The episode begins with a talk about the current regulatory environment and considers why Dwolla is acting

the way they are. Next is an interesting discussion about crypto-anarchy. Near the end there is a great deal of information about digital autonomous corporations. If youre not familiar with this concept you may be ama ed at the implications of this fairly new idea. !articipants" #dam $. %evine &#%' ( )ost #ndreas *. #ntonopoulos &##' ( +o-host ,tephanie *urphy &,*' - +o-host Danial -rawis &D-' ( .T student/ author of upcoming book/ 0+rypto-anarchy/ 1reedom in the +omputer #ge2 3Transcription4 #dam $. %evine" )i/ and welcome to episode 56 of %ets Talk $itcoin/ a twice-weekly show about the ideas people and pro7ects building the digital economy and the future of money. 8isit us at letstalkbitcoin.com for out daily guest blog all our past episodes and of course/ tipping addresses. *y name is #dam $. %evine/ and todays show is about how things change over time. %ibertarians and bitcoin seem like a peanut butter and 7elly situation. Natural allies at a core level. 9et many prominent minds have been silent or scornful of the upstart currency. Daniel -rowis 7oins me for a wide ranging interview that expands from the origins of money to dishonest altcoins. %ater/ when software can have its own bank account well see an ecosystem of independent virus-like service providers looking to fill holes in the market and pay for the hosting. :e get evolutionary and talk survival of the solvent. $ut first Dwolla and bitcoin grew up alongside each other/ but if the latest announcement out of the private Dwolla system is any indication/ the honeymoons over/ and compliance costs are to blame. Thanks for everyone who tips/ comments/ emails/ and listens. ;n7oy the show. ,tephanie *urphy" 9ou guys may be familiar with Dwolla. They came out maybe a little over a year ago - basically stated their mission was kind of to undermine credit card processing. They<re a payment processor that offers a =5 cent transaction fee and actually I think under ten dollars theres no transaction fee. *oney transfers online. This sounds pretty good I guess maybe to people who like $itcoin/ maybe want to do frictionless transactions over the internet/ but unfortunately Dwolla has been well/ hostile to $itcoin. They were kind of making news because they may have been sort of trolling %ocalbitcoins and going after people who were using Dwolla accounts to trade bitcoin peer to peer with other people and shutting their accounts down. >ecently/ theyve put out an announcement saying they are cutting all ties with $itcoin-related exchanges. ,o they dont want anything to do with bitcoin. If a user trades bitcoin using Dwolla/ if a merchant accepts payments with $itcoin/ and somehow thats tied into Dwolla. If someone wants to send fiat money to a $itcoin exchange using Dwolla theyre going to be having no part of it. -#nd basically/ it sounds like theyre scared because they dont believe they can be in compliance with those magical regulations that keep changing and are so vague. #ndreas *. #ntonopoulos" %isten/ the only fake money we take here is green paper fake money. ,*" %ets get that very/ very clear. Ill read you Dwollas mail they sent to their users. It shows I think whats going on in the minds of the Dwolla people. 0Dear user/ as you know Dwolla does not sell/ accept/ mine/ value/ take posession of/ or hold $itcoin or any other virtual currency product/ and none of Dwollas users tranact business with Dwolla using $itcoin or any other virtual currency product. )owever/ recent interest involving virtual currency and its exchanges has created uncertainty and confusion around virtual currency/ and Dwollas relationship with a small number of its exchanges/

and this has forced Dwolla to reassign resources funds and services. #s Dwolla gears up for a new stage of growth we recogni e we can no longer sustain this merchant base/ which is only .?@ of Dwollas merchants and its uniAue needs/ and that attempting to do so 7eopardi es both of our communities starkly different but similarly ambitious vision. ,tarting Bctober =Cth at D!* +entral Time.2 ,o they are divorcing anything that has to do with $itcoin or any other virtual currency. That first sentence/ man that is pretty striking to me. Dwolla does not have anything to do with $itcoin/ we dont sell/ we dont accept/ we dont value/ we dont take possession of/ we dont hold any kind of virtual currency. ##" ,o who do you think were talking to there/ ,tephanieE ,*" :ho are they talking toE I dont knowF the regulators. ##" If theyre saying they dont hold virtual/ yeah exactly/ theyre not talking to the users. That first sentence is a message intended for a very specific audience. ,*" 9eah/ its legalese. ##" %ook *a/ I got nothin< in my hands. #%" 9ou have to imagine that theyre a little bit nervous after what happened to %iberty >eserve. I mean Dwolla and %iberty >eserve both have that commonality of being a private currency issuer that pegs their currency to the ., Dollar. .ltimately its a private currency/ but because its got that peg its like a digital version of dollars. Its a little bit more efficient because it goes outside the banking system. In the context of the regulation for %iberty >eserve that meant that they were money launderers/ and that meant that they were the largest money laundering syndicate. I mean there was all this rhetoric that surrounded the closure of that establishment. Bne has to imagine that Dwolla has to be looking at that and going/ 0#re we nextE +ould that be usE2 ##" #re we talking about ),$+ againE ,*" No I think that Dwolla thinks that theyre not yet too big to 7ail. This is definitely a legalese statement. Its too bad. 9ou know/ I read this and I feel a little bit afraid/ you know. ##" The patterns clear/ rightE >egulators and those governments that really dont like $itcoin/ that dont want it to succeed can only really regulate the fiat aspects of $itcoin/ the on ramps and off ramps into the bitcoin ecosystem. -Br to use another analogy/ our inclination so far has been/ well build an economy up there in the sky/ you can have your airports. ,crew it/ well get the refuelers and 7ust not land/ which isnt easy. There are all these people out there on the ground saying/ 0That looks like fun/ Id like to 7oin you/ but I cant find any airports nearby.2 This is the bottom line the only part of bitcoin that can be controlled is the conversion into and out of fiat/ and thats/ of course/ the only part that will be controlled. #ll that means is that the importance of peer to peer trading like Global bitcoins is going to be paramount. ,*" Its harder to do %ocal bitcoins/ especially online/ though/ if you cant use things like Dwolla/ rightE ##" 9up. ,*" 9ou gotta resort to cash or different methods/ and one by one/ I think theyre going to crack down upon.. do you..-##" $ut notice what this is doing. Its putting into Auestion the fungibility and liAuidity of the fiat reserves of all these services/ and 7ust like what happened when *tGox started having withdrawal problems.. If all of the exits are barred and the only one that is open is the one that says $itcoin above the door/ you run for that exit. -#nd this has happened again and again. ;ach time the regulators attack

