Lets Talk Bitcoin Episode 34 Bitcoin and the Butters. Participants: Adam B. Levine (ABL) Host. Andreas M.

M. Antonopoulos (AA) Co-Host. Stephanie Murphy (SM) Co-Host. Jeff Bussgang (JB) General Partner at Flybridge Capital Partners. Cedric Dahl (CD) CEO of Buttercoin. Ryan Charleston (RC) Co-founder and CEO of Bitcorati. Andre DeCastro (AC) Founder of eCoinCashier. Josh Zerlan (JZ) COO of Butterfly Labs. ABL: Hi and welcome to Lets Talk Bitcoin, a twice-weekly exploration of the ideas, people and projects building the new digital economy and the future of money. My name is Adam B. Levine and todays show is a doozy. We kick things off with Stephanies interview with Jeff Bussgang of Flybridge Capital Partners, who kicks in perspective from the venture capital side of the table. Then Andreas is joined by Cedric Dahl, CEO of Buttercoin, to reveal their white-label exchange solution and how it can help liquidity go viral. Ryan Charleston of Bitcorati, a would-be Yahoo-Yelp bitcoin mashup, will tell Stephanie why we dont need the Yellow pages anymore. Andre DeCastro of eCoinCashier explains his app that will buy your bitcoins but doesnt wanna sell you any. -And finally, against the backdrop of this weeks 28nm Monarch announcement, Josh Zerlan, COO of Butterfly Labs catches up with Stephanie about the past, present and future of ASICs. Im just gonna say this is a good one. On that same note Im really excited to announce the relaunch of letstalkbitcoin.com, which has been in the process now for about 2 months. In addition to our twice-weekly shows, you can visit every day to find new articles, editorials, fiction, and perspective from all over the crypto-currency ecosystem. Please send all comments or complains to Adam@letstalkbitcoin.com. A special thank you to Michael Sullivan who made it happen. Thats it, take it away Stephanie. SM: Im here talking with Jeff Bussgang. Hes with Flybridge Capital Partners which is a venture capital firm. Right? JB: Yes, were based here in New York City and in Boston as well. SM: Are you here because youre looking for bitcoin businesses to invest in? I want to know all about what you do, but first of all, have you invested at any bitcoin businesses so far? JB: We have not. Weve invested in a lot of payments companies. Flybridge does Seed and Series-A investing and one of our areas of focus has been financial service and payments. [Weve invested in] companies like Plastiq - which is a credit card payments company for large ticket purchases - and other financial companies like ZestFinance which is a consumer lender, and BlueTarp Financial which is a lender in the construction industry. We like the category a lot, but we have not yet invested in a bitcoin focused start-up. SM: Whats holding you back from investing in [a] bitcoin start-up? JB: It is still murky for a number of reasons. One is the regulatory overhang - thats a concern. We, as investors, try to avoid businesses that have regulatory risk because its so binary. You can build great

technology but if the regulators kill the business you get zero value out of it. Secondly, were looking for platform opportunities where we can build very large companies and there are only a few areas we think where thats possible. As venture investors, were looking for the billion dollar ideas [and] not the ten million dollar ideas or even the hundred million dollars ideas. We need to see the billion dollars ideas, and they are actually very, very few of those in general and even fewer in the bitcoin sphere. Now thats a reflection, maybe, of how young this market is but Im here because Im bullish on the market in the long term, and I want to make sure that Im learning about it, meeting people who are smart about it, and getting a perspective on it that could be helpful down the road. SM: In the payment services industry - its been around longer and it sounds like at least things are clear from a regulatory stand point. Is that where you're coming from, whereas with bitcoin its really not clear? JB: Yeah, when you think about a venture capital investment, you think about risk management. We are investing in little companies with immature business models, immature technologies, sometimes immature management teams, but thats one another topic. You want to make sure that youre reducing risk, and if youve got ecosystem risk which bitcoin arguably has, Im personally bullish on it, but any objective observer would say theres ecosystem risk and youve got regulatory risk. It makes for a difficult environment to invest in. All that said, Im bullish on the category and I think its a great time since we look 5 years ahead, 10 years ahead, in the next year or two, its a great time to be learning about the category, maybe make some small investments and tipping ones toe in the market. SM: So you really think this has potential to grow a lot in the future? JB: I think it has tremendous potential. I think the concerns aside, the notion from a high level of a currency that transcends national boundaries, that reduces friction, that reduces transaction cost, that disrupts the ecosystem of dinosaurs in the financial services industry - I think thats the thesis that everybody can agree with. SM: Do you personally have bitcoins? Do you invest in bitcoins themselves? JB: I do, as part of my work, for fun, been trading a little bit in bitcoins, so Ive got a couple of bitcoins sigs in my iPhone 5, which I occasionally check the price and the ticker and keep an eye on whats going on. Its just a way of creating accounts and experiencing the system and the service. SM: I have to say Ive been in academia and science for a while and I was not spending those years thinking much about investments or anything like that but bitcoin was, kind of, my first foray into what you could do with some intelligent investments, I guess you could say. JB: Yeah, [for] almost every major technology development you could look at the ecosystem in the early days and say it was a hobbyist ecosystem. You can look at the PC industry back when Bill Gates and Paul Allen bought their little rickety PC and programmed operating systems, and played around with DOS - at the time it was a hobbyist industry. You can look at even the 3D printing, more recently, industry which is just now converting from the hobbyist industry to mainstream. Bitcoin as you know, many pooh-pooh it as a hobbyist field but thats how pioneers begin. Any time you want to be on the bleeding edge, not the leading edge, but the bleeding edge - youve got to deal with some of these immaturities and risks, and thats the essence of innovation, thats the essence of venture capital, [and] that's the essence of entrepreneurial ecosystem.

