00:07:17.080 allowing people in Cuba to make transactions, and that entire country is on the 00:07:17.080 --> 00:07:17.640 OFAC list. 00:07:20.300 --> 00:07:24.800 And basically, the way they had to comply with OFAC was a lot more than just 00:07:24.800 --> 00:07:27.840 blocking a certain address because OFAC does not say these Bitcoin addresses 00:07:27.840 --> 00:07:31.700 belong to Cuba. It's up to you to decide which Bitcoin addresses belong to Cuba 00:07:31.700 --> 00:07:37.700 if you're a service provider like BitGo. So you can lazily say we're 00:07:37.700 --> 00:07:41.560 OFAC compliant, but OFAC might not agree with that at all, especially if you're 00:07:41.560 --> 00:07:46.080 making a claim like that. So I don't know why they're kicking this hornet nest. 00:07:46.220 --> 00:07:46.540 Right. 00:07:47.120 --> 00:07:50.060 Because now OFAC might come back and say, hey, we actually did an investigation 00:07:50.060 --> 00:07:53.440 of all these addresses, and we find that actually there are two that went to 00:07:53.440 --> 00:07:58.170 Cuba. And now you guys go to jail for lying. I don't think you can go to jail for 00:07:58.170 --> 00:07:59.490 lying about that, but, you know. 00:07:59.580 --> 00:08:04.330 Let's… let's… get into what does… what does… this actually achieve? What does it 00:08:04.330 --> 00:08:09.930 actually mean if a miner like this, a Mara Pool, is keeping 00:08:09.930 --> 00:08:14.410 transactions out of their blocks? How would this affect? Let's say there is a 00:08:14.410 --> 00:08:18.890 transaction that's sent to one of these addresses, for example. 00:08:19.790 --> 00:08:25.090 Yeah, then they would miss out on, I don't know, 100 Satoshi's worth of fees, and 00:08:25.090 --> 00:08:27.110 the transaction would get into the next block. 00:08:27.820 --> 00:08:32.920 Yeah, so basically in that case, there would be a little bit of delay for the 00:08:32.920 --> 00:08:38.620 transaction. And maybe it could have some weird 00:08:38.620 --> 00:08:44.500 effects on the transaction fee. I was, you know, thinking. maybe it would have 00:08:44.500 --> 00:08:48.820 gotten in that block and just right after that block, there's sort of a flood of 00:08:48.820 --> 00:08:53.080 new transactions on the network for whatever reason, and then it's excluded in 00:08:53.080 --> 00:08:56.960 the next block because the fee is not high enough. So maybe if you want to be 00:08:56.960 --> 00:09:00.380 safely, sorry, and you're sending a transaction to an address like this, it would 00:09:00.380 --> 00:09:06.370 be better to pay a little bit more fees. But in general, if we're 00:09:06.370 --> 00:09:11.310 painting with broad strokes, we can say the only thing it really achieves is a 00:09:11.310 --> 00:09:12.730 little bit of delay, right? 00:09:14.250 --> 00:09:18.990 Probably not even that because the odds of that block being mined by that 00:09:18.990 --> 00:09:23.630 specific pool are also very small because there are so many other pools. 00:09:23.990 --> 00:09:28.110 Well, there's a little bit of a difference. So there's a little bit of delay and 00:09:28.110 --> 00:09:32.870 therefore I would argue it's a little bit of an infringement on fungibility. 00:09:33.680 --> 00:09:37.580 Fungibility is this idea that one Bitcoin is one Bitcoin. It doesn't matter which 00:09:37.580 --> 00:09:41.720 Bitcoin you'll have in the same way that it doesn't matter, you know, $1 bill is 00:09:41.720 --> 00:09:46.360 $1 bill. You can just change $1 bill for another one. It'll pay you the same 00:09:46.360 --> 00:09:52.320 thing at every store. And ideally we'd have that for Bitcoin. But if there are 00:09:52.320 --> 00:09:55.980 some transactions, some, you know, Bitcoins that are going to be delayed more 00:09:55.980 --> 00:10:00.900 than others, even though that is a very mild inconvenience, it's already 00:10:00.900 --> 00:10:04.650 harming fungibility at least a little bit. 00:10:05.580 --> 00:10:10.400 I don't know about that because I can't measure it. I just can see how this goes 00:10:10.400 --> 00:10:15.930 down a slippery slope to something that you will start noticing very, very badly. 