LETS TALK BITCOIN

Episode 89 Goxcoin and the Meta Lair

Participants:

Adam B. Levine (AL) Host
Stephanie Murphy (SM) Co-host
Tim Swanson (TS) Author of Great Chain of Numbers Guide to Smart Properties
David Johnston (DJ) Board member at Mastercoin Foundation & Managing Director of
BitAngels
Peter Earle (PE) Economist, author and trader
Johnathan Turrell (JT) Founder of MetaLair decentralized exchange



The following program is for informational purposes only. Cryptocurrency is a new
science so do your homework before putting money on the line.

Today is March 5
th
2014 and this is Episode 89.

AL: My name is Adam B. Levine and today, yes, its still about Gox but less about the
problems and more about solutions.

Decentralized exchanges have been a hot topic in this space for years and MtGox
was always the primary reason why people understood they were so vital to
develop. It turns out, thats exactly what John Turrell has done in their upcoming
meta exchange altcoin, MetaLair. Earlier this year, he and Stephanie caught up
about the project and, although some time has passed since the interview, its
incredibly timely. We end todays show with this.
But first, what is Goxcoin? Why would anyone want to use it? How would it work?
Tim Swanson, author of the recently published Great Chain of Numbers Guide to
Smart Properties sits in as moderator for our panel discussion, featuring David
Johnston, Pete Earle and myself, on the Goxcoin project.

Enjoy the show! [1:06]


___________________________________________


Panel guests: Moderator:

Adam B. Levine Tim Swanson
David Johnston
Pete Earle

TS: Good afternoon everyone. My name is Tim Swanson and were here with a special
episode of Lets Talk Bitcoin. Were here with Adam B. Levine, whos obviously the editor-
in-chief and were also with David Johnston, who is the managing director of BitAngels as
well as a board member of the Mastercoin Foundation. The last member of this panel is
Pete Earle, who is probably most famous for his economics articles written in the last couple
of years. Todays topic is about Goxcoin which is a new project that, I think, David could
probably explain best. David, could you explain how this fuses in with the Mastercoin
protocol? [1:45]

DJ: Were looking for ways to leverage the new technologies that Bitcoin gives us to help
the people that are sort of stranded, as part of the whole Gox process. The core concept is
to issue a coin that can track peoples claims around the coins that theyve lost from Gox,
meaning that if you had an account, which you had ten bitcoins in, right now sort of those
records are all held by Gox and the idea is for the community to encourage Gox to release
those records so that they can be converted into these coins, in order to be able to trade
around that as an asset. We all know that the process... there are a lot of legal cases around
this and the process is probably going to take a very long time to work itself out; there are a
lot of question marks around how the Japanese legal system is going to treat bitcoins. This
seems like an interesting way to help the people that had funds at Gox, in order to track
their ownership. If theyre not optimistic about Gox recovering any of the funds, then
maybe they sell this ownership and whoever holds the claim when the whole Gox situation
resolves, gets the Bitcoin proportional to the amount that they held. Where the Master
protocol comes in is were not interested in creating another blockchain, were not
interested in creating something that people have to mine and so, we can use the Master
protocol in order to issue these coins and using Bitcoin as the ledger that keeps those
records. We sort of avoid all the complexity of having to have miners or a separate
blockchain and were simply using this as a way to record these assets and then move them
around. [3:33]

TS: Looking at the amount of bitcoins that have disappeared from MtGox, which is around
750,000 plus maybe 100,000 of their own, how many of these do you think you can
legitimately track? How does that process take place? How do you know whos lost stuff?
How do you keep track of that kind of database? [3:50]

DJ: There are a couple of ways this can go. Either Gox can release the records to a third
party or they could issue these coins according to their records. Either way it goes, basically,
you have to have had a verified account with Gox. Its going to be based on data that they
have from the last moment at which they were in operation. There are already groups
collecting claimants that have thousands of people that are making claims and so this sort of
offers those people a way to track it. We would think of this as an opt-in type of system.
Were not going to force anybody to participate but if you wanted to track your ownership
in this way or trade your ownership in this way, then you could opt-in to this type of system
and prove that you had this balance and you would be issued those coins, in proportion to
the amount of your balance. Were thinking of 1:1 ratio, so if you had 10 bitcoins then
youd be issued 10 goxcoins, or recoverycoins, or whatever makes sense for this project.
[4:54]

TS: Thats really interesting and I understand that Humint is tied in with this and Adam, you
are kind of spearheading that group, I think, as an advisor, right? [5:03]

AL: Im actually the chief visionary officer with the Humint Group and in our normal day job,
when we actually deliver our product because were talking to a lot of customers but we
havent actually come out with anything yet, we deal with brands and try to help them
understand the potential of cryptocurrency as it, basically, exists for them. There are a lot
of opportunities for... David brought up a really interesting point with regards to
Mastercoin and the problems that it doesnt need to solve. We dont need a blockchain for
something like this Goxcoin. We dont need mining for something like this blockchain. Its
not proof-of-stake, so you dont want to go down that road. These metacoins... Mastercoin
was a later addition to the project. We realized that we needed a platform like Mastercoin
because we didnt want to spin off a new blockchain and we didnt want to manage all of
these things. Really, we dont want to do anything. Wed prefer that this be the plaintiffs
handling it for themselves. Essentially, what were doing is developing a proof-of-Goxd
protocol that will let any plaintiff group or private recovery effort come to Humint with
claims, certified by the Japanese courts. That will then mandate Humint to create the
verified amount and distribute it back to the group who just submitted the claims. That
means that you can have one big recovery effort or a bunch of little ones but they all use the
same token, so anytime any coins are recovered, theyre split between all holders of
Goxcoin. With regards to Humint, yeah, Humint has been looking at these problems
because there are a lot of different projects that were working on that all surround these
user-created assets because they let you, essentially, take all of the advantages of
cryptocurrency and apply them to any sort of problem without having to worry about all of
the other stuff. [6:31]

TS: What kind of time frame are you guys looking at with 1) releasing Goxcoin 2) actual
getting the plaintiffs involved with this? Do you think this is a multi-year process or is this
something that is just going to be a short six week kind of project? [6:44]

AL: The project itself, I can see something like this continuing for a hundred years, because
if you think about it, we dont really know how many bitcoins are even missing, we dont
know if theyre lost, we dont know if theyre stolen. Those are things that could take years
to work out and the reality is that even if its discovered that all of these were stolen and
somebody else has them, this is a huge amount of value thats, essentially, going to be
sitting there on the blockchain and people will be watching it. All of this stuff that happened
on the blockchain is going to be untangled, just because theres such a huge financial
motivation to do so. From a project perspective, I can see this rolling out in something like
three weeks, once we have the information thats necessary. This is another interesting
point is that there are people who are concerned that a solution like this could never work
because MtGox wont or cant work with us. This is something weve talked about a lot too.
As was mentioned, you could do this through a private recovery effort. You could have
people who have claims in MtGox band together and say Were going to seek recovery on
these bitcoins that we verify that we have and then they can create these tokens. You could
have multiple, different, essentially class-action law suits or recovery efforts. The process
really works whether or not MtGox is onboard and it can happen very fast. Its important
that the coins be given to the right people. Thats the most important part and it is a tough
problem right now. [7:59]