SM: Hearing you just talk about it feels really exciting. In a world thats very new, this is really exciting because of where it could go, and we cant even think of where it could go... Okay, one last question I want to ask is, as a venture capitalist, what qualities would you look for in a bitcoin company when youre ready to start investing in them, that would make them a winner? JB: It begins with a founder. We love investing behind founders with a vision, that are exceptionally talented and have the ability to execute on that vision. Second, it goes to the market opportunity - is it a platform approach? Is it a big market opportunity with an attractive business model? Third is, theres some proprietary or unfair advantage - why would this company win as supposed to three other great entrepreneurs in Beijing or Bangalore or Silicon Valley, because theres always going to be competitors when something exciting, new and successful emerges. -So this is the kinds of attributes that we look for - that magic intersection of opportunity and company - in entrepreneur. [Promo] ABL: Youre listening to Lets Talk Bitcoin, the premier audio cast providing news and insights that cover the rapidly evolving world of digital money. Our twice-weekly show include analysis, late breaking news, updates on key technical, business and regulatory issues, and in-depth interviews with the key people driving the new digital economy. Lets Talk Bitcoin offers sponsors an attractive way to reach their targeted and savvy audience. For more information email sponsors@letstalkbitcoin.com. [short pause] SM: Wanna set up an online store that accepts bitcoins? Go to www.openbitcoinstore.com and you can have a store up and running before the end of this message. Just enter your email address and the store name, and in less than 30 seconds youll have a secure WordPress e-commerce site up and running that accepts bitcoins and pays you in cash within 24 hours. Best of all, its completely free. Go to www.openbitcoinstore.com today, and open for business now. [/Promo] AA: Over the past several months weve all been experiencing a lot of ups and downs with Mt. Gox and it has become a bit of the bane of our existence here in bitcoin. Several months ago one aspiring bitcoiner put out a call to arms and a call to action, and asked other similarly minded programmers to come to his aid in order to build a better bitcoin exchange, and out of that community effort came Buttercoin. Well, Buttercoin now has some new announcements and Im delighted to have with us today Cedric Dahl, the CEO of Buttercoin to tell us a bit about how far Buttercoin has come from that first call to action. Cedric welcome to the show. CD: Thank you, its good to be here. AA: I hear you have a very big announcement on Monday and Buttercoin has evolved a bit from the basic concept of building a very scalable and high performance exchange [engine?]. Can you tell us where were going with this today?

CD: Yes, so Buttercoin is launching a white-label bitcoin exchange service that makes it easy for organizations to instantly deploy a robust bitcoin exchange anywhere in the world with a touch of a button. AA: By white-label you mean that they can essentially brand this with their own business name and start operating an exchange without any of the technical experience or infrastructure necessary to run the actual exchange hardware? CD: Thats right. We take care of all the hard work, so they dont have to. AA: All right. Can you tell us a bit about the white-label exchange experience? What does Buttercoin bring to the table that someone who wanted to open an exchange would not have to do themselves? CD: Sure. As you probably know, compliance is a big deal in the bitcoin space, especially in America were finding that theres a lot of activity happening around compliance and making sure that people who are having businesses and exchanges with bitcoin are able to be complaint and so youre in this interesting space where a lot of the folks who have the required licenses want to get into the space but they dont know how. In other countries where the rules arent necessarily stringent, you have aspiring entrepreneurs who want to launch bitcoin exchanges but they might not have the technical chops and what we wanted to do is enable all of these people - everybody in every country who is legally able to run a money service business, we wanted to make it easy for them to put up a bitcoin exchange without having to worry about the technology, without having to worry about jump starting, to liquidity onto their exchange. Ultimately we put our heads together and thought, whats the best way to make bitcoin work? Whats the best way to create a robust system where people can access bitcoins worldwide while also helping them deal with compliance and whatever specific way their country requires them to. Our solution was this white-label bitcoin exchange. I can talk a little bit more about how we got here if youd like because where we ended up was not anywhere near where we intended to go, but I think what were doing is actually probably the best way to secure bitcoins future. AA: Tell us a bit about the history, I remember in the beginning the primary goal was simply to provide a performance exchange engine and certainly the first indications were that youre able to bring to the table something that can do a hundreds of thousands or even millions of transactions per second, so tell me a bit about more [about] how that journey changed? CD: Thats right; when we first started what we wanted to do was remove the existential risk from bitcoin. We want bitcoin to work and after Mt. Gox crashed, we recognized that a big part of that crash was the low performance on the Mt. Goxs trade execution engine, so we came out with a high performance trade execution engine that was an open source and our idea was that, anybody could use this, you could take it, you could run your bitcoin exchange with it, and it will allow you to limit lag time. I think at the peak we were seeing, at the peak of activity at Mt. Gox, when the prices approaching 260 we were seeing lag times of an hour and a half and as you know lag time leads to illiquidity which leads to people getting scared and selling their stocks - in this case the bitcoins, and the price of this bitcoin crashing. Initially what we were doing was really just creating this software that anybody could use and as we put it out there, we started talking to various exchanges; we found that the major players for the most part just were not willing or able to integrate Buttercoin or something like it into their system. They just, for the most part, didnt have the technical chops, and we quickly realized that if we wanted an exchange to exist - that was robust - were gonna have to build it ourselves.