the fiat exit/ that drives people to buy bitcoin in order to exit a market and drives the price up. #ll of this flailing around is really putting into Auestion the full faith that you would have in the financial instrument of fiat. Its basically highlighting how crappy fiat is - how easily it is controlled by financial interests/ how easily it is controlled by cravenly co-opted regulators/ why its so important to escape these controls. $asically/ theyre doing our marketing for us. ,*" Do you think it goes a little deeper than Dwolla being really afraid of these regulators/ thoughE Do you think Dwolla actually doesnt like bitcoin because they say/ 0)ey/ we were kinda trying to do that/ were trying to offer a payment processing service that undermines credit cards/ and offers frictionless transactions online/ and $itcoin basically does it better than us/ so we have to find some way to compete with them or take it down.2 ##" I dont think so. If Im Dwolla and Im looking at this/ Ive 7ust built an on ramp and $itcoin is a really nice way to feed into. ,o/ from my perspective Id see $itcoin as an opportunity for growth and diversification over traditional currencies. 9ou know/ you dont want to put too many eggs in the dollar basket because $ernankes twirling it above his head. ,o/ you really need to think about how this is effecting the fiat currency reputation/ but I really dont think Dwolla is doing this because of self interest or businessmen. It certainly doesnt sound like it if you read the first couple of lines in the email. :hat that line tells you is/ 0:ere scared of being sued/ so were going to throw out the bathwater and the baby together.2 #%" I dont know if its that simple/ necessarily/ #ndreas. I think that there really is genuinely very little in it for Dwolla/ because 7ust like with the banks/ its a one way valve. Bnce the money goes through and into bitcoin/ then most of it is pretty much going to stay there/ because its only useful as an onramp/ rightE ##" I abs-#%" 9ou disagree/ so you think that it would be a viable going back and forth between these services. ##" I dont think its about the =5 cent fee/ I mean this is my point" :hen did you first hear of DwollaE :hen its relevant to $itcoin/ and-,*" 9eah. ##" #nd the point is that every single person Ive heard speaking about Dwolla is speaking about Dwolla in the context of $itcoin. Now obviously/ I have a selection bias in there because I talk mostly to bitcoin people. )owever/ its clear to me that Dwolla gained a ton of attention/ marketing and if you like/ the ,treisand ;ffect by being associated with bitcoin/ and thats a good thing for Dwolla. ,o I cant see a scenario/ because a lot of people I see leaving Dwolla right now are saying/ 09eah sure/ the only reason we signed up with you is for the virtual currencies/ so youre dropping them/ were dropping you.2 #%" Bkay/ but at what cost really becomes the Auestion/ because in that note they say that only .?@ of their users actually utili e it for bitcoin which is legitimately by any standard a very small percentage/ and yet they have to maintain a separate staff that is able to deal with the compliance issues that come along with it. ,o if-##" I wonder how much of their marketing comes from that/ though. I mean how much of their public brand awareness comes directly from articles referencing $itcoin. #%" ,ure/ but lets 7ust.. to simplify this conversation I think its important to try to look at it from their perspective/ and from their perspective regardless of whether theyre getting a bunch of press as a result of this/ their perception is that this is a very small portion of their business/ and ultimately doesnt generate much income for them/ and ultimately has meaningful costs associated with it. Now

that might be a short term perspective to take/ but it looks like its the one they are taking/ they are saying we have less to gain from this than to lose from this if we wind up being treated like other virtual currency providers that have gone through this identity problem/ because again/ that<s the issue they have/ is that they have a Auasi anonymous currency too/ that lets you/ without getting the identity of the person youre sending the money toF send money to them. That of course is a problem. 9ou look at it on that side and you have companies like %iberty >eserve/ and Dwolla/ and other private currencies/ and they have almost nothing to gain from interfacing with $itcoin/ in much the same way the existing banking system doesnt have much to gain. 1rom the other side an #ma on or some other low-margin merchant has everything to gain/ but they cant because theres still this eAuation in play that where they dont understand the risk of actually exposing it.. ;ven though there are tangible/ almost immediate value to be gained from it/ 7ust through the lower fees. ##" *aking a rational assessment of the risk benefits of $itcoin within their business/ and that rational assessment leads them to drop $itcoin - absolutely. The real argument is/ is that because theres not enough benefit/ or is it because theres too much riskE Bf course its both/ but really what I think is happening here is that the risk has been artificially inflated by deliberate attacks on $itcoin-holding companies/ and by inflating that risk it tips the riskHbenefit eAuation to the point where people start dropping it. This is not about a lack of benefit or difficulty in $itcoin. Its all about artificially created risk - counter-party risk/ legal risk thats created by regulators. ,*" ,o is Dwolla 7ust the tip of the icebergE 9ou know/ are we going to see all kinds of companies/ payment processors/ etcetera within the legacy banking system 7ust giving the cold shoulder to anything that could