TS: Speaking of that, maybe you guys could answer this. How does the KYC work with that?
I know thats probably at the bottom of the list of things to do but lets say these people...
you want to help out everybody but what if you have people who could be held liable for
various illicit activities, how do you handle handing out different Goxcoins to people that
you dont have a KYC on? [8:20]

AL: Everybody who is trading at Gox really should have at least basic KYC. Again, this goes
beyond my area of expertise and wed have to pull in somebody who is on legal to talk
about this too intelligently but I can tell you that anybody who has a verified account at
MtGox should have gone through KYC or they wouldnt have a verified account. Thats
really the type of people that were talking about right now because it is easier to do that.
[8:39]

TS: I see, so kind of like tranches. You want to start with somebody who could definitely
verify who their identity is; that they actually had it. This is, in a way, what we had six years
ago where you had these defaults on CDOs, these different instruments, you had different
tranches of debt repayment, so you would say the first level of bond holders would be these
verified customers, is that what youre saying, Adam? *9:00+

AL: Yeah, but the difference is that in a recovery like that, youre talking about people being
paid back at different rates, whereas here, were just talking about people chronologically.
People who are harder to verify or take longer to verify, will simply take longer before they
get back the token but the token itself is a claim on one bitcoin, whether you got it at the
very beginning of the process or at the end of the process. Now, of course, this is a
recovery, so there is almost certainly never going to be one full bitcoin given back to each of
these Goxcoin holders, it will be some fraction of that. The point is that because its in a
deflationary currency, instead of an inflationary currency, thats actually OK. You might
wind up with more money at the end than you had at the beginning just because of that.
[9:37]

TS: I see. Its sort of interesting and speaking of inflationary and deflationary, Peter, Ive got
to bring you in here. The article I know you best for is your discussion on inflation and
economics and how faucets and sinks work in a digital world. What are your thoughts on
this whole process with Goxcoins and the entire Gox fiasco? [9:58]

PE: One of the things that struck me immediately was that this would probably be
impossible to do in the world of hard money, securities and derivatives. The flexibility of the
cryptocurrencies allows you, not only to put in place the sorts of sharing features that the
cryptocurrencies do, but also it has to do with, essentially, the network effects and that the
rules around and the system that value these types of assets, these cryptocurrencies,
essentially, make them more valuable, in and of themselves. It would be very difficult to
accomplish this kind of recovery, the so called fiat currency denominated with a paper
instrument. Its a very hybrid type of thing weve got going on here that has some features
of the recovery rate that you might find in a creditable swap. Its similar, in some ways, to a
convertible bond, that sort of thing, which I think makes it extremely compelling but we may
be creating here, a sort of a way or the future of an example of how these types of things,
when they occur in the future, if they occur in the future, will be handled. [10:56]

TS: Kind of a like a secondary clearing house, a secondary market. Is that what youre
thinking about doing? [11:00]

PE: Yeah, thats essentially what it comprises. One of the things that Ive been saying for a
while now, for a couple of years now Ive been following the growth of cryptocurrencies in
particular, not only Bitcoin is that its great that the Bitcoin economy has all these things
happening in terms of places to consume Bitcoin and things to do with it but one of the
things to really make the economy, of what I call the unstate of Bitcoinistan, really vibrant
and sort of anti-fragile would be we need things like auditors, specialized auditors, we need
reviewers, we definitely need raters and people who fill a role like, something like S&T
would in the debt issuance world outside of the virtual currency world. Also, what we need
are strong venues, voluntary venues to arbitrate, mediate controversies. States with their
fiat currencies and their brick-and-mortar courts are not really going to be terribly
sympathetic I think in most cases, to controversies which arise of the cryptocurrency world.
Those are things that we have to be thinking about as this process goes forward. [12:00]

TS: Interesting. Youre talking about maybe independent arbitrators and outside auditing
and insurance. I know thats been kind of like the (??) *12:07+

PE: Absolutely. [12:08]

TS: I remember reading an article recently about some company in Boston thats apparently
insuring their bitcoins. Does that kind of tie in to... [12:16]

PE: Absolutely. That would make a very sound accoutrement to what were working on
here. Not only do you have a way of helping make economically injured holders whole, but
also they have the right of recourse and they have some way of, like I said, mediating or
arbitrating, as the case may be, the controversy. [12:33]

TS: I see. David, I know youve been working, kind of as a side project, with I think it was
general governance, was one of your other projects. How can something like that tie in to
this process of giving a framework for Goxcoins being both legitimate and be considered, I
guess you could say, a tradable asset on other exchanges? Do you see that, not only could
you have a legal framework built with it but that you could, maybe, convince other
exchanges to allow these to be exchanged on them as well? [13:01]

DJ: Sure. When we first started this process, there were a couple of exchanges that
expressed interest in trading these Goxcoins so that users have an ability to trade them for
Bitcoin. I think its important to emphasize, like Adam mentioned earlier, we dont want to
give people the false expectation that one goxcoin is going to equal one bitcoin. Its clear
that MtGox has lost, or had stolen a lot of Bitcoin and so these would be coins that trade at
some substantial discount to the regular price of Bitcoin and it would really depend on how
that recovery process is coming, either for the lost keys or the stolen funds. People would,
over time, speculate it and the price would fluctuate based on how well those recovery
processes are going or how poorly those processes are going. I just want to set expectations
that this would be something that would likely trade at a very steep discount to regular
bitcoins. I do think its important, like Peter and Adam have mentioned, that this is a bad
situation and this is sort of the least bad option. This isnt a perfect solution and there are
rough edges... [14:12]

TS: Something is better than nothing, right? [14:12]

DJ: Right. There are rough edges around how you issue them correctly and getting Gox to
cooperate by providing the data or issuing them unilaterally, as Adam mentioned, by a
group thats, basically, doing a class-action law suit. Its not a perfect solution but its
probably the best solution that weve been able to come up with or think of and waiting for
the courts for years to hash it out and, as Adam emphasized, theyre going to do it at some
price thats probably a lot lower than the real value of Bitcoin over time. This solution
avoids a lot of those issues. I think its a really interesting opportunity to leverage the
technology the community has here, in order to do what we can to make the best of a bad
situation. There has even been talk of the logo for this project should be Lemonade, right
because youre making... (laughter)... you know. Its not funny because a lot of people have
lost a lot of funds and its a very serious matter but add a little levity to the fact that were
trying to make the best of the situation that we can. I mean, certainly, the project is still at
an early phase and were looking for the community to give us input and for the community
to continue encouraging Gox to go down this route versus some other route that would lock
up everybodys funds for a very long time and sort of presenting this as a solution. Thats
the frame that Im thinking about it. *15:38+


_________________________________________


ADVERT:

KryptoKit is the worlds first Chrome browser Bitcoin wallet. Its the easiest, fastest Bitcoin
wallet payment system with a simple one click install, it takes just seconds to get your wallet
set up and because KryptoKit finds the address and payment for you, theres no more
fussing around or tab switching. KryptoKit is more than just a wallet. It comes with a pre-
loaded PGP encrypted social network, newsfeeds from Reddit and Google and up to date
charts from exchanges. Finally, KryptoKit directory allows you to make two click payments
with any of the BitPay merchants. Once you install KryptoKit, you wont need anything else.
For more information, or to download KryptoKit, visit www.KryptoKit.com. [16:32]