AA: Software was not enough. You had to build the entire end-to-end infrastructure and integrate it. CD: Thats right. As we started building this we realized that there were a couple of big hurdles and the two biggest ones, being based in America, were (a) having a bank account which is a necessary mechanic of having an exchange and the second one was being licensed because as people have seen with the recent subpoenas from New York, and Mt. Gox getting, basically, focused on by the department of Homeland Security. If you are gonna play the financial services game you have to play by the rules and if you dont - governments will come down on you. As we were going through this exercise, we effectively built this complete bitcoin exchange where the only thing that was missing was plugging in a bank account. The bitcoin exchange was designed with compliance in mind - security, performance, and liquidity. We tackled a lot of these big problems but the last element that we werent able to complete was having a bank account. Effectively we reached out to seventy-six different banks and all of them said were sorry, we just cannot open a bank account for a digital currency exchange, especially one related to bitcoin. We even had our investors, and we have top tier investors, call up these different banks and the banks just flat out said hey we would love to open an account but we just cannot. Our [background?] includes people like Google Ventures, Y-Combinator, Floodgate and these are high level top tier investors that have billions of dollars in these banks and even with billions of dollars in these banks, the bank said no, they just could not open new bank accounts for bitcoin companies. We even tried to work with the Internet Archive Credit Union and unfortunately we just were not able to open up a bank account. Now in parallel to the talking to the seventy-six different banks, we were getting phone calls from people who mistakenly thought that we had a white-label bitcoin exchange and so, after getting about a dozen of this calls we stopped and asked ourselves 'hey, what would happen if we combined this idea of a white-label bitcoin exchange with what we have, which is a bitcoin exchange, then all it needs is to plug in a bank account'. What we realized is, wow were sitting on something really powerful here because what you could do is you could have a pop-up bitcoin exchange where anybody with the right kind of bank account, at any country, could instantly deploy an instance of Buttercoin. Then we looked at how currency worked across borders; only recognized as long as each country had their own unified order book that what you could do is, you could very easily create a system that was super robust where even if, for whatever reason, one of these exchanges shut down it wouldnt affect the community or the countrys access to bitcoin. AA: Tell me a bit more about this idea of the shared order book within the context of one currency or one nation. This is fascinating. CD: The goal is to create access to liquidity which is robust and ideally will withstand any unexpected issues, so whether one specific person has issues with their bank account, or a government decides that they are no longer interested in a specific region having access to bitcoin; what we wanted to do is just make a system that could last, that could deal with unexpected issues and not go down. Like if one part of it went down it wouldnt affect the whole system. AA: Beyond resilience to a complete collapse of one of the exchanges within the region, Im assuming that this shared order book will also lead to, even without one of them failing, they would also mean that new one starting up can get access to the liquidity thats already there, but also Im assuming that would also make for smoother price discovery and less difference in price between different exchanges. Is that correct?

CD: Thats exactly correct. Phase one is have shared order books within each country and then phase two, which is a little bit off, is to build a truly global unified order book, and thats technically and legally a little more complicated but thats the next big problem were solving. AA: So right know were seeing an environment where Mt. Gox has an almost twenty percent difference in price on the USD currency from most of the other exchanges and to put a bit of speculation on that, essentially the market is saying that a Mt. Gox dollar is worth less because its harder to get out of the exchange, and as a result its pricing the sale of bitcoins a bit higher. -So in an environment where you had a shared order book, essentially that would be arbitraged away between Mt. Gox and the other exchanges, correct? CD: Thats right, the nice thing about what were doing is, were not just opening up multiple exchanges in one country or allowing other people to, were also bringing in professional market makers and these market makers are able to ensure that there are very narrow spreads between the bid and the ask, as well as making sure that every exchange [that] starts in each new country is able to start with a high level of bitcoin liquidity which is really important. You cant just build an exchange and hope people come, you have to seed it with fiat dollars on one side and bitcoins on the other. AA: Otherwise they wont be able to grow through the first influx of customers? CD: Thats right. AA: It sounds from all of this that youve somewhat given up on the idea of opening your own exchange with all of the hassle and difficulty of the seventy six banks declining you, does that mean youve more or less given up on the United States as a location, and are looking for most of your white-label customers to be in other countries? CD: Were tenacious, and we never quit. Really what this is about is moving quickly and getting set up in places where you can have easy wins, that doesnt mean we are scared off by the difficulties in the US. We have two potential partners in the United States that were going through diligence with now. Youre gonna see Buttercoin launch in three countries within three months, within six months well be in nine countries, and the US is going to be one of those nine countries. There [are] a couple ways that you can go about getting licensed in the US and thats really not the problem. The big issue is the bank account, what you are going to find is the United States is gonna come out with some ruling on Bitcoin in about four months. They kicked off a report to interview experts, thats a big part of what the New York subpoenas were about; its just interviewing experts and making sure that regulators and the folks in charge were understandable of what Bitcoin is. At the end of these four months youre gonna see the US say something. I suspect and this is just speculation on my behalf, I suspect that the US is going to say 'hey, Bitcoin is legal and it needs to be regulated and heres how to do it'. -So when that happens youre gonna find a lot less friction in terms of setting up a bank account. If we havent already si gned up with partners that have bank accounts and are legally licensed before, then well definitely be setting up after that announcement. AA: In terms of the performance and the capabilities of white-label service you have today, how would you compare it to the existing volume of trades that occurs on the three, lets say three or four top exchanges - Mt. Gox, Bitstamp, and CampBX for the US dollar at the moment. Would you be able to support that kind of volume right away?