possibly be related to $itcoin. ##" )ow would we know its different from what we have nowE I mean I think thats exactly what were seeing across the board. #%" There have been lots of start-ups that have attempted to deal with this problem of buying $itcoin one way or the other/ you know/ buying or selling $itcoin/ however you want to go about it. It really 7ust is a genuinely hard problem/ because again its an almost impossible situation that we find ourselves in. ##" 9eah/ and youre gonna basically recycle these companies every six months/ theyre gonna fail and someone else is going to come in/ try to solve the same problem/ fail/ etc. etc.. Now at the end of the day/ theres going to be a pile of failed companies at the feet of $itcoin because of the actions by the regulators and their attempts to slay the dragon/ but we dont care/ hey were consumers/ that means we get valuable service even if it is a bit interruptible. I dont care if I get my bitcoin from one company or another/ as long as there is someone out there who will keep selling me $itcoin. ,o okay/ pile of dead companies. Thats the price we have to pay. #%" #nd ultimately this conversation has been focused on the .nited ,tates/ too. The .nited ,tates has the ability to impact how the .nited ,tates plays in this market/ but it doesnt really have the ability to impact many other markets/ besides a more advisory role. #nd I mean/ again/ the genie is out of the bottle on this one/ so its more a Auestion of damage control than it is trying to shape where were going on this. :ere on this 7ourney one way or the other/ its 7ust a Auestion of how fast were going and what the exact directions were using to get there. ##" Theres going to be a very important tipping point reached/ I think/ and that tipping point is where the pain of trying to stop $itcoin and the obvious futility of that effort becomes much greater than the value the ., government or the ., state is getting out of $itcoin/ and hopefully that is a moment of epiphany where the ., is left behind/ not 7ust losing opportunity/ but also fighting a battle that is completely wasteful/ futile/ and in the end will fail.

#%" 9ou know Ive said this a couple times before/ but I think its worth repeating here. *y feeling about what is going on in the ., right now is that we are building and proving these models/ but ultimately the people who are going to utili e these models are not in the .,. ##" 9es. #%" :e are doing the.. we have the luxury of being able to throw effort at this/ while it doesnt really matter to us from a functional standpoint. :ere figuring out what works. #ll of these results/ once weve generated in this lab here/ go out to the rest of the world/ and they get to pick the ones that work. I think thats the good outcome and the good we can do at this point. &break'

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#%" Daniel -rowis is a master student at .T #ustin studying software engineering and is writing his first book/ +rypto #narchy/ 1reedom in the +omputer #ge. Daniel/ thanks for 7oining me today/ how are youE Daniel -rawis " 8ery good/ how are youE #%" I am doing well. ,o were sitting here/ it is Bctober ==nd about ?I"I=#*. The markets are totally exploding. Ive been watching over the last couple hours the price go up about twenty bucks. Do you think were in another bubbleE Do you have any idea about what is going on right nowE D-" :ell/ lets not call it a bubble/ lets call it hyper-moneti ation/ <cause thats whats happening. bitcoins are taking over the world. *aybe not tomorrow/ but as more people 7oin in/ into the big $itcoin family/ it 7ust makes $itcoin more enticing for other people. I expect well see some extreme volatility pretty soon/ but you know/ if you 7ust think back to #pril/ really all that happened was not a bubble. The price went way up and then it corrected/ but in the end/ it stabili ed around a point that was significantly higher than where it began. #%" ,o there have been people since kind of the beginning of this saying that ,ilk >oad and a lot of these/ I dont know if the word is illicit/ but less legitimate businesses actually cast a negative light on $itcoin as a whole/ so simultaneously as we saw whats been going on with ,ilk >oad/ we had the price go down and then the price go back up. I mean/ whats happening hereE D-" :ell first of all as to illicit businesses/ I think that we shouldnt try to make $itcoin appear more acceptable to the mainstream because $itcoin is so great/ it sells itself. Theyre going to be wanting $itcoin very soon anyway/ even if they think it has a bad impression today. The ama ing thing that happened with the markets is that the news came out that the ,ilk >oad had been taken down/ the price crashed for like two hours/ and then it was almost right back to where it was/ and it took about a week for it to go right back to the same level. :hat that shows is that the same people who were buying bitcoins then had a much more long term vision for $itcoin than as simply something to buy drugs with online over the ,ilk >oad. They knew that there would be more/ better versions of the ,ilk >oad that were coming out/ and they also knew all sorts of other things are possible with bitcoins/ and the destruction of this one company has really no long-term meaning for $itcoin/ although we really need to honor the ,ilk >oad as an ama ing achievement/ and $itcoin really couldnt be where it is today without it/ but however/ $itcoin is now so strong that we dont need it. #%" ,o early on/ it acted as a bootstrapping mechanism because it gave us/ I mean not us/ but generally speaking it gave something that you could do with $itcoin that you couldnt necessarily do with something else/ but right now weve passed the point/ its served its purpose/ its cataly ed what it needed to cataly e so it doesnt matter anymore. :eve kinda moved beyond that point/ rightE