ADVERT:

Would you like to buy Bitcoin? Cash Into Coins provides the fastest, easiest and safest way
to buy Bitcoin in the United States. Simply place an order online, deposit cash at any
supported bank and relax. Cash Into Coins will verify your deposit and send out your Bitcoin
within 24 hours. Join tens of thousands of people who have purchased from Cash Into
Coins. What are you waiting for? Buy your Bitcoin today. Go to www.cashintocoins.com.
[17:10]


_________________________________________


TS: Adam, I know the last week or so, youve been having several interviews with various
insiders and people who have contact with MtGox. Have you been able to talk to these
individuals, or Gox itself, to find out how open they are to using something like Goxcoins or
using an outside system like this to provide liquidity and maybe even some kind of funds for
these people, some kind of recompensation? [17:47]

AL: I have no proprietary information from MtGox. My impression is that they are in full on
bunker mode and that theyre just, again, I think that theres a criminal investigation going
on. I think that theyve got the bankruptcy proceedings going on. All of those things,
basically, say that it almost doesnt really matter what Gox wants to do or Mark Karpeles
wants to do. Theyre going to shut up and theyre not going to say really much of anything
because they cant. To Davids point, I wanted to quickly mention one of the earlier
concepts that was kicked around for this idea and why we didnt go with it. One of the ideas
has been to take MtGox, and everybody who has coins in it, and turn those into equity and
then a new exchange that would be run by the community and would be run as a for-profit
exchange that would pay fees back to the shareholders. In this way, if the new Gox
succeeded, then it would pay back shareholders over time and they would potentially profit
because they would still own the shares, even after they were paid back with the dividend.
The problem with this is that it requires MtGox to actually be a functional exchange and I
dont really think that thats ever going to be a good solution. It doesnt really matter if they
rebrand, it doesnt really matter if they completely change their team. I think that in any
scenario, where they relaunched as a community run exchange, they would have a
completely new team and all that stuff would be true, but its just not that good a solution.
Its better, instead, to focus on the things that we can control which is that they have this
huge problem that we dont understand the depth of and very, very few people, even
people who should know, apparently dont understand the depth of. Its going to be
confusing for a long time. Rather than going down this hole where we say OK, well just
say, all these people who lost funds, theyre shareholders and then well bring in new
money and then theyll capitalize the business and then theyll be shareholders along with
everybody else that is so many moving parts and requires people to make bad economic
decisions in order to invest in it in the first place. You do that because you feel bad. You do
this because this is real. This reflects real value and the value is whatever is going to wind
up being recovered. Like I said before, that value is out there in the wild and its in the
wrong hands. Its in the hands of people to whom it does not belong. Those situations will
rectify themselves in Bitcoin. We just havent really seen a good enough reason to develop
the tools yet but I bet you this is it. [19:52]

TS: Thats a very powerful statement there. Out of curiosity, what kind of... for the listeners
out there, what kind of talent or skill, or human capital is this team of yours looking for right
now? Are you guys looking for lawyers, accountants, people who specialize in digging
through big data? What can people talk about or how can they bring resources to you?
[20:12]

AL: Thats a really good question. I think, at this point, were not looking for that much
help. Were just trying to finish getting the plan in order and then seeing if Gox is willing to
work with us and if not, then well proceed in ways that dont require them to work with us.
[20:22]

DJ: Yeah, Id say thats a good way to summarize it. Really, the ball is sort of in their court.
The goal for this week is to raise awareness about this proposal so that the community can
encourage Gox to go down this road. If they dont, then this is going to go forward one way
or another, probably as something issued unilaterally by one of the groups running the
class-action. Thats the road forward either Gox is going to do the right thing and provide
the information about everybodys accounts or theyre not and then the community sort of
has to do this unilaterally. It would move faster, it would be cleaner if Gox participates and I
really do encourage them to seriously consider this and if they dont, its going to take
longer and the account information is going to have to come out as part of court
proceedings and law suits and things like that. Either way, I think Peter made a good point,
this is a new technology that we can use for this purpose and its a lot better than the
existing options. One way or another, this technology is going to get used for this type of
application into the future and this is sort of just the most pressing need that our
community has at the moment and so, it seems like a really good use case for something
like this. [21:36]

TS: The technology, like you said, just this secondary protocol didnt exist to allow it in the
first place. You guys have been around for what, six months so Peter, I have a question for
you with respect to the history of this kind of thing. How does this kind of recovery happen
in the traditional brick-and-mortar world where you have these different investigations and
you have these different lawyers and litigators and you have this whole process of
interaction? How does that usually take place in the real world? [22:01]

PE: Typically what happens is where you have this kind of thing happen is when an issuer, a
company, has debt outstanding and it either defaults on that debt, this is one of the areas
where attorneys tend to get involved, any company that has debt outstanding is going to
have some definitions as to what constitutes a default. It could be a late payment, it could
be no payment and, in some cases, it could be something somewhat more exotic. Generally
speaking, what constitutes a default would be not making a dividend payment, that sort of
thing. You know, sometimes they can go up for review if their credit rating drops. Its
interesting because one of the things that David said that I was chomping at the bit to jump
in on is (and this is the same, by the way, as with debt defaults) almost nobody is going to
be made completely whole and likely, the amounts are going to be probably somewhat on
the low side. An example I have is from when I was trading during the financial crisis in
2007/08/09, suddenly there were a record number of firms which were... it travels in cycles
and we have bad economies and suddenly there is a rush of firms which default on their
debt and then, all of a sudden, all these things go into play and there are hearings and then
the companies, either they come up with a restructuring plan or sometimes they are
liquidated, or that type of thing. Anyway, I remember that the estimate that was used...
sort of the default estimate, and by the way, this was considered pessimistic, in most of the
credit/default swaps were sort of serviced as a barometer of the likelihood of default on
publicly traded debt was about $0.40 to the dollar. One of the first deals, (I dont remember
the exact firm but I do remember the number), once the proceedings were done, it turned
out that the actual recovery was not $0.40 on the dollar but $0.08 on the dollar. I certainly
dont know whats going to happen in this case but I would say that its probably something
to be sanguine about. More to your question, its a much messier process than this,
involving not only attorneys but also, like I said, sometimes theres a dispute about what
constitutes a default. Usually, its pretty straight forward whether youre a secured creditor
or a general creditor or so on. Sometimes, there are controversies about who should be
paid or who is at fault and that sort of thing. This is, by comparison, much cleaner, much
more straight forward. Better yet, its really going to be defined by the market. Its going to
be market driven rather than a result of litigation to exhaustion. [24:11]

TS: Wow! 40% on the dollar thats actually... seems quite high compared to what I
remember seeing Bitcoin Builder, that was like $0.04 on the dollar. (Laughter) [24:18]

PE: Yeah, the estimate was $0.40 and the actual number winded up being $0.08. I
remember people telling me that $0.40 was probably on the low end and that the number
would be much higher. Actually, as it turned out, the number was vastly lower. [24:29]