00:10:16.490 --> 00:10:21.450 Yeah, the good thing to finish off that thought is that the counter argument 00:10:21.450 --> 00:10:27.410 there is that pools that are doing this, like this Mara Pool, they are also 00:10:27.410 --> 00:10:33.250 making less in fees. Miners that will just include every fee into their block, 00:10:33.290 --> 00:10:37.790 they're making the optimum amount of fees. If you're not doing that, you're 00:10:37.790 --> 00:10:43.350 necessarily going to... earn less fees so maybe on the long run 00:10:43.350 --> 00:10:49.250 on the in the long term, you'd be out competed by miners that will just 00:10:49.250 --> 00:10:51.010 include all transactions 00:10:51.010 --> 00:10:55.230 yeah but not but not if you only limited to these two addresses on the OFAC list, 00:10:55.230 --> 00:10:58.630 then it won't have any difference for the next million years. 00:10:58.630 --> 00:11:00.630 Then the difference will be very small. 00:11:01.260 --> 00:11:05.280 But the problem is, let's say you really want to be OFAC compliant. Now, the best 00:11:05.280 --> 00:11:09.780 way to be OFAC compliant as a mining pool is to mine empty blocks. And even then, 00:11:09.860 --> 00:11:15.140 you might not be OFAC compliant. Because let's say if you mine empty blocks, 00:11:15.400 --> 00:11:20.580 then you could say, well, if a transaction comes from a known exchange and we 00:11:20.580 --> 00:11:26.260 know they've KYC'd everybody, both the from and to address are KYC'd, 00:11:26.680 --> 00:11:29.180 then you allow those transactions in, something crazy like that? 00:11:30.200 --> 00:11:33.740 An empty block doesn't have any transactions in [unclear]. 00:11:34.000 --> 00:11:37.220 No, I was saying like empty block is an extreme example, but you'd start with an 00:11:37.220 --> 00:11:39.000 empty block and then you add everything that's whitelisted. 00:11:39.220 --> 00:11:39.400 Right. 00:11:39.680 --> 00:11:42.820 But even an empty block might not be OFAC compliant. 00:11:43.020 --> 00:11:43.240 Why? 00:11:43.480 --> 00:11:47.460 Because you're a mining pool, so you don't know who the miners are in your pool. 00:11:47.620 --> 00:11:53.480 So if the miner in your pool is some guy in Iran and then he's using electricity 00:11:53.480 --> 00:11:57.820 from a local Iranian power plant, you're still violating OFAC, at least, you 00:11:57.820 --> 00:12:02.700 know. You probably should not claim that you're not violating OFAC. Let's put it that way. 00:12:02.980 --> 00:12:07.220 Right. You should first need to KYC all of your hashers as well. 00:12:07.700 --> 00:12:11.540 Yeah, and it's possible maybe they're already doing that. So that's a far, far 00:12:11.540 --> 00:12:15.600 greater censorship problem than those two addresses that they're not mining, the 00:12:15.600 --> 00:12:18.540 fact that they're KYC-ing their miners, because even that's not necessarily 00:12:18.540 --> 00:12:21.040 normal with pools. 00:12:21.280 --> 00:12:21.620 Yeah. 00:12:21.880 --> 00:12:22.060 Right? 00:12:22.260 --> 00:12:25.260 Now let's get into a much bigger... 00:12:26.780 --> 00:12:31.840 Yeah, it sucks to record a podcast at distance, Sjors, because now I'm not sure 00:12:31.840 --> 00:12:33.320 if you were done talking or not. 00:12:34.690 --> 00:12:39.070 Well, I was trying to go to what this could look like if it gets out of hand a 00:12:39.070 --> 00:12:39.590 little bit more. 00:12:39.710 --> 00:12:43.550 Right. Well, that's where I wanted to go as well. And let me first mention this. 00:12:43.910 --> 00:12:48.750 So right now we were talking about just a single pool. And that's 00:12:48.750 --> 00:12:54.470 something Bitcoin can handle, I think. And I think we both agree for the reasons 00:12:54.470 --> 00:13:00.050 we just explained. Now, it becomes a real problem if... 00:13:00.710 --> 00:13:06.690 miners and mining pools that do this have a majority and they 00:13:06.690 --> 00:13:12.590 actually start to collude to reject not just transactions… that include not 00:13:12.590 --> 00:13:18.540 just… transactions but also blocks that include certain 00:13:18.540 --> 00:13:19.380 transactions right? 00:13:19.380 --> 00:13:23.980 Exactly. So the building on top of a block that is not compliant. 