CD: Oh yeah, absolutely. Im happy to connect you with Bennett Hoffman, whos the technical architect of our system. He can talk about the tech side better than I can, but yes, as far we understand we have the fastest system by several orders of magnitude and it would be able to handle worldwide liquidity. I mean, even if every person in the world whose using bitcoin and they were getting their bitcoins by buying and selling through Buttercoin, you wouldnt see a performance delay. AA: A great promise, lets see it happen. When do you expect as a customer or as a consumer I will be able to experience a Buttercoin white-label exchange? CD: Depends on what country youre in, were pretty far along in terms of countries like India and Canada [and] in terms of having partners there who are in the right place and able to plug in and launch exchanges. Within three months youre very likely to see something in a place like India, Canada and the US and then afterwards youre very likely to see exchanges in places like Hong Kong and Brazil. We already have deals in place and really whats going on now is just going through the due diligence, making sure that when we do launch we have a rock solid relationship with each bank thats plugged into the Buttercoin exchange. AA: I think its instructive that it takes tremendous audacity to stand up four months ago and say we can build a better, more performant exchange. At the same time its part of the course because it takes tremendous audacity to stand up and say were gonna build a currency to rival all of the world currencies, and thats exactly the kind of audacity we need in this space. Thank you very much for all your effort and for bringing this great team to bear. With us today we had Cedric Dahl, CEO of Buttercoin, telling us about the new exciting space of the white-label exchange where people will be able to open exchanges with robust technology infrastructure through Buttercoin. Cedric Dahl, thank you so much. CD: Yeah, its been a pleasure, cheers. [Short pause] RC: My name is Ryan Charleston, CEO [and] co-founder of Bitcorati.com. Its a math based [link?] company. SM: And what is the Bitcorati? RC: Bitcorati is everyone here, at this conference. Its all the enthusiasts, miners, inventors, entrepreneurs, [and] people involved in Bitcoin. Thats the Bitcorati. SM: You told me that youre building a data base right? Youre working with the NSA to compile all the bitcoin enthusiasts... [laughs]. No, Im just kidding. Youre building a directory of bitcoin people, right? RC: Essentially at the core, the foundation that were starting with, is like a Yahoo Directory and looking at things like social networks and ratings and reviews sites like Yelp and borrowing elements of that. We're looking at the key trends of the last twenty years on the web and seeing the things that actually worked and helped the web grow, bringing those together and building the same thing for bitcoin, helping bitcoin grow, helping the bitcoin businesses grow and build, and helping that ecosystem grow faster.

SM: You gonna call it the orange pages? [laughs] RC: No, just the Bitcorati. SM: Yeah, I know. I mean the concept of pages is so outdated like yellow pages, right? You dont need a book anymore to find some services that youre interested in. The usefulness to the end user, it seems to me like, would be to visit one place and they could get reviews and listings of bitcoin services, businesses and all kinds of other stuff. RC: Correct, absolutely. Anywhere in the world, you can either from a mobile device or your desktop or phone, you can find a place to spend your bitcoins. It will be updated, itll be fresh information, you can even set alerts on a specific zip code or a town and itll constantly update you and say, 'hey this merchant is now accepting bitcoins or this new bitcoin business just started' and itll keep you up to date. Itll be, a sort of, a modern directory - a new age directory [with] bitcoin being at the center of it. SM: Yeah and does it have, like, a community aspect as well? RC: Yes, its basically four parts - directory, community, reviews and ratings. SM: Tell me more about the community part. RC: Yeah, you obviously need a community if youre going to get reviews and ratings, so looking at how Yelp or Angies List built their communities up, as well as like a LinkedIn... getting that community aspect... Just a directory alone is not anything special, its boring. We have those, but building a directory and having a community around it that will actually engage, be active, review and rate, and be involved as well really brings value to it, and brings values to the users, businesses and the merchants. SM: And is there a mobile app along with this, or is it a website only? RC: There will be. Were still on development phase. Actually at a very early discovery stage and were trying to attract capital right now, we have some interested parties and once we have that were gonna [go] full steam ahead. SM: And did you, like have you had trouble finding that certain bitcoin business yourself, is it something that youd want to use? RC: Yeah, trying to find them, trying to organize them and telling friends or family that would ask me whats this bitcoin? And then one of the big, first, questions that comes up is Okay, so Ive got some bitcoins, where do I spend them?, how do I spend them right, theres not many places I can... thats a big thing, theres not many places I can spend them, and Im like - sure there is, its like 20 thousands or 25 thousands places right now on the world where you can use your bitcoins. [Many] people dont know that, and theres no real easy way - one point that you can go to and find out where to spend you bitcoins. Its scattered about the web right now, so we wanna pull it all in here and organize it, make it look pretty, obviously and just help promote bitcoin and then help promote bitcoin businesses. It was some problem I had, personally, Ive been following bitcoin since September of last year [and] really started getting more involved in January, February of this year and then the price explosion obviously brought the media attention. Thats when I said, okay I need to move on this idea, because its time, its