AL: Where did that number come from? I think thats a really important question because
here we have the market saying OK, theres a $0.04 on the dollar recovery if youre buying
at this exchange. I mean, I think that that kind of proves the point that youre making, right
Peter? [24:42]

PE: If I remember correctly and, in this case... Im usually not, but in this case Im quite sure
that $0.40 was the number that was derived from the past cycle of defaults which is really
quite a specious basis because youre talking about different companies and the different
state their balance sheets are in. Certainly, the nature of the financial crisis in 2008 was
very different than what we had between say 1990-1992 or so, where we could go into a
whole discussion about past information and its bearing on the present day or in the future.
Thats where that number came from. The $0.40 number that was used as pretty much
standard in many of the credit/default swaps, at the time, turned out being, like I said,
much, much higher than it actually was. I have a feeling that in the next crisis, when it
inevitably comes, what well find is that the numbers being used from this time are probably
on the low side, but who knows. Again, who knows and I think thats the point. *25:36+

TS: Adam, since you guys are looking at the first application as Goxcoin, what other
companies do you think this could help out with? Do you think this could... even if you have
a firm thats not working in conjunction with a crypto-ledger or a crypto-protocol, maybe for
example, like RIM that make Blackberrys and so on. Theyre supposedly going to be going
bankrupt. Is there a way you could create a Blackberrycoin to help them organize their own
bankruptcy if they end up going through a horrible mess or is this only being able to be
applied to organizations that have completely gone... like you said, into turtle mode, this
barricade mode? [26:07]

AL: I think that its partly about the barricade mode and mostly its about... its just about if
its crypto or not. I think that really has a lot to do with it. You could have a Blackberry do
something like this but everybody would have to agree and having that happen seems kind
of unlikely. Its better that these solutions... once these are more developed and people
have seen them successfully succeed then, yeah, I think this will be viewed as a preferable
option to a lot of other options that are out there, simply because it never traps you. Thats
really the thing here. Were trying to give people options so that even if theyre not great
options, they at least have some options because theres nothing worse than being trapped
in a situation where you know that youre not only screwed but youre going to be for years.
Some people would just rather completely get out of that, even if it is just a couple of
pennies on the dollar so they cannot have that stress in their life. Again, Im not saying
thats right or wrong. The point is that we dont know whats going on now, we dont know
whats going to happen in the future and this is the only solution that doesnt require us to
know either of those things in order to still make a good decision. [27:04]

TS: Basically, all you can do with this nebulous framework. Speaking of which, David,
maybe the listeners would like to know a little bit more about how the protocol actually
works with this. I understand you guys are issuing one-time only Goxcoins. How does your
protocol keep track of these? The transparency side might be something listeners may be
interested in. [27:25]

DJ: Let me give you a little background on the Master protocol. Master is actually an
acronym for Metadata Archival by Standard Transaction Embedding Records and thats
literally exactly what the protocol does. Its embedding records using standard transactions
into the Bitcoin blockchain. These are actually Bitcoin transactions but theyre not regular
Bitcoin transactions. Theyve got a little bit of metadata attached and so the software,
when you download Master protocol wallet or client, can say Oh, thats not a regular
transaction, thats a Mastercoin, or thats a Goxcoin, or thats a Storagecoin or whatever
user currency a person is identifying. Basically, were using Bitcoin as a cryptographic ledger
and that sort of adds a lot of value to Bitcoin in itself. Right now, the two major values for
Bitcoin are the payment network and a store of wealth but its also a great cryptographic
ledger to store records of valuable financial assets. This is sort of a really good example of
that. The way that the Master protocol works is people can issue user currencies on top of
it and basically, what theyre doing is theyre just getting an identification number for this
particular currency. Lets say this gets issued as the 3
rd
user currency on the Master
protocol. The beginning of that metadata would identify it as a number 3 user currency and
so it could be identified as this is a Goxcoin. This can be done without any changes to the
Bitcoin protocol. This works within the standard transaction architecture for Bitcoin and I
think this is a really important use case for Bitcoin because I think it adds an enormous
amount of value to be able to transfer financial assets on the ledger and not just things over
the payment network and not just holding bitcoins as a store of wealth. I think thats sort of
the third great use case that were going to see for Bitcoin, is this general ledger that stores
this information. The Master protocol all its doing is interpreting that data. Its a
standard by which were interpreting that information. All of the records are just as
transparent as the Bitcoin ledger so you can see the coins moving back and forth from
different addresses, as people move them but, just like Bitcoin, its pseudonymous where
theres no personally identifiable information attached to the transaction. Its just numbers
going back and forth. Its transparent in the sense that we can see funds moving around
and we can see what people are trading them for. If theyre using the Master protocol
distributed exchange, they can actually offer these tokens for other tokens, for Bitcoin or for
Mastercoin or for other cryptocurrencies and trade them on the Bitcoin ledger itself, then
you dont have any third party, or other exchange that you have to trust. Those are records
that are all kept on top of Bitcoin. Thats sort of just a general overview of how it works. Its
still in the early stages. The protocol was launched about six months ago, the distributed
exchange is in testing right now and will be launched later this month and the user
currencies are in development too. This is all sort of just becoming possible, on the
technology side and I think thats why were seeing this as the first time people are
proposing to use it. [30:55]

AL: That was why we pulled in Mastercoin is because there are several other protocols that
are all going to offer similar options but the reality is that Master protocol has the stuff
ready, they have white label wallets, so if were ready to go on this from the Gox side, then
were going to be ready to go on this from the technology side and that wasnt true of any
other protocol we were really looking at. [31:15]

TS: Youre right. My own research is that I understand that with whos ready and whos
not. Peter, how do you think the adoption and the financial industry would be towards
something like using this in a financial institution? For example, some people Ive spoken to
think you could use a crypto-ledger internally to track assets of large financial institutions. If
you did have some kind of bankruptcy like this or some kind of horrible failure and maybe
combining with what Adam said, the reason this can work in this situation is because MtGox
was using cryptocurrencies. Do you think, in the future, if financial institutions would accept
this kind of ledger system internally, it could be used this way? Or, do you think theyre too
conservative for that right now? [31:57]

PE: To be honest, I think that this is a much better fit for financial institutions; better than
what seems like the straight forward use which is as a currency. I dont see many big banks
wanting to replace fiat currencies for any number of reasons (I wont get into all of them)
wanting to replace those with cryptocurrencies. However, I do think that there is a
potential application as an accounting tool and as a way of keeping track of contingent
liabilities and that sort of thing. [32:23]

TS: Going along this line just for a few minutes, if we could speculate with Lehman or Bear
Stearns, I know its obviously a long... six years ago, so its hard to gauge whether or not
they would have done something like that. If they had used a... their back office was using
something like this to keep track of... would that even have prevented the explosion of
these assets or would it have allowed them to liquidate better? Is there any advantage of
using this internally? [32:48]

PE: With respect to Bear Stearns and Lehman Brothers, it was two different situations. Bear
Stearns collapsed because of a crisis of confidence and I dont think there was anything,
whether in the fiat currency world or in cryptocurrencies that would have saved them. With
Lehman Brothers, the problems came about... there was also a crisis of confidence but also,
they were unable to roll their paper, their financial paper and because of that, they faced a
liquidity crisis. To the extent that cryptocurrencies might, for example, help them to, I
guess, gauge their credit worthiness on the street, if it was more responsive than say
credit/default swaps or something like that, it would be helpful. I think, for right now,
cryptocurrencies are probably a better fit, in terms of accounting than in terms of use as an
actual currency for big banks and large financial institutions but, in this particular case, its
more after the fact. I think this is much cleaner and more straight forward than, say, the
going to courts and all the different types of claims that have to be filed and all that sort of
thing. [33:57]