D-" >ight. -#nd now/ were actually starting to see some legal businesses that use bitcoins in ways that let them do all sorts of thing that you cant do with credit cards. ,o its not 7ust add bitcoins as a payment option - were getting new businesses that can only do what they do because of bitcoins. There was this +oin +a7un e$ookstore that I learned about from your podcast/ thats one of the things I saw. Then theres this new site/ I dont remember what its called/ but it lets you do video game gambling/ which is fantastic. #%" 9eah theres one called %eetcoin thats doing that/ and I think one or two other pro7ects that are going in that same way. I mean that is a really interesting point/ there are a lot of these problems that have 7ust been problems for the longest time/ and now through $itcoin people are finally finding a way to solve them. D-" 9eah. #%" ,o/ Daniel/ people come to $itcoin for different reasons/ and kind of through varied means. )ow did you find yourself learning about/ then writing and speaking about cryptocurrency. D-" ,ince about =II5/ Ive been an anarchist >othbarnian anarcho-capitalist. That means I was a gold bug/ and I wanted all the money to be replaced by gold based currency. -,o I first learned about $itcoin in =I?I/ and there was no *tGox/ and not much of anything. It did have a price at that point. The pi a sale had happened. I remember on this website that I had read about it/ there was about six things that had been listed that you could buy with it/ and I was like/ what is this/ this is like ridiculous/ but then it was around the =I?? mania that really convinced me that there was really something to $itcoin/ because I could see that it was behaving 3like4 a regular commodity/ and it had all sorts of properties that gold bugs should like if they thought about it a little bit. Thats when I first took the plunge/ and I got a little bit/ and I am very happy with that/ but I wish I had got into mining around =I??. Thats what the really smart people were doing. Now Im trying to get involved with $itcoin businesses. Thats what the smart people are doing today/ I think. #%" :e 7ust returned from the cryptocurrency conference in #tlanta. :as that your first cryptocurrency eventE D-" 9es. #%" ,o what was your impression of it. I mean it was a more %ibertarian flavoured event than some of the ones we have attended for %ets Talk $itcoin/ but I think that we .. It was a really interesting crowd. D-" I really love how it was organi ed. 9ou had all kinds of different people with different perspectives. ,o there really needs to be a better merging between the libertarian groups and the technological computer science cryptography groups/ cause theyre really a very natural allies/ and actually I 7ust went to the ,tudents 1or %iberty +onference in Dallas last weekened/ and they didnt have a single.. None of the speakers mention bitcoins. It was on everybody<s mind. They didnt know enough about it/ though. I mean it was weird. This was sort of the first time I had been anywhere where everyone wasnt already talking about bitcoins constantly for a long time/ so that helped remind me that theres still a lot of people who need to understand whats going on. #%" ,o earlier on in our conversation you said that you believe in anarcho-capitalist principles. +ompared to libertarianism/ can you explain what some of those differences areE D-" Bkay/ well I would say that libertarians are basically anarcho-capitalists who havent thought things through to their logical conclusion. %ibertarians believe in private property and are against the initiation of coercion against other people and their property. Now I should say that doesnt mean that you cant have socialist communities or worker cooperatives. The important thing really is 7ust that property is originally owned by individuals/ and groups/ and organi ations are created by their

voluntary decisions. ,o anarcho-capitalists simply take this idea and apply it to all industries. *any libertarians will say that police and courts and national defense are legitimate functions of the state/ whereas the anarcho-capitalists would say that none of these are/ and they could all be produced privately by a for profit business model or some kind of charity model or some sort of cooperative model. There are all kinds of options available/ but the point is that they need to be provided privately/ or with organi ations created by voluntary association/ not through the state. #%" In anarcho-capitalism compared to libertarianism at least in these general terms were talking about here/ you could say that libertarians believe in minimal government/ that is a government as we know it today/ providing basic services/ whereas anarcho-capitalists do not believe in any sort of government that is not local. D-" #narcho-capitalists would still call themselves libertarians. The people who believe in minimal government are called minarchists/ and the people who believe in no government are called anarchists. Together/ 0libertarian2 encompasses both groups. #%" ,o now the imagery that often comes up when talking about anarchism or people who identify as anarchist is that of the bomb-throwing anarchist. It seems like thats an offensive stereotype and really besides that it doesnt seem to play much with the characters that we come into contact with/ identifying by that. )ow do you think that happenedE D-" :ell/ my understanding is that in the early twentieth century some of the anarchist groups did decide that violence might be an effective strategy for promoting their goals/ and since then/ that has produced this stereotype that has been a bad mark on the anarchist movement ever since. In general/ I would say that anarchists are very peaceful people and they dont believe that violence is going to be effective in promoting a free/ peaceful/ stateless society. Bf course/ I promote $itcoin as a great means of promoting anarchy. I dont think its going to be enough on its own/ but it can take great strides towards reducing the power of the state/ and of course $itcoin is completely peaceful. :hat we can see with the ,ilk >oad that there was none of the violence that you normally think of when you imagine the drug industry/ except of course when the police actually got involved and started investigating >oss .lbricht. #%" ,o youre writing a book called 0+rypo #narchy/ 1reedom in the +omputer #ge/2 and you also started a club called the crypto-anarchy club at .T #ustin where you attend. 