ready and people want it. Ive been to the two conferences now, including this one, and everybody I talked to says, yeah we need something like that. SM: Thank you so much. Whats your web site? RC: You can go to Bitcorati.com and sign up for our beta and hopefully it will be launching in October. SM: Awesome Ryan. Thank you so much for talking with me today. [pause] SM: Im here talking with Andre DeCastro and hes from eCoinCashier. Tell me about eCoinCashier. AC: eCoinCashier is... will be an application that were working on to allow individuals to quickly sell bitcoins through any mobile device. If an individual wants - lets say a hundred dollars or two hundred dollars very quickly - they will be able to choose the velocity whether they want the money in an hour, in the same day or through an ACH process of two to three days, and there will be different exchange rates making it convenient for the individual that has bitcoins, to receive dollars. SM: So its only for selling bitcoins, is that correct? AC: Yes, the application for the consumer is only for selling bitcoins directly to eCoinCashier and eCoinCashier on the back end either sells it on exchanges or to crediting investors through an investment strategy. SM: Right. Im wondering if you chose that strategy of just only offering to consumers the options to sell bitcoins, is that because of regulatory reasons? AC: Yeah, we wanna concentrate; we wanna make sure that were providing the fastest most convenient service to the user of the application. We didnt wanna complicate things with the regulatory space that exists today, so thats the path we chose. Our core competency is being an investment company and we wanna maintain our core competency, as opposed to being one of these regular exchanges where you can buy and sell. SM: That all makes sense and I know there have been some other businesses that have chosen the strategy of 'were only gonna sell bitcoins'. I dont know of anybody who said were only going to buy bitcoins but I know some businesses whove said, like basically, were gonna be a bitcoin vender in order to avoid being classified as a money services business or whatever. Is that something that came up on your radar, too? AC: Were unsure whether we wont be a money service business, we have requested an administrative ruling from FinCEN to find out if we are. If we are, we will register and apply for the proper licensing. SM: This is a pretty complex process isnt it, I mean doesnt it cost a lot and take a long time to get that license to be a money service business? AC: No, what I found out is that theres not as much friction as most people actually believe there is. Weve taken a different path, and our path was to request an administrative ruling and asking FinCEN

whether our business processees [sic] actually lend us to be a money services business before we register. Since we are developing the application now, we knew that we would need time anyway, so were using the opportune time that we need to develop the best product possible, to apply to the regulatory bodies to find out where we land. SM: So youre gonna be pretty much the only one out there so far who allows people to sell bitcoins and get the money fast, how did you come up with the idea to do this? AC: We were looking at some of the competing products out there, the Bitcoin ATM to the world and we quickly realize that theyre not ATMs whatsoever, they are exchangers and I thought it was rather silly that one would have to track across town - possibly in the rain or in the snow - to convert bitcoins to dollars. The thought was, well if we did this conveniently, and we allow the users to choose the velocity of receiving the actual dollars then they may wanna pay different rates, so the rate will be based on the velocity that the user chooses and we thought it would be much more convenient. Being a company thats positioned as an investment entity with bitcoins, it just made sense to release that type of functionality on mobile devices. SM: Is this almost like the modern equivalent of buying golds or something like that, you can take your gold to a place and theyll buy it from you and maybe if you want it really fast theyre not gonna pay much for it, and things like that? AC: Yeah, I guess you could equate it to something like that, if you were to see bitcoin as a commodity or an investment vehicle of some sort, that sort of life where we are positioned. I dont think were gonna have any bright neon lights on our application and were gonna try to be very simple for the user and very convenient, but I guess you could equate it to that. SM: I think its cool that it would be on mobile platforms so they wouldnt have to go to an actual place. You know, honestly, thereve been times in the past where I wished like - oh man I wish I could just pay my credit card off with bitcoins or something like that, because Id like to do it today and Id like to do it with no hassle. Is this a problem that you had, could you anticipate being [as] your end users? AC: Well, its interesting that you mention the credit card angle because thats one of the vehicles we plan on delivering money to. If you owe a balance on your credit card and we make a payment with your credit card and you know what happens, right? Maybe have a little more credit, to spend, but no I think we came across it because we wanted to be inventors in the bitcoin space. We want an easy vehicle to be able to collect bitcoins. We think that there are many accredited investors that we do business with, who have a hard time today getting bitcoins and probably the best way to do it is through dollar cost averaging. -So if they contract with us, were able to give them a regular amount of bitcoin and were able to provide the convenience to the end user. SM: Okay, so youre basically waiting on the regulatory side to find out what you need to do to get this up and running and then, whats your plan from there once you get some more clarity? AC: Time is something interesting, not only from the regulatory angle but both, my partner and I, were software engineers and we understand that to build good software you need time. We just started about a month and a half ago, so it will take a couple of months to put out a quality product that people will use, will find exciting and will find interesting. We needed the time for development cycles anyway, I think that both of them are perfect marriage.