TS: I see. The whole accounting issue is really interesting, not an accounting coin but you
use it as a third party ledger that cant be abused. Adam, I know, part of the Humint
project, you are using different types of tokens, different types of issuance. How can you
see financial institutions, particularly exchanges or fiat banks of some kind, using some of
these kind of technologies internally? Do you see them have any motivation or incentive to
adopt something like this so that way they could interface with this growing cryptocurrency
eco-system? [34:30]

AL: I think that what were going to see is that cryptocurrencies provide transparency,
pseudonymous transparency in a way that weve never had a financial technology be able to
do before. Literally, you can completely open the kimono and see all of the flows, without
seeing the specifics of it and therefore, being able to ascertain the exact business practices.
The potential for companies to embrace this and to demonstrate solvency, essentially, by
putting themselves out there but yet not exposing their private business, just exposing how
the flows are going and then, in fact, they do have the amounts of money they say they
have - I think thats a huge opportunity. The first companies that opt to do it, itll be hard
but the dividends will be there for them. There will never be concern that they are
insolvent. There will never be concern that money is being spent in a way that doesnt
make sense with what their reported uses are because the flows are right out in the open.
[35:20]

TS: Yeah, true transparency for the first time, right? Well, it was great having all three of
you here today. Listeners, if youre interested, be sure to check out the Humint project as
well as the Mastercoin protocol Google those. I look forward to talking to you guys,
thanks a lot. I appreciate your time. [35:34]

AL: Thanks Tim. [35:35]

DJ: Thanks Tim. [35:35]

PE: Thank you. [35:36]


______________________________________________


ADVERT:

This is Chris Joseph bringing you news on Nxt, the first true second generation
cryptocurrency for March 4
th
2014. One month earlier than planned, the Nxt project has
gone fully open source. An early version of the source code was released on January 3
rd
but
since then, the code for Nxt has been completely refactored and rewritten. This
announcement makes the current development stream completely open, including code for
transparent forging, asset exchange, aliases and the arbitrary messaging features. All of the
source is hosted on Bitbucket and you can access it through this shortened URL bit.do/Nxt.
In other news, keep an eye out for Nxt at the Texas Bitcoin conference. The community has
several pairs of boots on the ground and would love to chat. For more general information
on Nxt, head to www.Nxtcrypto.org or www.MyNxt.org and stay tuned for more news on
Nxt in the next Lets Talk Bitcoin broadcast. *36:45+


____________________________________________


Stephanie Murphy interview with Johnathan Turrell

SM: This is Stephanie Murphy for Lets Talk Bitcoin and Im here today talking with
Johnathan Turrell. [37:07]

JT: Hi there. [37:07]

SM: Hey Johnathan. [37:08]

JT: Hello. [37:09]

SM: Welcome to Lets Talk Bitcoin. Youve got a company called MetaLair and youre
working on a decentralized cryptocurrency exchange, not just for Bitcoin but for some other
cryptocurrencies and fiat. Can you tell me about that? [37:21]

JT: Yeah, its coin agnostic so any coin that uses a blockchain-like data structure, were
ultimately hoping we can support then will be able to be transacted on the exchange. Its a
two-stage development. At this stage, were looking at the crypto to crypto side of things so
youll be able to exchange cryptocurrencies cross blockchain. The latest development of it is
going to be aimed at a decentralized part of the system, whereby you can get fiat onto it, via
an open interface so anyone turn up as a reseller or an escrow and then enact Bitcoin
transactions for fiat or any other cryptocurrency for fiat on the decentralized exchange.
[37:53]

SM: OK and you are based out of Brighton, UK but it sounds like what youre talking about
with MetaLair, this is going to be a global thing? [38:01]

JT: Absolutely, I mean, once the exchange is launched, were not in charge, I mean in the
way that Satoshi is not in charge of Bitcoin itself. Weve got offices here at the University
with which were loosely affiliated but once its actually launched as a product, it will be
totally open source and it will be its own entity that sits on the internet. So much so, that in
the distant future when new cryptocurrencies are launched, we dont have a say in which
ones get selected on there. There will be a proof-of-work mechanism whereby those are
added to the MetaLair exchange itself, or indeed selected off if currencies become unused
or become very quiet over a period of time. [38:34]

SM: How do you accomplish a totally decentralized exchange where there is nobody even
in charge deciding what kinds of things are exchanged on the exchange? [38:43]

JT: The exchange itself deals with cryptocurrency or fiat. There is a proof-of-work
mechanism whereby new currencies are... whether they be cryptographic or fiat, are added
to the exchange. When it launches, it will be seeded with (Im picking some coins here)
Litecoin, Bitcoin, the most popular ones and US Dollars, GBP, Euros and things like that.
[39:01]

SM: What is the proof-of-work? [39:02]

JT: Say Ive launched a new coin, Johnathancoin and I want to get it on the exchange, I
would have to pay in a currency thats specific to that exchange, to have it added onto the
exchange and then once payments have reached a certain amount, thats then added onto
the exchange and its selected on to it. Like Ive said, if it becomes that the volume of that
currency thats been transacted is low, it will selected off of the exchange in the distant
future. [39:24]

SM: Oooh. [39:24]

JT: There needs to be a cost to prevent that, to prevent people... for example, if I wanted to
DDOS the system, I could just put hundreds of spurious requests onto the network and say
Im going to add a thousand different coins now and it would completely attack the system,
basically, and bring it to a halt. Its a way of mitigating Sybil and DOS attacks that can be
launched against the system. Weve been very careful about making sure, the way its
designed, that there is a cost in doing everything. A bid/ask has a cost, transactions have a
cost, adding a new currency if you want to get your currency elected on, that has a cost.
Indeed, in fact, logging on as an escrow to transact fiat has a cost. Weve been very careful
about making sure that the network itself is set up correctly using proof-of-work so that
there arent the ability to Sybil attack it, basically, or DOS it. *40:09+

SM: Would the cost for different operations on the exchange, such as adding a currency
pair, or logging on, or creating a bid/ask, are those determined by a market mechanism?
[40:19]

JT: We havent decided at this stage but it will probably be a float, so it will be based on the
volumes being transacted because youre paying in, effectively, a currency to enact things
on that blockchain so it will be a percentage, say, of that currency thats currently in
circulation. [40:32]

SM: Is there going to be somebody deciding that, basically, theres not going to be a group
of central planners? [40:38]

JT: It will be an algorithm that decides it... [40:40]

SM: Right. [40:41]

JT: ...in the way that the blockchain... the Bitcoin network itself, adjusts its difficulty.
[40:45]

SM: Right. [40:45]

JT: The MetaLair exchange will decide what the cost of adding a coin, at any particular point
in time, is. [40:51]

SM: Give me a picture of how you see this working. You said, in the beginning, that this
could allow, basically, merchants and different points in the physical world to... [41:01]