9ou mention that you promote $itcoin as a means of promoting anarchy or decentrali ation. )ow do those two things fit together and how is $itcoin a tool/ or cryptocurrency a tool that<s relevant to this movementE D-" Nassim Taleb/ the philosopher and professor has a concept that is called antifragility. Thats something that gets stronger when you try to attack it. It rearranges itself into something that is less vulnerable every time you try to hurt it. Thats what $itcoin is. Its a network of people who are all very enthused about it and want to make it work/ and where each of them has the ability to make small contributions that add/ all on top of each other. $itcoin is so useful that its like a universal acid. It sort of absorbs everything you can throw at it. It makes it Auite easy for people to resist the government and to create organi ations that are similar to every-day businesses/ but which are also able to evade government oversight. Bf course/ the ,ilk >oad is a great example/ and now there are lots of other competitors and people are even talking about even better versions of the ,ilk >oad that dont have a single point of failure. This idea of the online anonymous drug ba aar is here to stay/ and its an enormous advance over what we had previously. ,o thats an example of how $itcoin allows people to evade the government/ but ultimately bitcoin is like 0super cash.2 Its like cash but a lot better in many ways/ and as long as you can avoid going through the banking cartel/ that alone gives you a huge edge on how you can resist the governments orders. #%" The antifragile concept is a really interesting one. #s weve been watching whats been going on

with the ,ilk >oad/ and then watching the price as it relates to that/ I mean like I said at the beginning of this interview the price had 7ust peaked to about J=II/ which is a price we hadnt been at in the last four or five months. It really has made me wonder if maybe weve past that tipping point in the antifragile cycle. I mean the whole concept behind the antifragile concept is that you punch something and if it isnt destroyed entirely then it is more resistant to future impacts that are the same/ because it learns from those impacts. -,o/ are we now at the point in the cycle where there is almost no negative impact whatsoever/ and in fact doing something that should cause a detrimental effect/ actually 7ust causes a positive effectE D-" :ell I mean I think that $itcoin was always antifragile/ but right now what were seeing is that the people who own bitcoins now understand that/ and thats what weve seen for the past few months/ is theyve been buying into any weakness and if anything bad happens it doesnt matter/ because they know that long-term/ $itcoin can overcome. !eople are so much less nervous now then they were earlier this year even/ but I think that they were wrong to be nervous earlier this year. !eople were saying/ 0Bh/ the government is going to shut $itcoin down.2 That really wasnt a realistic fear at any point. Now if the government really tried to shut $itcoin down/ they might be able to do it/ but they dont seem to understand what the threat is/ and very/ very Auickly its going to become more and more difficult for them. &break' D-" In #ustrian ;conomics there are these con7ectural histories about the origin of money. :hat this means is/ you try to think about the most general possible story about how money came into existence. In other words/ youre trying to think of some seAuence that should apply to every possible instance of the creation of money that includes all the varieties of human behavior. :hats the lowest common denominator for the story of money. There are two basic issues. The idea of how a medium of exchange/ and then theres the idea of how a good/ which is not a medium of exchange/ becomes a medium of exchange/ and both of these are independent. -,o once you have a medium of exchange it really doesnt matter how it got to that point for how it becomes money. -,o the way this happens is that maybe there are several media of exchanges/ none of which is.. :ell first of all/ I should give the definition of money. .sually money is defined as a medium of exchange which is the most marketable/ the most accepted on the market. There are several other definitions/ but they are all roughly this" the biggest medium of exchange/ the one that almost everybody is using. #%" ,o the network effect has a big role in making money 3into the4 money. D-" That is the answer. Kust think about if you have two media of exchanges which are both eAually marketable. In other words everyone is indifferent as to whether you pay in medium # or medium $/ say gold and silver/ they both like either one. If either one even gets a tiny edge over the other/ that actually makes it superior as a medium of exchange/ because a more marketable medium of exchange is better because theres more you can buy with it. # tiny edge of one medium of exchange over another should be expected to produce a positive feedback/ and eventually the medium with the slight edge should grow to have an enormous edge/ and ultimately one should emerge as money. #%" ,o were talking about small advantages causing one particular one to emerge as money versus not. This is because the fact that they are exchangeable makes them valuable. Bnce theyve .. ,o theres a threshold where one has to be a medium of exchange to be considered for this/ but once it is a medium of exchange how it got there is irrelevant/ but so long as its in that category how useful it is is determined by how many people are using it/ much the same as a language is determined by how many people are using it. D-" Thats a very good analogy/ and we can see with languages in the world that languages that are widely used become more widely used. They become trade languages - the common tongue for lots of

different people. $ut the reason this story is important is initially a lot of #ustrians didnt like $itcoin. Theyre actually coming around now/ but they didnt like $itcoin because its kind of weird for them. Theyre used to thinking about gold/ but what they could have observed is that $itcoin is already a medium of exchange/ so it could become money/ and theres really no reason that it shouldnt. The earlier story about how a good becomes a medium of exchange - the good must have demand/ or a price/ before its a medium of exchange. Thats the essential principle. There must be some principal that people want it before theyre using it to buy things. ,o with gold/ thats pretty obvious. Gold is good for 7ewelry and if they had electronics thousands of years ago it could have been good for that too/ but people like gold for reasons other than as money/ but the confusing thing about $itcoin is that it appears to be good only as a medium of exchange and not actually good for anything else. Thats the fallacy. Thats how it looks. 