SM: So, you have a partner and you, who are actually gonna be coding on this app, youre gonna be working on it yourselves? AC: Yeah. Were both engineers and were both contributing to putting the app together. A project, right - an exciting one. SM: That sounds like a lot of work. I mean, not only are you developing this new company but youre also working on the app, I mean isnt it a lot? AC: No. I think it keeps both of us very busy, but were very excited about it. SM: And you are writing papers to FinCEN, right? And you are asking for an administrative ruling so... AC: Yeah. SM: Wow. Really doing it all. AC: Yeah, I think thats part of the small business owner - someone whos trying to get something off the ground. SM: Well that sounds exciting and Id like to hear an update once you have it out. Id love to test it out... AC: Absolutely. Well contact you so can get a full review. SM: And do you have a web site yet? AC: Yes we do, you can go to ECoinCashier.com and you can already register to be part of the alpha testers. When we have an alpha version we will let our users, who sign up now, [know],so they can play with it and give us feedback so we can have a better beta product. SM: All right Andre, thank you so much for talking with me today. I appreciate your time. AC: Thank you. [promo] SM: More than 300,000 users and counting trust Blockchain.info. Its a bitcoin wallet service and a wealth of bitcoin information. -And its completely free to use. With a Blockchain.info wallet, you get the convenience of a web wallet and the security of a desktop client. Blockchain.info is also a block explorer. You can use it to see bitcoin transactions in real time, check the balance of any bitcoin address and see many handy bitcoin charts. All for free. See what they have to offer today at Blockchain.info.

Jason King: Hi. This is Jason King, founder at Seans Outpost, and youre listening to Lets Talk Bitcoin. Seans Outpost is a homeless outreach in Pensacola, Florida. -And we are proudly powered by bitcoin. Today over 13000 meals have been fed to the homeless in our area, all purchased with bitcoin and

through the generosity of the crypto-currency community. Read more about us at seansoutpost.com. Food, shelter, bitcoin - everybody. Seansoutpost.com [/promo]

SM: Im talking with Josh Zerlan and he is the chief operating officer at Butterfly Labs. Hi, Josh. JZ: Hello, how are you? SM: Good. Welcome to Lets Talk Bitcoin. Im really interested in Bitcoin mining as Im sure you are too. Id love to ask you some questions about what Butterfly Labs has been up to and what can we expect in the future coming out from Butterfly Labs, but first of all how did you get interested in bitcoin? JZ: In bitcoin itself? SM: Yeah. JZ: Well, in 2009 I did download the client and started just looking at it, at that time I probably mined a few hundred coins and overheated my laptop. I was like - oh, this is a nifty concept and promptly deleted everything. Fast forward a couple of years later, lets see - probably in late 2010 I saw the article on, I think it was [on] Slashdot about the bitcoinj client - the java based rewrite. I said, oh, thats kind of nifty and I looked into that and at that point I was like, oh well I will try mining with my nvidia card. It didnt work out so well so I purchased the AMD card [and] just snow balled from there. SM: So youre in there pretty early. I hear all these horror stories about people who mined thousands of bitcoins on some old computer and then they said oh, its not worth it, the electricity and stuff and they formatted it at some point and lost you know, 50,000 dollars or something like that. JZ: Yeah, absolutely, and fortunately I didnt mine too many, a few hundred but I have sold, I sold quite a few coins under a dollar, under two dollars, under three dollars. In one aspect its painful to think about it, but in the other that was the value at that time and it was just, is what it is. SM: Yeah, and if you hadnt sold them, you know, bitcoin adoption may not be as far along as it was today. Youre actually helping people get bitcoins and use them so such a funny thing when you talk about using bitcoins or spending bitcoins as theyre going up in value. I mean Im sure the guy who bought the 10,000 bitcoin pizza, Im sure he gets a lot of, you know, people ask him if he feels regret about it but from what Ive heard from him, he says well, I helped kick off the use of this currency so I dont feel too bad about it, hes a good sport. JZ: Yeah, absolutely. You have to grow the economy somehow and if you just hold on your coins all the time theyll never go anywhere, so in that aspect I dont feel bad about it at all and was doing my part. SM: Yeah, taking one for the team. JZ: Absolutely.

SM: Okay, so tell me what is Butterfly Labs for somebody who doesnt know what that is and what do you do at Butterfly Labs? JZ: Well Butterfly Labs manufactures mining hardware, we have the most advanced chip out right now and it basically buys you lots of bitcoin lottery tickets, we have a number of different products from the entry level to all the way up to the industrial scale mining. We have a little something for everyone there. What I do in there? I try to keep everything running and do a lot of strategic planning and the direction the Butterfly Labs is gonna look to go here in the future. SM: So, do you build the machines or do you just coordinate plans for the company or I dont know what you do. JZ: Oh, me personally? I dont physically build the machines but I do coordinate the people who do. A lot of my role is for strategic planning for new products and evolution of current products. SM: Okay, so youre thinking about what are we gonna do next. Butterfly Labs has been taking preorders for a while and theres some people who are upset because the shipping has been delayed a number of times, can you talk about that a little bit? JZ: Yeah, absolutely, and I cant say too many times we are very, very sorry for the delays. We very much understand the frustration and anger that the customers have and we share the pain and we dont begrudge the people, the anger, because its absolutely a failure on our part to get them out when we promised. Weve built up a very robust supply and manufacturing chain, its taking much longer than we thought, our chip - being the most advanced chip out now - it presented hurdles that we had to overcome. SM: For example? What would be some of the things that might cause an unforeseen delay? JZ: For example, we have to get the chip packaging together, we have to get the whole supply line coming from the foundry, to the slicing and dicing, to the packaging, to the assembly plant in Chicago which puts it on the boards, the boards to us, us to get them into the cases, the cases in the box and the box out to the shipping companies. Theres a lot of things going [like] this, and what a lot of people dont realize [is] were not a small scale operation, we have over 50 employees now; just theres a lot of steps, theres lots of orders and were just moving as fast as we can, and I wish it was as simple as some people thought it was. Were doing everything we possibly can to move this along as fast as we can but as Ive said we totally understand why people are frustrated and they have every right to be. Like I said, I cant apologize enough, but were absolutely trying to get those units out as fast as possible. SM: Yeah, and so do you have an expected time when theyre gonna be shipping? I know there are multiple different models that were talking about, like I saw a video with a Jalapeno model. There was 6 giga hashes per second or something like that. JZ: The Jalapeno is actually 5; the Super Jalapeno is 7 giga hashes. SM: Oh, okay, gotcha. I saw a video with the demo unit on that from Coding in My Sleep with David Perry, have you started shipping those yet or are they still waiting on the mass... [production?]