JT: Yeah, Ive probably started in slightly the wrong place with this but I think the best point
to start would be to get an understanding of how one would transact cross blockchain. At
the moment, I dont know if you know what a double-spending attack is? [41:12]

SM: Yes. [41:12]

JT: I would put a spurious transaction that I dont intend to honor onto the network. I
would secretly mine on a separate network with more hashing. What this network does is it
looks at a transaction thats gone onto... when two users meet, who want to enact a bid/ask
to say Im swapping Litecoin for Bitcoin, we would agree a certain number of
confirmations that were going to take place. The network then locks each transaction into
an MofN transaction. You and I can agree that gets locked away. The network acts as the
escrow, in that instant and it watches to see how many transactions weve agreed on. Say
its twenty for Bitcoin and forty for Litecoin - when those confirmations have been met it
then releases the funds to each party. If a double-spending attack occurs, it refunds them to
each party so it can reverse... obviously, youre not reversing on the blockchain but you are
refunding that balance back to the individual. Yeah, its a secure way of proofing against
double-spending and enacting a transaction crypto to crypto cross blockchain. There are
actually a couple of other ways were doing this but theyre a bit complicated and I dont
want to go into them. Effectively, thats the first mechanism. It lets you transact crypto to
crypto. [42:14]

SM: With that multi-signature transaction feature, most exchanges right now that are
centralized do this but they dont do it in the same way that you do it, right? With yours, its
pretty much built in to the... [42:27]

JT: Yeah, there is effectively, you could almost call it, an agent or an algorithm thats
running on the network that does that. In that, say, Gox or someone like that holds your
funds and has the promissory that they will pay you Bitcoin or Dollars when you come to
withdraw, that doesnt happen in this instance because your coins are held on the
blockchain and then released. No one is holding your coins; theyre locked on the network.
You cant lose your coins. In fact, worse case, if there was, say, a nuclear war or something
like that, in the middle of doing a transaction because its MofN, you can actually find the
party you were transacting with and recover your coins at a later point, even if the network
itself goes down. Its quite a well-designed redundant system that weve got here. *43:02+

SM: Yeah, thats amazing. I think that brings up a great point because with centralized
exchanges, there is this tendency to say Well, were going to, basically, create an interface
that shows something to the customer that looks like you have this amount of bitcoins, or
this amount of dollars, or litecoins in your account but you really dont. Its really being
stored kind of behind the scenes, perhaps... perhaps in cold storage. [43:28]

JT: Absolutely. Its not transparent and it could be even fractional reserve behind the
scenes, you dont know that. You dont know that the promissory that youre seeing on that
screen is actually something that youre going to get out at the end of the day. *43:37+

SM: Exactly. There is, I think, a big temptation once an exchange starts to do that, its not
too far off for them to think Well, we can just do some fractional reserve stuff. With
MetaLair, this is not possible, is that right because every... [43:49]

JT: Absolutely, yeah. [43:50]

SM: ...everything is completely transparent? Its all happening on the blockchain and there
is no central authority to, actually, take any of those coins and do anything with them that
nobody can see. [43:59]

JT: Exactly. You can see all the transactions that are occurring across the two blockchains
that youre using and everyone involved in that transaction can see it, so its totally
transparent. [44:07]

SM: Does MetaLair make any kind of profit off of this or does that come from... [44:12]

JT: There is kind of an altruistic element to this in that once its launched, that product... in
fact, the design of it cant work unless it is completely open source. Weve not shot
ourselves in the foot, so to speak, but there has to be another revenue model that sits
alongside that. The way were working it, at the moment, and this is very much dependent
on the investor that we go to market with, is that the wallet itself is an interface to multiple
balances that you may hold, so its a multi-currency wallet. Weve also talked to another
couple of other companies whove come to us. When we first went in the media, quite a
few people came up to us and they said Well, were actually looking at offering futures
contracts or other financial products using alt currencies and cryptocurrencies. What we
would provide, on that interface, is the ability to download a module. You then get that,
say, a futures contract service and by buying through us, we take a percentage cut of it.
Thats the business model of it on the side. At the same time, the wallet software is totally
open source so other people can go and take it and do their own thing with it. Were hoping
that we will become a large and fairly economical wallet for multi-cryptocurrency
transactions. As a result, well have a large user-base and thats where the business model
is. [45:15]

SM: Right. The value I see in this is that it sounds like its simple. Youre doing something
that a lot of other people have tried to do or said that theyre going to do but they want to
do all this extra stuff on top of it too. [45:28]

JT: Theres an awful lot of... and this is just human motivation... everyones launching their
own cryptocurrency. They say its a decentralized exchange but, actually, all of these
different exchanges are just doing Coloredcoins locally on that blockchain, which is, again,
its linked to an asset or something like that. Also, theres an element of pre-mining.
Everyone sort of needs to go Well, how do I make a profit out of this. Weve been very
careful about making sure that there is no pre-mining in our system. Once its out there,
were not benefitting from the system itself, were benefitting from the wallet that links to
it. [45:53]

SM: I could imagine that there are a lot of savings in the potential security costs if youre
not having a centralized exchange where youre storing peoples coins somewhere, or
storing peoples fiat somewhere and then, of course, youve got to secure that against
governments which isnt always possible. If you dont have to worry about any of that
because you are not, actually, holding anything and its all being held on the blockchains,
then that really kind of... sounds like it frees up your resources to concentrate on some
other things. [46:21]

JT: Absolutely. Weve purposefully kept our business footprint, if you like, small. The
development team thats needed to support this and the wallet, once its launched, is not
going to be many developers at all. In fact, I dare say we will probably have more people
involved in marketing and pushing the stuff around and doing the website than we will in
the actual development of the software, once its up and running. Its a deliberately small
footprint and it reduces, currently, all kinds of issues around legislation, holding funds etc.
All of that is then down to the responsibility of the individuals using their wallet. It keeps
the business itself quite streamlined. [46:50]

SM: Just a multi-currency wallet, by itself, is a really cool thing. Would this be like a web
interface or would it be something that somebody could download to a computer? [47:00]

JT: At this stage, the wallet is... there are many ways we can cut it. There could, potentially,
be a web interface but again, youd be looking at a central party whod be hosting that
which may (??) [47:09]

SM: Right. [47:09]

JT: There is certainly going to be a software client, depending again on the kind of investor
we go with, were looking at it for Android, tablet, laptops, desktops and things like that. I
mean, one of the things that were very keen on, as well as (?? whole) web wallets, I think,
ultimately, you cant get true security on wallets, per se, until they shift to the hardware
level but thats sort of a few steps away from us. First of all, we need to get the exchange
up and running and then well look at moving to, possibly even partnering with some kind of
hardware wallet provider. [47:38]

SM: Youre thinking really big there. *47:39+

JT: Well, thats further off. Right now, were concentrating on the crypto to crypto side of
things. The crypto to fiat and also the wallet side of things as well, which we have derested
in the last year. [47:50]

SM: To make a multi-currency wallet thats something that hasnt been done before on a
software level. There have been web interfaces but its really not what youre talking about
which is something where you, actually, have full control over all those wallets with
different cryptocurrencies that are included in there. How do you even begin to code
something like that, thats adaptable and can add and drop different cryptocurrencies based
on these market mechanisms of whether people add them or take them away from the
exchange? [48:19]