00:13:23.980 --> 00:13:29.140 Yeah if a majority of miners start doing that then your transaction isn't just 00:13:29.140 --> 00:13:34.010 going to be delayed. It's just going to be un-minable. It's just going to be 00:13:34.010 --> 00:13:38.840 delayed forever because, first of all, no miner is going to… well, a majority of 00:13:38.840 --> 00:13:43.090 miners isn't going to put it in a block. And then even if one of the minority of 00:13:43.090 --> 00:13:46.870 miners puts it in the block, that minority knows that block is going to be 00:13:46.870 --> 00:13:52.730 orphaned by the majority. So more likely than not, the minority will not even put 00:13:52.730 --> 00:13:55.690 it in the block in the first place just to make sure they're not going to be 00:13:55.690 --> 00:13:56.170 orphaned. 00:13:56.650 --> 00:14:00.550 Precisely, so you get self-censorship in addition to being compliant. 00:14:00.730 --> 00:14:06.450 Moreover, I think this would start to become a very real effect way before 00:14:06.450 --> 00:14:10.790 there's a majority actually doing this because you have this selfish mining 00:14:10.790 --> 00:14:16.030 dynamic where it probably starts being a real problem at like, 00:14:16.050 --> 00:14:21.530 I don't know, what is it, 30%, 33% where minority of miners are 00:14:21.530 --> 00:14:26.390 probably just going to comply with the censorship because otherwise they'll have 00:14:26.390 --> 00:14:27.370 their blocks orphaned. 00:14:27.810 --> 00:14:31.570 So I'm going to make a little prediction here about a new company that's going to 00:14:31.570 --> 00:14:36.950 come into existence sooner rather than later. And that is an insurance company. 00:14:37.150 --> 00:14:41.130 And what this insurance company does is if you are a miner, you can buy insurance 00:14:41.130 --> 00:14:46.210 with them that they will pay for any block you need to orphan. So if you, you 00:14:46.210 --> 00:14:50.490 know, because it's very expensive for you to orphan a non-compliant block. But if 00:14:50.490 --> 00:14:54.890 the insurance company just pays for, you know, every time you don't end up in the 00:14:54.890 --> 00:14:59.190 longest chain, well, then that removes the risks for you. And that might be 00:14:59.190 --> 00:15:03.730 economical if on the other side of this equation is the U.S. government giving 00:15:03.730 --> 00:15:07.070 you a billion dollar fine or putting you in jail. You know, you might be willing 00:15:07.070 --> 00:15:12.990 to sacrifice 0.1% of your profits. And the insurance would ultimately 00:15:12.990 --> 00:15:17.570 become extremely cheap. Because as soon as you get this self-censorship dynamic, 00:15:17.990 --> 00:15:22.850 there really just is hardly any blocks that need to be orphaned. So the insurance 00:15:22.850 --> 00:15:26.310 never has to pay out. So this whole insurance scheme could be paid by some 00:15:26.310 --> 00:15:32.000 venture capitalist who wants this future. Basically insures miners at a loss 00:15:32.030 --> 00:15:33.990 until the dynamics are there. 00:15:35.340 --> 00:15:37.300 I can make this even more gloomy if you like. 00:15:37.480 --> 00:15:38.340 Go for it, Sjors. 00:15:40.260 --> 00:15:44.240 Yeah, so I briefly mentioned the idea of whitelisting transactions. 00:15:45.800 --> 00:15:50.900 So a compliant pool or even a pool that doesn't want to be compliant but just 00:15:50.900 --> 00:15:53.640 doesn't want to risk the orphaning. That's in the later stage. But in the first 00:15:53.640 --> 00:15:59.120 stage, if you just want to be the compliant pool, you probably want to have some 00:15:59.120 --> 00:16:03.400 API for all the exchanges. And every exchange publishes a feed of every 00:16:03.400 --> 00:16:07.940 transaction they're broadcasting with some sort of score next to it. You know, 00:16:08.100 --> 00:16:11.840 the maximum score would be like, yeah, we thoroughly KYC'd this person. Like, we 00:16:11.840 --> 00:16:16.260 anally probed them, checked them for COVID. Like, we really know this transaction 00:16:16.260 --> 00:16:16.800 is legit. 00:16:18.360 --> 00:16:22.460 And you only mine what's in that RSS feed depending on your risk tolerance. 