9ou have to think deeper to see the answer/ and really the answer is that even if it is not used as a medium of exchange it has investment value to people who think 0well/ one day it will be a medium of exchange/ and if it is/ oh boy Im going to be rich/2 and thats 7ust what we see in history is that originally bitcoins had no price at all. !eople were 7ust mining with them and playing around with them like toys/ but then some people started to seriously think about/ if bitcoins became money the very first exchanges of bitcoins for dollars were two people who 7ust wanted to have some 7ust in case/ 7ust based on that remote-seeming possibility. I mean if you can get ?I/III $itcoin for a dollar or something like that/ why not/ you knowE #nd then once there.. that tiny/ tiny base that could be built upon step-by-step eventually people started to see $itcoin businesses. ;ach step in the process builds upon the previous. Bnce there are more businesses then it seems more likely that $itcoin is going to become money in the future. ,o then theres more investment demand/ and once theres more investment demand then $itcoin can actually be used for more trade. #%" >ight/ it becomes a self-reinforcing cycle after a reasonably short time. 9ou mentioned that where all money is eAual - so in your earlier example you said silver and gold. Im wondering/ though/ isnt $itcoins value derived more from the fact that its actually easier to use as money than something like silver or gold/ because it doesnt have that liability of physicalityE D-" I would say that ultimately demand for $itcoin is still more investment demand than demand to use it as money right now. The reason there is investment demand is that people who examine it can see that it is better than gold in a lot of ways. bitcoins actually take the advantages of dollars and gold and sort of combine them and have none of the defects. Gold has the problem that its physical and reAuires a big banking infrastructure to use as money/ and of course you need money substitutes for everyday transactions/ and that leads to the problem of fractional reserve banking. :e dont have that with bitcoins. :hereas the advantage of dollars is that they can be transferred around the world/ because dollars are no longer physical. Bf course/ bitcoins are much better than that. 9ou still have to go through a ridiculous banking system to transfer dollars/ but dollars do have that advantage over gold. -,o yes/ anyway/ the investment demand for $itcoin derives from the fact that they are superior to gold and dollars as money. #%" $ut ultimately its still very speculative at this point/ moreso than it is people using. D-" 9es. #%" 1air enough. ,o/ Daniel/ wrapping this up - the first time you and I spoke it was over bitmessage about an article you wrote on altcoins. D-" I think its totally fine if you want to play around with the code and tweak some parameters - you know/ experiment and incorporate your own ideas/ but if you are telling me that your new altcoin is going to be the next big things and its going to be eAual than/ or greater than bitcoins/ you know/ or even a small shadow compared to bitcoins/ I think thats disingenuous/ and if you really believe that/ youre lying to yourself. Theres really no real reason to expect that any altcoin can beat bitcoins in the

market/ 7ust because of the network effect. Now if you come up with an altcoin that improves upon $itcoin in some way/ $itcoin can compete by incorporating that improvement into itself. It can also compete 7ust by having so much larger of a user base that any small improvement that you might have made in your altcoin isnt good enough. If you wanted to create an altcoin that was going to actually beat $itcoin/ you would have to make something thats as great an improvement over $itcoin as $itcoin is over the dollar. -,o youre not going to accomplish this by tweaking some parameters/ youll have to come up with an idea thats as ama ing and innovative as ,atoshis original idea. -,o let me 7ust Auickly suggest the conditions under which you should invest in an altcoin. Its possible that an altcoin could survive if it could do things that $itcoin cant do. In that case/ itll serve a very speciali ed purpose/ it will only do that one thing. -,o if there is an altcoin like that/ and you think that this altcoin is further away from its potential as $itcoin is from its potential/ then you could get this altcoin/ but there really isnt anything like that at all. Now/ Namecoins kind of do something interesting/ because in addition to being a currency they are attempting to be a distributed domain name recognition service/ and the way Namecoins work is that you have to use Namecoins to pay for your distributed domain. #t least that is my understanding. If Namecoins/ if the .bit addresses become popular/ you would expect Namecoins to play a very tiny speciali ed role in the $itcoin economy. ,o that would possibly be something that would be worthwhile. )owever/ it should still be seen as a disadvantage that this/ the .bit addresses have to use Namecoins rather than if someone came up with a distributed domain system that was built on top of bitcoins/ that would be a better system/ and I believe that ;nvictus Innovations is working off something like that. #%" I think the pro7ect is called Luixote. -,o mostly it sounds like you basically have to reinvent the wheel/ rightE Is it that if you are going to have a successful altcoin/ you cant 7ust stand on the shoulders of whats come before/ you have to actually create something that solves the problem thats not fixed by other things. Bne of the things weve talked about is the idea that when $itcoin gets larger it actually becomes harder to implement new things into it because when so many people have money tied up in it and since the development team is basically volunteers/ theres a lot of reticence about messing with parts like wallet software/ for example. There hasnt been a lot of innovation to $itcoin wallet software on a basic level because there is concern that if something goes wrong/ its going to cost people real money. D-" There are certain improvements that could be made to $itcoin that probably will never be made because of this problem. If theres something that is going to make $itcoin not work/ thatll get fixed/ but there are some inefficiencies that may remain that well 7ust have to live with - possibly. -,o one thing that people sometimes worry about is the centrali ation of mining/ you know/ some aspects of the way mining works. Thats probably something I.. I think thats an overblown fear. I agree that there are potential problems/ but thats something that probably will never improve. Now wallets/ there are actually many different kinds of wallets that have been made. There hasnt been a lot implemented with that but you can have two-factor wallets/ and thats only the beginning. 9ou can have wallets that behave in all sorts of interesting ways. Bne thing Id like to mention is that we have this big 7ump in the price of bitcoins in the last past couple of weeks. This has not been reflected in the %itecoin price. In fact over the past couple of months %itecoin has been steadily moving downwards. It did not 7ump with bitcoins this week as it did in #pril. -,o I think that suggests that people are beginning to understand that these altcoins are kind of a sham/ and its really.. Its going to be $itcoin or nothing essentially. #%" Daniel -rawis / thank you very much for 7oining us on %ets Talk $itcoin. D-" Thank you very much. &break'