JT: This is why we need to be very careful about what currencies get added to the
exchange. Like I say, when it launches, it will be seeded with certain currencies and again,
the part of it, the specifics of how the software wallet will actually work, or work in progress
but we believe, at this stage, its going to be a module you would download per currency,
for example. Your wallet is, basically, as large as it needs to be to support a relevant
currency. There is also a way, certain ways, to keep the actual blockchain data size that you
need to locally reduce. Were looking that as well. Like I say, I think the majority of these
are reasonably well solve problems, at this stage. Its more the exchange side of things that
were focusing on. *48:53+

SM: Does the Bitcoin blockchain or the Litecoin blockchain need to be pruned before this
can be accomplished or do you think you could do it at this stage? [49:00]

JT: I dont know but I know its a solve problem but, in terms of how we would address that
locally on a wallet, there are a number of ways to do that. [49:08]

SM: It sounds like there is some pretty serious coding going on in this. [49:11]

JT: Yes, in fact, it seems tautological but the cross blockchain exchange stuff was fairly
difficult but a proof-of-work mechanism for selecting which cryptocurrencies are brought
onto the exchange was reasonably straight forward. The hardest part is actually not coming
up with a bid/ask mechanism, whereby users cant maliciously span the network with
bid/asks they have no intention of completing. Again, weve come up with a solution to
that. [49:35]

SM: As far as getting fiat into this decentralized exchange, can you paint a picture of how
you think that might work? [49:42]

JT: Yes. The second part of the exchange... the fiat to fiat side, I think Ive covered enough
but in terms of a fiat to crypto side of it, there would be an open interface whereby users
can sign up there will be a cost entailed in that, which we havent quite finalized, again,
paid for through proof-of-work. Once theyre on there, they would receive a rating a bit
like an EBay seller rating and there is going to be a web of trust system in there as well. You
would be able to use recommended sellers, so recommended escrow, with a rating, to
handle your fiat when youre exchanging on the exchange itself. As everyone knows, you
can transact Bitcoin very easily on the blockchain as it doesnt involve a third party but
whenever you transact in fiat, you have to go via an escrow. [50:21]

SM: I know the escrow is mediated by the decentralized exchange itself but what about the
data that tells people who is trustworthy, whos a trustworthy seller or whatever? Is there
some way to incorporate that into the blockchain? [50:38]

JT: There may be information that people can provide about themselves but as you know,
in the world currently, there is no cryptographic proof to show that somebodys scan of a
passport is genuine. [50:46]

SM: Right. [50:48]

JT: The way that this mechanism actually works is there is a cost in signing up as an account
and then the account becomes more valuable the more transactions youve enacted on it.
Nobody would want to spuriously go and damage an account based on the costs for them to
getting that account to the status that its in. Basically, youll end up with a system where
people in their bedroom in India to large, well known household trusted names will be
signing up and acting as an escrow service and then youd take your pick of those based on
their current rating that theyve got on the network. *51:12+

SM: Does this effectively mediate fiat to fiat exchanges as well? If somebody wanted to...
lets say, Im in... [51:20]

JT: That were not supporting. (Laughter) *51:21+

SM: ...but youre not supporting. *51:22+

JT: Were not supporting that, no. We may but, at this stage, its not on our development
path. [51:26]

SM: Whats to stop somebody... if Im in Argentina and Ive got some pesos that I want to
exchange into dollars, if I go to a merchant and I buy some bitcoins and then I immediately
sell those bitcoins for dollars... you know. [51:40]

JT: Yes, yes. You could do that indirectly but... sorry, I should be more specific. The
exchange itself wont support a fiat to fiat transaction but in a two-step stage, you could
indirectly go fiat to fiat. Yes, you could definitely do that. [51:51]

SM: How close is this to launching? When do you think that some of the functionality
might be... [51:55]

JT: At this stage, were talking to investors. We are talking to some who I wont name
because were actually under non-disclosure but if we get the right investors onboard, it
could be very big for us in terms of, its a good matching of a relationship between two
parties. The entire development is derest at this stage, weve got modules that work, were
ready to produce an alpha cut which I reckon is probably three to six months work,
something like that, depending on the development team we get onboard. We are (??
bottleneck) investors, as ever, I dont know if anyones gone down the path of investment
it can slow things down just talking with investors. We were hoping to go the donations
route but its not been... the donations werent as strong as wed hoped theyd be. Were
very much reliant on investors and our partnerships with other companies, at this stage.
[52:35]

SM: Can you say any of the other companies that youre partnered with? *52:38+

JT: Were not actually partnered with anyone specifically yet but we are in negotiations
with a couple of entities who could be very interesting if they come onboard. [52:46]

SM: Are you looking for people to join your team or development team? [52:49]

JT: Absolutely, yeah. Were looking for developers, particularly people who are strong in
cryptography and who, actually, understand Bitcoin, Merkle trees, proof-of-work and things
like that, to quite a high level. If anyones out there whos interested, please do contact us.
As ever, were looking for investors and donations as well. *53:03+

SM: Im just kind of thinking about all the implications of the first decentralized exchange
because, to me, it seems like you could, potentially, be the first because this might be
happening in a couple of months. [53:14]

JT: Yeah. [53:16]

SM: If you get the investors. [53:16]

JT: If things go right, it could definitely be happening an alpha and possibly even a beta
could be out there soon if things move as smoothly as I hope that they will. [53:22]

SM: If theres a decentralized exchange going on, how does aggregate price data come out
of that? I think we could see, pretty easily, what crypto to crypto trading... what prices were
coming in for that but what about fiat to crypto trading? [53:40]

JT: The way the data structures are stored in the system is its ratios of what currencies
were exchanged to what per and then theyre blocked off in units of time. There are direct
relationships between... say I swap bitcoins for dollars, I know, in a transaction that actually
happened. That many bitcoins were swapped for that many dollars and if that formed, say,
two sides of a triangle, Bitcoin/Litecoin and Bitcoin/Dollars, you can then infer a cost
between Litecoin and Dollars. The exchange logs information of exchanges that have
actually happened and also it can then infer secondary information of the exchanges that
have happened. There are several ways to pull information out of this decentralized system
to get an idea of how price is varying with time. [54:18]

SM: This data could be really interesting because with a decentralized exchange... I think
anybody whos looked at Bitcoin prices over the lifetime of Bitcoin has noticed that with
different exchanges, the exchange rates with fiat are, actually, different because there is a
difficulty and a cost of getting fiat money in or out of the exchange and there is a difficulty
or a cost of using the exchange and so, the prices end up different. I think if there was a
decentralized exchange that was truly decentralized, maybe wed see a little bit more truth
in the data that tells us... [54:56]

JT: I mean, a dollar on Gox is worth less than a dollar on BitStamp and we all know why that
is because of the withdrawal times. [55:01]

SM: Exactly. [55:02]

JT: Yeah, youre absolutely right. There is a discrepancy between it and the Bitcoin
community can treat the MetaLair exchange prices as another benchmark or the
benchmark. I dont know, I guess its another exchange thats in the mix. *55:12+