00:16:24.410 --> 00:16:30.250 That's a problem. And then the other side is how 00:16:30.250 --> 00:16:35.760 many pools would be compliant. And my worst case scenario there would be... For 00:16:35.760 --> 00:16:40.140 example, the U.S. might tell every miner, physical miner in the country, like, 00:16:40.180 --> 00:16:43.680 hey, you're welcome to mine, but there's a couple of conditions. One, you have to 00:16:43.680 --> 00:16:44.600 use renewable energy. 00:16:45.870 --> 00:16:51.130 Okay, that's fine. And the other is you have to use one of the OFAC-compliant 00:16:51.130 --> 00:16:55.070 pools. And you can self-regulate this thing, and then you get this weird 00:16:55.070 --> 00:16:58.750 self-regulation stuff where people make up rules that are really bad. 00:17:00.810 --> 00:17:05.250 So that's… And then you think, okay, that's just the U.S. pools. That's still a 00:17:05.250 --> 00:17:09.250 minority, although the U.S. pools are getting bigger. And then the European pools 00:17:09.250 --> 00:17:14.690 join because Europe likes this idea. And then, you know, as part of some goodwill 00:17:14.690 --> 00:17:19.590 gesture from China, they also join this thing. And now we have, you know, 00:17:19.690 --> 00:17:24.770 basically an international cartel of compliant miners that are using compliant pools. 00:17:26.850 --> 00:17:30.430 And then the question is, like, is the Bitcoin communities going to roll over and 00:17:30.430 --> 00:17:35.700 accept this? Because the number might still go up. And a lot of big Bitcoiners, 00:17:35.960 --> 00:17:41.260 for them, the number will go up. And is this really their fight? I don't know. 00:17:42.210 --> 00:17:45.850 Even if it's not their fight, I don't know what the defense would be. 00:17:48.810 --> 00:17:52.890 Yeah, that's an interesting point you bring up. I think there are several 00:17:52.890 --> 00:17:58.050 potential responses and there are a number of potential ideas that you could 00:17:58.490 --> 00:18:03.910 use in this case, I think Adam Back has been speaking about this concept called 00:18:03.910 --> 00:18:07.050 committed transactions. I think that's what the term is. 00:18:08.150 --> 00:18:08.290 Yep. 00:18:09.350 --> 00:18:12.190 I think there may be other ideas out there. 00:18:12.670 --> 00:18:16.670 The idea basically being, in general, you make it physically impossible to do 00:18:16.670 --> 00:18:19.370 this type of censorship because you don't know what's going to be in a block. 00:18:21.830 --> 00:18:22.350 Right? 00:18:23.170 --> 00:18:23.990 Sorry, what's that? 00:18:24.550 --> 00:18:29.380 The idea is to make it impossible because... you can't see what is in a block. 00:18:29.640 --> 00:18:31.280 Like the transactions are blinded in a way. 00:18:31.360 --> 00:18:37.160 Yeah, it's only revealed later. But it's an interesting idea that raises 00:18:37.160 --> 00:18:41.540 new questions like how would Lightning handle with something like this? If a 00:18:41.540 --> 00:18:45.360 penalty transaction is broadcast, how would you manage that? 00:18:45.720 --> 00:18:49.400 Yeah, and you can get into this. The biggest problem with this type of regulation 00:18:49.400 --> 00:18:54.960 in general, like we just talked about OFAC, but any kind of AML stuff, is the 00:18:54.960 --> 00:19:00.320 reverse burden of evidence. So if your transactions are cloaked, well, then you 00:19:00.320 --> 00:19:03.580 need to prove that they don't contain any sanctions transactions and otherwise 00:19:03.580 --> 00:19:08.400 you're not allowed to mine them. So it's hard to overcome that. What I'm a little 00:19:08.400 --> 00:19:12.940 bit more optimistic about is simple things like input aggregation and also just 00:19:12.940 --> 00:19:16.980 Lightning because there you can say, well, we had to aggregate all these 00:19:16.980 --> 00:19:21.040 transactions and so we can't really see what it's what because otherwise the fees 00:19:21.040 --> 00:19:24.740 are too high. And the same with Lightning, right? You cannot publish the details 00:19:24.740 --> 00:19:28.020 of every Lightning transaction. Because that simply doesn't fit on the 00:19:28.020 --> 00:19:33.410 blockchain. So we could get lucky that sort of the forces of nature in the sense 00:19:33.410 --> 00:19:39.350 of transaction capacity pushes the information, like makes it impossible 00:19:39.350 --> 00:19:43.710 to have the information you need for complete censorship. And maybe we get lucky 00:19:43.710 --> 00:19:44.130 that way. 00:19:44.910 --> 00:19:48.270 Sure, yeah, better privacy itself is a potential solution. 