JZ: Oh yeah, weve shipped thousands of the Jalapenos. Were shipping all of our product lines, weve shipped hundreds of the singles. The little singles, they are a little bit behind, and weve shipped quite a few mini rigs. What a lot of people dont realize is that there are a lot of orders that arent on the customer kept lists. A lot of our customers dont want to be public, they dont want to be known, theyre very private and, you know, they have their own orders, they do their own thing, they dont even get on the forums, they dont have a log in forum, they even dont read the forums. We get lots of customers that call and be like - I want your bitcoin miner, what does it do by the way? SM: Wow [laughs]. JZ: Yeah, were always surprised by those calls, too. Were like I want to do some due diligence there, but its... we also have a lot of interest from [the] Chinese actually, thats picked up quite a bit and theyre not quite in the same boat of what does it do, they know they wanna be a part of it, but they dont know exactly how they want to be a part of it. SM: Yeah, so I guess that brings up a question from me which is that Avalon, which was pretty much the first ones to get out with an ASIC miner. They manufactured their units in China as far as I know, and youre manufacturing in Chicago, is that right? JZ: Yeah, we actually work pretty much all America. There are actual [wares?] are produced in the Singapore, and theyre shipped here to the US, sliced and diced in the US, sent for binning at another US company, sent to Chicago for the mounting and then sent to Kansas City. -So its pretty much exclusively manufactured in the US. SM: But in multiple different places in the US right? I could imagine that might cause some delays for some if the materials are going from point to point and then at any point there could be a delay in the manufacturing process that impacts the time frame. JZ: Absolutely, thats one of the problems, one of the pain points we have and its one of the things were working on. Were trying to streamline that quite a bit. SM: Was it just not possible to make them all in one place at the time when you started? JZ: Well its very hard to find reliable people that do that and weve gone through a number of vendors for various different processes. Weve settled on a new vendor for our packaging and its actually a one stop shop for slicing, dicing and packaging, so to eliminate the whole step - the whole shipping step, so theyll go from there from binning to Chicago. Hopefully that will cut it down. Its actually superior process that increases our volume dramatically in terms of how many chips we get in, so were wor king on paring that down. SM: Now at this point there are some other companies, like I just talked with Sam from KNC Miner, and there are some other companies coming out with pretty powerful ASIC devices. Are you worried about competition, I guess you could say? Are you planning anything to, kind of, up the ASIC arms race? New products that are more powerful, that compete with the next generations? JZ: Well, were definitely watching the competition and seeing whats coming down the pipe and given our past track record I am very hesitant to comment on our future products right now just because I dont wanna make promises...

SM: Sure, yeah. JZ: ... and anything like that. We will definitely remain competitive with anything coming out. SM: Yeah, it must be do you feel skeptical that other companies are gonna ship that are doing preorders right now, because, I mean, given the difficulties that you had, do you anticipate that other companies might have the same problems if theyre trying to make similar devices? JZ: I have to think they will because there was a lot of gotchas that you just... I mean if you knew about them, of course youd plan for them, but theres just especially when youre talking about dealing with the consumers space, and then if you have a large volume of consumers space, theres so many issues that you have to deal with to get those out on time that they, the other competitors are probably not ready for. As Ive said weve spent monumental amount of effort in getting our supply chain and manufacturing chain up and running, and until you actually do that and find the [keenks?] and work them out, it is really very little amount of planning that will hold up to reality. SM: One of the big issues that Ive heard a lot of people talk about is that there were some pre orders with Butterfly Labs in bitcoin and then bitcoin went up dramatically in value during the time when the people are waiting for their orders to ship. Have you done anything to address that, if people complain about it? What do you say to that, you see other people doing the same thing taking preorders in bitcoin and waiting? Can you comment about that? JZ: Well, weve always priced our products in US dollars, and we go through our payment processor called Bitpay which Im sure most of the listeners are familiar with. As much as Id like to deal in bitcoin, the volatility makes it difficult because we cant pay our vendors in bitcoins, we cant. I understand some of the arguments there, unfortunately if anyone had known that bitcoin was gonna go up, you wouldnt have spent the bitcoin or you would have purchased bitcoin to replace it. Hindsight is great for your investing but who knows, it could have dropped and then people would complain if we were refunding the same in bitcoin. In that aspect if we were to refund people to save amount of bitcoins, we could be used as a hedge; if it rises then I want my bitcoins back, if its down then Im gonna take my hardware. It just wouldnt make sense. Its just not a viable business model. SM: Sure yeah, and what kind of testing do you do, with the new units in-house? Do you have a mining facility at Butterfly Labs where youre testing new devices or... tell me a little bit about that. JZ: Well, we do a burn-in testing for about 24 hours per unit, we do it on our local network to our local test net in a box, and its actually been one of our pain points because we have such a volume that we have to test. We run low in power in one of our facilities, so we purchased a new warehouse and its doubling as a testing facility and were also turning up a couple of other data centers that we can plug in. Its getting complicated as far as that goes because we test them for 24 hours, pull them out, put them in a box and out they go. They are in the door and out of the door just absolutely as fast as possible. SM: Yeah, and have you heard from the customers who have received them. What kind of feedback have you heard from them?