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##" Ive mentioned before/ one of the very interesting characteristics of $itcoin/ is the ability to take something from the legal realm/ contracts/ and turn it into a technologically-solvable eAuation in the form of a transaction script. -,o where a traditional escrow transaction really is about a third party signatory in a legal contract/ on $itcoin its a third party signatory in a digital signature sense. ,o bitcoin allows you to take things that are currently only possible through law and make them possible through technology. -,o heres an interesting side effect. +urrently/ if you want to own and control money/ you have to be a person - a natural person or the legal fiction of a person in a bunch of people getting together in a corporation. If you want to control money/ you have to be a legal entity/ but with $itcoin/ you dont. In fact/ money can be controlled programmatically/ and what does is it actually creates for the first time in history the possibility of autonomous agents that control their own financial resources through direct programmatic control of a wallet. ;ssentially/ #I bots that have a bank account. .p to now/ this has been impossible/ and now we have the possibility of artificially intelligent agents that can spend money. :hat that means is really a very interesting scenario where success in the marketplace is 7udged by the ability of one of these artificial entities to pay its hosting bill/ and to perhaps grow its hosting bill/ and spread. Its survival of the solvent. ,*" Thats a classic kind of concept in artificial intelligence/ rightE -The sort of recapitulating the process that biological organisms go through to prove their fitness/ their ability to prosper and thrive/ rightE ##" 9es/ I think anyone who has taken a passing first year class in artificial intelligence and seen genetic algorithms instantly becomes fully convinced of the factual basis of evolution/ because they can see it. In action in front of their eyes they can see new capabilities emerging out of random processes. ,o you could really have this/ not only genetic algorithms that allow you to have competition between generations as well as swapping of code in the form of DN# fragments/ if you like/ but also you could have these agents operating in terms of financial analytics and making investments. They could invest in other agents/ they could invest in subsidiary agents/ and they could deliver dividends to parent agents. It all creates very interesting scenarios. #%" %et me play the guy who hasnt taken the artificial intelligence course here. I mean/ I dont even know if they existed. :hat types of applications do you think that this technology can fit inE ##" # very basic one is a fully autonomous botnet. # botnet that generates $itcoin/ perhaps through mining/ but uses that $itcoin internally to buy hosting for launching more copies of itself. #%" ,o/ a self-aware virus. ##" # self-propagating/ self-funding virus. I think that would be a very interesting thing/ because were already seeing botnet and $itcoin mining converge. It only makes sense that one of those will escape the control of its parent/ and I think thats where you see some interesting effects. The bigger picture here is that while we have been speaking about artificial intelligence in broad terms for the last twentyfive years/ and really talked about how it hasnt progressed/ in the background narrow niches of artificial intelligence has made incredible leaps and bounds. The ability to do speech recognition/ speech synthesis/ facial recognition/ number plate recognition/ the ability to implement game theory in genetic algorithms and all of those things. #rtificial intelligence has really exploded over the last decade without anyone really noticing. -,o once you add money to that eAuation/ it makes things really interesting. ,*" ,o what are we going to do when the robots start demanding to keep their money that they madeE ##" There is an incredibly interesting article on letstalkbitcoin.com on the blog by ,tan %erimer where he talks about digital autonomous corporations. -,o I think one of the interesting things is relating that to #smiovs three laws of robotics. :hat these do is they.. # self regulating morality core that allows an

independent organism to operate in a non-harmful way. Now/ we should be embedding things like that.basic controls for propagation into our own autonomous corporations if you like/ or autonomous agents. The problem is/ some of these will be malicious/ and they wont be constrained. -,o you will have sociopath agents. !retty much like corporate capitalism/ really. #%" The idea of good or evil as like a definitive truth where there are some things that should not be allowed/ as in with these three laws of robotics. The Auestion is should we be encoding morality into these things/ and if thats the case why arent we already doing that as far as software is concerned. ##" :ell/ I think morality looks really different from the perspective of a virus/ and these digital autonomous corporations really look much more like viruses than they do a more complex species like mammals/ primates or humans. In such terms morality in virus is really about propagation speed/ thats all that matters. #s long as youre not killing your host and therefore dieing yourself. Its really a survival mechanism. There is no.. *orality is always a survival mechanism in every species. -,o I think you can encode safeguards/ if you like. Theyre not really morality codes/ theyre really technological safeguards to prevent a runaway rogue agent effect. ,*" $ut 7ust like in biological systems/ theres going to be a huge diversity of strategy that artificial intelligences would employ to achieve solvency and thriving and propagation. I mean/ you might even see #Is that do charity or prop up other species/ or do kind of commensalism where they aid other #Is in their survival and they partner up with them. Kust like they happen in the biological world/ its not all competition and kill or be killed/ eat or be eaten. Theres a lot of cooperation too/ and that is a viable strategy for survival and prospering. I think its fascinating to see where this might go. ##" Bne of the interesting things about genetic algorithms is that they often arrive at solutions that work/ but we cant understand why. -,o the thing about these experiential or heuristic based algorithms is that you cant necessarily understand why its working correctly or why a certain behavior merges once you put several of these agents together - the kind of socially emergent behavior youd see in a hive species like an ant or in bees. -,o these types of behaviors that emerge you cant really reverse engineer them and understand whats going on inside/ yet they work/ so we will see very very strange things emerge. :hat stopped artificial intelligence from doing that kind of very rapid evolution/ I think/ is the lack of resources/ or in fact the resources are controlled by an external agent. Bnce you throw money into that and take away that constraint/ yeah/ really you will start seeing potentially some very rapid evolution. #%" I think it will be interesting to see the development of this as an ecosystem. 9oure both right as you look at evolutionary systems then you do see these solutions pop up in ways that you never would have expected/ but its important that you keep in mind that those arent definitive solutions. Its not like/ 0and this is the best way to do it and no one ever thought of that.2 Its 7ust that in the particular context of wherever that entity or program is working/ thats what happened to work there. $ut really/ what were talking about here is a broader ecosystem that contains millions or hundreds of millions of different iterations of all of these different things/ and the trends of whats going to work emerging over time. ,o at the same time you wont have one solution/ but you will have dominant solutions/ rightE -$ecause those will be the things that have consistently been proven to work. ##" ;xactly. This is really very similar to watching the ecosystem of altcoins in order to gain understanding of the marketplace context those operate in. The context is really the environment/ and the Auestion is what is the environment fitness function that is leading an organism to be successful in this environment. :hen you look at the strategies that make an organism successful/ it tells you a lot more about the environment that organism is in. -,o for example/ lets say were looking at altcoins/ rightE :e see altcoins like %itecoin and 1eathercoin. :hat does that tell us about the fitness function and the environment in which these coins are developingE It tells us that one of the issues identified is

the slow transactions and thats the fitness function that these are addressing. If we start seeing strongcoin/ cryptocoin/ stealthcoin/ crypticoin/ &$;;!'you-governmentcoin then you know the fitness function has changed. Its about avoiding government interference. 8ery similarly with digital autonomous corporations/ you can really look at the resulting behavior and use that as a way to understand the environment in which these entities are operating better. #%" Now the interesting part about digital autonomous corporations/ of course/ is that on the one hand its this programmatic thing/ rightE :here you have these high-level rules it operates in. The rules are essentially codified in a very high level/ but then at a lower level what ,tan describes in his article is that bitcoin and all cryptocurrencies are distributed autonomous corporations. 9ou can buy them and hold them and by holding some of the bitcoins you hold essentially a piece of the entire network/ and if the entire network increases in value then so does your piece. ,o in that way its like a share/ and I think that the pricing behavior weve seen from $itcoin over time has actually been closer to a share than to a currency. ##" Its an I!B/ yeah. #%" 9eah. That idea/ you know/ the more that I think about it/ its hard at first. Its really a.. It took me a second to understand it and Im still trying to figure out all the implications of it/ but it really does seem like thats a better way to think about cryptocurrencies than as currency/ because theyre not 7ust currencies. Theyre all these other things too that arent encompassed in that word/ but digital autonomous corporation seems to do it. ##" #s a computer scientist what I really love about looking at these environments is the fact that what you can see again and again is compelling evidence that certain patterns will lead to evolutionary processes regardless of where they appear/ whether thats in science/ in stock markets/ in cryptocurrencies/ or in trading pork bellies - whatever it is. :hat you have really is the insight that simple rules/ or unintelligent agents following simple rules.. :hen operating at scale and in large groupings/ 3they4 actually start exhibiting emergent intelligent behavior that is much much greater than the sum of the parts. This is similar to what you see in ant colonies - a lot of agents that are unintelligent individuals/ but are extremely sophisticated as a colony. $itcoin is very much like that. ;ach node on the network is really following some very simple rules/ and from that you have this incredibly complex and sophisticated emergent behavior. #%" -#nd were 7ust getting started. ##" -#nd whats going to be really interesting is that if this plays out in full/ a lot of people are predicting that essentially that this leads to the kind of technological singularity. ;ssentially if you have rapid evolution of agents that can control money/ they can keep controlling money and evolving very rapidly/ and that rate of evolution will accelerate in what is known as a technological singularity. ;ssentially/ you have these agents becoming more and more sophisticated until they can no longer be understood by those examining them. #%" Thanks for listening to episode 56 of %ets Talk $itcoin. +ontent for todays show was provided by ,tephanie *urphy/ #ndreas *. #ntonopolis/ and Daniel -rowis . *usic was provided by Kared >ubins/ and Nathaniel +astro. #ny Auestions or comments/ email adamMletstalkbitcoin.com ,ee ya next time.