00:19:49.790 --> 00:19:53.790 But I mean, the combination of privacy and the incentive for privacy being 00:19:53.790 --> 00:19:54.430 financial, 00:19:56.230 --> 00:20:01.190 rather than direct. Because if you say, I want my privacy because I'm a citizen 00:20:01.190 --> 00:20:05.810 and I have rights, well, then you're suspicious, obviously. I'm being sarcastic 00:20:05.810 --> 00:20:11.050 here. But if you're saying, well, I don't want privacy, but Lightning is just 00:20:11.050 --> 00:20:14.610 cheaper, well, then it's fine because you should be frugal. 00:20:16.130 --> 00:20:21.550 Yeah, there's also the Eric Voskuil argument who says if your transactions are 00:20:21.550 --> 00:20:24.870 being censored, that just means you need to start paying more fees. 00:20:26.180 --> 00:20:31.940 There are ultimately very radical proposals, which is sort of, 00:20:32.000 --> 00:20:37.040 if nothing else works, we can always change the proof of work with a hard fork, 00:20:37.220 --> 00:20:38.120 something like that. 00:20:38.700 --> 00:20:39.320 And then what? 00:20:40.140 --> 00:20:42.520 Well, then at least... 00:20:44.040 --> 00:20:48.180 We get all the problems that altcoins have with random proof of work. Yeah. 00:20:48.930 --> 00:20:53.070 At least it will probably work for a little while again and figure out a solution 00:20:53.070 --> 00:20:53.590 in the meantime. 00:20:55.520 --> 00:21:01.320 Who knows? Maybe it's not solvable. I hope that things will end up well, 00:21:01.340 --> 00:21:07.000 but the universe does not guarantee that this thing will work. So one scenario 00:21:07.000 --> 00:21:12.040 might be that we just end up with a completely non-private money, 00:21:12.670 --> 00:21:18.370 but at least it's hard money. So we won one battle, and then maybe a hundred or a 00:21:18.370 --> 00:21:22.610 thousand years from now somebody comes up with a new system that's also private. 00:21:23.120 --> 00:21:27.080 Or who knows, maybe governments will at some point respect privacy. I mean, 00:21:27.500 --> 00:21:29.020 radical things have happened in the past. 00:21:29.730 --> 00:21:34.150 Yeah, I think that's an important part of it. People are just in general, not 00:21:34.150 --> 00:21:37.050 just governments. I mean, governments work for their people. So I think in 00:21:37.050 --> 00:21:40.890 general, people are just going to have to become more comfortable with the fact 00:21:40.890 --> 00:21:46.640 that people should have privacy, including privacy and transactions, which is an 00:21:46.640 --> 00:21:52.090 uphill battle. But that's probably part of the battle here. But yeah, I think 00:21:52.090 --> 00:21:58.030 we've now spent 20 minutes speaking about this at distance. And I think, I 00:21:58.030 --> 00:22:01.590 would say this is actually the biggest problem that Bitcoin hasn't quite solved 00:22:01.590 --> 00:22:03.250 yet. And would you agree with that? 00:22:04.150 --> 00:22:07.690 Yeah, I think this is probably the biggest threat to Bitcoin. 00:22:07.910 --> 00:22:08.070 Yeah. 00:22:08.450 --> 00:22:08.690 Period. 00:22:08.970 --> 00:22:14.170 And we're seeing concrete, you know, it's a very, very subtle, small start of it. 00:22:14.310 --> 00:22:18.690 But, you know, it's now officially a thing, I guess I would say. 00:22:20.650 --> 00:22:25.370 I guess it was a thing when OFAC published those two addresses. And then it was 00:22:25.370 --> 00:22:29.290 another thing again when two pools, you know, from a marketing point of view 00:22:29.290 --> 00:22:34.130 said, hey, we're compliant. We like this. And now it's another thing because 00:22:34.130 --> 00:22:37.710 somebody put in an OP_RETURN and otherwise probably did not do anything then to 00:22:37.710 --> 00:22:43.500 publish this OP_RETURN. And then the next