JZ: Everyone, just about everyone has loved them. I mean we had a very small failure rate. There have been some failed Jalapenos... SM: You replace them? JZ: Yeah, yeah, they ship them back, we send them out a new one, no problem. I think maybe at less than 1% of the singles and mini rigs that have gone out have had any issue at all. Weve been pretty pleased with the failure rate. SM: I know that there is a device that didn't meet the power specs that were sold on the pre-order, and so there's an agreement from Butterfly Labs to donate a thousand bitcoins to charity? JZ: A thousand bitcoins, yup. SM: So that resulted in the Bitcoin development fund, right? Can you tell me a little bit about that. JZ: Well, initially we looked around for a charity or charities to donate it to, and it's surprisingly hard to find charities that accept Bitcoin. SM: Yeah, I know there's a few, I worked with one of them but yeah, there's just very few. JZ: Yeah, so what we decided was - it's [a] substantial sum of money - 100,000 dollars, we didn't necessarily want to give it to one charity, and trying to find a lot of charities to donate that money to was difficult, so we put together the fund so we can promote Bitcoin as a two pronged approach. One, [we] will donate to any charity that accepts bitcoin when we've converted for them, they only need the dollars, but then we also support the bitcoin economy and the bitcoin ecosystem by donating to the projects that further the bitcoin ecosystem. SM: Yeah, for instance, open source bitcoin software, mining software and things like that? I've heard some criticism that, Okay, they're funding mining software - this is something that helps them, this isn't really charity. What do you say to that? JZ: Right. I mean, you can certainly say it's not a charity per se and I understand the argument that 'Oh you said you donate to charity' and that's true as far as it goes, but I think we're doing far more good by promoting the bitcoin economy and the bitcoin ecosystem, and mining is a huge part of that at this time and the developers Con Kolivas, Kano, [and] Luke Jr., they all put in hundreds and hundreds of hours into these programs and they don't ask for any money. They ask for donations. They get them, but they don't get a lot. They don't get anywhere near what their time is worth, they do it out of labor of love, and we toss fifty bitcoins their way. That's more than a fair compensation on behalf of everyone who uses the software. It's not like were donating 500 bitcoins to each of them, and just some [little boy's ?] network. They have a small portion of what we have; most of our stuff is actually gone to actual charities. Weve donated to Wayside Waifs which is a local animal rescue in Kansas City, a program called Homes for Hackers which offers homes for 90 days to up and coming hacker projects, we had one other, I'll have to look... SM: Sean's Outpost? I know.

JZ: Yeah, Sean's Outpost. That was one of our first ones. We fed 7500 meals for homeless people. There's tons of others, there's a lot of different charities, so we're always looking for more and like I've said, if you have one by all means let us know we're looking, we still have over 60,000 dollars to donate. We actually have one person dedicated to calling up charities, explaining Bitcoin to them and saying we'll donate to you 10,000, 15,000 dollars if you accept bitcoin. The majority of them just won't do it, even in the face of, here's 20,000 dollars if you just do this. SM: Wow. JZ: Yeah, it's very surprising and it's very frustrating, this is free money, we're willing to give you a sizable donation and you have to do very little work [but] they don't even wanna deal with it. That's why we are even more resolute in the fact that we only donate to the charities that accept bitcoin. I think the more charities that accept it, it will become self perpetuating thing. Then these other charities will see it and say oh maybe we should accept bitcoin. SM: Right, yeah. JZ: So that's kind of where our mindset is with that. I wish we could do it faster but we wanna do it properly so, we're doing it a little slower, calling them up, working with these charities and saying 'you really wanna do this. It's a whole new avenue for you'. SM: Where can people find you online and all that stuff? JZ: ButterflyLabs.com SM: Cool, that's easy to remember. JZ: Easy to remember, yes. SM: Yeah, Josh thank you so much for talking with me today. I appreciate your time. JZ: No problem, thank you. [pause] ABL: Thank You for listening to episode 34 of Let's Talk Bitcoin. Content for today's show is provided by Stephanie Murphy, Andreas M. Antonopoulos, Josh Zerlan, Jeff Bussgang, Andre DeCastro, Ryan Charleston and Cedric Dahl. Music was provided by Jared Rubens, with a few experimental bumpers I've been playing with. As always comments about the production can go to adam@letstalkbitcoin.com. You can read our daily guest blog at letstalkbitcoin.com and you participate in our listener subreddit at letstalkbitcoin.com/talk. See you next time.