SM: Yeah, exactly. Right now, we sort of have these aggregators that pull data from all the
different exchanges and weight it by the volume on each exchange but with MetaLair, that
might be the gold standard in terms of price discovery because there are not those
extraneous factors to worry about with centralized exchanges. [55:32]

JT: Yes, yes. That would be a very nice thing for us to have if it did become the gold
standard. The key thing is here that there is no absolute pricing thats relative to the
exchanges that were made, at any given instance in time, and thats what logged to the
system. [55:43]

SM: Yes, absolutely. [55:45]

JT: Again, that comes down to proof-of-work because youre only logging the transactions
that have been paid for. Anyone can spuriously make up some costs but its only once there
has been a cost entailed and the transaction has actually happened and fees have been
spent on doing that which cant be got back, then thats logged as an actual valuation.
[56:00]

SM: I was just wondering if any of the fees that a user would pay to do something on the
MetaLair network, do any of those fees... kind of like Bitcoin mining and transaction fees...
[56:11]

JT: Yes, there are a system of miners on there that are doing something a bit like mining
that is securing the network and making sure transactions happen. They are also receiving a
reward on that process and its securing the network cryptographically from a proof-of-work
point of view. Yes, there is a process within that and that will all become clear when we
launch. The key thing about designing this is its got to be, from a proof-of-work point of
view and cryptography point of view, its got to be sound under the bonnet. Its got to be
very, very simple to use on the surface. All financial systems, going back to the 1600s, if you
look, they had... in fact, they used to use shipping chits for the East India Company and they
were very easy to forge but they were very convenient. Selection has always favored
convenience with financial systems so weve made sure that, like Bitcoin, our exchange
system, when people come to use it, is very simple to use and under the bonnet its as
complex as it needs to be but its also secure as a result of that. *57:00+

SM: Could anybody participate in contributing to the MetaLair network? [57:04]

JT: Absolutely. I mean, were going to have, basically, for want of a better word... were
going to have miners and stuff like that come on the network and they can use different
types of hashing algorithms and they are going to be enforcing. There is a blockchain data
structure that logs a lot of the transactions that are happening and they will be involved in
making sure that thats kept up to date, for each block thats generated and for the
transaction records as theyre kept on the exchange. They will be receiving rewards for
doing that. [57:27]

SM: Oh, great. Thats what I wanted to know. *57:29+

JT: Yeah. Im trying to skirt around it a bit but thats basically the gist of how it works.
Again, there will be miners, for want of a better word, on the system; people enacting things
and other stuff on there that doesnt look too dissimilar to Bitcoin in some respects, but is
also an exchange. [57:44]

SM: Johnathan, I really appreciate how youre able to talk about this in a way that I can
understand without a technical background. How did you get this idea and why did you
decide to do this? [57:54]

JT: My background is artificial intelligence and computer science. I run a company that
does a sort of high-end networking for government and institutions like that. A good friend
of mine, who works in the University, runs another company. He, in fact, set up a virtual
world company to do economics in virtual worlds and we struck up a conversation about
this in December 2012. We were looking at meta approaches to dealing with different
blockchains and aggregate and we both went away and came back and said... we both met
each other and we both had an idea and we talked and realized we both had a fairly similar
idea, actually. Obviously, seeded by the conversations wed had previously and after quite a
number of technical discussions, this emerged and its been quite a lot of work and actual
coding to check that our functional ideas to implement well. [58:37]

SM: Yeah. [58:38]

JT: Weve got to a stage now where were saying Yes, this works and has legs and were
now looking for investment and we want to implement it. Its been the work of myself and,
in fact, this chap is called Kerry Fraser-Robinson and you can see him on the website. Were
looking for investment, at this stage. We think weve got it to a point where its been
worked through sufficiently. Weve both got backgrounds in computer science that its a
robust design. [58:55]

SM: I dont doubt that you have a background in AI but what was your motivation for it?
Do you want to free the world with a decentralized exchange? Tell me about that. [59:03]

JT: I dont know. I guess I get irritated by the way governments treat their currency and
they have the issuance of fiat and things like this. In a kind of nerdy way, Ive always been
very interested in fractional reserve banking and other systems. In 2009, I briefly dabbled in
writing a sci-fi novel and I came up with a form of centralized currency but it had a system of
mining and it had a system of network difficulty to adjust the rate of coin generation based
on the current rates of interest in that environment, at a given time. This kind of... when I
discovered Bitcoin, a few years later, I was thinking this is the idea I had but so much better
and, in fact, the time I found out about it, I took all my savings account and moved into
Bitcoin and I ran around and told my friends and family about it and they thought I was nuts.
Here we are, a couple of years later... [13:56]

SM: (Laughter) Theyre not saying that anymore. *59:48+

JT: I have an altruistic bent. I think, this is very much in line with stuff Ive always been
interested in so it just sort of fits naturally with me, I guess. [59:54]

SM: This is a big enough project, right? Youre doing a decentralized exchange and a multi-
currency wallet and combining those two but do you have any other pie in the sky ideas that
could, potentially, be things that interface with the decentralized exchange, or like other
layers that could be built on top of it? [1:00:10]

JT: Weve got some sort of improved 2-factor authentication ideas for software wallets and
things like that but theyre still a work in progress. To be honest, I have to be quite
disciplined with myself and focus on one project at a time. This has, very much, had my
attention for the last couple of months and Im trying to make sure I dont get distracted
with other ideas. [1:00:28]

SM: Yeah, that makes sense. [1:00:30]

JT: Yeah. Ive been fairly strict in that respect and Id say that this has been my main focus.
[1:00:35]

SM: Right and you did mention the hardware idea and I think thats a cool idea too.
[1:00:38]

JT: I think we probably will be working with a hardware manufacturer or supplier as and
when we get to that stage, if we get to that stage to develop a hardware wallet because I
think one of the last security problems with Bitcoin is that all software wallets, it doesnt
matter where you put them, are fundamentally insecure in that people can just log your
keystrokes and see whats going on. I think the hardware wallet is a step change in
mitigating that. [1:01:02]

SM: Johnathan, any else you want to add? [1:01:05]

JT: At this stage, no. I mean, please everyone come check out the website. If you want to
donate, do and Im hoping well have some news in the next couple of months for
investment and will be able to, actually, make an announcement when were launching.
[1:01:17]

SM: Your website is www.MetaLair.org [1:01:23]

JT: Thats it, yeah. *1:01:24+

SM: You can also follow MetaLair on Twitter which is how you and I met. Check it out. Im
very excited about your project and I cant wait to hear an update, hopefully in a couple of
months. Good luck with everything Johnathan and thanks for chatting with me today.
[1:01:36]

JT: OK Stephanie, thanks very much. [1:01:38]


__________________________________________________


CREDITS:

Thanks for listening to Episode 89 of Lets Talk Bitcoin.

Content for todays show was provided by David Johnston, Tim Swanson, Pete Earle,
Stephanie Murphy, John Turrell and Adam B. Levine
This episode was produced by Adam B. Levine and edited by Denise Levine, Matthew
Zipkin and Adam B. Levine
Music for this episode was provided by Jared Rubens and General Fuzz

Any questions or comments? Email adam@letstalkbitcoin.com.

Have a good one! [1:02:05]