time, I mean, the problem with OFAC, of 00:22:43.500 --> 00:22:46.140 course, is the list is too small. So it doesn't, you can't really do anything, 00:22:46.320 --> 00:22:52.040 but he could probably be… you know, censor a lot more transactions. If you just 00:22:52.040 --> 00:22:57.680 use a basic filter with some of these chain analysis companies, then a darknet 00:22:57.680 --> 00:23:01.720 might really, you might really be able to see it. And then if the pool brags 00:23:01.720 --> 00:23:06.120 about that, saying, hey, look at that. You know, we stopped thousands and 00:23:06.120 --> 00:23:10.840 thousands of darknet transactions. Look at how amazing a force for good we are. 00:23:13.040 --> 00:23:15.900 They wouldn't have stopped it, right? They would have just delayed them by one 00:23:15.900 --> 00:23:21.210 block. But then they can probably sell those coins at a profit, the 00:23:21.600 --> 00:23:22.320 coinbase rewards. 00:23:27.490 --> 00:23:32.390 That's kind of the dynamic, I think. It's just a gradually increasing thing. I 00:23:32.390 --> 00:23:37.990 also made the intransigent minority argument earlier to you, but I don't know if 00:23:37.990 --> 00:23:39.010 we want to rehash that here. 00:23:39.350 --> 00:23:41.210 Yeah, don't you mean the intolerant minority? 00:23:42.470 --> 00:23:47.670 Yeah, I think there's two ways to do it. The intolerant minority, yeah. 00:23:48.160 --> 00:23:52.060 But my kind of working theory, and I could be wrong, and I know you don't agree 00:23:52.060 --> 00:23:57.300 with it, so that's good news, is that when you have an intolerant minority that 00:23:57.300 --> 00:24:02.500 is very strict about one specific thing where the rest of the people don't care, 00:24:02.620 --> 00:24:08.550 and I think that minority here is the government, and indirectly the 00:24:08.550 --> 00:24:14.670 government. So if you are a compliance person at a bank, 00:24:15.900 --> 00:24:19.780 and you want to open a, you know, and somebody comes to you and says, hey, I want 00:24:19.780 --> 00:24:23.980 to start a mining pool. Can I borrow some money from you? Then you might say, 00:24:24.300 --> 00:24:28.120 well, we really want you to be compliant because I'm the compliance officer and 00:24:28.120 --> 00:24:31.640 that's really all I do. And essentially, you know, you're a government person 00:24:31.640 --> 00:24:33.320 when you're a compliance person. 00:24:34.840 --> 00:24:38.160 Then you can say, well, we're going to give you the loan, but only if you join 00:24:38.160 --> 00:24:41.320 one of these censorship pools. Otherwise, we're not going to give you the loan. 00:24:41.440 --> 00:24:44.610 So you could still get a loan, but it's going to be at a higher interest rate. So 00:24:44.610 --> 00:24:47.050 it might not be worth it for you. It might be better for you to just censor those 00:24:47.050 --> 00:24:48.510 transactions and get a lower interest rate. 00:24:50.220 --> 00:24:55.660 And then, you know, when you are violating any of these rules, like the OFAC law, 00:24:55.740 --> 00:24:59.120 and you are probably doing something that's not allowed, the government can throw 00:24:59.120 --> 00:25:02.780 you in jail. So they're very intransigent about that. They're willing to use any 00:25:02.780 --> 00:25:07.280 level of violence, basically, to stop you from doing this. But on the flip side 00:25:07.280 --> 00:25:13.280 are hundreds of millions of potential investors who just want to buy coins, and 00:25:13.280 --> 00:25:14.760 they're happily uploading passports. 00:25:17.390 --> 00:25:22.490 So you have a very forceful group 00:25:22.550 --> 00:25:28.490 of people, like the government, like compliance officers, who really want you to 00:25:28.490 --> 00:25:32.790 not have privacy. And then you have a lot of people who would just go along with that. 00:25:34.000 --> 00:25:39.660 And it's very diffuse, because it's every bank out there. It's not just one big 00:25:39.660 --> 00:25:41.460 bank, it's every local bank branch. 00:25:42.020 --> 00:25:42.380 Yeah. 00:25:42.580 --> 00:25:45.400 You go to some small town and you want to open a business account. It's like, 00:25:45.460 --> 00:25:46.680 well, are you compliant? 00:25:47.790 --> 00:25:51.850 Yeah, so we had this discussion just before recording the podcast, indeed. And 00:25:51.850 --> 00:25:57.430 I'll give you that this is sort of an open question, maybe. But I think 00:25:57.430 --> 00:26:02.930 the intolerant minority thing really works, really works well if the rest, 00:26:03.290 --> 00:26:07.270 everyone else, just doesn't really care. That's when the intolerant minority 00:26:07.270 --> 00:26:13.030 thing works. While I think in this case, there is at least going to be a minority 00:26:13.030 --> 00:26:17.180 that's going to be intolerant in the other direction. That's going to say... over 00:26:17.180 --> 00:26:20.400 my dead body that any transactions are going to be censored. 00:26:20.920 --> 00:26:24.700 Yeah, I agree. There's probably at least a few thousand people. 00:26:24.860 --> 00:26:30.340 We will consider that a 51% attack, and we will take 00:26:30.340 --> 00:26:35.080 measures against that. It's actually interesting that you bring this up also 00:26:35.080 --> 00:26:40.920 because, you know, we've just done a couple of episodes on Taproot activation 00:26:40.920 --> 00:26:46.680 and the UASF debate is relevant again. And the UASF is in a way an intolerant 00:26:46.680 --> 00:26:52.060 minority as well. And the reason that I think it works in the UASF context is 00:26:52.060 --> 00:26:56.580 because everyone wants Taproot. Everyone wants Taproot. There's no one against 00:26:56.580 --> 00:27:01.700 it. There's only debates basically on how to activate it. And I think when it 00:27:01.700 --> 00:27:06.780 comes to activation… I think, but I could be wrong, and I'm willing to hear why I 00:27:06.780 --> 00:27:10.780 would be wrong, but I think when it comes to the activation part itself, that's 00:27:10.780 --> 00:27:15.080 where the intolerant minority thing works. Because people have different 00:27:15.080 --> 00:27:21.040 opinions, but will they really sort of reject the whole idea if they get Taproot, 00:27:21.100 --> 00:27:24.680 or will they just be like, well, it wasn't our preference, but at least we get 00:27:24.680 --> 00:27:28.840 Taproot, so it's fine. That's sort of what I… that's sort of why I think the 00:27:28.840 --> 00:27:30.880 intolerant minority would work in that case. 00:27:32.270 --> 00:27:37.050 Right. But the intolerant minority in general as a mechanism does not… may not 00:27:37.050 --> 00:27:42.440 require that. You just… all you need for that in general is a very fanatic 00:27:42.440 --> 00:27:46.230 group of people that is spatially dispersed. I mean, that's at least what Taleb 00:27:46.230 --> 00:27:51.710 says. Every neighborhood, every city, every neighborhood is like one Jewish 00:27:51.710 --> 00:27:55.800 family, and so the entire world is drinking kosher food… drinking kosher drinks. 00:27:56.150 --> 00:27:57.510 not necessarily eating kosher food. 00:27:58.730 --> 00:28:02.770 That's all you need. And it's not that the rest of the world has to be pro-kosher 00:28:02.770 --> 00:28:06.650 food. That's not at all the case. In Taproot, it is the case, right? Everybody 00:28:06.650 --> 00:28:11.000 says Taproot is great. But that part isn't necessary in general for this 00:28:11.000 --> 00:28:11.400 mechanism. 00:28:14.140 --> 00:28:19.440 And because of this geographic dispersion where in every place on the planet 00:28:19.440 --> 00:28:23.560 there is a compliance officer working on behalf of some government really 00:28:23.560 --> 00:28:29.170 insisting on you not having privacy, that's why I'm seeing the same dynamic. It's 00:28:29.170 --> 00:28:32.410 not, but it's very, it may be different from the UASF story. 00:28:32.750 --> 00:28:38.170 Well, there's another interesting thing that's relevant. And we should dive in 00:28:38.170 --> 00:28:43.290 this deeper another time bit maybe, but I'm going to mention it briefly. It's 00:28:43.290 --> 00:28:49.190 this idea that 51% attacks and soft forks in the way they work 00:28:49.190 --> 00:28:53.280 are very similar. Right? They’re, they’re sort of… 00:28:53.280 --> 00:28:56.260 Yeah, so a soft fork is like a consensual 51% attack. 00:28:56.820 --> 00:28:58.140